Johnson v Leader; Johnson v Synnex - [2016] SADC 58

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
JOHNSON v LEADER; JOHNSON v SYNNEX
[2016] SADC 58
Judgment of His Honour Auxiliary Judge Clayton
15 June 2016
ADMINISTRATIVE LAW
Appeal from a decision of a Master who held that the costs of the trial, which are payable to the plaintiff Synnex pursuant to the order of the trial judge, be paid from the second defendant's share of the proceeds of sale of the defendants former matrimonial pursuant to a court order.
Held:
1. The order of the Master was not a determination by the Master but was the recording of an agreement reached by the second defendant during a hearing before the Master.
2. In this case a creditor is not paid by the sale of an asset subject to a charge but only when the money is paid out of court to the creditor.
3. A creditor with different remedies for the enforcement of the debt may exercise them "simultaneously or contemporaneously or successively or not at all".
Law of Property Act 1936 (SA) Part 8, referred to.
NZ Banking Group Ltd v Trustee of Maunder (2009) NSWSC 1356; Adamopoulos v Olympic Airways SA (1991) 25 NSW LR 75; French Caledonian Travel Service Pty Ltd (in liquidation) (2003) NSWSC 1008; Chea Theam Swee v Equitycorp Finance Group Ltd [1992] 1 AC 472; China and South Sea Bank v Tan Soon Chin (1990) 1 AC 536; In Re Bank of Credit and Commerce International SA (1998) AC 214; Pan Foods Co Importers and Distributors Pty Ltd v ANZ Banking Group (2000) 170 ALR 579, considered.

JOHNSON v LEADER; JOHNSON v SYNNEX
[2016] SADC 58

This is an appeal from a decision of a Master. There are two separate actions. Strictly there are two appeals. The Master heard applications in the two actions concurrently and delivered one set of reasons and orders. Some but not all the issues are common to both actions. I also heard submissions in both actions concurrently. Mr Manetta appeared for the appellants (defendants) and Mr Edmonds-Wilson appeared on the appeal for both of the respondents (plaintiffs).
The actions have a lengthy history. The ultimate point on the appeal concerns the distribution of the proceeds of sale of the defendants’ house pursuant to a court order. It is necessary to consider the history of the matter in order to put the appeal into perspective.
In one action the plaintiff was Leader Computers Pty Ltd. In the other action the plaintiff was Synnex Australia Pty Ltd. The plaintiffs were both suppliers to Arcom Computer Pty Ltd trading as A & R Computer Services, a retailer of computer equipment. The defendants Mr Johnson and Mrs Johnson were the only shareholders in Arcom. Leader and Synnex had both obtained from Mr Johnson guarantees in respect of the debt of A & R. In each case the guarantee was supported by a charge over the assets of Mr Johnson.
Mr and Mrs Johnson were the joint owners of a house property at Hove. The business of A & R failed and an administrator was appointed on 20 October 2010. On the same day Mr Johnson purported to transfer his joint interest in the property to Mrs Johnson. On the same day Leader lodged a caveat to support its charge. Synnex lodged a caveat to support its charge on 14 January 2011.
It was the purported transfer of Mr Johnson’s interest in the house property to Mrs Johnson which has precipitated this litigation.
Mr Johnson was declared bankrupt on 15 November 2011. There is a Federal Court order giving permission for the actions to proceed against Mr Johnson.
Claims were made against Mr Johnson under the guarantees and actions were brought by both Leader and Synnex against Mr and Mrs Johnson to set aside the transfer of Mr Johnson's interest to Mrs Johnson. The action was heard by her Honour Judge Davey who held that the transfer was void. The decision of Judge Davey has been upheld on appeal to the Supreme Court. An Application for Special Leave to Appeal to the High Court of Australia was refused with costs on 20 June 2014.
As a consequence of the ongoing litigation there are a number of orders of the court dealing with the rights of the parties.
As I have mentioned Judge Davey set aside the transfer. She also ordered that Mr and Mrs Johnson sell the Hove property and that the proceeds of sale be paid into the Suitors Fund to be dealt with in accordance with the directions of the court. The property was sold pursuant to that order and the proceeds, which totalled $958,940.76 were paid into the Suitors Fund on 31 October 2011. The sale was not a mortgagee sale but a sale by Mr and Mrs Johnson in compliance with the order of Judge Davey. Accordingly the rules as to the distribution of funds realized on a mortgagee sale do not apply.
The parties are agreed that the joint tenancy has been severed and that the monies paid into court are held as to one half for the trustee of Mr Johnson's bankrupt estate and the other half for Mrs Johnson.
Since the sale of the property the parties have been fighting over the distribution of the money in the Suitors Fund. There are many issues.
In the case of a mortgagee sale it is the mortgagee who has the obligation to distribute the proceeds in accordance with the entitlement of claimants. In this case Mr and Mrs Johnson facilitated the sale pursuant to the orders of her Honour Judge Davey made on 3 April 2014 and the money was paid into the Suitors Fund to abide the further order of court "to give effect to the judgement".
In the Leader action her Honour made orders which include:
"The court orders and declares that:
1.   The plaintiff recover against the first defendant (Mr Johnson) the amount of $225,136.46 plus interest in the amount of $122,874.70.
2.   (The cancellation of the transfer of Mr Johnson’s interest in the Hove property).
3.   (The discharge of an order made on 2 November 2010).
4.   The interest of the first defendant in the land comprised in Certificate of Title Register Book Volume 5256 Folio 194 is charged by way of equitable charge in favour of the plaintiff with payment of:
4.1.1 the sum of $225,136.46 and interest on that sum to the date of judgment of $122,874.70 referred to in paragraph 1 of these orders; and
4.1.2 interest accruing on the judgment sum of $225,136.46 under rule 261 from the date of judgment.
5.   The plaintiff recover:
5.1 from the first defendant and the second defendant jointly and severally the costs of the action, to be adjudicated or agreed on a party-party basis, …
5.2 from the first defendant costs of the action number SAD 140 of 2012 in the Federal Court of Australia
6, 7, 8, 9, 10 (orders facilitating the sale of the property)"
Her Honour's orders in the Synnex action included the following:
"The court orders and declares that:
1.   The plaintiff recover against the first defendant the sum of $89,082.73 and interest on that sum to the date of judgment of $19,893.48.
