CHAU v CHRISTIAN [1999] NSWSC 4

New South Wales Supreme Court CITATION : CHAU v CHRISTIAN [1999] NSWSC 4 CURRENT JURISDICTION : EQUITY DIVISION FILE NUMBER(S) : 2612/97 HEARING DATE(S) : 7 January 1999 JUDGMENT DATE : 8 January 1999

PARTIES : TONY MUN CHAU v KEVIN LAWRENCE CHRISTIAN & ANOR JUDGMENT OF : Bryson J at 1

PLAINTIFF: NO APPEARANCE COUNSEL : FIRST DEFENDANT: MR T S MURPHY SECOND DEFENDANT: MR A KOUMOUKELIS SOLICITOR PLAINTIFF: NO APPEARANCE SOLICITORS : FIRST DEFENDANT: MESSRS STEWART LEVITT & COMPANY SECOND DEFENDANT: CASULA AND KELSO CATCHWORDS : FAMILY LAW; De Facto Relationships; procedural directions for sum to be set aside for payment of F's costs out of proceeds of sale of co-owned house; no important question of legal principle ACTS CITED : De Facto Relationships Act 1984 s20 Conveyancing Act 1919 s66G DECISION : SEE PARAGRAPH 27

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BRYSON J

FRIDAY 8 JANUARY 1999

2612/97 TONY MUN CHAU v KEVIN LAWRENCE CHRISTIAN AND ANOR

JUDGMENT

1 HIS HONOUR : The second defendant applied by Notice of Motion of 6 January 1999 for an order to the effect that an amount of $62,156.59 be held in a solicitor's trust account out of the proceeds of the impending completion of the sale of the property the subject of these proceedings, so as to secure payment to the second defendant of her costs. 2 The order claimed in the Notice of Motion would be an order varying orders made on 21 October 1998. In my view, it is not necessary or appropriate that orders now made should take the form of a variation of earlier orders, or of the agreement on which the earlier orders were based. 3 The terms of settlement and orders of 21 October 1998 disposed of two lawsuits which related to interests in the house property co-owned by the defendants at 104 Young Street Annandale. Mr Chau, the plaintiff in proceedings 2612 of 1997, was also a party to the terms of settlement and orders and is not a party to the Notice of Motion, but I am satisfied that the orders sought would have no adverse impact on his interests. The terms of settlement provide for resolution of his claims against the first defendant and the property by payment under cl 2 of $147,500 to him, with supplementary provisions for payment of a share in the proceeds of sale to him if that sum were not paid by 18 January 1999. The terms of settlement and the orders make provisions about the payment to Mr Chau in cl 2 and, amongst other things, provide that on the payment being made to him his interest in the property will be extinguished and he is to withdraw a caveat. 4 The next provision in the terms of settlement in logical order, but not in numerical sequence, is cl 5 which provides for adjustment of property rights between the defendants under s 20 of the De Facto Relationships Act; sub cl 5 (i) ordered the first defendant to pay the second defendant $105,000 and sub cl (ii) ordered him to pay her costs of the De Facto Relationships Act proceedings 1518 of 1995 as agreed or assessed. Sub cl (iii) ordered that he pay her the sum of $105,000 by 18 January 1999; and if not paid the order with interest was to stand as a judgment and be paid by trustees for sale of the property. Upon payment the second defendant was to transfer her rights and interests in the property to the first defendant, withdraw her caveat and be discharged as co-mortgagor: see sub cl (iv). 5 Clause 3 provided what was to happen in the event that the sums of $147,500 and $105,000 were not paid: two trustees, who were named, would be appointed trustees for sale under s 66G of the Conveyancing Act. They were to sell the property and pay some nominated charges out of the net proceeds, pay 50 per cent of what was left to the plaintiff's solicitors and out of the balance they were to pay $105,000 to the second defendant and also to pay her costs of both proceedings. The first defendant was to receive the balance. 6 There were some supplementary and ancillary provisions in clauses 1, 4 and 6. 7 Overall, the workings of the agreement are such that if the first defendant in some way found resources to pay the two large sums to the plaintiff and the second defendant before 18 January, he was to receive the property discharged from their claims, but if he did not, the trustees would have to take the property, sell it and pay their claims, with the plaintiff's claim calculated on a slightly different basis. 8 As to costs, if the first defendant paid both the large sums and was to receive the title of the property, he was subject to orders to pay the second defendant's costs (by sub cl 2 (c) for one case and sub cl 5 (ii) for the other.) If he proceeded in that way, there was no provision for the second defendant to have security in respect of her costs. She was to be entitled to the ordinary remedies to enforce the costs orders, but that was to happen in the context that the first defendant became the owner of the house property. If he did not find the resources to make those payments, what was contemplated was sale by trustees and resolution by them, amongst other things, of the second defendant's entitlements to a large payment and to her costs. 9 What the parties are proceeding to do is something not expressly contemplated, or dealt with at all, in the terms of settlement. The parties as co-owners have entered into a contract to sell the property to a purchaser who is not otherwise involved in the controversy. The sale price is $600,000, the date of the contract was 3 December 1998 and the contractual date for completion is 15 January 1999, time of the essence. The expectation of the parties is that the contract will be completed within that time. 10 The second defendant has served a bill of costs on the first defendant, but there had been no agreement as to the amount of the costs or as to their assessment. The figure of $62,156.59 for which the second defendant seeks protection is the total of those bills of costs for both proceedings. Of course, the amount which ultimately will become payable cannot be clearly known as there may well be moderations of the bills and there may be other variations, for example for interest or costs of assessment. 