Krambias v Ikos-Canterbury
[2018] VSC 830
•20 December 2018
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE COMMERCIAL COURT | Not Restricted |
S CI 2018 1665
| THEOPHANIS KRAMBIAS (who sues as a trustee under a Trust Agreement dated 27 February 2014) | Plaintiff |
| v | |
| IKOS-CANTERBURY PTY LTD (ACN 150 950 539) | Defendant |
S ECI 2018 2623
| IKOS-CANTERBURY PTY LTD (ACN 150 950 539) | Plaintiff |
| v | |
| THEOPHANIS KRAMBIAS | Defendant |
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JUDGE: | DIGBY J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 4, 17 and 20 December 2018 |
DATE OF JUDGMENT: | 20 December 2018 |
CASE MAY BE CITED AS: | Krambias v Ikos-Canterbury |
MEDIUM NEUTRAL CITATION: | [2018] VSC 830 |
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TRUSTS – Variation of orders and injunctions – Court’s inherent jurisdiction - Trustee’s right of indemnity in respect of trust assets – Mortgagor’s exercise of power of sale over trust assets – Whether a right of indemnity should affect a sale of trust assets – Terms on which a sale is to be ordered – Interests of joint owners – Authorisation to sell for a price referable to property valuations – Balance of Convenience – Supreme Court (General Civil Procedure) Rules 2015, r 54.
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APPEARANCES: | Counsel | Solicitors |
| For Krambias | Mr J Evans QC | Francis V Gallichio Lawyers |
| For Ikos–Canterbury Pty Ltd | Ms K Brazenor | Harrick Lawyers |
HIS HONOUR:
Parties and properties
Theophanis Krambias (Krambias) holds titles on trust for Ikos-Canterbury Pty Ltd (Ikos-Canterbury), under a written agreement entered into on 27 February 2014 (the 2014 Trust Agreement).[1]
[1]Affidavit of Theophanis Krambias, 10 May 2018 (Krambias Affidavit), [17]–[25].
The directors of Ikos-Canterbury are:[2]
[2]Ibid [15].
(a) Theophanis Krambias;
(b) Phillip James;
(c) Tony Pavlou; and
(d) Arthur Kyriacou.
Ikos-Canterbury is the trustee of the Ikos-Canterbury Unit Trust.[3] The Ikos-Canterbury Unit Trust is being used to pursue a residential property development project in Canterbury.[4] The benefits of this project will ultimately flow to the four beneficiaries of the Ikos-Canterbury Unit Trust.[5] The beneficiaries (or unitholders) of the Ikos-Canterbury Unit Trust are:[6]
[3]Ibid [13].
[4]Ibid [13].
[5]Ibid [13]–[14].
[6]Ibid [14].
(a) Zagatt Pty Ltd (30 units out of 100), a company related to Krambias;
(b) Pintan Pty Ltd (30 units out of 100), as trustee for the Phillip James Family Trust;
(c) Cafe Terrace Pty Ltd (30 units out of 100), a company related to Mr Pavlou; and
(d) Kyriacou Holdings Pty Ltd (10 units out of 100), as trustee for the Kyriacou Family Trust.
Under the 2014 Trust Agreement, Krambias holds the following titles (the Canterbury Properties):[7]
[7]Ibid [41].
(a) Volume 11883 Folio 525, known as G01/41 Canterbury Road, Canterbury, Victoria;
(b) Volume 11883 Folio 256, known as G02/41 Canterbury Road, Canterbury, Victoria;
(c) Volume 11883 Folio 527, known as 1B Mangarra Road, Canterbury, Victoria;
(d) Volume 11883 Folio 528, known as 1C Mangarra Road, Canterbury, Victoria;
(e) Volume 11883 Folio 529, known as 101/41 Canterbury Road, Canterbury, Victoria; and
(f) Volume 11883 Folio 530, known as 102/41 Canterbury Road, Canterbury, Victoria.
Background and Overview
Under the 2014 Trust Agreement, Krambias agreed to assume certain personal liabilities to advance the parties’ development of six residential units on the Canterbury Properties.
On 24 February 2014, Krambias entered into a contract of sale to purchase the land that would eventually be subdivided into the Canterbury Properties. The purchase price was around $2.02 million.[8]
[8]Ibid [26].
