DiMella v RUDAKS
[2008] SADC 98
•31 July 2008
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
DIMELLA v RUDAKS
[2008] SADC 98
Judgment of Her Honour Judge McIntyre
31 July 2008
GUARANTEE AND INDEMNITY - RIGHTS OF SURETY - AGAINST CO-SURETIES - CONTRIBUTION
MORTGAGES - MORTGAGES AND CHARGES GENERALLY - PARTICULAR MORTGAGES AND ENCUMBRANCES - EQUITABLE MORTGAGE
RESTITUTION - GENERAL PRINCIPLES
The plaintiff seeks to enforce an equitable mortgage asserted to be held over a block of land at Port Moorowie. Plaintiff claims a right to enforce the equitable mortgage through an assignment from a third party who, in turn, is asserted to have received an assignment of the equitable mortgage from Westpac. Did Westpac have an equitable mortgage over the Port Moorowie property? What did Westpac assign to the third party in the first Deed of Assignment? What did the third party assign to the plaintiff in the second Deed of Assignment? Held:
1. Westpac had an equitable mortgage over the Port Moorowie property.
2. The equitable mortgage was discharged when the third party made payment to Westpac.
3. The third party had no right to contribution from the owner of the property in respect of the sum paid to Westpac and no right to enforce the equitable mortgage.
4. The third party having no right to enforce the security over the Port Moorowie land it follows that the plaintiff does not have any such right.
The plaintiff's claim fails.
Real Property Act (SA) 1986 S149; Law of Property Act 1936 s29(1)(a); Mercantile Law Act 1936 s17, referred to.
Mahoney v McManus (1981) 180 CLR 370; Falcke v Scottish Imperial Insurance Co (1886) 34 CH D 234; Re Selvas Pty Ltd and Ors v Craddock (1990) 52 SASR 449; Foskett v McKeown [2001] 1 AC 102; Becton Dickinson Ltd v Zwebner (1989) 1 QB 208; Re Cleadon Trust Ltd [1939] Ch 286; City Bank of Sydney v McLaughlin (1909) 9 CLR 615; Owen v Tate [1976] 1 QB 462, considered.
DIMELLA v RUDAKS
[2008] SADC 98Background
Mr Paul DiMella and Mr Victor Peter Raymond were Directors of Complete Plumbing & Building Supplies Pty Ltd (“Complete”). On 3 April 1998 Mr DiMella provided a guarantee to Westpac Banking Corporation to support borrowings by Complete (“The DiMella guarantee”). Additional guarantees were provided by Villamere Pty Ltd (“Villamere”) and Mr Raymond.
The DiMella guarantee stated that security for the guarantee included “mortgage over vacant land at Port Moorowie.” Mr DiMella provided Westpac with a Certificate of Title for land at Port Moorowie. No mortgage was registered by Westpac.
The Port Moorowie land was purchased by Mr DiMella and his first wife Josephine, the second defendant, in 1986. Subsequently the DiMellas were involved in Family Court proceedings in which it was agreed that Josephine DiMella would transfer her interest in the Port Moorowie land to Mr DiMella. A transfer was prepared. It was signed by Josephine DiMella and dated 1 October 1998 but it was not registered.
Complete went into liquidation on 20 December 2000. On 17 January 2001 Westpac sought payment of Complete’s liability, from Mr DiMella under his guarantee. The liability was stated to be $373,338.12. The book of agreed documents includes a similar Notice of Demand to Villamere dated 18 January 2001.
It is agreed that each of the guarantors, including Mr DiMella and Mr Raymond, were liable to Westpac.
Mr DiMella became bankrupt on 23 April 2001. There is no information before me concerning Mr Raymond other than an indication in submissions that he is now deceased.
On 10 May 2001 Mr Raymond’s wife, Agueda Del Castillo Raymond, reached an agreement with Westpac to discharge Complete’s debt. In discharging this debt Mr DiMella’s liability to Westpac under the DiMella guarantee was also discharged, together with that of Mr Raymond and Villamere Pty Ltd under their respective guarantees. It is agreed that Mrs Raymond had no legal obligation to discharge Complete’s debt.
Mrs Raymond and Westpac entered into a Deed of Assignment on 10 May 2001 that purported to assign and transfer to Mrs Raymond “by way of subrogation all of the securities held by it for the advances made to the company” in consideration of the payment by Mrs Raymond of the sum of $300,000 in full satisfaction of Complete’s debt. The named securities included the DiMella guarantee and the Certificate of Title for the Port Moorowie land.
