New South Wales Supreme Court CITATION : Xenos v National Australia Bank Ltd & Anor [2007] NSWSC 973 HEARING DATE(S) : 21 August 2007 JUDGMENT DATE : 4 September 2007 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Order that Plaintiff/Respondent repay fund into Court with interest. CATCHWORDS : PRACTICE AND PROCEDURE – SETTING ASIDE ORDER – IRREGULARITY – GOOD FAITH – Order for payment out of monies held in Court procured without informing Court of undisputed right of another claimant – irregularity – absence of good faith established. LEGISLATION CITED : Bankruptcy Act 1966 (Cth) – s.74 Uniform Civil Procedure Rules 2005 (NSW) – 36.15(1) - Commonwealth v McCormack (1984) 155 CLR 273 CASES CITED : - Hoskins v Van Den-Braak (1998) 43 NSWLR 290 - National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386 Timi Dennis Xenos – Plaintiff/Respondent PARTIES : National Australia Bank Limited – First Defendant Ann Patricia Carlyon Anderson – Second Defendant/Applicant FILE NUMBER(S) : SC 3244/07 M. Lozina (sol) – Plaintiff/Respondent COUNSEL : No appearance – First Defendant J.H. Stephenson – Second Defendant/Applicant Jordan Djundja – Plaintiff/Respondent SOLICITORS : National Australia Bank Ltd – First Defendant Cropper Parkhill Solicitors – Second Defendant/Applicant 3244/07 Xenos v National Australia Bank Ltd JUDGMENT 4 September, 2007 Introduction 1 Mrs Anderson has been joined, on her own Motion, as a defendant in these proceedings. She seeks orders: – setting aside an order made by me on 27 July 2007 authorising payment to the Plaintiff, Mr Xenos, of a fund held in Court; – requiring Mr Xenos to repay into Court the monies paid out pursuant to my order. 2 Mrs Anderson says that the order for payment out of Court to Mr Xenos should be set aside under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") 36.15(1) as having been made irregularly or against good faith. She says that if the judgment is set aside, the status quo ante should be restored so that Mr Xenos should repay the money into Court with interest. The facts 3 By registered first mortgage dated 5 September 1997 Mr Xenos mortgaged a property at Greenacre to the National Australia Bank ("the Bank"). Mr Xenos defaulted under the mortgage and on 5 May 2006 the Bank sold the property in exercise of its power of sale. After repaying itself the amount owing by Mr Xenos, the Bank had in its hands a surplus of $81,594.05. 4 At the time of settlement of the sale there were two current caveats lodged against the title to the property, one lodged by Hadacon Pty Ltd and Mrs Anderson, the other lodged by Andreas Holdings Pty Ltd. At earlier times, two other caveats had been lodged against the title to the property, one by Mr and Mrs Patience and Mr and Mrs Dahl, and one by Service Finance Corporation Pty Ltd ("Service Finance"). All caveators claimed an interest in the property pursuant to an equitable mortgage or an equitable charge securing the payment of money. 5 On 19 September 2006, in proceedings 4907 of 2006, the Bank, having knowledge of the caveats lodged by Hadacon and Mrs Anderson and by Andreas Holdings, paid the surplus of the proceeds of sale of the property into Court. An affidavit filed on behalf of the Bank referred only to Hadacon, Mrs Anderson and Andreas Holdings as having possible claims against the fund. The affidavit stated that the Bank would notify those parties in writing that the fund had been paid into Court. The affidavit did not refer to Mr Xenos as having a possible interest in the fund. 6 By Summons filed on 8 June 2007 in proceedings 3118 of 2007 ("the Anderson Proceedings"), Mrs Anderson sought an order that the whole of the fund in Court be paid to her, pursuant to her equitable mortgage over the property. No person was made a defendant in the proceedings but the Summons sought a direction as to who should be notified of Mrs Anderson's claim. 7 An affidavit filed by Mrs Anderson's solicitor stated that Mrs Anderson, together with Hadacon, had lent $190,000 to Mr Xenos upon the security of the property. The affidavit referred to the caveats which had been lodged against the title by Mr and Mrs Patience and Mr and Mrs Dahl, and by Service Finance, and stated that only Service Finance wished to press its claim to an interest against the fund. The affidavit did not refer to the caveat lodged by Andreas Holdings. Neither did the affidavit refer to Mr Xenos as having a possible interest in the fund. 8 In a third set of proceedings, 3244 of 2007, commenced by Summons filed on 20 June 2007, Mr Xenos sought an order that the fund in Court be paid to him as the former registered proprietor of the property. Only the Bank was joined as a defendant to those proceedings. No directions were sought as to other persons to be notified of Mr Xenos' claim. 9 On 16 July 2007, in the Anderson Proceedings, the Registrar ordered that notice of the proceedings be given to Mr and Mrs Patience and Mr and Mrs Dahl, Service Finance, the bankruptcy trustee of Mr Xenos, and Hadacon Pty Ltd. No directions were made for notification to Mr Xenos. By the time this direction was made, Mr Xenos, who had been made bankrupt in 2002, was no longer bankrupt, his bankruptcy having been annulled in 2005 pursuant to s.74 Bankruptcy Act 1966 (Cth). 10 The Anderson Proceedings were stood over for further directions before the Registrar on 30 July 2007. 