In or around March 2014, Krambias entered into a loan facility with the National Australia Bank (NAB) for $1.6 million.[9]
[9]Ibid [27].
The contract of sale settled on 7 March 2014 and Krambias became the registered proprietor of the Canterbury Properties. The NAB became the registered mortgagee of the Canterbury Properties.[10]
[10]Ibid [27].
In or around July 2015, Krambias obtained the planning permits necessary to develop the Canterbury Properties. The development would require additional funding of $3.4 million.[11] At this point Krambias began to explore refinancing arrangements.
[11]Ibid [28]–[29].
On 14 July 2015, the Bendigo and Adelaide Bank Ltd (Bendigo Bank) offered Krambias a loan facility, including $1.6 million to discharge the existing NAB facility[12] and $3.4 million to fund the proposed and approved development.[13] Krambias accepted this offer on 24 July 2015.[14]
[12]Ibid [30(a)].
[13]Ibid [30(b)].
[14]Ibid [31].
The Bendigo Bank facility became available for drawdown on 29 September 2015.[15] At this point the NAB debt was repaid in full and the NAB mortgage over the Canterbury Properties was discharged.[16]
[15]Ibid [32].
[16]Ibid [32].
On 5 October 2015, Bendigo Bank became the registered mortgagee of the Canterbury Properties.[17]
[17]Ibid [32].
Construction on the Canterbury Properties occurred between November 2015 and April 2017.[18]
[18]Ibid [34] and [38].
By 19 May 2017, Krambias secured all occupancy permits in relation to the Canterbury Properties.[19]
[19]Ibid [39].
On 31 May 2017, Krambias registered the plan of subdivision and arranged for the issue of new titles in respect of the Canterbury Properties.[20]
[20]Ibid [40].
Krambias asserts that his obligations under the 2014 Trust Agreement were fully complied with from early June 2017.[21]
[21]Ibid [44].
Dispute and Impending Foreclosure
In November 2016 the Bendigo Bank facility expired.[22] Bendigo Bank then entered into an agreement with Krambias to extend the facility on the following terms, first until March 2017,[23] then until June 2017,[24] and then until 29 November 2017, subject to full clearance of the debt from either refinancing or the sale of the units.[25]
[22]Ibid [42].
[23]Ibid [42].
[24]Ibid [42].
[25]Ibid [46].
Between June and October 2017 Krambias had a falling out with the other directors of Ikos-Canterbury. There is little evidence before the Court as to the nature of this disagreement. Broadly, it seems to have arisen from allegations that Krambias had incurred unnecessary expenditure in the development of the Canterbury Properties.[26] The parties are described as being embroiled in a ‘full blown dispute’ resulting in an ‘entirely unworkable’ relationship from around November 2017.[27]
[26]Ibid [45].
[27]Ibid [47].
On 16 November 2017 Ikos-Canterbury lodged caveats over the subject land claiming a ‘freehold estate’ under the 2014 Trust Agreement.[28] Krambias was thereafter precluded from giving instructions to Ikos-Canterbury’s solicitors.[29]
[28]Ibid [51].
[29]Ibid [48]–[50].
From about the end of November 2017, Krambias asserted a right of indemnity against the trust assets, namely the Canterbury Properties.[30]
[30]Ibid [52(e)].
In an attempt to resolve their ongoing dispute, the parties agreed to attend mediation on 19 December 2017. The dispute did not resolve at mediation.[31]
[31]Ibid [55].
On 20 April 2018 Bendigo Bank demanded repayment of $5,311,876.38 by 30 April 2018 and also threatened to take possession of the Canterbury Properties and/or sue Krambias in relation to the debt.[32]
[32]Ibid [60].
By Deed of Forbearance dated 1 May 2018, Krambias and Bendigo Bank agreed that Bendigo Bank would not take further steps in respect of the recovery of the said debt until 21 May 2018.[33]
[33]Ibid [61]; see also Bendigo Bank’s further forbearance, Affidavit of Francis Gallichio, 3 December 2018 (Gallichio 3 December 2018 Affidavit), [15] and paragraph [39] of these Reasons for Judgment.
