PD Mortgage Services P/L v DB Quinlan

IN THE SUPREME COURT
OF QUEENSLAND

No. S 11339 of 1997

Brisbane
Before Mr Justice Ambrose
[PD Mortgage Services P/L v DB Quinlan & Ors]
BETWEEN PD MORTGAGE SERVICES PTY LTD
ACN 065 740 847
Plaintiff

AND DB QUINLAN PTY LTD
ACN 010 898 101
First Defendant

AND  DANIEL BRIAN QUINLAN
  Second Defendant
AND  GLEN ELLEVSEN
  Third Defendant
AND  ANJAVU PTY LTD
ACN 010 178 793
Fourth Defendant

AND DENNIS GREGORY CUPPITT
Fifth Defendant

REASONS FOR JUDGMENT - B.W. AMBROSE J.
Delivered the 23rd day of September 1999

This is an application by the first, second and third defendants (“the defendants”) for an order that the plaintiff give security for costs in this action.
The defendants also applied for an order striking out the action but the day before that application was to be heard were provided with material which has persuaded them not to pursue that application - at least until after production of documents by the plaintiff. It is unnecessary and it would be unhelpful to analyze the long submissions made with respect to the defendants’ strike out application which seem to have been directed more to the question of the appropriate order for costs on that application which was adjourned to a date to be fixed than it was to its merits - or lack of them - because the defendants made it quite clear that they were taken by surprise with the material supplied to them the day before the application was to be heard and needed to await the production of documents within the possession of the plaintiff before they could confidently pursue their application to strike out.
I will confine my attention therefore to the defendants’ application that the plaintiff provide security for their costs of defending its action.
When the matter came on for hearing the plaintiff made an oral application for remission of the action to the District Court. Why the action was commenced in this Court was not explained - presumably it was through error of some sort. The quantum involved is clearly well within the jurisdiction of the District Court where there is pending another action involving the same amount of money which could conveniently be heard with this action.
The case is an unusual one and I will state the facts in issue briefly without an exhaustive analysis of the material read on this application.
The plaintiff is the practitioner’s nominee mortgagee company of a firm of solicitors, Purvis Duncan practicising in Brisbane.
That firm of solicitors received sums of money from investors (“contributors”) for the purpose of providing funds to borrowers on security of a “contributory mortgage” to be arranged by that firm or by one of its nominee companies.
It appears from the pleadings and argument that eight or nine contributors or investors paid money into the trust account of Purvis Duncan where it was held until there was a sufficient sum to lend to a purchaser of land named Quinn to assist in that purchase. Repayment of the loan was secured on that land.
The scheme pursuant to which this particular loan was effected apparently involved Purvis Duncan transferring moneys held in its trust account for the various contributors to its nominee mortgagee company which is the plaintiff.
The plaintiff then apparently procured valuations of the relevant land from the defendants before advancing the contributors’ money to be secured by contributory mortgage. Obviously as a matter of prudence it was desirable before making such an advance to take reasonable steps to ensure that the value of the land purchased was sufficient to secure adequately repayment to the contributory mortgagees of money lent on their behalf to finance that purchase.
It appears that the contributory mortgagees have been unable to recover all the moneys they advanced through their solicitors and their solicitors’ nominee mortgagee company because the property purchased through that nominee mortgagee company was of insufficient value to secure the moneys advanced.
Eight lender-contributors have instituted proceedings against Purvis Duncan in District Court Action 3639 of 1998 in Brisbane seeking, in effect, an indemnity for loss suffered by reason of the plaintiff’s advancing their money upon an inadequate security. Whether all persons who contributed to the loan made which is in issue have instituted proceedings is uncertain on the material.
The plaintiff however instituted Action No. S 11339 of 1997 in this Court against the defendants seeking damages for negligence and breach of contract for providing a negligent valuation of land upon which the plaintiff relied in lending money to the borrower Quinn to purchase the land.
