Montevento Holdings Pty Ltd v Central City Pty Ltd - [2021] WASC 154 (S)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: MONTEVENTO HOLDINGS PTY LTD -v- CENTRAL CITY PTY LTD [2021] WASC 154
CORAM:   ALLANSON J
HEARD:   16-19, 30 MARCH 2020
DELIVERED          :   21 MAY 2021
FILE NO/S:   CIV 2538 of 2014
BETWEEN:   MONTEVENTO HOLDINGS PTY LTD
Plaintiff
AND
CENTRAL CITY PTY LTD
Defendant

FILE NO/S: CIV 1682 of 2015
(Consolidated with CIV 1748 of 2016 by Orders dated 12 September 2016)

BETWEEN: CENTRAL CITY PTY LTD
Plaintiff
AND
MONTEVENTO HOLDINGS PTY LTD
First Defendant
SCAFFIDI HOLDINGS PTY LTD
Second Defendant

FILE NO/S: CIV 1748 of 2016
BETWEEN: CENTRAL CITY PTY LTD
Plaintiff
AND
MONTEVENTO HOLDINGS PTY LTD
First Defendant
SCAFFIDI HOLDINGS PTY LTD
Second Defendant

Catchwords:

CIV 2538 of 2014

Where plaintiff trustee of family trust - Where plaintiff claims that previous trustee made loan to defendant that was repayable on demand - Where previous trustee and defendant parties to written heads of agreement under which property transferred from previous trustee to defendant without consideration - Where heads of agreement provided for directors and shareholders of defendant to execute an attached pro forma agreement which provided for order in which amounts borrowed by defendant to be repaid - Where loan initially recorded in accounts of defendant as a current liability - Whether intention of parties to heads of agreement that loan repayable on demand or deferred to other obligations of the defendant - Turns on own facts

CIV 1682 of 2015 consolidated with CIV 1749 of 2016
Where plaintiff claims as assignee - Where assignor provided security by way of mortgage of her property for borrowing by previous trustee of family trust - Where borrower defaulted and assignor repaid whole of outstanding amount to mortgagee - Where assignor assigned the debt and the right to benefit of any securities to which she was subrogated to the plaintiff - Whether assignment effective - Whether plaintiff entitled to claim for debt and subrogation to previous trustee's right of indemnity from trust property

Where plaintiff claims as assignee - Where current trustee asserts that signature on mortgage not that of director of previous trustee - Whether assignee and lender entitled to rely on assumptions under Corporations Act with regard to due execution of mortgage

Limitations - Where plaintiff claims as assignee of debt - Where debt arose from assignor's repayment of mortgage sum - Whether cause of action founded on a deed and limitation period of 12 years

Legislation:

Corporations Act 2001 (Cth)
Evidence Act 1906 (WA)
Limitation Act 1935 (WA)
Limitation Act 2005 (WA)
Mercantile Law Amendment Act 1856 (Imp)
Property Law Act 1969 (WA)

Result:

In CIV 2538 of 2014: claim dismissed
In consolidated action: judgment against the second defendant

Category: B

Representation:

CIV 2538 of 2014

Counsel:

Plaintiff	:	Ms K A Vernon
Defendant	:	Mr M J Feutrill SC & Mr H M Reynoldson

Solicitors:

Plaintiff	:	Butcher Paull & Calder
Defendant	:	Hotchkin Hanly

CIV 1682 of 2015

(Consolidated with CIV 1748 of 2016 by Orders dated 12 September 2016)

Counsel:

Plaintiff	:	Mr M J Feutrill SC & Mr H M Reynoldson
First Defendant	:	Ms K A Vernon
Second Defendant	:	No appearance

Solicitors:

Plaintiff	:	Hotchkin Hanly
First Defendant	:	Butcher Paull & Calder
Second Defendant	:	No appearance

CIV 1748 of 2016

Counsel:

Plaintiff	:	Mr M J Feutrill SC & Mr H M Reynoldson
First Defendant	:	Ms K A Vernon
Second Defendant	:	No appearance

Solicitors:

Plaintiff	:	Hotchkin Hanly
First Defendant	:	Butcher Paull & Calder
Second Defendant	:	No appearance

Case(s) referred to in decision(s):

APT Finance Pty Ltd v Bajada [2008] WASCA 73
Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269
Caratti v Mammoth Investments Pty Ltd [2016] WASCA 84; (2016) 50 WAR 84
Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5
Commissioner of Taxation v Sims [2008] NSWCA 298; (2008) 72 NSWLR 716
Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 49
Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129
GoConnect Ltd v Sino Strategic International Ltd (in liq) [2016] VSCA 315
Head v Kelk [1963] 63 SR (NSW) 340
Israel v Foreshore Properties Pty Ltd (in liq) (1980) 30 ALR 631
John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1
Jones, in the matter of Great Southern Ltd (in liq) [2017] FCA 169
Liberty Mutual Insurance Co (UK) Ltd v HSBC Bank plc [2001] Lloyd's Rep Bank 224
McColl's Wholesale Pty Ltd v State Bank of NSW (1984) 3 NSWLR 365
McIntosh v Shashoua (1931) 46 CLR 494
Montevento Holdings Pty Ltd v Scaffidi Holdings Pty Ltd [2012] HCA 48; 246 CLR 325
Montevento Holdings Pty Ltd v Scaffidi Holdings Pty Ltd [No 2] [2010] WASC 180
Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116
White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd [2009] NSWCA 114; (2009) 261 ALR 86

ALLANSON J:

In this trial, the court is determining three actions.
Giuseppe (Joe) Scaffidi and Eugenio (Gino) Scaffidi are brothers, and the children of the late Antonio Abate (Tony) Scaffidi and Maria Scaffidi.[1] Lisa Michelle Scaffidi is Joe's wife. In the following reasons, it is necessary to refer to several members of the Scaffidi family. For clarity and readability, I will often refer to each family member by first name only.
[1] Tony died in 2004; Maria Scaffidi in 2014.
The parties are all companies associated with members of the Scaffidi family. Central City Pty Ltd is a company controlled by Joe. Montevento Holdings Ltd is controlled by Gino. Joe and Gino are currently the directors of Scaffidi Holdings Pty Ltd.

The actions

CIV 2538 of 2014

In CIV 2538 of 2014, Montevento Holdings claims that Scaffidi Holdings, as trustee, loaned $1,800,000 to Central City on terms that the loan was 'repayable on demand'. Montevento Holdings claims that it is the current Trustee in whom the trust property has vested, and that Central City is indebted to it in the sum of $1,439,010 (the outstanding balance of the loan).
The primary issue is whether the loan was repayable on demand.

CIV 1682 of 2015 consolidated with CIV 1748 of 2016

The consolidated action is based on the claim that in October 2007, Lisa Scaffidi repaid a debt incurred by Scaffidi Holdings (as principal debtor) and is entitled to be indemnified by Scaffidi Holdings.
Central City claims as assignee of the debt due and payable by Scaffidi Holdings to Lisa. Central City claims against Scaffidi Holdings for the sum of $1,725,000 plus interest and costs.
The action against Scaffidi Holdings alleges that it is personally liable for the amount claimed.
Central City also seeks a declaration that it is entitled to be subrogated to Scaffidi Holdings' right of indemnity from the assets of the Scaffidi Family Trust. Montevento Holdings is joined as the present Trustee.
It was not expressly pleaded, but the claim to be subrogated to Scaffidi Holdings' right of indemnity proceeded on the basis that Scaffidi Holdings incurred the liability which Lisa repaid in the proper performance of its duties or exercise of its powers as trustee of the Trust.
Scaffidi Holdings did not participate in the trial.

Background to both actions

The Scaffidi Family Trust (the Trust) was established by a Deed of Settlement dated 2 May 1977 (Trust Deed).[2]
[2] TB 201.
Scaffidi Holdings Pty Ltd was registered on 29 June 1995, with Joe and Gino as directors.[3] They have been the directors at all times relevant to these proceedings. Tony was a director until 2004 and Maria until 2006.[4]
[3] TB 203.
[4] TB 187.
The Trust Deed was varied and Scaffidi Holdings appointed trustee on 16 August 1995.[5]
[5] TB 202.
Central City was originally registered as a public company (Central City Limited) in January 1997. It became a proprietary company on 5 July 2007.[6]
[6] TB 185.
Joe has been a director and secretary of Central City at all times material to these proceedings. Gino was a director from 13 September 2006 to 19 November 2007. Tony Scaffidi was a director from 18 March 2002 to 28 August 2004.[7]
[7] TB 185.
Tony Scaffidi died in 2004.
On 30 June 2006, Maria resigned as guardian of the Trust.[8] On the same day, Maria and Gino executed a deed appointing Gino as the new appointor of the Trust.[9]
[8] TB 204.
[9] TB 205.
Montevento Holdings Pty Ltd was registered in March 2007. Gino has been a director from registration. Michael Scaffidi, Gino's son, was appointed a director in 2016. Gino is the sole shareholder.[10]
[10] TB 186.
On 18 February 2009, Gino, as appointor under the Trust, removed Scaffidi Holdings and appointed Montevento Holdings as trustee of the Trust.[11] Montevento Holdings commenced action against Central City (CIV 2538 of 2014) on 6 November 2014, having on 20 August 2014 demanded payment from Central City of the sum of $1,439,010.
[11] TB 206.
On 8 May 2015, Central City brought an action (CIV 1682 of 2015) against Scaffidi Holdings by a writ with indorsement of claim.
On 5 May 2016, Central City commenced related proceedings (CIV 1748 of 2016) naming Montevento Holdings, as first defendant, and Scaffidi Holdings, as second defendant.
On 12 September 2016, consent orders were made consolidating the actions brought by Central City, with further orders that Scaffidi Holdings have leave to not participate further, other than on the issue of discovery and inspection, and on the issue of costs.
The appointment of Montevento Holdings as trustee resulted in litigation, eventually resolved in favour of the appointment of Montevento Holdings. In 2010, Heenan J dismissed an application by Joe for an order that Montevento Holdings be removed as trustee, and for declarations or other relief on the basis that Montevento Holdings was invalidly appointed.[12] The decision of Heenan J was ultimately upheld by the High Court of Australia.[13]
[12] Montevento Holdings Pty Ltd v Scaffidi Holdings Pty Ltd [No 2][2010] WASC 180.
[13] Montevento Holdings Pty Ltd v Scaffidi Holdings Pty Ltd [2012] HCA 48; 246 CLR 325.

The evidence led at trial

Documents

The parties tendered a trial bundle of seven volumes, which were provisionally received. At the conclusion of the trial, the parties were to confer and attempt to agree those documents that were to remain in evidence. On 8 August 2020, the parties provided the court with an index setting out the agreed position, removing 132 of the documents originally included.
The documents included many minutes of the meetings of directors of Central City from 2001 to November 2007. No records from directors' meetings of Scaffidi Holdings were in evidence.

Witnesses

Despite opening on the basis that it would rely on oral evidence from Joe and Lisa Scaffidi, and from Timothy Bolland, Central City's accountant since about 2006, Central City led no oral evidence.
Montevento Holdings adduced evidence from Cornelis Jan Van Maanen, Gino Scaffidi, and expert (handwriting) evidence from John Douglas Gregory.
Mr Van Maanen is an accountant and for many years had prepared accounts for trading entities related to the Scaffidi family, and the tax returns for members of the family. I will refer to his evidence in the context of particular issues. He gave evidence in chief in the form of a witness statement and was cross‑examined. The substance of his evidence was not controversial and was not challenged.
Gino Scaffidi gave evidence‑in‑chief by two witness statements, and also gave short oral evidence directed to whether the signature 'Maria Scaffidi' on the Mortgage Deed was his mother's signature. His evidence included the proof of the documents relied upon by the handwriting expert for his comparison of handwriting. The oral evidence was originally given on a voir dire, and subsequently received as evidence in the trial.
Mr Gregory is an experienced forensic document examiner. No issue was taken with his qualifications, but his evidence was challenged as either inadmissible or of no weight.[14] He prepared a written report[15] and testified at trial.
[14] ts 283.
[15] Exhibit 5.2.