It is agreed that on 15 May 2001 Mrs Raymond lodged with the trustee of the Bankrupt Estate of Paul DiMella (“the trustee”) a proof of debt claiming $373,338.12 subject to the value of the security she claimed, namely, the guarantee and Certificate of Title to the Port Moorowie block.
On 18 May 2001 Mrs Raymond lodged a Caveat against the title of the Port Moorowie block. The trustee lodged a Caveat on 18 October 2001.
On 30 June 2005 Mr DiMella, who was discharged from bankruptcy on 23 April 2004, issued proceedings against Mrs Raymond claiming inter alia the return of the title for the Port Moorowie block (“the proceedings).
On 13 January 2006 Mrs Raymond entered into a settlement agreement in respect of the proceedings with Mr DiMella and his present wife, Luciana DiMella, the plaintiff in this matter.[1] As part of that settlement agreement Mrs Raymond received the sum of $54,990.00 and entered into a deed of assignment with the plaintiff. That deed of assignment purported to assign a right to contribution from Mr DiMella to the payment made to Westpac:
…together with all security in respect thereof and in particular:
(a) Mortgage Debenture dated 5 April 1998 registered no. 639814.
(b) Guarantee from Paul DiMella dated 3 April 1998.
(c)Duplicate original Certificate of Title Volume 5497 Folio 918 registered proprietors Paul DiMella and Josephine Rose DiMella previously held by Westpac Banking Corporation as an equitable mortgage.
[1] Exhibit P1 tab 18
The plaintiff issued a Notice on 22 March 2006 to the first defendant, Mr DiMella’s trustee in bankruptcy. This notice indicated her intention to issue proceedings to foreclose in respect of an equitable mortgage asserted to be held by her over the Port Moorowie land. The notice states that should the trustee wish to redeem the mortgage the relevant payment was $373,338.12. The trustee declined to redeem the mortgage.
The second defendant has not lodged an appearance and has taken no interest in these proceedings.
The parties called no oral evidence. Accordingly the issues must be determined upon the agreed documents and facts.
Mrs Raymond’s Agreement with Westpac
The main area of contention between the parties relates to the effect of the agreement between Mrs Raymond and Westpac. Specifically what rights or privileges Mrs Raymond acquired in consequence of that agreement.
It is agreed that the plaintiff has acquired whatever rights and privileges Mrs Raymond had by reason of the Deed of Settlement dated 13 January 2006. Unfortunately, there is limited evidence about the agreement between Mrs Raymond and Westpac.
The parties agree that:
On 14 May 2001, pursuant to a Deed of Assignment dated 10 May 2001 between Westpac and Mrs Raymond (“Westpac Deed of Assignment”) Westpac received the sum of $300,000.00 from Mrs Raymond which sum discharged the Bankrupt’s (and Mr Raymond’s and Villamere’s) liability to Westpac.[2]
[2] Agreed fact 23.
It is further agreed that the deed of assignment indicates that the payment of $300,000 was made “in full and final satisfaction of the debts owed” by Complete. The deed of Assignment further purports to assign “by way of subrogation” all the securities held by it to secure the advances made to Complete including an equitable mortgage over the Port Moorowie land.
At the time Mrs Raymond entered into the arrangement with Westpac the principal debtor, Complete, was in liquidation and Westpac was seeking to enforce its guarantees. Mr DiMella had been declared bankrupt. Villamere went into liquidation and Mr Raymond may or may not have been dead. The timing of the latter two events is unclear. There was no evidence called on these issues. In any event, the Villamere guarantee was secured by way of a mortgage over a property at 6 Eildon Court, West Lakes. The parties agree this was the Raymond family home.
Mrs Raymond had, prior to her agreement with Westpac in May 2001, no legal obligation to pay the amount owed by Complete. Mrs Raymond had not entered into a guarantee with Westpac. She was not a party to the DiMella guarantee, the Raymond guarantee or the Villamere guarantee. Her reasons for making the payment are not clear. It was suggested in argument that she was discharging the mortgage to avoid the sale of her family home under the Villamere guarantee. There is no evidence on this topic.
The plaintiff says that Mrs Raymond, in reaching the agreement with Westpac, took an assignment of the claim of Westpac for $373,338.12 and had a right of contribution from Mr DiMella in consequence of the settlement of the joint debt.[3] It is further claimed that she took an assignment of the equitable mortgage.
