Atidote Pty Ltd t/as Harcourts, The Property People Sydney v Mohammad Najjar as receiver & manager of Trinity Investments (NSW) Pty Ltd (receiver & manager appointed)

[2024] NSWSC 206

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Atidote Pty Ltd t/as Harcourts, The Property People Sydney v Mohammad Najjar as receiver & manager of Trinity Investments (NSW) Pty Ltd (receiver & manager appointed) [2024] NSWSC 206

Hearing dates:

15 February 2024

Date of orders:

2 April 2024

Decision date:

02 April 2024

Jurisdiction:

Equity - Duty List

Before:

Slattery J

Decision:

The parties are directed to bring in short minutes of order to give effect to these reasons.

Catchwords:

JUDGMENTS AND ORDERS - enforcement – garnishee order – attachment of debts – Civil Procedure Act2005, s 117 the plaintiff, a managing agent holds funds collected from the tenants of the second defendant, the owner of units in a residential and commercial building, on trust for the second defendant pursuant to a management agency agreement – the owners corporation of the strata plan of the building, the third defendant, obtains a money judgment in the District Court against the second defendant and serves a garnishee notice on the second defendant seeking to attach debts owed by the plaintiff to the second defendant pursuant to the management agreement – the plaintiff pays funds in its possession at the time of service of the garnishee order and thereafter to the third defendant – the second defendant defaults to its mortgagee and the mortgagee appoints a receiver, the first defendant – the receiver contends that the plaintiff wrongly paid monies under the garnishee order to the third defendant after the date of service of the garnishee order – whether the third defendant is entitled to retain the monies so received or whether those monies should be repaid to the plaintiff – construction of the expression “due and payable”.

Legislation Cited:

Civil Procedure Act2005, ss 117, 124A, 124(1)(b)

Environmental Planning and Assessment (Development Certification and Fire Safety) Regulation 2021

Income Tax Assessment Act1936, s 218

Personal Property Securities Act 2009 (Cth), s 8(1)(f)(ii)

Property and Stock Agents Act2002, ss 86(1), 88

Strata Schemes Management Act2015, s 86(2A)

Trustee Act 1925, s 63

Uniform Civil Procedure Rules 2005, rr 39.1, 39.34 to 39.43A

Cases Cited:

Bagley v Winsome and National Provincial Bank (1952) 2 QB 236

Bank of New South Wales v Coleman (1898) 14 WN (NSW) 155

Breen v Doyle (1920) 37 WN (NSW) 258

Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226

Clyne v Commissioner of Taxation (1981) 150 CLR 1

David Securities Pty Ltd v Commonwealth Bank of Australia (1991) 175 CLR 353

Dunlop & Ranken Ltd v Hendall Steel Structures Ltd [1957] 3 All ER 344

MG Charley Pty Ltd v FH Wells Pty Ltd [1963] NSWR 22

Neustadt v Sammon (1915) 32 WN (NSW) 32

Norton v Yates [1906] 1 KB 112

O’Driscoll v The Manchester Insurance Committee [1915] 3 KB 499

Plunkett v Barclays Bank Ltd [1936] 2 KB 107

Pogorzelska v Bechara [2015] NSWSC 92

Roberts v Death (1881) 8 QBD 319

Secure Funding Pty Ltd v Bettini [2011] NSWSC 557

Webb v Stenton (1883) 11 QBD 518

Wentworth v Rogers [2003] NSWSC 472

Category:

Principal judgment

Parties:

Plaintiff: Atidote Pty Ltd t/as Harcourts, The Property People Sydney
First Defendant: Mohammad Najjar as receiver & manager of Trinity Investments (NSW) Pty Ltd (receiver & manager appointed)
Second Defendant: Trinity Investments (NSW) Pty Ltd (receiver & manager appointed)
Third Defendant: Strata Plan 85545

Representation:

Counsel:
Plaintiff: L. Clarke
First and Second Defendants: M. Collins
Third Defendant: C. Stomo

Solicitors:
Plaintiff: Patrick John Duffy, Duffy Law Group
First and Second Defendants: Marc Rossi, Mills Oakley Law Firm
Third Defendant: Gregory Paul Miller, Willis & Bowring

File Number(s):

2023/00273696

Publication restriction:

No

Judgment

1. These proceedings present a triangular contest among claimants to a fund held in the trust account of the plaintiff, Atidote Pty Ltd (“Atidote”). For many years Atidote has conducted a real estate agency business in the name “Harcourts, the Property People” in suburban Sydney. Atidote manages 12 units in a strata title residential and commercial building complex of 64 units known as “the Louvre” in the southern Sydney suburb of Campbelltown (“the Campbelltown property”). Atidote is the first claimant against the fund. It seeks reimbursement of its own fees from the fund.

2. Trinity Investments (NSW) Pty Ltd (Receiver and Manager Appointed) (“Trinity”), the second claimant, and the second defendant in the proceedings has engaged Atidote to provide real estate agency management services to it for the 12 units that Trinity owns in the building pursuant to a Residential Exclusive Management Agency Agreement signed in August 2011 (“the agency agreement”). Under the agency agreement, Atidote collects rent from tenants in Trinity’s 12 units in the Campbelltown property (“the 12 Trinity units”), meets the outgoings on those units and holds the balance for Trinity in its trust account.

3. Trinity mortgaged its 12 units to Vanguard Capital Finance Pty Ltd (“Vanguard”) in February 2022. Vanguard’s mortgage was refinanced in February 2023 with Aquamore Finance Pty Ltd (“Aquamore”). Trinity defaulted on its mortgage to Aquamore in March 2023, and Aquamore appointed the first defendant, Mr Mohammed Najjar, as receiver and manager of the mortgaged property (“the receiver”) based on that default. Where it is unnecessary to distinguish between the interests of Trinity, Aquamore and the receiver, their common interests will generally be referred as “Trinity” in these reasons.

4. The body corporate of the building erected on the Campbelltown property, Strata Plan 85545 (“the owners corporation”), the third defendant, is the third claimant in the triangle. On 25 July 2022, the owners corporation obtained a money judgment against Trinity in District Court of NSW proceedings for $367,089.57. On 6 September 2022, the owners corporation caused a garnishee order to be issued from the District Court of New South Wales to Atidote attaching “all debts that are due or accruing from Atidote to Trinity at the time of service of this order” to the extent of $367,089.57, and interest of $2,411.23. As a result of this garnishee order and demands made by the owners corporation, Atidote paid the owners corporation, without any deduction on account of its own remuneration under the agency agreement, the full amount of the monies that were then being held in its trust account for Trinity. And in addition to paying the monies held on behalf of Trinity at the time of service of the garnishee order, between September 2022 and April 2023, Atidote continued to make payments to the owners corporation of the rental monies it was receiving from managing Trinity’s apartments under the agency agreement.

5. Trinity now claims back from the owners corporation all the money paid from Atidote’s trust account pursuant to the garnishee order. The owners corporation resists Atidote’s claim and seeks to retain those funds. Atidote seeks to have its own remuneration to which it says it is entitled under the agency agreement taken out of those funds.

