PSAL Pty Ltd v Raja

[2016] WASC 295

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   PSAL PTY LTD -v- RAJA [2016] WASC 295

CORAM:   PRITCHARD J

HEARD:   10 DECEMBER 2015 & FURTHER WRITTEN SUBMISSIONS

DELIVERED          :   16 SEPTEMBER 2016

FILE NO/S:   CIV 2406 of 2012

BETWEEN:   PSAL PTY LTD

Plaintiff

AND

FAYYAZ AHMAD RAJA
Defendant

DAYANG RAIHAN PANGRIAN HAJI AHMED RAFFAE
Claimant

Catchwords:

Interpleader - Sheriff's Interpleader - Where plaintiff obtained property (seizure and sale) order against defendant's land - Where land had been sold by registered mortgagee - Where surplus left after satisfying defendant's debt to registered mortgagee - Where plaintiff had unregistered mortgage over land - Where claimant was purchaser under unperformed contract to buy land - Whether plaintiff or claimant had equitable interest in surplus proceeds - Which of plaintiff or claimant's interest in surplus proceeds had priority

Property - Real property - Nature of purchaser's interest in land under contract of sale - Whether purchaser is equitable owner of land - Whether purchase price paid in full - Whether conditions precedent to transfer satisfied - Whether purchaser's equity is dependent on continued availability of specific performance

Property - Torrens land - Indefeasibility of title - Whether registration of legal mortgage extinguishes prior equitable interest of purchaser under contract of sale - Transfer of Land Act 1893 (WA) s 109 - Whether s 109 requires payment of unregistered mortgagees in priority to mortgagor or other equitable interests

Remedies - Election - Res judicata - Where judgment entered for claimant against defendant pursuant to springing order - Where order that damages to be assessed - Whether proprietary remedy no longer available - Whether judgment pursuant to springing order could be construed as election as to remedy - Whether judgment pursuant to springing order can found res judicata

Legislation:

Real Property Act 1900 (NSW)
Transfer of Land Act 1893 (WA)

Result:

Claimant entitled to the funds paid into court

Category:    B

Representation:

Counsel:

Plaintiff:     Mr K L Christensen

Defendant:     No appearance

Claimant:     Mr S K Shepherd

Solicitors:

Plaintiff:     Gadens Lawyers

Defendant:     No appearance

Claimant:     Tottle Partners

Case(s) referred to in judgment(s):

Agip (Africa) Ltd v Jackson [1992] 4 All ER 451

Avco Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679

Baines v State Bank of New South Wales (1985) 2 NSWLR 729

Brown v Heffer (1967) 116 CLR 344

Chan v Cresdon Pty Ltd (1989) 168 CLR 242

Chang v Registrar of Titles (1976) 137 CLR 177

Chief Commissioner of Stamp Duties (NSW) v ISPT Pty Ltd (1998) 45 NSWLR 639

Foskett v McKeown [2000] 3 All ER 97

Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101

Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2015] NSWCA 100; (2015) 105 ACSR 605

Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29

Haque v Haque (No 2) (1965) 114 CLR 98

Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326

Hewett v Court (1983) 149 CLR 639

Hope v Hope [1977] 1 NZLR 582

Hughes v Gales (1995) 14 WAR 434

Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222

Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164

KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288

Kuper v Keywest Constructions Pty Ltd (1990) 3 WAR 419

Lake v Bayliss [1974] 1 WLR 1073

Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265

Legione v Hateley (1983) 152 CLR 406

Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407

Lewandowski v Lovell (1994) 11 WAR 124

Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508

Lysaght v Edwards (1876) 2 Ch D 499

Mango Boulevard Pty Ltd v Spencer [2008] QSC 117

McWilliam v McWilliams Wines Pty Ltd (1964) 114 CLR 656

Moffett v Dillon [1999] 2 VR 480

Omar v Darul-Iman (WA) Inc [2013] WASC 311

Omar v Darul-Iman (WA) Inc [No 2] [2013] WASC 330

Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589

R v Australian Broadcasting Tribunal; Ex parte Hardiman (1980) 144 CLR 13

Raja v Darul-Iman (WA) Incorporated [No 2] [2011] WASCA 251

Re Murrell; Ex parte Official Trustee in Bankruptcy (1984) 57 ALR 85

Residential Housing Corporation v Esber [2011] NSWCA 25

Rose v Watson (1864) 10 HL Cas 672; (1864) 11 ER 1187

Shanahan v Fitzgerald [1982] 2 NSWLR 513

Shropshire Union Railways & Canal Co v The Queen (1875) LR7HL 496

Stern v McArthur (1988) 165 CLR 489

T Mahesan S/O Thambiah v Malaysia Government Officers Co-operative Housing Society Ltd [1979] AC 374

Tang Man Sit v Capacious Investments Ltd [1996] AC 514

Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315

United Australia Ltd v Barclays Bank Ltd [1941] AC 1

West London Commercial Bank v Reliance Permanent Building Society (1885) 29 Ch D 954

Zhu v Treasurer (NSW) [2004] HCA 56; (2004) 218 CLR 530

1. PRITCHARD J:  This is an interpleader proceeding in relation to part of the proceeds of the sale of a property situated at 2 Smokebush Road, High Wycombe, and which is known as Lot 103 on Deposited Plan 40528 (Lot 103).[1]  The funds which are the subject of the interpleader proceeding amount to $760,163.92 (the Funds).  Lot 103 was sold by BankWest in the exercise of its power as the holder of a first registered mortgage over Lot 103, granted to it by the defendant, Mr Raja, as security for a loan (the BankWest mortgage).

   [1] Certificate of Title 2574 Folio 797.

2. Mrs Raffae and PSAL Pty Ltd each claim they are entitled to the Funds.

3. Mrs Raffae says that prior to the sale of Lot 103 by BankWest, she held an equitable interest in Lot 103 as the purchaser under a contract which she had with Mr Raja for the sale of that land (the Agreement).  Mrs Raffae's case is that she had paid the whole of the purchase price and performed all of her obligations under the Agreement, but that Mr Raja failed to transfer Lot 103 to her.  Mrs Raffae claims that although the sale of Lot 103 by BankWest meant that specific performance of the Agreement could no longer be obtained, her equitable interest in Lot 103 survived, and entitled her to the entirety of the proceeds of the sale of Lot 103 after the discharge of the BankWest mortgage.

4. PSAL is a finance company that specialises in short term lending.  PSAL says that it loaned funds to Mr Raja (the PSAL loan) and that the PSAL loan was secured by an unregistered mortgage over Lot 103 (the PSAL mortgage).  Although it took the PSAL mortgage with knowledge of Mrs Raffae's equitable interest in Lot 103, PSAL claims that Mrs Raffae's interest in Lot 103 was extinguished prior to the sale of Lot 103.  PSAL says that as a result it is entitled to the entirety of the Funds.  (The amount outstanding to PSAL under the PSAL loan exceeds the total of the Funds.)

5. For completeness, I note that as the mortgagor of Lot 103, Mr Raja would be entitled to the Funds, unless either Mrs Raffae or PSAL established that they are entitled to the Funds.  However, Mr Raja did not enter an appearance in this action, nor did he indicate, at any time, an intention to participate in the interpleader proceedings.  Mr Raja attended the hearing of the interpleader summons, but indicated that he did not wish to be heard in respect of it.[2]

   [2] ts 45.

6. For the reasons which follow, I am satisfied that immediately prior to the sale of Lot 103 by BankWest, Mr Raja held Lot 103 as a bare trustee for Mrs Raffae, who was the equitable owner of Lot 103 pursuant to a constructive trust.  By August 2004, Mrs Raffae's equitable interest in Lot 103 amounted to that of the equitable owner, because by that time she had performed all of her obligations under the Agreement, including the payment of the purchase price, and a condition precedent for the sale of Lot 103 had been satisfied.  Mrs Raffae's equitable ownership of Lot 103 was not extinguished by any intervening event between August 2004 and the sale of Lot 103 by BankWest.

7. As Mrs Raffae's interest in Lot 103 was that of an equitable owner, that interest entitled her to the proceeds of the sale of Lot 103, after the amount owed by Mr Raja on the BankWest mortgage was deducted from those proceeds (the Sale Surplus).  Mrs Raffae's equitable interest in the Sale Surplus can, in my view, be traced to the Funds.

8. It is not necessary to consider the arguments advanced by counsel for Mrs Raffae that PSAL's interest in Lot 103, or in the Sale Surplus, was extinguished, because if Mrs Raffae's equitable interest in Lot 103 and in the Funds subsisted, then her interest had priority over any interest PSAL may have had in the funds.

9. Accordingly, Mrs Raffae is entitled to the entirety of the Funds.

10. Before turning to identify the issues raised by the parties' claims to the Funds, it is convenient to start by outlining the facts, which are rather unusual.

The facts

1. Counsel for Mrs Raffae tendered witness statements made by Mrs Raffae,[3] her husband Mr Omar,[4] and their daughter Ms Nisha Melwani.[5]

   [3] Witness statement of Dayang Raihan Pangrian Ahmad Raffae signed 6 May 2015 (exhibit 1).

   [4] Witness statement of Abdul Sulaiman Bin Omar signed 6 May 2015 (exhibit 3).

   [5] Witness statement of Nisha Melwani signed 6 May 2015 (exhibit 2).  Mrs Raffae's command of English is limited, and Ms Melwani's role was confined to translating Mr Omar's witness statement from English into Mrs Raffae's native Bahasa Malaysian and reading that statement to Mrs Raffae.  Ms Melwani deposed that Mrs Raffae was thus fully aware of the contents of Mr Omar's witness statement.

2. Counsel for PSAL tendered a witness statement made by Mr Peter Gray Flanders, a director of PSAL.[6] He also tendered a copy of a writ of summons, endorsed with a statement of claim, in related proceedings which Mrs Raffae commenced in this court against Mr Raja (CIV 1348 of 2005),[7] and an order made by a registrar of this court that judgment be entered for Mrs Raffae in that action, with damages to be assessed, following the failure by Mr Raja to comply with a springing order.[8]

   [6] Witness statement of Peter Gray Flanders signed 11 June 2015 (exhibit 4).

   [7] Exhibit 5.

   [8] Exhibit 6.

3. The factual context for the interpleader proceeding was, with one exception, not in dispute.  The facts, as disclosed by the witness statements and the chronology (which was agreed), are as follows.

The Agreement between Mrs Raffae and Mr Raja

1. Mrs Raffae and Mr Omar met Mr Raja in about 1997 and they struck up a friendship.  Mrs Raffae and Mr Omar came to treat Mr Raja like a son and to trust him.

