Garlick v Kerbaj (No 4)
[2023] VSC 609
•18 October 2023
| IN THE SUPREME COURT OF VICTORIA | Not restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 02573
BETWEEN:
| DARRYN GARLICK (as representative of the estate of JACK JOHN ERMAN) | Plaintiff |
| v | |
| DANIEL KERBAJ & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 October 2023 |
DATE OF JUDGMENT: | 18 October 2023 |
CASE MAY BE CITED AS: | Garlick v Kerbaj & Ors (No 4) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 609 |
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PRACTICE AND PROCEDURE — Interpleader proceeding — Application by a party to be joined as a defendant to the proceeding under r 9.06 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) to make a claim upon funds held in Court — Whether applicant is a necessary or proper party — Whether applicant has a tenable claim to the fund — Summary judgment principles apply to determination of the application — Applicant has no viable claim to fund — Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | No appearance for the plaintiff | |
| For the First Defendant | Mr S Clement of counsel for the first defendant. | EC Legal |
| For Argyle Lending Pty Ltd | Mr M Thomas of counsel for Argyle Lending Pty Ltd | TLM Law |
HER HONOUR:
Introduction and background
This proceeding commenced as an urgent caveat removal application in the Practice Court issued in June 2020, which was resolved on the basis of an agreement that part of the proceeds of sale of the relevant property be paid into Court. The funds paid into Court were subsequently supplemented by a further payment into Court in 2022, in circumstances explained further later in these reasons. The total sum of money in Court (‘fund’) is estimated to be approximately $600,000, perhaps a little less. The outstanding issue in this proceeding is who is entitled to be paid from the fund.
On about 4 July 2011, Mr Jack John Erman became the sole registered proprietor of a property situated at Unit 4, 204 The Boulevard, Ivanhoe East, Victoria (‘property’). Mr Erman lived at the property with his partner, Ms Marzelle Cohen. In the years prior to the sale of the property, Mr Erman, who worked in the finance industry, undertook extensive renovations to the property. He took out loans from various parties to fund the renovations, which were facilitated by Argyle Lending Pty Ltd (‘Argyle Lending’). And, while this is in dispute, he also borrowed funds from a man who was a close friend of his and Ms Cohen, Mr Daniel Kerbaj, a businessman with interests in the waste management and automobile repair industries.
By a contract of sale dated 6 May 2020, Mr Erman sold the property, with settlement due to occur on 22 June 2020. As at 6 May 2020, there were four caveats registered on the title to the property:
(a) caveat number AS229383B registered by Ms Cohen on 5 June 2019;[1]
[1]It seems that Ms Cohen no longer presses any claim upon the fund in this proceeding.
(b) caveat number AS397786K registered by Graeme George Ali and Victoria Louise Horner registered on 31 July 2019;
(c) caveat number AS973505L held by Lightspeed Mortgage Management Pty Ltd (‘Lightspeed’) on 10 February 2020; and
(d) caveat number AT056985Y registered by Mr Kerbaj on 6 March 2020.
There were also four warrants of seizure and sale registered on the title to the property in favour of Credit Corp Services Pty Ltd (‘Credit Corp’).
Following the sudden death of Mr Erman on 20 March 2022, Mr Darryn Garlick was appointed to represent Mr Erman’s estate in this proceeding.
The caveat agreement
On 16 June 2020, Mr Erman commenced this proceeding by way of an originating motion applying for the removal of the caveat lodged by Mr Kerbaj pursuant to s 90(3) of the Transfer of Land Act 1958 (Vic) (‘TLA’) (‘caveat removal application’). At the hearing of the caveat removal application before Incerti J on 18 June 2020, a settlement statement was produced by Mr Erman’s solicitors, Lennon Lawyers (‘settlement statement’), which set out the sums claimed by the caveators.
The settlement statement identified Mr Ali and Ms Horner as being owed $350,000. Further, in an affidavit sworn by Ms Jane Lennon, the director of Argyle Lending on 18 June 2020, Ms Lennon deposed that she had facilitated three loans made by Mr Ali and Ms Horner to Mr Erman,[2] each secured by the caveat lodged by them, with a payout figure of approximately $310,000. Further, Ms Lennon deposed that Argyle Lending, Mr Ali and Ms Horner had incurred an estimated $30,000 to $40,000 in legal costs. Ms Lennon is also the wife of Mr Patrick Lennon, the principal of Lennon Lawyers.
[2]The funds were actually advanced to Mr Erman and Ms Cohen, but nothing turns upon that for the purpose of the current application.
On 19 June 2020, following the hearing of the caveat removal application, but prior to the delivery of judgment, Mr Erman, Ms Cohen, Mr Ali, Ms Horner, Mr Kerbaj and Credit Corp entered into an agreement (‘caveat agreement’), which allowed the settlement of the sale of the property to proceed and required that specified funds be paid into Court subject to a subsequent determination of the caveators’ respective interests in the property. Consent orders were made by Incerti J on 22 June 2020 in accordance with the terms of the caveat agreement, as follows:
The proceeds of sale of the Property shall, after payment of:
(a)the registered mortgage in favour of Perpetual Corporate Trustee Company Ltd;
(b)the fees and costs of the real estate agent in respect of the sale and of the Property;
(c)the fees and costs of the solicitor for the plaintiff on the conveyance in the amount of $3,531.11;
(d)adjustments for PEXA fees, utilities, owners corporation fees and council rates;
(e)the sum of $310,000 to the second caveators, George Ali and Victoria Horner;
(f)the sum of $11,994.82 to the third caveator, Lightspeed Mortgage Management Pty Ltd;
be provided to the Senior Master of the Supreme Court of Victoria, by payment into court… with such amount to remain as funds paid into Court until further order as otherwise agreed between the parties…
The caveat agreement provided that the amount payable to Mr Ali and Ms Horner is ‘an estimated amount due and not in full and final settlement of the claim by Mr Ali and Ms Horner’. The parties agreed to the removal of the caveats and warrants in order to provide clear title to the purchaser of the property. The balance of the sale proceeds were to be paid into Court, thereby creating the fund. Ms Cohen, Mr Kerbaj and Credit Corp did not receive any payment at the time of the settlement of the sale of the property.
