New South Wales Supreme Court CITATION : Owners Corporation SP22669 v Middleton [1999] NSWSC 748 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : 2864/99 HEARING DATE(S) : 13/07/99 JUDGMENT DATE : 13 July 1999 PARTIES : Owners Corporation - Strata Plan 22669 (P) Sydney Middleton and Michael John Middleton (D) JUDGMENT OF : Young J COUNSEL : M Bradford (P) M K Rollinson (D) SOLICITORS : Alex Ilkin & Co (P) Messrs Brock Partners (D) CATCHWORDS : Equity [341]- Injunctions- Mareva type- Creditors' bill- Difficulty in obtaining execution at law- Equitable remedy available. Procedure [521]- Execution- Equitable remedies available to assist execution creditor ACTS CITED : (NSW) Strata Schemes Management Act 1996 s 78(3) Balch v Wastall (1781) 1 P Wms 445; 24 ER 465 Balfour Williamson (Aust) Pty Ltd v Douter Luigne [1979] 2 NSWLR 884 Bennet v Musgrove (1750) 2 Ves Sen 51; 28 ER 34 Cardile v LED Builders Pty Ltd (1999) 162 ALR 294 Faith Panton Property Plan Ltd v Hodgetts [1981] 1 WLR 927 CASES CITED : Grupo Mexicano De Desarrollo SA v Alliance Bond Fund Inc (US (SC), 17 June 1999, unreported) Jet West Ltd v Haddican [1992] 1 WLR 487 Mareva Compania Naviera SA v International Bulk Carriers SA [1980] 1 All ER 213 Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 Pelechowski v Registrar Court of Appeal (1999) 162 ALR 336 Wiggins v Armstrong (1816) 2 Johnson's Chancery 144 Yambuta v Tay (No 2) (1995) 16 WAR 262 DECISION : See para 34 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG, J TUESDAY 13 JULY 1999 2864/99 - OWNERS CORPORATION STRATA PLAN 22669 V SYDNEY MIDDLETON & ANOR JUDGMENT 1 HIS HONOUR: The plaintiff is the Owners Corporation of a building at 39 Bundarra Road, Bellevue Hill. The defendants are the registered proprietors of lot 5 in the relevant strata plan. The defendants and the plaintiff have for some time been in dispute over the payment of levies and other matters and there has been considerable litigation between them. 2 The plaintiff has two judgments against the defendants obtained from the Local Court at Kogarah, together with interest and fees. The material before me at the moment indicates that the plaintiff would be entitled to issue writs of execution in respect of the judgment in case 643/96 in the sum of $49,585.57 and in matter 259/97 $35,314.92. 3 It came to the plaintiff's attention that the defendants were selling their unit. The information came to the plaintiff indirectly and the details as to the transaction only became known to the plaintiff's camp little by little. However, it is now clear that the defendants entered into a contract in the 1992 edition of the Law Society standard form to sell the unit for $625,000. No agent was involved in the deal. I am told from the Bar table that a notice to complete has been issued for next Wednesday 21 July 1999. 4 The first defendant, Sydney Middleton, who describes himself as a pensioner, made an affidavit in which he annexed as annexure B "a copy of conditions 12, 13, 14, 15 and 16". 5 Today when counsel for the plaintiff called for the contract a contract was produced in which there was an additional handwritten clause on the same piece of paper. The position of the crossing out of cl 14 shows that it is the same piece of paper, but the absence of the computer identification "P.\Suzanna\.\conditio" shows that someone, in order to make the photostat which is annexure B to Sydney Middleton's affidavit, has made sure that the bottom of the page was masked out. This suggests that special condition 17 was in the contract from at least 8 July 1999. 6 It is not clear, however, when it was written into the contract, though most of it is in the same rather strange coloured ink as used for the insertion of the purchaser's name, though there are additions in a lighter blue pen. 7 The effect of special condition 17 is that "notwithstanding clause 16", a meaningless reference, the balance of purchase money is to be paid as to $400,000 on completion and the balance is to be secured by an unregistered second mortgage protected by caveat to be repaid on the first anniversary of the completion date. The fact that it is to be a second mortgage suggests that the purchaser is getting finance and the financier will have a first mortgage. The fact that it is to be unregistered suggests that the first mortgage does not permit a second mortgage without consent, which is not going to be sought. 8 The plaintiff commenced these proceedings on 23 June 1999 seeking virtually Mareva orders. The summons was amended on 30 June. The summons, as amended, sought a further order restraining the defendants from mortgaging, charging or otherwise encumbering the unit. 9 On 29 June the plaintiff applied to the clerk of the Local Court at Kogarah to issue writs of execution. That application was refused on the basis that an appeal by way of case stated was on foot in this Court and a recognizance had been lodged and the clerk treated that as a stay of execution. It has been conceded before me that that was quite wrong. 10 The effect, however, of what the clerk did was that no writ could be registered on the title. 11 Mr Rollinson of counsel for the defendants said that that really did not matter very much because in the first instance the writ would have to have been executed as against the personalty of the debtor and not against the realty. That may be so, but it is more likely than not on the evidence before me that apart from furniture in the unit, at least, the first defendant would not have the personalty to satisfy that large amount of money. 