Permanent Custodians Limited v Portland Terrace Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

S CI 2013 02021

PERMANENT CUSTODIANS LIMITED (ACN 001 426 384)	Plaintiff
v
PORTLAND TERRACE PTY LTD (ACN 127 057 747)	Defendant

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JUDGE:	DERHAM AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	2 October 2013
DATE OF JUDGMENT:	15 October 2013
CASE MAY BE CITED AS:	Permanent Custodians Limited v Portland Terrace Pty Ltd
MEDIUM NEUTRAL CITATION:	[2013] VSC 544

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PRACTICE AND PROCEDURE — Summary judgment by plaintiff — Recovery of debts due under loan agreements and recovery of possession of land given as security — Whether defaults under loan agreements established — Whether late production of Dobbs certificate overcomes disputes as to existence of defaults — Whether Dobbs certificate given bone fide — Counterclaim by defendants for anterior breach of loan agreements which partially bring about alleged defaults — Summary judgment refused and leave to defend given.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr SB Rosewarne	Ashurst Australia
For the Defendant	Mr S Palmer	Oakley Thompson & Co

HIS HONOUR:

Introduction

The plaintiff (PCL) applies for summary judgment against the defendant (Portland) in respect of claims made for the recovery of loans made and secured over certain land.

The issues raised in the application are:

(a) whether the defaults upon which PCL relies to recover the moneys lent, and to recover possession of the land mortgaged as security for the loans, are defaults under the facilities;

(b) whether Portland’s counterclaim raises a viable claim; and

(c) whether a Dobbs certificate is valid and effectual to establish the defaults upon which PCL relied where otherwise they were arguably not defaults.

PCL contends that the defaults are available and give it rights to judgment and that there is no basis for the counterclaim. Portland answers that there has been no default, or at least that it is arguable that there has been no default, and there has been a breach of the loan facilities by PCL giving it rights to damages, that the loan agreement is still on foot and it is entitled to specific performance of it, or damages in lieu.

Summary of conclusions

The issues raised by Portland in relation to the existence of a default sufficient to ground recovery of the monies lent, and recovery of possession of the land mortgaged as security for the monies lent, and the efficacy of a Dobbs certificate, means that this is a case where there are matters to be investigated as to whether Portland has defaulted under the facilities. When that is combined with the facts in support of a counterclaim, it is clear that on the present material this is a proceeding which should go to trial, despite the liberalisation of the test for summary judgment effected by s 63 of the Civil Procedure Act 2010.

The Application

The specific relief PCL seeks is:[1]
[1]By summons filed on 11 July 2013.

(a) pursuant to s 63 of the Civil Procedure Act 2010 (Vic) (the CPA), r 22.02 of the Supreme Court (General Civil Procedure) Rules2005 (the Rules) and/or in the exercise of the Court’s inherent jurisdiction, judgment be entered for PCL against Portland for the sum of $2,576,520.82 (plus interest) and possession of the land situated and known as Lots 2, 5, 6, 8, 9 and S2/38 Richardson Street, Portland, Victoria, being the land more particularly described in Certificates of Title Volume 11214 Folios 177, 180, 181, 183, 184 and 188 (the Land); and

(b) the claims made by Portland in the counterclaim filed on 11 June 2013 be summarily dismissed pursuant to s 63 of the CPA, r 23.01 of the Rules or in the exercise of the Court’s inherent jurisdiction, alternatively, Portland’s counterclaim be struck out pursuant to r 23.02 of the Rules or in the exercise of the Court’s inherent jurisdiction.

Affidavits

PCL relies upon the affidavits of:

(a) Matthew Wayne Caddy sworn 11 July 2013; and

(b) Meredith Bennett sworn 17 September 2013 and 1 October 2013.

Portland relies upon the affidavits of:

(a) Gunter Wendt sworn 23 August 2013;

(b) Julian Michael Vagg sworn 1 October 2013; and

(c) Maxwell Herbert Deipenau sworn 2 October 2013.

Background

The primary affidavit of the PCL is that of Mr Caddy. The claims made in the Statement of Claim are reproduced in that affidavit, and it is sufficient to explain the claims by reference to his evidence of the facts and documents.

I note, however, that Mr Caddy is a member of McGrathNicol and is a registered liquidator. He holds a power of attorney for PCL given by Deed dated 12 March 2013.[2] Under that Power, Mr Caddy is authorised to take any step necessary to enforce the rights of PCL under the “Documents” (clause 2.1(c) of the Deed). The expression “Documents” is defined by Item 2 in Schedule 1 of the Deed to include the Agreements, Mortgage and Charge referred to in this proceeding.
[2]Exhibit MWC-1 to Mr Caddy’s Affidavit

Mr Caddy swears that he makes the affidavit from his own knowledge save where otherwise stated. He nowhere states otherwise in his affidavit. This is surprising as most of the matters to which he deposes are matters that, in the circumstances revealed in the affidavits of Portland, could not be within his personal knowledge. Nevertheless, with only minor exceptions, the facts and documents, which the affidavit purports to introduce into evidence, are admitted either in the defence and counterclaim or in the affidavits of Portland.

PCL’s Claims

On 18 October 2007, Statewide Secured Investments Limited (Statewide) agreed to lend $2,130,000.00 to Portland for the purpose of funding a property development on the Land. The loan was provided to Portland pursuant to the terms of a written application for finance dated 18 October 2007.[3]
[3]Exhibit MWC-3 to Mr Caddy’s Affidavit.

On about 30 April 2010, the rights and obligations of Statewide were ‘transferred’ to PCL.[4] Although there is no dispute about this transfer, it would appear to be based on a legal assignment by Statewide to PCL, with Banksia Mortgages Ltd (Banksia) as the manager, and to have been a result of the merger of Banksia Financial Group and Statewide. Notice of the ‘transfer’ was given to Portland by letter dated 27 May 2010.[5]
[4]Exhibit MWC-4 to Mr Caddy’s Affidavit.
[5]Exhibit MWC-4 to Mr Caddy’s Affidavit.

