Hycenko v VHY Enterprises Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

PROPERTY LIST

S ECI 2020 01480

NICHOLAS HYCENKO (AS EXECUTOR OF THE ESTATE OF GEORGE HRYCENKO, DECEASED)

Plaintiff

v

VHY ENTERPRISES PTY LTD (ACN 125 811 654) & ORS

(according to the attached Schedule)

Defendants

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JUDGE:	Derham AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	15 October 2020
DATE OF JUDGMENT:	11 December 2020
CASE MAY BE CITED AS:	Hycenk v VHY Enterprises Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2020] VSC 834

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PROPERTY LAW — Equitable charge — Requirements for a judicial sale pursuant to the Inherent jurisdiction of the Court or s 91 of the Property Law Act 1958 (Vic) — Avco Financial Services Ltd v White, [1977] VR 561; John Sands (Australia) Limited v Joske [2004] VSC 251; King Investment Solutions v Hussain [2005] NSWSC 1076 referred to.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J O’Donnell	Kennedy Guy
For the First Defendant	Mr O El-Hissi	Noh Legal
For the Second Defendant	No appearance	Wisewould Mahony
For the Third Defendant	No appearance
For the Fourth Defendant	No appearance

HIS HONOUR:

Introduction

This proceeding was commenced by the plaintiff, George Hrycenko (‘George’), by originating motion on the 25 March 2020, seeking a range of declarations regarding two properties in Frankston and Safety Beach, Victoria, owned by the first defendant, VHY Enterprises Pty Ltd (‘VHY’), as well as an order pursuant to s 91 of the Property Law Act 1958 (Vic) (‘the Act’), alternatively pursuant to the Court’s inherent jurisdiction, that these properties be sold.[1]
[1]This proceeding was referred to me by order of Justice Moore on 27 May under r 77.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’).

The plaintiff seeks this relief to satisfy a judgment of $2,646,365.97, together with interest of $441,727.28, (‘Judgment’) given by Lyons J on 31 January 2020 in the proceeding S CI 2017 04965 (‘2017 Proceeding’). Reasons for that order had been delivered on 23 October 2019.[2] This judgment debt is ordered against George’s son Victor Hrycenko (‘Victor’), who is the sole director and shareholder of VHY. The enforcement of the judgment was stayed until 17 February 2020. The judgment has not been paid.
[2]Hrycenko (by his Litigation Guardian Michael Kornitschuk) v Hrycenko [2019] VSC 700.

George died on 6 June 2020. He left a will in which he appointed his other surviving son, Nicholas Hycenko (‘Nicholas’), as executor of his will and trustee of his estate. By order made on 22 June 2020, Nicholas, as executor of the estate of George, was substituted as the plaintiff pursuant to r 9.09(2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic)(‘Rules’). On 8 September 2020, probate of the will of George was granted to Nicholas.

VHY is the registered proprietor of two properties (‘Properties’), as follows:

(a) the property situate and known as 486 Nepean Highway, Frankston, Victoria, being the land more particularly described in Certificate of Title Volume 05641 Folio 177 (‘Frankston Property’);

(b) the property situate and known as 6 Dromana Parade, Safety Beach, Victoria, being the land more particularly described in Certificate of Title Volume 07326 Folio 194 (‘Safety Beach Property’).

The relief sought in the originating motion is, after formal matters, as follows:

(a) declarations that the plaintiff has an equitable interest in the Frankston Property and the Safety Beach Property and that those interests are equitable charges or mortgages and second ranking security interests behind only the first ranking registered mortgages AF197528M and AH633801B (respectively) in favour of the second defendant (‘Dnister’); and

(b) pursuant to s 91 of the Act or pursuant to the Court’s inherent jurisdiction, an order that the Properties be sold and the proceeds be applied in the following order:

(i) first, in payment of all costs, charges and expenses associated with the sale of each of the Properties;

(ii) second, in the case of the Frankston Property, in discharge of the registered mortgage AF197528M in favour of Dnister, and to pay the moneys which are due and owing on that mortgage; and in the case of the Safety Beach Property, in discharge of the registered mortgage AH633801B in favour of Dnister, and to pay the moneys which are due and owing on that mortgage;

(iii) third, in discharge of the plaintiffs charge and to pay the judgment debt owed by Victor to the plaintiff up to the total sum across both sales of $2,578,873;[3] and

(iv) fourth, payment into Court of the residue, if any.

[3]This is the amount secured by the Charge. See below.

Summary of conclusions

Subject to the provision of further information as set out below (at [108]), and subject to detailed orders giving to the Court some control over the terms and manner of the sales, I propose to order a judicial sale of the Properties.

Background facts

Dnister is registered as first mortgagee of both Properties. The third defendant (‘Keypoint Law’) was formerly the solicitor for Victor and has lodged a caveat over both of the Properties claiming an interest as chargee. The fourth defendant (‘MPLS’) was formerly the solicitor for Victor and has lodged a caveat over the Safety Beach Property claiming an interest as chargee.

On 8 December 2017, Keogh J made freezing orders in the 2017 Proceeding prohibiting Victor from disposing or otherwise dealing with or diminishing his assets up to an unencumbered value of $2,578,873 (‘Freezing Order’). The Freezing Order was extended by further order of Keogh J made 13 December 2017 and by the orders of McMillan J made on 9 February 2018, 23 March 2018 and 4 May 2018.

On 23 April 2018, Keypoint Law, who at that time acted for Victor, wrote to the plaintiff's solicitors seeking to discharge the Freezing Order in exchange for security over real property owned by Victor and VHY. On 16 May 2018, Zammit J discharged the Freezing Order on the undertakings of Victor and VHY and upon Victor and VHY charging real property in favour of the plaintiff (‘Charge’). Pursuant to the Charge, VHY charged the Properties in favour of the plaintiff up to the sum of $2,578,873.

The charge is set out in ‘Annexure A’ to the order of the Court made on 16 May 2018. In ‘Other Matters’ in the order it is recited that the defendant and VHY, by their Counsel, have provided to the Court the undertaking contained in Annexure A to the order, such undertaking to subsist until the final determination of the proceeding or further order. The Charge and Undertaking are in the following terms:
Charge and undertaking
Charge
1.Until the final determination of this proceeding or further order, Victor Hrycenko (Victor) and VHY Enterprises Pty Ltd ACN 125 881 654 (VHY) hereby charge all of their rights, title and interest in the properties located at:
(a)31 Mount Martha Road, Mount Martha, being more particularly described in Certificate of Title Volume 8409 Folio 916; and
(b)231 Old Cape Schanck Road, Boneo, being more particularly described in Certificate of Title Volume 10943 Folio 991;
(c)486 Nepean Highway, Frankston, being more particularly described in Certificate of Title Volume 5641 Folio 177; and
(d)6 Dromana Parade, Safety Beach, being more particularly described in Certificate of Title Volume 06390 Folio 930,
in favour of George Hrycenko (George), up to the sum of$2,578,873.00 only.
2.For the avoidance of doubt, the charge created by paragraph 1 above is intended to secure a total amount of $2,578,873.00 across all of the stated properties.
Undertakings
3.From the date of this undertaking, and Until the final determination of this proceeding or further order, each of Victor and VHY undertake:
(a)to continue to pay the sums owed pursuant to the mortgage to Dnister Ukranian Credit Co-operative Ltd registered on title to the properties referred to in paragraphs l(a), l(c) and l(d) above as and when they become due (and to notify George's solicitors of any default);
(b)to provide George's solicitors with monthly statements in respect of each mortgage account; and
(c)not to further encumber the properties set out in paragraph 1 above (so as to reduce the total equity in them collectively to a value of less than $2,578,873.00) without George's consent or further order of this court.

The Judgment records in ‘Other Matters’, amongst other things, that ‘[t]he defendant and VHY Enterprises Pty Ltd by their counsel renew the Charge and Undertaking given on 15 May 2018 until satisfaction of this judgment or otherwise by order of the Court.’ Thus, the Charge and Undertakings continue in force.

On 18 May 2018, the plaintiff lodged a caveat in dealing No AR035979E against the titles to the Properties claiming his interest as chargee under the Charge.

The history of the proceeding

On the day of commencement of the proceeding the plaintiff filed a summons for directions returnable on 3 April 2020. On 2 April 2020, Wisewould Mahony filed an appearance on behalf of Dnister. In anticipation of that hearing, the plaintiff’s solicitor filed an affidavit which referred to responses from VHY and Dnister. In the case of VHY, time was sought to undertake an orderly sale of the Properties (6 months). In the case of Dnister, its solicitors informed the plaintiff and the Court that, on the basis that the plaintiff did not seek any order or declaration that would directly affect Dnister’s interest as mortgagee, it did not intend to participate in the proceeding. However, it reserved its right to be heard and asked to be notified of any matter that might impact its interest as first ranking mortgagee of the Properties. It has been notified of all hearings, and participated by appearing before the Court on 3 April 2020.

MPLS sent an email to the Court on 2 April 2020 informing the Court that it did not object to the proceeding and otherwise it did not intend to participate.

On 3 April 2020, there were appearances for all but the MPLS.[4] In the order made that day by Matthews JR it was recorded that:
[4]A formal appearance was filed by VHY on 30 April, after a change of solicitors. No formal appearance was filed on behalf of Keypoint Law or the MPLS.

