Bank of Western Australia Ltd v OCS Constructions Pty Ltd

[2012] VCC 524

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted

AT MELBOURNE

COMMERCIAL LIST
BANKING & FINANCE DIVISION

Case No. CI-11-03081

BANK OF WESTERN AUSTRALIA LTD	Plaintiff
v.
OCS CONSTRUCTIONS PTY LTD and ORS	Defendants

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	2 May 2012
DATE OF JUDGMENT:	2 May 2012; revised 3 May 2012
CASE MAY BE CITED AS:	Bank of Western Australia Ltd v. OCS Constructions Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2012] VCC 524

REASONS FOR JUDGMENT

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Catchwords:             Practice and procedure – Interlocutory injunction – Restrain mortgagee retaking possession of a property – Whether a tenant of the mortgagor entitle to remain in the premises – Whether mortgagee had consented to the lease – No serious issue to be tried – s.42(2) Transfer of Land Act 1958 – Balanced Securities Ltd v Bianco (2010) 27 VR 599 followed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A. Sergi	Gadens Lawyers
For the Defendants	No appearance
For the Applicant	Mr R. Gordon	Gordon Lawyers

HIS HONOUR:

1The present proceeding is a dispute between the bank as lender and the defendants as borrowers and guarantors. A default judgment was obtained on 5 October 2011 for possession of two properties, including the property at 18 Windale Street, Dandenong. A third party, Michael Kumar, alleges that he has a lease of the property from the first defendant. He wishes to be joined as a party to the present proceeding and seeks to have the bank restrained from selling the property or otherwise exercising its rights as mortgagee until the position of the applicant, Mr Kumar, as lessee of the property, can be determined in the proceeding.

2The proceeding was commenced by writ against the defendants on 27 June 2011. Although the defendants entered appearances, on 29 August and 1 September 2011, they failed to file defences and, accordingly, judgment was entered by default on 5 October 2011. The plaintiff’s solicitors advised the defendants’ solicitors of the judgment on 18 October 2011. Correspondence ensued between the plaintiff’s solicitors and the defendants’ solicitors between October 2011 and March 2012.

3The applicant, Mr Kumar, alleges that a lease of the Dandenong property was entered into between the first defendant and himself in late September or early October 2011. The lease was in writing. It is undated. It provides for a term of two years commencing 20 December 2011 and the right of the tenant to exercise three options to renew for further terms of two years. The monthly rental of the premises was $2,200 and the premises were to be used to carry on an electro-plating business; the business previously conducted by the first defendant.

4The first defendant apparently transferred, for a consideration of $20,000, plant and equipment associated with its electro-plating business to a company associated with Mr Kumar, Complete Metal Finishing Pty Ltd. The applicant’s solicitor, Mr Ronald Gordon, also became involved in correspondence with the plaintiff’s solicitors on 28 February 2012. On 5 March 2012, the plaintiff’s solicitors wrote to both the defendants’ solicitors and Mr Gordon, on behalf of Mr Kumar.  The letters are in similar terms. The letter to Mr Gordon contained the following paragraph:

“We have been provided with a copy of the lease by Sapna Kahn and upon reviewing of same, we advise that your client’s lease post-dates the bank’s mortgage over 18 Windale Street, Dandenong, and was entered into without the bank’s consent. Accordingly, the bank’s mortgage is not subject to the terms of the lease and the bank is not obliged to adopt the lease”.

5The correspondence squarely raised the issue of whether the bank had consented to the lease of the property to Mr Kumar. That issue of consent is central to the determination of Mr Kumar’s application. It is necessary, however, to first refer to an application made by the defendants by summons dated 14 March 2012, seeking a stay of execution. That summons was struck out by Her Honour Judge Kennedy on 23 March 2012, after a hearing at which both the plaintiff and the defendants were represented by counsel. The basis of the application was that Mr Kumar was in occupation of the premises as a tenant and that there were likely purchasers of the property.

6The application by the defendants was supported by an affidavit of the third defendant, Mr Soyza. Mr Soyza is effectively the controlling voice of the first and second defendants. In paragraph 5 of the affidavit, Mr Soyza referred to the Dandenong property as being “currently tenanted” and that, prior to entering into the lease, the tenant was “unaware that the plaintiff is in mortgagee possession”. It was noted that the tenant of the Dandenong property was “operating an electro-plating business”. No statement was contained in the affidavit of Mr Soyza that the plaintiff had consented to the tenancy. It was agreed that this was a requirement of the mortgage between the plaintiff and the defendants.