On 29 November 2011, PCL agreed to lend a further sum of $1,943,453.01 to Portland. The further sum was agreed to be lent pursuant to the terms of a written application for finance and letter of offer of finance dated 29 November 2011 (Letter of Offer) and a loan variation agreement dated 1 May 2012, both of which were signed and accepted by Portland (collectively, the Further Loan Agreement).[6]
[6]Exhibit MWC-6 to Mr Caddy’s Affidavit.

Under the Further Loan Agreement, interest was to be capitalised (up to an amount of $427,000), and loan funds were to be released on a progressive payments basis, based on the cost to complete as assessed by Banksia’s quantity surveyor. Special Condition 5, headed “Progress Payments” provides:

5.1Loan funds will be released on a progressive payment basis based on the ‘cost to complete’ as assessed by the Quantity Surveyor (QS). Any shortfalls in progress payments are the responsibility of Portland Terrace Pty Ltd.
5.2All reports are to be conducted by a Banksia appointed valuer/quantity surveyor and these will be at your cost. The cost of the QS reports will be drawn from the loan along with the progress payment drawings.
5.3A progress payment fee of $250 will apply to each draw down request. This fee will be deducted from the funds advanced for the progress payment.

There were many other conditions applying under the Letter of Offer. Relevantly for present purposes is a condition that Portland provide a satisfactory agreement/contract of sale of unit 13 in exchange for the purchaser’s property at 22 Richardson Street, Portland.

In order to better to secure the repayment of the loans, securities were granted by Portland as follows:

(a) A registered mortgage dated 1 May 2012 (registered number AJ787909A) over the Land (the Mortgage).[7]

(b) A General Security Deed dated 1 May 2012 under which Portland granted to PCL a fixed and floating charge over all its assets and undertaking (the Charge).[8]

[7]Exhibits MWC-7 and MWC-8 to Mr Caddy’s Affidavit.

[8]Exhibit MWC-10 to Mr Caddy’s Affidavit.

The provisions of the Mortgage relied on by PCL are clauses 8.1 and 9.1 of the Memorandum of Common Provisions, the relevant parts of which are set out or summarised in the Schedule to these reasons.

The provisions of the Charge relied on by PCL are clauses 8.1.2, 8.1.3, 9.1.5, 9.1.6 and 9.1.10, each of which are set out in the Schedule to these reasons. The principal provision initially relied on by PCL[9] to provide the basis for Portland’s default is a failure to comply with a demand for information under Charge clause 8.1.3. That clause required Portland to give to PCL “and any representative on demand the fullest information as to all matters relating to its business property and assets”.
[9]Towards the end of submissions, Counsel for PCL tendered a ‘Dobbs certificate’ and relied on that in lieu of the attempt to prove defaults. This is addressed later in these reasons.

That information was sought by letter dated 21 December 2012. PCL’s solicitors, (Ashurst Australia) wrote to Portland’s solicitors (Oakley Thompson & Co) and requested that Portland provide certain information pursuant to clause 8.1.3 of the Charge by no later than 14 January 2013. That information was:

(a) all documents relating to the expiration of a planning permit and confirmation that Portland is making an application to the relevant counsel (sic) to extend the permit;

(b) a copy of the agreement with the land owner with respect to Unit 13 as required by the Facility Terms;

(c) information pertaining to all lots sold or currently under contracts of sale as well as the status of marketing plan (sic) for Stage 2 and 3 of the project; and

(d) accounting records or information setting out the ability of Portland to repay the loan in the event that funding is provided and the project is completed.[10]

[10]Exhibit MWC-11 to Mr Caddy’s Affidavit.

There are some other features of the letter of 21 December 2012 by which the request for documents and information was made that need to be noticed. They are:

(a) The letter refers to a meeting that was held on 17 December 2012. It seems some issues were raised at that meeting because the letter goes on to address them and to address issues raised in a previous telephone conversation;

(b) By way of introduction, the letter noted that Ashurst act for the receivers and managers of Banksia Securities Limited (BSL) and for Banksia Mortgages Limited (BML) in relation to Portland. It was noted that PCL, as the lender on record, holds the relevant loans on trust for BML pursuant to a bare trust deed and BML holds the loans on trust for BSL. It was noted that whilst the receivers and managers’ appointment does not extend to BML (as BML is solvent), BML has agreed that the receivers should deal with the matter as BSL has the sole economic interest in it;

(c) In the meeting on 17 December 2012 a request for progressive payments under the Further Loan Agreement was raised by Portland as the letter goes on to reject any allegation that it, PCL, had breached its obligations under the agreement;

(d) It was explained that under the terms of the Further Loan Agreement, loan funds would be released on a progressive payment basis on the “cost to complete” as assessed by the quantity surveyor, and that the claims are processed within a month, subject to the terms of the loan and security documents being complied with by the borrower;

(e) Ashurst also note that they are instructed that progress claim No. 8 was dated 12 October 2012 and sent to John Neale (a former Banksia employee). On 31 October 2012, “Ashurst’s clients” received a letter from Horseforce Legal which stated that the quantity surveyor was due to attend the site but cancelled due to uncertainty over payment of his services. On 7 November 2012 “Ashurst’s clients” contacted the quantity surveyor and confirmed that payment for his services would be covered and the quantity surveyor advised that no other money was outstanding. It was Ashurst’s understanding that the quantity surveyor attended the project site the following week;

(f) On 26 November 2012 progress payment claim No. 9 was received for processing. Upon a progress payment being received an internal review of the loan was undertaken in the normal course. Their clients were aware of circumstances which gave rise to serious concerns as to the ability of Portland to repay its loan on completion of the project in the event that further funding was provided;

(g) Further, at the meeting Portland confirmed that it was allowing the planning permit to expire. It was said that BML could not provide funding to a project whereby any further construction would be in breach of planning law;

(h) That Portland has confirmed that the builder is no longer completing works. It was noted that any continued stay of the construction of the project will constitute a cessation of Portland’s business on the secured property; and

(i) Portland has failed to provide any agreement satisfactory to PCL which details the arrangements with respect to Unit 13 and the land owner of the lots to be 17, 18 and 19 as required under the terms of the Loan Agreement. Without this agreement, PCL cannot properly assess its position with respect to the Secured Property including but not limited to the further funding of construction on the property which does not form part of BML’s security as required by the Facility terms.