The overpayment application
On 17 February 2022, Mr Kerbaj filed a summons addressed to Mr Ali and Ms Horner, Ms Lennon and Argyle Lending, seeking orders that Mr Ali and Ms Horner, or in the alternative, Argyle Lending repay $194,330.36 to the fund (‘overpayment application’). The overpayment application followed the production of documents by third parties, including Argyle Lending, pursuant to subpoenas issued by Mr Kerbaj in this proceeding.
In the overpayment application, Mr Kerbaj alleged that the amount loaned by Mr Ali and Ms Horner was substantially less than the amount deposed to by Ms Lennon in her affidavit in support of the caveat removal application, and that the second and third loans referred to in that affidavit were provided by two other entities. Only the first loan was advanced by Mr Ali and Ms Horner, in the sum of $102,500. The second loan was advanced by AJTB Holdings Pty Ltd (‘AJTB’) to Mr Erman in the sum of $106,500, and the third loan was advanced by Grand Bollox Pty Ltd (‘Grand Bollox’) to Mr Erman in the sum of $52,500. AJTB and Grand Bollox had not lodged caveats on the property to secure their respective interests. However, the relevant loan agreements did contain charging clauses, such that AJTB and Grand Bollox held equitable interests in the property.
Following the caveat agreement and consent orders of 22 June 2020, the sum of $310,000 was to be paid to Mr Ali and Ms Horner, being a partial payment of their purported loan to Mr Erman. These funds were in fact paid into Argyle Lending’s bank account, and the following payments were made by Argyle Lending: $6,741.32 to Mr Patrick Lennon, $115,669.64 to Mr Ali and Ms Horner, $57,928.14 to Grand Bollox, and $120,668.43 to AJTB. Mr Kerbaj sought the repayment to the fund of the difference between the $310,000 ordered to be paid to Mr Ali and Ms Horner, and the $115,669.64 to which they were actually entitled in accordance with their loan agreement with Mr Erman.
In her reasons delivered on 17 June 2022 (‘June 2022 reasons’) granting the relief sought in the overpayment application, Matthews AsJ found that the representations made by Ms Lennon on behalf of Mr Erman, Mr Ali and Ms Horner as to the amount of the loan made by Mr Ali and Ms Horner to Mr Erman were false and misleading,[3] and that Mr Ali and Ms Horner were owed $102,500 plus interest and costs, not $350,000 as alleged in the settlement statement. The misrepresentations were made in the settlement statement, in Ms Lennon’s affidavit of 18 June 2020, and in the loan account statement filed on 19 July 2021. None of these documents stated that there were three separate lenders, but rather, the loan account statement and ‘other documents filed on [Mr Garlick, Mr Ali and Ms Horner’s] behalf continued, repeated and perpetuated the misrepresentations made during the caveat removal application’.[4] Her Honour also found that Mr Kerbaj had agreed to the terms of the caveat agreement on the basis of the false and misleading representations.
[3]Garlick v Kerbaj & Ors [2022] VSC 336 [119].
[4]Ibid [129].
Further, Matthews AsJ did not accept the submission made by Mr Garlick, Mr Ali and Ms Horner to the effect that the caveat lodged by Mr Ali and Ms Horner also secured the loans subsequently made by AJTB and Grand Bollox. Her Honour characterised this submission as ‘patently and self-evidently nonsense’ and explained as follows:
The submission ignores such fundamental concepts as privity of contract, such that it is fanciful to contend that a mortgage given to one lender by the borrower can secure separate loans given by the other lenders to that same borrower, without more.
…
As a matter of construction, the use of the same defined term in a series of separate contacts does not incorporate those contracts, and there is nothing at all in the terms of the contracts other than their use of common defined terms to suggest that advances under the Second and Third Loans were to be treated as Advances or Secured Money for the purposes of the terms and [Memorandum of Common Provisions AA 3553] of the First Loan.[5]
[5]Ibid [131]-[132].
Accordingly, the orders made on 24 June 2022 following the delivery of the June 2022 reasons (’24 June orders’) provided that Mr Ali, Ms Horner and Argyle Lending were required to pay the sum of $194,330.36 (‘overpayment’) to the fund, and that Mr Ali, Ms Horner and Argyle Lending were jointly and severally liable to repay the overpayment. Further, her Honour found that Mr Erman, Mr Ali and Ms Horner had breached their overarching obligations under ss 17, 18 and 19 of the Civil Procedure Act 2010 (Vic) (‘CPA’).
