Mercantile Mutual Finance Corporation & Anor v Rixdale Pty Ltd

[1999] QSC 214

IN THE SUPREME COURT

OF QUEENSLAND

CAIRNS  Writ No. 83 of  1992

[Mercantile Mutual Finance Corporation & Anor v Rixdale Pty Ltd]

BETWEEN:     MERCANTILE MUTUAL FINANCE CORPORATION LIMITED

And THE MERCANTILE MUTUAL LIFE INSURANCE COMPANY LIMITED

Plaintiffs

AND:                RIXDALE PTY LTD

First Defendant

AND:ROBERT JOHN MILLER, MICHAEL LAWRENCE KEOGH,

LEANNE THERESE BOU-SAMRA, VINCENT ALFRED KERSHAW BAILEY, WILLIAM JOHN HARRIS and GEOFFREY ROBERT CLARK

Second Defendants

REASONS FOR JUDGMENT

BEFORE THE HONOURABLE JUSTICE JONES

DELIVERED THE 10th DAY OF  SEPTEMBER, 1999

1. This is an application by the plaintiffs pursuant to O.90 r.9 of The Supreme Court Rules for leave to proceed because 3 years have elapsed since the taking of the last step in the action.  This step was the delivery of the Statement of Claim on 11 December, 1992.

2. By this action, the plaintiffs seek declarations that certain parcels of land registered in the name of the first defendant are subject to a first equitable charge, or alternatively, a first equitable mortgage in favour of the plaintiffs.  They seek also a declaration that the aforesaid equitable charges have priority to the registered mortgages granted by the first defendant to the second defendants.  The plaintiffs further seek an order that the lands be sold and the proceeds paid to the plaintiffs in satisfaction of monies secured by the mortgage debentures.

Background

1. On 31 March, 1989 the plaintiffs advanced to Rusty Rees Pty Ltd (“Rusty Rees”) the sum of $9million.  Rusty Rees was a corporation whose directors were then Emrys Rees, his wife Dorothy Rees and their son Wayne Rees.

2. As security for the loan, the plaintiffs took a bill of mortgage over a parcel of land described as Lot 1 on RP 740342 County of Nares Parish of Cairns, a CBD site in Cairns on which is located an hotel, motel and Rusty’s Markets (hereinafter referred to as “the market site”).  The mortgage was duly registered.

3. The directors of Rusty Rees each personally guaranteed the due performance of Rusty Rees’ obligations under the loan agreement.

4. Rusty Rees also owned a parcel of land on which is referred to as “the AWU property” and 4 other parcels of land which in the pleading are described as “the inlet properties”.

5. As further security for the advance, the plaintiffs took a mortgage debenture by way of a fixed charge on all the Rusty Rees undertakings and “all its property and assets whatsoever and wheresoever both present and future...”

6. On 16 June, 1992 Mr. Gerard Mier and Mr. Alan Tuttle were appointed receiver managers of all the assets of Rusty Rees pursuant to the mortgage debenture.  Subsequently, Rusty Rees went into liquidation.

7. The Rees family was associated with other corporate entities and trusts, in particular –

   Rixdale Pty Ltd (“Rixdale”) – the trustee of the Rees Family Discretionary Trust.

   Ianto Pty Ltd (“Ianto”) – the trustee of a Unit Trust, the single unit of which was owned by Rusty Rees Used Cars Pty Ltd.

8. The second defendants were, at the relevant time, the principals of Miller Harris & Co., Solicitors, who for some time prior to March, 1992 acted on behalf of Rusty Rees and the Rees family.

9. For the purpose of their retainer the second defendants prepared separate Bills of Mortgage in favour of themselves – one over the AWU property and the other over the Inlet properties to secure debts present and future. (Presumably, these related to legal fees and outlays).

10. At about the same time, in accordance with their retainer, the second defendants prepared separate nominations of trustees for execution by Rusty Rees which had the effect of vesting the legal estate of the AWU property and the inlet properties in  Rixdale, subject to the second defendant’s mortgages.

11. The mortgages in favour of the second defendants over the respective parcels of land were registered in the office of Registrar of Titles on 6 April, 1992 and the nomination of trustees was lodged some time later.

12. The plaintiffs, on 15 June, 1992, lodged caveats over the inlet properties and on 31 July, 1992 lodged a caveat over the AWU property.  In so doing the plaintiffs were seeking to protect the priority of their claimed interest in the properties as equitable mortgagees or equitable chargees.

13. The plaintiffs’ action therefore is to have determined whether the scope of its equitable charge includes the AWU property and the inlet property which are now registered in the name of Rixdale and whether that charge ranks in priority to the Bill of Mortgage in favour of the second defendants.

14. No defence has been filed by either the first defendant or the second defendants but the nature of the issue between the parties can be gleaned from the affidavit of Emrys Rees and the affidavit of Robert John Miller which were read in opposition to the application.

Explanation of the Delay

1. The explanation for this delay of in excess of 6 years between the delivery of the Statement of Claim and this application is that the plaintiffs hoped that by delaying the action it might indeed not have to be pursued.  One reason for holding this hope was that Rusty Rees continued to trade, and if it did so profitably, it would have amortised the debt to the second defendant.  If this occurred the Bills of Mortgage in favour of the second defendant would have been released and the issue of priority between the competing securities would no longer exist. 