(a) the MPLS had informed the Court that it did not wish to participate in the proceeding;

(b) the solicitors for each of Dnister and Keypoint Law stated that they did not oppose the directions sought by VHY, which were for the provision of affidavits and submissions and the matter to be determined on the papers; and

(c) VHY sought either a lengthy adjournment or for the matter to proceed by way of pleadings. The Court did not consider that pleadings were required.

In advance of that hearing, VHY provided a written submission to the Court. The submission was not filed, but is exhibited to the an affidavit of Mr O’Donnell (the fourth O’Donnell affidavit referred to below). In the submission it was contended that the directions hearing should be adjourned to a date not before 31 July 2020 in light of the vast impacts of the COVID-19 pandemic. This was not accepted by Matthews JR, who made a number of orders for the filing of affidavits and submissions, and ordered that, subject to any further order of the Court, the proceeding be determined by a Judicial Officer in the Practice Court on the papers on or before 15 May 2020.

The proceeding did not, however, run so smoothly. VHY did not comply with the timetable set on 3 April 2020. A further directions hearing was held on 5 May 2020, owing to VHY’s failure to comply with the 3 April 2020 orders. In the course of that hearing, the solicitor for VHY informed the Court that grounds for an appeal from the judgment of Lyons J had now been identified and that it was proposed to make application for leave to appeal out of time. Otherwise, the non-compliance with the orders of 3 April 2020 was occasioned by a change of solicitor acting for VHY. On 5 May 2020, Matthews JR extended the timetable and ordered VHY pay the plaintiff’s cost of that directions hearing.

On 9 June 2020, the plaintiff’s solicitor notified the Court by email that the plaintiff had died. The plaintiff sought to adjourn the further hearing of the application so that appropriate arrangements may be made for a joinder application in the proceeding. By order made on 10 June 2020, a hearing that had been scheduled for 11 June 2020 to deal with a Notice to Produce filed by VHY, and the further hearing and determination of the proceeding, were adjourned to a date to be fixed.

By summons filed on 22 June 2020, application was made to substitute Nicholas as plaintiff in his capacity as the personal representative of George’s estate. The application was supported by the affidavit of Nicholas made on 18 June 2020 in which he deposed as to George’s death on 6 June 2020 and George’s Will executed on 17 July 2018, by which Nicholas was appointed sole executor and trustee of George’s estate. However, probate had not been granted.

By order made on 22 June 2020, I ordered pursuant to r 9.09(2) of the Rules that Nicholas Hrycenko (as executor of the estate of George Hrycenko) be substituted as the plaintiff in this proceeding and the proceeding shall be carried on as so constituted.[5] In the reasons for the order I explained that the executor derives title from the Will of the deceased and not from the grant of probate, although the grant provides conclusive evidence of the executor’s appointment and of the terms of the Will. The personal property of the testator, including all rights of action, vests in the executor upon the testator’s death, and the consequence is that he can institute or continue a proceeding in the character of executor before he proves the will.[6] I went on, however, to say that for the executor to compel by action the recovery of the Judgment in this proceeding, proof of the right depends upon the Will of the deceased which can only be effected by producing the grant of probate in the Court or if a person is appointed administrator ad litem[7]
[5]There is an error in that order. The surname name of Nicholas is ‘Hycenko’ and when the amended originating motion was filed it was in the name of ‘Nicholas Hycenko’.
[6]Meyeppa Chetty v Supramanian Chetty [1916] 1 AC 603, 608; Simmons v Ross [2018] VSC 306, [65].
[7]Meyeppa Chetty v Supramanian Chetty [1916] 1 AC 603, 608; Simmons v Ross [2018] VSC 306, [65].

Shortly after the grant of probate to Nicholas on 8 September 2020, my chambers were notified of the fact, and an attempt was made to fix a hearing to deal with the Notice to Produce, which ultimately was fixed on 15 October 2020. At that hearing, the Notice was set aside and orders were made for the filing of an amended originating motion, which had been overlooked following the substitution of Nicholas as plaintiff. Directions were made for further submissions to be filed by 26 October 2020 and, subject to that, the judgment on the application was reserved.

The evidence

In support of the Application, the plaintiff relies on the affidavits of James Luke Francis O’Donnell made 19 March 2020 (‘first O’Donnell affidavit’), 2 April 2020 (‘second O’Donnell affidavit’), 28 April 2020 (‘third O’Donnell affidavit’), 5 May 2020 (‘fourth O’Donnell affidavit’) and 13 May 2020 (‘fifth O’Donnell affidavit’) and the affidavit of Nicholas Hycenko made 18 June 2020.

The first O’Donnell affidavit lay out the primary facts to which I have referred, exhibited the order by which the Charge and Undertaking were given, the Judgment and the reasons given for it by Lyons J, Land Registry searches of the Properties and company searches, appraisals of the value of the Properties provided by Victor’s former solicitors and Notices of Default provided by Victor’s former solicitors in respect of the loans secured by the mortgages, showing the amounts owing to Dnister by Victor and VHY. The result of comparing the values of the Properties with the debt due to Dnister as at January 2020 was said to be a net equity of VHY in the Properties of $1.7 million.

The second O’Donnell affidavit refers to correspondence with the defendants preceding and following commencement of the proceeding, some of which is referred to above in the background facts (particularly in relation to Keypoint Law and MPLS). In relation to Victor and VHY, it is relevant to note that:

(a) VHY’s former solicitors, Jessop & Komesaroff Lawyers, stated in an email dated 28 February 2020 in response to a demand from George’s solicitors dated 17 February 2020, that Victor required ‘time to effect sale of various properties to allow him to satisfy the judgment as he is not in a position to make immediate payment as requested’ and proposed an orderly sale of the Properties. In response, George’s solicitors sought from Jessop & Komesaroff Lawyers a detailed proposal of the steps Victor intended to take to satisfy the Judgment;

(b) the response from Jessop & Komesaroff Lawyers was, effectively, a request for a further 6 months stay of execution because of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) which had extended the time for compliance with a Bankruptcy Notice to 6 months, with effect from 25 March 2020;

(c) it was contended that Victor and VHY will be prevented from achieving a speedy sale and settlement of assets that reasonably reflect their true value to satisfy the Judgment, and detailed reasons were given that related to the restrictions imposed because of the corona virus epidemic;

(d) in relation to this proceeding, it was contended that it should have been commenced by writ and statement of claim, that the orders sought will not expedite recovery of the judgment debt because of the interruption to the property market caused by the corona-virus, that the sale of any real property in the near future is simply unattainable, is improper and without a reasonable basis, and Victor and VHY are prepared to take the necessary steps to satisfy the judgment debt and had already commenced this process. An Exclusive Sale Authority dated 18 March 2020 for the sale of Victor’s principal residence at 31 Mount Martha Road, Mount Martha was attached, but no other agents’ authorities were attached; and

(e) the response from George’s solicitors was, effectively, that Victor and VHY had already proposed an orderly sale of the Properties but had provided no details as requested, the reasons for the Judgment were handed down on 23 October 2019 and final judgment given on 31 January 2020, with a stay, and that Victor had already had 5 months to arrange payment of the Judgment, that George was 96 and resided in a nursing home, his future was uncertain, that he had every right to pursue appropriate action for the recovery of his money and that Victor had done everything possible to delay paying the Judgment.

The third O’Donnell affidavit refers to and exhibits a letter from YPA Estate Agents of Rye, Victoria, dated 30 January 2018 to Victor giving a ‘current, accurate up to date market appraisal’ of the Safety Beach Property, saying that due to the property’s subdivision potential and unit sites being in high demand, it is valued between $700,000 to $750,000. I infer that this letter was given to the plaintiff’s solicitors by Victor’s solicitors at the time of, and for the purposes of, the request they made that the Charge be given in place of the Freezing Order.

The fourth O’Donnell affidavit gives some history of the matter from the time Lyons J handed down his reasons for judgment on 23 October 2019 through to early May 2020, for the purposes of opposing extensions of time (at the hearing on 5 May 2020) in consequence of VHY failing to comply with the previous directions. In particular it was noted that the stay of execution in the Judgment, of 28 days, was specifically requested to enable Victor to appeal the Judgment, but no appeal had been launched. In substance it was contended that the proposal to seek leave to appeal out of time was a delaying tactic and no opportunity should be given to VHY to respond to the application, which should be determined on the papers as originally ordered on 3 April 2020.

VHY relies on the affidavits of Victor made on 11 May 2020 (‘first Hrycenko affidavit’) and 15 May 2020 (‘second Hrycenko affidavit’) and the affidavit of Omar El-Hissi made 14 October 2020 (‘El‑Hissi affidavit’).

A part of the first Hrycenko affidavit, and later submissions, concerns the argument that George – who was then 97 – was being controlled by Nicholas. Since George has died that is no longer relevant. Nicholas is the executor and trustee of George’s deceased estate pursuant to a grant of probate made in this Court on 8 September 2020. The first Hrycenko affidavit also dealt with an application that was proposed to be made for leave to appeal out of time from the Judgment of Lyons J and to seek a stay of execution. That application has now been made and the application for extension of time was refused on 18 August 2020. An application to review that refusal was heard on 16 November 2020 and the judgment of the Court of Appeal is currently reserved.