Application to restrain Lennon Lawyers from acting
By summons dated 21 June 2022, Mr Kerbaj sought to restrain Mr Patrick Lennon and Lennon Lawyers from acting for any party in the proceedings (‘restraint application’). An earlier application was dismissed by Efthim AsJ on 16 October 2020. The restraint application relied upon the June 2022 reasons. Matthews AsJ found that Lennon Lawyers should be restrained from acting for any party in the proceeding and made orders accordingly (‘restraint order’), stating as follows:
In my view, this proceeding falls squarely within the matters identified by Brereton J in Mitchell v Burrell: the personal or reputational interest of Mr Lennon and Lennon Lawyers is involved given that their conduct and integrity have come under attack and review in the proceeding. There has already been a sufficient basis for me to refer Mr Lennon’s conduct and the June Ruling to the Legal Services Commissioner, and the CPA Enquiry is ongoing. These are strong and compelling indications that the interests of justice require the Lennons being restrained from continuing to act. [6]
[6]Garlick v Kerbaj & Ors (No 2) [2022] VSC 778 [133].
Substitution application
By summons filed 1 March 2023, Mr Lennon applied for orders that he be substituted for Mr Ali and Ms Horner as defendants to the proceeding pursuant to r 9.06 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’). In Mr Lennon’s affidavit sworn on 1 March 2023, Mr Lennon deposed that he had executed a deed of assignment (‘deed’) whereby Mr Ali and Ms Horner assigned all of their rights, title and interest in their claims in the proceeding to him for the consideration set out in the deed and on the terms and conditions set out in the deed. Mr Ali and Ms Horner each swore affidavits confirming the assignment and requesting that Mr Lennon be formally substituted as a party to the proceeding in their stead.
On 30 March 2023, Matthews AsJ made orders that Mr Lennon be substituted for Mr Ali and Ms Horner as the assignee of their claim to the fund pursuant to r 9.09(2)(a) of the Rules, on the condition that Mr Lennon obtain independent legal representation to act on his behalf in the proceeding. This condition was imposed so as to avoid any inconsistency with the restraint order.
Discovery dispute
There has also been an ongoing dispute as to the discovery provided by Mr Kerbaj in this proceeding.
On 12 September 2022, Mr Kerbaj was ordered by Matthews AsJ to make further discovery in relation to 16 specific categories of documents (‘September discovery order’). Subsequently, Mr Kerbaj purported to make further discovery by an affidavit of documents sworn on 26 September 2022.
On 7 November 2022, a summons was filed by the plaintiff, and the third and fourth defendants seeking that Mr Kerbaj file and serve a further and better affidavit of documents in accordance with the September discovery order (‘discovery application’). The discovery application was listed for hearing on 5 June 2023, during which the plaintiff indicated that he no longer pressed the discovery application.
However, Mr Lennon, now standing in the shoes of Mr Ali and Ms Horner, pressed the discovery application, which was heard and determined, largely in Mr Lennon’s favour, on 11 October 2023, the day that the application which is the subject of these reasons (‘joinder application’) was heard and judgment reserved.
The claims upon the fund
Prior to turning to the joinder application, I interpose here to summarise the claims upon the fund as they currently stand. Mr Kerbaj claimed, at the time of the caveat agreement, to have been owed $260,000 by Mr Erman pursuant to a loan agreement made between him and Mr Erman on 14 February 2020 (‘loan agreement’). However, no funds were actually advanced by Mr Kerbaj to Mr Erman on that day. Rather, Mr Kerbaj says that the loan agreement documented a compromise between him and Mr Erman with respect to sums advanced by him to Mr Erman between 2015 and 2020 in a number of tranches of cash for a range of purposes, including the funding of renovations to the property. The principal sum said to have been advanced pursuant to the loan agreement was $250,000 (which Mr Kerbaj says was substantially less than the amount actually owed to him by Mr Erman at the time the loan agreement was made), but with fees, interest, and default costs (not including Mr Kerbaj’s costs of this proceeding), I estimate the current value of Mr Kerbaj’s claim to the fund to be over $500,000.
However, Mr Kerbaj’s caveat (but not, he says, his equitable interest in the property) post-dated the caveat lodged on behalf of Mr Ali and Ms Horner. Mr Lennon, as the assignee of their claims, claims interest on the principal debt as at the time of the caveat agreement (and not repaid), the initial loan fee, and disbursements associated with the caveat removal application, totalling $71,767.78, plus the professional fees incurred by Mr Ali and Ms Horner pursuant to their retainer with Mr Lennon, estimated by Mr Lennon to be $350,000.
As Custom Credit has not played an active part in this proceeding[7] since about 15 December 2020, the current value of its claim upon the fund is unclear, but as at 16 October 2020, Custom Credit had a judgment in its favour of $59,194.71 plus enforcement costs.
[7]However, Custom Credit has indicated to the Court that it wishes to be heard before the Court makes final orders with respect to the distribution of the fund.
Finally, while the balance of the fund after all claims by secured creditors have been met is payable to Mr Garlick in his capacity as representative of Mr Erman’s estate, Mr Garlick last appeared in this proceeding on 5 June 2023, from which I can infer that he does not expect that any part of the fund will be paid to Mr Erman’s estate.
The joinder application
Rule 9.06 of the Rules provides as follows:
Addition, removal, substitution of party
At any stage of a proceeding the Court may order that—
(a)any person who is not a proper or necessary party, whether or not that person was one originally, cease to be a party;
(b) any of the following persons be added as a party—
(i)a person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all questions in the proceeding are effectually and completely determined and adjudicated upon; or
(ii)a person between whom and any party to the proceeding there may exist a question arising out of, or relating to, or connected with, any claim in the proceeding which it is just and convenient to determine as between that person and that party as well as between the parties to the proceeding;
(c)a person to whom paragraph (b) applies be substituted for one to whom paragraph (a) applies.
