Naro Investments Pty Limited v Benjamin and Khoury Pty Limited

[2020] NSWSC 656

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Naro Investments Pty Limited v Benjamin & Khoury Pty Limited [2020] NSWSC 656
Hearing dates:	21 May 2020
Date of orders:	21 May 2020
Decision date:	21 May 2020
Jurisdiction:	Equity
Before:	Rees J
Decision:	Dismiss the application.
Catchwords:	MORTGAGES – appointment of receiver – deed of appointment not registered – mortgagor disputes power of sale – s 115A(2)(c) Conveyancing Act – analysis in Isherwood v Butler Pollnow remains apposite to amended section – receiver has power of sale   INTERLOCUTORY INJUNCTION – mortgagor in protracted default – mortgagor and second mortgagee want to sell property together with adjoining property – first registered mortgagee initially permits such efforts – no auction after 4 months – first registered mortgagee appoints real estate agent – mortgagor appoints real estate agent – receiver’s staff chased off property and pursued by car – no serious issue to be tried – balance of convenience favours mortgagee – injunctions refused – indemnity costs
Legislation Cited:	Conveyancing (Covenants) Amendments Act 1986 (NSW) Conveyancing Act 1919 (NSW), ss 115A, 115A(2)(c), 115A(3) Corporations Act 2001 (Cth), s 420(2)(a) Real Property Act 1900 (NSW), ss57(2)(b), 60, 63
Cases Cited:	Commonwealth Bank of Australia v Stavrianos (Supreme Court (NSW), Graham AJ, 17 October 1997, unrep BC9706506) Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161 Isherwood v Butler Pollnow Pty Ltd (1986) 6 NSWLR 363 Kyabram Property Investments Pty Limited v Murray [2005] NSWCA 87 MCP Muswellbrook Pty Ltd v Deutsche Bank (Asia) AG (1988) 12 NSWLR 16 Naro Investments Pty Ltd v Benjamin & Khoury Pty Limited [2019] NSWSC 1297 Northway Panels v Warry [2018] VSC 581 R J Wood Pty Ltd v Sherlock (1988) 217 ALR 38
Category:	Procedural and other rulings
Parties:	Naro Investments Pty Limited (First Plaintiff/Applicant)   Benjamin & Khoury Pty Limited (Defendant/First Respondent) Andask Pty Limited (Second Respondent)
Representation:	Counsel: Ms N Obrart (First Plaintiff/Applicant) Ms M Castle (Defendant/First Respondent) Mr D Edney (Second Respondent)   Solicitors: Harper James Law Group (First Plaintiff/Applicant) Benjamin & Khoury Solicitors (Defendant/First Respondent) Assured Legal Solutions (Second Respondent)
File Number(s):	2019/182253

Ex tempore Judgment

1. HER HONOUR: The first plaintiff, Naro Investments Pty Ltd, seeks to restrain the second respondent, Andask Pty Ltd, from interfering with the presentation by Naro’s real estate agent of a property for sale in Kogarah, including interfering with access to the property, interfering with marketing and negotiating a sale of the property, and a restraint from erecting any fence or signage on the property. Essentially, Naro seeks to restrain the first registered mortgagee from exercising its power of sale. Naro also seek orders that goods removed by the receiver appointed by Andask, Simon Cathro of Worrells, be returned. Naro has not joined the receiver to these proceedings as may be thought customary, but Andask did not object to the motion being determined in the absence of its receiver.

2. The issue is whether, by reason of section 115A(2)(c) of the Conveyancing Act 1919 (NSW), the receiver is entitled to sell the property notwithstanding that the deed by which he was appointed has not been registered. Further, Naro’s real estate agent has been marketing the property together with an adjoining property owned by related parties, with the support of the second unregistered mortgagee. Is there such an advantage to be gained by permitting these efforts to continue that the Court should restrain the receiver from selling the property over which Andask has security? The answers, put shortly, are yes and no.

Facts

3. In June 2017, Andask lent $910,000 to Naro under a Deed of Loan. The third and fourth plaintiffs, Rocco and Natalie Dimarti, were guarantors of the loan. As security for the loan, Naro granted a first ranking registered mortgage over 18 Rocky Point Road, Kogarah. The loan was due to be repaid in July 2018, but was not repaid. Gregory Hawes, employed by the mortgage manager for Andask, agreed not to take steps to enforce the loan provided that Naro continued to make interest repayments and undertook to promptly refinance the loan or list the property for sale.

4. Sometime after this, Naro placed the property on the market for sale. From time to time, Carmelo (Charlie) Dimarti informed Mr Hawes of Naro’s efforts to sell the property. Mr Hawes later learned that Naro was offering the property for sale together with the adjoining property, 20 Rocky Point Road Kogarah, which was owned by the second plaintiff, Margherita Dimarti and her husband Charlie Dimarti.

