Jun Ji v Cambray Place
[2015] VCC 1285
•14 September 2015
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for Publication |
AT MELBOURNE
COMMERCIAL DIVISION
GENERAL CASES LIST
Case No. CI-15-01747
| Jun Ji & Ors | Plaintiff |
| v | |
| Cambray Place Pty Ltd | Defendant |
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JUDGE: | Judicial Registrar Tran | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 August 2015 | |
DATE OF RULING: | 14 September 2015 | |
CASE MAY BE CITED AS: | Jun Ji & Ors v Cambray Place | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 1285 | |
REASONS FOR RULING
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Catchwords: Practice & Procedure – Summary Judgment – No point of principle
Legislation Cited: Australian Securities and Investments Commission Act 2001, Competition and Consumer Act 2010 (Australian Consumer Law), Consumer Credit Code
Cases Cited:Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158, Feldman v Frontlink Pty Ltd [2014] VSCA 27, Kennedy v Shire of Campaspe [2015] VSCA 47, Perpetual Trustee Co Ltd v Burniston (No 2) [2012] WASC 383
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Ravech | Spigler & Schwarcz |
| For the Defendant | Mr J Levine | Kotsifas & Associates |
JUDICAL REGISTRAR:
The Plaintiffs seek to enforce a registered second mortgage over land at 55 and 55a Maud Street, Geelong (“Geelong properties”). They have sought summary judgment for the amounts due under the mortgage, possession and costs.
Uncontroverted factual background
The second mortgage is dated 25 March 2014 and was granted by the Defendant to secure repayment of the principal sum of $500,000. The mortgage provided for interest to be paid monthly commencing on 25 April 2014, at a “higher rate” of 30%, however the Plaintiffs agreed to accept a “lower rate” of 25% if the Defendant paid interest within 7 days of the date upon which interest was due and there was no event of default under the mortgage. The mortgage was registered as a second mortgage over the Geelong properties on 8 May 2014.
The Defendant did not pay the instalment of interest due on 25 June 2014 within 7 days or at all. Clause 8.3 of the Memorandum of Common Provisions which formed part of the mortgage abridged the time fixed for the service of the notice required to be served under s.76 of the Transfer of Land Act 1958 (Vic) (“TLA”) to seven days. A notice was served on the Defendant by sending it by post to the Defendant on 3 July 2014. By operation of clause 10.1(c) and (g) and clause 10.2(b) of the Memorandum of Common Provisions in the Mortgage, the Notice is taken to have been validly served on the Defendant on Friday 4 July 2014.
The Defendant has made no further payments to the Plaintiffs.
In the event of default, and provided the notice provisions of clause 8.3 have been complied with, the mortgage empowers the Plaintiffs to require that the Defendant pay the Secured Money immediately (8.2(1)), to take possession of the land (8.2(2)) and to exercise other rights and powers and remedies a mortgagee has at law (8.2(9)).
Prima facie, therefore, the Plaintiffs are entitled to the judgment they seek.
Procedural History
The writ was filed on 2 April 2015.
On 9 June 2014 a “notice of defence” was filed by the Defendant’s then solicitors. It is fair to say that this somewhat rambling document obscures rather than clarifies the defence of the Defendant.
The application for summary judgment was filed on 15 July 2015 and first came on for hearing on 5 August 2015. On that day I made a timetable for service of further affidavit material and adjourned the hearing to 19 August 2015. Further affidavit material was filed and served by both parties. Again, the affidavit filed on behalf of the Defendant was a somewhat rambling document. Despite a request from the Plaintiff, no proposed amended defence was filed and served.
At the hearing on 19 August 2015, Counsel for the Defendant finally articulated five defences which were relied upon by the Defendant in opposition to the application for summary judgment. Those defences were:
1) the loan the subject of the proceeding was part of a larger transaction which included a loan secured over a property in South Yarra which was subject to National Credit Code (“the Code”). The Code having been breached, this Court has the power to re-open the entirety of the transaction, including the loan the subject of this proceeding (“the Code Defence”)
2) the deed of priority required the consent of the vendor for assignment of the first mortgage, which consent had not been obtained (“Deed of Priority defence”).
