Mahmoud El Ali v JGYM Pty Ltd

The issue in this case is one of construction but the resolution of that issue in favour of the plaintiff will not necessarily resolve the underlying substantive dispute between the parties.

On 23 April 2015, the plaintiff entered into a deed of settlement and release with the liquidators of a company known as 39 Edward Street Sylvania Pty Ltd (the company). The company in liquidation should, of course, have been the relevant party to the deed, not the liquidators: Corporations Act, 2001 (Cth), Section 477(2)(d). The omission is not however fatal and the intention to bind the company is obvious.

The recitals to the deed recorded the following facts:

It is clear from the Recitals that the deed was predicated on the fact that Mahmoud (the plaintiff in these proceedings) denied that he was indebted to the company for the sum of $60,000. It is also clear that the parties agreed to resolve their dispute as to the sum of $60,000 ‘in accordance with the terms and conditions of this Deed’.

The relevant terms and conditions of the deed pursuant to which the parties agreed to resolve their dispute, may be summarised and condensed as follows:

The essential elements of the contractual regime for enforcement in clause 2.2 were that the liquidators on behalf of the company could:

The contractual regime for enforcement represented the bargain to which the company agreed as part of the resolution of the dispute. The rights given to the company pursuant to that regime operate, in my view, in substitution for any other right that the company may have had pursuant to the original (disputed) vendor finance loan of $60,000.

The company’s original rights in connection with the disputed vendor finance loan of $60,000 would appear to have included its rights as an equitable mortgagee pursuant to an unregistered mortgage given by Mahmoud. Those rights have been subsumed and replaced by the contractual regime to which the liquidators agreed on behalf of the company in the deed of settlement and release.

That this is so, is evident from the proper construction of the deed, in particular from clauses 3.1, 3.3 and 3.4 when read as a whole and in context. Clause 3.1 sets out the release given to Mahmoud in return for his promise to pay the Settlement Sum and Interest Amount. It is somewhat convoluted and poorly drafted but the description of the release concludes with the qualifying words ‘in respect of or arising out of either directly or indirectly any matter referred to in or arising out of this Deed’.

If there were any ambiguity about clause 3.1, the point is made pellucid by clauses 3.3 and 3.4, which provide as follows:

The effect of these clauses is obvious. The deed operates to prevent any claim by the company arising out of the underlying issues in dispute, other than one that is prosecuted pursuant to and in accordance with the terms of the deed.

Such rights as the company may have had as an equitable mortgagee, including its right to an equitable interest in the fund constituted by the proceeds of sale of the subject property, have been effectively extinguished. The company has agreed, by the terms of the deed – presumably drafted by its own solicitors – to forego those rights in return for the rights of enforcement given by the deed.

For reasons that were not explained, the company has not filed a cross claim in these proceedings seeking judgment for the liquidated debt to which it would seem likely to be entitled pursuant to the default regime in clause 2.2 of the deed.

The plaintiff is therefore entitled to the declaration and orders that he seeks by prayers 9 and 10 of the Amended Summons. However, I think it is appropriate in the exercise of my discretion to refrain from making those declarations and orders for a period of two weeks pending a decision by the company as to whether it wishes to file a cross claim. If it does so, it may well be entitled to summary judgment. If it is, different considerations may apply

I should ensure that any relief to which the parties are respectively entitled is synchronised. It is in the interests of justice to do so. I will list the proceedings for mention before me at 9.45 on Thursday, 6 September 2018.

The delay in resolving this litigation is the fault of the liquidators of the company, who appear to have been poorly advised. They should pay the plaintiff’s costs of the hearing on 1 August and their notice of motion filed on 12 July 2018 should be dismissed.