5. On 5 December 2018, the plaintiffs Naro, Margherita, Rocco and Natalie Dimarti entered into a “Deed of Agreement – Compromise of Costs” with their solicitor, Benjamin & Khoury Pty Ltd, being the defendant in these proceedings and the first respondent to the motion. As Robb J observed in Naro Investments Pty Ltd v Benjamin & Khoury Pty Limited [2019] NSWSC 1297, by the deed, the plaintiffs agreed to sell both 18 and 20 Rocky Point Road Kogarah in order to pay a “Settlement Sum” of $492,000 to Benjamin & Khoury by 1 July 2019. However, as Benjamin & Khoury pointed out, the deed did not give the law firm the right to sell Charlie Dimarti’s partial interest in 20 Rocky Point Road.

6. By the deed, the plaintiffs also granted Benjamin & Khoury a second mortgage over the properties together with an irrevocable power of attorney to sell the properties: Naro Investments at [8]. Benjamin & Khoury lodged a caveat on the title to the properties. Mr Hawes explains that the creation of a security interest in 18 Rocky Point Road in favour of Benjamin & Khoury and permitting registration of a caveat over the property without Andask’s consent was a breach of clauses 4.1(2), 4.1(4) and 4.17 of the memorandum of common provisions to the mortgage. On 10 December 2018, Natalie and Rocco Dimarti ceased to be directors of Naro and Margherita Dimarti became a director instead. Mr Hawes explains that this was a breach of clause 15.1(7) of the Deed of Loan.

These proceedings

7. In June 2019, the plaintiffs commenced these proceedings seeking a declaration that the “Deed of Agreement – Compromise of Costs” was void. Mr Hawes explains that Naro’s failure to notify Andask of its litigation with Benjamin & Khoury was a breach of clause 13.1(10) of the Deed of Loan. The plaintiffs did not pay the Settlement Sum to Benjamin & Khoury by 1 July 2019 or at all: Naro Investments at [11]. Instead, the plaintiffs filed a motion seeking to restrain Benjamin & Khoury from exercising the power to sell the properties so that the plaintiffs could sell the properties themselves. Margherita and Charlie Dimarti had both worked as real estate agents for a number of years and believed that they could achieve a higher sales price than Benjamin & Khoury. On the first return of the motion, Benjamin & Khoury gave undertakings not to sell the properties. Those undertakings were extended from time to time as the determination of the motion progressed.

8. On 2 July 2019, these proceedings came before Slattery J, who noted undertakings by the plaintiffs to use their best endeavours to sell the Kogarah properties at fair market value by 30 August 2019 and pay $517,000 from the proceeds of sale into Court. On 7 August 2019, Andask’s solicitors received a letter from the plaintiffs’ solicitor advising that Naro was in the process of refinancing the loan with Westpac Banking Corporation and would discharge the loan before 20 August 2019. The proposed Westpac refinance did not proceed. The properties were not sold by 30 August 2019 and, on that date, Slattery J noted further undertakings by the plaintiffs to sell the properties by 11 September 2019 and pay $517,000 into Court.

9. The properties were not sold by 11 September 2019, when the proceedings came before Robb J. The plaintiffs relied on an affidavit affirmed by their solicitor setting out attempts to refinance the Kogarah properties but, failing that, instructing their solicitor on 3 September 2019 to sell the Kogarah properties in order to pay the $517,000 into court: Naro Investments at [27]. The solicitor deposed that a contract had been exchanged to sell the Kogarah properties and Robb J stood the matter over to 17 September 2019 by which time it was anticipated that a bank guarantee for the deposit would have been provided to the plaintiffs: Naro Investments at [33].

10. On 17 September 2019, the sale of the properties had not advanced and Robb J expressed doubt about the genuineness of the contract for sale: Naro Investments at [43]. On 26 September 2019, Robb J declined to restrain Benjamin & Khoury from registering second mortgages over the properties. After taking into account the plaintiffs’ repeated promises to raise the monies necessary to enable them to pay $517,000 into Court, Robb J concluded that the balance of convenience did not justify the Court completely stultifying the law firm’s rights under the deed until final determination of the proceedings: Naro Investments at [71]. Although “there is a cloud hanging over the genuineness of the contract of sale”, his Honour gave the plaintiffs until 10 October 2019 to receive a deposit from the purchase, failing which the Court would consider whether there was any justification in restraining Benjamin & Khoury from enforcing its security: Naro Investments at [84].

Attempts by second mortgagee to sell the properties

11. The deposit was not paid and, on 14 October 2019, the undertakings given by Benjamin & Khoury not to enforce their security were discharged. According to Mouna Yousseff, the solicitor for the plaintiffs and Charlie Dimarti, after 14 October 2019 the plaintiffs understood that Benjamin & Khoury would proceed to sell the properties without delay. Ms Yousseff followed up Benjamin & Khoury in respect of their progress and was told on multiple occasions that they ‘were working on it’ and would notify Ms Yousseff when a real estate agent was appointed. On 14 October 2019, Naro ceased making mortgage repayments based on an understanding (apparently not shared with Andask) that Benjamin & Khoury would sell the properties as quickly as possible.

