Combis and Staatz as Joint and Several Liquidators of RB Hospitality Holdings Pty Limited (In Liquidation) v Lee

1. [1]

   JOHNSON J: On 29 July 2020, Davies J, the Possession List Judge, made an order pursuant to Rule 28.2 Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) that certain questions in these proceedings be determined separately and prior to the final hearing of the proceedings: Combis & Staatz as joint and several liquidators of RB Hospitality Holdings Pty Ltd (In Liquidation) v Lee [2020] NSWSC 960 (“Combis and Staatz v Lee”).

The Proceedings

1. [2]

   These proceedings were commenced by Statement of Claim filed in the Possession List of the Common Law Division on 20 December 2018. The Plaintiffs, Nick Combis and Steven Staatz as joint and several liquidators of RB Hospitality Holdings Pty Ltd (In Liquidation), sought possession of land contained in two folios situated at Sapphire Road, Gunning (“the Gunning property”). The Statement of Claim also sought an order that the Defendant, Richard Andrew John Lee, pay to the Plaintiffs the sum of $293,643.87.

2. [3]

   By Amended Defence filed on 3 January 2020, the Defendant denied the Plaintiffs’ claim for relief.

3. [4]

   The crystallisation of the real issues in dispute between the parties has given rise to the identification of separate questions to be determined by the Court ahead of any final hearing.

Factual Background

1. [5]

   The factual background to these proceedings is not in dispute.

2. [6]

   On 20 February 2015, RB Hospitality Holdings Pty Ltd (“the Company”) was ordered to be wound up by the Supreme Court of Queensland and the Plaintiffs were appointed as liquidators.

3. [7]

   The Defendant was the sole director and 50% shareholder of the Company, which carried on a hotel business under the name “O’Neill’s of Dickson”.

4. [8]

   The Defendant objected to the winding up and asked the Plaintiffs to allow the Company to continue to trade the hotel business. To that end, a General Deed of Indemnity was entered into between the Plaintiffs and the Defendant on 5 March 2015.

5. [9]

   The General Deed of Indemnity was varied by a Deed of Variation on 23 April 2015, with a view to facilitate the consideration by creditors of a Deed of Company Arrangement.

6. [10]

   On 23 April 2015, the Defendant also granted the Plaintiffs a Mortgage over the Gunning Property to support any liabilities under the General Deed of Indemnity and the Deed of Variation.

7. [11]

   In due course, the Plaintiffs asserted that the Defendant was obliged to pay to the Plaintiffs the sum of $293,643.87 made up in the following way:

8. [12]

   The Defendant denies that he is liable to the Plaintiffs for these sums.

Application for Determination of Separate Questions

1. [13]

   By Notice of Motion filed 10 June 2020, the Defendant sought an order under Rule 28.2 UCPR for separate determination of certain questions.

2. [14]

   The hearing of the Notice of Motion proceeded before Davies J on 25 June 2020 and 24 July 2020.

3. [15]

   The parties agreed that the issues to be determined separately could be considered by reference to three identified documents – the General Deed of Indemnity, the Deed of Variation and the Mortgage.

4. [16]

   Davies J determined that an order under Rule 28.2 UCPR should be made for the following reasons (Combis and Staatz v Lee at [29]-[30]):

Separate Questions for Determination

1. [17]

   The separate questions for determination by the Court are as follows:

Hearing of the Separate Questions

1. [18]

   The hearing of the separate questions proceeded before me on 16 November 2020. Mr DK Smith of counsel appeared for the Plaintiffs and Mr M Bennett of counsel appeared for the Defendant.

2. [19]

   As agreed before Davies J, the evidence was documentary only and comprised:

3. [20]

   Counsel had furnished written submissions in advance of the hearing and oral submissions were made with respect to the issues arising for determination.

Extracts from the Critical Documents

1. [21]

   Before moving to submissions made, it is appropriate to set out relevant parts of the documents which fall for consideration and construction in this judgment.

