(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.