The Presbyterian Church (NSW) Property Trust v Scots Church Development Ltd

CATCHWORDS : CONVEYANCING [155]- Torrens title- Exceptions to indefeasibility- Fraud- First defendant buys whole of plaintiff's property- Agrees to sell one lot back to plaintiff- Later mortgages property to second defendant- Whether this a fraud on plaintiff such as to deny second defendant's indefeasible title- Second defendant never undertook to respect plaintiff's interest- No fraud. CORPORATIONS [1705]- Liquidators- Winding up of second defendant- Plaintiff cannot prove in winding up- Liquidators should nonetheless discharge mortgage over plaintiff's lot- Rule in Ex parte James applied. ESTOPPEL [29]- Estoppel by convention- Not proven- No common assumption that plaintiff's lot quarantined from mortgage- No evidence of plaintiff's detrimental reliance on assumption.

LEGISLATION CITED : Corporations Act 2001 (Cth) ss 468, 479(3) Real Property Act 1900, ss 42, 43

ASIC v Karl Suleman Enterprises Pty Ltd (2003) 45 ACSR 401 Assets Co Ltd v Mere Roihi [1905] AC 176 Bahr v Nicolay (No 2) (1988) 164 CLR 604 Bank of South Australia Ltd v Ferguson (1998) 192 CLR 248 Binions v Evans [1972] Ch 359 Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (1948) 76 CLR 463 Ebner v Official Trustee in Bankruptcy (2003) 126 FCR 281 Ex parte James (1874) 9 Ch App 609 Fordham v Fordyce [2007] NSWCA 129 Frazer v Walker [1967] 1 AC 569 Garofano v Reliance Finance Corporation Pty Ltd (1992) 5 BPR 11,941 Grgic v Australian & New Zealand Banking Group Ltd (1994) 33 NSWLR 202 Harkness v Commonwealth Bank of Australia Ltd (1993) 32 NSWLR 543 Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312 Hillpalm Pty Ltd v Heaven's Door Pty Ltd (2004) 220 CLR 472 Hypec Electronics Pty Ltd v Mead (2003) 179 FLR 295 JA Westaway & Son Pty Ltd v Registrar-General (1996) 7 BPR 14,773 LHK Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517 Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491 Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044 McCrae v Wheeler [1969] NZLR 333 CASES CITED : Merrie v McKay (1897) 16 NZLR 124 Mills v Stokman (1967) 116 CLR 61 MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 Moratic Pty Ltd v Gordon [2007] NSWSC 5 Munro v Stuart (1924) 41 SR (NSW) 203n Oertel v Hordern (1902) 2 SR (NSW) Eq 37 Pyramid Building Society v Scorpion Hotels Pty Ltd [1998] VR 188 Re Ayoub; Ex parte Silvia (1983) 67 FLR 144 Re Clark; Ex parte Texaco Ltd [1975] 1 WLR 559 Re David Payne & Co Ltd [1904] 2 Ch 608 Re Fenwick Stobart & Co Ltd [1902] 1 Ch 507 Re Hampshire Land Co [1896] 2 Ch 743 Re Steane's (Bournemouth) Ltd (1949) 66 TLR 71 Re Tyler [1907] 1 KB 865 RM Hosking Properties Pty Ltd v Barnes [1971] SASR 100 Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198 Star v Silvia (No 1) (1994) 12 ACLC 600 Waimiha Sawmilling Co v Waione Timber Co [1923] NZLR 1137; [1926] AC 101 Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300 Wicks v Bennett (1921) 30 CLR 80 Young v ACN 081 162 512 (2005) 52 ACSR 629

The Presbyterian Church (NSW) Property Trust (P) PARTIES : Scots Church Development Limited (In Receivership) (D1) York Street Mezzanine Pty Limited (In liq) (D2) Westpoint Corporation Pty Limited (In liq) (D3)

COUNSEL : B A Coles QC and S A Kerr (P) J E Thomson and N Angelovski (D2)

SOLICITORS : Henry Davis York (P) Minter Ellison (D2)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2618/06 - THE PRESBYTERIAN CHURCH (NSW) PROPERTY TRUST v SCOTS CHURCH DEVELOPMENT LTD JUDGMENT 1 HIS HONOUR: I will first set out in a simplified form, the facts which lead to the present dispute. 2 At all material times up to 4 July 2001, the plaintiff was the registered proprietor of a large block of land at the corner of York and Margaret Streets in the City of Sydney ("the Site"). There is erected on that land a church, known as Scots Church Sydney, and an office building known as the Assembly Hall. 3 From 1999, the plaintiff had been in discussions with the third defendant, Westpoint Corporation Pty Ltd ("Westpoint") with respect to the redevelopment of the Site. The core idea was that the developer would erect a substantial number of residential units on the Site, but would leave the existing façade in place and would upgrade the auditorium and area used for religious worship at no cost to the plaintiff. The land that would remain or be passed back to the plaintiff was known in discussions as the Church Stratum or more often "the Church Lot". 4 In May 2001, the plaintiff entered into a contract with the first defendant, a subsidiary of Westpoint, whereby it would convey that land to the first defendant and would in due course receive purchase money plus a strata title to the Church Lot. 5 The first defendant mortgaged the whole of the land to Capital Finance Australia Ltd and also gave a second mortgage to York Street Mezzanine Pty Ltd (the second mortgagee) which is also a subsidiary of Westpoint. 6 The necessary subdivision and strata plan have now been perfected. 7 The first defendant is in receivership and cannot pay its obligations to the second mortgagee. 8 The second mortgagee which as of 20 December 2005 is in liquidation, refuses to recognize that the plaintiff has an interest in the Church Lot superior to its mortgage. 9 The plaintiff brings these proceedings for the appropriate orders to secure the fee simple in the Church Lot. 10 MI 1001 is a composite document incorporating the pleadings. It shows that the plaintiff's basic claim is for specific performance of the contract with the first defendant for the retransfer of the Church Lot under what the parties have called the Second Resale Contract. I have referred to this document in detail later in these reasons. 11 The plaintiff also seeks orders that the mortgage held by the second mortgagee does not affect the Church Lot and that, in all the circumstances, there are no monies that can properly be paid to the second mortgagee. 12 The core question that arises between the plaintiff and the second mortgagee is whether or not the latter is entitled under the indefeasibility provisions of the Real Property Act 1900 (NSW) to enforce its rights as registered mortgagee against the title to the Site, including the Church Lot, or whether estoppels and other rights mean that the plaintiff is entitled to the orders it seeks. 13 The questions arising between the parties were argued before me on 28 November 2006 with later written submissions. These came in tranches, the final submission being received on 1 June 2007. Mr B Coles QC with Mr S Kerr appeared for the plaintiff and Mr J E Thomson with Mr N Angelovski for the second mortgagee. 14 The second mortgagee was the second defendant to the proceedings. The first defendant filed a submitting appearance, Westpoint by its solicitors, indicated that it did not intend to appear. The first mortgagee, Capital Finance Australia Ltd, has no problem with the plaintiff's position and was not a party to the proceedings. 15 I should note that the second mortgagee is in liquidation. Its liquidators have hardly any liquid assets. They are, however, very concerned that its creditors are investors who apparently have invested over $92,000,000 in the project, principally by lending on the faith of promissory notes. 16 In order to address the essential questions, it is necessary to outline briefly a complex matrix of commercial dealings between the plaintiff and the second mortgagee as well as the other defendants concerning the Site and the Church Lot. 17 The plaintiff and Westpoint entered into Heads of Agreement bearing date 24 December 1999 whereby the plaintiff granted Westpoint or its nominee purchaser an option to purchase the Site. Westpoint nominated the first defendant as the purchaser. 18 The plaintiff as vendor and the first defendant as purchaser entered a contract for the sale of the Site bearing date 20 April 2000. On the same date, the first defendant as vendor and the plaintiff as purchaser entered a contract for the resale of the Church Lot. 19 Both of these contracts were rescinded by the plaintiff and first defendant by a Deed of Rescission dated 25 May 2001. The purported reasons for the rescission were to allow the first defendant to re-enter the contracts as trustee of a trust and to make additional finance arrangements with the second mortgagee by way of registered mortgage against the title to the Site. 20 Three days later, on 28 May 2001, the plaintiff and first defendant entered into a second pair of contracts to similar effect in that the plaintiff as vendor would transfer the Site to the first defendant for consideration of $10,000,000 (Second Sale Contract), and the first defendant would then transfer the Church Lot back to the plaintiff for consideration of $1 within 14 days of the registration of the plan of subdivision of the Site (Second Resale Contract). 21 On 9 June 2001, the first defendant granted a mortgage to the second mortgagee over the Site (the York Street Mortgage). 22 On the same date, the plaintiff (described as the Senior Creditor) and the defendants, including the second mortgagee (described as the Junior Creditor) entered into a Subordination Deed. 23 Mr Norman Carey in his capacity as Director and Mr Graeme Rundle in his capacity as Secretary of the second defendant company executed the Subordination Deed with the plaintiff and first defendant. Mr Carey and Mr Rundle were also Director and Secretary of the first defendant company and executed the Resale Contract with the plaintiff. 24 Under clause 1.1 of the Subordination Deed, all amounts (including damages) payable, owing but not payable, or that otherwise remain unpaid by the Debtor (the first defendant) to the Junior Creditor (the second mortgagee and Westpoint) were defined as the Junior Debt. All amounts (including damages) payable, owing but not payable, or that otherwise remain unpaid by the Debtor to the Senior Creditor (the plaintiff) were defined as the Senior Debt. 25 Clause 2.1 of the Subordination Deed is of considerable importance and I will set it out in full: " 2.1 Subordination of Junior Debt to Senior Debt