2. The second reason they delayed, was the hope that the property market in the Cairns CBD would improve to the point where the sale of the market site would yield net proceeds sufficient to extinguish the total debt to the plaintiffs.  Such an outcome would have avoided the need to determine the issue of whether there was in fact a valid equitable charge or mortgage over the AWU and Inlet properties.

3. The material does not disclose what is the present level of debt to the second defendants nor whether there is any prospect of it being satisfied in the short term.  Importantly, there is nothing in the affidavit filed on behalf of the second defendant to suggest that this hope of avoiding the action was misplaced.  In its material the second defendant was content simply to argue that they suffered prejudice.

4. In these circumstances I should proceed on the basis that it was reasonable for the plaintiffs to hold the view that the debt to the second defendants might be extinguished by the continued trading of Rusty Rees. Throughout the period of delay, I accept that the plaintiffs did periodically obtain valuation reports on the desirability of selling the market sites by which the Rusty Rees debt was secured.  So much is clear from the report of the receivers and managers to the liquidators dated 31 January, 1997[1].

   [1]  Ex. GJM 7 to affidavit of Gerard Mier

5. Another cause of delay was the fact that throughout 1998 various “without prejudice” discussions were held between the respective legal representatives and accountants with a view to resolving the issues in dispute.  One would expect that the hope of avoiding litigation was shared by each of the parties.  The only basis upon which that hope would have been realised was for the secured assets to be sold at a suitable price.  This strategy, I infer, would have been known to all parties and each appears to have acquiesced in the action not proceeding during this period of time.

6. In summary, the explanation of the delay was a reliance on the expectation (or hope) that a change in the property market in Cairns would allow the realisation of the property at a price which would clear all debts and thereby avoid the necessity to pursue the action.

Prejudice

1. Each of the defendants assert that they would suffer prejudice if the action proceeds after this delay.

2. On behalf of the first defendant it is alleged that the effect of the written terms of the mortgage debenture was modified by agreements or understandings between Mr. Rees and officers of the plaintiffs.  Mr. Rees’ recollection of the discussion is likely to be recalled less reliably because of the passing of time and because of his age.  It is alleged also that his evidence would have been supported by his late wife who died on 11 April, 1994.  Not only was Mrs. Rees a signatory to various documents, she was effectively the bookkeeper for the Rees Family group of companies.

3. Despite these claims the issues as defined in the Statement of Claim and the affidavits would, in my view, be determined mainly on the documentary evidence and the evidence of Mr. Rees.  His evidence no doubt is now in such a form which would assist his recollection at any future hearing.  It is not suggested that Mrs. Rees had been directly involved in conversations with the plaintiffs’ representatives.  Any recording by her of the outcome of the discussions should be accessible and able to be admitted in evidence.

4. It was suggested also that the delay has caused an increase in the company’s debt levels.  This seems to me to be more likely a consequence of the property market and the terms of the agreement, rather than a matter specific to the delay in the proceedings.

5. The second defendant too claims prejudice.  This claim  is based on the fact that the principal of the firm who initially handled the matter has now resigned and has taken up a position as a member of the Native Title Tribunal and a part time member of the Land Court of Queensland.  It is claimed also that because of the long delay, the file in this matter was closed because it was assumed after such delay that the plaintiffs were not going to proceed with the action. 

6. The former principal, though no longer associated with the firm, is readily available to give evidence.  The last action taken by the firm was the preparation of a brief to counsel to prepare a defence.  One would expect therefore that relevant instructions would have been obtained.

7. The delay of course commences because of the failure of the defendants to deliver their defences.  There was no overt action on the part of plaintiffs which would cause the defendants to assume that the plaintiffs were not interested in pursuing their claim.  The failure to take the step of delivering the defence and the subsequent closing of a file seems to me to be more likely the consequence of the acceptance of the plaintiff’s strategy to await a turn in the property market with the intention of realising the property in order to clear all debts.  The relevant evidence in respect of the claim against the second defendant is likely to be of a documentary nature of a kind that would be still available to allow a proper defence to be raised to the plaintiff’s claim.

8. The ultimate onus of satisfying the Court that the action should be allowed to proceed is on the applicant/plaintiff.  The applicant must show that the facts raised by the defendants here do not amount to material prejudice.[2]  To determine whether there exists material prejudice involves a weighing process, balancing the rights of the plaintiffs to pursue a claim and the right of the defendant to have the claims raised against them speedily determined.  The determining question is “whether the delay has made the chances of a fair trial unlikely”.[3]

   [2] Campbell v United Pacific Transport Pty Ltd (1966) QdR 465 per Gibbs J at 474

   [3] See Brisbane South Regional Health Authority v Taylor (1996) 70 ALJR 866 at 870

9. Having regard to the explanation given for the delay, and to some acquiescence on the part of the defendants in that delay, and the fact that the issues will be determined mainly on documentary evidence, I take the view that there is no material prejudice to either defendant.  I am satisfied that the plaintiffs have shown good reason for “excepting the action from the prohibition of further prosecution which O 90 r 9 imposes”, [4]  and that the application should be allowed.

   [4]  William Crosby & Co. Pty Ltd v The Commonwealth (1993) 109 CLR 490; Dempsey v Dorber (1990) 1 QdR 418 at 420

10. The plaintiffs will be at liberty to proceed in this action. 

11. I direct that each defendant deliver a defence to the plaintiffs’ Statement of Claim within 28 days. 

12. I order that the applicants pay the respondent’s costs of and incidental to the application.