Equuscorp Pty Ltd v Westpac Banking Corporation (No 2)
[2003] VSC 419
•31 October 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6813 of 2002
| EQUUSCORP PTY LTD ACN 006 012 344 (formerly Equus Financial Services Pty Ltd) | Plaintiff |
| v | |
| WESTPAC BANKING CORPORATION ARBN 007 457 141 and OTHERS | Defendants |
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No. 5842 of 2003
| ENA ELLEN MEHMET | Plaintiff |
| v | |
| V.L. CREDITS PTY LTD (ACN 004 444 357) and WESTPAC BANKING CORPORATION | Firstnamed Defendant Secondnamed Defendant |
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JUDGE: | BYRNE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 and 29 September 2003 | |
DATE OF JUDGMENT: | 31 October 2003 | |
CASE MAY BE CITED AS: | Equuscorp Pty Ltd v Westpac Banking Corporation (No 2) | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 419 | |
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Mortgages – interest payable on sum paid for mortgage purchased at under value – costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R.N. Wallace | Kelly & Chapman |
| For the First Defendant | Mr J. Tsalanidis | Gadens |
| For the Second Defendant | Ms R. Orr | Corrs Chambers Westgarth |
| For the Third Defendant | No appearance | |
| For the Fourth, Fifth and Sixth Defendants | Mr R.S. Randall | David Phillips |
HIS HONOUR:
On 4 July 2003, I published my reasons[1] in proceeding 6813 of 2002 following trial of the substantial issues between the parties. The matter was then stood over for final orders. The parties have now returned for this purpose and for some further matters which have arisen between them.
[1][2003] VSC 241.
As a consequence of my judgment, the security position with respect to the property at 19 View Road, Lower Plenty may be summarised as follows:
· The Westpac first mortgage secures a sum which, including interest, costs and charges, stands at about $220,000
· VL Credit’s second mortgage now owned by the sixthnamed defendant, Ellen Mehmet secures a sum of $165,500 plus interest.
· The third ranking Equuscorp charge secures a debt of over $800,000
The parties accepted before me that the value of the property is $630,000. In the course of my reasons I concluded that I would not make an order for sale in favour of Equuscorp, at least until the attitude of Westpac on this matter was known[2].
[2][2003] VSC 241 at [7].
Following the trial of this proceeding a number of developments have occurred:
· Mrs Mehmet has called for and taken a transfer of the VL Credits’ mortgage, and on 11 September she became registered as the proprietor of that mortgage.
· On 24 July 2003, Mrs Mehmet formally offered to pay out the Westpac mortgage and to take a transfer of that mortgage pursuant to s. 87 of the Transfer of Land Act 1958
· On 4 August 2003, Equuscorp also indicated to the Bank that it was prepared to pay out the Westpac mortgage. In this letter the solicitors for Equuscorp warned the Bank not to transfer the mortgage to Mrs Mehmet and threatened injunctions.
· By proceeding number 5842 of 2003, Mrs Mehmet sued VL Credits and Westpac seeking declarations as to her entitlement to take a transfer of the Westpac mortgage pursuant to s. 87.
· By letter from the solicitors for Westpac dated 3 October 2003 the Court was informed that the Bank has agreed with Mrs Mehmet and Mr and Mrs Sabri that they would give possession of the property to enable a sale by the bank to take place. It would seem therefore that Mrs Mehmet has abandoned her proposal to purchase the bank mortgage. The liquidator of Jamonda has indicated that he does not oppose an order for sale.
The matters in contention were the following:
· What interest should be added to the VL mortgage now owned by Mrs Mehmet.
· Whether Mrs Mehmet is entitled to summary judgment for the declaratory relief sought in proceeding 5842 of 2003.
· Whether I should order a sale in court at the behest of Equuscorp.
· How the costs of the proceedings should be dealt with.
Interest on VL Credits’ Mortgage
Under the terms of the mortgage granted by Jamonda to VL Credits, Jamonda agreed to pay interest at the penalty interest rate fixed from time to time under the Penalty Interest Rate fixed from time to time under the Penalty Interest Rate Act 1983 plus four percent.
Pursuant to the agreement of 22 December 1992 whereby Mrs Mehmet purchased this mortgage, she agreed to pay the agreed sum of $165,000 by instalments: $125,000 within 21 days; $20,000 within 12 months; and $20,000 within 18 months. These instalments were in fact paid on 12 January 1993, 20 December 1993 and 23 September 1994 respectively. The agreement further provided for an assignment of the mortgage and of the debt to Mrs Mehmet “after the effluxion of six months after receipt of the last of the payments”, that is on 23 March 1995. Mrs Mehmet however did not call for an assignment of the mortgage until very recently. The assignment was registered on 11 September 2003. Interest upon late payment under the December 1992 agreement was to run at 18 per cent accruing from day-to-day.