6. Atidote commenced these proceedings seeking judicial advice. At the hearing of the judicial advice application on 10 December 2023 before McGrath J, the receiver and the owners corporation appeared and sought to be heard. It quickly became clear that an application for judicial advice was not a suitable vehicle to resolve the contested issues among these parties.

7. Atidote therefore approached the duty judge in February 2024 as it was facing urgent requirements for repairs and maintenance within the 12 Trinity units in and was unable to use the trust funds for that purpose over the opposition of Trinity and the owners corporation.

8. The parties indicated in the duty list that they could argue the matter on a final basis in less than two hours. So, the Court appointed a final hearing which took place on 15 February 2024. Ms L. Clarke, instructed by Patrick John Duffy of Duffy Law Group, appears for the plaintiff, Atidote. Mr M. Collins, instructed by Marc Rossi of Mills Oakley Law Firm, appears for the first and second defendants, the receiver and Trinity. Mr C. Stomo, instructed by Gregory Paul Miller of Willis & Bowring, appears for the third defendant, the owners corporation.

9. More factual background is necessary. Few of the facts are in contest.

Atidote, Trinity and the Owners corporation - 2011 to 2023

10. Trinity is the registered proprietor of the 12 Trinity units in the Campbelltown property. Trinity originally developed the Campbelltown property which was constructed prior 2011 and comprised 64 units. Trinity retained title to the 12 units the subject of these proceedings. These consisted of 10 residential units and two commercial units.

11. Issues arose between the owners corporation and Trinity about the quality of the development of the Campbelltown property. In June 2017, the owners corporation brought proceedings in the NSW Civil and Administrative Tribunal (“NCAT”) for rectification of defects. The NCAT proceedings were settled by deed of settlement on 10 December 2020 by which Trinity was to carry out certain rectification works and pay the owners corporation the sum of $290,000. The estimated costs for the defective work were $4,485,332.75. The deed of settlement obliged Trinity to carry out remedial work, the result of which Trinity guaranteed. The deed also required Trinity to pay 60% of the legal fees of the owners corporation in addition to $260,000 for building consultancy fees and $30,000 in consideration of the owners corporation electing to forgo the requirement for Trinity to obtain home owners warranty insurance. Trinity did not carry out the remedial work and paid nothing to the owners corporation under the deed. Trinity defaulted on the settlement arrangements and the owners corporation obtained judgment in the District Court on 25 July 2022 for $290,000.

12. Atidote has managed Trinity’s 12 units in the Campbelltown property since August 2011, collecting the rent for Trinity pursuant to the agency agreement, and paying it to Trinity from time to time after deducting its management fees pursuant to the agency agreement.

13. The agency agreement, which describes itself as a “Residential Exclusive Management Agency Agreement” was made between Trinity as “the Principal” and Atidote as “the Licensee”. The agency agreement is divided into “Part 1 – Particulars” and “Part 2 – Terms and Conditions”. The Principal grants the Licensee exclusive rights to lease and manage 12 units in the Campbelltown property, as described in the agency agreement: agency agreement, Particulars, Item A. The authority and the duties of the Licensee as manager are defined in the agency agreement, Particulars Item B and clause 4.1.

14. The remuneration arrangements for Atidote under the agency agreement are one issue in the present proceedings. The agency agreement provides that “for services performed under this agreement the licensee shall be entitled to the remuneration set out in Item C of the Particulars (“the Remuneration”)”. The Licensee’s Remuneration is defined in recital C and clauses 2.1 and 2.2, as a management fee equal to 5.5% of all monies received by the Licensee on behalf of the Principal during the term of the agency agreement together with various other lesser fees for leasing individual units, preparing individual residential tenancy agreements, together with a monthly Administration fee, as set out in recital C.

15. Management and Administration fees are due and payable as prescribed by clause 2.2 of the Terms and Conditions, which provides:

“The Management and Administration Fee will be due and payable on the date of the monthly statement referred to in clause 6.1, which includes those fees and the Licensee is authorised to deduct those fees from monies received behalf of the principal.”

16. Atidote’s authority from Trinity to manage the 12 Trinity units is granted under clause 4.1 of the Terms and Conditions, which includes the authority to undertake inspections, collect rent, receive claim, and disburse rental bond money, and to undertake the following:

“(d)   Effect repairs to and maintain the property by engaging tradesperson-s to do so but limited to the expenditure set out in item H without obtaining the principal’s consent.”

17. Item H of the Particulars placed a limit on the cost of repairs and maintenance at $1000 with the words added, “Anthony to be notified before any repairs done!!”.

18. Clause 5 of the Terms and Conditions provides for the payment of the Principal’s outgoings as follows:

“5.1   The Principal authorises and requests the Licensee from time to time

(a)    to pay the Principal's Outgoings stated in Item J of the Particulars and the costs of repairs and maintenance of the Premises out of monies received on behalf of the Principal, and

(b)    to deduct and retain from monies received on behalf of the Principal the amounts of the remuneration the expenses, charges and costs for which the Licensee is entitled to reimbursement (Including the Principal’s outgoings and costs of repairs and maintenance of the Premises, if any, paid by the Licensee out of the Licensee's own monies) and all fees and other amounts to which the Licensee is entitled under this Agreement.

5.2    If for any reason the Licensee is unable to deduct and retain from monies received on behalf of the Principal any amount referred to in clause 5.1 (b) then the Principal will pay and agrees to pay that amount to the Licensee on demand.”

19. Item J of the Particulars provides the option of ticking a box to approve particular “Principal’s Outgoings”, which include council rates, water/sewerage charges and land tax, insurance premiums and strata title levies. But none of the boxes representing each of these outgoings have been ticked in Item J.

20. Clause 6.1 of the agency agreement provides:

“Unless the Principal otherwise reasonably directs, the Licensee shall send to the Principal a monthly statement giving particulars of the monies received and payments made and the expenses charges and costs incurred on behalf of the Principal and the remuneration and fees to which the Licensee has become entitled. At the same time any balance will be remitted as stated in Item K of the particulars.”

21. Item K of the Particulars provides for the Licensee’s remittances to be paid to an identified bank account of Trinity described by its BSB and account number.

22. Finally, the Principal indemnifies the Licensee under clause 8.1 as follows:

“The Principal will keep the Licensee indemnified against all actions, claims and demands brought against and all costs, losses and liabilities incurred by the Licensee in the course of or arising from the exercise or performance of the Licensee's authorities or duties under this agreement.”

23. Atidote conducts its business as a real estate agent licensee under the Property and Stock Agents Act 2002 (“the PS Act”). It is required by PS Act, s 86(1) as a licensee receiving money on behalf of Trinity in connection’s business as a licensee, such as that received under the agency agreement: to hold that money exclusively for Trinity, to pay it as Trinity directs and until it is so paid to retain it in a trust account in an authorised deposit taking institution: PS Act, s 86(1). The statutory trust fund is not available for the payment of the ordinary debts of the licensee nor may it be attached by “any other creditor” of the licensee (that is other than the principal for whom the funds are held) but licensee may maintain a claim or lien against the trust money: PS Act, s 88.

24. On 6 September 2022, the owners corporation obtained a garnishee order for the sum of $367,089.57 plus interest of $2,411.23 from the District Court. By that order, Atidote was ordered to pay any funds received on behalf of Trinity to the owners corporation:

"It is ordered that all debts that are due or accruing from the garnishee to the judgment debtor at the time of service of this order are attached to the extent of $367,089.57 together with interest in the sum of $2,411.23 to answer judgment in these proceedings.

