Banksia Mortgages Ltd v Donnelly & Anor
[2009] QSC 256
•1 September 2009
SUPREME COURT OF QUEENSLAND
CITATION:
Banksia Mortgages Ltd v Donnelly & Anor [2009] QSC 256
PARTIES:
BANKSIA MORTGAGES LIMITED ACN 087 342 238
(plaintiff/applicant)v
GARRY JOHN DONNELLY
(first defendant/respondent)GEORGE PETROPOULOS
(second defendant/respondent)FILE NO/S:
BS 2451 of 2007
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
1 September 2009
DELIVERED AT:
Brisbane
HEARING DATE:
27 August 2009
JUDGE:
McMurdo J
ORDER:
Within the further amended counterclaim:
1. Paragraph 20, those parts of paragraphs 21 and 28 which contain the words “if the guarantee is binding and enforceable against the second defendant” and paragraphs 2, 3, 4(b) and 7 of the prayer for relief be struck out.
2. Paragraphs 22(a), 32, 34A, 34B, 37, 38, 39, 40, and 41 be struck out.
3. The second defendant provide to the plaintiff the particulars requested of paragraph 26.
4. Paragraphs 33, 36 and paragraph 1 of the prayer for relief be struck out and repleaded.
CATCHWORDS:
PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – PLEADING – DEFENCE AND COUNTERCLAIM – where the mortgagee obtained judgment against the second defendant in respect of the latter’s guarantee over the mortgage – where the second defendant pleads in its counterclaim that its guarantee is not “binding and enforceable” – whether the pleading should be struck out
PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – PLEADING – DEFENCE AND COUNTERCLAIM – where the second defendant counterclaims for an order that judgment against it be set aside pursuant to UCPR r 668 – where none of the allegedly new facts post-dated the judgment – where the second defendant’s liability arises under the judgment not under the guarantee – whether the pleading should be struck out
PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – PLEADING – DEFENCE AND COUNTERCLAIM – where the second defendant pleads that the plaintiff had told him that if the mortgaged property could not be sold at a sufficient price then it would “come back” to the second defendant – where the second defendant pleads that this was misleading or deceptive because it was “untrue” – where the second defendant pleads that but for these statements he would have made “immediate arrangements” to pay out the debt or to become subrogated to the plaintiff’s rights – where the basis for the statement’s being untrue is not particularised – where the nature of the arrangements is not particularised except that they would be have been made “by working with … known associates in [the] property development industry” – whether the pleading should be struck out
Property Law Act 1974 (Qld), s 85
Supreme Court Act 1995 (Qld), s 48Trade Practices Act 1974 (Cth), s 51A, s 87
Uniform Civil Procedure Rules, r 300, r 668COUNSEL:
Christopher Wilson for the plaintiff
No appearance for the first defendant
S D Anderson for the second defendantSOLICITORS:
Bain Gasteen for the plaintiff
No appearance for the first defendant
Leonard Legal for the second defendant
The plaintiff lent more than $4,000,000 to a property development company called Global Capital Industries Pty Limited. The loan was secured by a mortgage granted by the borrower over land at Hervey Bay and guaranteed by its directors, one of whom is the second defendant, Mr Petropoulos. The loan was not repaid and the mortgaged property was sold by the plaintiff. Still there was a shortfall, and the plaintiff sued the guarantors. On 22 August 2007 the plaintiff obtained summary judgment against the second defendant for $1,223,719.80.
That judgment is stayed pending the determination of the second defendant’s counterclaim against the plaintiff. Essentially there are two complaints made in that counterclaim. The first is that the mortgaged property was sold by the plaintiff at less than its market value, in breach of its duties under s 85 of the Property Law Act 1974 (Qld) and under the general law. The second is that the plaintiff misled the second defendant by inducing him to believe that the property would be sold at a price which would discharge the debt so that he need not make arrangements to pay it himself.
