Maxwell Richard Rhys and Co Pty Ltd (in liquidation) v Downes and Downes
[2014] VCC 22
•5 February 2014
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for Publication |
AT MELBOURNE
CIVIL DIVISION
Case No. CI-10-05607
| MAXWELL RICHARD RHYS & CO PTY LTD (In Liquidation) (ACN 068 897 558) | Plaintiff |
| v | |
| JOHN DESMOND DOWNES | First Defendant |
| and | |
| BERNARD HUGH DOWNES | Second Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28-29 January 2014 | |
DATE OF JUDGMENT: | 5 February 2014 | |
CASE MAY BE CITED AS: | Maxwell Richard Rhys & Co Pty Ltd (in liquidation) v Downes & Downes | |
MEDIUM NEUTRAL CITATION: | [2014] VCC 22 | |
REASONS FOR JUDGMENT
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Subject: Deed of loan and mortgage
Catchwords: Whether deed of loan creates genuine obligations; whether misleading and deceptive conduct as to enforcement of deed of loan and mortgage; whether loan regulated; state of accounts between parties; enforcement of mortgage
Legislation Cited: Corporations Act; ss76, 78 of the Transfer of Land Act 1958; Trade Practices Act 1974; National Consumer Protection Act 2009
Cases Cited:Bill Acceptance Corp Ltd v GWA Ltd (1983) 78 FLR 1; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 243; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; Jones v Dunkel (1959) 101 CLR 298; Black v Tung [1953] VLR 629; Dobbs v The National Bank of Australasia Ltd (1935) 53 CLR 643
Judgment: For the Plaintiff for balance of principal and interest and possession of mortgaged property
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M T Lapirow | Davies Moloney |
| For the Defendants | Mr J Downes | In Person |
HIS HONOUR:
Background
1 The Downes brothers, the defendants in this proceeding, are farmers. They owned a number of rural properties in Donald and Litchfield in Victoria. On 18 December 2007 they executed a document styled “Deed” prepared by Gadens Lawyers on behalf of Maxwell Richard Rhys & Co Pty Limited (“Rhys”) as lender and themselves as debtors. The “lender” is the plaintiff in this proceeding.
2 The Deed recited that “in or about March 2004” the Downes and Rhys entered into oral arrangements whereby Rhys granted the Downes “financial accommodation”. These arrangements were described as the loan agreement. The accommodation was said to be granted to assist the Downes “in their farming operations”. It was recited that a caveat was lodged on behalf of Rhys claiming an interest in the Downes’ rural property as security for their obligations. The Deed stated further that through its agents, J&B Downes Pty Ltd and China Dog Pty Ltd, Rhys “made a number of advances and granted financial accommodation” to the Downes. Despite its name, J&B Downes Pty Ltd was a company under the sole control of Mr Bernard Curran, the principal of Rhys. According to the Deed, the Downes had repaid certain parts of their “accommodation” but remained indebted to Rhys in the sum of $698,520 as at 30 November 2007. The Deed was entered into, according to the recitals, to set forth arrangements whereby the Downes would “repay the Indebted Sum to the Lender [Rhys] in accordance with the terms and conditions set out” therein.
3 The Deed provided for repayment of the Indebted Sum acknowledged by a series of instalments set out in the Schedule to the Deed, including payments of $42,500 on 18 December 2007 and 20 January 2008, and further instalments through 2008 and 2009 at three monthly intervals in the sum of $85,000.
4 Clause 4 obliged the Downes to execute a mortgage over their properties and to do all that was necessary to enable that mortgage to be registered. Rhys, however, agreed not to register the mortgage “until at least [presumably no earlier than] 20 March 2008”. Clause 5 of the Deed included a statement that the Downes acknowledge that before executing the Deed they had “waived their right to obtain independent legal advice as to their obligations under this Deed and as to its effects”. There was a provision for the immediate acceleration of “Indebted Sum” in the event of “Debtor Default” which was defined as including any failure to make payment of the instalments provided for in the Deed.
5 In the course of the following period the additional mortgage was granted and registered as an encumbrance on the relevant certificates of title. First mortgagees exercised powers of sale so that one parcel of land at 117 Downes Road, Litchfield, comprised in Certificate of Title Volume 9704, Folio 478, and other parcels at Depot Road, Donald, comprised in Certificate of Title Volume 4991, Folio 166 and Volume 5729, Folio 673 and Volume 7147, Folio 241 were sold and the second mortgages as granted to Rhys were foreclosed down. The result is that the Downes continue to be registered as fee simple owners of land at Glens Road, Litchfield, comprised in Volume 8223, Folio 735, and at Downes Road, Litchfield, comprised in Certificate of Title Volume 7663, Folio 014, which properties remain subject to the Rhys second mortgages.