The first Hrycenko affidavit also sought the dismissal of this application and in support of that submission Victor gave evidence as to the Properties to the following effect:

(a) the Frankston Property is a three-level commercial property. The ground floor was then vacant, the tenant having vacated on 29 December 2019. The first floor was subject to a lease with Ink Addict Tattoo Studio Pty Ltd, which operates a tattoo parlor and shop from this property. The second floor is a residential apartment that is leased to the owner of the tattoo shop. The tattoo shop tenant had sought rental relief due to the COVID-19 restrictions and was then paying rental of $400 per week. The tattoo shop was not then open for trade due to the restrictions imposed by the Victorian Government as a result of the COVID-19 pandemic;

(b) given that the Frankston Property is a commercial property, Victor believed that, due to the downturn in business and restrictions imposed by reason of COVID-19, a sale of the property in the immediate future would be likely to result in a significant loss to VHY because any investor would consider the rate of return on investment. The rate of return was calculated by reference to the rental being paid under any lease of a commercial property. The capital improved value of the Frankston Property according to the City of Frankston rate notices dated 30 August 2018 was $845,000;

(c) there had been discussions with the owner of two commercial properties adjoining the Frankston Property with a view of a joint sale, which would achieve a higher price, as the combined sale would be attractive to a property developer. He had engaged JP Dixon Real Estate to continue to negotiate and explore the joint sale of the Frankston Property. In the event that the Court of Appeal does not grant a stay of the Judgement, he intended to seek guidance from a suitably qualified real estate agent on the marketing and sale of the Frankston Property so as to achieve the best price possible in the market;

(d) the Safety Beach Property is an old residential property. It was then vacant and required extensive repairs before it could be rented to a tenant. Victor had previously commenced to carry out renovations to the Safety Beach Property, however, by reason of the various legal proceedings commenced at the behest of Nicholas, he had been unable to complete these works. He believed that once the renovations were completed, a tenant will be secured for the property and its value would increase. He estimated a further $50,000 was required to complete the renovation works;

(e) on 18 March 2020, Victor formally engaged JP Dixon real estate to market and sell the Safety Beach Property on an exclusive basis for 120 days. He had been advised by an identified real estate agent that market conditions caused by COVID-19, and the condition of the Safety Beach Property, were such that to achieve a sale of this property in the immediate future VHY will need in effect conduct a ‘fire sale’ at a substantial discount from the otherwise achievable market price. In the event that the Court of Appeal did not grant a stay of the Judgement, Victor intended to seek guidance from the agent on the marketing and sale of the Safety Beach Property so as to achieve the best price possible in the market;

(f) the capital improved value of the Safety Beach Property according to the Mornington Peninsular Shire rate notice for the 2018-2019 year was $550,000;

(g) he had not had sufficient time since the Judgment, particularly in circumstances of the restrictions caused by COVID-19 pandemic, to market and sell the properties. The COVID-19 restrictions have resulted in the tattoo shop closing down, the real estate agent not being able to conduct ‘opens for inspection’ and, in his opinion, potential tenants are not looking to secure tenancies until the uncertainty in the economy is clarified. Purchasers are not active in the market because of the restrictions imposed by the Victorian Government by reason of the COVID-19 pandemic;

(h) he has been advised by the identified estate agent that properties are not generally selling and in order to sell either of the Properties, Victor would have to consider discounting significantly. Such a discount will result in a significant loss and will extend his exposure to Dnister. The Dnister mortgage is secured by a number of properties, which also include his residential property at 31 Mount Martha Road, Mount Martha. If the properties the subject of this proceeding are heavily discounted, this may result, indirectly, in a deterioration of equity in the Mount Martha residential property; and

(i) VHY is otherwise solvent.

The fifth O’Donnell affidavit responds to the first Hrycenko affidavit and, so far as relevant, provides:

(a) searches for listings of Victor’s Mt Martha Property revealed no marketing of it and an enquiry of JP Dixon revealed that it was not being marketed;

(b) neither of the Properties are listed for sale on the JP Dixon web-site;

(c) the solicitor on the record in this proceeding for Dnister has provided to him –

(v) copies of Notices of Default directed to VHY dated 27 April 2020 in respect of four home loans in default. The mortgages of the Properties, and no doubt the mortgage of Victor’s Mt Martha property, secure the home loans.

(vi) details of the amounts owing in respect of the four home loans as at May 2020.

By the second Hrycenko affidavit Victor gives evidence that:

(a) since appointing JP Dixon real estate on 18 March 2020 to market and sell the Frankston Property, the agent concerned moved to Black Rock Real Estate where the authority has been continued;

(b) he has sought financial relief from Dnister and is getting information together for that purpose;

(c) on May 2020 there was an attempted break‑in and attempted arson at the Frankston Property; and

(d) he believes this proceeding is ‘driven’ by Nicholas.

The El‑Hissi affidavit repeats some of the background facts, and seeks to support the contention that Nicholas is pursuing this application because of his animosity towards Victor by referring to observations of Lyons J in his reasons for Judgment. The affidavit adduces hearsay evidence from Victor that he has not consented to Dnister producing documents showing the indebtedness of VHY to Dnister, and in support of the Notice to Produce, which concerned communications between Dnister and the plaintiff.

Applicable law

A charge is described in Fisher and Lightwood’s Law of Mortgage[8] as follows:

A charge is a security whereby real or personal property is appropriated for the discharge of a debt or other obligation, but which does not pass either an absolute or a special property in the subject of the security to the creditor, nor any right of possession, but only a right of realisation by judicial process in case of non-payment of the debt.[9]

[8]Tyler, Young and Croft, 2^nd Aust. ed., Lexus Nexus Butterworths, 2005.

[9]Ibid, at p. 49 [2.2].

An equitable charge is created when property is expressly or constructively made liable to discharge a debt or some other obligation and the charge confers on the chargee a right of realisation by judicial process, such as an order for sale.[10] No special form is required to create a charge. It is sufficient if the court can fairly gather from the instrument an intention by the parties that the property referred to should constitute a security for repayment of a debt, or in this case a judgment debt. In Craddock v Scottish Provident Institution[11] Romer J said:

To constitute a charge in equity by deed or writing it is not necessary that any general words of charge should be used. It is sufficient if the court can fairly gather from the instrument an intention by the parties that the property therein referred to should constitute a security.[12]

[10]Swiss Bank Corp v Lloyds Bank Ltd, [1982] AC 584 at 594-5 per Buckley LJ, CA; Re Cosslett (Contractors) Ltd [1998] Ch 495 per Millett LJ, CA at 508. See also, National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 440 per Bankes LJ.

[11](1893) 69 Lt 380, 382.

[12]The learned judge's decision was subsequently affirmed in the Court of Appeal: (1894) 70 LT 718. See also Wilkinson v Wilkinson (1819) 3 Swan 515, at p. 527; 36 ER 958, at p. 962; Spooner v Sandilands (1842) 1 Y and C Ch C390, at p. 399; Avco Financial Services Ltd v White, [1977] VR 561, 563.

The relief available for a charge over land includes an application for judicial sale.[13]. An order for judicial sale is the standard way of enforcing an equitable charge and lies within the inherent power of the Court. The remedy is available for an unregistered second mortgagee.[14] It is, however, necessary to join as parties the registered mortgagees and to join or give notice to other unregistered mortgagees and chargees.
[13]Matthews v Goodday, (1861) 31 LJ Ch 282; Avco Financial Services Ltd v White, [1977] VR 561 at 563-4. Melbourne Tramways Trust v Melbourne Tramways and Omnibus Co (1887) 13 VLR 487.
[14]Guardian Mortgages v Miller [2004] NSWSC 1237 and King Investment Solutions v Hussain [2005] NSWSC 1076 [53] and [81].

There is also power to order a judicial sale in s 91 of the Act, which provides in s 91(2):[15]
[15]The terms of s 86 of the Act do not prevent the application of s 91 to charges of the kind in issue in this case, or perhaps to unregistered mortgages of land under the operation of the Transfer of Land Act 1958. I have not set out the terms of s91(1), which applies to a person entitled to redeem a mortgage. S 91(2) confers a wider, indeed a discrete, power: Woolley v Colman (1882) 21 Ch D 169 at 173 (Fry J); King Investment Solutions v Hussain [2005] NSWSC 1076, [70]-[71] (Campbell J).

In any action, whether for foreclosure, or for redemption, or for sale, or for the raising and payment in any manner of mortgage money, the Court, on the request of the mortgagee, or of any person interested either in the mortgage money or in the right of redemption, and, notwithstanding that—
(a) any other person dissents; or
(b)the mortgagee or any person so interested does not appear in the action—

and without allowing any time for redemption or for payment of any mortgage money, may, if it thinks fit, direct a sale of the mortgaged property, on such terms as it thinks fit, including the deposit in court of a reasonable sum fixed by the Court to meet the expenses of sale and to secure performance of the terms.

Section 91(3) provides:

But, in an action brought by a person interested in the right of redemption and seeking a sale, the Court may, on the application of any defendant, direct the plaintiff to give such security for costs as the Court thinks fit, and may give the conduct of the sale to any defendant, and may give such directions as it thinks fit respecting the costs of the defendants or any of them.