CIV 2538 of 2014

The pleadings

The claim by Montevento Holdings

Montevento Holdings pleads that the assets of the Scaffidi Family Trust vested in it on 18 February 2009 when it was appointed as the Trustee of the Trust.[16]
[16] Statement of claim [2].
Joe Scaffidi was a director of both Scaffidi Holdings and Central City at all material times.[17]
[17] Statement of claim [4A].
At all material times up to 18 March 2002, Scaffidi Holdings was the registered proprietor of the property known as the Railway Hotel located at 130 ‑ 132 Barrack Street, Perth.[18]
[18] Statement of claim [4B]. I will refer to the land as 130 ‑ 132 Barrack Street as the Railway Hotel or the Railway Hotel land, to distinguish it from adjacent land which was purchased as part of the same development and has the confusing overlapping numbers of 130 ‑ 140 Barrack Street.
By a mutual agreement between Scaffidi Holdings and Central City, on or about the 18 March 2002, Scaffidi Holdings in its capacity as trustee of the Trust loaned $1,800,000 to Central City (the first loan agreement). Montevento Holdings pleaded, as particulars, that the first loan agreement may be inferred from:
a)Written Heads of Agreement made on or about 26 June 2001, between Scaffidi Holdings and Central City, by which Scaffidi Holdings agreed to enter into a contract for the sale of the Railway Hotel to the defendant for a purchase price of $1,800,000 (cl 3).
b) By a written transfer of land dated and stamped 18 March 2002 and prepared by Joe, Scaffidi Holdings transferred the Railway Hotel to the Defendant for a consideration of $1,800,000.
c) Central City did not pay consideration of $1,800,000 to Scaffidi Holdings for the Railway Hotel on 19 March 2002 or at any time.
d) With the consent of, or alternatively the authority of, alternatively the knowledge of, Joe (as mutual director), Central City's indebtedness to Scaffidi Holdings under the first loan agreement was recorded by reciprocal entries in the books and records of Scaffidi Holdings and Central City.
e) With the consent of, alternatively the authority of, alternatively the knowledge of Joe (as mutual director), the written financial statements of Scaffidi Holdings disclose, as at any point in time, the balance of the loan amount owing by Central City to Scaffidi Holdings.[19]
[19] Statement of claim [5].
Montevento Holdings relied on payments made by Central City as repayments of the loan amount to Scaffidi Holdings;[20] and acknowledgements, alternatively admissions of debt.[21]
[20] Statement of claim [7]; also [5] particular (d).
[21] Statement of claim [5B]; also [5] particular (e).
Montevento Holdings pleaded that, by agreement between Scaffidi Holdings and Central City, on or about the 8 August 2005, Scaffidi Holdings in its capacity as trustee of the Trust loaned to Central City a further sum of $10,000 (the second loan agreement).[22]
[22] Statement of claim [6].
Montevento Holdings pleaded that it was a term of the first loan agreement implied by operation of law, or alternatively to be inferred from the financial records of Scaffidi Holdings and Central City, that the loan amount was repayable on demand.[23]
[23] Statement of claim [5A].
Montevento Holdings pleaded that it was an implied term of the second loan agreement that the loan was repayable on demand.[24]
[24] Statement of claim [8].
Montevento Holdings pleaded that Central City paid $370,990 to Scaffidi Holdings, in repayment of the first and second loan agreements:
22 April 2004 $300,000
30 June 2004 $50,000
(by way of issue of shares in Central City Pty Ltd)
22 June 2005 $16,990
2 August 2006 $4,000[25]
[25] Statement of claim [7].
By letter dated 13 November 2008, Montevento Holdings as trustee of the Trust demanded repayment of the sum of $1,439,010, being the balance payable by Central City to Scaffidi Holdings. Central City failed or refused to pay the sum due.[26]

The defence

[26] Statement of claim [9].

Central City denied or did not admit much of the claim pleaded in the statement of claim. It further pleaded that the action in relation to each loan was commenced more than six years after each loan was repayable and is barred by s 38 of the Limitation Act 1935 (WA).
Central City also maintained a positive defence relying on the Heads of Agreement of 26 June 2001 pleaded by the plaintiff. Central City pleaded the Heads of Agreement was for a joint venture to develop the property at 130 ‑ 140 Barrack Street, Perth.[27]
[27] Defence [13]. That is, the development included the Railway Hotel and the adjacent property at 130 ‑ 140 Barrack Street, which was on separate titles and in different ownership.
Relevantly, Central City pleaded that Scaffidi Holdings and Central City agreed to develop the Railway Hotel and adjacent land. The directors and shareholders of Central City agreed to contemporaneously enter into a separate directors and shareholders agreement in terms of a pro forma agreement attached to the Heads of Agreement. The directors at the relevant time were George Papamihail, Peter Dafinkas and Joe Scaffidi.[28]
[28] Defence [14].
On or about 26 June 2001, Joe Scaffidi, Mr Papamihail and Mr Dafinkas made, by deed, a Directors/Shareholders Agreement concerning the Joint Venture in terms of the pro forma agreement. They agreed to be bound by the terms of the Directors/Shareholders Agreement with regard to the manner of the distribution of all and any future funds, revenue, income and profits (if any) derived from the Joint Venture. [29]
[29] Defence [15] ‑ [17].
Relevantly, the directors and shareholders agreed an order of distribution of funds, revenue, income and profits.
Central City pleaded that the effect of the Heads of Agreement was that, subject to settlement of the sale of the Barrack Street land to Central City, Scaffidi Holdings was obliged to transfer the Railway Hotel land to Central City for use in the joint venture; Scaffidi Holdings was not entitled to recover the capital value of its initial contribution to the Joint Venture ($1,800,000) other than by payments made in accordance with the agreed manner and distribution of all and any future funds, revenue, income and profits of the Joint Venture; and Central City was obliged to use reasonable endeavours to develop the Railway Hotel and adjacent land for the Joint Venture.[30]
[30] Defence [19].
In accordance with the Heads of Agreement, Central City purchased the Barrack Street Land for $2,450,000 in 2001, and, on or about 18 March 2002, Central City and Scaffidi Holdings made an agreement for the sale and purchase of the Railway Hotel for a purchase price of $1,800,000. Central City made no payment of the purchase price of $1,800,000 to Scaffidi Holdings on settlement.[31]
[31] Defence [20] ‑ [23].
Central City pleaded the following amounts were paid or applied to Scaffidi Holdings 'by agreement of the shareholders and directors of Central City and of Central City and Scaffidi Holdings' in part discharge of Central City's obligations to make payments as consideration for the purchase of the Barrack Street property:
(1)$300,000 on or about 22 April 2002;
(2)$50,000 on or about 30 June 2004, being the issue price of 50,000 ordinary shares in Central City issued on or about 7 August 2002;
(3)$6,990 on or about 30 June 2005, being the balance of an advance to Scaffidi Holdings on or about 22 June 2005;
(4)$4,000 advanced to Scaffidi Holdings on or about 2 August 2006 and from 30 June 2007 applied in part discharge of Central City's obligations.[32]
[32] Defence [25] ‑ [27], [29] ‑ [33].
Central City pleaded that the payment of $10,000 on 8 August 2005 ‑ claimed by Montevento Holdings as a second loan ‑ was the partial repayment of a loan of $16,990 advanced to Scaffidi Holdings on or about 22 June 2005.[33]
[33] Defence [29] ‑ [30].

Central City pleaded that as of 6 November 2014 and at all other material times, it was indebted to St George Bank Ltd for advances made to fund the operating costs and expenses of Central City associated with the Development and the Joint Venture.[34]
[34] Defence [34].
By reason of those matters, Central City pleaded that it was not obliged to make any payment to Joe, or at his direction, or to Scaffidi Holdings or Montevento in respect of Scaffidi Holdings' initial capital contribution to the Joint Venture.[35]
[35] Defence [35].
Finally, Central City pleaded its entitlement to set off $1,725,000 plus interest, being the amount claimed in the consolidated action.[36]

The facts

[36] Defence [41].