Subject to this document, and despite anything to the contrary in any Junior Finance Document or any other document, agreement or arrangement, the Junior Debt is not payable or otherwise capable of satisfaction (other than through Permitted Payments) until the Senior Creditor certifies that: (a) the Senior Debt is irrevocably satisfied in full and there is no risk that the Senior Creditor may be required to disgorge any payment or other satisfaction it has previously received on account of the Senior Debt; and

(b) no further Senior Debt will come into existence after that date, and each Junior Finance Document, and any other document, agreement or arrangement relating to the Junior Debt is amended accordingly." 26 Clause 2.8 of the Subordination Deed states that the second mortgagee "must endorse a memorandum noting the existence of this document on each Junior Finance Document". The Junior Finance Documents included the Loan Agreement and Mortgage Deed between the first and second defendants. 27 Clause 15.7 of the Subordination Deed required each party to do everything reasonably required to give full effect to the Deed. 28 On 4 July 2001, the plaintiff transferred the Site, including the Church Lot, to the first defendant. This transfer is listed on the Register as 7739886. 29 On the same date, the first defendant granted a mortgage to the plaintiff. This mortgage is on the Register as 7739887 and was discharged on 5 June 2002 (8659822). 30 On 27 July, 2001, the York Street Mortgage was registered as 7809613 and thus the second mortgagee became a registered mortgagee against the title to the Site including the Church Lot. 31 Mr McEvoy, one of the liquidators of the second mortgagee, deposed that the second mortgagee was incorporated in order to provide funding to the first defendant in relation to the development. In order to provide this funding, the second mortgagee issued promissory notes to investors pursuant to various "Information Memorandums." 32 It would appear that eight Information Memorandums were issued. 33 A typical Information Memorandum contained an Executive Summary which contained, inter alia, the following: "The Westpoint Group has acquired the Scots Presbyterian Church in the heart of the Sydney CBD. This Sydney landmark building is located on the corner of York Street and Margaret Street, overlooking Wynyard Park and above Wynyard Station. The site is one of the best residential locations in the city. Development plans and agreement with the Scots Church provide for the retention of the existing facades and to construct within a new church and attendant facilities. The unused plot ratio of this outstanding site will permit the addition of approximately 170 apartments, 400m² of commercial space and over 100 parking bays." 34 Included under the heading "7. DEVELOPMENT PROPOSAL" was the following: "The existing church building, constructed around 1929, will be retained and refurbished to provide for a new church auditorium and associated facilities." 35 There was no other mention of the church or of the arrangements whereby the Church Lot was to be quarantined from the rest of the development in the Information Memorandums. 36 The second defendant raised in excess of $108,000,000 by means of promissory notes. After redemptions and taking account of rollovers, there was $80,000,000 net all of which was on-lent to the first defendant. 37 It was not until 23 September 2002 that the plaintiff lodged at a caveat over the Site in regard to its interest in the Church Lot under the Second Resale Contract with the first defendant (8749227). The caveat merely stated the nature of the interest claimed as "equitable interest". 38 On 2 November 2005, the first defendant and the plaintiff entered into what they termed a "Supplemental Deed". Recital G to this deed noted that the parties had made arrangements between themselves whereby the plaintiff had assumed responsibility for carrying out most of the fit out and that in lieu of its obligation under the second contract to do so, the first defendant would pay the plaintiff $3,100,075 inclusive of GST. 39 Clause 8 of the Supplemental Deed carried out what was adverted to in Recital G. The Supplemental Deed also extended the 14 day deadline for retransfer of the Church Lot under the Second Resale Contract to 21 days. 40 On 12 December 2005, the plaintiff paid the sum of $1 and called on the first defendant to transfer to it the Church Lot unencumbered and to pay the money due under the Supplemental Deed. The first defendant failed to do so. 41 Mr Coles says that there is thus still $3,100,075 owing under the Senior Debt and hence the Junior Debt is not currently repayable. 42 In these proceedings, the plaintiff seeks declarations that the second mortgagee is not entitled to enforce any of its rights under its registered mortgage against the plaintiff or the Church Lot and that it is not entitled to refuse to discharge the registered mortgage over the Site. It also seeks other orders which I will detail shortly. 43 Before dealing in detail with the legal issues involved, it is necessary to set out more of the basal facts and some of the provisions of significant documents and pieces of correspondence. 44 There is no doubt that public worship has been carried on at the Site since 1842 and that the present building has occupied the Site since 1929. 45 It would be obvious to anyone dealing with the Site or involved in preparing a subdivisional application that the Site had two aspects, its church aspect and its residential apartment aspect. 46 Indeed, according to the valuations in evidence, the Development Approval was for restoration of the existing Scots Church as well as the construction of a 12 level residential tower. 47 DX37 is a letter from Westpoint to its solicitors of 31 January 2001 in which it instructs its solicitors to draw up guarantee documents. In paragraph 5 there is the statement that the vendor is to retain an interest in the Site as the purchaser is obliged under the sale contract to hand back an auditorium stratum lot upon completion of the development. 48 DX45 is a valuation report obtained by Westpoint dated 18 April 2002. This report noted (p 601 of Exhibit): "The development has been designed to feature four attached and integrated towers situated above the existing structure, which will also be fully incorporated into the project. The Church stratum will be developed by Westpoint Corporation Pty Limited and handed back to the Church at no cost. This will form part of any development of the site." 49 The valuation report noted the value of the work to be done on the Church Lot as $3,300,000. 50 A letter from Westpoint to the plaintiff's solicitors of 1 July 2002, DX49, takes pains to note that Westpoint's obligations are limited to providing the Church Lot and works thereon and that the Church has no claim on the remainder of the property. 51 A letter from Westpoint to the solicitors for Capital Finance of 1 July 2004, DX52, again acknowledges the Church's buy back rights. 52 A document called a "Tripartite Deed" (DX53) was entered into between the plaintiff, the first defendant and Capital Finance Australia Ltd on 18 August 2004. This acknowledges that Capital Finance will comply with the first defendant's obligations with respect to the Church Lot when exercising its rights as mortgagee. 53 Although there are acknowledgments of the plaintiff's rights in correspondence from Westpoint, there is no express acknowledgment of those rights by the second mortgagee. Indeed, the Information Memorandums do not convey the fact that the Church Lot was quarantined and not part of the relevant mortgage. The plaintiff relies on the fact that all the defendants had common directors and that the inference should be drawn that each knew what each other was about. 54 Mr Coles submits that there was clearly an understanding between all the participants that the core of the agreement was that the Church Lot was to revert to the church and that estoppels operate to prevent the second mortgagee from denying this. 55 Mr Coles also submits that the second defendant has an indefeasible title subject to personal equities and that the principle in Ex parte James (1874) 9 Ch App 609 applies. 56 Mr Coles further submits that, on the true construction of the Subordination Deed, the debt otherwise owing to the second mortgagee is not payable until the obligations owing to the plaintiff have been satisfied. 57 Mr Thomson's main submissions are: (a) The second defendant is entitled to the benefit of indefeasibility pursuant to s 42 of the Real Property Act , 1900.

