Solicitors:
Court Legal (Plaintiff/Applicant)
Unified Lawyers (Defendants/First and Second Respondents)
Gibson Howlin Lawyers (Third and Fourth Respondents)
File Number(s): 2021/117019
Publication restriction: Nil
[2]
Judgment
These are my reasons for judgment for the plaintiff on his notice of motion given on Friday 4 November 2022 and final orders.
On 27 April 2021, the plaintiff filed a summons seeking relief pursuant to s 66G Conveyancing Act 1919 (NSW) (Conveyancing Act) in relation to a property in Cremorne, New South Wales (the Property) owned by the plaintiff and both defendants as tenants in common (the plaintiff as to 26% and the first and second defendants as to 37% each). In that context, the defendants agitated that, in considering the plaintiff's claim, the Court ought to consider the defendants' offsetting claim pursuant to s 66I Conveyancing Act. The defendants claimed they had paid expenses towards the property, including mortgage payments, that ought to be compensated.
On 21 September 2021, Darke J made orders for the appointment of Mr Matthew Graeme Howlin and Johnathan Neofytou as trustees for the sale of the Property (Trustees), and ordered that $300,000 of the proceeds of sale, which would otherwise be paid to the plaintiff from the proceeds of sale, be placed in a controlled monies account for the determination of the amount to which the defendants may be entitled for expenses paid towards the Property.
Following a mediation, Darke J made consent orders on 14 October 2021 providing for the resolution of the proceedings and the sale of the Property (Orders). It is appropriate to set out the Orders in full as follows:
1. Order that the orders of 21 September 2021 (as varied on 23 September 2021) are varied and replaced by these orders.
2. Order pursuant to section 66G of the Conveyancing Act 1919 (NSW) that Matthew Graeme Howlin, Solicitor, and Johnathan Neofytou, Solicitor, of Gibson Howlin Lawyers be appointed trustees (Trustees) for the property situated at and known as 15-17 Bertha Road, Cremorne in the State of New South Wales being the whole of the land comprised in the Certificate of Title, Lot B in Deposited Plan 82595 ("the Property") and be granted the power to do all things necessary to realise the Property, including but not limited to engaging agents/third parties to assist in the realisation of the Property.
3. Order that the Property be vested in the Trustees subject to any encumbrances affecting the entirety of the Property but free from encumbrances, if any, affecting any undivided share or shares therein to be held by the Trustees upon the statutory trust for sale under Division 6 of Part IV of the Conveyancing Act 1919 (NSW).
4. Order that any of the parties be at liberty to purchase the Property at a fair market value at auction or by private treaty, such fair market value as agreed in writing by the plaintiff and the defendants or failing any such agreement, as determined by a registered valuer appointed by the Trustees.
5. Order that any sale by the Trustees may be made to the plaintiff or the defendants either as a result of sale at auction or by private treaty without the requirement of the payment of a deposit and otherwise upon such terms as to the setting off, or accounting for the purchase price as the Trustees may see fit.
6. Order that the Property forthwith be listed for sale at a price agreed in writing by the plaintiff and the defendants and failing any such agreement, the Trustees are to obtain a valuation of the Property and list the Property for sale at a fair market value determined by a registered valuer.
7. Order that the Trustees shall hold and shall apply the proceeds of sale in the following manner and priority:
a. In discharge of the registered mortgage secured on the Property to Westpac Banking Corporation, more particularly described as AJ14820, and any other registered mortgage secured on the Property to Westpac Banking Corporation;
b. Agent's commission and other expenses of sale;
c. Reasonable legal expenses of the Trustees in respect of the sale;
d. The legal expenses of transferring the Property to the purchaser;
e. In payment of all rates, taxes, insurance and other outgoings in respect of the Property until settlement of the sale of the Property;
f. The plaintiff's and the defendants' costs of the proceedings as respectively agreed or assessed;
g. The balance to be paid as follows:
i. 26 percent to the plaintiff;
ii. 37 percent to the first defendant; and
iii. 37 percent to the second defendant.
8. Order that the Trustees be at liberty to execute all conveyances and all other documents and to do all such things as necessary to perform these Orders.
9. Order that the Trustees be at liberty to seek the advice of the Court as to the implementation of any of these Orders or the distribution.
