G.C.E Global Consulting Engineers Pty Ltd v Moshav Custodian Pty Ltd
[2019] VSC 402
•24 June 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2019 02031
| G.C.E. GLOBAL CONSULTING ENGINEERS PTY LTD (ACN 106 139 306) and others according to the schedule | Plaintiffs |
| v | |
| MOSHAV CUSTODIAN PTY LTD (ACN 622 162 994) | Defendant |
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JUDGE: | Lyons J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 May 2019 |
DATE OF RULING: | 24 June 2019 |
CASE MAY BE CITED AS: | G.C.E. Global Consulting Engineers Pty Ltd v Moshav Custodian Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2019] VSC 402 |
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PRACTICE AND PROCEDURE – Interlocutory injunction – Application to restrain mortgagee from exercising power of sale – Application refused
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Dr M Wolff | Mulcahy & Co Legal |
| For the Defendant | Mr P Fary | Piper Alderman |
HIS HONOUR:
Introduction
The first plaintiff (‘GCE’) is a company of which the second plaintiff, Bernhard Waschl, is a director. Mr Waschl is the husband of the third plaintiff, Jane Lindsay.
Pursuant to a loan and related agreements executed on 8 May 2018 between the plaintiffs and the defendant (‘MC’), MC advanced $1,470,000 to GCE on 9 July 2018. The loan was repayable on 9 April 2019. Interest was payable at either a lower rate of 12% or a higher rate of 16% but was prepaid from the loan funds advanced. The loan was not repaid on the due date. MC sent a letter of demand on 10 April 2019. As at 9 May 2019, the amount owing was $1,523,900.
The agreements executed on 8 May 2018 were:
(1) a loan agreement between GCE and MC (the ‘Loan Agreement’);
(2) a general security agreement between GCE and MC (the ‘GSA’);
(3)a mortgage executed by Mr Waschl and Ms Lindsay in favour of MC over their respective properties at 243 Old Eltham Road, Lower Plenty (the family home of Mr Waschl and Ms Lindsay) and 4 Dobson Road, Montmorency, an untenanted investment property (together, the ‘Properties’ and the ‘Mortgages’); and
(4)a personal guarantee executed by Mr Waschl and Ms Lindsay in favour of MC in support of the loan (the ‘Guarantee’).
In this application, the plaintiffs seek orders restraining MC from enforcing the security granted pursuant to the Loan Agreement, the Mortgages and the Guarantee, including seeking to take possession of the Lower Plenty property, now valued at approximately $1.3 million, or the Montmorency property, now valued at approximately $900,000.
This is in circumstances where MC appointed a receiver over the properties pursuant to the provisions of the Mortgages and/or the GSA on 7 May 2019. The receiver took possession of the Montmorency property on 9 May 2019. Pending the hearing and determination of this application, MC and the receivers have undertaken not to take any further steps to enforce the security or sell the properties.
When this matter was first before me on 9 May 2019, I was unsure of the causes of action in fact alleged against MC. I ordered that the plaintiffs file a statement of claim by 14 May 2019. The plaintiffs sought to file a statement of claim that made claims against persons who were not parties to the proceeding. It was rejected by the Commercial Court registry.
At the hearing of this application on 20 May 2019, the plaintiffs sought leave to file an amended originating motion joining the additional defendants (including members of MC’s corporate group, the ‘Moshav Group’) to the proceeding and the statement of claim alleging claims against them (the ‘proposed SOC’).
MC opposed such leave being granted on the basis that the proposed SOC did not disclose, or at least properly plead, the causes of action alleged against the other members of the Moshav Group sought to be joined to the proceeding. I declined to grant leave to the plaintiffs to file the proposed SOC and join the proposed additional parties during the hearing of their application for an interlocutory injunction. However, as I indicated during oral argument at that time, I would determine the application for an interlocutory injunction on the basis that I would consider whether the claims made in the proposed SOC were arguable claims.
There are two substantive bases for the plaintiffs’ application. First, the plaintiffs submit that they have arguable claims against MC and the other proposed defendants in the proposed SOC. In summary, this is because of the alleged conduct engaged in, and representations made, by a Mr Oliver Roths. Those representations related to:
(1) Mr Roths’ identity, experience and role;
(2)the sum of $185,000 to be received by GCE as clear funds as part of the loan advanced by MC to renovate and develop the properties (the ‘clear funds’); and
(3)the payment of director’s fees and expenses to be paid to Mr Waschl as part of a joint venture (the ‘director’s fees’).
The plaintiffs allege that the relevant representations were made by Mr Roths on behalf of MC and/or other members of the Moshav Group and a company called AXL Financial Pty Ltd (‘AXL’). That appears to be the central issue in this proceeding as against MC and other members of the Moshav Group. There were two bases asserted for such liability: that Mr Roths was a director of the Moshav Group and that Mr Roths was the agent of the Moshav Group. However, counsel for the plaintiffs stated in oral argument that he did not rely upon agency for the purpose of this application.
The plaintiffs also claim that it was a term of the Loan Agreement that MC and other members of the Moshav Group agreed that they would advance the clear funds at settlement or that there was a representation to that effect.
Second, the plaintiffs in both written submissions and oral argument relied on the fact that:
(1)in breach of the law, MC failed to become a member of the Australian Financial Complaints Authority (‘AFCA’);
(2)if it had become an AFCA member, they would have been able to make a complaint against it under the AFCA Complaint Resolution Scheme Rules (the ‘AFCA Rules’) in relation to the subject matter of this proceeding; and
(3)in that event, MC would be prevented under r A.7.1(b) of the AFCA Rules from taking action to pursue debt recovery legal proceedings until that complaint had been determined.
