New South Wales Supreme Court CITATION : NSI Group Pty Ltd & Ors v Mokas & Anor [2006] NSWSC 976 HEARING DATE(S) : 5 September 2006 JUDGMENT DATE : 5 September 2006 JURISDICTION : Equity Division JUDGMENT OF : Palmer J EX TEMPORE JUDGMENT DATE : 09/05/2006 DECISION : Application refused. CATCHWORDS : INTERLOCUTORY PROCEEDINGS – INTERLOCUTORY DECLARATION – whether the Court can, or should, make an interlocutory declaration of right as to the construction of a contract. LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW) - Pt 25 r 25.3 NSI Group Pty Ltd – First Plaintiff Sarahton Pty Ltd – Second Plaintiff PARTIES : Nader & Ishak Holdings Pty Ltd – Third Plaintiff Petros Mokas – First Defendant Themistocles Mokas – Second Defendant FILE NUMBER(S) : SC 3426/06 COUNSEL : N.A. Cotman SC – Plaintiffs J.S. Whyte – Defendants SOLICITORS : Dibbs Abbott Stillman – Plaintiffs Solari Legal – Defendants 1 The Plaintiffs have sought and obtained leave to file in Court a Notice of Motion, returnable instanter, seeking certain interlocutory relief. The Defendants have appeared by Mr Whyte of Counsel to oppose the relief sought. The matter has been fully argued to a conclusion. 2 The application is to be understood against the following very brief background of fact, none of which is in dispute. 3 The Plaintiffs have commenced proceedings against the Defendants arising out of a transaction between them which I will describe in neutral terms as follows. The Plaintiffs allege that they entered into an agreement with the Defendants, who are the owners of certain land, whereunder they would build upon the Defendants' land a block of home units and that at the end of construction the Plaintiffs would be entitled to twelve of those units, to sell or dispose of as they wished, and the Defendants would be entitled to six of those units to sell or dispose of as they wished. The land has at all times remained in the name of the Defendants. The Plaintiffs have completed, or nearly completed, the construction of the building. 4 A dispute has arisen between the parties as to whether the Plaintiffs are entitled to the benefit of the twelve units which they claim. I need not go into the details of that dispute. Proceedings have been commenced and will, in due course, come on to trial in the Court. 5 On 5 July 2006 the parties agreed to a method of regulating their affairs pending determination of the proceedings. The situation then was that the Plaintiffs had entered into contracts for sale of three of the units to third parties. The Plaintiffs, of course, did not have title to those three units, title to the land reposing in the Defendants. 6 The Plaintiffs and the Defendants agreed that it would be for their mutual advantage for those sales to proceed and they be left then to fight over the proceeds of sale. To that end the parties drew up a document entitled "Interim Management Agreement". That document is dated 5 July 2006 and is signed by the solicitor for each of the Plaintiffs and the Defendants. 7 On 5 December, by consent, the Court noted, without admissions, the agreement of the parties as set out in the Interim Management Agreement and stood over a motion which had been filed returnable on that date to the date set for final hearing of the proceedings. 8 A dispute has now arisen between the parties as to the construction of the Interim Management Agreement. The dispute arises in this way: because title to the three units the subject of the contracts for sale is not in the Plaintiffs, the Plaintiffs are required to get in the title from the Defendants in order to complete those contracts. The Plaintiffs, therefore, have to deliver to the purchasers of the units on settlement stamped and executed transfers of the properties from the Defendants to the Plaintiffs. The issue which divides the parties is whether the Plaintiffs may, at least as an interim measure, have recourse to the fund established the Interim Management Agreement to pay the stamp duty on the transfers from the Defendants to the Plaintiffs. 9 The relevant terms of the Interim Management Agreement are as follows: "5. Proceeds of sale net of commissions and costs shall be deposited to a controlled monies account ("Controlled Monies Account") in the name of Solari Legal under the joint control of the plaintiffs' and defendants' solicitors on the court record from time to time. 6. Proper costs of the valuer and selling agents that are not deductions from proceeds of sale in ordinary conveyancing practice shall be paid from the Controlled Monies Account without prejudice to any final adjudication as to liability for the said sums. 7. The defendants undertake to sign a transfer and such other documents as may be reasonably required to effect completion of the 3 existing Contracts for Sale (Units 4, 16 and 17) as soon as is reasonably practicable. 8. Proceeds of sale net of any proper deductions shall be deposited into the Controlled Monies Account." 10 Mr Cotman SC, who appears for the Plaintiffs, says that on the proper construction of the Interim Management Agreement liability for payment of stamp duty should be borne by the controlled monies account established under clause 5 of the Agreement. He acknowledges that according to the ordinary incidence of stamp duty, the purchaser under a contract for sale is the party liable to pay stamp duty on the transfer, absent any agreement between the purchaser and the vendor to the contrary. 11 Mr Cotman submits that the payment of stamp duty on the transfers to the Plaintiffs for the purpose of enabling the Plaintiffs to on sell the properties and, thereby, realise the proceeds for sale for payment into the controlled monies account is an expense of establishment of the controlled monies account and should, therefore, be at least in the first instance for the account of the controlled monies account. In other words, he says, the stamp duty should be paid out of the proceeds of sale of the units received upon settlement and it should be only the balance of proceeds after deduction of stamp duty and other costs and expenses referred to which should be paid into the controlled monies account. 