Cifg (Australia) Pty Ltd v Perna
[2020] VSC 630
•29 September 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 00917
IN THE MATTER of an application by CIFG (AUSTRALIA) PTY LTD (ACN 006 182 449) for an order for payment of funds out of Common Fund No 1 Account No 83978 held with the Supreme Court of Victoria’s Funds in Court Office
| CIFG (Australia) PTY LTD (ACN 006 182 449) & ORS (according to the attached Schedule) | Plaintiffs |
| v | |
| CLAUDIA DORA PERNA and MARIA GIOA BELLA GRACE & ANOR (according to the attached Schedule) | Defendants |
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JUDGE: | Derham AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 July 2020 |
DATE OF JUDGMENT: | 29 September 2020 |
CASE MAY BE CITED AS: | CIFG (Australia) Pty Ltd v Perna |
MEDIUM NEUTRAL CITATION: | [2020] VSC 630 |
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FUNDS IN COURT— Surplus proceeds from sale of land paid into court —Application for payment out — Plaintiffs claim equitable charge under guarantees given to secure principal debtor’s indebtedness to the plaintiffs — First defendants claim equitable charge under a security agreement – Whether liability of the principal debtor to plaintiffs joint or several – Whether guarantors liable to a plaintiff or the plaintiffs under guarantees – Whether plaintiffs’ charge enforceable – Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSC 201 applied – Whether first defendants’ security agreement a sham transaction – Whether first defendants charge enforceable – Snook v London and West Riding Investments Ltd [1967] 2 QB 786; Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449; ASIC v Managed Investments Ltd and Ors (No 9) [2016] QSC 109.
PROPERTY – Competing equitable interests in land – Whether interest created first in time should be postponed – Butler v Fairclough (1917) 23 CLR 78; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546; Mimi v Millenium Developments Pty Ltd [2003] VSC 260; Jacobs v Platt Nominees Pty Ltd [1990] VR 146; Bunnings Group Ltd v Hanson Construction Materials Pty Ltd [2017] WASC 132; TL Rentals Pty Ltd v Youth on Call Pty Ltd & Ors [2018] VSC 105.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr T D Best | Desmond Lieu Lawyers |
| For the First Defendant | Mr B McNab, Solicitor | Diamonds Solicitors |
| The Second Defendant appeared on his own behalf | Dorsia Legal |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Plaintiffs’ claim – in summary.................................................................................................... 3
First defendants’ claim – in summary........................................................................................ 3
Second defendant’s claim – in summary................................................................................... 4
Summary of conclusions.............................................................................................................. 4
Procedural History............................................................................................................................. 4
Plaintiffs’ equitable charge.............................................................................................................. 5
Issues regarding the plaintiffs’ equitable charge...................................................................... 14
Joint and several entitlements................................................................................................... 15
Argument – first defendants............................................................................................ 15
Argument – plaintiffs................................................................................................................. 16
Consideration..................................................................................................................... 18
A ‘pot-pourri’ of matters............................................................................................................ 21
The Perna & Grace charge.............................................................................................................. 24
First defendant’s submissions......................................................................................... 28
The plaintiffs’ submissions............................................................................................... 29
Consideration.............................................................................................................................. 34
Is the Perna & Grace Agreement a ‘sham’ transaction?............................................... 34
Have Perna & Grace incurred any liability?.................................................................. 43
What is the priority of each interest?........................................................................................... 44
Conclusion......................................................................................................................................... 47
HIS HONOUR:
Introduction
CIFG (Australia) Pty Ltd (CIFG Australia), CIFG Ltd and CIFG (HK) Ltd (together the ‘plaintiffs’[1]) apply by amended originating motion that they are entitled to be paid $235,604.49, or any other amount the Court orders, out of the surplus funds deposited in Common Fund No 1, Account 83978 with the Supreme Court of Victoria Funds-in-Court Office (the Fund).
[1]This proceeding was originally commenced by CIFG (Australia) Pty Ltd. By order made on 21 May 2020 CIFG Ltd and CIFG (HK) Ltd were joined as the second and third plaintiffs. Where in these reasons I am discussing submissions or affidavits filed on behalf of the plaintiffs, I do so even where they were originally filed by CIFG (Australia) Pty Ltd alone.
The monies in the Fund were paid into Court by a firm of solicitors called Webb Korfiatis pursuant to the order of Sifris J made on 6 December 2019 in proceeding No S ECI 2019 05053 in this Court (Earlier Proceeding). Before the order, the monies were held by Webb Korfiatis in trust pursuant to an undertaking by that firm not to pay out the moneys except by order of the Court or the consent of three caveators who claimed they held equitable charges over the proceeds of sale of the property at 123 Normanby Drive, Greenvale, Victoria (Land),[2] the registered proprietors of which were Pietro Pace and his wife Tammy Pace (Mr and Mrs Pace).
[2]Being the land more particularly described in Certificate of Title Volume 09818 Folio 476.
Before the sale of the Land there were three caveats registered on the title the Land:
(a) the first lodged on 28 March 2019 by the first defendants;[3]
(b) the second lodged on 4 April 2019 by CIFG Australia;[4]
(c) the third lodged on 9 April 2019 by ACN 602 353 391 Pty Ltd (third caveator).[5]
[3]Caveat No AS043368G.
[4]Caveat No. AS064801B.
[5]Caveat No AS077584J.
The caveats were withdrawn to allow settlement of the sale of the Land to take place. That settlement occurred on 10 May 2019[6]. This was done pursuant to an agreement between Webb Korfiatis (who were the solicitors acting in the sale of the Land for Mr and Ms Pace) and the caveators, under which Webb Korfiatis agreed to hold in trust the net balance of the proceeds of sale of the Land, after payment of moneys due to a registered mortgagee, pending the resolution of the competing claims of CIFG Australia, the first defendants and the third caveator. CIFG Australia commenced the Earlier proceeding because the third caveator conceded that CIFG Australia had a better claim and also because the first defendants appeared to have abandoned their claim. The latter matter was based on the first defendants’ solicitor, Pana Andropoulos of Andropoulos & Associates, ceasing to act for them and there being no response to correspondence sent to them by the solicitor for CIFG Australia.
[6]First Lieu affidavit, [17(e)].
The plaintiffs and first defendants both claim to be entitled to an amount exceeding the Fund held in the Court. They each dispute the validity of the other’s equitable interest in the Land, and consequently in the Fund, and as well each claim that if the other’s claim is valid then their interest has priority over the other. The third caveator has conceded that the plaintiffs’ interest has priority over its own, and has not participated in these proceedings.[7] The second defendant (Trustee) is the trustee in bankruptcy of Mr and Mrs Pace.
[7]First Lieu affidavit, Exhibit DL-3.
The plaintiffs rely upon the affidavits of Desmond Lieu, solicitor made on 21 February 2020 (first Lieu affidavit) and 24 April 2020 (second Lieu affidavit) and the affidavits of Christopher Vella made on 24 April 2020 ( first Vella affidavit") and 14 May 2020 (second Vella affidavit). Mr Lieu is the plaintiffs’ solicitor. Importantly, Mr Vella is the manager who for the last twenty-six years has been engaged by the plaintiffs to manage their trading with various customers, including Arfoods.[8] He personally managed the plaintiffs’ dealings with Arfoods pursuant to the MTA. He also dealt with Mr and Mrs Pace in relation to the Guarantees and Arfoods’ line of credit pursuant to the MTA. Mr Christopher Vella has been and continues to be the authorised representative for the CIFG Australia, CIFG Ltd and CIFG (H.K.) Ltd and has full authority to act on behalf of all the plaintiffs.[9]
[8]First Vella affidavit, [3].
[9]Second Vella affidavit, Exhibit CV-5, letter from Brenton Birkett Parlor, sole director and shareholder of CIGG (HK) Ltd, a director of CIFG Australia and sole director and shareholder of CIFG Ltd.
The first defendants rely on the affidavit of the first of the first defendants, Claudia Dora Perna, sworn 1 April 2020 (Perna affidavit). Ms Perna is the sister of Maria Gioa Bella Grace, the second of the first defendants, and of Mr Pace.
Plaintiffs’ claim – in summary
The plaintiffs claim to an interest in the Fund arises pursuant to charges granted over the Land by Mr and Mrs Pace pursuant to separate guarantees given by them and dated 28 July 2010 (Guarantees).[10] The Guarantees were given by Mr and Mrs Pace to guarantee the performance of Arfoods Pty Ltd (Arfoods) under a trade finance facility called the Master Trading Agreement (MTA), which was executed by Arfoods in July 2010 and purportedly by the plaintiffs in June 2015. Arfoods was a food importation and distribution company run by Mr and Mrs Pace, who were Arfoods’ directors. The plaintiffs provided credit by paying for the purchase of goods by Arfoods.
[10]First Lieu affidavit, Exhibit DL-9.
The credit facilities’ limit started at $100,000 and increased to $300,000 over the course of the business dealings between the parties. After a period of over nine years of successful trading under the MTA, in April 2019 Arfoods defaulted by failing to pay monies due under the MTA. It was only when Arfoods defaulted on its obligations that CIFG Australia lodged its caveat over the Land.[11]
[11]First Lieu affidavit, Exhibit DL-3.
First defendants’ claim – in summary
The first defendants claim arises from an oral agreement made in late 2015 and executed in written form on 27 March 2019 (Perna & Grace Agreement). The basis of the Perna & Grace Agreement is that the first defendants assisted Mr Pace to take out a loan from the Bank of Melbourne to support Arfoods, which resulted in a mortgage being registered against a property the first defendants claimed they owned. This was done on the condition that the first defendants were granted a charge over the Land. The sum of $241,468.88, has been drawn down on the facility and the first defendants claim to be owed all monies in the Fund under the Agreement.
Second defendant’s claim – in summary
The Trustee contends that neither the plaintiffs nor the first defendants have a good claim to the Fund, and it should be paid to him as the Trustee. His entitlement, of course, arises pursuant to the Bankruptcy Act 1966 (Cth) by virtue of the title held by Mr and Mrs Pace as registered proprietors of the Land.
Summary of conclusions
My conclusion is that the plaintiffs’ claim is valid and the first defendants’ claim to a charge is based on a ‘sham’ agreement. If I am wrong that the first defendants’ charge is based on a sham agreement, in my view, that first defendants have incurred no liability for the charge to secure. If I am wrong in both those conclusions, in any event the plaintiffs’ charge has priority over the first defendants’ charge.
Procedural History
The Earlier Proceeding was commenced by CIFG Australia by writ on 8 November 2019.[12] In that proceeding CIFG Australia sought a declaration that Webb Korfiatis be released from its undertaking, and be ordered to pay funds from the sale of the Land into Court.[13] Sifris J made orders on 6 December 2019 that Webb Korfiatis be released from its undertaking, that the Fund from sale of the Land be paid into Court and that the proceeding be struck out with a right of reinstatement.[14] This proceeding commenced shortly after the moneys were paid into Court.
[12]Proceeding S ECI 2019 05053 – first Lieu affidavit, [5].
[13]First Lieu affidavit, 2 [6].
[14]First Lieu affidavit, 3 [11]; Exhibit DL-4.
On 4 March 2020, there was a directions hearing of the application by CIFG Australia before Matthews JR. On that day, Mr McNab, the solicitor for the first defendants, appeared. That was the first time that the solicitors for CIFG were aware of the new representation for the first defendants and that they were pressing their claim to an equitable charge over the Fund. Matthews JR made orders requiring the proceeding to be served on the Trustee as well as the third caveator, and also required that persons who opposed CIFG Australia’s application must file and serve a notice of appearance by 1 April 2020, and set out a timetable for filing and serving affidavits and submissions in the proceeding.
The first defendants filed an appearance and the Perna affidavit on 1 April 2020. On the day fixed for hearing, 11 May 2020, the Trustee sought leave to enter an appearance. The Trustee made a claim to be entitled to the funds should the claims of CIFG Australia and the first defendants’ fail. I gave that leave, made other procedural orders and set out a revised timetable for the filing of affidavits and submissions.
On 21 May 2020 CIFG Australia applied under r 9.06(b) of the Rules to join CIFG Ltd and C.I.F.G. (H.K.) Ltd as either additional plaintiffs or defendants. I made orders joining these two entities as plaintiffs in this proceeding. I also made orders requiring CIFG Australia to file and serve an amended originating motion, and set out a new timetable for the filing of affidavits and submissions. Finally, I ordered that when all submissions had been filed I would reserve my judgment. All submissions were filed by 10 July 2020.