11 The first defendant's position on the Notice of Motion is that the second defendant has no entitlement to security for her costs in the events which are now unfolding, that is that the parties are joining together in selling the property and collecting the proceeds. The assumption on which the application has been made and debated is that both parties to the application expect that the sale will be settled by 15 January. If that does not happen for some reason, such as that the purchaser defaults, or I suppose I should add the vendors default, the arrangements presently under consideration will not have effect. Some other circumstances may arise and prevent completion on or before 15 January; the assumption is that all will go well. A quite different regime of rights will come up for consideration if the two large payments are not made (from whatever source) before 18 January. 12 Completion depends on the co-operation of the first defendant with the second defendant to bring about completion, but so far neither has taken any disruptive action of which evidence speaks. Completion cannot occur without further co-operation, for example, in attending on settlement, or in both authorizing some solicitor to do so on behalf of both, and also both giving authorization for any necessary act which must happen on settlement, such as handing over the Certificate of Title Transfer and other documents, authorizing payment to the discharging mortgagee and receiving and holding the proceeds. The second defendant has given some authorization for a payment to the plaintiff, but of course any other disposition of proceeds of sale such as applying them to make the two large payments contemplated by the terms of settlement cannot take place unless the two of them, as co-owners of the property and the proceeds arising from its sale, both join in giving authorization for the disposition. The proceeds will be co-owned like the property and cannot be dealt with by either party, or by any solicitor acting for either of them or for both of them, unless that solicitor has the authorization of both for that disposition, or has authorization conferred by an order of the court. To some extent the current proceedings appear to have been coloured by an assumption that on completion the proceeds are available for the first defendant to use to make the two large payments, but the facts must be addressed with advertence to the need for the authority of both for that or any other disposition of the proceeds. 13 By making this application, the second defendant has shown readiness to act constructively with a view to completion of the sale, avoidance of loss and avoidance of liability to damages for failure to complete. 14 The orders which are claimed would, in my understanding, be made in exercise of the court's powers to carry out and execute its order of 21 October 1998. In doing so the court should act directly and not adopt the form put forward of varying the orders of 21 October or anything which the parties then agreed. The court should give effect to whatever equitable interests exist in the property, including equitable charges, whether or not they are expressly created by the terms of settlement, or indeed created by the terms of settlement at all. Further, the court should see that its orders of 21 October 1998, including the costs orders, are carried out in a just and convenient manner, and this extends to seeing that costs orders are carried out just as much as to seeing that any other orders are carried out. The orders sought do not in my opinion involve reopening the issues in the proceedings or varying the previous orders. 15 I think it is obvious, and it was not disputed, that when and if cl 3 comes into effect with non-payment by 18 January of the two large sums, it creates a security interest or a charge in favour of the second defendant for her costs against the property and the proceeds of sale. In my view that must be so because of the detailed requirements which are to have effect as orders of the court for the manner in which the trustees are to pay out proceeds of sale including payment of the costs. When a court order together with the agreement of the parties requires conversion of real property into a fund and payment of the fund to a party there is an equitable interest or charge, a security interest in the property and the fund. 16 18 January has not yet arrived. A contractual provision such as cl 3 in my view brings with it an implied term that no party will deal with the property before 18 January in any way which would defeat the security or prevent it from then coming into existence. Clause 4 supplements this necessary implication and expresses it in part, by noting an undertaking by the first defendant that he will do various things including that he will refrain from encumbering the property without consent. 17 In my view a security interest already exists even though 18 January has not yet arrived. This is so notwithstanding that the mechanism created by cl 3 points to the security not being realized until a later date. The appointment of the trustees and the times at which they are to act are not essential elements of the equitable interest. They are not conditions limiting the circumstances in which the security exists, but they are machinery provisions stating the circumstances and time of its realization. If there are different trustees, or if the parties act as vendors and trustees themselves, or if they do so earlier than 18 January, the equitable interest pointed to in cl 3 would still exist. This is a close analogy with a mortgage debt which is not yet repayable, but is secured before there is any obligation to repay it. 18 In my view the security interest conferred on the second defendant with respect to her entitlement to costs and any other security interest conferred by cl 3 would extend to any property such as a fund of money into which the house property is converted, and would so extend before as well as after 18 January 1999. 19 In my view, cl 5 sub cl (iv) creates an opportunity for the first defendant to defeat this security in part. However, he can only defeat the security by acting under cl 5 (iv), that is by paying the second defendant $105,000 and then taking title, after which he could dispose of the property himself. On the facts there is no prospect that he will act under cl 5 by 18 January or that he will gain the advantage of defeasance of the security for costs. 20 (I note that he would have to do more than pay the second defendant $105,000 to defeat her security. He would also have to pay the plaintiff $147,500 under cl 2 before 18 January.) 