Mayart Pty Ltd v Knight
[2019] VCC 1369
•30 August 2019
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-18-04868
| Mayart Pty Ltd & Ors | Plaintiffs |
| v | |
| Philippa Christine Knight & Ors | Defendants |
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JUDGE: | Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21 June 2019 and 31 July 2019 | |
DATE OF RULING: | 30 August 2019 | |
CASE MAY BE CITED AS: | Mayart Pty Ltd v Knight | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 1369 | |
REASONS FOR RULING
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Subject: SUMMARY JUDGMENT
Legislation Cited: Civil Procedure Act 2010 (Vic), ss62 and 63
Cases Cited:Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSC 201; Campaspe Investments Pty Ltd v PBP Accounting Solutions Pty Ltd [2015] VSC 26
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Dr M Wolff | Noble Lawyers |
| For the First Defendant | No appearance | |
| For the Second Defendant | Mr M Black | Willerby’s Solicitors |
| For the Third Defendant | No appearance |
HIS HONOUR:
Summary and outcome
1 This proceeding concerns a property at 39 Parkers Road, Parkdale (“the Land”). The second defendant (“RVA”) has a mortgage over the Land. Commencing in 2015, RVA as mortgagee has completed a development on the Land involving the construction of 12 apartments, and is in the process of selling those apartments. The plaintiffs claim an interest in apartments 10 and 11, based on arrangements they say they entered into with the proprietor of the Land, the first defendant (“Ms Knight”). Those arrangements were the execution of contracts for the purchase by the plaintiffs of apartments 10 and 11 and associated loan agreements. The plaintiffs in substance allege that RVA knew of and consented to these arrangements and must compensate the plaintiffs from the proceeds of sale of these apartments.
2 RVA has applied for summary judgment under ss62 and 63 of the Civil Procedure Act 2010 (Vic) (“CPA”) and r22.16 of the County Court Civil Procedure Rules 2018 (Vic). RVA argues that the plaintiffs’ claims against it have no real prospect of success, because the evidence of RVA’s consent lacks sufficient plausibility as to merit further investigation and, even if accepted at face value, does not establish consent sufficient to support the claims. I agree. I will order that the plaintiffs’ claims against the second defendant RVA be dismissed. Subject to any matters either party wishes to raise on the question of costs, I will also order that the plaintiffs pay RVA’s costs of and incidental to the proceeding, to be taxed on the standard basis, in default of agreement.
Claims in the proceeding and progress of application
3 The proceeding was commenced by writ filed on 26 October 2018. The first plaintiff, Mayart Pty Ltd as trustee for the Mayart Property Trust, alleges that it is the purchaser of apartment 10 (and the associated carpark). The second and third plaintiffs are Lincoln and Leanne Daley, who allege that they purchased apartment 11. The two apartments were purchased from Ms Knight, after negotiations with her husband, the third defendant (“Mr Knight”). On 6 May 2019, the plaintiffs filed and served an amended statement of claim (“ASOC”) adding various claims and, most notably, several new paragraphs alleging the existence of a so-called “Construction Liability Settlement Agreement” between the plaintiffs and RVA. RVA made the present application by summons filed on 24 May 2019, accompanied by a supporting affidavit sworn by its sole director, Mr Rex Sheppard, on 23 May 2019 (“23 May Sheppard Affidavit”). The application was listed for hearing before me on 21 June 2019.
4 The day before the hearing, the plaintiffs filed an affidavit sworn by the second plaintiff, Mr Lincoln Daley (“19 June Daley Affidavit”). And on the morning of the hearing, the plaintiffs sought to file in Court two further affidavits, namely, affidavits sworn that morning by Mr Knight (“21 June Knight Affidavit”) and by Robert Cleary. At the hearing, in addition to the problem caused by the very late filing of affidavits by the plaintiffs, it was clear that there were significant disconformities between the facts deposed to in those affidavits and the ASOC. Further, RVA objected to the admissibility of a number of passages in the affidavits.
5 Despite the very late filing of the affidavits by the plaintiffs, counsel for RVA indicated that his client was willing to proceed with the application that morning. However, counsel for the plaintiffs accepted that he would need to revisit and probably amend the ASOC to address the disconformities and sought an adjournment to enable him to do so. I noted that such an adjournment would provide RVA with the opportunity to file further affidavits in response to those on behalf of the plaintiffs, which could assist in clarifying RVA’s position on the factual allegations newly raised by the plaintiffs. I therefore ruled on RVA’s admissibility objections, made timetabling orders for a draft further amended statement of claim (“FASOC”) on behalf of the plaintiffs and further affidavits, and otherwise adjourned the hearing part heard to 31 July 2019.
6 The plaintiffs filed their proposed FASOC on 8 July 2019, and on 10 July 2019 filed an affidavit of Peter Walsh and a further affidavit of Mr Daley (“10 July Daley Affidavit”), both sworn that day. On 18 July 2019, RVA filed a further affidavit of Mr Sheppard (“18 July Sheppard Affidavit”). Both parties also filed and served written submissions. When the matter came on again for hearing on 31 July 2019, neither party had given notice that it wished to cross-examine any of the deponents on their affidavits. I raised this with counsel for RVA during oral submissions, and he submitted in effect that cross-examining deponents on an application for summary judgment was problematic and that, in any event, RVA could sustain its application without the need to test the plaintiffs’ deponents by cross-examination.
