Rockett v Moneycorp Securities Pty Ltd
[2008] QSC 258
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- Notable Unreported Decision
- Rockett v Moneycorp Securities Pty Ltd[2008] QSC 258
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Rockett v Moneycorp Securities Pty Ltd[2008] QSC 258
Rockett v Moneycorp Securities Pty Ltd[2008] QSC 258
SUPREME COURT OF QUEENSLAND
CITATION: | Rockett v Moneycorp Securities P/L & Anor [2008] QSC 258 |
PARTIES: | LYNETTE JOY ROCKETT v MONEYCORP SECURITIES PTY LTD ACN 115 414 803 |
FILE NO: | BS9525/06 |
DIVISION: | Trial Division |
PROCEEDING: | Application filed 10 October 2008 Application filed by leave 13 October 2008 |
DELIVERED ON: | 21 October 2008 |
DELIVERED AT: | Supreme Court, Brisbane |
HEARING DATE: | 13 October 2008 |
JUDGE: | Wilson J |
ORDERS: |
|
CATCHWORDS: | PROCEDURE – COSTS – RECOVERY OF COSTS – where the second registered mortgagee exercises its power of sale over two properties – where purchase prices paid by the plaintiff on settlement of contracts to be applied firstly to discharge the first registered mortgage, with balance to be held in trust pending assessment or agreement of amount of costs payable to the plaintiff – whether the agent's commission is payable out of the sale proceeds in priority to the amount secured by the first registered mortgage to the third defendant Property Law Act 1974 (Qld) s 88(1) Australia and New Zealand Banking Group Ltd v Evans [1992] 2 QdR 230, considered Emerson & Anor v Custom Credit Corporation Limited (1991) Q Conv R [54-414], cited Mercantile Credits Ltd v Australia and New Zealand Banking Group Ltd (1988) 48 SASR 407, cited re Burns Philp Trustee Co Ltd [1986] O.S. No. 968 of 1985 (Unreported, Macrossan J, 17 Dec 1986), cited Rockett v Moneycorp Securities P/L & Anor [2007] QSC 389, cited |
COUNSEL: | A L James for the plaintiff G Fabian (director) for the first defendant M J Foley for the third defendant |
SOLICITORS: | Ffrench Commercial Lawyers for the plaintiff MRH Lawyers for the third defendant |
- Wilson J: On 20 December 2007 I made the following orders:
“1. It is declared that the Contracts between the plaintiff and the first defendant, dated 5 July 2006, for the sale of units situated at:
(a) Unit 301, The Sands, 40 The Esplanade, Surfers Paradise and more particularly described as Lot 46, Building Unit Plan 82, County of Ward, Parish of Gilston (“Lot 46”); and
(b)Unit 216, The Sands, 40 The Esplanade, Surfers Paradise and more particularly described as Lot 15, Building Unit Plan 82, County of Ward, Parish of Gilston (“Lot 15”);
are enforceable against the first and second defendants and that they ought to be specifically performed and carried into execution by 4.00pm on Friday 1 February 2008 unless otherwise agreed between the plaintiff and the first defendant.
…
- It is directed that the plaintiff and the first defendant have liberty to apply, on 2 days written notice, for detailed orders for specific performance and any further directions, inquiries or other orders relating to specific performance of either contract.
- The purchase prices paid by the plaintiff on settlement of those Contracts referred to in Order 1 be applied firstly to the discharge of the first registered mortgage over Lot 46 and Lot 15, with the balance to be held by the first defendant’s solicitors, Gladstones, in trust pending the assessment or earlier agreement of the amount of costs payable to the plaintiff pursuant to the following orders.”[1]
- The second defendant is registered as the owner of the properties. There is a first registered mortgage to the third defendant and a second registered mortgage to the first defendant. The first defendant sold the properties to the plaintiff (pursuant to the contracts referred to in the first order) in exercise of its power of sale. The contracts have not been completed.