Procedural History
Trustee Indemnity Proceeding – S CI 2018 1665
By Originating Motion dated 4 May 2018 and Summons dated 10 May 2018, Krambias applied under r 54 of the Supreme Court (General Civil Procedure) Rules 2015 (the Rules) for declarations and orders so as to enable the Canterbury Properties to be sold so as to discharge personal liabilities and expenses that he has incurred as trustee (the indemnity proceeding).
The above Summons more specifically sought the following relief:
1.Pursuant to Order 54.02(2)(c), or the Court’s inherent equitable jurisdiction, the plaintiff, as trustee under an agreement with the defendant dated 27 February 2014 (‘the 27 February 2014 Trust Agreement’), and pursuant to his right of indemnity out of the trust assets, may sell, with or without vacant possession, the residential properties described in the following Certificates of Title: (see list at [4] above)
2.The sales of the Canterbury Properties shall be wholly out of Court and the plaintiff, as trustee, shall have the conduct of the sales; and
3.To enable the sales of the Canterbury Properties, the defendant must, within 3 days of the date of this order, deliver up to the plaintiff’s solicitors signed withdrawals of caveat regarding the caveats numbered: AQ455149L, AQ413747E, AQ413740U, AQ413736K, AQ413734P and AQ413733R, or otherwise withdraw those caveats, and the defendant be restrained from lodging further caveats on the Canterbury Properties; and
4.The proceeds of the sales of the Canterbury Properties be applied as follows:
(a)firstly, to the amount required to discharge registered mortgage number AM227669U to Bendigo and Adelaide Bank Limited; and
(b)secondly, to the expenses of and incidental to the sales; and
(c)thirdly, the balance, if any:
(i)shall be retained by the plaintiff pending further order of the Court or agreement of the parties; and
(ii)shall be a fund from which the plaintiff may, pursuant to his right of indemnity, recover further or other costs, expenses, liabilities or damages he has incurred as trustee under the 27 February 2014 Trust Agreement; and
5.Any rents received from the leases of the Canterbury Properties be applied to the amount required to discharge registered mortgage number AM227669U to Bendigo and Adelaide Bank Limited; and
6.The plaintiff’s’ costs of, and incidental, to this proceeding be paid on an indemnity basis;
7.The plaintiff have leave under Order 45.05 to commence this proceeding by Originating Motion in the form prescribed as Form 5C and that the requirements of Rules 5.03(1) and 8.02 be dispensed with; and
8.Such further and other orders as the Court considers appropriate.
On 21 May 2018 Almond J made Orders (the 21 May 2018 Orders) directing that three of the six Canterbury Properties be sold and for an independent valuation to be arranged by the parties.
Paragraphs [2] and [10] of the 21 May 2018 Orders provided:
2.The reserve prices in respect of each of the Units (inclusive of GST) be set in accordance with the Valuation Report prepared by Charter Keck Cramer dated 5 April 2018.
10.If bidding at auction does not reach the reserve price of any Unit the subject of the auction, the nominee will negotiate with the highest bidder at the auction, or any other interested party to effect the sale, provided that no Unit shall be sold for a price which is 10% less than the reserve prices of that unit, unless the parties otherwise agree in writing.
Despite taking steps to facilitate a sale and comply with the 21 May 2018 Orders, the Canterbury Properties have attracted little interest from prospective buyers.[34] Units scheduled for auction on 11 August 2018[35] and 18 August 2018[36] were respectively abandoned or unsuccessful in attracting bids in excess of the reserve price, less the 10% specified in the above Orders. Further, units listed for private sale failed to elicit offers in excess of the reserve price, less the 10% specified in the above Orders.[37]
[34]Gallichio 3 December 2018 Affidavit, [6].
[35]Affidavit of Phillip James, 18 September 2018 (James 18 September 2018 Affidavit), [3].
[36]Ibid [4].
[37]Ibid [5].
On 18 September 2018, Almond J made further Orders (the 18 September 2018 Orders), including that:
1.By 4 pm on 19 September 2018, the parties jointly engage Charter Keck Cramer to provide a supplementary report to that firm’s report dated 5 April 2018, such supplementary report to provide a re-assessment of the value of the Units (as defined in the orders of Almond J dated 21 May 2018.