2. [22]

   The General Deed of Indemnity dated 5 March 2015 was between the Defendant (as the “Indemnifier”) and the Plaintiffs (as the “Indemnified Party”).

3. [23]

   The General Deed of Indemnity contained the following Recitals:

4. [24]

   Clause 2 of the General Deed of Indemnity is of particular significance in its original and varied form. In its original form in the General Deed of Indemnity, Clause 2 provided as follows:

5. [25]

   It is not necessary to refer to any other part of the General Deed of Indemnity for the purpose of considering the separate questions.

6. [26]

   The Deed of Variation and the Mortgage were each dated 23 April 2015. As will be seen, the two documents should be considered together.

7. [27]

   Clause 2.1 of the Deed of Variation amended the Recitals to read as follows:

8. [28]

   The General Deed of Indemnity did not contain definitions. However, Clause 2.2 of the Deed of Variation introduced a series of definitions of which the following have particular significance to the determination of the separate questions:

9. [29]

   Of critical importance to the separate questions is the amendment to Clause 2 of the General Deed of Indemnity as effected by Clauses 2.4, 2.5 and 2.6 of the Deed of Variation. Those clauses stated:

10. [30]

    It is helpful at this point to set out Clause 2, the indemnity clause, as it stood after the amendments made by the Deed of Variation. Clause 2 then stated:

11. [31]

    Clause 4 of the General Deed of Indemnity concerned the provision of security by the Defendant. In its amended form after the Deed of Variation, Clause 4 provided that, as security for performance of the Defendant’s obligations under the Deed, he granted to the Plaintiffs a mortgage over his interest in the Gunning property.

12. [32]

    Clause 5 of the General Deed of Indemnity dealt with default. After amendment by the Deed of Variation, Clause 5 read as follows:

13. [33]

    Other amendments were made to the General Deed of Indemnity by the Deed of Variation, but it is not necessary to refer to them for the purpose of determining the separate questions.

14. [34]

    The Mortgage dated 23 April 2015 contained provisions to which the Court was taken by the parties. Clause 1.1(a) related to the Defendant’s “Money Obligations” and said:

15. [35]

    Clause 12.1 of the Mortgage contained a number of definitions, including the following:

16. [36]

    The Mortgage was registered under the Real Property Act 1900 (NSW).

Relevant Legal Principles

1. [37]

   There was no dispute concerning the principles to be applied in construing the relevant documents for the purpose of answering the separate questions.

2. [38]

   When construing a contract, the inquiry is what a reasonable person, in the position of the parties, would have considered the clause to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [35]-[36] and [40]. This is to be determined from the natural and ordinary meaning of the words used in light of the document as a whole: Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510; [1986] HCA 82.

3. [39]

   In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, French CJ, Nettle and Gordon JJ said at [46]-[47] (footnotes omitted):

4. [40]

   In McVeigh v National Australia Bank (2000) 278 ALR 249; [2000] FCA 187 at [30], Finkelstein J said with respect to the construction of any instrument:

5. [41]

   Whether, or the extent to which, the Mortgage grants a security interest that can be enforced against the Gunning property involves a question of construction: Perpetual Trustees Victoria Ltd v English (2010) 14 BPR 27,339; [2010] NSWCA 32 at [112].

6. [42]

   The construction of the Mortgage requires consideration of the system of title by registration effected by the Real Property Act 1900 (NSW). In accordance with s.41(1) of that Act, upon registration of a mortgage, the land becomes "liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified" in the Mortgage.

7. [43]

   In Perpetual Trustees Victoria Ltd v English, Sackville AJA (Allsop P and Campbell JA agreeing) said at [68]:

8. [44]

   Counsel for the Defendant referred to the final sentence of the last mentioned paragraph (Perpetual Trustees Victoria Ltd v English at [68](8)). It was submitted that this principle had particular application in this case.

