Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank Ltd (No 7) - [2005] SASC 455

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ANDREW GARRETT WINE RESORTS PTY LTD & ANOR v NATIONAL AUSTRALIA BANK LTD (No 7)
Judgment of The Honourable Justice Gray
6 December 2005
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PRACTICE UNDER RULES OF COURT - PAYMENT INTO COURT, AND OFFERS TO SETTLE OR CONSENT TO JUDGMENT
Applications for directions relating to moneys paid into court - National Australia Bank sought an order for payment out of court in its favour of all moneys paid into court in this action - trustee in bankruptcy for Averil Garrett sought direction that moneys paid into court by Mrs Garrett be paid to be held by him in his capacity as trustee - trustee sought an order permitting intervention pursuant to rule 33.01 of the Supreme Court Rules - moneys paid into court for purpose of protecting National Australia Bank in respect of interest accrued and interest accruing - National Australia Bank entitled to an exercise of discretion in its favour.
Supreme Court Rules 1987 (SA) r 33, r 109.5; Law of Property Act 1936 (SA) s 55A; Bankruptcy Act 1966 (Cth) s 55, s 60(3); Supreme Court Act 1935 (SA) s 119, referred to.
Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank Ltd (2004) 206 ALR 69; Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (2004) 236 LSJS 342; Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (No 2) [2005] SASC 105; Dwight v Federal Commissioner of Taxation (1992) 107 ALR 407; Pilmer & Ors v HIH Casualty & General Insurance Limited & Ors (No 2) (2004) 90 SASR 465; Harmer v Commissioner of Taxation (Cth) (1991) 173 CLR 264; Pilmer & Ors v HIH Casualty & General Insurance Ltd & Ors (No 3) [2005] SASC 302, considered.

ANDREW GARRETT WINE RESORTS PTY LTD & ANOR v NATIONAL AUSTRALIA BANK LTD (No 7)
[2005] SASC 455
Civil
GRAY J
Introduction

Applications for specific directions relating to moneys paid into court have been made: one by the defendant, National Australia Bank Ltd, and the other by Stephen James Duncan, in his capacity as trustee of the bankrupt estate of Averil Gay Garrett.
The National Australia Bank seeks an order for the payment out of court in its favour of all of the moneys paid into the court in this action pursuant to the order of Besanko J dated 5 March 2004.
Mr Duncan, in his capacity as trustee, seeks a direction that moneys paid into court by Mrs Garrett be paid to Mr Duncan to be held by him in his capacity as trustee of the bankrupt estate of Mrs Garrett (subject to any direction which may be made by the Federal Court of Australia).
Mr Duncan’s application also seeks an order permitting intervention. This application was not opposed by the National Australia Bank or any other party. The application was made pursuant to rule 33.01 of the Supreme Court Rules, which relevantly provides:
Any person:
(a)     claiming an interest in the subject matter of proceedings; or
...
may by application to the Court in the proceedings seek:
(i)    permission to intervene; and
(ii)    directions.
This rule provides a discretion in the Court addressed by the provision set out in rule 33.04:
The Court on hearing the summons may:
(a)     determine whether intervention is appropriate either at that stage of the proceedings or at all;
(b)     determine the extent to which intervention will be permitted;
(c)     direct that security be given for costs;
(d)     give all necessary directions.
The affidavit in support of the intervention application asserts that Mr Duncan’s investigations suggest that Mrs Garrett made four payments to the suitors’ fund to the credit of this action. Mr Duncan claims that Mrs Garrett, and hence her estate, has an interest in the moneys paid into court. In the circumstances, this is a proper case for intervention.
History of the proceedings
To understand the purpose of the applications and the context in which they have been advanced, it is necessary to briefly trace the history of these proceedings.
A Master of this Court made an order requiring the plaintiffs, Andrew Garrett Wine Resorts Pty Ltd (“Wine Resorts”) and Mrs Garrett, the registered proprietors of the property known as Springwood Park, to give possession of the property to the National Australia Bank.
