Central Stone Pty Ltd v Algeri and Woods
[2019] VSC 848
•20 December 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2019 03659
BETWEEN:
| CENTRAL STONE PTY LTD | Plaintiff |
| – and – | |
| SALVATORE ALGERI and ROBERT WOODS (who are sued in their capacity as joint and several liquidators of Gem Management Group Pty Ltd (in liq) | Defendants |
---
JUDICIAL REGISTRAR: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 December 2019 |
DATE OF RULING: | 20 December 2019 |
CASE MAY BE CITED AS: | Central Stone Pty Ltd v Algeri & Woods |
MEDIUM NEUTRAL CITATION: | [2019] VSC 848 |
---
PRACTICE AND PROCEDURE – Summary judgment – Plaintiff seeks summary judgment for declaratory and injunctive relief as sought in statement of claim – Civil Procedure Act 2010 (Vic), ss 61 and 63 – Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42VR 27 – Daniel Simon Hausman and Lance Vincent Hodgson v Abigroup Contractors Pty Ltd (2009) VR 213 – Director of Consumer Affairs Victoria v Mecon Insurance Pty Ltd [2016] VSC 42 – Requirement for plaintiff to establish that it has a good cause of action – Whether defendants have real prospects of success on their defence – Application for summary judgment refused.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C.R Northrop | Scammell Black Mileo |
| For the Defendants | Ms N Papaleo | Lander & Rogers |
JUDICIAL REGISTRAR:
Introduction
This proceeding was commenced by writ and statement of claim filed by the plaintiff on 14 August 2019 (‘SOC’). The defendants, Salvatore Algeri and Robert Woods, are the joint and several liquidators of Gem Management Group Pty Ltd (in liq) (‘Gem’) and are sued in that capacity. The defendants filed their defence on 20 September 2019 (‘Defence’).
By summons filed 23 October 2019, the plaintiff seeks summary judgment against the defendants pursuant to s 61 or s 63 of the Civil Procedure Act 2010 (Vic) (‘CPA’).[1] Specifically, by its summons the plaintiff seeks that there be summary judgment for the plaintiff in respect of the plaintiff’s claim for:
[1]By orders made on the Court’s own motion, the application for summary judgment was referred to me for hearing and determination, pursuant to r 84.04 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’).
(a) A declaration that the purchase money arising from the sale of the property described in certificates of title volume 92018 folio 782, volume 9108 folio 783 and volume 9097 folio 377 (‘Property’) by Principled Mortgage Investments Pty Ltd (‘PMI’) as mortgagee (‘Mortgagee Sale’) be applied in accordance with the provisions of s 77(3) of the Transfer of Land Act 1958 (Vic) (‘TLA’) (‘Declaration’);
(b) An order that the defendants as liquidators of Gem direct PMI to pay to the plaintiff the surplus proceeds of the Mortgagee Sale; and
(c) Alternatively, an order that the defendants as liquidators of Gem direct PMI to pay to the plaintiff from the surplus proceeds of the Mortgagee Sale an amount sufficient to satisfy Gem’s obligations under the plaintiff’s mortgage number AM737491R. I shall refer to the relief described in paragraphs (b) and (c) as the Direction Orders.
The relief sought in the SOC is the declaration and orders set out in paragraphs (a) to (c) of the preceding paragraph.
The plaintiff also seeks orders that the defendants pay its costs of both the application and the proceeding.
The plaintiff relies on the affidavits of:
(a) Marintha Lao, sworn 18 October 2019. Ms Lao is a secretary of the plaintiff and a daughter of its director; and
(b) Mark Mileo, sworn 18 October 2019. Mr Mileo is the principal of Scammel Black Mileo, solicitors for the plaintiff.
The defendants oppose the application for summary judgment, and rely upon the affidavit of Mr Woods, sworn 18 November 2019.
The parties both filed written outlines of submissions and the plaintiff also filed a reply outline. Their contentions are set out in detail in those outlines.
For the reasons set out below, the plaintiff’s application for summary judgment is refused. I should observe that in the interests of brevity and publishing these reasons at the earliest opportunity (given that settlement of the Mortgagee Sale is scheduled for 21 February 2020) and before the holiday period, I have not set them out in full. Suffice to say that all submissions, written and oral, along with all of the affidavits, have been taken into account. In addition, and in keeping with the usual practice of this Court when declining to grant summary judgment, I will avoid transgressing too far into my views as to the merits of the parties’ cases. Some analysis of that is required, however, in order to determine the application.
