FEDERAL CIRCUIT COURT OF AUSTRALIA
| COMMONWEALTH BANK OF AUSTRALIA TRADING AS BANKWEST v MASTRONARDO | [2020] FCCA 2614 |
| Catchwords: CONSUMER LAW – UNCONSCIONABLE CONDUCT – Whether it is reasonably arguable that by offering to lend additional amounts under an existing facility on particular terms the creditor engaged in unconscionable conduct – no reasonably arguable case of unconscionable conduct. |
| Legislation: Australian Securities and Investments Commission Act 2001 (Cth), ss.12BAA, 12BAB, 12CA, 12CC |
| Applicant: | COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 TRADING AS BANKWEST |
| Respondent: | CARMELO ADRIANO MASTRONARDO |
| File Number: | SYG 59 of 2020 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 19, 22, 24, 30 June 2020 |
| Date of Last Submission: | 30 June 2020 |
| Delivered at: | Sydney |
| Delivered on: | 23 September 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Dempsey SC and Mr M Rose, by video |
| Solicitor for the Applicant: | Norton Rose Fulbright Australia |
| Respondent in person, by video |
| First Supporting Creditor, Mills Oakley Lawyers (A Partnership): | Mr C Moloney of Davies Moloney, by telephone |
| Second Supporting Creditor, Alistair Woodward Little and Others trading as Tresscox: | Ms S Napadow of HWL Ebsworth Lawyers, by video |
| Third Supporting Creditor, Urbis Pty Ltd: | Ms J Fulton of Clear View Lawyers, by telephone |
THE COURT ORDERS
The application that the creditor’s petition be adjourned is dismissed.
The estate of the respondent, Carmelo Adriano Mastronardo, is sequestrated under the Bankruptcy Act 1966 (Cth) (Act).
The applicant creditor’s costs (including any reserved costs) be taxed and paid from the estate of the respondent, Carmelo Adriano Mastronardo, in accordance with the Act.
THE COURT NOTES
The date of the Act of bankruptcy is 15 October 2019.
A consent to act as trustee signed by Ms Katherine Elizabeth Barnet has been filed.
A copy of these orders is to be provided to the Official Receiver in Sydney within two business days.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 59 of 2020
| COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 TRADING AS BANKWEST |
Applicant
And
| CARMELO ADRIANO MASTRONARDO |
Respondent
REASONS FOR JUDGMENT
(Corrected)
Introduction
The applicant (the Bank) applies for a sequestration order under s.52(1) of the Bankruptcy Act 1966 (Cth) (Act) against the estate of the respondent, Carmelo Adriano Mastronardo (Adrian).
The act of bankruptcy on which the Bank relies is Adrian’s failure to comply with the requirements of a bankruptcy notice that was issued on 29 August 2019, and served on Adrian on 2 September 2019. The bankruptcy notice demanded payment of $12,519,912.13 within 21 days from the date of service. This represents the difference between a judgment of $18,247,162.43 the Bank recovered against Adrian in the Supreme Court of New South Wales on 21 August 2017, less $5,727,250.30, being an amount the Bank recovered after the judgment was entered.
The Bank filed the creditor’s petition on 9 January 2020. There was then pending before me a creditor’s petition the Bank had filed against Adrian’s father (Antonio). On 23 April 2020 the creditor’s petition in relation to Adrian was docketed to me, and on 27 April 2020 I made an order that the hearing of the creditor’s petition be fixed for hearing on 19, 22, and 24 June 2020, being the dates on which the creditor’s petition in relation to Antonio had been fixed for hearing. It was contemplated that the two creditor’s petitions would be heard at the same time because there were overlapping issues.
When I set the matter down for hearing Adrian was legally represented. On 16 June 2020 he filed written submissions prepared by his counsel. In those submissions Adrian said he proposed to file in a proceeding the Bank commenced against him, Antonio, and Remo 97-99 Queens Road Pty Ltd (Remo 97) in the Supreme Court of New South Wales (Common Law Proceeding) a claim based on unconscionable conduct for damages in an amount that exceeds the amount of the debt demanded in the bankruptcy notice.
At the hearing on 19 June 2020 Adrian was no longer legally represented. At the beginning of the hearing I made an order that the evidence that has been and will be read and tendered in the creditor’s petition filed against Antonio will be evidence in the creditor’s petition filed against Adrian. I then heard an application Adrian made that the creditor’s petition against him be adjourned.[1] I reserved my decision on that application, stating that I would proceed to hear the creditor’s petition. The Bank read evidence on which it relied to prove the matters provided by s.52(2) of the Act. Adrian tendered a draft of the cross claim which he intends to file in the Common Law Proceeding (Proposed Cross Claim),[2] and he identified the evidence on which he relies for his unconscionable conduct claim.
[1] Adrian also relies on a document titled “Outline of Submissions of Adrian Mastronardo” dated 29 June 2020. In that document, Adrian identifies the proposed cross claim on which he relies, being the draft cross claim attached to the affidavit of Mr Tomaras made on 18 June 2020, the evidence on which he relies, and the submissions his previous lawyers made on which Adrian relies.
[2] The Proposed Cross Claim is annexed to the affidavit of J Tomaras, 18.06.2020
Arrangement of reasons
These reasons are arranged as follows. First, I consider Adrian’s application for an adjournment. For the reasons I there give, I propose to dismiss his application for an adjournment. Second, I will consider whether the Bank has proved the matters specified in s.52(1) of the Act and in the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules). For the reasons I there give, I am satisfied the Bank has proved those matters.
Third, I will consider whether the Proposed Cross Claim is of such merit as should lead me either to adjourn the creditor’s petition to permit Adrian to litigate the Proposed Cross Claim or to conclude that it constitutes some other reason for not making a sequestration order. That will require me to identify the factual background out of which the Proposed Cross Claim arises. I have set out much of that background in my reasons for judgment on the creditor’s petition against Antonio which I will be publishing at the time I publish these reasons (Other Reasons).[3] That background relates to what I have described in the Other Reasons as the “Remo 49 Facility” and the “Remo 97 Facility”. I propose to reproduce in these reasons, with such modifications as are necessary, the factual background I have set out in the Other Reasons in relation to those facilities. I will then:
a)identify the principles that are relevant to determining the circumstances in which an asserted Cross Claim by a debtor may afford a ground for the Court not making a sequestration order;
b)set out the elements of the Proposed Cross Claim; and
c)consider, in the light of the evidence before me, whether the Proposed Cross Claim has sufficient merit either to justify my adjourning the creditor’s petition to permit Adrian to seek to litigate it in the Common Law Proceeding, or to support the conclusion that it constitutes some “other sufficient cause” within the meaning of s.52(2)(b) of the Act for not making a sequestration order.
Application for adjournment
Adrian applied for an adjournment on the ground that he had requested from the Bank, and the Bank failed to provide to him, “the current statements of account”. Adrian said he has made arrangements to discharge the Bank’s debt from trust funds available to him. In the course of the application I asked Adrian whether he proposed to file any evidence that showed he had the capacity to pay any part of the debt. Adrian responded by stating that if the Bank provides him with “the statement of account” he would make arrangements to discharge his liabilities using trust funds available to him.
After the hearing, and without leave, on 4 August 2020 Adrian sent to my associate an email which attached a number of documents.[4] I do not propose to identify the documents. Although Adrian copied the email to the Bank’s lawyers, there is no evidence the Bank accepted the documents in full or partial satisfaction of the debt demanded in the bankruptcy notice. Further, the documents on their face do not evidence the tender of any amount on account of any part of the debt demanded in the bankruptcy notice; nor do the documents evidence that Adrian has access to financial resources that would enable him to pay any part of the debt. The documents, therefore, are not relevant to any question I am required to decide in these reasons.
[4] I have marked these documents in chambers as MFI6.
I am not satisfied it is in the interests of justice to adjourn the hearing of the creditor’s petition pending the Bank’s providing to Adrian a “statement of account”. First, the Bank is not obliged to provide any such account. Second, given the Bank has recovered a judgment of $18,247,162.43 against Adrian, any indebtedness Adrian had to the Bank merged in the judgment; and there would therefore be no utility in the Bank providing any “statement of account” if, by that, Adrian requires a statement showing how the debt of $18,247,162.43 had been ascertained. Third, there is no evidence to suggest Adrian has access to funds with which he could pay any part of the amount demanded in the bankruptcy notice.