- Under the contracts the total sale price was $560,000 ($360,000 and $200,000 respectively). Some weeks after the contracts were made, the second defendant borrowed money from Rajan Bros Pty Ltd and paid the first defendant the amount then owing to it. But the properties remained subject to the mortgage to the first defendant. As I said in my earlier judgment[2] -
“[15]On 18 August 2006 Mr Ucchino and the second defendant borrowed $160,000 from Rajan Bros Pty Ltd, and paid the first defendant the amount then owing to it.[3] The first defendant gave the second defendant a Release of Mortgage,[4] which has not been registered.
…
[49] Counsel for the second defendant submitted –
(a) that the second defendant had rectified any default under the mortgage by its payment to the first defendant on 18 August 2006;
(b) that the second defendant had thereby exercised its right to redeem – that is, to have the properties freed from the mortgage; and
(c) that the first defendant could no longer complete the contracts with the plaintiff.[5]
[50]There are several reasons why I think this submission is wrong in law and must be rejected.
[51]The second defendant has paid out the debt it owed the first defendant, but the properties have not been released from the mortgage, as the release has not been registered.[6]
[52]A contract made by a mortgagee in exercise of its power of sale is binding on the mortgagor unless it is made in bad faith.[7] Once a valid contract of sale is entered into by the mortgagee, the mortgagor’s right to redeem is extinguished.[8] The mortgagee has power to transfer the land (subject to any prior registered encumbrance).[9]
[53]Neither the first defendant nor the plaintiff acted in bad faith, and there was no collusion between them.[10]”
- There are two applications before the Court:
(i) an application filed by the plaintiff for orders:
“1.That upon settlement of the contracts between the plaintiff and the first defendant for the sale of Units 216 and 301, The Sands, 40 The Esplanade, Surfers Paradise ('the Units'), the money arising from the said sale and in fact received by the first defendant (as mortgagee in possession) is to be held on trust by the first defendant and applied by the first defendant as follows:
a)Firstly, in payment of the commission due to PRD Realty, Surfers Paradise, with respect to the sale of the Units by the first defendant to the plaintiff;
b)Secondly, in payment of the first defendant's legal costs associated with the sale of the Units by the first defendant to the plaintiff where such legal costs are not to include the first defendant's costs of these proceedings;
c)Thirdly, in discharge of the mortgage money, interest and costs due and owing pursuant to the first registered mortgage held by Wide Bay Australia Ltd over the Units (Mortgage No. 708057759);
d)Fourthly, in payment of any Gold Coast City Rates (including Water Rates), Land Tax, and Body Corporate Fees that may be outstanding with respect to the Units at the time of sale.
- That the first defendant pay the balance (if any) of any Gold Coast City Rates (including Water Rates), Land Tax, and Body Corporate Fees that may be outstanding with respect to the Units at the time of the sale and which are not otherwise able to be paid from the money arising from the sale referred to in Order 1 herein.
- That the first and second defendants pay the plaintiff's costs of this Application
- Such further or other orders as the Court deems fit.”
- an application filed by Wide Bay Australia Limited to be joined as a party.
- At the hearing on Monday 13 October 2008 the plaintiff was represented by counsel. The first defendant appeared by its director Mr Fabian. There was no appearance by the second defendant. On Thursday 9 October 2008 the solicitors for the plaintiff had advised the solicitors on the record for the second defendant that an application would be listed for 13 October 2008. They responded –
“We have sought but not yet received any instructions in respect of the hearing. Further, we have not received any instructions in relation to this dispute for some time and we anticipate needing to take steps to remove our firm as solicitors on the record.
Unless instructions are received, we do not intend to appear at the hearing on 13 October 2008. We have no objection to a copy of this letter being tendered to the Court.
We will revert to you if we receive any instructions to appear.”[11]
Wide Bay Australia Limited was represented by counsel.
- I determined to hear the application, intimating that I would order that orders made on the application be served on the second defendant and that any application by the second defendant to set aside the orders be made within a certain time. I ordered that Wide Bay Australia Limited be joined as third defendant.
- The amount of commission claimed by the real estate agent retained by the first defendant is $14,900.