Background
The relevant facts can be shortly stated:
(a) PMI has the first registered mortgage over the Property, registered on 7 November 2016 (‘PMI Mortgage’);
(b) PMI is the mortgagee in possession of the Property and has sold the Property, which I have referred to as the Mortgagee Sale, settlement of which is due to complete on 21 February 2020;
(c) Upon settlement of the Mortgagee Sale, there will be a surplus after selling costs are met and PMI is paid out;
(d) The plaintiff has the second registered mortgage over the Property, which was registered on 29 April 2016 (‘CS Mortgage’). The CS Mortgage was given by Gem as security for a loan of $3.2 million, entered into by Gem and the plaintiff around the same time (‘CS Loan’);
(e) Although the PMI Mortgage was registered subsequent to the CS Mortgage, the plaintiff agreed to vary the priority of mortgages to give precedence to the PMI Mortgage. A variation of priority of mortgages or charges was registered on 7 November 2016 to record that variation; and
(f) It appears that the balance of the purchase price due at settlement will exceed the amounts required to pay the selling costs, the PMI Mortgage, and the CS Mortgage.
It is necessary to set out some background facts about Gem and its dealings with the plaintiff:
(a) On 20 April 2018, the defendants were appointed liquidators of Gem, as well as of the managed investment scheme operated by Gem (‘Scheme’) and trustees of the trust of which GEM was previously trustee, the VKK Investments Unit Trust (‘Trust’);
(b) Those appointments were made by order of the Federal Court, on application by ASIC to wind up Gem, the Scheme and the Trust, following an investigation it had conducted into Gem and the Trust;
(c) There has been a great deal of correspondence between the plaintiff and the defendants, both directly and through solicitors, before and after the commencement of this proceeding. The upshot of that correspondence is that the defendants have asserted that they are investigating claims they may have in relation to Gem, including that the CS Mortgage is held on trust for the defendants, they disputed the plaintiff’s entitlement to the surplus funds from the Mortgagee Sale, and they indicated that investors may have claims to the funds;
(d) As a consequence of these assertions, the defendants maintain that the surplus funds from the Mortgagee Sale after payment of costs and the PMI Mortgage should be paid into Court until the entitlement to those funds is determined.
Applicable law
Section 61 of the CPA permits a plaintiff to make an application for summary judgment on the ground that the defendant’s defence (or part thereof) has no real prospect of success. Section 63 of the CPA provides (subject to s 64) 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’.
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.
The principles applicable to applications for summary judgment are well known and were set out by the Court of Appeal in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd[2]. I have previously summarised the principles applicable to summary judgment in Padella Pty Ltd v Elliott,[3] which were adopted by Sloss J in Israfoods (2006) Ltd v J & D Consortium Pty Ltd.[4] There is no need for me to repeat these here: suffice to say, this is the approach I have followed.
[2](2013) 42VR 27, 40 [35].
[3][2018] VSC 301, [19]-[28].
[4][2019] VSC 323, [41].
Section 77 of the TLA is relevant to this application as it sets out requirements regarding the power of sale under a mortgage or charge. Section 77(3) of the TLA relevantly provides as follows:
The purchase money received arising from the sale shall be applied –
(a)firstly in payment of all costs charges and expenses properly incurred incidental to the sale and consequent on such default;
(b)secondly in payment of the moneys which are due or owing on the mortgage or charge;
(c)thirdly in payment of moneys owing under or in respect of subsequent mortgages and charges in the order of their respective priorities;
(d)fourthly in payment of the residue (if any) to the mortgagor or into the Supreme Court under the provisions so far as they are applicable of section sixty-nine of the Trustee Act 1958 and the rules referred to therein …
Submissions
Plaintiff’s submissions
The plaintiff submits that the only issue before the Court is whether or not the proceeds of the Mortgagee Sale should be distributed in accordance with the statutory provisions and that summary judgment should be granted as there is no defence to that claim with any real prospect of success. It is said that the merits or otherwise of other assertions and any potential claims are not the subject of this proceeding, and that a declaration in favour of the plaintiff will not affect other claims nor preclude any claim being made in a later proceeding.
At the commencement of the hearing, the plaintiff’s Counsel indicated that the only order now being sought by the plaintiff on the summary judgment application is the Declaration.
