Supreme Court New South Wales Medium Neutral Citation: Ngu v Australian & New Zealand Banking Group & Ors [2013] NSWSC 1861 Hearing dates: Friday, 6 December 2013 Decision date: 06 December 2013 Jurisdiction: Equity Division - Duty List Before: White J Decision: Refer to paras [40] and [42]-[44] of judgment. Catchwords: EQUITY - subrogation - guarantor's claim to be subrogated to creditor's securities - creditor not made whole - guarantor attended on creditor's solicitors unannounced - guarantor proffered cheque for amount said in statement by creditor to be owing on loan facility less adjustment - creditor claims greater amount due under loan facility - whether creditor estopped from denying amount owing as per its statement - whether purported tender of cheque sufficient to entitle guarantor to be subrogated to creditor's securities - whether there can be subrogation to securities when creditor had appointed receivers pursuant to those securities Cases Cited: Bofinger v Kingsway Group Limited [2009] HCA 44, 239 CLR 269 McColl's Wholesale Pty Limited v State Bank of New South Wales [1984] 3 NSWLR 365 Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 Austin v Royal [1999] NSWCA 222; (1999) 47 NSWLR 27 Commonwealth Bank v Verwayen (1990) 1 CLR 394 Category: Principal judgment Parties: Sean Ngu (Plaintiff) Australian & New Zealand Banking Group (1st Defendant) FTI Consulting (Australia) Pty Limited (2nd Defendant) Arkbay Investments Pty Limited (in liquidation) (receivers and managers appointed) (3rd Defendant) Representation: Counsel: B Levet (Plaintiff) M Tyson (Defendants) Solicitors: Spectrum Legal Group (Plaintiff) Allens (Defendants) File Number(s): 2013/347430 Judgment 1HIS HONOUR: On 6 July 2011 the first defendant, the ANZ Bank, offered to provide facilities to Arkbay Investments Pty Ltd ("Arkbay") and McEvoy Street Alexandria Pty Ltd ("McEvoy Street") totalling almost $23 million for purposes which included, in the case of one of the facilities, the re-financing of a future development site in Bowden Street, Alexandria. The offer was accepted. The plaintiff, Mr Ngu, guaranteed the obligations of Arkbay and McEvoy Street. 2As security for its advances the ANZ Bank took mortgages over a number of properties, including a first registered mortgage over the property in Bowden Street, Alexandria. It also took mortgages over six other properties. 3Arkbay and McEvoy Street defaulted in making the due payments under the facilities. Administrators were appointed to those companies on 24 April 2013. On the same day the bank appointed receivers. An order for the winding-up of Arkbay was made on 10 May 2013 and for McEvoy Street on 30 May 2013. 4On 30 July 2013 the receivers caused the Bowden Street property to be offered for sale by auction. Prior to the auction Mr Ngu and a Mr Craig Hong had made a proposal to the bank that they pay the amount owed through a company to be incorporated which would acquire the bank's securities with the price for the securities to be paid in instalments. The bank rejected that proposal and advised that the property would be put to public auction on 30 July 2013. Mr Hong was invited to participate in the bidding process, along with other bidders, if so inclined. 5Mr Ngu complains that Mr Hong was excluded from the bidding process. Mr Hong attended the auction but was not permitted to bid. The reason for that was that the receivers had indicated to the auctioneer that they would require documentary evidence from Mr Hong regarding his ability to pay the deposit that would be required by a sale contract. The solicitors for the receivers stated this stipulation was made having regard to their previous experience of Mr Hong in relation to other matters. They said that the receivers had a legitimate concern that if Mr Hong had bid and was the highest bidder he might be unable to pay the deposit, which could have adversely affected the receiver's negotiating position with other parties. 6The property was passed in at auction at a price of $10.3 million, but was sold later that day for a substantially higher price to Alexandria 1 Pty Ltd. The completion date for the contract for sale to Alexandria 1 Pty Ltd was initially 15 November 2013. 7On 5 September 2013 Messrs Allens Linklaters, the solicitors for the bank, gave notice of demand to Mr Ngu in respect of his liabilities under guarantees he gave for the indebtedness of Arkbay and McEvoy Street. The letter stated that: "ANZ now demands immediate payment by you to ANZ under each Guarantee of all moneys owing to ANZ under the Letter of Offer by each Customer respectively. We are instructed that the total amounts due and payable to ANZ by you in your capacity as guarantor under each guarantee for amounts owing by Arkbay and McEvoy Street as at 3 September 2013 are as follows ...". 8There then followed a statement of amounts of principal, interest, daily interest that were said to be outstanding under two facilities: an overdraft account and an indemnity guarantee facility. The total amount demand was $17,702,564.53, together with amounts of daily interest set out in the letter. 