(b) Second defendant is entitled to the benefit of s 43 of that Act by which notice of the plaintiff's interest in the Site is not sufficient to establish fraud on the second defendant's part.

(c) The plaintiff's solicitors lodged the caveat too late. 58 Before listing the issues more specifically, I must note that Mr Thomson, in his usual skilful advocacy, put that the present contest was between the investors in the second mortgagee and the Church as to which should suffer from the alleged misconduct of Westpoint. 59 Mr Coles put that that was quite the wrong way of considering the matter. The contest was between the plaintiff and the second mortgagee. 60 I prefer Mr Coles' view. The dealings with respect to the project seem to me to fall into two distinct sections. The first is the plaintiff's sale to the Westpoint Group and the renovation of the Church Lot, the second is the raising of finance by the Westpoint Group from the public or other investors. I am solely concerned with the first section. 61 I should now turn to the pleadings. 62 Paragraph 35 of the plaintiff's pleadings makes the assertion that the Junior Debt is not payable until the church certifies that the Senior Debt has been fully satisfied and that no further Senior Debt will come into existence. 63 Paragraph 51 pleads that under cl 2.1 of the Subordination Deed, the Junior Debt is not payable until all relevant obligations of the first defendant to the plaintiff have been fully and finally satisfied. 64 Paragraphs 52-54 plead that no such certificate has been or can be given. 65 The second defendant's pleading merely admits the terms of the relevant document, but does not admit anything more. 66 Paragraph 36 of the plaintiff's pleadings put that the second mortgagee, in conjunction with Westpoint, issued Information Memorandums to prospective investors: "which included, inter alia, express statements that:

(a) 'the development plans and the agreement with the Scots Church provide for the retention of the existing facades and to construct within a new church and attendant facilities';

(b) 'the existing church building, constructed in 1929, will be retained and refurbished to provide for a new church auditorium and association facilities'; and (c) 'the development entails the redevelopment of the Scots Church building for the purposes of creating a new residential apartment tower and rejuvenated church auditorium and facilities for the Presbyterian Church'."

Particulars were given. 67 The second defendant admitted this paragraph with the reservation that it craved leave to refer to the full text of the Information Memorandums. However, I have now seen the Information Memorandums and, in my view, the only material part is as set out above and as set out in paragraph 36 of the plaintiff's pleading. 68 Paragraph 56 alleges that each of the defendants represented to the plaintiff, and it was an assumption common between the parties, that on completion of the Second Sale Contract, the first defendant would hold the Church Lot as a bare trustee to be reconveyed to the plaintiff pursuant to the Second Resale Contract. 69 Paragraphs 57-59 allege that the plaintiff relied on that representation to its detriment. 70 Paragraph 60 claims that the defendants are estopped from denying that they acted on that common assumption with the plaintiff. 71 The second mortgagee's amended defence merely does not admit the paragraphs that I have just summarised. 72 Paragraphs 61-63 plead facts claiming to make out relief under the principle in Ex Parte James. 73 The second mortgagee in paragraph 37 of the amended defence says that, on the facts and circumstances as presently known to the liquidators of the second mortgagee, the circumstances are not those which would lead an honest person to the conclusion that it was not fair that the second mortgagee retain and not discharge its mortgage over the Church Lot. 74 I should note that I heard concurrently with these proceedings an application by the liquidators of the second mortgagee for a direction as to whether they should discharge the second mortgage over the Church Lot. 75 These latter proceedings were No 6486 of 2005 in the Corporations List. I will consider this suit in these reasons and merely leave a note to that effect in the other file. 76 I will now list the issues as I perceive them and then deal with each in turn. 77 The issues are:

1. Does the exception as to fraud prevent the second mortgagee taking priority over the plaintiff because of the principle of indefeasibility?
2. Does the plaintiff have a personal equity which will prevail?