Proof of matters specified in s.52(1) of Act
As I have already noted, the act of bankruptcy on which the Bank relies is Adrian’s failure to comply with the requirements of a bankruptcy notice that was issued on 29 August 2019. The bankruptcy notice was served on Adrian on 2 September 2019 by email to Adrian’s email address, and also by text to Adrian’s mobile telephone number.[5] The bankruptcy notice was also served by post despatched on 2 September 2019,[6] and by the bankruptcy notice being placed in a sealed envelope which, in turn, was left in the letterbox at Adrian’s last known address.[7]
[5] Affidavit of service of S Aofia, 04.09.2019
[6] Affidavit of service of S Aofia, 04.09.2019
[7] Affidavit of service of J Khoury, 03.09.2019
The bankruptcy notice required Adrian to comply with its requirements within 21 days after service on him. The time for Adrian’s complying with the requirements of the bankruptcy notice was extended by orders made in the Federal Court of Australia. The last order extending time was made on 24 September 2019 where the time for compliance with the requirements of the bankruptcy notice was extended up to and including 15 October 2019.[8] Adrian did not by that day comply with the requirements of the bankruptcy notice. That means Adrian committed an act of bankruptcy on 15 October 2019.
[8] Affidavit of I M Stevens, 08.01.2020
The Bank filed a creditor’s petition on 9 January 2020. The application has been filed in accordance with the prescribed form,[9] and, as required by s.47 of the Act and r.4.02(2) of the Bankruptcy Rules, an affidavit verifying paragraphs 1, 2, and 3 of the creditor’s petition has been made.[10] The Bank also filed at the time it filed the creditor’s petition an affidavit verifying paragraph 4 of the creditor’s petition, as required by r.4.04(1)(a) of the Bankruptcy Rules,[11] and, as required by r.4.04(1)(b), an affidavit of service of the bankruptcy notice.[12] In addition, on 15 January 2020 the Bank filed a “Trustee Consent to Act Declaration” given by Ms Katherine Elizabeth Barnet.
[9] Bankruptcy Rules, r.4.02(1); Form B6
[10] Affidavit of I M Stevens, 08.01.2020, [2]
[11] Affidavit of O Newman, 08.01.2020
[12] Affidavit of service of S Aofia, 04.09.2019
The creditor’s petition was not personally served on Adrian. Instead, the creditor’s petition was served by the methods permitted by the order for substituted service made by a Registrar of this Court.[13] An affidavit of debt has been read,[14] being an affidavit that under r.4.06(4) of the Bankruptcy Rules must be made as soon as practicable before the hearing date for the creditor’s petition. An affidavit of search, as required by r.4.06(3) of the Bankruptcy Rules, has also been read.[15]
[13] Affidavit of service of O Newman, 22.04.2020
[14] Affidavit of I M Stevens,18.06.2020
[15] Affidavit of O Newman, 18.06.2020
In those circumstances I am satisfied the Bank has proved the matters it is required to prove under s.43 and s.52(1) of the Act, and that the preconditions for making a sequestration order in relation Adrian’s estate have been satisfied.
Factual background to Proposed Cross Claim
In around 2005 Adrian and Antonio became partners in a property development business which they carried on through Remo Corporation Pty Ltd (Remo). The two shareholders of Remo were companies. Antonio was the sole director and shareholder of one of the companies, and Adrian was the sole director and shareholder of the other. Adrian and Antonio were both directors of Remo from 2005 until about May 2008, when Antonio retired as a director. Adrian continued to be a director until July 2009 when Antonio replaced him as Remo’s sole director and secretary.[16]
[16] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [3]-[15]
From 2005 Remo, through subsidiary companies, was involved in the development of two sites, one at 49 Queens Road, Five Dock, and the other at 97-99 Queens Road, Five Dock. Remo 49 undertook the development of 49 Queens Road (49 Queens Road Property), and Remo 97 undertook the development of 97-99 Queens Road (97 Queens Road Property).[17] Antonio was the registered proprietor of both the Queens Road properties.
[17] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [17]-[22]
12 March 2007 – Bank offers finance facilities to Remo 49 and Remo 97
By letter dated 12 March 2007 the Bank offered Remo 49 a bill line facility of up to $26 million (Remo 49 Facility).[18] The letter states that “[p]articulars of the approved new facility are set out in the attached Acceptance Document”, and that the “Bank makes the new facility available on the terms and conditions in the booklet of Usual Terms and Conditions for Commercial Lending Facilities and the Schedule provided”. The “Acceptance Document” consists of two documents. The first is addressed to the Bank recording a request by Remo 49 for the grant of the facility, and various acknowledgments, including an acknowledgment of receipt of the “Usual Terms and Conditions for Commercial Lending Facilities” (UTC).
[18] Affidavit of Antonio Mastronardo 11.12.2019, at [22]; exhibit CB, pages 1268ff
The second document is titled “Terms Schedule”. It identifies the purpose of the facility, namely, to “assist with funding construction of a four (4) level commercial office building with parking for 298 cars at 49-51 Queens Rd FIVE DOCK NSW 2046 & repay existing Westpac debt of approximately $3,314,000.00”. It then sets out information that is required to be included by particular clauses of the UTC. (The UTC is not in evidence before me.) The items include the following information:
a)Item 3, being the “Term”. It provides for 22 months “from funding date – Facility expires 31 March 2009”, and 3 “Years from practical completion or 31 March 2012, whichever is earlier”.[19] In his affidavit of 31 January 2020 Antonio explained that “the date of final repayment of the amount advanced to 49 Queens Road was 31 March 2012 or 3 years from practical completion of the construction of the developments”; practical completion was expected to occur by 31 March 2009, and “the regime allowed the company a 3 year period following completion of the building work to conduct a sale of the property”.[20]
b)Items 5-7, which relate to “repayments”, with a “once” only “Reductions to Face Value per annum” of $6 million due on 31 March 2009.
c)Item 13, which identifies the security required, this being the security identified in a document titled “Security Schedule”. These include a guarantee from Adrian limited to $26 million, and mortgages over the 49 and 97 Queens Road properties.
[19] Affidavit of Antonio Mastronardo 11.12.2019, at [22]; exhibit CB, page 1271
[20] Affidavit of Antonio Mastronardo 11.12.2019, at [29]
By a separate letter dated 12 March 2007 the Bank offered Remo 97 a bill line facility of up to $9 million (Remo 97 Facility).[21] It too has attached to it a document titled “Acceptance Document”. That document states that the purpose of the facility is to “assist with funding construction of a three (3) level commercial office building with parking for 87 cars at 97-99 Queens Road Five Dock NSW 2046 & repay existing NAB debt of approximately $1,695,000.00”. The document then sets out information that is required to be included by particular clauses of the UTC. This included the term, which was stated to be for 15 months of funding, and the provision of securities, which included a guarantee from Adrian limited to $9 million and mortgages over the 49 and 97 Queens Road properties.
[21] Affidavit of Antonio Mastronardo 11.12.2019, at [18]; exhibit CB, pages 1259ff
2 May 2007 – Adrian executes Guarantees
On 2 May 2007 Adrian executed two deeds of guarantee in favour of the Bank, one under which he guaranteed the obligations of Remo 49, and the other under which he guaranteed the obligations of Remo 97.[22]
[22] Amended Statement of Claim filed in Common Law Proceeding (ASC), [18], [20]; Amended Defence to Amended Statement of Claim filed in Common Law Proceeding (AD), [18], [20]. The guarantees Adrian executed have not been adduced into evidence.
29 June 2007 – Bank offers to increase Remo 49 Facility to $27.6 million
According to Antonio, in about May 2007 he became aware of an increase in construction costs of the development of 49 Queens Road compared to those which had been originally estimated. He applied to the Bank for an increase in the facility to $27.6 million, and a reduction in the principal that was to be paid “at the end of the construction phase” from $6 million to $5 million.[23]
[23] Affidavit of Antonio Mastronardo made on 11 December 2019, [25]
By letter dated 29 June 2007 the Bank offered to increase the amount of the Remo 49 Facility to $27.6 million.[24] The “Terms Schedule” attached to the letter extended the construction period from 31 March 2009 to 16 May 2009, and provided that the facility be reduced to $22.6 million by 16 May 2009.[25] The “Terms Schedule” also stated that the purpose of the variation was to “partially compensate for increase in the construction costs of a four level commercial office building with parking for 298 cars at 49-51 Queens Rd FIVE DOCK NSW 2048 & repay existing Westpac debt of approximately $3,500,000.00”. Remo 49 accepted the variation on 16 July 2009.