It emerged on the application that neither the fourth nor fifth defendants are pursued by the plaintiff - one never having been served and the other having been wound up.
It is common ground between the plaintiff and the defendants that the plaintiff is a two dollar company. It is contended on behalf of the plaintiff that one may not infer that a two dollar company has insufficient assets to meet a defendant’s costs should it fail in its action merely because of that characterisation, and contends that in this case the defendants have failed to lead sufficient evidence to prove that the plaintiff is unlikely to be able to meet any order for costs which the defendants might recover should the plaintiff’s case against them fail.
In my view upon the whole of the material this contention is insupportable. Rule 87 of the Queensland Law Society Incorporated rules pursuant to which the plaintiff operates as the nominee company of Purvis Duncan for the purpose of arranging and taking contributory mortgages provides inter alia -
“Rule 87 (1) -
(2) -
(3)Where a practitioner’s nominee company holds any property as a nominee or trustee for another person a practitioner who is a member or director of that company shall not:
(a)permit any person to become a member or director of that company unless that person is a practitioner or other person first approved by the Council; or
(b)permit that company to undertake any other activity.”
Under Rule 87(2) “nominee” is defined -
“‘Nominee’ means a practitioner or practitioner’s nominee company in whose name a mortgage or contributory mortgage is held.”
In my view it is clear from the terms of Rule 87 that the plaintiff in this case to the extent that it holds any assets at all holds them on trust for contributors. Unless it has been acting in breach of the constraint imposed by Rule 87(3) it could not hold any assets except as trustee - either for the contributors in respect of the mortgage in issue or contributors in respect of other investment mortgage transactions.
So much clearly emerges from the terms of a letter from Purvis Duncan to the solicitors for the defendants dated 28 July 1999 which is Ex “JAB2" to the affidavit of the solicitor for the defendants. That letter states inter alia -
“As you are aware, the moneys which were subsequently advanced to the borrower were provided by contributories of PD Management Services Pty Ltd (PDMS). We enclose a copy of the list of contributories. PDMS then advanced these moneys to Mr Quinn as trustee of the contributories. We enclose a copy of our trust account ledger indicating that PDMS actually made the advance to the borrower.
PDMS is the mortgagee in relation to the moneys advanced, and therefore is the appropriate party to undertake legal action in relation to the advance. Of course, PDMS will have to account to the contributories in the usual way a trustee has to account to a beneficiary. However, it is still the trust which suffers the loss.
We would ask you, in the circumstances, to confirm that you accept PDMS is the correct plaintiff and desist with your application to strike out the pleadings.
Your letter of 30 June 1999 requests an indication of what security PDMS can give in relation to the costs your clients may incur. As PDMS is a trustee company we will seek from the contributories an indication of what security they will provide. We now propose to communicate with the contributories to ascertain what security they will provide. -- ”
It seems that the plaintiff as nominee company of the solicitors who currently act for it, proposes to require the contributors who are together suing those solicitors for negligence and breach of duty in the District Court to give security for the costs of the defendant valuers in this action in case it fails in its action against them.
Should the contributors be unwilling to secure the plaintiff’s liability to pay the defendants’ costs if it should fail, then unless Purvis Duncan were able to arrange security from some other source, the plaintiff’s action would simply be stayed.
From the pleadings in District Court Action No. 3639 of 1998 and the pleadings in this Action No. S11339 of 1997 it is clear that the nature of and basis upon which the valuation was given will be in issue as will be the duty owed by Purvis Duncan to the contributors in the circumstances. It would seem the only financial benefit obtained from the whole contributory mortgage exercise was that enjoyed by Purvis Duncan as a consequence of fees it received and perhaps those of a mortgage brokering company it also controlled earned for services it provided in effecting on behalf of the contributors, who now sue that firm, the “secure” investment of the funds they provided for that purpose.
