Euphoric Pty Limited v Kamir Azir Magar [aka Kamil Azir Magar]
[2011] NSWSC 469
•19 May 2011
Supreme Court
New South Wales
Medium Neutral Citation: Euphoric Pty Limited v Kamir Azir Magar [aka Kamil Azir Magar] & Ors [2011] NSWSC 469 Hearing dates: 17 May 2011 Decision date: 19 May 2011 Jurisdiction: Equity Division - Commercial List Before: Einstein J Decision: The defendants to pay the plaintiff the sum of $800,000. The defendants to pay the plaintiff interest at the post judgment rate from 11 February 2006 to 19 May 2011 in the amount of $407,254.79. The defendants to pay the plaintiff's costs of these proceedings.
Catchwords: Construction of deed - Mortgage - Consideration - Power of attorney Legislation Cited: Bankruptcy Act 1966 (Cth)
Conveyancing Act 1919
Real Property Act 1900Cases Cited: Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694
Grundy v Ley [1984] 2 NSWLR 467
Spina v Permanent Custodians Ltd [2008] NSWSC 561Category: Procedural and other rulings Parties: Euphoric Pty Limited (Plaintiff)
Kamir Azir Magar (First Defendant)
Lora Azir Magar (Second Defendant)
Nabil Azir Magar (Third Defendant)
Adil Azir Magar (Fourth Defendant)
Kludait Azir Magar (Fifth Defendant)
Ereene Azir Magar (Sixth Defendant)Representation: Mr S Docker (Plaintiff)
No appearance
Thomsons Lawyers (Plaintiff)
File Number(s): 2008/00290604
Judgment
The proceedings
In these proceedings, the plaintiff seeks judgment in the amount of $13,277.631.36 plus interest from 11 February 2006 from the first to sixth defendants ('the defendants') pursuant to a mortgage dated 2 November 1999 ('the mortgage') given by the defendants and Azir Magar Sidhom. The defendants are siblings. Mr Sidhom is their father.
The plaintiff claims under Clause 2 of Annexure A to the mortgage, which contains a personal covenant on behalf of the mortgagors, promising to pay the Principal Sum (as defined in the mortgage) owing or payable by Ryledar Pty Ltd ( Ryledar ) to Euphoric as and when it accrues due.
Ryledar is a company now in liquidation of which all the defendants and Mr Sidhom were shareholders. In 1999, when the agreement in the mortgage was entered into, Ryledar was in a trading relationship with Euphoric. Euphoric sold petroleum products to Ryledar, which operated service stations.
Mr Sidhom is not a party to the proceedings because on 20 November 2007 he became bankrupt. No leave has been obtained to proceed against him. It was conceded by the plaintiff that the promises made in the mortgage by the defendants and Mr Sidhom were joint promises, not joint and several.
By reason of Mr Sidhom's bankruptcy and s62 of the Bankruptcy Act 1966 (Cth), Euphoric was entitled to sue on the mortgage without joining Mr Sidhom. Mr Sidhom has since been discharged from bankruptcy, which discharges his pre-bankruptcy debts to Euphoric but does not affect the obligations of the defendants under the mortgage, being a joint contract: s153(1) and (4)(a) respectively of the Bankruptcy Act .
The Mortgage was the second registered mortgage over the land described in certificate of title folio identifier 1/840854, being 129-145 Waldron Road, Chester Hill. In these proceedings, Euphoric originally sought possession of the land as well as judgment for the principal sum, interest and costs. However, by its further amended summons and commercial list statement filed on 25 September 2009, Euphoric deleted the claim for possession. This was because the first registered mortgagee took possession of the land.
The issues
The plaintiff took the Court to four key issues, which formed the substance of the defendants' commercial list responses.
These issues were:
(1) Is the plaintiff's entitlement to payment under the mortgage from the defendants dated 2 December 1999 limited to $800,000 and what is the amount owed by the defendants under the mortgage (the construction issue)?
