Manttan v Equititrust Limited

[2010] NSWSC 534

CITATION:	Manttan v Equititrust Limited [2010] NSWSC 534
HEARING DATE(S):	24 May 2010
JUDGMENT OF:	Biscoe AJ
EX TEMPORE JUDGMENT DATE:	24 May 2010
CATCHWORDS:	JUDGMENTS AND ORDERS - construction of interlocutory orders.
CATEGORY:	Consequential orders
CASES CITED:	Equititrust v Manttan [2010] NSWCA 95
PARTIES:	Michael Alan Manttan (Plaintiff) Equititrust Limited (Defendant)
FILE NUMBER(S):	SC 2010/91165
COUNSEL:	Mr J P Donohoe (Plaintiff) Mr D C Price (Defendant)
SOLICITORS:	Burkett & Taylor (plaintiff) Bransgroves (defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BISCOE AJ

24 May 2010

2010/00091165 MICHAEL ALAN MANTTAN v EQUITITRUST LIMITED

EX TEMPORE JUDGMENT

: This is a dispute over the construction of the following interlocutory orders made by Gzell J on 23 April 2010:

“1 Pursuant to s 74MA of the Real Property A c t , caveat number AE 618082X, be withdrawn from the title of folio number 50/SP70527 and 65/SP70527 known as unit 50, 95 Annandale Street, Annandale and unit 65, 95 Annandale Street, Annandale for the purpose of completing the contract for sale of land entered on 24 November 2009.

2 The net proceeds of the sale referred to in paragraph one of these orders, after the payment of all reasonable costs of sale and payment to the first mortgagee, be paid into the Supreme Court of New South Wales.”

2 On 14 November 2007, the defendant, Equititrust Limited, lent money to Tomasa Pty Ltd guaranteed by the plaintiff. In December 2008 Tomasa defaulted. As of March 2010 the amount owed to Equititrust was in the order of $900,000. By clause 9.3 of the loan deed the plaintiff provided security as follows:

“9.3 As further security the Guarantor hereby charges (by execution of this deed as beneficial owner) all freehold and leasehold interest in any land(s) (or any part thereof) which the Guarantor may now have or during the currency of the securities may acquire and the Guarantor further agrees that the Mortgagee may require execution by the Guarantor of such form of additional
security containing the same terms and conditions as the Mortgage referred to in the Schedule hereto. The Mortgagee shall in addition have the right to lodge a Caveat over any real and/personal property of the Guarantor, howsoever held, an [sic] the Guarantor hereby (by execution of this deed) agrees and acknowledges that this Deed creates in favour of the Mortgagee a Caveatable interest in respect of any Real Property of the Guarantor howsoever held.”

3 In April 2009 the plaintiff lodged caveat AE 618082X over the title of some 11 properties owned by the defendant. The caveat identified the nature of the interest as, "an interest as an equitable mortgagee pursuant to an unregistered second mortgage".

4 On 24 November 2009 the plaintiff contracted to sell two of the properties, 50 and 65 Annandale Street, Annandale. Settlement was scheduled for 7 May 2010.

5 On 13 April 2010 the plaintiff commenced these proceedings by summons seeking an order that Equititrust withdraw the caveat and an order that Equititrust be restrained from lodging any caveat in respect of other land referred to in a schedule based upon the same grounds as the said caveat or claiming an interest to the same effect as the interest claimed in it.

6 On 23 April 2010, on the return of the summons, the plaintiff had the matter referred to the Duty Judge, Gzell J, on the basis that the sale of units 50 and 65 would be lost if the matter were not immediately determined. His Honour made the orders set out at [1] above, together with directions for the progress of the matter to a final hearing. There appears to be no transcript of the proceedings before his Honour nor were his Honour's reasons for judgment published, but both those matters are the subject of undisputed affidavit evidence. After hearing oral submissions and engaging in dialogue with counsel, his Honour concluded with the following words:

“The best method of preserving the status quo pending final determination is for the caveat to be removed over the two units being purchased by Mr Sparrow, but otherwise for the caveats to remain in place. I am not prepared to allow the Sparrow sale to be lost, but it should proceed with the surplus sale proceeds being paid into court. The proceedings should be referred to the Expedition Judge to fast track their hearing and I therefore request the parties to prepare short minutes for the further conduct of the matter and to give effect to this position."

7 The plaintiff prepared short minutes to which Equititrust agreed and thereafter his Honour made orders in accordance with the short minutes.

8 Equititrust applied for leave to appeal. It also applied to the Court of Appeal for a stay of order 1. Hodgson JA refused the application for a stay: Equititrust Ltd v Manttan [2010] NSWCA 95. His Honour held at [1] and [2]:

“I am dealing with an application for a stay of an order made on 23 April 2010 by Justice Gzell that certain caveats be withdrawn for the purpose of completing an identified contract of sale, which I am told is due for completion tomorrow.

