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Euphoric Pty Limited v Kamir Azir Magar [aka Kamil Azir Magar]& Ors [2011] NSWSC 469 (19 May 2011)

Last Updated: 30 May 2011



Supreme Court

New South Wales

Case Title:
Euphoric Pty Limited v Kamir Azir Magar [aka Kamil Azir Magar] & Ors


Medium Neutral Citation:


Hearing Date(s):
17 May 2011


Decision Date:
19 May 2011


Jurisdiction:
Equity Division - Commercial List


Before:
Einstein J


Decision:
The defendants to pay the plaintiff the sum of $800,000. The defendants to pay the plaintiff interest at the post judgment rate from 11 February 2006 to 19 May 2011 in the amount of $407,254.79. The defendants to pay the plaintiff's costs of these proceedings.


Catchwords:
Construction of deed - Mortgage - Consideration - Power of attorney


Legislation Cited:


Cases Cited:
Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694
Grundy v Ley [1984] 2 NSWLR 467
Spina v Permanent Custodians Ltd [2008] NSWSC 561


Texts Cited:


Category:
Procedural and other rulings


Parties:
Euphoric Pty Limited (Plaintiff)
Kamir Azir Magar (First Defendant)
Lora Azir Magar (Second Defendant)
Nabil Azir Magar (Third Defendant)
Adil Azir Magar (Fourth Defendant)
Kludait Azir Magar (Fifth Defendant)
Ereene Azir Magar (Sixth Defendant)


Representation


- Counsel:
Mr S Docker (Plaintiff)
No appearance


- Solicitors:
Thomsons Lawyers (Plaintiff)


File number(s):
2008/00290604

Publication Restriction:

Judgment

The proceedings


  1. In these proceedings, the plaintiff seeks judgment in the amount of $13,277.631.36 plus interest from 11 February 2006 from the first to sixth defendants ('the defendants') pursuant to a mortgage dated 2 November 1999 ('the mortgage') given by the defendants and Azir Magar Sidhom. The defendants are siblings. Mr Sidhom is their father.
  2. The plaintiff claims under Clause 2 of Annexure A to the mortgage, which contains a personal covenant on behalf of the mortgagors, promising to pay the Principal Sum (as defined in the mortgage) owing or payable by Ryledar Pty Ltd ( Ryledar ) to Euphoric as and when it accrues due.
  3. Ryledar is a company now in liquidation of which all the defendants and Mr Sidhom were shareholders. In 1999, when the agreement in the mortgage was entered into, Ryledar was in a trading relationship with Euphoric. Euphoric sold petroleum products to Ryledar, which operated service stations.
  4. Mr Sidhom is not a party to the proceedings because on 20 November 2007 he became bankrupt. No leave has been obtained to proceed against him. It was conceded by the plaintiff that the promises made in the mortgage by the defendants and Mr Sidhom were joint promises, not joint and several.
  5. By reason of Mr Sidhom's bankruptcy and s62 of the Bankruptcy Act 1966 (Cth), Euphoric was entitled to sue on the mortgage without joining Mr Sidhom. Mr Sidhom has since been discharged from bankruptcy, which discharges his pre-bankruptcy debts to Euphoric but does not affect the obligations of the defendants under the mortgage, being a joint contract: s153(1) and (4)(a) respectively of the Bankruptcy Act .
  6. The Mortgage was the second registered mortgage over the land described in certificate of title folio identifier 1/840854, being 129-145 Waldron Road, Chester Hill. In these proceedings, Euphoric originally sought possession of the land as well as judgment for the principal sum, interest and costs. However, by its further amended summons and commercial list statement filed on 25 September 2009, Euphoric deleted the claim for possession. This was because the first registered mortgagee took possession of the land.

The issues


  1. The plaintiff took the Court to four key issues, which formed the substance of the defendants' commercial list responses.
  2. These issues were:
  3. Issue 4 required the defendants to put on evidence. As none was forthcoming, the defence was unsustainable.