2.   (An order for cancellation of the transfer to Mrs Johnson).
3.   (An order for the dissolution of an injunction restraining the transfer to Mrs Johnson).
4.   The interest of the first defendant (Mr Johnson) in the land comprised in Certificate of Title Register Book Volume 5256 Folio 194 is charged by way of equitable charge in favour of the plaintiff with the payment of:
(a)the sum of $89,082.73 and interest on that sum to the date of judgment of $19,893.48 referred to in paragraph 1 of these orders;
(b)interest accruing on the judgment sum of $89,082.73 under Rule 261 from the date of judgment; and
(c)all costs, fees, charges and expenses including legal costs on a solicitor and own client basis incurred by the plaintiff in relation to this action, the caveat lodged by the plaintiff in relation to this action to the said land, and on SAD 140 of 2012 in the Federal Court of Australia.
5.   The plaintiff recover from the second defendant the costs of the action to be adjudicated or agreed on a solicitor and own client basis.
6, 7, 8, 9, 10 and 12. (Orders facilitating the sale of the Hove property)"
Additionally in both actions an order for payment into Court was made in the following terms:
"The net proceeds of the sale of the land and improvements in any manner specified above after the deduction of all proper expenses be paid into court to the credit of this action and of (the other action) in an account to be entitled "No. 2267 of 2010 Leader Computers Pty Ltd v Johnson and Ors and 534 of 2011 Synnex Australia Ltd Johnson and Ors-Proceeds of Sale of Land" there to abide the further orders of the court to give effect to the judgment herein." (My underlining)
Synnex has judgment against Mr Johnson in the sum of $89,082.73 and interest on that sum to the date of judgment of $19,893.48. The interest of Mr Johnson in the land is charged with an equitable charge in favour of Synnex for the payment of those sums plus interest and costs and a caveat.
By paragraph 5 in the Synnex action Judge Davey ordered that Synnex recover from Mrs Johnson the costs of the action. It is this order which is at the centre of this appeal.
Unlike Mr Johnson there is no charge over Mrs Johnson's assets.
Payment out from the Suitors Fund is dealt with in Rule 190(2) which provides that money is to be paid out "by order of the court" or "by direction of the registrar". Judge Davey ordered that the fund created by the sale of the Hove property "abide further orders of the court to give effect to the judgment herein."
As to the procedure for payment out Lunn Civil Procedure South Australia refers in R190.5 to ANZ Banking Group Ltd v Trustee of Maunder (2009) NSWSC 1356 where Slattery J said at (8) about a similar New South Wales rule:
First the applicant must demonstrate an entitlement to funds. Second the applicant must show that there are no competing claims to the funds which would prevent payment out to the applicant. Third where other claimants may be affected, the applicant must show that it has notified those other claimants. Finally the applicant must calculate or provide a formula for the calculation of the amount to be paid out of court.
There is no reason why that approach should not be taken in the present case.
Interlocutory applications
Leader
On 20 November 2014 Leader filed an interlocutory application (FDN 57) for payment out of the Suitors Fund to it of the sum of $353,187.66 and an order that the balance of the funds continue to be held in accordance with the order of Judge Davey. The amount sought to be paid out was the amount of the judgment plus interest of $348,011.16 plus interest from the date of judgment.
On 8 May 2015 Leader lodged another interlocutory application (FDN 71) seeking orders for:
"2.An enquiry and an order and directions for payment out of the balance of the funds in court in the Suitors Fund and held in account numbered L00011 entitled "No. 2267 of 2010 The Pty Ltd v Johnson and Others and No 534 of 2011 Synnex Australia Pty Ltd v Johnson and Others-Proceeds of Sale of Land" (hereinafter called "the Account").
3. A declaration that the equitable charge created on 6 December 2007 and granted by the first defendant to Leader Computers Pty Ltd ACN 093 139 354 pursuant to the Guarantee and Indemnity over the interest of the First Defendant 's property has priority over the equitable charge created on 19 May 2009 and granted by the First Defendant pursuant to the Guarantee and Indemnity given by the First Defendant to Synnex Australia Pty Ltd ACN 052 285 882, over the interest of the First Defendant's property.
4.     An order that the Second Defendant's interest in the Account be charged with:
4.1     Payment of the sum payable by the Second Defendant to the Plaintiff Leader Computers Pty Ltd pursuant to the order for costs made by the High Court of Australia in action number A8 of 2014 and any interest accrued thereon; and
4.2     Payment of the sum payable by the Second Defendant to the Plaintiff Leader Computers Pty Ltd pursuant to the order for costs paid by the Supreme Court of South Australia in action number 861 of 2013 and any interest accrued thereon; and
4.3     Payment of the costs of the plaintiff Leader Computers Pty Ltd of this Application and the Application filed on 20 November 2014
5.In the alternative, and to the extent necessary, an order as to marshalling of the securities by way of equitable charge and mortgage as between the Plaintiff Leader Computers Pty Ltd and the Plaintiff Synnex Australia Pty Ltd as they relate to the First Defendant and Second Defendant.
6.     Costs including indemnity costs.
Synnex
Synnex lodged an interlocutory application (FDN 47) on 18 November 2014 which amongst other things sought orders or directions:
"2.That in respect of the costs of action ordered to be recovered by the plaintiff against the second defendant pursuant to the judgment herein of Her Honour Judge Davey made on 3 April 2014, an order that on the adjudication of those costs that the costs payable thereunder be fixed in the sum of $145,005.90 by the consent of the plaintiff and of the second defendant, or alternatively that the court enter a provisional costs order in that sum.