4.Order 2 of the Orders be varied such that the reserve prices in respect of each of the Units (inclusive of GST) be set in accordance with the supplementary report.
5.Order 10 of the Orders be varied by replacing the figure percentage of “10%” with “15%”.
In substance, his Honour varied the terms of paragraph [10] of the 21 May 2018 Orders thereby allowing the nominee to sell all six of the properties at up to 15% below the reserve price, fixed by Charter Keck Cramer’s Supplementary Report.[38] However, the appointed real estate agent has still not been able to sell the properties.[39]
[38]A supplementary valuation report prepared by Charter Keck Cramer, taking into account the 15% discount provided for in the 18 September 2018 Orders, assesses the total value of the Canterbury Properties as $8,672,500: see Affidavit of Phillip James, 30 November 2018 (James 30 November 2018 Affidavit), [4].
[39]James 30 November 2018 Affidavit, [13]–[16].
Title Transfer Proceeding – S ECI 2018 2623
By Originating Motion and Summons dated 3 December 2018, Ikos-Canterbury applies separately for an order that Krambias:
(a) transfer the titles of the Canterbury Properties to it; and
(b) execute any necessary document to enable the transfer of titles of the Canterbury Properties to it.
Current State of the Proceedings
Parties’ Positions
As trustee of the Canterbury Properties for the benefit of Ikos-Canterbury, pursuant to the 2014 Trust Agreement, Krambias asserts that he is entitled to be reimbursed by the trust, or indemnified directly from the trust property for personal liabilities that he has properly incurred whilst administering the trust.[40]
[40]Commonwealth of Australia v Byrnes and Hewitt [2018] VSCA 41.
Krambias seeks Orders that will enable the sale of the Canterbury Properties and for the proceeds to discharge his personal liability to Bendigo Bank. To accomplish this, Krambias seeks either of the following variations to the 21 May 2018 Orders:[41]
(a) that the reserve prices be reduced by at least another 10%; or
(b) that the nominee’s discretion to sell below the reserve price be increased by at least another 10%.
[41]Gallichio 3 December 2018 Affidavit, [21].
Krambias deposes that he will not consider any refinancing agreement which requires him to give a guarantee or any further security, whether personally, or via one of his associated corporate entities.[42]
[42]Krambias Affidavit, [62]–[65].
Ikos-Canterbury maintains however that Krambias is contractually obliged to transfer the titles of the Canterbury Properties to it under the 2014 Trust Agreement.[43]
[43]Defendant’s Submissions, 4 December 2018, [17].
Ikos-Canterbury asserts that, following such a transfer, it will be in a position to arrange for further refinancing and prevent foreclosure.[44]
[44]James 30 November 2018 Affidavit, [26]–[31]; Defendant’s Submissions, 18 May 2018, [6].
Ikos-Canterbury rejects that Krambias’ right of indemnity provides a basis to refuse a transfer of the titles.[45] It contends that ‘loss’ of the trust assets does not defeat a trustee’s accrued right of indemnity[46] and that any equitable lien or charge over these assets can be protected by an appropriate Order.[47] Further, Ikos-Canterbury has informed the Court that it is prepared to accept a transfer of the Canterbury Properties on terms that require it to meet Krambias’ accrued right of indemnity.[48]
[45]Defendant’s Submissions, 4 December 2018, [18].
[46]Ibid.
[47]Ibid.
[48]Ibid.
Hearing on 4 December 2018
On 4 December 2018, I ordered that the proceedings be referred to mediation, and that such mediation take place on or before 14 December 2018, and further ordered that Krambias’ Summons dated 10 May 2018 be adjourned to Monday 17 December 2018, at 9.00am.
Subsequent to 4 December 2018, matters have become even more urgent. Bendigo Bank has agreed to forbear until 22 December 2018.[49] By this date, Bendigo Bank requires Krambias to deliver signed and unconditional contracts for the sale of the Canterbury Properties under which the cumulative net proceeds at settlement will be adequate to repay the secured debt to Bendigo Bank
[49]Gallichio 3 December 2018 Affidavit, [15].