Wine Resorts and Mrs Garrett appealed. On 2 March 2004, Besanko J allowed the appeal. His Honour reached the conclusion that there was a triable issue that the amount secured by the mortgage over Springwood Park was limited to $1.5 million and interest and costs on that sum. He concluded that a notice served by the mortgagee pursuant to section 55A of the Law of Property Act 1936 (SA) claiming a larger sum was invalid. Besanko J noted:[1]
For the reasons I have already given, I think that there is a triable issue that the amount secured by the mortgage is limited to the sum of $1.5m and interests and costs on that sum, and that the notice served by the mortgagee pursuant to s 55A of the [Law of Property Act] claiming the sum of $2.1m is invalid. It follows that there is an arguable case that the right to enter into possession has not become enforceable. In those circumstances, the general rule identified in Inglis v Commonwealth Trading Bank Ltd, above, does not apply, and it is open to me to mould an order that will ensure adequate protection to the mortgagee and will otherwise do justice between the parties during the period pending the final hearing: Glandore Pty Ltd v Elders Finance and Investment Co Ltd, above, per Morling J at FCR 135; ALR 191-2. I see no reason why interest or the equivalent of interest should be allowed to accumulate, and I think past interest (or the equivalent thereof under a bill facility) should be paid by the mortgagors and that they should pay the interest (or the equivalent thereof) that falls due in the future. In the exercise of my discretion I have decided that the interest should be calculated on the sum of $2.1m. I will also make an order for an early trial so as to reduce as far as possible the risk of the mortgagee being adversely affected by fluctuations in the value of the property.
[1] Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank Ltd (2004) 206 ALR 69 at [50].
The purpose of requiring the payment of amounts of interest or the equivalent thereof was to protect the National Australia Bank with respect to “past interest” and “interest falling due”.
His Honour continued:[2]
In short, I think the following should be conditions of a refusal of the order for possession or the grant of the interlocutory relief sought by the mortgagors:
All amounts of interest, or the equivalent thereof, on the amount advanced under the bill facility (that is, $2.1m) which have fallen due to date are to be paid and future instalments of interest under the facility are to be met by the mortgagors as and when they fall due. In other words, the mortgagors should pay all amounts of interest, or the equivalent thereof, under the bill facility past and future. I will hear from the parties as to whether the amounts should be paid to the mortgagee or into court.
That the appellants take all necessary steps for an early trial and that there be an early trial.
The appellants should give the usual undertaking as to damages.
[2] Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank Ltd (2004) ALR 69 at [51].
On 4 March 2004, Besanko J further considered the terms of the orders to be made and observed:
Rate of interest: the question arises as to whether the interest rate, after what was said to be an offer by the mortgagors in December 2003 to pay out the mortgage, should be the normal or ordinary rate on the one hand, or the penalty rate on the other. In my opinion, the rate of interest should be the penalty rate. I must mould an order which provides adequate protection to the mortgagee and does justice between the parties.
The mortgagors say that if they are successful, no interest will be payable after the offer of payment, whereas the mortgagee says that if it is successful, penalty interest will be payable throughout the period from default to payment. The mortgagors submit that in those circumstances an appropriate balancing of the interests would be achieved by an order that interest after the offer be at the normal or ordinary rate.
However, I am entitled to take into account the overall protection to the mortgagee provided by the conditions I propose. At the moment there is no specific condition protecting the mortgagee against fluctuations in the value of the property, and I think that in those circumstances it is appropriate that I take a course in relation to interest that provides maximum protection to the mortgagee. Interest should be paid at the default or penalty rate.
On 5 March 2004, Besanko J made an order enjoining National Australia Bank from enforcing its security over Springwood Park on the basis of undertakings given by Wine Resorts and Mrs Garrett that they would pay into court an amount equal to the outstanding interest and each month an amount equal to the interest due on the $2.1 million bill facility. Besanko J noted:
-Resorts and Mrs Garrett expeditiously to prosecute the action.
-Resorts and Mrs Garrett to pay into Court an amount of money equal to the outstanding interest due on National Australia Bank’s bill facility between July 2003 and February 2004.
-Resorts and Mrs Garrett to pay into Court an amount of money each month equal to the monthly default rate of interest notionally falling due under National Australia Bank’s bill facility.