2. From about the middle of 2000, Mr Omar and Mr Raja began to discuss the possible joint purchase, by Mrs Raffae and Mr Raja, of about 4 ha of a parcel of land located on the corner of Smokebush Place and Sultana Road West in High Wycombe (the Smokebush Place land), with a view to subdividing the Smokebush Place land into four lots, two of which would be retained by Mrs Raffae and two of which would be retained by Mr Raja.[9]  Given Mrs Raffae's limited command of English, Mr Omar conducted all of the discussions with Mr Raja about the proposal to purchase the Smokebush Place land.

   [9] It appears that at that stage, Mr Omar and Mrs Raffae intended that one of the two lots acquired by Mrs Raffae would be gifted to an Islamic education association called Darul‑Iman (WA) Inc, of which Mr Omar was a member, for the purpose of building an Islamic education centre.  For present purposes, it is unnecessary to say more about that proposal, save to say that this interpleader proceeding concerns only one lot of land in which Mrs Raffae claims an interest.  A number of actions have been pursued in this court in relation to other lots created by the subdivision of the Smokebush Place land, including an action in relation to the entitlement of Darul‑Iman (WA) Inc to one of the lots:  see, for example, Raja v Darul-Iman (WA) Incorporated [No 2] [2011] WASCA 251. See also Omar v Darul-Iman (WA) Inc [2013] WASC 311; Omar v Darul-Iman (WA) Inc [No 2] [2013] WASC 330.

3. Mr Raja did not have enough money to buy a half share in the Smokebush Place land, and had to borrow funds for the purchase.  He needed help to secure a loan from his bank, BankWest.  Mr Omar and Mrs Raffae agreed to help him.

4. At the time, Mrs Raffae was the owner[10] of a property on Towerhill Road in Alexander Heights (the Towerhill Road property).

   [10] Mrs Raffae's evidence was that she was not the registered proprietor, but was the beneficial owner of the property and held a power of attorney over the Towerhill property which permitted her to make arrangements for it, including for its sale.

5. Mr Omar (on behalf of Mrs Raffae) and Mr Raja reached the Agreement in mid‑2000.  It was that Mrs Raffae would transfer title to the Towerhill Road property to Mr Raja, so that he could use it, initially, as security for a loan from BankWest to purchase the Smokebush Place land, and could later sell it and retain part of the purchase price as payment for Mrs Raffae's share in the subdivided Smokebush Place land.

6. In July 2000, Mr Raja made an offer to buy the Smokebush Place land.  The offer was accepted.  Mr Omar's evidence was that Mr Raja 'convinced me … that my wife's name should not be on the offer (or the title to the [Smokebush Place] land)' because 'otherwise the bank will not approve the loan'.[11]

   [11] Exhibit 3 [71].

7. Mr Raja told Mr Omar that he did not have the money to pay the $1,000 deposit for the purchase of the Smokebush Place land, so Mr Omar paid the deposit.

8. On 20 August 2000, Mrs Raffae transferred the title to the Towerhill Road property to Mr Raja.  The transfer recorded the consideration as 'natural love and affection'.[12]  Mr Omar's evidence was that the consideration was recorded in this way 'on the instructions of [Mr Raja who] said he had done so for tax reasons'.[13]

   [12] Exhibit 3 [81].

   [13] Exhibit 3 [81].

9. Mr Omar's evidence was that he wanted to ensure that Mrs Raffae's interest in the Smokebush Place land 'was recorded'.[14]  To that end, on 22 August 2000, it appears that the Agreement was partly reduced to writing, and was signed by both Mrs Raffae and Mr Raja.[15]  That document simply stated:[16]

   This is an agreement between [Mr Raja] and [Mrs Raffae] confirming that the consideration for [the Towerhill Road property] that is to be acquired by [Mr Raja] shall be satisfied by the transfer of one subdivided block title at [the Smokebush Place land].

   [14] Exhibit 3 [86].

   [15] Exhibit 3 [88].

   [16] Exhibit 3, annexure C.

10. On 25 August 2000, Mr Raja became the registered proprietor of the Smokebush Place land.[17]  The purchase price was $370,000.  BankWest loaned Mr Raja funds for the purchase, and the loan was secured by the BankWest mortgage, which became a registered first mortgage over the Smokebush Place land and the Towerhill Road property.

    [17] Chronology, item 3.

11. Mr Omar's evidence was that after settlement of the purchase of the Smokebush Place land, he discussed arrangements for the subdivision of that land with Mr Raja.  Mr Omar's evidence was that they agreed that the lot which should be transferred to Mrs Raffae following the subdivision was the lot on the corner of Smokebush Place and Sultana Road West (which became Lot 103 after the subdivision).  They also agreed on the amount which Mr Raja should retain from the sale of the Towerhill Road property as consideration for the transfer of Lot 103 to Mrs Raffae.  They agreed that that amount should be calculated as one quarter of the purchase price of the Smokebush Place land (that is, $92,500), plus one quarter of the subdivision costs for the Smokebush Place land.

12. On 14 October 2000, this aspect of the Agreement was apparently recorded in writing, this time in the form of a statutory declaration made by Mr Raja.[18]  Relevantly for present purposes, Mr Raja declared that:

    (1)     I have agreed to legally transfer one (1) hectare of [the Smokebush Place land] (herein referred to as 'Land A') plus 'residual proceed' as mentioned below to [Mrs Raffae] in consideration for [the Towerhill Road property] (herein referred to as 'Land B').

    As agreed 'Land B' shall be placed for sale at mutually agreed price but not less than market value from which the difference between the proceed of 'Land B' and the cost of one hectare of 'Land A' shall be paid to [Mrs Raffae] immediately on the sale of 'Land B'.  Estimated value of Land B is AUD$160,000 to AUD$180,000.

    The cost of acquiring Land A is AUD $370,000 plus stamp duty and other related expenses.  Thus the cost of one hectare of 'Land A' shall be AUD$370,000 divided four (4) = AUD$92,500 plus subdivision expenses in proportion to one hectare land.

    Henceforth, I shall be liable to transfer / pay to [Mrs Raffae] the sale proceed of 'Land B' immediately after deducting AUD$92,500 plus expenses for the one hectare of 'Land A' i.e. residual proceed. (sic)

Mr Raja fails to perform all of his obligations under the Agreement

[18] Exhibit 3, annexure D.

1. In about September 2001, Mr Raja sold the Towerhill Road property for $156,500.  Mr Raja retained the proceeds from that sale, apart from the sum of $20,000 which he paid into a joint bank account in the name of Mr Omar and Mrs Raffae in October 2001.  No further payments were ever made by Mr Raja to Mrs Raffae or Mr Omar in respect of the Towerhill Road property.

2. Mr Omar's evidence was that by late 2003, it became apparent that Mr Raja 'was not taking adequate steps to complete subdivision of [the Smokebush Place] land'.[19]  Mr Raja told Mr Omar that that was because he did not have the money to complete the subdivision.  Mr Omar then loaned a further $18,000 to Mr Raja for that purpose.

   [19] Exhibit 3 [113].

3. It appears that it was not until late 2003 or early 2004 that Mr Omar and Mrs Raffae began to have doubts that Mr Raja would perform the Agreement.  In April 2004, Mr Omar arranged for the lodgement of a caveat over that part of the Smokebush Place land which had been identified as the lot which was to be allocated to Mrs Raffae following subdivision.  That caveat was lodged over the title to the Smokebush Place land with Mr Raja's consent.[20]

   [20] Exhibit 3, annexure E.

4. By 19 August 2004, the subdivision of the Smokebush Place land had been completed and certificates of title for four subdivided lots were issued to Mr Raja.[21]  The BankWest mortgage was registered against two of the lots, one of which was Lot 103.[22]

   [21] The subdivided lots on Deposited Plan 40528 were numbered Lot 100 (20 Smokebush Place), Lot 101 (14 Smokebush Place), Lot 102 (8 Smokebush Place) and Lot 103 (2 Smokebush Place).  See exhibit 4, annexures PF2 ‑ PF5.

   [22] Exhibit 4, annexures PF2 and PF5.

5. Despite the fact that certificates of title had issued for the subdivided lots, Mr Raja failed to transfer the title to Lot 103 to Mrs Raffae.

Mrs Raffae commences an action against Mr Raja

1. In 2005, Mrs Raffae commenced an action in this court against Mr Raja (CIV 1348 of 2005).  As I have already mentioned, a copy of the writ endorsed with the statement of claim in that action was in evidence in these proceedings.  Mrs Raffae sought specific performance of the Agreement and the transfer of Lot 103 to her, an account in respect of the subdivision of the Smokebush Place land and of the sale of the Towerhill Road property, the payment of any money owing under the Agreement, and damages in addition to, or in lieu of, specific performance.[23]

   [23] There was no evidence about the course of the proceedings in CIV 1348 of 2005, and no explanation as to why the proceedings were not resolved prior to 2012, when BankWest sold Lot 103.

2. On 5 September 2013, a registrar of this court made the following orders (the Registrar's Orders):

   1.Judgment be entered for the plaintiff with the defendant liable to pay the plaintiff's costs to be taxed if not agreed.

   2.Damages are to be assessed by a Master or Judge of this Court.

3. There was no evidence in relation to the circumstances in which the Registrar's Orders came to be made.  However, it was common ground that those orders were made following Mr Raja's failure to comply with a springing order in relation to the filing of witness statements in support of his defence in CIV 1348 of 2005.[24]

Mr Raja obtains a loan from PSAL and executes a mortgage in its favour

[24] See ts 79 ‑ 80, 103.

1. In about January 2011, Mr Raja applied for a loan from PSAL.  PSAL agreed to lend almost $600,000 to Mr Raja.

2. On 18 February 2011, Mr Raja executed the PSAL loan and granted the PSAL mortgage over all of the subdivided lots which comprised the Smokebush Place land.  Under the PSAL mortgage, Mr Raja, as the registered proprietor of Lot 103, mortgaged all of his rights and entitlements to PSAL, to secure the monies PSAL loaned to him under the PSAL loan.

3. It was common ground that on 24 February 2011, PSAL lodged a caveat over Lot 103 to protect its interest under the PSAL loan and the PSAL mortgage.[25]

   [25] Chronology, item 13.1.

4. Mr Flanders deposed that enquiries he made in January 2011 revealed that Lot 103 was subject to a registered mortgage to BankWest and a caveat lodged by Mrs Raffae in April 2004.  It was common ground that by 28 January 2011 (that is, before it entered into the PSAL loan), PSAL was aware of Mrs Raffae's interest in Lot 103 and of the fact that she had lodged a caveat over Lot 103.[26]

   [26] Chronology, item 11.

5. Although Mr Flanders initially appears to have been under a misapprehension as to the nature of the interest protected by Mrs Raffae's caveat, there was no dispute that PSAL was aware that Mrs Raffae claimed an interest in Lot 103 when it made the loan to Mr Raja which was secured by the mortgage.  It was also common ground that by 18 February 2011, PSAL had become aware of the action brought by Mrs Raffae against Mr Raja for specific performance of the Agreement.[27]

PSAL sells some of the Smokebush Place land and commences proceedings against Mr Raja

[27] Chronology, item 12.