This assertion was not pleaded in the proposed SOC. However, it became a separate basis for the plaintiffs to seek interlocutory relief. This is in circumstances where the plaintiffs have submitted a complaint to AFCA against other members of the Moshav Group in relation to the subject matter of this proceeding, namely Gallipoli Street PT 2008 Pty Ltd (‘Gallipoli’) and ‘Moshav Financial’,[1] both of whom are AFCA members. The ‘Gallipoli complaint’ was dismissed on 10 May 2019; the ‘Moshav Financial’ complaint is yet to be determined. The plaintiffs submit that MC ought not be permitted to take enforcement action until that complaint is resolved.
[1]The plaintiffs informed the Court that this was the name registered with AFCA and the precise corporate entity or entities intended to be registered is unknown.
Finally, the plaintiffs submit that the balance of convenience favours the granting of an injunction in circumstances where the plaintiffs are prepared to pay the sum of approximately $710,000 to MC and to pay into Court the difference between that sum and the amount currently outstanding to MC.
MC opposes this application for three principal reasons. First, it submits that the plaintiffs do not have arguable claim against MC or any member of the Moshav Group. This is because there no arguable case that Mr Roth was a shadow or de facto director of, or acted on behalf of any member of the Moshav Group. Second, it submits there is no arguable basis to conclude that MC should have been a member of AFCA or that it is appropriate to prevent it from exercising its rights as if it were. Third, it submits that the balance of convenience does not favour the plaintiffs when they have not paid into court the full mortgage amount. In any event, the plaintiffs are not offering to pay the full mortgage debt but only part thereof with a payment into court. MC submits the plaintiff can only make these payments through the proposed refinance which requires the Properties being made available as security: MC will not agree to a discharge of the Mortgages until the full mortgage debt is repaid.
For the reasons that follow, I have concluded that:
(1)the plaintiffs have not established that there is an arguable claim that, in breach of the law, MC failed to become a member of AFCA and should be bound by the AFCA Rules;
(2)the plaintiffs have not established that there is an arguable claim that Mr Roths was a director of any member of the Moshav Group in relation to Mr Roths’ conduct for which they are alleged to be liable in the proposed SOC; and
(3)as a result, it is neither necessary nor appropriate to consider whether the balance of convenience favours the granting of an injunction in respect of these claims.
Further, I have concluded that the plaintiffs have established that that there is an arguable claim for damages based on MC’s failure to provide the clear funds or part thereof of at settlement. However, on the evidence currently before me, that claim is weak and the balance of convenience does not favour the granting of an injunction restraining MC from exercising its powers under the Mortgages.
The law
The principles relevant to the granting of an interlocutory injunction are clear. Organising principles have been developed. In summary, the applicant needs to establish that they have a prima facie case for relief and that the balance of convenience favours the granting of an injunction.[2] The Court will consider either separately or as part of the consideration of the balance of convenience whether the applicant is likely to suffer injury for which damages will not be adequate compensation.[3] In considering how strong the applicant’s prima facie case needs to be, the Court will take into account ‘[t]he nature of the rights [the applicant] asserts and the practical consequences likely to flow from the order he seeks’.[4]
[2]Australian Broadcasting Corporation v O’Neil (2016) 227 CLR 57.
[3]Ibid 68, 82.
[4]Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, 622.
The purpose of an interlocutory injunction is to maintain the status quo pending the determination of the parties’ rights at trial. As the Court of Appeal noted in Bradto Pty Ltd v State of Victoria:[5]
In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ”wrong”, in the sense of granting an injunction to a party who fails to establish his right at the trial, or failing to grant an injunction to the party who succeeds at trial.
[5](2006) 15 VR 65, 73 [35].
The organising principles are not entirely separate and must be examined together. Further, if a case seems particularly strong, this may affect the balance of convenience.[6]
[6]Optus Networks Pty Ltd v City of Booroondara [1997] 2 VR 318; K-Mart Australia Ltd v Stud Park Investments Pty Ltd (Unreported, Supreme Court of Victoria Appeal Division, Ormiston McDonald and Hansen JJ, 14 October 1994) [15]-[16].
In addition, when an applicant is seeking to restrain the exercise of a mortgagee’s power of sale, there is a ‘general rule’[7] that the mortgagor should tender to the mortgagee the full amount claimed as a condition of the injunction.
[7]Based upon Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 (‘Inglis’).
The nature and application of the ‘general rule’ is not altogether clear. I considered these matters in my judgement in El-Saafin v Franek.[8]I concluded that:
(1)there are a number of exceptions to the ‘general rule’ including where there is doubt as to whether the power of sale has arisen or where the amount claimed is obviously or plainly wrong or excessive;[9]
(2)a court may decline to apply the ‘general rule’ if the interests of justice dictate so;[10] and
(3)where the mortgage debt is not disputed, a claim for unliquidated damages might be relevant to the amount that is required to be brought into court or the matters to be taken into account in weighing the balance of convenience.[11]
[8][2018] VSC 450.
[9]Ibid [60].
[10]Ibid [64].
[11]Ibid [60]-[62].
The facts
The Moshav Group
Before considering the legal issues which arise for determination in this application, it is appropriate to set out a summary of the facts leading up to this proceeding.