7 The claims advanced by the FASOC are, in very broad terms, as follows:
·Ms Knight entered into agreements to sell the two apartments to the plaintiffs and subsequently breached these agreements or alternatively, was unjustly enriched in circumstances where there was a lack of consideration for the payment she received;
·the plaintiffs made payment to Ms Knight pursuant to a mistake of fact induced by Mr Knight acting as agent for Ms Knight or RVA;
·the mistake of fact was that RVA had consented to the sale and to the plaintiffs being registered as the unencumbered owners of the apartments they had purchased;
·as a result, it is inequitable for Ms Knight to retain the benefit of the monies paid by the plaintiffs;
·RVA consented to and encouraged the agreements, and received the benefit of the payments made under the agreements, thereby inducing the plaintiffs to enter into them in the belief that RVA would discharge its securities in respect of the two apartments;
·as a result, RVA is estopped from denying its consent to the agreements and its obligation to discharge its securities over the two apartments;
·RVA received the benefit of the funds paid under the agreements for lack of consideration and was unjustly enriched;
·RVA received the benefit of the funds paid pursuant to the mistake of fact described above and it is inequitable for them to retain that benefit;
·the plaintiffs, as nominees or transferees of Dalle Australia Pty Ltd (as trustee for the Dalle Family Trust and the proposed fourth plaintiff), entered into loan agreements with Ms Knight pursuant to which they agreed to lend monies to Ms Knight with Mr Knight as guarantor, and both Ms Knight and Mr Knight (as guarantor) have breached these agreements.
8 I note that the FASOC has removed all reference to the alleged “Construction Liability Settlement Agreement” between the plaintiffs and RVA, that had been added by the ASOC. I assume this was because it had become apparent to those advising the plaintiffs as a result of the affidavits, that the circumstances of the discussions in August 2014 even on the plaintiffs’ version, could not support their allegation of the agreement. I refer in detail below to the various versions of those August 2014 discussions. Nevertheless, resolving what orders to make about the FASOC is not straightforward.
9 To the extent that the proposed FASOC adds and refines claims against the Knights, I am content to allow the proposed amendments, including by granting leave to add Dalle Australia Pty Ltd as fourth plaintiff. So far as the revised claims against RVA are concerned, there is no doubt that they are an improvement on the ASOC. However, given my findings on RVA’s application for summary judgment, it might be suggested that I should not allow the amendments on the basis that they are unsupportable, for the reasons below. However, this is not a case where I have found that the plaintiffs’ claims are bad in law. Rather, after reviewing the affidavits, I have concluded that the plaintiffs’ claims against RVA have no real prospects of success on an analysis of the facts relied on to support the claims in law.
10 In all the circumstances:
· to ensure that the plaintiffs have the opportunity to make their arguments based on the case they now wish to advance against RVA;
· to avoid any doubt that my findings are based on that case; and
· given that the FASOC includes amendments to the continuing claims against the Knights,
I will grant leave to the plaintiffs to file and serve a further amended statement of claim in the form of the FASOC filed on 8 July 2019 (and associate orders), notwithstanding my finding that the claims against RVA advanced in that FASOC will be dismissed.
Background
11 In 2012, Direct One Management Pty Ltd (“Direct One”) had agreed to advance $3,800,000 to Ms Knight, with her husband, the third defendant (“Mr Knight”) as guarantor, to fund the construction of 12 residential units on the Land. However, at the time of the proposed advance, the Land had already been mortgaged to secure a loan from Apiang Woong (“Woong”), and Direct One required first mortgage security for its loan. Mr Knight therefore approached RVA on Ms Knight’s behalf, with a view to arranging a loan to Ms Knight from RVA for $1,325,000, also to be secured by a mortgage over the Land and a guarantee from Mr Knight (“RVA Loan”).
12 The purpose of the RVA Loan was to secure Woong’s entry into a Deed of Variation of Priorities of Mortgages pursuant to which:
· Direct One would get first priority for its loan of $3,800,000;
· RVA would have second priority for its loan of $1,325,000; and
· Woong would receive a payment of the $1,325,000 raised from RVA and would take third priority for any monies remaining owing under the relevant lending agreements with the Knights.
13 These arrangements (including the RVA Loan) were later put in place and in late May 2013, Direct One made an initial advance of $1,050,000 toward construction, with the balance of the advances to be made in response to progress claims as construction continued. At about the same time, RVA advanced $1,325,000 to Ms Knight, which was paid to Woong.
14 Sometime before this (the timing is unclear but unimportant), Ms Knight had engaged JG King Project Management Pty Ltd (“JG King”) to construct the units at the Land. But by mid-2013, construction had come to a halt with the works still at the foundation stage. On 1 July 2013, JG King issued proceedings in this Court against Ms Knight seeking payment of the sum then owing under the construction contract. Judgment was entered by consent against Ms Knight on 11 October 2013 for $468,121.26, plus interest of $23,807.91 and costs.