12 The relief which the Plaintiffs seek on an interlocutory basis by their Notice of Motion is as follows: "1. That pending the determination of the proceedings herein and without prejudice to the parties rights in the proceeds in relation to claims for the properties or proceeds of sale of any or all properties the subject of these orders, declare that the proceeds of sale subject to order 5 of the consent orders entered by Gzell J on 5 July 2006 is the gross proceeds net of stamp duty payable on the transfer of title from the defendants to the second and third plaintiffs necessary to permit completion of the contracts. 2. Alternatively an order that, pending the determination of the proceedings herein and without prejudice to the parties rights in the proceeds in relation to claims for the properties or proceeds of sale of any or all properties the subject of these orders, the existing contracts for sale of units in the subject property be completed upon terms as between the parties hereto that the proceeds of sale after deduction of costs of sale and costs of getting in the title sold, and in particular, stamp duties payable on the transfer of title to the vendors under the contracts, be dealt with pursuant to order 5 of the orders of Gzell J of 5 July 2006." 13 Mr Whyte of Counsel, who appears for the Defendants, says that the Court has no power to grant the relief sought. It will be seen that order 1 of the prayers for relief in the Notice of Motion seeks what is, in effect, an interim declaration of right as to the true construction of the Interim Management Agreement. 14 I do not think that the Court can, or should, make an interim declaration of right as to the true construction of a contract. The construction of a contract is something determined once and for all on a final hearing. No endeavour has been made to have the construction question determined today on a final hearing basis. Clearly, it would be inappropriate to do so because it is quite probable that on a final hearing as to the true construction of the Interim Management Agreement extrinsic evidence would be called in aid to give a context to what may otherwise be ambiguous terms. That extrinsic evidence may itself be the subject of dispute so as to require the Court to engage in a fact finding exercise. 15 Mr Cotman did not direct me to any authorities to the effect that the Court does have power to make an interim declaration of right as to the construction of a contract or whether, if it does have power, that power should, as a matter of discretion, be exercised for purely interlocutory purposes. 16 I cannot see any basis, as a matter of discretion, for entertaining a construction suit as an interim or interlocutory proceeding in this case. 17 I think that, in the end, Mr Cotman's submission came down to this. The Court has power to make orders for the preservation of assets the subject of dispute pending a final hearing. This is a case in which the Court should exercise that discretionary power. 18 I do not think that this is a case falling within the normal parameters of the jurisdiction of the Court to make interim orders for the purpose of preservation of property. 19 Pt 25 r 25.3 of the Uniform Civil Procedure Rules 2005 (NSW) provides that in proceedings concerning property or in which any question may arise as to property the Court may make orders for the detention, custody or preservation of the property. The property in question here is, if anything, either the contracts for sale of the three units into which the Plaintiffs have entered or, possibly, the proceeds of those sales. 20 There is no evidence that the Plaintiffs are, themselves, unable to pay the stamp duty on these transfers except by recourse to the proceeds of sale themselves or to the controlled monies account. There is no evidence to suggest that the sales will be lost unless the Plaintiffs are put in funds to pay the stamp duty by recourse to the controlled monies account. 21 In that circumstance I cannot see any basis at all for invoking the Court's jurisdiction to act in preservation of property as a support to the orders sought in paragraph 2 of the Notice of Motion. 22 I note that the Plaintiffs do not seek the appointment of a receiver to the subject property. If the Court is not acting in preservation of property in this case – and I have said that I think it is not – and if the Court has not appointed a receiver to the property – and no such receiver is sought – I do not see what jurisdiction the Court has simply to make a direction or order that a party to a contract will do something that is not expressly provided for in the contract, in the absence of an application for an order for specific performance. 23 Here, the parties were establishing a fund from the proceeds of sale of contracts which the Plaintiffs had entered into; they were aware that title to the units the subject of the contracts remained in the Defendants. They made no reference to the incidence of stamp duty on the transfers which had to be provided to the Plaintiffs in order to complete those contracts for sale. 24 Both parties were represented by solicitors in the preparation of the Interim Management Agreement. It is reasonable to infer that the solicitors were aware that in the normal course stamp duty on a transfer of land is payable by the purchaser: in this case, the Plaintiffs would be liable for stamp duty on the transfers from the Defendants. 25 If I were to make some sort of direction, either under the guise of an order for preservation of property as an interim declaration of right as to the construction of the contract, it seems to me that I would, in reality, be making a new agreement for the parties where they have chosen not to make one for themselves. 26 It seems to me, therefore, that on no account am I able to accede to the application to make orders as sought in the Notice of Motion. 27 The Defendants' costs of the Plaintiffs' motion today will be paid by the Plaintiffs. – oOo – DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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