Plaintiffs’ equitable charge
The plaintiffs conduct a trade finance business. They provide credit to small business operators, such as Arfoods, in relation to the purchase of goods and stock for their businesses. The plaintiffs’ customers are importers, wholesalers and manufacturers of relevant goods which are sourced from both Australian and overseas suppliers. When the plaintiffs accept a customer’s application they approve a certain line of credit and undertake to pay for the customer’s goods on its behalf. The plaintiffs pay the suppliers of the goods on behalf of the customers and then bill the customers for the goods including charges as specified in the MTA.[15]
[15]First Vella affidavit, [8].
The plaintiffs entered into the MTA with Arfoods in 2010.[16] All three plaintiffs are listed on the MTA as parties, and are collectively referred to as ‘CIFG’.[17] CIFG Ltd (incorporated in the British Virgin Islands) and C.I.F.G. (H.K.) Ltd (incorporated in Hong Kong) have accepted that this proceeding will be final with respect to their claims under the MTA and Guarantees, and consent to CIFG Australia being paid the Fund, if I determine that CIFG (collectively) are, or CIFG Australia is, entitled to enforce the equitable charges claimed in respect of the Fund.[18]
[16]First Lieu affidavit, 6 [23]-[25]; Exhibit DL-9 and Exhibit DL-10.
[17]First Lieu affidavit, Exhibit DL-10.
[18]Second Vella affidavit, [9].
CIFG Australia is the Australian representative of the other two plaintiffs.[19] Mr Christopher Vella, an employee of CIFG Australia and manager of CIFG Australia’s relationship with Arfoods, gave evidence that CIFG Australia was collecting moneys on behalf of CIFG Ltd.[20] In relation to the invoices that make up the claim in this case, they were all issued by CIFG Ltd. It is very likely this was also the case throughout the dealings between the plaintiffs and Arfoods over a nine year period.[21] It is also the case that all moneys paid by Arfoods pursuant to the MTA were paid to CIFG Australia, as the local representative of CIFG Ltd and CIFG (HK) Ltd.[22]
[19]CIFG (Australia) Pty Ltd & ors v Perna & ors, S ECI 2020 00917, transcript of proceeding, 11 May 2020, (Transcript), 26-29 (Christopher Vella XN).
[20]Transcript, 31.10-11 (Christopher Vella XN).
[21]Transcript, 33.
[22]Transcript,
In summary, the claim arises from invoices issued by CIFG Ltd to Arfoods, but where CIFG Australia in fact advanced the moneys under the MTA and was paid by the client (or not - as in this case) and where CIFG Australia, alternatively all the plaintiffs, claim an entitlement under the Guarantees to the charge which in turn entitles it or them to the Fund.
The MTA was signed on 28 July 2010 by Mr and Mrs Pace as the directors of, and as authorised to sign for, Arfoods.[23] A company search of Arfoods shows that at the relevant time Mr and Mrs Pace were Arfoods directors.[24] The MTA was executed by the plaintiffs on 5 June 2015.[25] The reason for this delay was that the plaintiffs’ managing director resides overseas and some time passed before Mr Vella realised that the MTA had not yet been signed by the plaintiffs. Notwithstanding this delay, from July 2010 the plaintiffs and Arfoods commenced dealings pursuant to and in reliance upon the terms of the MTA and the Guarantees.[26] This is confirmed by correspondence between the plaintiffs and Arfoods.[27] There was some suggestion initially by the first defendants that the MTA was not properly executed by the plaintiffs under the respective common seals. This is not a point of substance as the plaintiffs and Arfoods plainly conducted the dealings pursuant to the MTA over a long period both before the date it was signed on behalf of the plaintiffs and after that date.
[23]Although the signatures on the MTA are undated, it is highly probable that it was signed at the same time as the Guarantees, which were dated 28 July 2010. The MTA and the Guarantees (and other security documents not presently relevant) were sent to Mr Vella of the plaintiffs together with a copy letter of advice from the solicitors for Arfoods and Mr and Mrs Pace dated 28 July 2010: Exhibit 2, tendered on 11 May 2020, Transcript 90-91. See also First Lieu affidavit, [26]; Exhibit DL-10. First Vella affidavit, [17].
[24]Second Lieu affidavit, [18(d)-(e)]; Exhibit DL-21.
[25]First Lieu affidavit, Exhibit DL-10.
[26]First Vella affidavit, [18].
[27]First Vella affidavit, [10] and Exhibit CV-3.
Clause 2 of the MTA stated the plaintiffs would provide Arfoods with a credit facility (Facility).[28] The Facility is defined in clause 1(g) of the MTA as:
The credit facility granted to the Client by CIFG in which CIFG will, amongst other things, provide trade finance, purchase and resell goods to the order of the Client, confirm contracts, make payments, draw or accept Bills of Exchange, and raise Letters of Credit.
[28]First Lieu affidavit, 6 [25]; Exhibit DL-10.
By cl 1(c) it is provided that ‘any obligation imposed by the MTA on more than one person binds them jointly and severally’.
The trading procedure under the MTA was, in summary, as follows:
(a) Upon or following the signing of the MTA, the plaintiffs would provide Arfoods with a ‘Terms Notification’, which set out the terms including the facility limit, the interest rate, the credit period and due date for re-payment of any payment made by the plaintiffs under the Facility and other fees and charges.[29]
[29]See as example First Lieu affidavit, Exhibit DL-11.
(b) A ‘Terms Notification’ is defined to be ‘the Terms Notification in or approximating the form annexed to [the MTA] which contains the latest trading terms that apply to the Client for the time being’.[30]
[30]First Lieu affidavit, Exhibit DL-10, cl 1(g).
(c) The plaintiffs had power to alter any of the terms contained in the ‘Terms Notification’.[31]
[31]First Lieu affidavit, Exhibit DL-10, cl 3(b)(2).
(d) Arfoods would negotiate the terms of purchase of goods, such as olives or cheese, with a supplier.[32]
[32]First Lieu affidavit, Exhibit DL-10, cl 3(c).
(e) When the terms were agreed, the details of the purchase would be submitted as an application to the plaintiffs.[33]
[33]First Lieu affidavit, Exhibit DL-10, cl 3(c).
(f) The application would then be assessed by the plaintiffs, which would be treated as an offer by Arfoods to sell to and then repurchase the goods from the plaintiffs, or an offer by the plaintiffs to purchase the goods and on sell them to Arfoods.[34]
(g) If the plaintiffs agreed, the goods would then be purchased by Arfoods or the plaintiffs from the supplier, and title to the goods would pass to the plaintiffs until the relevant account had been paid in full.[35]
(h) Arfoods was required to purchase the goods from the plaintiffs ‘immediately’ after the plaintiffs purchased them.[36]
[34]First Lieu affidavit, Exhibit DL-10, cl 3(d)
[35]First Lieu affidavit, Exhibit DL-10, cl 3(f)-(g), cl 7 (b)(1).
[36]First Lieu affidavit, Exhibit DL-10, cl 3(h).
One of the many duties the MTA cast on Arfoods was the requirement to arrange for the securities noted in the Terms Notification. The initial, and each subsequent, Terms Notification noted that Guarantees were required from Mr and Mrs Pace.
Despite the various ways that the parties could undertake business under the MTA, in the case of all transactions giving rise to liability in this case, upon application by Arfoods, CIFG Australia paid for goods that Arfoods wished to purchase. CIFG Ltd invoiced Arfoods for an amount equal to the sum of the purchase price of the goods, plus commission and interest charges. The supplier of the goods then delivered them to Arfoods.
In effect, Arfoods obtained a longer time in which to pay the CIFG Ltd invoice than it would have had to pay the supplier’s invoice, thus assisting its cash flow position. In turn, CIFG Ltd charged Arfoods an additional percentage over and above the amount of the supplier’s invoice, and profited accordingly.
Over the period from 2010 to 2019, the credit limit was increased on several occasions. The Facility commenced at $100,000, [37] and this limit was increased four times from July 2010 to the end of 2015. Each increase was at the request of Mr Pace.[38] The increases were by Terms Notifications dated 23 June 2014 increasing the limit from $100,000 to $175,000, 19 September 2014 increasing the limit to $200,000, 30 September 2015 increasing the limit to $250,000 and 23 November 2015 increasing the limit to $300,000.[39] When the credit limit was increased, the only part of the MTA that changed was the Terms Notification.[40]
[37]First Vella affidavit, [19]; Exhibit CV-1. I note that this notification is not dated.
[38]First Vella affidavit, [20].
[39]First Lieu affidavit, [28]; Exhibit DL-11.
[40]Transcript, 41-2 (Christopher Vella XXN).
Mr and Mrs Pace executed separate Guarantees dated 28 July 2010, at about the same time as they signed the MTA.[41] The terms of each guarantee are precisely the same. The Guarantees were entered into in contemplation of the entry into the MTA by the plaintiffs and Arfoods[42] and under them Mr and Mrs Pace each guaranteed ‘the observance and performance’ by Arfoods of the MTA ‘and the due and punctual payment of all sums of money whether by way of penalty damages, interest, principal or otherwise which may now or at any time be payable by [Arfoods] to [the plaintiffs]’.[43] By cl 2 of the Guarantees Mr and Mrs Pace acknowledged that they had received a copy of the guarantee and had read and understood the effect of the MTA.[44] By cl 4 the Guarantees are not avoided by a range of matters, including such things as the granting of time, credit or any other indulgence, or the insolvency of Arfoods. By cl 5, the Guarantees are continuing guarantees and shall not be considered discharged by the payment of monies owing to the plaintiffs from time to time.[45]
[41]First Lieu affidavit, 6 [24]; Exhibit DL-9. First Vella affidavit, [17].
[42]First Lieu affidavit, Exhibit DL-9, Recital A.
[43]First Lieu affidavit, Exhibit DL-9, cl 3.
[44]First Lieu affidavit, Exhibit DL-9.
[45]First Lieu affidavit, Exhibit DL-9.
Clause 9 of the Guarantees is in the following terms:
Property charge
The Guarantor hereby charges any real estate in which they have any beneficial or legal interest with the repayment of all or any money which may become due or payable under the terms of this Guarantee.
The plaintiffs and Arfoods carried on business in accordance with the MTA for just over 9 years before Arfoods defaulted in payments due in March 2019.[46] The trading relationship was, as I have said, one where CIFG Ltd invoiced Arfoods, CIFG Australia paid for the goods, and Arfoods paid the monies due to CIFG Australia.[47]
[46]First Lieu affidavit, [29].
[47]Transcript, 33 (Christopher Vella XXN).
In the course of the hearing, Mr Vella produced a copy of a letter of advice from Webb Korfiatis to Mr and Mrs Pace dated 28 July 2010.[48] It was sent to Mr Vella by Mr Pace with the executed MTA and the Guarantees. It advised them as to the terms of those documents and detailed the obligations Arfoods and Mr and Mrs Pace under the MTA and the Guarantees.[49]
[48]Exhibit 2, Transcript, 90-91.
[49]Plaintiff’s Closing Submissions, 22 June 2020, 3 [6]; Exhibit 2 Solicitor’s advice from Webb Korfiatis to Pietro Pace dated 28 July 2010.
In her affidavit, Ms Perna purports to give evidence on information from Mr Pace, who is her brother, that notwithstanding the written terms of various documents executed by Arfoods at the request of the plaintiffs, the course of dealing as between them ‘was not conducted on the basis of the written terms of the various documents executed’. She made a submission in her affidavit that this is apparent from the documents forming exhibit DL-11 to the first Lieu affidavit, and that:
…any liabilities which may have arisen which are now claimed by CIFG (Australia) Pty Ltd to be owing to it under the terms of the instruments of guarantee and indemnity dated 28 July 2010 signed by Pietro Pace and Tammy Joanna Pace are not in fact, so owing. I ask that CIFG (Australia) Pty Ltd produce to the Court or exhibit to a further affidavit, copies of any documents which might establish that it has engaged in any transaction whatsoever with ARFoods Pty Ltd (sic) in accordance with the Master Trading Agreement signed in 2010, or in accordance with any variation of it, including any bank statements, financial records or taxation returns.[50]
[50]Affidavit of Claudia Perna, sworn 1 April 2020, 4 [10].
This, of course, is not evidence and was plainly constructed by her lawyer, Mr McNab, who also made a submission to this effect, based on the proposition that CIFG Australia made no advances under the MTA and was not the creditor for the purposes of the Guarantees.