The order does not in terms give a date when the withdrawal is to take place. But in my opinion, the form of the order requiring withdrawal for the purpose of completing this contract sufficiently indicates that the caveats are to be withdrawn so as to enable completion at the time arranged for completion.”

9 The following is common ground in relation to the sale of units 50 and 65:

(a) the plaintiff entered into a contract for sale dated 24 November 2009 for units 50 and 65 at 95 Annandale Street Annandale for the price of $260,000;
(b) a deposit of $26,000 was paid by the purchaser to the plaintiff;
(c) the deposit was released to the plaintiff pursuant to special condition 8 of the contract for sale at the time the contract was entered into;
(d) settlement of the sale was scheduled for 7 May 2010;
(e) at settlement $10,000 from the deposit was to be paid by the plaintiff to the mortgagee (National Australia Bank Limited);
(f) an amount of $33,000 was to be paid to the agent acting on the sale for the plaintiff;
(g) the plaintiff refused to pay the balance of the deposit and the amount of the deposit in excess of 2.5 per cent of the purchase price into court;
(h) the defendant did not provide a withdrawal of caveat at settlement on 7 May 2010; and
(i) settlement has been deferred and is now scheduled for 26 May 2010 (in two days’ time).

10 Equititrust's position is that it refused to provide the withdrawal of caveat due to the refusal of the plaintiff to pay into court as required by order 2 of 23 April 2010: (a) $16,000 being the balance of the deposit released to the plaintiff and (b) $26,500 being the amount of the commission to be paid to the selling agent ($33,000) in excess of 2.5 per cent ($6,500) of the sale price, which excess Equititrust contends is not “reasonable” within the meaning of order 2.

11 At a directions hearing on 21 May 2010, Bergin CJ in Eq was informed that settlement had not occurred because Equititrust had not withdrawn its caveat over the title to units 50 and 65, and the plaintiff foreshadowed filing a notice of motion for an order that it be withdrawn. Equititrust was required to produce its form of withdrawal of caveat to the Court. Equititrust produced to the Court a form of withdrawal of caveat dated 21 May 2010 (which is in an envelope on the Court file) and indicated to the Court that there was a previous form of withdrawal of caveat dated 7 May 2010 that was taken to the planned settlement that day but that, having regard to the dispute that arose at that time, it was subsequently destroyed. A question was raised as to whether Equititrust was in contempt of the April 2010 orders. The obligations of the parties under those orders depended upon their proper construction, and the construction issues were fixed for hearing on 24 May 2010. This is how the construction issues come before me for determination.

12 Three issues of construction of the 23 April 2010 orders have arisen:

(a) are orders 1 and 2 interdependent?
(b) are the “net proceeds of the sale” referred to in order 2 to be calculated without reference to the $16,000 balance of the deposit released to the plaintiff?
(c) is the amount of the commission to be paid to the selling agent, which is calculated at 12.69 per cent of the sale price, a "reasonable" cost of sale within the meaning of order 2?

13 During the hearing, the third issue was resolved by agreement between the parties on the basis that any sum representing agent's commission in excess of three per cent of the purchase price will be paid into court on trust for either the agent or the first mortgagee. I turn to the remaining issues.

INTERDEPENDENCE

14 The plaintiff submits that orders 1 and 2 are not interdependent so that if it does not discharge its obligations under order 2, nevertheless Equititrust is bound by order 1 to withdraw the caveat. The parties have agreed that Equititrust's obligation to withdraw the caveat under order 1 may be satisfied by Equititrust producing a withdrawal of caveat in registerable form on completion.

15 The plaintiff's primary submission is that Hodgson JA in the passage quoted at [8] above, decided that there was no interdependence between orders 1 and 2. I am unable to accept the submission. Hodgson JA was dealing only with an application for a stay of order 1. He was not addressing the issue of interdependence.

16 The defendant submits that I should construe the April 2010 orders in the context of Gzell J’s reasons for judgment, a proposition with which the plaintiff did not disagree. Gzell J said that he had decided that the sale should not be lost and therefore the caveat should be removed but "it should proceed with the surplus sale proceeds being paid into court". It seems to me that His Honour contemplated, and I think this is reflected in the text of the orders, that the obligations in orders 1 and 2 were to be discharged concurrently; that is, that they are interdependent.

THE DEPOSIT

17 I turn to the remaining issue of whether the deposit released to the plaintiff is outside the ambit of order 2.

18 In my opinion, on the ordinary meaning of the words "the net proceeds of the sale" in order 2, the deposit has to be taken into account. The starting point is that the deposit forms part of the gross proceeds of sale. Net proceeds of sale are ordinarily determined by deducting from the gross proceeds the costs of sale and the amount to be paid to any mortgagee.

