St George Bank v Meredith; Ghabrial v Meredith

Supreme Court of NSW|2017-06-26|Before: Parker J

Solicitors: WKA Legal Pty Ltd (Ghabrials) Kemp Strang (International Acceptance) Hall Partners (the Estate) File Number(s): 2014/312804; 2016/89086 Publication restriction: Nil

Issues for determination

As at the date of the sale of the property, the La Fontaine Estate had the benefit of a registered second mortgage. It is common ground that any debt secured under that mortgage, to the extent enforceable, prevails over all other claimants. However, the enforceability of the debt due to the Estate is disputed by IAPL, the Ghabrials and Mrs Meredith. Judgment is not sought against Mrs Meredith personally, and it is clear that if the debt greatly exceeds the surplus, there is no need to go into any debate about the recoverable quantum of the debt.
The Ghabrials and Mrs Meredith accept that IAPL's claim comes next in order of priority. Neither party disputes IAPL's debt, which is now represented by a judgment. IAPL also claims interest and costs, and there is a question about whether it may have recourse (assuming that the Estate's claim fails) to the surplus for this purpose.
The Ghabrials' claim comes next. However, Mrs Meredith disputed the Ghabrials' claim and I must therefore satisfy myself both that Mrs Meredith is indebted to the Ghabrials as they claim in the 2016 proceedings, and that the Ghabrials are entitled to security for that debt over the Woronora property as they claim in the 2014 proceedings.

Claim on behalf of the La Fontaine Estate

The solicitor for the Estate characterises its claim to the monies in Court as one made under the Real Property Act 1900 (NSW), s 58(3), which applies where a mortgagee, chargee or covenant chargee of real property has exercised its statutory power of sale under s 57. Section 58(3) provides: The purchase money to arise from the sale of any such land, estate, or interest, shall be applied, first, in payment of the expenses occasioned by such sale; secondly, in payment of the moneys which may then be due or owing to the mortgagee, chargee or covenant chargee; thirdly, in payment of subsequent mortgages, charges or covenant charges (if any) in the order of their priority; and the surplus (if any) shall be paid to the mortgagor, charger or covenant charger, as the case may be.
Equity also imposed on a mortgagee holding surplus funds following the realisation of the security a fiduciary obligation to account to the persons entitled to those proceeds. That equitable obligation continues to co-exist alongside the obligations created by s 58(3) with respect to land under the Real Property Act. The obligations on a mortgagee holding a surplus under s 58(3) and in equity were authoritatively considered by the High Court in Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 and by the Court of Appeal in Residential Housing Corporation v Esber (2011) 80 NSWLR 69. The leading judgment in the Court of Appeal was given by Campbell JA. Sackville AJA agreed in the result, but would have preferred to reserve consideration of some of the points addressed by Campbell JA. However, Macfarlan JA agreed with Campbell JA and I must therefore treat his Honour's judgment as definitive.
A mortgagee holding surplus funds does not discharge its obligations under s 58(3) merely by paying the entire amount of surplus funds to the person next entitled. Rather, s 58(3) requires that the payment be made to the parties listed in the statutory order in accordance with the amounts actually due to each party: Residential v Esber at [105]-[109]. The interests listed in s 58(3) are statutory (registered) interests: Residential v Esber at [99]. But a mortgagee on notice of equitable entitlements and priorities outside the statutory order will be required to account accordingly: Residential v Esber at [165]-[166].
In the present case, SGB, as first registered mortgagee, was subject to s 58(3). SGB was required by s 58(3) to account to the next registered mortgagee, the La Fontaine Estate, but only to the extent that monies were due under the mortgage. To the extent that the surplus was not subject to the La Fontaine mortgage, SGB was prima facie required to account to the next registered interest holder, which was Mrs Meredith (neither IAPL nor the Ghabrials having a registered interest). However, because SGB was on notice of the claims by IAPL and the Ghabrials, equity required that before accounting to Mrs Meredith, SGB should first account to IAPL, and then the Ghabrials, to the extent that monies were then due to them.
IAPL's contention is that the debt owing to the La Fontaine Estate is statute barred. The effect of the Limitation Act 1969 (NSW), s 63, is therefore said to be that any entitlement the Estate may have had to the surplus monies has been extinguished.
The Estate's position is that the question of whether its claim is statute barred is to be determined at the time SGB went into possession of the Woronora property, or alternatively, at the time when SGB received the sale monies. The Estate contends that its debt was not statute barred at that point. In particular, the Estate contends that the evidence shows an acknowledgement as late as November 2002 and accordingly the debt owed to it by Mrs Meredith was not statute barred before November 2014. On this basis, the Estate contends that it has a claim under s 58(3) which is within time.
IAPL disputes this analysis. IAPL contends that the question is whether, at the time the Estate made its claim to the monies in the 2014 proceedings, the Estate was statute barred as against Mrs Meredith. IAPL disputes that there was an acknowledgement as late as November 2002, but on IAPL's argument, even if there had been, any claim against Mrs Meredith was statute barred by January 2015, when, so IAPL contends, the Estate's claim was commenced.
The first question in resolving the Estate's claim is therefore which of these analyses is correct. For this purpose, it is necessary to determine the true nature of the Estate's claim in the 2014 proceedings.
If the Estate's analysis is correct, then a second question arises as to whether the claim was statute barred when the power of sale arose, or alternatively when the funds were received.

