Australian Lending and Finance Pty Ltd (in liq) v Daoud

[2024] NSWSC 1014

Supreme Court

New South Wales

Medium Neutral Citation:

Australian Lending and Finance Pty Ltd (in liq) v Daoud [2024] NSWSC 1014

Hearing dates:

9 August 2024

Date of orders:

14 August 2024

Decision date:

14 August 2024

Jurisdiction:

Equity

Before:

Pike J

Decision:

(1)   Declare that the plaintiff’s interest in the property known as 95 Rex Road, Georges Hall, NSW, 2198 (Lot 802 in Deposited Plan 1059065) has priority to the interest of the third defendant and any other person or entity who claims an equitable interest in that property.

(2)   Order that a copy of these orders and reasons for judgment be served by the plaintiff on each of Gebraad Pty Ltd, Omar Mohamad El Chami and Business Fuel (Cash Advance) Pty Ltd.

(3)   Order that any application by any of Gebraad Pty Ltd, Omar Mohamad El Chami or Business Fuel (Cash Advance) Pty Ltd to set aside or vary these orders be filed (with a copy provided to the chambers of Pike J) by 4pm on 11 September 2024.

(4)   Order that if no application to set aside or vary these orders is filed by 4pm on 11 September 2024, the monies paid into Court be paid out to the plaintiff.

(5)   Order that there be no further order as to costs with the intent that, to the extent not previously ordered, each party pay their own costs of the proceedings.

Catchwords:

EQUITY – equitable interests in property – priority of interests – where net sale proceeds from sale of property paid into Court – whether plaintiff’s rights or interest had merged with earlier orders of the Court after entry into a deed of settlement – where plaintiff’s interest first in time prevails

Legislation Cited:

Civil Procedure Act 2005 (NSW) s 98

Real Property Act 1900 (NSW) s 57

Cases Cited:

Applications of Bizcap AU Pty Ltd; Applications of Hengyi Zhao, Applications of FundIT Ltd [2024] NSWSC 588

Australian Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99

Avco Financial Services Ltd v Fishman [1993] 1 VR 90

Dwyer v Caird (1888) 9 LR (NSW) 119

Texts Cited:

Nil

Category:

Principal judgment

Parties:

Australian Lending and Finance Pty Ltd (Plaintiff)
George Daoud (First Defendant)
Rita Daoud (Second Defendant)
Thunwarat Rattanachatwijit (Third Defendant)
Adbri Masonry Pty Ltd (Fourth Defendant)
Hy-Tec Industries Pty Ltd (Fifth Defendant)
DebtCo Pty Ltd (Sixth Defendant)

Representation:

Counsel:
R Notley (Plaintiff)
S Fisher (Sixth Defendant)

Solicitors:
ERA Legal (Plaintiff)
Patane Lawyers (Fourth and Fifth Defendants)
Francom Legal (Sixth Defendant)

File Number(s):

2023/00435653

Publication restriction:

Nil

JUDGMENT

Introduction

1. In or about February 2024, $227,437.54 was paid into Court. The money represents the net proceeds of the sale of a property formerly owned by the first and second defendants (the Daouds) and located at Rex Road, Georges Hall, NSW (Rex Road Property).

2. These reasons deal with who is to receive this money.

3. The plaintiff (ALF) by its amended summons contends that the entire amount should be paid to it.

4. The sixth defendant (DebtCo) filed a notice of motion dated 5 April 2024, contending that the money should be paid in the following priority:

1. DebtCo; then

2. to the fourth defendant (Adbri); then

3. to the fifth defendant (Hy-Tec); and

4. the balance of the monies to ALF.

5. These proceedings were heard by me on 9 August 2024. Mr R Notley appeared for ALF, Mr SC Fisher for DebtCo and Ms K Kalkman (solicitor) for Adbri and Hy-Tec. At the commencement of the hearing, Ms Kalkman informed the Court that Adbri and Hy-Tec neither consented nor opposed the relief sought in the amended summons and DebtCo’s notice of motion and would only wish to be heard if any other party sought an adverse costs order against Adbri and/or Hy-Tec.

