New South Wales Supreme Court CITATION : Madan v Asmar [2010] NSWSC 1147 HEARING DATE(S) : 5 October 2010 JUDGMENT OF : Gzell J EX TEMPORE JUDGMENT DATE : 5 October 2010 DECISION : Application dismissed with costs. CATCHWORDS : PROCEDURE - Preservation of property - preservation of a fund under the Uniform Civil Procedure Rules 2005, Pt 25 r 25.3(3) - portion of deposit under contract for sale released to vendors for settlement - settlement did not occur - vendors purported to terminate contract - portion of deposit paid into vendors' bank account - whether order should be made requiring them to pay into court Conveyancing Act 1919 LEGISLATION CITED : Uniform Civil Procedure Rules 2005 Civil Procedure Rules (UK) CASES CITED : Myers v Design Inc (International) Ltd [2003] EWHC 103 (Ch); [2003] 1 WLR 1642 Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249 Manmit Singh Madan (Plaintiff) PARTIES : Afif Asmar (First Defendant) Lourice Michele Asmar (Second Defendant) FILE NUMBER(S) : SC 2010/126729 COUNSEL : B Connell (Plaintiff) T Bors (First and Second Defendants) SOLICITORS : Fox & Staniland Lawyers (Plaintiff) Blunden Law (First and Second Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J TUESDAY 5 OCTOBER 2010 2010/126729 MANMIT SINGH MADAN v AFIF ASMAR & ORS EX TEMPORE JUDGMENT 1 The plaintiff purchased a property from the first and second defendants by a contract for sale of land and paid a deposit of $135,000 to the real estate agents, being 10 percent of the purchase price. 2 At the request of the solicitors for the first and second defendants, the plaintiff directed that portion of the deposit be released to the solicitors for the defendants to enable the moneys to be paid at settlement. Two bank cheques in favour of the Commonwealth Bank of Australia for $108,827.93 and $1,077.47, a total of $109,905.40, were made available to the solicitors for the first and second defendants. The balance of the deposit including interest in the amount of $26,000 is retained by the real estate agents. 3 Settlement did not take place and the first and second defendants purported to terminate the contract and retain the deposit. Thereafter, the solicitors released the cheques to the defendants who paid them into a bank account. 4 There is a substantive issue as to the entitlement of the first and second defendants to terminate the contract. The plaintiff seeks a declaration that the termination was invalid. In the alternative, he seeks an order under the Conveyancing Act 1919, s 55(2A) for the return of the deposit. 5 The application by the plaintiff against the first and second defendants before the court is for preservation of a fund. 6 The Uniform Civil Procedure Rules 2005, Pt 25 r 25.3(3) provides that in proceedings concerning the right of any party to a fund, the court may order that the fund be paid into court or otherwise secured. What is sought is an order of the court that the portion of the deposit which was deposited to a bank account of the first and second defendants be paid into court. 7 In Myers v Design Inc (International) Ltd [2003] EWHC 103 (Ch); [2003] 1 WLR 1642, the claimant brought an action against the defendant for repayment of a loan. By the time the proceedings were commenced, a substantial part of the sum lent had been expended. To prevent the defendant from making any judgment against it unenforceable by disposing of its assets, the claimant obtained an interim order under the comparable rule to the one to which I have referred. An application to set aside the order was successful. 8 The rule in question was r 25.1(l) of the Civil Procedure Rules (UK) which was in the following terms: "The court may grant the following interim remedies - … (l) an order for a specified fund to be paid into court or otherwise secured, where there is a dispute over a party's right to the fund;" 9 Lightman J at [10] said: "… The provisions of the rule requires as conditions for exercise of the jurisdiction to make the order that at the date of the order (1) the person against whom the order is to be made has legal title to or is in possession or control of an actual identifiable fund, colloquially the fund must be in his hands; (2) there is a dispute as to a party's proprietary entitlement to or interest in the fund; (3) the circumstances are such that the fund should be secured by payment into Court or in some other way. The requirement that the person against whom the order is to be made should be the legal owner or in possession or control of the specified fund is implicit in the form of relief: the mandatory order could not be made unless it could be complied with. The reference in the rule to the party's right to the fund connotes the existence of a proprietary right or interest in the fund." 10 In Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249, the Court of Appeal set aside an order that an amount obtained by calling upon a guarantee be paid under the rule the subject of the present proceedings. 