- Unreported Judgment
SUPREME COURT OF QUEENSLAND
ROBERT WILLIAM HUTSON AND JOHN RICHARD PARK AS LIQUIDATORS OF RODOMON PTY LTD (IN LIQUIDATION) ACN 094 632 916
21 August 2009
24 July 2009
1.The application is dismissed.
2.That the sum of $404,581.57 paid into Court be paid out to the solicitors for the second respondent
MORTGAGES - MORTGAGE CONTRACT - OTHER MATTERS - Whether funds on trust for the purpose of satisfying GST obligation to the Australian Tax office - Whether security interest over the funds was released by agreement and by tendering instruments of release for its mortgage and fixed charge - Whether second respondent was entitled to the whole of the net proceeds of sale including the amount sought to be paid Australian Tax Office
Corporations Act 2001 (Cth), s 588FF
Re Miles & Anor; ex parte National Australia Bank Limited v Official Receiver in Bankruptcy (1988) 20 FCR 194
Syme v Commonwealth (1942) 66 CLR 413
DB O’Sullivan for the applicant
DA Savage SC, with him M Taylor, for the second respondent
Clayton Utz for the applicants
Flower & Hart Lawyers for the second respondent
 This is an application under s 588FF of the Corporations Act 2001 (Cth) (“the Act”) to recover an amount of $404,581.57 as an unfair preference.
 The moneys claimed have been paid into Court by the first respondent which is prepared to abide the order of the court save in relation to costs.
 The third respondent, the Commissioner of Taxation, no longer asserts any claim to the money. The dispute is therefore one between the applicants and the second respondent.
 In June 2001, Bornwin Pty Ltd (“Bornwin”) provided money by way of vendor finance to Rodomon Pty Ltd (“Rodomon”) in relation to the construction of a unit development called Metro 21 in Mary Street, Brisbane (“the development”).
 As security for the loan, Rodomon gave Bornwin a mortgage dated 4 June 2001 over the land on which the development was constructed. It also gave a fixed and floating charge dated 4 June 2001 over its assets and undertaking. Both the mortgage and the charge were registered.
 On 19 April 2005, Bornwin granted mortgage priority over certain of the lots in the development including lots 302, 342, 371 and 381 to Perpetual Nominees Limited (“Perpetual”).
 On 13 April 2005, a deed of variation of mortgage was entered into extending the term for payment of the loan from 4 June 2004 to 26 April 2006. The Deed of Variation contained these clauses:
“5.Release of Mortgage
5.1The Mortgagee agrees to provide releases of the Mortgage to allow settlement of the contracts for sale of lots in the Scheme on the basis that all of the settlement funds received are to be paid to the first and second mortgagees (who are prioritised to the Mortgagee) who hold security over those lots at the date of settlement of the relevant contracts.
5.2Once the first and second mortgagees have been paid out, unless the Mortgagee agrees otherwise, the settlement funds received are to be paid to the Mortgagee.
9.1An amendment or variation to this Deed is not effective unless it is in writing and signed by the parties.
A party’s failure or delay to exercise a power or right does not operate as a waiver of that power or right.
The exercise of a power or right does not preclude either its exercise in the future or the exercise of any other power or right.
A waiver is not effective unless it is in writing.
Waiver of a power or right is effective only in respect of the specific instance to which it relates and for the specific purpose for which it is given.”
 The development was completed and the units progressively sold. By May 2007 only lots 302, 342, 371 and 381 remained unpaid. It was apparent that there would be insufficient funds from the sale of these lots to discharge the mortgages to both Bornwin and Perpetual.
 On 27 April 2007, Rodomon’s solicitor sent an email to Bornwin’s solicitor in relation to the proposed settlement of lots 302 and 342. The email attached a settlement statement for each lot which showed in relation to lot 342 a deduction of $43,987 to the Australian Taxation Office (“ATO”) on account of GST prior to payment of the balance to Bornwin in discharge of its mortgage.