PCL’s letter of 21 December 2012 was apparently sent by mail but not received by Portland until 7 January 2013. On 14 January 2013, Portland’s solicitor, Mr Vagg, telephoned Ms Meredith Bennett of Ashurst (one of the signatories to the letter) and told her that Portland had previously provided all of the documents that were requested to Banksia. He swears that he said to Ms Bennett:[11] “I understand that you act for the external administrators and they will have received all of the files”. Ms Bennett replied, according to Mr Vagg, “Well, according to my instructions we don’t have them”. Mr Vagg responded, “You do. But as a matter of courtesy, I will ask my clients to give me copies again and I will forward them through to you”.
[11]Mr Vagg’s affidavit 1 October 2013 at [3].

Mr Vagg swears that Ms Bennett rang him on 18 January 2013 to follow up the discussion of 14 January. Mr Vagg told her that he had received some copy documents, but that Mr Wendt’s wife had suffered a fatal stroke. Mr Vagg told Ms Bennett that he would contact his client’s accountant to chase up the rest of the documents, which he did. On 30 January 2013, Mr Vagg sent Ashurst a letter enclosing documents, and these are in exhibit MWC-12 to Mr Caddy’s affidavit.

Ms Bennett swears[12] that she has no recollection, and no file note, of a conversation between herself and Mr Vagg on 14 January 2013. She does recall a conversation on 18 January 2013 in which Mr Vagg indicated that he possessed some of the information requested in the letter of 21 December 2013, but not all, and that he was following up with his client’s accountant in relation to the balance of the information. In the course of that conversation, Mr Vagg informed her that Mr Wendt’s wife had passed away. She produced a file note of the conversation.
[12]Affidavit 17 September 2013 at [3].

PCL claims that Portland failed to provide all of the requested information and documents by 14 January 2013.[13] Portland, denies this and maintains that it did not fail to provide all of the information and documents requested in PCL’s letter of 21 December 2012. In particular, it says –
[13]Paragraph 16 of Mr Caddy’s Affidavit.

(a) Portland successfully made application for extension of the planning permit. The permit was extended for a period of two years and is still current. PCL was advised of this on 30 January 2013;

(b) A copy of the agreement with the land owner with respect to Unit 13 on the property was provided to PCL on 30 January 2013; and

(c) That information regarding all lots sold or under contracts of sale and the status of marketing was provided to PCL between 15 December 2011 and 17 January 2012.

After Ashurst received the letter of 30 January 2013, and its enclosures, Ashurst wrote again on 15 February 2013 in response noting that the documents enclosed with the letter of 30 January were provided over two weeks after the requested date and were incomplete, in that Portland failed to provide: [14]
[14]Paragraph 15 of Mr Caddy’s Affidavit and exhibit MB-4 to the Second Bennett Affidavit.

(a) Any information pertaining to all lots sold or currently under contracts of sale as well as the status of marketing plan (sic) for Stage 2 and 3 of the project; or

(b) Any accounting records or information setting out the ability of Portland to repay its loan in the event that funding is provided and the project is completed.

The letter went on to assert that Portland had breached clause 8.1.3 of the Charge and all rights were reserved in relation to that breach. After making further complaints about the adequacy of the information given, the letter went on to request that Portland provide, no later than 8 March 2013, the information referred to above that had not been included with the 30 January 2013 letter.

Mr Vagg wrote back on 19 February 2013 saying that PCL has copies of all pre-sale contracts and has been provided with all of Portland’s accounts. He noted that since Portland’s builder ceased work following the appointment of an external controller to Banksia Securities Limited and PCL’s subsequent breach of the loan in failing to make payments thereunder, no marketing had been undertaken.

PCL claims that Portland failed to provide the requested information by 8 March 2013.[15] Portland disputes this, relying on the letter from Mr Vagg of 19 February 2013. Ms Bennett (of Ashurst) has searched for, but cannot locate any copy of the letter of 19 February 2013.
[15]Paragraph 19 of Mr Caddy’s Affidavit.

Meanwhile, another sequence of correspondence was passing between the parties commencing with a letter of 20 December 2012. By that letter Mr Vagg wrote to PCL on behalf of Portland pointing out that PCL had ceased making advances under Portland’s Facility in breach of the Further Loan Agreement. The letter complains that as a result of the breach, Portland’s building contractor has ceased to work, construction costs have increased, the project has been delayed and additional project expenses have been incurred, resulting in Portland suffering loss and damage. The letter went on to allege that the breach constituted an act of repudiation of the Further Loan Agreement which may be accepted by Portland, but Portland reserved its rights. Other allegations were made, which are not presently relevant.

By letter dated 14 January 2013, Ms Bennett of Ashurst responded to the letter of 20 December 2012. The allegation of breach of the Further Loan Agreement was rejected.

By letter dated 13 March 2013, PCL gave Portland written notice pursuant to s 76 of the Transfer of Land Act 1958 (Vic) (the TLA) (the Section 76 Notice) in reliance on the following defaults:[16]
[16]Exhibit MWC-14 to Mr Caddy’s affidavit.

(a) Failing to provide information as to matters relating to its business property;

(b) Ceasing to carry on the business carried on the mortgaged property;

(c) Failing to provide documents evidencing that Portland holds the licences and permits to continue the development of the Property;

(d) Failing to demonstrate that it is able to meet its debt, including repayment of the balance of the Loan; and

(e) GST refunds have not been received.

In submissions before me, Mr Rosewarne, Counsel for PCL, relied only on the failure to provide information.

