230V Harvest Home Road Pty Ltd v Joseph Salvo
[2021] VSC 558
•10 September 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 03181
| 230V HARVEST HOME ROAD PTY LTD (ACN 609 486 320) | Plaintiff |
| v | |
| JOSEPH SALVO (as Trustee for the J & J Salvo Superannuation Fund) | First Defendant |
| JOSEPHINE ANNE SALVO (as Trustee for the J & J Salvo Superannuation Fund) | Second Defendant |
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JUDGE: | Matthews AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 August 2021 |
DATE OF RULING: | 10 September 2021 |
CASE MAY BE CITED AS: | 230V Harvest Home Road Pty Ltd v Joseph Salvo & Ors |
MEDIUM NEUTRAL CITATION: | [2021] VSC 558 |
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PRACTICE AND PROCEDURE – Summary judgment – Whether plaintiff has real prospects of success on its statement of claim – Civil Procedure Act 2010 (Vic), ss 62 and 63 – Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27 – Application for summary judgment allowed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr ATJ Baker | Livaditis & Co Lawyers |
| For the First and Second Defendants | Mr CJ Twidale | De Marco Lawyers |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 2
The dispute between the parties................................................................................................. 2
Procedural background................................................................................................................ 3
Application for leave to rely on the Second Duggal Affidavit and the Rann Report......... 5
The Plaintiff’s explanation for the late material.............................................................. 7
Prejudice................................................................................................................................ 9
Applicable law and principles...................................................................................................... 10
Evidence relied upon....................................................................................................................... 12
Evidence relied upon by the Salvos......................................................................................... 12
Evidence relied upon by the Plaintiff....................................................................................... 16
Submissions...................................................................................................................................... 19
The Salvos’ submissions............................................................................................................. 19
The Plaintiff’s submissions........................................................................................................ 21
Consideration.................................................................................................................................... 23
Conclusion......................................................................................................................................... 28
HER HONOUR:
Introduction
This decision concerns an application made by the First and Second Defendants, Joseph Salvo and Josephine Anne Salvo (‘the Salvos’), each in their capacity as trustees for the J & J Superannuation Fund, for summary judgment in respect of the claims made against them in this proceeding by the Plaintiff, 230V Harvest Home Road Pty Ltd. The application is made by summons filed 25 June 2021 (‘Application’) and is made pursuant to ss 62 and 63 of the Civil Procedure Act 2010 (‘CPA’) and/or Order 22 of the Supreme Court (General Civil Procedure Rules) 2015 (‘Rules’).
In support of their Application, the Salvos rely upon:
(a) The affidavit of Mr Salvo, sworn 6 August 2020 (‘Salvo Affidavit’);
(b) The affidavits of Michael Tourkakes sworn 7 August 2020 (‘First Tourkakes Affidavit’), 29 January 2021, 21 May 2021 and 25 June 2021 (‘Fourth Tourkakes Affidavit’). Mr Tourkakes is a principal of De Marco Lawyers, the solicitors for the Salvos in this proceeding; and
(c) A written outline from Counsel for the Salvos, Mr Twidale, dated 4 August 2021 (‘Salvos’ Outline’).
In opposition to the Application, the Plaintiff relies upon:
(a) The affidavit of Rajan Duggal sworn 5 August 2020 (‘First Duggal Affidavit’). Mr Duggal is the director of the Plaintiff; and
(b) A written outline from Counsel for the Plaintiff, Mr Baker, dated 6 August 2021 (‘Plaintiff’s Outline’).
The Plaintiff was denied leave to rely on an affidavit sworn 3 August 2021 by Mr Duggal (‘Second Duggal Affidavit’) and an expert report of Christopher Rann filed 4 August 2021 (‘Rann Report’), in circumstances which I will shortly explain.
For the reasons which follow, the Application for summary judgment will be granted.
Background
The dispute between the parties
This proceeding concerns allegations about the enforcement by the Salvos of a loan made by them to the Plaintiff.
The uncontroversial facts in respect of the proceeding can be summarised as follows:
(a) By loan agreement dated 20 December 2018 (‘Loan Agreement’), the Salvos loaned $1.7m to the Plaintiff, who granted a first ranking mortgage over its property located at 230 Harvest Home Road, Wollert (‘Property’). The mortgage was registered on the title to the Property on 21 December 2018 (‘Mortgage’).
(b) The Property comprises approximately 3,900 square metres of vacant land that is suitable for residential development. After acquiring the Property, the Plaintiff obtained a planning permit for the construction of 18 townhouses.[1]
[1]Statement of Claim, [5], [6].
(c) Pursuant to the Loan Agreement, the Plaintiff was to repay the loan, together with interest, by 21 December 2019. The Plaintiff failed to do so. The Salvos served a notice pursuant to s 76 of the Transfer of Land Act 1958 (Vic) (‘TLA’) on the Plaintiff or about 15 January 2020 (‘Default Notice’).
(d) After service of the notice, the Plaintiff advised the Salvos that it had sold the Property. By email dated 11 February 2020 the Plaintiff’s solicitor advised the Salvos that the Property had been sold for $2.5m plus GST (‘February Sale’), however this sale did not complete.
(e) On 6 June 2020, the Salvos exercised their power of sale and sold the Property for $1.9m plus GST, with settlement due on 7 August 2020 (‘Mortgagee Sale’). Settlement of the Mortgagee Sale occurred on or around that date, after the Plaintiff’s application for an interim injunction to prevent settlement from occurring had been dismissed.
In this proceeding, the Plaintiff alleges that the Salvos did not:[2]
[2]Statement of Claim, [19].
(a) Act in good faith and have regard to the interests of the Plaintiff by selling the Property for $1.9m which was substantially below the value of the Property;
(b) Take reasonable steps to obtain the best price for the Property which was valued up to $2.4m; and
(c) Have regard to the interests of other encumbrancers including a subsequent mortgagee and caveators.