3.That half of the sum of $958,940.76 presently held in the District Court Suitors Fund in an account numbered L 00011 and entitled "No…. ("the Account"), and half the accrued interest thereon, such one half interest in the account and accrued interest thereon being property of the second defendant Fay Johnson, be charged with:
(a)     payment of the sum payable by the second defendant to the plaintiff pursuant to the certificate of taxation of costs issued by the High Court of Australia on 22 October 2014 in the sum of $17,647.12 plus interest to 5 December 2014 in the sum of $184.93;
(b)     payment of the sum payable by the second defendant to the plaintiff pursuant to the certificates of adjudication of costs issued by the Supreme Court of South Australia in action number 861 of 2013, and interest accrued thereon from the respective dates of the said certificates to 5 December 2014; and
(c)     payment of the costs of action ordered to be recovered by the plaintiff against the second defendant pursuant to the judgment herein of her Honour Judge Davey made on 3 April 2014 and in the amount determined in accordance with this application including the costs of the plaintiff of this interlocutory application fixed in a lump sum at the Court thinks fit.
4.That the sums referred to in paragraph 3 of this application, and charged over the second defendant's interest in the account, be paid out of the suitors fund to the plaintiff by payment made payable to the plaintiffs solicitor Michael Agar.
5.Pursuant to paragraphs 4 and 14 of the judgment of her Honour Judge Davey made on 3 April 2014, that from one half of the monies presently held in the District Court suitors fund in an account numbered L00011 and entitled… (The account) and interest accrued thereon, and representing the net proceeds of the sale of the interest of the first defendant in the land referred to in the said judgment, there be paid out to the plaintiff:
(a)     The sums of $89,082.73 and $19,893.48 referred to in paragraph 4 (a) of the said judgment; and
(b)     The sum of $5124.80 being interest on the judgment sum of $89,082.73 to 5 December 2014.
The hearing of the Plaintiffs’ applications
Interlocutory applications were heard before the Master on various dates up until his reasons were promulgated by e-mail on 10 February 2016. The transcript of argument before the Master extends to several hundred pages. The reasons of the Master which are the subject of the appeal extend to 77 pages. The transcript argument on this appeal extends to 290 pages.
There was a hearing before the Master for three hours on 13 April 2015. One of the issues which was agitated was the priority of the equitable charges granted by Mr Johnson in favour of Leader and Synnex. The issue was not resolved on that day, and in fact remains unresolved. The learned Master referred Leader FDN 57 and Synnex FDN 47 to the trial judge. He also ordered that from the half interest of Mr Johnson in the monies in the Suitors Fund there be paid to the solicitor for Synnex:
" The total sum of $108,976.21 (comprising the judgment sum referred to in paragraph 1 of the judgment in action 5342 of 2011 dated 03.04.2014 wherein the court ordered that the plaintiff recover against that of first defendant the sum of $89,082.73 and interest on that sum to the date of judgment of $19,893.48)"
And to the solicitor for Leader:
"The total sum of $239,735.19 (comprising the judgment sum is referred to in paragraph 1 of the judgment in action 2267 of 2010 dated 03. S4. 2014 wherein the court ordered that the plaintiff recover against the first defendant the sum of $225,136.44 and portion of interest on that sum to the date of judgment of $14,598.73).”
What Synnex believed was an agreement as to its costs was a misunderstanding and the Master ordered that Synnex file and serve a long form bill of costs.
In accordance with the Master's direction the matter was referred to Judge Davey who ruled that she had never heard argument on the priorities issue and the matter could be referred back to the Master.
While in paragraph 3 of its application FDN71 Leader had sought a declaration that its charge had priority the issue has never been pleaded or argued.
The orders which are subject to the appeal.
On 10 February 2016 the learned Master e-mailed reasons for decision to the parties. Following 76 pages of reasons the Master made the following 6 orders:
1That the plaintiff Synnex in Action 534 of 2011 is to recover its costs entitlements as ordered by Judge Davey on 3 April 2014, in the first instance, from that portion of the monies paid into the Suitors Fund on 31 October 2014 representing the half interest in those proceeds beneficially held by the second defendant Mrs Johnson and any interest or accretion thereon; and, thereafter, in the event of a shortfall, from the other portion of those monies paid into the Suitors Fund on 31 October 2014
2Permission to the parties, if so advised, to
(a) make further submissions as to the precise terms of the order to give effect to the reasons pronounced herein; or,
(b) to agree upon the terms of orders that give effect to these reasons and proceed by consent e-application as to those terms (without prejudice to the right to appeal against those orders)
3.That two thirds of the costs of and incidental to the applications in FDN 47 in the Synnex Action are awarded in favour of the plaintiffs against the second defendant
4.That the adjudication of costs in Actions 534 of 2011 and 2267 of 2010 are adjourned for mention only to 10 am on 29 April 2016
5.That the costs and incidental to FDN 64 in Synnex Action are reserved
5.That in the event that an appeal is lodged from any of these orders (or any orders made by e-application as envisaged in paragraph 2) prior to 29 April 2016, the hearing ordered in paragraph 4 will be administratively vacated and no party need attend that hearing.
Mr and Mrs Johnson have appealed against orders 1 and 3. The appeal against order 3 depends upon the outcome of the appeal against order 1. Accordingly the present appeal is only concerned with order 1.
The issues
There is a fundamental difference between the position of the parties. They are agreed that Mrs Johnson and the trustee of the estate of Mr Johnson are each entitled to one half of the proceeds of sale. However the position of Mr and Mrs Johnson is that the share held by the trustee is to be further divided and that one half of Mr Johnson’s share is subject to a charge in favour of Leader and the other half is subject to a charge in favour of Synnex. That position is based on the assumption that the respective charges given by Mr Johnson to Leader and Synnex rank equally. The appellants argue that of the sum of $958,940 the trustee and Mrs Johnson are each entitled to $479,470 and that the trustee's share is to be further divided into two amounts of approximately $240,000 one of which is subject to the charge given to Leader and the other which is subject to the charge given to Synnex.

If the defendants’ argument was correct the result would be that Leader would only have available to it approx. $240,000 of the share of the trustee to satisfy, its claim for judgement, and interest and costs and Leader could only look to Mrs Johnson to satisfy the costs liability created by the order of Judge Davey.
On the argument of Mr and Mrs Johnson the sum of approx. $240,000 held for the trustee which is subject to the charge to Synnex should be used to satisfy the costs liability of Mrs Johnson pursuant to paragraph 5 of the order of Judge Davey and the costs liability of Mr Johnson to Synnex including the liability for costs pursuant to clause 4(c) of her Honour’s order.