The plaintiff submits that as the CS Mortgage is a registered mortgage, its interest in the Property is indefeasible except in the case of fraud. Since there is no suggestion in any of the material before the Court that would found an allegation of fraud, the plaintiff’s interest is indefeasible. Further, it is argued that the material demonstrates that most of the money lent by the plaintiff to Gem was paid in reduction of an earlier mortgage. The plaintiff says that there is no dispute over its standing as registered second mortgagee and that at most, there is a mere possibility of claims being made against it.
The plaintiff submits that s 77(3) of the TLA sets out a clear order of priority for the distribution of the proceeds of the Mortgagee Sale. It is said that it is only after the costs, the amount secured by the selling mortgagee (ie PMI), and then subsequent mortgagees and chargees in order of their priority are paid that the residue is to be paid into Court if not paid to the mortgagor. In other words, paying the surplus funds after costs and the PMI Mortgage into Court rather than to the plaintiff is to disturb that order of priority under s 77(3) of the TLA.
The plaintiff says that the allegations made in the SOC are largely admitted by the Defence and that the only factual allegations, being the terms of the CS Mortgage, the advance of $3.2 million to Gem or at its direction, and there being no amounts repaid to the plaintiff, which are not admitted in the Defence are proven by the evidence adduced in the affidavits relied upon by the plaintiff. It is said that the defendants have adduced no evidence to the contrary.
The plaintiff submits that the multiple cross-references in the Defence to paragraph 21 of the Defence, along with paragraph 21 itself, do not constitute a defence to the allegation made in the SOC that the surplus from the Mortgagee Sale after costs and the PMI Mortgage must be applied in payment of the CS Mortgage pursuant to s 77(3) of the TLA.
It is convenient here to interpose by setting out paragraph 21 of the Defence (‘Paragraph 21’):
The defendants say that they:
(a) have not yet made a determination about:
(i) the validity of the plaintiff’s mortgage;
(ii)the availability of orders setting aside the plaintiff’s mortgage under section 588FF of the Corporations Act 2001 (Cth) (or otherwise); and
(iii) the sums allegedly secured by the plaintiff’s mortgage;
(b)have not yet adjudicated upon the Proof of Debt [lodged by the plaintiff] (or made any determinations as to its effect); and
(c)are still in the process of conducting investigations to determine their position in relation to the matters identified at subparagraphs 21(a) and (b) above.
The plaintiff submits that the power of the Court to make a declaration is confirmed by s 36 of the Supreme Court Act 1986 and by r 23.05 of the Rules, which allow the Court to make binding declarations of rights without granting consequential relief. The plaintiff refers to Director of Consumer Affairs Victoria v Mecon Insurance Pty Ltd,[5] where Elliott J described the Court’s jurisdiction:[6]
The court’s jurisdiction to grant declaratory relief is not in issue. The exercise of the discretionary power is not possible or desirable to fetter. A proceeding is not open to objection on the ground that a merely declaratory judgment is sought. However, certain factors are relevant to the consideration of the appropriateness of declaratory relief in a particular circumstance:
(1)The declaratory relief “must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions”.
(2)the plaintiff or applicant must have a “real interest” in seeking the relief.
(3)There must be a “proper contradictor” in the sense of a person who has “a true interest to oppose the declaration sought”. In appropriate cases, this requirement may be fulfilled notwithstanding the declarations are sought by consent.
(4)Declaratory relief may not be appropriate where the “declaration will produce no foreseeable consequences for the parties”.
[5][2016] VSC 42 (‘Mecon Insurance’).
[6]Mecon Insurance, [22] (citations omitted).
The plaintiff relies on this in answer to paragraph 19 of the Defence.
Paragraph 19 of the Defence states that the plaintiff has failed to join all necessary and/or proper parties to the proceeding, that the relief sought would fail to resolve the issues between all necessary and/or proper parties to the proceeding, such that the plaintiff is not entitled to the Declaration (‘Paragraph 19’). The particulars to Paragraph 19 refer to five caveats having been lodged on the titles to the Property, saying that the plaintiff has not joined Gem (as mortgagor) or any of the caveators, or any of the unit holders in the Trust to the proceeding. The defendants rely on a letter dated 14 June 2018 from HWL Ebsworth (‘HWLE’), solicitors for (unnamed) certain unit holders, to PMI where it was stated that those unit holders objected to the distribution of the sale proceeds to any party save for PMI (‘HWLE Letter’).