The plaintiff applies to strike out several paragraphs of the counterclaim upon the grounds that they are irrelevant, too general or self-contradictory. For the most part the plaintiff’s arguments should be upheld. The first part of the pleading which is challenged is where it is alleged that the second defendant’s guarantee is not “binding and enforceable”. The basis for this is the breach of the plaintiff’s duties in selling the mortgaged property. The short answer to that case is that the plaintiff has been given a final judgment against the second defendant for what was found to be due under the guarantee. There has been no appeal against that judgment.
But the second defendant counterclaims for an order that the judgment be set aside pursuant to UCPR r 668. The application of that rule would depend upon the discovery of facts after the judgment of 22 August 2007. The land was sold a year earlier, in September 2006. As I will discuss, the counterclaim relies upon subsequent events, such as a sale by the entity which had purchased from the plaintiff. But none of these events is said to have post-dated the judgment or to have been discovered after it was given. Further, the complaints about the plaintiff’s sale as a mortgagee do not appear to be points which could have provided a defence to the plaintiff’s claim, as distinct from being a basis for a counterclaim.
The counterclaim also seeks an order that the judgment be permanently stayed pursuant to UCPR r 300. That may or may not be an appropriate order if the counterclaim is substantially successful. But it is a different matter to say, as is pleaded in several paragraphs, that the guarantee is not binding and enforceable. Because of the judgment it cannot be argued now that the guarantee was not binding or enforceable. Further, it is not apt to speak of the continuing force of the guarantee, because the plaintiff’s rights have merged in the judgment. So for that reason, counsel for the plaintiff rightly conceded that interest would be accruing on the judgment debt under s 48 of the Supreme Court Act 1995 (Qld), rather than under the loan agreement or the guarantee.
The prayer for relief claims that by reason of the conduct complained of in the second component of the counterclaim, the misrepresentation case, there should be an order under s 87 of the Trade Practices Act 1974 (Cth) “that the second defendant be discharged from all liability to the plaintiff under the guarantee”. Again the second defendant’s obligation to the plaintiff is under the judgment and not under the guarantee.
For those reasons paragraph 20, those parts of paragraphs 21 and 28 which contain the words “if the guarantee is binding and enforceable against the second defendant” and paragraphs 2, 3, 4(b) and 7 of the prayer for relief will be struck out. Paragraph 8 of the prayer for relief, which seeks that permanent stay of the judgment, will not be struck out.
Next there is the case that the second defendant was misled to believe that the property would not be sold for less than the debt. The second defendant pleads, in some detail, an alleged conversation with a representative of the plaintiff in about April 2006. He then pleads that he had the impression from this conversation that if the plaintiff was unable to sell the land at a price sufficient to pay out the debt, he would be so informed and given the opportunity of paying the debt. Paragraph 22(a) alleges that the plaintiff wrongly failed and/or refused to provide the second defendant with details as to the precise amount then owed to it by the borrower. The basis for the allegation that this was wrongful does not appear from the pleading. Nor is it alleged that this failure to provide the payout figure was itself causative of loss to the second defendant. Accordingly, paragraph 22(a) raises a false issue and should be struck out.
Paragraph 22(b) pleads that the plaintiff’s representative told the second defendant, amongst other things, that the plaintiff had obtained valuations suggesting that the mortgaged property could be sold for sufficient to pay out all registered mortgagees (including the plaintiff) and that if the plaintiff apprehended a shortfall, the plaintiff would be “coming back to [the second defendant]”. It is then alleged that the plaintiff did not “come back” to the second defendant. Paragraph 24 pleads that those statements in paragraph 22(b) were misleading or deceptive or likely to mislead because they were “untrue”, because the plaintiff did not contact the second defendant when it was apparent that there would be a shortfall and because a valuation obtained by the plaintiff in April 2006 did not suggest that the mortgaged land could be sold for a price sufficient to cover all registered mortgages. It is alleged that there was a contravention thereby of s 52, and the operation of s 51A is pleaded.