6. Part way through the hearing, I was informed that ALF and DebtCo had reached agreement on DebtCo’s notice of motion and by consent of those parties, I made orders dismissing the motion and ordering DebtCo to pay ALF’s costs of the motion in the agreed sum of $7,500.

7. As a result, all that remained to determine in terms of primary relief was whether I am satisfied that the orders sought by ALF should be made. These reasons deal with that issue.

8. For the reasons set out below, I am satisfied that the orders sought should be made.

9. At the conclusion of the hearing, Mr Notley indicated that if the Court was satisfied that the orders sought by ALF should be made, he also sought an order that Adbri and Hy-Tec pay ALF’s costs of the proceedings. Ms Kalkman opposed any such order. In the interests of efficiency, I heard submissions on this and I determine costs at the conclusion of these reasons.

Background to the hearing

10. These proceedings were commenced by ALF on 1 December 2023 before the Duty Judge. ALF sought an extension of its caveat. Hy-Tec and Adbri were joined as defendants on 6 December 2023. Orders were also made on that date requiring the net proceeds from the sale of the Rex Road Property be paid into Court after paying out the secured lender – Westpac.

11. On 21 March 2024, DebtCo was ordered to file any notice of motion regarding a claim on the monies paid into Court by 4 April 2024.

12. Directions were made on 11 April 2024 for ALF, Adbri and Hy-Tec to file any evidence in reply to DebtCo’s evidence by 23 April 2024 with any evidence in reply from DebtCo to be filed by 7 May 2024.

13. On 14 May 2024 DebtCo’s motion was listed for hearing before me on 9 August 2024. On 27 June 2024 I ordered that the claims for relief in the amended summons also be listed for hearing before me on 9 August 2024.

14. There were previously a number of caveats registered on the title of the Rex Road Property. Annexed to these reasons is a table prepared by ALF which summarises the details in relation to the caveats.

15. Having regard to the affidavit of Denise Wright in evidence before me, I am satisfied that each of the caveators set out in the annexure, save for Gebraad Pty Limited (Gebraad), Omar Mohamad El Chami (El Chami) and Business Fuel (Cash Advance) Pty Ltd (Business Fuel) have been given adequate notice of the underlying priority dispute and have chosen not to participate in it.

16. I deal later in these reasons with whether notice should now be given to Gebraad, El Chami and Business Fuel.

The relevant facts

17. The relevant facts may be summarised as follows.

ALF’s position

18. ALF was formerly known as DCF No. 1 Pty Limited from 7 October 2015 to 4 June 2018.

19. On 8 December 2023, it was placed into provisional liquidation and Mr Darren Vardy (Mr Vardy) was appointed as provisional liquidator. On 22 February 2024, it was placed into liquidation by order of the Federal Court and Mr Vardy was appointed as liquidator.

20. On or about 13 July 2016:

1. ALF as lender entered into a facility agreement (Facility Agreement) with D&D Properties Australia Pty Limited as trustee for the D&D Property Trust as borrower (D&D);

2. ALF entered into a deed of guarantee with, inter alia, the Daouds with respect to the first borrower’s obligations under the Facility Agreement (Deed of Guarantee); and

3. four mortgages were granted to ALF as security for D&D’s obligations under the Facility Agreement and the guarantors’ obligations under the Deed of Guarantee, being relevantly:

1. over a property at Simpson Street, Auburn (Simpson Street Property)– which was subsequently registered;

2. over the Rex Road Property – which was not registered (Rex Road Mortgage);

3. over a property at Chisholm Road, Auburn (Chisholm Road Property) – which was not registered; and

4. over a property at Gordon Road, Auburn (Gordon Road Property) – which was subsequently registered.

21. Item 2 of the Schedule to the Deed of Guarantee, records that the Rex Road Mortgage was granted by the Daouds. The other mortgages were granted by other parties – either D&D as borrower or the other guarantors.