In effect, the Plaintiff alleges that the Salvos breached the Loan Agreement, the Mortgage and their mortgagees’ duties in entering into and completing the Mortgagee Sale, causing it loss and damage. The Salvos deny these allegations in their defence.
Procedural background
As noted above, the Mortgagee Sale was due to settle on 7 August 2020. On 5 August 2020, the Plaintiff commenced this proceeding by filing a writ and indorsement of claim, along with a summons seeking interim relief. By that summons, the Plaintiff sought an order that until the final hearing and determination of the proceeding, the Salvos and the Third Defendant (who was the purchaser under the Mortgagee Sale) be restrained from completing the sale and from taking any step for the purpose of transferring the Property to the Third Defendant and/or his nominee (‘Injunction Application’). That application was heard by Derham AsJ on 6 August 2020. In refusing the Injunction Application, his Honour gave reasons ex tempore and gave additional reasons in the ‘Other Matters’ section of the orders made that day (‘Injunction Refusal Orders’). A copy of the Injunction Refusal Orders is before me, however neither party has placed the transcript of that hearing, including of the oral ruling, into evidence.
Following that, the Plaintiff filed its statement of claim on 18 September 2020; the Salvos filed their defence on 6 November 2020; and the Third Defendant filed his defence on 16 October 2020.
On 3 February 2021 and 4 March 2021 respectively, the Salvos and the Third Defendant filed summonses seeking security for their costs of defending the proceeding. Those applications were heard by Efthim AsJ on 8 April 2021, whereupon his Honour made orders that the Plaintiff pay the sum of $35,000 to the Senior Master as security for the Salvos’ costs until mediation and the sum of $35,000 to the Senior Master as security for the Third Defendant’s costs until mediation. The security for costs was to be paid by 10 May 2021, failing which the proceeding would be stayed until further order. The Plaintiff did not make the payments by the ordered date and the proceeding was therefore stayed.
On 21 May 2021, the Salvos filed a summons seeking orders for the dismissal of the proceeding against them pursuant to r 62.04 of the Rules. A directions hearing was held by me on 25 May 2021. At that time, I made orders lifting the stay for the purposes of the Salvos’ summons and the foreshadowed summonses of the Salvos and the Third Defendant seeking summary judgment, I made directions for the filing of materials, and I listed the applications for summary judgment before me for hearing on 10 June 2021.
On 10 June 2021, I made orders on the papers by consent between the parties.
(a) In respect of the Salvos, the following orders were made (‘SJA Directions’):
(i) The time by which the security for the Salvos’ costs was to be paid was extended to 11 June 2021;
(ii) The Salvos’ 21 May 2021 summons was dismissed, with no order as to costs;
(iii) The Salvos were to file a summons seeking summary judgment by 25 May 2021 (‘Summary Judgment Application’), together with affidavits in support;
(iv) The Plaintiff was to file and serve any affidavit in opposition to the Summary Judgment Application by 16 July 2021. In the event that the Plaintiff’s evidence could not be sworn by 4.00pm on 16 July 2021, the Plaintiff was to serve on the Salvos unsworn copies, with sworn copies to be filed and served as soon as practicable, prior to the hearing of the Summary Judgment Application;
(v) The Plaintiff and the Salvos were to file and serve outlines of submissions by 4 August 2021; and
(vi) The Summary Judgment Application was listed before me for hearing on 11 August 2021.
(b) In respect of the Third Defendant, the following orders were made:
(i) The Plaintiff’s proceeding against the Third Defendant was dismissed; and
(ii) The Plaintiff was to pay the Third Defendant’s costs of the proceeding on an indemnity basis.
The Salvos complied with the SJA Directions. The Plaintiff did not.
On 4 August 2021, the Plaintiff filed the Second Duggal Affidavit and the Rann Report. The Salvos gave notice, by email to the Plaintiff and to the Court on 5 August 2021, that it objected to the Plaintiff relying on the belatedly served Second Duggal Affidavit and Rann Report. On 6 August 2021, the Plaintiff provided the Plaintiff’s Outline.
Application for leave to rely on the Second Duggal Affidavit and the Rann Report
At the commencement of the hearing on 11 August 2021, the Plaintiff sought leave to rely on the Second Duggal Affidavit and the Rann Report. This was opposed by the Salvos. After hearing argument from both parties, I refused to grant the Plaintiff leave to rely on those materials, save for paragraph 8 of the Second Duggal Affidavit which addressed the late filing of this material. I gave oral reasons for refusing the application for leave, which are recorded on the transcript. I indicated that I would include the reasons for refusing leave when publishing my ruling on the Summary Judgment Application. What follows are those reasons.
There are well established factors that the Court looks to when considering late amendments, which are conveniently set out in Thomas v Powercor Australia Limited (Ruling No 3).[3] These principles have been applied in other contexts, such as the late filing of evidence. Briefly applying the principles summarised in Thomas v Powercor to the instant case:
[3][2011] VSC 391, [12] (‘Thomas v Powercor’), citing Ultra Thoroughbred Racing v Those Certain Underwriters & Ors [2011] VSC 370, [7]-[9].
(a) whether there will be a substantial delay caused by the amendment: there is likely to be a delay if I allow reliance on the late material, because the Salvos have indicated that they would likely need time to brief an expert and therefore an adjournment would be required.
(b) the extent of any wasted costs: there would clearly be wasted costs: at the least, there are the wasted costs of 11 August and there are the wasted costs of the Salvos preparing submissions without having the Plaintiff’s material.
(c) whether there is an irreparable element of unfair prejudice caused by the amendment: I will address this below.
(d) concerns of case management arising from the stage in the proceeding when the amendment is sought: I am very concerned about the case management issues arising from this delay. The reason the Court makes orders is so that they will be adhered to, and that a hearing can proceed in an orderly way. If I had to adjourn the hearing, it would not be before some time in October, likely late October.
(e) whether a satisfactory explanation has been given for seeking the amendment at the stage when it is sought: I will address this below.