15 On or around 9 January 2014, Rex Sheppard of RVA instructed his lawyer to issue a Notice to Pay to the Knights for breach of the conditions of the RVA Loan. Under the terms of the RVA Loan, it became due and payable on 13 March 2014. On or around 23 May 2014, Mr Sheppard instructed his lawyer to issue a second Notice to Pay. It appears that RVA was at this stage disinclined to take formal enforcement action. But in July or August 2014, Mr Sheppard approached Direct One about enforcement. A representative of Direct One told him that it was owed $1,250,000. Mr Sheppard agreed with Direct One that RVA would take possession of the Land as second mortgagee and sell it by auction, to pay out Direct One and then apply the balance of the proceedings against the RVA Loan.
16 Mr Sheppard deposed that RVA took possession of the Land on or before 19 August 2014 “by placing notices on all gates” to the Land. There is some dispute on the material about whether and, if so, where such notices were posted, but nothing turns on this. It is not in dispute that RVA engaged Ray White Mordialloc to market and sell the Land at public auction, and that this auction took place on 18 October 2014. It is also not in dispute that the Land was sold at the auction for a price of $2,800,000, but the sale later fell through. In the meantime, a number of discussions had allegedly occurred about two of the 12 unconstructed apartments. The apartments concerned were apartments 10 and 11. The plaintiffs’ claims against RVA depend on whether these discussions occurred and, if so, what was said.
Alleged August 2014 discussions
17 In their ASOC, the plaintiffs’ claims against RVA were in substance that:
· on about 20 August 2014, Ms Knight agreed to sell apartment 10 to the first plaintiff;
· on about 18 August 2014, Ms Knight agreed to sell apartment 11 to the second and third plaintiffs;
· RVA knew or ought to have known the plaintiffs were about to enter into these agreements with Ms Knight;
· RVA encouraged the plaintiffs to enter into these agreements;
· RVA consented to the plaintiffs entering into these agreements;
· further or alternatively, RVA entered into a separate (and detailed) “Construction Liability Settlement Agreement” with the plaintiffs, by which RVA promised not to enforce any of its securities over the apartments.
18 The particulars supporting each of these claims were in similar terms. I assume (as I must, in the absence of evidence to the contrary) that the pleadings and particulars were prepared based on instructions from Mr Daley, in his capacity as principal of the first plaintiff, the second plaintiff and the plaintiffs’ representative in all relevant discussions. Notably, each set of particulars gave an equivalent version of a single conversation “in or about August 2014” said to constitute RVA’s “consent” or, alternatively, “agreement”. For example (at [24]):
“Insofar as [the consent] was express and oral, it was expressed by Rex Shepherd, a director of the Second Defendant, in a telephone conversation with Michael Knight, a representative of the First Defendant, as one party to that telephone call; Rex Shepherd, a director of the Second Defendant, as the second party to that telephone call; and Lincoln Daley, a representative of the First Plaintiff, as the third party to that telephone call.”
19 Thus, what is unequivocally alleged is that there was a single, three party telephone conversation between Mr Sheppard, Mr Knight and Mr Daley, during which Mr Sheppard is alleged to have given RVA’s consent (in words spoken directly to Mr Daley) to Ms Knight selling the apartments to Mr Daley. However, in response to the 23 May Sheppard Affidavit, Mr Daley thereafter propounded a different version of the conversations, as discussed below. No explanation was provided for this change and the plaintiffs ultimately removed all reference to the three way telephone call from their FASOC.
20 In the 19 June Daley Affidavit, Mr Daley deposes that his friend Robert Cleary introduced him to Mr Knight in August 2014. Mr Daley described Mr Cleary as a “person who arranges finance for developers”. Mr Daley said that Mr Cleary told him “I have an opportunity for two off-market apartments at a discount, but [it] has to be paid now so that the old builder can be made to … off”. In response, Mr Daley said he was interested as long as “the deal was solid”. Mr Daley gave evidence that “[Mr Cleary] (after some further conversations, I believe), arranged a meeting between [Mr Cleary], I and Michael Knight on behalf of the owner Philippa Knight, who I recall was away with their children at the time”.
21 Mr Daley’s evidence was that:
“[T]his meeting occurred on or around 1 August 2014, and that Michael was accompanied by Robert Cleary. In a nutshell, Michael approached me with a proposal to buy two apartments in the Parkers Road project because the owners and financiers needed someone to pay out the original builder before a judgment was applied and the project fell over.
Michael Knight told me that he was talking to me on behalf of Philippa and the lenders for the project and asked if I, or anyone I knew would be interested in purchasing 2 apartments off market at a reduced sale for the purchase of them up front and in full. These apartments were known to me then as apartments 10 and 11.
Michael Knight advised that the premise of the sale was to ‘prop up the funding already in place to pay out the original builder as the lenders had agreed with him the best course of action was to source it through sales as they didn’t want to prop the project up themselves’.”
22 In his affidavit, Mr Daley also claims that “Michael Knight said…at the time words to the effect that the sale of the apartments was getting the property owner out of trouble with the original builder while not further exposing the lenders on the project, hence the discount, and the money for these apartments was going to the original builder to pay them out”.