3. Is the second mortgagee estopped from alleging that its second mortgage covers the Church Lot?

5. Does the first defendant owe the plaintiff $3,100,075?

9. What orders should be made in the principal proceedings? 78 1. There is no need to set out the provisions of s 42 of the Real Property Act 1900 as its provisions are well known. Essentially, unless one of the exceptions apply, a person with a registered interest holds that interest free of any apparently competing interests. 79 Section 43(1) of the Act provides that: "Except in the case of fraud no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire or ascertain the circumstances in or the consideration for which such registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or any part thereof, or shall be affected by notice direct or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud." 80 Apart from consideration of the matters connected with personal equities that might affect the registered proprietor, the only possible statutory exception to indefeasibility applicable in the instant case is fraud. Thus, I need to examine the particular facts and circumstances in this case and the construction of the Subordination Deed. However, before doing so, it is useful to note some fundamental propositions from the authorities on the subject of fraud in the Torrens System. 81 Consistently with cases such as Bahr v Nicolay (No 2) (1988) 164 CLR 604, I should treat the right which the Church has to have the Church Lot retransferred to it as one that involves it having a proprietary interest in the Church Lot, similar to an equitable interest under an option. 82 It must always be remembered that "Fraud" as it is used in s 42 is actual fraud not constructive or equitable fraud: Assets Co Ltd v Mere Roihi [1905] AC 176, 210. However, some species of equitable fraud are included in the term, see eg Bahr v Nicolay (No 2) at 614. 83 Again, for the second mortgagee's rights to be displaced under the fraud exception to indefeasibility, such fraud must be brought home to the second mortgagee or its agent(s): Assets Co case and Bahr v Nicolay (No 2) above. 84 The fraud must be practised against the plaintiff and not, for instance, its tenants: Munro v Stuart (1924) 41 SR (NSW) 203n, 205. 85 As a starting point, if the designed object of a transfer is to cheat a person out of a known existing right, that is fraud, or if there is a deliberate and dishonest trick causing an interest not to be registered, that is fraud. Such an act must be dishonest and the dishonesty must not be assumed solely by reason of knowledge of an unregistered interest: Waimiha Sawmilling Co v Waione Timber Co [1926] AC 101, 106-7. 86 Normally the fraud must have operated on the mind of the person said to be defrauded and to have induced detrimental action by that person: Bank of South Australia Ltd v Ferguson (1998) 192 CLR 248 at 258. Wilful blindness or indifference to the trust does not constitute fraud: Pyramid Building Society v Scorpion Hotels Pty Ltd [1998] 1 VR 188. 87 Ordinarily, merely having notice of an unregistered interest does not constitute fraud. This follows from the concluding words of s 43 and see also Oertel v Hordern (1902) 2 SR (NSW) Eq 37 and Mills v Stokman (1967) 116 CLR 61, 78. 88 However, as has been said by more than one academic writer (see eg Butt (1978) 13 UWALR 354), the difficulty is to fix the demarcation line between mere notice and notice under circumstances which must be treated as fraud. 89 Resolution of the difficulty is not made easier by the fact that New Zealand authorities have tended to draw the demarcation line at a different point to the mainstream of Australian authority so that, in New Zealand, more cases of notice will be considered as fraud. 90 The modern starting point for consideration of this matter is the High Court's decision in Bahr v Nicolay (No 2). It is thus necessary to consider what that cases actually decided and to discuss the impact of that authority on the facts of the present case. 91 In Bahr v Nicolay (No 2), the plaintiffs transferred their title in land to the first defendant by way of a sale contract which included a clause that the latter retransfer the land back to the plaintiffs at a later date (cl 6). After becoming the new registered proprietor, the first defendant sold the land to the second defendants by way of a sale contract which included a clause that the second defendants acknowledge "that an agreement exists between Walter Bahr & Joanna Maria Bahr and Marcus Grenville Nicolay [the plaintiffs and first defendant] as stamped and signed on the 5th March 1980" (cl 4). The plaintiffs failed to lodge a caveat to protect its unregistered interest until after the second defendants had become the registered proprietors. 92 All five justices held that the plaintiffs were entitled to relief against the second defendants, the then registered proprietors. However, they differed in their reasons. Wilson and Toohey JJ gave a joint judgment, Brennan J substantially agreed in a separate judgment. These three judges are considered the majority. Mason CJ and Dawson J in their joint judgment proffered different reasons and took a more expansive view of what is fraud than the majority. 93 Counsel for the plaintiffs in Bahr v Nicolay (No 2) submitted that because the agreement between the first and second defendants was to give effect to the earlier agreement between the plaintiffs and first defendant, the result was that the second defendants became constructive trustees for the benefit of the plaintiffs. Mason CJ and Dawson J found an express trust in favour of the plaintiffs (at 619) while Wilson, Toohey and Brennan JJ found a constructive trust (at 638 and 654). 94 The High Court held that clause 4 in the matrix of circumstances in the case, in particular the conduct of the second defendants before and after registration, was more than a mere acknowledgment. It was an agreement to be contractually bound to the first defendant's resale obligation to the plaintiffs: see Mason CJ and Dawson J at 616, Brennan J at 647. 95 In Bahr v Nicolay (No 2) the conduct of the second defendants which significantly contributed to the finding of their having committed fraud consisted of their express acknowledgment of the plaintiffs' unregistered interest in clause 4, their subsequent correspondence with the plaintiffs about that interest and the resale obligation, and their refusal to honour the resale obligation. 96 When considering Bahr v Nicolay (No 2) in Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312, Austin J said at [103] that: " … what emerges from the judgments is that:

(i) an unregistered interest may be asserted against the registered proprietor if there was fraud at the time of transfer or registration, under the fraud exception to s 42; (ii) if the registered proprietor engages in unconscionable conduct intended to deny or defeat the unregistered interest, the holder of the unregistered interest may obtain relief against the registered proprietor, either because the registered proprietor's conduct comes within the fraud exception to s 42, or because the conduct creates an equity which the holder of the unregistered interest may assert against the registered proprietor; (iii) but such an equity will not be created merely because the registered proprietor asserts his registered title after acquiring it with notice of the unregistered interest, the additional ingredient being some form of acknowledgment of the unregistered interest, or an agreement or undertaking to act in accordance with it, from which the registered proprietor later resiles." 97 The quotation incorporates reference to both fraud under the Torrens Act and also the independent and lesser element of a personal equity. I will return to the latter matter later in these reasons. 98 Austin J at [104], then instances Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198 as an example of a fact situation which contained that "additional ingredient'. 99 In the Snowlong case, an unregistered lease and option were referred to in the relevant contract for sale. The purchaser agreed to abide by the terms and conditions of the lease. Wood J held that the purchaser, having acknowledged or agreed to recognise the lease, took subject to it. His decision was based on the existence of an equity in the lessee or alternatively, on the fraud exception. 100 Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491 is another case where there was an additional ingredient over and above mere notice. There the agent of the purchaser before becoming the registered proprietor wrote to its vendor that it would make its own arrangements with respect to Loke Yew's interest. The Privy Council held that the registered proprietor had become registered by fraud and misrepresentation and took subject to Loke Yew's interest. 101 There are a number of cases in New Zealand where additional ingredients were found to exist. As I have noted earlier, care must be taken with New Zealand cases in this area of the law. However, two of the leading New Zealand cases in this area of the law were cited to the High Court in Bahr v Nicolay (No 2) by counsel for the plaintiffs, but none of them received even a mention from any of the judges, even though they appear to be completely consistent with the High Court's decision. The cases were Merrie v McKay (1897) 16 NZLR 124, 127-8 and McCrae v Wheeler [1969] NZLR 333, 336. 102 In Merrie, the plaintiff had agreed with the then registered proprietor that he would have a lease for ten years, build on the land, and that at the end of the lease, the owner would buy back the buildings. The plaintiff also had a right of pre-emption, which had become lost. There were three transfers from the original owner before the current proprietor sought to exclude the plaintiff's rights. All transferees were fully aware of the plaintiff's interest. Prendergast CJ held at 127, that there was much more than mere notice, "there is knowledge of possession under the agreement, and of the outlay of money under it." 103 The decision in Merrie was approved by Salmond J who gave one of the leading judgments in the New Zealand Court of Appeal in Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1923] NZLR 1137, a decision which was affirmed (though without comment on the Merrie case) by the Privy Council in [1926] AC 101. The Privy Council's decision is regarded by the High Court in Bahr v Nicolay (No 2) and elsewhere as a seminal decision. The New Zealand Court of Appeal decision has been cited since in both Australia and New Zealand without disapproval. 104 In Waimiha in New Zealand at 1165, Salmond J said (the New Zealand section 197 is equivalent to our s 43): "Knowledge on the part of a transferee that an unregistered interest exists is not sufficient to establish moral fraud, otherwise the express provision of s 197 that knowledge of the existence of the interest is not of itself to be imputed as fraud would be without effect. The registration of a transfer may therefore result in the owner of the unregistered interest being wholly deprived of it, but, if so, the owner of that interest can assert no claim as against the transferee unless, in addition to the knowledge of its existence, he shows circumstances bringing home to the registered proprietor or his agents moral fraud in so depriving him of the unregistered interest. 105 In McCrae, the new registered proprietor knew about an unregistered easement and undertook to his vendor. He was held to be subject to the easement. 106 There are Australian cases which appear to go in the other direction. In Oertel v Hordern A H Simpson CJ in Eq at 45, discussed Merrie, but said that two Australian cases took a stronger line in favour of indefeasibility. His Honour found no moral fraud in that case. 107 In Wicks v Bennett (1921) 30 CLR 80, a person took a transfer from a vendor under circumstances where he had knowledge that the land may well be partnership property. However, the High Court, approving Oertel v Hordern considered that that was not enough to show fraud. Higgins J at 94-95, however, made the point that notice may well, when added to other factors, make up sufficient to establish fraud. 108 In Munro v Stuart, Harvey J held that notice and a clause in a contract that a purchaser took subject to a list of unregistered leases was insufficient to establish fraud. However, his Honour noted at p 204 that had such a clause been able to be construed as an undertaking to recognise the tenancies, the position may well have been different. 109 In RM Hosking Properties Pty Ltd v Barnes [1971] SASR 100, the facts were again that the new registered proprietor knew of the unregistered leases and acknowledged their existence, but never agreed to observe them and was held to take free of the leases. 110 Most of the cases referred to in the preceding four paragraphs were approved by Mason CJ and Dawson J in their joint judgment in Bahr v Nicolay (No 2) at p 630. 111 However, it must also not be overlooked that the High Court in Bahr v Nicolay (No 2) also relied on English decisions Binions v Evans [1972] Ch 359 and Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044, that it is moral fraud to act to defeat a trust that he agreed would bind him when accepting title. 112 Despite the fact that the cases I have recently digested may not all be entirely consistent one with another, it seems to me, with respect, that Austin J was correct in Heggies at 339 (quoted earlier) when he said that the additional factor to be superadded to notice to constitute fraud (or alternatively to create a personal equity) was "some form of acknowledgment of the unregistered interest, or an agreement or undertaking to act in accordance with it, from which the registered proprietor later resiles". 113 Mr Coles, understandably, put great reliance on what fell from the various justices of the High Court in Bahr v Nicolay (No 2). Mr Thomson, on the other hand, submits that it is distinguishable in the present case, principally because, unlike Bahr v Nicolay (No 2), there was no express acknowledgment of the plaintiff's interest by the second mortgagee. 114 One must be a little careful with this word "acknowledgment". Acknowledgment in this type of case means more that the realisation that a right exists. It connotes the case where a person not only recognises that a right exists, but also undertakes to respect that right. However, it does not appear necessary that the undertaking need be known to the person whose right is in question at the time when it is made. 115 On this particular point, I have to note that it is true that there is no express acknowledgment by the second mortgagee in any of the correspondence in evidence nor in the Information Memorandums. 116 However, as I have said, Mr Coles relies on the correspondence with other members of the Westpoint Group. He also contends that clause 2.8 of the Subordination Deed is an acknowledgment by the second defendant of the plaintiff's prior unregistered interest. 117 Thus the questions must be asked: (1) can an express acknowledgment of an obligation be inferred on the part of the second mortgagee because of the correspondence from other members of the Westpoint Group? (2) can one find an acknowledgment from the Subordination Deed? 118 Further, the principal purpose of the Subordination Deed was to subordinate the second mortgagee's financial interests to those of the plaintiff in relation to the Site. However, it is clear that the Deed had a wider operation. 