 On that day, Bornwin’s solicitor spoke to Rodomon’s solicitor and advised him that Bornwin did not accept that moneys were payable to the ATO in respect of GST and that, in any event, Bornwin’s mortgage had priority.
 On 30 April 2007, Bornwin’s solicitor responded to a letter from Rodomon’s solicitor of the same date:
“Subject to confirmation by our clients we are in agreement with the proposed settlement figures save for the monies supposed to be payable to the Australian Taxation Office.
We do not agree that any monies should be paid to the Australian Taxation Office by way of GST or otherwise…
Please advise us as a matter of urgency as to the total monies paid to the Australian Taxation Office by your client, by way of GST.
Please also advise us any further monies which you may consider may be payable in respect to GST, and the basis for same.
We will then consider the matter further and advise you as to our client’s position.
In the meantime, no monies should be paid by your client to any party without our client’s consent. In the event of any payments being made we consider the Directors of your client Company to be personally liable to our client and otherwise reserve our client’s rights in the matter.”
 In response to that letter, Rodomon’s solicitor forwarded an email of 30 April which stated:
“GST is a liability that must be incurred at law in order to sell the properties. If your client or the first mortgagee was to sell the properties exercising their power of sale the obligation to remit the amount of GST attributable to the supply would fall to your client or the first mortgagee as applicable.
The payments to the ATO cannot be made from profits as all the proceeds from these sales would be applied to the payment of the first mortgagee’s debt.
We are instructed that our client will provide an undertaking in your client’s favour in respect of any refunds received from the ATO in respect to the supplies.
We understand that your client (sic) has directly provided to your client information about GST paid to date. There will be a further GST payment due on the supply of lots 371 and 381 which your clients purchased at auction on 27 April 2007. The liability of these supplies will be calculated using the margin scheme.”
 On 1 May 2007 (the day of settlement of lot 342) Rodomon’s solicitor forwarded a letter to Bornwin’s solicitor which relevantly stated:
“Our client has agreed to hold funds requested on account of the payment to the Australian Taxation Office and Deacons in trust on terms of the attached draft undertaking …
Please confirm the draft undertaking is acceptable and we will provide a signed copy at settlement.
Our client is compiling records relating to GST for you to review and we will send these to you as soon as they are available.”
 A document entitled UNDERTAKING was attached to the letter.
 Later on that day, there was a telephone conversation between the solicitors. It is not controversial that in the course of that conversation Bornwin’s solicitor said words to the following effect:
“Bornwin was not prepared to settle lots 302 and 342 on the basis that money be paid to the ATO from settlement proceeds but instead suggested that those funds be held in trust pending agreement between the parties or a court order.”
 Further, the affidavit from Rodomon’s solicitor deposes to Bornwin’s solicitor saying that he had “… been informed by Mr Carter (of the prior mortgagee) that payment of GST was ‘a matter for the seller’”. He also said that he had “never been given information about GST” and that he “did not agree to settlement proceeds being distributed in the manner proposed in the settlement statements”.
 Following this conversation and discussions with the directors of Rodomon, Rodomon’s solicitor prepared a further undertaking in the following terms:
“Rodomon Pty Ltd ACN 084 532916 undertakes to:
(1) retain in Deacons Trust Account the amount of:
(a)$43,987.00 on account of money payable to the Australian Taxation Office in respect of GST (calculated applying the margin scheme) on the supply of Lot 342, from the proceeds of sale of Lot 342; and
(b)$44,442.00 on account of money payable to the Australian Taxation Office in respect of GST (calculated applying the margin scheme) on the supply of Lot 302, from the proceeds of sale of Lot 302,
Until the amounts of GST to be paid have been confirmed by production of evidence of the proper calculation of amounts due and the parties have agreed in writing or in accordance with an order of the Court…”
 Similar undertakings were provided prior to settlement in relation to lots 371 and 381. The total retained pursuant to the undertakings in relation to the four lots is $404,581.57. The Perpetual mortgage was discharged in full leaving a balance of more than $2 million owing to Bornwin secured by its securities.