MC is a company within the Moshav Group. The Moshav Group is in the business of lending monies in the regulated and non-regulated sector. For present purposes, the Moshav Group consists of:
(1)Moshav Financial Wholesale Pty Ltd (‘MFW’), which holds an Australian Financial Services Licence under the Corporations Act 2001 (Cth) and acts as the funds manager within the group. It also raises funds from investors for the group to lend to borrowers;
(2)Moshav Financial Pty Ltd (‘MF’), which predominantly acts as a broker within the regulated and non-regulated credit sector and sources lending opportunities;
(3)Gallipoli, which holds an Australian Credit Licence under the National Consumer Credit Protection Act 2009 (Cth) (‘NCCPA’) for the purpose of the Moshav Group’s lending activity within the consumer credit ‘space’; and
(4)MC, which is described as the ‘custodian for the loans’ of the Moshav Group. I was informed in argument this meant the lender of funds.[12]
[12]In the proposed SOC, the plaintiffs allege claims against MF and MFW.
Relationship between Moshav Group and AXL
On 5 August 2015, MFW appointed AXL to act as the authorised representative of MFW to assist MFW to raise investor funds. That appointment ceased on 9 April 2019.
In addition, from time to time during that period, AXL referred potential borrowers to the Moshav Group. Mr Tal Silberman, a director of each of MC, MF, MFW and Gallipoli, deposed in an affidavit sworn on 16 May 2019 that:
(1)these referrals were not part of AXL’s formal authorised representative role; and
(2)in those cases, AXL would act as the broker, or agent for the borrower, and receive a commission for the introduction.
This was confirmed by Mr Alexander Harmstorf, the sole director of AXL from 20 January 2017, in his affidavit sworn 16 May 2019.
Both Mr Silberman and Mr Harmstorf deposed that, other than these arrangements, the Moshav Group and AXL are separately controlled and are not related or associated entities.
Mr Roths
From at least 2016, Mr Oliver Roths was the Group Risk Assessment Officer, AXL.[13] As noted above, AXL was the authorised representative of MFW to assist MFW to raise investor funds from August 2015. The circumstances of his appointment are not known. It seems that the Moshav Group was aware of his appointment at the latest by February 2018 - and very likely before that time.
[13]In the proposed SOC, the plaintiffs also allege claims against Roths and AXL.
Mr Waschl deposed that, unknown to him at the relevant times:
(1) Mr Roths’ real name was Oliver Banovec;
(2)Mr Roths was found guilty of five fraud charges and one perjury charge on 23 November 2009;
(3)Mr Roths subsequently pleaded guilty to a second charge of perjury and one charge of destroying documents relating to an ASIC investigation. Those charges related to loans which he failed to on-lend to investors;
(4)on 10 April 2010, Mr Roths was sentenced to 7 years’ jail with a non-parole period of 4 years and 9 months He was disqualified from managing a corporation for 5 years after his release on 1 September 2014; and
(5)since at least 2016, Mr Roths was the Group Risk Assessment Officer of AXL, an Authorised Representative of MFW.
As set out above, Mr Silberman deposed that he has known Mr Roths since about 2003. He also deposed that Mr Roths:
(1)is not and has never been a director, employee or representative of any member of the Moshav Group;
(2)has never had authority to make payments on behalf of the Moshav Group or to make or implement rules on behalf of it; and
(3)has never all exercised control over the Moshav Group or been authorised to make representations on its behalf.
However, he did not depose as to whether he knew of Mr Roths’ criminal convictions or his disqualification from managing a corporation.
GCE’s involvement with Mr Roth
GCE conducts a structural engineering business that uses cross laminated timber (‘CLT’) for structural support. CLT is somewhat unusual in Australia and Mr Waschl of GCE has particular experience and expertise with CLT.
In April 2016, Mr Waschl was introduced to Mr Roths. Mr Roths expressed an interest in using CLT in his house. In subsequent email exchanges between them, Mr Roths signed off ‘Oliver Roths, Group Chief Risk Assessment Officer, AXL Financial Pty Ltd (AXL Group Holdings), Authorised AFS Representative of Moshav Financial Wholesale Pty Ltd AF SL 439903’.
In the course of discussions, Mr Waschl raised his need to refinance in the context that Mr Waschl and Ms Lindsay wanted to renovate their house. At that time, Mr Waschl and Ms Lindsay had loans from Westpac and BankWest. In one of these discussions, Mr Roths offered to lend Mr Waschl $100,000 by lunchtime that day. The payment was in fact made (the ‘Roths advance’). It is not clear who Mr Waschl understood made the Roths advance or the terms upon which it was to be repaid. However Mr Waschl deposed that at about this time he thought that, based on Mr Roth’s email sign-offs, Mr Roths was ‘the rep for Moshav’.[14]
[14][16] of his 9 May 2019 affidavit.
It was during the meeting when Roths advance was offered that Mr Roths first raised the idea that he and Mr Waschl should go into business relating to CLT. As part of the discussions, Mr Roths offered Mr Waschl a director’s fee of $10,000 per month and an expense fee of $10,000 per month. This was later increased to $12,500 per month.
In the course of these discussions, Mr Roths informed Mr Waschl that:
(1) he was a successful man who had worked for some time in New York;
(2)he had a good understanding of finance and business and was involved with obtaining visas for wealthy Chinese and Jewish immigrants;
(3) he was in the business of investing money in business ventures; and
(4) he was an experienced builder and real estate developer.
It is alleged that none of this was true. Further, Mr Roths did not inform Mr Waschl of his criminal convictions as set out above.
Mr Waschl says that, based on these statements, he decided to go into business with Mr Roths. In particular, Mr Waschl deposed that he relied on the promise of a director’s fee in entering into the joint venture with Mr Roths and in working for the joint venture after that time.[15]
[15][19] of his 9 May 2019 affidavit.
