New South Wales Supreme Court CITATION : Miro v Fu Pty Limited [2003] NSWSC 1009 HEARING DATE(S) : 25 and 26 September 2003 JUDGMENT DATE : 26 September 2003 JURISDICTION: 4882/03 JUDGMENT OF : Windeyer J at 1 DECISION : Summons dismissed CATCHWORDS : REAL PROPERTY - caveats - whether caveator fourth mortgagee bound to consent to refinancing of mortgages taking priority when total amounts secured in priority are probably increased - SOLICITORS - contracts for sale of land - clauses with conflicting purchase prices - no consideration for reduction in price - duty of solicitors not to mislead Laurence Raymond Miro (First Plaintiff) PARTIES : Greenwood Management Pty Limited (Second Plaintiff) Fu Pty Limited (Defendant) FILE NUMBER(S) : SC 4882 of 2003 COUNSEL : Mr M Broun QC with him Mr Loxton (Plaintiffs) Mr DE Grieve QC (Defendant) SOLICITORS : L R Miro & Co (Plaintiffs) Miltons (Defendant) - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J FRIDAY 26 SEPTEMBER 2003 4882/03 L R MIRO & ORS V FU PTY LTD JUDGMENT 1 HIS HONOUR: By summons filed on 18 September 2003 the plaintiff seeks: (1) a declaration that a trust called the Deemain Family Trust does not exist; (2) in the alternative a declaration that if it does exist the defendant Fu Pty Ltd is not a trustee of the trust; (3) a declaration that the defendant has no caveatable interest in the land described in the schedule, and (4) an order that a caveat 9952746 affecting that land, lodged by the defendant be removed. 2 It is now acknowledged by the plaintiff that the trust exists, that Fu Pty Ltd is trustee of the trust and as trustee is entitled to a fourth mortgage over the land in question. It is also acknowledged that in those circumstances it has a caveatable interest in the property. As it has a caveatable interest to secure the amount due under the fourth mortgage, namely, $550,000, it is difficult to see any basis upon which the order for removal would be made unless some other security of an appropriate kind were offered, which it has not been. 3 These findings are really all that is necessary to dispose of the matter so far as the relief claimed is concerned. But what is really wanted is that the defendant consent to a new mortgage being put in place as a first mortgage and the existing first mortgage to Suncorp Metway Limited, which is in default, be discharged. 4 The previous trustee of the Deemain Family Trust was a company which is now in liquidation. Its liquidator was prepared to withdraw the caveat so as to allow the discharge and registration of a new first mortgage and, then, as liquidator, he would have entered a new caveat against the relevant titles. The defendant as new trustee is not prepared to take the same course. The only question is whether or not it is bound to do so. While this is rather removed from the relief sought, this was the argued claim and, therefore, I proceed to deal with it. 5 The plaintiffs and Deemain Development Pty Ltd were involved in a joint venture to develop and sell land at Gosford; that land is now subdivided into 17 strata lots. There was some dispute between the venturers and an agreement was reached and put in writing under which Deemain would quit the joint venture on payment of $850,000. That agreement is dated 17 June 2003. Of the sum of $850,000, $300,000 was to be paid, and was paid, on 17 June 2003. The balance of $550,000 was to be paid on 31 January 2004. This amount was to be secured by fourth mortgage on the land, namely, the 17 lots. The agreement provided for registration of the fourth mortgage, but that has not been effected and the caveat was lodged to protect the mortgage interest. The mortgage interest is not in dispute. 6 On 17 June 2003 there were three mortgages on the land. The first was to Suncorp Metway Corporation, the second to Mr Grace, who is connected with the second plaintiff, and the third was to Mr Renjan Keteri. There was a prior first mortgage to Deemain which was discharged pursuant to the settlement agreement. 7 There are some clauses in the settlement agreement which are relevant to this decision. Clause 3.2 made the provision for the mortgage and Clause 3.2 provided for the proceeds of sale of units to the applied towards repayment of the $550,000 after all current existing secured and unsecured mortgages had been paid out. 8 Clause 4.2 is as follows:- Greenwood and Laurence Miro covenant and agree that the existing registered and unregistered mortgages over the land will not exceed the sum of $7,500,000 which sum does not include the balance. The balance meant the $550,000. 9 Clause 5.1 provided that at the time of delivery of the deed, Deemain Developments "will enter into a deed of priority with existing registered and unregistered mortgagees which will place Deemain as fourth mortgagee over the land." 10 Clause 6.1 provided that upon delivery of the deed: Deemain Developments and Mr Deemain jointly and severally (d) will assist with the settlement of the take out finance with Howard Finance and (e) generally cooperate with Greenwood and Laurence Miro, in relation to the completion of the joint venture business." 11 Clause 10.2(a) provided that the plaintiffs agreed not to accept an offer to purchase a unit more than 15 per cent below the prices set out in schedule A to the agreement without their prior consent of Deemain Developments. The deed had a schedule setting out what could be described as list prices, 15 per cent discount prices, and the amounts at which three units had been pre-sold or were said to have been pre-sold. 12 On 18 July 2002 Mr Deemain as appointor appointed a new trustee to the trust. That trustee resigned on 27 August 2003 and Mr Deemain appointed the present defendant as new trustee. 13 An order was made for the winding up of Deemain Developments Pty Ltd on 8 September 2003. Mr Hancock is the liquidator. Three of the units, being those described as pre-sold, have been sold. These are lots 3, 4, and 6. 14 The schedule price for Lot 3 was $400,000. The price for Lot 3 stated on the front page of the contract $450,000. Special condition 29 of the contract for sale provides as follows: The parties hereto agree that: (1) no deposit is payable herein, and (2) on settlement, the vendor will allow the purchaser a rebate of $100,000 off the sale price so that the balance moneys payable on settlement is $350,000. 