Counsel have calculated at $283,940.28 interest on $165,000 from 13 January 1993 to 19 September 2003 at the mortgage rate. An alternative calculation upon the same sum from 23 March 1995 to 19 September 2003 at the mortgage rate produces $230,587.30. Before me, counsel for Equuscorp contended, first that no interest should accrue to VL Credits’ mortgage; alternatively that I should award interest at the rate fixed in VL Credits’ mortgage from 11 September 2003, the date of transfer of the mortgage to Mrs Mehmet; alternatively that I should award such interest calculated from 23 September 1994, the date of payment of her last instalment of the purchase price of the mortgage.
The contention that no interest should accrue depends upon my finding that her purchase of the mortgage was as an alter ego of Mrs and Mr Sabri, her daughter and son-in-law. The argument proceeded on the basis that Mrs Mehmet, having in March 1995 become entitled to take a transfer of the VL Credits’ mortgage chose not to do so. She did not seek from the mortgagor repayment of the principal or payment of interest, which was permitted to accrue. I should add that, in the circumstances of the mortgagor’s insolvency, this is not surprising. She did not seek to enforce the security by entering into possession and selling the property. The explanation for this, which I accept, given the absence of other evidence, is that she was content for her daughter and son-in-law to enjoy the property. The conclusion which I was invited to draw from this was that of collusion with the object of or effect of defeating, or at least diminishing, the entitlement of subsequent encumbrancers, notably, Equuscorp. This must be on the basis that, if she had acted commercially and recouped the arrears of interest, the amount of her prior security would have been less than is now asserted.
I have in my judgment concluded that Mrs Mehmet’s security should rank ahead of that of Equuscorp to the extent of $165,000 plus interest. In Re Imperial Land Company of Marseilles; ex parte Larking[3] a similar order was made where a director, Larking, had purchased debentures for less than face value at a time when the company was insolvent. In that case the liquidator of the company offered to admit the director to proof in the sum actually paid plus 5% from the date of purchase, an offer which the vice‑Chancellor described as “a good investment”.
[3](1876) 4 Ch D 566.
In Hobday v Peters (No 1)[4] a solicitor improperly purchased for £350 a mortgage securing a debt of £800 plus arrears of interest. The mortgage was transferred to him in 1845. In that case the court held in 1860 that the mortgagor was entitled to redeem the mortgage for £350. No mention is made of interest.
[4](1860) 28 Beav 349; 54 ER 400.
In the old case of Aston v Aston[5] Sir Thos Aston, in a marriage settlement, created a term on trust to secure payment of an annuity in favour of his wife. After his death the widow let the annuity fall into arrear to the advantage of the heir, her son. This was held not to amount to a release of the security. The Lord Chancellor then considered the rights of a subsequent encumbrancer and said this:
“If a prior mortgagee does not bring an ejectment to recover possession, and the interest runs in arrear, a subsequent mortgagee shall notwithstanding not be permitted to redeem him without paying the whole interest so run on; because though the second mortgagee could not enter, he was not without remedy; for he might have brought a bill to redeem, and so had the estate himself: but if he did not, this court has often appointed a receiver to keep down the interest; which the court will not in general do, unless where prior mortgagee will not enter: but if he does not take that remedy, he shall not redeem without paying that arrear: and the mortgagee often suffers the arrear to run on with a design to get in the estate on which he lent his money, and become the purchaser: which may be called an ill intent, yet shall he not lose his interest. Then fraud and collusion is never presumed, but must be proved, either expressly, or by necessary consequence from the acts done. The defendant was very bountiful to her son: and though it may be called deceit on the son’s power to make a jointure, it was an honest one in this case; parting with her own money to induce him to marry. It must not be thence inferred, that the defendant by this favour to her son, intended to prejudice the remainder; which she could not then see would come to the plaintiff, as the son might have had issue, who would come to the estate before the daughters of his father: nor can the defendant be presumed to have left this burthen to prejudice such issue. There is no ground then that she should lose this demand.[6]
[5](1749) 1 VES. SEN. 264; 27 ER 1021.
[6]1 VES. SEN. 264 at 268; 27 ER 1021 at 1024.
Returning to the facts of this case as I have found them, the daughter and son-in-law of Mrs Mehmet procured her to purchase the VL Credits mortgage at an advantageous price for their benefit. The majority of the funds, however, were provided by her. In an affidavit sworn 24 September 2003, after the hearing, Mrs Mehmet provided further information as to this. It now appears that, of the $165,000 which she paid for the mortgage, all but about $40,000 was provided from money owned by her husband and herself.
There is no evidence that Mrs Mehmet sought or was paid interest from Jamonda. Indeed, its insolvency suggests that this would be fruitless. There is no evidence as to the financial arrangements, if any, which existed or exist between Mr and Mrs Sabri and her as to payment to her of interest which she may have foregone by reason of the purchase or of the existence of any other benefit whether she obtained for the use of her money. Again, I am aware that the fact that she is the mother of Mrs Sabri and may therefore be concerned to protect the interests of her family and their home. There is no evidence that she paid any interest on the $40,000 which was provided by others.
In the circumstances, I am satisfied that she should have interest on the amount of her money which she expended in the purchase of the VL Credits’ mortgage. This is money which she might otherwise have invested. This sum is $125,000.
