New South Wales Supreme Court CITATION : Hypec Electronic v Registrar-General (No 3) [2008] NSWSC 167 HEARING DATE(S) : 29 February 2008 JUDGMENT OF : Gzell J EX TEMPORE JUDGMENT DATE : 29 February 2008 DECISION : Debt of B not discharged. CATCHWORDS : MORTGAGES - Mortgages and Charges Generally - Rights and Liabilities of Mortgagor and Mortgagee - Mortgages to bank secured debt to bank of A and B - Mortgages transferred by bank to B as trustee for others - Whether debt of B discharged - Whether by analogy with equitable setoff debt and mortgage had to be in the same interest to be discharged LEGISLATION CITED : Limitation Act 1999 Hypec Electronic v Registrar-General (No 2) [2008] NSWSC 138 CASES CITED : Hypec Electronic v Registrar-General [2008] NSWSC 18 National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd [1972] AC 785 Wen Hua Tsui - First Cross Claimant Hypec Electronics Pty Ltd (In Liquidation) - First Cross Defendant Colin Anthony Mead - Second Cross Defendant Lucy Guitar Mead - Third Cross Defendant Mei Chen Yang - Fourth Cross Defendant Lee Chin-Lien Yang - Fifth Cross Defendant PARTIES : Yang Shiow Ging (also known as Grace Yang) - Sixth Cross Defendant Third Cross Claim Colin Anthony Mead - Cross Claimant Wen Hua Tsui - First Cross Defendant Hypec Electronics Pty Ltd - Second Cross Defendant Registrar-General of Department of Lands - Third Cross Defendant Shiow Ging Yang - Fourth Cross Defendant FILE NUMBER(S) : SC 4413/05 Mr P Walsh - First Cross Defendant COUNSEL : Mr V Bedrossian - second Cross Defendant Mr G Moore - First Cross Claimant Dennis Wong & Solicitors - First Cross Claimant SOLICITORS : Etheringtons Solicitors - Third Cross Claimant on the Third Cross Claim Deakins Solicitors - First Cross Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J FRIDAY 29 FEBRUARY 2008 4413/05 HYPEC ELECTRONICS PTY LTD V DEAPRTMENT OF LAND & ORS (NO 3) EX TEMPORE JUDGMENT 1 In my judgment in Hypec Electronic v Registrar-General (No 2) [2008] NSWSC 138, I directed the parties to provide further submissions on the question whether the transfer and registration of the mortgages over the West Ryde and Laughtondale properties to Grace Yang affected the debt formerly owed by Lucy Mead and Grace Yang to the Commonwealth Bank of Australia. 2 In my principal judgment in Hypec Electronic v Registrar-General [2008] NSWSC 18 at [87], I found that Grace Yang received the funds from the Taiwanese ladies and held them on trust to be contributed to the purchase price of the West Ryde and Laughtondale properties. I found that in taking a transfer of the mortgages rather than a purchase of the properties, Grace Yang was in breach of that trust. I found that the properties that Grace Yang acquired, namely the mortgages, were held by her on trust for Mrs Tsui who held in trust for herself and the other Taiwanese ladies she represented. 3 In light of those findings, the liquidator declines to make any further submission on the issue I referred back to the parties. I am surprised at the lack of assistance from an officer of the Court. 4 I released Mr Mead from the obligation to comply with my order on the basis that he supported any submissions to be made by the liquidator. His counsel has nonetheless provided written submissions. The release was not obligatory. Mr Mead is entitled to put further submissions before the Court. 5 At trial, since the interests of Mr Mead were largely common to the interests of the liquidator, I confined his counsel to dealing with issues additional to those raised by the liquidator. The submissions now sought to be relied upon depart from that stricture. 6 In his closing submissions, counsel for Mr Mead supported the liquidator's submissions that no moneys were secured by the mortgages by the time the transfers were taken and registered by Mrs Tsui. I rejected those submissions at [46] of my principal judgment. 7 In his original submissions on the question referred back to the parties, counsel for Mr Mead argued that upon the transfer of the mortgages to Grace Yang, there was a merger of interest because Grace Yang became both creditor and debtor and, in consequence, 50 percent of the debt owed jointly by Lucy Mead and Grace Yang was discharged. 8 In his latest submissions, counsel argues that the payment made to CBA for the transfer of the mortgages to Grace Yang discharged the debt due to CBA by Lucy Mead and Grace Yang as the moneys paid out the debt owed by them. 9 I rejected that submission at [33] of my principal judgment. That was not a question upon which I sought further submissions. The appropriate place in which to raise that argument is the Court of Appeal. 10 I am left with the submissions by counsel for Mrs Tsui that adopt the arguments put to counsel in my subsidiary judgment and a submission from Grace Yang that does not touch on the issue. It seeks relief for her that is not open on the two cross-claims before the Court. 11 In my view the entirety of the debts due to CBA before the transfer of the mortgagesto Grace Yang are due to Mrs Tsui. That is $1,174,815.38 made up, as I found at [28] of my principal judgment of $673,062.68 due under the overdraft facility issued to Hypec and $500,761.20 due on the commercial bill discount facility issued to Lucy Mead and Grace Yang and $991.50 in legal fees. 12 For the reasons expressed in my subsidiary judgment there was no merger when Grace Yang took the transfers of the mortgages. 13 In order that debts may be set off in equity, they must be due respectively in the same right. Thus debts due to or from executors personally cannot be set off against debts due from or to them in their capacity as executors. 14 As Lord Kilbrandon said in National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd [1972] AC 785 at 821: "In all these cases the funds may be said to have been impressed with quasi-trust purposes, and that is sufficient to destroy the mutuality which is a prerequisite of the right to set off arising, since it is necessary that the debts were between the same parties in the same right, a condition which the holding of a sum as trustee would destroy." 15 There is no reason, in my view, why similar considerations should not apply to the question whether Grace Yang was discharged as debtor when she took the assignment of the mortgages: she owed moneys to CBA in her personal capacity she took the transfers of the mortgages as trustee for Mrs Tsui. The interests were not in the same right. It could not be said that Grace Yang became creditor and debtor of the same debt in the same right and, in my view, there was no discharge of her joint and several liability with Lucy Mead. 16 Declarations and orders, including interest calculations having regard to the effect of the Limitation Act 1999 can be agreed by the parties. Mrs Tsui is entitled to an order for costs against the liquidator and Mr Mead, each of whom failed in their opposition to her claim. Mr Mead's cross-claim should be dismissed and he should pay Mrs Tsui's costs. Grace Yang appeared in person. There should be no order for costs in her favour. 17 I will stand the matter over before me for the purpose of entering final orders. If the parties are agreed in the meantime and a short minute of orders is signed on their behalf, I will enter orders in Chambers and vacate the hearing. ********** 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.