This was disputed by Mr Vella who exhibited email correspondence from Mr Pace and payments by Arfoods into a Westpac Banking Account of CIFG Australia regarding transactions in 2018 as evidence that Arfoods paid sums due to the plaintiffs to CIFG Australia.[51] He also gave evidence of the payments made by CIFG Australia for the purchase of goods on behalf of Arfoods between 8 January 2019 and 2 April 2019, in amounts that make up the principal amount of the debt the plaintiffs seek to recover pursuant to the charges in the Guarantees in this proceeding.[52] Evidence of these payments included applications by Arfoods to the plaintiffs and bank transfers by CIFG Australia to the supplier to Arfoods showing all the payments the subject of the claim were paid by CIFG Australia out of funds held in its Westpac Bank account.[53]
[51]First Vella affidavit, [21], Exhibit CV-2.
[52]Second Vella affidavit, [18], Exhibit CV-6.
[53]Second Vella affidavit, [18]-[25]; Exhibit CV-6 and CV-7. See also First Lieu affidavit, Exhibit DL-12.
Arfoods failed to make a payment on 8 and 9 April 2019, and accordingly a notice of default was sent to Mr Pace on 9 April.[54] On that day, Mr Vella requested rectification of the default by 21 April, 2019, but this did not occur.[55] Mr Vella sent further emails to Mr Pace during the period April to May 2019 requesting rectification of the default. On 30 April 2019 he advised Mr Pace that action would be taken by the plaintiffs against him, his wife and his other companies (as guarantors) unless Arfoods’ default was rectified.[56]
[54]First Vella affidavit, [22]; Exhibit 1 -email chain from CIFG (Australia) to Pietro Pace commencing 9 April 2019.
[55]First Vella affidavit, [22].
[56]First Vella affidavit, [22]; Exhibit CV-3.
On 4 April 2019, Mr Lieu lodged CIFG Australia’s caveat over the Land.[57] The interest that was said to support this caveat is a charge created by Guarantee.[58]
[57]First Lieu affidavit, 3 [14].
[58]First Lieu affidavit, 3-4 [14].
There is some material that the plaintiff discovered in mid-2020 that they have rightly brought to the attention of the Court. It appears that Arfoods may have stopped trading in 2015,[59] despite the fact that the applications for the payment for goods by the plaintiffs were made during 2019 by Arfoods (under its common seal). In 2015 another entity, Arfoods Group Pty Ltd (Arfoods Group), began trading and may have assumed Arfoods business.[60] This was noted in the administrator’s report of Arfoods Group dated 12 June 2019, which recommended that Arfoods Group and a related entity, Rodini Nominees Pty Ltd, be placed into Liquidation.[61] In the administrator’s report, it was noted that at the first creditors meeting of Arfoods Group Mr Pace disclosed Arfoods Group had taken over the business of Arfoods in or around 2015.[62] The administrators understood no formal sale of business effected this transaction.[63]
[59]First Vella affidavit, Exhibit CV-4, 14 [9.1].
[60]First Vella affidavit, Exhibit CV-4, 26 [16.1].
[61]First Vella affidavit, Exhibit CV-4, 6-7.
[62]First Vella affidavit, Exhibit CV-4, 14 [9.1].
[63]First Vella affidavit, Exhibit CV-4, 14 [9.1].
The administrators reports regarding the running of Arfoods Group notes, in the section of the report dealing with breaches of directors duties, that one creditor (which is likely to be the plaintiffs) was unaware of Arfoods moving its business to Arfoods Group.[64] The same creditor was provided with a financial statement from the financial year ending 30 June 2018 by Arfoods’ directors.[65] The administrators noted it was unclear whether the provision on this statement was intentionally misleading or not.[66]
[64]First Vella affidavit, Exhibit CV-4, 25-6 [16].
[65]First Vella affidavit, Exhibit CV-4, 26 [16.1].
[66]First Vella affidavit, Exhibit CV-4, 26 [16.1].
From correspondence from Mr Lieu to Mr and Mrs Pace, care of their solicitors Webb Korfiatis, dated 20 June 2020, it is clear that the plaintiffs became aware of the alleged movement of Arfoods business to Arfoods Group at the Arfoods Group creditors meeting.[67] The letter refers to an admission made by Mr Pace to Mr Brenton Parlor, a director of each plaintiff, at the meeting that Arfoods ceased trading in 2016. Notwithstanding this, the letter went on:
[67]Second Lieu affidavit, Exhibit DL-23.
…you have fraudulently continued to:
1.submit payment requests for [Arfoods] to our clients pursuant to the Master Trading Agreement;
2.submit financial statements including for year ending 30 June 2018 for [Arfoods] showing income and expenses and your further advising at the creditors’ meeting that these financials were, in fact, financials of Arfoods Group Pty Ltd (“ARFG”) despite their being headed [Arfoods].
3.use your previous accountant’s details, DC Partners (‘DC’), on the financial report despite their no longer acting for you, without their knowledge and further that DC denies that they ever prepared these financials.
Your conduct resulted in our clients continuing to make payments on your behalf and constitutes obtaining a financial advantage by deception, an indictable criminal offence under section 82 of the Crimes Act and which carries a possible 10 year jail term.
A Company extract from the Australian Securities and Investments Commission (ASIC) of Arfoods dated 16 April 2020, shows that Arfoods remains a registered company however presently there are no directors of that company.[68] However, Mr Pace was director from 22 June 2005 to 13 February 2017, and Mrs Pace was director from 25 June 2003 to 27 June 2019.[69]
[68]Second Lieu affidavit, 6 [18]; Exhibit DL-21.
[69]Second Lieu affidavit, Exhibit DL-21.
On 16 May 2019, Arfoods Group was placed in administration, and on 21 June 2019 it was ordered to be wound up.[70] The directors of Arfoods Group were Mr Pace from 28 November 2014 to 24 June 2019 and Mr Addnan Hassoun from 1 July 2015 to 31 May 2019.[71]
[70]Second Vella affidavit, Exhibit CV-8; Second Lieu affidavit, Exhibit DL-22.
[71]Second Lieu affidavit, Exhibit DL-22.
I note the liquidator’s conclusion that Arfoods Group was likely trading while insolvent from 30 June 2017, and that various potential breaches of directors duties by Mr Pace and Mr Hassan have been reported to ASIC pursuant to s 438D of the Corporations Act 2001 (Cth).[72]
[72]Second Vella affidavit, Exhibit CV-8, 7 [2.2]-[2.3].
As noted previously, Mr and Mrs Pace filed for Bankruptcy and on 24 and 27 June 2019, respectively, they were declared Bankrupt.[73] There is little further information available to the Court about their bankruptcy, or their assets. However, it would appear that as far as Mr Pace is concerned, the Land, or its proceeds, is the only asset remaining.
[73]Affidavit of Desmond Lieu, sworn 21 February 2020; Exhibit DL-3, 4 [14].
Issues regarding the plaintiffs’ equitable charge
The plaintiffs submitted that their interest in the Fund arises by virtue of the charges in the Guarantees. The Guarantees secure the payment of moneys due by Arfoods under the MTA.[74] There is no dispute that the MTA was executed by Mr and Mrs Pace on behalf of Arfoods and that they gave the Guarantees.
[74]Outline of Submissions for CIFG (Australia) Pty Ltd, made 30 April 2020, 2 [10]-[11].
There was no issue that the charging clauses in the Guarantees did give to the plaintiffs a security interest in the Land. No special form is required to create a charge.[75] An equitable charge was created when the Land was constructively made liable to discharge the debts due under the Guarantees.[76] The charge confers on the chargee a right of realisation by judicial process, such as an order for sale or, as in this case, a right to follow the proceeds of sale of the Land into the Fund.[77]
[75]Fisher and Lightwood’s Law of Mortgage, Tyler, Young and Croft, Second Australian Edition at p 49 - 50 [2.3].
[76]AVCO Financial Services Ltd v White [1977] VR 561 at 564.
[77]Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 594-5 per Buckley LJ, CA; Re Cosslett (Contractors) Ltd, [1998] Ch 495 per Millett LJ, CA at 508. See also, National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 440 per Bankes LJ; AVCO Financial Services Ltd v White, [1977] VR 561 at 563-4.
There were a number of issues raised by the first defendants in an attempt to defeat the plaintiffs claim. I will deal with them under discrete headings.
Joint and several entitlements
Argument – first defendants
The principal issue arose from a submission made by Mr McNab, the lawyer for the first defendants, that the claim to a charge made by CIFG Australia was not supported by the evidence of the payments made under the MTA, in that the invoices to Arfoods under the MTA were given in the name of CIFG Ltd. Mr McNab submitted that the entitlements of plaintiffs under the MTA was not joint and several, in that one plaintiff could not claim to be entitled to re-payment of an advance or payments made by another of the plaintiffs. In particular, he submitted that cl 1(c) of the MTA (see above at [23]) did not result in the benefits or entitlements under the MTA being joint and several, so that an advance of funds by one plaintiff did not entitle another plaintiff, or all of the plaintiffs, to recover the advance and to be entitled under the Guarantees to a charge over the Land to secure the payment. He noted that the plaintiffs are referred to in the Guarantees ‘collectively’ as ‘CIFG’ and not severally. Further, he submitted that the Guarantees do not contain the usual boiler-plate ‘joint and several’ provision which might serve to entitle one of the plaintiffs acting alone to enforce an obligation owed by a guarantor solely to it. He also submitted that according to the doctrine of contra proferentem the Guarantees should be construed unfavourably to the drafters where there is an ambiguity.[78]
[78]Outline of Submissions on Behalf of Claudia Perna and Maria Grace, made 5 May 2020, [25].
Mr McNab also submitted:
(a) Arfoods is not liable under the MTA because there was no transaction between Arfoods and the plaintiffs collectively under the MTA.[79] The only transactions are represented by the invoices to Arfoods raised by CIFG Ltd.[80] Under the Guarantees, Mr and Mrs Pace were only liable for payments due by Arfoods to the plaintiffs collectively. No such liability has arisen;[81] and
(b) notwithstanding that CIFG Ltd and CIFG (HK) Ltd have been added as plaintiffs in the proceeding, neither of them assert any entitlement to the Fund. They merely state that they will accept any order in favour of CIFG Australia as a bar to any further proceedings. There is no assertion of any collective entitlement to the Fund by the plaintiffs. If CIFG Australia fails to establish an entitlement on its own behalf, the plaintiffs’ claim must fail.
[79]Outline of Submissions on Behalf of Claudia Perna and Maria Grace, made 5 May 2020, [30].
[80]Outline of Submissions on Behalf of Claudia Perna and Maria Grace, made 5 May 2020, 10-1 [30].
[81]Outline of Submissions on behalf of Claudia Perna and Maria Grace, dated 5 May 2020, [31].
Argument – plaintiffs
The plaintiffs contended that cl 1(c) of the MTA enabled any one or all of the plaintiffs to recover an advance made by one of them. By cl 1(c), any obligation imposed by the MTA upon more than one person binds them jointly and severally. It follows from this provision that the plaintiffs obligations to provide funds for Arfoods pursuant to clause 2 of the MTA, and to engage in the relevant ‘Trading Procedure’ as set out at clause 3 of the MTA, are each joint and several obligations. In this way, any one of the plaintiffs is permitted ‘provide trade finance, purchase and resell goods to the order of the Client [Arfoods]’[82] and to issue documents, including invoices, as contemplated by the trading procedure set out in cl 3 of the MTA and thereby bind all of the plaintiffs jointly and severally. This necessarily resulted in the plaintiffs, or any one or more of them, being entitled to recover the advances made pursuant to that joint and several obligation.
[82]Definition of ‘the Facility’, cl 1(g), and cl 2, of the MTA, Exhibit DL-10 to the first Lieu affidavit.
