Tsatsoulis & anor v Trigamist Holdings Pty Limited

44 The mere existence of the relationship of mortgagor and mortgagee does not of itself give to the mortgagor an entitlement to an order for an account. That entitlement arises in cases of foreclosure and redemption in Court (not relevant to the present proceedings) and also in the case where the mortgagor is seeking to recover surplus proceeds of a sale carried out by the mortgagee under the mortgagee's power of sale. (See Sykes and Walker, The Law of Securities, 5ed. (1993), 142; Fisher and Lightwood's Law of Mortgage, Australian Edition (1995), Chapter 39.) 45 In that latter case the basis upon which the mortgagor is entitled to an accounting is that, once the mortgagee has from the proceeds of sale repaid to himself the amount outstanding under the mortgage, he holds any surplus upon trust for the mortgagor (see Adams v Bank of New South Wales [1984] 1 NSWLR 285 at 295 per Hutley JA, where His Honour quoted with approval Charles v Jones (1887) 35 ChD 544 at 549-550 per Kay J). 46 It is not appropriate to order the taking of an account unless it be established that there is, or is likely to be, a surplus after the satisfaction of the mortgage debt (see Batthyany v Walford (1887) 36 ChD 269 at 276 per Cotton LJ, with whom Bowen and Fry LLJ agreed). 47 It should be emphasised that an order for the taking of an account is discretionary (Part 48 Rule 1 of the Supreme Court Rules). 48 It will be appreciated that in the instant case the Plaintiffs first requested an account on 20 September 1996, before the First Defendant had exercised its power of sale in respect to either of the properties. 49 It is a rule of substantive law, not merely of practice or procedure, that where accounts are sought by a mortgagor before the mortgagee exercises its power of sale the mortgagor must make an offer to redeem. In Kennedy v General Credits Ltd (1982) 2 BPR 9456 Hope JA said, at 9462, In cases where it is alleged that upon the taking of accounts it will or may be found that the mortgage has been paid off, the mortgagor should nonetheless offer to redeem if, upon the taking of accounts, money is still found to be due. Futhermore, in many although not all cases, a mortgagor is required to pay into court the money prima facie payable to the mortgagee as a condition of his getting relief: see Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 164-165; Harvey v McWatters (1948) 49 SR (NSW) 169...It is not necessary to pursue these matters save to emphasise that the law in these respects is not merely procedural but substantive, and that the appellants' proceedings should have failed in limine because of their failure to comply with its requirements. 50 Hutley JA in Adams v Bank of NSW, supra, at 296 said, There is authority in this Court for the view that the bar to the obtaining of a declaration as between mortgagor and mortgagee, except where there is an offer by the mortgagor to redeem, is not merely procedural, but substantial, that is, the only circumstances under which a mortgagor can call upon a mortgagee to account is where the mortgagor is prepared to make an offer to redeem: Kennedy v General Credits Limited (Court of Appeal), 14 May 1982, unreported). The reason is simple - any other rule would enable a mortgagor to involve a mortgagee in futile litigation because the result could have no effect upon the legal rights of the parties. In Colin D. Young Pty Limited v Commercial and General Acceptance Limited (Court of Appeal, 24 August 1982, unreported) Hutley JA, with whom the other members of the Court agreed, said: "...a party cannot, as it were, have little bits of accounts. There is one account and one account only and the issue is what is owed and what is not owed. The declaratory procedure cannot be used to get declarations about little bits of accounts because the proceedings may become, in relation to a total account, otiose." 51 Neither when they first sought an account, on 20 September 1996, when neither property had yet been sold, nor when she next sought an account, on 5 May 1999, when one property still remained unsold, did the Plaintiffs offer to redeem. 52 Nevertheless, after a power of sale has been exercised, there is no absolute requirement on a mortgagor seeking an account to make an offer to redeem (Maher v Network Finance Limited [1982] 2 NSWLR 503 at 505 per McLelland J). However, in the instant case the failure of the Plaintiffs to make an offer to redeem at a time when the accounting was originally sought and before the Defendant had exercised its power of sale is a consideration relevant to the exercise of the discretion of the Court in respect to the relief sought. 