There is an inclusive definition of ‘mortgage’ in s 18 of the Act so that it includes ‘any charge or lien on any property for securing money or money's worth’. This definition encompasses an equitable charge of the kind in issue in this case so as to make the power given by the section applicable to the enforcement of equitable charges.[16]
[16]John Sands (Australia) Limited v Joske [2004] VSC 251 at [27]; United Travel Agencies Pty Ltd v Cain (1990) 20 NSWLR 566, 568-572 (Young J); Worrell v Issitch [2000] QSC 146, [4].

Subject to specific rules of court to the contrary, it is a fundamental requirement for the exercise of a court’s powers to order a judicial sale that a person whose rights will be affected by the order should be a party to the proceeding.[17] That is because the court does not take away property rights of a person, without specific statutory authority, in proceedings to which that person is not a party.[18] If a prior mortgagee or incumbrancer does not consent to the judicial sale, then ordinarily the sale will be subject to payment out of its mortgage or incumbrance.[19] Further, an order for sale obtained by a second mortgagee or chargee does not prevent a sale by a first mortgagee who is not a party to the action.[20]
[17]King Investment Solutions v Hussain [2005] NSWSC 1076, [86]-[99].
[18]Ibid, [2005] NSWSC 1076, [92].
[19]Ibid, [2005] NSWSC 1076, [95].
[20]Ibid, [2005] NSWSC 1076, [99].

There are matters that are relevant to the exercise of the discretion whether or not to order a judicial sale, as follows:

(a) A sale will usually not be ordered where there is no evidence of value of the property, although there are instances where that has happened.[21] The reason is that without some evidence of the value of the property, it would not be possible to fix a reserve price for any sale, it would not be possible to form a view about whether it was appropriate to give the mortgagor time to pay before a sale could be made (and if so how long), and there would be serious difficulties in deciding who should have the conduct of the sale, and what conditions ought be imposed for the protection of the first mortgagee.[22]

(b) If the Court is authorising the sale, it should exercise some control over the terms and manner of conduct of the sale, including the fixing of a reserve price, the timing of the sale, who has the conduct of the sale and whether there should be conditions for the protection of the first mortgagee.[23]

(c) It is also usually important to know how much debt is secured by the property, before the order for sale is made.

[21]Ibid, [2005] NSWSC 1076, [101] citing Smithett v Hesketh (1890) 44 Ch D 161, 163; Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361, 380; . the instance cited as an example of a sale without evidence of value is Wickham v Nicholson (1854) 19 Beav 38; 52 ER 262.

[22]King Investment Solutions v Hussain [2005] NSWSC 1076, [101].

[23]Ibid, [2005] NSWSC 1076, [102].

In King Investment Solutions v Hussain[24] Campbell J said that

It is usual (as is recognised in the terms of section 103(3) Conveyancing Act 1919) for the Court to give consideration to what security a person seeking an order for sale should be required to provide: Hurst v Hurst (1852) 16 Beav 372, 51 ER 822; Whitbread v Roberts (1859) 28 LJ Ch 431; Merchant Banking Co of London Ltd v London and Hanseatic Bank (1886) 55 LJ Ch 479; Cripps v Wood (1882) 51 LJ Ch 584; Norman v Beaumont [1893] WN (Eng) 45.[25]

[24][2005] NSWSC 1076.

[25]Ibid, [2005] NSWSC 1076, [106].

The terms of s 103(3) of the Conveyancing Act 1919 (NSW) are similar to s 91(3) of the Act. The provisions are each drawn from s 25 of the Conveyancing and Law of Property Act 1881 (Eng) (44 & 45 Vict c.41).[26] His Honour analysed the cases and continued:

One risk against the possibility of which it may be appropriate that security should be provided, if a sale is ordered, is that the first mortgagee might be kept out of its money during the pendency of a suit for the specific performance of a contract for the sale of the mortgaged premises: Burmester v Moxon (1866) 35 Beav 310; 55 ER 915.
The practical effect of the order for payment of the proceeds of sale into Court in the present case is that the first mortgagee will need to be involved in the proceedings to get the money out, and to establish the amount of its debt. It will inevitably incur expenses in the course of so doing. Part of the protection of the first mortgagee which the Court ought have considered is whether it should require that security be provided in relation to these expenses.[27]

[26]Ibid, [2005] NSWSC 1076, [69].

[27]Ibid, [2005] NSWSC 1076, [109]-[110].

Thus, whether it is appropriate to require security to be given turns on the particular facts and circumstances of the case. At his stage, there has been no suggestion by Dnister, as first mortgagee, that the plaintiff should provide security for its costs. But having regard to the orders that I propose to make, that opportunity will be given to it.

In relation to the fixing of the reserve price, where the sale is to be conducted by a second mortgagee or chargee, the reserve price should also be sufficient to cover the principal, interest and costs of the first mortgage.[28]
[28]Ibid, [2005] NSWSC 1076, [105]

In relation to the timing of the judicial sale, the exercise of the discretion whether to order an immediate sale depends on whether the mortgagor or chargor should be given further time to redeem the mortgage or charge. As Campbell J observed in King Investment Solutions v Hussain, an analysis of the nineteenth century cases showed there are a variety of factors that were taken into account in determining whether to give further time to the mortgagor or chargor. Usually further time was given by analogy with the position facing a mortgagor under a foreclosure decree nisi (6 months or 3 months). However, an immediate sale may be appropriate where:^[29]
[29]Ibid, [2005] NSWSC 1076, [112].

(a) all the parties interested in the equity of redemption are represented;

(b) the property is wholly unproductive;

(c) the rents are not enough to keep down the interest; and

(d) an immediate sale is ‘more propitious’, meaning the market conditions are more favourable.

Campbell J added:

The point, for present purposes, is not that the discretion to order a sale will necessarily be exercised in the twenty-first century in the same way as it was in the nineteenth. Rather, one point is that there is a discretion to be exercised, and without factual material by reference to which the discretion can be exercised, which includes at least the value of the property and the amount owing on the security of it, the exercise of the discretion itself is likely to miscarry. Another point is that the courts have exercised considerable caution in the making of orders for sale.

In relation to who should have the conduct of the sale, the Court has full discretion in the matter.[30] Generally, the person who should be chosen is the person with the interest in obtaining the largest price for the property, rather than to those who are only interested in obtaining sufficient to cover their security, so:

(a) when the security is insufficient to cover all moneys secured, the mortgagee or chargee with the greatest interest in maximizing the sale price; and

(b) when the security is sufficient to cover all moneys secured, the mortgagor or chargor, because the mortgagee or chargee has not a sufficient interest in maximising the sale price.[31]

[30]Ibid, [2005] NSWSC 1076, [122].

[31]Ibid.

An equitable charge does not give rise to a right to immediate possession of the charged property.[32] A charge can be enforced only by application to a court for an order for the judicial sale of the charged property, or the appointment of a receiver, not by the chargee taking unilateral action out of court.[33] Garfitt v Allen[34] has long stood as authority for the proposition that an equitable charge was not entitled to possession without a court order.[35] That, in my view, does not detract from the powers of the Court, including the powers under Order 55 of the Rules, to order possession or access to the Properties in favour of an appropriate person having the conduct of the sale.
[32]Taylor v Marmaras [1954] VLR 476, 478 (O’Bryan J); Paul & Paul Pty Ltd v Shacklock [2014] VSC 407, [83] (Dixon J); King Investment Solutions v Hussain [2005] NSWSC 1076; [126] (Campbell J); Avco Financial Services Ltd v White [1977] VR 561, 563 (Gillard J). See also Porter [2009] VSC 500, [71] (Vickery J).
[33]Tennant v Trenchard (1869) LR 4 Ch App 537, 542; Melbourne Tramways Trust v Melbourne Tramway & Omnibus Co Ltd [1887] VicLawRp 96; (1887) 13 VLR 487 at 490; In re Owen [1894] 3 Ch 220. Re Lloyd [1903] 1 Ch 385, 404, United Travel Agencies Pty Ltd v Cain [1990] 20 NSWLR 566; King Investment Solutions v Hussain [2005] NSWSC 1076, [51]; Tyler, Young & Croft, Fisher & Lightwood’s ‘Law of Mortgage’, 2^nd Australian Edition, 2005, [2.8].
[34](1887) 34 Ch D 48, 50.
[35]Paul & Paul Pty Ltd v Shacklock [2014] VSC 407, [83] (Dixon J).

There is little doubt that an application by an equitable chargee of land for a judicial sale is an application for a final order, and not interlocutory one. It concludes the rights of the parties inter se.[36] Campbell J concluded in King Investment Solutions v Hussain that it is hard to think of a judgment more final than a judgment that, amongst other things, orders the defendant’s land be sold.[37] That means that hearsay evidence is not admissible in this proceeding, unless an exception applies.
[36]Hall v The Nominal Defendant (1966) 117 CLR 423, 430 (Barwick CJ), 439-40 (Taylor J), 447 (Owen J); Licul v Corney (1976) 8 ALR 437, 446 (Gibbs J) (with whom Mason J agreed); Computer Edge Pty Ltd v Apple Computer Inc (1984) 54 ALR 767, 767-8 (Gibbs CJ); King Investment Solutions v Hussain [2005] NSWSC 1076, [23] and [26].
[37][2005] NSWSC 1076, [26].