Issues
1. Did Westpac have an equitable mortgage over the Port Moorowie property?
2. Did Mrs Raymond have a right to contribution from Mr DiMella?
3.What did Westpac assign to Mrs Raymond in the Deed of Assignment dated 10 May 2001?
4.What did Mrs Raymond assign to the plaintiff in the Deed of Assignment dated 13 January 2006?
5.What is the effect of the proof of debt lodged by Mrs Raymond on 15 May 2001?
[3] Statement of Claim para 12
Did Westpac have an equitable mortgage over the Port Moorowie land?
The first defendant does not admit that Westpac had an equitable mortgage over the Port Moorowie land and further pleads that Mr DiMella alleged in correspondence dated 25 January 2001 that no equitable mortgage existed.
An equitable mortgage may be created by deposit of a Certificate of Title.[4] The deposit should be accompanied by a memorandum in writing that expressly charges the Certificate of Title with the debt.[5]
[4] s149 Real Property Act (SA) 1886 (as amended)
[5] s29(1)(a) Law of Property Act (SA) 1936 (as amended)
Mr DiMella deposited the Certificate of Title for the Port Moorowie land with the Westpac bank on or about 3 April 1998. The guarantee documents executed by Mr DiMella refer to a mortgage over the Port Moorowie land as security for the guarantee. The guarantee was dated 3 April 1998.
On 1 October 1998 Josephine DiMella signed a transfer of her interest in the Port Moorowie land to Mr DiMella. There was no evidence of her involvement, if any, in the DiMella guarantee. She did not sign any of the discharge documents.
The first defendant relies upon a letter from Mr DiMella’s solicitor to Westpac dated 25 January 2001. That letter asserts, inter alia, that
My client made it clear that given his financial circumstances (including the fact that the terms of a matrimonial property settlement between him and his former wife had not been carried out) he was in no position and did not want to provide any security with respect to the operations of the Company.
The balance of the letter deals with the suggestion that Westpac should enforce the registered mortgage against Mr Raymond’s residence before taking action to enforce the guarantee against Mr DiMella. The letter does not specifically deny that Westpac had an equitable mortgage over the Port Moorowie property. It is but one interpretation of the content of the letter.
In the proceedings issued by Mr DiMella against Mrs Raymond paragraph 9 of the Statement of Claim states:
The plaintiff asserts that the defendant does not have an equitable mortgage with respect to the property and is not entitled to retain possession of the Title pertaining to the property (the Port Moorowie block).
Again this does not necessarily amount to a denial that Westpac had an equitable mortgage over the Port Moorowie property, it may simply represent a denial that any such mortgage had passed to Mrs Raymond.
Even if this was Mr DiMella’s position it does not greatly assist in determining the issue in the absence of any other evidence.
Notwithstanding any belief of Mr DiMella to the contrary, Westpac appears to have considered that it had an equitable mortgage referring to holding the certificate of title as an equitable mortgage in the deed of assignment dated 10 May 2001 and in correspondence to Mrs Raymond’s solicitor dated 14 May 2001.
Clause 37 of the Guarantee signed by Mr DiMella indicates that it is secured by “the security referred to on the back cover”. “Security” is defined in clause 16 of the Guarantee. The back cover indicates:
Security for this Guarantee includes the following: Mortgage over Vacant Land at Pt Moorowie.
It further states:
If guarantee is to be unsupported, please amend and initial accordingly.
It is agreed by the parties that the DiMella guarantee is neither amended nor initialled.[6] The wording of the Guarantee therefore suggests that the Port Moorowie property was intended by Westpac and Mr DiMella to be security for the guarantee.
[6] Agreed fact no. 12
In addition to the Guarantee Mr DiMella completed and signed a document entitled “Form of Acknowledgement – Business/Commercial Guarantor”.[7] This acknowledged, amongst other things, that Mr DiMella had read the guarantee and that if he failed to pay any money owing to Westpac under the Guarantee Westpac could enforce any security.
[7] Exhibit 1 tab 5
It is further agreed that Mr DiMella deposited the Certificate of Title with Westpac at or about the time he signed the guarantee.[8] It is difficult to see what interpretation could be put upon the deposit of the Certificate of Title other than an intention to create an equitable mortgage by deposit.
[8] Agreed fact no. 16
In view of the plain wording of the Guarantee and the deposit of the Certificate of Title I find that Westpac had an equitable mortgage by deposit over Mr DiMella’s interest in the Port Moorowie land at the time he entered into the guarantee namely 3 April 1998. There was no equitable mortgage over Josephine DiMella’s interest.
