Reported Decision : 65 ATR 587 New South Wales Supreme Court CITATION : The Health Pit II Pty Ltd v Lowe [2007] NSWSC 67 HEARING DATE(S) : 6/2/07 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq EX TEMPORE JUDGMENT DATE : 6 February 2007 DECISION : First mortgagee may pay GST before accounting for surplus on sale to inferior mortgagees. CATCHWORDS : MORTGAGES [64]- Proceeds of sale after first mortgagee's sale- Sale price $X + GST- Whether amount of GST is part of sale price under the law of mortgages- If so, whether GST is an expense occasioned by sale. LEGISLATION CITED : A New Tax System (Goods and Services Tax) Act 1999 (Cth) Subdivs 9B and 9C Real Property Act 1900, s 58 PARTIES : The Health Pit II Pty Limited (P) Dennis Richard Lowe (D) FILE NUMBER(S) : SC 1204/07 COUNSEL : R R I Harper SC and M Pesman (P) F Donohoe (D) SOLICITORS : Sage Solicitors (P) Lenehan & Co (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Tuesday 6 February 2007 1204/07 – THE HEALTH PIT II PTY LTD v LOWE JUDGMENT 1 HIS HONOUR: The plaintiff has a second equitable mortgage over property which was subject to a substantial first mortgage. By a series of transactions the defendant, who was a guarantor of the first mortgage, took an assignment from the first mortgagee and purported to sell as mortgagee in possession, the purchaser obtaining an indefeasible title. The plaintiff had, as had a number of other persons, lodged a caveat to protect its equitable mortgage. However, where a first mortgagee in possession sells to a person then that person's right is superior to all inferior mortgages, legal or equitable, and caveats lodged by them are usually annihilated. The only right that an inferior mortgagee normally has under s 58 of the Real Property Act 1900 is to the surplus on the sale. 2 The contract for sale of the land was $3.5 million and, in addition, cl 39 of the contract acknowledged that the GST payable in the transaction was to be paid by the purchaser to the vendor in addition to the sale price. The plaintiff says that when one looks at A New Tax System (Goods and Services Tax) Act 1999 (Cth), subdivisions 9B and 9C, the price of the property must be taken to be $3.85 million and that the surplus for the purposes of s 58 of the Real Property Act must include the $350,000 which the defendant will have to pay to the tax office by way of GST. 3 The defendant says that no matter what the definition may be for tax purposes, so far as the law of mortgages is concerned, the amount received was $3.5 million or, alternatively, it was $3.85 million and the $350,000 to be paid by way of tax is part of the expenses occasioned by the sale. 4 In my view, this last argument must be correct. The other argument of the defendant might be. There is insufficient doubt in my mind about the matter to preserve it and, accordingly, I will make orders as agreed by the parties, omitting any reference to the $350,000 GST. 5 The order handed up was that the defendant by himself, his servants and agents be restrained from dispersing with the proceeds of sale, provided, however, that the $350,000 could be paid to the Australian Tax Office. I make that order. Otherwise I make orders in accordance with the short minutes and the matter stands over for further directions before the Registrar on 29 March 2007. ******************** 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.