12. Benjamin & Khoury began their efforts to appoint a real estate agent. Before doing so, Benjamin & Khoury had to terminate contracts that the plaintiffs had entered into to sell 18 and 20 Rocky Point Road Kogarah. Benjamin & Khoury invited three real estate agents to tender and, in November 2019, Jones Lang LaSalle was chosen. On 18 November 2019, Ms Yousseff was informed by Benjamin & Khoury that Jones Lang LaSalle had been appointed to sell the properties. On 21 November 2019, Charlie Dimarti signed the agency agreement. Thereafter, a series of emails was sent by and on behalf of the Dimartis to Jones Lang LaSalle following up its progress in selling the properties.

13. Naro paid no interest to Andask in October or November 2019. On 2 December 2019, Andask issued a default notice to Naro, Natalie and Rocco Dimarti and Benjamin & Khoury as the holder of a caveat registered on the title of 18 Rocky Point Road. The plaintiffs contend that the default notices did not reach them but Andask tendered emails from Australia Post suggesting otherwise. Naro, Natalie and Rocco Dimarti did not comply with the default notice. No payments have been made to Andask since October 2019.

14. On 4 December 2019, Benjamin & Khoury wrote to Andask advising that it had engaged Jones Lang LaSalle to sell the property and was happy to discuss any proposals Andask had to best effect sale of the property. As Mr Hawes describes it, Andask and Benjamin & Khoury then engaged in protracted negotiations from early December 2019 to the end of February 2020 in an attempt to reach a mutually acceptable arrangement by which Benjamin & Khoury would be permitted to sell 18 Rocky Point Road together with the adjoining property while Andask would forebear from taking any enforcement steps to allow that sale to proceed. On 14 December 2019, an auction of the properties was to take place. The auction was postponed, according to Werrdan Khoury, by reason of the lack of co-operation of the plaintiffs and the difficulty caused by Charlie Dimarti’s unwillingness to sell his interest in 20 Rocky Point Road Kogarah.

15. The auction was re-scheduled to take place on 19 February 2020. It became clear that this auction would not proceed either. Mr Hawes instructed Andask’s solicitors to inform Benjamin & Khoury that, given their inability to get to auction after three months of negotiations, Andask was no longer prepared to hold off its own enforcement action. Benjamin & Khoury says that some of the delay was caused by amendments requested by Andask to the contract of sale. In addition, Charlie Dimarti was unwilling to sell his interest in 20 Rocky Point Road for most of this period.

First mortgagee takes possession

16. In any event, on 17 February 2020, Andask served notices under sections 60 and 63 of the Real Property Act 1900 (NSW) on the tenants at 18 Rocky Point Road. Andask appointed McGrath Real Estate as agents to begin marketing and selling the property.

17. On 18 February 2020, Benjamin & Khoury wrote to Andask’s solicitors advising that an auction for both properties was scheduled to take place on 17 March 2020 and suggesting that the steps Andask was taking to sell 18 Rocky Point Road were unnecessary and would incur wasted costs and expenses. It was suggested that Andask would be held liable for any steps that it took which might negatively influence the sale of 18 and 20 Rocky Point Road. It was suggested that Benjamin & Khoury’s sale of 18 Rocky Point Road was in Andask’s interests as the proposed sale would occur sooner and more efficiently than any sale Andask hoped to achieve. On 19 February 2020, Andask’s solicitor replied expressing strong disagreement. It was said that Andask’s decision to sell 18 Rocky Point Road was due to Benjamin & Khoury’s repeated failure to meet reasonable deadlines and milestones. Given the delays and inefficiencies displayed to date, Andask disputed Benjamin & Khoury’s contention that its best interests were served by allowing the law firm to retain control of the sale; Andask now proposed to take control of the process itself.

18. On 25 February 2020, Andask’s solicitors advised the plaintiffs’ solicitors that Andask had entered into possession of the Kogarah property pursuant to sections 60 and 63 of the Real Property Act and Andask would continue to exercise its enforcement rights under the mortgage. On 26 February 2020, the plaintiffs’ solicitors enquired as to the basis on which it was said that Andask had a power of sale as no notice had been served under section 57(2)(b) of the Real Property Act. Likewise, it was asked on what basis Andask was entitled to ‘constructive possession’ pursuant to section 60 in the circumstances. It was also suggested that it was imperative that the auction for both properties scheduled for 17 March 2020 take place to maximise the sale price of the properties. On 27 February 2020, Andask’s solicitors responded in detail. In particular, Andask stated that it had no obligation to hold off taking enforcement steps in respect of 18 Rocky Point Road to enable the plaintiffs to sell the property in one line with their adjoining property at 20 Rocky Point Road. It was said that Andask had exercised great restraint and given Benjamin & Khoury ample time to sell the property but promised deadlines and milestones had consistently failed to materialise. Andask’s patience was said to have been exhausted and it now proposed to sell the property as mortgagee exercising its power of sale as first registered mortgagee. Further, the plaintiffs and their real estate agent would be committing trespass if they entered onto the property or approached the tenants in the future.