Did Mrs Raymond have a right to contribution from Mr DiMella?
It is conceded by the plaintiff that the Deed did not assign the debt owed to Westpac. The plaintiff says rather that Westpac assigned the securities that it held in return for the payment of the sum of $300,000 by Mrs Raymond. The plaintiff says that Mrs Raymond was a surety or guarantor arguing that a person does not have to sign a guarantee at the same time as the debt is created or before. It is possible to come along at any stage and undertake the obligation thereby becoming a surety. It is further contended that Mrs Raymond was entitled both at law and in equity to enforce the securities that the bank previously held.
I was referred to pages 145 to 151 of the text Rowlatt in the Law of Principal and Surety (4th Edition) relating to a surety’s rights to securities given by the principal debtor to the creditor. This is not particularly helpful. The principal debtor was Complete. Mr DiMella, a guarantor or surety for Complete’s debt, provided the security in question. The better view of Mrs Raymond’s position is that she was either a co-guarantor or otherwise entitled to the benefit of the security by reason of her agreement with Westpac.
It is agreed that Westpac accepted the payment of $300,000 in “full and final settlement” of Complete’s debt. The first defendant says that this discharged the securities held by Westpac including any equitable mortgage over the Port Moorowie land. If Mrs Raymond was a guarantor it is conceded that the securities are kept alive artificially by virtue of the operation of section 17 Mercantile Law Act1936, and that she could have enforced the securities in the same manner as Westpac. However, it is contended that Mrs Raymond was not a guarantor and accordingly not entitled to the benefit of section 17. The first defendant says that Mrs Raymond made the payment as a volunteer because she agreed to make the payment without obligation to do so.
In argument before me, the plaintiff contended that Mrs Raymond became a surety at some stage. It is however an agreed fact that Mrs Raymond was not a guarantor to Westpac of the debts owed to it by Complete[9]. The two propositions seem inconsistent. Notwithstanding this apparent inconsistency, I will deal with the plaintiff’s argument that Mrs Raymond was a co-guarantor or surety.
[9] Agreed fact no. 10
If Mrs Raymond was a surety then there is ample support for the proposition that she could seek contribution from the other sureties.[10] The principal debtor, Complete, is insolvent and she has paid a disproportionate portion of the debt. In effect she has paid the whole of the debt. It appears that the original guarantors, Mr Raymond, Villamere and Mr DiMella, have paid nothing.
[10] Mahoney v. McManus (1981) 180 CLR 370
A surety is entitled, in order to obtain contribution, to any security given to the creditor by the co-surety. This is the position both at common law and under the provisions of the Mercantile Law Act 1936. [11]
[11] Re: Selvas Pty Ltd and Others v Craddock (1990) 52 SASR 449; Section 17 Mercantile Law Act 1936
The first defendant argues that Mrs Raymond was not a guarantor or surety rather it is said that she was a volunteer. Falcke v. Scottish Imperial Insurance Co. [12] was referred to in support of this proposition. That decision was affirmed and applied in Foskett v. McKeown[13] where the proposition in Falcke was summarised as follows:
The general rule is that a man who makes a payment to maintain or improve another person’s property, intentionally and not in response to any request that he should do so, is not entitled to any lien or charge on that property for such payment.[14]
[12] (1886) 34 CH D 234
[13] [2001] 1 AC 102
[14] Lord Hope of Craighead at p 119
To determine this issue it is necessary to look at the circumstances in which Mrs Raymond made the payment to Westpac. There is limited information available to me. Mrs Raymond appears to have entered into discussions with Westpac following 20 December 2000, the date on which Complete went into liquidation. There appears to be no suggestion that Complete was likely to be in a position to satisfy its debt to Westpac following this date.
The documentation between Mrs Raymond and Westpac is not in the form of a guarantee and does not, on its face, indicate such a relationship. There is no other documentation or evidence before me to suggest that Mrs Raymond agreed to guarantee Complete’s debt. Rather the documents indicate that she agreed to stand in the place of Complete and to satisfy its debt. She did this at a time when it appears the guarantors were insolvent or otherwise not able to satisfy Complete’s debt. There is no evidence of the reason that Mrs Raymond made the payment, the rationale for the agreement with Westpac or of her intentions in relation to the securities.