Estate's claim in the 2014 proceedings

At the time SGB commenced the 2014 proceedings and paid the surplus monies into Court, competing claims had been made on behalf of the La Fontaine Estate and by IAPL, the Ghabrials and Mrs Meredith. In such a case it would be common to use the interpleader procedure available under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") Pt 43. However, the proceedings were instead commenced in reliance on Pt 4 of the Trustee Act 1925 (NSW) which applies to monies held by trustees.
The proceedings were commenced by Summons filed on 24 October 2014. The Summons named SGB as plaintiff, without naming a defendant. This was in accordance with UCPR Pt 41, which applies to proceedings under Pt 4 of the Trustee Act. In January 2015, a Notice of Motion was filed for Mr Eastlake seeking a declaration that Mr La Fontaine's mortgage was enforceable and an order that the monies be paid out to the Estate. At this stage Mr Eastlake had not yet obtained a grant of probate; probate was granted in April 2015.
Competing Notices of Motion for declaratory relief and orders for payment in their favour were filed for the Ghabrials (October 2015) and IAPL (November 2015).
In January 2016, a Notice of Motion was filed for Mrs Meredith seeking that she be joined to the proceedings as the defendant. This order was made on 5 February. On 22 February, written submissions styled "Defendant's Outline of Position" were filed for Mrs Meredith. In those submissions, Mrs Meredith admitted IAPL's claim but disputed the claims of the Estate and the Ghabrials.
All parties accepted at the hearing before me that the 2014 proceedings might have been constituted in accordance with the interpleader procedure. However, counsel for IAPL maintained that they had properly been brought under the Trustee Act and, as I understood his argument, the fact that they had been so brought had some significance in determining the nature of the claim made on behalf of the Estate.
The relevant provision within Pt 4 of the Trustee Act would appear to be s 95: (1) Where trustees, or the majority of trustees, have in their hands or under their control money or securities belonging to a trust, they may pay the same into court. (2) Where any money or securities are vested in any persons as trustees, and the majority are desirous of paying the same into court, but the concurrence of the other or others cannot be obtained, the Court may order the payment into court to be made by the majority without the concurrence of the other or others. (3) Where any such money or securities are deposited with any banker broker or other depositary, the Court may order transfer payment or delivery of the money or securities to the majority of the trustees for the purpose of payment into court. (4) Every transfer payment and delivery made in pursuance of any such order shall be valid and take effect as if the same had been made on the authority or by the act of all the persons entitled to the money or securities so transferred paid or delivered.
The Trustee Act contains definitions of "trustee" and "trust" in s 5. These are: Trustee has a meaning corresponding with that of trust; and includes legal representative and the NSW Trustee and a trustee company. Trust does not include the duties incident to an estate conveyed by way of mortgage; but, with this exception, includes implied and constructive trusts, and cases where the trustee has a beneficial interest in the trust property, and the duties incident to the office of legal representative of a deceased person.
Part 4 contains a further specific definition of "trustee" in s 99 which provides: In this Part trustee includes every implied or constructive trustee without any exception.
The effect of the definition in s 5 is that a legal mortgagee is not a trustee. A mortgagee under the Real Property Act holds a charge rather than a legal mortgage. However, that does not mean that SGB was a trustee. In order to fit within the definition SGB would still need to be holding the monies under an implied or constructive trust.
There are a number of situations in which a party having equitable fiduciary obligations is described as a trustee but only in a loose or metaphorical sense. Examples include company directors, company liquidators and partners: Clay v Clay (2001) 202 CLR 410 at 430-431 [41]: Federal Commissioner of Taxation v Linter Textiles Australia Ltd (2005) 220 CLR 592 at 611 [49]; Sze Tu v Lowe (2014) 89 NSWLR 317 at [113] ff. In Bofinger v Kingsway at 291 [50], the High Court reserved the question of whether a mortgagee who fails to properly account for surplus proceeds from a sale is properly described as a trustee in a "fuller sense" for those entitled. It must be remembered that the obligations are partly statutory, deriving from s 58(3), and only partly equitable, and that the equitable obligations relate only to non-registered interests of which the surplus holder is on notice. In the absence of authority, there would in my view have been much to be said for the view that, although a mortgagee holding surplus funds is subject to statutory and equitable obligations to account, such a mortgagee is not strictly speaking a trustee, constructive or otherwise.
However, although this was not raised in the course of submissions, the decision in Residential v Esber supports IAPL's contention that the proceedings were properly brought under Pt 4 of the Trustee Act. Campbell JA made it clear that a mortgagee holding surplus funds could bring proceedings under the interpleader procedure in UCPR Pt 43. However, he also stated that a mortgagee in the position of SGB could pay the monies into Court pursuant to Pt 4 of the Trustee Act. This was because a mortgagee holding surplus funds was a constructive trustee for the parties entitled: see at [115]-[116].