10. Order that the Trustees and parties have liberty to apply in respect of matters arising in the execution of the statutory trust for sale.
11. Order that the operation of the above orders 2 to 10 be stayed up to and including 20 January 2022.
12. Order that in the event that on or before 20 January 2022, the defendants:
a. pay to the plaintiff the sum of $400,000;
b. do all things necessary, including signing all documents necessary, so as to release the plaintiff from the loans secured by mortgages encumbering the Property, whether by refinancing them in the name of the defendants (and their nominees) or otherwise;
then:
c. the plaintiff shall thereupon transfer his right, title and interest in the Property to the defendants or such nominee as directed by the defendants in such shares as directed by the defendants in writing;
d. the above orders 2 to 10 are discharged and in lieu thereof:
i. the proceedings are dismissed;
ii. all previous costs orders are vacated;
iii. there is no order as to costs of the proceedings.
13. The Court notes the agreement of the parties that:
a. they will cooperate, including signing promptly all necessary documents, in the furtherance and performance of the matters set out in (a) to (c) of order 12;
b. their consent to these orders is in full and final settlement of all claims arising out of, in connection with or in relation to the subject matter of these proceedings, the Property and all other matters raised in these proceedings;
c. in consideration for consenting to these orders, the plaintiff and the defendants release each other in respect of all such claims and this release may be pleaded as a complete defence and bar to any such claim.
14. Order that all rates, taxes, insurance, mortgage payments and other expenses and outgoings of the Property from the date of these orders be paid by the defendants, but in the event that the Property is sold by the Trustees, those expenses and outgoings are to be included and paid or reimbursed as the case may be by the Trustees pursuant to order 7(e) above.
For reasons not relevant to this judgment, the mechanism contemplated in Order 12 was not implemented. Therefore, the trustee sale process in Orders 2-10 were engaged.
On 25 June 2022, the Property was sold to the defendants at auction for the price of $3,420,000 in accordance with Orders 2, 3, and 4.
After the auction, the defendants' solicitors again agitated the issue of set off of their expenses with the Trustees:
Our clients were of the impression that 'setoffs' for the amount of about $400,000 were to be taken into account from Mr Vlatko's share of the sale of the property the subject of the s66G application.
Later, the amount the defendants claimed by way of set-off was increased in correspondence to the trustee to $2,920,031, which would have the effect of the plaintiff receiving nothing from the sale. However, the defendants submitted that the sum ought not concern me, as it was possible the trustee would not allow all of that claimed amount and the set off amount (if any) could in fact be much smaller. The subsequent conduct does not in any event provide an answer to the question of construction.
On 22 August 2022, the plaintiff filed a notice of motion seeking various orders with respect to the settlement of the Property. In effect those orders sought declarations under s 73 of the Civil Procedure Act 2005 (NSW) that, by consenting to the Orders, the parties entered into a binding and enforceable agreement that the Orders were made in full and final settlement of all claims and also orders restraining the defendants from seeking additional set offs, adjustments or payments from the proceeds of sale.
On 9 September 2022, when the plaintiff's motion was before Darke J, his Honour ordered the Trustees to consider the parties' respective positions and make a determination of how to apply the Orders and whether the Orders permitted them to entertain the defendants' offset claim.
On 14 October 2022, having considered submissions by the parties, the Trustees notified the parties that, on their considered view, the proper construction of the Orders prevented them from considering the defendants' claim for offsets from the purchase price, because the parties had settled all matters (including any claim for offsets) and given mutual releases in the agreement noted at Order 13. One of the Trustees, Ms Jodie Green, became a trustee upon the retirement of Mr Howlin. She deposes in her affidavit to the trustees forming the view that the Orders mutually released claims to set offs for expenses incurred before 14 October 2021. The Trustees proposed orders to that effect. The plaintiff agreed. However, the defendants did not reply.
The defendants have since continued to maintain their position that the Trustees are obliged to consider the offset claims. The plaintiff and the Trustees take a united position that the Trustee's construction of the Orders is correct, and it is appropriate to bring the proceedings to an end by making orders resolving the construction issue and giving the Trustees directions as to the proper distribution of the remaining money held on trust by them.
The only remaining issue that was agitated before me concerned the proper construction of the Orders made by the Court on 21 September 2021.
