Supreme Court New South Wales Medium Neutral Citation: Dana Rahme v Benjamin & Khoury Pty (ACN 104 057 043) [2016] NSWSC 774 Hearing dates: 27 May 2016 Date of orders: 14 June 2016 Decision date: 14 June 2016 Jurisdiction: Equity Before: Rein J Decision: See [23] Catchwords: EQUITY- PRACTICE- Claim to monies paid into Court following agreement upon the removal of a caveat based on an equitable charge lodged by the claimant in respect of plaintiff's land; plaintiff also a judgment creditor for an amount in excess of the fund; PROCEDURE- Notice of Motion appropriate pursuant to UCPR. Legislation Cited: Legal Profession Act 2004 (NSW) Contracts Review Act 1980 (NSW) Real Property Act 1900 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Parts 18, 41&55 Trustee Act 1925 (NSW) Competition and Consumer Act 2010 (Cth) Schedule 2 (Australian Consumer Law) Cases Cited: Commonwealth Bank of Australia v Estate of the Late Mahmoud Slieman [2010] NSWSC 661 Avco Financial Services Ltd v Commonwealth Bank (1989) 17 NSWLR 679 JKB Holdings v de la Vega [2013] NSWSC 501 Texts Cited: N/A Category: Procedural and other rulings Parties: Dana Rahme (Plaintiff) Benjamin & Khoury Pty (ACN 104 057 043) (Defendant) Representation: Counsel: D. Allen (Plaintiff) J.R Young (Defendant) Solicitors: Kekatos Lawyers (Plaintiff) Benjamin & Khoury Solicitors (Defendant) File Number(s): 2015/363098 Publication restriction: Nil Judgment 1. In December 2015 Ms Rahme ("the Plaintiff") paid into Court an amount of $185,000.00 pursuant to consent orders between Benjamin & Khoury Pty Ltd ("BKP") solicitors and the Plaintiff. The proceedings then on foot in the Equity Division concerned a caveat which BKP had lodged on a property owned by the Plaintiff. The Plaintiff had sought a loan from a financier and the financier required the caveat to be removed as a condition of the loan. The financier was told by the Plaintiff that an amount of $185,000.00 was owing to BKP and it was a condition of a loan of $835,000.00 being made to the Plaintiff that the Plaintiff pay $185,000.00 of the money lent to BKP. 2. The caveat claimed an interest in the Plaintiff's land pursuant to a Deed of Equitable Charge Over Land of 13 September 2010 and a Deed of Variation of 5 October 2010. The first Deed was in respect of legal fees up to an amount of $50,000.00 and the second Deed (see Exhibit B) increased the amount to $250,000.00. The Plaintiff had entered into two costs agreements with BKP in December 2009 and June 2010. 3. On 30 June 2013 BKP lodged an Application for the Assessment of Costs and on 20 December 2013 it lodged the caveat. On 21 July 2014 the Costs Assessor determined that $168,456.96 was owed by the Plaintiff to BKP. On 5 September 2014 a judgment was entered in the Supreme Court for that amount. By December 2015 with interest the amount due on the judgment had reached $187,000.00, but BKP had indicated its willingness to accept $185,000.000 if it was paid that amount. 4. No application was made by the Plaintiff to have the costs determination reviewed pursuant to s373 of the Legal Profession Act 2004 (NSW) ("LPA") (since repealed) and no appeal from the determination was lodged by the Plaintiff pursuant to s384 or s385 of the LPA. 5. In November 2015 the Plaintiff served a Statement of Claim in proceedings in the Common Law Division (2015/300814). Those proceedings contain a claim against three different firms of solicitors including BKP. 6. The Plaintiff in those Common Law proceedings claims that BKP, in breach of a duty of care owed to companies controlled by her husband ("the Rahme Companies") and to her, failed to advise that the proceedings against Bellavista Pty Ltd were doomed to fail, and that the claims of the Rahme companies could not be assigned to the Plaintiff. The Plaintiff seeks, by her Amended Statement of Claim, inter alia, to have the Costs Agreements and the Deeds of Equitable Charge into which she entered in connection with BKP's fees set aside pursuant to the Competition and Consumer Act 2010 (Cth) Schedule 2 (Australian Consumer Law) and the Contracts Review Act 1980 (NSW). The Plaintiff claims in those proceedings that any costs for which she has become liable have arisen because of the failure of BKP to properly advise her and that had advice been given in terms of what it is alleged the advice should have been she would not have entered into the Deeds of Charge and Costs Agreements. The Common Law proceedings are not well advanced (apparently there have been delays on the part of the Plaintiff's legal representatives to date) and it appears that the earliest the matter could be heard would be next year. 7. By her proceedings in this division (2015/00363098-1) the Plaintiff sought to have a caveat lodged by BKP removed pursuant to s74O of the Real Property Act 1900 (NSW) ("RPA"). Although BKP had lodged a caveat in 2010 that caveat had lapsed. BKP claimed that it had not received any lapsing notice in respect of its original caveat and apparently its representations to the LPI were accepted and a fresh caveat was lodged in identical terms to the earlier affidavit: see the affidavit of Mr Jean Paul Khoury of 17 December 2015 Exhibit A Tab 7. 