Apart from evidence given by Mr Van Maanen, the evidence on this claim was documentary.
Mr Van Maanen was the accountant for both Scaffidi Holdings and Central City. The consideration for the Barrack Street land was reported in the accounts of both entities ‑ as a current asset of Scaffidi Holdings and a current liability of Central City. Montevento Holdings relied on those entries as evidence that the consideration was loan and was repayable within the current financial year, that is, payable on demand.
When he recorded the consideration in that way in each set of accounts, Mr Van Maanen was not aware of any documentation relating to the loan or any agreement that was inconsistent with those entries.[37]
[37] Exhibit 2 [11]; ts 245.
Scaffidi Holdings was the registered proprietor of the Railway Hotel.
On 8 February 2001, the directors of Central City resolved to allot two shares each to Dafinkas Nominees Pty Ltd and Mr Papamihail. Mr Dafinkas was authorised, on behalf of Central City, to enter into the contract for the purchase of the Barrack Street properties.[38] Mr Papamihail and Mr Dafinkas were appointed as directors on 6 March 2001.[39]
[38] TB 69; TB 70.
[39] TB 72.
On 23 February 2001, Mr Dafinkas, or his nominee, offered to purchase land in Barrack Street, Perth for the sum of $2,450,000. The vendor was Wintide (Australia) Pty Ltd.[40] The land was adjacent to the Railway Hotel.
[40] TB 125A.
The directors of Central City met from March 2001 to discuss the proposed development.[41]
[41] TB 75 ff.
On 26 June 2001, Scaffidi Holdings and Central City executed a deed, titled Heads of Agreement.[42] It recited that:
(1)Scaffidi Holdings was the registered proprietor of the property at 130 ‑ 132 Barrack Street;
(2)Central City was acquiring the property at 130 ‑ 140 Barrack Street;
(3)upon settlement of the sale of the property at 130 ‑ 140 Barrack Street, Scaffidi Holdings had agreed to enter into a contract for the sale of the property at 130 ‑ 132 Barrack Street for an agreed purchase price of $1,800,000.
[42] TB 125.
There are no documents recording prior decisions by either Scaffidi Holdings or Central City to execute the Heads of Agreement.
By cl 4, Mr Papamihail, Mr Dafinkas and Joe Scaffidi were directors and equal one third shareholders in Central City and their shares 'may be held … on trust as trustees for their nominee'.
By cl 5, subject to the settlement of the sale of the property at 130 ‑ 140 Barrack Street, Scaffidi Holdings and Central City 'in partnership with the other, agree to develop the adjoining two properties … through the construction thereon of any building or project that the directors may all agree upon from time to time (the joint venture project)'.
The Heads of Agreement was executed on behalf of Scaffidi Holdings by Joe and Tony Scaffidi as directors.
On execution of the deed, the directors and shareholders of Central City (Mr Papamihail, Joe Scaffidi and Mr Dafinkas) agreed to contemporaneously enter into a separate directors and shareholders agreement in terms of an attached pro forma agreement.[43]
[43] Clause 6.
By the attached Directors/Shareholders Agreement,[44] Mr Papamihail, Joe Scaffidi and Mr Dafinkas, as directors and equal one third shareholders of Central City, agreed to be bound by the terms regarding 'the manner of the distribution of all and any future funds, revenue, income and profits (if any) derived from the joint venture project by [Central City]'. The agreed terms are those pleaded in [17] of the Defence, that is:
a.firstly, in payment of all operating costs and expenses of Central City including but not limited to outstanding bank and/third party loans and any interest payments due on those loans; then
b.secondly, in repayment to third parties (not being Scaffidi Holdings, Papamihail, Joe Scaffidi or Peter Dafinkas) of all monies (if any) borrowed or associated with the purchase by Central City of [the Barrack Street property]; then
c.thirdly, in payment to Peter Dafinkas or to whom he directs the sum of $750,000 as the fee payable to him for facilitating the Joint Venture; then
d.fourthly, in payment to Joe Scaffidi or to whom he directs the sum of $1,800,000 as the consideration to be paid for the purchase of the land from Scaffidi Holdings mentioned in the Heads of Agreement; then
e.fifthly, in repayment of any loans made to Central City by any of its directors and (or) shareholders; then
f.the remaining funds (if any) is to be apportioned equally by way of dividend distribution amongst the shareholders of Central City as constituted from time to time.
[44] TB 126.
Wintide transferred the Barrack Street land to Central City on 17 July 2001.[45]
[45] TB 129.
At the meeting of 4 September 2001, the directors discussed that the transfer of the Railway Hotel site from Scaffidi Holdings should now be completed and Mr Papamihail made recommendations regarding how that could be achieved without incurring stamp duty.[46]
[46] TB 83.
By contract dated 18 March 2002, Central City purchased the Railway Hotel land from Scaffidi Holdings.[47]
[47] TB 134, 135.
Also on 18 March 2002, the directors of Central City met and resolved to accept the resignation of Mr Papamihail as a director and to appoint Tony Scaffidi and John Dafinkas as directors.[48]
[48] TB 88.
By an agreement, stamped on 30 July 2002, Mr Papamihail retired as a director of Central City and as a participant in the joint venture from 16 March 2002.
Claims and cross‑claims between Mr Papamihail and Central City were resolved with a Deed of Settlement and Release made on the retirement of Mr Papamihail. The Deed recited that the participants agreed to use Central City as the joint venture vehicle to conduct a project to acquire and develop land in Barrack Street. The Deed defined the 'continuing participants' in the joint venture as Joe and Lisa Scaffidi and their son Anthony, and Mr Dafinkas and Dafinkas Nominees Pty Ltd.[49]
[49] TB 136A.
Central City's directors and accountants met on 7 August 2002. The minutes of the meeting record advice 'in relation to avoiding stamp duty, by not transferring the property known as the "Railway Hotel" site into Central City Limited but to do the Barrack Plaza Project as a Joint Venture between Scaffidi Holdings Pty Ltd and Dafinkas [Nominees]'.[50] The minutes record that it was 'decided not to proceed with the Joint Venture idea, but to proceed with the payment of the stamp duty on or before the due date of 15 August 2002'.[51]
[50] TB 92, emphasis added.
[51] TB 92.
The directors of Central City agreed that 200,000 shares would be raised of which 100,000 would be issued to Dafinkas, and 100,000 would be issued to Scaffidi Holdings and Joe Scaffidi (to be approved by Mr Scaffidi Snr).
On 7 August 2002, Central City issued 200,000 shares, at $1.00 per share.[52] At that time, it appears that Mr Dafinkas held one share, he and Joe Scaffidi held one share jointly, and Joe held one share. In the share issue, Dafinkas Nominees was issued 100,000 shares, and Joe and Scaffidi Holdings were each issued 50,000 shares.[53] Neither Joe nor Scaffidi Holdings were recorded as holding their shares beneficially.
[52] TB 136.
[53] TB 185.
On 2 September 2002, Central City became the registered proprietor of the Railway Hotel.[54]
[54] TB 211.
On 20 April 2004, the directors of Central City agreed to borrow from the Dafinkas Family Trust and Scaffidi Holdings, to meet a shortfall in project funding. The directors agreed to repay those loans 'as soon as funds become available from the project funding', with those loans to take precedence over any other repayments.[55]
[55] TB 101.
In October 2006, the Dafinkas family advised Central City that they 'wanted out'.[56]
[56] TB 108.
The minutes of directors meetings during 2006 record the attendance of Gino Scaffidi, and that steps were being taken for his appointment as a director.[57] The minutes of the meeting of 14 December 2006 record further discussion of the wish of the Dafinkas family to leave the project, which could require the winding up of Central City. The minutes record:
It was then agreed that there would be further discussions between Gino and Joe in relation to the avenue the Scaffidi family needed to take. They would get back to the Dafinkas family to advise the outcome of their discussions to agree to sell the property and retain ownership or to buy out the Dafinkas family's shareholding.[58]
[57] See TB 108, 109.
[58] TB 110.
The minutes of the directors meeting of 22 January 2007, record:
Gino advised that after discussions between himself and Joe that there seemed to be no other alternative than to buy out the Dafinkas family, which was unfortunate due to this project being a long-term investment proposition.
Gino also advised that any additional funding provided by St George serviceability would be an issue, particularly during the next 3 years…
It was agreed that a separate meeting between Joe, Gino, Peter and John [Dafinkas] would be held on neutral territory so that discussion could take place as to how best to proceed once a buyout amount had been agreed.[59]
[59] TB 111.
An agreement was made to permit the Dafinkas family to 'get out' of the project when they expressed concern about the ability of Central City to service the current debt.[60] The agreement reached was for the payment of $5.5 million as a 'buyout figure', with the Dafinkas to transfer their shares to Lisa Joe Investments Pty Ltd.[61]
[60] TB 110.
[61] TB 113.
A directors meeting was held on 24 October 2007. This is the first meeting, the minutes of which were in evidence, of Central City as a proprietary company. The minutes record that it was confirmed that 100,003 shares had been transferred from Dafinkas Nominees to Lisa Joe Investments, and one share from Peter John Dafinkas to Lisa Joe Investments. Members of the Dafinkas family resigned as directors, effective from 6 September 2007.[62]
[62] TB 114.
The minutes of a further meeting of directors on 19 November 2007 reflects the deteriorating relationship between Gino and other directors, with Gino recorded as attending as an observer and disputing whether the meeting had been validly called. Joe proposed that Gino be removed from his office, and that resolution was passed.[63]
[63] TB 114.
On 13 November 2008, Gino wrote to Central City requesting repayment of the amount of $1,439,010 to Scaffidi Holdings within seven days. Gino signed the letter 'for and on behalf of Scaffidi Holdings'.[64]
[64] TB 161.
In 2009, Montevento Holdings served a statutory demand on Central City in relation to the balance of $1,439,010. Central City applied to set aside the statutory demand.[65] Joe Scaffidi made two affidavits in those proceedings.[66]
[65] COR 46 of 2009
[66] TB 217, 218.
There is no doubt that, in those affidavits, Joe made statements regarding the loan alleged by Montevento Holdings that were inconsistent with the financial records of Scaffidi Holdings, inconsistent with each other, and inconsistent with the case of Central City in this trial.
In the earlier affidavit, Joe referred to the alleged loan as an equity contribution, pursuant to an oral agreement, to be repaid upon the realisation of the entire project. In the later affidavit, Joe referred to a loan that, pursuant to an oral agreement, was not due and payable, but repayable only when the project was completed.

The $10,000 loan

The second loan alleged by Montevento Holdings tended to get lost in the bigger picture.
Montevento Holdings referred to the books and records of Scaffidi Holdings and Central City which showed corresponding increases in current assets and liabilities between 2005 and 2006 in the amount of $10,000.[67]
[67] See TB 4 page 85; TB 39, page 325.
On the other hand, Central City referred to records in the financial statements of both Scaffidi Holdings and Central City which recorded the sum of $16,990 in 2005 being transferred to Scaffidi Holdings with a corresponding reduction in the loan from Scaffidi Holdings to Central City.
In the end, although it was pleaded as a 'second loan', the financial records of both Scaffidi Holdings and Central City appear to have treated the $10,000 (and other small transfers such as the $16,990) as part of a running account between the two entities, rather than a separate debt.

Consideration

Montevento Holdings has the onus of proving the agreement on which it bases its claim. That is, it must prove that Scaffidi Holdings and Central City entered an agreement under which the consideration for the Barrack Street land was a debt repayable on demand.
Montevento Holdings relied on the well-established principle that where no time for payment is specified, a loan creates an immediate debt payable on demand: see Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 [36] and the cases cited therein.
Montevento Holdings also relied on s 1305(1) of the Corporations Act 2001 (Cth), by which the books of each company are prima facie evidence of the facts stated or recorded in them:
(1)the loan to Central City was recorded in the financial books and records of Scaffidi Holdings on each of the years ending 30 June 2002 to 2007 as a current asset, with those books reflecting the reduction of the loan amount following the issue of shares to Scaffidi Holdings in 2004 and repayments in 2005, 2006 and 2007;
(2)the loan was recorded in the financial books and records of Central City on each of the years ending 30 June 2002 to 2006 as a current liability, and in 2007 and 2008 as a non-current liability;
(3)the loan was recorded as a liability in the annual financial statements of Central City from 2009 to 2015.
Without evidence to overcome the prima facie effect of the financial statements of each company, Montevento Holdings would establish its case.
But, ultimately, there are two tasks facing the court: the first is determining what were the terms of the agreement between Central City and Scaffidi Holdings, where the parties have recorded their agreement only in a relatively informal and not comprehensive Heads of Agreement; the second is a question of construction of the agreement, as found, and whether the parties objectively intended the loan to be repayable on demand. If the court concludes that the agreement, including the Heads of Agreement with its express reference to the Directors/Shareholders Agreement, was that the parties objectively intended that the obligation to repay was deferred in accordance with the Directors/Shareholders Agreement, there is no debt repayable on demand.
Montevento Holdings submitted that there is no evidence of minutes of the meetings of directors of Central City resolving to enter into the Heads of Agreement and participate in a joint venture with Scaffidi Holdings. There is no evidence of any meetings of directors to shed light on the intention of Scaffidi Holdings. There is, in fact, no evidence of any meeting at which either company considered the transfer of the Railway Hotel land to Central City.
The Directors/Shareholders Agreement was, however, signed by all of the then directors of Central City.
The transactions that were entered into, and the relevant surrounding circumstances, are sufficient to satisfy me that Scaffidi Holdings and Central City did not intend to enter into an agreement for a loan repayable on demand, as alleged by Montevento Holdings.
It was not contended by Montevento Holdings that the agreement alleged by Central City was illusory or was so vague and uncertain as to be unenforceable.[68] I would not, in any event, characterise the agreement in that way. It was not an agreement that put the obligation of Central City to repay at its discretion: rather, it set out an order for the repayment of competing obligations.
[68] See, for example, Head v Kelk [1963] 63 SR (NSW) 340; GoConnect Ltd v Sino Strategic International Ltd (in liq) [2016] VSCA 315.
Central City sought to overcome the evidence of the financial records by relying on the inferences to be drawn from a range of evidence.
First, Central City referred to the inconsistent recording of the loan in the books and records of Central City after 2007, from when it was recorded as a non-current liability.
Second, Central City relied on the evidence of Mr Van Maanen that, when he prepared the accounts, he was not aware of any documentation relating to the recorded loan. That evidence about the preparation of the accounts is relevant, but not determinative. The financial statements of each company are declared by the directors to be true and correct. None of the directors of Central City gave evidence, and Central City led no evidence about the changed accounting treatment from 2007 onwards.
Third, Central City relied on the terms of the Heads of Agreement and the Directors/Shareholders Agreement.
The Heads of Agreement identified the agreed purchase price for the Railway Hotel land, but said nothing about how or when it is to be paid. Central City and Scaffidi Holdings agreed to the development of the Railway Hotel land, with the adjoining land, 'in partnership' and as 'a joint venture project'. It is apparent that the terms 'partnership' and 'joint venture' were not used, in either the Heads of Agreement or the minutes, in any technical sense. The expression 'joint venture' is a vague one, and describing arrangements as a joint venture does not have any particular legal consequences: 'The rights and obligations of the parties remain to be determined by examination of the detail of what they have agreed and done'.[69]
[69] White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd [2009] NSWCA 114; (2009) 261 ALR 86 [27], quoted with approval in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1, [44].
Central City also relies on the provision in the Heads of Agreement by which each of the shareholders, including Joe Scaffidi, held their shares 'on trust as trustees for the nominees'. Central City submitted that the inference to be drawn is that Joe Scaffidi held his shares in Central City on trust for Scaffidi Holdings as nominee. That, it submitted, is consistent with the provision for payment of consideration for the Railway Hotel land to Joe or to whom he directs. The inference for which Central City contended is open, although I am not satisfied that I need to make such a finding in this action.
Scaffidi Holdings was not a party to the Directors/Shareholders Agreement. But it acknowledged the terms of Directors/Shareholders Agreement in executing the Heads of Agreement. The reference to the Directors/Shareholders Agreement in the Heads of Agreement ‑ with the unexecuted pro forma agreement appended ‑ discloses an intention, in what was an informally documented arrangement, that the payment of the consideration for the transfer of the Railway Hotel land would be deferred to other obligations arising out of the proposed development. The consideration for the Railway Hotel land was treated differently from bank and third party loans, but given priority to loans from directors or shareholders.
The two agreements, together, provided for a continuing arrangement in which other obligations, including bank loans, were to be paid in priority to Scaffidi Holdings. Those agreements were in place at the time that Central City and Scaffidi Holdings contracted for the purchase of the Railway Hotel land in March 2002 and incurred the liability to pay the agreed consideration.