The main exception relevant in this case is where the particular statement or document constitutes an admission against interest by VHY or by an agent on behalf of VHY. Sub-section 81(1) of the Evidence Act provides that the hearsay rule and the opinion rule do not apply to evidence of an admission. An ‘admission’ is defined in the Dictionary as a ‘previous representation that is made by a person who is or becomes a party to a proceeding … and [is] adverse to the person’s interest in the outcome of the proceeding’.

The Dictionary defines a ‘previous representation’ to mean a representation made otherwise than in the course of giving evidence in the proceeding in which evidence of the representation is sought to be adduced; and also defines ‘representation’ to include —

(a) an express or implied representation (whether oral or in writing); or

(b) a representation to be inferred from conduct; or

(c) a representation not intended by its maker to be communicated to or seen by another person; or

(d) a representation that for any reason is not communicated.

By s 87 of the Evidence Act it is provided that for the purpose of determining whether a previous representation made by a person is also taken to be an admission by a party, the court is to admit the representation if it is reasonably open to find that, amongst other things, when the representation was made, the person had authority to make statements on behalf of the party in relation to the matter with respect to which the representation was made.

Submissions
Plaintiff’s Submissions

The plaintiff made submissions as to the applicable law relating to equitable charges and judicial sale not unlike the summary of the law referred to above (see [34]-[38]).

The plaintiff then submitted that, irrespective of the source of the power, a judicial sale is executed in a similar way. A plaintiff, the mortgagor, seeks the orders from the Court. The plaintiff notes that the first mortgagee has agreed to the terms of sale that the plaintiff proposes. Principal, interest and costs owed to Dnister and secured under the mortgages is about $1.77M. The Frankston property is valued in excess of $3.5M and the Dromana property in excess of $700,000. Given the equity in both properties, there is no real prospect that the second defendant will not recover all monies due to it under the mortgages.

The plaintiff submitted that it was appropriate for him to have conduct of the sale for a number of reasons: the equity in the properties (after payment to Dnister) is unlikely to return the full amount subject to the Charge, as well as the fact that Victor controls VHY, is the judgment debtor and has made no effort to pay the judgment debt. The Court should have no confidence that he would proceed with any diligence to complete a judicially ordered sale. At the time the plaintiff made its written submissions, George was alive and owing to his age there was some prejudice to the plaintiff in any delay in recovering the money owed to him. That prejudice is now the usual prejudice facing a creditor seeking to recover moneys owing. Further, there has been an application by Victor for an extension of time within which to appeal from the Judgment and, despite the application being initially refused (by order made on 18 August 2020) it has been subject to a review hearing in the Court of Appeal (on 16 November 2020) and the decision on that review has been reserved.

VHY’s Submissions

VHY noted in their submissions that the Court’s power of judicial sale is a discretionary one. VHY noted that there will not usually be a sale of relevant property where there is no evidence of its value.

The defendant submitted the Court should have a certain amount of control over the sale, including the sale price, the manner and terms of sale. When exercising this power the Court can decide to hold the sale of the property until redemption can occur.[38]
[38]First Defendant’s Submissions, 15 May 2020, 6 [25].

VHY then made three main submissions regarding the plaintiff’s application, which I set out below.

Reliance on affidavit

The defendant made submissions regarding the plaintiff’s reliance in this application on affidavits made by the plaintiff’s solicitor. The defendant submitted the affidavit material must be confined to facts within the deponent’s own knowledge, and by relying on affidavits from the plaintiff’s solicitor, made on information and belief, there is no credible information regarding the value of the Properties or the amount owed under the mortgages to Dnister.

VHY submitted that the appraisals of the Properties the plaintiff had provided to the Court have a range of problems, including: that the appraisals of the Frankston and Safety Beach properties are hearsay and not admissible, the Frankston Property appraisal is six months old and the property market has changed significantly in the current COVID-19 pandemic, and the Safety Beach Properties’ appraisal is over 28 months old.

VHY submitted that the plaintiff makes their application on ‘marketing advice’ that is unreliable, and is a valuation that the plaintiff themselves have not obtained.[39] VHY also set out its objections to the plaintiff’s affidavit material in Annexure A to VHY’s submissions. I set out in Annexure A to these reasons the objections made by VHY with my very brief ruling. VHY submitted that, from an evidentiary basis the plaintiff has not proved their case and on this basis the application should be dismissed.
[39]First Defendant’s Submissions, 15 May 2020, 9-10 [34].

VHY also submitted that:

(a) the attempt to tender the appraisals of value of the Properties is in clear breach of the implied Harman undertaking. The Court ought not to condone blatant breaches of the Harman undertaking; and

(b) the hearsay evidence given by Mr O’Donnell of the amounts owing by Victor and VHY to Dnister set out in the fifth O’Donnell affidavit (at [12]) and in the documents produced in exhibits JOD-22 and JOD-23 to that affidavit should not be admitted into evidence because it was illegally obtained in breach of the The Privacy Act 1988 (Cth) (Privacy Act), The Australian Privacy Principles (APP), The privacy and confidentiality provisions contained in the Customer Owned Banking Code of Practice (Code) and the National Consumer Credit Protection Act 2010.[40]It was also submitted that its probative value is substantially outweighed by the danger that the evidence might be unfairly prejudicial to VHY.[41]

[40]Pursuant to s 138 of the Evidence Act 2008 (Vic).

[41]Pursuant to s 135 of the Evidence Act 2008 (Vic).

Plaintiff should not control the sale

A second main submission of VHY is that the plaintiff should not control the sale. This submission is partly made on the basis that the plaintiff has not obtained an accurate valuation of the Properties. VHY submits that if the plaintiff were to be given the control over the sale of the Properties, he would need to abide by s 420A of the Corporations Act 2001 (Cth), which requires controllers to obtain ‘not less than market value’ in a sale. VHY submits this is not possible on the current evidence.

VHY also submitted that there is an ongoing animosity between Victor and Nicholas, and that owing to this there is a risk the sale will not be carried out in good faith. Despite the death of George, any animosity has continuing relevance to the orders that might be made in this case.

Factors relevant to the exercise of the discretion

VHY made a number of submissions on factors to be considered in the exercise of the Court’s discretion to order a judicial sale:

(a) the Frankston Property is currently being rented and that an equitable charge has no right to possession of a rented property;

(b) the Court should not order a sale unless it can go on and complete the sale in every necessary way, giving possession and insuring that the title deeds be handed over;

(c) JP Dixon Real Estate and Black Fox Real Estate have been engaged to market and sell the Properties on an exclusive basis. If any other agent is engaged and the Properties are sold during the exclusive authority period, VHY will be liable for double commission. A highly uncommercial position which will not benefit any party;

(d) in the current COVID-19 epidemic, the properties will be sold for less than their market value and that there is no evidence that delay will prejudice the plaintiff; and

(e) VHY is solvent and currently in the process of seeking an extension of time within which to seek leave to appeal the Judgment of Lyons J. In these circumstances, if the Court decides a judicial sale is appropriate, it would be sensible to delay the sale to await the COVID-19 pandemic to subside and to allow the parties to have a clearer idea on their position given the appeal that is on foot.

VHY submitted that if there was a sale, it should be given conduct of it as it has already engaged real estate agents, there is no evidence before the Court of the value of the properties and there is no evidence from the plaintiff on how he would conduct the sale. Further, the plaintiff should provide the Court with a security to ensure that the sales were being carried out in accordance with s 420A of the Corporations Act 2001 (Cth).

Plaintiff’s Submissions in Reply

The plaintiff filed some short submissions in reply, dealing with what they saw as the defendants three main submissions: there is insufficient evidence of the sale price of the Properties, the sales should be postponed to minimise loss to VHY and that VHY should conduct the sales. They also filed further submissions in reply to the submissions as to the admissibility of evidence adduced in the fifth O’Donnell affidavit of the loan amounts outstanding secured under the Dnister mortgages.

Regarding the first submission, the plaintiff noted that VHYs’ assets are insufficient to meet liabilities to Dnister and the plaintiff. VHY will have no remaining equity in the Frankston or Safety Beach properties after discharging its obligations under the mortgages and the Charge. Practically speaking, VHY has no interest in the sales which will payout the mortgagee but be insufficient to exhaust the plaintiff’s interest under the Charge. It is not in the position of many mortgagors who might expect to retain an interest in the surplus. In light of this fact, many of VHY’s objections to the sale are somewhat sterile

With respect to the second submission, the plaintiff submitted that authorities such as King Investment Solutions v Hussain[42] and Manton v Parabolic Pty Ltd[43] show that setting a reserve price for the sale of properties is to the benefit of the mortgagees, in this case the plaintiff and Dnister. VHY, therefore, has no place taking this type of objection on behalf of Dnister. Unlike in King Investment Solutions, Dnister has been joined as a party to this proceeding and does not oppose the order sought by the plaintiff. The Court can be reassured that Dnister is not concerned that its interests are being adversely affected.
[42][2005] NSWSC 1076.
[43](1985) 2 NSWLR 361.

With respect to the third submission, that the sales of the properties should be postponed, the plaintiff submitted that:

(a) the present situation has nothing in common with the typical mortgagor who is in default under a contract with the mortgagee to repay a loan usually over a number of years or decades;

(b) VHY’s submission that the sale should be postponed because VHY ‘is solvent and expects to pay off the mortgage’ is asinine. The debt secured by the Charge is payable now.