6 On 3 December 2010, Rhys commenced the present proceeding seeking orders against the Downes for the payment of the amount which is alleged remained outstanding in the terms of the Deed, and possession of the premises which remained subject to its mortgage. The Statement of Claim alleged that the Downes did not pay the principal sum under the mortgage and as a result, pursuant to s78 of the Transfer of Land Act 1958, Rhys was entitled to possession of the mortgaged property. On 9 February 2011 Rhys entered default judgments against the Downes. The judgment against Mr John Downes was in default of defence and the judgment against Mr Bernard Downes was in default of appearance. In due course the Downes sought to have the default judgments set aside and their applications eventually came on for hearing before Judge Ginnane (as Ginnane J then was) on 26 June and 26 July 2012.
7 Meanwhile Rhys had been placed in liquidation on 12 August 2011 and Mr Neil Robert Cussen was appointed liquidator. This was a court liquidation and the Commissioner of Taxation of the Commonwealth of Australia was the petitioning creditor. His Honour had before him a number of affidavits filed, both on behalf of the Downes and on behalf of Rhys. The case on the merits which the Downes sought to rely upon was summarised by his Honour at paragraphs [10] to [20] of his Judgment [2012] VCC 1336 as follows:
[10] Mr John Downes states that in about 2000, the prices for wheat and barley were severely depressed and he and his brother were having difficulties keeping the farm afloat. They saw an advertisement offering farmers the opportunity to lease their farm land to Agricultural Grains Fund Limited (AGF) as part of an agricultural investment scheme. They attended a meeting about that scheme and met Mr Faulkner-Dick and Mr Colin Curran, who was formerly a director of the plaintiff and who represented AGF and operated a superannuation advice business. A scheme for the investment of money in their farm for the investors’ tax advantage was explained to them. They were interested in it, but it did not proceed.
[11] In around late 2002, Mr Curran told Mr Downes of a new scheme that he was proposing. The details were:
(a) the Downes farm would form part of an ‘investment package’, as an agricultural investment, along with a range of investments in Hervey Bay and Airlie Beach, that Mr Curran was promoting through his superannuation advice business;
(b) the investors were current clients and staff of Mr Curran who invested through an entity known as ‘Super Online’;
(c) investors would then become share farmers with the Downes brothers; and
(d) investors would receive a 100% tax deduction on the amount they invested in the new scheme on the basis that they were primary producers carrying on a business.
[12] Mr Curran told Mr Downes that if they ‘came on board’ and offered their farm, they would be ‘first on board’ as farm managers and there would be great opportunity for them to manage other farms, which Mr Curran said he would buy, or lease, for new scheme investments. Mr Downes said that he and his brother were very excited about this scheme, as grain prices were still very low and they needed to generate another income stream.
[13] Mr Curran told Mr Downes that he would set up a company, which turned out to be J & B Downes Pty Ltd, from which payments for grain, fertilizer and other costs, associated with the cultivation of the crop would be paid and, into which, the proceeds of the crop harvest would also be paid.
[14] On 23 June 2003, Mr Curran and the Downes brothers, as Trustee of the Downes Family Unit Trust, entered into a share farming agreement. Under the agreement, each month, Mr Curran was obliged to pay the crop costs to the Downes brothers in order for them to farm the land and sell the crop. At the end of each harvest, the Downes brothers sold the crop and the proceeds were paid into the company’s bank account.
[15] Under the share farming agreement, Mr Curran paid the sum of $40,000 to the Downes brothers in order to purchase the initial wheat and barley seed crop and set up the farm. The Downes, at Mr Curran’s request, gave a personal guarantee, of the repayment of the $40,000 crop costs to him. Mr Curran told them that the guarantee was to give his client/investors comfort that the crop proceeds would be paid by the Downes brothers.
[16] The defendants then allege that between about August 2003 and April 2004, Mr Curran asked them to enter into several more personal guarantees in relation to monies advanced by him to them under the Share Farming Agreement on account of crop costs, in order to give his investor clients comfort that the crop proceeds would be paid by the defendants. Mr Downes and his brother trusted Mr Curran.