11 Notice of the Anderson Proceedings was served on the former bankruptcy trustee of Mr Xenos but were not served on Mr Xenos himself. Apparently, Mrs Anderson's advisers were unaware that Mr Xenos was no longer a bankrupt. 12 On 23 July 2007, the proceedings commenced by Mr Xenos were listed for directions before the Registrar. On that day, the Registrar stood the proceedings over into the Duty Judge's list on 27 July 2007. The Bank, being the only defendant in the proceedings, had indicated that it had no further interest in the proceedings. No directions were sought or made for notification of Mr Xenos' proceedings to any other person. 13 On 27 July 2007, Mr Xenos' proceedings came before me in the Duty Judge List. Mr J. Jordan, solicitor, appeared for Mr Xenos. There was no appearance for any other person. 14 Mr Jordan tendered a letter from the Bank saying that it submitted to the order of the Court save as to costs. He relied on an affidavit filed for the Bank in the original proceedings, 4907 of 2006, in which the Bank had said that it would notify Hadacon, Mrs Anderson and Andreas Holdings of the payment of the fund into Court. He tendered a letter dated 24 July 2007 from the Bank confirming that the Bank had given notice of the payment into Court to Andreas Holdings and Hadacon. Mrs Anderson was not mentioned in that letter as having been separately notified. Other evidence suggested that Hadacon and Mrs Anderson are not in the same interest and are in dispute. 15 Mr Jordan read an affidavit by Mr Xenos dated 18 June 2007 which stated, omitting formal parts: "2. I was formerly the registered proprietor of the land referred to as Certificate of Title Folio Identifier 1313/850308 and known as 15 Tristania Grove, Greenacre in the state of New South Wales. 3. I understand and do verily believe that the property was sold by the National Australia Bank on 5 May 2006 as mortgagee in possession. 4. As a result, the National Australia Bank was able to pay out the loan, the subject of the mortgage, from the sale proceeds. There was a surplus sum in the amount of $81,594.05, following the payment of the loan. 5. The National Australia Bank paid this money into the Supreme Court registry under circumstances as described in the affidavit of James Wyatt sworn 14 September 2006 herein. 6. I have caused a search of the registry to take place and understand and do verily believe that the sum paid into the registry of the Supreme Court is still held by the Supreme Court. 7. I crave leave to refer to the affidavit of James Wyatt sworn 14 September 2006. I understand and do verily believe that the National Australia Bank has notified other interested parties as to the payment of funds into Court and understand those parties to be Hadacon Pty Limited, Ann Patricia Carlyon Anderson and Andreas Holdings Pty Limited. 8. I understand and do verily believe that until today nobody has made an application to receive payment of these funds." 16 I was not informed of the commencement of the Anderson Proceedings nor of the possible claims to the fund of Mr and Mrs Patience, Mr and Mrs Dahl and Service Finance. 17 Mr Jordan submitted that the evidence showed that all persons having a possible claim against the fund had been notified of the payment into Court and had, for a long time, taken no action to establish their claims. Accordingly, he submitted that the Court should act on the basis that those persons were not prepared to press those claims so that the fund in Court should be released to the only person having a residual interest, namely, Mr Xenos as the former registered proprietor. I acceded to the submission and made the order sought. 18 Mrs Anderson's advisers discovered what had happened when the Anderson proceedings came before the Court on 13 August 2007. They then filed the present application which was served on Mr Xenos' solicitors. A directions hearing was held on 20 August, at which Mr Xenos appeared by his solicitor, Mr Lozina. 19 When the Notice of Motion came on for hearing on the following day, Mr Lozina again appeared for Mr Xenos. He did not proffer any affidavit from Mr Xenos, nor any other evidence in opposition to the application. He said that, on his instructions, the fund paid out of Court had been paid into Mr Jordan's trust account and immediately disbursed to Mr Xenos. Mr Lozina then submitted that the relief sought by Mrs Anderson should be refused because of her delay in commencing proceedings for payment of the fund in Court to her and because any order now made would lack utility since the fund had been disbursed to Mr Xenos. 20 In response to a question from me, Mr Lozina said that, on his instructions, Mr Xenos did not dispute the debt claimed by Mrs Anderson, nor did he dispute that the debt had been secured by an equitable mortgage over the property, as claimed in Mrs Anderson's caveat. Whether order obtained against good faith 21 In making the application on behalf of Mr Xenos on 27 July, Mr Jordan did not inform me that Mr Xenos did not dispute Mrs Anderson's claim that her debt had been secured over the property. As I have mentioned, Mr Jordan's only submission was that the caveators, having been put on notice of the fund in Court, had not taken any action to assert their claims. The inference which I drew from that submission was that the claims of the caveators had been disputed by Mr Xenos. Mr Xenos' affidavit stated