19. On 3 March 2020, Jones Lang LaSalle confirmed with the plaintiffs’ solicitor that an auction to take place on 17 March 2020 would not proceed. On 5 March 2020, the plaintiffs’ solicitor proposed a regime to sell the properties together. Andask sought further information but does not appear to have had a timely response.

20. On 12 March 2020, the plaintiffs appointed Stone Real Estate to sell the properties instead. Margherita and Charlie Dimarti paid $8,605.43 towards a marketing campaign.

Appointment of a receiver

21. On 19 March 2020, Andask signed a Deed of Appointment of Receiver and Manager, appointing Mr Cathro as the receiver and manager of 18 Rocky Point Road. The same day, the receiver’s employees attended at the property and served a Notice of Possession by Receiver on the occupants. Whilst on site, Ms Yousseff spoke to the receiver’s employees and said that they were trespassing and had no right to enter the property. On 20 March 2020, the plaintiffs provided further information to Andask in respect of their proposed sale of the properties. On 21 March 2020, Stone Real Estate commenced marketing the Kogarah properties. On 23 March 2020, Andask agreed to forebear from actively pursuing its enforcement rights and proposed mortgagee sale on certain conditions. On 24 March 2020, the plaintiffs’ solicitors replied, not accepting the conditions but nonetheless seeking confirmation that Andask would not hinder an auction scheduled for 22 April 2020 failing which it was proposed to approach the Duty Judge.

22. On 26 March 2020, Stone Real Estate erected a sign at the property as part of its marketing campaign. On 27 March 2020, Benjamin & Khoury wrote to Andask suggesting that, in the difficult time following the coronavirus and economic decline, it was critical to work together to sell 18 and 20 Rocky Point Road jointly. A telephone conference was sought. Later that day, the plaintiffs’ solicitor wrote to Benjamin & Khoury advising that if they sought to interfere with the upcoming auction, the plaintiffs would relist the matter before Robb J.

23. On 6 April 2020, the receiver’s employees attended at 18 Rocky Point Road to take possession by evicting the remaining tenants and changing the locks. According to a police statement given by the receiver’s employee, the receiver’s staff were set upon by Charlie Dimarti who was brandishing a metal bar and chased the receiver’s staff off the land and pursued them further in his car. The matter was reported to police, who arrested Charlie Dimarti and held him in custody. Andask’s solicitor wrote to the plaintiffs’ solicitor describing Charlie Dimarti’s conduct as “pure thuggery – utterly reprehensible and to be deplored by all right thinking people”. Andask’s solicitor reminded the plaintiffs that it was trespass to access the property without Andask’s authority. Notwithstanding this, Andask advised that the auction on 22 April 2020 could proceed provided that specified conditions were met including that Andask could continue to market the property through its agent McGrath, commission for any sale achieved by Stone Real Estate be shared with McGrath, and any interested purchasers to inspect the property through McGrath and with McGrath present. The plaintiffs did not agree.

24. On 22 April 2020, an auction took place online but the properties were not sold. Benjamin & Khoury was not involved in this auction and only found out about it through online searches. On 23 April 2020, Andask’s solicitors enquired of the plaintiffs’ solicitors whether the auction had taken place the preceding day. On 25 April 2020, the plaintiffs’ solicitor advised that their agent was continuing to have post-auction negotiations with interested parties. On 27 April 2020, Andask’s solicitors followed up the plaintiffs’ solicitors in respect of post-auction negotiations and enquired whether a contract had been exchanged. On 28 April 2020, Andask’s solicitor advised that, in the absence of any detailed information in respect of post-auction negotiations, Andask would withdraw its permission for the plaintiffs’ agent to continue to sell the property unless it was in receipt of an executed, unconditional contract for sale by 5.00 pm on 1 May 2020. There does not appear to have been a reply.

21. On 5 May 2020, the plaintiffs’ real estate agent called Ms Yousseff and advised that they had a prospective buyer who wished to inspect the property. The plaintiffs’ solicitor asked Andask’s solicitor to provide the keys, cut the grass and remove the fence. Further, the plaintiffs’ solicitor requested that the signage of its real estate agent be re-erected for another inspection that weekend. McGrath was asked to provide keys to the plaintiffs’ agent. Unsurprisingly, Andask did not respond warmly. Rather, the plaintiffs were advised that their agent must immediately desist from advertising the property for sale. Undeterred, the plaintiffs’ solicitor advised that various offers had been made on the property and pressed for the plaintiffs’ agent to be provided with keys, access and to have their signage re-erected. Ultimately, Andask instructed McGrath to provide the plaintiffs’ real estate agent with access to the property over the weekend to permit the agent’s interested parties to inspect the property. Andask made plain that it should not be assumed from this that Andask would continue to grant access to the plaintiffs’ agent in the future and the plaintiffs’ agent should immediately cease advertising the property for sale as it impaired Andask’s ability to effectively market 18 Rocky Point Road for sale whilst the plaintiffs’ agent was also conducting a “separate, nonconforming campaign”. On 13 May 2020, the plaintiffs’ agent advised that they had issued contracts for both properties to a buyer who was “coming back to me with offer and terms required”.