[17] Mr Curran told him that unless he and his brother signed the guarantees he would not pay for the costs of the 2004 crop.
[18] Mr Downes states that despite the terms of the guarantees, at no stage were he or his brother advised that they were being loaned money from different entities associated with the Plaintiff.
[19] The defendants then allege that in about late 2004 and early 2005, Mr Curran requested them to manage a similar agricultural scheme for his investor clients on land at Tintinara in South Australia. There was no written share farming agreement for the Tintinara scheme but Mr Downes agreed with Mr Curran, that it would be on the same terms as the first Agreement.
[20] The Tintinara scheme had the following features. Mr Curran provided crop costs to the defendants on behalf of his investor clients from time to time. They managed the cultivation, harvesting and sale of various types of crops, including barley and lentils and the defendants paid the crop proceeds into the J & B Downes NAB account.
8 The material before his Honour, on behalf of Rhys, contradicted much of the case which the Downes sought to put. In effect, Rhys said that the Deed correctly characterised the dealings between the parties and was intended by the parties to take effect according to its terms. His Honour said that it was common ground that the Downes “had provided a satisfactory explanation for not filing a defence and an appearance respectively”. He accepted that the delay in bringing the application did not preclude its success and the material before him led him to conclude that there was an arguable defence on the merits. He set the judgments aside.
9 There are, on the court file, two affidavits filed on behalf of the Downes; one being a defence simpliciter, dated 10 October 2012, and an earlier document, dated June 2012, in the form of a defence and counterclaim. Mr Lapirow of counsel, who appeared at trial for Rhys, correctly observed that no counterclaim could be made against his client (which is subject to a court liquidator) without leave of a Supreme or Federal Court in accordance with the Corporations Act. The defence, then, is the appropriate pleading setting forth the Downes’ case.
Defendants’ defence
10 At paragraph 21 of their defence, which was signed by counsel, the Downes admitted executing the Deed and the mortgage “relying on the Deed Representations and induced thereby and not otherwise”. The Deed Representations were set out at paragraphs 17 and 18 of the Defence. Their purport, however, could only be understood by reference to certain “background circumstances” which were to be found in paragraphs 3-17. These paragraphs included a narrative broadly consistent with the one narrated by Ginnane J in his Judgment in 2012.
11 The paragraphs alleged that the Downes and Rhys, as part of a “tax effective” investment scheme, entered into share farming arrangements with Rhys’ investor clients making contributions to the share farming arrangements with a view to obtaining a 100 per cent deduction against assessable income for their outlays.
12 In the course of this arrangement, Mr Curran, who was the principal of Rhys, told the Downes that they were required to sign personal guarantees “in order to give his investor clients comfort that a crop proceeds would be paid” in accordance with the arrangement. Various guarantees were signed on this basis.
13 The defence continued that, following these events, Mr Curran, on behalf of Rhys, requested the Downes to manage a similar scheme on a property in Tintinara, South Australia, which he or Rhys would lease from its owner. The Downes agreed to the proposal, which entailed Rhys or Mr Curran providing subscriptions described in the defence as “Crop Costs” from Rhys’ tax payer clients with the Downes managing the cultivation and sale of crops including barley and lentils. At paragraph 14 it was said:
“Further, in or about 2005 at the request of Mr Curran, the [Downes] purchased goats for Mr Curran and/or his investor clients from money advanced by Mr Curran and/or his investor clients to be run on the Tintinara Land”.
14 Paragraph 15 of the defence referred to a letter of demand from Gadens Lawyers demanding $678,032 pursuant “to an alleged loan agreement”. According to paragraph 16 of the defence, the Downes denied owing money as claimed by the plaintiff and denied having entered into a loan agreement. Mr Curran, on behalf of Rhys, informed the Downes, “that they need not worry about the demand that he was getting a lot of pressure from his client investment for the payment of crop proceeds for the 2007 crop”. It was alleged that Mr Curran, on behalf of Rhys, told the Downes to see Gadens Lawyers, who had prepared the demand, “to work something out so his client investors could be reassured”. The denials of liability were alleged to have been made orally.