The plaintiff disputes that the HWLE Letter is a proper basis for making good the defendants assertion that certain unit holders have asserted that the surplus funds should be paid into Court rather than to the plaintiff, as that letter reveals that there was prior contact between HWLE and the defendants who told HWLE that the surplus funds would be paid into Court. A subsequent letter from PMI’s solicitors to the defendants’ solicitors refers to the HWLE Letter and says that PMI’s intention is to pay the surplus proceeds into Court. The plaintiff disputes the defendants’ contention that PMI’s intention was in response to the HWLE Letter as the defendants wanted the money paid into Court before the HWLE Letter.
In respect of the four factors referred to by Elliott J as set out above, the plaintiff says that the Declaration is dealing with a clear controversy between the parties, it has a demonstrable interest in seeking the Declaration, as second registered mortgagee, the defendants are proper contradictors, and that the Declaration will resolve the question of whether s 77(3) of the TLA should be followed without prejudicing anyone’s rights or claims, as such claims will still be able to be made.
For all of these reasons, the plaintiff says that the defendants have no real prospect of succeeding on their Defence in respect of the Declaration.
Defendant’s submissions
The defendants submit that the first question to be considered in this application is not whether the defendants have a real prospect of success in their defence. Rather, it is said that a threshold question arises: whether the plaintiff has any prospects of success in its claim. This is put in terms of whether the plaintiff has established grounds for judgment in its favour against the defendants, let alone a summary one. The defendants submit that the plaintiff has failed to establish that it does have a real claim but that even if it has, the defendants have a real chance of successfully resisting it.
The defendants say that the plaintiff’s sole allegation against them in the SOC is that they have made a contention – that the surplus funds from the Mortgagee Sale should be paid into Court – that the plaintiff disagrees with. They say that this does not give rise to a cause of action against the defendants.
The defendants say that to obtain the Direction Orders (see paragraph 2(b) and (c) above), the plaintiff would have to identify an obligation that is imposed on the defendants, prove that they are failing to discharge that obligation, and satisfy the Court that it is appropriate to order them to issue a direction to a third party.
It is said that the plaintiff fails at the first hurdle: the defendants have no obligation to comply with s 77(3) of the TLA and nor do they have any obligation to issue any directions to PMI. According to the defendants, the highest it can be put is that they have expressed a view about the proper means of dealing with the surplus proceeds and the plaintiff does not agree, and the plaintiff seeks an advisory opinion about who is right.
On that basis, the defendants say that there are no grounds upon which judgment could sensibly be entered against them in this proceeding, especially on a summary basis.
Further, the defendants say that the necessary parties to the proceeding are not present. It is said that were a court is invited to make orders that will directly affect the rights or liabilities of a non-party, that non-party is a necessary party and ought to be joined to the proceeding. The defendants say that PMI’s rights and obligations will be affected by the Declaration and the Direction Orders, and the investors have claimed an interest in the funds, and so therefore they are all necessary parties to the proceeding such that orders cannot be made in their absence.
The defendants submit that s 77(3) of the TLA operates against the party holding the funds, that is, PMI, and PMI is not present.
There were other submissions made by the defendants that the relief sought is inutile and/or premature, but as these were made in respect of the Direction Orders which the plaintiff no longer seeks as part of its summary judgment application, there is no need for me to go into them.
The defendants also submit that even if the Court considers that the defendants’ Defence has no real prospect of success, it should be satisfied that it is not in the interests of justice to dispose of the proceeding summarily. That is, pursuant to s 64 of the CPA, it is in the interest of justice for the proceeding not to be disposed of summarily. This is put on the grounds that the factual background gives rise to grave concerns about the conduct of the parties involved in Gem, the Trust and the Scheme, along with the plaintiff. The defendants are investigating those matters and have indicated that they may take steps to set aside the CS Mortgage, and a distribution of the surplus funds to the plaintiff at this point would potentially frustrate that claim and deprive the investors of the protection they would obtain from the funds being safely in court.
Consideration
No authority for the defendants’ proposition as set out in paragraph 28 above was provided by the defendants. However, it must be the case that the plaintiff has to establish a cause of action against the defendants and the facts satisfying each element of that cause of action. It cannot be the case that summary judgment could be granted where doubt about that arises by reason of the claims made in the statement of claim. So much is consistent with what the Court of Appeal said in Daniel Simon Hausman and Lance Vincent Hodgson v Abigroup Contractors Pty Ltd.[7] In that case, considering the equivalent of what is now r 22.04, concerning the affidavit in support of summary judgment, the Court of Appeal stated that what “must be verified are the facts necessary to establish a good cause of action”.[8] While that case pre-dated the CPA, the principles remain good law since the advent of the CPA.[9]
[7](2009) VR 213 (‘Hausman v Abigroup’).