119 The plaintiff clearly had an interest of some sort in the Site which it was at pains to protect by way of the Deed. The Deed is expressly aimed at the protection of the plaintiff's financial interests. The second defendant was the creditor put at the greater risk by the Deed by having its financial interests contractually subordinated to the plaintiff's financial interests. The plaintiff was not the registered proprietor of the Site nor at this stage a registered mortgagee. The plaintiff's interest as expressed by the Deed was in securing the repayment of the Senior Debt. 120 The plaintiff says that when the second defendant agreed to the Subordination Deed, in particular clauses 2.1, 2.8 and 15.7, it acknowledged not only the existence of the plaintiff's unregistered interest but also the second defendant's obligation not to obstruct the retransfer of the Church Lot. 121 Certainly the second mortgagee had notice of the plaintiff's prior unregistered interest in the Site when it entered the Mortgage Deed with the first defendant and when it entered the Subordination Deed with the plaintiff and first defendant. 122 The more difficult question is whether not only was there recognition of the Church's right, but also whether there was an undertaking to respect it. 123 It is very difficult to make a finding that a fact does not exist as one has to trawl through a bulk of paper and there is always the possibility that some fact will pass one by. However, having done the trawl and having noted that to which counsel have particularly referred me, I cannot see where there has been anything more than recognition. 124 In particular, clause 15.7 which is a promise by the second mortgagee not to do anything that would prevent full effect being given to the Subordination Deed does not, in my view, amount to an undertaking not to frustrate the retransfer of the Church Lot. 125 There is insufficient to show fraud and, accordingly, I must find the first issue in favour of the second mortgagee. 126 2. The Privy Council held in Frazer v Walker [1967] 1 AC 569, that a registered proprietor held its interest subject to any personal equity to which it was subject. 127 Mr Coles submits that the facts and circumstances of this case show that the second mortgagee is bound in conscience to recognise the plaintiff's rights to the Church Lot free from its mortgage. 128 What, one might ask, is the alleged unconscionability? 129 This may well be the wrong question because, although the accustomed shorthand is to speak in terms of personal equities, the Privy Council did not so confine the principle. Lord Wilberforce said at 585, that the principle of indefeasibility: "in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a court acting in personam may grant." 130 It is now accepted that the so called "personal equity" of a plaintiff means a cause of action at law or in equity possessed by a plaintiff: see Garofano v Reliance Finance Corporation Pty Ltd (1992) 5 BPR 11,941, 11,945; Grgic v Australian & New Zealand Banking Group Ltd (1994) 33 NSWLR 202, 222; JA Westaway & Son Pty Ltd v Registrar-General (1996) 7 BPR 14,773; Hillpalm Pty Ltd v Heaven's Door Pty Ltd (2004) 220 CLR 472, 491. At least this is so within limits, the limits being that the principle is not to "supply a blank canvas on which a plaintiff can paint any picture": LHK Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517, 556. 131 To my mind, the only cause of action that could come into play would be a suit for declaration and injunction that there was a conventional estoppel under which all parties treated the second mortgagee's security as not encompassing the Church Lot. Indeed, none other were referred to in counsels' submissions. 132 The principles of conventional estoppel have recently been comprehensively considered by Brereton J in Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300 and again in Moratic Pty Ltd v Gordon [2007] NSWSC 5. They have also been considered by the Court of Appeal in MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 and Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65. 133 In Waterman at [83] and [96] and in Moratic at [32], Brereton J said that the elements of conventional estoppel mean that a plaintiff must establish: "(1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption; (4) that each party knew or intended that the other act on that basis; and (5) that departure from the assumption will occasion detriment to the plaintiff [as to the terms of its legal relationship]." 134 I have already referred to para 36 of the plaintiff's pleading and to its admission by the second mortgagee. There is thus no doubt that the second mortgagee was well aware of the core purpose of the scheme and that was that the commercial redevelopment was to take place with the Church Lot being continued in use as a Church and associated rooms, though in an upgraded form. 135 Initially, very little was put to me on the issue as to whether there was an operative conventional estoppel, although Mr Thomson put in his oral submissions, without elaboration, that there was not even a conventional estoppel in the present case. 136 I was concerned that this point had not been sufficiently explored and invited further submissions in writing on the point. In due course, these arrived, and I found them most helpful. 137 Some of the material germane to this issue has already been discussed when I was dealing with the fraud exception to indefeasibility and I will not repeat it. 138 Mr Coles submits that when the first and third defendants recognised the existence of the Resale Contract between the plaintiff and first defendant, the same recognition can be imputed to the second defendant by way of shared common knowledge between related companies and shared director and secretary. Clearly, he says, all the defendants knew about the Resale Contract. 139 One must be careful even in the case where all the directors of two companies are identical before assuming that knowledge of one company is knowledge of the other. Because of the duty to keep company business confidential, knowledge can only be said to be held by the second company if there was some duty to communicate; see eg Re Hampshire Land Co [1896] 2 Ch 743; Re Fenwick Stobart & Co Ltd [1902] 1 Ch 507; Re David Payne & Co Ltd [1904] 2 Ch 608; Harkness v Commonwealth Bank of Australia Ltd (1993) 32 NSWLR 543. 140 Thus, I treat Mr Coles' submission that the second mortgagee's knowledge and assumption of the central facts cannot be in dispute as advocate's licence. It is in dispute. 141 Mr Coles is correct that the passages of the typical Information Memorandum which I set out earlier in these reasons were admitted. However, I cannot see that these indicate that the second mortgagee made the relevant assumption. 142 One can speculate that as the way in which the project was structured, the church keeping its Lot was a core part of the deal which all must be assumed to know. There is a basis for making the statement, but, it is speculative. 143 Further, I do not consider that this is a case where I should try to pierce corporate veils. Indeed, no-one has asked me to do so. 144 Even if it could be said, on the documents, that all parties recognised that the security to be taken by the second mortgagee was not to include the Church Lot and that it was to the core of the scheme that there would be a residential block "owned" by the Westpoint interests and the Church lot "owned" by the Church and all parties proceeded on this assumption, the plaintiff would still have difficulties. 145 As pointed out by Brereton J in the cases I have noted above, it is not necessary for conventional estoppel that the defendant induced the plaintiff's assumption or acquiesed in its formation. However, as the Court of Appeal held in Ryledar Pty Ltd v Euphoric Pty Ltd, it is necessary for the plaintiff to prove that in reliance on the assumption it has or will suffer detriment. 146 The Court of Appeal had earlier made the same point in MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd where, at [72], Hodgson JA, with whom Beazley and Ipp JJA agreed, emphasised that both reliance and detriment were necessary for the existence of a conventional estoppel. 147 I can see no evidence to show that the plaintiff relied on this conventional assumption. The material shows that the plaintiff and its advisers trusted that the deal would proceed smoothly and never even lodged a caveat to protect the Church's interest. However, I cannot and do not infer from this that the reason for this lack of action was because there was a common assumption with the second mortgagee that the Church Lot was quarantined. 148 Accordingly, the case based on conventional estoppel fails. 149 3. The same matters arise under this question as under question 2 and it follows that the question must be answered, "No". 150 4. As I have already noted, the plaintiff's pleading (paras 35, 52-54) makes the assertion that the Junior Debt is not payable until the church certifies that the Senior Debt has been fully satisfied and that no further Senior Debt will come into existence. Further, that no such certificate has been or can be given. 