15 There then followed a meeting at Gadens Lawyers where the Deed, on which this proceeding was based, was presented to the Downes. It was alleged that Mr Curran said his client investors “wanted some reassurance from [the Downes] that 2007 Crop Proceeds from the Tintinara land would be paid; that the purpose for the Deed was to take the place of the personal guarantees, namely, to show his investor clients that [the Downes] had promised to pay the 2007 Crop Proceeds” and that Rhys “wouldn’t rely on and enforce the Deed against [the Downes]”. These were the “Deed Representations” on the sole basis of which the Downes said they executed the Deed.
16 The Deed Representations were, it was said, “conduct(ed) in breach of section 52 of the Trade Practices Act 1974 (Cth) and/or section 18 of Schedule 2 of the Australian Consumer Law”. It was on this basis that the plaintiff’s claim was resisted.
The trial
17 Following the order of Ginnane J, there were abortive listings to determine this proceeding. There was some debate as to precisely why these listings proved abortive. Mr Lapirow, on behalf of the plaintiff, said that the adjournments took place because the Downes and their legal advisers had parted company and they sought adjournments to obtain new legal representation.
18 Mr John Downes, who represented both of the defendants at the trial before me, conceded that the defendants sought adjournments on that basis. He said that on at least one occasion the matter was listed before His Honour Judge Lacava; the proceeding had to be adjourned in any event because Mr Curran was regarded by his Honour as a necessary witness and was not available at that time.
19 Mr Lapirow, on behalf of the plaintiff, said that in the circumstances his client was uncertain as to exactly what defence it would have to meet. A defence which had been filed remained operative. Mr John Downes made a response to Mr Lapirow’s opening, which Mr Lapirow alleged entailed significant departures from the case as pleaded. Mr Lapirow submitted, in the circumstances, that justice required that the defendant go first. The burden of proof, he submitted, in a case where the defendant sought to disavow the Deed which they had executed, lay upon them. In the same way as a defendant alleging arson in an insurance claim, or justification in a defamation case, may be required to go first, these defendants should go first, leaving it to the plaintiff to reply to whatever defence was put. He relied on the decisions of Marks J and the Full Court in Protein (Holdings) Ltd (Receivers & Managers) v American Home Insurance Co [1985] VR 187.
20 I declined to give that direction but indicated a general willingness to allow Mr Lapirow to reopen the plaintiff’s case and call rebuttal evidence should that prove necessary in the interests of justice.
21 The parties consented to an affidavit which had been sworn by Mr Hinton for the purposes of the hearing of Ginnane J to be admitted without Mr Hinton being available for cross-examination. Mr Cussen, the liquidator, gave evidence fundamentally based on an affidavit which had been sworn and filed for the hearing before Ginnane J. The last witness for the plaintiff was Mr Curran, who was cross-examined (but not at great length) by Mr Downes.
22 Mr Downes, as I understood him, appeared to indicate an intention of giving evidence. I told him that in the court’s civil jurisdiction, the evidence on which the court’s determination would be made was constituted by the evidence given orally on oath or by affirmation in the witness box, and upon the documents which might be entered into evidence as exhibits. What was said at the Bar table might be a preview or a review of the evidence but could not be regarded as evidence, in itself.
23 Nevertheless, ultimately, neither Mr John Downes nor his brother and co-defendant went into the witness box. They did not seek to have marked as exhibits in the proceeding, or otherwise considered for the purposes of the trial, the several affidavits which were relied on before Ginnane J. One may infer that had they sought to do so, Mr Lapirow would have required the deponent or deponents to be made available for cross-examination.
24 The result made the case somewhat difficult to determine. Wide leeway should be allowed to litigants in person. On the other hand, to allow new arguments to be raised and pressed without proper notice and without their having been pleaded, and to enable a party to make factual assertions without going on oath and subjecting himself to cross-examination, may potentially inflict injustice on the other party.
25 Mr Lapirow took objection on these grounds on a number of occasions. Cross-examination by Mr Downes, unsurprisingly, was not characterised by a punctilious observation of the rule in Browne v Dunn. In his closing address, Mr Downes raised issues which not only did not appear in the pleaded defence but were not mentioned in his opening statement, which I had asked him to make for the purpose of defining the issues in dispute between the parties.
Conclusions
The pleaded defence
26 The essence of the pleaded defence is that the execution of the Deed relied on in this proceeding, was procured by misleading and deceptive conduct. Another aspect of the defence is that, to the extent that the Deed purported to make provision for the repayment of various loan advances, no such loan advances had in fact been made. The whole Deed was, on this basis, illusory and brought into existence merely for the purpose of providing reassurance to external investors.