There are two applications before the Court:
(a) the application by Krambias to vary the orders of the Court made in the proceeding in which he is the plaintiff (S CI 2018 1665), so as to enable the execution by him of a sale contract of one unit, namely Unit 1B, Mangarra Road, Canterbury; and
(b) the application by Ikos-Canterbury for a mandatory injunction to be directed to Krambias, seeking that he transfer six properties (including Unit 1B) to Ikos-Canterbury.
Krambias’ application, the determination of which is now urgent, in essence seeks a further variation of paragraph [10] of the 21 May 2018 Orders as varied by the 18 September 2018 Orders by which Almond J authorised Krambias to sell three of the six properties, by permitting a sale of Unit 1B for more than 15% below the reserve price for that property set in accordance with paragraph [2] of that Order.[50] Krambias points out that no application has been made to discharge the Orders made by Almond J.
[50]Gallichio 3 December 2018 and Affidavit of Francis Gallichio, 16 December 2018 (Gallichio 16 December 2018 Affidavit).
Considerations
This evidence demonstrates that given the current real estate market conditions in Canterbury, in the State of Victoria, the values of the properties, the subject of the Charter Keck Cramer report dated 5 April 2018, are no longer accurate. [51]
[51]Gallichio 3 December 2018 Affidavit, [8] and [9]; Supplementary Charter Keck Cramer Report of 3 October 2018 (being Exhibit ‘PAJ-50’ to the Affidavit of Phillip James sworn 30 November 2018); Gallichio 3 December 2018 Affidavit at [20] and Exhibit ‘FVG-2’; Letter from Judy Balloch and Steven Rode of Kaye & Burton dated 30 November 2018; Letter from Mr Aldo Galante of Gorman Kelly dated 30 November 2018.
Further, I am satisfied that it has been adequately established that in the recent past, the present market value, and therefore the mortgagor’s equity in the subject properties, has been substantially eroded by prevailing market factors, including the declining demand in the applicable property market and by the ongoing and accumulating interest on the relevant mortgage debt.[52]
[52]Ibid.
I accept that Krambias seeks to partially arrest that erosion by one specific sale, namely Unit 1B for $1,880,000.
Order 54 of the Rules provides:
54.02 Relief without general administration
(1)A proceeding may be brought for any relief which could be granted in an administration proceeding and a claim need not be made for the administration or execution under the direction of the Court of the estate or trust in respect of which the relief is sought.
(2)Without limiting paragraph (1), a proceeding may be brought for—
(a)the determination of any question which could be determined in an administration proceeding, including any question—
(i)arising in the administration of an estate or in the execution of a trust;
(ii)as to the composition of any class of persons having a claim against an estate or a beneficial interest in an estate or in property subject to a trust; or
(iii)as to the rights or interests of a person claiming to be a creditor of an estate or to be entitled under the will or on the intestacy of a deceased person or to be beneficially entitled under a trust;
(b)an order directing an executor, administrator or trustee to—
(i)furnish and, if necessary, verify accounts;
(ii)pay funds of the estate or trust into court; or
(iii)do or abstain from doing any act;
(c)an order—
(i)approving any sale, purchase, compromise or other transaction by an executor, administrator or trustee; or
(ii)directing any act to be done in the administration of an estate or in the execution of a trust which the Court could order to be done if the estate or trust were being administered or executed under the direction of the Court.
Order 54 of the Rules establishes a broad discretion encompassing wide facilitative power:[53]
The nature of the proceeding, including its summary character, indicates a wide and facilitative, rather than a narrow or strict, approach by the Court is appropriate under Order 54.02 of the Rules. Such an approach promotes the intent of the Rule to enable the Court to assist in the administration of trusts by making practical and proportional orders well short of a general administration order, in suitable cases, for example to clarify the scope of a power or duty and thus afford certain personal protection to trustees or executors where appropriate.[54]
[53]Fast & ors [2015] VSC 780.
[54]Ibid [14].
Accordingly, as I have outlined above, and pursuant to the Court’s inherent powers, I have power to further vary the Orders made by Almond J on 21 May 2018 and 18 September 2018 and, in the exercise of my discretion, including in relation to the aforesaid relevant trust referred to in the Krambias Affidavit,[55] to order and thereby facilitate the sale of a single unit, namely, Unit 1B, for a sum only marginally below the Charter Keck Cramer valuation dated 3 October 2018.[56]
[55]Krambias Affidavit, [19] (Exhibit Bundle 49-55).