[24] Exhibit CB, pages 1278ff
[25] Exhibit CB, page 1283
August 2007 - Ashe Morgan Capital No.2 provides $5 million facility
In around August 2007 another company, Ashe Morgan Capital No. 2 Pty Limited (AMW),[26] agreed to lend $5 million to Remo 49 and Remo 97.[27] That led to AMW, Remo 49, Remo 97, and the Bank entering into a deed of priority and subordination.[28] Under that deed the parties agreed that the “Senior Securities” would have first priority for the payment by Remo 49 and Remo 97 of the “First Priority Senior Debt”, which was defined to be $36.6 million.
[26] Which appears to be a subsidiary of AMW Corporation Pty Ltd which, in turn, appears to trade under the name of “Ashe Morgan Winthrop”.
[27] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [35]
[28] Affidavit of Carmelo Adriano Mastronardo made 27 June 2019 in Common Law proceeding, being Exhibit A, [33], tab 8 of exhibit CAM2
October and November 2008 – Strategy for 49 Queens Road development is revised
According to Antonio, from about September 2007, after the “global financial crisis” began, there were no longer any meaningful expressions of interest from investors for the purchase of any of the properties Remo 49 and Remo 97 were developing.[29] In around October 2008 Adrian and Antonio formulated a new strategy which consisted of redesigning the four level office block into small strata title office suites or units, and increasing the building’s gross floor area.[30] Antonio estimated that these changes would increase the costs of the development by around $4.3 million. According to Adrian,[31] by December 2008 he had determined that the financial viability of the 49 Queens Road project required that the project be made the subject of a strata development which, in turn, required that “the construction contract would be altered to provide for the construction of 83 separate commercial lots”.
[29] Affidavit of Antonio Mastronardo made on 11 December 2019, [30]
[30] Affidavit of Antonio Mastronardo made on 11 December 2019, [31]
[31] Affidavit of Adrian Mastronardo made on 1 June 2020, [22]
Adrian and Antonio informed the Bank of their proposal. This first occurred before 10 October 2008 when Adrian sent an email to Mr McLelland confirming an earlier discussion that “we are investigating a strata sale proposal of the unleased area of 49 Queens Road”.[32] On 4 November 2008 Adrian sent by email to Mr McLelland a strata scheme, strata plans, and a document headed “Colliers Supply and Demand”.[33] Mr McLelland responded for the Bank by email sent on 7 November 2008, stating that the Bank “has not agreed to the strategy of a strata for this building”, and, to be in a position to assess the strategy, the Bank would need a new valuation on a “one line basis” acceptable to the Bank. Mr McLelland further stated that the strategy “will require full credit assessment and then formal consent”.[34] Remo 97, therefore, applied to the Bank for a further increase of $4.3 million in the Remo 49 Facility.
[32] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C; tab 12 of exhibit CAM1
[33] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C; tab 12 of exhibit CAM1
[34] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C; tab 12 of exhibit CAM1
19 December 2008 – Bank offers to increase Remo 49 Facility to $31.9 million
By letter dated 19 December 2008 the Bank offered to increase the Remo 49 Facility from $27.6 million to $31.9 million.[35] The “Terms Schedule” attached to the letter no longer referred to any construction period. Next to the words “Term of Facility” there is written “4 months” and the “Facility has a maturity date of 30/03/2009”.[36] On about 16 January 2009 Remo 49 accepted the terms on which the Bank offered to increase the amount of the Remo 49 Facility.
[35] Exhibit CB, page 1321
[36] Exhibit CB, page 1322
Adrian has made the following observations about the Bank’s offer to increase the amount of the Remo 49 Facility:[37]
It was a condition of the Bank’s 19 December 2008 approval . . . that the Expiry Date of the First Loan Agreement was brought forward from 31 March 2012 to 30 March 2009. The altered expiry date Condition was inconsistent with the terms of the original approval given on 15 December 2018.
The effect of the Altered Expiry Date Condition was to impose an obligation on Remo 49 to repay to the Bank the whole of the amount outstanding under the First Loan Agreement [i.e., the Remo 49 Facility], being an amount of $31.9 million, within four months from the date of the December 2008 Variation.
[37] Affidavit of Adrian Mastronardo made on 1 June 2020, [28], [29]
By email sent on 26 February 2009 to Adrian and “Ian”, Mr McLelland, on behalf of the Bank, referred to a progress draw having been provided to the Bank, and stated “[a]s you have been advised, we are unable to pay this until the increased Deed of Priority has been executed with AMW”.[38] By email sent on 11 March 2009 AMW informed Mr McLelland that it would execute the variation to the deed of priority.[39] Antonio says that it was not a term of the increase in the Remo 49 Facility from $27.6 million to $31.9 million that there be an amendment of the deed of priority; and that the delay in obtaining such amendment prevented Remo 49 from drawing on its facilities which, in turn, delayed the project by approximately three months.[40]
[38] Exhibit CB, page 1348
[39] Exhibit CB, page 1349
[40] Affidavit of Antonio Mastronardo made on 11 December 2019, [44], [49]
Alleged events in March - May 2009
Adrian says that the amount owing under the Remo 49 Facility was not repaid by 30 March 2009, and the Bank did not terminate that facility. The Bank instead allowed Remo 49 to continue to operate the facility by borrowing further amounts.[41] Adrian says that “[a]t that time”, namely, around 31 March 2009, Adrian informed Antonio that Mr Golsby informed Adrian that he would organise “an extension”;[42] and that in April 2009 Adrian informed Antonio that Mr Golsby “said he will sort it out in the next documentation and the bank is very happy with our performance and he promised that nothing would happen”.[43]
[41] Affidavit of Adrian Mastronardo made on 1 June 2020, [32]
[42] Affidavit of Adrian Mastronardo made on 1 June 2020, [36]
[43] Affidavit of Adrian Mastronardo made on 1 June 2020, [36]
Also according to Adrian, in about May 2009 he was present at a telephone conversation between Mr Golsby and Antonio during which Antonio said he wanted “the bank to reinstate the facility as it was in the beginning”, in response to which Mr Golsby requested that Antonio let him “discuss it with my bosses”, and stated the “bank is not going to do anything”, and that the Bank is “happy with the way you guys are performing”, and “would do other deals with you”.[44] Adrian further says that as at June 2009 he “assumed and expected that, notwithstanding the Altered Expiry Date Condition, the Bank would continue to allow Remo 49 to draw funds under the” Remo 49 Facility “to enable completion of the Project and would not require repayment of the total amount due to the Bank until a reasonable time after the Project had reached Practical Completion”.[45]
[44] Affidavit of Adrian Mastronardo made on 1 June 2020, [38]
[45] Affidavit of Adrian Mastronardo made on 1 June 2020, [40]
25 June 2009 – Bank offers to increase Remo 49 Facility to $34.7 million
According to Antonio, in about May 2009 he formed the view that Remo 49 required additional funds to cover increased costs and other expenses. He therefore applied to the Bank for a further increase of $2.8 million in the Remo 49 Facility.[46] By letter dated 25 June 2009, the Bank offered to increase that facility to $34.7 million.[47] The “Terms Schedule” attached to the letter did not refer to any construction period. Next to the words “Term of Facility” there is written “3 months” and “The Facility has a maturity date of 30/09/2009”.[48] Adrian and Antonio accepted the offer on behalf of Remo 49 on 26 June 2009.[49]
[46] Affidavit of Antonio Mastronardo made on 11 December 2019, [50], [51]
[47] Exhibit CB, page 1356
[48] Exhibit CB, page 1357
[49] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C; tab 12 of exhibit CAM1
Adrian has made the following observations about the terms on which the Bank offered to increase the Remo 49 Facility to $34.7 million:[50]
At the time of the June 2009 Variation, construction work on the 49 Queens Road Project was still on-going. The effect of the New Expiry Date Condition was to impose an obligation on Remo 49 to repay to the Bank the whole of the amount outstanding under the First Loan Agreement [i.e., the Remo 49 Facility], being an amount of $34.7 million within less than 4 months from the date of the June 2009 Variation.