3) the plaintiffs had engaged in misleading or deceptive conduct through the actions of the broker, Mr T, who was said to be acting as the agent of the plaintiffs.
4) the plaintiffs had breached duties to co-operate, act reasonably or act in good faith
5) the plaintiffs had engaged in unconscionable conduct, through the actions of the broker, by Mr T, Mr Graj and through its own conduct in not consenting to the sale of the Geelong properties.
The hearing was adjourned until that afternoon in order to give Counsel for the Plaintiffs an opportunity to prepare his response to these newly articulated defences, which he did very ably in the short time available. Both parties were then given an opportunity to put on additional affidavit material, to be filed and served by 1.00 pm on 25 August 2015.
Test for Summary Judgment
In Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158 (recently applied in Feldman v Frontlink Pty Ltd [2014] VSCA 27 at [24], and referred to in Kennedy v Shire of Campaspe [2015] VSCA 47 at [6]), the Court of Appeal distilled the test to be applied when determining whether to give summary judgment pursuant to section 63.
At [35], Warren CJ and Nettle JA stated as follows:
Upon the present state of authority:
a) the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
b) the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
c) it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
d) at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.
I turn then, to consider whether any of the Defendant’s proposed defences has a ‘real’ as opposed to ‘fanciful’ chance of success.
The Code Defence
In order to understand how this defence was formulated, it is necessary to set out the provisions of the Code in some detail. Section 4 of the Code provides that “a credit contract is a contract under which credit is or may be provided, being the provision of credit to which this Code applies”. Section 5 provides that the Code applies to:
“the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into:
(a) the debtor is a natural person or a strata corporation; and
(b) the credit is provided or intended to be provided wholly or predominantly:
(i) for personal, domestic or household purposes; or
(ii) to purchase, renovate or improve residential property for investment purposes; or
(iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
(c) a charge is or may be made for providing the credit; and
(d) the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.
[underlining added]
Section 7 provides that:
(1) This Code applies to a mortgage if:
(a) it secures obligations under a credit contract or a related guarantee; and
(b) the mortgagor is a natural person or a strata corporation.
(2)If any such mortgage also secures other obligations, this Code applies to the mortgage to the extent only that it secures obligations under the credit contract or related guarantee.
…
[underlining added]
Section 8 provides that:
(1) This Code applies to a guarantee if:
(a) it guarantees obligations under a credit contract; and
(b) the guarantor is a natural person or a strata corporation.
[underlining added]
The debtor under the mortgage in this proceeding is a corporation, not a natural person or a strata corporation. It is plain, therefore, that the Code does not apply directly to any transaction entered into by it.
However, the Defendant contended that the mortgage was part of a wider transaction, entered into in March 2014, which included the refinancing of a property in South Yarra. The Defendant contended that the refinancing of the property in South Yarra was a credit contract or mortgage to which the Code applied. Counsel for the Defendant did not put forward positive evidence that the refinancing of the South Yarra property met each of the requirements in section 5 of the Code. Rather he relied upon the presumption in s.13(1) of the Code that “in any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established”.
If, the Defendant contended, the South Yarra refinancing was a credit contract or mortgage to which the Code applied, then the Court had the power to reopen “the transaction” under s.76 of the Code if satisfied that it was “unjust”.
If, the Defendant further contended, the Court reopened the transaction, it had the power under s.77(c) “to set aside either wholly or in part or revise or alter an agreement made or mortgage given in connection with the transaction [underlining added]”. The final step in the Defendant’s argument was an assertion that the mortgage the subject of the present proceeding was a mortgage given “in connection with the transaction” (notwithstanding the fact that it was not a mortgage to which the Code applied) and was therefore liable to be set aside under s.77(c).
Counsel for the Defendant was not able to point to any previous cases where the provisions of the Code had been extended in this manner to set aside a mortgage which was not a mortgage to which the Code applied.
