Hermes Capital Australia Ltd v Melia - [2017] WASC 185

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: HERMES CAPITAL AUSTRALIA LTD -v- MELIA [2017] WASC 185

CORAM: KENNETH MARTIN J

HEARD: 15 MAY 2017 & ON THE PAPERS

DELIVERED : 4 JULY 2017

FILE NO/S: CIV 2510 of 2015

BETWEEN: HERMES CAPITAL AUSTRALIA LTD
Plaintiff
AND
STEVEN CRAIG MELIA
First defendant
TRACEY DAWN MELIA
Second defendant
JAMES ALAN FLEMING
Third defendant
PAUL GERARD WESTON as trustee in bankruptcy of James Alan Fleming
Fourth Defendant

Catchwords:

Practice and procedure - Guaranteed debt - Security for guarantee over real property - Bankruptcy of one guarantor - Springing orders - Non-compliance - Striking out of defences - Assessment of liquidated debt claim against non-bankrupt defendant - Possession orders against real property interest of bankrupt defendant - Liquidated claims against other defendant evaluated - Prima facie evidence certificate - Turns on own facts

Legislation:

Bankruptcy Act 1966 (Cth)

Result:

Judgment for possession against both defendants
Judgment for liquidated sum against second defendant

Category: C

Representation:

Counsel:

Plaintiff:     Mr T J Porter
First defendant              :     No appearance
Second defendant          :     No appearance
Third defendant             :     No appearance
Fourth Defendant           :     No appearance

Solicitors:

Plaintiff:     ERA Legal
First defendant              :     No appearance
Second defendant          :     No appearance
Third defendant             :     No appearance
Fourth Defendant           :     No appearance

Case(s) referred to in judgment(s):

Dobbs v National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643
George 218 Pty Ltd v Bank of Queensland Ltd [2015] WASC 434
Hanshaw v National Australia Bank Ltd [2012] NSWCA 100
Perpetual Trustee Company Ltd v Daniel Cuitanovic as trustee of the bankrupt estate of Kosta Dimitrovski [2013] NSWSC 722
Savieri v Brown [2008] NSWSC 1210

KENNETH MARTIN J: This action by the plaintiff (creditor) pursues the defendants for debts due by two failed corporate businesses on the basis of personal guarantees given by the defendants. The action is presently live as against only the first defendant, Steven Craig Melia (Mr Melia) and the second defendant, who is his wife, Tracey Dawn Melia (Mrs Melia).