The accounting treatment of the consideration in the books of both Scaffidi Holdings and Central City, as a current asset or liability, is not consistent with that deferred obligation to repay. But the accounting treatment is inconsistent with the documented agreements.
Fourth, in ascertaining what the parties have agreed, where they have not wholly committed the terms of their agreement to writing, the court can have regard to a range of conduct. Central City relied on surrounding factual matters, including the later conduct of Central City and Scaffidi Holdings after the making of the Heads of Agreement and the transfer of the land.
On 7 August 2002, the directors and shareholders of Central City resolved to issue 200,000 shares with 50,000 shares issued to Joe and 50,000 to Scaffidi Holdings. Central City submitted, and I agree, that the share issue is consistent with Scaffidi Holdings having agreed to a continuing investment in the Barrack Street development, and was not simply a creditor with a loan repayable on demand. I also take into account that as well as Scaffidi Holdings being a shareholder in Central City, Tony Scaffidi was appointed a director in 2002, and Gino in 2006.
Montevento submitted that the court should infer that the joint venture came to an end on 7 August 2002 when the directors of Central City resolved not to proceed with the Joint Venture. I do not accept that submission. First, it is a case that Montevento Holdings did not plead. Second, the 'Joint Venture' to which the minutes referred was (an unexplained) venture between Scaffidi Holdings and Dafinkas Nominees. Finally, the issue of shares on that day is consistent with a 'joint venture' continuing, although perhaps in a different form.
Central City also relied on the loan being recorded as arising on 19 March 2002, rather than 2 September 2002, when the Railway Hotel was transferred. I am not satisfied that I can draw any inference from the loan being at the time of contract for purchase of the land, rather than at the time of transfer.
Central City also referred to the treatment of loans made by Mr Dafinkas and Mr Papamihail when each withdrew from the development. Mr Dafinkas and Mr Papamihail were shareholders in Central City at the time of the Directors/Shareholders Agreement, and parties to that agreement. By that agreement, the repayment of their loans was to be after the payment of bank and third party loans, but also after the payment of the consideration for the Railway Hotel land.
The circumstances of the withdrawal of each of those interests from the project do not, in my view, support any inference about the nature of the loan from Scaffidi Holdings.
Finally, Montevento submitted that the financial records and the affidavits made by Joe in the statutory demand proceedings are both acknowledgements of debt, taking the debt outside the operation of s 38 of the Limitation Act 1935, and admissions by Joe about the loan.
I do not need to determine the limitation point unless I am satisfied that there was a loan repayable on demand.
Neither of Joe's inconsistent characterisations of the agreement between Scaffidi Holdings and Central City is compatible with a loan repayable on demand and can be regarded as an admission to that effect on behalf of Central City. Joe Scaffidi's evidence in two affidavits filed in the statutory demand proceedings is inconsistent with the case Central City now puts forward. But the case is based upon the documentary record and does not rely on any evidence from Joe about what he intended.
In summary, notwithstanding the recording of the loan in the financial records as a current liability, when regard is had to all of the evidence I am not satisfied that, objectively, the intention of Scaffidi Holdings and Central City was that it be repayable on demand.
Scaffidi Holdings does not rely on an alternative case that the loan was payable upon the satisfaction of a condition which has now been satisfied.

The consolidated action

The pleadings

The statement of claim in the consolidated action was filed on 28 April 2017.
The following matters were admitted on the pleadings.[70]
[70] Statement of claim [1] ‑ [6] and Defence [1].
On or about 2 May 1977, the Trust was established by Deed of Settlement.
From on or about 16 August 1995 until, at least, 18 February 2009, Scaffidi Holdings was the trustee of the Trust.
On or about 12 August 2005, Private Mortgage Funding & Management Limited (PMFM), on behalf of certain lenders, agreed to advance $1,725,000 to Scaffidi Holdings, as trustee of the Scaffidi Family Trust (the Loan).
The Loan was secured by a registered mortgage, dated 12 August 2005, over land known as Henry Lawson Walk.[71]
[71] Statement of claim [7] and Defence [2] - [3].
At all material times Lisa Scaffidi was the registered proprietor of Henry Lawson Walk.[72]
[72] Statement of claim [8] and Defence [4].
The parties to the Mortgage Deed were Scaffidi Holdings, as trustee of the Scaffidi Family Trust (as Covenantor), Lisa Scaffidi (as Mortgagor), Joe Scaffidi (as Guarantor), Scaffidi Holdings, in its own right (as Guarantor), Premier Building Solutions Pty Ltd (as Guarantor) and Lisa Scaffidi (as Guarantor).[73]

Matters in contention

[73] Statement of claim [9] and Defence [5].

The following matters are in issue on the pleadings.
Montevento Holdings
•pleaded that Scaffidi Holdings did not authorise or approve the Loan or the Mortgage,
•denied that Scaffidi Holdings was a party to the Mortgage, and
•said that the purported signature of Mrs Maria Scaffidi (a director of Scaffidi Holdings) on the Mortgage Deed was not her signature.[74]
[74] Defence [3], [5], [9].
In further and better particulars, Montevento Holdings contended that there was no directors meeting or resolution of the board of directors to approve the Loan, and that Maria and Gino (directors of Scaffidi Holdings) were not advised of, and did not authorise, the Loan or Mortgage.
By bare denials in the defence, Montevento Holdings denied:
•Lisa Scaffidi agreed to be Mortgagor and Guarantor at the request of Scaffidi Holdings;
•that the funds were advanced to Scaffidi Holdings;
•that Scaffidi Holdings defaulted under the Mortgage and failed to repay the money secured;
•that Lisa paid the full amount of the money secured under the Mortgage; and
•that Lisa made deeds of assignment in 2009 and 2015, assigning her causes of action to Central City.
In written submissions, Montevento Holdings asserted that Scaffidi Holdings only benefited to the extent of $444,000 from the loan funds, and the Loan was used to pay of the personal debts of Lisa and Joe Scaffidi.[75] Although that was not pleaded, the trial proceeded on the basis that the use of the funds was in issue.
[75] Montevento Holdings closing submissions [25].
Montevento Holdings pleaded that no demand for the sum of $1,750,000 was made within six years of 24 October 2007 and Central City's claim is statute barred.
Critical issues in the proceedings are the alternative claims by Central City that:
(1)there was an implied term of the Mortgage Deed that Scaffidi Holdings promised to indemnify Lisa in respect of any sums which she paid to the mortgagee;[76]
(2)by operation of law, there was an inferred or implied contract between Lisa (as surety) and Scaffidi Holdings (as principal debtor) to the effect that Scaffidi Holdings promised to indemnify Lisa in respect of any sums which she paid to the mortgagee under the Mortgage Deed as a debt due and payable on demand;[77]
(3)Scaffidi Holdings became liable to repay Lisa the sum of $1,725,000 on demand in restitution for unjust enrichment.[78]

The reply

[76] Statement of claim [15A].

[77] Statement of claim [15].

[78] Statement of claim [17].

In response to Montevento Holding's plea that Maria did not sign the Mortgage, Central City pleaded the Mortgage Deed was signed by Joe and a director of Scaffidi Holdings, and has the signature of a person identified as 'Maria Scaffidi' as 'Director/Secretary' of Scaffidi Holdings.[79]
[79] Reply [3(c)] - [3(d)].
Central City further pleaded that Scaffidi Holdings knowingly took the benefit of the Mortgage Deed; and also that by operation of s 128 and s 129 of the Corporations Act, Lisa and PMFM were entitled to assume that the Mortgage Deed was duly executed by Scaffidi Holdings.[80]
[80] Reply [3(e)].
In response to the Limitation Act 1935 plea, Central City pleaded that:
(1)the rights to which Lisa was subrogated under the Mortgage Deed have not been discharged;
(2)the cause of action is founded on a deed and on an action to recover principal money secured by mortgage over real property, and the limitation period is 12 years; and
(3)the cause of action accrued no earlier than about 7 May 2015, when there was first a failure to comply with a demand for payment.
Central City also relied on s 5 of the Mercantile Law Amendment Act 1856 (Imp), by which the rights to which Lisa was subrogated under the Mortgage Deed have not been discharged.[81]

Scaffidi Holdings

[81] Reply [4].

Scaffidi Holdings did not participate in the action and did not plead to the claim against it. It appeared to be common ground that Scaffidi Holdings could not act effectively because of the opposing positions of its two directors.

The facts

While there were several matters of fact in issue on the pleadings, the resolution of those matters was largely on the documents.
The following matters are recorded in the financial records of Scaffidi Holdings and I accept them to have been proved:
(1)at 30 June 2002, Scaffidi Holdings had non-current liabilities in respect of loans of $1,000,000 and $100,000 associated with PMFM, secured by registered mortgages over Henry Lawson Walk. Scaffidi Holdings, as trustee, had total liabilities of $5,426,039;[82]
(2)at 30 June 2003, Scaffidi Holdings had non-current liabilities in respect of loans of $2,015,000 associated with PMFM, with $1,100,000 secured over Henry Lawson Walk, and $240,000 and $675,000 secured over properties in Joondanna and City Beach;[83]
(3)at 30 June 2004, Scaffidi Holdings had non-current liabilities in respect of loans of $1,740,000 associated with PMFM, with $1,100,000 secured over Henry Lawson Walk, and $240,000 and $400,000 secured over properties in Joondanna and Lockwood;[84]
(4)at 30 June 2005, Scaffidi Holdings had non-current liabilities in respect of loans of $2,011,596 associated with PMFM, with $1,371,596 secured over Henry Lawson Walk, and $240,000 and $400,000 secured over properties in Joondanna and Lockwood;[85]
(5)at 30 June 2006 and 30 June 2007, Scaffidi Holdings had non‑current liabilities in respect of a loan of $1,725,000 associated with PMFM, secured over Henry Lawson Walk;[86]
(6)at 30 June 2008, Scaffidi Holdings had current liabilities to Lisa Scaffidi of $1,725,000.[87]

The execution of the mortgage

[82] TB 2 page 36; TB 131 and 132.

[83] TB 3 page 56; see TB 119, 123 and 138 for the Joondanna and City Beach mortgages.

[84] See TB 142A for the Lockwood mortgage.

[85] TB 4 page 77.

[86] TB 6 page 119; TB 7 page 140.

[87] TB 9 page 186.

It is admitted on the pleadings that the parties to the Mortgage Deed were Scaffidi Holdings, as trustee of the Scaffidi Family Trust (as Covenantor), Lisa Scaffidi (as Mortgagor), Joe Scaffidi (as Guarantor), Scaffidi Holdings, in its own right (as Guarantor), Premier Building Solutions Pty Ltd (as Guarantor) and Lisa Scaffidi (as Guarantor).
The Mortgage was executed on 12 August 2005. It was executed as a deed in accordance with the formalities under s 9 of the Property Law Act 1969 (WA). On its face, it was executed by Scaffidi Holdings, both as trustee of the Trust and in its own right, by the signatures of Joe and Maria Scaffidi who were then directors of Scaffidi Holdings.
The Mortgage Deed stated the 'principal sum and consideration' for the mortgage to be:
ONE MILLION SEVEN HUNDRED AND TWENTY FIVE THOUSAND DOLLARS ($1,725,000) (of which NINE HUNDRED AND FORTY THOUSAND DOLLARS (940,000) is the same money secured by Mortgage H 813091[88] and of which FOUR HUNDRED THOUSAND DOLLARS ($400,000) is the same money secured by Mortgage I498910)[89] agreed to be lent or advanced by the Mortgagee to the Covenantor at the request of the Mortgagor, Covenantor and the Guarantor.[90]
[88] TB 131, made 17 July 2001.
[89] TB 139, made 9 July 2004.
[90] TB 146, page 1225.
Lisa and Scaffidi Holdings, as Mortgagor and Covenantor, jointly and severally covenanted and agreed with the mortgagee to pay the principal sum and interest in the manner and at the time specified in the Mortgage.
The Mortgage was registered under the Transfer of Land Act 1893 (WA).[91]
[91] TB 146.
Montevento Holdings put in issue whether Lisa entered the Mortgage at the request of Scaffidi Holdings. There is no evidence of an express request, although the inference that there was a request in some form may be found to arise from the fact that she put up her property as security for the Loan.
Montevento Holdings contended that the Loan, secured by the Mortgage, was not approved or authorised by Scaffidi Holdings and not signed by Maria Scaffidi. It also put in issue whether Lisa Scaffidi agreed to be Mortgagor and Guarantor at the request of Scaffidi Holdings, the funds were advanced to Scaffidi Holdings, and whether Lisa Scaffidi paid the full amount of the money secured under the Mortgage Deed.