23 Mr Daley’s evidence was that, as an experienced builder and having “spent my entire life around real estate developments”, it was obvious to him that there would be security interests over the apartments and “I am well aware of the effects of a security over a property. In fact, Michael [Knight] and Rob [Cleary] immediately confirmed that this was the case, and that there were two major mortgagees in play”, being Direct One and RVA. Mr Daley said that for him to even contemplate paying the purchase price for secured properties upfront, “I of course needed to be clear that everyone involved had agreed to the sales”. According to Mr Daley:
“Michael [Knight] made it clear to me that both Direct One and RVA had agreed to a sale of the two apartments to me in order to pay out the original builders because the only other option was either putting more money in themselves or allowing Philippa [Knight] to go bankrupt, which would have resulted in a fire sale of the property and the destruction of their security.
Michael [Knight] said that he had spoken with Rex Sheppard with regard to the outstanding debt to the original builder (who had already lodged a bankruptcy notice against [Ms Knight]) and had told him that the only way forward was to sell the two apartments in question to pay out the builder, and that he needed his (Rex Sheppard’s) agreement not to enforce his mortgage over those two apartments as otherwise nobody would buy them. Michael [Knight] was very clear that Rex Sheppard had agreed to this.
I recall I asked Michael Knight if he was sure that Rex Sheppard had agreed to it and I recall also that he said to me words to the effect of: ‘Mate, he runs that show. He even has power of attorney over us. We can’t do anything without his say-so. And I asked him point blank and he said, yes, if that’s the only way to fix this, then yes, he can have the apartments’.”
24 Mr Daley added that, at this meeting, Mr Cleary had said that “he was privy to this information and that ‘RVA had agreed to the sale of the two apartments if he paid the money now so that the old builder can be made to go away’”. He said that at the same meeting, Mr Cleary and Mr Knight also conveyed Direct One’s approval of the purchase as they had spoken with them as well.
25 Mr Daley and his wife agreed to purchase apartment 11 and signed the contract of sale on 19 August 2014. In the weeks preceding that date, Mr Daley also approached his father-in-law, Donald Cox, and asked if he knew anyone who might be interested in purchasing apartment 10 on the same terms he had been offered. Mr Cox came back and advised that he and his wife, Joan Cox, would be interested in buying apartment 10 themselves. Mr Cox (on behalf of the first plaintiff) subsequently transferred the full and final funds for apartment 10 to Ms Knight’s lawyers’ trust account on 20 August 2014.
26 Mr Daley said that he “would never have [purchased apartment 11] unless I was sure I would actually get the apartments, and the only way to be sure of that is to get the approval of the security holder. It is the only explanation for me paying over our family savings. […] Again, [Mr Cox] only agreed to purchase apartment 10 with the understanding that Rex Sheppard had consented to that purchase and would not enforce RVA’s security over the apartments”.
27 In the 10 July Daley Affidavit, Mr Daley corrected the 19 June Daley Affidavit, deposing that the conversations referred to above between Mr Knight, Mr Cleary and him took place at their second or third meeting, rather than on 1 August 2014, which he says was the day of their first meeting. He said that the second meeting took place in a coffee shop in Richmond on 2 August 2014 and the third meeting occurred in Parkdale, on or about 7 August 2014. He said he did not remember exactly if Mr Knight and Mr Cleary told him the matters described above during the second or third meeting, but he was certain it was during one of them. He added: “In fact, I believe it may have been discussed during all three of the meetings”.
28 In his affidavit dated 20 June 2019, Mr Knight confirmed that he met Mr Daley in August 2014, and was introduced to him by Mr Cleary. He said:
“Mr Cleary advised me that an alternative he had utilised previously was to sell apartments in a development at a discount and receive payment in full at the time of sale and secure the obligations of the seller via a loan agreement and contract of sale.
I then discussed at length the proposal to sell two apartments to Mr Daley, with the first mortgagee and the second defendant Mr Rex Shepherd (sic). I advised him that we would make the same offer to him to acquire two discounted apartments if he advanced the funds required to pay the judgment debt.
The second defendant and Mr Shepherd (sic) declined the proposal to buy two apartments and he said to me ‘do the deal with Daley as it adds value to the land by paying for the building works already completed, that enhances my security and I will continue to fund the project’.”
29 Mr Cleary also gave evidence by an affidavit sworn on 21 June 2019. He said that:
“Around early August, I introduced Lincoln [Daley] to Knight who provided a detailed overview on the proposed purchase of two apartments in the Parkdale project.
Knight advised that there was a 1st and 2nd mortgage over the property and that he had maintained a sound relationship with both. He further advised that both lenders were aware of his actions in selling these apartments at a discount price, to enable payment to the Builder so the project would proceed.
…
A deal was reached between Daley & Knight was that two apartments would be sold…Knight confirmed via phone on the day with the lenders that the sale of these apartments were done with the approval of both the 1st and 2nd mortgage lenders being confirmed via phone.”