(f) whether the grant of the amendment will lessen public confidence in the judicial system: For the reasons set out below, to grant leave to rely on the late-filed material would lessen public confidence in the judicial system because to do so would send a message that orders of the Court can be flouted at will.
The Plaintiff’s explanation for the late material
It is incumbent on the Plaintiff to provide an adequate explanation of why their material was filed out of time. There is no explanation as to what steps the Plaintiff took, and when the Plaintiff took those steps, to obtain or file material other than what is contained in paragraph 8 of the Second Duggal Affidavit. In that paragraph of his affidavit, Mr Duggal apologises for the late filing of the material. He then gives the following explanation for the delay:
... I instructed an expert valuer Mr Snowden to prepare a report on the valuation of the property upon my return to Australia. Regrettably that valuer, having already been instructed, then subsequently declined the instructions and said he could not prepare a report. Subsequently, I have had immense difficulty finding an expert valuer to prepare a report. I contacted Charter Keck Cramer, Jones Lang Lascelles [sic] and PVA Group two and a half weeks ago by phone but they were all unavailable due to their workload and COVID. On 12 July I instructed my Solicitor Mr Livaditis to obtain a valuer whom then contacted Mr Rann who then agreed to prepare an expert report but advised it could not be completed until late last week or early this week.
It is notable that there is no explanation as to why Mr Duggal’s affidavit, the balance of which I understand deals with matters in opposition to the Summary Judgment Application, was late.
There was simply no satisfactory explanation for the Plaintiff’s failure to comply with the Court’s orders. The SJA Directions had been made by consent. Express provision was made that in the event the Plaintiff’s evidence could not be sworn by the agreed date, then the Plaintiff was to serve unsworn copies, with sworn copies to be filed and served as soon as practicable prior to the hearing of the Summary Judgment Application. Clearly, an inability to obtain sworn evidence by the agreed date was anticipated and provided for, such that this can in no way be said to be a basis for the late material.
The SJA Directions were not complied with. I understand from what was said from the Bar table that on 12 July, some four days prior to the material being due (sworn or unsworn), there was a request by the Plaintiff for the Salvos to consent to a late expert report, and that consent was refused.
To the extent that Mr Duggal may be relying on having to return to Australia in order to carry out the steps of briefing experts, if any reliance is placed on that, I do not accept it. Instructions could have been given from India to the Plaintiff’s solicitors to take those steps.
The Salvos issued a notice to produce to the Plaintiff on 9 August 2021, seeking the brief and instructions sent to Mr Snowden, Charter Keck Cramer, Jones Lang LaSalle, PVG Group and Mr Rann and responses received (‘NTP’).
Apart from the passage cited above from the Second Duggal Affidavit, the only evidence before me as to when any steps were taken was contained in documents that were produced consequent upon the NTP to which I was taken. These showed that the first approach to Jones Lang LaSalle was on 5 July. There is no explanation, as I said, for what was done between 10 June and 5 July.
There is then an email from the Plaintiff’s solicitor to Mr Rann, which appears to be the first approach to him, on 16 July. I interpose here to observe that this is the date that the material was due. And then there are instructions given to Mr Rann dated 3 August.
The Court is also aware of an email sent by my Associate in the week before the hearing reminding the parties of the hearing, to which a reply from the Plaintiff’s solicitor was received indicating that affidavit material and submissions were going to be filed that week. The email from my Associate was neither an invitation to file late material nor does it explain why material was not filed in accordance with the SJA Directions.
There is simply a paucity of evidence as to what the Plaintiff did in order to respond to the Summary Judgment Application, which it had known about since at least 10 June 2021 but likely earlier. In my view, there is no satisfactory explanation, and there is no justification for the delay. There has been a complete disregard for the Court’s orders. There is no evidence that the Salvos were on notice that this material was still going to be filed late, except for the Plaintiff’s request for the Salvos’ consent to the late filing of an expert report which was refused, and the Plaintiff’s response to my Associate’s email. As I have said, neither provides a proper basis for the late filing of material.
Prejudice
In terms of “an irreparable element of unfair prejudice”, the Plaintiff submits that the prejudice to it in not being able to rely on the late-filed material is potentially significant, whereas the only prejudice to the Salvos is through possible delay and costs, and those can be ameliorated by an adjournment and an order for costs.
The Salvos say that they would be prejudiced, because they have been placed in a position of either having to adjourn and get a report themselves, possibly not knowing whether that is going to be able to be done within a new timeframe; or they would have to elect to proceed on 11 August, with the Rann Report in evidence, and without having had a proper opportunity to prepare in relation to that.
I can see both arguments. I think that the comments made by J Forrest J in Thomas v Powercor are apposite, where His Honour said:[4]
I accept that no demonstrable prejudice has been demonstrated by Powercor. However, that is not the determinative factor.
[4]Thomas v Powercor, [21].
Here, to the extent that the prejudice to the Plaintiff may be greater than the prejudice to the Salvos, that is not determinative. Rather, I regard the absence of a satisfactory explanation for the failure to abide by the Court’s orders, noting again that the Summary Judgment Directions were made by consent, together with the high-handed and cavalier approach by the Plaintiff, as being important factors.
Balancing all of the factors, I did not grant the Plaintiff leave to rely on the Second Duggal Affidavit and the Rann Report.
After ruling on the application for leave, I proceeded to hear the Summary Judgment Application on 11 August 2021.
Applicable law and principles
Section 62 of the CPA permits a defendant to make an application for summary judgment on the ground that the plaintiff’s claim or part of that claim has no real prospect of success. Section 63 of the CPA provides that the Court may give summary judgment in a civil proceeding if it is satisfied that a claim, defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has ‘no real prospect of success’.
The Court of Appeal has set out the test to be applied in this context in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd, stating that upon the present state of authority:[5]
(a)The test for summary judgment under s 63 of the [CPA] is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
(b)The test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
(c)It should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
(d)At the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.
[5](2013) 42 VR 27, 40 [35] (citations omitted) (‘Lysaght’).
