Down Town Visuals v Panorama Investments (No 2)
[2018] VSC 584
•8 October 2018
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE COMMERCIAL COURT | Not Restricted |
The Down Town Proceeding - S CI 2017 3990
| DOWN TOWN VISUALS PTY LTD | Plaintiff |
| v | |
| PANORAMA INVESTMENTS PTY LTD | Defendant |
The Possession Proceeding - S CI 2017 3283
| PANORAMA INVESTMENTS PTY LTD | Plaintiff |
| v | |
| NICK MELLOS and STEPHEN ROBERT DIXON (as Joint and Several Trustees of the Bankrupt Estate of Dr Nicholas William Sevdalis (a Bankrupt)) and ors (according to the attached Schedule of Parties) | Defendants |
The First Mortgage Proceeding - S CI 2017 4334
| PANORAMA INVESTMENTS PTY LTD | Plaintiff |
| v | |
| N.B. SERVICES (AUST) PTY LTD and ORS (according to the attached Schedule of Parties) | Defendants |
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JUDGE: | Digby J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the Papers |
DATE OF JUDGMENT: | 8 October 2018 |
CASE MAY BE CITED AS: | Down Town Visuals v Panorama Investments (No 2) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 584 |
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CONTRACTS – General contractual principles – Interpretation and construction – Legal and equitable security interests - Whether equitable charge arises under loan agreements – Whether loan agreement gives rise to equitable security interest separately to formal Company Charge.
PRACTICE & PROCEDURE – Application to intervene – Present utility of leave – Contingent facts and interests necessary for leave to be of any utility.
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The Papers: |
| 1. Email dated 20 August 2018 from Arslan Lawyers, Solicitors for Down Town Visuals Pty Ltd seeking clarification following delivery of Reasons for Judgment. 2. Submissions of Down Town Visuals Pty Ltd dated 17 August 2018. 3. Email dated 24 August 2018 from White Cleland Lawyers, Solicitors for the Receivers of Native Bond Pty Ltd (Receivers and Managers Appointed) (In Liquidation). 4. Email dated 29 August 2018 from Strategic Law Partners, Solicitors for Gulf Country Investments Pty Ltd seeking to intervene in the proceeding and be heard on the issues raised in the Down Town submissions. 5. Submissions of Gulf Country Investments Pty Ltd dated 3 September 2018. 6. Down Town Visuals Pty Ltd Response Submissions dated 6 September 2018. 7. Receivers of Native Bond Pty Ltd (Receivers and Managers Appointed) (In Liquidation) Response Submissions dated 6 September 2018. |
HIS HONOUR:
On 3 August 2018, I gave judgment in Down Town Visuals v Panorama [2018] VSC 427 (the Judgment), in the Down Town Proceeding (S CI 2017 3990), the Possession Proceeding (S CI 2017 3283) and the First Mortgage Proceeding (S CI 2017 4334). This judgment addressed the parties’ entitlements to settlement proceeds representing the surplus of the sale of certain properties held by Dr Nicholas Sevdalis (Sevdalis) and his companies (the Sevdalis Entities).
The relevant background facts are set out in the Judgment.[1] For present purposes, it is sufficient to note that Sevdalis was declared bankrupt; that he and the insolvent Sevdalis Entities defaulted on a number of secured and unsecured loans; that there were (and remain) competing groups of creditors seeking to realise their claims against Sevdalis and the Sevdalis Entities; and that the parties’ respective entitlements to the settlement proceeds were ordered to be determined according to an ‘Agreed List of Issues’ referred to in Elliott J ‘s orders of 22 February 2018.
[1][2018] VSC 427.
The Clarification Request
On 17 August 2018, the solicitors for Down Town Visuals Pty Ltd (Down Town) wrote to the Court in respect of findings made in relation to Question 7 in the Agreed List of Issues:
Please be advised that, before final orders are made in this matter, Down Town wishes to have one matter of the reasons for judgment clarified by his Honour. It relates to paragraphs [12](c) and [98](b) of the reasons and the findings there about Down Town not having a relevant charge.
Down Town will seek to clarify that those findings are limited to findings that the company charge in favour of Gulf Country was not assigned to Down Town - but that the loan agreement itself between Gulf Country and the Sevdalis entities created an equitable charge which was assigned to Down Town, as was Down Town’s case at trial.
In substance, Down Town seeks two points of clarification:
(a) a request for a clarification that paragraph [12(c)] and [98(b)] of the Judgment solely refers to the Company Charge (and associated rights) under the Deed of Fixed and Floating Charge dated 23 November 2011;[2] and
(b) an associated request to find that Gulf Country Investments Pty Ltd (Gulf Country) assigned the ‘equitable charge’ which had been created under the Loan Agreement to Down Town, by the assignment dated 21 March 2013 between Gulf Country and Down Town.