151 The second defendant's pleading merely admits the terms of the relevant document, but does not admit anything more. 152 Mr Coles puts that the operation of the Subordination Deed clearly supports his client's contention. 153 Mr Thomson puts that the Subordination Deed is in a standard form for such deeds and it is putting too great a strain on it to give it the effect for which Mr Coles contends. 154 He says that the Subordination Deed does not address the question of liability because of non-performance under the Resale Agreement. Had the parties intended the words of the Subordination Deed to extend to this liability, they would have used different language. 155 Mr Thomson restated that proposition by putting that the internal structure and wording of the Subordination Deed showed that the Senior Debt was not to include liability for such non-performance. The Deed was merely one by which two financiers addressed who was to be paid first. Once the Church was repaid and gave a discharge of mortgage, the Deed ceased to have any operation. 156 Mr Thomson points to the definition of permitted payments in clause 9 of the Subordination Deed as assisting his construction. I must confess I cannot see how this is so, indeed, I consider that the definition takes in any future debt that might become owing to the Senior Creditor. 157 Mr Coles denies Mr Thomson's propositions and says that on the wording of the Subordination Deed the retransfer transaction is comprehended by the Subordination Deed. 158 Mr Thomson puts that Mr Coles' wide construction of the Subordination Deed gives it a draconian operation. This may well be so, but if so, that is what the commercial parties seem to have intended by the language they used. 159 The Subordination Deed defines "Senior Debt" as meaning "all amounts (including damages)" payable or owing by the first defendant to the plaintiff in relation to the Site. 160 The Recitals, particularly A and B have the flavour of the Senior Debt including not only the existing debt to the Church but also any and all future debts. 161 Clause 15.10 of the Subordination Deed provides that certain indemnities are to survive "the termination of this document". However, there is no provision for its termination except by an amending agreement which must be in writing under cl 14.4. This again would tend to show that the obligations in the Deed were to continue for some period. Some weak reinforcement of this view is also provided by the reference to perpetuities in cl 15.6. 162 Generally speaking, the Subordination Deed is so widely framed that I find little room to apply Mr Thomson's submissions as to reading it down to apply only up to the time of the discharge of the senior mortgage existing as at the date of the Subordination Deed. 163 In my view, on the true construction of the Subordination Deed, this question should be answered, "No". 164 5. The next matter to consider is what follows from my answer to Question 4? 165 Mr Coles suggested that it follows from the above that $3,100,075 is payable. 166 As I have already noted, the $3,100,075 comes about because, by Supplemental Deed of 2 November 2005 between the plaintiff and the first defendant, in lieu of the developers effecting renovations to the Church Lot, the first defendant agreed to pay the church $3,100,075 simultaneously with the retransfer. 167 It is clear that this sum has not been paid. 168 However, the sum was only due to be paid, simultaneously with the retransfer by a company which would appear to have few assets. It is difficult to see how the Subordination Deed could operate to change the arrangement made in the Supplemental Deed made months afterwards. 169 Mr Thomson puts that the only consequence of some Senior Debt being outstanding is that there is a moratorium on the collection by the second mortgagee of what might be owing to it. Indeed, this might only be a small amount in respect of rates and taxes and not the $3,100,075. 170 Indeed, the plaintiff's pleadings virtually alleged much the same. 171 I agree with this view. 172 It follows that Question 5 must be answered, "No". 173 6. In Ex Parte James (1874) 9 Ch App 609, an execution creditor had repaid the benefit of his execution to a trustee in bankruptcy under circumstances where it appeared (though wrongly) that the latter was entitled. The English Court of Appeal in Chancery held that it should rectify the mistake. It would not brook a submission that the money had been paid over voluntarily. James LJ said at 614, that the trustee was an officer of the court and "The Court, then, finding that he has in his hands money which in equity belongs to some one else, ought to set an example to the world by paying it to the person really entitled to it. In my opinion the Court of Bankruptcy ought to be as honest as other people." 174 Ex Parte James has been considered by superior courts on many occasions since 1874, though, as Williams J pointed out in Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (1948) 76 CLR 463, 482 seldom with success. 175 Fifty-five years later, Barrett J made the same comment on the then state of the law in ASIC v Karl Suleman Enterprises Pty Ltd (2003) 45 ACSR 401, 410. 176 The operation of the principle was thoroughly analysed by Campbell J in Hypec Electronics Pty Ltd v Mead (2003) 179 FLR 295 at 326 et seq. His Honour there referred to many examples where Ex Parte James had been applied. Prominent among these is Re Tyler [1907] 1 KB 865. 177 Campbell J's decision went on appeal. The appeal was dismissed, but Tobias JA ventured thoughts on the principle in Ex Parte James. The appeal was never reported. However, the relevant paragraph, para [98], of Tobias JA's judgment is referred to by Gzell J in Young v ACN 081 162 512 (2005) 52 ACSR 629, 633-4. 178 The formula I used in Star v Silvia (No 1) (1994) 12 ACLC 600, 604 was favoured in the last two cases to which I have referred. That is, the court keeps control over liquidators and gives administrative directions to them. Where property in the hands of a liquidator has been paid for, in whole or in part, by the claimant, even though the claimant has no legal or equitable right to the property or to prove in the liquidation, it may be unfair, not only in cases where money has been paid to a liquidator by mistake of law, for a liquidator to continue to take the benefit of property, at least without bearing the burden. To deal with this situation, the court will give such directions to the liquidator as will ensure he or she deals justly with all parties. 179 It should be noted in the instant case, that as the liquidators were appointed following an administration, they are voluntary liquidators and, as such, not officers of the court in the same sense as court appointed liquidators. However, the statutory powers of the court are such that they may be treated as if they were officers of the court. 180 I will in the succeeding paragraphs deal with the submissions of counsel and to previous decisions on the principle in Ex Parte James. However, there is a limit to the usefulness of reference to previous authority as the cases make it clear that each case is to be assessed on its own facts and circumstances. In Hypec at 347, Campbell J noted the similarity to cases under s 468 of the Corporations Act 2001 (Cth) where a transaction is void unless the court otherwise orders. In that situation, Vaisey J said in Re Steane's (Bournemouth) Ltd (1949) 66 TLR 71: "Each case must be dealt with on its own facts and particular circumstances (special regard being had to the question of good faith and honest intention of the persons concerned), and the court is free to act according to the judge's opinion of what would be just and fair in each case." 181 When the authorities employ the phrase "just and fair" they are not using it in the sense of unconscionable as a matter of the settled principles of equity, but rather, just and fair in the mind of the person on the Bondi bus: see Re Tyler at 869. 182 In Re Clark; Ex parte Texaco Ltd [1975] 1 WLR 559, 563-4, Walton J laid down criteria for the principle to apply. That was a personal bankruptcy case. Translating those criteria to a winding up they may be summarized by saying: (1) the claimant must have caused some form of enrichment of the company; (2) the claimant must not be able to prove in the winding up; (3) an honest person would acknowledge that it was not fair that the enrichment should not be the subject of relief. 183 Walton J went on to say that, where the principle applied, relief was only given to the extent necessary to nullify the enrichment and this might not restore the claimant to the status quo. 184 Walton J's criteria have been applied in many subsequent cases; see eg Re Ayoub; Ex parte Silvia (1983) 67 FLR 144, 148. 185 At the core of the principle is that money has been paid under a mistake or that someone else's money or property has contributed to the company's wealth in circumstances where that was never intended and where that somebody else has no legal or equitable claim against the company that can be the subject of a proof of debt. 186 The cases also make it clear that it can be appropriate in some situations to apply the principle so as to compensate the claimant by directing the liquidator to pay a percentage of the value of the relevant property to the claimant: see Ebner v Official Trustee in Bankruptcy (2003) 126 FCR 281, 294. 