- The first defendant does not make any claim against the sale proceeds on account of legal fees.[12]
- There are outstanding rates, body corporate levies and land tax in relation to the properties as follows –
Unit 301 Unit 216
Rates$ 11,558.97$ 5,933.88
Body corporate levies$ 39,521.84$25,066.00
Land$ 6,427.22 $ 5,346.83
$57,508.03$36,346.71
As Mr Fabian observed during oral submissions[13] a substantial part of the body corporate levies relates to the period before the first defendant took the second mortgage.[14]
- As at 10 October 2008, $517,228.49 was secured by the mortgage to the third defendant. Interest is accruing at the rate of $4,004.62 per month, and the third defendant intends adding the costs of these applications to the mortgage debt.
- The third defendant has obtained valuations for the properties as at 18 September 2008 - unit 301 was valued at $470,000 (or $450,000 achievable on a forced sale) and unit 216 was valued at $200,000 (or $180,000 on a forced sale).
- There is evidence that Mr Ucchino, on behalf of the second defendant, has been collecting rents on both properties.[15] There is also a small amount of rent collected by the plaintiff at an early stage, as the second defendant’s letting agent, and held on trust.[16]
- The issue for determination is whether the agent's commission is payable out of the sale proceeds in priority to the amount secured by the first registered mortgage to the third defendant.
- Section 88(1) of the Property Law Act 1974 provides –
“88 Application of proceeds of sale
(1) Subject to this section, the money arising from sale, and which is in fact received by the mortgagee, shall be held by the mortgagee in trust to be applied by the mortgagee—
(a) firstly, in payment of all costs, charges and expenses properly incurred by the mortgagee as incident to the sale, or any attempted sale, or otherwise; and
(b) secondly, in discharge of the mortgage money, interest and costs, and other money (if any) due under the mortgage; and
(c) thirdly, in payment of any subsequent mortgages or encumbrances;
and the residue (if any) of the money so received shall be paid to the person entitled to receive or entitled to give receipts for the proceeds of sale of the mortgaged property.”
Unlike provisions in some other jurisdictions, it makes no express provision for the discharge of prior encumbrances.[17]
- Section 88(1) has been considered in cases concerned with priorities between mortgagees, including cases where those priorities have been affected by agreements between the mortgagees. In Australia and New Zealand Banking Group Ltd v Evans,[18] the defendants conducted a business in partnership with persons named Lathouras and Baker. The plaintiff lent money to the partners, for which the partners were jointly and severally liable. The partners gave the plaintiff mortgages over their house properties. Mr and Mrs Lathouras gave two mortgages over their property: a mortgage to the ANZ Savings Bank which was the first in time but the second to be registered, and a mortgage in favour of the plaintiff which was the second in time but the first registered. The plaintiff and the ANZ Savings Bank later agreed in writing that notwithstanding the sequence of registration, the ANZ Savings Bank mortgage should take priority over the plaintiff’s mortgage. The plaintiff sold the Lathouras’ land in exercise of its power of sale and applied the proceeds in satisfaction of the Lathouras’ debt to the ANZ Savings Bank in accordance with the priority agreement. The defendants defaulted in payments due under their mortgage to the plaintiff, and the plaintiff sued to recover possession of their land. The defendants contended that the proceeds of sale of the Lathouras’ land should have been applied consistently with the priorities established by registration. De Jersey J rejected the defendants' contention. Referring to a decision of the South Australian Full Court on a cognate provision,[19] His Honour said –
“I agree with King C.J.’s description of the provision as one intended ‘to provide the machinery for giving effect to the priorities otherwise legally established’. I would read the reference to ‘the mortgage’ in s. 88(1)(b) as meaning the mortgage first in priority. The reference in (c) to ‘subsequent mortgages’ clearly assumes that the mortgage earlier referred to is the one with the dominant priority. I do not consider that the priority to which the section relates is the priority prima facie established by the order of registration, but the true priority, however lawfully achieved.”[20]
There was no discussion of the relative priorities between the moneys secured by the ANZ Savings Bank mortgage and the costs of sale by the other mortgagee.