The signature on the Mortgage Deed

The factual issue which relied upon oral testimony was whether the signature purporting to be that of Maria Scaffidi on the Mortgage Deed was in fact signed by her.
Section 31 of the Evidence Act 1906 (WA) provides:
Comparison of a disputed hand-writing with any writing proved to the satisfaction of the judge to be genuine may be made by witnesses, and such writings and the testimony of witnesses respecting the same may be submitted to the court and jury as evidence of the genuineness or otherwise of the writing in dispute.
Montevento Holdings led both expert evidence, and Gino's opinion as someone familiar with his mother's writing, regarding the genuineness of the signature.
I was satisfied that Gino was familiar with his mother's writing and signature, and was able to remember his mother's signature. It is necessary to remember that we are dealing with a generation that wrote by hand, and the occasions to see someone's handwriting were much more frequent. Apart from the specific occasions when Gino asked his mother to sign her name for the purpose of obtaining samples for the handwriting comparison, he saw his mother's signature many times.[92]
[92] ts 262 - 263; 274.
Gino's testified that the signature purporting to be that of Maria was not made by her. Gino was cross‑examined on his ability to remember and recognise his mother's signature. The cross‑examination was, at times, confusing and resulted in confused answers. But Gino remained firm in his opinion that it was not Maria's signature on the Mortgage Deed.
Gino's evidence was supported by the expert opinion of Mr Gregory. Mr Gregory's evidence was challenged on several bases. In particular, the evidence was challenged on the basis that he prepared his report in 2008, and whether he had a present recollection of the matters contained in it. Because of the passage of time, Mr Gregory did not have the original material on which he based his report and opinion.[93]
[93] ts 295.
Counsel for Central City described Mr Gregory's evidence as 'mere hearsay of an opinion expressed out of court 12 years in the past'.[94] The submission is unnecessary hyperbole, and misses the point. Mr Gregory gave evidence of his normal procedure on the basis of which he had prepared his report;[95] he said that his evidence was based on the contents of his own report to which he had put his declaration on at the time.[96]
[94] Closing submissions [168].
[95] ts 294.
[96] ts 295 ‑ 296.
The signatures which Mr Gregory had used for comparison with the disputed documents were proved by Gino to be genuine. The fact that he could not give an opinion on documents recently reviewed, if relevant, is of little consequence.
Mr Gregory's opinion was that the sample signatures provided to him of Maria's handwriting were not in the same hand as the signatures on the Mortgage Deed, although those signatures had been written in the style of her signature. [97]
[97] ts 301.
Were it necessary to make a finding on whether the signature was written by Maria, I would accept his evidence.
Central City adduced no evidence on the question of who wrote the signature 'Maria Scaffidi' on the Mortgage Deed.
Neither party pleaded, nor led evidence, about whether the signature was written on Maria's behalf or with her permission.

The assumptions under Corporations Act, pt 2B.2

Central City relied on the assumptions under pt 2B.2 of the Corporations Act to meet the contention by Montevento Holdings that the Loan and Mortgage were not approved or authorised by Scaffidi Holdings, including the contention that Maria had not signed the Mortgage Deed.
By s 128, a person is entitled to make the assumptions in s 129 in relation to dealings with a company. The assumptions may be made even if an officer or agent of the company acts fraudulently or forges a document in connection with the dealings,[98] that is, even were I satisfied that Joe wrote his mother's signature, without her authority, on the Mortgage Deed. A person is not entitled to make an assumption in s 129 if at the time of the dealings they knew or suspected that the assumption was incorrect.[99]
[98] Section 128(3).
[99] Section 128(4).
The relevant assumptions in the present case are:
(1)that Scaffidi Holdings' constitution, and any provisions of the Corporations Act that apply to the company as replaceable rules had been complied with in taking the Loan and executing the Mortgage Deed as Covenantor and Guarantor;
(2)that Joe and Maria each properly performed their duties to the company;[100]
(3)that each had authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company; and
(4)that the Mortgage Deed had been duly executed by the company if it appeared to have been signed in accordance with s 127(1), that is, signed by two directors of the company.
[100] The fact that they were directors at the relevant time was proved otherwise.
For the purposes of considering the application of the statutory assumptions, I make the following findings.
Joe, as a director of Scaffidi Holdings, had signed securities on behalf of the company on many occasions.[101]
[101] See, for example, TB 117 ‑ 120, 122, 123, 133.
In 1997, Scaffidi Holdings borrowed money from PMFM, secured by a mortgage given by Lisa; Scaffidi Holdings and Joe were guarantors, with Joe signing as a director of Scaffidi Holdings.[102] In 2001, PMFM agreed to advance $1 million to Scaffidi Holdings, secured by a mortgage, with Lisa as the mortgagor and Scaffidi Holdings as guarantor and covenantor.[103] The mortgage was apparently executed by Joe on behalf of Scaffidi Holdings. Also in 2001, Scaffidi Holdings borrowed $100,000 from PMFM, secured by mortgage with Lisa as the mortgagor, and Scaffidi Holdings as guarantor and covenantor.[104] Again, Joe executed on behalf of Scaffidi Holdings.
[102] TB 122.
[103] TB 131.
[104] TB 132.
PMFM dealt with Joe again in relation to the borrowing in 2005.[105]
[105] TB 143, 222.
I am satisfied that the loan by PMFM to Scaffidi Holdings, and the security given by Lisa, were in dealings with Scaffidi Holdings. I am also satisfied that Joe had apparent authority to negotiate the loans and security on behalf of Scaffidi Holdings. It is not necessary to determine whether he had actual authority.
It follows that PMFM and Lisa were each entitled to make the assumptions in s 129 of that Act, and are in the same position as if the matters assumed were the facts.[106]
[106] Caratti v Mammoth Investments Pty Ltd [2016] WASCA 84; (2016) 50 WAR 84 [593].

Because a person dealing with the company does not, in fact, have to make the assumptions, it is sufficient if they establish by evidence in the proceedings that the signatures appearing on the document objectively appear to be the signatures of persons who may execute a document on behalf of the company.[107] It is not in dispute that Joe signed the Mortgage Deed as a director of Scaffidi Holdings. The signature 'M Scaffidi', with the printed name Maria Scaffidi, appears on the mortgage as execution by a director/secretary of Scaffidi Holdings. It is sufficient that the Mortgage, by the signatures of two directors, objectively appeared to comply with s 127(1).
[107] Caratti v Mammoth Investments Pty Ltd [619].
The entitlement of either PMFM or Lisa to make the relevant assumption would be lost by reason of s 128(4) only if they actually knew or actually suspected that the relevant assumption was incorrect. It is not sufficient that either of them should have suspected the signature was not genuine. The onus of establishing the loss of the entitlement lies on the party challenging the entitlement to make the assumption.[108]
[108] Caratti v Mammoth Investments Pty Ltd [377].
Montevento Holdings sought to raise an un-pleaded assertion that PMFM knew or suspected that Maria's signature on the Mortgage Deed was forged. Central City objected, with good cause. But, as counsel for Central City also submitted, the evidence put forward in support of that contention does not establish it. The evidence relied upon is a letter dated 19 July 2005, on Premier Building Solutions letterhead and sent to PMFM by facsimile. In it, Joe wrote, 'I also confirm that I do not wish to worry mum with signing any documents at this time and confirm that I've signed on her behalf'.[109] The document referred to in the letter is an acceptance of the terms and conditions of a proposed advance to Scaffidi Holdings, secured by mortgage. The acceptance pages are signed by Joe for and on behalf of Scaffidi Holdings (in its own right and as trustee for the Scaffidi Family Trust), Premier Building Solutions and himself. In each case, Joe signed in his own name.[110]
[109] TB 222.
[110] TB 143.
Even if it were arguable that the letter might have put someone on notice that Joe might sign a document on behalf of his mother, that falls far short of establishing that PMFM knew or suspected that the Mortgage Deed signed in August was not signed by Maria or with her authority.
In short, there is no evidence that either PMFM or Lisa knew or suspected that the signature purporting to be that of Maria was not hers.
Scaffidi Holdings cannot assert that the assumptions in s 129 are incorrect. The issue regarding the signature of Maria Scaffidi has no legal consequence in considering whether Scaffidi Holdings is liable to indemnify Lisa for the sum she paid to discharge the Loan and Mortgage.
Central City's claim against Montevento Holdings is limited to the claim that it is entitled to be subrogated to Scaffidi Holdings' right of indemnity from the trust assets. If Scaffidi Holdings is liable to indemnify or repay Lisa, and that liability arose in the proper performance of its duties or exercise of its powers as trustee of the Trust, Scaffidi Holdings is entitled to be indemnified out of the trust assets. It should not be open to Montevento Holdings to assert that Scaffidi Holdings is not liable under the Mortgage Deed by a collateral challenge to the assumptions by which Scaffidi Holdings is bound.

Scaffidi Holdings took the benefit of the Mortgage

Central City put forward an alternative case that Scaffidi Holdings knowingly took the benefit of the Mortgage Deed and is bound by it. Central City relied upon the knowledge of Joe, as a director of Scaffidi Holdings, that the money was advanced to Scaffidi Holdings and was applied to its purposes.
Scaffidi Holdings was the trustee of the Scaffidi Family Trust. Relevantly, the trustee was empowered to deal with the investment and realisation of the Trust Fund 'in all respects as if the Trustee was the beneficial owner of the Trust Fund'.[111] Specific powers of the Trustee under the Trust Deed included the power to advance and lend money and to borrow and raise money from any person (including a beneficiary) secured by mortgage or otherwise, with the trustee expressly empowered to execute any mortgage or other document for the purpose of securing the payment of money to any person;[112] to acquire, carry on or join in carrying on any business;[113] and to carry on or carried out any profit making undertaking or scheme in partnership with the Trustee in his personal capacity.[114]
[111] TB 201, page 1648.
[112] Page 1650.
[113] Page 1653.
[114] Page 1659.
The Trust Deed further provided:
The Trustee shall be entitled to be indemnified out of the assets for the time being comprising the Trust Fund against liabilities incurred by the Trustee in the execution or attempted execution or as a consequence of the failure to exercise any of the trusts authorities powers and discretions hereof or by virtue of being the Trustee hereof …[115]
[115] Page 1663.
Central City called no oral evidence, but it is possible to trace the application of the borrowed funds through the financial records (sometimes only extracts from journals), and the evidence of Mr Van Maanen. That evidence establishes that Scaffidi Holdings applied the money for purposes within the very wide powers of the Trustee.
At 30 June 2002, the Scaffidi Family Trust balance sheet shows, as non-current liabilities, borrowings from Private Mortgage Funding & Management secured against 'Henry Lawson' of $100,000 carried forward from 2001 and $1 million as a new liability.[116] The new loan from PMFM was used, in part, to pay out existing loans including the discharge of a loan of $444,000 secured against the Railway Hotel.[117] Part was used to pay Joe for money owed to him by the Trust.[118]
[116] TB 2, page 36.
[117] Exhibit 2 [17(c)(f)].
[118] Exhibit 2 [179b)].
The balance sheet for 2006 records the new liability to PMFM of $1,725,000, secured against Henry Lawson.[119]
[119] TB 6 page 119.
While funds were advanced to Premier Building Solutions Pty Ltd, a company associated with Joe, and to Lisa Joe Investments, those amounts were treated as either the repayment of borrowing, or loans from Scaffidi Holdings.[120]

The repayment of the Loan

[120] TB 178; TB 6; TB 25-26.