1. In August 2011, PSAL's loan to Mr Raja became due and payable.  Mr Raja did not pay the amount then outstanding.  In November 2011, PSAL took possession of two of the subdivided lots on the Smokebush Place land (Lots 101 and 102) pursuant to its mortgage, and subsequently sold both properties.  The proceeds of the sale of those properties were not sufficient to repay the entirety of Mr Raja's debt to PSAL.

2. On 20 August 2012, PSAL commenced the present action seeking the repayment of the debt owed by Mr Raja under the PSAL loan.

3. On 15 October 2012, PSAL obtained default judgment against Mr Raja following his failure to enter an appearance in this action.[28]

   [28] Chronology, item 15.

4. The orders for default judgment included an order that:

   1.The Defendant pay the sum of $909,193.07, together with Interest and Concessional Interest from 14 August 2012 to 28 September 2012 in the sum of $84,935.58.

BankWest sells Lot 103

1. It was common ground that on 8 September 2012, BankWest entered into possession of Lot 103 in the exercise of its powers as mortgagee under the BankWest mortgage.[29]

   [29] Chronology, item 14.

2. It was common ground that in June 2013, BankWest sold Lot 103 in the exercise of its power of sale under the mortgage.[30]  A part of the proceeds of that sale was used to discharge the BankWest mortgage.  Having regard to an affidavit filed earlier in the interpleader proceedings, it appears that the Sale Surplus was transferred to the trust account of BankWest's solicitors.[31]

The interpleader proceeding

[30] Chronology, item 16.

[31] Affidavit of Caroline Louise Di Russo sworn 24 July 2013 [7(c)].

1. In early November 2012, Mr Flanders became aware that BankWest had exercised its rights as a mortgagee and intended to sell Lot 103.

2. On about 29 November 2012, PSAL obtained and registered a Property (Seizure and Sale) Order in respect of Lot 103.

3. In the course of attempting to execute PSAL's Property (Seizure and Sale) Order, the Sheriff became aware that BankWest wished to sell Lot 103, and that there were competing claims by PSAL and Mrs Raffae in respect of the funds which would remain after BankWest's loan had been paid out.

4. In April 2013, the Sheriff commenced the interpleader proceedings.

Payment of the Funds into court

1. Following the sale of Lot 103, and following payment of its expenses in relation to the sale, and of the loan moneys outstanding under the BankWest mortgage, BankWest was faced with competing claims by parties claiming an equitable interest in the Sale Surplus.  At that point, it appears that BankWest, as the trustee of the Sale Surplus, quite properly took the view that rather than paying the Sale Surplus to Mr Raja, the Sale Surplus should be paid into court pending the resolution of the competing claims to it.[32]  By then, the interpleader proceedings had been commenced by the Sheriff.

   [32] Re Murrell; Ex parte Official Trustee in Bankruptcy (1984) 57 ALR 85, 90 ‑ 92 (Smithers J).

2. In July 2013, the Sale Surplus was paid into court by BankWest.

The questions for resolution

1. Having regard to the parties' statements of facts, issues and contentions[33] and to the written and oral submissions of counsel, the interpleader proceedings raised the following questions:

   [33] Amended statement of facts, issues and contentions of the claimant dated 5 May 2015; amended plaintiff's statement of facts, issues and contentions dated 9 November 2015.

   1.Did Mrs Raffae perform the entirety of her obligations under the Agreement, so that Mr Raja was obliged to transfer Lot 103 to her?

   2.What was the nature of Mrs Raffae's interest in Lot 103 by virtue of the Agreement?

   3.Did the BankWest mortgage extinguish Mrs Raffae's interest?

   4.Was Mrs Raffae's interest in Lot 103 dependent upon the availability of specific performance of the Agreement and, if so, once Lot 103 was sold by BankWest did Mrs Raffae have any interest in the Sale Surplus?

   5.Was any interest Mrs Raffae had in Lot 103 extinguished once she obtained an order that judgment be entered against Mr Raja in CIV 1348 of 2005?

   6.What was the nature of PSAL's interest in Lot 103, and was that interest extinguished by the sale of Lot 103, or when it obtained an order for default judgment against Mr Raja in the present proceedings?

   7.Is Mrs Raffae or PSAL entitled to the Funds?

1. Did Mrs Raffae perform the entirety of her obligations under the Agreement, so that Mr Raja was obliged to transfer Lot 103 to her?

1. As I have already mentioned, there was only one factual issue in dispute between the parties, namely whether Mrs Raffae had performed the entirety of her obligations under the Agreement.  Counsel for PSAL submitted that Mrs Raffae had not proved that she had done so and, in particular, that she had not proved that she had paid the full purchase price for Lot 103.  Counsel for PSAL submitted that there was no evidence as to the total cost of the subdivision of the Smokebush Place land and, consequently, that Mrs Raffae had not established that the amount retained by Mr Raja from the sale of the Towerhill Road property in fact constituted the sum of one quarter of the purchase price for the Smokebush Place land (that is, $92,500) plus one quarter of the total subdivision costs.

2. Counsel for Mrs Raffae submitted that Mrs Raffae was not aware of the total subdivision cost for the Smokebush Place land (and hence an account for those costs was one of the forms of relief she sought in CIV 1348 of 2005).  However, he submitted that it was open to the court to infer that whatever the total subdivision cost, Mr Raja had clearly been prepared to accept the sum of $136,500 in full satisfaction for the amount Mrs Raffae was obliged to pay.  He submitted that that could be inferred from the uncontroverted evidence that Mr Raja had paid $20,000 from the sale proceeds of the Towerhill Road property into the account held by Mrs Raffae and Mr Omar.

3. In my view, whatever may have been the total cost of the subdivision (and thus, whatever one quarter of that cost may have been) only two inferences can reasonably be drawn from the evidence.  The first, and more likely, is that Mr Raja was prepared to accept the sum of $136,500 in full satisfaction of the purchase price for Lot 103 which was payable by Mrs Raffae pursuant to the Agreement.  Mr Raja's payment of the sum of $20,000 from the Towerhill Road property to Mrs Raffae is entirely consistent with that inference.

4. Furthermore, when Mrs Raffae lodged a caveat over the Smokebush Place land in April 2004, the interest or estate she claimed in the land was 'an equitable interest in the fee simple as owner in that portion of the … land identified as lot 1 in the attached sketch'.[34]  (The portion of the Smokebush Place land shown as Lot 1 in the sketch is that portion identified as Lot 103 following the subdivision of the land.)  That caveat was placed over the Smokebush Place land with Mr Raja's consent.[35]  His consent to the caveat is consistent with an acceptance that Mrs Raffae had paid the purchase price in full (including her one quarter share of the subdivision costs for the land).  Further, if Mr Raja's refusal to transfer Lot 103 was on the basis that Mrs Raffae had not paid her full one quarter share of the subdivision costs, and thus had not paid the purchase price in full, it would be reasonable to expect that he would have defended her action for specific performance of the Agreement (CIV 1348 of 2005) on that basis.  There was no evidence that Mr Raja had defended the action brought by Mrs Raffae on that basis.

   [34] Exhibit 3, annexure E.

   [35] Exhibit 3, annexure E.

5. Furthermore, there was no evidence that following the payment of $20,000 to Mr Omar and Mrs Raffae, to which I have referred above at [26], that Mr Raja ever made any demand of Mrs Raffae for additional funds on the basis that a further contribution was required in order for her total contribution to equal one quarter of the purchase price plus one quarter of the subdivision costs.  That is also consistent with the conclusion that Mr Raja accepted that Mrs Raffae had paid the full purchase price.

6. However, as I noted above at [27], Mr Omar's evidence was that Mr Raja later told him he was unable to pay for the completion of the subdivision.  At that point, Mr Omar contributed a further $18,000 to the cost of subdivision.  (It appears that that occurred in late 2003.)  In my view, the evidence of this additional payment does not preclude the inference that Mr Raja was prepared to accept $136,500 in full satisfaction of Mrs Raffae's liability for the purchase price.  The evidence did not suggest that the further payment by Mr Omar was made in response to any demand by Mr Raja for further funds in satisfaction of Mrs Raffae's liability for the subdivision costs.

7. However, even if I am wrong in that conclusion, the alternative inference which can reasonably be drawn is that Mr Raja was prepared to accept the sum of $154,500 (that is, $136,500 plus $18,000) in satisfaction of the purchase price (including Mrs Raffae's share of the subdivision costs).  There was no evidence that Mr Raja sought further funds from Mrs Raffae after Mr Omar paid the additional $18,000 contribution, and the subdivision was completed by August 2004.

8. Accordingly, I find that by October 2001 (or alternatively by late 2003), Mrs Raffae had paid the purchase price, in full, for that part of the Smokebush Place land which she was to acquire once the subdivision was completed (that is, Lot 103).

9. The subdivision of the Smokebush Place land was clearly a condition which had to be satisfied before Mr Raja would become subject to any obligation to transfer part of the Smokebush Place land to Mrs Raffae.  However, by August 2004, when certificates of title were issued in respect of the subdivided lots, that condition precedent was satisfied.  As Mrs Raffae had, by then, performed all of her obligations under the Agreement, including the payment of the purchase price in full, it was open to her to seek an order for specific performance of the Agreement.

1. What was the nature of Mrs Raffae's interest in Lot 103 by virtue of the Agreement?

1. Having paid the purchase price in full, Mrs Raffae had, at the very least, an equitable lien which would operate as an equitable charge over Lot 103, to secure the repayment of the purchase price in the event that Mr Raja failed to perform his obligations under the Agreement.[36]  The existence of that lien was not dependent on whether the Agreement was specifically enforceable.[37]

   [36] Hewett v Court (1983) 149 CLR 639, 645 (Gibbs CJ), 650 (Murphy J), 653 ‑ 654 (Wilson & Dawson JJ), 663 ‑ 664 (Deane J).

   [37] Hewett v Court (1983) 149 CLR 639, 667 (Deane J).

2. However, Mrs Raffae's claim to the entirety of the Funds does not rely upon the existence of an equitable lien.  Such a lien would not support a claim to the entirety of the Funds in any event.  Instead, Mrs Raffae's claim is that once she entered into the Agreement (and even before the payment of the purchase price) she obtained an equitable interest in the Smokebush Place land, and ultimately in Lot 103, which was held by Mr Raja subject to a constructive trust.[38]  Counsel for Mrs Raffae submitted that once she paid the purchase price, and the certificate of title for Lot 103 issued, she held the 'full equitable title' to Lot 103, and thereafter Mr Raja 'held Lot 103 as a bare trustee for [Mrs Raffae]'.[39]  Counsel for Mrs Raffae submitted that 'the trust in favour of Mrs Raffae is not a remedy, it is a source of rights annexed to the property (the proceeds) entitling the court to grant relief giving effect to [Mr Raja's] duties as trustee'.[40]

   [38] Claimant's submissions [13].