11 Spigelman CJ, with whom Bell JA and Handley AJA agreed, pointed to the difference in wording of the two rules at [31]. The English rule containing the word "specified" in relation to the fund in question and his Honour expressed the opinion that the same result arises under the Uniform Civil Procedure Rules, Pt 25 r 25.3(3) notwithstanding the absence of the word "specified". 12 His Honour went on to say at [32]: "In my opinion, the following observations of Lightman J are equally applicable to the present case: "The reference in the rule to the party's right to the fund connotes the existence of a proprietary right or interest in the fund."(at [10]). "[T]hough [the moneys] may have constituted such a fund on receipt by the defendant, that fund no longer exists and further the claimant never had any proprietary or other right in that fund." (at [11]). "Any debt owed by the defendant to the claimant is a chose in action vested in the claimant. It is not itself a specified fund nor does it give rise to the existence of a specified fund in which the claimant has a proprietary interest. Nor are there any moneys, left alone specified fund, held by the defendant over which the claimant has any proprietary rights." (at [12])." 13 In the instant circumstances it is said that the plaintiff had an interest in the moneys as a fund when held by the real estate agent as stakeholder. The moneys having been released with the concurrence of the plaintiff to the benefit of the defendants as part of the purchase price to be utilised on settlement, the advantage of moneys held by a stakeholder came to an end. 14 It was submitted that the solicitors to whom the two cheques were delivered must likewise have held as stakeholder or in escrow until settlement thereby preserving an interest in the plaintiff in a fund. But those circumstances were superseded when the cheques were released to the defendants and the defendants paid them into a bank account. The inference that I draw is that the moneys were paid into an existing bank account upon which movements were made in the ordinary course. 15 It was submitted that if the account remained in credit in excess of the deposits of the two cheques there remained a fund for the purpose of the rule. I do not agree. Once the moneys were mixed with the moneys of the defendants there ceased to be an identifiable separate fund in which the plaintiff held any interest. 16 This is not a question of tracing. It is a question of the establishment of a separately identifiable fund under the rule. 17 That is sufficient to dispose of the notice of motion but it seems to me that the plaintiff failed on the second issue of establishing a proprietary interest in any fund. Reference was made to the claim in the alternative under the Conveyancing Act, s 55(2A). That provision enables the court to grant relief to a purchaser from the forfeiture of a deposit by the vendor. Unless and until that happens there is no right that is enforced by the court. The court grants relief by making an order under the provision and the argument that because there is such a claim in substantive proceedings there is a proprietary right in the plaintiff must, in my view, fail. 18 The notice of motion is dismissed. 19 The solicitors for the defendants drew the attention of the solicitors for the plaintiff to the judgment of the Court of Appeal in Caverstock to which I have referred and to the comments of the Court of Appeal in [33] which were in the following terms: "In my opinion, in the present case, there is no "fund" within the meaning of r 25.3(3). It is sufficient, for present purposes, to say that any such fund disappeared upon payment of the monies into the general bank account of the Council." 20 The letter invited the plaintiff to withdraw the motion and if he did not advised that the letter would be tendered and relied upon in an application for indemnity costs. 21 The rules as to Calderbank offers require that there be some compromise that is vouchsafed and not demand for a capitulation. If the letter is tendered on that basis it fails to establish an entitlement to indemnity costs because it calls for a capitulation on the part of the plaintiff. 22 If it is put on the basis that the conduct of the notice of motion was such as to give rise to the imposition of an order for indemnity costs as a penalty against that conduct, I reject that submission. It was open to the plaintiff to bring the proceedings and to argue as he has done that the English decision and the decision of the New South Wales Court of Appeal were distinguishable. 23 I order the plaintiff to pay the defendants' costs. ********** 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.