27 Insofar as the alleged misleading and deceptive conduct related to future matters, viz that before the execution of the Deed, Mr Curran, on behalf of the plaintiff, represented to the Downes that the plaintiff would not seek to enforce the Deed, it raised the difficulties relative to that cause of action when it is said to be based on future matters considered by the Federal Court in Bill Acceptance Corp Ltd v GWA Ltd (1983) 78 FLR 1.
28 The pleading left entirely open the question as to whether, if Mr Curran did give the assurance alleged, the assurance was given honestly at the time and gone back on simply because of a change of mind, or because of the force of subsequent circumstances or, on the other hand, was given dishonestly and never intended to be observed from the outset. Nor did the pleading refer to s51A of the Trade Practices Act, which was enacted to deal to some extent with the issues raised by the Bill Acceptance case.
29 In the end, it is unnecessary to pursue these matters because the proceeding resolves itself based on findings of fact.
30 On the face of it, a story that someone would execute a Deed referring to pre-existing loans that did not exist and undertaking obligations which the person was promised would never be enforced, simply lacks credibility. It might be thought to be preposterous. Here, however, it is not entirely without plausibility.
31 Mr Curran agreed that the initial arrangements which Rhys entered into with the Downes involving share cropping arrangements, entailed the Downes executing documents styled as personal guarantees, which appeared to evidence loan advances in circumstances where the nature of the transaction involved no loans at all. The monies in question were taken as subscriptions to the farming enterprise. Mr Curran said that these personal guarantee documents were executed merely to ensure that the Downes used the money subscribed for the purpose of crop planting and not simply for their own purposes.
32 The “personal guarantee” executed in these circumstances is doubly inappropriate. First, a guarantee in its usual purport entails one person, the guarantor, agreeing to be liable for the default of another, the principal debtor. In this arrangement, the Downes were already liable, to whatever extent, as principal debtors. Secondly, the personal guarantees were inappropriate insofar as they made reference to loan advances. The share cropping arrangements entailed no loan advances.
33 Therefore, to allege, as the Downes do, that documents also characterised as “personal guarantees” were not evidence of actual loan advances is far from implausible. Nevertheless, I prefer the plaintiff’s case to the effect that the transactions in question were loans in the proper sense.
34 Mr Curran said that the “loans” which led ultimately to the preparation of the Deed were not relative to share cropping arrangements, but rather to the raising of goats as part of a business operated by the Downes, themselves. The Downes did go into the goat business; but they said that business failed because Mr Curran’s operations were curtailed and his company collapsed and he was forced into bankruptcy as a result of the insolvency of another investment organisation known as Westpoint.
35 As a result, Mr Curran and/or Rhys lost any entitlement to the use of the Tintinara property in South Australia. It was necessary for the Downes to withdraw their operations from Tintinara, including the goats. The suggestion that there might have been materially different arrangements relative to the goat business from the one that existed relative to the crop arrangement is understandable and plausible.
36 There was evidence from the records of the company J & B Downes Pty Ltd, a company, it will be recalled, acting as intermediary between Rhys and the Downes, but controlled by Mr Curran, which characterised the amounts paid to the Downes in the later phase of their relationship with Rhys as loans. It is true that, coming from the records of a company controlled by the same interests as then controlled the plaintiff, this material may be regarded as self-serving.
37 Mr Lapirow also drew attention to the lack of any written protest or of any record of an oral protest to the law firm, Gadens Lawyers, when demand was made for the payment of the amounts apparently owing under the Deed.
38 Mr Hinton’s affidavit contains transcripts of voicemails, which indicate a desire to negotiate, generally, but not an indignant complaint, as one might expect, either that the Deed represented an entirely illusory set of alleged obligations, or that it had been the subject of some binding promise or representation of non-enforcement.
39 Again, the material produced by the plaintiff showed substantial payments made by the Downes. Since there were no loans, merely subscription towards the cost of a rural enterprise, it would have been inappropriate for repayments of either principal or interest to be made. The fact that these repayments were made is supportive of the plaintiff’s case and subversive of the defendants’ case.
40 Evidence of post-contractual actions by the parties is generally not admissible as to the true construction of the contract which they made (FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 243). However, such actions are admissible on the question of whether the parties in fact entered into a contract (Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 163-4 [25]).