Background

The action has been in the CMC list since 12 September 2016. At one point it was listed for a two day trial in February 2017. However, those trial dates were consensually vacated at the plaintiff's behest. That was due to the unexpected unavailability of one of the plaintiff's key witnesses, who was overseas.
Judgment has previously been obtained by the plaintiff against the third defendant (Mr Fleming) as regards the plaintiff obtaining possession of a property that secures his guarantee obligations and against Mr Fleming's trustee in bankruptcy to secure possession of that security interest.
A number of prior case management directions were previously issued requiring the first and second defendants to provide their trial evidence by affidavit. The trial evidence was not provided by Mr and Mrs Melia in accord with those directions.
On 6 April 2017, I issued springing orders against Mr and Mrs Melia to the effect that their defences and counterclaims against the plaintiff would be struck out - in the event that they failed to comply with what was, in effect, a final deadline, I then set for a receipt of their trial affidavits. That deadline was 4.00 pm on 27 April 2017.
The extended filing deadline was still not met by either Mr or Mrs Melia.
On 21 April 2017, the court received notification from a Mr S J Michelle advising that the Federal Circuit Court of Australia had issued a sequestration order against Mr Melia on 13 April 2017, rendering him bankrupt. Mr Michelle advised that he had been appointed as Mr Melia's trustee in bankruptcy that same day.
Mr Michelle's letter advised as regards Mr Melia:
I am aware that the bankrupt is a defendant in proceedings No CIV 2510 of 2015 in the Supreme Court of Western Australia issued by Hermes Capital Australia Limited (Hermes). Pursuant to section 58(3) of the Bankruptcy Act 1966 (the Act) after a debtor has become a bankrupt, it is not competent for a creditor, except with the leave of the court, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding. In this regard, I confirm that the proceedings issued by Hermes against the bankrupt are now stayed.
The consequence of Mr Melia's bankruptcy as from 13 April 2017 is that it is not possible for the plaintiff (without my leave) to take any fresh step in these proceedings against Mr Melia by seeking to recover a provable debt: see s 58(3)(b) Bankruptcy Act 1966 (Cth).
The plaintiff accepts that Mr Melia's 13 April 2007 bankruptcy inhibits it from obtaining judgment for any liquidated sum against Mr Melia. However, as I explain, the plaintiff does not accept that it is inhibited by Mr Melia's bankruptcy from obtaining from the court an order for possession in respect of his mortgaged real property - which effectively secures Mr Melia's personal guarantee obligations.
The plaintiff's asserted entitlement to orders for possession is said to be the consequence of s 58(5) of the Bankruptcy Act - which provides 'nothing in this section affects the right of a secured creditor to realise or otherwise deal with his or her security'. I accept that to be the legal position. The outcome is supported by authority I propose to follow and apply. Slattery J, in effect, accepted that position in Perpetual Trustee Company Ltd v Daniel Cuitanovicas trustee of the bankrupt estate of Kosta Dimitrovski [2013] NSWSC 722 [17], applying observations of White J in Savieri v Brown [2008] NSWSC 1210 [31] ‑ [33] and Young JA's decision in Hanshaw v National Australia Bank Ltd [2012] NSWCA 100 [35] ‑ [44]. See as well Slattery J's observations in Perpetual Trustee Company at [18].
In consequence, the plaintiff presently limits itself as regards Mr Melia, to seeking orders for possession - over the two properties that are the subject of mortgages secured by personal guarantees from both Mr and Mrs Melia.
Mr and Mrs Melia, on the evidence, are the joint registered proprietors of those two properties. The first is a location in Yangebup Western Australia. The second is a location in Roelands, Western Australia.
The position as regards the other defendant, Mrs Melia, is that she, at least at this stage, has not been made bankrupt. The plaintiff's action against her as second defendant remains fully live.
As I mentioned, neither Mr Melia nor Mrs Melia met the deadline for filing their affidavit evidence for trial by 4.00 pm on 27 April 2017, applicable under my orders of 6 April 2017 (a much extended final deadline). Then, of course, Mr Melia had been declared bankrupt two weeks earlier on 13 April 2017.
Whilst Mrs Melia also did not meet that filing deadline, she, acting in person, filed a very short affidavit the following day, which I have reviewed.
The springing order I had issued striking out the defences and counterclaims of Mr and Mrs Melia in the event that they did not meet the 4.00 pm on 27 April 2017 filing deadline, was not by its terms a self‑executing order. In consequence, after the defaults in compliance, the plaintiff sought to convene an urgent directions hearing. That was in circumstances where the matter had then been fixed for a one day trial to be heard on Wednesday, 24 May 2017.
I vacated that trial date and fixed a directions hearing for 15 May 2017. The plaintiff was represented at that directions hearing by counsel. There was no attendance or appearance on behalf of Mrs Melia.
Prior to that directions hearing, however, my associate received from Mr Melia's bankruptcy trustee another communication of 12 May 2017 advising:
(a)Mr Melia's bankruptcy trustee had elected to discontinue what was Mr Melia's counterclaim in this action, invoking s 60(2) of the Bankruptcy Act to that end;
(b)the trustee would abide by whatever decision the court reached in respect of the late affidavit filed by Mrs Melia and from which it might be inferred she intended to continue advancing her defence and counterclaim as pleaded. The trustee had indicated on behalf of Mr Melia (as is the case) that it was for the court to decide whether Mrs Melia's amended defence and counterclaim should be struck out;
(c)as regards the plaintiff's indicated pursuit of its claim seeking orders for possession against both Mr Melia and Mrs Melia in respect of the Yangebup and Roelands properties (securing their personal guarantee obligations), the trustee indicated that subject to whatever the court decided in respect of Mrs Melia and a possible striking out of her defence and counterclaim, the trustee's only concern was that orders for possession be made against Mr Melia, rather than against his trustee personally as the plaintiff had sought. The trustee pointed out (which I accept to be the position):
I am not in possession of their property and pursuant to section 58(2) of the Bankruptcy Act 1966, property does not vest in law in a trustee in bankruptcy until transmission has occurred, which it has not in this case.