Of s 62 of the CPA, the High Court has said that:[6]
…the “no real prospect of success” test is to some degree more liberal than Dey and General Steel. It permits of the possibility of cases in which, although the plaintiff’s case is not “hopeless” or “bound to fail”, it does not have a real prospect of succeeding.
[6]Trkulja v Google LLC [2018] HCA 25, [23] (citations omitted).
Section 64 of the CPA provides that:
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because—
(a) it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.
Section 7(1) of the CPA sets out its overarching purpose, being to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. Section 9 of the CPA requires the Court to have regard to these purposes in making any order or giving any direction in a civil proceeding.
An application made pursuant to s 62 of the CPA is to be made in accordance with Part 3 of Order 22 of the Rules.
Rule 22.18 of the Rules provides:
(1)If the defendant intends to reply on an affidavit in support of the application, the affidavit shall be filed with the summons.
(2)Where a statement in a document tends to establish a fact upon which the defendant relies and at the trial of the proceeding the document would be admissible by or under the Evidence (Miscellaneous Provisions) Act 1958, the Evidence Act 2008 or any other Act to verify the fact, the affidavit may set forth the statement.
(3)An affidavit relied upon by the defendant may contain a statement of fact based on information and belief if the grounds are set out and, having regard to all the circumstances, the Court considers that the statement ought to be permitted.
(4)The defendant shall serve the summons and a copy of any affidavit in support and of any exhibit referred to in the affidavit on the plaintiff not less than 14 days before the day for hearing named in the summons.
Rule 22.19 of the Rules provides:
(1)The plaintiff may show cause against the application by affidavit or otherwise to the satisfaction of the Court.
(2)An affidavit under paragraph (1) may contain a statement of fact based on information and belief if the grounds are set out.
(3)Unless the Court otherwise orders, the plaintiff shall serve a copy of any affidavit and of any exhibit referred to in the affidavit on the defendant not less than three days before the day for hearing named in the summons.
Evidence relied upon
The key questions in this proceeding concern the Mortgagee Sale and whether the Salvos breached their duties as mortgagees, causing loss and damage to the Plaintiff. The uncontroversial background facts have been set out above. What follows is the admissible evidence in respect of the Mortgagee Sale and surrounding circumstances.
Evidence relied upon by the Salvos
The evidence relied upon by the Salvos is set out below.
Having issued the Default Notice, the Salvos did not immediately exercise their rights to take possession of the Property, instead giving the Plaintiff further time to sell or refinance it.[7]
[7]Salvo Affidavit, [11].
On 11 February 2020, the Plaintiff’s solicitor provided the Salvos’ solicitor with a copy of the contract of sale for the Property, being the February Sale defined above. This contract was dated 29 November 2019, had a sale price of $2.5m plus GST, and a settlement date of 30 January 2020. The email from the Plaintiff’s solicitor stated that the settlement date for the February Sale had been rescheduled to 28 February 2020, but no details were provided in relation to the payment of a deposit. Settlement of the February Sale did not occur.[8]
[8]Salvo Affidavit, [14].
On 6 March 2020, the Salvos instructed Ray White Preston to sell the Property by auction on 4 April 2020. Mr Salvo deposes that John Catanzariti of Ray White Preston provided a valuation of the Property in the range of $1.8m to $2.0m.[9]
[9]Salvo Affidavit, [18].
Mr Salvo also deposes that Mr Catanzariti advised him that a marketing campaign was undertaken in respect of the sale of the Property,[10] and that at least one buyer made an offer below the valuation referred to in the previous paragraph, which was rejected.[11]
[10]Salvo Affidavit, [17].
[11]Salvo Affidavit, [19].
The auction scheduled for 4 April 2020 was cancelled due to the restrictions imposed by the government due to the COVID-19 pandemic, and the Salvos instructed Ray White Preston to instead sell the Property by private treaty.[12]
[12]Salvo Affidavit, [21].
As set out above, the contract in respect of the Mortgagee Sale is dated 6 June 2020, which saw the Property sold to the Third Defendant for $1.9m plus GST with settlement to occur on 7 August 2020.[13] Mr Salvo deposes that this is an arm’s‑length contract, that the Salvos and the Third Defendant were not previously known to each other nor have had any previous association, and were introduced by Ray White Preston.[14]
[13]Salvo Affidavit, [22].
[14]Salvo Affidavit, [23].
Mr Salvo deposes that the transfer of land dated 26 October 2016 discloses that the Plaintiff had purchased the Property for $1.507m.[15]
[15]Salvo Affidavit, [24].
Mr Salvo deposes that Mr Catanzariti told him that he is very confident that the sale price of $1.9m plus GST is market value, perhaps even higher than market value in the then current climate, and was the best offer made to purchase the Property.[16]
[16]Salvo Affidavit, [25].
There is no affidavit from Mr Catanzariti. Rather, in an email dated 6 August 2020 from Mr Catanzariti to the Salvos’ solicitors, Mr Catanzariti sets out some information about the marketing campaign and sale process, and the Mortgagee Sale (‘Catanzariti Email’).[17] Attached to the Catanzariti Email are copies of advertisements of the Property on a number of websites, a marketing campaign document, and reports from some of the websites.
[17]First Tourkakes Affidavit, [6]-[7]. A copy of the Catanzariti Email, with attachments, is Exhibit MT-1 to the First Tourkakes Affidavit.
Mr Catanzariti states in his email that the Property “had a comprehensive marketing campaign, it received an enormous amount of inquiry and was exposed on all the mediums that are virtually available to market a development site”.[18]
[18]Exhibit MT-1.
The marketing campaign document attached to the Catanzariti Email discloses that the campaign comprised:[19]
[19]Exhibit MT-1, p12.