The date for repayment of the principal sum under the Mortgage was 15 August 2007.[121] Lisa and Scaffidi Holdings defaulted. On 22 October 2007, PMFM advised a net payout figure of $1,736,300.43, being the principal amount of $1,725,000 together with accrued interest and charges.[122]
[121] TB 146 at 1225.
[122] TB 153.
Although there is no direct evidence about the repayment of the Loan, the inference that Lisa paid it is overwhelming.
On 24 October 2007, Lisa mortgaged the property at Henry Lawson Walk to Pepper Finance Corporation Ltd.[123] She obtained an initial advance of $2,030,050 on 24 October 2007, and a bank cheque to PMFM for $1,736,300.43 was drawn. I am satisfied it was paid in discharge of the Loan.[124]

Lisa's rights, as surety, on payment of the principal debt

[123] TB 155.

[124] TB 156, 168.

Central City pleaded that Scaffidi Holdings became indebted to Lisa for the sum of $1,725,000 and such sum was repayable on demand.
Central City puts its primary case on alternative bases:
(1)an implied term of the Mortgage Deed to the effect that Scaffidi Holdings promised to indemnify Lisa in respect of any sums which she paid to the Mortgagee;[125]
(2)an inferred or implied contract between Lisa and Scaffidi Holdings to the effect that Scaffidi Holdings, as principal debtor, promised to indemnify Lisa Scaffidi in respect of any sums which she paid to the Mortgagee under the terms of the Mortgage Deed as a debt due and repayable on demand.[126]
[125] Statement of claim [15A].
[126] Statement of claim [15].
Central City, alternatively, pleaded that Scaffidi Holdings was liable to repay Lisa the sum of $1,725 in restitution for unjust enrichment.[127]
[127] Statement of claim [17].
Lisa and Scaffidi Holdings covenanted jointly and severally in the Mortgage Deed to pay the principal sum. The Mortgage Deed provided:
NOW THIS DEED WITNESSETH THAT FOR THE CONSIDERATION specified in the Schedule (hereinafter called 'the Principal Sum') and to secure the payment to the Mortgagee of the money hereinafter defined as 'the money hereby secured' the Mortgagor being registered are entitled to be registered as the proprietor MORTGAGES to the Mortgagee the estate and interest specified in the land described … And the Mortgagor and …Covenantor … Jointly and severally covenant and agree with the Mortgagee as follows:
1.DEMAND MORTGAGE
To pay to the mortgagee on demand the money hereby secured or such part thereof as is specified in the demand
2.PRINCIPAL AND INTEREST
To pay to the mortgagee:-
1.1the principal sum in the manner and at the times specified in the schedule.
1.2interest on the money hereby secured calculated at the rate, in the manner and at the times specified in the schedule. Such interest shall be deemed to accrue from day to day.
The Loan was expressed in the Schedule to the Mortgage to be advanced to Scaffidi Holdings at the request of the Mortgagor, Covenantor and Guarantor.[128] The Principal Sum included the refinance of two existing mortgages, Mortgage H813091 and I948910, both of which were in the same form, that is, the mortgage secured an advance to Scaffidi Holdings.[129]
[128] TB 146, Schedule, item 2.
[129] TB 131 and TB139.
The court may look beyond the terms of documents to identify the true relationship between the parties.[130] While Lisa was the Mortgagor, and she and Scaffidi Holdings were both liable to pay the principal sum and interest, as between Lisa and Scaffidi Holdings, Lisa is in the position of surety. [131] The intention revealed by the mortgages, in both the 2005 Mortgage and those it replaced, was that Scaffidi Holdings received the whole of the benefit of the advanced sum. Lisa was truly a stranger to the debt for which she stood as surety and the principles applicable to indemnity and subrogation of a surety who discharges the principal debt apply to her, whether she repaid the principal sum as the mortgagor or as one of the guarantors.
[130] Jones, in the matter of Great Southern Ltd (in liq) [2017] FCA 169 [51]; Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116, 119 ‑ 120; 135.
[131] Official Trustee in Bankruptcy v Citibank Savings Ltd 125 ‑ 126.
By what has been referred to as the 'orthodox view', an implied contract arises as between Lisa (as surety or guarantor) and Scaffidi Holdings (the principal debtor) whereby Scaffidi Holdings undertakes to indemnify Lisa in respect of those monies that she might pay towards the principal debt.[132] In Friend v Brooker[133] and Israel v Foreshore Properties Pty Ltd[134] the court spoke of recovering the indemnity by an action against the principal debtor for money paid.
[132] Commissioner of Taxation v Sims [2008] NSWCA 298; (2008) 72 NSWLR 716 [28]; McColl's Wholesale Pty Ltd v State Bank of NSW (1984) 3 NSWLR 365, 376.
[133] Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129 [55].
[134] Israel v Foreshore Properties Pty Ltd (in liq) (1980) 30 ALR 631, 636 (Aickin J).
Lisa has a right of subrogation which operates so as to confer on her the rights against Scaffidi Holdings formerly enjoyed by PMFM.[135] In circumstances where a guarantor has paid the principal debtors' obligation, the guarantor may be subrogated to the securities held by the creditor against the principal debtor.
[135] Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 [4]; citing Liberty Mutual Insurance Co (UK) Ltd v HSBC Bank plc [2001] Lloyd's Rep Bank 224, 225.
By s 5 of the Mercantile Law Amendment Act, Lisa is also entitled to have assigned to her 'every judgment, specialty, or other security which shall be held by the creditor' in respect of the debt, whether or not at law it is deemed to have been satisfied by payment, and she is entitled to stand in the place of the creditor and to use all their remedies in order to obtain indemnification from the principal debtor.[136]
[136] See McColl's Wholesale Pty Ltd v State Bank of NSW [378].
Central City submitted that, by the effect of the Mercantile Law Amendment Act, Lisa was subrogated to PMFM's rights under the Mortgage Deed and the Act operates as an implied assignment to her so as to place her in the position previously held by the creditor. Lisa is subrogated to and entitled to sue on PMFM's rights against Scaffidi Holdings under the Mortgage.
Central City submitted that Lisa's claim is properly regarded as either an action founded on a deed, or an action to recover principal money secured by a mortgage of real property. On either characterisation, the limitation period is 12 years.[137] I am satisfied that the cause of action is founded on a deed. It is not necessary to also consider whether it is now an action to recover money secured by a mortgage. The cause of action arose in 2007, and the action was brought within time.
[137] Limitation Act 2005 (WA) s 18, s 20.
Central City accepted that Lisa does not, by subrogation to the rights of the principal creditor, necessarily obtain the benefit of all the terms in favour of PMFM. On that basis, it did not press its claim for interest calculated in accordance with the rate in the Mortgage Deed.

The assignment

Montevento Holdings, by bare denial, challenged the validity of the assignment of the debt or chose in action by Lisa to Central City. It was not clear, even after final submissions, on what basis the assignment was denied.
On 8 May 2009, Lisa, executed a deed, cl 2.1 of which provided:
By the execution of this Deed, [Lisa] hereby assigns, conveys and transfers to Central City Pty Ltd all right, title and interest in the Debt and the Loan Sum as from the date of this Deed.[138]
[138] TB 164.
The Debt was defined as a debt in the amount of the Loan Sum, being $1,725,000.[139] Central City contended that express notice of the assignment was given to Montevento Holdings in an affidavit filed in the proceedings on the statutory demand, to which I have referred earlier.
[139] TB 164.
On 6 May 2015, Lisa (as Assignor) and Central City (as Assignee) executed a second deed of assignment. In Recital C, the deed stated:
To the extent that an assignment of the Debt to the Assignee was not lawfully and validly effected by the [deed of 8 May 2009], the Assignor by this Deed shall assign the benefit of the Debt to the Assignee on the terms and conditions of this Deed.[140]
[140] TB 180.
'Debt' was defined to include 'any Choses in Action (including without limitation any Choses in Action against the Debtor or Scaffidi Holdings in its own right) held by Lisa Scaffidi arising out of or in connection with the Loan or the Loan Sum'. 'Choses in Action' was also defined to include all claims 'at common law in equity or some other basis of relief'.
By cl 2.1 and cl 2.2:
To the extent that an assignment of the Debt to the Assignee was not lawfully and validly effected by the Original Deed, and in consideration of the mutual promises contained herein, the Assignor hereby assigns its right, title and interest in the Debt to the Assignor absolutely.
The Assignor hereby acknowledges and agrees that it shall do all things reasonably necessary to perfect and complete the assignment of the Assignor's rights, title and interest in the Debt to the Assignee.
By cl 7, Lisa irrevocably appointed Central City as her attorney to demand, sue for, receive and give effectual discharge for the Debt; and to conduct any legal proceedings in relation to the debt.[141]
[141] TB 180.
Notice of the assignment was given to Scaffidi Holdings by letter from the solicitors for Central City. The letter was delivered to the registered office of Scaffidi Holdings and to each of its directors.[142]
[142] TB 183A ‑ 183C.
The second assignment, including choses in action arising out of or in connection with the Loan, would include:
(a)a right to be indemnified by the principal debtor.
(b)a right to take over any securities held by the creditor.
(c)a right to contribution from co-sureties.
(d)a right to share in any securities which a co-surety may have.[143]
[143] McColl's Wholesale Pty Ltd v State Bank of NSW 376.
Relevantly, in this matter, the assignment includes any right to the benefit of the securities held by PMFM. If Montevento Holdings denied the assignment on the basis that it was the assignment of a bare right of action ‑ and I am still not sure on what basis Montevento Holdings denied the assignment ‑ I would not characterise the second assignment in that way.
The statutory method of assigning the legal right to a debt or other legal chose in action is found in s 20 of the Property Law Act:
Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim that debt or chose in action, is effectual in law (subject to equities having priority over the right of the assignee), to pass and transfer from the date of the notice ‑
(a)the legal right to that debt or chose in action;
(b)all legal and other remedies for the debt or chose in action; and
(c)the power to give a good discharge for the debt or chose in action, without the concurrence of the assignor.
Provisions of this nature have been described as machinery provisions, not altering the substantive law in relation to assignments: 'A chose in action not assignable at common law prior to the enactment of [s 20] was not rendered assignable by its enactment'.[144]
[144] Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498 [56].
The assignment of 6 May 2015 meets the requirement of s 20 of the Property Law Act and (subject to the limitation points also raised by Montevento Holdings) is effective to assign Lisa's right, title and interest in the debt to Central City. It is not necessary to determine whether the earlier purported assignment was also effective.
At the same time as Lisa and Central City gave notice of the deeds of assignment, Central City, as the assignee, demanded payment of the sum of $1,725,000 by 8 May 2015.[145]
[145] TB 183A, 183B.
Once express notice in writing of an assignment of a debt is given to the debtor then, the assignee obtains the legal right and the legal remedy to the debt.[146] Once there has been a perfected legal assignment any action must be in the name of the assignee.[147] The action in this case was properly brought in the name of Central City.
[146] McIntosh v Shashoua (1931) 46 CLR 494, 514.
[147] APT Finance Pty Ltd v Bajada [2008] WASCA 73 [29].
The court adjourned for 11 days after the completion of the evidence. On the evening before submissions were to be heard, the court received a letter from Lisa Scaffidi, consenting to be joined and to be bound by the outcome of the proceedings. Central City applied for Lisa to be joined as a plaintiff, apparently to meet a possible finding that the assignment was invalid so that relief could be sought on her behalf. I said that I would reserve on the question.
The application was confusing and ultimately, in my opinion, unnecessary. Because I have found the assignment was effective, the action was properly brought in the name of Central City as the assignee. Lisa Scaffidi is not a necessary party and I will not order that she be joined as a second plaintiff.