41 Likewise here, these matters are admissible as to the question of whether there was a genuine contractual obligation as constituted by the Deed, on the one hand, or whether it was merely illusory – a smokescreen to impress investors, on the other.
42 I feel more able to rely on these matters by reason of the following further considerations. The manner in which the defendants conducted their case at trial meant that they put in no evidence in response to the plaintiff’s case at all. Insofar as their case was based on assurances and representations allegedly made to one or other or both of the defendants, there was every reason to expect that one or both of the defendants would have given evidence. It is reasonable to infer, therefore, that had they given evidence, their evidence would not have been helpful to the defendants’ case (Jones v Dunkel (1959) 101 CLR 298).
43 Where the absent witness is the defendant, himself, or the defendants, themselves, the ability to draw inferences based on other evidence is stronger. See, for instance, Black v Tung [1953] VLR 629.
44 In those circumstances, I accept the evidence relied on by the plaintiff that there were actual loans which were made preceding the execution of the Deed and that the Deed was intended to create genuine legal obligations without any assurance of non-enforcement.
Other Matters
45 In addressing other matters previously noted, Mr Downes, on the second day of the trial, sought to raise new matters which were not only unpleaded but had not been raised in the opening statement which he made at my invitation on the first day. One of those was that the plaintiff lacked “a licence” to do what it was doing. He was unable to indicate to me what form of licence he referred to. He made reference to the Australian Securities & Investment Corporation. As I understood him, he was referring to licences issued by that body under securities legislation relative to the raising of funds from public subscribers.
46 Mr Curran said that his company had advice from Ernst & Young to the effect that it was entitled to do what it did without a licence or a prospectus. The matter was not further investigated. Even assuming that there was illegality in the raising of funds from taxpayer or public investors, I cannot see that that fact in itself, if it be a fact, would render unenforceable any loan arrangement as between the Downes and the plaintiff.
47 Mr Downes’ point might have been regarded as directed to an obligation to hold some sort of licence under consumer protection legislation. At the time that these events occurred, the relevant consumer legislation was the Consumer Credit Code, a piece of Queensland legislation which was adopted as the consumer credit legislation by the other states, including Victoria. Section 6 of that Code indicated that credit arrangements were regulated under its terms if the debtor was a natural person or strata corporation and, inter alia, “the creditors provided or intended to be provided wholly or predominantly for personal, domestic or household purposes”. The loans alleged here were not for personal, domestic or household purposes and, accordingly, would not appear to be regulated under the Code. These matters are now dealt with under a National Credit Code, constituted by the National Consumer Protection Act 2009. Clause 5, Schedule 1 to the National Credit Code is in generally similar terms to the previous state legislation, except that credit provided to natural persons or strata corporations may be regulated by the Code, not only where it is provided for personal, domestic or household purposes, but also for the purchase, renovation or improvement of residual property for investment purposes or to refinance credit which has been provided wholly or predominantly for those purposes.
48 Since the loans alleged here do not appear to be regulated, there would not appear to be an obligation on the part of the plaintiff to hold any sort of licence to enter into the lending transaction.
49 In his presentation from the Bar table on the second day, Mr Downes said that a reconciliation of the debits and credits passing between the defendants and the plaintiff repaid all, or nearly all, of any alleged loans.
50 This point can be seen to be not only wholly unpleaded, but also entirely inconsistent with the thrust of the defendants’ pleaded case and the case which Mr Downes opened on the first day.
51 The primary case, both in the defence and in the opening presentation, was that there was no repayment because, since the monies provided to the Downes by the plaintiff were subscriptions towards the conduct of a rural enterprise for which 100 per cent deduction could be obtained, they were, by their nature, not loans and therefore did not have to be repaid or attract interest.
52 The defendants in this new unpleaded case seemed to be saying, “There were no loans but if there were we have repaid them”.
53 Mr Lapirow, on behalf of the plaintiff, relied on a document described as “conclusive evidence certificate under Clause 6.4 of Deed dated 18 December 2007”. This document, over the signature of the liquidator, Mr Cussen, certified, inter alia, that the defendants were:
“As at 24 January, 2014 on the assumption no payment was made by them, indebted to the plaintiff in the total sum of $1,192,946.27 being the debt as at 7 December 2009 together with the further legal costs and accruing interest of $531,329.74.”