30 By his affidavit in response dated 18 July 2019, Mr Sheppard rejected each of the factual allegations set out above. He denied that RVA ever authorised Mr Knight to speak on RVA’s behalf, enter into any contractual arrangements on its behalf or in any other way to represent or bind RVA. He said that he had no knowledge at any time of the discussions or dealings between Mr Knight and Mr Daley referred to in the 19 June Daley Affidavit, and said he only became aware of the alleged loans and sales involving apartments 10 and 11 in May 2015. He added that:
“It was not relevant to RVA in August 2014 (and has not been relevant since) whether Philippa Knight or Michael Knight were made bankrupt. RVA's rights are and were in August 2014 secured by its mortgages and would take priority over any rights of a trustee in bankruptcy. Payments which may have been made or contemplated to the previous builder JG King had no impact on RVA's position. There was no reason for me to support the arrangement alleged to have been procured by Michael Knight and I did not know of, support, or consent to any such arrangement.
…
Despite his apparent understanding about securities, Mr Daley did not approach me before purportedly handing over the money to ask whether I had consented to or even knew of the arrangements. Nor did Mr or Mrs Daley lodge a caveat over the title to the land claiming an interest as chargee or purchaser. Nor did Mayart Pty Ltd lodge a caveat over the title to the land claiming an interest until 27 October 2017.”
31 Mr Sheppard similarly denied the allegations in Mr Knight’s affidavit of 20 June 2019 (and allegations to similar effect in Mr Cleary’s affidavit of 21 June 2019) that he was aware of the alleged loans and contracts in August 2014 and said further (formatting omitted):
“By August 2014 I had already had discussions with the first mortgagee Direct One about selling the property as second mortgagee.
I could not have entered into any arrangement to agree to underselling two of the units as Direct One had first priority to receive monies from all sales.
The alleged loans and sales were of no benefit to Direct One or RVA.
In July 2015, RVA purchased the first mortgage from Direct One as security over the whole of the Land. At no time did any officer of Direct One state to me that there was any arrangement in place in relation to Lots 10 and 11. There was no agreement that Lots 10 and 11 were excluded from the first mortgage. RVA would not have purchased the first mortgage had it been subject to exclusions.”
Events after August 2014
32 In the 19 June Daley Affidavit, Mr Daley alleges that on 17 October 2014, he met Rex Sheppard at his office in Frankston. He exhibited email correspondence between himself and RVA’s lawyer, Sam Armytage, arranging the meeting. Mr Sheppard appears to have been copied to those emails, but did not participate in the exchange. Mr Daley said that during this meeting, he “raised that I and my family had purchased and paid for apartments 10 and 11 and that those purchases had only been undertaken because Michael Knight had told us that he, Rex Sheppard, ‘had agreed to them’”. He said he recalled that Mr Sheppard said words to the effect of, “Ah yes, to pay out the builder. I hear that’s been done so good job”.
33 Mr Daley deposed that they then discussed Mr Daley’s construction company completing the construction on the Land. Mr Daley said that he told Mr Sheppard he didn’t like the finances of the project as it was essentially on a cost basis and “the only reason I would be willing to take on the project was to ensure that what was built was of decent quality”. He said Mr Sheppard “confirmed that he knew this, hence his request for the meeting to ‘see who the buyers were and the proposed builder was face to face’”.
34 Mr Daley’s evidence was that: “During this meeting Rex Sheppard advised that his original intention was to sell off the project because he was sick of dealing with Michael and Philippa Knight and get out, but now that he had met me and understood the scenario properly, he would sit on his hands and allow the project to carry through to completion”. He said that Mr Sheppard made a commitment that he would not sell the property until the project was completed.
35 As noted above, on the following day (18 October 2014), the public auction arranged by RVA was held at the Land. At this time, the debt to Direct One and RVA alone was at least $2,840,000 (being the total of the $1,250,000 Mr Sheppard had been told was owing to Direct One, plus the $1,590,000 claimed by RVA in its Notice to Pay to Ms Knight dated 23 May 2014). The Land was sold for $2,800,000. Mr Daley said that he “turned up to the site to meet a friend to find out that Rex Sheppard had back-flipped and there was an auction being held”. Mr Sheppard was also present at the auction, but there is no suggestion in Mr Daley’s affidavit material that he confronted Mr Sheppard about his “back-flip”. Rather, Mr Daley says he “left site that day advised by Michael Knight that Maxtra had purchased the property and would be working with him, building it and selling everything off aside from the 2 apartments already sold”.
36 For his part, Mr Sheppard said that he did not recall any meeting with Mr Daley on 17 October 2014, and that his diary does not record such a meeting. According to Mr Sheppard, he first met Mr Daley at the auction on 18 October 2014. He said Mr Daley approached him after the auction concluded and he had signed the sale contract with the winning bidder. Mr Daley introduced himself as “the builder” and asked Mr Sheppard if he knew what was going to happen with the construction on the Land. Mr Sheppard said he didn’t know, as the property had been sold and he had no control over the construction. Mr Sheppard also said that Mr Daley told him he had paid “a substantial amount of money to Michael Knight to acquire the building rights to the Land”. Mr Sheppard said he was sorry, but that appeared to be a matter between him and Michael Knight, and “walked away as [Mr Daley] appeared to be quite agitated and I did not want to continue the conversation”.