By the Section 76 Notice, PCL demanded that Portland pay to it by 20 March 2013 the whole of the amounts owing under the Further Loan Agreement, and unless it did so PCL may exercise its power of sale pursuant to the Mortgage and pursuant to s 77 of the TLA.[17] The Notice was delivered to the Defendant by courier on 13 March 2013.[18]
[17]Exhibit MWC-14 to Mr Caddy’s Affidavit.
[18]Paragraph 21 of Mr Caddy’s Affidavit.

By letter dated 19 March 2013, Portland (through its lawyers) responded to the Section 76 Notice as follows:

We refer to your letter of 13 March 2013. Our client maintains its position as set out in our letter to your client of 20 December 2012. Accordingly, your client’s purported notice pursuant to section 76 of the Transfer of Land Act 1958 is invalid.
We are informed that a valuation of the above property was recently obtained by your client. Would you kindly provide us with a copy of the report by return email so that our client can determine whether or not refinancing the property is a realistic option.
Our client reserves its rights.[19]
[19]Exhibit MWC-15 to Mr Caddy’s Affidavit. The letter of 20 December 2012 is exhibit MB-2 to the First Bennett Affidavit.

Portland’s Defence and Counterclaim

In its defence and counterclaim dated 11 June 2013, Portland:

(a) Admits entry into the loan agreements and the securities the subject of the proceeding; and

(b) Admits PCL has advanced the sums claimed in the proceeding to Portland.

The issue raised by Portland in its defence and counterclaim, in opposition to the relief sought by PCL, is that it was not in default under the terms of the Further Loan Agreement, the Charge or the Mortgage: see paragraphs 12, 15 and 16 of the defence and counterclaim.

Portland counterclaims that:

(a) There were terms of the Further Loan Agreement that PCL would make the further advances provided for under that agreement by progressive payments, based on the ‘cost to complete’ as assessed by a quantity surveyor (under special condition 5 referred to above in paragraph 14);

(b) On or about 19 November 2012, it submitted a claim for a progressive payment (progressive payment claim No. 9) for the sum of $95,924;

(c) On 26 November 2012, that claim was approved by a quantity surveyor appointed by Banksia;

(d) In breach of the Further Loan Agreement, PCL failed to advance to Portland that payment, in consequence of which completion of the construction of the Portland Terrace Development has been delayed;

(e) By reason of that delay Portland has suffered and continues to suffer loss and damage;

(f) Portland is ready, willing and able to complete the Further Loan Agreement; and

(g) Portland is therefore entitled to specific performance of that agreement, or damages in lieu.

(Paragraphs 24–31 of the defence and counterclaim.)

Mr Wendt swore that information regarding all the lots sold or under contracts of sale and the status of marketing was provided to PCL between 15 December 2011 and 17 January 2012. He says that Portland had not obtained or prepared any further marketing plans for Stages 2 and 3 of the development as it did not intend to do so until all lots in Stage 1 had been sold. He exhibits some correspondence to corroborate these assertions.

Mr Deipenau swore that Portland had sold seven lots from Stage 1 of the development and that each contract of sale had settled and the proceeds of sale were paid to Banksia, who attended settlement and provided discharges of mortgage. Banksia was advised of each sale as it was made. He says that Banksia was aware that there were five lots in Stage 1 that had not sold, and that there were no pre‑sales for Stages 2 and 3. The five lots in Stage 1 that remained unsold had been passed in at auction. He says he had a number of telephone conversations with Mr John Neale of Banksia and that it was agreed that until Stage 2 infrastructure had been completed there was no point in engaging agents to conduct a new marketing campaign. He says that in breach of the Further Loan Agreement, Banksia ceased making progress payments for works as a result of which it was not possible to market any lots after October 2012.

Mr Deipenau swore that Mr Wendt requested financial information from Banksia in May 2012 to enable Portland to commence preparing its financial statements for the financial year ending 30 June 2012. He says Banksia failed to provide the information requested and, in consequence, Portland had to reconstruct its accounts. The reason, it seems, that it was necessary to get this information from Banksia was because rental for some of the units that had been completed and rent was paid directly to Banksia, as Banksia had required. Mr Deipenau exhibited a variety of correspondence relating to the dealings between Portland and Banksia during 2012.

PCL’s submissions

PCL submitted that the request for information by letter dated 21 December 2012 had not been responded to, as required, by 14 January 2013 and that was a default sufficient to warrant and underpin the notice of default, relying on clause 8.1(e) of the Mortgage.[20] In those circumstances, it was entitled to call up the whole of the loan advance and to give notices under s 76 and 77 of the TLA.
[20]That clause of the Memorandum of Common Provisions incorporated in the Mortgage is set out in the schedule to these reasons.

PCL also submitted that Portland conceded:

(a) It did not advise PCL that the planning permit for the property had been extended until 30 January 2013;

(b) It did not provide PCL with a copy of the agreement with the land owner with respect to Unit 13 until the same date; and

(c) That at no stage did Portland provide the further information requested by PCL.

In consequence, Portland failed to comply with clause 8.1.3 of the Charge and was in default. PCL is therefore entitled to possession of the mortgaged property and for judgment for the debt due under the Further Loan Agreement: see National Australia Bank Ltd v Lawrence.[21]
[21][2011] VSC 556 at [39]-[40].

Towards the end of his oral submissions, Mr Rosewarne tendered on behalf of PCL, without objection, a copy of a certificate pursuant to cl 21.3 of the Charge dated 2 October 2013. The certificate was not provided in the ordinary way (by affidavit) and was given by a Mr Michael Sloan, of Ashurst Australia, solicitor of the Secured Party, being PCL. It would seem that this was an attempt to overcome the disputes about whether there was a default under clause 8.1.3, which could be relied upon under clause 9.1.6. The main text of the certificate is set out in the Schedule.

Clause 21.3 of the Charge is a Dobbs certificate provision[22] and is set out in the Schedule to these reasons. In the certificate, it was certified, in effect, that –
[22]Dobbs v National Bank of Australasia Limited, (1935) 53 CLR 643.

