Horne v TLC Nominees Pty Ltd

[2000] VSC 365

SUPREME COURT OF VICTORIA
COMMERCIAL AND EQUITY DIVISION	Not Restricted

No. 5598 of 2000

STIRLING LINDLEY HORNE (Trustee of the Bankrupt estate of Karen Yvonne Pruzanski)

Plaintiff

v

TLC NOMINEES PTY LTD
and
STATE VIEW PTY LTD
and
STAYGLEN INVESTMENTS PTY LTD
and
NIKON PACIFIC FINANCIAL SERVICES LTD

First Defendant

Second Defendant

Third Defendant

Fourth Defendant

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JUDGE:	O’Bryan J
WHERE HELD:	Melbourne
DATE OF HEARING:	6 September 2000
DATE OF JUDGMENT:	27 September 2000
CASE MAY BE CITED AS:	Stirling Lindley Horne v TLC Nominees Pty Ltd and Ors
MEDIUM NEUTRAL CITATION:	[2000] VSC 365

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Interlocutory Injunction to restrain completion of Contract of Sale of land – power of sale pursuant to a mortgage – was sale for the best price.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M. Sifris	Abbott Stillman & Wilson
For the First Defendant	Mr G.D. Bloch	Tisher Liner & Co
For the Second Defendant	Mr P. Testart	Campbell McAuly

HIS HONOUR:

1. This is the return of a plaintiff’s summons for an interlocutory injunction restraining the first and secondnamed defendants from completing a contract of sale entered into on 23 March 2000 in respect of a property situate at and known as 179 Kooyong Road, North Caulfield.  The property will hereinafter be referred to as the said property.

1. A writ was issued in June 2000 by the plaintiff in his capacity as the trustee of the bankrupt estate of Karen Yvonne Pruzanski, hereinafter referred to as Karen.  Karen is the wife of Leon Pruzanski, hereinafter referred to as Leon, and the daughter-in-law of Tewel Pruzanski (Tewel) and Keila Pruzanski (Keila).  Karen is the registered proprietor of the said property.  There is a first mortgage over the said property to the first defendant and a second mortgage to the fourth defendant.  There is a lease in respect of one room in the property to the third defendant.  The third defendant is the trustee of the Pruzanski Family Trust. 

1. The statement of claim alleges that Karen’s estate was sequestrated by order of the Federal Court of Australia on 16 November 1998 and the plaintiff was appointed trustee.

1. Relevantly, Karen entered into a first mortgage in favour of the first defendant for an amount of $500,000 on 25 February 1998 to discharge an earlier first mortgage.  The money for the 1998 mortgage was provided by her brother-in-law, John Pruzanski (John). 

1. A second mortgage, in favour of the fourth defendant for an amount of $150,000, was registered at the Titles Office on or about 20 October 1998.

1. The lease of one room was entered into on 22 October 1998.

1. When moneys fell due under the first mortgage for interest the first defendant exercised its power of sale.  In purported exercise of its power of sale the first defendant entered into a contract of sale of the said property on 23 March 2000 to the second defendant for $770,000.  The second defendant is a company controlled by Karen’s father, Simon Lubansky.

1. The plaintiff alleges that the sale of the said property was in breach of the first mortgagee’s duty arising out of s. 77 of the Transfer of Land Act 1958 in that the first defendant did not advertise or auction the said property for sale and the said property was sold for a price lower than the market value of the said property: $900,000. The plaintiff also asserts that the sale to the second defendant was not an arms length transaction and not a bona fide sale. Further, that the first defendant accepted the validity of the lease which depressed the market value of the said property, when it knew or ought to have known the lease was not bona fide but a device to depress the market value.

1. The plaintiff was represented by Mr Sifris of counsel.

1. Mr Sifris informed the court that on 26 November 1998 the plaintiff lodged a caveat over the said property claiming an equitable estate or estate in fee simple in the said property pursuant to s.58 of the Bankruptcy Act 1966. By originating motion and summons filed on 20 July 2000 in proceeding No. 6169 of 2000 the plaintiff (the first mortgagee seeks an order that the defendant (plaintiff in proceeding No. 5598 of 2000) remove the caveat. Mr Sifris did not seriously support the caveat, but concentrated his argument on the injunction. If an injunction is granted the plaintiff’s rights flowing from an alleged breach by a mortgagee of its power of sale will be adequately protected without the need for a caveat until the trial of this proceeding.