22. On 14 May 2020, Naro filed this motion before the Duty Judge, Lindsay J. Andask did not oppose Lindsay J making orders for Andask to provide a copy of the keys to 18 Rocky Point Road to Naro’s real estate agent and for Andask to be restrained from interfering with the presentation of the property for sale by that agent until Andask had time to review the evidence served by Naro and to put on evidence. The matter returned before me today as Duty Judge, that evidence having been filed.

23. As at 1 May 2020, the amount owing to Andask is $992,933.62. In addition, Naro is also obliged to pay some $93,500 in respect of legal costs, receiver and manager costs and recovery and property presentation costs incurred by Andask. Thus, the total loan balance is in excess of $1,086,000. Based on a valuation obtained by Andask in January 2020 together with estimated sales prices provided by McGraths and Jones Lang LaSalle, Mr Hawes expects that Andask will incur a loss even if the property is sold at the upper end of the agent’s appraisal. The plantiffs’ real estate agent recommends another six to eight weeks to sell both properties without interference and confusion. McGrath is currently advertising 18 Rocky Point Road for sale. The plaintiffs request that McGrath’s advertisement be removed “to avoid purchaser confusion”.

Section 115A(2)(c) Conveyancing Act

28. Naro’s primary submission is based on section 115A(2)(c) of the Conveyancing Act 1919 (NSW). Naro contends that, as the Deed of Appointment of Receiver and Manager has not been registered, the acts of the receiver are without legal foundation and the receiver has no right to exercise powers of sale. The plaintiffs anticipates that this will give rise to further issues upon settlement of the sale of 18 Rocky Point Road including the receiver’s costs and property recovery costs claimed by Andask as debts owing to it under the mortgage, which Andask will likely claim as a condition to discharge its mortgage. Further, Naro may wish to claim loss of rent following the receiver’s eviction of the tenants said to be without power.

29. Andask submitted that the receiver's appointment does not require registration under the Conveyancing Act as the power to appoint the receiver was provided by clause 6.2(3)(b) of the memorandum of common provisions: Isherwood v Butler Pollnow Pty Ltd (1986) 6 NSWLR 363 at 388-9, as applied in, for example, Commonwealth Bank of Australia v Stavrianos (Supreme Court (NSW), Graham AJ, 17 October 1997, unrep BC9706506). Thus the receiver was entitled to enter into possession and take control of the property in accordance with Andask’s statutory right to such possession: section 420(2)(a), Corporations Act 2001 (Cth). In the absence of any question as to the validity of the receiver's right to the property, there was no serious question to be tried: Northway Panels v Warry [2018] VSC 581.

30. Section 115A of the Conveyancing Act provides:

115A Appointment of receivers

(1)   In this section, default, in respect of a mortgage or charge, means default in—

(a)   in the case of a mortgage, the observance of a covenant, agreement or condition expressed or implied in the mortgage,

(b)   the payment, in accordance with the terms of the mortgage or judgment to which the charge relates, of the principal, interest or other money the payment of which is secured by the mortgage or charge, or

(c)   the payment, in accordance with the terms of the mortgage or that judgment, of any part of that principal, interest or other money.

(2)   Notwithstanding anything contained in any other section of this Act or in any other instrument—

(a)   a mortgagee under a mortgage, whether executed before or after the commencement of this section, or a chargee is not entitled to appoint, whether under the power conferred by this Act or otherwise, a receiver in respect of the mortgaged or charged property unless default has been made in respect of the mortgage or the judgment to which the charge relates,

…

(c)   a person purporting to have been appointed as a receiver in respect of mortgaged or charged property, whether or not by the instrument creating the mortgage or the covenant under which the charge arose, shall not be entitled to exercise, as a receiver, any powers in respect of the mortgaged or charged property unless—

(i)   default has been made in respect of the mortgage or charge, and

(ii)   that appointment was made by an instrument in writing which has been registered.

(3)   A receiver, however appointed, shall not exercise a power to sell any land the subject of the mortgage or charge unless the mortgagee or chargee is entitled to exercise a power to sell the land.

(4)   This section applies to mortgages and charges under the Real Property Act 1900.

…

“Registered means registered in the appropriate register in the office of the Registrar-General: section 7(1), Conveyancing Act. There is no doubt that the Deed of Appointment of Receiver and Manager was not registered. Nor is there any doubt that Naro was in default under the mortgage.