The following moneys have been paid into court[3] pursuant to the undertakings:
-on 19 March 2004 - $195,864.00 - being an amount equal to the then outstanding interest due to National Australia Bank;
-on 6 April 2004 - $31,343.90 - being an amount equal to the interest due to National Australia Bank for the month of March 2004;
-on 30 April 2004 - $28,883.36 - being an amount equal to the interest due to National Australia Bank for the month of April 2004; and
-on 18 June 2004 - $30,216.69 - being interest for the month of May 2004.
Interest further accrued on the moneys once in the suitors’ fund. The funds now exceed $300,000.00.
[3] The Registry has provided the notation “A140” to these moneys in the suitors’ fund.
Wine Resorts and Mrs Garrett did not pay an amount equal to the monthly payment due at the end of June 2004 and have not made any payments thereafter. On 8 July 2004, National Australia Bank applied for the discharge of the injunction preventing the enforcement of its mortgage. It also applied for an order for possession of Springwood Park.
On 26 July 2004, the injunction was discharged and an order made for possession of Springwood Park in favour of the National Australia Bank.[4] Wine Resorts and Mrs Garrett instituted an appeal against these orders.
[4] Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd & Anor (No 2) [2004] SASC 229.
On 14 September 2004, the Full Court dismissed the appeal.[5] Mrs Garrett applied to the High Court for special leave to appeal. This application has been deemed abandoned as of 4 January 2005 pursuant to Rule 41.10.4 of the High Court Rules.
[5] Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (2004) 236 LSJS 342.
On 8 November 2004, Mrs Garrett applied to set aside the possession order. The application sought, inter alia, to impugn the validity of National Australia Bank’s first mortgage. On 23 March 2005, the application was dismissed.[6]
[6] Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (No 2) [2005] SASC 105.
By court order, Wine Resorts was wound up in insolvency on 17 May 2005. On 20 September 2005, Wine Resorts, through its liquidators, discontinued its involvement in these proceedings.
On 22 December 2004, Mrs Garrett filed a debtor’s petition with the Official Trustee pursuant to section 55 of the Bankruptcy Act 1966 (Cth), thereby rendering herself bankrupt. Mr Duncan was subsequently appointed trustee in bankruptcy.
On 13 January 2005, National Australia Bank’s solicitors contacted Mr Duncan, notifying him, for the purposes of section 60(3) of the Bankruptcy Act, of the existence of the present proceedings and the requirement that he elect within 28 days either to prosecute or discontinue the proceedings on behalf of Mrs Garrett’s estate. Section 60(3) provides:
If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
On 10 February 2005, the final day of the 28 day period, Mr Duncan obtained an order from the Federal Court of Australia extending by 14 days the time within which to make an election. On 24 February 2005, the final day of the extended period in which Mr Duncan was due to make his election, Mr Duncan’s solicitor, by facsimile, wrote to National Australia Bank’s solicitor. The effect of the facsimile was neither to elect to prosecute nor to discontinue the proceedings.
In an affidavit sworn 20 September 2005, the Bank’s solicitor advised that no other notification communicating Mr Duncan’s election to prosecute or to discontinue the proceedings, either prior to 24 February 2005 or since, had been received.
By reason of section 60(3) of the Bankruptcy Act, Mrs Garrett’s cause of action against National Australia Bank in these proceedings is deemed to have been abandoned. This consequence was accepted by Mr Duncan.
Consolidation of Proceedings
Wine Resorts and Mrs Garrett initially instituted separate proceedings against National Australia Bank seeking declarations concerning the securities in respect of Springwood Park and damages. These proceedings have been consolidated with the possession proceedings in this Court. National Australia Bank counterclaimed for damages and joined Andrew Morton Garrett as a defendant to the counterclaim.
The proceedings instituted by Wine Resorts and Mrs Garrett have been abandoned by the liquidator of Wine Resorts and Mrs Garrett’s trustee in bankruptcy. Those proceedings have been stayed as a result of the liquidation and bankruptcy insofar as National Australia Bank seeks damages.
The possession proceedings concerning Springwood Park are all but at an end. The order for possession has been made, possession taken and appeals against the order for possession dismissed. The only substantive issue remaining relates to the payment of moneys out of court.
Relevant legal principles
Section 119 of the Supreme Court Act 1935 (SA) provides:
All suitors' funds shall be vested in the registrar on behalf of the court and shall be dealt with by him in accordance with this Act and the rules of court, and any order of the court or a judge.