[50] Affidavit of Adrian Mastronardo made on 1 June 2020, [44]
July 2009 – attempt to secure AMW’s agreement to be subordinated to increase in Remo 49 Facility
On 9 July 2009 Mr McLelland of the Bank sent an email to Adrian requesting that AMW “confirm that they are aware that the CBA has increased its facility to Remo 49”, and that the Remo 97 Facility “remains the same at $9m”.[51] On 9 July 2009 Mr Lo Surdo from AMW sent an email to Mr Ian Mirels (copied to Adrian) stating that “this is higher than our approved deed of priority amount with cba”, and that he was not “aware that cba were looking to fund outside of our previous arrangements”. Mr Lo Surdo further said that until “we approve and redocument [sic]”, “any further cba [sic] advances will be subordinated to amw”.[52]
[51] Exhibit CB, pages 1359-1360
[52] Exhibit CB, page 1359
On or shortly after 13 July 2009 Mr McLelland from the Bank sent an email to Adrian stating the Bank “need[s] AMW to acknowledge that the CBA has increased its facility by $2.8 and this is captured under the existing Deed of Priority”, and requesting that Adrian “have them do so and then advise us accordingly”.[53] Adrian forwarded the email from Mr McLelland to Mr Lo Surdo of AMW. Mr Lo Surdo then sent an email on 13 July 2009 stating the following:[54]
[53] Exhibit CB, pages 1363-1364
[54] Exhibit CB, page 1363
What CBA is asking us to do is to increase the deed of priority amount. We cannot agree to this until we understand the full position with respect to the Queens Road properties and the Coles deal and I have gone through a formal approval process. I have made this clear to you and Ian previously. We were only asked to acknowledge and consent to the increase 3 days ago and I have tried contacting you on both Friday and today to discuss.
We will be sending you a letter outlining what our information needs are, early tomorrow morning.
The strategy on the funding of 49 Queens road [sic] was always to build levels 1 to 3 and to substantially sell these levels before building out the remaining levels. I am not sure why these levels are proposed to be built without substantial sales being achieved.
On or shortly after 13 July 2009 AMW sent to the directors of Remo 49 and Remo 97 a letter dated 13 July 2009, which included the following:[55]
[55] Exhibit CB, page 1361ff
As requested in an email to myself dated 9 July 2009, the Lender [AMW] has been asked by the Borrower [Remo 97] to acknowledge an increase in the Senior Facility debt amount to $43.7 million (from the existing priority amount of $40.9m). At this stage, the Lender has not acknowledged or consented to the proposed increase from the Senior Financier.
Although the Borrower had previously advised the Lender that the Senior Financier was considering increasing their Senior Lending Facility debt amount, the first indication that this may have occurred or been approved was via the email dated 9 July 2009 (referred to above). The original funding strategy also required the borrower to achieve considerable sales prior to funding the strata fit out costs of levels 3, 4 & 5. These sales have not been achieved.
In order for the Lender to consider consenting to the proposed increased debt by the Senior Financier, the following will need to be provided:
·A copy of the proposed Letter of Offer (variation letter) outlining the proposed increase from the Senior Financier;
·Details of the allocation of the proposed debt increase and revised funding tables outlining future costs;
·QS report confirming the proposed costs (received);
·An update on sales and leasing on the Security Properties, with the proposed front pages of any exchanged contracts to date;
. . . .
17 July 2009 – Bank offers to increase Remo 49 Facility
By letter dated 17 July 2009 the Bank offered to increase the Remo 49 Facility from $31.9 million to $34.7 million.[56] The offer was subject to a number of conditions, one of which was that the “borrower is to provide the Bank with a satisfactory Deed of Priority and Subordination with AMW”. Antonio accepted the offer on 14 August 2009.[57]
[56] Exhibit CB, page 1365
[57] Exhibit CB, page 1369
26 November 2009 – Antonio seeks extension of time to repay Remo 49 Facility
According to Antonio, on 26 November 2009 he met with Mr Golsby, a manager within the Bank’s credit management division. Antonio deposes that at the meeting he said “[w]e need to get an extension of the loan in writing”, in response to which Mr Golsby said: “Don’t worry the bank is fine”.[58] Adrian, for his part, asserts the following:[59]
Accordingly, as at 26 November 2009 the Bank had told me and Antonio that the Bank was not considering requiring payment in full of the amount due under the First Loan Agreement [i.e., the Remo 49 Facility] or the commencement of enforcement action against Remo 49 and that the Bank was satisfied with the efforts of Remo 49, myself and Antonio to complete the construction work on the Queens Road Project and with the sales and marketing campaign which has been instituted.
[58] Affidavit of Antonio Mastronardo made on 11 December 2019, [63]
[59] Affidavit of Adrian Mastronardo made on 1 June 2020, [45]
Antonio’s and Adrian’s evidence and assertions would need to be assessed in the light of the letter dated 27 November 2009 Mr Golsby sent to Antonio, in which he said:[60]
I refer to our meeting on 26 November 2009.
As discussed, the Bank is becoming concerned at the delays in providing the required information, Cost to complete estimates, to the valuer.
The completion of these valuations is critical to the Bank considering your request for additional funding. As mentioned the Bank cannot commence to consider the additional funding until the valuations are complete and in an acceptable format to the Bank.
Should the valuer not be able to confirm that he has all the required information to complete the valuations by 7 December 2009, then the Bank will need to review its position. This may include commencing legal actions under its securities.
[60] Exhibit CB, page 1373
10 December2009 – Bank says it will delay recovery action until 30 March 2010
Antonio says that on 3 December 2009 Adrian paid from his own resources $5,017,860.97 towards the debt Remo 49 owed to AMW.[61] By letter dated 10 December 2009 the Bank informed Antonio that the Bank was prepared to delay recovery action until 30 March 2010, subject to the conditions stated in the letter. One of these was that an independent property consultant acceptable to the Bank is engaged by February 2010 to complete a review of the sale strategy, and advise on the “additional fit out request”.[62] Remo 49 then drew down $1,364,319 on the facility.[63]
[61] Affidavit of Antonio Mastronardo made on 11 December 2019, [65]
[62] Exhibit CB, page 1374
[63] Affidavit of Antonio Mastronardo made on 11 December 2019, [68]
Adrian says that he understood the Bank granted the extension until 30 March 2010 “to allow sufficient time for the registration of the strata plans . . . and in order to resolve an issue with AMW in refusing to sign payment Deed with council”.[64] On 2 March 2010 the strata plan for the 49 Queens Road property was registered.[65] (I will refer to the lots that were registered as the “49 Queens Road lots”.)
[64] Affidavit of Adrian Mastronardo made on 1 June 2020, [47]
[65] Affidavit of Antonio Mastronardo made on 11 December 2019, [70]
June 2010 – alleged meeting
Adrian says that in June 2010 he and Antonio met with Mr Golsby who said:[66]
[T]he Bank will not be doing anything about calling up the loan, please keep going with what you are doing, keep selling and paying down bank [sic] as quickly as possible. Everything is going well. The Bank is happy.
[66] Affidavit of Mr Adrian Mastronardo made on 1 June 2020, [55]
20 July 2010 – Bank informs Antonio Remo 49 and 97 facilities are in default
In a letter dated 20 July 2010 addressed to “Mr A Mastronardo Director Remo 49 Queens Rd Pty Ltd Remo 97 Queens Road Pty Ltd”, the Bank stated as follows:[67]
Failure to repay the Bank’s debt in full by 31 March 2010 was a default under the Bank’s security documentation. The Bank reserves its rights and remedies under that default.
The Bank is considering its position in regards to your facilities. While acknowledging your efforts to date to sell the properties, the Bank’s [sic] remains concerned at the length of time it is taking to achieve the sales and the associated debt reduction.
While this should not be considered an approval, the Bank, as a minimum, would expect that sales, exchanged contracts, and settlements totalling at least 50% of the Bank’s debt, $22m, be achieved by 30 September 2010. Failure to achieve this level of debt reduction is likely to see the Bank commence recovery action under its securities.
. . . .
Due to the facilities now being in default, the Bank, under its documentation, is entitled to immediately increase the interest rate applying to your facilities from 11.5% pa to 15.49% pa. In recognition of your efforts to sell the properties, the Bank will not apply the full increase rather [sic] apply a rate of 13.5% from 30 July 2010. It would be prudent to expect further increases, if sales are achieved [sic] in line with the Bank’s expectations.
Please note that as Adrian Mastronardo is a guarantor to the facilities, a copy of this letter has been provided to him for his information.