9Allens Linklaters then stated that payment should be made by way either of a bank cheque payable to the ANZ Bank delivered to the Bank's office in Pitt Street, Sydney addressed to the attention of Mr Jeff David, or by electronic transfer to nominated accounts. The letter concluded by saying that: "ANZ reserves all of its rights including under each guarantee which you have given to ANZ and any applicable law." 10Clause 5.3 of the guarantee given by Mr Ngu provides: "At any time I can pay to ANZ an amount equal to all of the guaranteed money at that time, or any lesser amount to which my liability is limited at that time...or any other agreed limit. When I ask, ANZ will give me a certificate as to what that amount is." 11On 13 November 2013 the solicitor for Mr Ngu, Mr David Rod, attended at the offices of Allens Linklaters and asked to speak to Mr John Warde. Mr Warde was the solicitor acting for the ANZ Bank. Mr Rod had come without prior appointment or notice. Mr Warde's secretary told Mr Rod that Mr Warde was not available. A conversation to the following effect then occurred: "[Rod]: 'I have a letter for him, and a cheque and some Transfers of mortgages, I need the Transfers of mortgages signed when I give you the cheque' ... She said: 'I can't do that in the absence of Mr Warde'... [Rod]: 'I will leave you the letter and the Transfers of Mortgage, but I can't leave you the bank cheque. Can I leave you a photocopy of the bank cheque to show Mr Warde? that I have tried to tender it' ... She said: 'Yes'." Mr Rod Handed Mr Warde's secretary a photocopy of the cheque. 12The cheque, a copy of which was purportedly tendered, was a bank cheque from Westpac Banking Corporation payable to the ANZ Bank for $17,200,000. 13Mr Ngu remains ready, willing and able to complete the tender of the payment of $17,200,000. That payment has not been accepted by the ANZ Bank. It contends that the amount owing under the guarantee as at 19 November 2013 is $19,865,367.60. A certificate to that effect has been provided by Mr David who describes himself as Executive Director, Lending Services Property at the ANZ Bank. 14Clause 19.1 of the guarantees provides that that certificate is conclusive evidence binding on the guarantor of the amount of the Guaranteed Money owing as at the date mentioned in the certificate. 15On 14 November 2013 the plaintiff caused caveats to be lodged in respect of the Bowden Street property. In the caveats Mr Ngu claimed to be entitled to an estate or interest in that land pursuant to an "equitable mortgage arising due to the caveator's entitlement at law to be subrogated to the benefit of registered mortgage". 16On 18 November 2013 Mr Ngu commenced these proceedings. In his summons he seeks a declaration that the tender by his solicitor on his behalf on 13 November 2013 of a cheque in the sum of $17,200,000 amounted to an effective tender pursuant to the notice of demand issued by the bank on 5 September 2013. He also seeks declarations that "in consequence of the foregoing" the bank's interests in the mortgages that are security for its facilities "are subrogated to the plaintiff". He seeks a declaration that he has an equitable interest in those mortgages and an order that the bank do all acts and things to transfer its interests in the mortgages to him. He seeks an injunction restraining the bank from taking any steps to complete the sale of any properties subject to those mortgages. He also seeks damages. 17The bank has filed a cross-summons in which it seeks orders for the removal of the caveats and injunctions restraining Mr Ngu from lodging further caveats until he has paid amounts certified in accordance with clause 5.3 of the guarantees to be owing to the bank and the bank's securities have been transferred to him, or pending further order. 18The plaintiff's case is that he tendered the amount due that was the subject of the demand of 5 September 2013 when allowance is made for the realisation by the bank of a further security between the date of the demand and the date of the tender. The plaintiff contends that it does not matter that he did not comply with clause 5.3 of the guarantee by seeking a certificate as to the amount owing. He contends that the bank is bound to accept the amount demanded on 5 September 2013 after what he contends is a proper adjustment, whether or not that is the amount actually owing under the guarantee. The basis for this last contention is that it is said that the bank is estopped from claiming any different amount. 19Then it is said for the plaintiff that although he has not in fact paid out the guaranteed debt, because he has tendered the amount he says was the subject of the demand after proper adjustment, and because he remains willing to pay that tendered amount, he is entitled to be subrogated in equity to the bank's remedies under its securities and to a transfer of those securities. 