[2]CB1170-CB1238.
In respect of the second above issue, Down Town note that the question of the creation and assignment to Down Town of an ‘equitable charge’ in the above way, did not arise for consideration in separate proceedings before Efthim AsJ and Judd J. The proceeding before those judges concerned the company charge (the Company Charge) created by the Deed of Fixed and Floating Charge dated 23 November 2011.
Down Town also submits that on the first day of trial, Senior Counsel for Down Town submitted:[3]
Your Honour has seen the outline we filed in relation to this matter and you will see that the way we put the case is that the loan agreement itself contained an equitable charge securing to us repayment of the amount that was outstanding. I don't understand there to be any issue taken with that proposition by anyone.
[3]See un-paginated transcript of hearing on 9 April 2018, p 83.
Down Town add that the above proposition was not contradicted at trial.[4] This position is not, however, accepted by the Receivers and Managers of Native Bond. Nor do the Receivers and Managers of Native Bond accept that their Counsel made the concession referred to by Down Town.
[4]The outline of submissions filed on behalf of the Receivers and Managers of Native Bond (the Receivers), who had been appointed under the Company Charge, were concerned with that particular Charge and did not deal with the broader issue: see [27] thereof [CB35]. Subject to the general objection to construction, Down Town’s argument was not challenged by Counsel for the Receivers, and indeed was probably conceded before the trial judge at T136.29 of the hearing on 10 April 2018.
Down Town submit that, in light of the above, the Court should clarify that the findings in the judgment at [12] and [98] are limited to a finding that the Company Charge was not assigned to Down Town, in conformity with the determination of that issue by Efthim AsJ and Judd J.
The First Request
Native Bond Pty Ltd (Native Bond) and N Sevdalis Pty Ltd (Sevdalis Co) granted a Company Charge to Gulf Country pursuant to the Deed of Fixed and Floating Charge dated 23 November 2011.
In Native Bond v Cant,[5] the applicant challenged the appointment of a receiver on the basis that, inter alia, the ‘charge’ arising under the Deed of Fixed and Floating Charge dated 23 November 2011 had been assigned to a third party (i.e. Down Town). Efthim AsJ rejected this submission and found that the right to appoint a receiver under this Deed had not been assigned to Down Town.[6] This finding was upheld on appeal to Judd J in Native Bond Pty Ltd (Controller Appointed) v Cant.[7]
[5][2015] VSC 203.
[6]Ibid [22].
[7][2016] VSC 206 [32].
Question 7 of the Agreed List of Issues states:
If Down Town Visuals had a valid charge, has that charge been released by reason of the withdrawals of caveats produced and dated 12 July 2016, which have been provided to its solicitor?
At the trial leading to the judgment, Down Town did not rely on the Company Charge. It accepted the decisions of Judd J and Efthim AsJ. For this and other reasons, I made the following findings in relation to Question 7:
[12(c)]Question 7 does not arise because Down Town does not have a charge. In Native Bond Pty Ltd (controller apptd) v Cant, Efthim AsJ found that the Deed of Assignment did not effect a transfer of Gulf Country’s charge to Down Town. This finding was upheld on appeal to Judd J.
[98(b)]Question 7 does not arise because, pursuant to the decision of Efthim AsJ, upheld by Judd J, Down Town does not have a relevant charge.
No active party argued inconsistently with the above conclusion.
Conclusion – the First Request
Accordingly, in response to the first request from Down Town, I clarify that paragraphs [12(c)] and [98(b)] of the Judgment refer only to the Company Charge (and associated rights) under the Deed of Fixed and Floating Charge dated 23 November 2011.[8]
[8]CB1170-CB1238.
The Second Request
By its submissions dated 17 August 2018, Down Town seeks a finding that Gulf Country acquired an ‘equitable charge’ under the Loan Agreement itself, which thereafter was assigned to Down Town.