(a) Advertising on the following websites:
(iii) realestate.com.au – premiere property and ebrochure;
(iv) realcommercial.com.au – enhanced listing;
(v) developmentready.com.au – standard listing;
(vi) domain.com.au – elite priority placement;
(vii) raywhite.com and raywhitepreston.com.au;
(viii) myfun.com – targeting Chinese buyers; and
(ix)squiiz.com.au;
(b) Direct email marketing to Ray White Preston’s buyer database for developers;
(c) Marketing via two of Ray White Preston’s social media apps targeting the local Chinese community;
(d) Two large signs on the Property;
(e) Double page matte brochures; and
(f) Professional aerial photography.
The reports from some of the websites, as attached to the Catanzariti Email, state that:
(a) For realcommercial.com.au, there were 453 views, 676 engagement, 9 save & share, 26 enquiries;[20]
(b) For realestate.com.au, there were 1,192 property page views, 42 saved property, 24 phone & sms reveals, 23 email enquiries;[21] and
(c) For domain.com.au, there were 216 views, 446 engagement, 9 save & share, 4 enquiries.[22]
[20]Exhibit MT-1, p14.
[21]Exhibit MT-1, p15.
[22]Exhibit MT-1, p16.
The Catanzariti Email indicates that in addition to the offer which was accepted by the Salvos that led to the Mortgagee Sale contract, the following offers were made and rejected:
(a) $1.8m,[23] subject to certain conditions in favour of the prospective purchaser, with settlement in October 2020;
(b) $1.81m including GST, subject to strict conditions in favour of the prospective purchaser;
(c) $1.9m,[24] subject to the prospective purchaser obtaining finance, with settlement not before 15 October 2020.
[23]The prospective purchaser did not stipulate whether the offer was inclusive or exclusive of GST: Exhibit MT-1.
[24]The prospective purchaser did not stipulate whether the offer was inclusive or exclusive of GST: Exhibit MT-1.
Mr Salvo deposes that as at the date of the Salvo Affidavit, the amount owing by the Plaintiff to the Salvos was $1,878,500 plus the costs of enforcing the Loan Agreement and the Mortgage.[25]
[25]Salvo Affidavit, [26].
Mr Tourkakes deposes that the Plaintiff was ordered to pay the Salvos’ costs of the unsuccessful Injunction Application and that to his knowledge those costs have not been paid.[26] He also deposes that the Salvos have demanded $115,329.49 from the Plaintiff and from Mr Duggal (as guarantor), which is the shortfall following the settlement of the Mortgagee Sale, which has not been paid.[27]
[26]Fourth Tourkakes Affidavit, [10].
[27]Fourth Tourkakes Affidavit, [11].
Mr Tourkakes deposes that Jun Ping Eai was registered as a second ranking mortgagee on the title to the Property, and that no claim has been made by Jun Ping Eai against the Salvos.[28]
[28]Fourth Tourkakes Affidavit, [22].
Evidence relied upon by the Plaintiff
As noted above, the Plaintiff was refused leave to rely on the Second Duggal Affidavit and the Rann Report. Accordingly, the evidence able to be relied upon by the Plaintiff was the First Duggal Affidavit, affirmed on 5 August 2020. I summarise the relevant parts of the First Duggal Affidavit below, noting that where the evidence is already set out in the background above, I have not repeated it here.
Mr Duggal deposes that he has been purchasing and developing properties since 2012, completing approximately 6 developments from 3 house developments to 12 house developments, and that he has a number of developments in progress at the moment.[29]
[29]First Duggal Affidavit, [4].
Mr Duggal says that the Plaintiff settled the purchase of the Property on 14 November 2016 for $1.307m plus GST, which at the time was zoned on the urban zone boundary for development.[30] A planning permit was issued by the City of Whittlesea on 16 September 2016 for the construction of 18 dwellings and the subdivision of the land.[31]
[30]First Duggal Affidavit, [6].
[31]First Duggal Affidavit, [10].
On 28 September 2017, the Plaintiff entered into an exclusive sale authority with Harcourts Rata & Co in Thomastown for lots 1-16 of the proposed 18 lot development.[32]
[32]First Duggal Affidavit, [12]. Mr Duggal later had a disagreement with this agent, resulting in a settlement: First Duggal Affidavit, [22].
Between 10 March 2018 and 15 March 2018, 4 of the 18 townhouses were sold for $470,000 each. In respect of each of these pre-sales, $500 of the $23,500 deposit due by 23 March 2018 was paid, and the contracts have a sunset clause of 36 months from the date of contract.[33]
[33]First Duggal Affidavit, [16].
Mr Duggal says that the February Sale fell through, as he understood that the purchaser’s bank would not lend at a higher leverage-to-value ratio as was necessary for the purchaser to settle the purchase of the Property. He says that it was his intention to try and get a further extension from the Salvos for this purchaser, who was seeking to obtain private alternative finance, or find a new buyer at the same price or to refinance the Property.[34]
[34]First Duggal Affidavit, [28].
Mr Duggal deposes that on 5 March 2020, his appointed real estate agent SKAD Real Estate was advised by Ray White Preston that they had been appointed by the mortgagee in possession (ie the Salvos) and requested SKAD Real Estate to remove their existing sale board and any advertising.[35] On 6 March 2020, the Salvos’ solicitors notified the Plaintiff’s solicitors that they were proceeding with a mortgagee sale of the Property.[36]
[35]First Duggal Affidavit, [29].
[36]First Duggal Affidavit, [30].
Mr Duggal deposes that he understands the auction was cancelled due to the COVID‑19 pandemic restrictions, but he was unhappy the Salvos were attempting to sell the Property rather than give him more time to complete the February Sale.[37]
[37]First Duggal Affidavit, [31].
He says that Ray White Preston were advertising the Property at $1.9m to $2.09m.[38] Mr Duggal says this valuation range:
... was well and truly below the market value and much lower than the offers I had been getting from potential buyers. Once the [Salvos] had put their advertisement online, no one was willing to buy the property at what it was worth because it was now being advertised for $600,000 less. My impression was that the [Salvos] were only interested in getting enough money to cover their principal and interest.[39]
[38]First Duggal Affidavit, [32].
[39]First Duggal Affidavit, [32].