Directions hearing 15 May 2017

As mentioned, Mrs Melia did not attend the directions hearing on 15 May 2017. Hence, she did not seek, as she might otherwise have, that the court extend time for a receipt of her late affidavit (by a day) of 28 April 2017. Nevertheless, I did look at that very brief document. I noted its relative paucity of relevant or admissible information for a purpose of Mrs Melia viably raising at a trial substantive arguments in advancement of her pleaded defence or counterclaim.
Accordingly, I reached a view on 15 May 2017 that, as regards the unmet filing orders of 6 April 2017, Mr and Mrs Melia's defences and counterclaims should remain struck out. The affidavit filing deadline of 4.00 pm on 27 April 2017 clearly was not met by either Mr or Mrs Melia. Because my springing order was not self-executing in its terminology as regards an entry of judgment against Mr and Mrs Melia in the event of their pleadings being struck out, leaving them in default as regards any pleaded resistance to the plaintiff's claims, a further order was required to deliver entry of judgment outcomes.
Notwithstanding Mr Melia's bankrupt status and the force of s 58(3), my assessment is that the plaintiff (creditor) is not taking any 'fresh step' in the proceeding by reason of the court itself acting upon its previous orders of 6 April 2017 concerning Mr and Mrs Melia's failure to file their affidavit evidence by the extended deadline of 4.00 pm on 27 April 2017. The outcome is the court's own order, not a step taken by the plaintiff.

Events after 15 May 2017

Consequently, the plaintiff now moves for judgment by way of orders for possession against both Mr and Mrs Melia in respect of the two security properties identified.
This is in circumstances where no subsisting defence or counterclaim remains for them following the striking out of those pleadings. The plaintiff contends that there is no constraint against it obtaining a remedy of possession of secured land under its mortgage securities by s 58(5). I accept that to be the legal position concerning the two properties and Mr Melia's interest in them, notwithstanding his bankrupt status.
Concerning Mrs Melia, beyond a like order to obtain possession in respect of her joint interest in the same lands, securing her personal obligations as guarantor to the plaintiff, the plaintiff also now moves for judgment against her in respect of liquidated amounts. Judgment is moved for against her on the basis of her liability for moneys owing on her secured guarantee obligations to the plaintiff.
On 23 May 2017, I received the plaintiff's minute effectively moving for judgment for possession in respect of the two security properties as against both Mr and Mrs Melia and, further, as against Mrs Melia only, for judgment for a liquidated amount which is said to be the sum due by her in respect of her secured debt obligations, plus interest fees and costs.
The plaintiff's minute of orders, in effect, embodies the plaintiff's motion for substantive judgment in all respects as against Mr and Mrs Melia. The plaintiff's motion for judgment under its minute of 23 May 2017 is supported by written submissions of the plaintiff - also of 23 May 2017 - settled by counsel.
An affidavit of Nicholas Samios, sworn 23 May 2017, was filed as evidence for the plaintiff to support a liquidated judgment against Mrs Melia in the claimed amount of $689,535.81. It contains calculations in respect of the primary debtors - whose obligations were guaranteed under the secured mortgage security documentation of Mr and Mrs Melia - who were once associated with those now failed corporate businesses.
Mr Samios's affidavit provides copies of declared mortgagee certificates in respect of an amount claimed against Mrs Melia issued pursuant to cl 3.3 of M 818240 (being the mortgage granted in respect of the Yangebup property) and by the same clause of another mortgage, M 818239 (concerning the Roelands property).
The plaintiff's written submissions indicates a reliance on those certificates by a prima facie evidence clause (cl 3.3 in respect of each of the mortgages). The certificates are proof, in the absence of evidence to the contrary, of the amount of the secured moneys claimed as owed under the security arrangements at the dates stated in the certificates.
Concerning a permitted use of such certificates to prove a liquidated claimed sum as due and payable, the plaintiff relies upon the decision of Mitchell J (as he then was) in George 218 Pty Ltd v Bank of Queensland Ltd [2015] WASC 434, in particular at [244] ‑ [254]. Within those reasons his Honour explained the effect of what is known as a 'Dobbs clause', applying the High Court decision Dobbs v National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643. Mitchell J had observed that the certificate clause in question before him (like here) was only a prima facie evidence clause. That is in contrast to the clause which had been considered in Dobbs, which provided for the certificate to be 'conclusive evidence of the indebtedness'.
As was also the case before Mitchell J, cl 3.3 of the present mortgage securities arrangements establishes only a prima facie position, not a conclusive position, for the plaintiff.
Evidence provided by Mr Samios in his affidavit includes a breakdown of respective claimed debts plus interest, costs, fees and charges - including legal costs claimed against Mrs Melia under her guarantee and mortgage security - making up an aggregate claimed amount of $689,535.81.