8. It seems clear that in order to obtain the loan, the Plaintiff was compelled to have the caveat removed. BKP agreed to do so in return for evidence that the $185,000.00 would be paid into Court (see Tab 9 and Tab 11) and the money was paid into Court. I shall refer to that money as "the Fund." 9. BKP now seeks by Notice of Motion to have the Fund paid out to it. The Plaintiff resists that claim. 10. BKP for whom Mr J.R. Young of Counsel appears, puts its entitlement to the money on three bases: 1. It is a judgment creditor of the Plaintiff with a judgment of this Court for more than the amount of the Fund. 2. The money represents the secured equitable interest which BKP had in the land which equitable interest was protected by the caveat. 3. The lender lent the $185,000.00 to the Plaintiff in order for the Plaintiff to pay the $185,000.00 which the Plaintiff has not done. 1. Mr D. Allen of Counsel for the Plaintiff resists BKP's claim to be entitled to funds on a number of bases: 1. He submits that the procedure utilised (i.e. a Notice of Motion) is not appropriate. He accepts that the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) Part 55.11 r (2) states that applications for payment out of monies paid into Court are to be made by Notice of Motion, but contends that as the money constituting the Fund was not paid into Court under the Trustee Act 1925 (NSW), UCPR Part 55 is not relevant. Rather, Mr Allen contends, a summons should have been utilised. 2. That BKP must establish its entitlement to the fund. He claims that BKP's position as a judgment creditor is not sufficient and that there has never been a determination by this Court that BKP does have an equitable interest in land. The Court granted liberty to BKP to apply to have the fund paid out but the Court has not determined BKP's entitlement. He relies on Commonwealth Bank of Australia v Estate of the Late Mahmoud Slieman [2010] NSWSC 661(which in turn is based on Avco Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679 at 683C.) 3. The Plaintiff in the Common Law proceedings contends that the Deeds and Costs Agreement should be set aside. This Court should not permit BKP, an unsecured creditor, to have the Fund. 1. In relation to the procedural point I accept that the payment into Court was not one made pursuant to the Trustee Act, with the consequence that Part 55 does not apply. Mr Allen's submissions ignore however the existence of Part 41, which is another part dealing with payment of money into Court. That Part is available to deal with a multiplicity of situations: see the commentary in the NSW Civil Procedure Handbook Part 41.20 and see JKB Holdings v de la Vega [2013] NSW SC 501 [14]. As the commentary at 41.60 points out, where there is no procedure specified the application should be made by Notice of Motion in existing proceedings under r.18.1 or otherwise presumably by Summons. In this case the money was paid into Court in connection with the caveat proceedings and therefore a Notice of Motion is procedurally the correct method of ventilating BKP's claim to the Fund. 2. In JKB Holdings Lindsay J at [6] [121] [123] drew attention to the fact that Slieman and other cases of that kind are cases on UCPR Part 55 have no direct application to claims under Part 41 although they do offer comments of relevance on the onus of proof. 3. In Slieman Slattery J reiterated the three requirements for payment under Part 55: 1. That the Court must be able to identify the person who is entitled to the fund. 2. That the claimant is a person with a beneficial interest in the very fund that has been paid into Court and not just an unsecured creditor. 3. That the other potential claimants to the fund are identified. 1. As Lindsay J explained in JKB Holdings the basis of the payment into Court needs to be identified- it may be by reason of legislation, an order for security for costs or as a means of preserving the proceeds of sale of property the subject of competing claims and said: "[14] The diversity attending payments into court calls attention to the need, on an application for payment out, to inquire as to the nature and purpose of the antecedent payment in. This is necessary to ensure that the Court acts within its mandate, judicially, and in a manner that gives due recognition to the rights and expectations of persons who may claim to be "entitled" to property affected by an exercise of the Court's jurisdiction." 1. In JKB Holdings a property over which the plaintiff claimed to have equitable charge was sold and the proceeds paid into Court. His Honour said: "[95] There is a substantial foundation in the authorities (including judgments of Australian intermediate courts of appeal) for description of the funds in court (or, equally, funds held by a stakeholder) as a form of "security" for payment of moneys found to be due by the defendants to the plaintiffs: Commercial Banking Company of Sydney Limited v Colonial Financiers of Australia Pty Limited [1972] VR 702 at 705 and 706; Shirlaw (now Rogers) v Malouf (1989) 15 ACLR 641 at 647; Equuscorp Pty Limited v Wilmoth Field Warne (a firm) [2006] VSCA 123 at [22]-[23]; Grizonic v Suttor [2011] NSWSC 471 at [48]. Cf, Re Caboolture Park Shopping Centre Pty Ltd v White Industries (Qld) Pty Ltd [1989] FCA 548; 90 ALR 589 at [16]-[19]." 