The joint venture took effect from about July 2017 through a vehicle called Holz DC Pty Ltd (‘Holz’) of which Mr Waschl became a director. The proposed SOC alleges that Mr Roths was also acting in some way on behalf of the Moshav Group.[16] No formal documentation relating to the joint venture or the parties to it is in evidence. There is no evidence before me that the Moshav Group was involved in the joint venture. To the contrary, from correspondence in evidence, it appears Holz was owned by Mr Waschl and AXL in equal shares.
[16]See the particulars to [29] which provides that Holz was incorporated for the purpose of allowing the ‘AXL Group’ (defined to include MC, MF and MFW) to compete in the CLT building market and that the AXL Group held 50% of the shares Holz.
Mr Roths also suggested that Mr Waschl should consolidate his loans via a new ‘Moshav loan’ to GCE. Mr Roths said the new loan would repay existing loans (including the Roths advance) and would pay for the house renovations. Mr Roths said that after 9 months the renovations could be finished and the house could be re-valued for the purposes of obtaining a loan from a third party lender. Further, receiving regular director’s fees and payment history, would assist Mr Waschl to obtain finance from a third party lender.
Mr Waschl deposed that he does not know if it was ever expressly discussed but he ‘always assumed that the loan would be given from ‘Moshav’ … because [Mr Waschl] understood [Mr Roths] represented and made decisions on behalf of Moshav’.[17]
[17][22] of his 9 May 2109 affidavit.
In late 2017 and early 2018, the Waschl’s financial situation was getting worse. Director’s fees and expenses were not being paid.[18] As a result, Mr Roths told Mr Waschl that the he was going to instruct the mortgage team that same afternoon ‘to get things moving for us’.
[18]Indeed, Mr Waschl deposed that he only received $85,000 in director’s fees and missed out on payments of $340,000 from July 2017 until April 2019.
Mr Waschl deposed that he thought that borrowing money from Moshav through Mr Roths was part of the price of doing business with his other companies such as a AXL.[19] Mr Waschl deposed this is because AXL and Moshav were part of the ‘AXL Group Holdings’ listed together in the reception area of AXL’s offices, on its LinkedIn profile and the AXL website.[20]
[19][34] of his 9 May 2019 affidavit.
[20][34] of his 9 May 2019 affidavit.
While that may be the case, at present, I am unsure how any connection Mr Waschl perceived between Mr Roths, AXL and the Moshav Group led to his belief that borrowing money from the Moshav Group was the price of doing business with Mr Roths, AXL or the Moshav Group.
The February offer
On 20 February 2018, Mr Roth sent an email to Mr Waschl enclosing the February offer. The February offer was on the ‘Moshav Financial’ letterhead. The letter commenced ‘Moshav Private Funding and/or its relevant subsidiary or nominated representative (‘Lender’) are pleased to present you with the indicative terms and conditions of a loan facility detailed in this letter’. It was signed ‘Moshav Private Funding’. It provided an offer to lend $1,470,000. The summary of terms recorded that:
(1) MFW or an associated entity would be the lender;
(2)security would be a first ranking mortgage over the Properties, an unlimited guarantee and indemnity by Mr Waschl and Ms Lindsay and a general security agreement to be registered on the Personal Property Securities Register;
(3) the loan was for business purposes only; and
(4)the mortgagors would be obliged to sign a National Consumer Credit Code declaration prior to entering into the mortgage.
It also records that the following amounts would be deducted at settlement:
(1) an application fee to Moshav Financial of $32,340;
(2) 9 months’ interest in advance of $132,300;
(3) repayment of the Westpac loan of $645,000;
(4) repayment of the BankWest loan of $365,000;
(5) repayment of the ‘AXL Financial’ loan of $110,000.
Mr Waschl said payment to ‘AXL Financial’ represented repayment of the Roths advance. Further, the summary of terms stated that $185,360 would be the ‘[a]vailable funds at settlement’ (the ‘clear funds’).
Finally, the summary of terms recorded as follows:
Your Broker: AXL Financial is your broker. Your Broker is your agent. A Commission, for the introduction of this loan, will be paid to your broker following settlement.
The February offer was accepted but there were a series of delays in funds being advanced. In May 2018, there was communication between the lawyers for the Moshav Group and the plaintiffs in relation to the loan and security documents. The relevant agreements between the plaintiffs and MC (set out above) were executed on 8 May 2018. The solicitor for the plaintiffs provided that she had explained the general nature and effect of the documents required to be signed by them.
There were further delays in lending the funds, which did not occur until 9 July 2018. There is some uncertainty about the funds that were distributed at settlement and, in particular, whether the clear funds were made available. The final settlement statement recording what was in fact disbursed at settlement is not in evidence.
On 6 July 2018, the solicitors for MC sent a document entitled ‘Final Cheque Directions’ (the ‘FCD document’) to the solicitors for the plaintiffs. That document listed 12 payments to be made out of the settlement funds. This included the application fee of $32,340, the prepaid interest to MC of $132,300 and a valuation fee to MFW of $4,540. It also included a payout to:
(1) the Westpac Banking Corporation of $685,162; and
(2) the Bank of Western Australia Ltd of $364,840
The FCD document also included two payments to AXL, one described as a ‘Brokerage’ of $110,000 and one described as a ‘Payout Figure’ of $159,224.64. I will return to these sums further below. Significantly, because of the payouts listed in the FCD document, it recorded that, at settlement, GCE would be required to pay a ‘shortfall’ of $27,348.82 (the ‘shortfall’). As a result, the covering email requested advice as to whether the plaintiffs would deposit the shortfall into the trust account of MC’s solicitors. The solicitors for the plaintiffs replied that they would seek instructions. The evidence before me does not record any substantive response from the solicitors for the plaintiffs.
