CKM (Mortgages) Limited v McDonnell
[2010] VSC 576
•30 November 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6313 of 2008
| BETWEEN: | |
| CKM (MORTGAGES) LIMITED (ACN 089 263 310) | Plaintiff |
| and | |
| NADIA DIANE McDONNELL and PETER JOSEPH McDONNELL | Defendants |
| AND BETWEEN: | |
| NADIA DIANE McDONNELL and PETER JOSEPH McDONNELL | Plaintiffs by Counterclaim |
| and | |
| CKM (MORTGAGES) LIMITED (ACN 089 263 310) | Defendant by Counterclaim |
| and | |
| RORY JOSEPH McDONNELL and YORK STREET CAPITAL PTY LTD (ACN 114 404 689) | Third Parties by Counterclaim |
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JUDGE: | OSBORN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 November 2010 | |
DATE OF JUDGMENT: | 30 November 2010 | |
CASE MAY BE CITED AS: | CKM (Mortgages) Limited v McDonnell | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 576 | |
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PRACTICE AND PROCEDURE – Appeal from Associate Justice – Leave to counterclaim refused – Release from counterclaim contained in terms of settlement – Issue estoppel from judgment previously entered – Plaintiffs right to enforce mortgage pursuant to terms not subject to counterclaim - Observations as to res judicata – Appeal dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff and Defendant by Counterclaim | Mr D Williams SC with Mr S Woolley | Hall & Wilcox |
| For the Defendants and Plaintiffs by Counterclaim | Mr M Stirling | S V Law |
| For the Third Parties by Counterclaim | No appearance |
HIS HONOUR:
This is an appeal from orders of Associate Justice Zammit dismissing an application for leave to file and serve a new counter claim in a proceeding in which final orders have previously been made pursuant to terms of settlement. There is some urgency in the matter because the plaintiff has taken possession of the defendant's property and proposes to sell it as a mortgagee next week. Accordingly, I propose to give an ex tempore judgment today.
The background to the proceeding is set out in paragraphs 1-13 of Associate Justice Zammit's judgment:
1Nadia and Peter McDonnell were married. At the time when this claim was settled Peter was 79 years old and Nadia 75 years old. Peter was suffering from dementia and his daughter, Patricia Tranter, was appointed as litigation guardian. Peter died on 4 April 2010 after Terms of Settlement were signed and approved by the Court.
2Peter and Nadia were the registered proprietors of a number of properties including 390‑392 Hampton Street, Hampton Victoria. They received rent from the tenants at the Hampton Street property. No monies were owed in early 2007 with respect to the Hampton Street property. In January 2007 the Hampton Street property was mortgaged to CKM (Mortgages) Limited to secure a loan to Nadia and Peter in the sum of $759,000. Nadia and Peter’s son, Rory McDonnell, was instrumental in organising the loan and the benefit of the loan was for Rory so that he could pursue a development in South Australia known as “Wirrina Cove”. Nadia and Peter allege that all contact with CKM relating to the loan of $795,000 was by Rory. They also allege that they never received the benefit of the loan and that the benefit was for Rory and York Street Capital Pty Ltd. Rory was the sole director and shareholder of York Street Capital Pty Ltd.
3In 2008 CKM commenced proceedings in this Court seeking possession of the Hampton Street property. No claim was made against Peter and Nadia for damages. Peter and Nadia filed a defence and counterclaim against CKM. A third party proceeding was also commenced by CKM against Rory and York Street Capital Pty Ltd. In essence, Nadia and Peter claimed that the loan and mortgage with CKM was an unconscionable bargain and that at the time they were under a special disability.
4 The parties settled the proceeding.
5The parties signed Terms of Settlement dated 9 November 2009.[1] The Terms of Settlement were approved by the Court on 23 November 2009. Nadia and Peter were legally represented when the Terms of Settlement were entered into and approved. The plaintiff’s statement of claim, the defence and defendant’s counterclaim and the third party proceeding were dismissed by the Court pursuant to clause 5 of the Terms of Settlement.
[1]Affidavit of Nadia Diane McDonnell sworn 23 August 2010, Exhibit NDM6.
6On 14 July 2010, the proceeding was ordered to be reinstated pursuant to clause 6 of the Terms of Settlement and judgment for CKM to recover possession of the Hampton Street properties was ordered.[2]
[2]Order of Associate Justice Daly dated 14 July 2010. Affidavit of Nadia Diane McDonnell, Exhibit NDM7.
7Nadia deposes that CKM has taken steps to enforce its judgment for possession of the Hampton Street property.[3]
[3]Affidavit of Nadia Diane McDonnell at para 69.
8Nadia has endeavoured to arrange finance to pay the amount claimed by CKM to be secured by CKM’s mortgage over the Hampton Street property. Nadia concedes that these steps have been taken “as a commercial way of finalising dealings with the plaintiff without the plaintiff taking further mortgage enforcement action”.[4] As at 5 August 2010 Nadia had a loan offer from RAMs Home Loans of $875,000.[5]
[4]Affidavit of Nadia Diane McDonnell at para 76.