   [39] Claimant's submissions [12]; claimant's supplementary submissions [12].

   [40] Claimant's supplementary submissions [16].

3. Counsel for PSAL submitted that although a buyer under a contract for the sale of land has been described as the 'equitable owner of land that expression is used with somewhat less precision than in other contexts'.[41]  He submitted that the description of a vendor as a 'bare trustee' is not appropriate as it tends to conceal the fact that it is the parties' contractual relationship which is the source of their rights and duties[42] and that the language used in the authorities had moved away from that of the land being held by the vendor on trust for the purchaser, and towards describing the purchaser's interest as being 'commensurate with the availability to the buyer of specific performance'.[43]

   [41] Plaintiff's submissions [12] citing Shanahan v Fitzgerald [1982] 2 NSWLR 513, 514 ‑ 515; Stern v McArthur (1988) 165 CLR 489, 523.

   [42] Plaintiff's submissions [13].

   [43] Plaintiff's submissions [14], citing Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 [53].

4. However, PSAL did not dispute that Mrs Raffae held an equitable interest in Lot 103 which was commensurate with the availability of specific performance.[44]  In his oral submissions, counsel for PSAL accepted that if Mrs Raffae had paid the purchase price for Lot 103 in full, then Mr Raja would hold Lot 103 (following the subdivision) on a constructive trust for Mrs Raffae.[45]

   [44] Plaintiff's submissions [18(e)].

   [45] ts 50.

5. There has been considerable debate in the cases in relation to the nature of the 'interest' acquired by a purchaser pursuant to a contract for the sale of land, prior to the point at which the contract becomes specifically enforceable (for example, prior to payment of the purchase price in full, or prior to satisfaction of any conditions precedent).  The debate has concerned whether, upon entry into the contract, the vendor becomes a trustee of the land for the purchaser, pursuant to a constructive trust, or whether the availability of specific performance is an essential prerequisite to the existence of a constructive trust.[46]  Much extra-judicial and academic ink has been spilled in respect of that question.[47]

   [46] By way of example of the diversity of views which have been expressed in the cases, see Rose v Watson (1864) 10 HL Cas 672; (1864) 11 ER 1187, 1190 (Lord Westbury), 1192 (Lord Cranworth); Lysaght v Edwards (1876) 2 Ch D 499, 506 (Sir George Jessel MR); McWilliam v McWilliams Wines Pty Ltd (1964) 114 CLR 656, 660 ‑ 661 (McTiernan & Taylor JJ), 662 (Menzies J); Haque v Haque (No 2) (1965) 114 CLR 98, 124 (Kitto J); Brown v Heffer (1967) 116 CLR 344, 349 (Barwick CJ, McTiernan, Kitto & Owen JJ), 351 ‑ 352 (Windeyer J); Chang v Registrar of Titles (1976) 137 CLR 177, 184 (Mason J, and see the cases referred to therein), 189 ‑ 190 (Jacobs J); Legione v Hateley (1983) 152 CLR 406, 423 (Gibbs CJ & Murphy J); KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288, 297 (Gibbs CJ, Mason, Wilson & Dawson JJ), 300 ‑ 301 (Brennan J); Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164, 191 ‑ 192 (Deane J); Stern v McArthur (1988) 165 CLR 489, 511 (Brennan J), 521 ‑ 524 (Deane & Dawson JJ); Chief Commissioner of Stamp Duties (NSW) v ISPT Pty Ltd (1998) 45 NSWLR 639, 654 ‑ 655 (Meagher JA); Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 [52] ‑ [53] (Gleeson CJ, McHugh, Gummow, Hayne & Heydon JJ); Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29 [169] ‑ [175] (McLure P, Newnes JA & Le Miere J agreeing); Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2015] NSWCA 100; (2015) 105 ACSR 605 [98] ‑ [100] (Emmett JA, Macfarlan & Gleeson JJA agreeing). See also Kuper v Keywest Constructions Pty Ltd (1990) 3 WAR 419, 430 (Malcolm CJ, Pidgeon & Seaman JJ agreeing) in relation to the question whether, under a contract for the sale of land which is conditional upon the approval of a subdivision, the purchaser acquires an interest in the land sufficient to support a caveat until the contract becomes unconditional.

   [47] See, for example, JD Heydon, MJ Leeming and PG Turner, Meagher Gummow and Lehane's Equity Doctrines and Remedies (5th  ed) [6‑055]; C McLure 'Specific Performance and the Constructive Trust' in E Bant and M Bryan (eds) Principles of Proprietary Remedies (2013), esp [8.70]; C Boge, 'A buyer's 'interest' in land under an uncompleted contract: a return to principle' (2008) 82 ALJ 266; N Hopkins 'Acquiring Property Rights from Uncompleted Sales of Land' (1998) MLR 486; see also WMC Gummow 'The Equity of Sir Frederick Jordan' (1991) 13 Syd LR 269, 270 ‑ 275.

6. However, for present purposes, it is not necessary to determine the respective rights and obligations of Mrs Raffae and Mr Raja prior to the payment of the purchase price by Mrs Raffae, and the subdivision of the Smokebush Place land in August 2004.  Whatever may be the position prior to the time when a contract for the sale of land becomes specifically enforceable on the application of the purchaser, many authorities establish the proposition that once such a contract becomes specifically enforceable, the purchaser becomes the 'equitable' or 'beneficial' owner of the land,[48] or in other words becomes entitled in equity to the land, and the vendor becomes a bare trustee who holds the land on a constructive trust for the benefit of the purchaser.[49]

   [48] Chang v Registrar of Titles (1976) 137 CLR 177, 181 ‑ 182 (Barwick CJ), 185 (Mason J), 189 ‑ 190 (Jacobs J); KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288, 300 ‑ 301 (Brennan J); and see also a similar conclusion reached in R v Australian Broadcasting Tribunal; Ex parte Hardiman (1980) 144 CLR 13, 31 (Gibbs, Stephen, Mason, Aickin & Wilson JJ) in relation to the position of a purchaser of shares under a contract, following the payment of the purchase price.

   [49] McWilliam v McWilliams Wines Pty Ltd (1964) 114 CLR 656, 660 (McTiernan &Taylor JJ); Stern v McArthur (1988) 165 CLR 489, 522 ‑ 553 (Deane & Dawson JJ), 537 ‑ 538 (Gaudron J); see also Chan v Cresdon Pty Ltd (1989) 168 CLR 242, 252 ‑ 253 (Mason CJ, Brennan, Deane & McHugh JJ) for a discussion of the same principle in the context of an agreement to lease a property; see also Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2015] NSWCA 100, (2015) 105 ACSR 605 [102] (Emmett JA, Macfarlan & Gleeson JJA agreeing).

1. More recently, the High Court has indicated that references in the authorities to a purchaser's 'equitable interest' in the land may more accurately be said to mean that equity will afford relief in the nature of specific performance to the purchaser to protect and enforce the purchaser's rights under the contract for sale of the land.[50]  In this context, to say that the contract must be 'specifically enforceable' does not refer to an order for specific performance only in the strict sense.  Rather, specific enforcement in this context encompasses all of the remedies available to a purchaser in equity to protect the interest which he or she has acquired under the contract, including relief by way of injunction, as well as specific performance in the strict sense.[51]

   [50] Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 [53] (Gleeson CJ, McHugh, Gummow, Hayne & Heydon JJ), referring with approval to Stern v McArthur (1988) 165 CLR 489, 537 (Gaudron J); see also Legione v Hateley (1983) 152 CLR 406, 446 (Mason & Deane JJ); Zhu v Treasurer (NSW) [2004] HCA 56; (2004) 218 CLR 530 [141] (Gleeson CJ, Gummow, Kirby, Callinan & Heydon JJ).

   [51] Stern v McArthur (1988) 165 CLR 489, 522 ‑ 523 (Deane & Dawson JJ); Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 [56] (Gleeson CJ, McHugh, Gummow, Hayne & Heydon JJ), quoting Sir Frederick Jordan, Chapters on Equity in New South Wales (6th ed, 1947) page 52.

2. The weight of contemporary authority[52] tends to suggest that the relief that equity will afford to a purchaser or vendor at the point when the parties enter into a contract for the sale of land will be different from the relief available at the point at which all conditions precedent have been established and all of a party's obligations have been performed.  At the point at which the purchaser has satisfied all of his or her obligations, including payment, in full, of the purchase price, and all conditions precedent have been satisfied, the purchaser's position in equity amounts to that of a beneficial owner of the land, as the only step remaining to perform the contract will be the vendor's transfer of the title.  At that point, equity will grant relief in the nature of specific performance (such as an order compelling the vendor to transfer the title, or an injunction to restrain conduct contrary to that obligation) to ensure that the purchaser's contractual right to the transfer of the title, and acquisition of legal ownership of the land, is vindicated.

   [52] See Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 [53] (Gleeson CJ, McHugh, Gummow, Hayne & Heydon JJ) and Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2015] NSWCA 100, (2015) 105 ACSR 605, [98] ‑ [100] (Emmett JA, Macfarlan & Gleeson JJA agreeing).

3. As counsel for PSAL submitted, the High Court in Tanwar (a case concerning relief from forfeiture) emphasised that the source of the parties' rights is the contract for the sale of the land, rather than the existence of a relationship of trustee and beneficiary.[53]  Nevertheless, the Court has not overturned, nor cast doubt on, its many previous decisions which establish that once the contract of sale becomes specifically enforceable (in the manner described above), the vendor holds the land as a bare trustee for the purchaser, pursuant to a constructive trust, and the purchaser acquires equitable ownership of the land.

   [53] Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 [53] (Gleeson CJ, McHugh, Gummow, Hayne & Heydon JJ).

4. From August 2004, Mrs Raffae could have obtained an order for specific performance of the Agreement, to compel Mr Raja to transfer Lot 103 to her.  At least from that point, therefore, Mr Raja held Lot 103 as a bare trustee on a constructive trust for Mrs Raffae, whose interest in Lot 103 from that point can be regarded as that of the equitable owner of Lot 103.

1. Did the BankWest mortgage extinguish Mrs Raffae's interest?

1. Counsel for PSAL submitted that Mrs Raffae's interest in Lot 103 was extinguished by the registration of BankWest's mortgage over that land. He submitted that that was the result of the operation of s 68 of the Transfer of Land Act 1893 (WA) (TLA).[54]

   [54] Plaintiff's submissions [18(a)], [18(b)] citing Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407, 601.