9. [45]

   It is appropriate to consider firstly Questions 1 and 2 (concerning Liquidator Fees) before turning to Questions 3, 4 and 5 (concerning Cash Surplus) and then to Question 6 (concerning an inquiry into reasonableness of remuneration in these proceedings).

Questions 1 and 2 - Liquidator Fees

1. [46]

   Mr Smith submitted that the resolution of Questions 1 and 2 required construction of the Deed of Variation and the Mortgage. He submitted that it was necessary to read together the amendment made by Clause 2.4 of the Deed of Variation and the definitions of “Liabilities” and “Remuneration” as contained in Clause 2.2 of the Deed of Variation.

2. [47]

   Counsel submitted that, when read together, the Deed of Variation provided unambiguously that the Liquidator Fees were covered so that the Plaintiffs may seek to recover them in the way sought in the Statement of Claim.

3. [48]

   With respect to the commercial purpose of the Deed of Variation, Mr Smith observed that the Defendant had asserted that the Company was solvent and, for that reason, that he should be permitted to continue operating its business. In that circumstance, Mr Smith submitted that it was no surprise that the creditors and the liquidators should require a complete indemnity for their financial risk and that the Defendant should be willing to provide that complete indemnity.

4. [49]

   Counsel for the Plaintiffs submitted that the liquidator’s power to continue trading under s.477(1)(a) Corporations Act 2001 (Cth) required them to ensure that the business of the Company was being carried out for the beneficial disposal or winding up of the business. In those circumstances, it was submitted, a full indemnity was necessary to ensure that this duty was observed.

5. [50]

   With respect to a submission made for the Defendant that Clause 2.4 should be construed as indemnifying all claims and liabilities which arise out of the Plaintiffs’ remuneration, but not the remuneration itself, it was submitted for the Plaintiffs that this construction was quite inconsistent with the clear words contained in Clause 2.4 (as amended) and the definitions of “Liabilities” and “Remuneration” in Clause 2.2.

6. [51]

   Counsel for the Plaintiffs submitted that the Liquidator Fees were caught by the contractual arrangements between the parties so that Questions 1 and 2 should be answered in the affirmative.

7. [52]

   Mr Bennett submitted that Clause 2.4, as amended, operated to indemnify the Plaintiffs from any claim or liability incurred by them at the hands of some third party. Counsel submitted that Clause 2.4 ought not be construed as allowing the Plaintiffs to recover sums such as Liquidator Fees directly from the Defendant. It was submitted that the use of the words “incurred by the Indemnified Party” in Clause 2.4 was inconsistent with recovery of remuneration which the Plaintiffs say they were entitled to recover directly from the Defendant by way of Liquidator Fees. It was submitted that liquidator’s professional fees are not “incurred”, but are “generated” with this being an important distinction in the construction of the clause.

8. [53]

   It was submitted for the Defendant that the professional fees and expenses of the Plaintiffs were not incurred by them (as the Indemnified Party), but were fees generated by them (as the Indemnified Party). The sum represented remuneration to, and not an expense or cost of the Indemnified Party.

9. [54]

   It was submitted for the Defendant that the entire regime of the carefully drafted agreements involving the General Deed of Indemnity, the Deed of Variation and the Mortgage, was to indemnify the Plaintiffs for claims made against them or liabilities that they owed to others.

10. [55]

    Viewed in this way, it was submitted that the sum of $183,019.54 did not fall within that class of claim.

11. [56]

    The amendments made by the Deed of Variation of 23 April 2015 included a more comprehensive form of indemnity, which incorporated by reference definitions of the terms “Claims” and “Liabilities” which had not been in the General Deed of Indemnity.

12. [57]

    It is necessary to consider these terms together in construing the indemnity clause which applied from 23 April 2015. The Defendant had asserted that the Company was solvent and, for that reason, that he should be permitted to continue operating its business. The Plaintiffs were prepared to allow this to occur, with a carefully crafted contractual arrangement intended to provide a complete indemnity for their financial risk, and with the Defendant to provide that indemnity. In the circumstances of this case, that indemnity extended to “Remuneration” which included the professional fees of the Plaintiffs.