It was put to me that when Mrs Raymond entered into the transaction with Westpac she thereby became a surety.[15] It was further suggested that had her cheque bounced, for example, the day after her money was paid, Westpac could have told her that she undertook to pay it and was therefore obliged to pay. Whilst this may be the case, although it is far from clear that the document entered into between Mrs Raymond and Westpac has that effect, I do not consider that this, without more, establishes that Mrs Raymond was a guarantor or surety.
[15] Transcript p23
I therefore find that Mrs Raymond was not a guarantor or surety and that accordingly she was not entitled to contribution on that basis from Mr DiMella in respect of the sum paid to Westpac.
This is not however the end of the matter. I must now consider the effect of the document setting out the agreement between Westpac and Mrs Raymond. This purports to assign and transfer “by way of subrogation” all the securities held by it for the advances made to the company.
What did Westpac assign to Mrs Raymond in the Deed of Assignment dated 10 May 2001?
It was agreed that Westpac did not assign Complete’s debt to Mrs Raymond.[16] Mrs Raymond discharged the debt. This appears entirely consistent with the terms of the agreement. There is no evidence that any of the formalities required to assign a debt have been attended to. There is no other evidence on this point. Accordingly, I am unable to find that Mrs Raymond has any right of subrogation to Westpac’s debt due from the principal debtor in law or equity.
[16] Transcript p22
The plaintiff argues that Mrs Raymond had a right of subrogation to the securities, including any equitable mortgage over the Port Moorowie land. The precise nature of that asserted right was not clarified.
The defendant argues that Westpac’s acceptance of the sum of $300,000 in full and final satisfaction of Complete’s debt discharged any security held by it, including any equitable mortgage over the Port Moorowie land, and therefore there was nothing for Westpac to assign to Mrs Raymond.
As I have found that Mrs Raymond was not a surety, neither the common law nor the provisions of the Mercantile Law Act 1936 operate to maintain the security for her benefit. Put simply, the equitable mortgage on the Port Moorowie land no longer secures a debt and is therefore discharged. Accordingly I find that Mrs Raymond could not be subrogated to Westpac’s securities because they were discharged by the payment of the debt.
The plaintiff referred me to the case of Becton Dickinson Ltd v Zwebner and, in particular to obiter comments of McNeill J.[17]
Liability, however, as Lords Selborne and Blackburn made clear, is independent of contact (sic). Equally, to attempt to define a liability as an implied guarantee or subrogation is, to my mind, unnecessary. Indeed, there is an apparent relationship to the common law concept of quasi contract, of liability to reimburse a plaintiff for money paid to the defendant’s use.
[17] 1989] 1 QB 208 at p217-218
It was said that Mrs Raymond paid money to the benefit of the guarantors and that she would be entitled to an action on that basis. It is true to say that this argument was not developed in great detail before me however I do not find it persuasive. The mere fact of Mrs Raymond paying an amount of money that has the effect of benefiting, inter alia, Mr DiMella in my view cannot, without more, suffice to found a claim against him and, by extension, the equitable mortgage.
To illustrate this I take the situation of the principal debtor Complete as a starting point. In order to ascertain whether Mrs Raymond’s act of discharging Complete’s debt gave her any right of recovery or recoupment against Complete it would be necessary to establish that she did not make the payment officiously. Specifically, there would need to be evidence of Complete making a request for, or at the least acquiescing to, her discharge of the debt.[18] There is absolutely no evidence of this. Alternatively there would need to be evidence that she acted under some compulsion or that there was some necessity for her to make the payment.[19] There is likewise no evidence on this point.
[18] Re: Cleadon Trust Ltd [1939] Ch 286; City Bank of Sydney v McLaughlin (1909), 9 CLR 615
[19] Owen v Tate [1976] 1 QB 462.
Even if the evidence established that she had a right of recoupment against Complete this is far from establishing that she had any similar right as against the guarantors. If Complete had repaid it’s own debt the company would have no rights to call upon the guarantors or the security. Why then would a person who discharged Complete’s debt have such a right absent any agreement to assign the debt?
What did Mrs Raymond assign to the plaintiff in the Deed of Assignment dated 13 January 2006?
The parties have agreed that whatever Mrs Raymond had has been assigned to the plaintiff in this action. As I have found that Mrs Raymond had no right to enforce the equitable mortgage over Mr DiMella’s interest in the Port Moorowie land then it follows that the plaintiff does not have any such right.
In view of these findings, I need not consider the effect of the proof of debt lodged by Mrs Raymond on 15 May 2001.
Accordingly I find that the plaintiff’s claim fails.
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