[67] Affidavit of Carmelo Adriano Mastronardo made 27 June 2019 in Common Law proceeding, being Exhibit A, tab 19 of exhibit CAM2
14 July 2010 – implementation of sales strategy
Adrian says that on 14 July 2010 Ernst & Young had assessed and approved a proposed sales strategy for the 49 Queens Road lots. Remo 49 began to implement the strategy, and weekly reports were provided to the Bank.[68] In early October 2010 Adrian says he, Antonio, and Remo’s financial controller met with Mr Golsby. Antonio told Mr Golsby that all was going well; Remo 49 was selling well; and that Remo 49 had sold about 20 units and was about to settle on another 16. Adrian deposes Mr Golsby said: “Keep doing what you are [doing], the bank won’t do anything”.[69]
[68] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [49]-[51], tabs 17 and 18 of exhibit CAM1; affidavit of Adrian Mastronardo made on 1 June 2020, [56]
[69] Affidavit of Adrian Mastronardo made on 1 June 2020, [57]
14 October 2010 – Bank and AMW enter into priority dispute
By 14 October 2010 the Bank and AMW entered into a dispute.[70] In its letter to the Bank dated 14 October 2010 AMW claimed it had consented to the increase in the “First Priority Senior Debt” on “the specific understanding that such amounts already included an amount of drawn principal plus capitalised interest on that amount”. The dispute between the Bank and AMW arose at a time when, according to Adrian, the lots at 49 Queens Road had been completed and sold, or were ready to be sold. In an email sent to Antonio on 18 October 2010 AMW stated that its position for repayment of the loans it made had been compromised, and that “we would like a resolution with CBA prior to consenting to any future settlements”. By email sent on 9 November 2010 AMW informed Antonio that it was not prepared “to consent to further settlements until the priority issues are resolved”.[71] AMW repeated its position in an email sent on 25 November 2010.[72]
[70] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [54], tab 13 of exhibit CAM1
[71] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [58], tab 21 of exhibit CAM1
[72] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [58], tab 21 of exhibit CAM1
Early December 2010 – Bank informs Antonio it intends to appoint receivers
According to Antonio, in early December 2010 he met with Mr Golsby. Antonio told Mr Golsby that he had spoken with Mr Ashe Morgan (of AMW) who agreed to settle AMW’s loan for $600,000. Mr Golsby said he would not “even give them a $1”. Mr Golsby also said “by the way I have the receiver here to represent us”. According to Antonio the conversation continued as follows:[73]
Mr Golsby: We have had in mind to put the receiver in some time ago, but we have now decided to do it now”.
Antonio:We have sold above 50% of the offices, if you give the $600,000 to pay Ashe Morgan out and then give me an extra 6-12 months to sell the remaining units, everything will be paid.
Mr Golsby: Ok let me think it over and I will talk to someone else and get back to you.
[73] Affidavit of Antonio Mastronardo made on 11 December 2019, [73]
10 December 2010 – Bank demands repayment of loans
By two letters dated 10 December 2010, one addressed to Remo 49, and the other addressed to Remo 97, the Bank, through its lawyers, claimed Remo 49 and Remo 97 were in default of the Remo 49 Facility and the Remo 97 Facility respectively because Remo 49 and Remo 97 failed to repay the amounts that were advanced to them by 30 March 2010, being the claimed maturity date for both facilities as had previously been extended by the Bank. The letters claimed that Remo 49 and Remo 97 owed the Bank $32,863,492.40 and $9,834,482.50 respectively, and demanded that Remo 49 and Remo 97 pay these amounts to the Bank by 17 December 2010.
The Bank’s lawyers provided to Antonio a copy of the demands they gave to Remo 49 and Remo 97 under cover of two separate letters addressed to Antonio.[74] Each letter stated:
[74] Affidavit of Antonio Mastronardo made on 29 April 2016 (being Exhibit D), [44], tab 12 of exhibit AM1
We act for Commonwealth Bank of Australia (ACN 123 123 124) (“the Bank”).
Please find enclosed a copy of our letter of demand on behalf of the Bank to [Remo 49/Remo 97] dated 10 December 2010 for your information as guarantor.
Antonio says he did not receive a letter of demand “issued to me as guarantor to the loans”, or a “notice of default issued to me personally as the mortgagor of the Queens Road Properties”.[75] Adrian says that he, too, “never received any formal demand to enforce the guarantees which I provided for the debts of Remo 49 and Remo 97”.[76]
[75] Affidavit of Antonio Mastronardo made on 29 April 2016 (being Exhibit D), [45]
[76] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [60]
Neither Remo 49 nor Remo 97 met the demands.
20 December 2010 – Adrian meets with Mr Golsby and Mr Needham
According to Adrian,[77] on 20 December 2010 he met with Mr Golsby and Mr Needham, one of the persons whom the Bank was to appoint as receiver. Mr Golsby told Adrian that “the Bank has decided to appoint a receiver and that is why Andrew Needham is here – he will be the receiver”. Adrian expressed surprise. He told Mr Golsby that “we are doing well with the sales” but with the appointment of receivers “the market will dip and it will jeopardise the sales which are in progress”, and that “we will get a lot less money out of the project and it will be so much harder to repay the Bank’s debt”. Mr Golsby said “[w]e are sick of having to deal with Ashe Morgan”, and said “Don’t give Ashe any more money – you must pay us before you pay them”. Adrian asked “what do we do then?” After again stating that money should not be given to AMW, Mr Golsby said “I will take what you are saying to my superiors and will come back to you tomorrow”.
[77] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [65]
23 December 2010 – Bank appoints receivers
Adrian says that on 23 December 2010 Mr Golsby telephoned him “we have had to appoint Receivers to the Queen Street Properties” (Receivers), and that “[a]ll I can say is you need to cooperate with the receivers to the best of your ability to make sure that the sales progress smoothly and returns are maximised”.[78]
[78] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [71]
When cross claim may constitute sufficient reason for not making a sequestration order
As I discussed elsewhere,[79] it is open to a debtor to claim at the hearing of a creditor’s petition that he or she had a cross claim against the creditor in an amount that exceeds the amount of the debt on which the creditor relies. Such a claim, when made, may be relevant in two ways. The first is where the bankruptcy court is not in a position to determine whether the asserted cross claim is likely to succeed, but nevertheless is satisfied that the claim is of sufficient substance that the validity of the claim ought to be determined by the ordinary process by which civil claims are determined. Where the bankruptcy court is so satisfied it has a discretion to adjourn the creditor’s petition until such time as the cross claim is determined in the ordinary course.
The assertion of a cross claim against the creditor may be relevant in another way. The bankruptcy court may not only be satisfied that the cross claim is of substance, but also that the debtor is likely to have a cross claim that exceeds the judgment on which the creditor’s petition is based. Here, although the bankruptcy court retains a discretion to adjourn the hearing of the creditor’s petition it has the additional discretion to treat the cross claim as “some other sufficient cause” under s.52(2)(b) of the Act and, for that reason, dismiss the creditor’s petition.
What I say in the preceding two paragraphs is based on the following passage from the judgment of Beach J in Liang v LV Property Investments Pty Ltd (emphasis in original):[80]
An important distinction is to be made between a Cross Claim which is likely to succeed and a Cross Claim which is a bona fide and reasonably arguable claim, but where it is not established by the judgment debtor that it is likely to succeed. In the former case, where it is established that the claim is likely to succeed, such a claim may warrant the refusal of a sequestration order . . . . In the latter case, only a basis for adjourning the creditor’s petition may be established, but the ultimate refusal of a sequestration order may not be justified . . . . .
There is a theoretical question. If you have the latter case, do you establish a “sufficient cause” at all? Some authorities suggest that you do not and that only cases in the former category fit within s 52(2)(b) . . . . . In my view, these authorities support what was said in Rigg v Baker that cases in the former category support a refusal of a sequestration order, whereas cases in the latter category support only an adjournment of the petition. In such a case, a “sufficient cause” has not been shown. The discretion to adjourn does not then arise under s 52(2), but rather arises more generally (s 33) as to when the petition should be decided. In any event, there is little doubt that the discretion to adjourn arises in the latter case . . . . .
[80] Liang v LV Property Investments Pty Ltd [2015] FCA 1057, at [59]-[60] (references omitted)
When considering whether a debtor has a substantial cross claim, it is not enough for the debtor to produce a pleading he or she has filed in another proceeding:[81]
There must be sufficient evidence or other material to show that it is reasonably arguable or of substance. This may require prima facie verification of the key factual elements as well as demonstrating legal tenability.
[81] Liang v LV Property Investments Pty Ltd [2015] FCA 1057, at [61]
My task, therefore, is to consider whether the Proposed Cross Claim has sufficient substance to warrant either my adjourning the creditor’s petition, or finding that it constitutes an “other sufficient cause” for not making a sequestration order. I will assess that claim, and elements of the claim, by considering whether the claim or element of the claim discloses or disclose a reasonably arguable basis for supporting a claim of unconscionable conduct. A finding that the element or claim is not reasonably arguable is to be read as a finding that the claim or element is of insufficient substance to justify either an adjournment or a dismissal of the creditor’s petition.
The Proposed Cross Claim
The Proposed Cross Claim is substantially based on Antonio’s proposed cross claim to which I refer in the Other Reasons; and it pleads causes of actions personal to Antonio, including those in relation to the discharge of the guarantees Antonio had granted. In relation to Adrian, the Proposed Cross Claim makes two broad claims. The first is that Adrian’s obligations under the guarantees he granted in relation to Remo 49 and Remo 97 have been discharged because the Bank has purportedly sought to enforce the guarantees without first making a demand on Adrian. The second is unconscionable conduct. I will first consider the unconscionable conduct claim.