31. An earlier version of section 115A(2)(c) was considered by the Court of Appeal in Isherwood v Butler Pollnow Pty Ltd. The section as it then stood, was in the following form:

Section 115A

(2)   Notwithstanding anything contained in any other section of this Act or in any mortgage or other instrument –

…

(c)   a person purporting to have been appointed after the commencement of this section as a receiver in respect of the mortgaged property, whether by the mortgage or other instrument or otherwise, shall not be entitled to exercise, as a receiver, any powers in respect of the mortgaged property unless –

(i)   default has been made in respect of the mortgage; and

(ii)   that appointment was made by an instrument in writing which has been registered

32. McHugh JA observed that, if the words of the subsection were given their literal meaning, it was obvious that the instrument which appointed a receiver would be ineffective to give them any powers: at 387. However, his Honour considered that there were a number of indicators in section 115A which raised doubts as to whether the words of section 115A(2)(c) were intended to have their literal meaning. First, the words “or otherwise” would encompass a court appointed receiver, “Yet it would be absurd to think that an order of the court, perhaps made at the weekend or late at night in an emergency situation to protect mortgaged property, was of no effect until registered with the Registrar-General”: at 387. Second, section 115A(2)(a) prohibited the appointment of a receiver unless default had been made in respect of the mortgage. Section 115A(2)(c) also stated that the receiver could not exercise his or her powers unless default had been made in respect of the mortgage. This repetition seemed odd unless section 115A(2)(c) was dealing with a limited class of cases where the receiver was appointed by some means without or before default: at 387. Third, if the words “whether by the mortgage or other instrument or otherwise” in section 115A(2)(c) were intended to cover every form of appointment, then why did the legislature use different words, “however appointed”, in section 115A(3): at 387. Having regard to these indicators, McHugh JA concluded that the true meaning of the subsection could only be understood by resort to the purposive approach to statutory interpretation which required an examination of the subject matter of the section, the mischief which existed before its enactment, the purpose which Parliament intended to achieve in enacting the section, and whether the construction contended for advanced that legislative purpose: at 387.

33. His Honour reviewed the second reading speech to identify the mischief to which the section was directed. Amendments had been made to the Conveyancing Act which prevented the mortgagee exercising a power of sale unless the mortgagor had defaulted in the payment of money due under the mortgage, had been given at least one month’s notice of the intention to sell, and had failed to rectify their default within the time specified in the notice: at 388. “The Bill was concerned to prevent astute mortgagees from circumventing the statutory restrictions on the power of sale “by such a mortgagee organising sale of the mortgaged property by a receiver, instead of himself exercising his power to sell as mortgagee”. In his second speech the Minister said that s 115A(2)(c) “deals with the highly technical case of a receiver appointed by the mortgage deed itself instead of by a separate instrument”. The second reading speech disclosed that the other objects of the Bill were to ensure that receivers could not be appointed unless the mortgagor was in default and to ensure that a receiver could not exercise a power of sale over land until the mortgagee’s own power of sale had arisen”: at 388.

34. McHugh JA concluded that section 115A sought to prevent registered mortgagees circumventing the rights of mortgagors under the terms of a mortgage by appointing a receiver instead. At 388: (emphasis included)

When s 115A(2)(c) is read in the light of the mischief which it was designed to overcome and the objects of the legislation, it wears a very different appearance. The purpose of the paragraph in using the words “whether by the mortgage or other instrument or otherwise” was to ensure that the mortgagee did not circumvent s 115A(2)(a) by having the receiver appointed as part of the security arrangements whether by the mortgage, a collateral instrument, or even orally. This purpose also explains what appears at first sight to be a curious difference in the language of s 115A(2)(a) and s 115A(2)(c). Section 115A(2)(a) is concerned with preventing the appointment of a receiver unless default has occurred. Section 115A(2)(c) is concerned with a receiver who has already been appointed by the security documents. The object of the latter paragraph, therefore, is to prevent the exercise of any powers unless default has occurred.

35. McHugh JA considered that this interpretation of section 115A(2)(c) based on its purpose also fitted harmoniously with the rest of the section: section 115A(1) defined “default”; section 115A(2)(a) prohibited a mortgagee appointing a receiver unless the mortgagee had made default; section 115A(2)(c) prevented the mortgagee using the security documents or a collateral arrangement to appoint the receiver thereby avoiding the effect of section 115A(2)(a); and section 115A(3) prevented any receiver from selling land unless the mortgagee itself could sell the land: at 388-389. Finally, at 389:

Accordingly it is no part of the purpose of s 115A(2)(c) or the words “whether by the mortgage or other instrument or otherwise” to require registration of a document which appoints a receiver pursuant to a power contained in the mortgage deed. Such an appointment is controlled by s 115A(2)(a) and s 115A(3) – not by s 115A(2)(c). The documents with which the latter paragraph are concerned are those which can be characterised as appointing a receiver as part of the security arrangements.

McHugh JA’s construction was adopted by Glass JA. Priestley JA generally agreed with McHugh JA’s views on the construction of section 115A, although without the use of extrinsic materials: at 378.

36. Following Isherwood, it was correctly submitted by Naro that section 115A(2)(c) was amended by the Conveyancing (Covenants) Amendments Act 1986 (NSW). Although section 115A(2)(c) was deleted and replaced in its entirety, when the current section is compared with the earlier version of the section construed by McHugh JA, it can be seen that the amendment was directed to extending the operation of the sub-section to properties which were subject to a charge as well as those which were subject to a mortgage. Similar amendments were made by the Conveyancing (Covenants) Amendments Act to numerous sections in the Conveyancing Act, and it is reasonably apparent that this is what the legislation was directed to. To be precise, section 115A(2)(c) was amended as follows: (amendments marked)

a person purporting to have been appointed after the commencement of this section as a receiver in respect of the mortgaged or charged property, whether or not by the instrument creating the mortgage or the covenant under which the charge arose by the mortgage or other instrument or otherwise, shall not be entitled to exercise, as a receiver, any powers in respect of the mortgaged or charged property unless —

(i)    default has been made in respect of the mortgage or charge; and

(ii)   that appointment was made by an instrument in writing which has been registered.