In addition to arguing that the trustee's share should be divided between Synnex and Leader, Mr Manetta argued that Synnex was obliged to give credit for the monies realised by the sale of Mr Johnson’s interest in the property before Synnex can recover its costs from the share of Mrs Johnson in the way envisaged by order 1 of the orders made by the Master. He argued that having enforced its charge Synnex was required to exhaust its rights against Mr Johnson‘s share before it could look to Mrs Johnson.
During the course of the appeal a number of issues arose for consideration.
·Is the appeal premature.
·The agreement by Mrs Johnson to pay Synnex’s cost entitlement.
·Should the interest of the trustee be divided as to one half for Synnex and the other half for Leader.
·The genesis of order 1.
·The argument of Mr and Mrs Johnson that Synnex must apply all of that portion of the trustee’s share which was subject to the charge to Synnex before Synnex can call on Mrs Johnson’s share.
Analysing the Masters order
To put these issues into perspective it is necessary to analyse the form of the orders delivered by the Master. In extensive reasons the Master outlined the facts and the history of the matter. In paragraphs 513 to 539 he discussed "The Applications" and the arguments which had been addressed to him. He identified the applications made in FDN 57 and FDN 71, in the Leader action and FDN 47 and FDN 64 in the Synnex action as the applications before him. (MT 40.)
The Master observed that by virtue of paragraph 20 of his order made on 13 April 2014 Leader had recovered the judgment sum referred to in the orders of Judge Davey. He identified the claim for interest in paragraph 3(b) of FDN 57 as the remaining contentious issue in the Leader action and noted that by virtue of his order of 13 April 2015 Leader had received $14,598.73 of "that historical amount for interest and therefore seeks be further sum of $108,275.97 plus further interest from 3 April 2014 to 13 April 2015, which the plaintiff Leader has quantified in the sum of $14,245". Otherwise the only additional aspect of FDN 57 was the costs of the application.
Leader had not been paid its full entitlement because that would have exceeded the sum of approx.. $240,000 which the defendants assert is Leader’s share of the amount held for the trustee.
As to the two applications of Synnex (FDN 47 and FDN 64) the Master referred to paragraph 2 of FDN 47 in which Synnex applied for an order that its costs of action which Judge Davey ordered be recovered from Mrs Johnson be fixed in the sum of $145,005.90. It was Synnex’s case that the parties had reached an agreement as to the amount of the costs but when the matter came before the Master that agreement was qualified. The amount of costs due to Synnex has been referred for adjudication and remains unquantified.
The Master observed in his reasons that what was sought in "paragraphs 3(c), 4 and 5 of FDN 47 is very close to the ultimate outcome of the argument as reflected in the orders set out below" (para 352). Counsel identified that observation of the Master as the genesis of the order in paragraph 1 which is the subject of the appeal.
The Master then concluded "Therefore, I consider that the costs of and incidental to the applications determined by these reasons should be paid by her (Mrs Johnson) from her share of the monies in the Suitors Fund." (para. 539).
Is the appeal premature?
Mr Edmonds-Wilson submitted that the appeal is premature because it has been instituted before the orders which the Master foreshadowed in paragraph 3 have been pronounced. (T 166). He submitted that the Master intended for the parties to prepare Minutes of Order to give effect to his reasons and to agree on the terms of order to give effect to those reasons. (T 166)
In response Mr Manetta referred to paragraph 6 of the Master’s orders which he submitted made it clear that the orders made by the Master were intended to be operative orders. (T166)
Mr Edmonds-Wilson argued that it appears from the reasons that there would have to be a series of orders fashioned to give effect to the Master’s reasons. He referred to paragraph 513 and following of the reasons and to the fact that the Master acknowledged in paragraph 514 that there was a contentious matter in the application FDN 57 which remained to be to dealt with. In the following paragraphs the Master identified other applications which are yet to be dealt with.
In paragraph 2 of his order the Master contemplated that the parties would make submissions "as to the precise terms of the order to give effect to the reasons" or "to agree upon the terms of orders that give effect to these reasons".
However this appeal has been brought from paragraphs 1 and 3 of the Master’s order and costs have been incurred preparing and pursuing the appeal. I have heard submissions which extended over three days. The costs of those activities should not be wasted.
There was no threshold application seeking a stay. It is unnecessary for me to indicate what order I would have made if such an application had been made. It was not until Mr Manetta had argued the appellant’s case for one and a half days that Mr Edmonds Wilson argued that the appeal was premature.
Once the costs of Synnex have been adjudicated and an allocatur has been issued paragraph 1 of the Master’s order would give Synnex access to Mrs Johnson’s share of the monies in the Suitors Fund and an application would be necessary to stay the order of the Master until an appeal has been determined.
I have interpreted the observations of Mr Edmonds-Wilson to be a criticism of the procedure rather than a formal application for a stay (T166-4). Nothing would be gained by granting a stay at this stage. The costs of the appeal have been incurred. I am obliged to determine the appeal.
Was there an agreement by Mrs Johnson to pay the costs of Synnex?
The Notice of Appeal effectively camouflages the real basis of the appeal. The closest that the Notice of Appeal gets to identifying the appellant’s argument on the appeal is paragraph 4 of the grounds which states:
4. The learned master erred in law in holding that Synnex was entitled to look to the second defendant for payment of the whole of its costs of action without first bringing to account the whole of the proceeds of sale of the land against which the payment of those costs have been secured.
Even that ground does not correctly identify the appellant’s argument because the notice only states that Synnex must bring to account “the whole of the proceeds of sale”. Those proceeds of sale include Mr Johnson’s share and Mrs Johnson’s share, whereas the appellant’s argument is that Synnex must bring to account that half share of Mr Johnson which is subject to the Synnex charge.
I was initially unable to understand why the Master had made the order in paragraph 1. The reasons of the Master do not refer to any argument relevant to that order. It was not until Mr Manetta had completed the appellant’s argument and Mr Edmonds Wilson commenced his argument that I gained some insight into the reason for order 1.