The principles and authorities governing the application of r 9.06 of the Rules were not in dispute. While r 9.06 confers a discretion upon the Court as to whether to add, remove or substitute a party to the proceeding, the usual discretionary considerations do not play much of a role in determining this joinder application. Rather, the question in the current application is whether Argyle Lending has a legally and factually tenable claim to the fund which has any real prospects of success. If it does, the joinder application should be granted. If it does not, the joinder application should be refused.
By way of background, an application for Argyle Lending to be joined as a party was brought by summons filed on 20 July 2022 on behalf of the plaintiff and third and fourth defendants. During a hearing on 14 October 2022, Mr Lennon (whilst acting for Mr Garlick, Mr Ali and Ms Horner) informed the Court that the application would be withdrawn, having conceded some weaknesses in relation to Argyle’s standing to bring a claim against the fund in this proceeding.
By summons dated 4 August 2023, Argyle Lending now seeks orders that it be joined as a party to the proceeding pursuant to r 9.06 of the Rules, and that the overpayment of $194,330.36 be refunded to it.
Mr Kerbaj opposes the joinder application. Mr Lennon did not advance any submissions in support of or in opposition to the joinder application.
Prior to turning to the evidence and the parties’ submissions with respect to the joinder application in more detail, I should observe that, given the nature and purpose of this proceeding, which is to resolve the disputes about the parties’ claims to the fund, this is not a conventional joinder application. While Argyle Lending is applying to be joined as a defendant to the proceeding, the joinder application is in effect an application for leave to bring a claim against the fund. If the application is refused, Argyle Lending would be shut out from advancing its claim against the fund. Accordingly, it seems to me that the principles generally applicable to applications for summary judgment against a plaintiff ought to apply to the determination of whether Argyle Lending is a necessary or proper party to the proceeding. That is, I should only refuse to grant the joinder application if I am satisfied that Argyle Lending’s claim to be refunded the overpayment from the fund has no real prospects of success.[8]
[8]See Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27.
I should add that when considering whether Argyle Lending has any real prospects of success in having the overpayment repaid to it, I do not propose to consider the issue of which of the claimants to the fund has priority over the other claimants. The priority issue is somewhat complex, and is ultimately a question for trial. Rather, the question before me is whether Argyle Lending’s claim has a tenable legal and factual basis, in circumstances where Argyle Lending was never a creditor, secured or otherwise, of Mr Erman.
The facts relevant to Argyle Lending’s claim can be summarised as follows:
(a) on or about 27 June 2019, Ms Lennon, in her capacity as director of Argyle Lending, facilitated the loan made by Mr Ali and Ms Horner to Mr Erman and Ms Cohen. The epitome of loan signed by Mr Erman and Ms Cohen described the lender as ‘Argyle Lending Pty Ltd / TBA’, and the security provided was an ‘unregistered mortgage and caveat over [the property]’;
(b) a caveat was lodged by Mr Lennon on behalf of Mr Ali and Ms Horner giving notice of their interest as chargee on 31 July 2019, and directing that all notices be addressed to Ms Lennon;
(c) no caveats were lodged to provide notice of the advances made by AJTB on 27 August 2019 and by Grand Bollox on 20 November 2019;
(d) the orders made by Incerti J on 22 June 2020 (which were made by consent in accordance with the caveat agreement) provided for, among other things, the payment of $310,000 to Mr Ali and Ms Horner;
(e) in fact, at the settlement of the sale of the property on 22 June 2020, the funds payable to Mr Ali and Ms Horner were paid to Argyle Lending;
(f) the following day, on 23 June 2020, Argyle Lending disbursed the amounts received by it as follows:
(i) Mr Lennon: $6,741.32;
(ii) Mr Ali and Ms Horner: $115,669.64;
(iii) Tombla Investments Pty Ltd ATF McPhan Super Fund: $120,668.43;
(iv) Grand Bollox Pty Ltd: $57,928.14.
(g) the payments to Tombla Investments Pty Ltd and Grand Bollox extinguished the indebtedness of Mr Erman to AJTB and Grand Bollox;
(h) the 24 June orders required that Mr Ali, Ms Horner, and Argyle Lending pay the sum of $194,330.36 into the fund;
(i) on 1 July 2022 (prior to the repayment of the overpayment), Lennon Lawyers (then acting on behalf of Mr Erman, Mr Ali, and Ms Horner) wrote to Mr Kerbaj’s solicitor as follows:
Given the Judgement on 17 June 2022 and the Orders of 24 June 2022, and on the assumption that the overpayment is paid into the Supreme Court fund, we are advised that Argyle Lending Pty Ltd ("Argyle") will seek leave to be joined to the proceeding.
We suspect that AJTB and Grand Bollox may also seek leave to be joined to the proceeding at least so as to be heard with respect to the overpayment and any implications for them.
We are of the view that the sensible course would be for Argyle to be given leave to join the proceeding in its own right and on behalf of AJTB and Grand Bollox given that Argyle facilitated the loans and is best placed to provide evidence to the Court as to the advance to the Plaintiff and the Second Defendant.