2. Mrs Raffae's case, in contrast, was that her interest in Lot 103 was unaffected by the registration of the BankWest mortgage, which did not bring about a 'change in the registered proprietorship incompatible with' her interest.[55]  Counsel for Mrs Raffae submitted that Mrs Raffae's interest in the Smokebush Place land, and subsequently in Lot 103, was not an interest which arose prior to the registration of the BankWest mortgage, or alternatively was one which arose simultaneously with the creation and registration of the BankWest mortgage.[56]

   [55] Claimant's supplementary submissions [3] ‑ [4].

   [56] Claimant's supplementary submissions [6], [8].

3. According to the certificate of title for Lot 103, the BankWest mortgage over the land was registered on 25 August 2000.  That date appears to reflect the fact that the BankWest mortgage was originally registered over the entirety of the Smokebush Place land, and upon the issue of titles for the subdivided lots, was registered as against two of the lots, including Lot 103.  As I have already mentioned, prior to the issue of the certificate of title for Lot 103, Mrs Raffae claimed an equitable interest in the Smokebush Place land.

4. For present purposes, it is not necessary to determine whether the BankWest mortgage was registered before or after the point in time at which Mrs Raffae acquired an equitable interest in the Smokebush Place land or in Lot 103 in particular, because even if the BankWest mortgage was registered after Mrs Raffae acquired her equitable interest, it did not extinguish Mrs Raffae's interest.  I have reached that conclusion for the following reasons.

5. Subject to some exceptions (which are not presently relevant) s 68(1) of the TLA provides that:

   [N]otwithstanding the existence in any other person of any estate or interest … which but for this Act might be held to be paramount or to have priority[,] the proprietor of land or of any estate or interest in land under the operation of this Act shall … hold the same subject to such encumbrances as may be notified on the registered certificate of title for the land; but absolutely free from all other encumbrances whatsoever.

6. In Leros Pty Ltd v Terara Pty Ltd, Mason CJ, Dawson and McHugh JJ explained the operation of s 68 in the following way:[57]

   [T]he effect of the registration of a subsequent dealing bringing about the registration of proprietorship of an estate or interest in land is to extinguish all prior unregistered estates or interests which, but for that registration, would have conflicted with the proprietor's estate or interest or encumbered that estate or interest, unless the prior unregistered estate or interest falls within the exceptions to indefeasibility of title mentioned in s 68 [of the TLA]. (emphasis added)

   [57] Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407, 601 (Mason CJ, Dawson & McHugh JJ).

7. In other words, the registration of an interest or estate in land will result in the destruction of any prior equitable interest in the land with which the registered interest is inconsistent.[58]

   [58] Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407, 602 (Mason CJ, Dawson & McHugh JJ).

8. The creation of a mortgage or charge over land, by a vendor of that land, is not, of itself, inconsistent with the contractual rights of a purchaser of the land, provided that the vendor retains the power to discharge the mortgage, or extinguish the charge, at or prior to settlement, so as to be able to perform his or her contractual obligation to cause the land to be vested in the purchaser on settlement free from any such mortgage or charge.[59]

   [59] Shanahan v Fitzgerald [1982] 2 NSWLR 513, 514 (McLelland J).

9. That is not to suggest that Mr Raja was, from the point when the Agreement became specifically enforceable, entitled to grant a mortgage over that land to BankWest.  As a bare trustee of the land from that point, it is doubtful that he was entitled to do so, unless that mortgage was expressed to be subject to Mrs Raffae's equitable interest.[60]  However, it is not necessary to address that question here.  While that question might be relevant to the remedy which Mrs Raffae may have as against Mr Raja, it cannot have any bearing on the legal consequences of the registration of the BankWest mortgage.

   [60] Shanahan v Fitzgerald [1982] 2 NSWLR 513, 515 (McLelland J).

10. There was nothing in the evidence to suggest that the BankWest mortgage, by its terms, precluded Mr Raja from performing his obligation under the Agreement to transfer Lot 103  to Mrs Raffae free from that mortgage.

11. Accordingly, in my view, it cannot be said that the BankWest mortgage was inconsistent or incompatible with the equitable interest that Mrs Raffae had in Lot 103 from August 2004 when the Agreement became specifically enforceable.  Consequently, even if the BankWest mortgage was registered at, or after, the point when Mrs Raffae's equitable interest in Lot 103 arose, it did not extinguish her interest.

12. The more significant question for present purposes is whether the sale of Lot 103 by BankWest extinguished Mrs Raffae's equitable interest in that land, and precludes her from pursuing any claim to the Funds.

1. Was Mrs Raffae's interest in Lot 103 dependent upon the availability of specific performance of the Agreement and, if so, once Lot 103 was sold by BankWest did Mrs Raffae have any interest in the Sale Surplus?

1. Counsel for PSAL submitted that once BankWest sold Lot 103, it became impossible for Mrs Raffae to obtain an order for specific performance of the Agreement, or to obtain any other equitable relief which would require Mr Raja to transfer Lot 103 to her.  Counsel for PSAL submitted that Mrs Raffae's interest in Lot 103 was commensurate with the availability of specific performance of the Agreement and that, consequently, once BankWest sold Lot 103, Mrs Raffae's equitable interest in that land was extinguished.[61]  He submitted that although Mrs Raffae may have personal remedies as against Mr Raja, she no longer had any proprietary interest in Lot 103 and that, consequently, she had no claim to the Sale Surplus or, in turn, to the Funds.

   [61] Plaintiff's submissions [18(f)].

2. In my view, that submission cannot be accepted, for the following reasons.

3. First, in so far as the authorities have emphasised that a purchaser's interest in land which is the subject of a contract of sale depends on the availability of specific performance, that emphasis must be understood as highlighting the fact that it is at the point when specific performance becomes available that the purchaser's interest in the land becomes that of an equitable or beneficial owner.  It is at that point that the purchaser has paid for the land in full, complied with all other obligations under the contract of sale, and all conditions precedent have been met.  The only step remaining is for the vendor to comply with his or her obligation to convey the title free from encumbrances.

4. However, in my view, that focus on the availability of specific performance (or similar remedies) does not mean that if, for some reason, specific performance cannot or should not be granted, the purchaser will be without a remedy which reflects the fact that he or she was the equitable owner of the land.  Specific performance (or a similar remedy, directed to ensuring the transfer of land) is not the only relief available in equity in a case where a party holding land on constructive trust for another party refuses to transfer title to that land.  By way of example, in Giumelli v Giumelli,[62] Mr and Mrs Giumelli were estopped from resiling from a promise to transfer part of a farming property to their son if he continued to live at the property and work the land in circumstances where their son had acted to his detriment in reliance on that promise of future ownership of the land.  The Full Court of this Court made an order that Mr and Mrs Giumelli hold the whole of the property on a constructive trust for their son, pending the subdivision of the property and the transfer of the promised lot to him.

   [62] Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101.

5. On appeal to the High Court, Gleeson CJ, McHugh, Gummow and Callinan JJ held that the constructive trust found to exist in that case was:[63]

   [P]roprietary in nature.  It attaches to the … property.  Such a trust does not necessarily impose upon the holder of the legal title the various administrative duties and fiduciary obligations which attend the settlement of property to be held by a trustee upon an express trust for successive interests.  Rather, the order made by the Full Court is akin to orders for conveyance.

   [63] Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 [5] (Gleeson CJ, McHugh, Gummow & Callinan JJ).

6. However, the plurality concluded that in that case there was an appropriate equitable remedy which fell short of the imposition of a trust.[64]  They concluded that this was a case 'for the fixing of a money sum to represent the value of the equitable claim of [the son] to the promised lot'.[65]  Justice Kirby reached the same conclusion.[66]

   [64] Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 [10] (Gleeson CJ, McHugh, Gummow & Callinan JJ).

   [65] Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 [51] (Gleeson CJ, McHugh, Gummow & Callinan JJ).

   [66] Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 [64] ‑ [65] (Kirby J).

7. Secondly, support for the conclusion that the purchaser's proprietary remedy does not cease at the point when the land is sold derives from Lake v Bayliss.[67]In that case, it was alleged that Ms Bayliss had agreed to convey a certain parcel of land to Dr Mullen in consideration of his withdrawing two writs he had issued against her.  He commenced proceedings for specific performance of that contract but, in the meantime, she sold the land to a third party.  Her solicitors, into whose trust account the sale proceeds were deposited, became concerned about who was entitled to the money and commenced an interpleader action to resolve the question of to whom the proceeds should be paid.

   [67] Lake v Bayliss [1974] 1 WLR 1073.

8. Walton J accepted that the law was that 'after a contract for the sale of an estate, if the vendor sells to another person for valuable consideration, he is accountable for the money as a trust',[68] and that the vendor could not rely on his or her own wrongful act in reselling the property to claim that he or she was never a trustee.[69]  He concluded that Ms Bayliss 'remained a trustee right down to the moment of resale, and accordingly is bound to hold the purchase price as trust property to transfer to the purchaser upon the purchaser completing the obligations on the purchaser's part'.[70]  However, as Dr Mullen had not yet established, in the action he had commenced against Ms Bayliss, that there was in fact an agreement for the sale of the land, Walton J concluded that the funds should remain in court until such time as Dr Mullen obtained a declaration that he was entitled, on fulfilling his part of the contract, to those moneys.[71]

   [68] Lake v Bayliss [1974] 1 WLR 1073, 1076.

   [69] Lake v Bayliss [1974] 1 WLR 1073, 1076.

   [70] Lake v Bayliss [1974] 1 WLR 1073, 1076.

   [71] Lake v Bayliss [1974] 1 WLR 1073, 1077.

9. In other words, Dr Mullen did not need an order for specific performance of the contract of sale (which of course could not be granted).  Rather, it was accepted that if there had been a contract for the sale of the land, then once Dr Mullen had performed his obligations as the purchaser, the proceeds of the sale of that land to the third party would be regarded as his.

10. Thirdly, support for the conclusion that Mrs Raffae's interest as equitable owner attached to the Sale Surplus, can also be drawn from those authorities which suggest that if a person has an equitable charge over land and that land is sold by a mortgagee, the equitable charge then attaches to the funds that  are produced as a result of there being a surplus from the sale of the land.[72]  In my view, there is no reason in principle why the same conclusion should not apply in respect of a purchaser's interest as the equitable owner of land under a contract of sale, for which specific performance would have been available but for the sale of that land by the registered proprietor or a registered mortgagee.[73]

    [72] Avco Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679, 682 (Young J); Hope v Hope [1977] 1 NZLR 582, 583 (Wilson J).

    [73] Cf Re Murrell; Ex parte Official Trustee in Bankruptcy (1984) 57 ALR 85, 90 ‑ 91 (Smithers J).