The plaintiffs also drew the Court’s attention to the decision of Smith J in the County Court of Victoria in CIFG (Australia) Pty Ltd v Mantas.[83] In that case, the director guarantors of another former client of the plaintiffs took issue with the fact that although the plaintiffs are referred to collectively in the MTA, only one made the advances. In fact, the same submission as made by Mr McNab in this case was made by him on behalf of the defendant in that case. Smith J said:
I do not consider that the fact that monies were advanced by CIFG Ltd or that correspondence relating to those advances emanated from it without reference to the first and second plaintiffs is of significance. The MTA provided that the three plaintiffs (collectively referred to as “CIFG”) would make the advances. I consider that the fact that one of the three actually advanced the various sums is of no relevance. As a matter of convenience, it is unsurprising that monies agreed to be advanced would be provided by one or other of the plaintiffs or that the relevant correspondence would emanate from one or other of them. There was no evidence as to the arrangement between the three plaintiffs as to how they would contribute to the advances – whether equally or in some other proportions – or as to how they would adjust, share or apportion repayments made by Inshop [the Client]. In my view, these matters are not relevant to the issues before the Court. They are matters as between the three plaintiffs, and of no concern to the defendant.
I do not consider that the advances were required to be literally jointly made in order for such advances to fall within the terms of the MTA.[84]
[83][2012] VCC 1797.
[84]Ibid, [27]-[28].
The plaintiffs submitted that the evidence showed that while CIFG Ltd invoiced Arfoods, all of the purchase order payments were made by CIFG Australia at the request of, and on behalf of, Arfoods pursuant to the terms of the MTA. Under the plaintiffs construction of the MTA and Guarantees, they submit that this was appropriate to give rise to a liability of Mr and Mrs Pace to CIFG Australia under the Guarantees.[85] Further, the plaintiffs submitted that CIFG Australia was an appropriate entity to lodge the CIFG Australia Caveat.[86] In oral submissions, the plaintiff’s counsel rejected the idea that CIFG Australia was acting as an agent for CIFG Ltd.[87] The plaintiff submitted that it was possible under the MTA for any of the three plaintiffs to recover monies that one of them had advanced.[88]
[85]Plaintiff’s Closing Submissions, 22 June 2020, [12]-[13].
[86]Plaintiff’s Closing Submissions, 22 June 2020, [13].
[87]Transcript of Proceeding, 11 May 2020, 116-7.
[88]Transcript of Proceeding, 11 May 2020, 119-21.
The plaintiffs submitted that when Arfoods defaulted in 2019, a notice of default was then sent on 9 April 2019 with a request for the default to be rectified.[89] This was followed by a letter of demand, written 30 April 2019.[90] The plaintiffs submits that the amounts owed to CIFG Australia by Arfoods was $295,140.70, but is now $317,428.97.[91] On the basis of the Guarantees and MTA, the plaintiffs submit that they are entitled to recover this debt from Mr and Mrs Pace, by tracing the charge on the Land into the Fund.
[89]Outline of Submissions for CIFG (Australia) Pty Ltd, made 30 April 2020, 5 [18].
[90]Outline of Submissions for CIFG (Australia) Pty Ltd, made 30 April 2020, 5 [18].
[91]Plaintiff’s Closing Submissions, 22 June 2020, 5 [14].
Consideration
Neither the plaintiff nor the first defendant made submissions as to the principles to be applied to the construction of the MTA and the Guarantees. It is clear however that, at least in relation to the construction of the MTA, the approach adopted by the High Court, and followed in numerous decisions at all levels, is to ask what a reasonable businessperson would have understood the terms to mean.[92] As the Victorian Court of Appeal noted in Adaz Nominees Pty Ltd v Castleway Pty Ltd[93] to answer that question, the reasonable businessperson is placed in the position of the parties,[94] and the Court applies the following principles:
[92]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan, and Kiefel JJ) (‘Woodside’); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [47] (French CJ, Nettle and Gordon JJ) (‘Mount Bruce’).
[93][2020] VSC 201, [70].
[94]Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551 [16] (Kiefel, Bell and Gordon JJ) (‘Ecosse’).
(a) The terms are construed objectively, and the subjective intentions of the parties are irrelevant.[95]
[95]Ibid.
(b) The objective approach requires reference to the text and its ordinary meaning, together with:
(i) the context, being the entire text of the contract including matters referred to in the text; and
(ii) the purpose.
These matters will ordinarily be identified by reference to the contract alone,[96] but evidence of mutually known objective background circumstances relevant to the purpose is admissible ‘no matter how clear the “ordinary meaning” of the words’.[97] Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.[98]
[96]Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95, [45]–[47] (Santamaria, Ferguson and McLeish JJA); Mount Bruce (2015) 256 CLR 104, 116 [46]-[48] (French CJ, Nettle and Gordon JJ); Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012) 45 WAR 29, 50 [76] (McLure P, with whom Newnes JA and Le Miere J agreed) (‘Hancock’).
[97]Lopes v Taranto [2018] VSCA 288, [66]–[72] (Kyrou, McLeish and Hargrave JJA), quoted with approval in Canale v G W & R Mould Pty Ltd [2018] VSCA 346, [45] (Whelan and McLeish JJA with whom Tate JA agreed).
[98]Mount Bruce (2015) 256 CLR 104, 116–7 [46], [49] (French CJ, Nettle and Gordon JJ).
(c) Unless a contrary intention appears in the contract, the court is entitled to approach the task of interpretation on the assumption that the parties intended to produce a commercial result, and should construe it so as to avoid a commercial nonsense.[99] However, the court does not weigh the commerciality of the agreement, and business common sense is a topic on which reasonable minds may differ.[100]
[99]Woodside (2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan, and Kiefel JJ).
[100]Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, 198 [43] (Gleeson CJ, Gummow and Hayne JJ) (‘Maggbury’).
(d) If, after completion of this process, the language used in the contract ‘is ambiguous or susceptible of more than one meaning’, then evidence of surrounding circumstances external to the contract is admissible to assist with interpretation of the language in question.[101]
(e) However, ‘evidence of the parties’ statements and actions reflecting their actual intentions and expectations’ is inadmissible.[102] Although evidence of prior negotiations is admissible to establish objective background facts known to both parties and the subject matter of the contract, evidence of negotiations reflective of actual intentions and expectations is not receivable.[103]
(f) Post-contractual conduct is inadmissible to construe the terms of the contract.[104] However, the parties’ subsequent communications may be relevant to determine whether the parties intended to enter into a binding contract.[105]
[101]Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352 (Mason J) (‘Codelfa’). See, Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, 62-3 [39] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ); Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604, 605 [2]–[5] (Gummow, Heydon and Bell JJ); Mount Bruce (2015) 256 CLR 104, 116–7 [46]–[49], [52] (French CJ, Nettle and Gordon JJ).
[102]Ibid.
[103]Codelfa (1982) 149 CLR 337, 352 (Mason J); Golf Australia Holdings Ltd v Buxton Construction Pty Ltd [2007] VSCA 200, [28] (Nettle and Redlich JJA, with whom Neave JA agreed). As Gordon J said in Construction Forestry Mining Energy Union v Bovis Land Lease Pty Ltd [2008] FCA 1669, [15]: ‘the back-and-forth of the parties in concluding the transaction’ is not considered in construing the document.
[104]FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, 350.
[105]Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269, [37] (Tate, Beach JJA and Sifris AJA).
In my opinion, a reasonable businessperson would have understood the terms of the MTA to have the meaning advanced by the plaintiffs. The MTA when read as a whole, in the context that there are three corporations ‘collectively’ providing financial accommodation, in effect, to Arfoods, makes the objective meaning of cl 1(c) of the MTA clearer. The wording of cl 1(c) is not clear as to ambit of its operation. When it speaks of an ‘obligation imposed by the MTA upon more than one person’ binding them jointly and severally, it overlooks, from a terminological perspective, dealing with the enforcement of entitlements arising under the MTA. But to give commercial sense to the provision, and bearing in mind the three plaintiffs contract collectively, it must follow that the plaintiffs, or any one or more of them, are entitled to recover the advances made pursuant to that joint and several obligation.
This is reinforced by the purpose of the MTA which is for the three plaintiffs to fund the purchase of goods required by Arfoods for its business. No distinction is made between the plaintiffs as to which might provide the moneys to fund the purchase of goods to be supplied to Arfoods. Nor is there any indication of which plaintiff might sell the goods acquired from a supplier to Arfoods. In this way, any one of the plaintiffs are permitted to ‘provide trade finance, purchase and resell goods to the order of the Client [Arfoods]’ and to issue documents, including invoices, as contemplated by the trading procedure set out in cl 3 of the MTA and thereby bind all of the plaintiffs jointly and severally. Because that is the express basis on which the plaintiffs provide their financial resources to benefit Arfoods, it must inevitably follow that the plaintiffs are jointly and severally entitled to recover from Arfoods in the event of default.
This means that the conclusion reached by Smith J in CIFG (Australia) Pty Ltd v Mantas[106] is correct, and that it is entirely a matter between the plaintiffs as to who may seek to make the payments to acquire goods, who may seek to invoice Arfoods and who may seek to recover from Arfoods in the event of default. It is, as Smith J observed, unsurprising that monies agreed to be advanced would be provided by one or other of the plaintiffs or that the relevant correspondence would emanate from one or other of them. There was no evidence as to the arrangement between the three plaintiffs as to how they would contribute to the advances – whether equally or in some other proportions – or as to how they would adjust, share or apportion repayments made by Arfoods.
[106][2012] VCC 1797, [27]-[28].
Because the plaintiffs are jointly entitled to recover under the MTA, and they all make claim pursuant to the Guarantees, they are entitled together to payment of the moneys secured by the charge in the Guarantees. It is no bar to the recovery by all plaintiffs that CIFG Ltd and CIFG (HK) Ltd have authorised CIFG Australia to receive the payment out of the Fund or that they will accept judgment in favour of CIFG Australia as a bar to any other proceedings involving a claim under the MTA and the Guarantees.[107] The Guarantees provides for them all ‘collectively’ to be the entitled and, unlike the MTA, not severally, so that in the circumstances of this case that means, in my view, they are jointly - and only jointly - entitled to enforce the Guarantees.
[107]See the letter from Brenton Birkett Parlor, the sole director of CIFG (HK) Ltd and CIFG Ltd, exhibit CV-5 to the second Vella affidavit.
The amended originating motion makes clear that as an alternative to CIFG Australia making the claim alone, all the plaintiffs make the claim. In these circumstances, any argument that there is no joint entitlement under the Guarantees by all plaintiffs (to whom the obligations are owed collectively) falls away. Liability under the Guarantees is not conditional on demand being made by the plaintiffs on the guarantors, as seemed to be suggested by the first defendants. It is irrelevant to the entitlement pursuant to the charges in the Guarantees that a caveat was lodged by CIFG Australia alone claiming an interest in the Land pursuant to ‘a charge’ in the Guarantees. What is important is the efficacy of the Guarantees and the charges given by Mr and Mrs Pace and whether the plaintiffs are entitled to enforce the charges pursuant to the Guarantees. In my view they are. The plaintiffs together are entitled pursuant to the Guarantees to the guaranteed payment of moneys due under the MTA. The Charges secure the payment of those moneys and entitle the plaintiffs to follow the proceeds of the sale of the Land into the moneys in the Fund.
A ‘pot-pourri’ of matters
The first defendants contended that a large amount of the evidence contained in the plaintiffs’ affidavits is objectionable, on grounds of relevance or inconsistency with exhibited documents.[108] Many of the issues raised by the first defendants were little more than picking about the edges to show evidentiary weaknesses and terminological inexactitude. Some were satisfactorily resolved at the hearing on 11 May 2020. One, concerning the proper identification of the MTA as executed by Arfoods was satisfactorily dealt with by the second Vella affidavit and need not burden these reasons further.[109] Some matters raised concerned objections that parts of the first Lieu affidavit contained matters irrelevant to the claim. Nothing turns on these matters. There were also complaints that the affidavits contained comment and submission, a defect not uncommon in this jurisdiction and in many affidavits filed in the Court. Sometimes it is justified as a shorter and more efficient means of bringing the consequences of facts to the attention of the Court. It is not a matter that results in the Court treating the comment or submission as evidence, and nothing further need to be said about it.
[108]Outline of Submissions on Behalf of Claudia Perna and Maria Grace, made 5 May 2020, [7].
[109]Second Vella affidavit, [11].