If the parties would consent to this course, it would contain costs and avoid litigating over the advances of AJTB and Grand Bollox in circumstances where there does not appear to be much controversy as to their claims (at least from an evidentiary perspective)
Argyle would prosecute the claim relating to the overpayment for AJTB and Grand Bollox and submit a statement of issues, documents and any other steps necessary to inform the other parties and the proceeding.
We have not raised this proposal with AJTB or Grand Bollox however, we are seeking to obtain your views on how the matter proceeds in light of the overpayment orders and the judgement on 17 June 2022.
(j) some time after this date, the overpayment was paid into the fund by Argyle Lending from its own funds.[9] It seems that none of Mr Ali, Ms Horner, AJTB, or Grand Bollox have contributed to the repayment of the overpayment; and
[9]There is no direct evidence that Argyle Lending repaid the overpayment, but that it did so is referred to in its submissions, and is not disputed by Mr Kerbaj.
(k) Mr McPhan, the director of AJTB deposed, in his affidavit sworn on 25 August 2023, as follows:
On or around 12 August 2019 I was asked by the director, Jane Lennon, of Argyle Lending Pty Ltd (‘Argyle’) to advance monies to John Jack Erman and Marzella Cohen (‘Borrowers’) and I agreed to enter into the loan. …
From when Argyle commenced operating, I have from time to time advanced monies to borrowers facilitated by Argyle. I have been friends with Jane and her husband, Pat, for over 10 years. Although I always receive advice as to the basis of the loan and the security for the loan, there is a large element of trust by me that Argyle will manage the risk as well as the loan generally. On that basis, when I lend funds through Argyle, I do not undertake the same due diligence that I would if I was approached to lend money to a third party.
I was advised with respect to this particular loan that there was already a caveat on the title to secure an initial advance to the Borrowers. I was advised that further funds were required to complete renovations to the property at 4/204 The Boulevard, East Ivanhoe (‘Property’). I was told that there was sufficient equity in the Property and that Argyle was supervising the completion of the works as well as the sale of the Property.
I was satisfied that my advance would be covered by the caveat that had been lodged at the time by Ali and Horner. On many occasions, I have advanced monies on the basis of an existing caveat or mortgage. I understood that the caveat would not be withdrawn until all lenders were paid. I understood in this particular case that Argyle was supervising the completion of the works to the Property and that my position would be secured by the existing caveat or that Argyle would lodge a caveat with respect to my advance if needed.
I also understood that the borrowers had agreed with Argyle that it was not necessary for any further caveats to be placed on the Property so as to minimise costs.
AJTB Holdings was repaid the monies advanced on 23 June 2020.
I was subsequently made aware in discussions with Pat Lennon about the issues relating to the payout of the AJTB Holdings loan. Traditionally, Argyle has undertaken any litigation relating to the loans on my behalf and I have given Argyle authorisation to act on my behalf in relation to the recovery of such loans and do so on an ongoing basis. My position was no different with this loan.
I have been advised that Argyle and/or Ali and Horner were obliged to repay an amount of $194,330.36 by virtue of the orders made in this Honourable Court on 24 June 2022.
I also understand that Argyle has subsequently paid $194,330.36 into Court and is now applying for the monies to be repaid.
I have given full authority to Argyle to recover those monies (effectively on behalf of AJTB Holdings to the extent that the monies were paid to AJTB Holdings initially).
Mr Robin Settle, the director of Grand Bollox, in his affidavit sworn on 29 August 2023, gave evidence in substantially the same form and to the same effect as Mr McPhan. There is nothing in evidence as to the terms upon which Argyle Lending arranged loans to Mr Erman from any of the lenders.
Essentially, what occurred is that at settlement, Argyle Lending received the funds payable to Mr Ali and Ms Horner in accordance with the caveat agreement (presumably at the instructions of Mr Erman’s solicitor, Mr Lennon), and disbursed them to its clients in full, or in the case of Mr Ali and Ms Horner, partial satisfaction of the amounts owing to them by Mr Erman. However, the funds paid to AJTB and Grand Bollox were held by Matthews AsJ to have been procured by the misrepresentation by Ms Lennon to the effect that the sums advanced by all three lenders were advanced by Mr Ali and Ms Horner alone, thus overcoming what was arguably the disentitling conduct of AJTB Holdings and Grand Bollox in failing to lodge caveats to protect their equitable interests in the property at the time of making their loans to Mr Erman.
Accordingly, Ms Lennon’s misrepresentation had the effect of removing the need for AJTB and Grand Bollox to make their own applications in this proceeding to make a claim on the fund, and as such, provided them with a priority they were not necessarily entitled to, given that Mr Kerbaj had lodged his caveat prior to the caveat agreement being made, and no caveats had been lodged by AJTB and Grand Bollox to provide the general public with notice of their claims to an equitable interest in the property.
Of course, at the time that Argyle Lending disbursed the funds to AJTB and Grand Bollox, it is unlikely that Ms Lennon would have foreseen that her misleading conduct would be exposed some two years later. Given the evidence that the directors of those entities are friends of Ms Lennon and her husband and are regular clients of Argyle Lending, it is understandable that Argyle Lending repaid the overpayment without resort to its clients. The question in the current application is whether Argyle Lending’s commercial decision to make that payment without recourse to their clients provided it, in effect, with an equitable interest in the property sufficient to support a claim to the fund, in circumstances where Mr Erman’s liability to AJTB and Grand Bollox giving rise to their (legitimate) equitable interests in the property has been extinguished.