(c) the right to sell conferred by the charge is to enable the plaintiff to realise his debt. A mortgagee is entitled to consider its own interests when organising a sale of a property and he ‘is entitled to sell at the time of his choice and without waiting for a time which a selling owner might consider more propitious’;[44]
[44]Henry Roach (Petroleum) v Credit House (Vic) [1976] VR 309, 313; Investec Bank v Glodale (2009) 24 VR 617.

(d) none of VHY’s objections to an immediate sale are put on an adequate evidentiary footing, but it follows from the cases just cited that as a matter of law the Court ought not have regard to them in any event. It is not relevant to a proper exercise of the Court’s discretion that VHY desires to wait for a possible upturn in the market, for repairs to be carried out to its properties or to hold out for a joint sale with its neighbours;

(e) with respect to the suggestions of animosity between the plaintiff and director of VHY, the plaintiff states that the allegations made against Nicholas are scandalous and should be withdrawn; and

(f) not only does VHY fail to identify any good grounds to postpone a sale, but its own material suggests that there is some urgency as its equity in the properties is being eroded. Victor Hrycenko deposes that VHY is unable to pay its mortgages and the plaintiff has adduced evidence that there are already significant arrears.

The plaintiff submits that he should have conduct of the sale. The plaintiff rejected VHY’s submissions it should have conduct of the sale, noting that:

(a) as the likely recipient of the entire surplus, the plaintiff has the best interest in getting the highest price for the sale;

(b) VHY has engaged in obstructive conduct designed to delay the sale of the Properties;

(c) on 28 February 2020, Victor Hrycenko asked for time to sell assets to satisfy judgment;[45]
[45]Exhibit JOD-9 to the second O’Donnell affidavit.

(d) on 2 March 2020, the plaintiff’s solicitors asked for ‘a detailed proposal of the steps your client intends to take to satisfy judgment including what assets are to be sold and when’.[46] No reply was received to this letter;
[46]Exhibit JOD-10 to the second O’Donnell affidavit.

(e) on 28 March 2020, this proceeding was commenced;

(f) on 31 March 2020, VHY and Victor wrote seeking an extension of six months to pay the judgment debt.[47] In that letter their solicitor wrote, ‘We again reiterate that our client is prepared to take the necessary steps to satisfy the judgment debt and has already commenced.’ In fact, none of VHY or Victor’s properties were then or have since been listed for sale;[48]
[47]Exhibit JOD-11 to the second O’Donnell affidavit.

(g) during April 2020, Victor deposed that he decided with his real estate agents not actively to market any real property.[49] None of this was communicated to the plaintiff. VHY then failed to comply with directions made 3 April 2020 causing further delay;
[49]First Hrycenko affidavit [24], [28] & [33].

(h) on 5 May 2020, VHY and Victor’s new solicitor, Omar el-Hissi advised the Court that it was no longer their intention to pay the judgment but to appeal and gave this as a justification for postponing the sale;

(i) Victor’s suggestion that he has not been provided with sufficient time to market and sell the properties is disingenuous. VHY has been aware of the decision of Justice Lyons from 23 October 2019. The plaintiff submitted this was more than an adequate amount of time to sell the properties. There has been more than sufficient time for a sale of assets on his terms to satisfy judgment. The failure to do so can only be explained by unwillingness;

(j) VHY’s submissions and the supporting affidavit material from Victor are in bad faith. The flavour of Victor’s affidavits is that he appears to believe that any manoeuvre to avoid paying the judgment is justified as the proceeding and its enforcement are merely ‘driven by a toxic relationship between Nicholas Hycenko and [himself]’ and based ‘on false pretenses and misleading information’;[50]

(k) the material and submissions filed by VHY only serve to underscore and validate the plaintiff’s original submission that the Court should have no confidence that steps towards a sale would be taken if VHY controlled the sales; and

(l) VHY is not a ‘responsible person’ who should be given the responsibility of handling the sales.

[50]First Hrycenko affidavit, [11]-[14].

The plaintiff also submitted that one of the bases submitted by VHY for it to have the conduct of the sales was not reliable. That basis was that VHY had executed exclusive sale authorities with JP Dixon Real Estate and Black Fox and if any other agent is engaged and the Properties are sold during the exclusive authority period, VHY will be liable for double commission.[51] It was submitted that the Court should conclude that the authorities do not exist because:
[51]First Hrycenko affidavit, [43].

(a) neither authority is exhibited to VHY’s affidavits;

(b) the authorities were not provided by Mr Komesaroff on 31 March 2020 when he provided an exclusive sale authority for 31 Mount Martha Rd as evidence of the steps being taken address the judgment debt;[52] and

(c) they have never been previously referred to.

[52]Exhibit JOD-11 to the second O’Donnell affidavit.

In the alternative, the plaintiff submitted that because the terms of the alleged exclusive authorities have not been provided there is no evidentiary basis to assert that VHY would be liable for a double commission. Further, whatever VHY’s contractual obligations are to third-parties, they cannot fetter the plaintiff’s right to sell the charged property.

With respect to VHYs’ arguments regarding evidence, the plaintiff addressed two objections specifically. First, the plaintiff submits that VHYs comments that the appraisals of the properties are hearsay is misplaced. The appraisals are expert opinion evidence. The documents were provided to the plaintiff by VHY’s former solicitors for the purpose of establishing the value of each property. No objection was taken by VHY to their tender on this basis. Further, r 44.04 provides that ‘unless otherwise ordered, a party may put in evidence a report served on that party by another party under this Order’.

Secondly, the plaintiff notes that Victor has objected to comments in an affidavit that state the judgment debt has not been paid, referring to this as hearsay. As solicitor with conduct of the plaintiff’s matters, Mr O’Donnell has personal knowledge of any payments towards the judgment debt. The plaintiff notes that this fact is not in dispute, but despite this the objection has been taken.

The plaintiff submits that many of VHY’s claims made in its affidavits are unsubstantiated by evidence. This includes that the current conditions created by the COVID-19 crisis means that the properties will be sold at lower prices. The plaintiff submitted the court should reject VHYs’ evidentiary objections.

In relation to the admissibility of the Notices of Default, the plaintiff submitted they were admissible as business records and the exception to the hearsay rule established by s 69(2) of the Evidence Act applies.

In relation to the submission that the evidence of the amounts due to Dnister set out both in the Notices of Default and in the information given by the solicitor for Dnister to Mr O’Donnell, and set out in his fifth affidavit at [12], the plaintiff contended that Victor’s submissions did not identify with any clarity the alleged illegality or impropriety that would attract the operation of s 138 of the Evidence Act. There appears to be no proper basis for the submission that the disclosure by the Dnister was ‘plainly in direct contravention to (sic) Dnister’s obligations under the Privacy Act, the APP, and, the Code’.

In relation to the admissibility of the evidence of the amounts owing secured by the mortgages of the Properties, and Victor’s arguments that the evidence should be excluded under s 138 of the Evidence Act, the plaintiff noted the following:

(a) the terms of the loan contracts are not in evidence before the Court;

(b) Dnister is the second defendant to this proceeding;

(c) Dnister has an obvious and legitimate interest in ensuring that the balances secured by its mortgages are placed before the Court;

(d) Dnister’s disclosure was made during the course of this proceeding; and

(e) the terms of the Undertaking given by Victor required him to continue to pay the sums owed pursuant to the Dnister mortgages and provide the plaintiff with monthly statements in respect of each mortgage account.

The exclusion of evidence under s 138 is discretionary. The evidence could have been obtained by a Notice to Produce, as Victor conceded. Any contravention of Australian law, if it occurred, was clearly trivial and arose in part due to Victor’s breach of undertakings. The desirability of admitting the evidence clearly outweighs the desirability of excluding it. Should the Court be required to exercise its discretion under s 138(1) of the Act, it is submitted that its discretion ought to be exercised in favour of the plaintiff and second defendant.

Consideration

The issues to be decided can be set out and considered discretely under the following headings.

Admissibility of appraisals of value

The evidence of the appraisals and their source is:

(a) in relation to the Frankston Property appraisal, the evidence in the first O’Donnell affidavit that ‘on about 21 January 2020, Victor Hrycenko's then solicitors provided copy appraisal for the Properties valuing the Frankston Property at between $3.5-3.7 million. Now produced and shown to me and marked “JOD-7” is a copy of the appraisal.’ Despite referring to appraisal of both Properties, only the Frankston Property appraisal is produced; and

(b) in relation to the Safety Beach Property, the evidence in the third O’Donnell affidavit that ‘on 30 January 2018, Victor Hrycenko received a letter from YPA Estate Agents Rye stating that ‘Due to the properties (sic) subdivision potential and unit sites being ion (sic) high demand, your property is valued between $700,000 to $750,000… Now produced and shown to me and marked “JOD-14” is a copy of the YPA letter of 30 January 2018.’

The first ground to exclude the appraisals is that they are hearsay and not admissible in this proceeding because it is not an interlocutory hearing but a trial that will lead to final orders. That submission is clearly correct. But the appraisals were voluntarily given by Victor’s former solicitors either for the purpose of persuading the plaintiff that the security of the Properties was a good substitute for the Freezing order (in the case of the YPA appraisal of the Safety Beach Property) or for the purposes of negotiating the terms of the final Judgment (in the case of the Frankston Property).