However even assuming for a moment that this broad interpretation of the s.76 and 77 of the Code was not fanciful, the Defendant was faced with a further factual difficulty. In his affidavit sworn 24 August 2015 and filed on behalf of the Plaintiffs, Peter Schwarz deposes to the fact that the South Yarra refinancing comprised a loan to Southco Enterprises Pty Ltd (“Southco”) which was secured by a second registered mortgage over a property at 11 Cromwell Road, South Yarra, which was provided by Hugh Devon as guarantor. Southco is not a natural person or a strata corporation. The relevant contract under which credit was provided (the loan to Southco) was therefore not a ‘credit contract’ to which the Code applied (ss.4 and 5 of the Code). If the contract was not a ‘credit contract’ to which the Code applied, then neither were the mortgage (s.7) or guarantee (s.8) notwithstanding the fact that they were provided by a natural person.
Defendant’s counsel also relied upon a schedule exhibited as HD3 which described a loan of $500,000 to the Defendant secured by the mortgage the subject of the proceedings AND a third mortgage over the South Yarra premises. Again, however, as the contract under which the credit was provided was with the Defendant, it cannot have been a credit contract within the meaning of the Code. It follows that the mortgage over the South Yarra premises which secured repayment of the loan to the Defendant could not have been a mortgage to which the Code applied, even if that mortgage was provided by a natural person.
The presumption under s.13 has plainly been rebutted. This defence has no real prospects of success.
Deed of Priority Defence
An undated deed of priority was executed in relation to the Geelong Properties, apparently at about the time of the settlement of the purchase of the Geelong Properties. The parties to that deed of priority were the holders of the first mortgage over the Geelong properties (“the first mortgagees”); the Plaintiffs; the vendor of the Geelong Properties; the Defendant and Hugh Devon.
Clause 9 of the Deed of Priority provided that:
The first lender [the first mortgagees] or second lender [the Plaintiffs] or the vendor will not cause or permit any person to acquire an interest in its security or its rights under this document unless the person acquiring the interest enters into a deed with the other party:
9.1 in a form approved by the other party; and
9.2 by which the person acquiring the interest agreed, upon terms and conditions reasonable required by the other party, to be bound by the terms and conditions of this documents to the same extent as the party from who he acquired the interest.
On 8 May 2014 the first mortgagees purported to transfer the first mortgage to Beverley Spigler, Saul Spigler (who are two of the Plaintiffs) and a company called Rugit Pty Ltd (together, “the assignees”). The assignees have consented to the current proceedings by the Plaintiffs.
Counsel for the Defendant contended that “other party” in clause 9 of the Deed of Priority referred to the parties listed in Clause 9 other than the party who was assigning its interest. Thus (as is the case here) if the first mortgagees were assigning their interest, the “other party” would be the Plaintiffs and the vendor. The vendor not having consented to the assignment, accordingly the assignment was ineffective.
Counsel for the Plaintiffs, on the other hand, contended that the “other party” was the party who was assigning its interest. A deed of priority was entered into between the First Mortgagees (as assignor) and the assignee. This was said to satisfy the requirements of clause 9.
In my view the interpretation proposed by the Defendant is preferable. There is a contradistinction drawn in the clause between “other party” on the one hand and “the party from who he acquired the interest” on the other. The purpose of clause 9 appears to be to protect the interests of the non-assigning parties and to ensure that the agreed priorities are preserved and enforceable. In those circumstances, it is reasonable to assume that the parties intended that the non-assigning parties would have a right to approve any deed purporting to preserve those priorities; and to be a party to that deed.
However, this is only the first step in this proposed defence. There are two additional (and insurmountable) difficulties for the Defendant.
First, Clause 8 expressly provided that:
8.1 The borrower and guarantor are bound by, and shall co-operate in the implementation of, this document.
8.2 The liabilities and obligations of the borrower and guarantor, and the respective rights of the first lender and the vendor against the borrower and guarantor under or in relation to the securities, shall not be affected by:
8.2.1 this document (other than as expressly provided); or
8.2.2 the failure or alleged failure of the first lender or the vendor to comply with any term of this document.