54 The certificate, as its heading suggested, purports to be conclusive and given under Clause 6.4 of the Deed, which is in the section headed “Debt or Default”. Paragraph (d) of that sub-clause states:
“A certificate signed by an authorised representative of the Lender stating that the Debtors had defaulted under this Deed shall be conclusive evidence against the Debtors that there has been such default and the Lender is entitled to judgment.”
55 Sub-clause 8.17 is headed “Lender’s Unpaid Indebted Sum Statement” and states: “The Lender’s Unpaid Indebted Sum Statement shall be prima facie evidence of those amounts”. The expression “Lender’s Unpaid Indebted Sum Statement” is defined in Clause 9.1 as meaning: “A statement in writing by the Lender as setting out the balance owed under the Indebted Sum or any component parts at any time”.
56 In accordance with the High Court’s decision in Dobbs v The National Bank of Australasia Ltd (1935) 53 CLR 643, the certificate can take effect according to its terms. It is noteworthy, however, that the certificate is expressed to be conclusive on the question of default but only prima facie evidence as to the amount outstanding by the defendant.
57 The result is that the certificate does not absolve me from giving attention to the unpleaded argument based on alleged repayments.
58 In the circumstances, however, given the quite perfunctory and quite unsatisfactory manner in which the issue was raised, I do not believe that my obligation is to too extensive in this respect. For instance, Mr Curran, who was the principal of Rhys, gave evidence and these matters were not taken up with him in cross-examination at all.
59 Mr Hinton’s affidavit produced a statement of accounts as an exhibit showing that the indebtedness established by the Deed certainly had not been repaid.
60 A loan reconciliation for the period 1 July 2002 to 31 August 2007 showed a debit balance on the last page as at 3 July 2007 in the sum of $706,172. It also showed interest charged at the rate of 12 per cent per annum. This was the lower rate provided for in the Deed executed in December 2007.
61 The Deed provided for interest to be paid at 19.5 per cent at a higher rate with a substituted rate of 12 per cent “if all the terms and conditions [therein] contained or implied [should] have been duly and punctually performed and observed”.
62 Mr Lapirow observed that the calculations offered by Mr John Downes made no allowance for the accrual of interest in accordance with that provision. Mr Downes denied this. The material relied on by the plaintiff included detailed item by item records of credits and debits, in particular, a document exhibited to the affidavit of Mr Hinton. One of the documents he produced was put into evidence separately and the Downes applied for an early adjournment of the trial on the first day to enable them to consider it which I granted.
63 Aside from having been provided to the Downes’ then solicitors as part of the application before Ginnane J, the reconciliation document was part of the plaintiff’s discovery.
64 The reworking of a reconciliation document such as this is an accounting rather than legal exercise. There is no reason to think that the Downes lacked the ability or expertise to prepare their own “counter” reconciliation demonstrating the state of accounts which they alleged. If the accounts really stood as the Downes’ submission suggests they did, I would have expected such a document to be produced. Moreover, the material from Mr Hinton showed the service of a default notice upon the Downes, a matter which they pleaded in their own defence.
65 Mr Hinton’s affidavit also exhibited the text of a number of voicemail messages which one or other of the Downes left with Mr Hinton’s office. If the situation were as the Downes now contend, one might have expected them to say something along the lines of “there is a mistake here, we have already paid off this obligation”. Neither in writing nor in the voicemail does any such protest appear to have been made.
66 In these circumstances, I accept the evidence of the plaintiff as to the amounts outstanding. I reject the contentions put by the Downes.
Possession
67 The plaintiff seeks possession of the mortgaged property in reliance of s78 of the Transfer of Land Act. This section applies to registered mortgages generally, whether first ranking or not. It entitles a mortgagee to enter into possession of the mortgaged property “upon default in repayment of the principal sum of interest”. The plaintiff’s material attests to the service of a demand for payment of the secured monies under s76 of the Transfer of Land Act.
68 The Downes’ defence actually pleads the making of this demand, so it is common ground. In light of the findings which I have made already and the terms of the Deed, there was a certification by the plaintiff’s liquidator of a default by the Downes. The whole amount payable under the Deed accelerated and the Downes made default in the payment of it, despite service of the demand. The requirement for Rhys to be entitled to possession of the mortgaged property under s78 of the Transfer of Land Act have therefore been made out. The plaintiff is entitled to an order for possession of the mortgaged property.
Costs
69 I have heard no submissions on the question of costs and so they will be reserved.
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