In the Matter of City Nominees Pty Ltd [2012] NSWSC 1630

Supreme Court New South Wales

Medium Neutral Citation: In the Matter of City Nominees Pty Ltd [2012] NSWSC 1630 Hearing dates: 18 December 2012 Decision date: 18 December 2012 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Determination of amount to be paid into court and consent orders Catchwords: MORTGAGES - discharge - determination of value of payment into court by mortgagor to secure discharge of mortgage securing contingent liability Cases Cited: Liberty Funding Pty Ltd v Steele-Smith [2004] NSWSC 1100 Category: Interlocutory applications Parties: City Nominees Pty Ltd - Plaintiff Richard Albarran - First Defendant Brent Kijurina - Second Defendant Gus Dib trading as Dib Lawyers - Third Defendant Representation: Counsel: D S Weinberger - Plaintiff T Orlizcki (Solicitor) - First to Third Defendants Solicitors: NSW Compensation Lawyers - Plaintiff Kent Attorneys - First to Third Defendants File Number(s): 2012/ 382902

Judgment (ex tempore) 1On 10 December 2012, I made an order, upon the plaintiff's undertaking as to damages, that until and including 12 December 2012, the third defendant, a solicitor, be restrained from taking any steps under a General Security Agreement executed on or about 7 February 2012 and any associated mortgage, and that the first and second defendants' receivers be restrained from acting as receiver and manager of the assets of the plaintiff, including pursuant to the General Security Agreement and any associated mortgage. On 12 December 2012, by consent and without admissions, that order was continued until further order of the Court, and the proceedings were adjourned to today for further hearing of the balance of the amended interlocutory process, which essence involved the plaintiff's application for termination, on an interlocutory basis, of the appointment of receivers and managers to it, and for removal of a caveat that had been lodged by the third defendant. 2The parties have, however, commendably and sensibly, agreed that orders should be made providing for the plaintiff to pay into court as substitute security, an amount to be fixed by the Court, and that, upon such payment being made, the third defendant will do all things reasonably required to terminate the appointment of the receivers, release the assets of the plaintiff from the securities, and withdraw any relevant caveats. The only issue remaining for determination by the Court is what is the amount that should be paid into court for that purpose. 3As Mr Orlizki for the third defendant submitted, the essential principles were encapsulated by Palmer J in Liberty Funding Pty Ltd v Steele-Smith [2004] NSWSC 1100, as follows: [25] The usual way in which a mortgagor can obtain a discharge where a contingent liability remains secured under the mortgage is to pay into Court the amount of the contingent liability or a reasonable estimation thereof if the amount cannot be fixed with certainty. So, for example, where a mortgagor threatens proceedings for the taking of an account, the mortgagee is entitled to retain the security to recover the anticipated reasonable costs of such proceedings and the mortgagor may obtain a discharge either by providing alternative security for such costs or by paying into Court an amount equal to the probable reasonable costs of the proceedings: see Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 11,225 at 11,229 per Hodgson J (as his Honour then was); Bank of New South Wales v O'Connor (1899) 14 App Cas 273; Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 at para 63 (per Hodgson JA). 4The evidence presently before the Court indicates that the principal claimed by the third defendant to be secured under the various security instruments is in the order of $77,410, which is increased by interest to $80,153.81, and that fees and costs associated with the receivership amount to a further $11,674.85, producing a total of $91,828.66. 5The plaintiff argues that that overstates the position by at least $33,000 of principal, on the basis that such amount was not for legal services but in respect of a loan. It may transpire that the plaintiff's argument is correct, and it may transpire that that sum is not secured under the Agreement, but that cannot be foretold at this stage, and it is at least arguable that the relations between the parties was such that the sum was intended to be secured. In other words, ultimately it may or may not transpire that that part of the claimed principal is subject to the security. That is one of the contingencies that presently needs to be taken into account. 6Next, the defendant's solicitor has sworn an affidavit estimating that the costs of defending the current proceedings may be in the order of $73,150, inclusive of GST. That, of course, is underpinned by a number of assumptions, including that the defendant would ultimately succeed in the proceedings. But, again, it is not inconceivable that the defendant would succeed. And it is at least arguable that, on the proper construction of the mortgage, the costs of resisting the present application, being an application to terminate the appointment of the receivers and connected therewith, fall within the covenants of the mortgage as liabilities of the plaintiff. In those circumstances, it seems to me that that is in principle a contingency against which the defendant is entitled to be protected in respect of a substitute security. 7The role of the Court at this stage is to estimate the amount that may be due to the defendant if it succeeds, and to fix a sum, having regard to the balance of convenience, that occasions least detriment to the parties. 8There is no evidence that the plaintiff is unable to pay the amount sought by the defendant. If an amount less than the $150,000 sought by the defendant were fixed, then there would be at least a risk that the defendant would lose priority, and even security, in respect of the shortfall. 9In those circumstances, it seems to me that the balance of convenience favours fixing the sum of $150,000 proposed by the defendant.