53 It has been submitted on behalf of the Defendants that it is relevant to the granting of the discretionary relief of an order for an accounting that the Plaintiffs have made no offer, have entered into no agreement, and have disclosed no capacity to repay such a deficiency. It is here relevant to record that during the course of her cross-examination Mrs Tsatsoulis firstly said that she did not know if she could pay the sum of $276,000, if required to pay that amount, and then stated that she was not in a position to pay that amount. She also said that she does not offer to pay into Court that amount as a condition of any order for an account. 54 Evidence was placed before the Court concerning the assessment of costs awarded against the Plaintiffs in the Commercial Division proceedings, and a statement made in a letter dated 12 May 2000 by their solicitors (Exhibit A) concerning "their present difficult financial circumstances". 55 The Plaintiffs however submitted, in regard to the exercise of the discretion of the Court to order an account, that the impecuniosity of the Plaintiff should not preclude them from approaching a Court of Equity seeking a remedy, and that impecuniosity is not a bar to justice. 56 The Plaintiffs referred to what they described as a lack of clean hands on the part of the Defendants in regard to the communications between the parties. It must, however, be appreciated that the concept of "clean hands" is one that applies to a moving party in Equity proceedings ("He who seeks Equity must come with clean hands"), and does not, as I understand it, have any relevance to the conduct or intentions of a party brought into the proceedings as a defendant. 57 I appreciate that it has not been established that the Plaintiffs, or either of them, are impecunious, only that there are presently on foot bankruptcy proceedings against one or both of the Plaintiffs. 58 I am in agreement with the submission of the Defendants that the authorities establish that the Plaintiffs cannot be entitled to an account unless they can demonstrate a surplus or a reasonable likelihood of a surplus. Further, I am in agreement with the submission of the Defendants that prima facie there would appear to be a deficiency, after the sale, of an amount of $276,000. (The decision of Santow J in Pangas v Permanent Trustee Australia Limited (10 March 2000, unreported) does not support the proposition of the Plaintiffs that there can be an accounting in the absence of a surplus: in that case there was a surplus.) 59 In the instant case I consider that matters which are relevant to the exercise of the Court's discretion to order an accounting include the fact that prima facie there is a deficiency of $276,000 upon the sale of the subject properties; that the Plaintiffs are in a state of impecuniosity (if not of insolvency), and that bankruptcy proceedings have been brought against them; that the Plaintiffs have in the Commercial Division proceedings sought an account of the nature which is presently sought in the present proceedings and that that claim has been dismissed; that it is unlikely that the Plaintiffs would be able to pay the costs which have already been awarded against them in the Commercial Division proceedings, and in respect of which bankruptcy proceedings have now been instituted against them. 60 I am in agreement that in the foregoing circumstances it would be a futile exercise, indeed bordering on the vexatious, to require the First Defendant to give an account, especially when there is no evidence of a surplus or the likelihood of a surplus. 61 Accordingly, if it became necessary for me to do so, in the exercise of my discretion I would decline to grant the relief sought by the Plaintiffs. 62 However, it will be appreciated, that in the light of my original conclusion herein, that the present proceedings are precluded by the terms of the order of Rolfe J of 21 May 1999, it is unnecessary for me to decide the present suit upon the application of the foregoing discretionary considerations. 63 The Defendants, in their written submissions, seek an order that the Plaintiffs should pay their costs on the indemnity basis. Whilst I consider that the Defendants are entitled to a costs order against the Plaintiffs, I am not presently persuaded that there is any basis for those costs to be paid otherwise than on the party and party basis. The mere fact that the Plaintiffs have not been successful, and that the Defendants have been successful, in the present proceedings does not of itself justify a departure from the normal, party and party, basis for a costs order in favour of the successful party against the unsuccessful party. 64 Unless any party within seven days of the date hereof arranges with my Associate for the matter to be listed for argument as to costs, I make the following orders: 1. I order that the summons be dismissed.

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