 On 27 September 2007, the applicants were appointed joint and several administrators of Rodomon pursuant to a resolution of the directors.
 On 20 December 2007, the applicants were appointed joint and several liquidators again by resolution of the creditors.
 The applicants’ primary submission is that they are entitled to the funds presently in court on the basis that those funds are not subject to Bornwin’s security because Bornwin consented to Rodomon’s holding the funds on trust for the purpose of satisfying its GST obligation to the ATO and released its security interest over the funds by such agreement and by tendering instruments of release for its mortgage and fixed charge. It was submitted that a trust arose in favour of the ATO and that the ATO having conceded that moneys received by it as an unsecured creditor would be recoverable by the liquidator of Rodomon, the benefit of those funds passes to the applicants.
 In my view the applicants’ submission that the undertaking created a trust in favour of the ATO is wrong.
 It is plain from the correspondence and conversations which I have set out that Bornwin at no time agreed to the payment of funds to the ATO. Its position, consistently with clause 5 of the variation of the mortgage was that it was entitled to the whole of the balance of the proceeds of sale of the lots. The release of money to the ATO pursuant to the undertaking was subject to an agreement in writing between the parties or an order of the Court.
 I am satisfied that the release of funds pursuant to the undertaking was solely for the purpose of allowing the settlements to proceed, leaving the dispute as to whether or not Bornwin had any obligation to permit the payment of funds to the ATO to be determined after settlement.
 It seems clear to me from clause 5 of the deed of variation of the mortgage and the absence of any contrary agreement or waiver in writing that Bornwin was entitled to the whole of the net proceeds of sale including the amount sought to be paid to the ATO.
 The release of the mortgage at settlement does not, in my view, result in this position being in any way altered. In Syme v Commonwealth (1942) 66 CLR 413, Latham CJ said:
“When compensation is paid for a deprivation of interest which diminishes the mortgagee's security, the compensation is regarded as representing the security pro tanto and it must be paid to the mortgagee or preserved to meet his claims under the mortgage…”
 Syme’s case was referred to by Pincus J as authority for the proposition that the security attached to the proceeds of sale in Re Miles & Anor; ex parte National Australia Bank Limited v Official Receiver in Bankruptcy (1988) 20 FCR 194 at 200, where after referring to Syme and earlier English decisions, he said:
“Consistently with that, when mortgaged property is sold by a mortgagor with the mortgagee's consent, the assumption is that the security applies to the proceeds. …”
 Put simply, the position is that on 1 May 2007 Bornwin’s solicitor told Rodomon’s solicitor that Bornwin would not agree to payment of any funds secured by the mortgage to the ATO. That position was confirmed by written correspondence. Rodomon offered specific written undertakings not to pay money to the ATO without the consent of Bornwin or until the dispute was decided in its favour by a court. The undertakings were accepted as a practical way of ensuring the settlements went ahead without prejudice to the position of either party in relation to the payments.
 The undertaking plainly provided that the money was to be retained by the first respondent until the parties agreed in writing or in accordance with an order of the Court. In my view, that undertaking is entirely inconsistent with the creation of any interest by way of trust or otherwise in favour of the ATO.
 There was no suggestion that there was any subsequent relevant agreement or order.
 The mortgage debt has not been repaid.
 It follows from the conclusions that the money now in Court was always money to which Bornwin was entitled and the moneys paid into Court should now be paid out with accretions, if any, to Bornwin.
 Accordingly, I order that the application be dismissed. I further order that the sum of $404,581.57 paid into Court be paid out to the solicitors for the second respondent.
 I will hear argument in relation to costs.
- Published Case Name:
In the matter of Rodomon P/L; Hutson & Park as liq of Rodomon P/L v Deacons & Ors
- Shortened Case Name:
Re Rodomon Pty Ltd
 QSC 239
21 Aug 2009
No Litigation History