The parties’ submissions
In its written submissions filed in support of the joinder application, Argyle Lending submitted that the overpayment should be repaid to it for the following reasons:
(a) no other party has a valid claim to the overpayment, and there is no question that AJTB and Grand Bollox held equitable mortgages over the property pursuant to the terms of their loan agreements with Mr Erman;
(b) AJTB and Grand Bollox were entitled to be paid the sums owing to them from the proceeds of the sale of the property on the basis that these amounts were secured by the caveat lodged by Mr Ali and Ms Horner;
(c) Mr Ali and Ms Horner assert that the caveat lodged on their behalf enabled them to authorise Argyle Lending to pay AJTB and Grand Bollox the sums owed to them by Mr Erman;
(d) the June 2022 reasons make it clear that each of AJTB and Grand Bollox had an equitable charge over the property;
(e) Mr Kerbaj knew or should have known as early as 2 February 2020 that the amount said by Argyle Lending to be secured by Mr Ali and Ms Horner’s caveat was $293,000;
(f) to the extent that it is said that AJTB and Grand Bollox are the proper parties to make the claim for the overpayment, it is common ground that Argyle Lending paid the overpayment into Court, and AJTB and Grand Bollox have expressly authorised Argyle Lending to bring this application on their behalf;
(g) the requirements of r 9.06 of the Rules, as conditioned by the Court’s obligations under the CPA, have been satisfied, and granting the joinder application is in the interests of justice; and
(h) Argyle Lending’s submissions concluded as follows:
Argyle Lending submits that no other party has any real entitlement to the overpayment. The Ruling bears out that GB and AJTB had an equitable charge over the Property and it matters not whether a separate caveat was lodged for GB and AJTB.
It is common ground that the loan advances by GB and AJTB respectively were made in late 2019 and well before the First Defendant lodged his caveat on 6 March 2020.
During the course of the hearing of the joinder application, counsel for Argyle Lending accepted the general proposition that an agent should sue in the name of their principal, not in their own name. However, counsel emphasised the efficiency benefits of Argyle Lending being the party prosecuting the claim for the overpayment, given that it organised all of the loans to Mr Erman, and holds all of the relevant documents. Counsel submitted that Argyle Lending did not seek to relitigate the issues agitated and determined in the overpayment application.[10]
[10]This submission was inconsistent with Argyle Lending’s written submissions (see paragraph 39 (b) and (c) of these reasons).
In his written submissions made in opposition to the joinder application, Mr Kerbaj submitted, in summary, as follows:
(a) as a consequence of the June 2022 reasons and the 24 June orders, Argyle Lending was ordered to repay the overpayment because it had received money to which it was not entitled;
(b) it is peculiar that Argyle Lending seeks to be repaid the overpayment, for reasons which are unexplained, given that there has been no appeal of the 24 June orders;
(c) further, Argyle Lending is estopped from making a claim to the fund, as it was served with the summons initiating the overpayment application, which expressly sought orders that Argyle Lending repay the overpayment, and was provided with an opportunity to be heard with respect to the overpayment application, but did not take up that opportunity;
(d) Argyle Lending cannot have obtained a proprietary interest in the fund, which is made up of the proceeds of sale of real property;
(e) to the extent that Argyle Lending seeks to advance claims on behalf of AJTB and Grand Bollox, they would need to be joined as parties to the proceeding, not Argyle Lending. In any event, the loans made by those parties have been repaid; and
(f) an earlier application made by Mr Garlick, Mr Ali and Ms Horner to join Argyle Lending as a party to the proceeding was withdrawn, with Mr Lennon making a concession to the effect that Argyle Lending had no standing to bring any claim in this proceeding.
During the course of the hearing of the joinder application, counsel for Mr Kerbaj submitted that Argyle Lending had not established any legal or factual basis for any claim for the repayment to be funded to it. Further, even if AJTB and Grand Bollox had a claim to the fund (which they do not, their advances having been repaid), they could call Ms Lennon as a witness and rely upon Argyle Lending’s documents to prosecute their claims to the fund, rather than authorise Argyle Lending to make claims on their behalf.
Discussion
There are a number of impediments to Argyle Lending being able to establish that it has a viable claim to the fund. First, the question of standing. Argyle Lending contends that it is the agent of AJTB and Grand Bollox, and that Argyle Lending is authorised to conduct their claims on its behalf.
Mr Kerbaj relied upon a number of authorities to support his submission that an agent cannot sue on behalf of a principal.[11] In Steinecke v Wayne,[12] a case where the plaintiff lacked legal capacity and a person holding a valid power of attorney purported to bring proceedings on her behalf, Brereton J stated as follows:
The principle that appears to underlie this rule is that the attorney has no cause of action, only the principal having a cause of action, and that it must therefore be the principal, and not the attorney, who brings the proceedings on that cause of action. Authority given to an attorney to sue on behalf of the principal means authority to sign the initiating process on behalf of the principal and authority to instruct solicitors to bring proceedings and sign the initiating process without reference to the principal. It is not an authority to sue in the name of the attorney.[13]
[11]Netage Pty Ltd v Cantley (1985) 6 IPR 200; Urquhart v Lanham [2002] NSWSC 119; Steinecke v Wayne [2011] NSWSC 428. See also Campbell v Pye (1954) 54 SR(NSW) 308 and Spellson v George (1987) 11 NSWLR 300, 313.
[12][2011] NSWSC 428.
[13]Ibid [6].