37. I do not consider that the amendments were such as to render McHugh JA's analysis of section 115A(2)(c) redundant. The amendments extended the operation of the sub-section to properties subject to a charge. The sub-section as amended continues to work harmoniously within the section as described by McHugh JA. There is nothing in the amendments which indicates that the legislature wished to disturb the operation of the section as described in Isherwood.

38. Isherwood continued to be applied notwithstanding the amendment. In MCP Muswellbrook Pty Ltd v Deutsche Bank (Asia) AG (1988) 12 NSWLR 16, Powell J considered the appointment of a receiver in January 1988, that is, after the amendments to the Conveyancing Act, and followed the views expressed by McHugh JA in Isherwood: at 32. In R J Wood Pty Ltd v Sherlock (1988) 217 ALR 38, Davies J of the Federal Court of Australia did likewise in respect of a receiver appointed in March 1988, although his Honour expressed gratitude that, as Isherwood concerned New South Wales legislation, he was not being asked to reconsider any aspect of the views expressed by the Court of Appeal. In Commonwealth Bank of Australia v Stavrianos, Graham AJ said that was ‘no force’ in a submission akin to that made by Naro here, citing McHugh JA in Isherwood.

39. Here, the receiver was appointed by Andask pursuant to a power contained in the mortgage. There is no doubt that Naro was in default. It was not necessary for the appointment to be registered before the receiver was entitled to exercise his or her powers. Thus, Naro’s primary submission fails.

Who should sell the property?

40. It is submitted by Naro that, given that its real estate agent has been engaged in efforts to sell the property for some months now, the agents should be allowed to continue. The question is to whether the Court should restrain Andask and its receiver by reason of some advantage which is thought will be derived by allowing Naro to continue its efforts to market the property. The precise legal basis on which I would so restrain Andask and its receiver was not clear.

41. Andask submitted that, to the extent that Naro's application to control the sale to the exclusion of the receiver rested on the proposition that Andask had no right to interfere with Naro's possession of the property in the absence of an order and a writ for possession, no order for possession was required. On default under the mortgage, Andask had a statutory power to enter into possession of the property by taking receipt of its rents, to the exclusion of Naro: sections 60 and 63 of the Real Property Act. That right is not subject to any condition requiring a court order. Andask exercised that right by issuing notices to the tenants on 17 February 2020. There is no dispute that Naro had been in default of the mortgage for some time by then. By this means, Andask took possession of the property. I did not understand Naro to submit otherwise at the hearing.

42. Further, Andask submitted that, even in the absence of a receiver, the Court would not intervene with Andask's enforcement of its security in the absence of tender of the mortgage debt by Naro: Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161 at 164. No payment has been tendered. This was a further reason to dismiss the motion.

43. Finally, Andask submitted that the balance of convenience favoured refusal of the orders sought. The mortgage was due to be repaid in July 2018 and had gone un-serviced since October 2019 due to a conscious decision to cease paying. Between October 2019 and April 2020, Naro and Benjamin & Khoury had proven themselves unable to achieve the sale of the property, instead becoming bogged down in infighting and delay. While they each blamed the other – and it was unnecessary to decide where the fault lay – they had been given ample opportunity and proven unable to sell. Despite being entitled to take immediate possession, Andask granted multiple forbearances to permit Naro and Benjamin & Khoury to attempt to schedule auctions, which failed to proceed. Even after appointing the receiver, Andask agreed to further forbear and allow Naro to schedule a further auction and pursue post-auction negotiations. All of Naro and Benjamin & Khoury's attempts to sell the property had failed and Andask, unsurprisingly, wished to sell the property itself. The mortgage debt was already almost at the top end of Andask's agent's (pre-COVID-19) appraisal of the property. To the extent that Naro indicated that it wished to pursue negotiations with potential buyers located by its real estate agent, Andask and the receiver were open to permitting that agent to continue to access the property so long as the agent did not interfere with the receiver's marketing of the property. Rather than cooperatively take up that invitation, Naro filed the motion seeking to prohibit the receiver from doing anything at all, such that Naro would have total control over the sale process so that they may pursue a speculative joint sale with the adjoining property.