Mr Edmonds-Wilson referred to a number of passages in the transcript of proceedings before the Master and he suggested that Mrs Johnson had agreed to pay the costs of Synnex pursuant to the judgment of Judge Davey. Mr Edmonds-Wilson said:
"There are many things that Mr Manetta has not told you about an agreement his client reached below with Synnex and Leader which is the underlying basis for why the master has expressed the rather cryptic words he has expressed in paragraph 1 and, because he hasn't told you that, you have been seriously misled in relation to that and Your Honours puzzlement is understandable." (T112-18)
Mr Edmonds-Wilson said that because of the agreement that Mrs Johnson had entered into with Synnex and Leader an argument about the effect of the discharge of a mortgage over the Hove property was not developed before the Master. (T 144-28)
During the course of the argument before the Master and on appeal Mr Manetta put that Synnex should rely on the charge over Mr Johnson’s interest first, "because having elected to enforce the charge he must take everything that's owing to him under it before he can turn to Mrs Johnson and ask for anything more." (MT 42-8)
After a lengthy discussion with counsel the Master said:
"Just let me read this again and see if it gives you any indigestion. It is agreed that the plaintiff Leaders cost entitlement is to be paid out of the second defendant's half share of the monies paid into the suitors fund on 31 October 2014 and any interest accrued thereon." (MT 40-27)
Later the Master said "Mr Stathopoulos (counsel for leader) because you're going to get your costs whatever they'd be out of the second defendant's half share, so that's the end of that issue. We are back on what happens to the first defendant's share" (MT 43-36) By way of further clarification the Master asked:
"So really it should say, it is agreed that paragraph 5.1 of Judge Davey’s orders; is agreed that the plaintiff Leaders costs entitlement set out in paragraph 5.1 of Judge Davey’s orders is to be paid out of the second defendant's half share of the monies paid into the Suitors Fund on 31 October, and any interest accrued on the sum paid into the fund on 31 October." (MT 44-27)
Both Mr Stathopoulos and Mr Manetta indicated that they were happy with what the Master had read out.
The Master revisited the matter saying:
"Why don't we record the progress that we've made to this point, because I think that will be good for everyone, and then we'll discuss the way ahead. It is agreed between all parties in both actions that the plaintiff, Leader Computers, in action 2267/2010 costs entitlement, in paragraph 5.1 of Judge Davey’s order of 3 April 2014 is to be paid out of the second defendant's half share of the monies paid into the Suitors Fund on 31 October 2014 and any interest accrued on that sum paid into the suitors fund on 31 October 2014."
On the following day Mr Manetta submitted to the Master that if a person has security and he elects to enforce it that person must exhaust the process of realisation of the security. He continued:
"Synnex only has one security, the charge. This is on the question of choosing between securities; Mrs Johnson hasn't offered any security, and certainly none has-the ephemeral mortgage which was discharged before it was enforced, so what Synnex has to choose between is an obligation of Mr Johnson secured against real property and an unsecured personal obligation to pay from Mrs Johnson. Even though Mrs Johnson’s money is in court, there is no security over the money. Now, as I said yesterday, as a matter of practicality, we would submit to an order that payment be made by either the deduction from the funds in court, by payment out of the funds in court, but that doesn't mean that they have any security over it. We would have to consent to it. That means that Synnex is not choosing between securities. It is not saying "I'm entitled to enforce a charge and then for some other security given by Mrs Johnson". There is no question about it, there's only one security being enforced, and having elected to enforce it they must take all the proceeds before turning to Mrs Johnson." (MT114)
The security that he said was being enforced was the security over the interest of Mr Johnson.
I have read the relevant passages of the transcript before the Master. The discussion initially referred expressly to Leader’s cost entitlement alone (MT 40-27, 44-27). Initially there was no reference to the costs of Synnex. However subsequent passages indicate that the "agreement" was extended to cover Synnex. Mr Manetta said:
"… They can use all the enforcement mechanisms of the law to enforce their entitlement to what Mrs Johnson owes them but what Mrs Johnson owes them must be calculated having regard to the fact that a large portion of the costs have already been discharged from the proceeds of sale of Mr Johnson's property (MT306-1).
Mr Manetta submitted to the Master that Synnex had effectively already been paid from the proceeds of sale of Mr Johnson’s share and
"Effectively, and in fact we make no bones about the fact that they will be paid from Mrs Johnson share once we ascertain what the costs are. Now, it's a sideshow as to whether or not they have some ghostly security over Mrs Johnson share deriving from the discharge of the mortgage. But that's neither here nor there because we are not claiming the right to take the money out of court without seeing them paid, so there is enough money in court to answer the judgement. The only question is in satisfying themselves from Mrs Johnson’s share, they must give credit for the amount of costs that Mr Johnson has already paid by allowing his property, or submitting to an order that his property be sold to answer those costs. (MT 307-7)
Mr Manetta and his solicitor had been required to prepare the appeal without the benefit of transcript. At the first adjournment, after Mr Edmonds Wilson had commenced his submissions, Mr Manetta requested permission to inspect the court’s copy of the transcript. On return from the adjournment Mr Manetta announced that he wished to make a concession in relation to the matter of the agreement. He said the agreement recorded in the transcript was something he and his instructor had entirely forgotten about. He explained that the agreement was made early in the first day of argument which extended over three days over a period of close to six months. (T153) He did not have the benefit of transcript.
On the basis of that transcript and what Mr Edmonds Wilson put to me I find that Mrs Johnson had indicated she would pay the costs payable to Synnex by the order of Judge Davey, subject to the argument that Synnex should exhaust its charge over Mr Johnson’s share first. On that basis paragraph 1 of the Master’s orders is simply a record of what the Master believed the parties had agreed. Paragraph 2 of the Master's order can then be understood to apply to the formulation of the orders necessary to give effect to other conclusions expressed in the Master’s reasons.
It is clear that Mr Manetta had argued that before Mrs Johnson's share became vulnerable the asserted entitlement of Synnex to the half share of Mr Johnson's entitlement should first be exhausted. That argument is predicated on the claim that Leader and Synnex were each entitled to 1/2 of Mr Johnson’s share because their respective charges created equal equity.
