North Rocks St Pty Ltd v City Garden Australia Pty Ltd

[2025] NSWSC 686

Supreme Court

New South Wales

Medium Neutral Citation:

North Rocks St Pty Ltd v City Garden Australia Pty Ltd [2025] NSWSC 686

Hearing dates:

27 June 2025

Date of orders:

3 July 2025

Decision date:

03 July 2025

Jurisdiction:

Equity - Real Property List

Before:

Williams J

Decision:

See orders at [25].

Catchwords:

COSTS – Security for costs – where second and third defendants and plaintiff both claim interests in first defendant’s property and there is a priority dispute between them – where parties made agreement and orders were made by consent facilitating the registration of the second and third defendants’ mortgage, the sale of the property and the preservation of the sale proceeds, on the basis that priority between plaintiff’s claimed interest and the second and third defendants’ mortgage would be determined in these proceedings as at the date of those orders immediately before the registration of the second and third defendants’ mortgage – where second defendant now seeks an order requiring the impecunious plaintiff to provide security for its costs within 14 days, and orders dismissing the proceedings, releasing the second and third defendants from their obligations under the agreement, and discharging the order requiring the sale proceeds of the property to be preserved, if such security is not provided – whether an order for security would work an injustice

Legislation Cited:

Corporations Act 2001 (Cth), s 1335

Uniform Civil Procedure Rules 2005 (NSW), rr 41.21(1A), 41.21(1)(d)

Cases Cited:

City Garden Australia Pty Ltd (in administration) as trustee for the Ming Tian Garden Unit Trust v Meng Dai [2023] NSWSC 1498

City Garden Australia Pty Ltd (in liq) v Dais (2024) 115 NSWLR 468; [2024] NSWCA 238

Treloar Constructions Pty Ltd v McMillan [2016] NSWCA 302

Texts Cited:

N/A

Category:

Procedural rulings

Parties:

North Rocks St Pty Ltd (ACN 605 435 925) as trustee for North Rocks Unit Trust (Plaintiff/Respondent)
City Garden Australia Pty Ltd (ACN 604 911 800) (In Liq) (Administrators Appointed) (Receivers and Managers Appointed) as trustee for Ming Tian City Garden Unit Trust (First Defendant)
GEMI 130 Pty Ltd (ACN 635 840 701) (Second Defendant/Applicant)
Bridge Street Capital No.2 Pty Ltd (ACN 166 616 262) (Third Defendant)
Sam Kaso in his capacity as receiver and manager over the assets of City Garden Australia Pty Ltd (ACN 604 911 800) (In Liq) (Administrators Appointed) (Receivers and Managers Appointed) (Fourth Defendant)

Representation:

Counsel:
D Smallbone (Plaintiff/Respondent)
H W Somerville with M McGirr (Second Defendant/Applicant)

Solicitors:
Revolance Legal (Plaintiff/Respondent)
Summer Lawyers (Second Defendant/Applicant)

File Number(s):

2025/35067

Publication restriction:

N/A

Judgment

Introduction

1. These reasons concern the second defendant’s application made by notice of motion filed on 5 May 2025 for an order that the plaintiff pay security for its costs of these proceedings in the sum of $219,213.50, or such other sum as the Court may determine.

2. The plaintiff is North Rocks St Pty Ltd (North Rocks). It sues in its capacity as trustee of the North Rocks Unit Trust.

3. North Rocks was the owner of land at North Rocks, which it sold to the first defendant, City Garden Australia Pty Ltd (City Garden), pursuant to a deed entered into in December 2016. The land was transferred to City Garden in February 2017.

4. City Garden acquired the land for the purpose of development.

5. The second and third defendants, GEMI 130 Pty Ltd (GEMI) and Bridge Street Capital No. 2 Pty Ltd (Bridge Street), lent funds to City Garden for the purpose of the development. It is convenient to refer to them together as the Lenders.

6. City Garden is now in liquidation. The Lenders have appointed the fourth defendant as the receiver and manager of the assets of City Garden (the Receiver).

7. A dispute between City Garden and the Lenders in relation to the validity and enforceability of a mortgage granted in favour of the Lenders of the North Rocks land was the subject of earlier proceedings that were determined in favour of the Lenders on the basis that, as GEMI pleads in its defence in the present proceedings, the Lenders were entitled to rely on the assumptions in ss 128 and 129 of the Corporations Act 2001 (Cth) in relation to the loan agreement, guarantees, mortgage and ancillary documents: City Garden Australia Pty Ltd (in administration) as trustee for the Ming Tian Garden Unit Trust v Meng Dai [2023] NSWSC 1498; City Garden Australia Pty Ltd (in liq) v Dais (2024) 115 NSWLR 468; [2024] NSWCA 238.