(2) Is the mortgage void because it is not supported by consideration?
(3) Did Azir Magar Sidhom have authority to sign the mortgage on behalf of the First defendant?
(4) Is the mortgage liable to be set aside in equity?
Issue 4 required the defendants to put on evidence. As none was forthcoming, the defence was unsustainable.
The construction issue
The construction issue was the primary factual question for determination. Careful construction of the mortgage deed is important as on the plaintiff's contention the amount owed by the defendants is in excess of $13 million, whereas on the defendants construction it is limited to $800,000.
The plaintiff submitted that on true construction of the mortgage and attached documents, the defendants were liable for $13,277,631.36, being the judgement against Ryledar in proceedings number 50070 of 2001 on 10 February 2006 plus interest at the court rate from that date.
The plaintiff relied on Clause 2 of Annexure A to the mortgage:
The Mortgagor (defendants) will pay to the Mortgagee (Euphoric) the Principal Sum.
The plaintiff submitted that on this construction, the defendants and Mr Sidhom gave a personal guarantee for all monies owing to Euphoric by Ryledar.
While the defendants did not make submissions, it is evident from their commercial list responses that they rely on Recital C, Clauses 1 and 8 of the mortgage and Clause 17(a) of the Memorandum to the mortgage to assert that if the Court finds that they have any liability, it should be limited to $800,000. The $800,000 limit is "the Monetary limit" set out at the end of Clause 1 of Annexure A to the mortgage.
The plaintiff's took the Court to these clauses and submitted that a proper construction of them could not limit the amount recoverable to $800,000 for the following reasons:
(1) The combination of Clause 8 of Annexure A and Clause 17(a)(iv) of the Memorandum do not deal with Euphoric's right to payment, they deal with the application of monies received. It follows that Clause 8 of Annexure A and Clause 17(a)(iv) of the Memorandum cannot affect Euphoric's right to a judgment for the Principal Sum under the Personal Covenant.
(2) Clause 8 of Annexure A and Clause 17(a)(iv) of the Memorandum do not apply to claims on the personal covenant. The distinction between a personal covenant and the charge created by a mortgage is well established: see Grundy v Ley [1984] 2 NSWLR 467 where Kearney J found that the standard discharge of mortgage does not release the personal covenant because it does not "affect the land" and see Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 at [29] where Bryson AJ said the personal covenant in a mortgage is not an interest in land but the charge is.
(3) Clause 17(a) of the Memorandum recognises the distinction drawn in the paragraph above by dealing with the enforcement of rights and powers against the land which arise by reason of the mortgage, whether conferred by the Mortgage, statute (such as by the Real Property Act 1900 in respect of a registered mortgage) or otherwise. Clause 17(a) does not apply to a claim under the personal covenant because the payees it refers to and the hierarchy it contains are inapplicable to such a claim. This construction is reinforced by the distinction drawn in Clause 17(a)(iv) of the Memorandum by the words "monies secured and owing under this security" , the word "and" meaning that monies have to be both secured and owing.
(4) Recital C, by its reference to "pursuant to its exercise of security rights under this security" , gives support to this construction. The term "security rights" is not defined and its ordinary meaning is rights against the land which is a security by reason of the charge over the land created by the Mortgage. Moreover, the term "exercise of security rights" is used in Clause 12 of Annexure A in contradistinction to payment of "all of the Principal Sum" .
With respect to the plaintiff, this construction is to be rejected.
The starting point for construing the defendants' obligations is the mortgage document itself. Clearly, all the defendants except for Kamil Azir, signed it and are therefore parties to it. Kamil is also to be regarded a party for reasons which are set out later. The mortgage is for the land at 29-145 Waldron Road, Chester Hill (folio identifier 1/840854) subject to the provisions of Annexure A and Memorandum No. z514436. The Annexure and Memorandum set out the provisions of the mortgage.