Down Town claims such a finding was in effect originally sought, but not decided at the trial of the List of Agreed Issues. The Down Town Submissions highlighted the following statement made by its Senior Counsel:
Your Honour has seen the outline we filed in relation to this matter and you will see that the way we put the case is that the loan agreement itself contained an equitable charge securing to us repayment of the amount that was outstanding. I don't understand there to be any issue taken with that proposition by anyone.[9]
[9]T92.5–13
In this regard, I also observe that Down Town filed the following written submission before trial:
By virtue of the assignment to it of the loan agreement, Down Town had an equitable charge over the Property…[10]
[10]Down Town Submissions, 9 March 2018, [29]
Down Town claims that the existence of an equitable charge arising from the Loan Agreement itself was not challenged by any other party at the trial in early April 2018. Indeed, Down Town submits that Counsel for the Receivers of Native Bond may actually have ‘conceded’ the existence of such a charge in oral submissions:
It might be said that there's an argument that the loan agreement has sufficient equitable interests…[11]
[11]T136.28–30.
By email dated 24 August 2018 [2.52pm], the Receivers and Managers of Native Bond conveyed they do not accept Footnote [2] of Down Town’s Submissions of 17 August 2018 represents a fair summary of their Counsel’s submissions. The Receivers and Managers of Native Bond do not accept that their Counsel made any concession on Down Town’s position in relation to the asserted charge.[12]
[12]Native Bond’s concerns were not taken further in its Submissions of 6 September 2018 or otherwise. It was however suggested by the current lawyers that Gulf Country’s solicitors should be provided an opportunity to be heard on the issue. To this end, on 29 August 2018, Gulf Country’s solicitors wrote to the Court requesting a directions hearing to give effect to a timetable for an exchange of submissions between persons affected by recognition of an equitable charge. In due course Gulf Country filed submissions dated 3 September 2018.
In the circumstances, I am satisfied that the assigned Loan Agreement gave rise to a separate equitable charge held by Down Town. This is because the Loan Agreement:
(a) had been entered into by the lender, Gulf Country, with Sevdalis personally and also with two of his companies;
(b) by cl 4(f), identified relevant properties at Yan Yean Road, Doreen, in Victoria over which Sevdalis was personally the registered proprietor, and empowered the lender to lodge caveats over those properties;[13]
(c) by cl 5, contemplated a separate Company Charge being executed by the borrower companies ‘[t]o further secure’ the relevant advance; and
(d) by cl 7, referred to the properties set out in cl 4 thereof as ‘secured properties’. The Loan Agreement also provided for the lender’s rights of foreclosure in respect of the subject properties in the event of default. These terms of the Loan Agreement extended to all properties, including those owned by the companies and also those owned by Sevdalis personally.
[13][2018] VSC 427, [5].
In King Investment Solutions Pty Ltd v Hussain,[14] Campbell J observed:
It is not necessary that any particular words of charge be used to create an equitable charge by an instrument – it is sufficient if the court can fairly gather from the instrument an intention by the parties that the property therein referred to would constitute a security: Cradock v The Scottish Provident Institution (1893) 69 LT 380 at 382 per Romer J.[15]
[14][2005] NSWSC 1076.
[15]Ibid at [50].
In my view, the above terms of the Loan Agreement were sufficiently clear to create a charge over the relevant subject properties.
These separate security rights which arose under the Loan Agreement were assigned to Down Town by cl 2(b) of the Deed of Assignment dated 21 March 2013 between Gulf Country and Down Town.[16]
[16][2018] VSC 427, [95].
Further, neither the Receivers and Managers of Native Bond, nor any other active party in the proceedings, argued against Down Town’s above case in support of the equitable charge it seeks to have judicially confirmed.
Conclusion – The Second Request
The abovementioned equitable charge created by the said Loan Agreement was assigned to Down Town pursuant to the said Deed of Assignment between Gulf Country and Down Town.
Gulf Country Application
By its submissions filed and served on 3 September 2018, Gulf Country claims an interest in the Settlement Proceeds and seeks leave to intervene and be heard as to this interest.
Submissions - Gulf Country
Gulf Country’s submissions outline the earlier explained position that on 21 March 2013 Gulf Country and Down Town entered into a Deed of Assignment of Debt dated 23 November 2011 pursuant to which Gulf lent $1,221,518.10 to Native Bond and others. Pursuant to this assignment, Gulf Country recognises that Down Town received rights to the said debt and an equitable charge arising from the Loan Agreement. Gulf Country makes the point, however, that Down Town did not receive rights to the independent security interests arising under the Company Charge dated 23 November 2011.[17] Those rights under the Company Charge were retained by Gulf Country.
[17]CB1170-CB1238.
The significance of a security interest, in a situation like this, where the right to the underlying debt has been assigned, was considered by Judd J in Native Bond Pty Ltd (Controller Appointed) v Cant:[18]
If, as I have found, Gulf was entitled to exercise the power to appoint receivers under the charge, the range of management services contracted by Gulf were apt to include that function. Services included the ‘enforcement of any security’. Gulf had invested money. While its rights to the debt had been assigned, it retained a residual right to collect the debt by the exercise of the security rights, but only as trustee. Any amount recovered by Gulf under the charge would be held on behalf of Downtown, subject to any entitlement Gulf may have to some part of the interest.[19]
[18][2016] VSC 206.