Accepting, as I must, that the proceedings were validly commenced using the procedure under UCPR Pt 41, that has made no real difference in practice. Had the interpleader procedure in UCPR Pt 43 been used, that would have required SGB to join all of the claimant parties as defendants; directions would then have been made for them to formulate their claims to the surplus by way of cross-claim. But in fact the claimant parties were treated as parties and were afforded the opportunity to make their claims, albeit by notice of motion rather than cross-claim. The joinder of the claimants as defendants and the filing of cross-claims now means the proceedings have formally been constituted as they would have been pursuant to UCPR Pt 43.
In De La Rue v Hernu, Peron & Stockwell Ltd [1936] 2 KB 164 a dispute arose between husband and wife over some furniture and other goods. The wife had deposited the property with a storage firm. Her estranged husband claimed the property was his and demanded delivery of it from the firm. The wife claimed the property was hers. The firm interpleaded and directions were made for the issue of ownership to be tried with the husband to be the plaintiff and the wife to be the defendant. It was then objected to on behalf of the wife that no action could be brought against her by her husband. This argument was rejected by the English Court of Appeal. Greene LJ said at 170-3: Interpleader proceedings originated in Courts of equity, and the appropriate procedure where a person found himself harassed by claims made on behalf of two or more persons was by way of a Bill of Interpleader. It is interesting to observe what the nature of that proceeding was. I read a passage from the Fourth Edition of Daniell's Chancery Practice, vol. ii., p. 1418, published in 1867, because it is from this practice in equity that the whole modern law of interpleader is ultimately derived. The learned author says this: "Where two or more persons claim the same thing, by different or separate interests, and another person, not knowing to which of the claimants he ought of right to render a debt or duty, or to deliver property in his custody, fears he may be hurt by some of them, he may exhibit a Bill of Interpleader against them." Then he says on p. 1419: "the sole ground on which the jurisdiction of the Court, in this case, is supported, is the danger of injury to the plaintiff" - that is the person who exhibits the bill - "from the doubtful title of the defendants." Now, it is to be observed that under the old equitable procedure, the person desiring to interplead exhibits a Bill of Interpleader, to which he makes both claimants defendants; and the way the matter then proceeded under the old equitable procedure, is set out on p. 1422 in these words: "If, at the hearing, the question between the defendants is ripe for decision, the Court will make a decree. If that is not the case, proper inquiries, or trials of questions of fact, either before the Court itself or a Court of common law, will be directed, in order to bring the matter to a determination." … What, in substance, all along, both under the old equitable procedure and under the modern procedure, is being decided, is claims by two claimants against the person interpleading. What really happens is, that whereas there are two claimants who are harassing a person desirous of interpleading that person is by the interpleader proceedings calling upon the claimants to come out into the open and formulate their claims against him. In substance, when an interpleader issue is tried, two actions against the person interpleading are being dealt with. Interpleader proceedings are the method of compelling the parties - either one, or both, or neither of whom may have actually issued a writ - to prosecute their claims. As it is the essence of interpleader proceedings that the person who has interpleaded has no title himself he naturally drops out of the suit. But in effect the entire matter is tried out in the presence of all the parties concerned, and the real claimants are compelled to put forward their claims and have them adjudicated upon. The reason for that is not their own benefit, it is for the relief of the person interpleading.
Whether monies are paid into Court by way of interpleader or application under the Trustee Act, the procedure of paying money into Court is essentially voluntary. In the present case, SGB could have held the money and required the claimants to sue it so as to establish their entitlements. Alternatively, SGB could have chosen to pay the money out to one of the claimants and taken the risk that it would be sued by the others. There might be good reasons why a party in the position of SGB would take that course. In Residential v Esber, for instance, the mortgagee paid out the money to one of the claimants having received an undertaking to indemnify it from claims made by any of the others.
In my opinion, the nature of the Estate's claim for limitation purposes should be determined according to matters of substance rather than form. It was not suggested that the Trustee Act procedure conferred any additional rights of substance on SGB beyond the interpleader rights it had as an ordinary litigant.
I think it follows that in substance the 2014 proceedings consist of competing claims by the claimants against SGB seeking for SGB to account to them under s 58(3) or in equity. Although SGB has, for forensic purposes, "dropped out" of the proceedings, the Court is still adjudicating the claims against it. Were the Estate to succeed and obtain an order for paying out of the surplus, the Estate's claims against SGB would merge in the judgment; no further claim could be made against SGB by the Estate thereafter.