IFFs - as claimed

Having reviewed the two invoice finance facilities (IFFs) giving rise to the claim for the liquidated amount in aggregate of $689,535.81, I am satisfied the plaintiff has established its entitlement to judgment against Mrs Melia for all but three of the claimed amounts - based on Mr Samios's evidence evaluated in light of the prima facie certificates which have been provided.
The prima facie evidence is not enough on its face to alleviate concerns I hold in respect of three amounts claimed in a breakdown of these IFFs. For the plaintiff to obtain judgment for those three amounts, the plaintiff would need to provide more information to alleviate a prima facie concern I hold that the amounts claimed are not unconscionable in character - given their large dimensions in context.
In respect of the first IFF for the Sea to Summit business, an amount of $55,000 is claimed as a so called 'fee', in reference to par 10 and 15 of Mr Samios's affidavit of 23 May 2017. Attached to the plaintiff's submissions of 23 May 2017 is an aide memoire, titled 'calculation of debt owed by Tracey Dawn Melia to Hermes Capital Australia Pty Ltd - 23 May 2017'. Found at table 1(a) Invoice Finance Facility - Sea to Summit, is a description of that fee (so called) as a 'minimum fee payable pursuant to Sea to Summit invoice finance facility'.
Mr Samios's affidavit at par 10 and 15 also identifies that claimed amount as a fee. The given designation is 'Sea to Summit IFF Minimum Fee of $55,000'.
Mr Samios relates at par 15:
Pursuant to the terms of the Sea to Summit IFF, the plaintiff was entitled to charge a minimum fee equal to 1% of the facility limit, monthly. The fee outstanding as at 23 May 2017 was $55,000.
On the face of it, the amount of $55,000 as a fee on this loan looks prima facie to be an extravagantly large sum - bearing in mind the amount of the underlying debt. At present, I am not prepared to allow that aspect of the claim without further information concerning the so called fee amount of $55,000.
In respect of the second IFF for Melia Transport, there is a claim for another 'fee' of $80,000. At table 2(a) of the aide memoire this is described as 'minimum fee payable pursuant to see to Melia Transport invoice facility'. Reference is made to par 25 and par 30 of Mr Samios' affidavit.
At par 25 the reference to this amount displays only 'Melia Transport IFF Minimum Fee $80,000'. That is said to be an amount due at 23 May 2017. The amount looks again to be out of an overall underlying amount calculated at $88,773.28. I hold unconscionability concerns in relation to what looks to be an extravagant quantum of that so called 'fee'.
As to that amount, Mr Samios only says at par 30 of his affidavit:
Pursuant to the terms of the Melia Transport IFF, the plaintiff was entitled to charge a minimum fee equal to 1% of the facility limit, monthly. The fee outstanding as at 23 May 2017 was $80,000.'
I hold a prima facie concern that the sheer magnitude of such a 'fee' from only this information is massively out of proportion to the overall underlying claim for a debt. I will require further affidavit evidence of a more convincing character to counter that prima facie assessment, if the plaintiff wishes to proceed with claiming that so called 'fee'.
Also identified at par 25 of Mr Samios's affidavit is a claimed amount of $7,489.85, described as a default fee. No further elaboration is provided beyond what is briefly found at par 25 in Mr Samios's affidavit, as far as I could ascertain. A default fee of that magnitude, prima facie, troubles me, as to it being unconscionable and possibly a potential penalty.
Consequently, I will not at this time allow those three amounts out of the overall liquidated claim against Mrs Melia of $689,535.81.
There ought to be a deduction of those three amounts from the claim. Recalculation generates a reduced amount, which I do otherwise find established at this time against Mrs Melia of $547,045.96.
In consequence then of those assessments, in circumstances where neither Mr nor Mrs Melia presents a live defence or counterclaim (given the previous orders of the court made on 15 May 2017) in that final judgment should issue against Mrs Melia for that liquidated sum at this time.
The following orders, which adjust the plaintiff's minute of 23 May 2017, are therefore appropriate:
(1)As regards the second defendant, Mrs Melia, that there be judgment in the plaintiff's favour in the amount of $547,045.96 at 23 May 2017, being an amount inclusive of debt, interest fees and execution costs. There is also liberty for the plaintiff to apply to seek further judgment for the (presumably unproven) amounts beyond that sum as against Mrs Melia on the basis of submission of further supporting affidavit material by the plaintiff within 21 days.
(2)As against the first and second defendants (Mr and Mrs Melia) that there should issue an order for possession against them in respect of both the Yangebup and Roelands property, but protecting the rights of any other prior registered mortgagee or notified encumbrancer.
(3)That the orders for possession under (2) should not take effect until 14 days after the publication of these reasons and orders.