With respect to the rate of interest, I proceed on the basis that, given my findings about the purchase of VL Credits mortgage, she should not be permitted to profit from her purchase. The award of interest should, as far as possible, be directed to providing to her a recompense for interest lost on her contribution. There is no evidence before me as to interest rates for the periods in question. Accepting as I do that a component of the penalty interest rates is a penalty as well as compensation[7], I will nevertheless award interest at this statutory rate. The interest should run at the rates from time-to-time fixed under the Act from the date of payment, that is on $82,500 from 12 January 1993, on $20,000 from 20 December 1993 and on $20,000 from 23 September 1994. I will leave the calculation to counsel. The sum so calculated up to the date of the discharge of her mortgage should be added to the sum of $165,000 so that the total represents the sum to which she is entitled in priority to Equuscorp.
[7]Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382 at 397.
Summary Judgment in Proceeding 5842 of 2003
The plaintiff, Mrs Mehmet, as second mortgagee seeks declarations as to her entitlement to receive a transfer of the mortgage from the first mortgagee upon her tendering the amount of the debt.
Before me, her entitlement to receive a discharge pursuant to the Transfer of Land Act s. 78 was not challenged by any party. Nevertheless, events since the hearing render this question a moot one. She no longer seeks a discharge from the Bank. I will not give summary judgment.
An Order for Sale
This question, too, no longer arises since Mr and Mrs Sabri have agreed to give possession to the Bank for it to sell. I will make no order for sale in favour of Equuscorp.
Costs
Counsel for VL Credits sought its costs of the 2002 proceeding, including the costs of attending upon the publishing of my reasons on 4 July 2003 and those of the hearing on these applications. She asked that they be awarded against Equuscorp. She submitted that no relief was sought against her client and that none was given.
Against this, counsel for Equuscorp said that when asked before the commencement of the 2002 proceeding, VL Credits made no response as to the position of its mortgage and the sale to Mrs Mehmet. He contended that VL Credits’ costs should be paid by Mrs Mehmet and Mr and Mrs Sabri who brought into existence the circumstances which gave rise to this proceeding. Indeed, he submitted that these defendants should be ordered to bear the costs of Equuscorp and those of the Westpac Bank as well as those of VL Credits.
The Bank also sought its costs against Equuscorp and that they should be taxed on an indemnity basis. In fact the Bank will recover these costs from the sale of the security property, for these costs will be added to the principal sum in its mortgage. I shall therefore make no order in its favour, reserving to the Bank liberty to apply for an order as to costs in the event that it is not so satisfied.
As between Equuscorp and Mrs Mehmet and Mr and Mrs Sabri, I will order that its costs be paid by them. I so order on the basis that it has been in part successful in reducing the value of Mrs Mehmet’s priority.
With respect to the costs of VL Credits, I will order that they be paid by Equuscorp and that, when paid they be recovered from Mrs Mehmet and Mr and Mrs Sabri.
With respect to the 2003 proceeding, it appears that it was brought because of the reluctance of the Bank to agree to transfer its mortgage, given the contention of Equuscorp that it should not do so. This contention, it is clear, was misconceived. Neither defendant, nor indeed Equuscorp which was not a party to that proceeding, suggested that Mrs Mehmet as subsequent mortgagee might not acquire a transfer upon tender of the amount secured. She was, however, at the date of the commencement of the proceeding not registered as mortgagee and she did not tender the amount of the secured debt. Nor, it now seems, does she wish to pursue this course. In the circumstances, the application for summary judgment and the proceeding should be dismissed. Mrs Mehmet must pay the costs of the defendants.
I propose therefore the following orders.
Proceeding 6813 of 2002
1.Declare that, as between the plaintiff and the sixthnamed defendant, the proceeds of the sale of the land situate at and known as 19 View Road, Lower Plenty and being the land more particularly described in certificate of title volume 8647 folio 848 after satisfaction of mortgage L316993L be applied first in payment to the sixthnamed defendant of the sum of $165,500 plus interest referred to in paragraph 2 of this order, and then to the plaintiff.
2.The interest referred to in the preceding paragraph is the amount calculated at the rates from time-to-time fixed pursuant to the Penalty Interest Rates Act 1983 upon the following sums:
(a)upon $82,500 calculated from 12 January 1993 to this date;
(b)upon $20,000 calculated from 20 December 1993 to this date; and
(c)upon $20,000 calculated from 23 September 1994 to this date.
3. The application of the plaintiff for an order for the sale of the land be refused.
4.The costs of the plaintiff, including reserved costs, be paid by the fourth, fifth and sixthnamed defendants.
5.The costs of the secondnamed defendant, including reserved costs, be paid by the plaintiff and the amount of such costs so paid be paid to the plaintiff by the fourth, fifth and sixthnamed defendants.
6.Liberty to the firstnamed defendant to apply for its costs of the proceeding.
Proceeding 5842 of 2003
1.The plaintiff’s application for summary judgment and the proceeding be dismissed.
2. The plaintiff to pay the costs of the defendant including any reserved costs.
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