1. In this case the orders required the Plaintiff to pay $185,000.00 into Court and permitted BKP to make application for the payment out. There was at the time a claim by the Plaintiff that the second caveat lodged was not valid and the fact that she challenged the underlying Costs Agreement and Deed of Charge in the Common Law proceedings was known. 2. I have referred to BKP's assertion that the $185,000.00 was impressed with a trust because the Plaintiff received the money in order to pay out BKP. A short answer to this point however is that by agreeing to accept the payment into Court BKP gave up any right to assert as against the Plaintiff that payment into Court, as opposed to payment to BKP direct, was a breach of trust by the Plaintiff viz a viz the lender i.e. even assuming that a party (C) to whom payment was to be made by agreement between A and B could otherwise claim as a beneficiary. 3. Mr Allen contended that BKP could not establish that it had a charge because the document said to create the charge was not in evidence. Mr Young then tendered a copy of the charge but Mr Allen pointed out that it was not stamped and could not be received into evidence. Mr Young then obtained the original document which is stamped and it became Exhibit B. 4. Exhibit B clearly establishes the equitable charge over the land. Although there might have been an issue about whether the second caveat should have been permitted to be lodged or not and whether it should have been removed (and there is material which supports BKP's claim that BKP was never served with the Plaintiff's lapsing Notice) the real question is whether the payment made into Court is referable to the charge constituted by the Deed of Charge and in my view it clearly is. The connection is given emphasis by the fact that the $185,000.00 came from the lender for the specific purpose of discharging the caveat and the lender intended that the money be paid to BKP. BKP was a secured creditor by dint of the charge and its mode of enforcing its security altered from the caveat lodged in respect of the Fund. The Plaintiff did not, in the proceedings before me, seek to establish the claims she advances in the Common Law proceedings. Other than the Plaintiff the only party with a claim to the Fund is BKP, and BKP is a secured creditor who has established its entitlement to the Fund. 5. If I am wrong in that conclusion and BKP is an unsecured creditor and has no claim on the Fund then it must follow that the Fund is the property of the Plaintiff. Like all property of the Plaintiff it is available to BKP to obtain satisfaction of the judgment debt just as if the Fund was sitting in a bank account owned by the Plaintiff. Given that BKP has a judgment in its favour in this Court which the Plaintiff has failed to satisfy and has never directly challenged BKP should be entitled to an order for payment of that Fund. This would not be on the basis of any ownership or interest in the Fund but because the Fund is, on this hypothesis, the Plaintiff's property. 6. In coming to that alternative basis I should note that I have given consideration to Mr Allen's contention that removal of the Fund should await the outcome of the Common Law proceedings. I do not accept that contention for the following reasons: 1. The Common Law proceedings were commenced only in October 2015. The judgment obtained by BKP was obtained on 5 September 2014 (Exhibit A Tab 11), and the fees were rendered before, at least, December 2013. 2. The Common Law proceedings are progressing slowly and a hearing date is not likely to be obtained for more than a year. The pace of the Common Law proceedings is largely dictated by the Plaintiff. 3. The Plaintiff has taken no action to appeal from or have the BKP judgment set aside. 4. The Plaintiff's case in the Common Law proceedings may involve a collateral attack on the BKP judgement but it need not necessarily do so since if the Plaintiff is successful in those proceedings and has paid the $185,000.00 it will almost certainly be able to recover as damages from BKP what has been paid to BKP. 5. The Plaintiff wanted the caveat removed and obtained that removal by agreeing to the substitution of the Fund in lieu; so she has obtained the advantage (i.e. receipt of the balance of the borrowed funds) already whilst refusing payment to BKP of the amount that she borrowed. 6. Mr Allen's contention that BKP was free to issue a bankruptcy notice or garnishee notice or writ of execution on the Plaintiff's property as a result of the non-payment of the BKP judgment but cannot obtain the Fund directly seems to encourage an impractical and costly course that does not seem justified. His contention that disposition of the Fund should await the outcome of the Common Law proceedings seemed to sit uncomfortably with his position that should his client be unsuccessful against BKP in the Common Law proceedings the Fund should still not go to BKP: see T18.17-49. Conclusion 1. I therefore conclude that the Fund i.e. $185,000.00 together with any interest accrued thereon should be paid out of Court to BKP, and the Plaintiff should pay BKP's costs of the motion. 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: 14 June 2016