(a) Portland is in default under the Facility (as defined in the Charge) (cl 9.1.5 of the Charge);

(b) Default has been made by Portland in performance or observance of a covenant conditional or provision binding on it under the Charge and under a prior Security Interest, and that default was not remedied within three days after notice, specifying the default and requiring Portland to remedy it, had been given (cl 9.1.6 of the Charge);

(c) Portland is in default under the terms of any security guarantee or other covenant or assurance given to PCL to further secure the repayment of the moneys secured (cl 9.1.10 of the Charge); and

(d) The total amount due to PCL by Portland under the Facility as at 1 October 2013 is $2,687,308.86.

The certificate goes on to state that it is final, binding and conclusive evidence of the events of default and the amounts due.

Portland’s submissions

Portland submitted that:

(a) The request in the letter of 21 December 2012 for information was couched in vague terms and requested information already in the possession of PCL;

(b) The letter was sent just before Christmas 2012 and was not received until 7 January 2013;

(c) On 14 January 2013 the solicitors for PCL were advised by Portland’s solicitor that Banksia, the mortgage manager, had already received the information but further copies relating to categories (a) and (b) would be provided;

(d) Although PCL had requested information pertaining to all lots sold or currently under contract of sale and the status of the marketing plan, there was no such information, or the information such as there was had already been given to PCL;

(e) The request for accounting records or information “setting out the ability of Portland to repay the moneys advanced in the event that funding was provided and the project was completed” was outside the scope of that which the mortgagee was entitled to demand under the terms of the Facility;

(f) In addition to the request being vague, it involved assumptions, and asked for projections which were likely to require the preparation of new documents which Portland was not required to do. PCL already had in its possession documents in support of the application for finance, valuations and the quantity surveyor’s reports;

(g) The terms of the Facilities should be construed contra proferentem. If PCL wanted to impose a specific request it could have done so. PCL could have, but did not seek, to have access to the books and records of Portland;

(h) PCL has not given any explanation for not advancing further funds in consequence of progress claim No. 9 approved on 26 November 2012, and produces no evidence, nor any submission to challenge the counterclaim; and

(i) The Dobbs certificate was not issued bona fide.

Summary Judgment – Applicable law

Section 63 of the Civil Procedure Act, provides:

(1)Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.
(2)A court may give summary judgment in any civil proceeding under subsection (1):
(a) on the application of a plaintiff in a civil proceeding;
(b) on the application of a defendant in a civil proceeding;
(c)on the court's own motion, if satisfied that it is desirable to summarily dispose of the civil proceeding.

Rule 23.01 of the Rules relevantly provides:

(1)       Where a proceeding generally or any claim in a proceeding:
(a)       does not disclose a cause of action;
(b)       is scandalous, frivolous or vexatious; or
(c)       is an abuse of the process of the Court,
the Court may stay the proceeding generally or in relation to any claim or give judgment in the proceeding generally or in relation to any claim.

The Court of Appeal in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (“Lysaght”)[23] recently reviewed the test to be applied in relation to summary judgment applications made pursuant to s 63 of the CPA. The Court observed:
[23][2013] VSCA 158.

Upon the present state of authority:
(a)the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
(b)the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel;
(c)it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or found to fail, it does not have a real prospect of success;

at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.[24]

[24]Warren CJ at Nettle JA at [35] (Neave JA at [36] agreeing).

Part 4.4 of the CPA liberalises the rules governing summary judgment in Victoria, so that it is easier to dispose of unmeritorious claims or defences summarily. In Lysaght the Court of Appeal also stated that the test:

[S]hould be construed as one of whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success; that the ‘real chance of success’ test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test; and that, as the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent’s case is not ‘hopeless’ or ‘bound to fail’, it does not have a real prospect of succeeding.[25]

[25]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158 at [29] per Warren CJ and Nettle JA (Neave JA agreeing).

In addition to the usual cautious approach to summary judgment applications noted by the Court in Lysaght, it is also important to note that the power must be exercised in accordance with the overarching purpose of the Act, and taking into account the fact that, if granted, a party will be deprived of the chance to pursue its claim or defence.[26]
[26]Ibid, at [42] per Neave JA).

If there is no real prospect of success, a court may nevertheless allow a matter to proceed to trial if:

(a) it is not in the interests of justice to summarily dispose of the proceeding (s 64(a)); or

(b) the dispute is of such a nature that only a full hearing on the merits is appropriate (s 64(b)).

Whether a proceeding should be allowed to go to a full hearing on the merits must be determined according to the circumstances of each case: Barber v State of Victoria.[27]
[27][2012] VSC 554 at [15].

The Dobbs certificate

PCL submits that the certificate of 2 October 2013 tendered in evidence (without objection) established both the default upon which the recovery of possession of the Land depended, and the quantum of the loan amount due under the Further Loan Agreement.

I was referred to the decision of Croft J in Bank of Western Australia Ltd v Abdhul.[28] In that case, a number of preliminary questions were raised for the determination of the Court, including whether on the proper construction of a certificate provision, certificates given were sufficient evidence of the amounts payable by each of the defendants to the plaintiff as certified. In the course of answering this question, Croft J reviewed the law relating to such certificates, and accepted the following principles:[29]
[28][2012] VSC 222.
[29]Ibid at [17].

(a) It is not necessary to rely on a certificate. A provision for a certificate merely provides a ready means of establishing indebtedness;

(b) The principle in Dobbs is evidentiary in operation. It facilitates proof of a material fact and thereby operates as an exception to the general rule in adversarial litigation that it is for the party alleging a material fact, when that fact is put in issue, to prove that fact;[30]
[30]Malika Holdings Pty Ltd v Stretton (2001) 204 CLR 290 at 292-3, [5] (Gleeson CJ).

(c) The purpose of a provision for a certificate is to enable the establishment of the indebtedness of a customer to a bank both expeditiously and finally;[31]
[31]Dobbs v National Bank of Australasia Limited (1935) 53 CLR 643, at 651 (Rich, Dixon, Evatt and McTiernan JJ). See also State Bank of New South Wales v Chia (2000) 50 NSWLR 587 at 609, [252] (Einstein J).

