Permanent Custodians v Petrovska
[2015] VSC 42
•20 FEBRUARY 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2013 00081
| PERMANENT CUSTODIANS LIMITED | Plaintiff |
| v | |
| MILEVA PETROVSKA | Defendant |
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JUDGE: | DIXON J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 18 FEBRUARY 2015 |
DATE OF JUDGMENT: | 20 FEBRUARY 2015 |
CASE MAY BE CITED AS: | PERMANENT CUSTODIANS v PETROVSKA |
MEDIUM NEUTRAL CITATION: | [2015] VSC 42 |
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PRACTICE AND PROCEDURE – third party procedure – default by third party – application by defendant to enter judgment against third party following settlement of principal proceeding with plaintiff – plaintiff’s judgment not satisfied – leave required – factors influencing discretion considered – ss 7,9 Civil Procedure Act 2010, r 11.11(1) Supreme Court (Civil Procedure Rules) 2005.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Hay | Gadens |
| For the Defendant | Mr MR Pearce SC with Ms SC Bailey | LN Christie & Co |
HIS HONOUR:
The defendant is the sole proprietor of land at 83 Roseleigh Boulevard, Sydenham. The land was mortgaged to the plaintiff as security for a loan of $262,500 advanced under a written loan agreement dated 14 March 2008. The loan fell into arrears. The plaintiff gave notice to the defendant under s 76 of the Transfer of Land Act 1958 and the mortgage, requiring the default to be remedied, which was not complied with. The plaintiff now seeks possession of the land.
The defendant refused to surrender possession of the land on the ground that the mortgage was granted to the plaintiff by reason of the plaintiff’s unconscionable conduct in that the transaction was improvident for the defendant and funds advanced under the loan agreement went to third parties. The third parties were the defendant’s son, Tony Petrovska, daughter in law, Melissa Tzountzourkas, and her father, Trajan Tzountzourkas. The plaintiff’s loan advance was used to refinance earlier loans also allegedly made for the benefit of the third parties. The defendant alleged that Mr Tzountzourkas received 79 percent of the funds advanced and the remaining 21 percent of the advance benefitted the defendant’s son and daughter in law.
By a third party proceeding, the defendant sought orders that Mr Tzountzourkas indemnify her in respect of 79 percent of her liability to the plaintiff, and that Mr Petrovska and Ms Tzountzourkas indemnify her in respect of 21 percent of her liability to the plaintiff and such further or other relief as the court may consider appropriate. The third parties did not appear to the third party notice to contest the defendant’s allegations and the third party proceedings have remained in abeyance.
When the principal proceedings came on for trial, the plaintiff informed the court that the parties had agreed a compromise. That compromise was documented in a confidential deed of settlement which, by agreement of the parties, was tendered by the defendant as a confidential exhibit. Consequent on the deed of settlement, the plaintiff sought the following orders, which were made by consent:
(a)The plaintiff recover from the defendant possession of all that piece of land contained in Certificate of Title Volume 10682 Folio 792 situated at 83 Roseleigh Boulevard, Sydenham in the State of Victoria.
(b)The defendant pay the plaintiff the sum of $275,000.
(c)There be judgement for the plaintiff on the defendant’s counterclaim.
(d)Pursuant to r 28.05(2)(a) of the Supreme Court (General Civil Procedure) Rules 2005, the settlement deed between the Plaintiff and the Defendant is to remain confidential to those parties and, to give effect to that order, the deed must be placed in an envelope marked “confidential” and must not be inspected or copied by any person without leave of the court.
The defendant then applied for orders in the third party proceedings. Announcing that for reasons I would later publish, I made the following orders:
(a)The defendant has leave to enter judgment and judgement is hereby given:
(i)against the first and second third parties that they indemnify the defendant in respect of 21% of her liabilities to the plaintiff under this judgment; and
(ii)against the third third party that he indemnify the defendant in respect of 79% of her liabilities to the plaintiff under the judgment.
(b)The defendant has leave to enforce her judgment against the third parties before she satisfies the judgment against her in favour of the plaintiff
(c)The first and second third parties shall pay the defendant 21% of her costs of and incidental to:
(i)the third party claims;
(ii)defending the claim against her by the plaintiff; and
(iii)the counterclaim by her against the plaintiff.
(d)The third third party pay the defendant 79% of her costs of and incidental to:
(i) the third party claims;
(ii) defending the claim against her by the plaintiff; and
(iii) the counterclaim by her against the plaintiff.
I now state my reasons for making those orders in the third party proceeding.