However, in his affidavit sworn 18 May 2009, Mr Waschl deposed that he queried the amount owed to AXL in the FCD document with Mr Roths. He deposed that, as a result, on or about 4 July 2018, Mr Roths said ‘he would fix it’ and later handed Mr Waschl another version of the FCD document in which the $110,000 brokerage fee to AXL was reduced to ‘$0.00’.[21] The copy of that document in evidence is in the form of a photograph. However it seems to be the first page of the FCD document, bearing the date of 6 July 2018. As a result, it appears that Mr Waschl was mistaken about the exact date of this conversation.
[21]Exhibit G to the 19 May 2019 Waschl affidavit.
In any event, if Mr Waschl’s version is correct and the brokerage fee of $110,000 was reduced to $0, there would have been no shortfall at settlement. Indeed, the effect would be that something in the order of $83,000 would have be available to Mr Waschl at settlement (being $110,00 less the shortfall). However, during the hearing, without objection from counsel for the plaintiffs, MC tendered an email from Mr Roths to Mr Waschl dated 22 August 2018. That email deals with a number of matters including the loan advanced by MC and the balance available at settlement. Attached to it was a Final Cheque Directions document dated 9 July 2018 which was not produced.
The email noted that when the loan was discharged ‘a number of things did not go to plan’. It then noted that at settlement AXL made available $28,000 for the discharge which was noted on two attachments entitled ‘GCE loan statement pre-discharge’ and ‘GCE loan statement post-discharge’.
These statements record:
(1)the drawdown of a loan of $100,000 on 17 March 2017 (this accords with the Roths advance);
(2)further drawdowns of $10,000 on each of 14 March 2018 and 5 June 2018 and $15,000 on 6 June 2018 (there is no evidence as to what these drawdowns relate to: they were not addressed in argument but it may be they relate to director’s fees and/or expenses);
(3)the closing balance with interest as at 9 July 2018 was $159,318.32 (this accords with the amount in the FCD document);
(4)a further drawdown of $27,817.80 on 9 July 2018 (this accords with the amount in the FCD document);
(5)two payments into the account on 10 July 2018, of $110,000 and $159,477.10 (these generally correspond with the amounts in the FCD document), with a resulting credit of $82,340;
(6) a drawdown of $40,000 on 16 July 2018; and
(7) a balance of $41,866.36 on 31 July 2018.
From these statements, it would appear that, at settlement, payments were made to AXL of $110,000 and $159,477.10 and there was a shortfall of $27,817.80 which was advanced by AXL. These figures accord with the FCD document sent to the solicitors for the plaintiffs on 6 July 2018. There is no evidence of Mr Waschl’s response to these matters.
Mr Waschl’s view of the relationship between Roths, AXL and Moshav
As noted above, Mr Waschl deposed that he always understood Mr Roths represented and made decisions on behalf of Moshav. Indeed, Mr Waschl deposed that he believed Mr Roths was a director of Moshav or Moshav Financial.
In his affidavit, Mr Waschl deposed that this was because Mr Roths offered a loan to Mr Waschl from Moshav and negotiated its terms and the loan amount with Mr Waschl.
I note in passing that this is in circumstances where:
(1)Mr Waschl had no direct dealings with Moshav: for example, the February offer was sent to Mr Roths and then on-sent to Mr Waschl;
(2)the February offer was from ‘Moshav Private Funding ‘, was branded ‘Moshav Financial’ and stated that the loan was to be made by MFW or associated entity; and
(3)Mr Waschl had received correspondence from Mr Roths with a sign off that AXL was an authorised AFS representative of MFW without any limit to the bounds of that authority.
Further, after the loan was negotiated, Mr Roths sent emails to Mr Waschl which indicated that Mr Roths was closely associated with Moshav. For example, in early June, the solicitors for Moshav wrote advising that new valuations were required. Mr Waschl raised this issue with Mr Roths. In his email dated 6 June 2018, Mr Roths replied that ‘[w]e have a three months [sic] limit where we can not rely on valuations past that date’.
By way of further example, in his email dated 9 October 2018, Mr Roth noted that he was unable to get ‘our own credit people’ to agree to extend the current first mortgage limit. That email noted that it was ‘regrettable that the rules I introduced some years ago are coming back to haunt me’. Both of these emails were drafted by Mr Roths. There is no evidence that the Moshav Group was aware of their terms. Further, the 9 October 2018 email was sent after the loan had been advanced to GCE on 9 July 2018.
However, there is some objective evidence that relates to the relationship between Moshav and AXL. For example, the LinkedIn page for AXL Group Holdings records that ‘Associated Corporations’ include ‘Moshav Financial Pty Ltd’, ‘Moshav Private Lending’ and the ‘Moshav Group’. In [25] of his affidavit, Mr Silverman deposed that he did not authorise the LinkedIn page and was not aware of it until this proceeding was issued.
In addition, the reception area of the office of AXL recorded that the ‘AXL Group Holdings’ included ‘Moshav Financial’. While Mr Silberman deposed that he did not authorise this sign, he did not depose that he was not aware of it.
Is there an arguable claim alleged in the proposed SOC?
It is difficult to discern from the proposed SOC the basis upon which the plaintiffs seek to claim against the Moshav Group. The relief sought is extensive including declarations that the Loan Agreement and security documents be set aside and that Mr Roths was a director of each of the AXL Group at all relevant times.
It is first alleged that Mr Roths was shadow or de facto director of each of AXL, the MC, MFW and MF within s 9(b) of the Corporations Act 2001 (Cth) (the ‘Corporations Act’). The particulars supporting this allegation against each company are substantially in the same form relying upon the definition of director in s 9(b)(i) of the Corporations Act. That section provides that a director includes a person who is not validly appointed as a director if that person acts in the position of a director or if the directors of the company are accustomed to act in accordance with that person’s instructions or wishes.
