Sood v Christianos [2008] NSWSC 1018

New South Wales Supreme Court

CITATION : Sood v Christianos [2008] NSWSC 1018

HEARING DATE(S) : 5 September 2008 JURISDICTION : Equity Division Duty List

JUDGMENT OF : Brereton J

EX TEMPORE JUDGMENT DATE : 5 September 2008

DECISION : The first mortgagee is a necessary party. Order that the first mortgagee be joined as a defendant.

CATCHWORDS : PROCEDURE – where plaintiff is second mortgagee of defendant's land – where plaintiff seeking judicial sale of property – whether first mortgagee must be joined as a defendant to proceedings – whether informal consent of first mortgagee sufficient – where proposed sale involves sale of first mortgagee's interest in the land – whether second mortgagee can sell the first mortgagee's interest without its consent.

CATEGORY : Procedural and other rulings

CASES CITED : King Investments Solutions Pty Ltd v Hussain [2005] NSWSC 1076

Margaret Sood (plaintiff) PARTIES : Maria Christianos (first defendant) Kaji Australia Pty Ltd (second defendant) Robert Nunzio Sciacca (third defendant)

FILE NUMBER(S) : SC 4333/08

Mr R W Tregenza (plaintiff) COUNSEL : Mr V F Kerr (first defendant) Mr A J McGuirk (sol) (second defendant)

Licardy, Harris & Co (plaintiff) SOLICITORS : Phillip A Biber (first defendant) Dobes and Andrews (second defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST

BRERETON J

Friday 5 September 2008

4333/08 Margaret Sood v Maria Christianos & ors JUDGMENT (ex tempore) 1 HIS HONOUR: The plaintiff is the unregistered second mortgagee of the first defendant's land at Langford Road, Dural. The second defendant is the third mortgagee and the third defendant is the fourth encumbrancee. The registered first mortgagee, Adelaide Bank Limited, is not at present a party to the proceedings. The plaintiff seeks orders for judicial sale of the property, consequent upon default under its mortgage. The price at which it is proposed to sell will be sufficient to discharge the Adelaide Bank's first mortgage, and partially satisfy the plaintiff's second mortgage, but will probably leave nothing for the second defendant/third mortgagee, and there is no realistic prospect of the first defendant registered proprietor receiving any of the proceeds. 2 The present question is whether it is fatal to the proceeding, at this stage at least, that Adelaide Bank has not been joined as a party. 3 In King Investments Solutions v Hussain [2005] NSWSC 1076, [88]-[89], Campbell J (as his Honour then was) considered the significance of the first mortgagee not being a party in similar circumstances. While observing that in a common law conveyancing system, a second or later mortgagee may foreclose the mortgagor and subsequent mortgagees without joining prior mortgagees, his Honour pointed out that that was because at common law a prior mortgagee could suffer no detriment to its legal rights if an order for foreclosure were made, since the first mortgagee still held the legal estate to secure the debt owed to it. His Honour also observed that sometimes rules of court made exceptions to the requirement for all persons interested in the relief claimed in the suit to be parties, but generally, in a suit for foreclosure, all persons interested in the equity of redemption, including the mortgagor, must be before the court. 4 In Hussain, his Honour explained that the first mortgagee was a necessary party since the orders being sought could result in the interest of the first mortgagee being terminated as a consequence of a transfer to a purchaser becoming registered, even if the sale proceeds were insufficient to pay out the interest of the first mortgagee. Although in the present case, prima facie the sale proceeds will be sufficient to pay out the interest of the first mortgagee, the sufficiency of the security was not the fundamental point that his Honour was making: the critical aspect is that under the Torrens system, the subject matter of the sale includes the first mortgagee's interest in the land, and a subsequent mortgagee can sell the first mortgagee's interest only with the consent of the prior mortgagee. The first mortgagee is prima facie entitled to have its mortgage remain if it wishes. Although the plaintiff offers to make the sale subject to discharge of the first mortgage, that is not the same as making the sale subject to the first mortgage – in which case the first mortgagee's interest would be unaffected, and it would not be a necessary party, but the mortgage would remain, affecting the land as a prior encumbrance, which would make the proposition an unattractive one to a purchaser. 5 What is proposed here is a sale of the whole of the land, including the first mortgagee's interest in it. In those circumstances informal notice to the first mortgagee is, as Campbell J indicated, insufficient. The Court does not dispose of a party's proprietary rights without its consent. 6 Accordingly, I do not think I can make the orders sought while the first mortgagee is not a party. The plaintiff has indicated that if I were to come to that conclusion, she would seek leave to amend to join the first mortgagee. 7 I therefore: (1) order that Adelaide Bank Limited be added as fourth defendant;