Mr Edmonds-Wilson described the agreement in the following way:
"We say Mrs Johnson entered into a specific agreement with Leader and Synnex which was advised to the master and Mrs Johnson now seeks to resile from the position she took before the master by making the present interlocutory application which they seek to agitate today for payment out of money so …The agreement was that the monies in the suitors fund would remain in court and that they would be used to pay out whatever taxed costs in favour of Leader eventually emerged in the taxation process and she would pay to Synnex whatever amount of taxed costs that Synnex was entitled to, subject, of course, to his argument that Synnex had already been paid through enforcing a charge over Mr Johnson share." (T130-8 to-26)
During the course of the hearing Mrs Johnson had issued her own interlocutory application for paymnent out to her which was not pursued.
Her Honour Judge Davey did not make any special provision with respect to the Synnex costs. On the other hand she did provide in paragraph 4 of the order in the Synnex action that the interest of Mr Johnson in the land be charged by way of an equitable charge in favour of Synnex with payment of the judgment sum, interest and "all costs fees charges and expenses including legal costs on a solicitor and own client basis incurred by the plaintiff (Synnex) in relation to this action…".
The respondents justify paragraph 1 of the Master’s orders on the basis that it flows from the agreement that Mrs Johnson entered into with both Leader and Synnex. (T165-4). Mr Edmonds-Wilson said that paragraph 1 was “declaratory to declare” - "That is the effect of what has been agreed before me, ..." (T165)
I accept that analysis.
Should the interest of the trustee for the bankrupt estate of Mr Johnson be divided into one half for Synnex and the other half for Leader?
The order for payment out to Leader on 13 April 2015 was limited to the payment out of one half of the amount held for the trustee of the bankrupt estate on the basis that the charges given by Mr Johnson to Leader and Synnex ranked equally so that Leader was entitled to one half and Synnex to the other half.
In FDN 71, which was lodged by Leader on 8 May 2015, a declaration was sought that the equitable charge created by Mr Johnson in favour of Leader on 6 December 2007 has priority over the equitable charge created in favour of Synnex on 19 May 2009. The Master referred the question to her Honour Judge Davey. Her Honour advised that she had never heard argument on the priorities issue and referred the application back to the Master. The question of priority was live on the hearing of the applications which gave rise to this appeal and the Master discussed the question of priority in his reasons.
The basis upon which Mr Johnson's share was notionally divided into two equal parts was an assumption that the charges of Leader and Synnex had equal priority and the amounts due to each creditor exceeded one half of Mr Johnson share.
On the hearing of this appeal Mr Manetta, who argued that Mr Johnson's share should be divided into two in the way that I have described, said:
"In that respect, in relation to agreeing priorities, it's not true to say that priority has not been determined by the master. The Master has held that priority was not determined and cannot now be determined and that's at paragraph 137 of his judgement. The consequence is that by default there is an equal ranking." (T 282-15)
When asked whether he agreed that Mr Johnson share should be divided into two parts Mr Edmonds-Wilson, who appeared on the appeal for both Leader and Synnex, answered:
"No, because we don't concede that there is an equal ranking charge-when I say "we" I'm speaking here for both Leader and Synnex on this appeal. Leader' s position was that it ranked first, Synnex's position was Leader is probably right about that but there need not be a determination on that. "We, Synnex, don't want to get into a dispute with Leader about whether Leader is right or wrong on that point." (T175).
Mr Manetta argued before the matter that priority was established by the judgement of her Honour Judge Davey. He argued that the judgment gave no priority to either plaintiff and that the court having decided nothing about priority the result was that Leader and Synnex ranked equally. (Reasons para 381, 382) Mr Manetta had submitted to the Master that the opportunity which the plaintiffs had to vary the priority of their respective charges ended with the making of the concurrent orders which they prepared and presented to Judge Davey on 3 April 2014 (Reasons para 383).
The Master accepted that because nothing had been decided about priority equality could be considered as the starting point. (Reasons para 384); but the Master said that he did not accept that amongst themselves Leader and Synnex could not by mutual consent agree the priority arrangement after 3 April 2014. (Para 385). The Master said that doing that would not be problematic or in conflict with the judgement because Judge Davey made it clear that she did not rule on the question. (Para 387).

The present position is that Leader claims priority, Synnex does not challenge the claim whereas the appellants claim that the charges are of equal priority.
The priority of the charges was not determined by the order of her Honour Judge Davey but remains to be determined by reference to the underlying facts. Her Honour’s decision does not determine that priorities were equal; she made no finding.
There was no argument on the appeal as to the priorities. The parties simply stated their respective positions. The information before the court indicates that the Leader charge was first in time. Leader was first to lodge a caveat. Unless something has happened to vary the priorities what is important is the date when the equitable charges were created. The parties can agree to vary the priority of charges but there is no evidence that happened in this case apart from the concession that Synnex has made.
I do not accept the argument of Mr Manetta that the priorities are equal because of the terms of the order of Judge Davey. The terms of her Honour’s order leave it open for priority to be determined in accordance with the usual rules.
The Master observed that Mr Stathopoulos (counsel for Leader)had submitted to him that Synnex had an unfettered choice with regard to their security, that Synnex had elected to give priority to Leader and that the Master should abide that decision. He submitted that the defendants were irrelevant to the enquiry which the Master was charged with having to make. I respectfully agree with that submission. Third parties cannot vary existing priorities between different charges.
There is nothing to indicate that the Leader charge did not have priority. Additionally I find that the Leader charge has priority because of the concession of Synnex.
In my opinion there was no basis for the half-share held for the trustee of Mr Johnson's bankrupt estate to be further divided into one half for each of Leader and Synnex. The whole of the trustees share should be available to Leader to discharge its prior charge and if the Leader charge is satisfied any balance can then be applied to the reduction of the Synnex charge.
The genesis of order 1
In his reasons the Master observed that paragraphs 3(c), 4 and 5 of FDN 47 was "very close to the ultimate outcome of the argument as reflected in the orders set out below" (para 532). Those paragraphs do provide a foundation for the Master’s order. The purpose of the order appears to be to record the agreement which had been reached during the course of argument before the Master.