You are ordered to pay any amount so attached to the judgment creditor within 14 days after the date on which the order is served on the garnishee or, if the debt is attached is a debt that falls due after that date, within 14 days after the date on which the debt becomes due."

25. This garnishee order was served on Atidote on 21 September 2022. On receipt of the garnishee order, Mr Makowski, a director of Atidote wrote to Mr Miller of Willis & Bowring, the solicitors acting for the owners corporation, on 28 September 2022. He pointed out to Willis & Bowring that Atidote had responsibilities under the agency agreement to pay out of the rental funds received for strata fees and levies, utility services, tenant related insurances, maintenance and repairs, for releasing the property. He pointed out that “after these costs are accounted for each month, we then disburse the balance payment to the landlord, in this case these NET proceeds will be paid to you under the garnishee.” He then stated:

“As the managing agents for this client, we do not wish to be exposed to any liability OR risk associated to their debt NOR liable or responsible should these details not be clarified clearly and documented to ensure there is a mutual understanding of how we are to proceed forwards. I look forward to your advice and clarification in this regard.”

26. Atidote’s request that management fees and usual maintenance and strata fees be excluded from the garnishee order was met with a statement of position by Willis & Bowring, declining to “provide you with legal advice in relation to your responsibilities” and advising that “you should obtain your own legal advice in this regard”. The reply made clear that the owners corporation’s position was that Atidote was not permitted to pay management, strata, council or water rates or fees, or expenses incurred in the maintenance or repairs to the 12 Trinity units, as requested by the tenants from time to time. Mr Miller's email dated 4 October 2022 advised:

"It is our client's position that the Garnishee [Atidote] is required to pay all monies held on behalf of the debtor [Trinity], not just the net income, unless there is a charge over any of the funds. Our client is not aware of any charge that exists in relation to those funds."

27. Atidote restated its request on 13 October 2022 pleading the case that it was responsible to pay expenses to maintain the habitability of the units. Mr Makowski had obtained legal advice by then and was pointing out to Willis & Bowring that he may have to undertake court action “to seek urgent priority to honour the outgoing expenses, repairs and the ongoing administration of the leases. He then continued, arguing that the position that the owners corporation was taking was commercially irrational and needed to be softened to achieve a practical interim solution:

“With the current and very real housing and leasing crisis which is being talked about every other day of the week in the media I would be surprised if a Court would abandon innocent consumers leasing who have been embroiled in something totally out of their control.

I would personally prefer to avoid incurring legal fees in this regard when commercially it makes no sense that the purpose of the Garnishee is to collect rent money paid by tenants and without prioritising of the; administration of the leases, and the payments of associated statutory outgoing expenses we will soon reach a point where the rents will not be paid and whomever is of benefit of the Garnishee loses which seems pointless.

As the managing agent on average, I collect $21.00 per week per property to administer all the above, under the Garnishee you have me doing all your work for FREE! It makes no sense commercially for us to be forced to take legal action spending potentially upward of $5,000.00 in Court to protect our tenants and our own good reputation in the Campbelltown community.

I hope to appeal to your sensibilities and to reach an agreement to ensure the benefit of the Garnishee can be honoured accordingly without further frustration.

Can you please advise urgently of your decision in this regard so we may act accordingly without further delay.”

28. No interim arrangement could be reached. Atidote decided to avoid the hazards of litigation. Atidote temporarily accepted the position taken by Willis & Bowring and from September 2022 to 6 April 2023 it paid all funds that it received as manager of the 12 units to Willis & Bowring.

29. Meanwhile, Trinity was seeking to refinance with Aquamore. In mid-January 2023, Trinity executed a refinance agreement with Aquamore at a demanding rate of interest which might indicate an existing degree of financial stress on its part. As part of the refinance, Trinity executed fresh a first mortgage to Aquamore over the titles to the 12 Trinity units. Aquamore did not take an assignment of the pre-existing Vanguard mortgage. Aquamore also took an assignment of a security interest in the assets of Trinity, which was registered on the Personal Property Securities Register maintained under the Personal Property Securities Act 2009 (Cth) (“PPSA”). Both Vanguard and Aquamore first mortgages contained what might be described as usual first mortgage terms, which gave them rights as mortgagee in possession (such as upon the appointment of a receiver) to income from the mortgaged property. Aquamore had a right under its first mortgage to appoint a receiver to Trinity or to any “collateral” as defined under the mortgage, a term which included each of Trinity’s 12 units in the Campbelltown property): Clause 15.1.

30. Trinity soon defaulted on the new facility with Aquamore, which appointed the receiver both to Trinity and the mortgaged property on 5 April 2023 by a deed of appointment and indemnity of receiver and manager which was registered with the Australian Securities and Investments Commission (“ASIC”) that day and appointed the receiver as the agent of Trinity. Vanguard gave notice that same day to Atidote of the appointment, stating,

“We understand that Trinity Investments is one of your clients and that may hold money in your trust account (or otherwise) that would ordinarily be paid to the company. Could you please confirm or otherwise advise.

Please freeze any payments that would otherwise be paid to Trinity Investments. We provide bank account details to you shortly into which all future payments are to be made.”

31. From 6 April 2023, Atidote therefore had two claimants upon the rental monies it was receiving on behalf of Trinity. In the face of these conflicting claims, between 6 April 2023 and 20 April 2023 it paid the sum of $19,616.37 to the owners corporation, pursuant to the garnishee order from rental income derived from Trinity’s real property. But after receiving a letter from Mills Oakley, the solicitors for the receiver, on 20 April 2023 it decided to cease making payments either to the receiver or the owners corporation. It has continued ever since to retain and accumulate at the rate of about $20,000 per month the funds it has received, pending resolution of these proceedings.

32. Atidote sought to ascertain the respective positions of the receiver and the owners corporation in the first half of April 2023. Mills Oakley solicitors wrote on behalf the receiver on 20 April 2023 setting out the receiver’s position. In summary that position was that Aquamore (described in Mills Oakley’s correspondence as “the Appointor”) had priority over claims of the owners corporation (described in Mills Oakley’s correspondence as “the Judgment Creditor”) to any funds held by Atidote and to any future income from the property mortgaged to Aquamore.

33. Atidote argued its case in this correspondence based upon the PPSA and its first mortgage security. But its case was ultimately only pressed at the hearing based on the first mortgage security because it became clear that Aquamore’s rights to income from the mortgaged property whilst in possession was “a right to payment in connection with an interest in land”, a right which is excluded from the PPSR’s operation: PPSA s 8(1)(f)(ii).

34. The parts of the Mills Oakley 20 April 2023 letter relevant to the present issue of the claimed priority of the first mortgage over the garnishee order, were the following:

“Mortgage

10.1    Further or in the alternative to the above, the Appointor holds a first-ranking registered mortgage over Company Real Property which gives the Appointor the right to the payment of the Rental Income in connection with the Appointor's interest in the Company Real Property.