1. The first question to be determined is whether the material filed discloses a serious issue to be tried.  I consider there are serious questions whether the contract of sale was an arms length transaction and whether the true market value of the said property was realised by the sale price of $770,000.  The material creates suspicion that Karen’s family arranged a sale with the mortgagee before the true market value could fairly and reasonably be ascertained.  I was impressed by the evidence of Mr Jurtowitch contained in an affidavit sworn on 31 July 2000, particularly at paragraphs 10 – 15 inclusive.  An arguable case has been shown that the price of $770,000 was significantly below the market value when the offer was made in December 1999.  The case for the plaintiff will be strengthened if it is later shown that the lease was not bona fide but was entered into solely for the purpose of reducing Karen’s interest in the said property by depressing its market value.

1. In Goldcel Nominees Pty Ltd v Network Finance Ltd (1983) 2 VR 259, Murphy J considered the requirements of s. 77 of the Transfer of Land Act 1958. He considered the requirement of good faith imported a subjective element of “honesty, fairness and lack of fraud or collusion”. His Honour said (at page 261):

“Section 77(1) requires that the mortgagee, on selling, must take reasonable steps to ensure that, at the time of sale he is getting the best price then available for the mortgaged property, and reasonable steps to obtain the best price must be taken irrespective of the amount of the mortgagee debt.”

1. In The Australian and New Zealand Banking Group Limited v Bangadilly Pastoral Co Pty Ltd (1977) 139 CLR 221 Aickin J noted that the authorities require the mortgagee to act bona fide and take reasonable precautions to obtain “the true market value”. On the facts in Bangadilly the critical question was whether there ever was an independent bargain.  In the present case the material before the court raises the same issue.  A sale by the mortgagee to the father of the mortgagor prima facie raises suspicion whether the sale was an independent bargain.

1. The market value evidence is not altogether satisfactory on either side, but is sufficient, I consider, to establish there is a serious issue to be tried of an under value sale price.

1. Mr Bloch for the first defendant argued that there is not a serious issue to be tried.  It is not the circumstance that the sale was by private treaty that calls into question the sale.  Whilst it is most surprising that the valuation evidence ranges between $600,000 and $900,000 for a piece of land in Kooyong Road, Caulfield, the difference between $770,000, being the sale price, and $900,000 is significant, nonetheless, for the purposes of the trustee.

1. The most alarming feature of the sale is the presence of Karen’s father as the purchaser of the property.  Prima facie it does not seem to be an arms length transaction. 

1. I consider there is a serious issue to be tried.

1. The second question is whether the balance of convenience favours the grant of an injunction.  In my view, it does, provided no undue delay occurs before the issues in this proceeding are tried in court.  Interest is accruing on the mortgages and the gap between the purchase price and the alleged market value, consequently, is diminishing.  The hearing of this proceeding should be fast tracked with the assistance of the court. 

1. Subject to anything counsel may say I propose to make the following orders on the plaintiff’s summons.  The following undertakings will be required of the plaintiff through Mr Sifris:

A.An undertaking to abide by any order the court may hereafter make as to damages should the court hereafter be of the opinion that the first and/or second defendant shall have sustained any by reason of this order which the plaintiff ought to pay.

B.An undertaking to expedite the hearing and not delay setting down the proceeding for trial.

1. The court orders:

(i)That until the trial of this proceeding, or further order the first and second defendants be restrained from completing a Contract of Sale dated 23 March 2000 in respect of the property situate at and known as 179 Kooyong Road, Caulfield. 

(ii)That no party may deliver interrogatories to an opposite party.

(iii)That the proceeding be set down for trial no later than 1 November. 

(iv)That the Listing Master use her best endeavours to fix a date for trial in the month of December 2000.

(v)      That costs be reserved.

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