37 It is not in dispute that the purchaser at auction later defaulted on the contract of sale and RVA terminated it in January 2015. Mr Sheppard’s evidence was that the deposit on the sale (shown by the executed sale contract to be $140,000) was forfeited and paid to Direct One as first mortgagee. Mr Sheppard deposed that the selling agent RVA had engaged had led him to believe that it was unlikely that the Land would again achieve a sale price approaching the $2,800,000 achieved on 18 October 2014. He later determined that the best course of action was for RVA to complete construction of the 12 units on the Land as mortgagee in possession, and sell the individual apartments after completion. He said: “Until then I had only intended to sell the Land as whole (sic) as an incomplete project. Until then RVA had no intention of completing the construction of the units on the Land”.
38 In May 2015, RVA commenced negotiations with Direct One to purchase its first registered mortgage. It completed the purchase in July 2015. RVA also purchased the building plans and permits from JG King in May 2015 for $30,000. Mr Sheppard said that at about the same time that RVA was in negotiations with JG King, he was contacted by Mr Daley, who told him he was a builder who had been dealing with Mr Knight in relation to completing construction of the development on the Land. He asked Mr Sheppard if he could provide a quote to carry out the construction works for RVA. Mr Sheppard agreed, and they had a meeting the next day, to discuss the possibility of his company carrying out the construction. Mr Sheppard claims that this meeting was “the first time I heard any mention of the alleged loans and contracts for units 10 and 11”.
39 Ultimately, Mr Daley’s company was engaged as the builder and entered into a building contract with RVA on 11 December 2015. Mr Daley has given evidence that on many occasions from 2015 to 2018, Mr Sheppard “confirmed … that he would stand by our agreement of August 2014 and that ‘I would get the apartments’”.
40 The plaintiffs have also relied on an affidavit of Mr Peter Walsh, a project manager for Mr Daley’s company while construction on the Land was ongoing. Mr Walsh has deposed that in October 2017 he witnessed Mr Sheppard telling Mr Daley he would “make sure that Lincoln and his family would get the apartments and not suffer”. He also gave evidence that Mr Sheppard made similar statements while visiting the site during the period from August 2017 until March 2018, when he says he witnessed Mr Sheppard saying to Mr Daley: “I will look after you and your investment. I am not here to screw you… I know what we agreed to and I stand by that”.
41 For his part, Mr Sheppard says that Mr Walsh has misquoted or misinterpreted statements he made to him or in his presence. He deposed that: “I only said that if the project made enough money to pay out the first and second mortgages, then there could be some money left over for Mr Daley to make claim to and that as the building costs and interests blew out it became unlikely that there would be any money left over”.
Applicable law
42 The test to be applied in applications for summary judgment under CPA s63 has been definitively stated by the Court of Appeal in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSC 201 (“Lysaght”), as follows:
“Upon the present state of authority:
(a)The test for summary judgment under s 63 of the [CPA] 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.”[1]
[1]Per Warren CJ and Nettle JA, (Neave JA agreeing) at [35]
43 In exercising the discretion to dismiss a claim summarily and determining whether a claim has a real as opposed to fanciful prospect of success, this Court is required to:
·consider the complexity of the case and whether the proceeding will involve issues of contested facts or credit;[2]
·give effect to the overarching purpose in CPA s8(1) in exercising, or interpreting, the statutory power for summary dismissal. The Court should also have regard to the matters set out in CPA s9; and
·have regard to the discretion in CPA s64 to allow a matter to proceed to trial, despite there being no real prospect of success, if it is in the interests of justice to do so or only a full hearing on the merits is appropriate. This discretion is broad and is to be considered in the circumstances of each case.
[2]Just Group Limited v Van Dyk [2014] VSC 228; Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd [2011] VSC 222; Jefferson Ford Pty Ltd v Ford Motor Company of Australia Limited [2008] FCAFC 60 at [20]-[23]
44 The clear importance of testing the evidence of witnesses at trial means that courts will order summary judgment more readily where the issue involves a pure question of law, than where there is a disputed question of fact.[3] However, Campaspe Investments Pty Ltd v PBP Accounting Solutions PtyLtd [2015] VSC 26 at [27] to [29] (“Campaspe”), provides a useful example of the circumstances in which summary judgment may be given even where the issues in dispute are purely factual. After considering the principles set out in Lysaght, Associate Justice Daly said (omitting footnotes):
“In my view, this application might well be an instance of a case where while the respondent’s case is not “hopeless”, or “bound to fail” as such (according to the test laid down in General Steel Industries Inc v Commissioner of Railways (NSW) it does not have a real prospect of succeeding at trial. In the current case, the affidavit evidence reveals a factual dispute about a critical matter: that is, whether Mrs Moorhead authorised Mr Wortman to effect the transfers to PBP to be deployed at Mr Wortman’s discretion. It may well be that prior to the enactment of the Civil Procedure Act 2010 the existence of this factual contest would be sufficient to persuade a court that the matter proceed to trial. However, even under the previous regime, the defence put forward by a defendant must have some ring of credibility, with the Court posing the question: does the defendant’s account of the facts have sufficient prima facie plausibility as to merit further investigation, or is it so incredible or improbable that there is no fair or reasonable probability of the defendant setting up a defence to the plaintiff’s claim?”