The construction issue


  1. The construction issue was the primary factual question for determination. Careful construction of the mortgage deed is important as on the plaintiff's contention the amount owed by the defendants is in excess of $13 million, whereas on the defendants construction it is limited to $800,000.
  2. The plaintiff submitted that on true construction of the mortgage and attached documents, the defendants were liable for $13,277,631.36, being the judgement against Ryledar in proceedings number 50070 of 2001 on 10 February 2006 plus interest at the court rate from that date.
  3. The plaintiff relied on Clause 2 of Annexure A to the mortgage:

The Mortgagor (defendants) will pay to the Mortgagee (Euphoric) the Principal Sum.


  1. The plaintiff submitted that on this construction, the defendants and Mr Sidhom gave a personal guarantee for all monies owing to Euphoric by Ryledar.
  2. While the defendants did not make submissions, it is evident from their commercial list responses that they rely on Recital C, Clauses 1 and 8 of the mortgage and Clause 17(a) of the Memorandum to the mortgage to assert that if the Court finds that they have any liability, it should be limited to $800,000. The $800,000 limit is "the Monetary limit" set out at the end of Clause 1 of Annexure A to the mortgage.
  3. The plaintiff's took the Court to these clauses and submitted that a proper construction of them could not limit the amount recoverable to $800,000 for the following reasons:
  4. With respect to the plaintiff, this construction is to be rejected.
  5. The starting point for construing the defendants' obligations is the mortgage document itself. Clearly, all the defendants except for Kamil Azir, signed it and are therefore parties to it. Kamil is also to be regarded a party for reasons which are set out later. The mortgage is for the land at 29-145 Waldron Road, Chester Hill (folio identifier 1/840854) subject to the provisions of Annexure A and Memorandum No. z514436. The Annexure and Memorandum set out the provisions of the mortgage.
  6. Turning to Annexure A, Clause 2 states:

"The Mortgagor will pay to the Mortgagee the Principal Sum. The Principal Sum accrues due, owing or payable by the Mortgagor to the Mortgagee, as and when it accrues due, owing or payable by the Debtor to the Mortgagee."


  1. Principal Sum is given a very broad definition in Clause 1(a) and 1(b) and includes, as submitted by the plaintiff, "all moneys" owing or payable to the Mortgagee by the Debtor.
  2. However of immense importance to construing the defendant's obligation is Recital C, which states:

" The Mortgagee shall not ultimately receive in payment of the Principal Sum total moneys pursuant to its exercise of security rights under this security in excess of the then current amount of the Monetary Limit . The amount of the Monetary Limit at the date hereof is Eight hundred thousand Dollars ($800,000.00) and may be increased from time to time by the written consent of the Mortgagor and Mortgagee." (emphasis added)


  1. Considering these clauses together, it is clear that the defendants have an obligation to pay the Principal Sum to the plaintiff. This Principal Sum is defined broadly and is intended to cover any money owed by the defendants to the plaintiff as evidenced from Clause 1(b). However, this obligation is capped at $800,000, this being the monetary limited expressed in clear and unambiguous terms in Recital C. On its true construction, the mortgage was not a guarantee for the full amount owing by Ryledar, it limited the plaintiff's recovery against the mortgaged property to $800,000.
  2. The plaintiff pointed to Clause 12 in an attempt to delineate two separate rights of recovery by the plaintiff's under the mortgage. The first is the right to sell the mortgaged property as an "exercise of security rights", it was accepted that this is limited to $800,000. The second was the plaintiff's right of recovery pursuant to the defendant's personal guarantee. It was submitted that this guarantee (pursuant to Clause 2 of Annexure A) was for the full amount of the Principal Sum.
  3. The wording of Clause 12 indicates no such distinction. It provides:

"If all of the Principal Sum has been paid after the discontinuance of all business relations between the Debtor and the Mortgagee, or if pursuant to its exercise of security rights herein the Mortgagee recover an amount equal to the then current amount of the Monetary Limit, the Mortgagee shall within a reasonable period after receipt of a request in writing made by the Mortgagor, give to the Mortgagee a Memorandum of discharge hereof."