11. Once the conclusion is reached that Mrs Raffae's interest as the equitable owner of Lot 103 subsists as against the Sale Surplus, the identification of the Sale Surplus is, as counsel for Mrs Raffae submitted,[74] a matter of tracing.  When trust property is dissipated by a trustee, a beneficiary of the trust can trace that property, or its proceeds, even into the hands of third parties.  As Lord Millett explained in Foskett v McKeown (a case concerning the breach of an express trust), tracing:[75]

    [I]s merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.

    [74] ts 78.

    [75] Foskett v McKeown [2000] 3 All ER 97, 120 (Lord Millett), 104 (Lord Browne‑Wilkinson agreeing), 108 (Lord Hoffman agreeing).

12. In this case, it appears that the Sale Surplus was not retained by BankWest, but was deposited into the trust account of its solicitors, and from there was paid into this Court.  In my view, there is no doubt that the Sale Surplus can be traced into the Funds.  There was no suggestion that whilst in the trust account the Sale Surplus had become intermingled with other funds.  However, even if that had occurred, that would not preclude the tracing of the Sale Surplus into the Funds.  At equity, funds can be traced into the hands of third parties, even if they have become mixed with other funds.[76]  I have assumed from the lack of attention to this issue that the parties took the view that the Sale Surplus had remained identifiable as a discrete credit to the solicitors' trust account and had from there been paid into court.

    [76] Agip (Africa) Ltd v Jackson [1992] 4 All ER 451, 466 (Fox LJ, Butler‑Sloss LJ & Beldam LJ agreeing).

13. In my view, as the equitable owner of Lot 103 prior to its sale, Mrs Raffae is entitled to the entirety of the Sale Surplus.  The fact that those proceeds exceed by a considerable margin the purchase price paid by Mrs Raffae for Lot 103 is of no moment.  In Foskett v McKeown Lord Millett observed that when trust property is misappropriated, the beneficiary is entitled, at his or her option, either to assert beneficial ownership of the proceeds, or to bring a personal claim against the trustee for breach of trust and to enforce an equitable lien on the proceeds.  His Lordship made clear that the beneficiary:[77]

    [W]ill normally exercise the option in the way most advantageous to himself.  If the traceable proceeds have increased in value and are worth more than the original asset, he will assert his beneficial ownership and obtain the profit for himself.  There is nothing unfair in this.  The trustee cannot be permitted to keep any profit resulting from his misappropriation for himself … If the traceable proceeds are worth less than the original asset, it does not usually matter how the beneficiary exercises his option.  He will take the whole of the proceeds on either basis.

1. Was any interest Mrs Raffae had in Lot 103 extinguished once she obtained an order that judgment be entered against Mr Raja in CIV 1348 of 2005?

   [77] Foskett v McKeown [2000] 3 All ER 97, 122 (Lord Millett), 104 (Lord Browne‑Wilkinson agreeing), 108 (Lord Hoffman agreeing).

1. Counsel for PSAL submitted that 'even if [Mrs Raffae] did have a proprietary interest in Lot 103 which was not extinguished by BankWest selling the property, such interest was extinguished by the act of [Mrs Raffae] in obtaining [the Registrar's Orders]'.[78]  Counsel for PSAL submitted that upon entering the judgment, Mrs Raffae made an election as to the remedy she sought, and whatever proprietary interest she may have had in Lot 103 merged into an entitlement to damages under that judgment.[79]  PSAL's case was thus that the remedy to which Mrs Raffae was entitled had been determined by her election to pursue damages in lieu of specific performance, and the principle of res judicata precluded her from claiming a proprietary remedy which derived from her claimed right to specific performance in respect of Lot 103.[80]

   [78] Plaintiff's submissions [19].

   [79] Plaintiff's submissions [20] citing Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.

   [80] ts 108.

2. I am unable to accept that that is the position, for three reasons.

3. First, having regard to the available evidence, I am not persuaded that the Registrar's Orders can be construed as an election by Mrs Raffae to abandon any remedy to which she was entitled by virtue of her equitable ownership of Lot 103, and instead to pursue equitable damages only.  As I have already observed, there was no evidence in relation to the circumstances in which the Registrar's Orders were made, but it was common ground that they were made following Mr Raja's failure to comply with a springing order for the filing and service of his witness statements in CIV 1348 of 2005.

4. The only evidence as to the nature of the issues in dispute in CIV 1348 of 2005 was a copy of the writ endorsed with a statement of claim.  In the statement of claim, Mrs Raffae sought a variety of relief, including specific performance of the Agreement, an account in respect of the subdivision of the Towerhill Road property, 'all other necessary and consequential accounts and enquiries', 'a sum of money to be quantified' after those accounts were provided, and 'damages in addition to or in lieu of specific performance in respect of the Agreement'.[81]

   [81] Exhibit 5.

5. By the time that the Registrar's Orders were made in September 2013, Lot 103 had been sold by BankWest.  Specific performance could therefore not have been ordered.  The fact that no order in relation to specific performance was sought, and that Mrs Raffae obtained only an order that damages be assessed, is hardly indicative of an election by her to pursue only damages and otherwise to abandon any claim based on her equitable ownership of Lot 103.  That is especially so in circumstances where, by the time of the Registrar's Orders, the Sale Surplus had been paid into court and the interpleader proceedings had been commenced.

6. Secondly, the Registrar's Orders should not be construed as an election by Mrs Raffae to pursue an award of damages only, because I am not persuaded that Mrs Raffae was required to make an election between a remedy which derived from her claim to equitable ownership, or an award of damages.  The rationale for the requirement to make an election as to the relief sought in an action was explained in United Australia Ltd v Barclays Bank Ltd[82] where Lord Atkin observed:[83]

   On the other hand, if a man is entitled to one of two inconsistent rights it is fitting that when with full knowledge he has done an unequivocal act showing that he has chosen the one he cannot afterwards pursue the other, which after the first choice is by reason of the inconsistency no longer his to choose.  …  I therefore think that on a question of alternative remedies no question of election arises until one or other claim has been brought to judgment.  Up to that stage the plaintiff may pursue both remedies together, or pursuing one may amend and pursue the other:  but he can take judgment only for the one, and his cause of action on both will then be merged in the one.

   [82] United Australia Ltd v Barclays Bank Ltd [1941] AC 1, 19 (Viscount Simon LC), 30 (Lord Atkin), 33 (Lord Thankerton, agreeing with both Viscount Simon &Lord Atkin), 33 (Lord Romer), 43 (Lord Porter).

   [83] United Australia Ltd v Barclays Bank Ltd [1941] AC 1, 30 (Lord Atkin).

7. Handley succinctly summarised the principle as being that 'where the law provides inconsistent remedies for the one cause of action or claim ... [a] successful claimant must elect, and if he takes final judgment for one remedy he abandons the other'.[84]  If the remedies are not inconsistent, but are cumulative, the plaintiff will be entitled to both.[85]

   [84] K Handley, Estoppel by Conduct and Election (2016) page 253, [14‑001]; see also the discussion at [14‑045], and the cases referred to therein.

   [85] T Mahesan S/O Thambiah v Malaysia Government Officers Co-operative Housing Society Ltd [1979] AC 374; Tang Man Sit v Capacious Investments Ltd [1996] AC 514.

8. In my view, the order that Mr Raja pay damages is not a remedy which is inconsistent with an order that Mrs Raffae is entitled, as equitable owner, to the Sale Surplus.  Mrs Raffae's claim for damages was never confined to damages in lieu of specific performance.  (In CIV 1348 of 2005, Mrs Raffae sought an order for specific performance and (amongst other things) damages 'in addition to, or in lieu of, specific performance'.[86])  The Registrar's Orders do not suggest that the damages which are to be assessed are only damages in lieu of specific performance.

   [86] Exhibit 5.

9. Furthermore, Mrs Raffae's claim to the Funds is a claim to the proceeds of the sale of Lot 103, to which she says she is entitled as the equitable owner of Lot 103.  Tracing the Sale Surplus into the Funds is thus simply an exercise in tracing property to which Mrs Raffae claims an entitlement as the equitable owner.  Mrs Raffae's claim to the Funds is directed to the vindication of her proprietary right, rather than to compensate her for any damage she suffered by virtue of Mr Raja's failure to perform the Agreement.[87]  (That is not to suggest that the outcome of Mrs Raffae's claim in the interpleader proceedings would be irrelevant to the assessment of damages in CIV 1348 of 2005.  Any award of damages in that action would no doubt reflect the fact that Mrs Raffae is not able to recover the entirety of the proceeds of the sale of Lot 103, given BankWest's claim to part of those funds.)

   [87] Cf Foskett v McKeown [2000] 3 All ER 97, 110 ‑ 111 (Lord Hope of Craighead, dissenting but not on this point of principle).

10. Thirdly, I am not persuaded that the Registrar's Orders support a contention that any claim Mrs Raffae may have had to a proprietary interest in Lot 103 is res judicata, and cannot now be pursued in this interpleader proceeding.  Counsel for PSAL referred to those cases where judgment is entered without a trial (such as in the case of default judgment,[88] judgment made following non‑compliance with a springing order,[89] or judgment following dismissal of an action for want of prosecution[90]) and where a res judicata argument is available to defeat a subsequent claim if it can inferred that the conduct of the 'defaulting' party indicated that that party did not contest the merits of the claim for which judgment was obtained.  But that is not this case.  The fact that the Registrar's Orders did not include an order for specific performance no doubt reflected the fact that Lot 103 had been sold.  There was no final determination of the merits of Mrs Raffae's claim to an equitable proprietary interest in that land.  The fact that the Registrar's Orders were consequential on a springing order highlights that fact.  Moreover, there is no basis for contending that the Registrar's Orders reflected a determination, on the merits, that Mrs Raffae is not entitled to the Sale Surplus, based on her claim to equitable ownership of Lot 103.  Accordingly, the fact that Mrs Raffae did not obtain an order for specific performance in CIV 1348 of 2005, in the circumstances to which I have already referred, provides no support for a res judicata argument, as PSAL contended.

    [88] Mango Boulevard Pty Ltd v Spencer [2008] QSC 117 [30] ‑ [42] (Chesterman J) and the cases discussed therein.

    [89] Baines v State Bank of New South Wales (1985) 2 NSWLR 729, 738 (Powell J); see also Lewandowski v Lovell (1994) 11 WAR 124, 132 ‑ 133 and Hughes v Gales (1995) 14 WAR 434, 437 ‑ 438 (Malcolm CJ) in relation to whether actions dismissed for want of prosecution give rise to an estoppel or res judicata.

    [90] Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508, 518 (Kirby P), 526 ‑ 527 (Clarke JA, Samuels JA agreeing).

11. In my view, Mrs Raffae's interest in the Sale Surplus, by virtue of her equitable ownership of Lot 103 prior to its sale, was not extinguished by the Registrar's Orders.

1. What was the nature of PSAL's interest in Lot 103, and was that interest extinguished by the sale of Lot 103, or when it obtained an order for default judgment against Mr Raja in the present proceedings?