10.2    By reason of the Appointor's interest by way of the first ranking registered mortgage, any Rental Income, funds or monies generated from the collateral comprised of the Company Real Property, would be held on trust by Harcourts for the benefit of the Appointor and/or Receiver.

10.3    Accordingly, as the Rental Income would be held on trust by Harcourts for the benefit of the Appointor and/or Receiver, Harcourts would be unable to comply with the Garnishee Order since the Appointor, as a creditor secured by first ranking mortgage, would have priority to the Funds over the Judgment Creditor.

11   Garnishee Order

11 .1   In regard to the Garnishee Order, we note the following:

(a)    the claim of the judgment creditor as garnishor is subject to any rights and equitable interests which existed over the particular debt owed to the judgment debtor before attachment through the garnishee procedure;

(b)    if a third party has a valid lien or charge over the debt prior to the making of the garnishee order, the priority of that claim must be given effect;

(c)    no garnishee order for payment will be made if the judgment debtor's entitlement against the garnishee relates to property in which third parties have a beneficial interest.

11 .2    Accordingly, since the Appointer holds a security interest in the collateral comprised of the Funds, the Appointor has priority over the Judgment Creditor to the Funds.

11.3    Therefore, the Appointor's priority must be given effect such that the Appointor is entitled to the Funds over the Judgment Creditor.

11.4    As a result of the Appointor's priority interest in the Funds and given the funds would be now accruing to the Receiver, Harcourts is unable to comply with the Garnishee Order.

35. Not surprisingly this stand-off soon led to a crisis. No money was available to do repairs and maintenance to the 12 Trinity units, which had begun to fall into disrepair. Units in disrepair can lead to electrical safety issues for tenants and have the potential to create fire and flood risks for the whole building. The tenants in these 12 units began to complain.

36. Mr Makowski and Atidote were now caught in the middle of the demands by Trinity and the owners corporation. Atidote’s solicitors, Duffy Law Group, corresponded with both Mills Oakley and Willis & Bowring, calling for Atidote to be paid its own management fees backdated to the date of the garnishee order, for the owners corporation’s levies to be paid, for urgent tenant repairs to be undertaken from the funds in trust, for the garnishee order to be withdrawn, and for Atidote otherwise to continue to hold the funds subject to a Court determination as to the respective entitlements of the receiver and the owners corporation to those funds. The Duffy Law Group stressed that Atidote was “keen to cooperate with the parties and to perform its duties as trustee”. Regrettably, and surprisingly given the personal safety and building integrity risks involved in doing nothing, no agreement was reached. Antidote could not resolve the dispute on its own. Neither the receiver nor the owners corporation reached agreement or commenced proceedings.

37. So Atidote commenced proceedings for judicial advice in August 2023. In September 2023 the judicial advice application was set down for hearing in December 2023. The acuteness of the growing problem for Atidote as at mid-December 2023 can readily be seen by a quick sketch of the numbers at that time. The total then being held in trust by Atidote was $251,403.69. This represented rental monies paid and accumulated since 20 April 2023. Further rents have since fallen due from the tenants of the 12 Trinity units in the building, adding to this amount. But in December 2023, Atidote had substantial debts outstanding to it for management fees and was looking to pay utilities and rates from the funds it held on trust. Atidote had accrued management fees between September 2022 and April 2023 of $11,795.51 and further management fees between March 2023 and December 2023 of $14,292.94. The 12 apartments had by then accrued outstanding council rates of $13,711.39 and outstanding water rates of $9,673.61.

38. In addition to these outstanding obligations, Atidote had unpaid legal fees for the proceedings. This stand-off meant that Atidote was unable to apply its funds to maintain the 12 Trinity units. The evidence is replete with examples of problems in the 12 Trinity units. These problems had implications for the safety of tenants and the integrity of the building. Mr Makowski’s evidence records substantiated complaints of the following defects, which the Court accepts need to be addressed on an urgent basis:

1. Unit 21 - an electrical fault at a power point has resulted in a tenant receiving an electrical shock.

2. Unit 31 - a broken power point clip has exposed electrical wiring in the bathroom and the tenant has small children.

3. Shops 3 and 4 - the hot water heaters in the shops are not working.

4. Unit 3 - the balcony door of this unit has come off and there is a loose power point in the bathroom.

5. Unit 23 – two light switches popping out of their sockets and there is one loose power point in the unit.

6. Unit 33 - a light switch has collapsed and fallen in it is dangerous.

7. Unit 41 - the shower in this unit is leaking into door frame in main bathroom.

8. Unit 57 - Light switch - switch popping out.

39. It is because of urgent issues such as these that had been raised by tenants, that the Court decided that this matter should be dealt with as a final hearing in the duty list, if the parties were ready to do so and if all issues could be decided on a final basis. Although the Court did not have pleadings, the written submissions of the parties efficiently identified the issues for determination and the parties all consented the holding a final hearing. It was important to eliminate uncertainty about who is responsible for repairs and maintenance of the building erected on the Campbelltown property and to ensure the safety of all its occupants.

Consideration

40. The applicable law may be shortly stated. Civil Procedure Act2005, s 117 provides for the operation of garnishee orders as follows:

“117   Operation of garnishee order in relation to debts

(1)   Subject to the uniform rules, a garnishee order operates to attach, to the extent of the amount outstanding under the judgment, all debts that are due or accruing from the garnishee to the judgment debtor at the time of service of the order.

(2)   For the purposes of this Division, any amount standing to the credit of the judgment debtor in a financial institution is taken to be a debt owed to the judgment debtor by that institution.”

41. Uniform Civil Procedure Rules 2005, rr 39.34 to 39.43A (UCPR) provide for the application for an operation of garnishee orders. UCPR, r 39.39 also provides that a garnishee order takes effect when it is served on the garnishee.

42. The claim of a judgment creditor as a garnishor is subject to any rights and equitable interests which existed over the debt owed to the judgment debtor before attachment through the garnishee procedure: Norton v Yates [1906] 1 KB 112. If a third party has a valid lien or charge over the debt prior to the making of the garnishee order, the priority of that claim must be given effect: MG Charley Pty Ltd v FH Wells Pty Ltd [1963] NSWR 22. No garnishee order for payment will be made if the judgment debtor's entitlement against the garnishee relates to property in which third parties have a beneficial interest: Roberts v Death (1881) 8 QBD 319; Plunkett v Barclays Bank Ltd [1936] 2 KB 107; Bank of New South Wales v Coleman (1898) 14 WN (NSW) 155; and Pogorzelska v Bechara [2015] NSWSC 92 at [30]-[33] per McDougall J. Money held in a bank account on trust for another and not beneficially for the judgment debtor is not attachable: Wentworth v Rogers [2003] NSWSC 472.

43. To analyse the respective claims here, it is important to focus upon the key dates. The agency agreement bound Atidote and Trinity from August 2011. The garnishee order was made on 6 September 2022. After the garnishee order was served on Atidote on 21 September 2022, it paid to the owners corporation all the rental monies then held by it as trustee and continued to pay rental monies it received to the owners corporation until 20 April 2023. During that period, on 18 January 2023, Aquamore took its first mortgage from Trinity over the 12 units. Antidote made one payment of $19,616.37 to the owners corporation between 6 and 20 April 2023. Since 20 April 2023, it is made no payments but has expended funds on seeking judicial advice as a trustee.