8.3 The borrower and guarantor acknowledge that the provisions of this document are intended only for the benefit of the first lender and the vendor.
The Deed, to which the Defendant is a party, thus makes it clear that the provisions in Clause 9 are not there for the Defendant’s benefit and any failure to comply with its terms cannot provide it with a good defence.
Secondly, it is not in any event the first mortgage which is sought to be enforced in this proceeding, but the second mortgage. It is hard to see the relevance of the ownership of the first mortgage, in the absence of any evidence that any person claiming under that first mortgage objects to these proceedings by the second mortgagee. Either the first mortgage is held by the first mortgagee or it is held by the assignees. Even if the purported assignment was unsuccessful, it is fanciful to suggest that the first mortgagee would object to the present proceedings, given its expressed intention to assign the first mortgage to the assignees (who have consented to the present proceedings).
This defence has no real prospects of success.
Misleading or Deceptive Conduct
The Defendant contended that the Plaintiffs engaged in misleading or deceptive conduct in breach of s.18(1) of the Australian Consumer Law and s.12DA of the Australian Securities and Investments Commission Act 2001 (“Asic Act”). The only conduct relied upon by Counsel for the Defendant was that of Mr Trayan Tzountzourtas (“Mr T”), who acted as broker with respect to the transaction the subject of the present proceeding. It was asserted that Mr T acted as agent for the Plaintiffs and that they were therefore infected with his conduct.
The ordinary position is that a broker does not act as the agent of a lender[1]. There is no admissible evidence to support the allegation that Mr T was the agent of the Second Defendants. A bare assertion that there was an “interrelationship” between Mr T and the Second Defendants does not amount to admissible evidence of agency. The Defendant has had ample opportunity to put any such evidence before the Court. If anything, the evidence of Mr Devon seems to suggest that Mr T was willing to act contrary to the interests of the Second Defendants in relying upon a “friendly” valuer who would do “what he is told” and who valued the property at a figure far higher than previous valuations.
[1]Perpetual Trustee Co Ltd v Burniston (No 2) [2012] WASC 383 at [243]-[247]
This defence has no real prospects of success.
Breach of implied duty to cooperate / unconscionable conduct
Counsel for the Defendant contended that the Plaintiffs owed an implied contractual duty to cooperate. The existence of such a term was sensibly conceded to be arguable by Counsel for the Defendants.
The following conduct was said to breach those terms:
a. The conduct of Mr T as broker.
b. The structuring of the transaction as two separate loans, one from the first mortgagees and the other from the Plaintiffs. It was alleged that this was a sham designed to justify charging the higher rate of interest applicable to second mortgages when in fact the first mortgagees had agreed in March 2014 prior to the purchase of the Geelong properties to assign the first mortgage to the plaintiffs.
c. The insistence that the Defendant be incorporated and that the loans be made to the Defendant in order to avoid the application of the Code.
d. The conduct of Mr Graj (ostensibly on behalf of the first mortgagees) in refusing to consent to the sale of the Geelong properties and the South Yarra property.
e. The conduct of the Plaintiffs in refusing to consent to the settlement of existing contracts of sale of the Geelong properties to arms-length third parties and pressing for possession of the properties when valid contracts of sale to arms-length third parties remained on foot.
In relation to the conduct in paragraphs (a) to (c), these matters all pre-dated the existence of the contract. They could not constitute a breach of contract when no contract was yet in existence. The best that can be said is that, if established, they may provide the relevant factual matrix in which the question of whether the matters in paragraph (d) and (e) constituted a breach of the duty to cooperate by the Plaintiffs.
The alternative position put by the Defendant was that these matters was unconscionable in breach of s.12CB or 12 CA of the ASIC Act. It is not necessary for a contract to be in existence for there to be a breach of s.12CB or 12CA, accordingly the alleged conduct in paragraphs (a) to (c), together with the conduct alleged in (d) and (e) are directly relevant to these alleged breaches.