13. [58]

    The submission advanced for the Defendant requires the term “Remuneration” (and its definition) to be effectively ignored in construing Clause 2.4. Clause 2, as amended, required the Defendant to indemnify the Plaintiffs with respect to a very broad category of financial obligation, with “Liabilities” including “Remuneration” which included “the professional fees of” the Plaintiffs.

14. [59]

    It is clear that Clause 2 was intended to operate in a manner which constrained the Defendant in a number of respects, and required him to meet a closely defined class of monetary obligations by means of the indemnity clause in Clause 2.

15. [60]

    I do not accept the Defendant’s submission that the use of the word “incurred”, instead of the word “generated”, gives rise to a meaningful distinction in this case. The word “incurred” accommodates reasonably the Defendant’s liability for the professional fees of the Plaintiffs.

16. [61]

    During the course of submissions, I observed that the Defendant’s submission appeared to contend that Clause 2 operated as a shield for the Plaintiffs to guard against any form of liability at the hands of a third party, but not as a sword or basis upon which the Plaintiffs could seek to recover monies (such as Liquidator Fees) from the Defendant. Counsel for the Defendant adopted that analogy in support of his submissions for the Defendant.

17. [62]

    The difficulty with the Defendant’s submission is that it does not sit comfortably with the clear and extensive provisions contained in Clause 2 and the definitions introduced by the Deed of Variation with particular application to the amended Clause 2.4. The Defendant’s submission would require, in effect, the Court to disregard terms within the contract which, I am satisfied, have clear application to the present circumstances. I do not accept the Defendant’s submission in this respect.

18. [63]

    I am satisfied that the proper construction of Clause 2 of the Deed of Variation extends that provision to Liquidator Fees in the sum of $183,019.54.

19. [64]

    For these reasons, I propose to answer Questions 1 and 2 in the affirmative.

Questions 3, 4 and 5 - Cash Surplus

1. [65]

   The premise of Questions 3, 4 and 5 is that the Defendant has retained the Cash Surplus (money generated from operating the Company’s business) for himself rather than pay it to the Company or to the Plaintiffs as liquidators.

2. [66]

   The Court was informed that there was some controversy concerning this issue. However, for the purpose of determination of the separate questions, the Court was invited to proceed upon the basis that there was a Cash Surplus retained by the Defendant.

3. [67]

   Mr Smith submitted that the term “Claims” was defined in the widest possible terms, including many concepts “howsoever arising”. It was submitted that the Plaintiffs had a claim to the Cash Surplus in the following way:

4. [68]

   It was submitted that the Plaintiffs’ right to require that the Defendant pay the Cash Surplus to them under s.483 Corporations Act 2001 (Cth) fell within the definition of the term “Claims” in Clause 2.2 of the Deed of Variation. It was submitted that the term “Claims” is not limited to claims that third parties may bring against the Plaintiffs as liquidators as argued by the Defendant.

5. [69]

   The Plaintiffs submitted that there is nothing in the text of the contractual documents that limited the term “Claims” in the way suggested by the Defendant. Rather than limiting the term to claims against the liquidators, it was submitted for the Plaintiffs that claims of every description are included. It was submitted that “Claims” and “Liabilities” are different and that, if it was intended that claims be limited to claims against the liquidators, the term “Claims” could have been included in the definition of “Liabilities” rather than being dealt with separately in the contract.

6. [70]

   It was submitted for the Plaintiffs that the Defendant’s argument that there was a distinction between claims brought by the liquidators and claims brought against the liquidators was highly artificial.

7. [71]

   Accordingly, counsel for the Plaintiffs submitted that the claim for the Cash Surplus fell within the contract so that Questions 3, 4 and 5 should be answered in the affirmative.