The first defendants also made a number of submissions about the MTA. This included a submission that the MTA executed by the plaintiffs on 5 June 2015 is a new agreement which replaced the one referred to in the Guarantees,[110] as such the Guarantees and original agreement are discharged and therefore there is no liability of Mr and Mrs Pace under the Guarantees.[111] The evidence, however, is clear that what was executed was the MTA as executed by Arfoods, with the possible change of the Terms Notification, which changed, as I have said, from time to time as a result of requests for increases in the credit limit. The MTA was a variable agreement in the sense that the Terms Notification could be altered at any time at the ‘absolute discretion’ of the plaintiffs.[112] The plaintiff and Arfoods were trading from 2010 to 2015 pursuant to the terms of the MTA and by their conduct the plaintiffs had plainly adopted the MTA, even though they had not formally signed it. The Guarantees are continuing guarantees and by their terms were given in contemplation of Arfoods entering into the MTA and the liability of the guarantors is not avoided or affected by any change of any of the rights of the plaintiffs.[113] It follows, in my view, that even if the MTA, when executed by the plaintiffs, contained an updated Terms Notification there was no new agreement entered into and the liability of the Guarantors was not thereby discharged.
[110]Final Submissions on Behalf of the First Defendants, made 7 June 2020, 13 [39].
[111]Final Submissions on Behalf of the First Defendants, made 7 June 2020, 13 [39].
[112]MTA cl 3(b)(2), DL-10 to the first Lieu affidavit.
[113]Guarantees, cl 4(b), exhibit DL-9 to the first Lieu affidavit.
The first defendants also submitted that the terms of the MTA were continuously varied by different Terms Notifications, that these variations are not ‘saved’ by cl 4 of the MTA, there is no evidence that the guarantors consented to these variations and that it is trite to observe that the Guarantees are discharged by the variation to the original obligation.[114] This amounts to the same argument as is dealt with above ([61]) What I have said in that paragraph is a sufficient answer to this submission.
[114]Final Submissions on Behalf of the First Defendants, made 7 June 2020 13 [40].
The first defendants also submitted, surprisingly, that the plaintiffs did not intend to be bound by the MTA because they have not executed it properly.[115] This is on the basis that the company seals were not attached underneath the execution clause on the Trading Agreement.[116] This submission is based on the fact that the execution provision in the MTA is that it is to be executed as a deed by the affixing of the common seals of the plaintiffs. That was not done. All that was done was that Brenton Parlor signed on behalf of each of the plaintiffs. In particular, it was submitted that in the case of CIFG Australia, at the time of signing there were two directors, Brenton Parlor and John Ray McCann, and that execution without the common seal is not effective under the Corporations Act 2001 (Cth). In relation to CIFG Ltd and CIFG (HK) Ltd, there is no evidence as to the execution requirements of deeds in Honk Kong or the British Virgin Islands.
[115]Final Submissions on Behalf of the First Defendants, made 7 June 2020 13 [41].
[116]Final Submissions on Behalf of the First Defendants, made 7 June 2020 [42].
It is clear that under the Corporations Act 2001, a company’s power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company. The power may be exercised without using a common seal.[117] Although the MTA is expressed to be executed as a deed, it is quite capable of operating as a contract, and that is plainly how the parties treated it. The evidence adduced by the plaintiffs after Mr and Mrs Pace signed the MTA clearly demonstrates conduct of both the plaintiffs and Arfoods consistent only with the entry into the MTA. That evidence may be taken into account as showing the parties intended to enter into a binding contract.[118] As to the requirements for a company to be bound by a contract pursuant to the applicable foreign law, in the absence of expert evidence as to that law the Court is entitled to assume that it is the same as the law in Australia.
[117]Corporations Act 2001 (Cth), s. 126.
[118]Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269, [37] (Tate, Beach JJA and Sifris AJA).
The first defendants also made submissions to the effect that if there were evidence that the plaintiffs conducted a partnership, and by CIFG Ltd alone rendering the invoices to Arfoods that partnership was reconstituted, then the Guarantees would have been discharged by the operation of s 22 of the Partnership Act 1958 (Vic). For the reasons I have already given, the entitlements of the plaintiffs under the MTA were joint and several and there is no evidence of a partnership between the plaintiffs acting ‘collectively’. Nothing further is therefore need be said in respect of this submission.
The Perna & Grace charge
The first defendants relied on the Perna affidavit and Ms Perna’s oral evidence. No evidence was given by Ms Grace or Mr and Mrs Pace.
As previously mentioned, Ms Perna deposed that the first defendants entitlement to the Fund arises out of the Perna & Grace Agreement executed between the first defendants and Mr and Mrs Pace.[119] This agreement was said to be originally oral and created in or about late 2015, before being executed in written form on 27 March 2019.[120]
[119]Perna affidavit [3].
[120]Perna affidavit [3], [5]; exhibit CP-1; second Lieu affidavit, exhibit DL-13.
Ms Perna deposed that the basis of the Perna & Grace Agreement was that the first defendants took out a loan from the Bank of Melbourne, which was secured against a Land she and Ms Grace jointly own, Unit 6, 1-5 Herversham Grove, Greenvale (Herversham Grove).[121] The title to Herversham Grove has a mortgage to the Westpac Banking Corporation registered on 10 November 2015, which has not been discharged.[122]
[121]Certificate of Title Volume 11094 Folio 838 - Perna affidavit [3]-[4].
[122]Second Lieu affidavit, exhibit DL-13.
However, the title of Herversham Grove as at 20 April 2020 also shows there are actually three registered proprietors that hold the estate as tenants in common: Maria Gioa Bella Grace, Maria Grace and Dora Claudia Perna.[123] Further, a Transfer of Land under the Transfer of Land Act 1958 (Vic) (TLA) dated 5 February 2010 discloses the land was transferred from the previous owners to Mr Pace, Ms Grace and Ms Perna.[124] Mr Pace is also listed on the mortgage to Westpac Banking Corporation, which he signed, dated 5 November 2015.[125] In addition, on 16 September 2015, Ms Grace requested a name change on the title from Maria Grace to Maria Gioa Bella Grace.[126] This resulted in the removal of Mr Pace as a registered proprietor of the land and the inclusion of Maria Gioa Bella Grace, who the evidence shows is the same person as Maria Grace. On the face of the transactions registered on the title to Herversham Grove, there has been an error by the Land Titles Office by removing Mr Pace as a proprietor and adding in his stead Maria Gioa Bella Grace. Ms Perna acknowledged in cross-examination that Mr Pace was entitled to be registered as a proprietor of Heversham Grove with the first defendants.[127]
[123]Second Lieu affidavit, exhibit DL-13.
[124]Second Lieu affidavit, exhibit DL-13.
[125]Second Lieu affidavit, exhibit DL-15.
[126]Second Lieu affidavit, exhibit DL-13.
[127]Transcript, 58.
When re-examined, Ms Perna gave evidence that Herversham Grove was purchased by a Mr Michael Angelidis in 2010. Mr Angelidis is a friend of Ms Perna’s family.[128] Mr Angelidis is currently 93, and lives in the property.[129] Ms Perna gave evidence that Herversham Grove was transferred to her, Mr Pace and Ms Grace on the condition that they looked after Mr Angelidis in his old age.[130] After Mr Angelidis dies, Ms Perna said the understanding was that Herversham Grove would pass to them.[131] Ms Perna said that Mr Angelidis was unaware Herversham Grove was being used as security for the Bank of Melbourne Loan, and that ‘he would kill us if he knew… he would actually have a heart attack if he found that out.’[132]
[128]Transcript, 87.
[129]Transcript, 87.
[130]Transcript, 87.
[131]Transcript, 87.
[132]Transcript, 88.
Ms Perna deposed that the funds from the Bank of Melbourne Loan were provided to Mr Pace to assist him with running his business at Arfoods, and Mr Pace provided a guarantee to the first defendants which created a charge over the Land.[133]
[133]Perna affidavit, [3]; exhibit CP-1.
The Perna & Grace Agreement recites that Mr and Mrs Pace are the proprietors of the Land (123 Normanby Drive, Greenvale, Victoria), that Ms Perna and Ms Grace are the proprietors of Herversham Grove, that Mr and Mrs Pace conduct business as food importers through various corporate entities, that in or about late 2015, Mr and Mrs Pace and/or their corporate entity or entities required a loan of approximately $300,000.00 from the Bank of Melbourne (Loan) for use in their business and requested Ms Perna and Ms Grace to provide security for the Loan in the nature of a mortgage over Herversham Grove, and that they offer that land as security on the terms and conditions set out in the Agreement.[134]
[134]Perna affidavit, [3]; exhibit CP-1.
Those terms and conditions are:[135]
[135]Perna affidavit, [3]; exhibit CP-1.
(a) Ms Perna and Ms Grace confirm that they agreed to Mr and Mrs Pace using Herversham Grove as security for the Loan;
(b) Mr and Mrs Pace provide a charge over the Land in favour of Ms Perna and Ms Grace as security for any liability or any loss and damage incurred by Ms Perna and Ms Grace in respect of the Loan;
(c) Mr and Mrs Pace consent to a caveat being placed on the title of the Land;
(d) Mr and Mrs Pace pay the Loan instalments and any other monies due under the Loan as and when they fall due;
(e) Mr and Mrs Pace pay the balance of the Loan in full on the settlement of the sale of the Land;
(f) Mr and Mrs Pace indemnify Ms Perna and Ms Grace in full and pay all legal costs and charges of whatsoever nature associated with this agreement;
(g) the parties do all things necessary and sign all documents necessary to give effect to the agreement.
Ms Perna produces a Statement of Account from a Bank of Melbourne ‘Portfolio Loan’ held in Mr Pace’s name. Ms Perna deposed that this is a copy of the current loan statement.[136] The Loan Statement is for the period of 1 March 2020 to 31 March 2020 only. It shows three deposits totalling $1,300 being paid into the account.[137] It also shows that the draw down on the facility, which has an approved credit limit of $300,000.00, at 31 March 2020 is $241,486.88.[138] Ms Perna conceded in cross examination that no notice of default or demand had been issued regarding the facility, and she had no liability in respect of the loan.[139]
[136]Perna affidavit, [4].
[137]Perna affidavit, exhibit CP-2.
[138]Perna affidavit, exhibit CP-2.
[139]Transcript, 68.
When giving oral evidence, Ms Perna admitted she talked to Mr Pace regarding her affidavit, and then said she did not recall those conversations.[140] Ms Perna agreed that Mr McNab, her solicitor, had informed her of the contents of paragraphs 8 to 10 of her affidavit, whereas those paragraphs state they are made on information given to her by Mr Pace.[141] These paragraphs contain details of when the Guarantees and MTA were signed, and whether the business dealings between the plaintiffs and Arfoods were in accordance with the MTA.[142] Ms Perna agreed that she had been referred to Mr McNab by her brother, Mr Pace[143] and that she know that Mr McNab also acted for Mr Pace.
[140]Transcript, 53.
[141]Transcript, 54.
[142]Perna affidavit, [8]-[10].
[143]Transcript, 55.
Ms Perna also admitted that she did not know who had dated the Perna & Grace Agreement, initially saying it was probably her writing and then saying she was not sure.[144] With respect to the error on the certificate of title of the Herversham Grove Property, Ms Perna gave evidence that she only became aware of this a week before this matter was heard.[145] Later, she gave evidence she was aware that Mr Pace was entitled to be a registered proprietor of the Herversham Grove Property.[146] When questioned on why there was such a big gap between when the Perna & Grace Agreement was created orally and when it was formalised, Ms Perna said she and Ms Grace trust Mr Pace ‘implicitly.’[147]
[144]Transcript, 55-6.
[145]Transcript, 58.
[146]Transcript, 61.
[147]Transcript, 75.
Ms Perna acknowledged that at the time she signed the Perna & Grace Agreement she knew that the Land had been sold by a contract of sale in about November 2018 and the settlement was due in May 2019.[148]
[148]Transcript, 60.
Regarding the drafting and contents of the Perna & Grace Agreement, Ms Perna gave evidence that Mr Pace, Ms Grace and herself all gave instructions to Pana Andropoulos, the solicitor who drew up the Perna & Grace Agreement.[149] Ms Perna conceded Mr Pace referred her to Ms Andropoulos, and subsequently to Mr McNab.[150]
[149]Transcript, 80.
[150]Transcript, 80, 82.
Regarding Mr Perna’s knowledge of her brother’s business activities, under cross examination Ms Perna was vague at certain points regarding whether she knew about the financial difficulties Mr Pace’s companies were facing.[151] At other times she was quite clear she was not aware of her brothers finances.[152]
[151]Transcript, 64-5.
[152]Transcript, 73.