15 I have said before and say again that this type of clause is quite improper. It can be inserted for no purpose other than to mislead persons such as lending authorities and purchasers of other units in that development. In my view it is likely that solicitors who purposely prepare contracts with contradictory clauses such as this may be guilty of professional misconduct. It is more serious when the solicitor is a party to the contract as vendor. Unreal stated consideration for reduction, although that is not the case here, does not improve the position. Instructions of clients cannot excuse such conduct. 16 The contract price for Lot 4 is $349,000. The schedule price is $450,000. This is said to be explained by making an allowance for an amount due to the purchaser who is or was the builder for the development. If that is so, the contract gives a false figure and is a fraud on the Chief Commissioner for Stamp Duties. The contract price for Lot 6 stated on the front page of the contract is $340,000 subject to some adjustments, which is proper to say are at least identified on that front page. Nevertheless while the contract on the front page provides for a deposit of $33,170 the special conditions appear to provide that the deposit was not to be paid. The contract price when one takes into account the extraordinary provisions of special conditions 32 and 33 ends up as being $276,830. People who enter into these contracts are asking for the problems that are sure to befall them when disputes arise. 17 The result of all of this is as follows: At the present time the amounts due under the three mortgages in front of the defendant's fourth mortgage are as follows: First mortgage $3,812,643; second mortgage combined figures $2,434,000, and the third mortgage $500,000. Total $6,746,643. If replaced with the Howard Mortgage Trust First Mortgage, which is proposed to be put in place of the Suncorp Metway Mortgage which is in default, the position on the evidence will be as follows: First mortgage $4,280,000; second mortgage $1,390,000, third mortgage $500,000. Total $6,170,000. 18 On its face, that would appear to be beneficial to the defendant. But it is not because the security after this refinancing will be over 14 units not 17, so that if a general average figure is spread across the units, fourteen seventeenths of the present mortgage would be $5,556,058. On that basis, the amount secured in priority to the defendant will be increased by $613,942. In other words, while the second mortgage figure will be decreased, the first mortgage will be increased. On that basis it is not suggested that the whole of the purchase prices are necessarily going towards discharge of the mortgages, albeit that the total amount of the purchase prices are relatively close to the amount by which the second mortgage will be reduced. 19 Senior counsel for the plaintiff argued that there was an agreement between the plaintiffs and the then trustee by which the new trustee would be bound to cooperate in the refinancing and, as I understood it, some implied term that it would consent to any mortgages being put in front of it as long as the amounts secured did not exceed the sum of $7,500,000. There is no such agreement and there could be no such implied term. 20 It was the responsibility of the parties to cooperate to complete the joint venture business. It was an obligation of the defendant under Clause 6.1(d) to assist with the settlement of the take out finance with Howard Finance, although, that seems to be the only place at which Howard Finance is mentioned in the agreement. Nevertheless, one can assume that the proposed refinancing was known and the parties were proceeding towards that. 21 The fact is that there was no obligation on the defendant as fourth mortgagee to agree to increases in the amounts secured in front of it and the effect of what is now proposed is that would happen. I am not to be thought as saying that the stance taken by the fourth defendant is necessarily a proper one, but, as the parties are obviously quite unable to come to any agreement, they are entitled to have the matter determined in accordance with the strict legal rights. As I have said, the court could not make an order for removal of the caveat, upon the basis argued, namely, that there should be an order for removal to allow the refinancing with a new caveat put back in place. That is an order to which the plaintiffs are not entitled, albeit that the result may be that the first mortgagee will appoint a receiver. 22 The final matter with which I must deal is the argument of Mr Broun QC that the liquidator of Deemain Developments was prepared to consent to the removal of the caveat to allow the new financial arrangements proposed to be put in place ahead of what was then the trust asset of which the company in liquidation was trustee and of which the defendant is now trustee. That in itself has no real bearing on the matter, as this is a trust asset not an asset available to the general creditors of the company. However, it was argued that the liquidator had a right of indemnity out of the assets of the trust and a lien over those assets to protect him for his own expenses incurred with the trading trust. First, there is no claim for any such indemnity by the liquidator or for any such lien. Secondly, the matters upon which the decisions to which I was referred were based have no relevance whatsoever to the facts in contention in these proceedings. 23 Application has been made that the costs be paid on an indemnity basis. In my view that order should not be made. Where the original relief was sought, at least the first three paragraphs were doomed to fail. The matter always proceeded so far as any hearing or mention before me was concerned on the arguments which I have dealt with in my judgment. It would be impossible to say it was an abuse of process to bring forward those arguments. The defendant has done everything possible to put difficulties in the way of the reasonable settlement of the sales taking place. On no basis is the defendant entitled to indemnity costs. The order is the plaintiff to pay the defendant's costs. ********** Last Modified: 11/06/2003 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.