The third party notice was issued on 28 October 2013. It was personally served upon each third party on 28 or 29 October 2013 after the relevant third party identified him or herself by admission. I am satisfied that each third party was properly served.
None of the third parties has appeared. The defendant’s solicitor has sworn that no third party served a notice of appearance on his firm and that inquiries made of the Prothonotary’s office confirmed that none of the third parties had filed a notice of appearance with the court. Inspection of the court file, which was in court, confirmed that the advice given to the defendant’s solicitor by the Prothonotary’s office was accurate.
Rule 11.11(1) of the Supreme Court (General Civil Procedure) Rules 2005 states the consequences that may follow on a default by a third party at the time judgment is entered or given for the plaintiff against the defendant by whom the third party was joined. The rule states:
11.11 Default by third party
(1)Where at the time any judgment is entered or given for the plaintiff against the defendant by whom the third party was joined the third party has not filed an appearance or after appearance has not served a defence, and the time limited for filing an appearance or serving a defence has expired—
(a) the third party—
(i)shall be taken to admit any claim stated in the third party notice; and
(ii)shall be bound by the judgment between the plaintiff and the defendant insofar as it is relevant to any claim or question stated in the notice;
(b)the defendant may at any time after satisfaction of that judgment or, with the leave of the Court, before satisfaction, enter judgment against the third party—
(i)for any contribution or indemnity claimed in the notice; and
(ii)with the leave of the Court, for any other relief or remedy claimed therein.
In the circumstances, I am satisfied that each third party has failed to file an appearance to a third party notice that was properly served and that the time for filing that appearance has expired. By force of the rule, each third party is taken to admit the claims made in the third party notice that each of them promised to indemnify the defendant in respect of any moneys owing to the plaintiff under the loan agreement, Further, the third parties are bound by the judgment entered this day between the plaintiff and the defendant insofar as it is relevant to the claims made in the third party notice. That judgment fixes the debt due to the plaintiff.
For good reason, the defendant seeks to enter judgment against each third party for the indemnity claimed in her third party notice against them respectively before satisfaction by her of the plaintiff’s judgment. As the rule makes clear, the defendant requires the leave of the court to do so.
I was also referred to r 11.14. That rule is consistent with r 11.11 in it operative effect but applies in slightly different circumstances. That rule has no application in the present circumstances. It applies when judgment is sought or when leave to execute the judgment prior to satisfaction of the plaintiff’s judgment is sought at the trial of the third party proceeding or on its determination otherwise than by trial after an appearance and a defence have been filed by the third party. No appearance having been filed, r 11.11 is the applicable rule.
Counsel’s researches, which I was assured had been extensive, failed to discover any authority discussing the discretion in the court to grant leave for judgment to be entered and enforced prior to satisfaction of the plaintiff’s judgment against the defendant. The discretion conferred by r 11.11(1)(b) is not constrained by the terms of the rule.
On this application, the following considerations appear relevant to the discretion to be exercised:
(a)the nature of the claims made by and the relief granted to the plaintiff against the defendant;
(b)the nature of the claims made by and the relief granted to the defendant against the third parties;
(c) the circumstances in which each of those claims for relief was made;
(d)whether the plaintiff could or would be prejudiced if leave was granted for execution of a third party judgment before satisfaction of the plaintiff’s judgment;
(e)whether the defendant would be prejudiced if not permitted to seek satisfaction of a judgment against a third party prior to satisfying the plaintiff’s judgment against her;
(f)the terms of any particular or special agreement between the plaintiff and the defendant;
(g)the matters to which the court’s attention is drawn by s 9 of the Civil Procedure Act 2010.
In English and Scottish Trust Co v Flatau[1] the plaintiff sought recovery of a debt against the members of a firm. Summary judgment was signed against all defendants except one who obtained leave to defend on bringing the whole sum into court. That defendant, who had been indemnified against liability for the debt by his partners, sought leave to sign judgment against his co-defendants upon their agreement to indemnify him. The application was referred to AL Smith and Charles JJ, each of whom identified the relevant consideration to be whether the plaintiff would be prejudiced by the order sought. Charles J distinguished an ordinary suretyship contract from the express contract of indemnity alleged on the basis that under the latter, money need not necessarily have been paid before action was brought. An entitlement to sue upon a special bargain arose as soon as the plaintiff showed legal liability.
[1][1888] 36 WR 238.
The question of prejudice is decisive on the present application. The plaintiff has not submitted, or suggested by evidence, that it would suffer any prejudice if leave were granted. The settlement between the plaintiff and the defendant is not conditional on the defendant obtaining or enforcing any judgment against the third parties. The plaintiff stands independent from all dealings between the defendant and the third parties under its settlement with the defendant. The plaintiff has agreed a sum for discharge of its mortgage and a time for its payment. In default it will have the benefit of judgment for possession of its security and interest will commence to run. The plaintiff’s position is unaffected, whether or not I grant leave to enforce third party judgments.