The vesting of property in Montevento Holdings

Central City's claim against Montevento Holdings is for a declaration, should Scaffidi Holdings be held personally liable, that Central City is subrogated to Scaffidi Holdings' right of indemnity from the assets of the trust.

The appointment of Montevento Holdings as trustee of the Scaffidi Family Trust in 2007 raises another issue addressed by Central City, but not directly by Montevento Holdings.
Central City submitted that, by s 5 of the Mercantile Law Amendment Act, Lisa (and Central City by assignment) was placed in the position previously occupied by PMFM for the purpose of enforcing Lisa's right to an indemnity. Notwithstanding the discharge of the Mortgage, Scaffidi Holdings continued to be bound by its obligations to perform the Mortgage.
Central City relied in particular on cl 56 of the Mortgage, the covenants given by Scaffidi Holdings as Covenantor Trustee. By cl 56.5, Scaffidi Holdings covenanted that while the money secured by the Mortgage remained unpaid, it would not do the things set out in that subclause without first obtaining the written consent of the Mortgagee. Those things included:
56.5.1appoint the whole or any part of the trust property, being property held now or hereafter held by the trustee for the time being of the Trust… to be held upon trust or within subject to the powers and provisions of any other settlement or trust in favour of or for the benefit of all or any one or more of the beneficiaries under the Trust Deed or any other person or persons or object or objects.
56.5.2cause to vest or distribute prior to the vesting day of the Trust the whole or any part of the Trust Property other than the income thereof.
56.5.4appoint or procure or consent to or concur in the appointment of any person, firm or corporation as a new or substitute or custodian trustee under the Trust Deed.
By cl 56.6:
That in the event that any substitute or custodian trustee may be appointed in respect of the Trust Deed, the Trust or all or any part of the Trust Property the Convenanto shall not vest or suffer to be vested in such new substitute or custodian trustee or part with all or any part of the Trust Property unless and until such new substitute or custodian trustee has entered into an executed a Deed of Covenant in favour of the Mortgagee in a form to be prepared by the Solicitors for the Mortgagee whereby such new substitute or custodian trustee shall covenant to be bound by and to perform and observe all of the terms covenants and conditions herein contained.
Central City submitted that those clauses enable the surety, standing in the position of the Mortgagee, to enforce her right to an indemnity and are aimed at ensuring that the trustee is bound to the terms of the mortgage or to prevent the assignment of trust property in a new trustee so as to defeat or frustrate the Mortgagee's ability to access the trust property pursuant to the trustee's right of indemnity exoneration.
Central City submitted that the effect is to operate as a contractual restraint on the assignment of trust property from Scaffidi Holdings to Montevento Holdings. To the extent that legal title of trust property may have been transferred in breach of cl 56.6, it may be entitled to relief to require retransfer. To the extent that property has not vested, Central City may be entitled to restrain any transfer.
The evidence currently before the court does not permit any finding as to whether Central City would require further relief. The present significance of this submission is that Central City contends that it is Scaffidi Holdings which is to determine whether it has a right of indemnity or exoneration out of the assets of the Trust.
The issues raised by this submission do not appear to require immediate resolution.

Conclusion

The claim by Montevento Holdings in CIV 2538 of 2014 will be dismissed.
The claim by Central City against Scaffidi Holdings in the consolidated action will be upheld. Central City is entitled to judgment against Scaffidi Holdings for $1,725,000. The claim for interest at the rate under the PMFM Mortgage is not pursued. I will hear from the parties about further relief including interest.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

MG
Associate to the Honourable Justice Allanson

21 MAY 2021

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   MONTEVENTO HOLDINGS PTY LTD -v- CENTRAL CITY PTY LTD [2021] WASC 154 (S)
CORAM:   ALLANSON J
HEARD:   ON THE PAPERS
DELIVERED          :   30 NOVEMBER 2021
PUBLISHED           :   30 NOVEMBER 2021
FILE NO/S:   CIV 2538 of 2014
BETWEEN:   MONTEVENTO HOLDINGS PTY LTD
Plaintiff
AND
CENTRAL CITY PTY LTD
Defendant

FILE NO/S: CIV 1682 of 2015
(Consolidated with CIV 1748 of 2016 by Orders dated 12 September 2016)

BETWEEN: CENTRAL CITY PTY LTD
Plaintiff
AND
MONTEVENTO HOLDINGS PTY LTD
First Defendant
SCAFFIDI HOLDINGS PTY LTD
Second Defendant

FILE NO/S: CIV 1748 of 2016
BETWEEN: CENTRAL CITY PTY LTD
Plaintiff
AND
MONTEVENTO HOLDINGS PTY LTD
First Defendant
SCAFFIDI HOLDINGS PTY LTD
Second Defendant

Catchwords:

Practice and procedure - Costs following trial - Whether successful party should bear own costs of particular issues - Whether successful party should recover costs for witness statements where witness not called at trial

Practice and procedure - Costs - Where defendant trustee resisting claim against liability incurred by former trustee - Where trustee did not seek directions of court before defending claim - Whether trustee's costs should be payable out of assets of trust

Legislation:

Legal Profession Act 2008 (WA)
Limitation Act 1935 (WA)
Rules of the Supreme Court 1971 (WA)
Supreme Court Act 1935 (WA)
Trustees Act 1962 (WA)

Result:

In CIV 2538 of 2014: The plaintiff to pay the defendant's costs

In the consolidated action: Special costs order made in favour of the plaintiff

Costs of the first defendant to be paid from the trust assets

Category: B

Representation:

CIV 2538 of 2014

Counsel:

Plaintiff	:	No appearance
Defendant	:	No appearance

Solicitors:

Plaintiff	:	Butcher Paull & Calder
Defendant	:	Hotchkin Hanly

CIV 1682 of 2015

(Consolidated with CIV 1748 of 2016 by Orders dated 12 September 2016)

Counsel:

Plaintiff	:	No appearance
First Defendant	:	No appearance
Second Defendant	:	No appearance

Solicitors:

Plaintiff	:	Hotchkin Hanly
First Defendant	:	Butcher Paull & Calder
Second Defendant	:	No appearance

CIV 1748 of 2016

Counsel:

Plaintiff	:	No appearance
First Defendant	:	No appearance
Second Defendant	:	No appearance

Solicitors:

Plaintiff	:	Hotchkin Hanly
First Defendant	:	Butcher Paull & Calder
Second Defendant	:	No appearance

Cases referred to in decision:

Bovaird v Frost [2009] NSWSC 917
Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic (No 3) [2017] NSWCA 109
Grizonic v Suttor [2011] NSWSC 471
Ludwig v Jeffrey (No 4) [2021] NSWCA 256
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66
Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572
Mills as trustee v Mills [2018] NSWSC 363
Montevento Holdings Pty Ltd v Central City Pty Ltd [2021] WASC 154
Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164
Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72
Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 (S)
Sino Iron Pty Ltd v Mineralogy Pty Ltd [2017] WASCA 76 (S)
Sons of Gwalia Ltd v Margaretic [2006] FCAFC 92; (2006) 232 ALR 119
Wales v Wales [2014] VSCA 101

ALLANSON J:

Introduction

These two matters were tried together.
Central City Pty Ltd was the successful party in each action, as defendant in CIV 2538 of 2014 and plaintiff in CIV 1682 of 2015 (consolidated with CIV 1748 of 2016). Montevento Holding Pty Ltd was unsuccessful in each action. Scaffidi Holding Pty Ltd, the second defendant in CIV 1682 of 2015, did not participate in the trial.
Central City now applies for orders that Montevento pay its costs of both actions, to be taxed if not agreed. In CIV 1682 of 2015 it seeks a special costs order.
Each application raises different issues. I will first set out the general principles to be applied and will then deal with each case separately.

General principles

The costs of and incidental to all proceedings in court are in the discretion of the court: Supreme Court Act 1935 (WA) s 37(1). The discretion must be exercised judicially, but it is otherwise unconfined.[148] While the discretion to award costs cannot be shackled, and considerations which might guide the exercise of the discretion cannot be rigidly applied, the Rules and the authorities offer guidance and help to ensure consistency in the exercise of judicial discretion.
[148] See, for example Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [21] ‑ [22], [134]; Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 [24] - [25].
While it is expressed to not limit the general discretion conferred on the court, the general rule in O 66 r 1 of the Rules of the Supreme Court 1971 (WA) is that the court will generally order that the successful party to any action or matter recover their costs.[149]
[149] See Northern Territory v Sangare [25].
Order 66 r 1(2) provides an exception to the general rule:
(2)If the Court is of opinion that the conduct of a party either before or after the commencement of the litigation or that a claim by a party for an unreasonably excessive amount has resulted in costs being unnecessarily or unreasonably incurred it may deprive that party of costs wholly or in part, and may further order him to pay the costs of an unsuccessful party either wholly or in part.
While a successful party might be deprived of all or part of their costs, or even ordered to pay all or part of the costs of the other side, there should be some reason for departing from the general rule that the successful party should be compensated for the costs they have incurred.
There are further well recognised principles that guide the court's discretion in cases involving trustees or a trust estate or fund.[150] By O 66 r 9(2):
Where a person is or has been a party to any proceedings in the capacity of trustee … he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by the trustee …; and the Court may otherwise order only on the ground that the trustee, personal representative or mortgagee has acted unreasonably, or in the case of a trustee or personal representative, has in substance acted for his own benefit rather than for the benefit of the fund.
[150] See, for example, Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 (S).

CIV 2538 of 2014

Montevento claimed that Scaffidi Holdings, as trustee, loaned $1,800,000 to Central City on terms that the loan was 'repayable on demand'.[151] Montevento claimed that it is the current Trustee in whom the trust property has vested, and that Central City was indebted to it for the outstanding balance of the loan.
[151] Montevento also claimed a second loan of $10,000. The main issue, understandably, concerned the greater sum.
The primary issue was whether the loan was repayable on demand. I found that it was not.
Montevento pleaded that the loan agreement should be inferred from a range of matters including a written Heads of Agreement made on or about 26 June 2001 by which Scaffidi Holdings agreed to enter into a contract for the sale of the Railway Hotel to Central City for a purchase price of $1,800,000; the transfer of the Railway Hotel for a recorded consideration of $1,800,000; and that Central City did not pay that consideration on transfer or at any time.
Central City denied or did not admit much of the claim pleaded in the statement of claim. It further pleaded that the action in relation to each loan was commenced more than six years after each loan was repayable and was barred by s 38 of the Limitation Act 1935 (WA).
In an amendment to the defence in 2017, Central City also pleaded that the development of the Railway Hotel was carried out in a joint venture. The effect of the Heads of Agreement was that Scaffidi Holdings was not entitled to recover the capital value of its initial contribution to the joint venture (the $1,800,000) other than in accordance with an agreed manner for the distribution of the funds, revenue, income and profits of the joint venture.
Relevantly, I held that the Heads of Agreement pleaded by Montevento disclosed an intention that the payment of the consideration for the transfer of the Railway Hotel land would be deferred to other obligations arising out of the proposed development.[152] It was not a loan repayable on demand.

The costs submissions

[152] Montevento Holdings Pty Ltd v Central City Pty Ltd [2021] WASC 154 [108].

