Supreme Court New South Wales Medium Neutral Citation: Brown v Hodgkinson; Bluestone Property Services Pty Ltd v Abadeen Group Pty Ltd; [2012] NSWSC 1627 Hearing dates: 17 December 2012 Decision date: 17 December 2012 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Order that caveators consent to registration of mortgage to permit finance to be raised to pay debt to caveators Cases Cited: Brown & Ors v Hodgkinson & Ors [2009] NSWSC 262 Brown & Ors v Hodgkinson & Ors (No 3) [2009] NSWSC 436 In the Matter of First Equilibrium Pty Ltd [2012] NSWSC 1624 Category: Interlocutory applications Parties: 2008/277880: Justin John Brown - First Plaintiff Sharlotte Pty Ltd - Second Plaintiff Abadeen Group Pty Ltd - Third Plaintiff Lighter Quay Investments Ltd - Fourth Plaintiff Greenberg Investments Development Ltd - Fifth Plaintiff Lance Hodgkinson - First Defendant Bluestone Property Services Pty Ltd - Second Defendant 230 Palmer Street Pty Ltd - Third Defendant Daniel Hausman - Fourth Defendant Crown Street Developments Pty Ltd - Fifth Defendant 519 St Kilda Road Developments Pty Ltd - Sixth Defendant Gorcha Pty Ltd - Seventh Defendant 2008/279957: Bluestone Property Services Pty Ltd - First Plaintiff Namsauh Holdings Pty Ltd - Second Plaintiff 519 St Kilda Road Developments Pty Ltd - Third Plaintiff Abadeen Group Pty - First Defendant Brooke Brown - Second Defendant Representation: Counsel: J Baird - Plaintiff P Newton - Defendant Solicitors: ERA Legal - First & Second Plaintiffs Levitt Robinson Solicitors - First and Second Defendants File Number(s): 2008/277880 2008/279957 Judgment (ex tempore) 1HIS HONOUR: On 8 April 2009, Palmer J gave judgment for Bluestone Property Services against Abadeen Group Pty Ltd, now First Equilibrium, for $600,000 [proceedings 2008/277880], and for two other companies against Abadeen and Brooke Brown, respectively, for $200,000 and $150,000 [proceedings 2008/279957] [Brown & Ors v Hodgkinson & Ors [2009] NSWSC 262]. 2On 19 May 2009, his Honour made orders staying the judgment pending appeal, upon two conditions: first, that the Brown parties file a notice of appeal within seven days; and secondly, that the Brown parties provide mortgages in a form acceptable to the Hodgkinsons' parties solicitors within 14 days [Brown & Ors v Hodgkinson & Ors (No 3) [2009] NSWSC 436]. 3In due course, such mortgages were provided, including a mortgage the subject of the present application by Justin John Brown as registered proprietor over land described as Lot 7 XXXXX. The mortgage contains provisions that it is a second ranking equitable mortgage, subject only to any prior mortgage, there being a prior mortgage to the Trust Company Australia Limited in respect of the properties comprised in SPXXXX, and to AMP Bank Limited in respect of the properties comprised in SPXXXX. 4The mortgage contains, in clause 12.38, a provision in these terms: The mortgagee will only be under an obligation to grant a release of the mortgaged property from this mortgage upon an order of the court in the proceedings. 5Bluestone's appeal to the Court of Appeal, and a subsequent application for special leave to appeal to the High Court of Australia, were unsuccessful. Following the finalisation of the appeal process Bluestone, on 18 September 2012, served a creditor's statutory demand on First Equilibrium for $864,689.67. In circumstances referred to in a judgment given on 10 December 2012 [In the Matter of First Equilibrium Pty Ltd [2012] NSWSC 1624], I varied the statutory demand, on First Equilibrium's application to set it aside, to $294,689.67 [proceedings 2012/312787]. Pursuant to (Cth) Corporation Act 2001, s 459F(2)(a)(ii), First Equilibrium has until today in which to comply with the creditors' statutory demand as so varied. 6Mr Brown has secured an offer of finance from Fixx Commercial Pty Limited (Fixx), for $300,000, on the security of the properties the subject of the mortgage to which I have referred, which it is said will be available at 4.45pm today if orders to the effect of those presently sought are made. 7By Notice of Motion filed on 13 December 2012, Mr Brown seeks the following order: 1 An order that Terms of security ordered by Palmer J on 19 May 2009 be varied to provide that the first plaintiff be permitted to grant a mortgage and caveat to Fixx Commercial Pty Limited for the following purposes: (a) That the sum of $294,689.67 be paid to the First Defendant (Bluestone Property Services Pty Limited (in Liquidation)) in proceedings [2008/279957]; and (c) The First to Seventh Defendants as the lodgers of Caveat No AF221988H provide their permit to enable the registration of the mortgage and or caveat to Fixx Commercial Pty Limited with priority to their mortgage. 8Although the order is framed as one seeking a variation of the "terms of the security ordered by Palmer J on 19 May 2009", I do not think that is an accurate description of what is in fact sought. Palmer J granted a stay upon conditions, one being the provision of the mortgages in a form acceptable to the Hodgkinson's party's solicitors. Such mortgages were provided. The stay has now lapsed, and with the appeals having failed, the mortgage stayed in effect. There are no continuing operative conditions on a stay that could be varied. However, the mortgage itself provides that it remains under the control of the Court, and in any event the Court may make orders in respect of caveats to enable dealings with property, particularly when the dealing will not be adverse to the caveator. 9In this case, what is proposed is that, rather than having security, which is in effect a second ranking security, for the whole of its judgment debt over properties in which there remains equity of $500,000 or so, Bluestone would be paid $294,000, being the amount to which the statutory demand was varied, and lose its priority to the extent of $300,000, the difference being essentially costs and stamp duty. 10If one contemplates the position of a judgment debtor following judgment, a court is unlikely to restrain a judgment debtor from mortgaging or charging its property for the purpose of raising the funds to pay the judgment creditor. In effect, that is proposed in this case, although it is not a property of the judgment debtor, but property of the person who has effectively become its guarantor, Mr Brown. It is true that to that extent, Bluestone as judgment creditor will lose priority to the lender of those funds, but essentially to the same extent Bluestone will receive the benefit of those funds. 11There has been ample opportunity, if it wished to proceed to enforce its mortgages, for Bluestone to take steps to enforce them by one means or another, but it has chosen instead to proceed by creditors' statutory demand. Having elected to proceed in that manner, I do not think that it can reasonably oppose an application to free enough of the judgment debtor's assets to enable it to satisfy its own demand. 12My order is: (1)Upon the undertaking to the Court of Justin John Brown, First Equilibrium Limited and Abadeen Group Australia Pty Limited as Trustee of the Brown Family Trust, that they will not further encumber the properties affected by the mortgage dated 30 November 2009, a copy of which is Exhibit FG4 to the affidavit of Francisco Gutierrez, sworn 13 December 2012, including, without limiting the generality of the foregoing, by further advances beyond the principal sum of $300,000 from Fixx Commercial Pty Limited referred to in the draft loan agreement initialled by me, dated this day and placed with the papers, and further undertaking that the mortgage to be granted by them to Fixx Commercial Pty Limited will secure only the obligations of the borrower referred to in the said loan agreement; I order that upon tender to Bluestone Property Services Pty Ltd of a bank cheque in the sum of $294,689.67, the First to Seventh Defendants as caveators under Caveat AF221988H, deliver to Mr Brown a consent to the registration of such mortgage to Fixx Commercial Pty Limited having priority over the said mortgage to Bluestone Property Services Pty Limited and others. ********** 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. Decision last updated: 31 May 2013