It would obviously be desirable if the contributors’ action against Purvis Duncan in the District Court were heard with the action presently pending in this Court. Many of the witnesses called in each case will be the same.
The defendants do not oppose a transfer of this action to the District Court where presumably an application will be made by either Purvis Duncan or that firm’s nominee company the plaintiff, in this action, or perhaps by the plaintiffs in that District Court action to have both actions heard together. No argument was really addressed as to whether the plaintiff might be treated as merely the agent of Purvis Duncan which was used really only for the purpose of complying with Rule 87 of the Rules of the Queensland Law Society Incorporated in conducting what essentially amounted to an investment business which presumably produced professional fees for that firm of solicitors. In any event, for whatever reason, the contributors in the District Court action have sued only Purvis Duncan and not its nominee company which on the papers is alleged to have been responsible for lending the contributors’ money to Quinn upon inadequate security.
In my view this action ought be transferred to the District Court in the hope that it will be heard with the District Court action presently pending and/or that steps will be taken in the District Court to ensure that all issues between the parties in District Court Action No. 3639 of 1998 and the parties in Action No. S11339 of 1997 in this Court are determined at the one time in the one court.
In my view the defendants ought not be put at risk of not recovering their costs against the plaintiff in this action should it be unsuccessful. Whether the plaintiff’s action be brought only for the benefit of the contributors as contended by its counsel or it be brought for the ultimate benefit of Purvis Duncan is an interesting question which it is unnecessary to determine.
It was contended on behalf of the plaintiff that I should simply adjourn the defendants’ application for security for costs to the District Court. However a great deal of material has been prepared for this application and much time spent and expense incurred in arguing it. In the circumstances to avoid the wasting of such time and money I have concluded that justice requires that I make an order in this Court rather than sending the application which has been fully argued here off to the District Court where it might be re-argued.
I order that the plaintiff give security for the defendants’ costs of this action which upon the whole of the evidence I fix in the sum of $50,000. I order that the plaintiff’s action be stayed pending the giving of such security in terms satisfactory to the Registrar of this Court. I order that such security be given within 28 days from today.
Upon the giving of such security to the satisfaction of the Registrar I order that this action be transferred to the District Court.
I order that the plaintiff pay the defendants’ costs of and incidental to this application for security to be taxed.
I adjourn the defendants’ application to the strike out the plaintiff’s action to a date to be fixed. I make no order as to the costs of that application but reserve that question to the District Court.
IN THE SUPREME COURT
OF QUEENSLAND
No. S 11339 of 1997
Brisbane
Before Mr Justice Ambrose
[PD Mortgage Services P/L v DB Quinlan & Ors]
BETWEEN                PD MORTGAGE SERVICES PTY LTD
ACN 065 740 847
Plaintiff
AND  DB QUINLAN PTY LTD
ACN 010 898 101
First Defendant
AND  DANIEL BRIAN QUINLAN
  Second Defendant
AND  GLEN ELLEVSEN
  Third Defendant
AND  ANJAVU PTY LTD
ACN 010 178 793
Fourth Defendant
AND  DENNIS GREGORY CUPPITT
  Fifth Defendant
REASONS FOR JUDGMENT - B.W. AMBROSE J.
Delivered the 23rd day of September 1999
CATCHWORDS:     COSTS - Security for - the plaintiff is a solicitors’ nominee mortgagee company - whether the plaintiff which is characterized as a $2 company should have to provide security for costs - consideration of the effect of Rule 87 of the Queensland Law Society Incorporated Rules on the likelihood of the plaintiff having money available to meet the costs given that the funds must be held on trust - whether the action should be transferred to the District Court
Queensland Law Society Incorporated Rules
Counsel:  Mr P Morrison QC, with him Mr M Bland for the plaintiff
Mr P McMurdo QC, with him Mr G O’Grady for the 1st, 2nd and 3rd   defendants
Solicitors:  Purvis Duncan for the plaintiff
Baker & Company for the 1st, 2nd and 3rd defendants
Hearing Date:5 August 1999

[1999] QSC 228

23 September 1999