  1. The clause merely sets out the two ways in which a mortgage may be discharged:
  2. The plaintiff's reliance on this clause for the proposition that the defendants' obligation to pay the judgment debt is not subject to the same $800,000 limit as its exercise of security rights cannot stand. The only personal obligation the defendants owe for the debts of Ryledar are set out in the mortgage. Irrespective of how their obligation arises, it is limited to $800,000.
  3. On this construction, it is not strictly necessary to turn to Clause 17 of the Memorandum, which principally relies on the same distinction being drawn. However, as the majority of the plaintiff's submissions focused on this clause, it is proper I address its construction.
  4. As the title indicates, this section deals with the application of monies received pursuant to the plaintiff exercising its rights under the mortgage.
  5. Clause 17 reads:

Application of Monies

The mortgagor covenants and agrees with the mortgagee that:-


(1) To the extent permitted by law, monies received as a result of the exercise by the mortgagee of its rights and powers conferred by this security or by stature or otherwise shall be applied as follows:

(2) In applying monies towards satisfaction of any monies referred to in paragraph (a) of this clause the mortgagor shall be credited only with so much of such monies as shall be actually received by the mortgagee in cash and such credit shall date from the time of receipt and, all purchase or other monies left outstanding on credit or otherwise shall, until actually received by the mortgagee in cash, be deemed a continuing unsatisfied part of the monies secured by this security and the mortgagee shall be in no way liable for any such outstanding monies or for any loss occasioned by the exercise of any of the said rights and powers.

(3) If at any time after the satisfaction of all monies secured by this security the mortgagee shall hold any surplus monies payable to the mortgagor, such monies shall not carry interest and may be placed to the credit of an account in the name of eth mortgagor in the books of a corporation carrying on the business of banking in the Commonwealth of Australia and the mortgagee shall thereupon be under no further liability in respect thereof.
  1. This clause does no other than set out the order in which the money recovered is to be applied. By virtue of Clause 8 of Annexure A this amount is the lesser of the Monetary Limit or the Principal Sum. Considering the clause as a whole, the first three items in Clause 17 are not to be included in the Monetary Limit, such that the plaintiff may recover the Monetary Limit plus these three other expenses.
  2. On this construction each of the plaintiff's submissions in relation to Clause 17 falls away. The defendants had a personal covenant secured by a mortgage, but this covenant was limited to $800,000. None of the distinctions between a charge over land and a personal covenant that the plaintiff sought to make addresses the express limit of the defendant's personal covenant to $800,000.

Is the mortgage supported by consideration?


  1. A further issue taken by the defendants was that the mortgage is void because it is not supported by consideration. Recital B of Annexure A sets out the consideration. That is, the mortgagee continues to trade with the Debtor. This was to the benefit of all the defendants as shareholders. In any event, consideration is not necessary because the mortgage is expressed to be a deed per Clause 13 of Annexure A. Also, as the Mortgage was registered, it became a deed by reason of s36(11) of the Real Property Act 1900.

Did Mr Sidhom have Kamil Magar's authority to execute the Mortgage?


  1. Kamil Magar raised the issue of authority as a defence in his commercial list response. This defence does not stand because Mr Sidhom had authority to enter into the mortgage pursuant to two powers of attorney given by Kamil Magar, dated 27 January 1992 & 23 June 1999 respectively. The first entitled Mr Sidhom, inter alia, to enter into or execute any contract, agreement or mortgage per paragraph p). The second was a general power of attorney giving Mr Sidhom the authority conferred on him by s163B of the Conveyancing Act 1919 (as in force at that time) to do anything on his behalf which he may lawfully authorise an attorney to do. No limitations were contained in the document and Mr Sidhom was authorised to execute an assurance or other document to do any act whereby a benefit is conferred on Mr Sidhom. The effect of such a general power of attorney confers authority to enter into a mortgage: Spina v Permanent Custodians Ltd [2008] NSWSC 561 per Hammerschlag J.
  2. Alternatively, Kamil Magar gave Mr Sidhom express written authority to enter into third party mortgages and guarantees for any purpose on his behalf on 13 November 1999. It is not necessary that Mr Sidhom hold a power of attorney to execute the mortgage on Kamil Magar's behalf. All that is required is that Mr Sidhom was Kamil Magar's agent lawfully authorised in writing: s23C Conveyancing Act 1919. The express written authority satisfies this requirement.

Orders


  1. The Court makes the following orders:

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