Showerama v Amtek & Keatley
[1996] QSC 87
•23 May 1996
IN THE SUPREME COURT
OF QUEENSLAND
No. 1555 of 1996
Brisbane
Before the Hon. Mr Justice Shepherdson
[Showerama v. Amtek & Keatley]
BETWEEN:
SHOWERAMA PRODUCTS PTY LTD
ACN 009 799 848
Plaintiff
AND:
AMTEK PTY LTD
ACN 052 310 102
First Defendant
AND:
AARON MICHAEL KEATLEY AND
TRACY LEE KEATLEY
Second Defendants
JUDGMENT - SHEPHERDSON J.
Judgment delivered 23 May 1996
CATCHWORDS: Equitable charge - Execution of money judgment - Application for sale order under s.99 Property Law Act 1974. Applicant judgment creditor proposes registered liquidator to sell second defendant's equity of redemption in freehold property. Alternate method is to execute money judgment pursuant to the Land Titles Act. Whether application to order sale under s.99 Property Law Act should proceed.
Counsel:Mr Derrington for the plaintiff.
Solicitors:Bain Gasteen for the plaintiff.
Hearing date: 8 May 1996
IN THE SUPREME COURT
OF QUEENSLAND
Brisbane No.1555 of 1996
Before the Hon. Mr Justice Shepherdson
[Showerama v. Amtek & Keatley]
BETWEEN:
SHOWERAMA PRODUCTS PTY LTD
ACN 009 799 848
Plaintiff
AND:
AMTEK PTY LTD
ACN 052 310 102
First Defendant
AND:
AARON MICHAEL KEATLEY AND
TRACY LEE KEATLEY
Second Defendants
JUDGMENT - SHEPHERDSON J.
Judgment Delivered 23 May 1996
On 1 May 1996 the abovenamed plaintiff obtained judgment in default of appearance against the abovenamed first defendant in the sum of $120,273-84 for claim and $8,734-90 for interest.
By a notice of motion filed on 10 April 1996 the plaintiff sought the following orders:-
That it have judgment against the second defendants in the sum of $120,273-84 for claim together with interest under the Common Law Practice Act of 1867.
That land described as lot 152 on RP 226002 County of Ward, Parish of Boyd be sold.
Ancillary to that sought in para. 2 as follows:-
(a)That the land be vested in Bradley Vincent Hellen registered liquidator of Calabro Partners of Brisbane pursuant to the provisions of the Trusts Act or pursuant to the provisions of the Property Law Act.
(b)That the land be sold by public auction within a period of 6 months from the date of the Court Order at a price not less than the reserve price set by the Court.
That the proceeds of sale be disposed of by the person appointed to sell by:-
(a)discharging all costs, charges and expenses properly incurred in the sale of the land, including the costs of the person appointed for the sale.
(b)paying to any prior registered mortgagee or to any holder of a prior charge over the land the amount due to such persons.
(c)discharging the amount secured by the plaintiff's charge together with interest and costs, and any other money due under the charge.
(d)discharging any subsequent mortgages or encumbrances.
(e)paying the residue if any, to the person entitled to receive or the person entitled to give a receipt for the proceeds of the charged property.
(The underlining is mine.)
The notice of motion also sought an order that the second defendants pay the plaintiff's costs of and incidental to the action including the notice of motion to be taxed. There has been no appearance by the second defendants.
That notice of motion was on its face returned before the Chamber Judge on 22 April 1996.
On the 22 April 1996 a learned Chamber Judge gave leave to the plaintiff to file and read that day a summons in which the plaintiff sought:-That an account be taken to determine the amount owing by the second defendants to the plaintiff under an equitable charge.
That it be deemed that the accounts have been taken between the parties and settled in the amount of $120,273-84.
That the second defendants pay to the plaintiff the sum of $
That the second defendants pay the plaintiff's costs of and incidental to the summons.
On 22 April 1996 the learned Chamber Judge made orders in accordance with the summons filed by leave on that day save that in order No. 3 the amount was stated at $120,273-84.
Effectively then on that day, the second defendants were ordered to pay the plaintiff the sum of $120,273-84. The order said nothing about interest.
It is necessary to say something about the history of this matter. The action was begun by a writ of summons specially endorsed and issued on 23 February 1996 in which the plaintiff's claims were as follows:-As against the first defendant:-
(a)The sum of $120,273-84 due and owing to the plaintiff by the first defendant pursuant to an agreement in writing.
(b)Interest pursuant to the Common Law Practice Act of 1867 as amended.
(c)Costs.