[3]Re Demediuk [2016] VSC 587 at [18]; Mutton v Baker [2014] VSCA 43 at [19])
Analysis
The issues
45 The plaintiffs’ case against RVA in substance relies upon the Court accepting two propositions:
· first, that during an alleged conversation between Mr Knight and Mr Sheppard in August 2014, RVA (embodied by Mr Sheppard), encouraged, or consented to, the sale of the two apartments to the plaintiffs on the basis that RVA would not enforce its mortgage over those apartments; and
· second, that RVA derived a benefit from the sale of the apartments, in that the proceeds of sale were used to pay out the builder, JG King, which allowed RVA to protect the value of its security interest by ensuring that the development of the Land remained viable.
46 I note that the plaintiffs rely on the second proposition alone in order to make an alternative argument that, even if they cannot establish that RVA consented to the sale of the two apartments:
·the plaintiffs entered into the transactions pursuant to a mistake of fact induced by Mr Sheppard, who purported to act as agent on behalf of RVA and informed them that RVA consented to the sale; and
·RVA received and retained the benefit of that mistake.
Did RVA agree in August 2014 to postpone its rights in favour of the plaintiffs?
47 As set out above, in the 21 June Knight Affidavit, Mr Knight deposes that in August 2014, upon being told of the proposed sale of the two apartments to the plaintiffs, Mr Sheppard said “Do the deal with Daley as it adds value to the land by paying for the building works already completed, that enhances my security and I will continue to fund the project”. It is this alleged statement (and only this alleged statement) which is central to the first of the two propositions that the plaintiffs must establish.
48 In my judgment, the plaintiffs have no reasonable prospects of establishing their claims against RVA based on this alleged statement, for either or both of two reasons:
· first, the suggestion that Mr Sheppard made any statement having the effect alleged is implausible—in the words of Daly AsJ above, it lacks the ring of credibility;
· second, even if the words attributed to Mr Sheppard were spoken by him, they could not reasonably have been understood as giving rise to a release by RVA of the apartments from RVA’s mortgage.
49 As to the first of these reasons, at the time of the alleged statement by Mr Sheppard, RVA was only the second mortgagee behind Direct One, with Woong ranked behind RVA. The total amount owing under the first and second mortgages alone was at least $2,840,000, not allowing for interest on the RVA loan after 23 May 2014. The building works had stalled at the foundation stage and there was no builder then engaged to undertake any further works on the Land. Thus, as at August 2014, the two apartments did not exist and may never exist. The undisputed evidence is that shortly after the alleged statement, Mr Sheppard was making arrangements to put the undeveloped Land on the market for a sale at public auction. The evidence also shows that the selling costs, the Direct One mortgage and the RVA mortgage would easily account for all the likely proceeds of sale of the Land at auction.
50 Against that background, and coupled with my finding below of the lack of benefit to RVA, I am unable to accept that Mr Sheppard would casually agree to postpone RVA’s interest in the Land to the unspecified extent of the unknown value of two non-existent apartments. It is both logically and commercially nonsensical. Further, the words themselves make no sense. Funding Ms Knight to pay a pre-existing debt to JG King as former builder, added nothing to the value of the Land, particularly as RVA was about to put the Land on the market in its undeveloped state.
51 And it is equally nonsensical for Mr Daley, as someone (on his own evidence) steeped in the world of real-estate developments and securities, to proceed on the basis of no more than a verbal assurance of Mr Knight about RVA’s willingness to do so. Clearly Mr Knight had a strong personal vested interest in securing funds from Mr Daley to repay his wife’s debt. In contrast, there was no evidence that Direct One and RVA had any sound commercial reason to compromise their securities to the extent alleged (or at all). Nor was there any evidence that could begin to explain how someone of Mr Daley’s experience could have genuinely believed that Mr Knight (the husband and guarantor of the borrower), had authority to bind Direct One and RVA to this arrangement. If in the circumstances described, someone with Mr Daley’s experience was in truth concerned to ensure that both Direct One and RVA were amenable to what Mr Knight was proposing, it is inconceivable that he would not have insisted on speaking to each of them directly, and probably also securing written confirmation. The suggestion that he would have gone ahead on Mr Knight’s verbal assurance alone defies credulity.
52 Turning to the second reason, even if I were to take Mr Knight’s evidence at its highest, it does no more than establish that RVA told Mr Knight to “do the deal” with Mr Daley. In my view, it is not reasonably arguable in all the circumstances discussed above, that this statement should be construed as constituting an agreement by RVA to postpone its rights under its mortgage to the extent of the value of the two putative apartments. This is consistent with Mr Cleary’s affidavit, which reports what he was told by Mr Knight, and likewise does not suggest that there was any discussion about RVA agreeing to a restriction of its rights as mortgagee.
Did RVA receive and retain the benefit of the plaintiffs’ mistake of fact?
53 The plaintiffs have submitted that RVA needed someone to pay out the old builder if it wished to recoup its loan to Ms Knight, and that it ultimately benefited from those payments. They have relied on Mr Sheppard’s statement that, after the purchaser defaulted on the sale contract in early 2015, it was unlikely that the land could be sold again at a price similar to the $2,800,000 reached at the auction. In my view, this is irrelevant. There is no evidence that this was a concern in August 2014, particularly since the Land did in fact sell for $2,800,000 in October 2014.