only that he was not aware that any caveator, having been notified of the payment into Court, had made an application for payment out. 22 If Mr Xenos or Mr Jordan had disclosed that Mr Xenos did not dispute Mrs Anderson's claim to be a secured creditor over the property, and therefore over the proceeds of sale of the property, I would not have authorised payment out of Court to Mr Xenos of the fund without Mrs Anderson's prior knowledge and consent. I do not say that Mr Jordan dishonestly failed to disclose that Mrs Anderson's claim to security over the fund was undisputed by Mr Xenos. It may well be the case that Mr Jordan did not have those instructions from Mr Xenos at the time. But Mr Xenos certainly did know the whole of the facts and in his affidavit of 18 June 2007 he did not make a full and frank disclosure of the facts. 23 In this application, he has not put on any affidavit explaining his failure to make disclosure in his affidavit of 18 June 2007 that Mrs Anderson's claim to be a secured creditor was admitted. In these circumstances, I draw the inference that Mr Xenos' failure to make disclosure in procuring payment of the fund out of Court was not the result of innocent inadvertence or mistake. I conclude that the order on 27 July 2007 for payment of the fund to Mr Xenos was procured against good faith within the meaning of UCPR 36.15(1) and should be set aside. Whether order obtained irregularly 24 I conclude also that the order was made irregularly within the meaning of the Rule. Mrs Anderson had already commenced proceedings for payment of the fund to her. If those proceedings had been by way of Notice of Motion in the original proceedings in which the fund had been paid into Court, and if Mr Zenos' application for payment to him had likewise been made by Notice of Motion in the original proceedings, as should have happened, the order for payment out to Mr Xenos would never have been made. 25 Why all these applications for payment out of Court were not made in the original proceedings has not been made clear. I was told from the Bar Table by Mr J. Stephenson of Counsel, who appears for Mrs Anderson, that the Court Registry required Mrs Anderson to commence fresh proceedings. Whatever be the explanation, it is clear that by 27 July 2007 Mrs Anderson had claimed an interest in the fund in Court, and that an order in Mr Xenos' favour for payment of the fund to him was made without Mrs Anderson being given an opportunity of being heard, as was her right. The order in Mr Xenos' favour was, therefore, irregularly made and must be set aside: see e.g. Hoskins v Van Den-Braak (1998) 43 NSWLR 290. Whether order for repayment should be made 26 The question then arises, should Mr Xenos be ordered to repay the money into Court, to be held pending resolution of the claims of Mrs Anderson, Mr and Mrs Patience, Mr and Mrs Dahl and Service Finance. Mr Lozina submits that it is too late: the money has been disbursed. Mrs Anderson should be left to sue Mr Xenos for debt and to recover a judgment against him, by execution if necessary. 27 I do not agree. It is well established that a person who has been deprived of property or of some right by a Court order which is later set aside for any reason is entitled to be restored, so far as is possible, to the position in which he or she would have been had the order never been made. If the person is deprived of money, he or she is entitled to its restoration with interest during the period of deprivation: Commonwealth v McCormack (1984) 155 CLR 273; National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386, at 591. 28 In the present case, Mrs Anderson has not been deprived of money by the order which is now set aside. That is because her claim to the fund was still subject to adjudication as between herself and other claimants at the time that the order for payment out was made. What Mrs Anderson has lost by the order procured by Mr Xenos is the right to have recourse to a specific fund, without having to take any further step against Mr Xenos in execution, should her claim prevail over those of the other claimants to the fund. That is the right to which she should be restored. It can be restored only if Mr Xenos repays the money into Court to be held pending determination of all claims of entitlement to it. 29 The fund would have been earning interest while in Court. The rate of interest may not be the same as the rate of interest which is currently imposed under the Rules on judgment debts. Mrs Anderson should be restored to her rights against a fund which is no greater or less than it would have been had the order for payment out to Mr Xenos never been made. Orders 30 The orders I make are as follows: a) set aside the order made in these proceedings on 27 July 2007 authorising payment out of Court to Mr Xenos of the monies then held in Court; b) order that Mr Xenos pay into Court the monies paid out to him together with interest from the date of payment out until the date of repayment at such rate as the Registrar notifies him the fund would have earned if it had remained in Court. 31 I have already made orders ensuring that all claims to the fund will now be heard together. I will hear the parties as to costs. – 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. 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. 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