[19]Ibid [37].
Following assignment of the debt, Gulf Country could therefore only enforce its security in respect of the debt as trustee for Down Town. However, upon enforcing its security as trustee, Gulf Country asserts that it has an attendant right of indemnity, secured by an equitable lien or charge over the proceeds of sale of the Yan Yean property.
Gulf Country relies on this right to indemnity and corresponding interest in the trust property to support its claim to part of the Settlement Proceeds.
Gulf Country has enforced its security interest through the appointment of the Receivers and Managers to Native Bond. In so doing, Gulf Country entered into a Deed of Indemnity with the Receivers. The extant situation is that Gulf Country estimates that it is liable for approximately $200,000 in relation to remuneration and expenses incurred by the Receivers and Managers of Native Bond.[20]
[20]Gulf Country foreshadows that it intends to file evidence substantiating the quantum of the Receivers and Managers’ expenses: Gulf Country’s Submissions, 3 September 2018, [11].
Gulf Country claims that its right of indemnity and related equitable charge have priority over Down Town’s interest. Gulf Country also asserts that if this is not so, Gulf Country would at all events be entitled to share in the Settlement Proceeds, subject to any other prior entitlement claims, pari passu with Down Town’s interest.
Responsive Submissions – Receivers and Managers of Native Bond
By its responsive submissions dated 6 September 2018, the Receivers and Managers of Native Bond accept that Gulf Country is entitled to advance arguments about its own entitlements (if any) arising under these instruments; and support Gulf Country’s application to be joined to the proceeding.
Accordingly, the Receivers and Managers of Native Bond do not oppose the leave sought by Gulf Country to intervene and be heard by joinder or otherwise, submitting, amongst other things, that Gulf Country is a necessary party.
Reply Submissions – Down Town
By its reply submissions dated 6 September 2018, Down Town contest as premature and hypothetical Gulf Country’s submissions claiming a trustee’s indemnity and point out that the foreshadowed claim to the Settlement Proceeds to meet Gulf Country’s liabilities to the Receivers is currently unnecessary, and indeed, may never be necessary.
This, Down Town argues, is principally because:
(a) the outstanding claim by the Receivers and Managers to recover costs and expenses is not opposed by Down Town;
(b) Gulf Country’s right to exoneration is engaged only in the event that the Receivers and Managers call upon Gulf Country to honour its indemnity for expenses;
(c) Gulf Country is unlikely to be required to indemnify the Receivers and Managers given there will probably be sufficient funds remaining from the Settlement Proceeds, for the payment of Down Town and the Receivers in full;
(d) a claim for indemnity from Gulf Country will arise only if the amount of their entitlement as determined by the Court, is not paid to the Receivers and Managers;
(e) the above matters in (b) to (d) are contingent and the relief which is foreshadowed by Gulf Country is presently hypothetical and may well never be necessary.
Down Town also points out that questions of priority have been deferred for later consideration if necessary.[21]
[21][2018] VSC 427, [98(c)].
Down Town also submits that, at the end of the day, the monetary difference between a first call by the Receivers and Managers on the proceeds of sale and a claim by the Receivers and Managers treated pari passu with Down Town’s claim would probably be very small.
Down Town submits that, at all events, were it to become necessary to deal with a priority of entitlements question, as between Gulf Country and it in relation to the settlement proceeds, that issue could be, and should be, because of its presently contingent nature, dealt with at a later time when Gulf Country’s interest may be real rather than contingent and theoretical.
In addition, Down Town notes that where the proposed joinder may embarrass or delay the trial of these proceeding, cause prejudice to a party or be otherwise inconvenient, the Court’s power incudes the balance of discretionary considerations pursuant to r 9.02 and r 9.04 of the Supreme Court (General Civil Procedure) Rules 2015.
Here, Down Town submits that Gulf Country should not be joined to the proceedings for the following principal reasons, namely that:
(a) Gulf Country earlier decided not to participate in the trial despite being fully appraised of the Agreed Issues;
(b) Gulf Country’s proposed contentions are concerned only with the claim for priority for the remuneration and expenses of the Receivers and Managers, which is an interest in respect of which the Receivers and Managers, who participating at trial, are capable of representing in their own rights; and
(c) any residual interest of Gulf Country is presently contingent, remote, unlikely to arise, and can be held over for later determination, if necessary.