[5]Affidavit of Nadia Diane McDonnell at paras 85 and 86.
9A summons was issued on behalf of Nadia dated 19 August 2010 seeking interlocutory and final orders that:
(a)Judgment entered on 14 July 2010 for the plaintiff be set aside;
(b)the first defendant have leave to file and serve a counterclaim in the form exhibited marked NDM9 (the new counterclaim). Further or alternatively judgment for possession (or execution thereof) be stayed until further order.
10CKM opposes the orders sought and seeks the summons be dismissed with costs.
11At the hearing of this application and in the written submission prepared on behalf of Nadia, it is submitted that Nadia no longer seeks to have the judgment entered on 14 July 2010 for CKM set aside.
12Nadia now only seeks leave to file and serve the new counterclaim and that the judgment for possession be stayed. Nadia swears that if the execution of CKM’s judgment for possession is not urgently stayed she will cease to be able to collect rent from the Hampton Street property from 19 August 2010 which she used to pay her daily living expenses.[6]
13It is submitted on behalf of Nadia that she should be given leave to file and serve the new counterclaim against CKM on the basis that:
1.Clauses 6 and 7 of the Terms of Settlement if given their plain and express meaning provide for such a step to be taken;
2.the new counterclaim is substantially different to the old counterclaim in form and substance;
3.the doctrines of res judicata and issue estoppel have no application to Nadia’s application.
[6]Affidavit of Nadia Diane McDonnell at para 90.
The issues between the parties turn upon the terms of settlement entered into between them on 9 November 2009. The defendant does not seek to set aside the terms of settlement but disputes their effect.
It is necessary to set out paragraphs 5, 6 and 7 of the terms in full:
5.The parties agree to obtain the following orders:
(a)the plaintiff’s claim be dismissed without adjudication upon the merits with the plaintiff having a right of reinstatement in the event of default by the defendants in accordance with clause 6;
(b) the counterclaim be dismissed;
(c) the third party notice be dismissed;
(d) there be no order as to costs including reserved costs.
The defendants agree to procure Rory McDonnell to join the parties in seeking these orders. Should the defendants fail to do so, they must indemnify the plaintiff against any claim for costs which Rory McDonnell may make against it as a consequence of such orders being made.
6.If the defendants default in compliance with their obligations under clauses 1 and 2, the plaintiff may after seven days’ written notice to the defendants apply to reinstate the proceeding and may obtain judgement in the proceeding for possession of the land. In that event the plaintiff shall be at liberty to produce these terms of settlement as conclusive proof of the defendants’ consent to such judgment. If the plaintiff obtains judgment for possession the amount secured by the mortgage will be the amount that would have been secured by the mortgage if the mortgage was enforceable and these Terms of Settlement had not be signed.
7.Except in respect of the parties rights under these Terms of Settlement:
(a)the plaintiff releases the defendants from all claims, suits, or causes of action arising out of or in connect with the proceeding and any claim, suit or cause of action whatsoever which the plaintiff might (but for this Terms of Settlement) have against the defendants; and
(b)the defendants release the plaintiff from all claims, suits, or causes of action arising out of or in connection with the proceeding and any claim, suit or cause of action whatsoever which the defendants might (but for these Terms of Settlement) have against the plaintiff.
These provisions should be read together and when they are so read the following conclusions follow. First, the defendant should be refused leave to counter claim because clause 7(b) of the terms releases the plaintiff from all claims arising out of, or in connection with, the proceeding. The proposed counter claim would be both a claim arising out of, and in connection with, the proceeding.
The words ‘arising out of or in connection with’ are broad words and it is difficult to conceive of a claim more directly fitting within those words than the present one. If the defendant were permitted to counter claim, the terms are in my opinion, a complete defence to any such claim and accordingly the leave sought would be nugatory and should be refused.
Secondly, the judgment which was entered in accordance with paragraph 5 of the terms created an issue estoppel with respect to the dismissal of the counter claim which was originally made. Such an estoppel is one of the species long recognised by the courts and was described by Jordan CJ in the following terms:
There is estoppel by judgment which prevents any party to the litigation in which a judgment was given from questioning in any way, in any subsequent litigation between himself and another party to the litigation anything decided by the judgment.[7]
[7]Discount & Finance Ltd v Gehrig’s NSW Wines Ltd (1940) 40 SR (NSW), 602-603.
It is conceded by counsel for the defendant that the proposed new counter claim is in substance the same as that previously made save that it puts in issue the amount secured by the mortgage. I find that concession to be properly made whether one focuses on the facts supporting the right to judgment or on the rights claimed in the counter claim or on the substance of the counter claim. In my view, the plaintiff is estopped from agitating the matters asserted in paragraphs 14 to 57 of the proposed counter claim.
Senior counsel for the plaintiff has further indicated that the payments alleged in paragraph 58 of the proposed counter claim are not in dispute. It follows that there is nothing in dispute save that which is the subject of an issue estoppel. In turn, clauses 5 and 6 of the terms of settlement expressly reserve to the plaintiff the right to reinstate the action but do not reserve such a right to the defendants with respect to the counter claim which has been dismissed.