187 There is some debate in the authorities as to whether it is only in a clear case, a case where any respectable liquidator would be bound to admit that the claimant ought to be given relief, that the principle applies, see the discussion in Hypec at p 340. The majority of the authorities seem to suggest that this is so. I will accept that view. However, the dividing line between a clear case and a good strongly arguable case is not easy to draw in practice. 188 Mr Thomson says that the principle should not be applied in the instant case on the facts and circumstances of this case. 189 He further puts that: (1) Ex Parte James is seldom applied unless the liquidator himself or a predecessor has been personally concerned in the transaction; (2) Ex Parte James must not be applied as a further exception to the principle of indefeasibility; and (3) Ex Parte James has now been subsumed in the principles of unjust enrichment. 190 As to the first of these submissions, the submission is taken directly from what Williams J said in Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd and I must take the point strongly into consideration. 191 As to the second submission, it seems to me that if Ex Parte James is held to be applicable, it does not operate as an exception to indefeasibility, but comes under the same exception as personal equities. 192 As to the third submission, it seems to me that Ex Parte James has been cited too often recently as a separate principle for this submission to succeed. Indeed, Mason & Carter, Restitution Law in Australia at [413] appears to take the old restrictive view of Ex Parte James; it is merely referred to as an instance of the courts giving relief on a mistake of law. 193 What factors do I need to take into account when evaluating this claim under the principle of Ex Parte James? I will list the principal factors, though not necessarily in order of importance. 194 First, I consider that it is important to note that there is no fault on behalf of the liquidators personally. Secondly, that is seldom applied unless the liquidator himself or a predecessor has been personally concerned in the transaction, which is not the present case. Thirdly, I must be aware that preferring the plaintiff would be to the detriment of the many investors who have acquired the second mortgagee's Promissory Notes. 195 Fourthly, on the other side of the equation, I must take strongly into account the fact that the plaintiff is guiltless. It entered into a deal under which it was to retain its church and it was only because of the fact that the defendants organised their business in such a way that the second mortgage was created and mega dollars were lost, that the present problem has arisen. 196 Fifthly, the plaintiff could have protected its position by lodging a caveat. It did not do so. 197 Sixthly, there is no unconscionable conduct in the traditional sense of that term which would give rise to an equity. I have discussed this point under section 2 of these reasons. However, this may be a plus for the plaintiff as usually, Ex Parte James only comes into play where the plaintiff has no other legal or equitable claim against the liquidator: Re Clark at 564. 198 Seventhly, if one asked the person on the Bondi bus whether it was fair that, when a whole project was set up on the strict understanding that the Church was always to retain its lot and that the residential development was to be only on the surrounding part of the site, on a chance liquidation of an associate company of the developer, the Church should keep its lot, the answer clearly would be "Yes". 199 Eighthly, Mr Thomson puts that it would be incongruous if the plaintiff was in a better position where the financier was in liquidation than where it was solvent. Of course, in the latter cases, Ex parte James would have no role to play. 200 I do not consider that when considering this sort of question, one looks at the other side of the equation, that is, at the position of the general creditors. The concern is solely whether it is clearly unfair for the company to retain the enrichment at the plaintiff's expense. 201 Indeed, the basic matter in the assessment is whether in all the circumstances the company has been enriched at the plaintiff's expense, and whether the ordinary person would consider that it would be unfair or even shabby conduct for the liquidators to take the stance that they insisted on their legal rights and denied the plaintiff's interest. 202 In all the circumstances, I consider that there is no doubt that the company has been enriched in that, as nobody ever intended, it holds a mortgage over the Church Lot. That enrichment has been at the cost of the plaintiff. As the earlier part of these reasons hold, there is no legal or equitable claim available to the plaintiff to enable it to submit a proof of debt. 203 The solution to this matter then depends on whether I should hold that this is a clear case where I should hold that an honest liquidator should say, that it would not be fair that he should retain the charge over the Church Lot. 204 I have set out the principal factors relevant to this assessment. It is essentially a subjective assessment. It seem to me that the seventh factor listed above is the predominant factor and that is would be clearly unfair in all the circumstances for the liquidators to retain the company's charge over the Church Lot. 205 The question passed my mind as to whether relief under Ex parte James should be given only on terms that the plaintiff pay the liquidators' costs. However, for all practical purposes, this is as easily dealt with when considering the proper order as to costs. 206 7. As to costs, I will need to hear counsel further at the stage when short minutes are brought in as I indicated at the end of the oral hearing. 207 However, Mr Thomson foreshadowed that, if, as has occurred, the only basis for the plaintiff's success in the proceedings was on the Ex parte James principle, he would seek an order that the plaintiff pay the liquidators' costs on the basis of what has been called the Indulgence Principle. 208 There is a lot to be said for this view, however, the plaintiff has not yet been heard on the matter of costs, and there has been no consideration as to whether the decision of the Court of Appeal in Fordham v Fordyce [2007] NSWCA 129 affects the weight of Mr Thomson's submission. 209 8. The liquidators of the second mortgagee are not in an enviable position. The company under their control is apparently indebted to investors for over $92,000,000. They have no liquid assets of any moment and are not in a position to fund expensive litigation. Moreover, they are aware that it is strongly arguable that the plaintiff can establish that their company's controllers knew at all material times that the Church Lot was not to form part of the security. However, by a series of unexpected events (aided by the failure of the plaintiff to lodge a caveat in proper time) the second mortgagee has a registered mortgage and the benefit of the principle of indefeasibility. 210 The liquidators by their originating process filed 22 December 2005, seek a direction pursuant to s 479(3) of the Corporations Act as to whether they should discharge that part of registered mortgage No 7809613 over the property comprising Lot 11 in DP 1086866. 211 Lot 11 in DP 1086866 is the Church Lot. 212 On 23 March 2006, White J directed that the real question should be decided in substantive proceedings. That led to the institution of the main proceedings. 213 It seems to me that the answer to question 6 disposes of this matter and that the liquidators should be directed accordingly. 214 If I had not reached the decision I made under heading 6, I believe that I would have stood over this second set of proceedings. The liquidators have no assets of any real value, any appeal in this case would mean considerable cost, the Junior Debt might not be able to be collected, and one would think the scenario would have demanded some commercial settlement protected by judicial direction. 215 The liquidators' costs to date in 6486 of 2005 are to be paid out of the assets of the company: further costs reserved. 216 9. The result accordingly is that the plaintiff succeeds only because I have applied the rule in Ex parte James with the consequential direction to the liquidators. 217 I will publish these reasons and stand both sets of proceedings over for short minutes to be brought in on 19 July at 9.30 am. However, provided my Associate is notified in the previous week, that time can be altered to suit the convenience of counsel. 218 If counsel consider that the question of costs and the definition of the orders might take longer than 15 minutes, my Associate should be advised so that, in lieu of a 9.30 mention, sufficient time can be reserved.

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