12 On return of the summons before this Court the first defendant gave various undertakings. These were accepted by Bergin J on 25 June. The undertakings included an undertaking that Sydney Middleton would not sell the unit or complete any sale or dispose of his interest in the unit without giving ten days' notice in writing and that he would pay out of the proceeds of sale some $28,000, plus interest, which is the subject of a bankruptcy notice, and the further $54,216.58 plus interest. There were no such undertaking by Michael John Middleton who is Sydney Middleton's son and the second defendant. 13 Today the application of the plaintiff for Mareva relief or security was vigorously resisted by the defendants. 14 Mr Rollinson said that under s 78(3) of the Strata Schemes Management Act 1996 the purchaser would become jointly and severally liable for any debt owing in respect of a proper levy, so that even if the unit was sold the plaintiff would have good security and, indeed, better security because somebody else would also have a liability to the plaintiff. Mr Rollinson also said that there were various other ways in which the plaintiff could get execution of the judgments, and that there was no equity at all to entitle the plaintiff to any Mareva relief and particularly to the relief sought that there be no further encumbrance. He said that it was against the well-known rule of the law that creditors are not able to prevent alleged debtors from dealing with their property as they deem fit. 15 On the other hand, Mr Bradford for the plaintiff put that this Court and others of like jurisdiction have intervened on proper occasions to make sure that people are not able to evade their judgment debts and that in appropriate cases the court will intervene by Mareva orders or otherwise. 16 In the present case there are both judgment debts from the Local Court at Kogarah and there are also claims which have not come to judgment. The plaintiff did not know before today (though why it is not clear) that there is in fact a registered mortgage over lot 5 to Suncorp-Metway Limited. The only significance of that mortgage is that it is not an inter-family transaction. The mortgage is stamped on the basis that it is collateral for some other instrument, which has not yet been produced, and is stamped for a security up to $216,440. Although I formally excluded the evidence it would seem that the defendants are alleging that some $330,000 is owing under that security. 17 Courts of Equity have been able to interfere at the suit of creditors for a long period of time. The original jurisdiction was by creditors' bill. Pomeroy's Equity Jurisprudence 5th ed (Bancroft-Whitney Co, 1941, San Francisco) vol 4 pp 1065 and following says that: "The jurisdiction of Equity to entertain suits in aid of creditors undoubtedly had its origin in the narrowness of the common-law remedies by writs of execution." 18 The history of creditors' bills up until 1816 is given in the decision of the Chancery Court in New York in Wiggins v Armstrong (1816) 2 Johnson's Chancery 144, where the notes set out most of the references to that time. 19 Chancellor Kent said in his judgment, referring to various English decisions, that a creditor at large, that is a creditor who had not got a judgment, was not given relief, but where the creditor had completed his title at law Equity would intervene and Equity would also intervene where the creditor had done the best he could to perfect his title at law. He said at pp 145-6: "The reason of the rule seems to be that until the creditor has established his title, he has no right to interfere, and it would lead to an unnecessary and, perhaps, a fruitless and oppressive interruption of the exercise of the debtor's rights. Unless he has a certain claim upon the debtor he has no concern with his frauds." 20 The main cases referred to are first an unreported decision of Lord Nottingham, which is cited in argument before Parker LC in Balch v Wastall (1781) 1 P Wms 445; 24 ER 465, where under the maxim frustra fit per plura, quod fieri potest per pauciora, if one has a judgment, and has lodged a fieri facias in the sheriff's hands, to which a nulla bona was returned, the creditor could bring a bill in Equity against the defendant to discover any of the goods or personal estate of the defendant and that was Equity making sure that the creditor was not frustrated by the technicality of the Common Law. However, Parker LC in Balch's case refused to deal with a case where the defendant had in fact been outlawed. 21 The same sort of case occurred before Lord Hardwicke in Bennet v Musgrove (1750) 2 Ves Sen 51; 28 ER 34, where the creditor proceeded in Chancery after choosing to execute for his judgment debt against the debtor's land by writ of elegit. 22 These cases came to light recently in the seminal decision of the Supreme Court of the United States in Grupo Mexicano De Desarrollo SA v Alliance Bond Fund Inc 17 June 1999 as yet unreported. 