7Plaintiff’s counsel, Mr Sergi, has informed me that at the hearing on 23 March 2012, Judge Kennedy raised the issue of the application of s.42 of the Transfer of Land Act 1958. Section 42(2)(e) provides that any “registered instrument shall be subject to…the interest…of a tenant in possession of the land”. The present application made by Mr Kumar, by summons dated 18 April 2012, came before me on 27 April 2012. Mr Gordon submitted on behalf of the applicant that s.42(2)(e) applied to his client’s interest pursuant to the lease, or at least there was an issue to be tried as to whether the bank, when retaking possession of the property, took subject to the lease to Mr Kumar.

8At the hearing on 27 April 2012, Mr Sergi referred to the decision of J. Forrest J in Balanced Securities Ltd v Bianco (2010) 27 VR 599, a decision which comprehensively examines the authorities in relation to s.42(2) of the Transfer of Land Act. Consistently, the courts have held that “the mortgagee may recover in ejectment, without giving notice to quit, against a tenant who claims under a lease form the mortgagor granted after the mortgage and without the consent of the mortgagee”. (Maher v Commonwealth Bank of Australia [2004] FCA 248, per Finkelstein J at para 24, quoted by J. Forrest J at para 100).

9As the plaintiff’s mortgage in the present case was entered into and registered a considerable time prior to Mr Kumar’s lease, the only basis upon which Mr Kumar might establish any rights in respect of the property would be if he were able to demonstrate that the bank had “consented” to his lease. In relation to the issue of whether the bank had consented to the lease, it is noted that:

a.both the defendants’ solicitors and Mr Gordon, as Mr Kumar’s solicitor, were notified by the bank’s solicitors on 5 March 2012 that the bank had not consented to the lease to Mr Kumar;

b.notwithstanding that assertion by the bank’s solicitors, in later correspondence between the defendant’s solicitors and the plaintiff’s solicitors and between Mr Gordon and the plaintiff’s solicitors, it has not been suggested that the bank had consented to Mr Kumar’s lease;

c.on 9 March 2012 Mr Gordon, in an email to the plaintiff’s solicitors, stated, “My client accepts that your client, the bank, is entitled to possession and will not be resisting possession of the property by the bank. All it seeks is a reasonable time frame within which to vacate the subject property. My client will not be in a position to vacate the property on or before Thursday 15 March 2012”;

d.subsequently, agreement was reached that would allow Mr Kumar to remain in the property until 19 March 2012. On that day, the sheriff entered the property pursuant to the warrant of possession and took possession of the property, and equipment of Mr Kumar’s, which was located at the property;

e.subsequently, after the issue of the summons seeking a stay by the defendants, Mr Gordon, in an email to the bank asked, “Can you please advise whether your client is agreeable to further defer eviction until the application is heard on 23 March 2012, and in the event the application is unsuccessful, to then allow my client to vacate by 9am, Monday 26 March 2012”;

f.in Mr Soyza’s affidavit, sworn 14 March 2012, he referred to the fact that the Dandenong property was tenanted and that prior to entering into the lease, the tenant was unaware “that the plaintiff is in mortgagee possession”. There was no reference to the issue of the bank’s consent to the lease;

g.Mr Kumar’s present application was initially supported by an affidavit sworn by him and an affidavit sworn by Mr Soyza, both on 18 April 2012. At paragraph 8 of Mr Soyza’s affidavit, he stated “prior to settlement of the contract [the sale of the plant and equipment at the property] I gave to the plaintiff a copy of the lease and the plaintiff informed me that it gave its consent to the lease. I then communicated this to Complete Metal Finishing Pty Ltd and the applicant/intended party prior to Complete Metal Finishing Pty Ltd and the applicant/intended party occupying the premises and commencing conducting their business from the premises. From about the middle of November 2011, Complete Metal Finishing Pty Ltd was conducting its business from the premises”;

h.Mr Kumar said, in paragraph 10 of his affidavit, “The first and third named defendants informed me and Complete Metal Finishing that a copy of the lease had been forwarded to the plaintiff and the plaintiff had indicated that it gave its consent to the lease. This was told to us prior to Complete Metal Finishing commencing conducting its business from the premises. From about the middle of November 2011, Complete Metal Finishing was conducting its business from the premises”;