Mr Duggal deposes that his solicitors asked the Salvos’ solicitors for the reserve price and if they had a valuation upon which that was based, in response to which the Salvos’ solicitors replied on 3 June 2020 that they understood the reserve to be $2m and they had no updated valuation, stating that in the current climate it may not be attainable. The Plaintiff’s solicitors reiterated to the Salvos’ solicitors that the Property was valued at a minimum of $2.5m.[40]
[40]First Duggal Affidavit, [34]-[35].
Mr Duggal deposes that the second mortgagee’s representatives contacted his solicitors and were upset at the sale price for the Mortgagee Sale and at not having been advised of the sale.
On 10 June 2020, after having been provided with the details of the Mortgagee Sale, the Plaintiff’s solicitors wrote to the Salvos’ solicitors reserving the Plaintiff’s position in respect of loss and damage, noting that $1.9m would not be enough to clear the debt on the Property and that the price is significantly lower than the property value which Mr Duggal understood to be in the vicinity of $2.475m to $2.7m, despite the COVID‑19 conditions.[41]
[41]First Duggal Affidavit, [38].
Mr Duggal says that he was unable to organise for a valuer to attend the Property to provide an accredited valuation due to the restrictions then in place, but he obtained three “independent property appraisals” from local real estate agencies, as follows, from:[42]
[42]First Duggal Affidavit, [39].
(a) SKAD Real Estate, dated 21 July 2020, value between $2.2m to $2.4m;
(b) Singh Real Estate, dated 24 July 2020, value between $2.1m to $2.3m; and
(c) One Group Realty, dated 23 July 2020, value between $2.2m to $2.4m.
Mr Duggal states that in addition to what was paid for the Property, he or the Plaintiff has spent at least $1.077m (around $800,000 of which was in interest payments) on the Property. Apart from interest payments, this was for architect drawings, town planning, and paying out a former partner.[43]
[43]First Duggal Affidavit, [40].
Submissions
The parties did not disagree with each other as to the principles applicable to a summary judgment application; rather, their disagreement was as to the application of those principles to this case.
The Salvos’ submissions
The Salvos submitted that all steps were taken by them to obtain the best price for the Property, thereby protecting the interests of the Plaintiff and other encumbrancers. They rely on the evidence of the marketing campaign, as summarised above, which they say shows that offers which were made below the valuation given by Ray White Preston were rejected and that the offer which was accepted was the best one obtained.
The Salvos submit that as the respondent to the Summary Judgment Application, the Plaintiff must show cause against the application by affidavit or otherwise to the satisfaction of the Court.[44] In the Salvos’ Outline, they say that at the time of filing their submissions, no affidavit had been served by the Plaintiff in opposition to the Summary Judgment Application that supports its allegations at paragraph 19 of the Statement of Claim, such that the Plaintiff has no real prospect of success.
[44]Rule 22.19 of the Rules.
The Salvos submit that there is no evidence suggesting that the Property was sold at an undervalue. To the extent that the First Duggal Affidavit is relied upon in this regard, the Salvos submit that:
(a) The valuations from the three real estate agents are informal valuations in the nature of “pitches” by them; and
(b) At least one of the three real estate agents is not “independent” as stated by Mr Duggal, being SKAD Real Estate, considering that the Plaintiff had engaged that agent to sell the Property before the Salvos started a sale process.
The Salvos also reject the proposition that they only wanted to get their own debt paid, relying on their rejection of earlier offers because they were trying to get the best price.
The Salvos also point to the outcome of the Injunction Application, in particular the reasons of Derham AsJ as expressed in the Injunction Refusal Orders, to contend that the Court has already said that the Plaintiff did not have a prima facie case. In that regard, his Honour stated in the ‘Other Matters’ section of the Injunction Refusal Orders that:
For the reasons given extempore this day and which are available on the transcript, the Court is not satisfied that the plaintiff has a prima facie case that the [Salvos] have acted in breach of the obligations under s 77(1) of the [TLA] in entering into the [Mortgagee Sale] at a price which is alleged to be an under value, nor that the balance of convenience favours the grant of an interlocutory injunction (even for two weeks). In addition to the reasons given ex tempore, that is the view of the Court because:
(a)The [Salvos] have, in the circumstances of the case and the current COVID-19 epidemic, obtained the best price consistent with its entitlement to realise its security.
….
(d)There is no allegation that the [Third Defendant] has acted otherwise than bona fide and in his own best interests. The bona fide [Third Defendant’s] rights under his contract with the [Salvos] will be interfered with by the grant of an injunction as sought.
In the course of the hearing, Counsel for the [Salvos] advanced material obtained by email from the estate agent which acted in the [Mortgagee Sale] so as to show the marketing campaign undertaken by the estate agent engaged by the [Salvos] and the offers made to purchase the [Property]. The Court took the material into account on the undertaking of Counsel that his instructing solicitor or the estate agent concerned verified the material on affidavit.[45]
[45]Injunction Refusal Orders, [C]-[D]. This is what led to the First Tourkakes Affidavit being filed the next day, exhibiting as MT-1 the Catanzariti Email and its attachments, which is the material referred to by his Honour.
In addition, the Salvos rely on the outcome of the proceeding as against the Third Defendant, where consent orders were entered into for the dismissal of the Plaintiff’s claims against the Third Defendant and for the Plaintiff to pay the Third Defendant’s costs on an indemnity basis. They say that this shows the Plaintiff’s case is weak.
The Plaintiff’s submissions
In respect of a mortgagee’s duties, the Plaintiff submits that:
(a) Section 77(1) of the TLA requires that the mortgagee exercising the power of sale must act in good faith having regard to the interests of the mortgagor or other person. This duty must be interpreted against the background of the equitable principles that control the exercise of the mortgagee’s power of sale.[46]
(b) The mortgagee must act conscionably.[47] It must take reasonable steps to obtain the best price consistent with its entitlement to realise its security.[48] This requires the mortgagee to consider how the property should be advertised and to allow an appropriate time between the advertisement and the sale.[49]
[46]MBF Investments Pty Ltd v Nolan (2011) 37 VR 116, [65] (‘MBF’).