[56]Gallichio 16 December 2018 Affidavit.
Krambias also contends that Ikos-Canterbury’s application dated 3 December 2018 should be summarily dismissed under the Civil Procedure Act 2010 and, in large part, Krambias relies on Ikos-Canterbury’s interpretation of cl 7 of the 2014 Trust Agreement between Krambias and Ikos-Canterbury to support the appropriateness of this relief.
Further, I observe that in any event Ikos-Canterbury’s application outlined above cannot be determined summarily, at least at this time, for reasons which include that:
(a) both Krambias and Ikos-Canterbury inform the Court that the resolution of Ikos-Canterbury’s application dated 3 December 2018 will involve Ikos-Canterbury, and probably likewise Krambias, filing further evidence; and
(b) because of the significance to Krambias of being deprived of the protections usually accorded to a trustee, the question of the interpretation of cl 7 of the 2014 Trust Agreement will likely necessitate a trial, at which, so Krambias informs the Court, evidence will be adduced (and it is reasonable to expect, tested) in relation to the negotiation of the terms of the 2014 Trust Agreement, relevant to the proper interpretation of cl 7 of the 2014 Trust Agreement.
Furthermore, Krambias submits that the balance of convenience here does not favour the making of the orders sought by Ikos-Canterbury on its application, given the existing arrangements for sale of the properties, Krambias’ rights as trustee, and the absence of any evidence of a firm proposal for the refinance of the Bendigo Bank first mortgage debt in respect of the six properties.
Ikos-Canterbury also argues that Krambias has not produced:
(a) an up to date valuation of the Canterbury Properties;
(b) evidence that a further reduction of the reserve price will result in the sale of the Canterbury Properties; or
(c) evidence that Bendigo Bank is willing to extend the forbearance period.
Additionally, Ikos-Canterbury submits that it remains ready, willing and able to:
(a) refinance the Bendigo Bank facility, and do so on the basis that Krambias is not required to provide a personal guarantee or have his entities provide security; or
(b) purchase Ikos-Canterbury’s units in the trust for an independently determined market value and then refinance the Bendigo Bank facility.
Finally, Ikos-Canterbury observes that each of the above options would result in Krambias’ personal liability to Bendigo Bank being extinguished. Ikos-Canterbury argues that because Krambias has failed to choose one of the above options, and has adopted his above outlined proposed course of action, the Court can assume that Krambias’ expressed concern as to his potential personal liability to Bendigo Bank is not in fact his real motivation in this proceeding.
Ikos-Canterbury adds that this conclusion is supported by the fact that Krambias, through his solicitor, has written to Bendigo Bank’s solicitors advising them, amongst other things, that Krambias opposes any meeting with Ikos-Canterbury and has advised Bendigo Bank’s solicitors that Ikos-Canterbury does not have any interest in the Canterbury Properties.
Hearing on 17 December 2018
Considerations
It appears that Bendigo Bank could sell the subject properties to recover the secured debt at an amount that would give rise to a real risk of greatly diminishing or destroying the value of the beneficiaries’ interests. Krambias submits, and I accept, that it is likely that foreclosure by the secured Bank would be a devastating outcome for all parties.
In practical terms, and in summary, there are two remaining legal issues:
(a) First, should the titles to the Canterbury Properties be transferred by Krambias to Ikos-Canterbury and, if so, for what price and pursuant to what terms. The 2014 Trust Agreement under which Krambias agreed to act as trustee for the development, and its true meaning, will be of significance in this respect.
However, as earlier mentioned, as recently as 17 December 2018 the parties accepted that there would need to be additional materials before the Court to enable these issues to be determined.
The parties also accepted that in this regard this aspect of the parties’ dispute will not be ready for determination until around the end of 2018.
(b) Alternatively, as Krambias urges, should there be a further reduction to the reserve price for the Canterbury Properties and/or further discretion accorded to the nominee to facilitate the sale of Unit 1B of the Canterbury Properties.