- In Emerson & Anor v Custom Credit Corporation Limited[21] de Jersey J again expressed the opinion that s 88(1) is a machinery provision which gives effect to priorities otherwise established. See also re Burns Philp Trustee Co Ltd per Macrossan J.[22]
- Counsel for the plaintiff submitted -
“4.3Accordingly, it is submitted that pursuant to section 88(1)(a) of the PLA, PRD Realty are entitled to be paid the commission due and owing to them pursuant to their appointment as agents for the first respondent on or about 30 June 2006 prior to the payment of any monies in discharge of mortgages over the Units.
4.4 Had Wide Bay exercised its power of sale with respect to a default by the second respondent, it would have, in accordance with section 88(1)(a), had to pay the proper costs, charges, and expenses properly incurred as incident to the sale. Accordingly, Wide Bay should not be elevated to a position that it would not otherwise be entitled to merely due to the fact that the power of sale was exercised by a subsequent mortgagee.
4.5Further, there are strong policy reasons for ensuring the payment of an agent engaged to sell properties on behalf of mortgagee's (sic) in possession prior to any mortgagee, viz, if an agent has to enquire whether there will be sufficient funds available to pay their commission when a subsequent mortgagee is exercising its power of sale, it has the potential to lead to agents refusing to undertake to sell the property for fear of not being paid.”[23]
- Mr Fabian for the first defendant submitted that the agent is entitled to be paid for his efforts, and that his commission should be paid out of the sale proceeds in priority to the amount secured by the third defendant's mortgage.
- Counsel for the third defendant submitted –
- that the order made on 20 December 2007 that the purchase moneys be applied firstly to the discharge of his client's mortgage[24] was correct in principle, and should be adhered to;
- that the first defendant as second mortgagee never had any power to sell or diminish the interest secured by his client's first mortgage;[25]
- that s 88(1)(a) of the Property Law Act is merely a machinery provision, which does not have the effect of placing the second mortgage and costs incidental to it ahead of the first mortgage;[26] and
- that the public policy argument advanced by counsel for the plaintiff is fallacious, because if the second mortgagee's sale expenses were to be given priority over the amount secured by the first mortgage that would debase the value of a first mortgage security and make banks unwilling to lend.[27]
- I respectfully adopt the thrust of counsel for the third defendant's submissions.
- In oral submissions counsel for the plaintiff relied on this sentence in the passage I have quoted from the judgment of de Jersey J in Australian and New Zealand Banking Group Ltd v Evans –
“I would read the reference to 'the mortgagee' in s 88(1)(b) as meaning the mortgage first in priority”[28]
as supporting his argument. But when read in the context of the whole paragraph and the rest of the judgment, it does not advance his case. As I have sought to explain, His Honour was considering the effect of an agreement between mortgagees altering the priority otherwise established by the sequence of registration, and he was not considering the expenses of a sale effected by the mortgagee whose priority had been postponed by agreement between it and the other mortgagee.
- The primary responsibility for the payment of the agent's commission rests with the first defendant who retained him. The sale proceeds should be applied first in discharge of the moneys secured by the mortgage to the third defendant, and then in reimbursing the first defendant the amount of commission it pays to the agent.
- Outstanding rates, body corporate levies and land tax are not accorded any priority by s 88(1) of the Property Law Act. The contracts of sale provide for adjustment of the sale prices on account of such outgoings. In this case the adjustments will be against the first defendant as vendor. While I appreciate Mr Fabian’s point that it is unfair that the first defendant should have to meet body corporate dues referrable to a time before the first defendant became involved with the properties, I cannot allow that perception of unfairness to influence my decision on the meaning of s 88(1). The first defendant may pursue the second defendant for recovery of amounts expended on this account.
- The third defendant has put forward draft orders in effect providing a timetable for the sequential settlement of the contracts. I do not think it would be appropriate for me to make such orders, unless by agreement of all the parties, including the second defendant.
- I will hear the parties on the form of the orders and on costs.