Analysis of Estate's claim for the purposes of limitation

The Limitation Act 1969 (NSW), s 42, provides: (1) An action on a cause of action: (a) to recover principal money secured by mortgage, (b) to recover possession of mortgaged property from a mortgagor, or (c) to foreclose the equity of redemption of mortgaged property, is not maintainable by a mortgagee under the mortgage if brought after the expiration of a limitation period of twelve years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims. (2) Paragraph (a) of subsection (1) applies to a cause of action: (a) to recover principal money from any person, whether as principal, surety or otherwise, or (b) to recover principal money by way of: (i) the appointment of a receiver of mortgaged property or of the income or profits of mortgaged property, (ii) the sale lease or other disposition or realization of mortgaged property, or (iii) other remedy affecting mortgaged property.
Counsel for IAPL characterised the claim being made to the surplus funds as a claim under s 42 against Mrs Meredith as the owner of those funds. IAPL's contention was that the time period allowed by s 42 had expired before the Estate's claim to the proceeds was made in the 2014 proceedings and, therefore, as a result of Limitation Act, s 63, any entitlement the Estate would have had to the monies had been extinguished.
In my opinion, this analysis pays insufficient regard to the way in which s 58(3) works. The provision imposes a direct obligation upon the party holding the money to pay it to the party or parties entitled. If the party holding the money accounts to the wrong person, that party may be sued. Monies recovered under s 58(3) would, of course, go to reduce the quantum of the debt owing by the principal debtor to the claimant, but the claim under s 58(3) is an independent cause of action against the party holding the money. The same is so for an equitable claim for an account against a mortgagee holding surplus funds.
It is a consequence of IAPL's argument that a party could have a valid claim to monies at the time those monies come into the possession of the mortgagee, but that party's rights would be defeasible in the event of a later expiry of the cause of action against the principal debtor. In my opinion, this is contrary to what is contemplated by s 58(3) which speaks of an obligation to pay over funds to the party "then" entitled. I agree with the analysis put forward on behalf of the Estate. Provided that the claim still subsists at that point, the subsequent expiry of the limitation period against the principal debtor does not prevent the recovery of monies under s 58(3).
However, I disagree with the contention advanced by the Estate that the relevant date for this purpose is the date on which SGB went into possession. Going into possession does not necessarily mean that a sale will take place, let alone that there will be a sale resulting in a surplus. It is only when the sale has taken place and funds have been received that it is possible to determine whether there will be a surplus. In my opinion, this is the date referred to by the word "then" in s 58(3) and this is the date on which the cause of action under s 58(3) accrues.
The claim made under s 58(3) may or may not be a claim to recover monies secured by a "mortgage" for the purposes of Limitation Act, s 42 but, in my view, it is a claim against a separate party and does not accrue until monies have been received from the sale, which in this case was 7 August 2014. On any view, the claim would be within time if the Estate's claims against Mrs Meredith had not been extinguished at that point.