1. To this point, I have focused on the nature of Mrs Raffae's interest in Lot 103 and the proceeds of the sale of Lot 103, rather than on PSAL's interest in that land or those proceeds.  As the holder of an unregistered mortgage, PSAL's interest in Lot 103 was, at best, that of an equitable mortgagee.

2. A number of arguments were advanced by counsel for Mrs Raffae in support of the submission that PSAL did not have an equitable interest in the Sale Surplus, or that any interest it had had been extinguished.  In my view it is not necessary to deal with those arguments to resolve the interpleader proceedings.  Even if it is assumed that PSAL's equitable interest in Lot 103 survived the sale of the land, continued as equitable interest in the Sale Surplus, and was not otherwise extinguished, I do not see any reason why the priority of the parties' equitable interests before the sale of Lot 103 would not continue to apply in respect of the Sale Surplus.

3. In determining who has the better claim to the Sale Surplus, the ordinary principles for resolving competing equitable interests  apply.  An equitable claim which is in competition with a prior equitable claim, which is first in time and in respect of which the claimant has done nothing to lose priority, will give way to that prior claim.[91]  In other words, if the merits of the competing claims are equal, priority in time of creation is considered to give the better equity.[92]

   [91] Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265, 276 (Kitto J); Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326, 339, 341 ‑ 342 (Mason & Deane JJ); Moffett v Dillon [1999] 2 VR 480 [41] ‑ [42] (Brooking JA), [96] (Buchanan JA agreeing), [86] ‑ [88] (Ormiston JA).

   [92] Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326, 333 (Gibbs CJ), 348 (Wilson J agreeing), 339 (Mason & Deane JJ), 345 (Murphy J).

4. Because Mrs Raffae had equitable ownership of Lot 103 by August 2004, whereas PSAL took its equitable mortgage in February 2011, and did so with notice of Mrs Raffae's prior interest, Mrs Raffae's interest in the Sale Surplus would clearly have priority over PSAL's interest.

5. In addition, as I noted above at [78], it is doubtful that Mr Raja was entitled to grant a mortgage to PSAL after August 2004 when Mrs Raffae obtained equitable ownership of Lot 103.  In those circumstances, Mrs Raffae's interest should not be postponed to PSAL's later equitable interest which was created as a result of his breach of trust.[93]

   [93] Shropshire Union Railways & Canal Co v The Queen (1875) LR7HL 496.

6. It is appropriate to deal with one further argument which was advanced in support of PSAL's claim to the Funds. Counsel for PSAL submitted that when BankWest was applying the proceeds of the sale of Lot 103, PSAL, as a subsequent mortgagee (albeit an unregistered one), was entitled to be paid the amount outstanding on the PSAL loan after the BankWest mortgage had been discharged but before any surplus was paid to Mr Raja or any of his creditors. As I understood it, the submission appeared to rely on the operation of s 109 of the TLA.[94]

   [94] Plaintiff's supplementary submissions [4] ‑ [13].

7. Section 109 of the TLA had the effect that upon the sale of Lot 103, BankWest was obliged to apply the proceeds of the sale in the following manner: first to pay the expenses incurred in the sale of Lot 103, secondly to pay the moneys owing to it under the mortgage, thirdly to pay any subsequent mortgages or charges in order of their respective priorities, and fourthly to pay any surplus funds to the mortgagor, Mr Raja. In my view, s 109 of the TLA does not operate to require the payment of unregistered mortgagees in priority to other creditors of the mortgagor.

8. In support of his submission, counsel for PSAL relied on the decision of Holland J in Kerabee Park Pty Ltd v Daley.[95] That decision does not support the construction of s 109 of the TLA for which counsel contended. In Kerabee Park, Holland J was considering whether an unregistered mortgagee could, by maintaining a caveat over land, prevent a registered mortgagee from selling that land in the exercise of a power of sale. In concluding that the caveat could not stand, Holland J made a passing reference to s 58(3) of the Real Property Act 1900 (NSW), which is in very similar terms to s 109 of the TLA, and said:

   As well as being required by s 58(3) to apply surplus proceeds in payment of subsequent mortgages, the first mortgagee is liable by the general law to account to the holder of a subsequent encumbrance of which he has notice: West London Commercial Bank v Reliance Permanent Building Society.  (footnote omitted)

   [95] Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222.

9. His Honour did not suggest that the mortgagee's obligation to account to the holder of a subsequent encumbrance derived from the operation of s 58(3). Rather, that was an obligation which derived from the general law. (In the West London Commercial Bank case, to which Holland J referred, it was accepted that if a registered mortgagee, with notice of a subsequent unregistered mortgagee, co-operated with the mortgagor to permit the sale of the land, and then permitted the surplus proceeds to be paid to the mortgagor, rather than to the unregistered mortgagee, the registered mortgagee would be liable to the unregistered mortgagee for that money.[96])

   [96] West London Commercial Bank v Reliance Permanent Building Society (1885) 29 Ch D 954, 962 (Cotton LJ, Bowen LJ concurring), 962 ‑ 963 (Lindley LJ).

10. Counsel for PSAL also referred to Residential Housing Corporation v Esber.[97] That was another case which dealt with s 58(3) of the Real Property Act 1900 (NSW). Campbell JA (with whom Macfarlan JA and Sackville AJA agreed) considered the operation of similar legislation in other States, including s 109 of the TLA, and expressed the view that references in s 109 to the payment of subsequent mortgagees referred only to subsequent registered mortgagees. His Honour went on to observe that the way in which the situation of an unregistered mortgagee was accommodated was 'not through the construction of s 58(3) but by equitable principle operating to modify the operation of s 58(3) to prevent it being used to produce inequitable results'.[98] His Honour's observations indicate no more than that - quite apart from the requirements of s 58(3) - equity may entitle the holder of an unregistered mortgage, of which the registered mortgagee was aware, to obtain relief to secure the payment of that unregistered mortgage out of surplus proceeds of sale before the registered mortgagee paid the surplus proceeds to the registered proprietor.

    [97] Residential Housing Corporation v Esber [2011] NSWCA 25 [98] (Campbell JA, Macfarlan JA & Sackville AJA agreeing).

    [98] Residential Housing Corporation v Esber [2011] NSWCA 25 [71], [166] (Campbell JA, Macfarlan JA & Sackville AJA agreeing).

11. Neither Kerabee Park nor Esber suggest that an unregistered mortgagee is entitled to payment from the proceeds of sale of land pursuant to s 109 of the TLA, and neither authority suggests that an unregistered mortgagee will be accorded any greater priority than it would otherwise have had, vis a vis the holder of any other equitable interest, in the proceeds of a sale of land by a registered mortgagee.

1. Is Mrs Raffae or PSAL entitled to the Funds?

1. For these reasons, Mrs Raffae is entitled to the entirety of the Funds.

2. The parties should confer in relation to the orders which should now be made.

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION: PSAL PTY LTD -v- RAJA [2016] WASC 295 (S)

CORAM:   PRITCHARD J

HEARD:   1 DECEMBER 2016

DELIVERED          :   1 DECEMBER 2016

FILE NO/S:   CIV 2406 of 2012

BETWEEN:   PSAL PTY LTD

Plaintiff

AND

FAYYAZ AHMAD RAJA
Defendant

DAYANG RAIHAN PANGRIAN HAJI AHMED RAFFAE
Claimant

Catchwords:

Practice and procedure - Interpleader - Interest - Whether Court may award interest on the sum the subject of an interpleader

Practice and procedure - Interpleader - Costs

Legislation:

Supreme Court Act 1935 (WA), s 32(1), s 32(2)
Rules of the Supreme Court 1971 (WA), O 17 r 15

Result:

Application for payment of interest dismissed
Plaintiff to pay the claimant's costs of the interpleader

Category:    B

Representation:

Counsel:

Plaintiff:     No appearance

Defendant:     No appearance

Claimant:     Mr R G S Harrison

Solicitors:

Plaintiff:     No appearance

Defendant:     No appearance

Claimant:     Tottle Partners

Cases referred to in judgment:

B.P. Benzin Und Petroleum v European-American Banking Corporation [1978] 1 Lloyd's Rep 364

Howell v Dawson (1884) 13 QBD 67

Lunt v WRS Pacific Pty Ltd [2002] WASC 27

PSAL Pty Ltd v Raja [2016] WASC 295

PRITCHARD J: 

(This judgment was delivered extemporaneously on 1 December 2016 and has been edited from the transcript.)

1. On 16 September 2016, I published reasons resolving an interpleader proceeding brought by the sheriff.  The following reasons should be read together with those reasons (the Interpleader Reasons)[99].  The same abbreviations are used herein.

   [99]PSAL Pty Ltd v Raja [2016] WASC 295.

2. The interpleader proceeding concerned the question of who was entitled to funds seized by the sheriff pursuant to a property seizure and sale order.  (Those funds (the funds) were paid into court at the commencement of the interpleader proceeding.)  The funds seized were the proceeds of the sale of lot 103, which sale had been conducted by Bankwest (the registered mortgagee) following a default by the registered proprietor and mortgagor, Mr Raja.  Both Mrs Raffae and PSAL claimed an equitable interest in lot 103 and thus in the surplus proceeds of its sale.  Mr Raja did not participate in the interpleader proceeding.  I determined that Mrs Raffae was entitled to the funds.  I made an order to that effect.

3. Mrs Raffae now seeks two orders from the Court (the Application), namely:

   (1)an order that interest on the sum of $760,163.92 at the rate of 6% per annum be paid by PSAL, as from 17 April 2013 to the date of payment of the funds to Mrs Raffae or her representative; and

   (2)an order that PSAL pay Mrs Raffae's costs of the interpleader proceeding to be taxed as an action if not agreed. 

4. For the reasons which follow, Mrs Raffae's application for an order for the payment of interest should be refused.  However, PSAL should pay Mrs Raffae's costs of the interpleader proceeding.

The question of interest

1. I am not persuaded that the Court has power to make an award of interest as against PSAL.  Counsel for Mrs Raffae pointed to two sources of power which he contended would support an order for the payment of interest.  In my view, neither supports such an order.

1. The first source of power on which Mrs Raffae relies is s 32(1) of the Supreme Court Act 1935 (WA) (the Act). That section provides that:

   In any proceedings for the recovery of any money (including any debt or damages or the value of any goods), the Court may order that there shall be included, in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date when the judgment takes effect.

2. In my view, that section does not support an order for the payment of interest in this case for several reasons.

3. First, the interpleader proceeding in which both Mrs Raffae and PSAL made a claim to the funds, cannot, in my view, properly be characterised as 'proceedings for the recovery of any money'.  No proceedings were, in fact, brought by Mrs Raffae at all.  Instead, the interpleader proceeding was commenced by the sheriff, knowing that there were competing claims to the funds.  Both Mrs Raffae and PSAL submitted to the Court, and acted on the basis, that they were entitled to the funds.