On 28 October 2022, the Trustees filed proposed short minutes of order:
1. The Trustees are justified in not permitting any set offs to occur prior to the entry of the Consent Orders dated 14 October 2021 in these proceedings.
2. The Court notes that the Plaintiff and Defendants agree that the sum of $89,892.29 is the amount adjustable under Order 14 of the Consent Orders dated 14 October 2021.
3. The Trustees are justified in offsetting the amount payable to the Defendants pursuant to Order 2 above against the overpayment of $93,735.44 so that no amount is payable to the Defendants from trust with respect to Order 14.
4. The Court orders that the Defendants pay to the Trustees the sum of $3,843.15 within 14 days of the entry of these Orders.
5. The Court orders that the funds held on trust by the Trustees in the amount of $609,838.15, plus any further amount ordered to be paid into trust by the Court, be distributed or held in Trust as follows:
(a) In payment of the legal expenses and disbursements of the Trustees in respect of the sale of the Property and subsequent attendances before this Court in the amount of $69,300.00
(b) The amount of $194,212.44 to be held on trust pending determination of the parties' respective costs assessments.
(c) The amount of $2,200 to be held on trust pending determination of the parties' respective costs assessments for the Trustees' legal expenses in relation to holding funds on Trust pending the costs assessments.
(d) The sum of $347,968.86 to the Plaintiff on account of his 26% share of the proceeds.
6. Order 1 made by his Honour Darke J on 5 September 2022 be vacated.
7. The Plaintiff's Notice of Motion filed 23 August 2022 be dismissed.
8. Liberty to apply to the Trustees on 48 hours' notice.
Orally, the defendants complained that the jurisdiction of the Court was not properly engaged to deal with the issue of construction because:
1. The plaintiff's motion, in particular prayer for relief 1, could be made without quelling the dispute between the parties because it does not clearly identify the real issue as to whether "claims" in Order 13(b) and (c) includes, within its meaning, offsets that might otherwise be caught by Order 5; and
2. The Trustees were required by Order 9 to seek judicial advice by way of s 63 Trustee Act and the Trustees had not complied with the usual steps in bringing a motion for that purpose.
However, the defendants accepted that, as the plaintiff had made apparent in oral submissions that he was effectively seeking the relief in the form of the short minutes of order proposed by the Trustees, then there was no problem with the hearing proceeding, but the way the plaintiff had conducted the proceedings would be ventilated on the question of costs.
While I accept that the form of the plaintiff's prayer for relief in paragraph 1 of the notice of motion is insufficiently clear to resolve the issue of construction clearly in dispute between the parties, there is no issue that any party is taken by surprise. I consider it appropriate to declare the proper operation of the Orders pursuant to the Court's power under s 73 of the Civil Procedure Act.
I also consider that the leave granted to the Trustees in Order 9 to "seek the advice of the Court as to the implementation of any of these orders or the distribution" did not require the filing of a motion in the usual way for a s 63 Trustee Act judicial advice application. In any event, the interests of the overriding purpose of civil litigation in s 56 of the Civil Procedure Act would not be advanced by requiring the Trustees now to bring such a motion, in circumstances where the parties are all aware of the dispute and have had an opportunity to be heard, and where the Trustees have indicated that it did not file a motion to avoid unnecessarily expending funds currently held on trust for the parties.
[3]
Construction of the Orders
The parties accepted that the whole of the Orders evidenced an agreement between them. Therefore, the usual principles of construction apply and the clauses in dispute must be read as a whole and consistently with the other Orders: see, eg, T Prince and P Herzfeld, Interpretation (2nd ed, 2020, Lawbook Co) at [36.110]; Matthews v Australian Securities and Investments Commission [2009] NSWCA 155 at [100] (Tobias JA, with whom Campbell JA agreed).
[4]
Order 5
The Trustees' primary submission was that Order 5, properly construed, did not require any offset of any claim of expenses by the defendants. The defendants submitted that the Trustees have wrongly construed the release in Order 13 such that it limits or reads down Order 5.
I accept the Trustees' submissions as providing the better construction for at least the following reasons:
1. The Orders deal with matters in a chronological order. Order 5 deals with the time of determination of a purchase price and how the price may be accounted for by a purchaser such as the defendants. It provides that an offset towards the deposit or purchase price is possible. In my view, that meant that the defendants were entitled to offset their entitlement to a percentage of title of the Property against the purchase price that was successful at the auction. That is in fact what occurred and accordingly it is not disputed that Order 5 has already had some practical operation.