First defendant’s submissions
The first defendants submitted that their equitable interest in the Land is contained in the Perna & Grace Agreement,[153] and further submitted the charge ‘is contained in clause 2(b)’ of the written agreement executed on 27 March 2019.[154] The first defendants submitted that there was amply authority to show that the words of the charging clause (clause 2(b)) created an interest in the land.[155] The first defendants also submitted that a charge only needs to be executed by a chargor in order to become effective.[156]
[153]Final Submissions on Behalf of the First Defendants, made 7 June 2020, 2 [10]
[154]Final Submissions on Behalf of the First Defendants, 7 June 2020, 4 [12].
[155]Final Submissions on Behalf of the First Defendants, 7 June 2020, 4-5 [13]-[14] citing Fishers & Lightwood’s Law of Mortgage.
[156]Final Submissions on Behalf of the First Defendants, 7 June 2020, 5-6 [18].
Finally, the first defendants rejected the plaintiff’s contention that the Perna & Grace Agreement was a sham transaction, stating this was not borne out by the evidence before the Court.[157]
[157]Final Submissions on Behalf of the First Defendants, 7 June 2020 5-6 [18].
The plaintiffs’ submissions
The plaintiffs made a range of objections to the validity of the Perna and Grace charge. The centre of the plaintiffs’ submissions was that the Perna & Grace Agreement is a sham transaction, relying on Re Sharrment Pty Ltd, Wynyard v Official Trustee in Bankruptcy,[158], and therefore is not capable of creating a charge on the Land.[159]The reasons that the Perna & Grace Agreement is a sham transaction, according to the plaintiffs, include:
[158][1988] FCA 179. Submissions for CIFG (Australia) Pty Ltd, 39 April 2020, 7 [23].
[159]Submissions for CIFG (Australia) Pty Ltd, 39 April 2020, 7 [23].
(a) it was purportedly executed on 27 March 2019, only three months before Mr and Mrs Pace’s bankruptcy and six weeks before administrators were appointed to Arfoods Group;
(b) as the first defendants are sisters of Mr Pace, it may be inferred that the agreement is not an arm’s length transaction having regard to the bankruptcy of Mr and Mrs Pace and the failure of Mr Pace’s companies Arfoods and Arfoods Group Pty Ltd;[160]
[160]Submissions for CIFG (Australia) Pty Ltd, 39 April 2020, 7 [23(b)].
(c) another version of the agreement signed only by Mr and Mrs Pace was provided to the plaintiffs’ solicitors on 30 April 2019, and when request was made for a document signed by Ms Perna and Ms Grace no such document was provided until service of the Perna Affidavit almost a year later;[161]
[161]Second Lieu Affidavit [11], exhibit DL-17.
(d) there has been a failure to explain why the Perna & Grace Agreement was agreed in 2015, but executed on 27 March 2019;
(e) the Perna & Grace Agreement fails to disclose Mr Pace is one of the three owners of Herversham Grove;[162]
(f) there is no evidence the facility provided by Bank of Melbourne was a business loan, nor that there has been any default. It is unclear why Ms Perna and Ms Grace need to recoup the funds under the Perna & Grace Agreement. It is also curious there has been no default under the Loan since Mr Pace became bankrupt in June 2019. From this it may be inferred someone is servicing the loan; and
(g) the witness of all signatures on the alleged agreement is Mr Addnan Hassoun, a business associate of Mr Pace’s and a director of Arfoods Group.[163] In addition, Mr Hassoun was made bankrupt on 12 June 2019.[164]
[162]Submissions for CIFG (Australia) Pty Ltd, 39 April 2020, 7-8 [23(d)].
[163]Submissions for CIFG (Australia) Pty Ltd, 39 April 2020, 8 [24].
[164]Submissions for CIFG (Australia) Pty Ltd, 39 April 2020, 8 [24].
The plaintiffs pointed out deficiencies in the evidence given by Ms Perna about the Perna & Grace Agreement and their arrangements with the Bank of Melbourne and Westpac, and as between themselves and their brother Mr Pace:
(a) there was no Bank of Melbourne loan or any security documentation produced;
(b) it is apparent from the search of title of Heversham Grove that Mr Pace and the first defendants mortgaged the land to Westpac on or about 10 November 2015. If that mortgage secures the Bank of Melbourne Loan, Ms Perna has not produced the mortgage or otherwise explained whether and if so how the Westpac Mortgage relates to Mr Pace’s Bank of Melbourne ‘Portfolio Loan’;
(c) there is no contemporaneous written evidence consistent with an oral agreement in 2015 such as bank statements for the Loan, the loan document and the security documentation; and
(d) because Ms Perna and Ms Grace must have executed the mortgage to Westpac as persons giving a third party security, they would have been required by the Bank to receive independent legal advice in relation to their liabilities and as to their rights as guarantors. No evidence has been provided about any of this.
The plaintiffs submitted that the circumstances of the creations of the loan, taken together with the documentary evidence of the loan, indicate that Mr Pace used his third interest in Heversham Grove as a security for the portfolio loan. The relevant evidence includes Ms Perna’s admission that she understood Mr Pace was one of the three owners of Heversham Grove,[165] and that Ms Grace applied to have her name corrected on the title to Herversham Grove on 16 September 2015. The plaintiffs submitted the latter indicated Mr Pace had approached the Bank of Melbourne for a loan in 2015, and his sisters interests were required as third party securities for the loan. It was likely that the bank advised Mr Pace that Ms Grace’s name on the Herversham Grove title was incorrect. This is supported by the fact that the reference number of the lodging party listed in Ms Grace’s name correction application, FMS360, was the same lodging party as the Westpac Mortgage dated 5 November 2015. In the plaintiff’s submission, it is highly likely the Titles Office made an error when registering the name change, resulting in the three current registered proprietors of Herversham Grove being: Maria Gioa Bella Grace, Maria Grace and Dora Claudia Perna. There is no indication in the dealings recorded against the title to Heversham Grove that there has been any transfer by Mr Pace of his interest as tenant in common with Ms Perna and Ms Grace. It follows that there has been an error in the removal of Mr Pace as a registered proprietor of Heversham Grove.
[165]Transcript, 61.14.
Ms Perna’s evidence of the circumstances in which she and her siblings became registered as proprietors of Herversham Grove is extraordinary. The plaintiffs submitted that the conduct admitted to by Ms Perna amounts to fraud and that the Court should not lend assistance to parties that engage such conduct. The plaintiffs submitted that a resulting trust exists over Herversham Grove for the benefit of Mr Angelidis, which means that Ms Perna and Ms Grace deceived Westpac as to their interests in Heversham Grove to enable Mr Pace to obtain the Loan. Further, in the plaintiffs submission this evidence also goes to the Perna & Grace Agreement being a voluntary conveyance of property made for the purpose of defrauding creditors, and is therefore capable of being set aside under s 127 of the Property Law Act 1958 (Vic).
The plaintiffs also made a range of submissions going to the Perna & Grace Agreement not being at arms-length. These included submissions regarding the knowledge of Ms Perna of the financial situation of Arfoods and Arfoods Group, and the unreliability of Ms Perna’s evidence in general.
The thrust of the plaintiffs submissions regarding Ms Perna’s evidence was that it was not credible nor reliable.[166] The plaintiffs submitted that under cross examination, Ms Perna’s evidence was ‘vague and contradictory’, and broadly could not be relied on by the Court. An example of this is that Ms Perna could not recall who was present during discussions regarding the creation of the 2015 oral agreement, despite giving evidence she ‘vividly’ recalled the loan Mr Pace sought in 2015 when the agreement was created.[167] Another is when Ms Perna gave contradictory evidence regarding who gave instructions as to the terms of the Perna & Grace Agreement, saying she was the only person who did so, saying her brother was not involved and later capitulating and saying all of the siblings, including Mr Pace, gave instructions.[168] Ms Perna also initially confirmed the handwritten date on the top of the agreement was in her writing, but later said she was not sure.[169] She was presented with the version of the Perna & Grace Agreement signed only by Mr and Mrs Pace that had been sent by the former solicitor acting for them, Ms Andropoulos, on 30 April 2019.[170] A comparison of the version of the Perna & Grace Agreement sent by Ms Andropoulos (and signed only by Mr and Mrs Pace) and the version produced as an exhibit to the Perna affidavit (exhibit CP-1) shows that they are clearly the same document save that the first version has not been signed by the first defendants. She was evasive and argumentative as to these matters.[171] She was asked whether she may have signed the Perna & Grace Agreement after the 30 April 2019 and responded: ‘Could be.[172] This evidence contradicts her earlier evidence that she believed the document was signed by Mr and Mrs Pace a few hours after she had signed it.[173]
[166]Transcript of Proceeding, 11 May 2020, 101.
[167]Transcript, 67.
[168]Transcript, 63, 64, 75.
[169]Transcript, 55, 56.
[170]Second Lieu affidavit, exhibit DL-16.
[171]Transcript, 79.26-27.
[172]Transcript, 79.25.
[173]Transcript, 64.11.
The plaintiffs also submitted that the conduct of Mr Pace in continuing to represent to the plaintiffs that Arfoods was carrying on business after the sale of the business to Arfoods Group in 2015 was misleading or deceptive conduct and that the Perna & Grace Agreement is another instance of that conduct. In this context, Ms Perna gave evidence that she was aware the person who witnessed the signatures on the Perna & Grace Agreement, Mr Addnan Hassoun, was a director of Arfoods Group, and was made bankrupt around the same time as Mr and Mrs Pace.[174] However, Ms Perna denied she was aware the financial difficulties Arfoods Group was facing when the Perna & Grace Agreement was executed.[175] The plaintiffs submitted this should not be accepted, given the poor quality of Ms Perna’s evidence, the timing of the signing of the Perna & Grace Agreement, the existence of two versions of the Perna & Grace Agreements in evidence and the treatment of Mr Angelidis.[176]
[174]Plaintiff’s Closing Submissions, 22 June 2020, 18 [40].
[175]Plaintiff’s Closing Submissions, 22 June 2020, 19 [43].
[176]Plaintiff’s Closing Submissions, 22 June 2020, 19 [43].
In the plaintiff’s submission, the Perna & Grace Agreement forms part of a broader pattern of conduct by Mr Pace dealing deceptively with the plaintiffs.[177] Counsel submitted that Mr Pace was the guiding hand behind Ms Perna and Ms Grace’s application, which is an attempt to prevent the plaintiffs from accessing the remaining Funds.[178]
[177]Submissions for CIFG (Australia) Pty Ltd, 39 April 2020, 8 [25].
[178]Transcript of Proceeding, 11 May 2020, 100-2.
Consideration
Is the Perna & Grace Agreement a ‘sham’ transaction?
Lord Diplock, in Snook v London and West Riding Investments Ltd (Snook),[179] addressed the meaning of a sham in these terms:
As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a ‘sham’, it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v Maclure[180] and Stoneleigh Finance Ltd v Phillips)[181], that for acts or documents to be a ‘sham’, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.[182]
[179][1967] 2 QB 786, 802.
[180](1882) 21 Ch D 309, C.A.
[181][1965] 2 QB 537.
[182]Cited in Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449, 454 [15]; ASIC v Managed Investments Ltd and Ors (No 9) [2016] QSC 109, [738].
In Sharrment Pty Ltd v Official Trustee in Bankruptcy (Sharrment)[183] Lockhart J, as a member of the Full court of the Federal Court of Australia, referred to this passage from Snook and made the following observations:
‘Sham’ is a word which, although not infrequently having attracted the attention of the courts usually hovers on the periphery of cases. Here it is at the heart of the case. It is a word which first appeared as slang in the 17th Century and the dictionaries describe it as being of obscure origin. It is indeed a pity that it cannot be relegated to its earlier obscurity because of the ambiguity and uncertainty that surrounds its meaning and application. Ambiguous though its meaning is, it is an ambiguity that has attended the word for centuries: ‘Let the plot-mungers stay behind, whose art can truth to sham, and sham to truth convert’: Oldham’s Sat. Imit. Jur. mWKS 1703 (429); ‘The laws of sham and semblance which are called the ‘devil’s laws’’: Carlyle’s Past and Present L.V. 36.[184] (emphasis added)
The meaning of the word ‘sham’ has been considered in many cases. In Scott v. Federal Commissioner of Taxation (No. 2) (1966) 40 ALJR 265 Windeyer J. said at 279:
On the other hand, if the scheme, including the deed, was intended to be a mere facade behind which activities might be carried on which were not to be really directed to the stated purposes but to other ends, the words of the deed should be disregarded ... A disguise as a real thing: it may be an elaborate and carefully prepared thing; but it is nevertheless a disguise. The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be, and in fact use it as, merely a disguise, a facade, a sham, a false front - all these words have been metaphorically used - concealing their real transaction.[185]
[183](1988) 18 FCR 449 (Lockhart, Beaumont and Foster JJ).