This is a case in which it is possible to assert without doubt that the issues raised in the previous counter claim and in the proposed counter claim are identical.[8]
[8]See Commonwealth Bank of Australia v Peter Edward White and Another [2001] VSC 511, [43] per Warren J, as she then was, and the cases there cited.
Thirdly, I do not agree that the effect of clause 6 of the terms of settlement is to reinstate the right of the defendants to agitate their counter claim if the plaintiff obtains judgment for possession. Clause 6 provides first for the plaintiff to obtain summary judgment for possession of the land on seven days notice after default by the defendants and then provides that if the plaintiff obtains judgment for possession the amount secured by the mortgage will be the amount that would have been secured by the mortgage if the mortgage was enforceable and the terms had not been signed.
The provision prevents the defendants from contesting the enforceability of the mortgage in the circumstances which now arise. The plaintiff is entitled to enforce its security over the land in the sum which would have been secured by the mortgage if the mortgage was enforceable and the terms had not been signed. The final phrase relating to the signing of the terms requires the provisions for the payment of a settlement sum contained in paragraphs 2 and 3 of the terms to be disregarded. Those provisions are as follows:
2.In addition to the $100,000.00 referred to in clause 1, by 4pm on 9 May 2010 the defendants must pay to Hall & Wilcox:
(a)$825,000.00; and
(b)interest at the rate 5 per cent per annum on $825,000.00 calculated from 9 November 2009 to the date on which the $825,000.00 referred to in clause 2(a) is paid.
On the basis that the sum of $100,000 referred to in paragraph 1 is or has been paid as required by that clause, the $825,000 referred to in clause 2(a) and the interest payable referred to in clause 2(b) are referred to below as “the settlement sum”.
3.Upon payment of the settlement sum the plaintiff shall arrange for the discharge of the mortgage over the land. The defendants shall pay the plaintiff’s reasonable costs of arranging for the discharge of the mortgage.
I do not accept that it was the intention of the parties that upon the mortgagee taking possession under paragraph 6 the rights of the defendants to maintain their counter claim would revive and that they could then dispute the enforceability of the mortgage as if the terms had not been signed.
(a) I do not accept this is the plain meaning of the words used as counsel for the defendants submits;
(b) the express words of the terms postulate a conjoint basis for the calculation of the moneys recoverable. They are to be calculated on a basis which assumes both that the mortgage is unenforceable and the terms had not been signed;
(c) the defendants’ construction would give rise to the anomalous situation that the plaintiff was entitled to judgment for the possession but the amount secured if any payable by the mortgage remained uncertain in a fundamental sense.
Having regard to the above matters the defendants’ appeal should be dismissed. As it was instituted one day late, the proper order is that leave to appeal out of time be refused. Each of the three bases which I have identified is sufficient in itself to dispose of the matter. I should add for completeness however that both before Associate Justice Zammit and again today before me the plaintiff also relied upon the doctrine of res judicata.
It is unnecessary to finally decide whether that principle is applicable to the present case. I note however that in Chamberlain v Deputy Commissioner of Taxation[9] the High Court stated that:
The point of the present appeal is that the respondent brought an action against the appellant and recovered judgment against him. He obtained a judgment of the Court in which the cause of action upon which he relied merged, thereby destroying its independent existence so long as that judgment stood. And, so long as that judgment stands, it is not competent for the respondent to bring further proceedings in respect of the same cause of action. It is no answer to say that the Court might, if appropriate, stay the second action as an abuse of process. The impediment goes deeper than that; res judicata may sustain a plea of abuse of process but in that case the appropriate remedy is to strike out the later action. So long as the respondent chooses, as he does, to take no step to set aside the judgment and to raise no issue in the second action as to the circumstances in which that judgment was obtained, he must accept the consequences of res judicata.[10]
[9](1988) 164 CLR 502, especially 510-511.
[10]Ibid (citations omitted).
In the present case it would in my view be necessary for the defendants to set aside the previous judgment on this counterclaim in this proceeding before it could again agitate that counterclaim.[11] If the defendant did not fail for the other reasons which I have articulated, it may be however that the judgment dismissing the original counter claim could be put in issue in the present proceeding.
[11]See Linprint Pty Ltd v Hexhem Textiles Pty Ltd (1991) 23 NSWLR 508, 517-521 per Kirby P and 525-527 per Clarke JA.
I should also add that I accept that the present case can be regarded as analogous in its fundamentals to the case of Re Twenty-First Larena Pty Ltd,[12] to which I was referred on behalf of the plaintiff. As Justice Davies observed in that case:
The bargain struck between the parties was to limit the plaintiff's right to seek reinstatement of the proceeding.[13]
[12][2010] VSC 84.
[13]Ibid, [22].
Likewise, in the present case, the bargain struck between the parties was to limit their mutual rights in respect of reinstatement to those provided for in clauses 5 and 6 of the terms. Save in accordance with the provisions of those terms, orders made by the Court pursuant to them were, in my view, conclusive of the disposition of the proceedings. Accordingly, as I have already indicated, it is my view that the defendants' application to appeal out of time should be dismissed.
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