In the application which has been made by Krambias in proceeding S CI 2018 1665, the matters in issue, which have been evolving up to mid-December 2018, have narrowed. The application now agitated by Krambias is one in which Krambias only seeks to have the Court make orders effectively varying the 18 September 2018 Orders, so as to facilitate the desired sale of Unit 1B.
In essence, the variation sought by Krambias is that, notwithstanding Almond J's Orders providing for a power of sale of the units (referred to in the 18 September 2018 Orders), Krambias be permitted to execute a contract of sale in the form exhibited in the Gallichio 16 December 2018 Affidavit.[57]
[57]Gallichio 16 December 2018 Affidavit, Exhibit ‘FVG-3’.
The effect of such an Order would be to permit the sale of one of the units, the subject of the 18 September 2018 Orders, namely Unit 1B, for the sum of $1.88 million.
In proceeding S CI 2018 1665 Krambias points out that the effect of the authorisation of such sale would be to vary the total value of the property, if extrapolated to the six properties the subject of Almond J's Orders, by a discount of only .07% of the overall value of the six units; that is, extrapolated from the latest sworn valuation that was then before the Court compared to the abovementioned sale price of $1.88 million.[58] Authorising such a sale would amount to a discount of only approximately 3.26% on the discounts that his Honour had earlier authorised by the 18 September 2018 Orders.[59]
[58]T3.28-T4.12 (Transcript, 20 December 2018).
[59]T3.13-15 and T27.1-3 (Transcript, 20 December 2018) and Gallichio 16 December 2018 Affidavit, [10].
The opposition to this occurring, articulated by Ikos-Canterbury in this application, is based essentially on two arguments put by Ms Brazenor, Counsel for Ikos-Canterbury.
Firstly, Ikos-Canterbury relies upon an offer to resolve the impasse between the parties, under which the offerors would pay Krambias the sum of $6.3 million for all of the units. This is a sum which Ikos-Canterbury submits would discharge Krambias’ obligations to Bendigo Bank, and which would also be sufficient to remove the related personal indebtedness which the Krambias Affidavit material refers to as being of particular concern to him.
The second and alternative argument relates to a proposal put by Ikos-Canterbury to refinance the applicable Bendigo Bank debt so as to enable the impasse between the parties to be removed so as to allow Bendigo Bank to be both discharged and Krambias to be placed in a position where he will not be personally exposed.
In my view however, the difficulty with both the above proposals is that ‘the offer’, such as it might be to Ikos-Canterbury, would probably not bring about as good a result as the sale of the six units at a price approximating the sale price for Unit 1B for which Court approval is sought.[60]
[60]Gallichio 16 December 2018 Affidavit, Exhibit ‘FVG-3’.
In relation to the proposed sale of Unit 1B, on a rudimentary calculation, the outcome under Krambias’ proposed scenario referred to at paragraphs [4] to [10], [13] and [14] of the Gallichio 16 December 2018 Affidavit, would produce a figure which is significantly in excess of the $6.3 million which is said to be the amount of the prospective offer by Ikos-Canterbury.
That is, an extrapolation in respect of all units of the value of Krambias’ proposed contract of sale[61] in relation to Unit 1B would be materially more than $8 million.
[61]Ibid.
For these reasons I am not satisfied that the proposal identified by Ikos-Canterbury for the purchase of the units for a total sum of $6.3 million, is in the best interests of the trust or its beneficiaries, nor is that a prospective scenario which justifies rejecting the sale which Krambias seeks to have sanctioned by the Court in this application.
Furthermore, I consider the prospective sale of the Canterbury Properties for $6.3 million is at this time, in any event, quite speculative. There is no concrete offer to purchase from Ikos-Canterbury but rather Mr Phillip James, a Director and beneficiary of the said Unit Trust, is said to be willing to purchase. Presently any contractual proposal in this regard is undefined. Such a proposal, were it to come to fruition, would also result in a sale at $6.3 million, which is a value substantially under the existing valuations of the overall Canterbury Properties.