8. [72]

   Mr Bennett submitted that the claim by the Plaintiffs for the Cash Surplus was not an amount, or an activity giving rise to an amount, that was contemplated by the contractual arrangements between the parties. Counsel submitted that Clause 2 of the Deed of Variation imposed obligations to pay by way of an indemnity, but that nowhere else did the Deed require the Defendant to make payments to the Plaintiffs or to anyone else. He submitted that the contract was a deed of indemnity which did not apply to any obligation to account which arose independently of the Deed.

9. [73]

   Counsel for the Defendant submitted that the Cash Surplus, if it exists, is not a claim against or liability to the Plaintiffs as Indemnified Party. At best, it is a pool of funds to which the Company itself may pursue by legal recourse; that is, it is a potential asset of the Company. To fall within the indemnity, it was submitted, it must be an actual liability of the Plaintiffs as Indemnified Party. As the alleged Cash Surplus is a potential asset (rather than a liability) and it is the Company’s asset (rather than the Indemnified Party’s), then the Cash Surplus is not caught by paragraph 12(b) of the Statement of Claim.

10. [74]

    It was submitted further for the Defendant that the Cash Surplus does not fall within the Mortgage because the Company’s potential claim is not one of the constituent elements of the “secured moneys” definition in the Mortgage. Accordingly, the Defendant submitted there was no scope for the Mortgage to cover the Cash Surplus.

11. [75]

    Once again, it is appropriate to construe the contractual documents which operate as between the Plaintiffs and the Defendant, including the Mortgage, which is a related document.

12. [76]

    The Defendant’s liability under the Mortgage extends to “secured money” under the “Deed” which, it was accepted, included amendments made by the Deed of Variation of 23 April 2015.

13. [77]

    It is necessary to keep in mind the context in which the contractual arrangement between the Plaintiffs and the Defendant came about and were varied on 23 April 2015. Upon the basis that the Defendant was to be permitted to continue operating the business of the Company, he was required to provide an exhaustive contractual commitment to protect the Plaintiffs as liquidators including an agreement to pay all claims (without restriction and however arising) which the Plaintiffs made against the Defendant.

14. [78]

    The claim for the Cash Surplus is one connected with the operation of the business so that there is a linkage to the subject matter which concerned both the Plaintiffs (as liquidators) and the Defendant.

15. [79]

    I accept the submission for the Plaintiffs (at [67] above) as to the way in which the Defendant was liable to pay the Cash Surplus to the Plaintiffs. The requirement to pay the Cash Surplus to the Plaintiffs fell within the broad definition of “Claims” and was caught by Clause 2 as amended by the Deed of Variation.

16. [80]

    I am satisfied that the claim in the sum of $110,624.33 by way of Cash Surplus was maintainable by the Plaintiffs against the Defendant under their contractual arrangement and that this fell within the definition of “secured money” in the Mortgage. In this way, it is open to the Plaintiffs to claim for the Cash Surplus against the Defendant in the manner utilised in the Statement of Claim.

17. [81]

    For these reasons, each of Questions 3, 4 and 5 should be answered in the affirmative.

Question 6 - Inquiry into Reasonableness of Remuneration in these Proceedings

1. [82]

   By Notice of Motion filed on 13 March 2020, the Defendant sought a reference to a referee for an inquiry into the reasonableness and proportionality of the Liquidator Fees being the sum of $183,109.54 referred to in Questions 1 and 2. An issue arose as to whether there can be an inquiry in these proceedings as to the reasonableness of the Liquidator Fees in circumstances where the remuneration has already been approved by the creditors pursuant to s.473(3) Corporations Act 2001 (Cth).

2. [83]

   The reference for inquiry is sought as the Defendant wishes to dispute the quantum of the Liquidator Fees. Question 6 raises the question as to whether there can be an inquiry by the Court into the reasonableness of the Plaintiffs’ remuneration in these proceedings where there has already been a resolution passed by the creditors on 30 October 2015.