[8]Hausman v Abigroup, [60].
[9]Innovateq Australia Pty Ltd and Anor v Barnes and Ors [2016] VSC 618, referring to Capital One Securities Pty Ltd v Soda Kids Holdings Pty Ltd [2012] VSC 163 and to Portbury Development Pty Ltd v Ottedin Investments Pty Ltd and Ors [2012] VSC 490.
Given that the plaintiff now seeks the Declaration by way of summary judgment, and not the Direction Orders, I do not need to consider the latter.
During oral submissions, the defendants submitted that for the Declaration to have any effect, it would have to operate as an injunction. Since it is PMI who will be in receipt of the surplus funds, for the Declaration to have an effect it would have to function as an injunction requiring PMI to apply the surplus funds in a particular way. If the Declaration is effectively an injunction in respect of PMI’s conduct, then PMI is the person who ought to be a party and judgment, let alone summary judgment, should not be made when PMI is a party. The plaintiff says that it is not necessary for PMI to be a party because it has no interest in the surplus funds once the selling costs and the PMI Mortgage are paid.
I do not accept the plaintiff’s submission in this regard. The complaint in the SOC is that the defendants have said the surplus funds should be paid into Court and the Declaration is sought so that s 77(3) of the TLA is complied with. But it is PMI who will control the surplus funds, not the defendants. For the Declaration to have any effect, it must be directed at PMI, and PMI is not a party. In my view, there is a real prospect that this does not fall within the fourth point made by Elliott J in Mecon Insurance, as set out in paragraph 22 above. The plaintiff submits that it is not an injunction, but a declaration as to how the funds should be dealt with and that the statutory provisions must be complied with. But this is not a necessary consequence of the Declaration, since it does not require any particular person to do any particular thing.
Otherwise, the Declaration is nothing more than the Court saying that persons should follow the law as set out in s 77(3) of the TLA. When I asked the plaintiff’s Counsel during submissions who the Declaration was directed to, the reply was, ‘everyone’. This is illustrative of the Declaration, in this proceeding and with these defendants, being at best an advisory opinion and more truthfully being a statement by the Court that everyone should follow the law. In my view, there is a prospect that this does not fall within the first point made in Mecon Insurance, as set out in paragraph 22 above. The plaintiff submits that the Declaration is far from abstract or hypothetical, as we know what PMI intends to do,[10] which is pay the surplus funds into Court. It says that if the Declaration is made, then it would be ‘bold’ of PMI not to comply with the statute. The defendants say that on its face, the Declaration is advisory and does not quell a particular controversy. They say that if the relief is genuinely declaratory, then there is no utility to it as it does not bind PMI, the plaintiff having said that a declaration only binds parties to the proceeding. If the relief is injunctive, then it is not underpinned by any cause of action against the defendants and it would only be effective as an injunction if it operated upon PMI.
[10]See paragraph 25 above.
I accept the defendants’ submissions in this regard. Therefore, it follows that it cannot be said that the Defence has no real prospects of success. For that reason, summary judgment ought not be granted.
For the reasons set out above, I accept the proposition advanced by the defendants which I have summarised in paragraph 28 above. In my view, this means both that it cannot be said that the Defence has no real prospect of success and that it is otherwise inappropriate to dispose of the proceeding summarily on the basis of s 64 of the CPA.
There was a great deal of argument at the hearing as to the merits (or otherwise) of the defendants’ investigations and possible claims, including against the plaintiff and the CS Mortgage, along with the investors’ possible claims. The defendants say that it is not correct to say that the Declaration will not affect other persons’ rights, as if it is made and the surplus funds are paid to the plaintiff, then investors will have to chase the plaintiff in respect of a claim which may be a proprietary claim. It is not necessary for me to canvass those arguments here, other than to say that this is another reason why the proceeding ought not be disposed of summarily, as contemplated by s 64 of the CPA.
Conclusion
For the reasons set out above, the application for summary judgment is refused.
The parties are asked to confer after considering these reasons, and to provide my Chambers with proposed draft orders, if agreed. If orders cannot be agreed, then the parties should advise my Chambers and the proceeding will be listed before me so as to deal with the form of orders and costs.
0
5
0