4. That the phrase 'proceedings for the recovery of any money' does not include an interpleader proceeding is, in my view, supported by other words in s 32 of the Act. The final words of s 32(1) refer to the payment of interest between the date when the cause of action arose and the date when the judgment takes effect. In this case, Mrs Raffae did not proceed on the basis of any cause of action as against PSAL. There were no dealings as between them directly. Instead, Mrs Raffae's cause of action (if she had one) was against Mr Raja and was a claim to an equitable interest in lot 103 as a result of Mr Raja's failure to transfer lot 103 to Mrs Raffae, in accordance with a contract between them for the sale of that land. The argument advanced by Mrs Raffae in the interpleader proceeding was that this equitable interest could be then traced through to the funds. The point for present purposes, however, is that there was no cause of action as between Mrs Raffae and PSAL.

5. Furthermore, the examples set out in s 32(1) and, indeed, in s 32(2) of the Act of proceedings for the recovery of any money are not proceedings akin to an interpleader proceeding. Section 32(1) of the Act provides:

   (1)In any proceedings for the recovery of any money (including any debt or damages or the value of any goods), the Court may order that there shall be included, in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date when the judgment takes effect.

   (2)This section does not ‑

   (a)authorise the giving of interest upon interest; or

   (aa)apply in relation to any general damages in respect of pain and suffering or the loss of the enjoyment or of the amenities of life awarded in relation to personal injury or the death of a person; or

   (b)apply in relation to any debt upon which interest is payable as of right whether by virtue of any agreement or otherwise; or

   (c)affect the damages recoverable for the dishonour of a bill of exchange.

   (2a)In subsection (2)(aa) personal injury includes any disease and any impairment of a person’s physical or mental condition.

6. Section 32(2) refers to instances which the power to award interest under s 32(1) does not apply, including cases of general damages for pain and suffering, and debts upon which interest is payable as of right. The nature of those exclusions does not assist Mrs Raffae's claim that 'proceedings for the recovery of any money' in s 32(1) includes interpleader proceedings of the kind here.

7. Finally, I should observe that Mrs Raffae was unable to point to any authority which would suggest that the court has a power to make an order for the payment of interest in an interpleader proceeding pursuant to s 32(1) of the Act.

8. The second basis on which it was said that the court has a power to order the payment of interest in an interpleader proceeding was O 17 r 15 of the Rules of the Supreme Court 1971 (WA) (RSC). That rule provides that:

   Subject to rules 1 to 11, the Court may in and for the purposes of any interpleader proceedings make such order as to costs or any other matter as it thinks just.

9. Counsel for Mrs Raffae submitted that the words 'or any other matter' were sufficiently broad to encompass an order for the award of interest as against the unsuccessful party in interpleader proceedings.

10. There appears to be little authority on the extent of the power referred to in O 17 r 15 RSC. Such authority as there is suggests that the power there referred to, apart from the power to order costs, is the court's power to craft orders resolving the outcome of the interpleader proceedings. That is, the court has power to make orders to facilitate its resolution of questions of entitlement to title to goods, or to funds, taking into account particular circumstances. It does not appear that the orders contemplated in O 17 r 15 extend to orders for relief which would go beyond the subject matter of the interpleader proceeding itself. Two authorities appear to demonstrate that point.

11. First, in Howell v Dawson,[100] the court was dealing with an interpleader proceeding in respect of the title to goods.  The goods had been seized in the course of the execution of a judgment by the sheriff on behalf of a judgment creditor.  The goods were used in a business.  A competing claim to the title to the goods was made by the wife of the owner of the business.  It appears from the report of the case that the usual order in an interpleader proceeding at that time was that, unless money was paid into court, there would be an order for the sale of the goods the subject of the interpleader.  It was submitted that if the goods were sold by the sheriff, they would be sold below their value and the business would fail.  An application was made to the court that a receiver should be appointed, rather than the usual order for the sale of the goods.  The application was refused and that decision was appealed.  The appeal was upheld and an order for the appointment of receiver at the claimant's expense was made.  In upholding the appeal, the court appears to have accepted that the usual order (for the sheriff to sell the goods the subject of the interpleader) would do a great injury to the business, whereas the court had power to take an alternative course which would avoid that injury.  That appears to me to provide an example of the court making an order which crafted the relief with respect to the subject of the interpleader proceeding ‑ in that case, the goods themselves ‑ so as to accommodate the just resolution of the dispute in all of the circumstances.

    [100] Howell v Dawson (1884) 13 QBD 67.

12. The only other authority that seems to be apposite is B.P. Benzin Und Petroleum v European-American Banking Corporation.[101]  In that case, an issue was raised as to whether the orders that were sought on the interpleader proceedings should be made, as they would have implications for third parties.  Lord Denning M. R. observed:[102]

    [101] B.P. Benzin Und Petroleum v European-American Banking Corporation [1978] 1 Lloyd's Rep 364.

    [102] B.P. Benzin Und Petroleum v European-American Banking Corporation [1978] 1 Lloyd's Rep 364, 366.

    The arguments raise a point for consideration as to the jurisdiction of the Court on interpleader issues.

    Mr. Justice Goff gave a wide interpretation to R.S.C., 0.17, r.8 of the rules [the English equivalent of O 17 r 15 RSC], which says:

    ... the Court may in or for the purposes of any interpleader proceedings, make such order as to costs or any other matter as it thinks just.

    That order has been construed widely. It is quite clear that the Court can make an order for sale of the property if need be, certainly if it is pledged, and if it is not pledged it can be sold. The case of Paquin Ltd. v. Robinson: Viola, (1901) 8S L.T. shows that property can be sold, not merely perishable goods but other property. That is a clear interference with rights.

    But I would put it wider than that. It seems to me under the inherent jurisdiction of the Court, when an interpleader is taken out, the Court can make such order as it thinks just in the matter even though it does interfere with the rights of the parties if that is the just solution of the case. On this wider interpretation, it seems to me the order made by Mr. Justice Goff can certainly be justified. There he points out that these disbursements are disbursements which have been paid out ‑ they are obligations of the ship owning company ‑ in order to earn the charter hire. Surely it is only fair and just that those disbursements and expenses should come out of the moneys which have been accumulating, such as those which have been paid into the joint account in the interpleader issue.

    It seems to me the justice of the case is as Mr. Justice Goff has said, and I think the jurisdiction of the Court, whether put under the rules or under the inherent jurisdiction, is ample for the Court to do what is right and just.

13. As the observations of Lord Denning make clear, the orders that were made in that case were orders which would affect the subject matter of the interpleader proceeding. They were not orders that went beyond that subject matter so as to require further payments of money by the parties (to the interpleader proceeding). (In the case of costs, I digress to note that the power to order one party to pay the other's costs is expressly spelled out in O 17 r 15 RSC.)

14. Having regard to these authorities and to what they reveal about the extent of the court's power in O 17 r 15 RSC, I am not persuaded that that rule is a source of a power to make an order for the payment of interest, as is sought here. The application for an order for the payment of interest will therefore be dismissed.

The question of costs

1. There is no question in respect of the court having a power to make an order for costs. That is confirmed by O 17 r 15 RSC, which states that the court can make 'such order as to costs ... as it thinks just'.

2. I am persuaded that it is open to make an order for the payment of Mrs Raffae's costs against PSAL and that it would be just to make that order.

3. The question for resolution on the interpleader proceeding concerned the competing claims by Mrs Raffae and PSAL to priority of their equitable interests in the funds.  It was open to each of the parties to make an assessment of the strength of their competing claims and to determine whether to proceed with their own claim, knowing that if they were unsuccessful, they could face cost orders.  I see no reason for distinguishing this case from the ordinary situation where the court deals with costs in actions between parties where the unsuccessful party will, as a starting point at least, be required to pay the costs of the successful party.

4. There is certainly no conduct on the part of Mrs Raffae which would disentitle her to a costs order in her favour.  There is, however, one authority which I should mention for completeness, and that is Lunt v WRS Pacific Proprietary Ltd.[103]  In that case, the sheriff, pursuant to a writ of fieri facias, seized certain assets from a house, and competing claims were then made in respect of those assets.  The sheriff filed an interpleader summons and the parties proceeded to have their dispute resolved by the court.  At issue was a claim by the plaintiff that the goods were not owned by the plaintiff, but instead by a family trust.  The defendant contested that basis for a claim of entitlement to the goods.  Master Bredmeyer concluded that there should be no order as to costs.  He said:[104]

   [103] Lunt v WRS Pacific Pty Ltd [2002] WASC 27.

   [104] Lunt v WRS Pacific Pty Ltd [2002] WASC 27 [5] (Bredmeyer M).

   I do not blame the defendant for having contested this interpleader summons. How was it to know that the chattels found in Mr Lunt's house were owned by his family trust? Further, there is no particular reason why the defendant should have withdrawn its claim to ownership at an earlier stage when the 1994 trust deed could not be found. In the circumstances, there will be no order as to costs.

5. That case, it seems to me, is distinguishable from the present case.  The evidence to which I referred in the Interpleader Reasons suggested that PSAL was fully aware of the basis for Mrs Raffae's claim to entitlement to the funds.  PSAL was, no doubt, in a position to make its own assessment of the strength of that claim vis-à-vis its own claim to entitlement to the funds.  In that context, it determined that it wished to proceed to contest the claim in the interpleader proceeding.  In all of those circumstances, it seems to me that the just outcome is that, having taken that course of action, PSAL should pay Mrs Raffae's costs, to be taxed if not agreed.

PSAL's failure to attend the hearing

1. The only other matter which I should mention is the fact that the hearing of the Application today proceeded in circumstances where there was no appearance on behalf of PSAL.  That appears to have occurred, in part, because PSAL is no longer represented by solicitors.  At a hearing on 11 October 2016, I made orders that PSAL's former solicitors had ceased to act for the company.  On that occasion, I did not deal with the Application in order to give PSAL the opportunity to engage further legal representation if it so wished, and to be heard in respect of the Application.  I therefore adjourned the Application to a special appointment today.  I did so in circumstances where I requested that PSAL's former solicitors draw to PSAL's attention the fact that if there was no appearance for PSAL on this occasion, orders could be made in its absence.  I am satisfied that the former solicitors for PSAL did draw that matter to PSAL's attention and served PSAL with a copy of the orders I made which indicated that the special appointment would be proceeding today.  In those circumstances, I formed the view that it was appropriate to proceed today, notwithstanding that there was no appearance by PSAL.

Order made

1. I will make an order in terms of O 2 of Mrs Raffae's minute of proposed orders dated 4 October 2016, namely that the plaintiff pay the claimant's costs of the interpleader proceeding to be taxed as an action if not agreed.