As against the second defendants:-
(a)to have an account taken of what was due to the plaintiff for principal, interest and costs on an equitable charge of the second defendants' interest in the land, (which I have already described) which charge is dated 28 November 1995 or an order that such sum is the sum of $120,273-84 as at 31 January 1996 and/or that the equitable charge may be enforced by sale.
(b)Further or in the alternative for:-
(i)the sum of $120,273-84 being the sum due and owing to the plaintiff by the second defendants pursuant to a guarantee in writing.
(ii) interest thereon pursuant to the Common Law Practice Act of 1867 as amended.
(c)Costs.
The agreement relied on in the claim against the first defendant was what was called a "credit facilities agreement" made between the plaintiff and the first defendant on or about 26 March 1993. Paragraph 3 of the particulars of claim within the specially endorsed writ alleged:-
that material terms of the credit facilities agreement were (inter alia):-
(a)that the plaintiff would supply goods on credit on a running account to the first defendant.
(b)that all goods supplied by the plaintiff to the first defendant were to be paid for in full by the first defendant within 30 days.
that in accordance with its obligations under the credit facilities agreement the plaintiff from time to time supplied goods on credit and on a running account to the first defendant.
The pleading then alleged a breach by the first defendant of its obligations under the credit facilities agreement in that it wrongfully neglected and/or refused to pay outstanding sums due to the plaintiff.
The endorsements on the writ then detailed how the $120,273-84 was calculated.
The plaintiff's claim against the second defendants was on two bases. The first was that they were liable as guarantors of the first defendant's debt to the plaintiff.
Paragraph 9 of the particulars of claim endorsed on the writ alleged that on or about 26 March 1993, and in consideration of the plaintiff at the request of the second defendants entering into the credit facilities agreement with the first defendant, the second defendants entered into a written guarantee with the plaintiff. Material terms of the alleged guarantee were then pleaded. The second basis of the plaintiff's claim against the second defendants was an equitable charge over the above described land.
Paragraph 12 of the particulars of claim endorsed on the writ alleges that on 28 November 1995 the second defendants executed a letter of agreement in favour of the plaintiff in consideration of the plaintiff withholding legal proceedings against the first and second defendants. Material terms were pleaded namely an agreement by the second defendants to charge all of their interest in the land, the description of which I have already set out, such charge being to the plaintiff to secure the debt owed by the first defendant to the plaintiff, and further that the second defendants agreed to provide the plaintiff with a second registered mortgage over the land.
A photocopy of the agreement said to constitute the guarantee by the second defendant is before me. It is dated 26 March 1993.
The document relied on as creating the equitable charge is dated 28 November 1995. A photocopy is before me. It is addressed to Mr Ames Carnegie of Aces and Associates Pty Ltd, who are credit management consultants. The photocopy purports to be signed by the second defendants and omitting formal parts it reads:-"Re: debts outstanding to Showerama Products Pty Ltd
With reference to the above, and further to the telephone conversations between Aaron Keatly (sic) and yourself regarding the debt outstanding to your clients office we wish to confirm the following.
We Aaron Michael Keatley and Tracey (sic) Lee Keatley, the registered proprietors of the land situated at Lot 152 on RP226002 in the County of Ward, Parish of Boyd hereby charge all our interest in the land described herein to Showerama Products Pty Ltd to secure a debt which has been incurred by our company known as "Amtek Pty Ltd" in which we are the directors of
We hereby consent to Showerama Product Pty Ltd in having a 2nd register mortgage prepared and registered onto our title of the property named above."
The notice of motion filed 10 April 1996 which had apparently been adjourned from the 22 April 1996, came before me on 8 May 1996. The plaintiff no longer sought judgment against the second defendants as claimed in para. 1 of that notice of motion - quite obviously because on 22 April 1996 judgment had already been given but on a different basis from that on which the judgment was sought in para. 1 of the notice of motion filed on 10 April 1996.
The remaining relief sought in the notice of motion more particularly in paras. 2, 3 and 4 thereof remains alive.
My judgment concerns whether or not the applicant judgment creditor should obtain the relief there sought.
I should add that the applicant plaintiff seeks the vesting order in Bradley Vincent Hellen pursuant to the provisions of s.99 of the Property Law Act 1974.
From the recital of the various matters which I have already set out it appears that although the plaintiff initially sought a judgment against the second defendants as guarantors of the first defendant's debt, it did not obtain its judgment against the second defendants on that basis. Instead, it filed a subsequent summons (on the day when the notice of motion filed on 10 April 1996 was first returned) and as a result of that summons obtained judgment against the second defendants on the basis of a deemed accounting under the equitable charge.
There was no dispute but the reference to equitable charge in the judgment of 22 April 1996 was a reference to the charge mentioned in the document of 28 November 1995.