44. The issues between these parties are best resolved by dividing the contest into questions that cover different periods.

1. Up to the Service of the Garnishee Order on 20 September 2022. The question which arises in the first period is: what rights does Atidote have against Trinity under the agency agreement to deduct its remuneration and apply the funds held from time to time by it as trustee to pay third parties before remitting those funds to Trinity?

2. Between service of the garnishee order on 20 September 2022 and the appointment of the receiver on 6 April 2023. The question which arises in this second period is: did the garnishee order give the owners corporation any right to the rental income received by Atidote after 20 September 2022? If the garnishee order gave no such right, then there is no priorities contest between the receiver/Aquamore and the owners corporation, because the owners corporation’s rights only attached to debts due to Trinity on 20 September 2022 before Aquamore’s arose, which at the earliest was on 18 January 2023.

3. After 6 April 2023. The questions which arise in this last period will depend upon the answer to question (2). But a question which arises in this period after 6 April 2023 is what rights and obligations exist between Atidote and the receiver in the continuing performance of the agency agreement?

45. These reasons now deal with each of these periods in turn.

(1) Up to the Service of the Garnishee Order on 20 September 2022.

46. The agency agreement confers upon Atidote the authority to apply the fund as trustee for Trinity for two major purposes: (a) paying Atidote for the services it provides under the agency agreement, and (b) meeting Trinity’s liabilities to third parties. For each of these purposes, the Licensee is authorised by the agency agreement to remunerate itself directly from the fund, or to expend money directly out of the fund by making contracts with third parties. In either case it is authorised to make a direct deduction from the fund before giving a monthly statement and paying the balance to Trinity pursuant to clause 6.1.

47. As to purpose (a), remuneration for the services Atidote provides, Atidote is so entitled under clauses 2.12 and 2.2 and Item C of the agency agreement and under clause 3.1 and Item D of the agency agreement to remuneration for other additional services. Both Item C, Licensee’s Remuneration, and Item E, Other Services, allow the Licensee to make deductions from the fund without engaging a third party.

48. As to purpose (b), meeting Trinity’s liabilities to third parties, Atidote is entitled on Trinity’s behalf to engage contractors to effect repairs and maintenance to Trinity’s units: clause 4.1(d) and Item H. Item H gives a direct authority to the Licensee to act on behalf of the Principal "by engaging tradespersons". Atidote is entitled to pay the Principal’s Outgoings, clause 5.1 and Item J, which set up the Licensee as an agent to pay the Principal’s Outgoings as defined.

49. As to the Principal’s Outgoings in Item J, it might at first be thought that no authority to pay Principal’s Outgoings was conferred by the Agency Agreement, because none of the boxes in Item J were ticked. But it is clear from the evidence that the written form of agreement was varied by conduct and as between Trinity and Atidote the agency agreement was conducted over an extensive period on the basis that Trinity gave Atidote actual authority to pay all council rates, water/sewage charges, land tax, insurance premiums and strata title levies, as if each of those boxes in Item J had been ticked. The trust ledgers for the 12 Trinity units show that Atidote paid local government and utility outgoings and indeed all the outgoings arising from the management of each of the units including a wide range of repairs and maintenance, that in practice did not appear to be constrained by any $1000 limit. The agency agreement has been so varied.

50. By Clause 5.1, the Principal "authorises and requests" the Licensee from time to time to pay the itemised Principal’s Outgoings. By Clause 5.1, Trinity appointed Atidote as its agent to make these payments. But not only to make them but to "deduct and retain from monies received on behalf of the Principal not only the remuneration but the entitlement to reimbursement expressly includes Principal’s outgoings: Clause 5.1(b). It is only if the Licensee is unable to deduct and retain from monies received on behalf of the Principal that the Principal agrees to pay those amounts to the Licensee. In other words, the Licensee can look to the Principal as a secondary payer if the fund is insufficient. But the primary way the contract will be performed is by way of deduction from funds in the hands of the agent, the Licensee, Atidote.

51. Here all the money in the fund is held by the trustee, Atidote, from time to time for the benefit of Trinity subject to the operation of clause 6.1 and no other party has an interest in the fund.

52. The garnishee order was effective to attach the quantum of all monies held by Atidote on trust for Trinity that were the subject of a statement Atidote had issued to Trinity by 20 September 2022 under clause 6.1 of the agency agreement and thereby became debts “due and payable” from Atidote to Trinity.

53. Atidote was entitled under clause 6.1 of the agency agreement to deduct its remuneration other amounts applied by it under the agency agreement from monies it paid to Trinity. To the extent that Atidote has paid moneys to the owners corporation under colour of the garnishee order without first making such proper deductions, the quantum of the deductions that could have been made under the agency agreement have been paid by mistake and should now be repaid by the owners corporation to Atidote to be held on trust and applied by it in accordance with the agency agreement.

54. The evidence shows that shortly after the garnishee order was served on 20 September 2022, when pressed by the owners corporation, Atidote made payments to the owners corporation of the monies then in the fund without first making the proper deductions which it would have been entitled to make under clause 6.1 before paying funds to Trinity. The extent of such overpayments will need to be calculated by reference to the clause 6.1 statement issued by Atidote to Trinity before 20 September 2022. Subject to the owners corporation’s defence of change of position and other arguments, which are considered below, Atidote should hypothetically have repaid to it by the owners corporation any amount, which it paid to the owners corporation which exceeds the clause 6.1 statement which was issued by Atidote to Trinity as at 20 September 2022. But for the reasons which follow in the next section no such repayment should be ordered.

1. From the Garnishee Order to the Appointment of the Receiver.

55. At the owners corporation’s urging, Atidote continued to make payments to it under the garnishee order between 20 September 2022 and 6 April 2023. But by Civil Procedure Act2005, s 117 the garnishee order only operates to attach debts “due and accruing” by Atidote to Trinity at the date of service of the garnishee order on 20 September 2022.

56. Authority establishes what was “due and accruing” by Atidote to Trinity within Civil Procedure Act2005, s 117 on 20 September 2022. In Clyne v Commissioner of Taxation (1981) 150 CLR 1 (“Clyne”) a taxpayer had assigned a debt due to him from a bank after the service of a notice under the Income Tax Assessment Act1936, s 218, which allowed the Commissioner to require “any person by whom any money is due or accruing or may become due to a taxpayer” to pay the same to the Commissioner. In holding that the s 218 notice bound the bank to pay the deposits and interest thereon to the Commissioner, Mason J in the majority said (at p 15):

“10.   It is common ground between the parties that Isaacs J. was right in Mack v. Commissioner of Stamp Duties (N.S.W.) [1920 HCA 76; (1920) 28 CLR 373, at p 382 when he said:

‘’Due' is sometimes used in the sense of 'payable'; that, however, is where the context requires it. But, as Mellish L.J. said with reference to the phrase 'debts due', in Ex parte Kemp; In re Fastnedge (1874) L.R. 9 Ch. 383, at p. 387. , 'prima facie' and if there be nothing in the context to give them a different construction, they would include all sums certain which any person is legally liable to pay, whether such sums had become actually payable or not.’