Orders
- Having heard the parties, I make the following orders:
- That upon settlement of the contracts between the plaintiff and the first defendant for the sale of Units 216 and 301, The Sands, 40 The Esplanade, Surfers Paradise (‘the Units’), the monies arising from the said sales and in fact received by the first defendant (as mortgagee in possession) are to be held on trust by the first defendant and applied by the first defendant as follows:
- Firstly, in discharge of the mortgage money, interest and costs due and owing pursuant to the first registered mortgage held by Wide Bay Australia Ltd over the Units (Mortgage No. 708057759);
- Secondly, in payment of the commission due to PRD Realty, Surfers Paradise, with respect to the sale of the Units by the first defendant to the plaintiff;
- Thirdly, in discharge of the mortgage money, interest and costs due and owing pursuant to the second registered mortgage held by Moneycorp Securities Pty Ltd over the Units (Mortgage No. 709482826).
- That there be no order as to costs.
- That this order be served by the plaintiff on the second defendant by way of facsimile to its solicitors, HW Litigation, and by posting a copy by ordinary post to its registered office.
- That the operation of Order 1 be stayed until 10 business days from service of the second defendant.
- That any Application by the second defendant for these orders to be vacated or varied be made within that period of 10 days and upon 2 business days notice to the plaintiff, and the first and third defendants.
Footnotes
[1] [2007] QSC 389.
[2] Rockett v Moneycorp Securities P/L & Anor [2007] QSC 389.
[3] Transcript of the trial, p 75; exhibits 22, 26 (at pp 293-295, 514-530 of the trial bundle).
[4] Exhibit 64 (at p 513 of the trial bundle).
[5] Second defendant’s written submissions, [12], [20]-[33].
[6] Land Title Act, s 81(3).
[7] Forsyth v Blundell (1973) 129 CLR 477, 499; McKean v Maloney [1988] 1 Qd R 628, 636.
[8] R v Registrar of Titles; ex parte Watson [1952] VLR 470, 476-477; Baypoint Pty Ltd v Baker (1994) 6 BPR 13,687; Chia v Rennie (1997) 8 BPR 15,601.
[9] Property Law Act 1974, s 86.
[10] cf Forsyth v Blundell (1973) 129 CLR 477.
[11] Exhibit 1: Letter from H W Litigation to Ffrench Commercial Lawyers dated 9 October 2008.
[12] Transcript of Proceedings on 13 October 2008, pp 1.16 and 1.27 per Mr G Fabian.
[13] Transcript of Proceedings on 13 October 2008, p 1.14 per Mr G Fabian.
[14] The second mortgage was executed on 26 March 2006: Rockett v Moneycorp Securities P/L & Anor [2007] QSC 389 at [5].
[15] Affidavit of Andrew Scott Frieberg filed 10 October 2008, para 13, document no. 63 on court file.
[16] Transcript of Proceedings on 13 October 2008, p 1.12; Rockett v Moneycorp Securities P/L & Anor [2007] QSC 389, [4] and [57]-[58].
[17] Conveyancing Act 1919 (NSW), s 112; Property Law Act 1958 (VIC), s 105; Law of Property Act 1936 (SA), s 50; Conveyancing and Law of Property Act 1884 (TAS), s 23; Property Law Act 1969 (WA); Edward Irving Sykes, The Law of securities an account of the law pertaining to securities over real and personal property under the laws of the Australian jurisdictions (LawBook Co, 5th ed, 1993), p 126; W D Duncan & R J Vann, Property law and practice in Queensland : being a commentary of the Property Law Act 1974 (LawBook Co, looseleaf), [7.2620].
[18] [1992] 2 QdR 230.
[19] Mercantile Credits Ltd v Australia and New Zealand Banking Group Ltd (1988) 48 SASR 407 at 410.
[20] [1992] 2 QdR 230 at 233.
[21] (1991) Q Conv R [54-414].
[22] [1986] O.S. No. 968 of 1985 (Unreported, Macrossan J, 17 Dec 1986), p 11.
[23] Applicant’s Submissions for hearing on 13 October 2008, p 3.
[24] Refer to Order no. 4 in paragraph [1] herein.
[25] Transcript of Proceedings on 13 October 2008, pp 1.19 – 1.20.
[26] Transcript of Proceedings on 13 October 2008, pp 1.21.
[27] Transcript of Proceedings on 13 October 2008, pp 1.21 – 1.22.
[28] [1992] 2 QdR 230 at 233.