In this case the first ranking mortgagee paid itself amounts which it was owed but which did not form part of its charge. This was objected to by the second ranking mortgagee.
The court noted:
NDP, as the prior ranking security holder, has a duty to account to Fingal as a subordinate security holder and assignee of the equity of redemption. NDP’s security has been discharged and its loan paid out but Fingal says that NDP added to its secured loan account, and has therefore been paid, amounts that it was not entitled to under the relevant security documents and, accordingly, it must account to Fingal for those amounts.
After reviewing the facts the court held:
- $487,000 Rebate Payments to Hughes Kennedy Neither AVSS nor NDP was legally obliged to pay this amount to Hughes Kennedy, an unsecured creditor. By paying this amount directly to Hughes Kennedy after the appointment of the receivers and managers (and as I have found without their specific instructions) NDP could not add this to the amount secured by the NDP Charge.
- $25,000 Ferguson Loan – This loan had nothing to do with AVSS and the amount paid by NDP is not secured by the NDP Charge.
- $152,097 of Undrawn Fees – The Settlement Deed and the fact that the relevant facility was fully drawn precluded NDP from claiming this amount, and accordingly it was not secured by the NDP Charge.
- $134,306 of NDP Consultancy fees – These fees were never intended to be secured by the NDP Charge.
- $57,906.50 apartment 112 payments to Hughes Kennedy – NDP should not have given a direction that this amount be paid at settlement. The payment was to an unsecured creditor after the appointment of the receivers and managers.
- $30,000 claimed as GST – this amount is not recoverable.
All these amounts had to be repaid to Fingal as it was entitled to them under its second mortgage.