Order 1 varies from the suggested agreement in that it does not recognise that Mr Manetta had stipulated that the costs payable by Mrs Johnson to Synnex must give credit for the amount that could be recovered by Synnex from Mr Johnson’s share. That was acknowledged by Mr Edmonds-Wilson. (T130-19)
It is necessary to consider the argument of Mr Manetta that Synnex has already been paid one half the money held on behalf of Mr Johnson. That is the argument that Synnex must apply the half-share of Mr Johnson which is said to be subject to the charge to Synnex in reduction of Mrs Johnson’s debt to it.
There is a consensus that when land with equitable charges attached has been sold and the monies are paid into court an equitable interest that formerly existed over the land changes into an equitable interest in the moneys in the Suitors Fund produced by the sale. (T 237-28, 241-36 2242-2)
In his reasons the Master noted that both Leader and Synnex were agreed that Leader enjoys the benefit of a prior charge over the money in the Suitors Fund either because Leader has priority over the charge of Synnex or alternatively can be treated as if Leader did have priority because Synnex can choose not to resort to that charged sum for its costs and Synnex and Leader can agree to Leader having priority. (para 73) The Master noted that the defendants did not agree with that position and that they contended that there was no priority established between Leader and Synnex as a matter of law and that they ranked equally (para 74).
In the appellant's summary of argument Mr Manetta advised that before the Master the appellants had contended that:
"12.1 the sale order constitutes an enforcement of the charges by the respondents;
12.2 the charges are co-ordinate and rank equally;
12.3therefore, the charge proceeds are to be divided equally between the respondents which means that each should receive $239,735;
12.4as Leader has already received its full entitlement of $239,735, the remaining amount belongs in equity to Synnex and must be applied by Synnex in discharge of its entitlement costs.
12.5Mrs Johnson's personal liability for costs is limited to the balance remaining after the application of the Remaining Amount."
The "Remaining Amount" is defined submissions as the sum of $130,759 of the charge proceeds which remains in the Suitors Fund."
I do not accept that argument.
The submission in paragraph 12.2, that the charges are coordinate and rank equally, contains a footnote to the following effect;
"The learned master agreed (384), having rejected the respondent’s application to prioritise Leaders charge over Synnex’s charge (127), (137), (142). That finding is not challenged by the respondents in this appeal."
I do not interpret the Master’s reasons in the same way. Paragraph 384 of the Master’s reasons begins a discussion on the question of priority. In paragraph 389 the Master observed that the question of priority had not been determined by Judge Davey. The Master said:
"390If the effect of the two orders is that of equality, that status is an inadvertent side wind which speaks as of 3 April 2014, but, which the relevant parties can agree to vary if they so wish subsequent to that date without a conflict with the order (which speaks as at the time it was made)".
The Master found that an agreement between the plaintiffs regarding priority "is equally possible and lawful." (Para 392)
Mr Manetta had argued before the Master that it was too late for the plaintiffs to "agree" priorities because of the enforcement of the order for sale of property. He submitted that the ability amongst creditors to rearrange their priority would not hold where the rearrangement prejudices the equitable rights of a third party or stranger to the transaction such as Mrs Johnson. (Reasons para 394) The Master noted that the submission "was stated with authority but without specific case authority".
The Master acknowledged that the effect of an agreement would prejudice Mrs Johnson because she stood to get less or nothing out of the share of the monies in a Suitors Fund. (Para 396). The Master said:
"If the proposition stated by Mr Manetta be correct, given the findings made by Judge Davey regarding the role of Mrs Johnson in the purported transfer of the Hove property to her, and, the costs orders made against her in this litigation (reflecting the view of the court about her role in this litigation) she does not come with "clean hands" so as to be able to call to her a the assistance of equity."
The Master cited authorities for his finding. The Master found that Mrs Johnson was not in a position to call to her aid the equitable principle asserted by Mr Manetta. (para 389)
The Master observed that Mr Stathopoulos had submitted to him that Synnex had an unfettered choice with regard to its security, that it had elected to give priority to Leader and the Master should apply that decision. Mr Stathopoulos submitted that the defendants (appellants) were irrelevant to the enquiry which the Master was charged with having to make. (para 409) In support of his argument Mr Stathopoulos referred to Adamopoulos v Olympic Airways SA[1] where the court upheld an agreement between two airline companies as to the division of the money in a suitors fund. The Master said that case lended support to his opinion that Mrs Johnson did not have clean hands so as to seek the aid of equity. (Para 413)
[1] (1991) 25 NSW LR 75
Mr Stathopoulos also referred to re-French Caledonian Travel Service Pty Ltd (in liquidation).[2] The Master set out in his reasons those passages in the judgement to which he had been referred. Although the reasons of the Master do not contain an express finding I interpret the reasons to impliedly accept submission of Mr Stathopoulos that the decision of Synnex to give priority to Leader should be given effect to.
[2] (2003) NSWSC 1008
Mr Manetta submitted that the position of Synnex that it did not wish to take the remaining amount (of the trustee’s share) in reduction of its costs but instead wished to leave that amount for Leader to take meant that Leader would receive much more than half of the charge proceeds and then Synnex would pursue Mrs Johnson for all of its costs. He said that the appellants argument was that Synnex, having elected to enforce its security and having realised that security, was bound to apply the Remaining Amount (as defined) to its costs and was not entitled to abandon it or seek alternative recourse against Mrs Johnson.
That argument is based on the proposition, which I have rejected, that Mr Johnson’s share should be divided in two.
Mr Manetta argued that the master correctly found that the order of Judge Davey was based upon Part 8 of the Law of Property Act 1936 (SA) and that the sale occurred by virtue of an order of the court. I agree with his submission that when characterising the sale of one must look at the Part 8 (16.3), I also accept that it was by reason of the plaintiffs’ status as chargees that they were entitled to invoke Part 8.(16.4) However Part 8 does not provide assistance in resolving the present issues.
Mr Manetta relied on Halsbury’s Laws of England,[3] where a general principle as to the application of money received by virtue of a mortgage is stated. In my opinion the passage relied upon has no application to the present case. Synnex has not received any money qua mortgagee. The money remains in the Suitors Fund awaiting an order of the Court. Without an order of the court Synnex has received nothing. Additionally the money is, at least by virtue of the agreement between Leader and Synnex, subject to Leader’s prior charge.
[3] 5^th Ed. Vol. 77 Para 712.