19 In this case, order 2 made on 23 April 2010 appears to contain its own definition of the net proceeds of sale in that it says that the net proceeds of the sale "after the payment of all reasonable costs of sale and payment to the first mortgagee" are to be paid into court. The word "reasonable" is a qualification but is not significant for present purposes because, the third issue to which I earlier referred (whether the agent's commission was reasonable) has been resolved by agreement: see [13] above.

20 However, the plaintiff submits that the words “the net proceeds of the sale” in order 2 should be construed as not including the deposit having regard to the following matters.

21 The first matter is the 24 November 2009 contract for the sale of units 50 and 65, particularly special condition 8 which provides: "The deposit is hereby released to the Vendor". The plaintiff submits that those words are clear and unequivocal and that the only construction that can be attributed to that condition is that as at 24 November 2009, the deposit monies were released to the vendor and were not held in trust for the purchaser and did not comprise the net proceeds of sale at the time of the orders made by Gzell J nor at the time of settlement as they had already been paid. Further, the plaintiff submits, that at the time the deposit was released to the vendor, it ceased to be characterised as a deposit and should the sale ultimately not be completed would be recoverable only as a debt. There was also an alternative submission that if the deposit continued to be characterised as such, it became a charge for the purchaser as a secured creditor over the land and as such would normally be recoverable on the sale of the property by order of the Court. The plaintiff submits that, on any construction, the deposit does not form part of the net proceeds of the sale to be paid by the purchaser to the vendor at the time of completion. Thus, the plaintiff submits, at the time of settlement the released monies, or at least the $16,000 portion of them, did not form part of the net proceeds of the sale.

22 In my view, the terms of the contract for sale of the units between the plaintiff and a third party cannot, of themselves, relevantly influence the construction of the orders made by Gzell J.

23 Secondly, the plaintiff submits that the words “the net proceeds of sale” in order 2 should be construed without regard to the deposit because of a letter that was written by the plaintiff's solicitors to Equititrust’s solicitors on 24 November 2009. In that letter, the plaintiff's solicitors referred to the exchange of contracts for the sale of units 50 and 65 and noted that Equititrust had registered a caveat on the titles. The letter stated: “We enclose a copy of the front page of the contract for your information and note that the balance of settlement money will be paid to the first mortgagee, National Australia Bank Limited, on completion. No monies will be available to pay to your client.” They then requested a withdrawal of the caveat.

24 It is the plaintiff's submission that Equititrust ought to have known from this letter that the deposit had been released to the plaintiff and that order 2 should be construed in that light. The plaintiff points out that the letter referred to the "balance" of settlement money being paid to the first mortgagee and stated that "no monies will be available to pay your client".

25 The only page of the contract that was enclosed with the letter was the front page and not the page which contained the special condition providing for the unusual release of the deposit to the vendor. Nor was it spelt out in the letter that the deposit had been released. It is common ground, and I can see no contrary indication, that Gzell J knew nothing about any such release. Equititrust denies that it was aware at the time of Gzell J's orders that the deposit had been released. I am not satisfied on the evidence that it was aware. I am not satisfied on the evidence that Gzell J, or Equititrust, contemplated at the time that the orders were made that the deposit should be excluded from the ambit of the order on account of its release to the plaintiff.

26 Thirdly, the plaintiff emphasises that in Gzell J's reasons for judgment, quoted at [6] above, his Honour spoke of the best method of preserving the status quo and indicated that he was not prepared to allow the sale to be lost.

27 A difficulty I have with giving weight to such words to construe order 2 in the way the plaintiff suggests is that there was no evidence or submission put before his Honour, nor is there any evidence before me, that the sale would or might be lost if the deposit were not excluded from consideration. Before me a suggestion was made from the Bar table that that might be the case, but I have been presented with a substantial amount of evidence and there is no evidence to that effect.

28 In the end I am driven back to the ordinary meaning of the words “the net proceeds of the sale” in order 2, discussed at [18]–[19] above. I am not persuaded that I should give those words any special meaning by reason of any of the matters to which the plaintiff has referred. In my opinion, order 2 requires the net proceeds of the sale to take account of the deposit released to the plaintiff.

29 Equititrust concedes that under order 2 it is open to the plaintiff to pay the balance of the deposit retained by the plaintiff, $16,000, to the first mortgagee. If for some reason it is not paid to the first mortgagee, then it has to be paid into court under the terms of order 2.

30 The parties will have a short opportunity to bring in short minutes of order to reflect my decision. I also propose to order that the costs of the hearing before me be costs in the cause and that the exhibits may be returned.