Turning to Annexure A, Clause 2 states:
"The Mortgagor will pay to the Mortgagee the Principal Sum. The Principal Sum accrues due, owing or payable by the Mortgagor to the Mortgagee, as and when it accrues due, owing or payable by the Debtor to the Mortgagee."
Principal Sum is given a very broad definition in Clause 1(a) and 1(b) and includes, as submitted by the plaintiff, "all moneys" owing or payable to the Mortgagee by the Debtor.
However of immense importance to construing the defendant's obligation is Recital C, which states:
" The Mortgagee shall not ultimately receive in payment of the Principal Sum total moneys pursuant to its exercise of security rights under this security in excess of the then current amount of the Monetary Limit . The amount of the Monetary Limit at the date hereof is Eight hundred thousand Dollars ($800,000.00) and may be increased from time to time by the written consent of the Mortgagor and Mortgagee." (emphasis added)
Considering these clauses together, it is clear that the defendants have an obligation to pay the Principal Sum to the plaintiff. This Principal Sum is defined broadly and is intended to cover any money owed by the defendants to the plaintiff as evidenced from Clause 1(b). However, this obligation is capped at $800,000, this being the monetary limited expressed in clear and unambiguous terms in Recital C. On its true construction, the mortgage was not a guarantee for the full amount owing by Ryledar, it limited the plaintiff's recovery against the mortgaged property to $800,000.
The plaintiff pointed to Clause 12 in an attempt to delineate two separate rights of recovery by the plaintiff's under the mortgage. The first is the right to sell the mortgaged property as an "exercise of security rights", it was accepted that this is limited to $800,000. The second was the plaintiff's right of recovery pursuant to the defendant's personal guarantee. It was submitted that this guarantee (pursuant to Clause 2 of Annexure A) was for the full amount of the Principal Sum.
The wording of Clause 12 indicates no such distinction. It provides:
"If all of the Principal Sum has been paid after the discontinuance of all business relations between the Debtor and the Mortgagee, or if pursuant to its exercise of security rights herein the Mortgagee recover an amount equal to the then current amount of the Monetary Limit, the Mortgagee shall within a reasonable period after receipt of a request in writing made by the Mortgagor, give to the Mortgagee a Memorandum of discharge hereof."
The clause merely sets out the two ways in which a mortgage may be discharged:
(1) Repayment of the Principal Sum after discontinuance of all business relations between the Debtor and the Mortgagee; or
(2) pursuant to its exercise of security rights herein the Mortgagee recovers an amount equal to the current Monetary Limit.
The plaintiff's reliance on this clause for the proposition that the defendants' obligation to pay the judgment debt is not subject to the same $800,000 limit as its exercise of security rights cannot stand. The only personal obligation the defendants owe for the debts of Ryledar are set out in the mortgage. Irrespective of how their obligation arises, it is limited to $800,000.
On this construction, it is not strictly necessary to turn to Clause 17 of the Memorandum, which principally relies on the same distinction being drawn. However, as the majority of the plaintiff's submissions focused on this clause, it is proper I address its construction.
As the title indicates, this section deals with the application of monies received pursuant to the plaintiff exercising its rights under the mortgage.
Clause 17 reads:
Application of Monies
The mortgagor covenants and agrees with the mortgagee that:-
(1) To the extent permitted by law, monies received as a result of the exercise by the mortgagee of its rights and powers conferred by this security or by stature or otherwise shall be applied as follows:
(a) First, in payment of the expenses incurred by the mortgagee or a Receiver in the exercise or enforcement of any of the said rights and powers;
(b) Secondly, in payment of the Receiver's remuneration;
(c) Thirdly, in payment of any mortgages chares or encumbrances (of which the mortgagee is aware) having priority to this security, in order of their priority;
(d) Fourthly, in payment of the principal interest and other monies secured and owing under this security to the mortgagee (with absolute liberty for the mortgagee to apply the same to either principal interest or other monies in such manner and order as the mortgagee shall think fit;
(e) Fifthly, in payment of subsequent mortgages charges or encumbrances (of which the mortgagee is aware) in the order of their priority; and
(f) Sixthly, in payment to the mortgagor.