For the purposes of this proceeding, under the Evidence Act they are admissions (see s 81 and the definition of ‘admission’) made by an agent of VHY (see s 87(1)(a)) that is adverse to its interest in the outcome of this proceeding. They therefore come within an exception to the hearsay rule (s 59). It is then necessary to turn to the objection based on the Harman implied undertaking.

The alleged breach of the Harman undertaking was not elaborated. I assume it is a reference to the proposition that the appraisals were given to the plaintiff’s solicitors for the purposes of, or in the course of, the 2017 proceeding, and so constitutes the use, in this proceeding, of documents produced under compulsion in the 2017 Proceeding.

The Harman implied undertaking is that where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence.[53]
[53]Hearne v Street (2008) 235 CLR 125, [96] (Hayne, Heydon & Crennan JJ, Gleeson CJ agreeing)(‘Hearne’). In Connective Services Pty Ltd & Anor v Slea Pty Ltd & Ors [2017] VSC 182, [73], Almond J was not satisfied that the plurality in Hearne in passing remarks characterised as ‘background legal principles … not in controversy’ intended to establish the proposition that if a document is tendered in evidence the implied undertaking is released or satisfied.

In the decision from which many derive the name of the implied undertaking, Harman v Secretary of State for the Home Department[54] Lord Diplock referred to the prohibition on the use of the documents obtained under compulsion as use of them ‘for some collateral or ulterior purpose unconnected with the proper conduct of the action … in which they were disclosed’.[55]
[54][1983] 1 AC 280.
[55]Ibid, 306.

The obligation arising from the implied undertaking can be released or modified by the court. That dispensing power will only be exercised where special circumstances appear.[56] In Springfield Nominees v Bridgelands Securities,[57] Wilcox J said:[58]

For ‘special circumstances’ to exist it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. The matter then becomes one of the proper exercise of the court’s discretion, many factors being relevant. It is neither possible nor desirable to propound an exhaustive list of those factors. But plainly they include the nature of the document, the circumstances under which it came into existence, the attitude of the author of the document and any prejudice the author may sustain, whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain, the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information), the circumstances in which the document came into the hands of the applicant for leave and, perhaps most important of all, the likely contribution of the document to achieving justice in the second proceeding

[56]Hearne [107]; See also Esso Australia Resources Limited v Plowman (1995) 183 CLR 10, 37; Barrow v McLernon & Anor [2012] VSC 134 [27] (‘Barrow v McLernon’). See also s 26 and 27 of the Civil Procedure Act 2010 (Vic).

[57](1992) 38 FCR 217.

[58]Ibid, 225. See also Barrow v McLernon, at [27]-[31].

The purpose of the implied undertaking is to protect against the misuse of material produced under coercion of the Court’s processes, not to prevent a party’s access to justice. If the proposed use is for the purposes of other proceedings, the Court’s power in relation to its own proceedings will provide the necessary protection against misuse. The existence of the implied undertaking cannot fetter or restrict the Court’s power in relation to its own processes in proceedings instituted before it.[59]
[59]Laen Pty Ltd v At the Heads Pty Ltd & Ors, [2011] VSC 315, [10] (Davies J).

There is no suggestion that the appraisal of the Frankston Property in exhibit JOD-7 was given under any compulsion. The reasons for judgment had been published and the parties were negotiating the terms of the Judgment at the time VHY’s former solicitors gave the Frankston Property appraisal to the plaintiff’s solicitors. It was a voluntary disclosure by Victor’s solicitor and agent at the time. There is no direct evidence regarding the circumstances in which the letter in exhibit JOD-14 containing the YPA appraisal of the Safety Beach Property was obtained by the plaintiff. As I have already said, however, I infer that this appraisal was given to the plaintiff’s solicitors by VHY’s solicitors at the time of, and for the purposes of, the request made that the Charge be given in place of the Freezing Order. Thus, there is no reason to conclude that the implied undertaking applies to the appraisals.

It is relevant that the Judgment records in the ‘Other Matters’ that ‘[t]he defendant and VHY Enterprises Pty Ltd by their counsel renew the Charge and Undertaking given on 15 May 2018 until satisfaction of this judgment or otherwise by order of the Court.’ Thus the Charge and Undertaking continue in force and are plainly intended to do so for the purposes of execution of the Judgment. This proceeding is brought for the purposes of execution of the Judgment. If I am wrong that the implied undertaking does not apply to them, I consider there are special circumstances that warrant leave being granted to the plaintiff to rely on them, for what they are worth.

Amounts owing to Dnister

In relation to the amounts owing by Victor and VHY to Dnister set out in the fifth O’Donnell affidavit (at [12]) and in the documents produced in exhibits JOD-22 and JOD-23 to that affidavit, both derived from the solicitor for Dnister. Mr El-Hissi, on behalf of VHY, made an extensive written submission setting out in detail the breach of privacy involved in the solicitor for Dnister providing to the solicitor for the plaintiff the details of amounts owed by VHY to Dnister so as to attract the discretion given by s 138 of the Evidence Act.

I agree with the submissions of the plaintiff regarding the Notices of Default and the information about the amounts due by VHY to Dnister given by Dnister’s solicitor to the plaintiff. The terms of the loan contracts are not in evidence before the Court and without them it is not possible to conclude that there has been any breach of the Privacy Act, the Australian Privacy Principles or any other applicable code. Further, if it is assumed, for arguments sake, that the provision of the information by Dnister was unlawful, nevertheless the exclusion of evidence under s 138 is discretionary. The evidence could have been obtained by a Notice to Produce, as Mr El-Hissi conceded. Any contravention of an Australian privacy law, if it occurred, was clearly trivial and arose in part due to Victor’s breach of undertakings, by failing to provide the monthly statements pursuant to the Undertaking. The desirability of admitting the evidence clearly outweighs the desirability of excluding it. If there was any illegality in the provision of the Notices of Default and the other information, in the exercise of my discretion under s 138(1) of the Evidence Act, I consider that the desirability of admitting the evidence outweighs the undesirability of admitting it.

In any event, in my view the documents and information given by Dnister was disclosure by a party to the proceeding with a legitimate interest in ensuring that the balances secured by its mortgages are placed before the Court.

The plaintiff submitted that the appraisals complied with Order 44 of the Rules. In my view, the evidence of the values of the Properties in the appraisals is not expert evidence that satisfies the requirements of Order 44 of the Rules. Compliance with Order 44 has a number of requirements. The appraisals do not meet the requirements of r 44.03 and do not comply with the Expert Witness Code of Conduct.

There is also considerable doubt as to whether the appraisals satisfy the requirements for the admission of opinion evidence under s 79 of the Evidence Act. The first requirement for the admission of an expert opinion is that the witness has special skill or knowledge in the field in which his opinion as expressed. This is the case both at common law[60] and under the Evidence Act.[61] Neither appraisal includes any information about the author’s training or experience or their skill or knowledge of the field of real estate valuation, although some assumptions in that regard might be available from their respective occupations.
[60]HG v The Queen (1999) 197 CLR 414 at 432 per Gaudron J.
[61]S. 76 (rule against opinion evidence) and s.79 (exception for experts).

Nevertheless, they each have been provided by VHY’s former solicitors and are previous representations that they are values ascribed to the Properties to VHY, and thereby constitute admissions in this proceeding that are adverse to its interests, making them admissible under s 81 the Evidence Act. Notwithstanding that they are admissible, however, I will give them little weight. They are at best some indication of possible market value. They are at considerable variance to the values on the Rate Notices exhibited to the first Hrycenko affidavit (see above at [29]).

Should an order for judicial sale?

There is no dispute that the relief available for a chargee of land in the circumstances of this case is an application for judicial sale. Indeed, apart from a voluntary sale of the Properties by VHY, there is no other effective means for the plaintiff to execute on the Charge. The thrust of the submissions made by VHY is that in the absence of admissible evidence as to the debts due to Dnister secured by the Properties and as the values of the Properties, the application should be refused. I have found that the evidence to which objection is taken is admissible. There is sufficient evidence as to the debts secured by, and the approximate values of, the Properties to warrant a decision, at least on a preliminary basis, that the Properties be the subject of a judicial sale. It needs to be born in mind that this application has been subject to unusual delays and is made during the extraordinary events of the COVID-19 pandemic. Those circumstances show that there needs to be some latitude given in relation to the precise quantum of the debts secured and the valuations of the Properties.

The method of approaching the making of orders for the sale of the Properties referred to below - of requiring proposals from Real Estate Agents - will be likely to overcome some of the present uncertainty as to the real market value of the Properties in the current market conditions. Subject to the provision of the further information as set out below, and subject to detailed orders giving to the Court some control over the terms and manner of the sales, I propose to order a judicial sale of the Properties.

It is quite clear that under the Charge the plaintiff has an equitable interest as chargee in the Properties. There was no dispute as to this. Accordingly there is no reasons why declarations to that effect should not be made as sought by the plaintiff.

Who should have the conduct of the sale?

The applicable law as I have set it out supports the submissions made by the plaintiff that, prima facie, the plaintiff rather than VHY should have control of the sale. The indicated values of Properties is insufficient to cover all moneys secured, so that the plaintiff, as chargee, has the greatest interest in maximizing the sale price. It is also relevant that the material filed shows clearly that Victor has sought to frustrate and delay any sale of the Properties. In this regard I agree with the submissions of the plaintiff.