22. Pursuant to the Rex Road Mortgage the Daouds mortgaged to ALF all of their estate and interest in the Rex Road Property and covenanted with ALF that the provisions set out in the memorandum with registered dealing number AG 588734 (Memorandum) were incorporated into the Rex Road Mortgage. The terms of that Memorandum were in a relatively standard form. They relevantly included:

1. pursuant to clause 2.1, the Daouds charged the “Secured Assets” to ALF for payment of the “Secured Money” and to secure performance of the obligations owed by the Daouds to ALF;

2. pursuant to clause 2.3, the Rex Road Mortgage secured payment of the “Secured Money” and the Daouds were obliged to pay to ALF the “Secured Money” on the date agreed between the parties or, if there was no agreement, on demand;

3. clause 13 defined “Secured Assets” to mean, inter alia, the Rex Road Property, any contract or agreement in relation to the Rex Road Property (including any agreement for sale) and the right of the Daouds to receive any money in respect of the Rex Road Property;

4. clause 13 defined “Secured Money” to mean all money which directly, indirectly, contingently or otherwise at any time is or becomes due by the Daouds (whether alone or not) to ALF for any reason;

5. clause 10.1 made it an “Event of Default” under the Rex Road Mortgage if any indebtedness or obligation of the Daouds to any person, including ALF, was not paid, met or satisfied when due;

6. clause 10.2 permitted ALF, upon an “Event of Default”, to, inter alia, demand and require immediate payment of the “Secured Money” and exercise any right, power, or privilege conferred by law, equity or the Rex Road Mortgage;

7. clause 10.9 permitted ALF to exercise any of the powers under the Rex Road Mortgage whether or not in conjunction with any other property and despite any variation or partial discharge or other dealing with the Rex Road Mortgage or any other security for the Secured Money; and

8. clause 12.1 required the Daouds to pay ALF’s costs, charges and expenses in connection with any exercise of its rights, including ALF’s reasonable internal administration costs and legal costs and expenses on a full indemnity basis or solicitor and own client basis, whichever is higher.

23. On 15 July 2016, ALF lodged a caveat on the title to the Rex Road Property – caveat AK 594804M. The caveatable interest is said to be:

Equitable mortgage to secure moneys owed from time to time by the Registered Proprietors as Borrowers and/or Guarantors to the Caveator.

24. The instrument referred to is an equitable mortgage dated 13 July 2016 between DCF No. 1 Pty Limited as mortgagee and the Daouds as mortgagors.

25. On or about 10 October 2016, D&D (as borrower), the guarantors (including the Daouds) and ALF entered into a deed of amendment to the Facility Agreement which increased the limit of the facility to $3,570,684.64. The document contains an acknowledgement by the guarantors that the guarantees remain in effect.

26. On 23 June 2020, ALF commenced proceedings in the Supreme Court of NSW against D&D as borrower, and each of the guarantors, in relation to the Facility Agreement, guarantee and mortgages (2020 Proceedings). The statement of claim sought, inter alia:

1. judgment for a monetary sum – being $10,918,561.80;

2. possession of the Gordon Road Property, the Rex Road Property and the Chisholm Road Property; and

3. leave to issue a writ of possession for the land comprising the Gordon Road Property, Rex Road Property and the Chisholm Road Property.

27. On or about 8 November 2021, the 2020 Proceedings were resolved by a deed of settlement entered into between ALF, D&D and each of the guarantors (Deed).

28. The effect of the Deed was that D&D and the guarantors, jointly and severally, agreed to pay ALF $1 million (clause 3.1) within four months of the date of execution (clause 3.2). The Deed also provided that all security held by ALF relating to the Facility Agreement, and including the Rex Road Mortgage, would only be discharged upon receipt by ALF of the settlement sum in full in accordance with clause 3.2 of the Deed.

29. The Deed also provided in clause 5 that upon its execution, the 2020 Proceedings would be discontinued, but otherwise provided that in the event that D&D and the guarantors failed to make payment of the settlement sum within the time stipulated, the amount of the settlement sum, less any amounts received in partial satisfaction of it, would become immediately due and payable by the borrower and the guarantors to ALF, and ALF would be at liberty to apply to the Court, by reinstatement of the 2020 Proceedings or otherwise, for default judgment against any one or more of D&D and the guarantors (clause 3.4).