(d) The effect of the certificate is to determine the incidence of burden of proof as to the matters permitted by the certificate;[32]
[32]Deputy Federal Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 at 184. See also Heydon, Cross on Evidence (8^th ed) at [7185].

(e) In recognising the effect of certificates of this kind, the courts are simply giving effect to the contractual bargain struck between the parties;

(f) Nothing in Dobbs confines its operation to clauses expressed in the same or substantially identical terms to the clause providing for a certificate which was considered in that case; as is demonstrated by the application of the same approach to certificates used in an unrelated context;[33] and

(g) The principal task of the Court is always to construe and to give effect to the terms of the particular clause providing for such a certificate.

[33]South Australian Railways Commissioner v Egan (1973) 130 CLR 506 at 531-532.

It is, in addition, appropriate to add some further observations about the decision of the High Court in Dobbs v National Bank of Australia Ltd, as follows:

(a) The clause in that case was contained in a guarantee. It provided that a certificate “stating the balance of principal and interest due to you by the customer shall be conclusive evidence of the indebtedness at such date of the customer to you”. The reference to “you” is to the Bank;

(b) The plurality[34] held that the clause meant that, for the purpose of fixing the liability of the surety, the customer’s indebtedness may be ascertained conclusively by the Certificate. In response to the submission that upon its true construction the clause did not make the certificate conclusive of the legal existence of the debt but only of the amount, their Honours held that:
[34]Rich, Dixon, Evett and McTiernan JJ.

It is not easy to see how the amount can be certified unless the certifier forms some conclusion as to what items ought to be taken into account, and such a conclusion goes to the existence of the indebtedness. Perhaps such a clause should not be interpreted as covering all grounds which go to the validity of the debt; for instance, illegality, a matter considered in Swan v Blair.[35] But the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an enquiry upon legal evidence into the debits going to make up the indebtedness. The clause means what it says, that a certificate of the balance due to the Bank by the customer shall be conclusive evidence of his indebtedness to the Bank.
[35](1835) 3 Cl & Fin 610 at 632, 635, 636; 6ER 1566 at 1574, 1575 and 1576.

(c) In Deputy Federal Commissioner of Taxation v Richard Walter Pty Ltd,[36] Mason CJ referred to Dobbs in the context of a statutory conclusive evidence provision (s 177 of the Income Tax Assessment Act 1936) and observed that:

A conclusive evidence provision would not ordinarily be regarded as ousting jurisdiction or interfering with the exercise of judicial power. That is because a provision of that kind usually does no more than attach definitive legal consequences to an act, transaction or instrument. However, it would be very different if an attempt were made to give conclusivity to a document or certificate which was in its terms determinative of the very issue for determination in a pending case.[37]

[36](1995) 183 CLR 168 at 184.
[37]Ibid at [27].

Consideration
The Defaults

Putting the Dobbs certificate to one side for a moment, there is a serious question to be tried as to whether there is a default under clause 8.1.3 of the Charge by Portland failing to provide the information requested or demanded by PCL’s solicitors’ letters of 21 December 2012 and 15 February 2013. There is a serious question to be tried because-

(a) Clause 8.1.3 of the Charge, under which the demands purport to be made, relates to the keeping by Portland of its books of account, and other documents relating to its business, open for inspection by PCL and, in that context confers the right on PCL to demand the fullest information as to all matters relating to its business;

(b) Whether it is construed contra proferentem, or not, there is a respectable argument that a reasonable time would, as a matter of law, be required to be given to Portland to respond to a demand under that clause before default occurs;[38]
[38]See Bunbury Foods Pty Ltd v National Bank of Australia Ltd (1984) 153 CLR 491 at 502-4. Although this case, and the authorities referred to in it, concern a demand for immediate payment of a secured debt, there is no reason why the principles are not equally applicable to a demand for information in relation to which a failure to meet gives rise to a default and a right to resort to the security.

(c) Given the Christmas period, the apparent fact that the letter was sent by post rather than electronically and did not arrive until 7 January 2013, and that it specified a date 7 days later for compliance, there is a reasonable argument that the time allowed was not reasonable. The provision of such information as was given by letter dated 30 January 2013 is arguably not therefore a breach of the clause;

(d) In any event, clause 8.1.3 is ambiguous, and it is at least arguable that it should be construed contra proferentem. It is ambiguous because it could mean that Portland must give to PCL ‘on demand” the information requested. Does that mean immediately? Does it mean within a reasonable time? What is a reasonable time after demand under the Charge in the circumstances of this case? Is the information as to the matters there mentioned to be specified generally or specifically? There may be other questions as to the meaning of the clause; and

(e) There are genuine disputes over whether the further demand by letter dated 15 February 2013 was met and/or had previously been met, or was genuinely demanded as referred to above.

The Dobbs certificate

The Dobbs certificate is one which, in very general terms, purports to certify that default has occurred under each of clauses 9.1.5 and 9.1.6 of the Charge. The certificate does not set out what that default is and, arguably, what the event of default is.

Clause 21.3 of the Charge specifies what the certificate may certify. Sub-clause 21.3(2) is the relevant sub-clause. So far as relevant, it requires the certificate to certify as to the occurrence of any event mentioned in clause 9. Clause 9 provides, in substance, that the security under the Charge shall become enforceable, and the monies secured by the Charge shall become immediately due and payable on the happening of any one or more of the following events, namely –

(a) if Portland makes default under the Facility (the financial accommodation given pursuant to the Further Loan Agreement);

(b) if default is made by Portland in the performance or observance of any covenant condition or provision binding on it under the Charge and that default is not remedied within three days after notice is given.

The certificate purports to certify that an event specified in clause 9 has occurred by certifying that –

(a) Portland is in default under the Facility; and

(b) a default has been made by Portland in the performance or observance of a covenant condition or provision binding on it under the Charge.

Is the certification of those supposed events conclusive evidence in the light of the evidence adduced prior to the production of the certificate?