Limitation of Estate's claim

As I have mentioned, the mortgage relied upon on behalf of the La Fontaine Estate in these proceedings was dated 1 May 2001. It showed Mrs Meredith alone as the mortgagor, even though at that stage the property was registered in the name of both Mr and Mrs Meredith and Mr Meredith had not been made bankrupt. And another stamped mortgage for the same amount exists, this time showing Mr and Mrs Meredith as borrowers and dated 7 May 2001. No point has, however, been taken about this and I proceed on the basis that the Estate's rights for the purposes of these proceedings are to be determined in accordance with the mortgage dated 1 May 2001.
The mortgage provided for the repayment of the principal amount borrowed ($100,000) within twelve months. Accordingly, the principal fell due for repayment on 30 April 2002. This is more than twelve years before the property was sold by SGB, which happened on 7 August 2014.
Mr Hall for the Estate relied on the Limitation Act, s 54, which provides: (1) Where, after a limitation period fixed by or under this Act for a cause of action commences to run but before the expiration of the limitation period, a person against whom (either solely or with other persons) the cause of action lies confirms the cause of action, the time during which the limitation period runs before the date of the confirmation does not count in the reckoning of the limitation period for an action on the cause of action by a person having the benefit of the confirmation against a person bound by the confirmation. (2) For the purposes of this section: (a) a person confirms a cause of action if, but only if, the person: (i) acknowledges, to a person having (either solely or with other persons) the cause of action, the right or title of the person to whom the acknowledgment is made, or (ii) makes, to a person having (either solely or with other persons) the cause of action, a payment in respect of the right or title of the person to whom the payment is made, (b) a confirmation of a cause of action to recover interest on principal money operates also as a confirmation of a cause of action to recover the principal money, and (c) a confirmation of a cause of action to recover income falling due at any time operates also as a confirmation of a cause of action to recover income falling due at a later time on the same account. …
Mr Hall pointed out that the onus of establishing a limitation defence is on the party setting that defence up, in this case, IAPL. A question arises, however, where the onus lies when an alleged acknowledgment is relied upon. The general position is that where there is enacted an exception to some general liability or right, which is enlivened "by reason of additional or special facts", the onus of proof lies on the party "seeking to rely upon the additional or special matter": Vines v Djordjevitch (1955) 91 CLR 512 at 519-520. In Banque Commerciale SA v Akhil Holdings Ltd (1990) 169 CLR 279, the High Court considered the applicable onus under a section of the Trustee Act, s 69, since repealed, which imposed a six year limitation period with a proviso that the section should not affect a claim founded on fraud or fraudulent breach of trust. The Court said at 285: The substance of the proviso to s 69(1) of the [Trustee Act] is to allow a limitation defence to be defeated. This is in itself a consideration of substance for placing the onus of proof on the party seeking to defeat the defence. See Vines v Djordjevitch (1955) 91 CLR at pp. 519-520, and the cases there cited. It is also a significant matter of substance that it is fraud that may defeat the defence.
The High Court referred to considerations or matters "of substance", one being the Vines v Djordjevitch principle and the other that the proviso was based on an allegation of fraud. The second is not present here; however, in my view, the Vines v Djordjevitch principle, on its own, is sufficient and applies to s 54.
In my opinion, IAPL has clearly established that the cause of action accrued on 1 March 2002 and therefore expired before the property was sold and monies came into SGB's hands. The onus is on the Estate to show an acknowledgement within twelve years before that date, that is, before 7 August 2014. The type of acknowledgement relied upon was acknowledgement by payment (s 54(2)(a)(ii)) and accordingly the onus is on the Estate to prove that a payment of interest or principal was made after 7 August 2002.
The evidence led on behalf of the Estate concerning acknowledgement came from Mr Davis. He said that, as Mr La Fontaine's friend, he had discussed with Mr La Fontaine the loans Mr La Fontaine had made to the Merediths. He said that he had regularly been in Mr La Fontaine's office around 2001 and had discussed the matter with Mr La Fontaine more than once. His evidence was that he was told by Mr La Fontaine that only nine payments had been made. In his affidavit he said: 18. I had discussions with Peter towards the end of about 2002 in which I said to Peter words to the effect:- "Is Warner still paying you? Is he paying you? He is not doing it monthly? What arrangements have you got with him? What are you doing about him?" Peter said to me: "He has made 9 payments, that is it. I have not got anything else out of them." I said to Peter: "Oh my God, my God, that is what I thought. I always said that. He is just a scum, both of them. They will never pay anything."
Mr Davis gave some supplementary evidence before me and was cross-examined. He was unable to take his affidavit evidence any further. This is no criticism of Mr Davis. The events occurred a long time ago and he had no need to remember the conversations in detail. It would be very surprising if he were able to remember with precision what exactly he was told about when the repayments were made. Also, Mr Davis clearly felt antipathy towards Mr and Mrs Meredith that they had been taking advantage of his friend, Mr La Fontaine. Again, this is no criticism of Mr Davis (and no doubt he would say that the subsequent events justified his antipathy) but it did nothing to give me any confidence that he could, by unaided recollection, fix the last date of repayment with sufficient precision for me to be able to make a reliable finding as to when it happened.
In my opinion, the evidence for the Estate failed to discharge the onus which lay on the estate to show that an acknowledgement of payment took place after 7 August 2002. The result is that the Estate's claim in the 2014 proceedings fails.