23 The history of creditors' bills was dealt with in the majority opinion at p 10 and the decision in Wiggins v Armstrong was affirmed by the Supreme Court of the United States. The minority view given by Ginsburg J linked the subsequent developments by way of Mareva with the principles of the jurisdiction that were exercised by the Chancellor in 1789 (the date of the separation of America from England). The majority said that there was no right to Mareva relief in a Federal Court in 1789 because debtors' bills only lay where there was a judgment debt. 24 A creditors' bill then lay where there was a judgment debt and where the creditor required the assistance of Equity in view of the inadequacies of execution at Common Law. A creditor could obtain under a creditors' bill, discovery as to what the defendant's assets were, so that he could get an idea as to what property could be the subject of execution. A creditor could get execution over equitable property which could not be the subject of an execution at law. Also a creditor could get relief where the debtor had been involved in fraudulent conveyances which might affect the creditor's right to execute. Some of those matters are now covered directly by the Supreme Court Rules, such as examination of judgment debtors, but the balance of the jurisdiction is still there, though in reserve. 25 When Mareva orders were formulated in about 1975, they were built on to the existing structure of a bill in Equity. One of the first cases in which a Mareva order was sought after judgment is Faith Panton Property Plan Ltd v Hodgetts [1981] 1 WLR 927, where at p 933 Waller LJ said there was no need to apply the decision in Mareva Compania Naviera SA v International Bulk Carriers SA [1980] 1 All ER 213 because the ordinary jurisdiction of the court was sufficiently wide to protect the creditor. 26 In Balfour Williamson (Australia) Pty Ltd v Douter Luigne [1979] 2 NSWLR 884, Sheppard J had no doubt that this Court had jurisdiction to make an order in the nature of Mareva after judgment had been obtained. The Supreme Court of Western Australia took the same view in State Bank of Victoria v Parry [1989] WAR 240, 254-5, and again in Yamabuta v Tay (No 2) (1995) 16 WAR 262; see also Jet West Ltd v Haddican [1992] 1 WLR 487. 27 The High Court has recently considered the application of Mareva orders both after judgment Pelechowski v Registrar Court of Appeal (1999) 162 ALR 336, and generally Cardile v LED Builders Pty Ltd (1999) 162 ALR 294. In the Pelechowski case at p 348 para 52 the High Court was quite clear that the District Court could in very limited circumstances make an asset preservation order for a limited period, though it said it had no jurisdiction generally to do so. In the LED Builders case at p 311 (paras 52-53) the High Court emphasised that this sort of order really is ancillary and care must be taken to make sure both that third parties are not prejudiced and also that appropriate ancillary orders are made to ensure that a plaintiff getting this sort of order does not just rest on its laurels, but moves for its primary relief. The court also indicated that it was good practice to make sure that a Mareva order was limited so that third party transactions, particularly with banks and commercial financiers were not unduly affected by the order, and that it was prudent usually to add a paragraph dealing with such protection, other than the protection of transactions by the defendants or members of their family or relatives. 28 The Court of Appeal in the leading case on Mareva relief in this State Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 made it clear that Mareva orders were flexible and that they were to be available in a wide range of cases to prevent people from abusing the processes of the court. 29 The High Court in LED Builders p 310 para 50 said: "There is a temptation to use the term 'flexible' to cloak a lack of analytical rigour and to escape the need to find a doctrinal and principled basis for orders that are made." 30 However, in the instant case there is history over two hundred years supporting the basic proposition of the plaintiff, that it is an entity with a judgment debt and other claims, and that prima facie on the evidence the first defendant has been making some endeavours to use the processes of appeal, preventing service by locking himself inside his secure unit, by the handwritten cl 17, and otherwise, to see that the ordinary processes do not reach him. That is the very type of case where Equity does intervene. 31 However, Equity only intervenes up until the time that the regular processes are able to be put in train. 32 It is foreshadowed that the sale of unit 5 will take place on Wednesday of next week, if that is when it does take place. It may be that, on settlement, there will be sufficient moneys to pay the plaintiff's debts. On the other hand, there is some danger that that might not happen, and there is also some danger that even between now and the 21st something else may occur. 33 It will be necessary, if the settlement moneys do not produce what is needed, for the plaintiff to reactivate its application in the Kogarah Local Court, which in view of these reasons for judgment might well next time be successful. The plaintiff may then, as Mr Rollinson suggests it should, execute against the personalty, and failing that the realty of the debtor, but the plaintiff should not be put in a situation that all these time consuming exercises have to take place whilst the defendants can do what they like. 34 Accordingly, in my view, the proper order is that the court records that the plaintiff is entitled to a lien over the property 5/SP22669 to secure a sum of up to $166,700, and the court will review that order and consider any other application that the creditor has, such as for discovery, next Tuesday 20 July 1999. That order may be taken out forthwith and may be registered. 35 Subject to the defendants supplying to the plaintiff a photocopy, Ex PX01 can be released to the defendants. That copy of exhibit is to be made available within 24 hours. 36 The proceedings are adjourned to my list at 9.50 am on 20 July 1999. o0o Last Modified: 07/26/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.