Further, where an agent has executed a contract on behalf of a disclosed principal, only the principal may sue to enforce that contract, save in certain circumstances.[14]
[14]Campbell v Pye (1954) 54 SR(NSW) 308, 309.
However, as stated by the learned author of ‘Law of Agency’[15] (omitting citations):
An agent is able to sue a third party for the recovery of money paid to that third party on behalf of the principal in circumstances where the principal would have been entitled to recover that money. In such a case, either the principal or agent is entitled to sue, on the grounds of unjust enrichment or in equity depending on the circumstances.[16]
[15]GE Dal Pont ‘Law of Agency’ (2014, Third Edition, Lexis Nexis Butterworths).
[16]Ibid [23.9].
Arguably then, given that the repayment of the overpayment to the fund could be considered to be a payment made to a third party, it may be permissible for Argyle Lending to make a claim to the overpayment on behalf of AJTB and Grand Bollox.
However, a more fundamental difficulty with the joinder application is that, even if Argyle Lending was permitted to sue on behalf of AJTB and/or Grand Bollox, those parties have no claim to the fund. Prior to 23 June 2020, they did have a claim to the proceeds of sale of the property, as holders of equitable mortgages over the property. But, their own evidence is that the loans underpinning those equitable mortgages have been repaid, so their mortgages secure nothing.
Further, Argyle Lending has no apparent basis for making a claim upon the fund. It is important to remember that the fund, including the overpayment, is made up solely of the proceeds of sale of the property. While the repayment of the overpayment was made by Argyle Lending from its own funds, the overpayment was, in effect, part of the proceeds of sale of the property which had been improperly disbursed pursuant to the caveat agreement.
Argyle Lending is not a creditor of Mr Erman, let alone a secured creditor. Argyle Lending has not pointed to any other cause of action entitling it to make a claim upon the fund. It has merely contended that it, or possibly AJTB and Grand Bollox, have claims upon the fund for an amount equivalent to the overpayment. And no cause of action which would otherwise support a claim to the fund is discernible from the evidence. There was no suggestion that the overpayment was repaid by mistake, or on some other basis that would give rise to restitutionary relief in favour of Argyle Lending. And, while it could be contended that Argyle Lending’s repayment of the overpayment could result in one or more of the remaining claimants to the fund (being Mr Lennon and Mr Kerbaj) being unjustly enriched, the High Court has made it clear on a number of occasions that there is no free-standing cause of action based upon unjust enrichment.[17]
[17]See, for example, David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 378-9; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2008) 232 CLR 635 [151]; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 [85]-[98]; Australian Financial Services and Leasing Pty Ltd v Hills Industries Pty Ltd (2014) 253 CLR 560.
What Argyle Lending is (implicitly) contending is that it should not have been required to make the overpayment by the 24 June orders, but it did so, and now it seeks to be recompensed for complying with the 24 June orders. I can understand why it would say that it should not have been required to repay the overpayment. It received no (direct) financial benefit from the overpayment,[18] as the bulk of the overpayment was disbursed by it to AJTB and Grand Bollox. There was no evidence of the terms upon which Argyle Lending arranged the relevant loans on behalf of AJTB and Grand Bollox, such that I do not know whether it has any right to recover the funds paid by it from either or both of them. In any event, it is clear from the evidence that it has taken no steps to do so to date.
[18]Save for the recovery of some fees, which made up a small proportion of the overpayment.
I can also understand that Mr Ali and Ms Horner could have advanced arguments why they should not have been liable to repay the overpayment, given that the amount received by them did not fully discharge Mr Erman’s liability to them, and given that they had received no financial benefit from the funds paid to AJTB and Grand Bollox.
But, Mr Ali and Ms Horner were represented at the hearing of the overpayment application, and had the opportunity to make submissions to the effect that the overpayment should be repaid by AJTB and Grand Bollox, not by them. It is not clear from the evidence whether or not they did so. It was open to them to appeal against the 24 June orders, but they did not do so. Presumably they did not do so because Argyle Lending repaid the overpayment in full, and as such, they were not directly affected by the 24 June orders.
Similarly, it is clear from the following extract of the June 2022 reasons that Argyle Lending had the opportunity to appear and make submissions at the hearing of the overpayment application. Under the heading ‘Who should repay the overpayment’, her Honour said as follows:
Kerbaj seeks orders that Ali and Horner, or alternatively Argyle, pay the Overpayment into Court.
In my view, the fairest outcome here is that Ali and Horner, and Argyle, be ordered to pay the Overpayment into Court.
While it is true that Ali and Horner themselves did not ultimately receive the full $310,000 pursuant to the Consent Orders and the Agreement, it is reasonable to infer that they had instructed or authorised Lennon Lawyers and/or Argyle to make the payments which were made. They were parties to the Agreement and the facts are that the Agreement and the Consent Orders provided for a payment to them in an amount to which they were not entitled.