It is also common ground that the word "due" in s. 218(1)(a) in the expression "by whom any money is due or accruing or may become due" means "due and payable". This is because a debt "accruing" signifies a debt which is due but not immediately payable - see the garnishee cases Webb v. Stenton (1883) 11 QBD 518 and Bagley v. Winsome and National Provincial Bank Ltd. (1952) 2 QB 236, at p 240 - and it cannot be that the Commissioner can by notice require a debtor of a taxpayer to pay the money which he owes to the taxpayer before the debt, as between the debtor and the taxpayer, has become payable. It is evident that par. (a) describes a descending order of liabilities.”

57. The two cases referred to by Mason J illustrate the issue well for present purposes. In Webb v Stenton (1883) 11 QBD 518 (“Webb”), the judgment creditor used a garnishee procedure to attach the income of a trust fund held by trustees in which the judgment debtor had a limited interest. Over time the trust fund received and accumulated income that was distributed at intervals to the judgment debtor. The Court of Appeal held that debts “owing or accruing” applied to debts both legal or equitable. But as Lindley LJ explained (at p 527) it cannot be said “that a trustee is indebted to the cestui que trust before he has, or but for some fault of his might have had, the money which it is his duty to hand over” and (at p 528) that monies which “may or may not become payable from trustee to his cestui que trust are not debts”.

58. In Bagley v Winsome and National Provincial Bank (1952) 2 QB 236 at 240, the Court of Appeal declined to attach the credit balance of a judgment debtor’s/customer’s deposit account with a bank as a debt “owing or accruing” within the rules, because under the terms of the contract between the bank and the customer the repayment of the debt to the customer was contingent not just upon the customer giving notice of withdrawal (which had occurred) but by the customer coming to the bank in person with a deposit book (which had not occurred).

59. Finally, it is well-established that a debt conditional upon the happening of a future event is not attachable: Breen v Doyle (1920) 37 WN (NSW) 258 (“Breen”). And where both debt and payment lie in the future the debt is not attachable: O’Driscoll v The Manchester Insurance Committee [1915] 3 KB 499. See also to similar effect, Dunlop & Ranken Ltd v Hendall Steel Structures Ltd [1957] 3 All ER 344; Neustadt v Sammon (1915) 32 WN (NSW) 32.

60. Applying this authority answers the question here: what debts were “due or accruing” from Atidote to Trinity at 20 September 2022. The answer is found in the agency agreement clause 6.1. The Licensee’s contractual obligation is to send to the Principal “a monthly statement giving particulars of monies received and payments made and expenses charges and costs incurred on behalf of the Principal and the remuneration and fees to which the Licensee has become entitled”.

61. Both textual indications and a commercial interpretation of the agency agreement indicate that no debt is “due” between the Licensee until the Licensee has given a clause 6.1 statement to the Principal. Nor can it be said until the moment that a clause 6.1 statement is given to the Principal that a debt is “accruing”. Clause 6.1 requires expressly that upon the sending of the monthly statement to the Principal, “[a]t the same time any balance will be remitted as stated in item K of the particulars.” The sending of the monthly statement creates the obligation on the Licensee to pay a particular “balance” to the Principal for the month after deducting specified amounts for itself. These amounts and the balance are ascertainable only upon service of the clause 6.1 statement and not before.

62. Clause 2.2 reinforces this conclusion. It makes the Licencee’s Management and Administration fees simultaneously “due and payable [to the Licensee] on the date of the monthly statement referred to in clause 6.1”. It is logical that the Management and Administration fees would become due and payable at the same time as the Licensee’s obligation to pay the Principal, because these fees are deducted from the amount paid by the Licensee to the Principal.

63. The operation of the agency agreement also reinforces this interpretation. Because of poor rental receipts in a particular month or excessive costs no balance may be found to be due to the Principal in a particular month. Whether anything is due and payable to the Principal will depend upon a monthly accounting of unpredictable future financial events, which are only ascertained by the Licensee’s accounting at the end of each month and recorded in the clause 6.1 statement. The situation here is like that in Webb: balances that may become payable in future monthly statements are monies which “may or may not become payable from trustee [Atidote] to his cestui que trust [Trinity]” and “are not debts”. Applying the principle stated in Breen, a debt conditional upon the happening of a future event, here the event of issuing of a clause 6.1 statement showing a balance due to Trinity, is not attachable:

64. Therefore, the garnishee order does not capture as “due and accruing” within the Civil Procedure Act s 117, the balance due to Trinity in any monthly statements that Atidote issued to Trinity after the service of the garnishee order on 20 September 2022. Whether such statements issued and in what future sum was entirely contingent upon circumstances beyond the control of either party. It cannot be said that future (that is after 20 September 2022) clause 6.1 statements created debts that were “due and accruing” as at 20 September 2022.

65. Mr Stomo argued on behalf of the owners corporation that the garnishee order makes clear it is not only the amount due at the date of the garnishee order but also all future liabilities that are “accruing”. He submits that as the rents are paid to Atidote, the liability to pay Trinity arises simultaneously and the garnishee order can have continuing effect. This is inconsistent with authority and the Court’s construction of the agency agreement and is not accepted. Mr Stomo also argues that Trinity is primarily liable to pay utility fees and council rates and always has responsibility for those payments. This is true but beside the point because the agency agreement authorises Atidote to make such payments in the first instance.

66. The owners corporation therefore has no entitlement to monies held by Atidote on trust for Trinity that were not the subject of any statement issued by Atidote to Trinity under clause 6.1 of the agency agreement by 20 September 2022. To the extent that Atidote has paid any such funds to the owners corporation they have been paid by mistake and subject to a priorities argument advanced by receiver in relation to the Vanguard first mortgage and subject to the owners corporation’s defence of change of position, these monies would have to be repaid in full.

67. As to the receiver’s Vanguard priorities argument, the receiver contends that Vanguard’s registered mortgage had the effect for the whole relevant period from 20 September 2022 until January 2023 of securing for Vanguard the rental proceeds of the 12 Trinity Apartments which were security for Vanguard’s first mortgage. There is no doubt that Vanguard’s first mortgage of February 2022 potentially had this effect. But the receiver further contends that as Aquamore refinanced Vanguard’s first mortgage that Aquamore is subrogated to all Vanguard’s rights under Vanguard’s first mortgage and therefore has priority over the garnishee order made whilst the Vanguard first mortgage was in place. The receiver’s argument continues that it is clear that a garnishor, such as the owners corporation, is not a competing secured creditor: Secure Funding Pty Ltd v Bettini [2011] NSWSC 557 at [7] – [11]. Therefore, by the operation of documents of subrogation, Aquamore continues to have a claim in priority over the owners corporation.

68. This argument is not persuasive. Had the Vanguard mortgage remained on foot and had Aquamore paid out that mortgage and taken an assignment of it, doctrines of subrogation may have been engaged. But that is not what happened. Aquamore took a fresh mortgage on 18 January 2023 and its rights arise no earlier than that date. And the Vanguard first mortgage was discharged on 7 February 2023.