8. While those earlier proceedings were on foot, the title to the North Rocks land (or the lots into which the land had been subdivided as part of the development) recorded a caveat lodged by the Lenders in respect of their claimed interest as mortgagee, and two caveats lodged by North Rocks in respect of its claimed equitable interest in six lots pursuant to a covenant allegedly forming part of the terms of the sale of the land to City Garden. North Rocks contends that the covenant obliges City Garden to transfer the unencumbered title to those six lots to North Rocks.

9. The Lenders’ caveat was lodged earlier in time than the North Rocks caveats.

10. Throughout 2024, solicitors acting for North Rocks and the Lenders engaged in correspondence concerning their respective caveats. North Rocks demanded that the Lenders withdraw their caveat to facilitate the transfer of the six lots to North Rocks. When the Lenders declined to do so, North Rocks requested the Lenders to provide documentation supporting their claimed interest in the land. The judgment of the Court of Appeal in the earlier proceedings was delivered on 30 September 2024. The Lenders’ solicitors provided supporting documentation to North Rocks’ solicitors on 8 November 2024. On 17 December 2024, the Lenders lodged their mortgage for registration. On 20 December 2024, the Land Titles Office issued a requisition indicating that the Lenders’ mortgage could not be registered over the six lots unless North Rocks removed its caveats or consented to the registration of the mortgage. On 15 January 2025, the Lenders served on North Rocks lapsing notices in respect of the North Rocks caveats.

11. North Rocks commenced the present proceedings by way of Summons filed on 28 January 2025 seeking a declaration that North Rocks has an equitable interest in the six lots, an interim order extending the operation of the North Rocks caveats, and a final order requiring the Lenders to remove their caveats.

12. On 4 February 2025, the Court made an interim order extending the operation of the caveats until further order, noting that an in-principle agreement had been reached between North Rocks, the Lenders and the Receiver, and that those parties were to submit a form of orders giving effect to that agreement by no later than 11 February 2025. The liquidator of City Garden had filed a submitting appearance in the proceedings.

13. On 5 February 2025, the Court noted the terms of the parties’ agreement and made orders by consent giving effect to it. The terms of the agreement noted by the Court were that: (1) the Receiver will preserve and maintain the six lots to be sold at public auction or by private treaty in such manner and at such time as the Receiver sees fit; (2) on completion of the sale of any of the six lots, the Receiver will pay the sale proceeds after deducting his reasonable remuneration and selling costs (defined as the “Net Proceeds”) into an interest bearing controlled monies account; and (3) the Receiver will not release the Net Proceeds to any party except pursuant to a written agreement between the parties or an order of the Court.

14. The Court then made orders by consent: (1) requiring North Rocks to provide caveator consent to facilitate the registration of the mortgage that the Lenders had lodged for registration over the six lots; and (2) requiring North Rocks to withdraw its caveats on settlement of the sale of each individual lot by the Receiver in accordance with the parties’ agreement noted by the Court.

15. The Court then made the following notation in relation to the consent order for North Rocks to provide caveator consent to the registration of the Lenders’ mortgage:

“despite the registration of the Second and Third Defendant’s mortgages on title of the Lots, the right to the Net Proceeds will be determined by each party’s priority (whatever that may be determined by the Court to be) as at the date of these orders”.

16. On 13 February 2025, the Lenders’ mortgage was registered on the title to the six lots in accordance with the parties’ agreement and the orders made on 5 February 2025.

17. The defences filed by the Lenders in these proceedings deny that the deed entered into by North Rocks with City Garden in December 2016 created an equitable interest in the lots in favour of North Rocks. Further, or alternatively, the Lenders plead that: (1) any equitable interest ceased to exist by reason of a further deed entered into by North Rocks and City Garden in October 2020; (2) pursuant to rule 75-87(3) of the Insolvency Practice Rules (Corporations) 2016, North Rocks surrendered any interest that it had in the six lots by allegedly voting in respect of the whole of its claim at a meeting of the creditors of City Garden convened by its liquidator on 21 March 2024; (3) by that action and certain other actions allegedly taken by North Rocks in the external administration of City Garden, it elected to prove for the whole of the amount of its secured debt under s 554E of the Corporations Act and thereby surrendered any interest it had in the six lots; (4) the 2016 deed under which North Rocks claims to be entitled to an equitable interest in the six lots has been terminated by frustration; and (5) if the Court finds that North Rocks does have an equitable interest in the six lots, the Lender’s interest stands in priority before North Rocks’ interest on the proper construction of the 2016 deed or, alternatively, by reason of postponing conduct on the part of North Rocks by entering into the 2016 deed on terms that proscribed its ability to lodge a caveat over the lots and by delaying the lodgement of its caveat once it became entitled to do so.