2. In Order 14, the parties expressly provided for payment or "offset" of money spent by the defendants after the agreement. It would therefore have been expected that the parties would have expressly dealt with monies spent prior to the agreement, had they remained a live issue.
3. Had the parties intended the Trustees to engage in a complicated process of considering the validity of offset claims, it is likely a process would have been provided for doing so. The parties did not provide that the Trustees should engage in a s 66I Conveyancing Act process; nothing is stated about how the trustee was meant to assess any claims by the parties, which, in my view, makes it unlikely that such a process was to be involved.
4. I do not accept that Order 5 contemplated an unlimited scope of offsetting exercise, when considered in the context of all the Orders and, in particular, Order 13.
[5]
Order 13
The plaintiff and Trustees took the fall-back position that, even if Order 5 was interpreted in the manner suggested by the defendants, the proper construction of Order 13(b) meant that the parties had resolved all disputes, including a previously ventilated claim for an offset for monies expended on the Property, such as mortgage payments. Further, it was said that the breadth of the release in Order 13(c) supported this position. On that basis, it was submitted Order 5 had no work to do in relation to requiring the Trustees to offset any claim by the defendants, as all such claims had been settled. The defendants do not dispute that their claim for offsets was a "claim" that was in existence at the time of the Orders. I consider, on the natural and ordinary meaning of the language, it was intended that the settlement encompassed that claim, and it was agreed that it was resolved, without any analysis of offsetting claims.
The defendants submitted that Order 13(c) expressly provided that the release was given by the parties "in consideration of entry into the orders", which meant that the Orders, including Order 5, must be given its full effect. I accept that all the Orders must be given their effect, but, in light of the defendants' express submission that all the Orders must be read as a whole as an agreement, the effect of Order 5 must also be read consistently with the other Orders, including Order 13(b), which provides for the settlement. I consider the better construction is that, even if Order 5 would otherwise allow the Trustees to consider offsetting the defendants' claims (which I do not accept), those claims no longer have operation in light of the settlement and the failure to refer to them in a way similar to Order 14.
[6]
Other matters
The plaintiff submitted that, if the Trustees and Plaintiff's construction was accepted, the orders sought by the Trustees would follow, save as to costs, a matter on which the plaintiff and the defendants wish to be heard.
The Trustees expressly make no submission as to costs of the motion, but expect their costs to be funded from the trust fund, which does not appear to be opposed by the parties.
[7]
Orders
For those reasons, I make the following orders:
1. Declare the Trustees are justified in not permitting any set offs to occur prior to the entry of the Consent Orders dated 14 October 2021 in these proceedings.
2. Declare The Trustees are justified in offsetting the amount payable to the Defendants pursuant to Order 2 above against the overpayment of $93,735.44 so that no amount is payable to the Defendants from trust with respect to Order 14.
3. Order the Defendants pay to the Trustees the sum of $3,843.15 within 14 days of the entry of these Orders.
4. Order that the funds held on trust by the Trustees in the amount of $609,838.15, plus any further amount ordered to be paid into trust by the Court, be distributed or held in Trust as follows:
1. In payment of the legal expenses and disbursements of the Trustees in respect of the sale of the Property and subsequent attendances before this Court in the amount of $69,300.00
2. The amount of $194,212.44 to be held on trust pending determination of the parties' respective costs assessments.
3. The amount of $2,200 to be held on trust pending determination of the parties' respective costs assessments for the Trustees' legal expenses in relation to holding funds on Trust pending the costs assessments.
4. The sum of $347,968.86 to the Plaintiff on account of his 26% share of the proceeds.
1. Vacate Order 1 made by his Honour Darke J on 5 September 2022.
2. Direct the parties to confer and provide agreed costs orders to my Associate within 7 days of the publication of this judgment.
3. Should the parties not be able to agree on costs orders, the parties are to provide their competing orders together with submissions of no more than 2 pages and any necessary evidence, within 10 days of the entry of these Orders.
The Court also notes:
1. The Plaintiff and Defendants agree that the sum of $89,892.29 is the amount adjustable under Order 14 of the Consent Orders dated 14 October 2021.
[8]
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Decision last updated: 11 November 2022