69. As to the owners corporation’s change of position defence, the receiver submits that neither Atidote nor the receiver is making a claim in restitution for a mistaken payment against the owners corporation and so the defence does not apply. The receiver submits that the claim made is a statutory one under either Civil Procedure Act, s 124A or UCPR, r 39.41

70. Civil Procedure Act, s 124 allows a judgment creditor (here the owners corporation) to enforce a garnishee order against the garnishee who disputes liability to pay the debt to the judgment debtor. Civil Procedure Act, s 124A also gives a remedy to the judgment debtor (here Trinity and later the receiver) to vary or suspend repayment under the garnishee order. Section 124A provides as follows:

The court may, at any time on the application by a judgment debtor, vary or suspend the making of payments by the judgment debtor under a garnishee order, or order the total amount paid by the judgment debtor under the garnishee order to be repaid, if the court is satisfied that it is appropriate to do so.

71. An advantage of Civil Procedure Act, s 124 here is that it gives the Court the broad discretion to “order the total amount paid by the judgment debtor under the garnishee order to be repaid, if the court is satisfied that it is appropriate to do so.” The receiver is the agent of the judgment debtor, Trinity, and is making claim for the repayment of the monies paid under the garnishee order. The receiver can use this provision to bring the current contest to a resolution by asking for the amount paid under the garnishee order to be repaid to the garnishee, Atidote.

72. The other relevant provision is UCPR r 39.41 which it was suggested in submissions might also provide a remedy to the garnishee (Atidote). UCPR r 39.41 provides as follows:

“(1) This rule applies in circumstances in which the garnishee claims that some person, other than the judgment debtor, is or may be entitled to--

(a) any money paid under a garnishee order, or

(b) any debt, wage or salary attached by a garnishee order, or

(c) any charge or lien on, or other interest in, any such money, debt, wage or salary.

(2) In these circumstances, the court may hear and determine the garnishee's claim and give such judgment or make such order in respect of the claim (including an order barring the claim and an order for the payment into court by a judgment creditor of money received under the garnishee order) as the nature of the case requires.”

73. Here, Atidote claims not that that the judgment debtor, Trinity, is entitled to the money it paid to the judgment creditor, the owners corporation but that the mortgagee, Aquamore, is entitled to it. UCPR, r 39.41 is also available to Atidote in the present circumstances.

74. It can be accepted that the claim made here by the receiver has a statutory basis in Civil Procedure Act, s 124A and the claim by Atidote has a statutory basis in UCPR r 39.41. But were Civil Procedure Act, s 124A or UCPR, r 39.41 not available the claim would indeed be by the payer, Atidote, in restitution for its mistaken payment. The discretion conferred by each of Civil Procedure Act, s 124A and UCPR, r 39.41 is broad enough to allow the Court to apply the principles upon which restitutionary relief is ordinarily grounded and defences to such relief are usually upheld.

75. But the Court must apply the words of Civil Procedure Act, s 124A and UCPR, r 39.41, which do not limit the granting of relief only to circumstances where some other general law remedy would be available. Nevertheless, the orders that would follow from the application of other available general law remedies can inform the Court deciding what order “is appropriate” under Civil Procedure Act, s 124A and what “the nature of the case requires” under UCPR, r 39.41. Here, apart from Civil Procedure Act, s 124A and UCPR, r 39.41, a claim in restitution would be available to antedate together with the defences to the claim.

76. The High Court’s decision in David Securities Pty Ltd v Commonwealth Bank of Australia (1991) 175 CLR 353 (“David Securities”) is authority for the proposition that a restitutionary remedy lies for a payment made due to a mistake of fact or of law. In David Securities (at 385) the central element of the defence of change of position was identified as being: “that the defendant has acted to his or her detriment on the faith of the receipt”; the defendant must be able to “point to expenditure or a financial commitment which can be ascribed to the mistaken payment”; but the defence cannot be made out if the defendant has simply spent the money received on ordinary living expenses.

77. Pursuant to the garnishee order, Atidote has paid the owners corporation a total of $140,063.23. The correspondence shows that the owners corporation proceeded in making its demands upon the genuine belief that it was entitled to this sum, which was reinforced by Atidote’s subsequent payment.

78. The receiver argues that the owners corporation has not changed his position on the faith of the payment. The receiver submits that all that has happened is that in order to undertake necessary repairs to the common property of the strata plan the owners corporation has used the funds obtained by the garnishee order and that if those funds are repaid that all the owners corporation has to do is to issue a special levy to obtain replacement funds from the members of the owners corporation.

79. But analysis of the facts shows that the situation is more complex than this from the owners corporation’s perspective. In addition to the estimated costs of the defective work detailed earlier in these orders, other serious defects in Trinity’s construction of the building on the Campbelltown property have emerged at the site. One major defect is that the doorframes around the unit entry doors have not been filled with fire retardant materials. This has resulted in a development control order being issued by the Campbelltown City Council. The cost to rectify the doorframes of these fire doors is estimated to be $239,998.80.

80. Mr Lee Kirkpatrick, the managing agent appointed by the owners corporation says, and the Court accepts, that the owners corporation is not in a financial position to raise the funds to comply with the Council’s development control order and as a result the owners corporation is non-compliant in relation to the submission of an Annual Fire Safety Statement required under the Environmental Planning and Assessment (Development Certification and Fire Safety) Regulation 2021. Current owners of the units within the building, apart from the 12 Trinity units are understandably finding it difficult to fund the additional levies required to maintain the property and keep it fire safety compliant. Levies on the 12 Trinity units have been in default since late November 2023. As a result of the defects, the units have lost significant value estimated to be in the order of 15% to 20% from their market value. Tenders have been obtained for rectification of the defective work resulting in current estimates for rectification of between $5.8 million and is a $8.3 million. Mr Kirkpatrick says, and the Court accepts, that it is likely that apart from Trinity’s financial distress many of the remaining 52 of the 64 unit owners will find it difficult, if not impossible, to meet the extra financial burden of undertaking these rectification works. The owners corporation’s cash position is stretched. It holds $93,000 in its capital account, $86,000 of which came from Trinity so Trinity could vote on the motion to proceed with the current application before the Court. The owners corporation has obtained a loan of $250,000 to make the fire doors compliant. The owners corporation will need to apply for further loans to fund the balance of the rectification works. This will undoubtedly require significant cooperation among existing owners, who the evidence suggests will struggle to fund those works.

81. In this environment of tight financial budgeting against large looming liabilities, the owners corporation needed to make careful decisions about how it applied the $140,063.23 it obtained from Atidote. It decided to use the funds to meet specific repairs and maintenance to the common property, which are evidenced by invoices. The decision involved allocating the funds as between the capital and administrative fund maintained by the owners corporation and by spending it on repairs and maintenance in the short term, rather than allocating it to rectify its fire safety non-compliance capital liability. This decision of the owners corporation involves an implicit assumption that there would probably be no competing later call upon the owners when the owners corporation sought to raise a levy to achieve fire safety compliance. But that the assumption behind that judgment will be falsified if the court now orders the owners corporation to repay the funds to Atidote. The owners corporation will now have to face the competing considerations of a levy to prioritise fire safety, or a levy to repay Atidote, or issuing two levies that will probably reduce the chance of both being satisfied at the same time. It is not difficult to infer that had the owners corporation not received the $140,063.23 from Atidote when it did, it may well have deferred its expenditure on repairs altogether and focused on raising funds from owners to achieve the important objective of fire safety compliance. But now it cannot focus on that important objective without twinning it with the difficult fundraising exercise to raise the money to refund the $140,063.23 to Atidote.