The plaintiffs allege that:
(1) Mr Roths has at all times acted in the position of director;
(2)the directors of the relevant company in the AXL group have at all times been accustomed to act in accordance with Mr Roths’ instructions or wishes;
(3)Mr Waschl has perceived Mr Roths to be a director of the relevant company in the AXL group; and
(4)Mr Roths has performed top-level management functions that would be expected of a director, including negotiating on behalf the relevant company in regard to important transactions and making high-level management decisions affecting that relevant company’s financial standing.
In my view, these are just assertions. While I accept for the purpose of this application that Mr Waschl believed Mr Roths to be a director of the relevant company in the AXL group, that is not a sufficient basis on which to conclude that he was a shadow or de facto director of the relevant company.
Further, these paragraphs of the proposed SOC do not contain material facts to support the allegations made. I accept the evidence before me is that:
(1) the February offer was arranged via Mr Roths;
(2)Mr Roths appeared to deal with the Moshav Group for the purpose of the loan; and
(3)Mr Waschl, to the knowledge of the Moshav Group, had not contact with any one from the Moshav Group for the purpose of the loan.
Those facts are not alleged in the proposed SOC. In any event, even if they were, those facts (which relate only to one transaction) would not give rise to an arguable claim that Mr Roths acted in the position of director of one or more entities within the Moshav Group or that the directors of those entities were accustomed to act on his instructions or wishes for the purposes of s 9(b) of the Corporations Act.
It is in this context that the proposed SOC appears to allege four substantive claims against Mr Roths and the AXL Group. The first claim is for breach of agreement between the plaintiffs and MF on its own behalf, or ‘on behalf of’ MC, MFW or AXL.[22] That agreement is alleged to arise on the February offer and conversations between Mr Roths and Mr Waschl. The basis upon which Mr Roths’ conduct is attributed to MF, MC, MFW or AXL is not alleged.
[22]Prosed SOC [20]-[30]. In the proposed SOC, MF, MC, MFW and AXL are defined as the ‘AXL Group’. I will adopt that definition in these reasons.
The proposed SOC alleges that there were terms of that agreement that each member of the AXL Group would each be parties and that:
(1)the clear funds of $185,360 would available to the Waschl family to renovate and develop the Properties; and
(2)each member of the AXL Group would pay director’s fees and expenses incurred in the joint venture to Mr Waschl (i.e the director’s fees).
The plaintiffs claim damages for breach of that agreement including the clear funds, director’s fees totalling $460,000, reimbursement of the Holz business expenses and overcharged interest of $28,529.
The second claim is for fraudulent misrepresentations or for representations in breach of the Australian Consumer Law and/or for unconscionable conduct relating to the identity, background and experience of Mr Roths. The relevant conduct is that of Mr Roths acting ‘on behalf of’ the AXL Group or any one of the members of the AXL Group between July 2016 and 17 March 2017 (the ‘identity representations’).[23]
[23]Proposed SOC [31]-[61].
The plaintiffs allege that, relying on the identity representations, they entered into the joint venture, the Loan Agreement, the GSA, the Mortgages and the Guarantee. The damages claimed include the clear funds, the fees and interest paid to the Moshav Group, the director’s fees totalling $460,000, and loss of profits associated with the failure to develop the Properties.
The third claim is for negligent misrepresentation or for representations in breach of Australian Consumer Law, for unconscionable conduct and/or an estoppel in relation to statements that the AXL Group would pay the clear funds and the directors’ fees and expenses. Once again, the relevant conduct is that of Mr Roths acting ‘on behalf of’ the AXL Group or any one of the members of the AXL Group (the ‘inducement representations’).[24]
[24]Proposed SOC [62]-[69], [74]-[84].
The plaintiffs allege that, relying on the inducement representations, they entered into the joint venture, the Loan Agreement, the GSA, the Mortgages and the Guarantee. The damages claimed are that same as set out in [76] above.
The fourth claim is for unjust enrichment against the AXL Group or any one of the members of the AXL Group by reason of them having had the benefit of Mr Waschl working through the joint venture without him having been paid the director’s fees and expenses and the clear funds.[25]
[25]Proposed SOC [70]-[73].
The proposed SOC does not indicate the basis on which the conduct of Mr Roths that forms the basis of these four substantive claims is alleged to be attributed to each of MF, MC, or MFW. This is significant. The issue in this proceeding is relevantly how any statement or conduct on the part of Mr Roths can be attributable at law to MC, MF or MFW.
Based on the proposed SOC, I had assumed this was because Mr Roths is alleged to be a shadow or de facto director of those entities. However, the written submissions of the plaintiffs refer also to Mr Roths acting as the ‘agent’ of MC or ‘acting for and on behalf of the Defendant which the Defendant knew’.[26] But the written submissions say nothing further than this.[27] Further, as noted above, in oral argument, counsel for the plaintiffs stated that he did not rely upon any agency for the purpose of this application.[28]
[26]Amended outline of submissions dated 18 May 2019 [43(a)]. See also [43]-[46].
[27]Ibid [48].
[28]Transcript of Proceedings, G.C.E. Global Consulting Engineers Pty Ltd v Moshav Custodian Pty Ltd (Supreme Court of Victoria, S ECI 2019 02031, Lyons J, 20 May 2019) 40.
As a result, the only basis upon which the conduct of Mr Roths is attributable to the Moshav Group for the purpose of this application is as a director of MC, MFW or MF. As set out above, I am not persuaded, on the claims made in the proposed SOC or articulated during argument, that there is an arguable claim that the conduct of Mr Roths was a director of any of these companies.