i.on 24 April 2012 a bank officer, Stephen Ainsworth, swore an affidavit in opposition to the application, stating that from a search of the bank’s records, he was able to state that “(a) the plaintiff has never been advised of the existence of the said lease by the third defendant, prior to or at the time the lease was entered into; (b)the plaintiff has never discussed with the third defendant, or any other party related to the third defendant, the entering into of the said lease; and (c) the plaintiff has never consented to the said lease, either verbally or in writing”;

j.the application was adjourned on 27 April 2012 to give the applicant a further opportunity to file affidavits giving more detail of the alleged consent by the bank to the lease of the premises and to explain the failure by the defendants and the applicant and their solicitors to refer to the issue in correspondence or the defendants’ earlier application;

k.a further affidavit by Mr Soyza, sworn 30 April 2012, has been filed. The affidavit refers to telephone communications between Mr Soyza and a person whom he believes to be named Caroline at the city branch of the bank. Mr Soyza said he believed the “telephone call was received by me before this court proceeding was instituted”. Mr Soyza stated that he told Caroline it was his intention to have the Dandenong property and another property “leased out so that the rental payments could be then utilized to pay the repayments to the plaintiff”. Mr Soyza then states, “Caroline then informed me that when the leases were executed to forward copies of the same to the plaintiff”. Mr Soyza stated that he and Mr Kumar executed a lease of the Dandenong property “some time in or around the last week of September or the first week of October [2011]”. The affidavit concludes, “I then caused a copy of the lease to be sent to the plaintiff. I did this by sending the same to the plaintiff by post. I posted it to the plaintiff at the Melbourne city branch address of the plaintiff”.

10The applicant submits that the evidence produced to the court is sufficient to establish that there is a serious question to be tried as to whether the lease of the Dandenong property was consented to by the plaintiff, and that, accordingly, the applicant would be able to assert that as against the plaintiff as mortgagee, he was entitled to remain in possession of the property at least until 20 December 2013 and perhaps for further extended periods beyond that;

11I consider that I must evaluate the statements made by Mr Soyza in his affidavit, sworn 30 April 2012, in the light of the earlier affidavits sworn by him on 14 March and 18 April 2012 and the correspondence that passed between the solicitors, particularly the correspondence advising the defendants’ solicitors (that is, Mr Soyza’s solicitors) on 18 October 2011 that judgment had been entered against them, and the letter dated 5 March 2012 which referred to the issue of the lack of consent to the lease on the part of the bank. In my view, the affidavit material falls far short of providing an evidentiary basis for an assertion that there is a serious question to be tried on the issue of whether the bank has consented to the lease;

12Mr Gordon, in submissions today, has suggested that an estoppel might arise by reason of the request by the bank for any executed lease to be forwarded to it and by its failure to respond in circumstances where Mr Soyza says he later sent a copy of the lease to the bank. This allegation is very different from the previous assertion made by Mr Soyza in his affidavit dated 18 April 2012 that, “I gave to the plaintiff a copy of the lease and the plaintiff informed me that it gave its consent to the lease”. No explanation has been given for the different versions or the failure by the defendants’ or applicant’s solicitors to refer to the issue of consent in correspondence with the plaintiff’s solicitors after 5 March 2012.

13The sheriff has been in possession of the property since 19 March 2012. This was a date negotiated between the plaintiff’s solicitors and Mr Gordon as Mr Kumar’s solicitor. A later extension of time for the applicant to remove items from the property was also negotiated. Mr Gordon, in correspondence with the plaintiff’s solicitors, accepted that the bank was entitled to possession as against his client. The affidavit by Mr Kumar, sworn 18 April 2012, suggests that as a result of having to vacate the premises on 19 March 2012, he and his company “have lost several key customers and are continuing to lose customers”. Apart from these assertions, there is very little else from which the Court might conclude as to what would be the consequences to the applicant if he were not permitted to re-enter and occupy the premises and conduct his business until the hearing and determination of the issue of his rights as a tenant as against the plaintiff.

14In the circumstances, even if I were convinced that there was a serious issue to be tried, there appears little basis for the granting of interlocutory relief as there is little material as to where the balance of convenience as between the applicant and the plaintiff would lie and it is not clear why, if the applicant wished to pursue a separate action against the bank, the recovery of damages would not be an adequate remedy, rather than seeking to litigate the issue through the present proceeding and by the grant of the interlocutory relief that is sought.

15In the circumstances, the applicant’s summons, filed 18 April 2012, will be dismissed.

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Certificate

I certify that these 6 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 2 May 2012 and revised on 3 May 2012

Dated: 3 May 2012

Caroline Dawes

Associate to His Honour Judge Anderson