The second defendant alleges that in reliance upon these matters, he took no steps to himself pay out the debt, and that but for the statements, he would have made “immediate arrangements” to do so and become subrogated to the rights of the plaintiff under its securities. But the second defendant has failed to provide particulars of what arrangements would have been made. All that has been said is that the second defendant would have made arrangements “by working with his known associates involved in [the] property development industry”.
In my view there are two problems with this part of the pleading. The first is in the pleading that the statement that the plaintiff would come back to the second defendant, if it apprehended a shortfall, was “untrue”. The effect of that allegation is that it was a promise made without any intention to perform it. With the benefit of the submissions for the second defendant, I have the impression that this may not be the second defendant’s case. If that is not his case, the pleading requires some amendment. He has relied upon the statement, in the alternative, as a statement as to a future matter, for which there would not be the same problem. But the real case in this respect would seem to be that there was misleading and deceptive conduct by not coming back to the second defendant and proceeding to sell for less than the debt, having regard to the assurance which is alleged to have been given. That case is sufficiently raised by the present pleading. As I have said, consideration should be given to the basis for the allegation that the statement was “untrue”. But at present I would not strike it out.
The second difficulty is in the allegation in paragraph 26 that the second defendant would have made arrangements to pay out the debt. The plaintiff is entitled to know what those arrangements would have involved. More specifically, it is entitled to know what would have been the likely cost to obtain the funds with which to pay out the plaintiff’s debt. The loss which is claimed in this part of the counterclaim is for the interest which continued to accrue on the debt, which it is said would have been avoided by the second defendant’s paying the debt in 2006. It cannot be the case that the necessary funds could have been obtained by the second defendant on an interest free basis. Inevitably the plaintiff’s case would have to descend to the detail of the likely cost of those funds. It is not sufficient to say that the plaintiff can wait for the second defendant’s evidence. It will be ordered that the second defendant provide to the plaintiff the particulars requested of paragraph 26.
Next there is the case that the land was sold at an undervalue. The second defendant does not plead what was the market value except that it was “not less than $4,900,000”.
Paragraph 31 pleads that the plaintiff sold what is described as Lot 6 to a company called KS3 Pty Ltd for $3,750,000 “and in so doing realised net proceeds … in the sum of $3,559,181.02”. Paragraph 32 pleads that in the transfer provided to the purchaser, the stated consideration of $3,750,000 was crossed out and replaced with a figure of $4,125,000. The consequence of that is not alleged. It is not said, for example, that the plaintiff has failed to give credit for all of the net proceeds of sale. The apparent explanation for this alteration is that the sale was for a price of $3,750,000 plus GST. Also pleaded in paragraph 32 is the sentence “yet only $3,559,181.02 was realised as net proceeds from KS3”. Again it is not alleged that the plaintiff has failed to account for the entirety of the net proceeds by crediting that against the debt. The result is that paragraph 32 is irrelevant and will be struck out.
Paragraph 33 pleads that various valuers had assessed the market value of Lot 6 on various dates in amounts ranging from $6,400,000 to $8,594,000. The dates ranged from 26 September 2004 to 12 April 2006. Paragraph 34 pleads that one of those valuers had been commissioned by the plaintiff. This was in April 2006, and that valuer had assessed the market value at $6,550,000 and the price upon a forced sale at $6,140,000. It is then alleged that there was a failure to take reasonable care to obtain market value by failing to advertise the property for sale “at the value ascribed to it by [the plaintiff’s] own valuers” and by failing to advertise the property “at the valuation price”. The case seems to be that this was the only reasonable marketing technique. In that respect, the alleged breach of duty does not appear to be an obviously strong case, but that is a matter for evidence and I would not strike out paragraph 34. It would also make relevant the allegation of that valuation as it appears in paragraph 33. But the relevance of the other valuations pleaded in paragraph 33 is not apparent. It is not alleged that any of them was made known to the plaintiff. In argument I was informed by counsel for the second defendant that two of them, which were valuations provided in 2004, had been known to the plaintiff. If that were pleaded, then those valuations might become relevant. The other valuations pleaded in paragraph 33 are not relevant. Paragraph 33 must be repleaded and in the present version will be struck out.