I have some suspicions as to the true nature of the relationship between Mr Roths and the Moshav Group. But it is important that an applicant seeking such relief establish an arguable case based in law. Suspicions are not enough. It may be that Mr Roths and/or AXL had some kind of ostensible or apparent authority to act on behalf of one or more entities of the Moshav Group, at least in relation to the loan arrangements, given that Mr Roths arranged for the loan directly with the Moshav Group. There may also be other bases of attribution. However, the basis of such claim was not alleged in the proposed SOC or relied upon in argument.
There is pleaded one claim which the plaintiffs may have against MC independent of any claim based on the conduct of Mr Roths. That claim relates to the terms of the February offer that MC would make available the clear funds at settlement, which did not occur. Prima facie, that would constitute a breach of contract or may constitute a misrepresentation. This is on the basis that, at settlement, MC paid all or part of the clear funds to AXL, rather that the plaintiffs.
However, on the evidence before, it appears that the plaintiffs were aware prior to settlement that the clear funds (or part thereof) would not be available at settlement. This is in light of:
(1)the emails to the solicitors for the plaintiffs (as their agents) at the time which indicated that the clear funds would not be available at settlement and that the plaintiffs would have to pay a shortfall, and the absence of any substantive response to those emails; and
(2)the absence of any response by Mr Waschl to what allegedly happened at settlement as recorded in Mr Roths’ email dated 22 August 2018.
In any event, based on the evidence of Mr Waschl, even if Mr Roths agreed to waive the brokerage fee to AXL of $110,000, something in the order of $83,000 would have be available to Mr Waschl at settlement (being $110,00 less the shortfall).
Taking into account all of the circumstances, this claim, although arguable seems rather weak and would sound in damages. The amount of those damages is not clear.
Is there an arguable claim relating to the AFCA Rules?
As noted above, the plaintiffs submit that, as MC was the lender to GCE, MC was required to hold a credit licence under the NCCPA, be an AFCA member and bound by the AFCA Rules.
The plaintiff’s submission was based on the provisions of the NCCPA and the National Credit Code (the ’Code’), which is sch 1 to the NCCPA. Reference was also made to the Corporations Act but this aspect was not pressed by counsel for the plaintiff at the hearing. By contrast, counsel for the Moshav Group contended that, based on the NCCPA and the Code, MC was not required to hold a credit licence.
Before reviewing the legislation, I wish to note that the provisions in this legislation are detailed and complicated. For example, as I set out below, the definition provisions are complex. By way of further example, there are exceptions for representatives or agents of licence holders authorised under the Corporations Act.[29]
[29]See, eg, Corporations Act 2001 (Cth) s 911A(2), s 911B.
As noted above, the proposed SOC did not include any claim based on this legislation. Further, few of the provisions of the relevant legislation were canvassed in written or oral submissions by counsel for the plaintiffs. In this context, while the NCCPA and the Code relate to credit activity and the need for persons who engage in credit activity to hold an Australian credit licence, I was not drawn to any provisions in the NCCPA and the Code which impose a requirement to be a member of the AFCA. It appears that s 912A of the Corporation Act is the provision which imposes such a requirement. I will deal with this further below.
The NCCPA and the Code
Section 29 of the NCCPA provides that:
A person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity.
Section 6 of the NCCPA contains a table that sets out when a person engages in a credit activity. It relevantly provides:
1
credit contracts
(a) the person is a credit provider under a credit contract; or
(b) the person carries on a business of providing credit, being credit the provision of which the National Credit Code applies to; or
(c) the person performs the obligations, or exercises the rights, of a credit provider in relation to a credit contract or proposed credit contract (whether the person does so as the credit provider or on behalf of the credit provider); or
…
4
mortgages
(a) the person is a mortgagee under a mortgage; or
…
5
guarantees
(a) the person is a beneficiary of a guarantee; or
Section 5 of the NCCPA relevantly provides that:
(1) ‘credit contract’ has the same meaning as in s 4 of the Code;
(2) ‘mortgage’ means a mortgage to which the Code applies; and
(3) ‘guarantee’ means a guarantee to which the Code applies.
It is then necessary to turn to the Code. Section 7(1)(a) of the Code relevantly provides that the Code applies to a mortgage if ‘it secures obligations under a credit contract or a related guarantee’. So too, s 8(1)(a) of the Code relevantly provides that the Code applies to a guarantee if ‘it guarantees obligations under a credit contract’.
Section 4 of the Code provides that a ‘credit contract’ means a contract under which credit is or may be provided, being the provision of credit to which the Code applies. Section 5(1)(a) of the Code then relevantly provides that the Code applies to the provision of credit where ‘the debtor is a natural person or a strata corporation’.
Counsel for the defendant submitted that the Code does not apply because GCE is not a ‘natural person or a strata corporation’ with the result that there was no ‘credit contract’ to which the Code applies. In my view, that is correct. In this case, GCE was the borrower and was not a natural person with the result the Loan Contract was not a ‘credit contract’ under the Code or the NCCPA.
Given that a ‘credit contract’ is fundamental to the definition of both ‘mortgage’ and ‘guarantee’, counsel for the defendant submitted that there was in this case no guarantee or mortgage for the purpose of the Code or the NCCPA. I agree with that submission.
As a result, I conclude that it is not arguable that MC has breached s 29 of the NCCPA. I note in passing that the February offer stated that the mortgagors would be obliged to sign a NCCPA declaration prior to entering into the Mortgage. I am unsure whether this declaration was in fact signed. In any event, this issue was not raised in the proposed SOC and not pursued in oral argument.