Under the judgment of 22 April 1996, the plaintiff did obtain a judgment against the second defendants for a fixed sum of money to be paid.
The ancillary orders sought from me on 8 May 1996 at the hearing of the notice of motion filed on 10 April 1996 show that the plaintiff's judgment creditor seeks to have:-(a)The charged land vested in the name of a registered liquidator pursuant to the provisions of the Property Law Act.
(b)The charged land sold by public auction within 6 months from the date of this Court's order at a price not less than the reserve price set by this Court.
(c)The proceeds of sale disposed of by the person appointed to sell, such disposal to be in the specific order of priority which I have already set out the first of which entitles that person to take from the proceeds of sale his or her costs.
The second defendants are the registered owners of the land in question. The land is registered under the Land Titles Act (formally the Real Property Acts). There is an existing registered mortgage in favour of the National Australia Bank Limited and this bank's mortgage has priority to the plaintiff's charge. The plaintiff's charge is not registered, but the plaintiff has registered a caveat over the land.
There is evidence that the land and improvements have a value of between $130,000 and $150,000 - this valuation is described by the valuer Brett Jackson Makepeace as "an opinion of value" and it is based on his having "conducted a kerbside inspection" of the relevant property.
The amount required to discharge the National Australia Bank's mortgage as at 8 May 1996 is said to be $118,463-60. The applicant's judgment debt against the second defendants as at 22 April 1996 was $120,273-84. Its judgment debt against the first defendant was that amount plus $8,734-90 for interest.
It is tolerably clear that if the plaintiff as judgment creditor does sell the second defendant's property, there will be a comparatively small return (if any) after the first mortgagee's debt is taken into account and costs associated with the sale are paid.
On any sale by the plaintiff as judgment creditor in a money sum, the judgment creditor will be selling only the second defendant's equity of redemption, and any purchaser will buy subject to the National Bank mortgage (see Ghana Commercial Bank v. Chandiram (1960) AC 732 at pp.743-4) and the purchaser will be required by law to indemnify the second defendants obligations under their mortgage to the bank. (Waring v. Ward (1802) 7 Ves. Jun. 332 [32E.R. 136]; Simpson v. Forrester (1973) 132 CLR 499). I mention in passing that the orders sought in para. 4 of the notice of motion assume, incorrectly, that the land is to be sold free of mortgage - the draftsman of the notice of motion appears to have failed to recognise that only the second defendants' equity of redemption can be sold as the plaintiff's charge is over only the second defendants equity of redemption in the property.
I come now to what in my view is the crux of the present application. Should I accede to the application when there is available to the plaintiff as judgment creditor for this money sum the ability to obtain a writ of execution, namely a writ of fieri facias and to register that writ against the land pursuant to s.116 of the Land Titles Act 1994 and then sell pursuant to that writ? The Sheriff has power when executing a writ of fieri facias to sell an equity of redemption (s.103 Supreme Court Act 1995).
Mr Derrington who appeared for the applicant, conceded that I have a discretion as to whether or not to make the orders which his client seeks.
In my view, the procedure envisaged by the application will be much more expensive than the procedure involved in the issue of a writ of fieri facias, having that writ registered on the title and then executing the writ at a sale by a Sheriff or a Sheriff's Officer. The current scale of fees payable in the Sheriff's office as contained in the rules of this Court shows that poundage on executing the writ of fieri facias were this small equity of redemption to be sold would be comparatively small.
The person nominated by the applicant is a registered liquidator, and as I have noted from para. 4(a) of the notice of motion, the applicant seeks to have the costs of that person properly incurred in respect of the sale made a first charge on the proceeds of the sale.
Ever since the decision in re Queensland Forests Limited (in liquidation) (1966) Qd.R 180 the remuneration of a chartered accountant acting as liquidator in the winding-up of a company, and who fixes his fees and charges in accordance with rates recommended by a reputable professional body is entitled to have his charges regarded as reasonable. The principle of that case applies on the present application. No evidence as to the scale of fees proposed to be charged by the nominated liquidator in the present case has been put before me. However, having said that, I have seen in many other cases sufficient evidence of such charges to enable me to take judicial notice of the fact that they will be at a rate which will be considerably higher than the rates charged by Sheriff's Officers in executing a writ of fieri facias.
As I have already said, there appears to be a comparatively small equity of redemption in this property.
I do not overlook the fact that the charges to be made by the nominated liquidator in the present case will be not only charges for himself, but for members of his staff such as senior clerks, typists and junior clerks all based on an hourly rate in accordance with the professional body of which he is a member.