Claim by IAPL

As I have mentioned, IAPL's claim to the surplus monies was conceded by the parties other than the La Fontaine Estate, which claimed priority over IAPL. The Estate has failed on that issue and as between IAPL and the Estate, costs should follow the event, with the result that IAPL should have an order for its costs of the 2014 proceedings against the Estate. Prima facie, the Estate's claim being arguable and apparently having been reasonably conducted, IAPL should have its costs on the ordinary basis.
The question of interest gives rise to a complication. IAPL is entitled to an order for payment of its principal debt out of the funds in Court. But as a result of SGB's payment of the monies into Court, interest cannot be awarded against it: Conveyancing Act 1919 (NSW), s 171. In theory, interest would run from the date of completion of the sale of the property, and SGB's immunity would only apply for the period after the money was paid into Court, but IAPL has not propounded any claim against SGB for the intervening period.
As between the Estate and IAPL, the Estate's claim to the surplus monies prevented IAPL from being paid the amount which can now be seen to have been properly due to it in August 2014. In effect, by making the claim the Estate created a situation where SGB paid the monies into Court where they were frozen. If the proceedings had been constituted according to the interpleader procedure, it seems to me that IAPL and the Estate might have been required to give cross-undertakings to pay interest on the amount claimed by IAPL. As the De La Rue case shows, the interpleader procedure is in its origin equitable. In the ordinary case, if an interlocutory injunction were sought to prevent the payment out of funds, an appropriate undertaking would be given. In effect, each party to the interpleader procedure obtains an interlocutory stay on the payment out of the monies to the other and in principle I can see no reason why they should not do equity by giving an undertaking to pay interest on the amounts. However, this was not done in the present case.
Does this mean that the loss of interest must, as between the Estate and IAPL, lie where it falls? Had SGB retained the funds, then a judgment including interest would have been given against it. Had SGB paid out the monies to the Estate, a judgment including interest would have been given against the Estate. In my opinion, it would be unjust if the procedural circumstance that SGB was entitled to interpleader relief should deprive the successful claimant of its substantive entitlement to interest. In these circumstances, I think the Court's powers under s 100 of the Civil Procedure Act 2005 (NSW) ("CPA") are wide enough to permit a judgment for interest to be given directly in favour of the successful claimant as against the unsuccessful claimant. I am fortified in this view by the fact that in Smith v Hamilton [1951] Ch 174, in interpleader proceedings, an order for payment of interest was made in favour of the successful claimant against the unsuccessful one: see at 184.
Accordingly, I think the prima facie position is that an order would be made for the payment out of the amount due to IAPL as at the date of the completion of the sale of the property (7 August 2014), together with a judgment in favour of IAPL against the Estate for interest on that amount from that date down to the entry of judgment. Practice Note SC Gen 16 stipulates that, in determining the pre-judgment interest rate, the Court "will have regard to" the Reserve Bank of Australia rate plus 4%. In my view, this rate would be the appropriate rate to be applied down to the date of judgment. From the date of judgment, the higher rate of the RBA rate plus 6% would apply without the need for any further order by the Court: CPA, s 101; UCPR, r 36.7.
IAPL has, as I have mentioned, obtained a Local Court judgment against Mrs Meredith and has had the benefit of payments made against that judgment. Since 1 July 2010 interest has accrued on the judgment at the RBA rate plus 6%. Thus for the period from 7 August 2014 down to judgment interest carried by the judgment will exceed the award of pre-judgment interest against the Estate by a 2% margin. To the extent that payments have been made by the Merediths in the meantime, IAPL should be able to credit those payments against the margin, but if the total paid exceeds the margin, the excess should go to reduce the interest payable by the Estate.
However, IAPL contended that it was entitled, out of the monies paid into Court, to costs (on a solicitor/client basis) and to payment of interest at the rate attaching to its judgment. As to costs, IAPL relied upon a provision of its loan agreement which entitled it to charge solicitor/client costs, and the general principle that the Court will exercise its discretion in conformity with the contractual terms agreed between the parties: Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [11]-[13]. As to interest carried by the Local Court judgment of May 2007, IAPL contended that the judgment was only another security for payment: Aman v Southern Railway Co [1926] 1 KB 59.
Certainly IAPL is entitled as against Mrs Meredith to recover interest and costs on this basis. The effect of the orders sought by IAPL would, however, work to the detriment of the Ghabrials, in that their entitlement to the surplus monies paid into Court after IAPL was paid out would be eroded. Initially, I considered that it would be appropriate to give IAPL its priority, but on terms which effectively subrogated the Ghabrials to IAPL's rights against the Estate for interest and costs. However, as I have pointed out above, these proceedings are not as a matter of substance claims against Mrs Meredith but rather claims against SGB. I think the orders made should be as similar as possible to the orders which would have been made against SGB if SGB had retained the monies. It must also be remembered that IAPL had no right under s 58(3) to receive and hold the whole of the surplus monies; its only right was to receive from SGB the amount then due to it. The Ghabrials had an equivalent right to receive payment of the amounts then due to them. In the circumstances, I consider that the appropriate orders to make are those prima facie orders which I set out above.