54 The plaintiffs also submitted that, because it was the second mortgagee, RVA needed the land to sell for more than $2,800,000 in order to ensure that it did not suffer a loss. While this may be true, I am not satisfied that the debt owed personally by Ms Knight to the old builder JG King, with no effect on the Land itself, could have caused RVA the concern asserted by the plaintiffs. Regardless of what price the Land sold for, RVA would be paid before JG King. And, as RVA has submitted, there is no evidence that they were attempting to avoid the sale of the Land in August 2014. This is borne out by the fact that they did sell the Land at auction, having appointed Ray White Mordialloc on 20 August 2014.
55 Further, even if RVA needed the value of the Land to reach a certain threshold, it was perfectly open to them to take the course they did in 2015 and engage another builder to develop the Land, thereby increasing its value. Neither circumstance required them to do anything about the debt Ms Knight owed to JG King, much less enter into an agreement that would significantly restrict the operation of their rights as a secured mortgagee.
56 For the reasons set out above, I agree with RVA’s submission that the suggested justification for the transaction is unsound. While it may well be the case that the plaintiffs entered into the loan and sales contracts for the two apartments under a mistake of fact, on no view can RVA be said to have derived a benefit from that mistake. I am satisfied that this alternative claim against RVA also has no real prospects of success.
Other matters
57 For completeness, I note that both parties (and the plaintiffs in particular) devoted considerable parts of their evidence and submissions to events after the alleged August 2014 discussions. I have referred already to some of those matters (notably, the circumstances of the October 2014 auction of the Land) in considering the context of the August 2014 discussions. However, as counsel for the plaintiffs conceded, the events after those discussions are otherwise largely irrelevant to the issues in the proceeding. At most, they might be said to reflect of the credit of the deponents about what they say happened in August (for example, as constituting a prior inconsistent statement).
58 For example, the plaintiffs have submitted that in determining the application, I ought to give weight to Mr Sheppard’s second affidavit, in which he deposes to conversations he had with Mr Daley in 2017 during which he said “if the project made enough money to pay out the first and second mortgages, then there could be some money left over for Mr Daley to make claim to”. They have also relied in this regard on the uncontentious fact that Mr Daley and Mr Sheppard discussed the sales and loan contracts at a meeting in May 2015.
59 Since these conversations (including the conversations deposed to by Mr Walsh in his affidavit) do not contradict RVA’s position that Mr Sheppard was unaware of the sales and loans in August 2014, in my view, they do not assist the plaintiffs. Further, having learnt of the sales to the plaintiffs in about May 2015 and later engaged Mr Daley’s company as builder, it is unsurprising that Mr Daley and Mr Sheppard would have discussed their mutual hope that the ultimate sale of the apartments would generate a return sufficient to pay out Direct One and RVA and then see some return to the plaintiffs. Mr Sheppard showing some degree of sympathy to the plaintiffs’ predicament does not translate to a retrospective acknowledgement of any agreement by RVA to give up $625,000 of its entitlements under its mortgage.
60 Similarly, in my view, the arguments around whether there was a meeting on 17 October 2014 between Mr Daley and Mr Sheppard do not materially advance the analysis of what happened two months earlier. To the extent that these subsequent events have any bearing on what is alleged to have occurred in the August 2014 discussion between Mr Knight and Mr Sheppard, in my view they generally support the conclusions I have reached above, essentially for the reasons submitted by RVA. In particular, Mr Daley’s failure to confront Mr Sheppard at the auction about his alleged agreement the day before to cancel it, is both unexplained and inexplicable.
61 I also agree with RVA’s submission in relation to Mr Daley’s email to Mr Sheppard after the May 2015 meeting in which he sought to clarify Mr Sheppard’s “position on the existing loan and sales contracts for apartments 10 and 11”. RVA submits that this contradicts Mr Daley’s allegation that Mr Sheppard had known about the loan and sales contracts since August 2014. If that were the case, it would be expected that Mr Daley would write reminding Mr Sheppard of what he had previously agreed to. Instead, he is writing and seeking to clarify Mr Sheppard’s position from the May 2015 meeting, which is consistent with Mr Sheppard’s contention that he was only informed of the loans and sales contracts prior to the email being sent.
Conclusion
62 Having considered these other matters, but based primarily on my assessment of the evidence as to what occurred in August 2014, I find myself in the same position as that facing Daly AsJ in Campaspe. The issues on which I am asked to determine this case are entirely factual. Having examined those facts, this case too “might well be an instance of a case where while the respondent’s case is not ‘hopeless’, or ‘bound to fail’…it does not have a real prospect of succeeding at trial”. But also like the case before the Associate Justice, the factual narrative relied on by the plaintiffs is, on my assessment, so lacking in credibility and “prima facie plausibility”, it is likely to have failed even under the General Steel test. In any case, on the test propounded in Lysaght, while acknowledging the need for caution, I am comfortably satisfied that the plaintiffs’ claims against RVA have no real prospects of success and should be dismissed summarily. I am also satisfied that the circumstances of this case do not warrant the exercise of discretion under CPA s64.
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Certificate
I certify that these 25 pages are a true copy of the Ruling of His Honour Judge Woodward delivered on 30 August 2019.
Dated: 30 August 2019
Shakti Nambiar
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