The Corporations Act
As noted above, I was not taken to any provision of the NCCPA or the Code which requires a credit provider to be a member of the AFCA. Rather, the written submissions of the plaintiffs relied upon certain provisions of the Corporations Act. However, in the course of oral argument, counsel for the plaintiffs did not press the argument relying upon the Corporations Act as set out in [31] of the plaintiffs’ amended outline of submissions for the purpose of the interlocutory application.[30]
[30]Transcript of Proceedings, G.C.E. Global Consulting Engineers Pty Ltd v Moshav Custodian Pty Ltd (Supreme Court of Victoria, S ECI 2019 02031, Lyons J, 20 May 2019) 36.
For completeness, the relevant provisions of the Corporations Act include:
(1)s 911A(1) which provides that a person who carries on a ‘financial services business’ in this jurisdiction must hold an Australian Financial Services licence covering the provision of the financial services;
(2)s 912A(1)(g) which provides that a financial services licensee, if financial services are provided to persons as retail clients, must have a dispute resolution system complying with s 912A(2); and
(3)s 912A(2) which relevantly provides that the dispute resolution system must consist of an internal dispute resolution procedure and membership of one or more external dispute resolution schemes that is or are approved by ASIC in accordance with regulations made for the purpose of s 912A(2).
It appears that the AFCA Rules are the dispute resolution scheme approved by ASIC under s 912A of the Corporations Act. Relevantly, the plaintiffs rely on r A.7.1(b) of the AFCA Rules which provides that while AFCA is considering a complaint, the financial firm (being the member of AFCA) ‘must not seek judgement or take other action to pursue debt recovery or legal proceedings that the Financial Firm began before the complainant submitted the complaint to AFCA other than to the minimum extent necessary to preserve the Financial Firm’s legal rights’.
However, in order for me to conclude that it is arguable that MC should have been a member of AFCA and bound by the AFCA Rules it would be necessary for me to be satisfied that there is an arguable case that MC carried on a ‘financial services business’ (with the result that the relevant regulatory provisions of the Corporations Act applied to it). That is not a simple concept under the Corporations Act. I refer, by way of example, to s 761A (‘financial services business’), s 766A (‘provides a financial service’), s 766B (‘financial product advice’), s 766C (‘dealing in a financial product’) and s 763A (a ‘financial product’). Further, I refer to certain exceptions for representatives or agents of licence holders in s 911A(a) and 911B of the Corporations Act.
In the absence of any detailed argument on the application of these sections in either written or oral submissions, or a pleading which clearly addresses their application, I am unable to conclude that there is an arguable case that MC was a person who carries on a ‘financial services business’ or was obliged to be a member of AFCA or be bound by the AFCA Rules pursuant to the Corporations Act. In any event, as noted above, these sections were not pressed on the interlocutory application.
Damages and balance of convenience
Given my conclusion that the plaintiffs do not have an arguable case based upon the conduct of Mr Roths, I do not intended to consider whether the balance of convenience in relation to those claims favours the granting of an injunction. Factor relating to the balance of convenience often depend on the nature of the arguable claims made.
As noted above, there is an arguable claim that MC breached the term of the February offer that MC would make available the clear funds at settlement or that MC made a representation to that effect. However, as set out above, that claim seems weak and would sound in damages. The quantum of those damages was not articulated in the course of this application.
As a consequence, in light of the authorities referred to above in relation to the general rule in Inglis, I have concluded that the balance of convenience in relation to this claim would not now justify restraining MC from exercise its powers as mortgagee. This is not a claim which I consider gives rise to doubt as to whether the power of sale of the mortgagee have arisen.
I have also considered whether the amount claimed is obviously or plainly wrong or excessive in light of the fact that the clear funds were not received by the plaintiffs at settlement. However, as set out above, it appears that the plaintiffs were aware prior to settlement that the clear funds (or part thereof) would not be available and proceeded to settlement on that basis. As a result, I am unable to conclude that the amount claimed (which represents the loan advanced by MC plus interest) is obviously or plainly wrong or excessive.
I am conscious that one of the properties is the family home of Mr Waschl and Ms Lindsay. However, on the evidence currently before me and considering the only claim that is arguable, the balance of convenience does not now favour the granting of the injunction sought. It may be that a different view might be reached if additional evidence on these issues identified above was available or other arguable claims were being considered.
Conclusion
As a consequence, the plaintiffs’ application for an interlocutory injunction must be refused. I will order that MC and the receiver are released from the undertakings they have given and that the plaintiffs pay the defendant’s costs of this application including reserved costs.
I will retain the management of this proceeding. Subject to the views of the parties, I intend to order that:
(1)the plaintiffs have leave to join the proposed additional defendants and file and serve a statement of claim on them by 5 July 2019 or such other date as the plaintiffs consider appropriate;
(2)should any defendant consider that the statement of claim does not disclose a cause of action, they may issue a summons seeking to strike out the whole or any part of that claim within 21 days of service of it on them;
(3)in the absence of any such application, each defendant file a defence within 30 days of service of the statement of claim on them; and
(4) the matter be listed for directions on 16 August 2019.
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SCHEDULE OF PARTIES
S ECI 2019 02031
BETWEEN:
| G.C.E GLOBAL CONSULTING ENGINEERS PTY LTD (ACN 106 139 306) | First Plaintiff |
| BERNHARD WASCHL | Second Plaintiff |
| JANE LINDSAY | Third Plaintiff |
| - and - | |
| MOSHAV CUSTODIAN PTY LTD (ACN 622 162 994) | Defendant |
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