Claim by Ghabrials

As I have mentioned, the Ghabrials' entitlement to repayment of the principal amount of $330,000 accrued on 5 June 2004. In her submissions, Mrs Meredith resisted the entry of judgment against her. She contended that the claim was statute barred.
As I have mentioned, the monies were secured by a mortgage on the Town & Country Hotel. This was a mortgage over a different property from that which is in issue in these proceedings. However, in my opinion, that does not matter. The monies were "secured by mortgage" and accordingly the limitation period for recovery of principal was twelve years. The proceedings were commenced in March 2016, within twelve years after the entitlement to principal accrued, and they are in time so far as the principal is concerned.
The Ghabrials also claimed interest. This brings into play Limitation Act, s 43: (1) An action on a cause of action to recover interest secured by a mortgage is not maintainable by a mortgagee under the mortgage if brought after the expiration of: (a) a limitation period of six years running from the only or later of such of the following dates as are applicable: (i) the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims, and (ii) where a mortgagee under a prior mortgage is, on the date mentioned in subparagraph (i), in possession of all or any of the property comprised in the mortgage securing the interest, and after that date discontinues his or her possession - the date of discontinuance, or (b) the limitation period fixed by or under this Act for an action between the same parties on a cause of action to recover the principal money bearing the interest, whichever limitation period first expires. (2) For the purposes of subsection (1), a cause of action to recover interest secured by a mortgage includes: (a) a cause of action to recover the interest from any person, whether as principal surety or otherwise, and (b) a cause of action to recover the interest by way of: (i) the appointment of a receiver of mortgaged property or of income or profits of mortgaged property, (ii) sale, lease or other disposition or realization of the mortgaged property, or (iii) other remedy affecting mortgaged property.
Counsel for the Ghabrials initially contended that they could avoid the effect of this section by relying on capitalisation of the interest. But there was no evidence that the power to capitalise interest had ever been exercised at the time and the submission was not pressed.
It follows that the Limitation Act prevents the Ghabrials from enforcing payment of interest which accrued more than six years before the commencement of the proceedings.
The Ghabrials are therefore entitled to judgment for the principal together with interest to the extent that it is not statute barred. They also are entitled to interest (at the standard pre-judgment rate) down to judgment and an order that Mrs Meredith pay their costs of the 2016 proceedings.
In order to succeed in the 2014 proceedings, the Ghabrials need to go further and establish an equitable entitlement or an equitable interest in the surplus monies paid into Court. For this purpose they relied on cl 65 of the Loan Agreement: In the event the MORTGAGOR defaults under this Mortgage that event shall create a caveatable interest by the MORTGAGEE in any Real Property owned now or in the future by MORTGAGOR ("OTHER PROPERTY"). The MORTGAGEE shall have the right to take possession of that OTHER PROPERTY and exercise power of sale and/or foreclosure to recover monies owing under the MORTGAGE and the MORTGAGOR shall yield and surrender possession of the OTHER PROPERTY to the MORTGAGEE in the event of default.
