Double David Pty Ltd v Richmond Commercial Pty Ltd &

[2011] VCC 1376

IN THE COUNTY COURT OF VICTORIA Revised

(Not) Restricted

AT MELBOURNE
COMMERCIAL LIST
BANKING & FINANCE

DIVISION

Case No. CI-11-01709

DOUBLE DAVID PTY LTD	Plaintiff
v.
RICHMOND COMMERCIAL PTY LTD and THOMPSON	Defendants
PROPERTY MANAGEMENT PTY LTD

---

JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	31 October 2011
DATE OF JUDGMENT:	31 October 2011 (revised 2 November 2011)
CASE MAY BE CITED AS:	Double David Pty Ltd v. Richmond Commercial Pty Ltd & Anor
MEDIUM NEUTRAL CITATION:	[2011] VCC 1376

REASONS FOR JUDGMENT

---

Catchwords:  Practice and procedure – Summary judgment application – Mortgage loan – Default by mortgagor – Whether proceeds of sale of other properties should have been applied to indebtedness – Implied representation arising from previous dealings with associated companies – Whether requirement that mortgagee would insist upon written consent to leases – Purported lease by mortgagor to an associated company – Whether mortgagee could obtain possession against tenant – Section 78(1) Transfer of Land Act 1958.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr W. Stark	Frenkel Partners
For the Defendant	Mr G. Lucas	Champions Lawyers
HIS HONOUR:

4 plaintiff’s application in order to give it time to provide to the defendants a written
“accounting of all moneys received in respect of the sale of properties where there
are mortgage facilities provided by the Owen Law Group”. The Owen Law Group
included the plaintiff in this proceeding. The plaintiff complied with the direction.
Pursuant to the order, the defendants were permitted to raise any further queries they

1 The plaintiff, by summons dated 25 August 2011, seeks an order that the defence of the first and second defendants be struck out pursuant to Rule 22.02. The Court also has the power, pursuant to Part 4.4 of the Civil Procedure Act 2010, either upon

application of the plaintiff, or on the Court’s own motion, to summarily dispose of the
proceeding by giving judgment to the plaintiff if the Court considers that the
defendants’ defences have “no real prospect of success”.

2           The first defendant is the registered proprietor of a property at 582 Swan Street, Richmond. The plaintiff provided mortgage finance in the total sum of $920,000 in respect of the property. Firstly, as to $420,000 in September 2008 and a further $500,000 on 12 June 2009. The writ claims that the first defendant made some payments pursuant to the mortgage, but on 14 August 2010, $778,000 was due and payable. The plaintiff served a notice to pay on 23 March 2011. It alleges that the first defendant remains in default and, accordingly, it is entitled to possession of the property and judgment for the amount outstanding, which it says is presently the sum of $732,000.

3           The first defendant does not concede that there has been a default under the mortgage or that any moneys are owing to the plaintiff. Essentially, the first defendant’s submission relies upon the sale of properties subject to mortgages to the plaintiff and companies associated with it. The properties were owned by the first defendant, and the first defendant says that part of the proceeds of the sale of those properties should have been allocated by the plaintiff or its associated companies to reduce the first defendant’s indebtedness in respect of the mortgage over the Richmond property.

The matter first came before me on 5 October 2011. I adjourned the hearing of the defendants’ counsel that further queries had been raised in “without prejudice” communications with the plaintiff, on the basis of the material upon which I must act, it appears that the plaintiff supplied the information required of it and no further queries were raised by the defendants.

5           During the course of argument, I have been through the further material provided by the plaintiff with defendants’ counsel. The further material provides information about the sale of the properties at Brunswick and McCrae and shows that none of the

proceeds of the sale of those properties was allocated to reduce the indebtedness of
the first defendant pursuant to the mortgage over the Richmond property.

6           A similar exercise had been undertaken on 5 October 2011 in respect of a property at Werribee. Defendants’ counsel produced documents so that the same exercise might be repeated. There was nothing in the analysis undertaken by defendants’ counsel

which would suggest that there were further moneys received by the plaintiff or
associated companies in the Owen Law Group which should properly have been
allocated to reduce the first defendant’s indebtedness to the plaintiff in respect of the
Richmond property.

7           The plaintiff asserted that, pursuant to the relevant mortgages, upon the sale of a security property, the mortgagee had appropriate power to allocate the proceeds in reduction of the advances secured by that property, as it saw fit. The documents disclosed by the plaintiff in compliance with my order made 5 October 2011 showed that the allocation made by the relevant mortgagee in respect of the proceeds of sale was to allocate the net proceeds proportionally according to the amounts owing pursuant to the mortgages. There was nothing in defendants’ counsel’s submissions which suggested that this was inappropriate.

8           In the circumstances, I am satisfied that, as at 23 September 2011, the balance owing in respect of the relevant mortgage was $732,000. That sum took into account the advances made by the plaintiff, the payments made by the first defendant and rental received from the tenancies of the property.