44. Andask submitted that, if the relief sought in the motion was granted, the Court could have no confidence that the property will be promptly sold given Naro's failure to sell the property to date and the history of uncooperative conduct of those standing behind Naro, including the assault of one of the receiver's staff. Andask would be deprived of what it bargained for by way of the mortgage, being the right to take possession of and control the sale of the property in the event of default. Any further delay in the sale was likely to be at Andask's expense, given that its debt was already at, or over, the value of its security. Naro had offered no security or protection to Andask for such prejudice, beyond an undertaking as to damages from itself, which could not be suggested to have any real value in circumstances where Naro was already in protracted default. If the relief was refused, then control of the sale would pass to the receiver, being a registered liquidator owing both common law and statutory obligations, who could be counted upon to sell the property in whatever way he determines best in his independent and professional judgment. In the event that the receiver was to breach those duties, Naro would be entitled to seek damages from the receiver, which right could be safely assumed to be of value in circumstances where he was a registered liquidator. Thus, the prejudice to Andask in granting the motion exceeded any prejudice to Naro in refusing it. Benjamin & Khoury's submissions did not materially add to those advanced by Andask and it is not necessary to set them out.

40. I agree with Andask. The receiver appointed by Andask is entitled to exercise the powers conferred by the Deed of Appointment of Receiver and Manager. There can be no doubt that, if the receiver or Andask wishes to take possession of the property and sell it, then they are entitled to do so. The plaintiffs are not entitled to interfere in that process. In the absence of agreement from Andask, the plaintiffs are not entitled to persist in their efforts to sell the property. They must permit Andask and its receiver to exercise their rights and powers to do so. Further, the plaintiffs’ agent does not appear to have had any success to date and they have had some time to find a buyer. It may be that selling the two adjoining lots together will achieve a greater sale price, but that is something which the receiver and Andask can participate in if they wish, but they are not obliged to. Andask and its appointed receiver are entitled to sell the property over which they have a power of sale in accordance with the terms of the mortgage subject to their obligations to act reasonably to achieve a fair price in the circumstances. Thus, I see no reason to make the orders sought.

41. Benjamin & Khoury asked me to make a notation that the parties will exercise their best endeavours to market the properties together and try and achieve a joint sale if possible. The law firm’s counsel had been instructed that there was some agreement between the parties that the properties should be marketed together, even if that was done by two separate agents. Beyond counsel’s submission, there was no evidence of such an agreement. Indeed, the evidence of Mr Hawes and the extensive correspondence between Andask and Benjamin & Khoury suggests otherwise. That is, whilst Andask was prepared to let Benjamin & Khoury jointly market the properties for a period of time, Andask became increasingly dissatisfied with Benjamin & Khoury’s progress and since February 2020, in no uncertain terms, reasserted its right to exercise a power of sale over 18 Rocky Point Road alone. Even if there has been an agreement along the lines described by counsel, Andask is entitled to market the property over which it has a registered mortgage in isolation, if it so choses, and ought not be constrained by the notation I am asked to make.

Costs

47. Andask sought its costs of the motion on an indemnity basis, as Andask is entitled to such costs pursuant to the terms of the mortgage. While the Court retains a discretion, the prima facie rule is that such an entitlement should be enforced by the Court: Kyabram Property Investments Pty Limited v Murray [2005] NSWCA 87 at [11]-[14]. I agree. Clause 2.4 of the memorandum of common provisions to the mortgage provided that Naro was obliged to pay “all Costs and Enforcement Expenses on demand”. “Costs” are defined in clause 1.1(8) of the memorandum as including “legal costs and expenses (on a full indemnity basis, including those of any consultant, adviser or lawyer employed by us), which we, any … Receiver … pays or is liable to pay …”. Andask is contractually entitled to its costs on an indemnity basis and it was not suggested by Naro that there was any reason to depart from this entitlement.

48. For these reasons, I make the following orders and directions:

1. Leave granted to the plaintiff to file in Court an Amended Notice of Motion.

2. Dismiss the plaintiffs’ Amended Notice of Motion dated 21 May 2020.

3. Order the first plaintiff, Naro Investments Pty Ltd, to pay the costs of the second respondent, Andask Pty Limited, of the Amended Notice of Motion dated 21 May 2020 on an indemnity basis.

4. Order the plaintiffs to arrange for their agent, Chris Kounnas of Stone Real Estate, to return the keys to the property at 18 Rocky Point Road, Kogarah, and any copies which have been made of those keys, to the second respondent by 2.00 pm, 21 May 2020.

5. Discharge the restraint ordered by Lindsay J on 14 May 2020 in Order 7(b).

6. Note that the defendant/first respondent seeks its costs of the motion.

7. Direct the defendants' legal representatives to provide to the Chambers of Rees J, copied to the plaintiffs' legal representatives, the amount of legal costs which are sought by 4.00 pm on 22 May 2020 together with any submissions as to why such costs should be paid forthwith.

8. Direct the plaintiff’s legal representatives to provide to the Chambers of Rees J, copied to the defendant’s legal representatives, by 4.00 pm on 25 May 2020, any submissions in reply.

9. NOTE that the parties agree that Rees J may fix an appropriate amount of costs in Chambers and decide whether any such costs should be payable forthwith.

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Amendments

05 June 2020 - [26]: orders made by Lindsay J were not opposed by Andask, rather than by consent.

Decision last updated: 05 June 2020