It is also appropriate that Argyle be ordered to pay the Overpayment into Court. Argyle received the $310,000 following settlement and disbursed it other than in accordance with the terms of the Agreement and the Consent Orders. It is simply incongruous to think that Argyle was not aware of those terms. It ought not have disbursed the money in the manner that it did. Argyle was on notice of the Application: the summons was addressed to it, amongst others (including its director, Ms Lennon). That summons clearly sought an order that Argyle pay the Overpayment. Pursuant to the orders which I made on 1 March 2022, Argyle had the opportunity to file affidavits and submissions in opposition to the Application. It did not do so. Even if the Second Jane Lennon Affidavit could be regarded as having been filed on behalf of Argyle, which I doubt given that it records on the front page that it was filed on behalf of Ms Lennon, it does not in terms provide any evidence as to why Argyle should not be ordered to pay the Overpayment. No written submissions were filed by or on behalf of Argyle, and no appearance was made at the hearing on or on behalf of Argyle. Therefore, Argyle has had the opportunity to be heard and it has chosen not to be. To the extent that it impliedly relies on the submissions and evidence of the Respondents, that evidence and submissions have not persuaded me that Argyle should not have to make the payment. Indeed, none of the Respondents’ submissions specifically addressed this issue: they simply went to why no repayment should be ordered at all.
Any unfairness or prejudice to Ali and Horner, if there is any, is mitigated by the fact that I will make orders that they and Argyle are to repay the Overpayment. It is then a matter for them to sort out with Argyle. The fact is that the Fund is deficient in the amount of approximately $194,000 as a result of the combined conduct of Argyle, Ali and Horner. In the interests of justice in respect of all claims on the Fund, the amount should be repaid. Whether any others, including Lennon Lawyers and Mr Lennon, should be ordered to repay the Overpayment is a different question and was not sought by the Application.[19]
[19][2022] VSC 336 [159]-[163].
Accordingly, Argyle Lending should not be permitted to, in effect, relitigate the issues in the overpayment application by bringing its own claim against the fund for an amount equivalent to the overpayment. Indeed, allowing it to do so would arguably be facilitating an abuse of process.
Finally, turning to each of the submissions advanced by Argyle Lending and summarised in paragraph 39 of these reasons, I make the following observations:
(a) in relation to the submission that no other party has a valid claim to the overpayment, this is ultimately a question to be determined at trial;
(b) the submission that AJTB and Grand Bollox were entitled to be paid the sums owing to them from the proceeds of sale of the property as they were secured by the caveat was lodged by Mr Ali and Ms Horner was expressly considered and soundly rejected in the June 2022 reasons, as was the contention by Mr Ali and Ms Horner that the caveat lodged on their behalf enabled them to authorise Argyle Lending to pay AJTB and Grand Bollox the amounts owed by Mr Erman to them;
(c) I accept that the June 2022 reasons found that AJTB and Grand Bollox had equitable charges over the property, and that there is a solid argument that those equitable interests predated Mr Kerbaj’s equitable interest in the property. However, if the overpayment had not been paid to them, and AJTB and Grand Bollox were as a consequence forced to agitate their claims to the fund in this proceeding, Mr Kerbaj would also have a solid argument that their failure to lodge caveats amounted to postponing conduct which would justify his claim to the fund having priority over the claims of AJTB and Grand Bollox to the fund;
(d) the submission that as at 2 February 2020 Mr Kerbaj knew or should have known that the amount said to have been secured by Mr Ali and Ms Horner’s caveat was $293,000 is irrelevant to the question of whether Argyle Lending has a claim to the fund, although I accept that it might be tangentially relevant to any priority dispute between Mr Kerbaj and AJTB and Grand Bollox;
(e) the submission that AJTB and Grand Bollox have expressly authorised Argyle Lending to bring any claims on their behalf, and the possibility that Argyle Lending may have standing to bring any claim on their behalf for funds paid by it to a third party does not overcome the fact that they have no claims upon the fund; and
(f) it cannot be in the interests of justice to permit Argyle Lending to be joined to this proceeding if it has no viable claim to the fund. In those circumstances, questions of expediency and efficiency do not rise for consideration.
Accordingly, Argyle Lending must bear the consequences of a number of commercial decisions it has made, being:
(a) its decisions not to lodge caveats over the property on behalf of AJTB and Grand Bollox;
(b) its decision in the lead up to the caveat removal application to represent to Mr Kerbaj and the Court that the funds lent to Mr Erman by AJTB and Grand Bollox were lent by Mr Ali and Ms Horner;
(c) its decision to disburse the overpayment to AJTB and Grand Bollox immediately after the settlement of the sale of the property;
(d) its decision not to appear and make submissions at the hearing of the overpayment application, despite having been provided with the opportunity to do so; and
(e) its decision to repay the overpayment from its own funds without seeking or obtaining any contribution from Mr Ali and Ms Horner or AJTB and Grand Bollox, or any of them.
Argyle Lending has no discernible cause of action which would entitle it to a claim on the fund. Further, even if it were permitted to bring a claim upon the fund on behalf of its clients, those principals have no claim upon the fund, as the loans made by them have been paid in full. Accordingly, Argyle Lending is neither a necessary or proper party to this proceeding, and the joinder application should be dismissed.
I shall hear further from the parties on the question of the costs of the joinder application.
SCHEDULE OF PARTIES
| S ECI 2020 02573 | |
| BETWEEN: | |
| DARRYN GARLICK (as representative of the estate of JACK JOHN ERMAN) | First Plaintiff |
| | |
| - v - | |
| DANIEL KERBAJ | First Defendant |
| | |
| | |
| | |
| | |
| PATRICK LENNON | Sixth Defendant |
| CREDIT CORP SERVICES PTY LTD (ACN 082 928 572) | Seventh Defendant |
| LIGHTSPEED MORTGAGE MANAGEMENT PTY LTD (LIGHTSPEED) | Other Party |
| ARGYLE LENDING PTY LTD | Other party |
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