The Master held that the respondents could vary priority as between themselves without the consent of Mr Johnson. (para 366 ff) In my opinion that decision of the Master was correct. Chea Theam Swee v Equitycorp Finance Group Ltd.[4]
[4] [1992] 1 AC 472.
The Master said:
"The essence of the difference in position can be stated simply: Mr Edmonds-Wilson contended that the creditor was paid when the money was paid out of Suitors Fund, whereas Mr Manetta argues that the money is paid when the security interest in the property was realised and money paid into court, because it was then, in equity, in the ownership of the plaintiffs. He argued that when the security charge is enforced by sale of the Hove property and realising proceeds from the sale it is enforced and it is "received" in equity. Thus, the principle that a person with an encumbrance or charge, like the plaintiffs here, must, apply to that security what is received by virtue of the security on his argument needs plaintiffs have, pro tanto, been paid from that security. (Reasons para 451)
On his interpretation of the orders of Judge Davey the Master did not consider the mere occurrence of the sale and the payment into court to be enforcement of the security interest. (para 452). He did not see the principle as having any bearing on the issue before him (para 453). The Master concluded that the payment into court, in the full context in which it occurred, did not operate as a realisation of security in equity or in any sense. (Para 478) I respectfully agree.
There is a consensus that once the property had been sold pursuant to the order of Judge Davey the equitable charges which had existed over Mr Johnson's interest in the real state converted to equitable charges over the proceeds of sale held in the Suitors Fund.
I reject the argument of the appellants that Leader and Synnex had been paid either when the property was sold or the money was paid into court. At the time of payment into court Synnex had not received any payment. The money was in the Suitors Fund awaiting the directions of the court. Payment to Synnex would only occur when actual payment is made following a direction of the court.
Mr Edmonds-Wilson argued that Synnex was not obliged seek payment of the costs only under the security given by Mr Johnson by way of equitable charge over the Hove property. He referred to China and South Sea Bank v Tan Soon Chin;[5] In Re Bank of Credit and Commerce International SA;[6] Pan Foods Co Importers and Distributors Pty Ltd v ANZ Banking Group[7] and: Re McCann.[8]
[5] (1990) 1 AC 536
[6] (1998) AC 214
[7] (2000) 170 ALR 579
[8] (1985) 2 QdR 381
The Master accepted the argument of Mr Edmonds-Wilson that Synnex was entitled to make its own decision about the means of enforcement of the judgement and to do so contemporaneously, successively, or, simultaneously, or not at all. (Para 342). The Master also accepted the argument that Mrs Johnson is not entitled to tell the plaintiff to recover its costs judgement in a particular order, or, to seek payment only from the first defendant under the charge before recourse to her interest in the monies in the Suitors Fund. (para 349). He accepted that Synnex can make a decision not to engage in disputation with Leader concerning priority and the assertion that its equitable charge has priority over Synnex’s charge. (Para 350) Again I respectfully agree.
The Master noted that In re Bank of Credit and Commerce International SA Lord Hoffmann stated that a secured creditor is not obliged to resort to his security but can claim repayment by the debtor personally and leave the security alone. If the creditor recovers judgement against the debtor and the debtor is paid the security is released. (para 352)
In Pan Foods Co-Importers and Distributors Ltd v Australia and New Zealand Banking Group Ltd Callinan J specifically approved the passage from the speech of Lord Hoffmann in the Privy Council in China and South Sea Bank. Where a creditor has available to it different remedies for enforcement of the debt, the creditor may exercise them, "simultaneously or contemporaneously or successively or not at all".
On that basis Synnex can enforce its claim for costs against whichever debtor it chooses. Synnex is entitled to look to Mrs Johnson for payment of the debt. It is not obliged to rely upon the charge given by Mr Johnson before looking to Mrs Johnson.
As I have said, payment to Synnex does not occur until such time as the monies are actually paid to Synnex. Realisation of the proceeds of sale and payment into the Suitors Fund do not amount to payment to Synnex. Mrs Johnson cannot compel Synnex to seek payment of its costs from Mr Johnson's share of fund before it seeks payment from her.
On the basis of the finding that Synnex is not required to apply the remainder of Mr Johnson’s share in reduction of Mrs Johnson’s liability for the costs of Synnex the "agreement" reached in the course of the argument before the Master is unqualified.
I accept that when the Master made the order in paragraph 1 he was doing no more than to give effect to a promise by Mrs Johnson. On that basis the genesis of the order in paragraph 1 is clear. It was not an order determined by the Master but it was the recital an agreement which had been reached in the course of argument. It is unnecessary to consider whether order 1 of the Master’s orders was made pursuant to the Enforcement of Judgements Act or some other statutory provision. Through her counsel Mrs Johnson had indicated she would give effect to such an order.
The fact that Synnex had by (FDN 47) previously sought and recovered its judgment sum by the Master’s Order of 14 April 2014 from the share of Mr Johnson is of no consequence. If that prejudiced Leader as prior chargee it is for Leader to seek redress.
In my opinion the fact that Synnex had exercised its charge over the assets of Mr Johnson to recover the judgment sum would not require Synnex to apply the remainder of the trustee’s share towards Synnex’s costs or preclude Synnex from looking to Mrs Johnson for payment of its costs.
For the purposes of this appeal the question of priority between the charges of Leader and Synnex does not arise. The Master was correct when he said that it was open to Leader and Synnex to agree an order of priority between themselves. In those circumstances it was open to Leader to recover so much of the share of the trustee in bankruptcy as was necessary to satisfy its debt. By reason of the conceded priority Leader is not confined to one half of Mr Johnson’s share.
The entitlement of Synnex to recover its costs of action from Mrs Johnson stems from paragraph 5 of the order of Judge Davey dated 3 April 2014. That order follows the order in paragraph 4 where her Honour created an equitable charge in respect of the debts of Mr Johnson. From the structure of the order of Judge Davey it is apparent that that her Honour did not contemplate that the sale of the property would prevent the recovery of costs from Mrs Johnson.
It is unnecessary for me to consider the argument surrounding the discharge of the mortgage which Mrs Johnson had granted over the property.
In my opinion the appellants have not shown that the learned Master fell into error.
The appeal should be dismissed.