I also consider the second proposal put by Ikos-Canterbury to re-finance the project, remove Bendigo Bank's secured debt, and to move forward perhaps to a point where the market improves, and also perhaps thereby permit the realisation of a higher value for the overall property to be unacceptable in the circumstances, principally because of the uncertainties associated with that scenario, including that there is presently no concrete refinancing proposal before the Court.
There is no proposed agreement in evidence in this application, nor any proposed arrangement in the nature of an offer which could be immediately accepted, or which is sufficiently defined, as presently articulated by Ikos-Canterbury. Accordingly, I am not satisfied that there is a defined and likely alternative scenario which would be in the best interests of the trust, the beneficiary of the trust, the parties, and which should be preferred to the proposal put by Krambias in this application.
Furthermore, in my view it is worth acknowledging the context in which Almond J made the 18 September 2018 Orders. That context was one in which there had been a valuation produced by an independent third party valuer, Charter Keck Cramer. That valuation opined a significant decrease in the market over a matter of only a few months, up to the date of the hearing before his Honour.
There is also evidence in this application from the real estate agent, in relation to the sale process of the units which indicates a further diminution in the market in more recent times.
I note, as was pointed out by Ms Brazenor, Counsel for Ikos-Canterbury, that the real estate agent’s assertions, and similarly the vendor’s nominee about the further deterioration in the market, are not in the nature of a sworn valuation. This is in contrast to the status of the valuation evidence relied upon by Almond J when his Honour made the relevant earlier orders.
However in its submissions, Ikos-Canterbury accepted that the real estate agent’s letter of 29 October 2018[62] constituted relevant evidence in this application, although it was also submitted that this evidence should be given lesser weight because the persons advancing that evidence may have an interest in identifying a lower value for the Canterbury Properties.[63]
[62]James 30 November 2018 Affidavit, Exhibit ‘PAJ-57.
[63]T21.4-T22.9 (Transcript, 20 December 2018).
In my view, material weight should be given to the real estate agent and the vendor’s nominee’s evidence, in particular when coupled with the evidence of the progressive decline in the relevant property market formerly opined upon by Charter Keck Cramer.
Accordingly, on the evidence before me, I am satisfied that over 2018 there has been a substantial and progressive decline in the market value of the sort of units that are the subject of Almond J’s Orders which are sought to be varied.
Further, I am satisfied that the trajectory of that deterioration in the relevant market value, which is the subject of both sworn valuation evidence and evidence from the real estate agent and vendor’s nominee referred to above, amounts to a sustained deterioration in the market, which is likely to be ongoing, at least to some extent and for some time to come.
In these circumstances, and on the basis of the evidence to which I have referred, in my view, the further diminution in market value sought to be fixed as the value for which the properties are now authorised to be sold, compared to that fixed by Almond J's extant Orders, is marginal and justified. Further, the need to make such a downward adjustment so as to facilitate the sale of Unit 1B at this time is also pressing for the reasons I have earlier mentioned.
I also consider that, in the circumstances, including the legal setting of these applications, the failure of the attempted sales scenarios referred to above and the sworn valuation, and additional real estate agent and vendor nominee’s evidence in relation to the further reduction sought in respect of the sale price of Unit 1B of the Canterbury Properties, that the relief sought by Krambias is justified and provides a proper basis for further varying Almond J’s previous relevant Orders.
Conclusion
For the above reasons, I am satisfied that the Orders sought by Krambias in proceeding S CI 2018 1665 should be acceded to in the best interests of the trust and its beneficiaries, and to enable the impasse which has been bedevilling these parties for a considerable time up to now, to be resolved, at least in part.
I am also of the view, for the reasons referred to above, that Ikos-Canterbury’s applications must be deferred to be heard and determined at a later time, if necessary.
Orders
Accordingly, in proceeding S CI 2018 1665, I order that:
1.Notwithstanding the Orders made by Justice Almond on 21 May 2018 and 18 September 2018, the plaintiff has leave to execute a contract of sale of real estate in respect of Unit 1B, Mangarra Road, Canterbury, Victoria, substantially in the form of the contract forming exhibit ‘FVG-3’ to the Affidavit of Francis Vincent Gallichio affirmed 16 December 2018, and to exchange that executed contract with the purchaser named in that contract.
2.The parties’ costs be reserved.
3.The parties have liberty to apply.
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