[47]Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646, 652.
[48]Vasiliou v Westpac Banking Corporation (2007) 19 VR 229, [63].
[49]MBF, [100].
The Plaintiff submits that by selling the Property for $1.9m, which is below the appraisals made by three real estate agents around that time, the Salvos sold the Property at an undervalue. This is said to be an undervalue of between $300,000 and $500,000 based on those appraisals, or $600,000 when compared with the February Sale.
The Plaintiff submits that there is no evidence that the Salvos or Ray White Preston obtained an expert independent valuation prior to the sale, which failure is said to be contrary to standard practice in mortgagee sales and for the sale of undeveloped land. It also says that providing a price range in the absence of an auction created an artificial ceiling on the price of the land.
Of the marketing campaign and the Ray White Preston valuation, the Plaintiff says that there is no sworn evidence from Mr Catanzariti concerning how he arrived at the range of $1.8m to $2m, and no evidence of any notes he took or discussions he had in relation to the sale of the Property. Further, there is no sworn evidence as to the veracity of the summary given by Mr Catanzariti in the Catanzariti Email of the purported offers, and that all this shows is interest in the Property but no effort to use the interest shown to obtain a higher price for the Property. The Plaintiff says that there is no explanation as to why Mr Catanzariti has not provided sworn evidence, and that instead, the Salvos relies on hearsay evidence.
The Plaintiff says that the absence of an independent valuation and the evidence of the Property being sold at substantially undervalue points to a breach of the Salvos’ duties as mortgagees in exercising their power of sale. It says that the material in the Catanzariti Email will be the subject of much controversy between the parties and that it is proper that his evidence be challenged at trial. The Plaintiff says that the same criticisms made by the Salvos of the real estate agent appraisals obtained by it can be made of the Catanzariti Email.
The Plaintiff submits that the onus is on the Salvos to show that they have satisfied their duties under the TLA and that the Plaintiff has nothing more than a fanciful chance of success. It is said that the bar is high, and the absence of sworn evidence from Mr Catanzariti and an expert report in support of the Summary Judgment Application means that the threshold has not been reached.
It is submitted that the evidence from Mr Salvo as to the amount owing, $1.878m, shows that the Salvos sold for enough just to clear their loan.
The Plaintiff says that it has shown cause that its claim against the Salvos has real prospects of success, and it would be contrary to the interests of justice to summarily dispose of the claim. Even if there were not real prospects of success, the Plaintiff says that the case should go to trial, pursuant to s 64 of the CPA.
Consideration
I do not accept the Plaintiff’s submission that the onus is on the Salvos to show that they have satisfied their duties under the TLA and that the Plaintiff has nothing more than a fanciful chance of success.
The onus is not on the Salvos to disprove the Plaintiff’s case by positively proving their own case. The onus is on the Salvos to show that the Plaintiff’s case has no real prospect of success, which the Plaintiff can refute by showing cause to the contrary.
It is tolerably clear from the Rules that in making a summary judgment application, the defendant does not even have to rely on affidavit material (even if they often do). Rule 22.18(1) says that “If the defendant intends to rely on an affidavit in support of the application, the affidavit shall be filed with the summons” (emphasis added). This should be contrasted with the requirements for an application by a plaintiff for summary judgment, whereby r 22.04(1) provides that “an application shall be made by summons supported by an affidavit”, which amongst other things, verifies the facts on which the claim is based (emphasis added).
Hence, rather than the Salvos having the onus of showing that they have satisfied their duties as mortgagees, the question is whether there is sufficient evidence before the Court that the allegation that the Salvos have breached their duties as mortgagees has a real prospect of success. Accordingly, I do not accept the Plaintiff’s submission that the Salvos have tried to displace or reverse the onus in this application.
Further, the standard is not that the Plaintiff has nothing more than a fanciful chance of success: after all, the authorities clearly state that the CPA is not to be interpreted by looking to previously applicable tests or language, but by its own language, which is the standard of no real prospect of success.[50]
[50]Lysaght, [23].
The outcome of the proceeding so far as the Third Defendant is concerned says nothing about the Plaintiff’s case against the Salvos. I reject the Salvos’ submission in this regard.[51]
[51]See paragraph 81 above.
The Salvos rejected the Plaintiff’s criticisms of their reliance on the Catanzariti Email and there being no expert report, saying that this was the best they could do at the time of the Injunction Application, where they had one day’s notice of the hearing. In this regard, I agree with the Plaintiff’s submission that while this was explicable as at that time, there was nothing preventing the Salvos from obtaining such material in time for the Summary Judgment Application.
Nonetheless, that does not mean that I must or should disregard the content of the Catanzariti Email or Mr Salvo’s evidence of the valuation given to him by Mr Catanzariti. It is clear from r 22.18(3) and r 22.18(4) that hearsay evidence can be relied upon in an application by a defendant for summary judgment.
The evidence relied upon by the Salvos establishes that a conventional marketing campaign was undertaken. There is nothing unconventional about the marketing material or the marketing channels; rather, the usual methods of selling land were employed. This included advertising on commercial and development focused websites.
Having embarked upon a conventional marketing campaign in early March 2020, the Salvos were then confronted with what can only be described as exceptionally unconventional circumstances. By mid to late March 2020, the state was in lockdown due to the COVID-19 pandemic. It is hardly surprising that in those circumstances, the auction of the Property which had been scheduled for 4 April 2020 was cancelled. It is also hardly surprising that the Salvos instructed Ray White Preston to proceed to attempt to sell the Property by private treaty.
I do not see how it can be said that these actions constitute a breach of the mortgagee’s duties. The auction could not physically be held, and a mortgagee is not obliged to wait until market conditions improve before conducting a mortgagee sale.[52] A mortgagee has an entitlement to realise its security, provided that it abides by its duties in doing so. The duty to take reasonable steps to obtain the best price is a duty to take appropriate steps in the circumstances which are consistent with its right to enforce its security interest.[53]
[52]MBF, [100(c)].