30. The Deed also recorded in the Introduction the fact that D&D’s obligations under the Facility Agreement were secured by the four mortgages, including the Rex Road Mortgage and that default notices under s 57(2)(b) of the Real Property Act 1900 (NSW) had been issued.

31. The 2020 Proceedings were subsequently discontinued upon execution of the Deed.

32. On 17 November 2022, ALF filed a notice of motion for default judgment in the 2020 Proceedings on non-payment of the settlement sum.

33. On 31 March 2023, Lindsay J made the following orders and notations in the 2020 Proceedings without objection by the guarantors (31 March 2023 Orders):

1. ordered that the 2020 Proceedings be reinstated for the purpose of giving effect to the Deed;

2. noted that ALF informed the Court that the borrower, D&D, had been deregistered;

3. entered judgment in favour of ALF against the guarantors, including the Daouds for the sum of $1,043,427.40;

4. entered judgment in favour of ALF for possession of the Gordon Road Property;

5. ordered that ALF be granted leave to issue a writ of possession by way of enforcement of the judgment for possession;

6. ordered that execution of the writ be stayed up to and including 29 May 2023;

7. ordered that the guarantors pay ALF’s costs of the notice of motion for default judgment in the sum fixed of $18,000 inclusive of GST;

8. ordered that the above orders be entered forthwith.

34. Mr Vardy deposed to the fact that the total amount owing by the Daouds pursuant to the 31 March Orders 2023, as at 27 May 2024, $1,183,674.55.

35. On 13 April 2024, ALF sold the Gordon Road Property at auction for $1,030,000. Completion occurred on 28 May 2024.

36. ALF incurred expenses with respect to the sale of the Gordon Road Property and has also incurred costs of the liquidator and legal costs and expenses in connection with the exercise of its rights under the Rex Road Mortgage and the Gordon Road Mortgage. Mr Vardy deposed to the fact that even if the full amount of the money paid into Court is paid to ALF, there will still be a shortfall of $186,917.94 with respect to the monies owed by the Daouds to ALF.

DebtCo’s position

37. On or about 28 March 2018, Prospa Advance Pty Limited (Prospa), TRD Constructions Pty Limited (TRD) and the first defendant (George Daoud) as a guarantor entered into a loan agreement (Agreement). Pursuant to the Agreement, Prospa agreed to loan to TRD Constructions an amount of $50,000 for a period of 12 months.

38. Pursuant to clause 13 of the Agreement, each guarantor, including George Daoud, guaranteed to Prospa the due and punctual payment, performance and observance by TRD of all of its liabilities and obligations to Prospa. Pursuant to clause 2 of the Agreement, each “Transaction Party”, which included each guarantor, in the event of an occurrence of an “Event of Default”, granted security over all of its assets.

39. On 22 January 2019, Prospa registered a caveat (AP 13734) against the interest of George Daoud in the Rex Road Property. The estate or interest claimed as set out in the caveat is a “charge” by virtue of an agreement between the parties dated 27 March 2018.

40. On or around 30 June 2021, it is contended that Prospa formally assigned all of the title, right and interest to the debt and Agreement to DebtCo. I say it is contended because no document was put into evidence recording the assignment.

41. On or around 3 July 2021, a notice of assignment was sent to George Daoud on a joint letterhead from both Prospa and DebtCo.

42. On 3 December 2021, as a result of TRD and George Daoud having failed to repay any amount payable under the Agreement, DebtCo filed a statement of claim in the Parramatta Local Court against George Daoud to recover the amounts owing by George Daoud to DebtCo.

43. On 27 January 2022, DebtCo was awarded default judgment for the amount of $40,492.75 against George Daoud. None of that judgment debt has been paid.

44. As at 5 April 2024, it is contended that the judgment amount is $50,478.73, being the amount of the default judgment plus interest pursuant to s 101 of the Civil Procedure Act 2005 (NSW) (the Act) in the amount of $7,428.68, and enforcement costs in the amount of $2,557.30. This was further updated on 7 August 2024 to $59,324.70.

Adbri’s position

45. On or around 31 October 2017, TRD entered into a credit agreement with Adbri pursuant to a form titled “Application for Commercial Credit”. On the same day, and in consideration of Adbri entering into the credit agreement with TRD, George Daoud granted a guarantee and indemnity to Adbri, guaranteeing to Adbri the payment of all amounts whatsoever owing or unpaid by TRD to Adbri.