Unconscionable conduct claim
Adrian’s unconscionable conduct claim is made in paragraph 161 of the Proposed Cross Claim. It is directed to the Bank’s appointing the Receivers over the 49 Queens Road lots and over the 97 Queens Road property. It is alleged that in “all of the circumstances pleaded above” the Bank’s appointment of the Receivers was “unconscionable conduct by the Bank within the meaning of s51AA of the Trade Practices Act 1974 and section 12CA of the ASIC Act”; and it was unconscionable because of the matters pleaded in paragraphs 161(a)-(y) of the Proposed Cross Claim. Before I identify those matters, it will be necessary to set out some principles concerning unconscionable conduct.
Principles
The Proposed Cross Claim only relies on s.51AA of the Trade Practices Act 1974 (Cth) (TPA) and s.12CA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). As it stood in December 2010 (relevant time),[82] s.51AA(1) of the TPA provided that a “corporation must not, in trade or commerce, engage in conduct that is unconscionable within the unwritten law, from time to time, of the States and Territories”. At the relevant time s.12CA(1) of the ASIC Act provided that a “person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories”. At the relevant time the expression “financial services” was exhaustively defined in s.12BAB of the ASIC Act by the identification of various classes of activities, most of which relate to “financial products”, which is an expression that was also exhaustively defined in s.12BAA of the ASIC Act. Relevant to the Proposed Cross Claim is s.12BAA(7)(k) which provided that “a credit facility (within the meaning of the regulations” is a financial product. Regulation 2B of the Australian Securities and Investments Commission Regulations 2001 (Cth) prescribes what constitutes “a credit facility”, one of which is “the provision of credit . . . for any period”. The “financial services” identified in s.12BAB that appear to be most relevant to the Proposed Cross Claim is that identified in s.12BAB(1)(g), namely, the provisions “of a service that is otherwise supplied in relation to a financial product”.
[82] Here I am referring to the ASIC Act as it stood up to and including the amendments made up to Act No.131 of 2010.
The expression “unwritten law” is refers to “the principles of law and equity expounded from time to time in decisions expounding the common law of Australia”.[83] The expression “unconscionable conduct” refers to those principles of equity considered in Blomley v Ryan,[84] Commercial Bank of Australia Ltd v Amadio,[85] and Bridgewater v Leahey,[86] that apply “to relieve against a stronger party to a transaction exploiting some special disadvantage which has operated to impair the ability of a weaker party to form a judgment as to his or her interest”.[87]
[83] Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd [2003] HCA 18, at [38] (Gummow and Hayne JJ)
[87] Australian Securities and Investment Commission v Kobelt [2019] HCA 18, at [81] (Gageler J)
The High Court considered the relevant principles in Kakavas v Crown Melbourne Limited.[88] The High Court said:[89]
Where an appeal is made by a plaintiff to the standards of equity embodied in the Amadio principle, the task of the courts is to determine whether the whole course of dealing between the parties has been such that, as between the parties, responsibility for the plaintiff's loss should be ascribed to unconscientious conduct on the part of the defendant.
The High Court made a number of observations. First, the High Court referred with approval to Deane J’s observation in Amadio that the “intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to prevent his victimization”.[90] Second, the principle applies in Amadio “is not engaged by the circumstance that a plaintiff's transaction with a defendant has resulted in loss to the plaintiff, even loss amounting to hardship”;[91] it is wrong “to speak of ‘unconscionable conduct’ [as suggesting] that sufficient foundation for the existence of the necessary ‘equity’ to interfere in relationships established by . . . . the law of contract, is supplied by an element of hardship or unfairness in the terms of the transaction in question, or in the manner of its performance”.[92] Third:[93]
[E]quitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business. A plaintiff who voluntarily engages in risky business has never been able to call upon equitable principles to be redeemed from the coming home of risks inherent in the business. The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position.
[90] Kakavas v Crown Melbourne Limited [2013] HCA 25, at [18]
[91] Kakavas v Crown Melbourne Limited [2013] HCA 25, at [19]
[92] Kakavas v Crown Melbourne Limited [2013] HCA 25, at [19], quoting from the plurality judgment in Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57, at [26]
[93] Kakavas v Crown Melbourne Limited [2013] HCA 25, at [20]
Fourth:[94]
Essential to the principle stated by both Mason J and Deane J in Amadio is that there should be an unconscientious taking advantage by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests. It may well be that an unconscientious taking of advantage will not always be manifest in a demonstrated inequality of bargaining power or in a demonstrated inadequacy in the consideration moving from the stronger party to the weaker; but the abiding rationale of the principle is to ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the impugned transaction.
[94] Kakavas v Crown Melbourne Limited [2013] HCA 25, at [118]
The Proposed Cross Claim does not allege the Bank engaged in unconscionable conduct in contravention of s.12CC of the ASIC Act, as that provision stood at the relevant time. I will assume, however, that Adrian also intends to rely on s.12CC. I have set out in the Other Reasons the text of that provision as it stood at the relevant time, and some principles in relation to that provision which I will not reproduce in these reasons.[95]
[95] Commonwealth Bank of Australia trading as Bankwest v Mastronardo (No.2) [2020] FCCA 2609, at [137]-[147]
The unconscionable conduct claim
As I have already noted, the Proposed Cross Claim relies on a number of matters for claiming the Bank engaged in unconscionable conduct. I will consider whether each of the matters viewed separately support the claim that the Bank’s appointment of the Receivers (appointment of the Receivers) constituted unconscionable conduct, and then consider whether the matters, when viewed as a whole, support the claim the Bank acted unconscionably.
Paragraph (a). This paragraph relies on the Bank’s having appointed the Receivers without making a demand on the guarantees Antonio and Adrian had given. This by itself is incapable of supporting the claim that the appointment of Receivers was unconscionable. The failure to make a demand is incapable of supporting a finding that the appointment of Receivers constituted the unconscientious taking advantage of some disabling condition or circumstance that seriously affected Adrian’s ability to make a rational judgment as to his own best interests; or that it constituted undue influence, or the exercise of pressure or unfair practices against Adrian. The Proposed Cross Claim does not allege Adrian was unaware a demand had not been made on him or Antonio; or that he held some incorrect assumption about whether a demand had been made or ought to have been made; or that his holding any such incorrect assumption was due to any act or omission of the Bank. At most, the appointment of Receivers without a demand constitutes a breach of contract.
Paragraphs (b), (c), and (d). These paragraphs rely on the appointment of the Receivers having been made when, to the Bank’s knowledge, or knowledge of which it ought to have had, 50% of the 49 Queens Road lots had already been sold. This by itself is incapable of supporting the claim that the appointment of Receivers was unconscionable. That the appointment of Receivers occurred in these circumstances is incapable of supporting a finding that it constituted the unconscientious taking advantage of some disabling condition or circumstance that seriously affected Adrian’s ability to make a rational judgment as to his own best interests; or that it constituted undue influence, or the exercise of pressure or unfair practices against Adrian, or that it otherwise induced Adrian to do or not to do any act. The Proposed Cross Claim does not allege Adrian was unaware of the appointment of the Receivers; or that it occurred in the circumstances where 50% of the lots had been sold.
Paragraphs (e), (f) and (g) allege that the appointment of the Receivers “was contrary to the Hold Safe Representation”, and the Bank knew that or ought reasonably to have known that. The “Hold Safe Representation” is the set of representations paragraph 129 of the Proposed Cross Claim alleges Mr Golsby on behalf of the Bank made to Adrian on 26 November 2009. Paragraph 129 of the Proposed Cross Claim alleges Mr Golsby represented the following:
a)Notwithstanding the passing of the “New Expiry Date” (30 September 2009), the Bank was not considering requiring payment in full of the amount due under the Remo 49 Facility or commencing enforcement action against Remo 49.
b)The Bank was satisfied with the efforts of Remo 49, Antonio, and Adrian to complete the construction work on the Queens Road lots, and with the sales and marketing campaign which had been instituted.
c)The Bank would not act to interfere with that work or the campaign provided Remo 49, Antonio, and Adrian continued with the sales and marketing activities, and provided updated information to the Bank about those matters.