[184](1988) 18 FCR 449, 453.
[185]Ibid.
Then, after quoting the passage (or most of it) set out above from Snook, said:
A ‘sham’ is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.[186]
[186]Ibid, 454.
One should bear in mind, however, what was said by the majority of the Court in Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation (Raftland):[187]
The term ‘sham’ may be employed here, but as Lockhart J emphasised in Sharrment Pty Ltd v Offıcial Trustee in Bankruptcy the term is ambiguous and uncertainty surrounds its meaning and application. With reference to remarks of Diplock LJ in Snook v London and West Riding Investments Ltd, Mustill LJ later identified as one of several situations where an agreement may be taken otherwise than at its face value, that where there was a ‘sham’; the term, when ‘[c]orrectly employed’, denoted an objective of deliberate deception of third parties.
The presence of an objective of deliberate deception indicates fraud. This suggests the need for caution in adoption of the description ‘sham’.
[187](2008) 238 CLR 516, 531-532 at [35] (Gleeson CJ, Gummow and Crennan JJ (footnotes omitted)). ;
In this case there is no ambiguity. The thrust of the plaintiffs submissions is that the Perna & Grace Agreement was false and an attempt to deceive third parties into believing that Mr and Mrs Pace promised in 2015 to grant a charge over the Land in favour of the first defendants and that the Perna & Grace Agreement was the true representation of that promise, giving effect to a genuine agreement.
Therefore, what must be shown in this case is, as Megarry J put it in Miles v Bull,[188] that the outward and visible form does not coincide with the inward and substantial truth. This, as the High Court noted in Raftland, indicates fraud and that requires the Court to reach a comfortable satisfaction[189] that on the balance of probabilities the parties to the Perna & Grace Agreement intended (to employ the words of Lord Diplock in Snook) ‘to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.’ In the absence of some form of confession or concession from Ms Perna of her and her sister’s intention, this intent must be identified by the form of the transaction and the surrounding circumstances.[190]
[188][1969] 1 QB 258, 264.
[189]Briginshaw v Briginshaw (1938) 60 CLR 336; and where the finding depends on inferences to be drawn, that the circumstances appearing from the evidence give rise to a reasonable and definite inference and not merely to conflicting inferences of equal degrees of probability: ASIC v Managed Investments Ltd and Ors (No 9) [2016] QSC 109, [615] citing ASIC v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201, 220 at [82]; Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199 ; [2009] NSWSC 287 at [186]; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466; 242 ALR 643 ; [2007] FCAFC 132 at [38];
[190]Sharrment, (1988) 18 FCR 449, 457.
Turning to the form of the Perna & Grace Agreement, it has some unusual features:
(a) Recital B of the Agreement provides that:
Claudia and Maria [Ms Perna and Ms Grace] are the registered proprietors of the property known as Unit 6, 1-5 Heversham Grove, Greenvale, Vic. 3059 ("the unit"); (emphasis added)
They were on title as registered proprietors, but as Ms Perna acknowledged in her cross-examination, she always understood Mr Pace was also a registered proprietor and it is clear on the evidence that he is entitled to be registered as a tenant in common with Ms Perna and Ms Grace. He was one of the three transferees of the title when it was acquired in February 2010. He was one of the three mortgagors to Westpac in 2015. Two of the current registered proprietors are one and the same, Ms Grace. Whoever drafted the recital was not instructed with the true facts. The Perna & Grace Agreement fails to disclose Mr Pace is one of the three ‘owners ‘of Herversham Grove.
(b) Recital D of the Agreement provides that:
In or about late 2015, Pietro and Tammy [Mr and Mrs Pace] and/or their corporate entity/ies required a loan of approximately $300,000.00 (‘the loan’) from the Bank of Melbourne for use in their business and requested Claudia and Maria [Ms Perna and Ms Grace] to provide security for the loan in the nature of a mortgage over the unit [Heversham Grove];
The evidence shows that the loan claimed to be secured is made by the Bank of Melbourne only to Mr Pace, so far as the evidence reveals, and not to Mrs Pace or any other entity.
(c) The recitals do not refer to any charge being agreed to be given in 2015 over the Land in favour of the first defendants. That provision is only referred to in cl 2(b) of the Agreement.
(d) In terms, after the recitals, the Agreement is that Ms Perna and Ms Grace ‘confirm they agreed’ to Mr and Mrs Pace using the Heversham Grove land as security, in circumstances where Mrs Pace has no interest in that land and could not so use it. Indeed the mortgage given to Westpac and registered on 10 November 2015 shows the mortgagors to be Mr Pace and the first defendants.[191]
(e) Clause 2(e) of the terms and conditions provides that ‘Tammy and Pietro’ [Mr and Mrs Pace] pay the balance of the loan in full on the settlement of the sale of the Normanby Drive property’. This is a term which Ms Perna and Ms Grace ‘confirm they agreed’ in 2015. However, it is plainly a term that is contemporaneous with the sale of the Land which was known to be about to take place. Interestingly, the evidence shows that the Loan (from the Bank of Melbourne) was not repaid on the settlement of that sale.
[191]Second Lieu affidavit, exhibit DL-15.
The surrounding circumstances are telling. They include:
(a) the Agreement is only reduced to writing when the Arfoods business (conducted it seems by Arfoods Group at this time) is on the brink of being placed into administration and being liquidated, and when the Land had been agreed to be sold with settlement due in May 2019. The reason Ms Perna gave for the delay was that she and her sister trusted Mr Pace ‘implicitly’ and it was under advice from Pana Andropoulos at the time that they ‘get it and organise a caveat’.[192] Given that the first defendants were introduced to Ms Andropoulos and to Mr McNab by Mr Pace (as to which see below) the inference is that the initiative to get the Agreement drawn up (dated 27 March 2019) and the caveat lodged (on 28 march 2019) was Mr Pace’s;
[192]Transcript, 75.3-14.
(b) the Perna & Grace Agreement was drafted by Ms Pana Andropoulos. Initially, Ms Perna maintained that her brother, Mr Pace, had given no instructions to Ms Andropoulos and that all instructions came from her.[193] Later, she conceded the instructions were given by the first defendants and Mr Pace, who referred the first defendants to Ms Andropoulos.[194] Ms Perna had no contact with Ms Andropoulos before being introduced to her by Mr Pace;[195]
[193]Transcript, 62.28- 63.3.
[194]Transcript, 80.10-13.
[195]Transcript, 80.14-16.
(c) Mr Pace referred the first defendants to Mr McNab, their current solicitor at Diamonds Solicitors.[196] Ms Perna was aware that Mr McNab also acted for Mr and Mrs Pace;[197]
[196]Transcript, 82.11-12.
[197]Transcript, 53.7-9.
(d) it is highly likely that the Perna & Grace Agreement was signed first by Mr and Mrs Pace and later by the first defendants. When the plaintiffs’ solicitor sought to get from Ms Andropoulos the basis of the first defendants caveat, what was produced on 30 April 2019 was the Perna & Grace Agreement signed only by Mr and Mrs Pace. Initially, Ms Perna maintained that she and her sister signed the Agreement at the same time and her brother must have ‘gone a few hours later’.[198] Later, Ms Perna conceded that she and Ms Grace could have signed the Agreement after 30 April 2019;[199]
(e) all the signatories to the Agreement were witnessed by Mr Addnan Hassoun, a business associate of Mr Pace and the other director of Arfoods Group; and
(f) the Loan Statement is for the period of 1 March 2020 to 31 March 2020 only. It is not in default and there is no evidence that Ms Perna and Grace have any current liability in respect of the Loan. It is unclear why Ms Perna and Ms Grace need to recoup the funds under the Perna & Grace Agreement. It is also curious there has been no default under the Loan since Mr Pace became bankrupt in June 2019. From this it may be inferred someone is servicing the loan.
[198]Transcript, 64.9-12.
[199]Transcript, 79.24-25.
The evidence given by Ms Perna was also revealing. Examples are:
(a) the evidence in support of the Loan was minimal, comprising one bank statement. There is no contemporaneous written evidence consistent with an oral agreement in 2015, such as bank statements for the Loan, the loan document and the security documentation;
(b) Mr Pace and the first defendants mortgaged the land to Westpac on or about 10 November 2015. If that mortgage secures the Bank of Melbourne Loan, which seems likely, Ms Perna has not produced the mortgage or otherwise explained whether and if so how the Westpac Mortgage relates to Mr Pace’s Bank of Melbourne ‘Portfolio Loan’;
(c) because Ms Perna and Ms Grace must have executed the mortgage to Westpac as persons giving a third party security, they would have been required by the Bank to receive independent legal advice in relation to their liabilities and as to their rights as guarantors. No evidence has been provided about any of this;
(d) her affidavit was plainly constructed by her solicitor and contained submissions as well evidence based on her solicitors examination of the evidence given on behalf of the plaintiffs. She deposed that paragraphs 8, 9 and 10 were evidence on information from Mr Pace, whereas in her cross-examination she twice initially denied that she had spoken to Mr Pace[200] then when asked whether she had spoken to Mr Pace in respect of the affidavit she responded ‘No, I haven’t actually – well, I sort of – I have. Yes, I have actually.’[201] I then she was asked some questions as follows:
[200]Transcript 53 -54.
[201]Transcript, 53.7-9.
Well, Mr McNab has been preparing this case on your behalf, has he not?‑‑‑Yes.
And he has shown you the affidavit that’s been sworn by Mr Lieu which exhibits the master trade agreement?‑‑‑Um, yes, yes. I have seen those, yes.
And did not Mr McNab put this information in your affidavit based upon what is in the affidavit of Mr Lieu and, indeed, Mr Vella?‑‑‑Yes.
(e) she conceded that her affidavit contains her solicitors’ words rather than hers and that she did not understand it.[202] It is also plain that she did not understand what a charge over the Land was;[203]
[202]Transcript, 55.12-21.
[203]Transcript, 74.10-11.
(f) it is likely that the truth about the agreement in 2015, that was said to be confirmed by the Perna & Grace Agreement, was revealed in a non-responsive answer to a question about the Bank of Melbourne Loan:
All I knew is he needed some money and my sister and I agreed to put the house in Heversham Grove and that was it, basically.
This is back in 2015? Correct.[204]
[204]Transcript, 73.14-17.
(g) which response was later confirmed by her evidence in response to a question about what was agreed in 2015:
Yes. So you agreed to mortgage the unit; is that correct? (Indistinct response.)
What else did you agree to do? Just mortgage the unit, give him the money and basically that he was going to pay it back.[205]
[205]Transcript, 74.5-9.
When pressed about the agreement by Mr and Mrs Pace to give a charge over the Land, and after the concept of a charge was explained to her by Counsel for the plaintiffs, she was asked:
When was that discussed?‑‑‑Oh, I don’t remember. Oh, 2015.
So when in 2015?‑‑‑When we gave him the loan. I think it was around that time that we discussed it.
And did you ask for that as [an] interest?‑‑‑What do you mean?
Well, did you say this is a condition precedent of my loan, or did Mr Pietro Pace offer that to you?‑‑‑I think – I think my brother actually offered it, that went to – yeah, once he sells his house that he will give us that money.
You think he offered that to you?‑‑‑Yes. Definitely.
(h) Ms Perna could not explain to Counsel for the plaintiffs why she and Ms Grace changed solicitors from Ms Andropoulos to Mr McNab, as the following exchange shows:
Do you – can you confirm for the court that you did – did you terminate your engagement with Andropoulos & Co? Yes.
Why did you do that? Ah, look, I don’t know. At the time I think – I don’t know if it was my sister or – yeah, we were just like, well, just don’t worry about it. We’ll just see if we can find another solicitor.
You already had a solicitor? (Indistinct response.)
Who was giving you good advice, you say. She told you to ? You don’t
put it in writing? I know, but it’s like all the – accountant that gives you advice and then another accountant gives you – you know, could give you the wrong advice or – so we decided to get another solicitor.
And is that when you got Mr McNab?‑‑‑Yes, it is, yes.[206]
[206]Transcript, 81.16-81.29.
(i) but when I asked the questions, out came the truth:
HIS HONOUR: Can I interrupt again, please, Mr Best.
MR BEST: Yes. Certainly, Your Honour.
