The borrower defaulted under the mortgage form the lender. The lender exercised its power of sale and sold two secured properties. The proceeds were paid into Court pursuant to the Trustee Act 1925 (NSW). The borrower was missing, presumed dead. The administrator of the borrower’s estate sought payment of the funds out of Court for distribution in the administration of the estate.
The payment of funds out of Court is governed by rule 55.11 of the Uniform Civil Procedure Rules which states:
1. Funds that have been paid into court may only be paid out of court pursuant to the directions of the Supreme Court.
2. An application for such directions is to be made by filing a notice of motion in the proceedings in which the funds were paid into court.
Justice Slattery set out the three matters that must be addressed in making such an application, as follows:
An applicant under UCPR r 55.11 must establish three matters to justify an order for the payment of money out of Court. The first is to identify the person who is primarily entitled to any funds paid into Court and the basis of that entitlement. It is fundamental that the person be identified from the best evidence available, so that the Court can be sure that the person has been given appropriate notice of the application and can if necessary contest it.
The second matter that needs to be proved by a claimant is that he or she is not merely an unsecured creditor against the person primarily entitled to the fund but is a person who has an beneficial interest in the very fund that has been paid into Court. The same evidence that demonstrates a person’s primary entitlement to the funds in Court often establishes this second matter.
Thirdly, it is necessary for an applicant to identify the other potential claimants to the fund in Court and to prove that those persons were notified of its claim. Those persons may consent to the claim. Alternatively, the applicant may prove that those persons either do not have valid claims against the fund or that their claims do not have priority over the applicant’s claims.
The Court requires strict proof as to who has the entitlement to the funds in Court. There is a heavy burden placed on a party seeking payment of money out of court under Trustee Act s 98 and UCPR r 55.11. It is necessary for that party not only to prove his or her entitlement to the funds but also to prove that all other potential claimants to the funds in Court have been properly notified. Otherwise there is a risk of incorrect payments being made.
Justice Slattery was satisfied that each of those three matters was satisfied.
The lega principles that establish who has priority of payment out of the surplus proceeds were set out by Justice Slattery as follows:
The mortgagor/registered proprietor is the person primarily entitled to any surplus proceeds of sale after the exercise by the Commonwealth Bank of its power of sale over these two properties. The mortgagee holds surplus proceeds of sale, after satisfaction of the first mortgage liability, on trust for the registered proprietor but subject to any other secured interests: Real Property Act s 58(3) and Bank of NSW v Adams  2 NSWLR 659.
The estate of the borrower (who was the registered proprietor) was entitled to a beneficial interest in the funds. It was appropriate to order that the funds be paid to the administrator of the estate who would be able to satisfy the obligations of the estate, including payment to the lender of the debt owing under the mortgage.