[53]MBF, [100(d)].
I also put little weight, if any, on the Plaintiff’s evidence that it was intending to pursue the purchaser in the February Sale to see if the purchaser could obtain alternative financing. There is nothing whatsoever to indicate that this was likely to bear fruit. It is notable that the purchaser in respect of the February Sale was not one of the persons who contacted Ray White Preston with an offer during the sale process it undertook. This suggests that the purchaser was no longer interested in purchasing the Property, particularly given that the purchaser may have been able to obtain it at a lower price than the purchaser had previously offered. Even if Mr Duggal pursuing the February Sale or something similar with that purchaser was a viable prospect, a mortgagee is not obliged to give the mortgagor time to sell the property itself,[54] especially in circumstances where that had already been unsuccessful.
[54]Since such a course would be tantamount to requiring the mortgagee to put the mortgagor’s interests ahead of its own, which it is not required to do: Vasiliou v Westpac Banking Corporation (2007) 19 VR 229, [24], citing Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309, 313.
That really leaves the question of whether the Property was sold by the Salvos at an undervalue. While I accept that there is no evidence to explain how Ray White Preston came to a range of $1.8m to $2m when advising the Salvos, the only evidence that this is an undervalue is that contained in the First Duggal Affidavit. The fact that the Plaintiff had entered into the February Sale at $2.5m plus GST is not indicative of $1.9m plus GST being below market value, as the purchaser under that contract was unable to complete it due to an inability to obtain finance at that price. I do not see how a failed contract can be said to be indicative of market value. There is no evidence at all to support Mr Duggal’s own view of value, being $2.475m to $2.7m, as he simply does not give any evidence to show how he came to that range.
As to the appraisals from the three real estate agents relied upon by the Plaintiff, these simply state:[55]
[55]Exhibit RD-16 to the First Duggal Affidavit.
(a) In the case of the SKAD Real Estate Agents appraisal, that the Property “should generate strong buyer interest between $2.2 and $2.4 million in the current marketplace.”
(b) In the case of the Singh Real Estate appraisal, that “As per today’s market, I believe the market value of the property is in the vicinity of around $2.1 to $2.3 million”. It is not said whether this takes account of COVID-19 or whether it includes GST.
(c) In the case of the One Group Realty appraisal, that the sale lies in the vicinity of approximately $2.2m to $2.4m.
True it is that Mr Catanzariti’s appraisal may not entail much, if anything, more than this. However his appraisal was followed by a marketing campaign and by offers made which were rejected. The Plaintiff says that the marketing campaign put a range of $1.9m to $2.09m on the Property. First, there is no evidence before me as to this other than Mr Duggal’s statement: there is no document exhibited that shows this was the range stated in the marketing material. Even if Mr Duggal’s evidence in this regard is accepted, and I have no reason not to accept it given that the Salvos could have contradicted it if they had felt the need to, there is no evidence before me that putting this range on the marketing material constitutes bad faith or a failure to obtain the best possible price. Second, Mr Duggal states that once the Salvos advertised it at this price, “no one was willing to buy the property at what it was worth because it was now being advertised for $600,000 less”. I do not accept this. There is no evidence to support the finding that this was $600,000 below market value, and in any event this is opinion evidence which is inadmissible as Mr Duggal is not an expert. There is no evidence to state that putting the range that Ray White Preston did put on the Property constitutes a failure to obtain the best price. Having given the range of $1.8m to $2m to the Salvos, it was entirely consistent for Ray White Preston to have stated that range in the marketing material.
Importantly, the evidence is that there was a significant amount of interest in the Property, as shown by the reports referred to in paragraph 56 above, but that interest manifested in only four offers (the three described by Mr Catanzariti, as set out in paragraph [57], and the one which was accepted), all roughly within the price range given to the Salvos. Of the rejected offers, two were at the bottom end of Ray White Preston’s valuation and all three were on terms less favourable than the offer which was ultimately accepted. Further, it is not as if the Property was sold to the first offeror or that it was on the market for a brief period of time. The evidence is that the Property was on the market for about 3 months before the Salvos accepted the best offer they had received in that time.
I do not accept the Plaintiff’s submission that the Salvos sought only to recover their debt, such that the interests of the mortgagor and other encumbrancers were disregarded. The evidence is that after the Mortgagee Sale, there remained a shortfall in the amount owing to the Salvos of at least $115,329.49.[56] This supports the position that the Salvos accepted the best available offer to them at the time.
[56]Fourth Tourkakes Affidavit, [11].
Consequently, I do not consider that the Plaintiff has shown cause against the Salvos’ application for summary judgment. I do not accept that the Plaintiff has demonstrated that its claims that the Salvos failed to abide by their duties as mortgagees when exercising their power of sale have a real prospect of success.
As noted above the Salvos submitted that the Court, in the Injunction Application, had already held that the Plaintiff had not established it had a prima facie case. In so submitting, the Salvos did not demonstrate how this should be taken into account. If the intent of that submission was that I was bound by that decision, then that is rejected. The Injunction Application was a different application to which different tests and principles applied. Further, such an application and its outcome does not create a relevant res judicata or issue estoppel. That being said, and the Plaintiff’s evidence being no better than it was then, if a prima facie case had not been established at the time of the Injunction Application, it is difficult to see how it can now be said that the Plaintiff’s case has a real prospect of success.
Conclusion
For the above reasons, the Summary Judgment Application will be granted.
The parties are to confer and provide to my Chambers by no later than 4.00 pm on 17 September 2021 proposed consent orders to give effect to this ruling, including as to costs. If the parties do not reach a consent position, then by 17 September 2021 each party is to provide to my Chambers with their preferred form of order and any submission they wish to make (including as to costs) of no more than 3 pages and the proceeding will be listed for 1 October 2021 for the making of orders.
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