46. Pursuant to clause 10 of the guarantee, George Daoud granted to Adbri a fixed charge over all present and after-acquired property of George Daoud to which George Daoud cannot be a grantor of a security interest under the PPSA. A security interest was otherwise granted over all present and after-acquired property of George Daoud in relation to which George Daoud can be grantor of a security interest under the PPSA. The guarantee also permitted Adbri to lodge a caveat over George Daoud’s property (see clause 10.2).

47. On 18 April 2019, Abri lodged a caveat against George Daoud’s interest in the Rex Road Property (caveat AP 200131). The estate or interest claimed as set out in the caveat is a “charge” by virtue of an agreement dated 31 October 2017. The details supporting the claim set out in the caveat are to the following effect:

The caveator is owed $4,729.13 pursuant to an equitable charge arising from a Deed of Guarantee Indemnity and Charge dated 31 October 2017 granted by George Daoud to the Caveator and entitling the Caveator to an equitable charge over the property.

Hy-Tec’s position

48. On or about 16 May 2017, TRD entered into a credit agreement with Hy-Tec, as set out in the form “Application for Commercial Credit”. On the same day, and in consideration of Hy-Tec entering into the credit agreement with TRD, the Daouds granted a written guarantee and indemnity to Hy-Tec guaranteeing to Hy-Tec payment of all amounts whatsoever owing or unpaid by TRD to Hy-Tec. The terms of the guarantee were relevantly similar to the guarantee made by Mr Daoud to Adbri.

49. Hy-Tec subsequently lodged a caveat on the Rex Road Property on 31 January 2019. The interest claimed is a “charge” created by a personal guarantee dated 16 May 2017.

Overview of ALF’s contentions

50. ALF’s position was quite straight forward. It contended, in essence, that where the equities are equal, and there was no disentitling conduct, ALF’s interest as the first in time should take priority. Further, there was no res judicata with respect to any cause of action ALF may have against the Daouds under the Rex Road Mortgage.

Determination

51. I am satisfied that ALF ranks first in priority and all of the monies paid into Court should be paid to it.

52. The order in which the monies should be paid out is to be determined by reference to the principles applicable where there are unregistered equitable dealings.

53. Having regard to the schedule to these reasons, it will be seen that each of ALF, Adbri, Hy-Tec, DebtCo and the other caveators have an unregistered equitable interest in the Rex Road Property – ALF pursuant to an unregistered mortgage and Adbri, Hy-Tec and DebtCo pursuant to unregistered charges.

54. The authorities relevant to the determination of claims of competing equitable interests were comprehensively reviewed by Ward JA (as the President then was) (with whom McColl and Gleeson JJA agreed) in Australian Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99 at [229]-[257].

51. As was there stated, the real task of the Court is to determine where the better equity lies. The general position is that where the merits are equal, the earlier in time prevails. However, where the merits are unequal, priority may be afforded to the later interest: see Applications of Bizcap AU Pty Ltd; Applications of Hengyi Zhao, Applications of FundIT Ltd [2024] NSWSC 588 at [65] per Hmelnitsky J.

52. There is nothing in the present case to suggest that ALF has engaged in any disentitling conduct. Its interest under the Rex Road Mortgage was created first in time.

53. There is no substance to the contentions which underlie DebtCo’s now dismissed motion – namely that somehow under the Deed and/or the 31 March 2023 Orders, ALF lost its interest in the Rex Road Mortgage.

54. The Deed makes it clear that the Rex Road Mortgage will only be released if the settlement sum is paid in accordance with the Deed. This did not occur.

55. The 31 March 2023 Orders do not relate to the Rex Road Mortgage and as such there can be no suggestion that ALF’s rights under the Rex Road Mortgage have somehow merged in those orders.

56. I am also satisfied for the reasons set out in ALF’s written submissions, that the amount claimed by ALF is properly claimable and that this exceeds the funds paid into Court.

57. For these reasons I propose to make the orders sought by ALF.

Should notification be given to the other caveators?