It is arguable that the certificate does not have that effect. The circumstances in which the Dobbs certificate was produced (namely towards the end of argument and after the identification of disputes as to the existence of a default) raises an inference that the objective of producing the certificate was to determine the very issue raised for determination in the application for summary judgment. In a sense, this may always be the object of a Dobbs certificate given by a Bank or other lender to establish the existence of a debt in a recovery action. It may be, however, that what Mason CJ was referring to in the Richard Walter case was the determination of an issue of the kind raised in this case, namely, as to the existence of a default under a covenant in loan documentation which was in dispute. The determination of a question of this kind by the late production of a Dobbs certificate is arguably not an appropriate basis upon which summary judgment should be given.

That this is the correct conclusion at this stage is more evident when the certificate is analysed both as to its effectiveness on its face, and in light of the evidence.

In relation to clause 2(a)(i) of the certificate, the facts reveal that the only default under the facility is the failure to meet the demand for payment of the principal sum, interest and all other amounts payable under the Further Loan Agreement pursuant to the section 76 Notice.[39] But the right to give that notice turns on an anterior default existing. The events referred to in the section 76 Notice and relied upon by the plaintiff were –
[39]See exhibit MWC-14 to Mr Caddy’s affidavit.

(a) The failure to provide information pursuant to clause 8.1.3 of the Charge. I have already referred to the submissions that mean there was arguably no breach of this covenant;

(b) Ceasing to carry on the business carried on the mortgaged property. That default is countered by the claim by Portland that by breaching its obligation to make progressive payments under the Further Loan Agreement, PCL has brought about that cessation of business;

(c) Failing to demonstrate that Portland is able to meet its debts including repayment of the balance of the loan. This seems to be based upon the last paragraph of the information requested by letter dated 21 December 2012. That was met by the proposition that PCL already had all of the materials available to Portland and was affected by the very same breach by PCL of its alleged obligations to make progressive payments; and

(d) that GST refunds have not been received. No reliance was placed upon this item. Indeed it could not even be explained what it concerned.

Although the certificate does purport to identify an event within clause 9.1.5, namely a default under the Facility, that event is itself dependent upon an anterior event, being default under clause 9.1.6 which, in turn, depends upon breach of the covenant in clause 8.1.3 by failing to give to PCL, on demand, the information requested in the letters of 21 December 2012 and 15 February 2013.

In relation to paragraph 2(a)(ii) of the certificate, no event mentioned in clause 9.1.6 is certified. The certificate merely asserts a default has been made in the performance or observance of a covenant condition or provision. It is arguable, that what the certificate must certify is an event of the kind covered by clause 9.1.6 and this the certificate does not do.

Similarly, clause 2(a)(iii) of the certificate purports to certify that an event occurred as identified in clause 9.1.10 of the Charge. That clause is also set out in the Schedule to these Reasons. It is arguable, in my view, that by certifying in very general terms that there is a default ‘under the terms of any security guarantee or other covenant or assurance given’ to PCL ‘to further secure the repayment of the monies hereby secured or any part thereof’, does not specify any event within the meaning of clause 21.3 of the Charge.

The final element certified is the total amount due under the Facility, being $2,687,308.86. Upon a fair reading of the terms of the certificate, it is reasonably clear that the certification of the amount due does not bring with it a certification of the anterior defaults that give rise to the amount becoming due. This is evident from the separate certification of the defaults and the wording at the end of the certificate that distinguish between the certification of the defaults and the amount due.

Was the Certificate Given Bona Fide?

The circumstances of the making of the demands pursuant to clause 8.1.3 of the Charge by the letters of 21 December 2012 and 15 February 2013 also raise the question whether they were calculated to produce a default in the circumstances where PCL had itself already breached the terms of the Further Loan Agreement by failing to make a progress claim in response to claim no. 9.

The sequence of events leading up to the sending of the letter of 21 December 2012, as described in the letter (particularly the refusal to make the progress claim), the fact that it is the Receivers and Managers of Banksia Securities Ltd who act under the Power of Attorney for PCL and instruct Ashurst, the substance of the conversation alleged by Mr Vagg on 14 January 2013 (particularly the absence of the material said already to be on the files of Banksia)[40] and the responses of Portland to the requests for information, give rise to the inference that the requests for information may have been calculated to give rise to a default on which PCL could rely to recover the whole of the outstanding loans and recover possession of the Land.
[40]See paragraph 21 above.

Whether, in these circumstances, the giving of the certificate is a bona fide exercise of the power in clause 21.3 of the Charge is another reason the summary judgment should not be given on the faith of the present certificate.

The Counterclaim

There is clearly a legal and factual dispute as to whether or not PCL is contractually bound to make progress payments in accordance with special condition 5 of the Further Loan Agreement. Whether PCL has breached the Further Loan Agreement in this respect also affects its ability to rely upon the alleged default where those defaults are a consequence of PCL’s breach. This particularly applies to the alleged default of ceasing to carry on business on the mortgaged property.

PCL submitted that it is impossible for Portland to pursue its counterclaim if PCL establishes default under the Charge entitling it to call up the whole of the monies due and entitling it to possession of the Land. That was the basis upon which PCL submitted it is entitled to judgment on the counterclaim. Having regard to the disputes as to the existence of the alleged defaults, and the arguments concerning the efficacy of the Dobbs certificate, it follows that the counterclaim should not be dismissed.

Conclusion

The issues raised in relation to both the existence of the default under clause 8.1.3 of the Charge, and the efficacy of the Dobbs certificate, mean that this is a case where there are matters to be investigated as to whether Portland has defaulted under either the Facility, being the Further Loan Agreement, or under the Charge, being defaults that PCL is entitled to rely upon to recover the loan monies and possession of the Land. When that is combined with the facts in support of the counterclaim it is clear that on the present material this is a proceeding which ought to go to trial.

Despite the liberalisation of the test for summary judgment effected by section 63 of the CPA, I do not consider that this is a case where the power to terminate the proceedings summarily should be exercised.

Accordingly, PCL’s summons will be dismissed and Portland will be granted leave to defend. This is a case where, prima facie, it is appropriate that the parties’ costs of the application should be costs in the proceeding.