Montevento did not dispute that the court should make an order for costs in favour of Central City.
Montevento submitted that there are circumstances justifying a departure from the general rule that it pay the whole of Central City's costs, and that Central City ought to bear its own costs of:
(1)the action between March 2015 and March 2017; and
(2)preparing witness statements for use at the trial.
Montevento did not identify any particular costs that were unnecessarily or unreasonably incurred by reason of Central City's conduct of the action to March 2017, but submitted that Central City should bear all of its own costs up to that time.
Montevento further submitted that Central City should not be compensated for any costs associated with putting Montevento to proof of its valid appointment as trustee of the Scaffidi Family Trust.
Montevento's submissions in relation to costs for the period from March 2015 to March 2017 relied on the fact that it was only on 16 March 2017, by amendment to its defence, that Central City pleaded an affirmative defence based on the Heads of Agreement.
Montevento also submitted that it was appropriate for it to commence and maintain the action from 2014 to 2017 based on its understanding of the Heads of Agreement. Whether it was appropriate for Montevento to commence and maintain the action is not the point.
The first question is whether the conduct of Central City before 2017 is a sufficient reason to justify a departure from the general rule that the successful party should recover its costs.
I am not satisfied that Central City's conduct of the action before the amendment in March 2017 resulted in all costs incurred before that date being unnecessarily or unreasonably incurred. Although Central City's initial defence was that the loan was repayable on demand and subject to a limitation defence, it was always necessary for Montevento to prove not only the loan but the terms on which it was made. The subsequent defence, pleading the Heads of Agreement, did not alter that.
In opposing an order for costs, Montevento has not identified any particular item of costs that was incurred as a result of the way in which the proceedings were initially conducted.
Second, I am not satisfied that the costs of preparing witness statements can be regarded as costs unnecessarily or unreasonably incurred. The previous regime for evidence in chief to be adduced by witness statement required a party to prepare statements for use at trial should that party seek to call the author as a witness. The three witness statements filed by Central City put Montevento on notice of the factual case it would have to meet should Central City seek to rely on other than documentary evidence. The practice of adducing evidence by witness statement always contemplated that a witness may not be called, even though a statement had been prepared. Having reviewed Central City's statements for the purposes of this application, I believe their preparation was a reasonable step in preparing this matter for trial. It was only at trial (after counsel's opening) that Central City elected not to call oral evidence.
The last matter raised by Montevento is the cost of proving it was the trustee of the Scaffidi Family Trust.
Montevento pleaded, in its statement of claim at [1] and [2], that it was appointed trustee of the Scaffidi Family Trust by deed poll dated 18 February 2009 and, by operation of s 10(1) of the Trustees Act 1962 (WA), the assets of the Trust vested in it on 18 February 2009. Central City did not admit those allegations.
The question of Montevento's position as trustee was also raised in the consolidated proceedings, where Central City pleaded in its statement of claim that the appointment of Montevento as trustee of the Scaffidi Family Trust was not admitted.
In opening, counsel for Central City said that its position had not been made clear on the pleadings. The pleading, however, was quite clear: Central City did not admit the valid appointment of Montevento as trustee or that the trust property had vested in it as trustee. The contention that the trust property had vested subject to Scaffidi Holdings' right to be indemnified out of the trust property was pleaded as an alternative.
The issue for determination at trial, as clarified by counsel for Central City in his opening, was the alternative contention: that the trust property had vested in Montevento subject to equities.
The plea not admitting the valid appointment of Montevento or the vesting of the trust property could not have been sustained. But Montevento did not apply to strike out the plea, and did not issue a notice to admit. It was not necessary for me to determine whether Central City's plea was an abuse of process because, as the issues were clarified, the question fell away.
Montevento's submission that Central City should not be compensated for any costs associated with putting Montevento to proof may have had substance if there were something before the court to demonstrate some identifiable costs arising out of the non-admission. But the appointment of Montevento and the vesting of the trust property were established on the documents. I am not satisfied that Montevento has shown that there are some separate identifiable costs related to Central City's conduct.
In summary, I am satisfied that, as the successful party, Central City should have its costs of the action.

CIV 1682 of 2015

Montevento submitted that there should be no costs order as between Central City and Montevento, and that its costs be paid out of the trust. As in CIV 2538 of 2014, Montevento submitted that Central City should not have the costs of preparation of the witness statements.
Central City sought a special costs order for three items under the relevant costs determinations.
I will not exclude the costs of preparation of witness statements, for the reasons given earlier.
The pleaded claim in this action was deceptively simple, and much of the factual background was not contested.[153]
[153] See [122] - [129].
Central City claimed that, in October 2007, Lisa Scaffidi repaid a debt incurred by Scaffidi Holdings (as principal debtor), and is entitled to be indemnified by Scaffidi Holdings. Central City brought the action as assignee of the debt due and payable by Scaffidi Holdings to Lisa.
The action alleged that Scaffidi Holdings was personally liable for the amount claimed. Central City also sought a declaration that it is entitled to be subrogated to Scaffidi Holdings' right of indemnity from the assets of the Scaffidi Family Trust, on the basis that Scaffidi Holdings incurred the liability, which Lisa Scaffidi repaid, in the proper performance of its duties or exercise of its powers as trustee of the Trust.
Montevento Holdings was joined as the present Trustee.
Most of the factual matters in contest were resolved on the documents, in particular the financial records of Scaffidi Holdings Pty Ltd (during the period when it was the trustee of the Scaffidi Family Trust).

The special costs order

The principles applicable to a special costs order pursuant to s 280(2) of the Legal Profession Act 2008 (WA) are now well established.[154] The threshold question is whether, in the court's opinion, the amount of costs allowable under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter.
[154] See, for example, Sino Iron Pty Ltd v Mineralogy Pty Ltd [2017] WASCA 76 (S) [11] - [16].
Having presided over the trial, while there were times when I felt the Central City overcomplicated the matter, I am satisfied that it was complex. Central City was required to address multiple issues arising out of the assignment of the claim, the dispute regarding the authenticity of one signature on the mortgage, and (in particular) the limitation issues where the claim was based on the subrogation of Central City to rights under the mortgage following repayment of the mortgage sum.
In support of its application for special costs orders, Central City relied on the affidavit of Adam Joseph Taylor, solicitor, sworn 6 July 2021. Mr Taylor's evidence was directed to the number of hours that might reasonably be allowed for the three specified costs items. Having regard to that evidence, and my experience as the trial judge, I am of the opinion that a taxing officer may find the costs allowable under the relevant determinations is inadequate because the complexity of the matter required more time than the determinations provide.
Accordingly, I will make the following orders:
The taxing officer, in taxing Central City's bill of costs, is to make reasonable allowances for the following items and without regard to the hourly limits imposed under the relevant legal costs determinations, in relation to:
a.Preparation of the statement of claim (item 1(c));
b.Giving discovery (item 7(b)); and
c.Preparation of case (item 18).
Although Central City sought a general order that costs be taxed without regard to the scale limits (not apparently listed to hourly limits but also to practitioners' rates), it did not adduce any evidence to demonstrate inadequacy in rates. I confine the order to the hourly limits.

The costs of the Trustee

The final issue arises on Montevento's submission that no costs order should be made against it in the consolidated action because it participated solely as trustee of the trust.
The action in CIV 1682 of 2015 was commenced against Scaffidi Holdings. On 12 September 2016, orders were made consolidating CIV 1682 of 2015 and CIV 1748 of 2016. Scaffidi Holdings was granted leave not to participate further in the proceedings other than on the issue of discovery and inspection and on the issue of costs. Montevento, as the current trustee, acted as the contradictor and Scaffidi Holdings did not participate.
The general rule in s 71 of the Trustees Act is that a trustee may reimburse itself for or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers. Consistently with s 71, O 66 r 9(2) provides that unless otherwise ordered, a trustee shall 'be entitled to the costs of ... proceedings, in so far as they are not recovered from or paid by any other person, out of the [trust] fund'. Under O 66 r 9(2), the court may only order otherwise where the trustee has acted unreasonably, or for his or her own benefit rather than for the benefit of the trust.
In Miller v Cameron[155] Latham CJ said, 'as a rule, a trustee is allowed his costs out of the trust estate if his conduct has been honest, even though it may have been mistaken. In the ordinary case a trustee brings or contests legal proceedings on behalf of the trust and not on his own behalf'. In Sons of Gwalia Ltd v Margaretic, in setting out the principles upon which costs are awarded in cases involving trustees, Finkelstein J referred to the class of case described as a 'third party dispute':
This is a dispute between the trustees and persons, otherwise than in their capacity as beneficiaries, in respect of rights and obligations assumed or incurred by the trustees in the course of administering the trust. Examples are actions in contract or tort. Here again as between the parties the costs are borne by the unsuccessful party. The trustees will be entitled to look to the estate for their costs (or any shortfall in their costs) only if the action is 'properly brought or defended for the benefit of the trust estate': Alsop Wilkinson (a firm) v Neary[1996] 1 WLR 1220, 1224. Commonly, a cautious trustee will seek a Beddoe order (In reBeddoe; Downes v Cottam[1893] 1 Ch 547) authorising him to bring or defend an action.[156]
[155] Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 578 - 579.
[156] Sons of Gwalia Ltd v Margaretic[2006] FCAFC 92; (2006) 232 ALR 119 [10].
Montevento did not apply to the court pursuant to s 62 of the Trustees Act for advice whether it was justified in defending the consolidated action. It may have been prudent for it to seek directions. An application for judicial advice is not directed only to the personal protection of the trustee but has 'another and no less important purpose of protecting the interests of the trust'.[157]
[157] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 [72] (Gummow ACJ, Kirby, Hayne and Heydon JJ).
In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar, the plurality said of the equivalent provision in New South Wales that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings.[158]
[158] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar [74].
That passage has been subsequently explained, most recently in Ludwig v Jeffrey (No 4), where Emmett AJA said:
… the High Court should be understood as saying no more than that it would be prudent for a trustee to seek judicial advice before commencing or defending proceedings. However, there is no legal obligation to do so. The rationale for doing so is to avoid an argument at the end of the day as to whether it was reasonable to commence and prosecute the proceedings or to defend the proceedings.[159]
[159] Ludwig v Jeffrey (No 4) [2021] NSWCA 256 [84] (Meagher JA and Brereton JA agreeing), and see Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic (No 3) [2017] NSWCA 109 [42], Bovaird v Frost[2009] NSWSC 917 [32]; Wales v Wales [2014] VSCA 101 [85] - [87] ; Grizonic v Suttor [2011] NSWSC 471 [60]; Mills as trustee v Mills [2018] NSWSC 363.
The following matters are, in my opinion, relevant to this issue.
First, there is no suggestion that Montevento was representing its own interests and not that of the trust estate. Although, up to the date of trial, Central City did not admit that Montevento was validly appointed as trustee of the trust, and pleaded that the trust property had not vested in Montevento, those matters had been established by earlier decisions and were not properly in issue in this action.
Second, the powers of the trustee under the deed of trust for the Scaffidi Family Trust included power to 'take such action as the Trustee shall think fit for the adequate protection of any part or parts of the Trust Fund'.[160] The Trustee was 'entitled to be indemnified out of the assets for the time being comprising the Trust Fund against liabilities incurred by the Trustee in the execution or attempted execution … Of the trust authorities powers and discretions here of or by virtue of being the trustee here of…'.[161]
[160] Trial Bundle, 1655.
[161] Trial Bundle, 1663.
Third, there was no allegation against Montevento of impropriety. The claim related solely to liabilities incurred by Scaffidi Holdings before the appointment of Montevento.
Fourth, Central City claimed to be entitled to be subrogated to Scaffidi Holdings' right of indemnity from trust property, claiming relief that included an order appointing a receiver over the assets of the Trust for the purpose of realising the Trust property to satisfy Scaffidi Holdings' liability to Central City plus interest and costs. As trustee, Montevento had a direct interest in preserving trust assets for the benefit of all beneficiaries.
Although Central City ultimately succeeded at trial, Montevento did not act unreasonably in defending the action. It could have sought directions under s 62 of the Trustees Act, but the failure to so does not disentitle it, as trustee, from being indemnified for the costs it incurred.
Central City submitted that an order is not appropriate and should not be made without all beneficiaries of the Trust having been given notice of, and the right to be heard in relation to, Montevento's application for costs from the trust. It submitted that the making of a costs order may circumvent the beneficiaries' rights to make a claim against Montevento alleging that it acted unreasonably in the proceedings and should bear its own costs of acting in this way.
I am not dealing with a claim between the beneficiaries and Montevento, but addressing the issue of costs orders following trial. On the basis of s 37 of the Supreme Court Act and O 66, it is within the court's discretion to make an order for the costs of the trustee to be paid out of the trust fund. I am satisfied that Montevento did not act unreasonably and that it is the proper order to make.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

MG
Associate to the Honourable Justice Allanson

30 NOVEMBER 2021