20Implicit in these submissions is a further contention that the alleged right of subrogation is unaffected by the fact that the receivers have caused the mortgagors to enter into a contract for the sale of the Bowden Street property and that sale remains to be completed. 21The time for completion of that sale was extended from 15 November to 28 November and has been further extended by the bank in the purported exercise of a contractual right to do so to 11 December 2013. The purchaser under that contract has complained about the delay in completion and has asserted that the receivers are liable for losses allegedly sustained by reason of that extension. 22When the matter was called on for hearing a solicitor, Mr Shamieh, announced that he appeared for the purchaser Alexandria 1 Pty Limited. It was not joined as a defendant to the proceedings. The question arose as to whether it was a necessary or proper party and should be joined. 23In the result Mr Shamieh did not apply for an order that that company be joined as a defendant. Rather, he sought an adjournment until Monday for his client to express a view about that matter. I refused that application. Alexandria 1 Pty Limited has been on notice of these proceedings since at least 22 November 2013. It has been served with the summons and with the affidavit of Mr Rod that set out the evidence relied upon by the plaintiff. Mr Shamieh was present when the matter was before the registrar last week. 24I decided that Alexandria 1 Pty Limited had had sufficient notice to form a view as to whether it wished to be joined and to be heard on the application and that, in the circumstances of urgency that are present in this case, it would not be just to adjourn the matter. I also took into account the fact that the purchaser's interests would be affected, if they are affected, only indirectly and that the real dispute is between the plaintiff on the one hand and the bank on the other. 25The principles of equitable subrogation which the plaintiff seeks to invoke are well settled (Bofinger v Kingsway Group Limited [2009] HCA 44, 239 CLR 269 at [98].) In McColl's Wholesale Pty Limited v State Bank of New South Wales [1984] 3 NSWLR 365 the principle was stated by Powell J (as his Honour then was) (at 378) as follows: "... a surety who pays the debt is entitled to have assigned to him every judgment, specialty or other security which is held by the creditor in respect of the debt whether or not at law it is deemed to have been satisfied by payment; and he is entitled to stand in the place of the creditor and use all his remedies in order to obtain indemnification from the principal debtor or contribution from any co-surety for advances made and losses sustained by him. In fact after payment of the debt the Act [viz. now s 3 of the Law Reform (Miscellaneous Provisions) Act 1965] operates as an implied assignment of the securities and places the surety in the position previously occupied by the creditor albeit for the purpose of enforcing the surety's right to an indemnity."(citation of authority omitted). 26The right of subrogation only arises once the guarantor has paid the principal debt in full. (See for example, Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 and Austin v Royal [1999] NSWCA 222; (1999) 47 NSWLR 27). 27The plaintiff has not paid any amount of debt. He has tendered an amount which he claims the bank is required to accept as satisfaction of his guarantee. But even if that contention is correct, it is not demonstrated that he has paid the full amount that is secured by the mortgages to which he seeks to be subrogated. In Austin v Royal Cole AJA (as his Honour then was) with whom Meagher and Handley JJA agreed said (at [19]) that: "The theory underlying the equitable concept of subrogation is that a creditor, having no use for a security over his debt and assets because the creditor's debts have been paid and obligations discharged by the guarantor, is obliged to transfer that security to the guarantor who may then enforce it to recover the monies from the debtor which he, the guarantor, has paid to the creditor." 28Even if, for reasons of estoppel, the bank could not recover more than $17.2 million from the plaintiff under his guarantees, it would not follow that the bank had no further use for its securities to which the plaintiff claims to be subrogated. Cole AJA went on to say: "... where a creditor is still properly exercising rights under his security it cannot be said that the creditor has no further use for or entitlement to hold the security. It remains 'alive' for his benefit. Where an appointed receiver being a creature of the security is continuing properly to exercise powers given by the security it cannot be said that the creditor no longer has need for further use of the security. That is because it is indicative that the debt or obligations under the security have not been paid or satisfied in full. In such circumstances no entitlement in the guarantor to subrogation in the sense of an entitlement to receive the security can arise." That is this case. 29In any event I do not accept that the plaintiff has shown that he has tendered an amount that was due by him, nor do I accept that the bank is estopped from asserting that a different and higher amount is owing under the guarantee than was claimed in the demand of 5 September 2013. 