This clause did not itself operate as a charge when the agreement was entered into. It was, however, an agreement for valuable consideration to grant a charge in the event of the default which subsequently occurred. There is no reason why it would not be the subject of an order for specific performance. Accordingly, pursuant to the maxim that equity treats as done that which ought to have been done, the clause should be seen as giving rise to an equitable proprietary interest in the surplus monies.
Mrs Meredith sought to resist the claim by relying on laches. No action was taken to seek specific performance but the Ghabrials did, in 2006, caveat the property in support of their claimed interest. In my opinion, this was a reasonable step to take and failure thereafter to seek specific performance cannot have prejudiced Mrs Meredith. I see no evidence of laches in the two years before that date and accordingly I reject the defence.
It follows that the balance of the surplus funds, after payment out of IAPL's entitlement as at the date of sale, should be paid to the Ghabrials. So far as this surplus was concerned, the dispute in the proceedings was effectively between the Ghabrials, Mrs Meredith and the Estate which was claiming, as against the Ghabrials, priority. I do not propose to order that the Estate pay the Ghabrials' costs of the proceedings because the Ghabrials' case in the 2014 proceedings did not add to the case presented by IAPL. However, in accordance with my analysis concerning interest above, there should be judgment against the Estate for interest at the pre-judgment rate on the amount to which the Ghabrials are entitled to be paid, from 7 August 2014 down to the date of judgment.
For what it is worth, Mrs Meredith should be ordered to pay the Ghabrials' costs of the 2014 proceedings and there should be judgment against Mrs Meredith for interest on the Ghabrials' share of the surplus on the same basis as against the Estate.

Summary and conclusion

I have concluded that: (a) the Estate's claim to the surplus funds in the 2014 proceedings fails; (b) IAPL is entitled to payment out of the surplus funds of the debt owed by Mrs Meredith to it as at the date of the sale, together with interest on that amount and costs from the Estate; (c) the Ghabrials are entitled to payment out of the balance, together with interest on that amount as against both the Estate and Mrs Meredith, together with costs from Mrs Meredith; (d) the Ghabrials are also entitled in the 2016 proceedings to judgment for the principal amount, interest to the extent it is not statute barred, pre-judgment interest and costs as against Mrs Meredith.
The amounts to be paid out and the interest need to be calculated. Given the small amounts involved, I am prepared to make a lump sum costs order as between IAPL and the Estate in the interests of minimising costs. If agreement cannot be reached on any of these matters of quantum, the relevant proceedings should be relisted before me for determination.
The orders of the Court in the 2014 proceedings are:
Direct that IAPL bring in Short Minutes to give effect to this judgment.
Grant liberty to apply to all parties on two days' notice.
The orders of the Court in the 2016 proceedings are:
Direct that the Ghabrials bring in Short Minutes to reflect this judgment.
Grant liberty to apply to the parties on two days' notice.

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