82. The situation that the owners corporation faces is not at all like a defendant who cannot take advantage of a change of position defence because the monies received have been expended on ordinary living expenses. Here, the owners corporation’s decision on the faith of the payment has prejudiced later capital spending decision.

73. The Court will therefore not order the repayment to Atidote of the $140,063.23 it paid to the owners corporation.

(3) After 6 April 2023

84. Several issues of relevance during this period need comment.

85. There is no priorities contest between the receiver and the owners corporation after 6 April 2023. For the reasons stated earlier the garnishee order does not apply to any rental or other monies paid to Atidote after 20 September 2022 under the agency agreement. And Aquamore is entitled as the first mortgagee under the security of its mortgage to the benefit of income received from the 12 Trinity units at least from the time that the receiver was appointed.

86. No other priorities issue arises between Trinity and the receiver on one side and the owners corporation on the other after 6 April 2023. There was discussion during the hearing as to whether the owners corporation may have a statutory charge to secure the payment of strata fees and levies imposed by the owners corporation over those units. But the owners corporation does not have a charge over the 12 Trinity units for unpaid strata fees and levies. Rather it may merely recover unpaid contributions as a debt in a court of competent jurisdiction: Strata Schemes Management Act2015, s 86(2A).

87. During this period the agency agreement has continued in operation and was not terminated by the receiver. The receiver does not contest that after 6 April 2023 that Atidote should continue to manage the 12 Trinity units in accordance with the agency agreement. During this period Trinity has received through its agent, the receiver, the benefit of Atidote’s performance of the agency agreement. Atidote is only obliged to remit to Trinity (acting through its agent, the receiver) the funds it receives from the tenants of Trinity’s units in accordance with the rights and obligations of the parties to the agency agreement as determined in these reasons. No question of contested priorities arises between Atidote and the receiver. If the receiver, acting on behalf of Trinity, seeks to take the benefit of the agency agreement then he must do so on the terms of that agreement. And those terms include, as these reasons have determined, that Atidote should pay local government and utility outgoings and all the outgoings arising from the management of each of the units including repairs and maintenance.

88. The $19,616.37 Atidote paid to the owners corporation between 6 and 20 April 2023 should be treated on the same basis as the payments made between 20 September 2022 and 6 April 2023 from Atidote to the owners corporation and need not be repaid for the same reasons as for the earlier period.

Conclusions and Orders

89. The parties need certainty in their continuing legal relations. This judgment has attempted to provide it. If any residual issues persist between the parties that have not been addressed by these reasons, then the parties are invited to contact my Associate to relist the matter to ensure those issues are resolved. If any party wants formal declarations to be made to reflect the conclusions reached in these reasons, then they are at liberty to submit a draft declaration for consideration. Draft declarations were provided by the owners corporation but any declarations sought to be made should be recrafted in light of these reasons.

90. This conclusion raises considerations of what costs orders should be made. Atidote as a trustee of the fund has an arguable case for having all its own legal and other costs associated with resolving the present contest on the indemnity basis out of the fund. Legal principle has long held trustees such as Atidote harmless from the obligations attaching to the performance of the office as a trustee. It is well established that where a trustee acts within power to make a contract with a third person during the administration of a trust the trustees are entitled to reimbursement or to apply the trust property in discharging that obligation: Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226.

91. Atidote has conducted itself reasonably and properly throughout. It has sought but has not received cooperation from the owners corporation or the receiver. Atidote has generally been successful against the other parties. But subject to hearing from the parties about this issue, it does not presently appear to the Court that any order for costs should be made against it in favour of any other party.

92. The receiver accepts that by reason of its general indemnity under clause 8, Atidote’s legal fees of these proceedings can be deducted from the funds it collects and holds on trust for Atidote. Although there is no issue that Atidote can have its costs of these proceedings out of the trust fund, if successful the receiver seeks to be heard, on whether a costs order should be made against the owners corporation in substance to reimburse the fund. But the owners corporation submits that Atidote should not have its costs because the contest was always in substance one between Trinity and the owners corporation and Atidote could have just paid the funds into Court rather than seek judicial advice.

93. There are likely to be several problems with this submission, if it is to be developed. Atidote had continuing duties as trustee under the agency agreement and the PS Act. It had continuing contractual arrangements with the receiver to administer the 12 Trinity units. It needed to be ready to perform that agreement. It was not realistic for it to just pay funds into Court when it had continuing responsibilities under the agency agreement to use the fund to meet expenses of the principal. As a trustee with continuing obligations such as these, it was entitled to approach the Court for judicial advice under Trustee Act 1925, s 63, when it was facing irreconcilable demands by Vanguard and later the receiver on the one side and the owners corporation on the other side.

94. And the owners corporation pushed Atidote hard. When demanding compliance with the garnishee order from Atidote, the owners corporation threatened that if Atidote did not comply with the garnishee order that the owners corporation could obtain judgment directly against Atidote for the amount in issue. Whilst this was a correct explanation of the powers of the court available under Civil Procedure Act, s 124 (1)(b), it gave Atidote little room for manoeuvre. Its decision not to pay the funds into Court was reasonable.

95. But as between the other parties, it appears that the receiver has been more successful in its contentions than the owners corporation and should probably have its costs against the owners corporation. But the receiver and the owners corporation may wish to put submissions to support some other costs order or a special costs order.

96. For these reasons the Court makes the following orders:

1. In these orders the following expressions have the following meanings

1. “the Campbelltown units” means the 12 units in the property at [address not published, Campbelltown NSW 2560] owned by the first defendant

2. “the fund” means the trust fund held by the plaintiff as trustee for the first defendant under the authority of the agency agreement for the management of the Campbelltown units made between the plaintiff and the first defendant on 3 August 2011.

2. The parties are directed to bring in short minutes of order to give effect to these reasons.

3. The parties have liberty to apply before Friday, 12 April 2024, to address any issues that have not been resolved by these reasons about Atidote’s administration of the fund under the agency agreement.

4. Grant liberty to apply before Friday, 12 April 2024 in relation to

1. any adjustment to the orders or any issue arising out of their implementation, or

2. any issue of costs.

5. These proceedings are listed for further hearing at 9:30 AM on 29 April 2024 (or such other time arranged with the Associate to Slattery J) to deal with any matters arising under (4) provided that each party serves any additional evidence and written submissions relating to those matters by Friday, 12 April 2024

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Amendments

02 April 2024 - Order 5 - next listing date changed to 29 April 2024

02 April 2024 - Coversheet: cases and legislation citations corrected

[2] comma added in sixth line, after "agreement"

[4] sixth line, "to issue" changed to "to be issued"

[24] within quotation , line three, second "of" deleted" before "$2,411.23"

[25], [26], [27], [28] references to "Wills and Bowring" changed to "Wills & Bowring"

[33] sixth line, "PPSR" changed to "PPSA".

[55] first line, comma added after "urging"

[56] within quotation commas corrected.

[59] case reference corrected.

[80] fourth line, "Corporation" changed to "corporation"

02 April 2024 - Order 5 - 27 April changed to 29 April 2024

Decision last updated: 02 April 2024