62. As set out above, and as depicted in the schedule to these reasons, there were a number of caveats on title.

63. The affidavit of Denise Wright dated 8 August 2024 sets out correspondence with the solicitors representing the caveators, save for Gebraad, El Chami and Business Fuel. I am satisfied that all persons that may have an interest, save for Gebraad, El Chami and Business Fuel have had an opportunity to participate in these proceedings if they wanted to.

64. There is no evidence of any correspondence with Gebraad, El Chami or Business Fuel. Having regard to the fact that their caveats have now lapsed, and given that their interests were created after ALF’s, I think it is most unlikely that they will have any valid claim ranking ahead of ALF’s.

65. Out of an abundance of caution, I propose to provide in my orders for notification of these orders to be given to Gebraad, El Chami and Business Fuel and for them to be given 28 days to set aside these orders should they so desire.

Costs

66. ALF sought an order if they were successful, that Adbri and Hy-Tec pay their costs of the proceedings. The essence of the position advanced by ALF was that until the morning of the hearing, Adbri and Hy-Tec had actively opposed ALF’s relief and sought to piggy back on DebtCo’s motion. Given ALF has succeeded in claiming its relief, Adbri and Hy-Tec should pay the costs.

67. Adbri and Hy-Tec opposed any order for costs against them or alternatively contended that if any costs order was to be made, then either a Sanderson or Bullock order should be made requiring DebtCo to bear those costs. Adbri and Hy-Tec contended that they did not file any motion seeking substantive relief and that in essence all they were seeking was sufficient evidence from ALF justifying its contention that it had priority and that the quantum of its claim was such that ALF was entitled to all of the monies paid into Court. It was not until receipt of ALF’s written submissions that sufficient material was provided to satisfy Adbri and Hy-Tec that ALF was entitled to all of the monies.

68. It was obviously not in dispute that the Court has a broad discretion with respect to costs: see s 98 of the Act.

69. I am not satisfied in the exercise of my discretion that any costs order should be made against Adbri or Hy-Tec in the circumstances of this case.

70. Neither Adbri nor Hy-Tec filed a motion seeking to make a claim on the monies paid into Court. Whilst Adbri and Hy-Tec sought to benefit from any success by DebtCo on its motion, this was DebtCo pressing for this relief, not Adbri or Hy-Tec. Adbri and Hy-Tec did not take any active role in the hearing.

71. There was considerable correspondence between ALF’s solicitors and the solicitors for Adbri and Hy-Tec. Accepting that some of that correspondence includes contentions made by Adbri and Hy-Tec contrary to the position of ALF, for the most part that correspondence contains many requests for information or details as to why ALF’s claim has priority and why it is for all of the monies paid into Court. This is in the context of where, given the nature of the claims, a hearing of some sort was always going to be necessary to obtain an order for payment out. Further, ALF was dealing with essentially the same points raised by DebtCo.

72. In the circumstances, it was not unreasonable for Adbri and Hy-Tec to press ALF on the quantum of the claim so as to be satisfied that there is no equity left in the Rex Road Property.

Orders

73. The Court makes the following declaration and orders.

1. Declare that the plaintiff’s interest in the property known as 95 Rex Road, Georges Hall, NSW, 2198 (Lot 802 in Deposited Plan 1059065) has priority to the interest of the third defendant and any other person or entity who claims an equitable interest in that property.

2. Order that a copy of these orders and reasons for judgment be served by the plaintiff on each of Gebraad Pty Ltd, Omar Mohamad El Chami and Business Fuel (Cash Advance) Pty Ltd.

3. Order that any application by any of Gebraad Pty Ltd, Omar Mohamad El Chami or Business Fuel (Cash Advance) Pty Ltd to set aside or vary these orders be filed (with a copy provided to the chambers of Pike J) by 4pm on 11 September 2024.

4. Order that if no application to set aside or vary these orders is filed by 4pm on 11 September 2024, the monies paid into Court be paid out to the plaintiff.

5. Order that there be no further order as to costs with the intent that, to the extent not previously ordered, each party pay their own costs of the proceedings.

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Decision last updated: 14 August 2024