I will deal with these two defences together.
There are significant hurdles against success in these defences and very little evidence to support them. For the reasons given previously, I am not prepared to accept that the defendant has a real prospect of successfully establishing that Mr T was the agent of the plaintiffs. Were it not for one matter, I would say the same in relation to Mr Graj. The mere fact of friendship or prior association does not constitute one lender the agent of another lender. If Mr Graj’s conduct is not in some way imputed to the Plaintiffs, then the Defendant faces real difficulties with causation, as both the first mortgagees and the Plaintiffs have withheld consent to the sale of the properties.
There is, however, one piece of additional evidence, which is contained in the affidavit of Hugh Devon sworn 24 August 2015 to the effect that Mr Graj told him that “he cannot assign the mortgage because he had already reached an agreement to assign it to the Plaintiff, prior to the settlement of the purchase of the Geelong property in March 2014.” (para 7 of the affidavit of Hugh Devon sworn 24 August 2015). This, it is said, is evidence that the structuring of two separate loans was a sham and that in effect the first mortgagees always intended and agreed to assign their interest to the plaintiffs and held it on their behalf (or at least parties associated with them) so that in effect there was only one loan. The rationale for this “sham” was said to be accessing the higher interest rate applicable to a loan secured by a second mortgage.
Evidence of this alleged admission by Mr Graj was originally given in paragraph 28 of the affidavit of Hugh Devon, albeit in a somewhat obscure fashion. The Plaintiffs might have been forgiven for not initially understanding the high level of significance which was said to be accorded to this admission. However Counsel for the Defendant explained its significance at some length in the course of his submissions. Counsel for the Plaintiff was given an opportunity to respond and the parties were both given an opportunity to file and serve further affidavit material in relation to (among other things) the matters in paragraph 28.
Counsel for the Plaintiffs submitted that what was alleged effectively amounted to the tort of conspiracy but that the elements of that tort had not been made out. Whilst the tort of conspiracy might be one lens through which these allegations could be viewed, it is not the only possible lens. In my view, it is open to the Defendant to formulate its defence as one of unconscionable conduct or breach of implied term to cooperate rather than the tort of conspiracy.
As noted above, such a pre-existing agreement could not of itself breach the duty to co-operate as it pre-dated the contract. However, if there were such a pre-existing agreement, it might provide the factual context in which the actions of Mr Graj in subsequently refusing to consent to the sale or refinancing might be imputed to the Plaintiffs or be viewed as within the control of the Plaintiffs.
This in turn might provide a context in which the Plaintiffs’ own conduct in:
a. refusing to consent to the sale of the Geelong properties;
b. refusing to consent to the sale of the South Yarra property; and
c. seeking possession of the Geelong properties notwithstanding the existence of contracts of sale to arms-length third parties,
might be considered to breach the implied contractual duties and to be causally linked to loss suffered by the Defendant.
In relation to the defence of unconscionability, it is possible that, taken together or separately:
a. the alleged “sham” designed to access the higher interest rate due a second mortgagee;
b. the demand that corporate vehicles be used for all loans so as to take the transaction outside the scope of the Code; and
c. the subsequent refusals to consent to sale of the properties to arms-length third parties,
might be viewed as moving beyond the territory of driving of a hard bargain with someone in financial need into unconscionable conduct in contravention of s.12CB or 12CA.
There are obviously going to be significant hurdles for the Defendant in proving this case at trial. However, I must bear in mind the caution with which the jurisdiction to grant summary judgment is to be exercised. It must be clear that there is no real question to be tried if the Defendant is to be denied the benefit of a trial (and the benefit of pre-trial procedures such as discovery). Whilst there are clearly great difficulties to be faced by the Defendant in establishing these defences, I am not satisfied that there is no real question to be tried.
Accordingly, the Plaintiffs’ application for summary judgment should be dismissed.
The parties are invited to submit draft minutes of order reflecting these reasons and for directions for the further conduct of the proceeding.
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