Schedule

The Further Loan Agreement Provisions[41]
[41]Exhibit MWC-5 to Mr Caddy’s Affidavit.

Clause 3 of the Further Loan Agreement provides as follows:

3.1The Borrower may apply for and the Lender may make Further Advances to the Borrower. Each further advance:
(a)shall be added to the initial advance and bear interest; and
(b)shall be secured by each of the securities;

and the terms of this document shall apply to the further advances except to the extent that the terms are expressly excluded or modified in writing.
3.2Subject and in compliance with the terms of this document by the Borrower and there being no default under any of the Securities, the Lender shall advance any Further Advances in such amounts, at such times and in such manner as the Lender may determine.

The Mortgage Provisions

By clause 8.1 of the Memorandum of Common Provisions, it was provided that:

In this mortgage the expression “in the Event of Default” means on the happening of any one or more of the following events and the expression “Event of Default” means any one or more of the following events:
(e)default under other Agreement with the Mortgagee – the Mortgagor being in default under or failing to observe any term in any other agreement between the Mortgagor and the Mortgagee including any loan agreement, any guarantee and/or indemnity, and any other security document whatsoever.
(j)Business – the Mortgagor ceasing or threatening to cease to carry on the business (if any) carried on upon the Mortgaged Property.
(k)Business – the Mortgagor not carrying on the business (if any) upon the Mortgaged Property to the satisfaction of the Mortgagee.
(l)Financial – it appearing to the Mortgagee that the liabilities of the Mortgagor exceed the Mortgagor’s assets, that the Mortgagor is carrying on a business at a loss, or the further prosecution by the Mortgagor of its business might endanger this mortgage or its value to the Mortgagee.

By clause 9.2 of the Memorandum of Common Provisions the period for which the default specified in s 76 of the TLA must continue before service of the notice under that section is seven days and the period for which the default must continue after service of the notice before the exercise of the power of sale given by s 77 was specified also to be seven days.
The Charge Provisions

By clause 8.1, Portland covenanted with PCL that at all times during the continuance of the security it will:

8.1.2carry on and conduct its business and cause each of its subsidiaries to carry on and conduct their businesses in a proper and efficient manner and keep or cause to be kept proper books of account for it and for each subsidiary respectively and therein enter or cause to be entered full particulars of all dealings and transactions in relation to its business and that of its subsidiaries;
8.1.3keep or cause to be kept the books of account and all other documents relating to its business and that of each of its subsidiaries open for inspection by the Secured Party [PCL] and any representative authorised by the Secured Party in writing and will give to the Secured Party and any representative on demand the fullest information as to all matters relating to its business property and assets and those of each of its subsidiaries including (but without limiting the generality of the foregoing) stock lists in respect of the Grantor’s trading stock such stock lists to be certified by the Grantor and its accountants as correct and audited as to value;

by clause 9.1 it was provided:

The security hereby constituted shall at the option of the Secured Party become enforceable and without limiting the generality of the Secured Party’s rights under this Deed the moneys hereby secured shall at the like option become immediately due and payable on the happening of any one or more of the following events without the necessity for any notice or demand (unless otherwise required by this clause) namely:

9.1.5 if the Grantor makes default under the Facility; [the Facility is the financial accommodation given pursuant to the Further Loan Agreement].

9.1.6 If default (other than default covered by any other sub-clause of this clause) is made by the Grantor in the performance or observance of any covenant condition or provision binding on it under this Deed or under any prior Security Interest and such default is not remedied within three (3) days after notice specifying such default and requiring the Grantor to remedy the same has been given by the Secured Party or by or on behalf of the party empowered under such prior Security Interest;

9.1.10 If there is default under the terms of any security guarantee or other covenant or assurance given to the Secured Party to further secure the repayment of the monies hereby secured or any part thereof or if any such other security guarantee or other covenant or assurance becomes unenforceable for any reason whatever;

…
21.3The grantor agrees that a certificate given bona fide and under the hand of a Director officer employee solicitor or agent of the Secured Party and certifying as to:
21.3.1 the amount then due by the Grantor to the Secured Party;
21.3.2the occurrence of any event mentioned in clause 9 or the fact of the appointment referred to in clause 11;

21.3.3 the service of any notice required hereunder;
shall be conclusive and binding upon the Grantor.

Certificate pursuant to clause 21.3
1.Italicized terms used in this Certificate are defined in the General Security Deed dated 1 May 2012 (the Security Deed) having PPSR registration number 20120620089741 between the Grantor and the Secured Party and have the same meaning as in that deed.
2.Pursuant to clause 21.3 of the Security Deed, the Secured Party hereby certifies that:
(a)the following events specified in clause 9 of the Security Deed have occurred:
(i)the Grantor is in default under the Facility (clause 9.1.5 of the Security Deed);
(ii)a default has been made by the Grantor in the performance or observance a covenant (sic) condition or provision binding on it under the Deed and under a prior Security Interest and such default was not remedied within 3 days after notice specifying such default and requiring the Grantor to remedy the same has been given by the Secured Party (clause 9.1.6 of the Security Deed); and
(iii)the Grantor is in default under the terms of any security guarantee or other covenant or assurance given to the Secured Party to further secure the repayment of the monies hereby secured or any part thereof (clause 9.1.10 of the Security Deed); and

(b)the total amount due to the Secured Party by the Grantor under the Facility as at 1 October 2013 is $2,687,308.86.

3.This certificate is final, binding and conclusive evidence of:
(a) the events specified in clause 2(a) above;
(b)the amount due to the Secured Party by the Grantor under the Facility as at 1 October 2013.

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Citations

Permanent Custodians Limited v Portland Terrace Pty Ltd [2013] VSC 544

Cases Citing This Decision

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Cases Cited

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Statutory Material Cited

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National Australia Bank Ltd v Lawrence [2011] VSC 556

Dobbs v National Bank of Australasia Ltd [1935] HCA 49

Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158

[2013] VSC 544

15 October 2013