The evident animosity between Nicholas and Victor is also a factor. Despite the plaintiff’s submission that the allegations made against Nicholas are scandalous and should be withdrawn, there is substance to them in the reasons for the Judgment given by Lyons J.[62] It is also evident that Victor bears animosity towards Nicholas.
[62]Hrycenko (by his Litigation Guardian Michael Kornitschuk) v Hrycenko [2019] VSC 700, [4], [43], [78] and [89].

For this reason, and because of the desirability of the Court exercising some control over the terms and manner of conduct of the sale, I will follow the practice sometimes adopted in these applications and require the plaintiff to select two appropriate and independent Real Estate Agents, carrying on business in the locality of the land in question, to prepare and have placed before the Court proposals for the marketing and sale of the land in question, covering the commission, advertising expenses, recommended reserve price, method of sale and the like. Once they are available, a preferred selling agent will be selected and detailed orders will be made relating to the sale of the land, including setting the reserve price (subject to variation in the event that the selling agent formally advises that the reserve price fixed by the order is greater than the market value of the land), prescribing the form of the contract, and appointing a particular solicitor to conduct the sale and requiring VHY to give the appointed estate agent access to, as distinct from possession of, the Properties.

The timing of the sales

So far as concerns the timing of any sale, there are a number of factors that point to the marketing and sale of the Properties to be undertaken in the first quarter of 2021, for the following reasons:

(a) there is an outstanding application to review the initial decision to refuse Victor’s application for an extension of time within which to appeal from the Judgment. The decision on that review is, at this stage, still reserved. It would impose on the parties a waste of resources to progress the sale of the Properties too rapidly;

(b) it is likely to be too late to commence the process of obtaining proposals from Real Estate Agents in the time between the publication of these reasons (and the making of appropriate orders in consequence) and the Christmas Holidays; and

(c) since the last submissions were made by the parties in late October 2020, there have been significant changes in the restrictions imposed to control the spread of the COVID-19 infections. Victoria has opened up in a way that will enable fair values to be established with greater confidence.

Other matters

The amounts owing by VHY to Dnister as at May 2020 were comprised of four home loans. The total owing is, more likely than not, secured by the Properties as well as by Victor’s home at Mt Martha, which he has proposed to sell. Three of the loans appear to be in the name of the VHY, being loan numbers 287000980, 287001055 and 287001207. The total outstanding on these loans as at 7 May 2020 was approximately $1,242,617. It would be surprising, however, if Dnister has not collateralized the securities so that all loans are secured against all properties owned by VHY and by Victor.

The passage of time is likely to have had an impact on the amounts owing to Dnister that are secured by the Properties. It will be necessary to order Dnister to file affidavit material as to the exact amounts owing by VHY that are secured by the Properties and whether the amounts are cross-collateralised with the loan secured on Victor’s Mt Martha property. It will also be relevant to know whether Dnister will seek from the plaintiff security for any of Dnister’s anticipated costs and expenses.

It will also be desirable for the court to appoint the solicitor who is to undertake the conveyancing for the sale of the Properties. For that purpose, I propose to require the plaintiff’s solicitor to identify a conveyancing solicitor, who may be a solicitor in the plaintiff’s firm, and obtain that solicitors consent to act under an order of the Court. Once that is done, the plaintiff will instruct that solicitor to prepare a Vendor’s statements, pursuant to s 32 of the Sale of Land Act 1962 (Vic), and contracts of sale for each Property.

Conclusions

Subject to the provision of further information as set out above, and subject to detailed orders giving to the Court some control over the terms and manner of the sales, I propose to order a judicial sale of the Properties. It is desirable to indicate the orders that I am inclined to make in general outline:

(a) declarations that the plaintiff has an equitable interest in the Frankston Property and the Safety Beach Property and that those interests are equitable charges ranking second behind only the first ranking registered mortgages AF197528M and AH633801B (respectively) in favour of Dnister;

(b) by a certain date to be specified, Dnister shall file and serve an affidavit by a proper officer deposing to the debts due to it by VHY secured by the Properties, whether the Properties secure the debts due by Victor to Dnister, Dnister’s estimated values of the Properties and whether Dnister seeks any and if so what security be provided for its costs;

(c) by a certain date to be specified, the solicitor for the plaintiff shall file and serve an affidavit exhibiting written proposals from two experienced real estate agents operating in the locality of the Properties for the marketing and sale of the Properties, covering estimated market values, timing of the sales, commission, advertising expenses, recommended reserve price, method of sale and form of the contracts of sale (Agent’s Proposals);

(d) for the purpose of enabling the preparation of the Agent’s Proposals, orders will be made for access to the Properties to be given to nominated real estate agents notified by the plaintiff’s solicitors to VHY’s solicitors;

(e) the plaintiff’s solicitor shall forthwith identify a conveyancing solicitor, who may be a solicitor in the plaintiff’s firm, who is prepared to act for the plaintiff in the sale of the Properties and who will, at the appropriate time, prepare Vendor’s statements, pursuant to s 32 of the Sale of Land Act 1962 (Vic), and the contracts of sale for each of the Properties;

(f) after the filing and service of the plaintiff’s solicitors affidavit exhibiting the Agents Proposals, the solicitors for the plaintiff, VHY and Dnister shall notify the Court of the selling agent they each recommend be appointed to conduct the sales; and

(g) the proceeding will then return to court for the making of detailed orders for the sale of the Properties, subject to such sale continuing to be appropriate having regard to the details of the amounts secured by the Properties and the values of the Properties.

My Associate will fix a time for a hearing, by audio-visual link, next week for the orders I propose to be discussed.

Annexure A

First O’Donnell affidavit
Para	Passage	Grounds	Ruling
4	...has an outstanding judgment debt, etc.	Hearsay (s 59) Unfairly prejudicial (s 135)	Not Hearsay, from own knowledge.
13	Entire paragraph	Hearsay (s 59); Unfairly prejudicial (s 135)	Not Hearsay, from own knowledge.
14	Entire paragraph	Opinion (s 76); Relevance (ss 55 and 56); Unfairly prejudicial (s 135); Hearsay (s 59); Harman breach.	Refer to reasons at [82]-[97].
15	Entire paragraph	Unfairly prejudicial (s 135); Hearsay (s 59); Harman breach.	Refer to reasons at [82]-[97]
Third O’Donnell affidavit
4	Entire passage	Opinion (s 76); Relevance (ss 55 and 56); Unfairly prejudicial (s 135); Hearsay (s 59); Harman breach.	Refer to reasons at [82]-[97]
Fourth O’Donnell affidavit
4	Entire passage	Relevance (ss 55 and 56); Unfairly prejudicial (s 135)	Relevant and not prejudicial
6	Entire passage	Relevance (ss 55 and 56); Unfairly prejudicial (s 35); Hearsay (s 59)	Relevant and not prejudicial
22	and any further delay at his advanced age living in a nursing home with an uncertain life expectancy is detrimental to his recovery under the Judgment	Opinion (s 76); Relevance (ss 55 and 56); Unfairly prejudicial (s 135)	Relevant and not prejudicial
24	Entire passage	Relevance (ss 55 and 56); Unfairly prejudicial (s 135)	Relevant and not prejudicial
26	Entire passage	Opinion (s 76); Relevance (ss 55 and 56); Unfairly prejudicial (s 135)	Relevant and not prejudicial
Fifth O’Donnell affidavit
3	24 April	The plaintiff has conceded that this is an error and refers to an affidavit filed in the 2017 proceeding	Up held but of no consequence
4	Entire passage	Hearsay (s 59); Unfairly prejudicial (s 135)	Upheld, and of no significance
5	I also note that the mooted application for leave to appeal reneges on assurances given by Victor Hrycenko through his solicitor	Opinion (s 76); Relevance (ss 55 and 56); Unfairly prejudicial (s 135)	Relevant and not opinion nor unfairly prejudicial.
10	This statement is disingenuous as Mr Hrycenko was aware of the outcome with the Honourable Justice Lyons handing down the written reasons for Judgment on 23 October 2019, some 6.5 months ago.	Relevance (ss 55 and 56) Unfairly prejudicial (s 135) Opinion (s 76)	Relevant and not opinion nor unfairly prejudicial.
12	Entire passage and Exhibit JOD-23	Unfairly prejudicial (s 135), Obtained in breach of the Second Defendant’s obligations of confidentiality and privacy.	Refer to reasons at [82]-[97]

SCHEDULE OF PARTIES

S ECI 2020 01480
BETWEEN:
NICHOLAS HYCENKO (as Executor of the Estate of GEORGE HRYCENKO, deceased)	Plaintiff
- v -
VHY ENTERPRISES PTY LTD (ACN 125 811 654)	First Defendant
DNISTER UKRAINIAN CREDIT CO-OPERATIVE LTD	Second Defendant
KEYPOINT LAW PTY LTD (ACN 168 229 909)	Third Defendant
MORNINGTON PENINSULA LEGAL SERVICE PTY LTD (ACN 609 960 652)	Fourth Defendant

[48]Fifth O’Donnell affidavit, [5]-[10].

Citations

Hycenk v VHY Enterprises Pty Ltd [2020] VSC 834

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11 December 2020