No applications or submissions were received subsequent to those of Down Town and Gulf Country of 6 September 2018.[22]
[22]Gulf Country, by its lawyers email of 3 September 2018 [4.48pm], foreshadowed the issue of a Summons. However no Summons was issued and Gulf Country’s Submissions of 3 September 2018 stood as Gulf’s position.
Decision on Joinder of Gulf Country
Even if leave to intervene and be heard was granted, I consider that the potential relief sought by Gulf Country is premature, contingent and presently hypothetical. I note, however, that Gulf Country’s submissions have nevertheless been taken into account in this judgment.
In my view, at this juncture, the leave sought by Gulf Country should not be granted because it will serve no sensible purpose and may well result in delay and inconvenience in concluding the present stage of these proceedings. One reason for this is because Gulf Country foreshadows its desire to put on detailed evidence related to the remuneration and expenses incurred by the Receivers and Managers. This may well provoke another round of responses from Down Town, and perhaps other parties, even though there may never ultimately be a claim for orders in relation to such remuneration and expenses.
Principally however, I refuse the leave presently sought by Gulf Country because the matters it raises, and the relief to which it alludes, are contingent and hypothetical at present, and may never require final adjudication or need to be the subject of orders, including interlocutory orders, for the reasons I have already mentioned.
There will however be liberty for Gulf Country, if necessary, to renew any appropriate application if and when its position becomes a concrete one and it is able to seek appropriate orders which would have immediate effect.
Panorama’s Proposed Order
By email dated 3 September 2018, solicitors for Panorama put forward short Minute of Orders in essence dealing with certain interest entitlements and a proposed process for the determination of certain of Panorama’s cost entitlements.
Both Down Town and the Receivers and Managers of Native Bond object to the making of such orders at this point. On their view, there are still certain matters to be determined in respect of the Judgment before the orders sought by Panorama can be conveniently addressed.
In the circumstances, I agree. I consider that it would be premature to make the orders sought in Panorama’s short Minute of Orders. In my view, these matters should await at least any further related submission, subsequent to this judgment being published.
Conclusion
In summary, for the above reasons :
(a) I clarify that the reference to ‘charge’ in paragraphs [12(c)] and [98(b)] of the Judgment is a reference only to the Company Charge (and associated rights) under the Deed of Fixed and Floating Charge dated 23 November 2011.
(b) I find that the said Loan Agreement itself created an ‘equitable charge’ over the relevant secured properties in favour of Gulf Country which equitable interest has now been assigned to Down Town.
(c) Gulf Country should not currently have leave to be joined to the Down Town Proceeding and the First Mortgage Proceedings.
(d) The orders sought by Panorama in its Minute of Orders dated 3 September 2018 will not be made at this stage.
SCHEDULE OF PARTIES TO THE DOWN TOWN PROCEEDING - S CI 2017 3990
BETWEEN
| DOWN TOWN VISUALS PTY LTD (ACN 082 850 842) | Plaintiff |
| - and - | |
| PANORAMA INVESTMENTS PTY LTD (ACN 148 905 864) | Defendant |
SCHEDULE OF PARTIES TO THE POSSESSION PROCEEDING - S CI 2017 3283
BETWEEN
| PANORAMA INVESTMENTS PTY LTD (ACN 148 905 864) | Plaintiff |
| - and - | |
| NICK MELLOS AND STEPHEN ROBERT DIXON (AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF DR NICHOLAS WILLIAM SEVDALIS (A BANKRUPT)) | First Defendant |
| NATIVE BOND PTY LTD (IN LIQUIDATION) (ACN 006 589 055) | Second Defendant |
| | |
| N.B. SERVICES (AUST) PTY LTD (ACN 070 024 985) (RECEIVER APPOINTED) | Fourth Defendant |
| CHAMPION INVESTMENT GROUP PTY LTD (ACN 607 958 592) | Fifth Defendant |
SCHEDULE OF PARTIES TO THE FIRST MORTGAGE PROCEEDING - S CI 2017 4334
BETWEEN
| PANORAMA INVESTMENTS PTY LTD (ACN 148 905 864) | Plaintiff |
| - and - | |
| N.B. SERVICES (AUST) PTY LTD (ACN 070 024 985) | First Defendant |
| NICK MELLOS AND STEPHEN ROBERT DIXON (AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF DR NICHOLAS WILLIAM SEVDALIS (A BANKRUPT)) | Second Defendant |
| NATIVE BOND PTY LTD (IN LIQUIDATION) (ACN 006 589 055) | Third Defendant |
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