Section 5 of the Supreme Court Act defines “suitors’ fund” to mean:
moneys in the custody or charge of the court that have been paid into the court for or on account of, or to the use or credit of, any person in a cause or matter, and includes interest and accretions upon any such moneys.
Rule 109.5 of the Supreme Court Rules provides for the establishment of a Supreme Court suitors’ fund into which all moneys paid to the Registrar are to be received.
When moneys are paid into court, the Registrar becomes their legal owner.[7] In Harmer v Commissioner of Taxation (Cth),[8] moneys were paid into the Supreme Court of Western Australia by way of interpleader. The High Court held that claimants to those moneys did not have any equitable interest in the moneys after they were paid into court and before they were paid out.
[7] Pilmer & Ors v HIH Casualty & General Insurance Limited & Ors (No 2) (2004) 90 SASR 465 at 475.
[8] Harmer v Commissioner of Taxation (Cth) (1991) 173 CLR 264.
The Court considered, inter alia, the position of trust money paid into court where the payer had not held the moneys as trustee. The Court observed that upon payment into court the moneys became “trust moneys”. This was a trust in the broad sense and was a consequence of the fact that the Court itself was not beneficially entitled to those moneys.
The Court observed that the moneys were received by the court through an accountant as the appropriate officer pursuant to the statutory provisions and the rules of court under which they were paid in. After payment into court the claimants acquired an interest in the moneys only in the sense that they were entitled to insist that they were properly administered and applied for the purposes for which they were paid. No claimant was beneficially entitled to either the whole or any part of the moneys paid into court or of the interest earned thereon. The moneys were received and held by the accountant to be applied in accordance with the orders ultimately made by the Court. The respective interests of the individual claimants were, at best, contingent. No claimant had a present legal right or was presently entitled to the funds in court.
The Court reasoned:[9]
After payment in, the claimants acquired an interest in the moneys in the sense that they were entitled to insist that they be properly administered and applied for the purposes for which they were paid in. However, no claimant was beneficially entitled to either the whole or any part of the moneys paid into court or of the interest earned thereon [see, for example, Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 at 312-314]. The moneys were received and held by the [Court] to be applied in accordance with the orders ultimately made by the Supreme Court. The respective interests of the individual claimants were, at best, contingent. None had an entitlement to the capital or income of the fund which was vested either in interest or in possession. A fortiori, none had a present legal right to demand or receive payment of either capital or income.
[9] Harmer v Commissioner of Taxation (Cth) (1991) 173 CLR 264 at 272-273.
In my view this reasoning is apposite to the present case. In the present proceedings the moneys paid into court were not trust moneys. On being paid in, they became trust moneys in the sense described by the High Court. They were impressed with a statutory trust. There was no claimant beneficially entitled to either the whole or any part of the moneys. They were to be applied at the discretion of the Court. More particularly, the claimants were entitled to insist that the moneys be properly administered and applied for the purpose for which they were paid in.
In Pilmer (No 2), Mullighan J considered the observations of the High Court in Harmer and observed:[10]
I do not think that in Harmer when the court said that the respective interests of the claimants were “at best, contingent,” it was qualifying its conclusion that none of the claimants had a beneficial interest in the money until so decided by the court. The beneficial interest would only exist when the contingency occurred.
...
I mention some fundamental principles which emerge from the decisions in these cases which I accept:
1. The party who pays money into court in the circumstances referred to in the cases does not retain any legal or equitable interest in the money. The money is vested in the Registrar and is to be disbursed in accordance with the decision of the court.
…
3. In circumstances such as in the present case, the moneys in court provide security to the party who is to benefit in accordance with the decision of the court as to payment out and that party is in the nature of a secured creditor…
[10] Pilmer (No 2) (2004) 90 SASR 465 at [77], [113].

In Pilmer & Ors v HIH Casualty & General Insurance Limited & Ors (No 3),[11] Mullighan J considered an application for payment of moneys out of court on account of the legal costs of the action:[12]
There are reasons for payment of money into Court other than in satisfaction or part satisfaction of a cause of action or a particular claim with a cause. Security for costs is one example. Any payment into Court is relevant to the exercise of the discretion including a payment in pursuant to an order of the Court which is in the nature of security in favour of a party.