18. The Lenders’ pleaded contentions are contrary to the position taken by the liquidator of City Garden, who has accepted North Rocks’ claim to the six lots, as counsel for GEMI candidly informed the Court on the hearing of the present application. Each of North Rocks and GEMI acknowledged that each party’s claims made in the proceedings are bona fide.

19. The Lenders are separately represented. The present application for security for costs is made only by GEMI. The application relies on the impecuniosity of the plaintiff, North Rocks. It is not in dispute that North Rocks is impecunious, and that the Court’s jurisdiction to make an order for security under r 41.21(1)(d) of the Uniform Civil Procedure Rules 2005 (NSW) and/or s 1335 of the Corporations Act is engaged.

20. The overarching consideration that governs the exercise of the discretion to order security for costs is whether it would work an injustice: Treloar Constructions Pty Ltd v McMillan [2016] NSWCA 302 at [13] (Beazley ACJ). That directs attention to a number of matters including, but not limited to, the matters set out in r 42.21(1A) of the Uniform Civil Procedure Rules.

21. As counsel for North Rocks submitted, these proceedings were commenced by North Rocks rather than by the Lenders only because the Lenders caused the issue of lapsing notices to initiate the process of asserting their claim that their (then) unregistered mortgage stands in priority in front of the equitable interest claimed by North Rocks. If the Lenders had chosen instead to commence proceedings under s 74MA of the Real Property Act 1900 (NSW) for the withdrawal of the North Rocks caveats, the Lenders would have been the plaintiffs in these proceedings. The Lenders were entitled to proceed in the manner in which they did, but the reality is that their position in these proceedings is assertive notwithstanding that they are designated as defendants. North Rocks and the Lenders are each asserting the priority of their own claim to the six lots in these proceedings, which necessarily involves defeating the competing claim of the other. Contrary to the submissions made on behalf of GEMI, it is not to the point that the Lenders have established their claim in the earlier proceedings against City Garden. As I have already mentioned, the liquidator of City Garden has accepted North Rocks’ claim.

22. I accept the submission made by counsel for North Rocks that, in the circumstances described above, an order requiring North Rocks to provide security for GEMI’s costs would work an injustice. Such an order would effectively create an uneven playing field for the priority fight between the competing claimants, to the disadvantage of North Rocks which would have to pay security for GEMI’s costs in addition to paying its own costs, and to the advantage of GEMI which would merely have to pay its own costs.

23. As counsel for North Rocks submitted, that injustice is compounded by the fact that GEMI makes this application for security after it has taken the benefit of the parties’ agreement recorded by the Court on 5 February 2025 by registering the Lenders’ mortgage. GEMI seeks orders that if North Rocks fails to pay any security ordered by the Court within 14 days: (1) the proceedings be permanently stayed; (2) the Lenders and the Receiver be discharged from their obligations under their agreement with North Rocks that was noted by the Court on 5 February 2025; and (3) the North Rocks caveats be withdrawn. That represents a significant departure from the consequences of non-payment of security under r 42.21 and s 1335, which provide for a stay of the proceedings until such time as the security is provided. Viewed objectively, GEMI’s security for costs application is calculated to strip North Rocks of any benefit of the parties’ agreement noted by the Court, unless it pays the security sought, by setting up guillotine orders for the withdrawal of the North Rocks caveats and for the release of the Lenders and the Receiver from their agreement to preserve the sale proceeds of the six lots, without this Court having determined the dispute about North Rocks’ claimed equitable interest and the relative priorities between any such interest and the Lenders’ equitable mortgage as at 5 February 2025.

24. For those reasons, I decline to make any order requiring North Rocks to provide security for GEMI’s costs of these proceedings.

25. The orders of the Court are:

1. Order that second defendant’s notice of motion filed on 5 May 2025 is dismissed with costs.

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Decision last updated: 03 July 2025