Respecting the confidentiality of the parties’ settlement, I will not set down in these reasons a detailed analysis of the terms of the deed of settlement and, in any event, for my purposes it is unnecessary to do so. I need only note a few salient features. The plaintiff has agreed not to enforce the orders in its favour prior to a defined date. By so forbearing, the defendant has an opportunity to pay the sum fixed by the orders and obtain a discharge of the plaintiff’s mortgage and the return of a clear certificate of title to her. The security property is her home. Issues raised in the proceeding included that the transaction was improvident for the defendant who lacked, and continues to lack, the financial resources to repay the loan other than by sale of the mortgaged property. By this compromise, the defendant has obtained a real commercial opportunity to retain her home.
I am satisfied that best advantage is taken of that opportunity if leave is granted to permit the defendant to enter, and execute, judgment against the third parties before satisfaction of the plaintiff’s judgment. If leave was not granted, the plaintiff would be prejudiced by the loss of opportunity to reap the benefit of her bargain.
This basis is sufficient for the court to grant the defendant the leave sought, but there are other, more general, considerations that also favour leave being granted that I will mention.
Concerning the circumstances in which the claims arose, the defendant’s allegations about the circumstances that led to the current mortgage over her home in favour of the plaintiff have not been disputed by the third parties. The undisputed allegations are that it was the third parties that negotiated each of the relevant loans and refinancing transactions and who took all of the funds advanced by those loans. The third parties did so by encouraging the plaintiff to accept their undisputed oral promises to indemnify her in respect of those loans. It appears that for some years the third parties serviced the loans, which encouraged the plaintiff to accept restatements of earlier promises to indemnify her on the occasions when the loans were refinanced.
These circumstances demonstrate that it is just that the defendant have the opportunity to recover the debt from the third parties in order to pay out the plaintiff under the deed of settlement. Further, the repeated promises of the third parties to indemnify the defendant against the debt due to the plaintiff under the loan agreement constitute a particular or special agreement that has not been disputed by the third parties. The quantum of that debt has been fixed by the deed.
That leave may properly be granted in these circumstances is supported by the terms of the Civil Procedure Act 2010. The overarching purpose of the rules of court in relation to civil proceedings is to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute. That purpose may be achieved by agreement between the parties or through appropriate dispute resolution processes. The court is required to seek to give effect to the overarching purpose in considering whether to grant the leave sought. I am satisfied that in the present circumstances, the following objectives are supported by granting leave:
the just determination of the proceeding
the public interest in the settlement of disputes by agreement between parties
the efficient conduct of the business of the court
the efficient use of judicial and administrative resources
In considering the objectives identified by the Act, I have had regard to the endeavours of the parties to resolve their dispute by agreement, to the question of prejudice and to the extent to which the parties, particularly the defendant, have had the benefit of legal advice and representation. These considerations all favour leave being granted to the defendant to enforce the third party judgments prior to satisfaction of the plaintiff’s judgment.
The defendant also seeks the costs of defending the plaintiff’s claim against her and of prosecuting her counterclaim. I will allow this claim. Those costs were incurred in resisting the claim upon which the third parties’ liability depended and if the defence or the counterclaim had succeeded the third parties would have had the benefit of it.[2] Appropriately, the defendant’s claim for costs against the third parties is apportioned on the same basis that the loan funds were allocated between them.
[2]Gerson v Simpson [1983] 2 KB 197, 203.
The defendant’s counsel also drew my attention to s 23B(4) of the Wrongs Act 1958 that governs an entitlement to recover contribution to a payment made in settlement or compromise of a claim. Relevantly, I am satisfied after considering the submissions put by the defendant’s counsel as to the risks that she faced in the proceeding, and from a careful review of the pleadings and the deed of settlement, that the settlement was entered into by the defendant in good faith. Counsel’s frank assessment of the defendant’s risks of failure in her defence and counterclaim, expressed primarily in discharge of his duty to the court, need not be set out in these reasons.
Finally, counsel drew my attention to the rule that requires that an application of this kind - an application for judgment in default of appearance - is ordinarily made to an associate judge. Rule 77.03(2)(d) authorises an application that is ordinarily made to an associate judge to be made to a judge at the trial of a proceeding. That is what occurred and it is unnecessary at this stage that I grant special leave to the defendant to make this application to the court rather than to an associate judge.
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