In paragraph 38 of these reasons I have set out what Antonio and Adrian have said in their affidavits of their meeting with Mr Golsby. Antonio’s evidence, however, goes no further than his stating to Mr Golsby that “[w]e need to get an extension of the loan in writing”, in response to which Mr Golsby said: “Don’t worry the bank is fine”.[96] If accepted, the evidence could at most support a representation to the effect that the Bank was not intending at that time to require the repayment of the amount owing under the Remo 49 Facility. As for Adrian, his evidence goes not further than asserting what he says “the Bank” had told him; but he has not set out any evidence of any conversation where Mr Golsby or any other person said words to the effect of the representations alleged in paragraph 129 of the Proposed Cross Claim or from which such representation could reasonably be implied.
[96] Affidavit of Antonio Mastronardo made on 11 December 2019, [63]
Further, what Antonio and Adrian say occurred at the meeting of 26 November 2009 must be viewed against what Mr Golsby stated in the letter dated 27 November 2009 which refers to the meeting of 26 November 2009; namely, that, “[a]s discussed, the Bank is becoming concerned at the delays in providing the required information”; that “completion of these valuations is critical to the Bank considering your request for additional funding”, and that, should “the valuer not be able to confirm that he has all the required information to complete the valuations by 7 December 2009, then the Bank will need to review its position”, and this “may include commencing legal actions under its securities”.[97] It is unlikely that, given the terms of the letter dated 27 November 2009, a court would find the Bank made any of the representations alleged in paragraph 129 of the Proposed Cross Claim. And that is because the letter is inconsistent with the Bank having made them. The letter indicates that Remo 49 was seeking further funds; and the Bank was prepared to consider that request, provided Antonio and Adrian provided the “required information” which included valuations.
[97] Exhibit CB, page 1373
For these reasons, there are no reasonable prospects that at the hearing of the Proposed Cross Claim paragraphs (e), (f) and (g) would be available to support a claim of unconscionable behaviour.
Paragraphs (h), (i), and (j). In these paragraphs Adrian alleges the Bank appointed the Receivers in circumstances where, to the knowledge of the Bank, Antonio and Adrian had done all they could reasonably have been expected to do to sell the remaining 49 Queens Road lots. Assuming that is accepted, by itself it would be incapable of supporting a claim that the appointment of the Receivers was unconscionable. The Proposed Cross Claim does not allege the Bank appointed the Receivers knowing it had no right to do so; the Proposed Cross Claim assumes the Bank purported to do that which it believed it was entitled to do, namely, exercise its rights under the agreements it had entered into with Remo 49, Remo 97, Antonio, and Adrian. If the Bank purported to exercise its rights in circumstances where it was not entitled to do so, that may constitute a breach of contract, but it cannot by itself reasonably support a claim of unconscionable conduct. It cannot reasonably support a finding of the unconscientious taking advantage of some disabling condition or circumstance that seriously affected Adrian’s ability to make a rational judgment as to his own best interests; or that it constituted undue influence, or the exercise of pressure or unfair practices against Adrian.
Paragraph (k). This paragraph alleges that by “repeatedly” extending the date for the repayment of the Remo 49 Facility, increasing the amount of the loan under that facility, and by receiving from Adrian and Antonio reports which the Bank approved, the Bank “encouraged and allowed Remo 49, Antonio and Adrian to continue to devote time, effort and money to completion of the 49 Queens Road Project on the basis of a reasonable expectation that they would be allowed to retain control of that Project and the sales of the Remo 49 Lots unless the Bank expressly disapproved of the attempts to carry out the sales”. Assuming Adrian and Antonio held the expectation it is alleged they held, it is not reasonably arguable that any such expectation was reasonably held.
a)The Bank recorded in documents the terms on which it offered to grant additional funding and to extend the time for repayment. The Proposed Cross Claim does not allege Adrian did not understand the terms on which the Bank offered to provide additional funds or to extend the time for repayment.
b)By letter dated 20 July 2020 the Bank stated that Remo 49’s failure to repay the “Bank’s debt in full by 31 March 2010 was a default under the Bank’s security documentation”, and that the “Bank reserves its rights and remedies under that default”.[98]
c)The expectation ignores the dispute that had arisen between the Bank and AMW.
[98] Affidavit of Carmelo Adriano Mastronardo made 27 June 2019 in Common Law Proceeding, being Exhibit A, tab 19 of exhibit CAM2
Even if Adrian and Antonio held the expectation, and reasonably held it, it would not be reasonably capable of supporting a finding that it rendered the appointment of Receivers the unconscientious taking advantage of some disabling condition or circumstance that seriously affected Adrian’s ability to make a rational judgment as to his own best interests; or that it constituted undue influence, or the exercise of pressure or unfair practices against Adrian.
Paragraphs (l)-(q). These paragraphs allege that, to the knowledge of the Bank, the appointment of Receivers was not likely to result in quicker sales of the 49 Queens Road lots, but was likely to have resulted in lower sales prices for the lots. These allegations are not based on any alleged facts, but appear to rely on no more than the sale having been undertaken by the Receivers rather than by Remo 49. That by itself, however, cannot reasonably support a finding that the lots were sold for a lower price than they otherwise would have been sold had the Receivers not been appointed. Although there is in evidence a valuation of the 49 Queens Road lots made on 25 September 2009,[99] that by itself is not reasonably capable of supporting a finding that the lots were sold for a lower price than the price Remo 49 would have obtained had it sold the lots. There is no evidence that is reasonably capable of proving that the Receivers failed to act reasonably in the manner in which they sold the lots. Finally, the Proposed Cross Claim does not allege any facts which, if accepted, are reasonably capable of supporting a finding that the Bank was aware that by appointing the Receivers the lots would be sold for less than the amounts Remo 49 would have been able to sell the lots had the Receivers not been appointed.
[99] Affidavit of Adrian Mastronardo made on 1 June 2020, exhibit CAM-1, pages 38ff
Even if these the matters alleged in the paragraphs could be established, they would not be reasonably capable of supporting a finding that the appointment of the Receivers constituted the unconscientious taking advantage of some disabling condition or circumstance that seriously affected Adrian’s ability to make a rational judgment as to his own best interests; or that it constituted undue influence, or the exercise of pressure or unfair practices against Adrian.
Paragraphs (r)-(t) and (w)-(x). These paragraphs allege that the appointment of the Receivers was reasonably likely to affect adversely the ability of Antonio and Adrian to continue to obtain development finance from third parties; and the Bank knew or ought reasonably to have known this. These allegations are not supported by any allegations of fact or by evidence which, if established or accepted, are reasonably capable of supporting findings that Antonio and Adrian would have had the capacity to obtain finance for continuing projects. These paragraphs therefore are not available to support a finding that the appointment of Receivers constituted unconscionable conduct. Even these paragraphs were available, they would not be reasonably capable of supporting a finding that the appointment of Receivers constituted the unconscientious taking advantage of some disabling condition or circumstance that seriously affected Adrian’s ability to make a rational judgment as to his own best interests; or that it constituted undue influence, or the exercise of pressure or unfair practices against Adrian.
Paragraph (u). This paragraph alleges the Bank did not allow a reasonable time to pass after the building work had reached practical completion, and this was contrary to the “common intention” alleged in paragraph 30 of the Proposed Cross Claim. That paragraph alleges that the Remo 49 Facility, as it stood at the time it was first accepted by Remo 49, contemplated a “Construction Period” that would end in March 2009, and a further three years to permit the orderly sale of the development.
This paragraph is not reasonably available to support a finding of unconscionable conduct because it ignores that the facts underlying any “common intention” that underlay the Remo 49 Facility, when accepted by Remo 49, had changed: Remo 49 was required but failed to reduce the Remo 49 facility by March 2009; Remo required additional funding; and Remo 49 altered the nature of the development. Thus, whatever may have been the common intention of the Bank, Antonio, and Adrian at the time the Bank offered the Remo 49 Facility, it ceased to be the common intention by the time the Bank appointed the Receivers. By then, any intention the parties can reasonably be supposed to have shared is the intention reflected the terms on which the Bank had offered to provide additional funding to Remo 49, and which Adrian, Antonio, and Remo 49 accepted.
Even if the Bank’s appointment of the Receivers was contrary to any common intention, that could not reasonably support a finding that the appointment constituted the unconscientious taking advantage of some disabling condition or circumstance that seriously affected Adrian’s ability to make a rational judgment as to his own best interests; or that it constituted undue influence, or the exercise of pressure or unfair practices against Adrian.
Paragraph (v). This paragraph alleges that the Bank’s primary reason for appointing the Receivers was to “extract itself from the dispute between it and the second mortgagee when there were other means by which that could have been achieved without appointing any Receiver”. The paragraph does not identify the dispute from which it is alleged the Bank sought to extricate itself by appointing the Receivers, or the “other means” by which it is alleged were available to the Bank by which it could extricate itself from its dispute with the mortgagee. For these reasons alone paragraph (v) is not available to support the claim that the appointment of Receivers constituted unconscionable conduct. Even if the paragraph were available, it would not be reasonably capable of supporting a finding that the appointment of Receivers constituted the unconscientious taking advantage of some disabling condition or circumstance that seriously affected Adrian’s ability to make a rational judgment as to his own best interests; or that it constituted undue influence or the exercise of pressure or unfair practices against Adrian.