Final orders which I now issue are appended as attachment A to these reasons. The orders take effect at 4.00 pm on the day of publication of these reasons.

Attachment A

UPON THE APPLICATION of the plaintiff by its minute of proposed orders against the first and second defendant of 23 May 2017 and UPON the defence and counterclaim of the first and second defendant being struck out by orders of the court of 15 May 2017 and UPON READING affidavits of Nicholas Samios of 25 October 2016 and 22 November 2016 and of 23 May 2017, IT IS HEREBY ORDERED THAT:

The second defendant (Mrs Melia) is to pay to the plaintiff in respect of debt, interest fees and costs as incurred and due as at 23 May 2017, the amount of $547,045.96.

Within 14 days of the issue of these orders, the first and second defendants are ordered to deliver up possession to the plaintiff of real property known as:

(a)lot 428 on plan 13820 in certificate of title register book volume 1614 folio 765 and described as 14 Tern Loop Yangebup WA, 6164;
(b)lot 209 on plan 53335 in certificate of title register book volume 2679 folio 87 and described as 50 Livingstone Heights, Roelands, WA, 6226;

but subject to preserving the rights of any prior registered mortgagee, or notified encumbrancer, including rights to apply to the court for a variation of this possession order standing in favour of the plaintiff, which possession order stands until otherwise disturbed by a subsequent order of this court made upon the application of such person or persons.

The plaintiff has leave exercisable within 21 days to file any further affidavit materials as regards it seeking to prove as against the second defendant claims to further liquidated amounts in the sum of $142,489.85 claimed as due and payable in respect of debts, interest, fees or execution costs as against the second defendant.

There is liberty to apply to the parties generally on 72 hours written notice.
DATED DAY OF 2017
BY THE COURT