9 The second defendant is alleged by the first defendant to be a tenant of part of the second floor of the Richmond property. The second defendant is an associated company of the first defendant. Ordinarily, section 78(1) of the Transfer of Land Act 1958 would entitle a mortgagee, upon there being default in the payment of the mortgage sum, to enter into any part of the property that was tenanted and to recover rents directly from the tenant, or alternatively, to bring an action of ejectment.

10 The defendants allege that the plaintiff should not be entitled to exercise these rights pursuant to section 78(1) because of the history of dealings between the first defendant and the plaintiff and other companies within the Owen Law Group. The defendants say that, as a result of these previous dealings, there was a representation made on behalf of the plaintiff that the requirement in the mortgage between the first defendant and the plaintiff, that all tenancies entered into by the first defendant must be consented to in writing by the plaintiff, would not be enforced in the present circumstances.

group of companies controlled by me)” and that “the rest of the building would be leased out to third parties”.
14	to the plaintiff. The document noted as the tenant of “Office 3” on the second floor,

11         In an affidavit sworn by Warren Alfred Thompson, a director of each of the defendants, on 15 September 2011, he deposes to a relationship in excess of 20 years with Mr David Owen, a director of the plaintiff and other companies within the Owen Law Group. Mr Thompson says that over a lengthy period he has obtained mortgage finance in dealings with Mr Owen’s companies. In respect of about 25 properties, there would have been more than 75 individual leases entered into by Mr Thompson’s companies without the prior written consent having been obtained from the relevant mortgagee. Mr Thompson said that the revenue from these tenants “was

generally used to fund mortgage repayments to mortgagees, which were usually

companies controlled by David [Owen]”.

12         Mr Thompson suggests that on the basis of these previous dealings and notwithstanding the requirement of written consent to leases contained in the mortgage document, that Mr Owen had “impliedly represented” to him, and led him to believe that “he did not require that his consent as mortgagee be provided for any

lease by companies controlled by me of properties secured by a mortgage to

companies controlled by him, including the plaintiff” and that “he was content for the

defendants to enter into relevant leases without the prior consent of the mortgagee

companies controlled by him, including the plaintiff”.

13 formal written consent of the mortgagee for leases of the Richmond property. He says
further that, if he had sought that consent, the first defendant would have been
prepared to satisfy the usual requirements for the provision of a security deposit and

Mr Thompson suggests that as a result of this representation he did not seek the Owen before he purchased the property, he told Mr Owen, “I was going to rent part of

the upper storey as an office for the Thompson Group (which is how I referred to the

Subsequently, the first defendant provided a list of tenants of the Richmond property paid by other tenants of the property. In a direction to the valuer, the plaintiff suggested that the valuer treat that portion of the building as “owner occupied” for the purpose of the valuation.

15 The plaintiff formally denies that any such representation was made by it to the first defendant. The defendants assert that, as a consequence of the representation, and the first defendant’s reliance upon it, the plaintiff is estopped from exercising its powers pursuant to section 78(1) of the Transfer of Land Act. The plaintiff has entered into possession of other tenancies on the property and has recovered rental from those tenants which it has applied in reduction of the mortgage sum. It has not sought to recover rental from the second defendant. Section 78(1) provides that even in respect of tenants from whom it has received rents, it may subsequently seek to recover possession of the rented portion of the property from them.

16

The plaintiff is in this position because of a substantial default by the first defendant in defendant is indebted to the plaintiff and its associated companies for substantial sums. This indebtedness has given rise to the sale of some of the mortgaged properties. Presently the total sum owing by the first defendant to the Owen Law Group of companies is substantial.

17         The defendants’ argument amounts simply to an assertion that the plaintiff is estopped from exercising its rights to eject the second defendant by seeking possession of that part of the property without first having sought to recover the rent payable by the second defendant to the first defendant under the lease agreement between them. If the plaintiff had sought rental which the second defendant had been unable to pay, it would have been entitled to eject the second defendant.

18 In my view, there is no real prospect of the defendants succeeding at trial in establishing that there is an estoppel which prevents the plaintiff exercising its rights pursuant to section 78(1). The alleged implied representation is contrary to the express terms of the mortgage executed by the parties. The defendants assert that the representation arises by reason of a course of conduct between companies associated with Mr Thompson and companies associated with Mr Owen in relation to tenancies “to third parties” where “the revenue from the third parties was generally used to fund mortgage repayments to mortgagees”, including companies associated with the present plaintiff.

19         In my view, there is no basis for a representation to arise in the circumstances which are now alleged and in relation to the rental of part of the Richmond property for use as an office by the Thompson Group. A company in the “Thompson Group” is not in the same position as a third party providing revenue to fund the mortgage

repayments. In the circumstances, the defence of the defendants should be struck
out, or alternatively, there should be judgment for the plaintiff against each of the
defendants. I will hear from the parties in relation to the appropriate relief to grant in
accordance with my decision.

- - -

Certificate

I certify that these 6 pages are a true copy of the reasons for decision of His Honour Judge

Anderson delivered on 31 October 2011 and revised on 2 November 2011.

Dated: 2 November 2011

Caroline Dawes

Associate to His Honour Judge Anderson