Paragraph 161 viewed as a whole. When viewed as a whole, paragraph 161 of the Proposed Cross Claim is not reasonably capable of supporting a claim that the appointment of the Receivers constituted unconscionable conduct. The matters, to the extent they can be established, could not reasonably be said to constitute the Bank’s taking unconscionable advantage of some disabling condition or circumstance that seriously affected Adrian’s ability to make a rational judgment as to his own best interests; or that it constituted undue influence, or the exercise of pressure or unfair practices against Adrian. At most, the matters disclose a breach by the Bank of the terms of guarantees Adrian granted to the Bank, and the terms of guarantees and mortgages Antonio granted to the Bank. The Proposed Cross Claim does not allege the Bank wilfully breached the terms of such mortgages or guarantees; and, in any event, the Proposed Cross Claim does not allege facts which, if accepted, could reasonably support any such claim.
For these reasons the Proposed Cross Claim does not disclose a reasonably arguable case that by appointing the Receivers the Bank engaged in unconscionable conduct.
Remedies assuming unconscionable conduct established
Even if, however, the Proposed Cross Claim discloses a reasonably arguable case of unconscionable conduct there is the question whether Adrian has any reasonably arguable prospects of recovering damages in an amount that would equal or exceed the debt on which the Bank relies in the creditor’s petition. The Proposed Cross Claim alleges that, but for the Bank’s engaging in the unconscionable conduct of appointing the Receivers:[100]
a)Remo 49 and Remo 97 would have received $60,008,865 from the proceeds of sale of the 49 Queens Road lots and 97 Queens Road property;[101]
b)$45 million of this amount would have been applied to discharge the amounts under the Remo 49 and Remo 97 facilities, leaving a profit of $15 million (in round figures);[102]
c)Remo 49 and Remo 97 would have divided the $15 million equally between Antonio and Adrian;[103] and
d)Adrian, therefore, suffered a loss in the amount of $7.5 million.[104]
[100] Proposed Cross Claim, [214]-[222]
[101] Proposed Cross Claim, [219]
[102] Proposed Cross Claim, [222]
[103] Proposed Cross Claim, [223]
[104] Proposed Cross Claim, [224]
The Proposed Cross Claim also alleges that because of the appointment of the Receivers two other companies associated with Adrian were prevented from obtaining finance to complete two projects. One company was West Ryde Development Residential Pty Ltd (WRDR) that had an interest in a property at West Ryde, and the other company was Veritas Property Group Pty Ltd (VPG) that owned a property in North Strathfield. In relation to the West Ryde project, the Proposed Cross Claim alleges that:[105]
a)the sale of the completed units in that development were reasonably likely to sell for $178,391,816, and the total estimated costs of completing the units were $100,874,100, which means that on completion and sale of that project WRDR would have earned a development profit of $77,517,696;[106]
b)before the appointment of the Receivers WRDR was able to obtain finance from four companies to fund the development costs;
c)after the appointment of the Receivers Adrian engaged one of the companies to raise finance, and sought finance from another, but WRDR was unable to obtain finance, and WRDR sold its interest in the WRDR project for $20 million; and
d)had the WRDR project been completed WRDR would have earned a profit of $69,850,000, all of which would have been distributed to Adrian.
[105] Proposed Cross Claim, [225]-[242]
[106] The correct figure should be $77,517,716
In relation to the North Strathfield development the Proposed Cross Claim alleges as follows:[107]
a)on 6 March 2012 VRG entered into a call option deed for the purchase of the property for $20 million;
b)because of the appointment of Receivers, VRG was prevented from obtaining finance for the development of the property, but was instead forced to sell the property for $24.75 million; and
c)the project has an estimated profit of $45 million, and the property, undeveloped, is now worth $50 million.
[107] Proposed Cross Claim, [243]-[251]
The difficulty with this part of the Proposed Cross Claim is there is no evidence that is reasonably capable of supporting its essential elements. Adrian refers to these developments in his affidavit of 1 June 2020,[108] but Adrian only asserts matters without any evidence to support them. In other words, Adrian’s claims for damages is based on nothing more than bare assertions.
[108] Affidavit of Adrian Mastronardo made on 1 June 2020, [80]-[93]
Conclusion on unconscionable conduct claim
I am not satisfied the unconscionable conduct claims made in the Proposed Cross Claim have any substance, or any sufficient substance to warrant either adjourning or dismissing the creditor’s petition.
Claim based on discharge of guarantees
The Proposed Cross Claim alleges that because of the appointment of the Receivers Adrian was discharged from his obligations under the guarantees he had given. That is not reasonably arguable. The appointment of Receivers was directed to property owned by Antonio and could not reasonably be characterised as the purported enforcement of the guarantees Adrian had granted. On the evidence before me, it is not reasonably arguable that the Bank took, or purported to take, any action under the guarantees Adrian granted before the Bank made a demand under the guarantees by letter dated 13 January 2013.
In any event, even if the appointment of the Receivers discharged Adrian from his obligations under the guarantees he granted, that would not have given rise to any claim for damages against the Bank; and if it did, there is no evidence that is reasonably capable of proving that Adrian suffered the damages the Propose Cross Claim alleges he suffered.
Email of 4 September 2020
On 4 September 2020 Adrian sent an email to my associate in which he stated: “See attached following - SOC which has been listed for directions on the 28/09/2020”. The “SOC” is a statement of claim Adrian filed with the Supreme Court of New South Wales on 28 August 2020. There was also attached to Adrian’s email a notice of listing stating that the proceeding Adrian commenced by filing the statement of claim has been listed before a Registrar on 28 September 2020. Adrian did not have permission from me to send to my associate any document, but I will assume Adrian sent the email to show he has an additional claim against the Bank which should be taken into account when determining whether a sequestration order ought to be made.
The statement of claim relates to the Bank’s exercising powers of sale over a property of which Adrian is one of two registered proprietors. The statement of claim baldly asserts the Bank breached its duties as mortgagee by selling the property at an under value. These allegations are not supported by any particulars. There is therefore nothing in the statement of claim that would cause me to make different orders to those I propose to make, or which would cause me to postpone pronouncing the orders I propose to make on the basis of these reasons for judgment.
Conclusion and disposition
I propose to order that Adrian’s application for an adjournment be dismissed, and that his estate be sequestrated. I also propose to order that the Bank’s costs be paid out of Adrian’s estate.
I certify that the preceding ninety-four (94) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 16 February 2021
CORRECTION
Paragraph 91 has been amended by inserting “no” between “there is” and “evidence that is”.
- AGLC
- Commonwealth Bank of Australia Trading as Bankwest v Mastronardo [2020] FCCA 2614
- Case
- [2020] FCCA 2614
- Decision Date
CaseChat Overview and Summary
The court was required to determine whether the conditions for making a sequestration order were satisfied, specifically whether the respondent had an arguable case for an offsetting claim that would defeat the creditor's petition, and whether the creditor's conduct in offering additional loan amounts under an existing facility could be considered unconscionable.
Judge Manousaridis found that there was no reasonably arguable case of an offsetting claim that was equal to or in excess of the debt. Furthermore, the court determined that it was not reasonably arguable that the creditor had engaged in unconscionable conduct by offering to lend additional amounts under the existing facility on particular terms. Consequently, the court dismissed the application to adjourn the creditor's petition.
The court ordered that the estate of the respondent be sequestrated under the *Bankruptcy Act 1966* (Cth), with the applicant creditor's costs to be taxed and paid from the respondent's estate. The date of the act of bankruptcy was noted as 15 October 2019.
Orders
Orders of the court
THE COURT ORDERS
1. The application that the creditor’s petition be adjourned is dismissed.
2. The estate of the respondent, Carmelo Adriano Mastronardo, is sequestrated under the Bankruptcy Act 1966 (Cth) (Act).
3. The applicant creditor’s costs (including any reserved costs) be taxed and paid from the estate of the respondent, Carmelo Adriano Mastronardo, in accordance with the Act.
THE COURT NOTES
4. The date of the Act of bankruptcy is 15 October 2019.
5. A consent to act as trustee signed by Ms Katherine Elizabeth Barnet has been filed.
6. A copy of these orders is to be provided to the Official Receiver in Sydney within two business days.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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