30The plaintiff did not pay the amount demanded in the letter from Allens Linklaters of 5 September 2013. The amount demanded was $17,702,564.53 plus daily interest. Instead, more than two months later, the plaintiff tendered a payment of $17,200,000. The adjustment was said to be owing to the fact that, according to searches undertaken by the plaintiff, another property at Canton Beach that had been the subject of an ANZ mortgage, its being collateral security for the same debt, had been sold and the sale settled for a sum of approximately $969,000. 31Whilst this appears to be the fact, it is likely that further moneys would have become owing that were the subject of the guarantee between 5 September and 13 November 2013. This would include, for example, receivers' expenses and legal expenses. 32The plaintiff did not take the obvious step of asking the bank to certify what was the amount that was owing at the time he proposed to tender payment. Counsel for the plaintiff frankly acknowledged that the reason why that was not done was because the plaintiff apprehended that if that step were taken the demand might be withdrawn. In subsequent correspondence the bank has claimed a higher amount, at least in part due to the charging of interest at default interest rates which may not have been the basis for the amount claimed in the demand. 33There can be no estoppel precluding the bank from claiming whatever sum it is truly entitled to under the guarantee. That is so for a number of reasons. First, in the demand the bank reserved all its rights under the guarantee. Secondly, there is no evidence that the plaintiff made any assumption about the bank's rights on which he has acted to his detriment so that it would be unconscionable for the bank to depart from an assumption that it induced him to adopt (see Commonwealth Bank v Verwayen (1990) 1 CLR 394 at 444-445). The guarantee provided the means in cl 5.3 by which the plaintiff could establish what was the sum he would be required to pay in order to be released from the guarantee. He did not avail himself of that procedure. 34So far as the complaints about the sale of the Bowden Street property to Alexandria 1 Pty Ltd are concerned, it is sufficient to say as follows. First, that complaint is extraneous to the grounds on which the plaintiff claimed to be entitled by subrogation to the benefit of the bank's securities. Secondly, the evidence does not establish any proper ground of complaint. 35In correspondence and in submissions the plaintiff said that a proper price had not been received. There was no evidence about that at all. The complaint that Mr Hong had been excluded from the bidding process does not appear to be justifiable. The receivers put forward what on their face were reasonable grounds for requiring Mr Hong to provide evidence as to his ability to pay the deposit. It appears that he did not provide evidence as to his means to pay a deposit which would be payable if he were the successful bidder. 36There is no evidence from Mr Hong that he would have been able to exchange contracts for an amount greater than the price at which the property has been sold to Alexandria 1 Pty Ltd. 37In any event, the plaintiff's claim to be subrogated to the bank's securities does not depend upon his demonstrating any impropriety in the sale. Nor is it enhanced by his allegations in that regard. 38For these reasons I conclude the plaintiff is not entitled to be subrogated to the bank's securities. He is not entitled to the interest claimed in the caveats and he is not entitled to an order requiring the bank to transfer the securities to him on tender of the sum of $17,200,000. 39No basis for a claim for damages has been made out. The plaintiff is not entitled to restrain the receivers from completing the sale to Alexandria 1 Pty Ltd. 40I order that the plaintiff's summons be dismissed. 41The cross-claimants are entitled to orders requiring the withdrawal of the caveats. There has been no substantive argument on the question as to whether the cross-claimants are also entitled to an injunction to restrain the plaintiff from lodging any further caveats. I will hear the parties on that if that order is pressed. Paragraph 1 of the cross-claim seeks an order requiring the plaintiff to withdraw the caveats by 4pm today. It is now 4pm. I will make an order requiring those caveats to be withdrawn by noon on Monday 9 December 2013. I will hear the parties in relation to any further injunctive relief sought and/or costs. [Parties addressed.] 42I order that by 4pm on 9 December 2013 the plaintiff withdraw caveats numbered AI162813W and AI162812Y. 43I order that the plaintiff/cross-defendant pay the defendants'/cross-claimants' costs of the proceedings. 44These orders may be entered forthwith. 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: 16 December 2013