As I have already mentioned, the applicant plaintiff seeks to have the nominated person appointed to sell the property pursuant to s.99 of the Property Law Act. I shall assume for the purpose of this judgment that I do have power to appoint the nominated person pursuant to s.99. I do not at present decide whether or not that view is correct.
On that assumption, I should now say that in my view, when this mortgagee seeks to exercise his power of sale - in this case a power derived from s.99 of the Property Law Act and based on a money judgment, albeit a money judgment obtained on a deemed accounting under an equitable charge, this mortgagee has an obligation to act reasonably. It also has other duties and I shall shortly refer to some of them. If a mortgagee has alternate methods of exercising his power of sale each of them equally effective, with one considerably less expensive than the other, then in my view the mortgagee is obliged to choose the considerably less expensive course, provided that in so doing he discharges his other duties. A mortgagee also has a statutory obligation to take reasonable care to ensure that the mortgaged property is sold at the market value (s.85(1) Property Law Act 1974). The mortgagee must exercise his power of sale in good faith (Forsyth v. Blundell (1973) 129 CLR 477 pp.497-499) and without any intention of dealing unfairly by the mortgagor (see Palk v. Mortgage Services Funding plc (1993) 2 All. E.R. 481 at p.486).
In the present case, it seems to me that if the applicant exercises its power of sale pursuant to s.99 in the manner it proposes (assuming but not deciding that it has such power) it will leave itself open to a charge of bad faith on either one of the following two bases.
First, the course of proceedings in the present action shows that the plaintiff initially sought judgment in an undefended suit against the second defendants on the basis of their being guarantors of the first defendants debt, a claim which, on the evidence was fully justified. Had judgment been pronounced on that basis, the present application would not have been brought as s.99 could no longer have been relied on. The judgment creditor would then have been left to execute its money judgment by a writ of fieri facias under which the second defendants equity of redemption could be sold. I mention in passing the amount of any judgment on the basis that the second defendants were guarantors would have included interest - a component missing from the existing judgment. The plaintiff did not follow this intended course and instead sought and obtained judgment on the basis of an account taken under the equitable charge. Once it embarked on this second course, the plaintiff opened up an alternate method of seeking to levy execution and that brings me to the second basis on which bad faith can be alleged.
On this second basis, if the applicant were to sell in the manner proposed the result would be that the judgment debt owed by the second defendants will in my view, certainly, be reduced by a lesser amount than would have been the case had the sale been the result of a properly advertised sale by a Sheriff.
I do not know the frequency with which a proceeding of the present type is begun by members of the legal profession. I did ask Mr Derrington during argument and I understood him to say such proceedings were not uncommon.
One hears and reads constant complaints about the high cost of legal services. Were I to make the orders sought in this case, I would be adding fuel to the fire of complainants, and ignoring the rights of the second defendants as equitable mortgagors. They have a right to expect the plaintiff as equitable mortgagee intent on selling up their property to act in good faith and not act in such a way as to prejudice them unfairly. Seeking to have a liquidator such as Mr Hellen appointed to arrange and conduct a sale, is in my respectful view, a very expensive way of exercising that power and one which, if it did occur, would leave the plaintiff open to charges of not acting in good faith. The applicant as a mortgagee cannot ignore the interests of the mortgagor. Although the second defendants have not appeared in this action, this Court must in my respectful view keep their interest in sight when applications of this type come before it. I would add that the evidence as to value of the property is sparse - no accurate estimate of the value of the second defendants' equity of redemption can be gleaned from the material before me. The court would have difficulty fixing a reserve price for the sale of the equity.
A mortgagee exercising a power of sale of mortgaged property has a duty to take reasonable care to ensure that the property is sold at the market value (s.85(1) Property Law Act) and that duty cannot be delegated to another so as to relieve the mortgagee from that statutory duty (Commercial and General Acceptance Ltd v. Nixon (1981) 152 CLR 491). Section 85(1) of the Property Law Act applies (inter alia) where a mortgagee exercises a power of sale conferred by the Property Law Act or any other Act. Assuming s.99 provides a power of sale to the applicant, then s.85 applies to its exercise.
Finally, although the matter was not addressed, I should say that in this case where the plaintiff's security is in effect a mortgage from the second defendants over their equity of redemption in their home, the question of foreclosure does not arise. Quite obviously the security is best realised by selling the equity and as I have said, the plaintiff applicant has two methods of achieving this end.
At the end of the day, I am very firmly of the view that the application must be dismissed and the applicant left to his remedy of a writ of execution, and enlivening the procedures set out in s.116 et seq. of the Land Titles Act.
I shall hear from Mr Derrington on the matter of costs.
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