3. [84]

   Mr Smith noted that the Plaintiffs seek an order for possession of the Gunning property under the Mortgage as relief sought in the Statement of Claim. He submitted that a dispute as to the amount owing under a mortgage is no answer to a claim for possession under the Mortgage: Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; [1972] HCA 74.

4. [85]

   Counsel for the Plaintiffs submitted that the Defendant’s position is more difficult again as Clause 2 of the Deed of Variation requires the Defendant to pay to the Plaintiffs any sum “immediately” and “without any set-off, counter claim or (unless required by law) deduction or other withholding”.

5. [86]

   Mr Smith submitted that there is no doubt that clauses of this kind are enforceable: Oswal v Commonwealth Bank of Australia Ltd [2013] WASCA 58 at [45]; Coca-Cola Financial Corporation v Finsat International Ltd [1998] QB 43 at 50; Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou (The “Fedora”, The “Tatiana” and The “Eretrea II”) [1986] 2 Lloyd’s Rep 441 at 444 (The “Fedora”).

6. [87]

   Counsel submitted that a virtually identical clause was considered in Commonwealth Bank of Australia v MLD Financial Services & Management Pty Ltd [2015] NSWSC 1476, where the defendant had raised an equitable set-off, with the Court holding that the equitable set-off could not be raised in those proceedings with summary judgment being granted for possession. See also Catalyst Provisional Lending Pty Limited and Ors v Dick-Telfar and Anor [2020] NSWSC 79 at [25]-[29].

7. [88]

   Mr Smith noted that the issue was whether the attempt to review the liquidator’s remuneration fell within the description “set-off, counterclaim or (unless required by law) deduction or other withholding”.

8. [89]

   He submitted that this clause is to be construed in accordance with business common sense: O’Brien v Bank of Western Australia Ltd (2013) 16 BPR 31,705; [2013] NSWCA 71 at [82]; Oswal v Commonwealth Bank of Australia Ltd at [53]; Norman v FEA Plantations Ltd (2011) 195 FCR 97; [2011] FCAFC 99 at [197]-[199].

9. [90]

   Counsel submitted that the commercial purpose of clauses such as these is so that the mortgagee should be paid quickly: The “Fedora” at 444; O’Brien v Bank of Western Australia Ltd at [97]. The clause is not to be construed contra proferentem: Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd t/as Betta Machinery Sales [2000] QSC 50 at [17].

10. [91]

    Mr Smith noted that the Defendant sought the referral because he considered that the quantum of the Liquidator Fees was too high and this does not rise as high as a set-off or a counter claim. He submitted that the term “deduction” is a flexible term and its meaning is dependent on context: Norman v FEA Plantations Ltd at [185].

11. [92]

    It was submitted for the Plaintiffs that the assertion that the Liquidator Fees should be reduced constituted an attempt to apply a deduction. Mr Smith submitted that the meaning of the clause here was unambiguous - the full amount demanded must be paid as a liquidated debt. A reference to enquire into the quantum of the Liquidator Fees was impermissible on the proper construction of the General Deed of Indemnity and the Deed of Variation. Counsel submitted that this was precisely the sort of delay that the clause was intended to prevent.

12. [93]

    Counsel for the Plaintiffs submitted that it remained open to the Defendant to seek a review of the liquidator’s remuneration and that the effect of the clause is only that he may not do so in these proceedings: Oswal v Commonwealth Bank of Australia Ltd at [48]; The “Fedora” at 444.

13. [94]

    Mr Bennett noted that the Insolvency Law Reform Act 2016 (Cth) governs the process of review of a liquidator’s remuneration. All liquidators appointed before the commencement of the Insolvency Law Reform Act 2016 (Cth) in 2017 continue to use the old insolvency rules under the Corporations Act 2001 (Cth): In the matter of Octaviar Administration Pty Ltd (In Liquidation) [2020] NSWSC 927 at [1].