(2) In applying monies towards satisfaction of any monies referred to in paragraph (a) of this clause the mortgagor shall be credited only with so much of such monies as shall be actually received by the mortgagee in cash and such credit shall date from the time of receipt and, all purchase or other monies left outstanding on credit or otherwise shall, until actually received by the mortgagee in cash, be deemed a continuing unsatisfied part of the monies secured by this security and the mortgagee shall be in no way liable for any such outstanding monies or for any loss occasioned by the exercise of any of the said rights and powers.
(3) If at any time after the satisfaction of all monies secured by this security the mortgagee shall hold any surplus monies payable to the mortgagor, such monies shall not carry interest and may be placed to the credit of an account in the name of eth mortgagor in the books of a corporation carrying on the business of banking in the Commonwealth of Australia and the mortgagee shall thereupon be under no further liability in respect thereof.
This clause does no other than set out the order in which the money recovered is to be applied. By virtue of Clause 8 of Annexure A this amount is the lesser of the Monetary Limit or the Principal Sum. Considering the clause as a whole, the first three items in Clause 17 are not to be included in the Monetary Limit, such that the plaintiff may recover the Monetary Limit plus these three other expenses.
On this construction each of the plaintiff's submissions in relation to Clause 17 falls away. The defendants had a personal covenant secured by a mortgage, but this covenant was limited to $800,000. None of the distinctions between a charge over land and a personal covenant that the plaintiff sought to make addresses the express limit of the defendant's personal covenant to $800,000.
Is the mortgage supported by consideration?
A further issue taken by the defendants was that the mortgage is void because it is not supported by consideration. Recital B of Annexure A sets out the consideration. That is, the mortgagee continues to trade with the Debtor. This was to the benefit of all the defendants as shareholders. In any event, consideration is not necessary because the mortgage is expressed to be a deed per Clause 13 of Annexure A. Also, as the Mortgage was registered, it became a deed by reason of s36(11) of the Real Property Act 1900.
Did Mr Sidhom have Kamil Magar's authority to execute the Mortgage?
Kamil Magar raised the issue of authority as a defence in his commercial list response. This defence does not stand because Mr Sidhom had authority to enter into the mortgage pursuant to two powers of attorney given by Kamil Magar, dated 27 January 1992 & 23 June 1999 respectively. The first entitled Mr Sidhom, inter alia, to enter into or execute any contract, agreement or mortgage per paragraph p). The second was a general power of attorney giving Mr Sidhom the authority conferred on him by s163B of the Conveyancing Act 1919 (as in force at that time) to do anything on his behalf which he may lawfully authorise an attorney to do. No limitations were contained in the document and Mr Sidhom was authorised to execute an assurance or other document to do any act whereby a benefit is conferred on Mr Sidhom. The effect of such a general power of attorney confers authority to enter into a mortgage: Spina v Permanent Custodians Ltd [2008] NSWSC 561 per Hammerschlag J.
Alternatively, Kamil Magar gave Mr Sidhom express written authority to enter into third party mortgages and guarantees for any purpose on his behalf on 13 November 1999. It is not necessary that Mr Sidhom hold a power of attorney to execute the mortgage on Kamil Magar's behalf. All that is required is that Mr Sidhom was Kamil Magar's agent lawfully authorised in writing: s23C Conveyancing Act 1919. The express written authority satisfies this requirement.
Orders
The Court makes the following orders:
(1) The defendants to pay the plaintiff the sum of $800,000.
(2) The defendants to pay the plaintiff interest at the post judgment rate from 11 February 2006 to 19 May 2011 in the amount of $407,254.79.
(3) The defendants to pay the plaintiff's costs of this matter.
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Decision last updated: 20 May 2011