21 What the first defendant proposes to do is to pay both the large sums out of the proceeds of the sale by the co-owners. This is not a course which is authorized or provided for by the terms of settlement; he has no authorization under the terms of settlement to deal with the property by selling it himself, or to require the second defendant to join in that course, or to dispose of the proceeds of sale. It was assumed by the first defendant and his solicitor before this application was made, and in advocacy on his behalf before me, that when the proceeds of sale become available with settlement the first defendant will be able to direct its disposition and retain the balance under his control, and that in some way he will be able to see to it that the second defendant has no share in control over the proceeds. There is no basis for this as the proceeds will be co-owned. 22 Even if the first defendant manages in some way to get an advance out of the proceeds with the second defendant's approval (or for that matter, even if he misappropriates the money or disposes of it without her authorization) and pays both the large sums before 18 January, there will be no exercise under cl 5 (iv) because the property will not be available to transfer to him; it will have gone to the purchaser. The assurance of a kind afforded by his owning the property that he will have local assets might conjecturally explain why the second defendant agreed that there would be no security for part of the costs if the property was transferred to him. His evidence about the financial resources available to him seemed to exclude the possibility that he would pay the large sums from any other source within the time available. 23 The repeated observations by his counsel to the effect that the terms of settlement do not provide for the second defendant to have security for costs if there was a sale by the parties were beside the point in my opinion. Neither party can point to any right expressly conferred by the terms of settlement in the case of a sale by the co-owners. The advantage of escaping from the security for costs which complying with cl 5 (iv) could confer on the first defendant if he paid both sums and took title cannot accrue to him in any other circumstances than if clause 5 (iv) is followed (and I interpose, if clause 2 is also followed). Those things are not going to happen. 24 The parts of orders which the second defendant puts forward which turn on varying earlier orders are superfluous. When viewed without the superfluous parts, the arrangement put forward appears to me to give effect to elementary justice and convenience in carrying out the court's order of 21 October and supervising the sale of the property which is the subject of the litigation. Even if there had been no security interest in the house property or its proceeds I find it difficult to suppose that the court will allow one of the former co-owners of the property in suit before it to leave the court's control with part of the proceeds but without complying with the court's orders as to costs, or with any other part of the court's orders. All the orders are made with contemplation of equal strength that they will be complied with, the costs orders no less than the orders which conferred benefits on the first defendant, his entitlement to receive the balance after sale or any other benefit. The second defendant's claim of justice to payment of her costs has the same strength as his claim to receive anything out of the sale. When the property in dispute is converted into money, it is elementary justice that the court should see that all obligations under its orders relating to the dispute are complied with and should not create the inconvenience of setting one party off on the road with funds and requiring the other to address means of enforcement after his departure. 25 The first defendant claimed that there were elements of inconvenience and defeat of expectations in his being required to allow the second defendant's claim to be secured. I do not see any reasonable basis on which it could be said that he had an expectation which ought to be protected that he would receive the balance of the proceeds of sale and have the proceeds at his disposal without meeting his obligations to comply with the orders for costs at the same time. If he had any such expectation it was not legitimately based and was not reasonably based on the terms of settlement, which simply say nothing whatever about the turn of events which has occurred. 26 I see no sign in his evidence of any serious financial difficulty being created by protecting the second defendant's rights, certainly not serious enough to justify neglecting the second's defendant rights. He can raise enough money to keep his bank at bay with respect to the security over his property at Mooloolaba, at least for the time being, and the other obligations to which he referred in evidence do not have any higher priority than the second defendant's claim for costs and do not have the same direct relationship with the Young Street Annandale property. 27 I make the following orders: 1. These orders have effect in the event that completion of sale by the first defendant and the second defendant of the property 104 Young Street Annandale takes place. 2. Order that in the event that the second defendant's costs referred to in order 2 (c) and order 5 (ii) (as agreed or assessed) are not paid at or before the date of completion of the contract for sale of the property at 104 Young Street Annandale then at completion of the sale an amount of $62,156.59 must be paid to the trust account of Casula and Kelso, Solicitors, Sydney, from the proceeds of sale, to be held by them on trust (a) for payment out to the second defendant of the costs due to her as agreed or assessed; and (b) for payment to the first defendant of the balance, if any. 3. Each party has liberty to apply on four hours' notice. 4. I order that the first defendant pay the second defendant's costs of the Notice of Motion. I should add that when I referred to the disruption that each party can bring about, I was certainly not encouraging such behaviour. I hereby certify that paragraphs 1-27 are the reasons for judgment of the Honourable Mr Justice John Bryson Dated 29 January 1999. (H D LEWIS) Associate