Mahmoud El Ali v JGYM Pty Ltd

[2018] NSWSC 1298

Supreme Court

New South Wales

Medium Neutral Citation:	Mahmoud El Ali v JGYM Pty Ltd [2018] NSWSC 1298
Hearing dates:	1 August 2018
Date of orders:	23 August 2018
Decision date:	23 August 2018
Jurisdiction:	Equity
Before:	Pembroke J
Decision:	See paragraph [14]
Catchwords:	DEED – proper construction – contractual restriction on rights and remedies
Legislation Cited:	Corporations Act, 2001 (Cth),
Category:	Principal judgment
Parties:	Mahmoud El Ali – plaintiff JGYM Pty Ltd (deregistered) – first defendant Ozem Kassem as joint and several liquidator of 39 Edward Street Sylvania Pty Ltd (in liq) – second defendant Jason Tang as joint and several liquidator of 39 Edward Street Sylvania Pty Ltd (in liq) – third defendant 39 Edward Street Sylvania Pty Ltd (in liq) – fifth defendant
Representation:	Counsel: M R Elliott SC – for the plaintiff J C Lee – for the second, third and fifth defendants   Solicitors: Roberts and Partners Lawyers – for the plaintiff Rostron Carlyle Lawyers – for the second, third and fifth defendants
File Number(s):	2018/089376

Judgment

1. The issue in this case is one of construction but the resolution of that issue in favour of the plaintiff will not necessarily resolve the underlying substantive dispute between the parties.

2. On 23 April 2015, the plaintiff entered into a deed of settlement and release with the liquidators of a company known as 39 Edward Street Sylvania Pty Ltd (the company). The company in liquidation should, of course, have been the relevant party to the deed, not the liquidators: Corporations Act, 2001 (Cth), Section 477(2)(d). The omission is not however fatal and the intention to bind the company is obvious.

3. The recitals to the deed recorded the following facts:

A.   On 1 October 2013 Ozem Kassem and Jason Tang were appointed as Joint and Several Liquidators of 39 Edward Street Sylvania Pty Ltd ACN 144 618 057 (the Company).

B.   On 16 November 2014, the Liquidators filed a Summons in the Supreme Court of New South Wales proceedings number 2014/00348462 (the Proceedings) on behalf of the Company and themselves as First and Second Plaintiffs, respectively, against Mahmoud.

C.   The Proceedings were commenced with respect to an outstanding loan in the amount of $60,000 for which Mahmoud is indebted to the Company (Loan). The Loan was made by way of vendor finance pursuant to a contract for sale of the Property from the Company to Mahmoud which exchanged on 7 November 2012 (Contract). In accordance with the Contract, settlement of the sale of the Property was effected on 19 December 2012.

D.   The Defendant has denied the matters referred to in Recital C above throughout the course of the Proceedings.

E.   The parties have agreed to resolve the matter, and dispose of the Proceedings, in accordance with the terms and conditions of this Deed.

4. It is clear from the Recitals that the deed was predicated on the fact that Mahmoud (the plaintiff in these proceedings) denied that he was indebted to the company for the sum of $60,000. It is also clear that the parties agreed to resolve their dispute as to the sum of $60,000 ‘in accordance with the terms and conditions of this Deed’.

5. The relevant terms and conditions of the deed pursuant to which the parties agreed to resolve their dispute, may be summarised and condensed as follows:

1. by clause 2.1(a), Mahmoud agreed to pay the ‘Settlement Sum’ and ‘Interest Amount’ in consideration for the release given on behalf of the Company pursuant to clause 3.1;

2. the Settlement Sum was $65,000 and the Interest Amount was 10% per annum;

3. if Mahmoud defaulted in payment of the Settlement Sum or Interest Amount, a contractual regime for enforcement set out in clause 2.2 of the deed applied;

6. The essential elements of the contractual regime for enforcement in clause 2.2 were that the liquidators on behalf of the company could:

1. take action to enforce the right to payment pursuant to the deed, including by demanding payment of the Settlement Sum and Interest Amount as a liquidated debt due and owing ‘pursuant to this Deed’; and

2. charge a fixed rate of interest calculated at 15% per annum on the unpaid amount of the Settlement Sum or Interest Amount ‘from the date of default up to and including the date the default is rectified, or until such date that judgment is entered by the court in the appropriate jurisdiction against Mahmoud’.

7. The contractual regime for enforcement represented the bargain to which the company agreed as part of the resolution of the dispute. The rights given to the company pursuant to that regime operate, in my view, in substitution for any other right that the company may have had pursuant to the original (disputed) vendor finance loan of $60,000.

8. The company’s original rights in connection with the disputed vendor finance loan of $60,000 would appear to have included its rights as an equitable mortgagee pursuant to an unregistered mortgage given by Mahmoud. Those rights have been subsumed and replaced by the contractual regime to which the liquidators agreed on behalf of the company in the deed of settlement and release.

9. That this is so, is evident from the proper construction of the deed, in particular from clauses 3.1, 3.3 and 3.4 when read as a whole and in context. Clause 3.1 sets out the release given to Mahmoud in return for his promise to pay the Settlement Sum and Interest Amount. It is somewhat convoluted and poorly drafted but the description of the release concludes with the qualifying words ‘in respect of or arising out of either directly or indirectly any matter referred to in or arising out of this Deed’.

10. If there were any ambiguity about clause 3.1, the point is made pellucid by clauses 3.3 and 3.4, which provide as follows:

3.3   Bar to further proceedings

Subject to clause 2.2, this Deed may be pleaded as a full and complete defence by the parties to any proceedings or Claim arising out of the facts, matters and circumstances referred to, or in any way related to, the Proceedings.

3.4   Forebearance

Subject to clause 2.2, whilst this Deed remains on foot, the parties agree to refrain and forebear from taking any action against the other parties subject to the parties’ rights to take action to enforce, or obtain declarations regarding the construction of, this Deed.

11. The effect of these clauses is obvious. The deed operates to prevent any claim by the company arising out of the underlying issues in dispute, other than one that is prosecuted pursuant to and in accordance with the terms of the deed.

12. Such rights as the company may have had as an equitable mortgagee, including its right to an equitable interest in the fund constituted by the proceeds of sale of the subject property, have been effectively extinguished. The company has agreed, by the terms of the deed – presumably drafted by its own solicitors – to forego those rights in return for the rights of enforcement given by the deed.

13. For reasons that were not explained, the company has not filed a cross claim in these proceedings seeking judgment for the liquidated debt to which it would seem likely to be entitled pursuant to the default regime in clause 2.2 of the deed.

14. The plaintiff is therefore entitled to the declaration and orders that he seeks by prayers 9 and 10 of the Amended Summons. However, I think it is appropriate in the exercise of my discretion to refrain from making those declarations and orders for a period of two weeks pending a decision by the company as to whether it wishes to file a cross claim. If it does so, it may well be entitled to summary judgment. If it is, different considerations may apply

15. I should ensure that any relief to which the parties are respectively entitled is synchronised. It is in the interests of justice to do so. I will list the proceedings for mention before me at 9.45 on Thursday, 6 September 2018.

16. The delay in resolving this litigation is the fault of the liquidators of the company, who appear to have been poorly advised. They should pay the plaintiff’s costs of the hearing on 1 August and their notice of motion filed on 12 July 2018 should be dismissed.

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Decision last updated: 23 August 2018