HIS HONOUR: Did your brother, Pietro, tell you that you should change solicitors, Ms Perner?‑‑‑At the time, yes, he did mention to us better off, I think, yes. Getting another ‑ ‑ ‑
He had engaged Pana Andropoulos himself, had he not?‑‑‑Um, I – I think so. I’m not – I’m not sure. All I remember is that he told us it – I didn’t have a solicitor at the time, and neither did my sister, so he said you can use Pana. I think he may have used her in the past. Yeah, not 100 per cent sure, but yeah.
It was he who suggested Mr McNab too, wasn’t it?‑‑‑Correct, yes. [207]
[207]Transcript, 81.30-82.12.
(j) The fact that the first defendants were referred to both Pana Andropoulos of Andropoulos & Co and to Mr McNab of Diamonds Solicitors by Mr Pace shows, clearly in my view that the driving force behind the creation and content of the Perna & Grace Agreement was not either Ms Perna or Ms Grace, but their brother Mr Pace - who they trusted ‘implicitly’.
(k) That Mr Pace was the guiding hand is well illustrated by another answer given in Ms Perna’s cross-examination. When she was questioned about a letter written to her and Ms Grace by Mr Lieu on behalf of the plaintiffs dated 20 June 2019 (a letter written after Pana Andropoulos had informed Mr Lieu that she no longer acted for the first defendants and which sought a response relating to the proceeds of the sale of the Land held in trust by Webb Korfiatis). Ms Perna did not recall receiving the letter, and was asked:
If you had received it, what would you have done with it?‑‑‑Probably would have spoken to my sister about it and – yeah.
What about your brother?‑‑‑Yes.
Would you have spoken to him about it?‑‑‑Yes. I would have, yes. Definitely.
Likely because it does mention your brother and sister-in-law in the opening sentence?‑‑‑Yes.
You would have said, ‘What do I do about this?’ to your brother, wouldn’t you?‑‑‑Yes.
(l) Ms Perna’s evidence in cross-examination was characterised by a lack of memory and evasion and was at times argumentative, such that at one stage her answer to a question put by Counsel for the plaintiffs was ‘Mr Best, can you recall what you ate last week?’ Her lack of memory indicated to me, on a consideration of the whole of the evidence, that in reality it was not she or Ms Grace giving the instructions or communicating with her solicitors, but her brother, Mr Pace.
To add insult to injury, the evidence given by Ms Perna about the life interest that Mr Angelidis has in Heversham Grove and that he was unaware that the property had been used as security for a debt owed to the Bank of Melbourne, shows prima facie evidence of fraud, a dishonest dealing with Heversham Grove.
In my view, the Perna & Grace Agreement is equally dishonest and a ‘false front’. It is an attempt to deceive the plaintiffs and the Court into believing that Mr and Mrs Pace promised in 2015 to grant a charge over the Land in favour of the first defendants and that the Perna & Grace Agreement was the true representation of that promise, giving effect to a genuine agreement. By reason of all the matters to which I have referred, I am comfortably satisfied that the reasonable and definite inference to be drawn, on the balance of probabilities, is the Perna & Grace Agreement was not a genuine agreement. The plaintiffs are correct, it is a ‘sham’ agreement.
Have Perna & Grace incurred any liability?
If I am incorrect in the conclusion that the Perna & Grace Agreement was and is a sham agreement, the first defendants have not shown that there is any liability to which they are subject upon which the Perna & Grace Agreement can operate. The terms of the Agreement require that the charge secures ‘any liability or any loss and damage incurred’ by the first defendants in respect of the Loan, being the Bank of Melbourne Loan.[208] Ms Perna admitted that she has not received any demand or notice of default in respect of her liability under the Westpac mortgage.[209]
[208]Clause 2(b), exhibit CP-1 to the Perna affidavit.
[209]Transcript, 68.19.
What is the priority of each interest?
If I am wrong in these conclusions, and if the Perna & Grace Agreement does support a valid charge on the Land and if there is a liability incurred by the first defendants in respect of the Loan, what is the answer to the priority dispute between the charges in the Guarantees and the charge given by the Perna & Grace Agreement?
Where the merits of two equitable interests in land are in all respects equal, the priority is determined based on when the relevant interests were created.[210] As Kitto J put it in Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liq):
In all cases where a claim to enforce an equitable interest in property is opposed on the ground that after the interest is said to have arisen a third party innocently acquired an equitable interest in the same property, the problem, if the facts relied upon as having given rise to the interests be established, is to determine where the better equity lies. If the merits are equal, priority in time of creation is considered to give the better equity. This is the true meaning of the maxim qui prior est tempore potior est jure: Rice v. Rice…[211] But where the merits are unequal, as for instance where conduct on the part of the owner of the earlier interest has led the other to acquire his interest on the supposition that the earlier did not exist, the maxim may be displaced and priority accorded to the later interest.[212]
[210]Rice v Rice (1853) 2 Drew. 73, 78; 61 ER 646, 648; Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liq) (1965) 113 CLR 265, 276; [1965] HCA 17 Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326, 333 (Gibbs CJ).
[211](1853) 2 Drew. 73, 78; 61 ER 646, 648.
[212]Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liq) (1965) 113 CLR 265, 276.
Thus, the law as to competition between competing equitable interests in land is that the interest which is first in time will prevail, but that may change where the prior equitable interest holder has acted in such a way that it would be unconscionable if his interest were to prevail over the subsequent interest holder.[213] Mere failure by the prior equitable interest holder to lodge a caveat is not in itself sufficient to postpone their equitable interest to a subsequent equitable interest, even where the subsequent interest has been acquired bona fide and for value without notice and on faith of the title.[214]
[213]Jacobs v. Platt Nominees Pty Ltd [1990] VR 146, 153; Mimi v. Millenium Developments Pty Ltd [2003] VSC 260 [23] (‘Mimi’); TL Rentals Pty Ltd v Youth on Call Pty Ltd & Ors [2018] VSC 105, [21].
[214]J & H Just (Holdings) Pty Ltd v. Bank of New South Wales (1971) 125 CLR 546, 554; Mimi [2003] VSC 260 [24]; TL Rentals Pty Ltd v Youth on Call Pty Ltd & Ors [2018] VSC 105, [21].
The latter interest holder must show a change of position and prove detriment as a necessary element of any claim for postponement of the earlier equitable interest.[215] It is not necessary that the prior interest holder’s claim be documented by an instrument in registerable form because the issue is not which document is easier to enforce or which creates the better or more effective security, but which party has the better equity.[216]
[215]Re S&DInternational Pty Ltd (No 4)[2010] VSC 388 [190]. See also Mimi v [2003] VSC 260 [32] and Jacobs v Platt Nominees Pty Ltd [1990] VR 146, 153; TL Rentals Pty Ltd v Youth on Call Pty Ltd & Ors [2018] VSC 105, [22].
[216]Moffett v Dillon [1999] 2 VR 480; TL Rentals Pty Ltd v Youth on Call Pty Ltd & Ors [2018] VSC 105, [22].
Even if the first defendants did have a valid charge, which I have concluded they did not, the plaintiffs interest was created on 28 July 2010, which is earlier in time than the first defendant’s interest in late 2015. The caveat procedure is essentially a statutory injunction.[217] It is well recognised that the effect of the caveat provisions in the TLA is not to enlarge or add to the existing proprietary rights of a caveator upon which the caveat is founded, but to protect those rights if they exist.[218] It follows that the priority as between the interests of the plaintiffs and the first defendants (if they exist) are not determined by the date of registration of their respective caveats.[219]
[217]Piroshenko v Grojsman 27 VR 489 [7].
[218]Butler v Fairclough (1917) 23 CLR 78, 84 (Griffith CJ); Bunnings Group Ltd v Hanson Construction Materials Pty Ltd [2017] WASC 132, [25].
[219]Bunnings Group Ltd v Hanson Construction Materials Pty Ltd, [2017] WASC 132,[31].
The plaintiffs policy was only to lodge a caveat when the client has defaulted or is likely to default in a payment. There is no evidence that CIFG Australia was somehow negligent in failing to lodge a caveat before it did, and the first defendants have adduced no evidence of investigations they undertook regarding other interests in the Land before they purportedly created a charge over the Land or lodged their caveat.
The first defendants submit that their interest takes priority in this dispute because the plaintiffs have acted in an unconscionable manner by not lodging a caveat until Arfoods could not meet its obligations.[220] This, in the first defendants submission, makes the present case distinguishable from Bunnings Group Ltd v Hanson Construction Materials.
[220]Final Submissions on Behalf of the First Defendants, 7 June 2020, 6-7 [22]-[23].
Further, the first defendants submitted that the effect of the plaintiffs delaying to register their interest over the Land made the interest granted to them under the Guarantees equivalent to a ‘floating charge’, which only crystallises once it is registered.[221] Therefore, the plaintiffs interest in the Land did not crystallise until 4 April 2019 when CIFG Australia registered the relevant caveat. The first defendants submit that the plaintiffs delay in registering their interest was ‘deliberate and premeditated conduct’, and it would be unconscionable to allow them to rely on it.
[221]Final Submissions on Behalf of the First Defendants, 7 June 2020, 7 [24].
The first defendants’ submissions are against the principles that I have set out above and the observations of Barwick CJ in J&H Just (Holdings) Pty Ltd v Bank of New South Wales.[222] Barwick CJ said in that case that the purpose of a caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor, although it may operate to give such notice, and that a loss of priority by failure to lodge a caveat is unwarranted by general principles or by any statutory provision and would be subversive to the well-recognised ability of parties to create or maintain equitable interests in land.
[222](1971) 125 CLR 546.
The argument that the charges in the Guarantees are floating and do not crystallise until the caveat is lodged is inventive and unsound. The availability of equitable remedies has the effect of giving the chargee a proprietary interest by way of security in the property charged. The equity in the form of the right to have the property available to satisfy debts arises at the time that the charge is granted. Any subsequent grant of the same right to another party must necessarily be subject to the prior grant, since the chargor is not able to pass an interest in the property greater than the interest which he or she possesses.[223]
[223]Bunnings Group Ltd v Hanson Construction Materials Pty Ltd, [2017] WASC 132, [33]-[34], and the authorities there cited.
Conclusion
For the foregoing reasons, the plaintiffs’ are entitled to be paid the whole of the amount, and any interest that has accrued, out of the surplus funds from the sale of the Land deposited in Common Fund No 1, Account 83978 with the Supreme Court of Victoria Funds-in-Court Office.
It is my preliminary view that this is a case where the costs should follow the event, so far as the plaintiffs and first defendants are concerned. The first defendants were on notice from before the commencement of the proceeding that their claim upon the proceeds of the sale of the Land, and their failure to respond in relation to it, were causing the plaintiffs to incur costs unnecessarily. The first defendants have fought tooth and nail to resist the claims of the plaintiffs to the Fund and to advance their own claim. They have failed. Subject to the making of submissions as to costs by the parties, the first defendants should pay the costs of the plaintiffs incurred in connection with this proceeding and the costs of the Earlier Proceeding. On the material before me at present, the Earlier Proceeding would have been unnecessary had the first defendants’ responded appropriately to communications from the plaintiffs’ solicitor.
It is also my preliminary view that the second defendant should bear his own costs. The second defendant was invited to attend the hearing on 11 May 2020 by Mr McNab, who attempted to represent him in the hearing. I did not permit him to do so as there was an immediate conflict of interest between the first defendants and the second defendant. In the upshot, the second defendant represented himself in that hearing. After that hearing, pursuant to orders made on 21 May 2020, the second defendant engaged a solicitor and filed and served a written submission. Subject to submissions as to the second defendant’s costs, my preliminary view is that in relation to the few costs incurred by him, he should bear them himself.
SCHEDULE OF PARTIES
| BETWEEN: | |
| CIFG (Australia) PTY LTD (ACN 006 182 449) | First Plaintiff |
| CIFG Limited (a company registered in the British Virgin Islands) of Pasea Estate, Roadtown, Tortola, British Virgin Islands) | Second Plaintiff |
| C.I.F.G. (H.K.) Limited (a company registered in Hong Kong) of 503, Tower 2, Lippo Centre, 89 Queensway, Admiralty, Hong Kong) | Third Plaintiff |
| - v - | |
| CLAUDINA DORA PERNA and MARIA GIOA BELLA GRACE | First Defendants |
| PETR VRESCKY (as Trustee of the Bankrupt Estates of Pietro Giuseppe Pace and Tammy Joanna Pace) | Second Defendant |
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