Paragraphs 34A and 34B allege that other valuations have assessed the value of Lot 6 as at 25 September 2006 (the date of the sale) at certain figures. But in each case, the valuations are said to have been performed in 2009. These are not allegations of material facts. Paragraphs 34A and 34B will be struck out.
Paragraph 35 pleads that despite convening a public auction of Lot 6, the plaintiff sold it by “private negotiation” to KS3. There is a particular complaint made about that sale which is this. The purchaser wanted to buy Lot 6 and the adjoining Lot 5. The plaintiff held a mortgage over Lot 5 from another mortgagor, which was not in default. That mortgagor agreed to sell Lot 5, on condition that it received $4,750,000 plus GST. It is said that the purchaser would then pay no more than the amount which it did agree to pay, $3,750,000 plus GST, for Lot 6. In effect, it is said that the plaintiff sold Lot 6 at an undervalue in order to have the loan secured over Lot 5 repaid. That case is clearly enough raised by the pleading and it will not be struck out.
But then it is pleaded that the purchaser, KS3, subsequently sold Lot 6 and Lot 5 for $10,131,000. That is irrelevant and it will be struck out where it appears in paragraph 36. The so called particulars of paragraph 36 in fact set out the case which I have described in the preceding paragraph. It will be ordered that paragraph 36 as a whole be struck out and be repleaded.
Paragraph 37 pleads that having regard to the relative sizes of Lots 5 and 6, and upon the basis of the price obtained by KS3 of $10,131,000, the value of Lot 6 would be $6,754,000. That is irrelevant, because it is not the second defendant’s case that Lot 6 had that value. It will be struck out.
Paragraph 38 alleges that a sale price at that figure of $6,754,000 would be “consistent with the weight of the different valuation opinions particularised in paragraph 33 above”. Similarly, this paragraph 38 will be struck out.
Paragraph 39 alleges that by a contract of sale dated 31 January 2006, the mortgagor agreed to sell Lot 6 for $8,700,000 but that the contract was cancelled after “the plaintiff said it was not happy to accept a $50,000 deposit for the property”. There is no allegation that this constituted a breach of some duty owed by the plaintiff. It cannot be said to be part of the case pleaded in paragraph 29, which is expressed to be a breach or breaches of duty in exercise of the plaintiff’s power of sale, because in this instance, the plaintiff was not exercising its power of sale. Paragraph 39 will be struck out.
Paragraph 40 alleges that as a result of that January 2006 contract not proceeding, the plaintiff itself contracted to sell Lot 6 for $5,000,000 in April 2006, but that the contract did not settle because the cheque for the deposit was dishonoured. Paragraph 41 pleads that although this price of $5,000,000 was substantially less than the “assessed true market value” of Lot 6, had Lot 6 been sold at that price of $5,000,000 the debt would have been repaid and the second defendant would not have been liable under the guarantee. But none of this makes relevant the aborted sale of April 2006. Paragraphs 40 and 41 will be struck out.
The plaintiff complains about the inadequacy of particulars of the alleged loss. The amount claimed is $1,151,397.65 “plus further accruing interest at a rate of 12.2% per annum”. In my view it sufficiently appears that the claim is for the difference between the value of “not less” than $4,900,000 and the sale price of $3,750,000 together with interest. The appropriate rate of interest, as noted earlier, would be the rate under s 48 from the date of the judgment. The rate of interest applicable prior to then would be that which was accruing under the plaintiff’s loan agreement. This could be made clearer within the prayer for relief. Paragraph 1 will be struck out with the expectation that it will be repleaded according to these reasons.
I will hear the parties as to costs.
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