14. [95]

    Mr Bennett submitted that s.473(5) and (6) Corporations Act 2001 (Cth) gave the Court the power to review a liquidator’s remuneration and to confirm, increase or reduce the remuneration. Reference was made to Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387, where Barrett J (as his Honour then was) referred to factors identified in s.473(10) Corporations Act 2001 (Cth) when undertaking a review.

15. [96]

    Mr Bennett submitted that the Court possesses the power to conduct an inquiry into the reasonableness of the Liquidator Fees after a resolution of the creditors and that the process of referral to a referee is the efficient way to deal with the question. He submitted that clear words would be needed to exclude the power of inquiry by the Court in these proceedings and that this test was not satisfied in this case.

16. [97]

    It is common ground between the parties that it is open to the Defendant to seek an inquiry by the Court into the reasonableness of the Plaintiffs’ remuneration. The issue raised by Question 6 is whether the inquiry may take place in these proceedings or only by way of separate application.

17. [98]

    The claim by the Plaintiffs against the Defendant in these proceedings arises from the detailed contractual arrangement between them under the General Deed of Indemnity, the Deed of Variation and the Mortgage, by which the Defendant provided a complete indemnity to the Plaintiffs as noted earlier in this judgment.

18. [99]

    I have already held that the Liquidator Fees, which are the subject of Questions 1 and 2, are able to be claimed against the Defendant in these proceedings.

19. [100]

    The contractual arrangement between the Plaintiffs and the Defendant provided for the Plaintiffs to recover against the Defendant “immediately” and “without any set-off, counter claim or (unless required by law) deduction or other withholding”. In the same way as an equitable set-off does not constitute a basis to resist an application for summary judgment for possession in mortgage default proceedings, I do not consider that the capacity to seek an inquiry into the reasonableness of Liquidator Fees should have that effect in this case.

20. [101]

    The clause presently under consideration forms part of the detailed commercial arrangement between the Plaintiffs and the Defendant with the view to achieving avoidance of delay in enforcing the contractual arrangement, including a claim for possession of the Gunning property under the Mortgage.

21. [102]

    I am satisfied that the outcome of an inquiry into the reasonableness of the Liquidator Fees, if conducted as part of the present proceedings in the Possession List if it was successful for the Defendant, would constitute (at best for the Defendant) a deduction (as expressly prohibited in Clause 2). I consider that it is not open to the Defendant to seek such an inquiry as part of these proceedings.

22. [103]

    I am conscious that this approach may result in separate proceedings between the parties being the present claim for possession by the Plaintiffs and a separate claim by the Defendant for an inquiry into the reasonableness of the Liquidator Fees. This may not sit comfortably with the overriding purpose in s.56 Civil Procedure Act 2005 (NSW) to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

23. [104]

    However, I am satisfied that the real issues in the present proceedings are confined in the manner which I have described as a result of the detailed contractual arrangement between the Plaintiffs and the Defendant, which included the giving of security under the Mortgage. The principles in Inglis v Commonwealth Trading Bank of Australia have application to this case so that, under the contractual arrangement between the Plaintiffs and the Defendant, the Defendant would have no arguable defence to the claim for possession arising from his desire to dispute the quantum of the Liquidator Fees.

24. [105]

    I propose to answer Question 6 in the negative.

Responses to Separate Questions

1. [106]

   For the above reasons, I answer the questions posed in the following way:

Costs and Other Issues

1. [107]

   At the conclusion of the hearing on 16 November 2020, I indicated to the parties that I would answer the separate questions and then provide a further opportunity for the parties to make submissions concerning costs and outstanding procedural issues after reading this judgment of the Court.

2. [108]

   By 4.00 pm on 10 December 2020, the parties should furnish to my Associate by email (and exchange) written submissions on costs and any outstanding procedural issues.