[11] Pilmer & Ors v HIH Casualty & General Insurance Limited & Ors (No 3) [2005] SASC 302.
[12] Pilmer (No 3) [2005] SASC 302 at [16].
In Pilmer (No 3), there was “no specified limitation on the amount which could be ordered to be paid out to whom …”.[13] Mullighan J considered his direction in making orders for payment out of court:[14]
It can be seen from the legislation and rules that there are no indicators as to the way in which the discretion is to be exercised. It must be exercised judicially taking account of the particular circumstance of the case: Stabiland Ltd v Stephens & Carter Ltd [1999] 1 WLR 1201, Barr-Simon v Attorney General (Cth) & Anor (2003) 133 FLR 230.
[13] Pilmer (No 3) [2005] SASC 302 at [29].
[14] Pilmer (No 3) [2005] SASC 302 at [30].
Counsel for the trustee in bankruptcy of Mrs Garrett did not challenge the authority in Pilmer (No 2).[15] At one point during the argument it was suggested that the tension between Mullighan J and Hill J in Dwight v Federal Commissioner of Taxation[16] should be resolved in favour of the approach of Hill J. However, this argument was not pressed and in my view is unsustainable.
[15] Pilmar & Ors v HIH Casualty & General Insurance Ltd & Ors (No 2) (2004) 90 SASR 465.
[16] Dwight v Federal Commissioner of Taxation (1992) 107 ALR 407.
Counsel for the trustee submitted that Pilmer (No 2) was distinguishable, as were all of the cases reviewed by Mullighan J in reaching his conclusions. Counsel submitted that that line of authority related to payments into court as the price of being able to defend a claim or the making of security so that a claim might be pursued. In each case, the payment out was ultimately controlled by and subject to the judgment of the court.
Counsel submitted that in the present case, the issue about any entitlement to interest and the calculation of that interest was a matter that had not been resolved. Counsel contended that it was impermissible to reason from Pilmer (No 2) as to the proper approach to be taken. However, when pressed, counsel was unable to identify any authority that was said to govern the circumstances of the present proceedings.
In my view, this submission is misconceived. The general principles identified and articulated in Harmer and applied in Pilmer (No 2) are of general application and apply to the present proceedings. There is no basis, in logic or reason, to distinguish Pilmer (No 2) insofar as the application of general principle is concerned.
The following principles can be drawn from the authorities:
-the Registrar is the legal owner of all moneys in court pursuant to section 119 of the Supreme Court Act.
-no competing claimant to the moneys has any equitable interest in the moneys until an order for payment out is made.
-if moneys are paid into court at large, then the Court has a judicial discretion as to whom the moneys should be paid out.
-if moneys are paid into court for a specific purpose, then the Court should generally exercise its discretion regarding payment out in a manner consistent with the purpose for which the money was paid into Court.
In the present proceedings, as is evident from the earlier referred to observations of Besanko J, moneys were paid into court for the express purpose of protecting National Australia Bank against the loss of its secured right to immediately enforce its mortgage over Springwood Park.
The following factors provide support for the making of an order for payment out to National Australia Bank:
-the price for delaying National Australia Bank’s right to possession was payment of the interest accrued during the period of the delay.
-National Australia Bank sought possession of Springwood Park and it has succeeded in its action.
-Wine Resorts and Mrs Garrett commenced proceedings against National Australia Bank seeking to impugn its securities, but those proceedings have been abandoned.
-but for the injunction, National Australia Bank would have been able to take possession and dispose of Springwood Park earlier, and thereby make use of the sale proceeds; the Bank has been prevented from the earlier use of the sale proceeds to which it has now been found to be entitled.
-the principal challenge to National Australia Bank’s mortgage has been rejected.[17]
[17] See Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd [2005] SASC 105.
As earlier observed, in his reasons for judgment in Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (No 2), Besanko J made an order for payment of moneys into court for the purpose of ensuring adequate protection to the National Australia Bank as mortgagee. This provides good reason why the moneys should be paid out of court to National Australia Bank as this would be consistent with the purpose for which they were paid in.
Conclusion
In the present case, moneys were paid into court for the purpose of protecting National Australia Bank in respect of the interest accrued and interest accruing. National Australia Bank is entitled to an exercise of discretion in its favour. The orders sought by the Bank should be made.