Rubytime Nominees Pty Ltd v Bottiglieri
[2011] VSC 678
•6 December 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 6431 of 2011
| RUBYTIME NOMINEES PTY LTD (ACN 005 194 883) | Plaintiff |
| v | |
| RICK BOTTIGLIERI & ORS | Defendant |
---
JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 December 2011 | |
DATE OF JUDGMENT: | 6 December 2011 | |
CASE MAY BE CITED AS: | Rubytime Nominees Pty Ltd v Bottiglieri & Ors | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 678 | |
---
CAVEAT – Warrant of seizure and sale – No proprietary interest in property flowing from judgment debt, therefore no grounds for caveat – Warrant futile due to prior secured creditors – Warrant and caveat to be removed – s 52 Transfer of Land Act 1958
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L P Wirth | T F Grundy Lawyer |
| For the First Defendant | In person | |
| For the Second Defendant | No appearance | |
| For the Third Defendant | No appearance | |
| For the Fourth Defendant | No appearance |
HIS HONOUR:
In this matter the plaintiff, Rubytime Nominees Pty Ltd has issued a summons on an originating motion dated 28 November 2011.
The first defendant is Mr Rick Bottiglieri, the second defendant is Cathy Sevenis the third defendant is the sheriff of the State of Victoria, and the fourth is the Registrar of Titles. Mr Bottiglieri appears in person. The second defendant does not appear. The affidavit of Mr Grundy, solicitor for the plaintiff, says that he understands that she is the domestic partner of the first defendant.
The plaintiff seeks orders that the warrant of seizure and sale obtained by the first and second defendants in proceeding number SCI 2011 04106 in respect of the property more particularly described in Certificate of Title volume 11082 folio 702 be removed from the Register of Titles; that the fourth defendant, that is the Registrar of Titles, do all things reasonably required to effect the immediate removal of the warrant of seizure and sale from the Certificate of Title in respect to the said property; the third defendant, being the sheriff, be restrained from conducting an auction of the said property pursuant to the warrant of seizure of sale; the first, second and third defendants be restrained from serving the warrant of seizure and sale on the fourth defendant; the defendants pay the plaintiff's costs on an indemnity basis; and such further other order as the court sees fit.
The plaintiff relies upon the affidavit of Terrence Francis Grundy sworn 29 November 2011. Mr Grundy says he is the solicitor for the plaintiff. He refers to an earlier affidavit that he swore on 28 November 2011. He says that since swearing that affidavit, it has come to his attention that the first defendant has lodged a caveat on the title to the property in question. He produces and exhibits a copy of the caveat together with a title search.
In the affidavit of 28 November 2011, Mr Grundy says that Rubytime seeks orders firstly for the removal by the Registrar of Titles in dealing numbers AJ126805D and AJ256824W of a warrant issued by the first and second defendants to the third defendant and, secondly, to restrain the sheriff from conducting an auction.
Mr Grundy says that an application for similar orders concerning the same warrant on the same title, which are the subject of this proceeding, was made by Rubytime in December this year in proceeding number SCI 2011 05043. He exhibits copies of the originating motion between the parties, the summons of the originating motion, and his affidavit in support of that application filed in that proceeding together with copies of orders made on 23 September 2011 and 30 September 2011. He refers to and repeats what he says in that affidavit.
Mr Grundy says that since swearing his first affidavit, the first matter was listed for hearing on 23 September 2011. On that day, he says procedural orders were made including an adjournment to 30 September 2011 whilst discussions between the parties took place. He says that in the interests of minimising Rubytime's costs, which could not be recovered from the sale of the property given the amount owed to the Commonwealth Bank of Australia on its first mortgage over the property, he says he was instructed to attempt to settle the matter on the basis that the parties would simply allow the registration of the warrant to lapse pursuant to s 52 of the Transfer of Land Act 1958.
Mr Grundy says that in the period between 23 and 30 September, he had a conversation with the first defendant and says in his affidavit that the first defendant previously told him that the second defendant was his domestic partner.
Mr Gundy says that during that conversation, the first defendant said that he understood that there was no equity in the property, and that he and the second defendant, the Judgment Creditors, would not be receiving any payment towards the judgment debt owed to them upon a sale of the property.
Mr Grundy says that he told the first defendant that Rubytime would withdraw its application if the first and second defendants agreed not to pursue the matter any further against the property. Mr Grundy says the first defendant told him that he and the second defendant no longer wished to pursue execution of the warrant against the property as they appreciated the futility in doing so.
Mr Grundy says that on that basis he wrote to the solicitors for the purchasers of the property, Morgan Legal, by letter dated 22 September 2011. In that letter he says he requested Morgan Legal to seek instructions as to whether their client would consent to settlement being delayed until after the lapse of the registration of the warrant on the title. He exhibits a copy of that letter.
Mr Grundy says that by letter dated 28 September 2011, Morgan Legal confirmed their client's instructions that he was agreeable to postponing settlement of the sale of the property and waiting for the warrant to lapse. He exhibits a copy of that letter.
On 30 September 2011, the first proceeding came on for hearing. Mr Grundy says that counsel for Rubytime advised the court that the matter had resolved and accordingly the first proceeding was dismissed with no order as to costs.
Mr Grundy says that following that hearing, Robert Conn, director of Nexus Private Mortgages Pty Ltd, Rubytime's authorised mortgage manager, commenced preparing for settlement of the sale by Rubytime of the property to take place on 14 November 2011.
On 14 October 2011, Mr Grundy received a letter dated 13 October from Morgan Legal. In that letter it is alleged that the first proceeding was thrown out of the court and that police were investigating Rubytime and Michael Sartorello (the registered proprietor of the property). Mr Grundy exhibits a copy of that letter. He says he immediately responded by email, and in his email reminded the purchaser’s solicitors that the first proceeding was withdrawn on the basis that their client was willing to wait for the warrant to lapse before settlement would take place. He also said that his client denied emphatically any conspiracy to defraud any person, and that it is losing money in the sale. He exhibits a copy of that email.
Mr Grundy says, as part of the process of preparing for settlement, on 27 October 2011 his secretary, Diane Gillard, on Mr Conn’s instructions, lodged at the Land Registry a withdrawal of the caveat that the first defendant had sent to him so as to remove from the title of the property the caveat he had lodged in his own name. He produces and exhibits a copy of a receipt issued by the Land Registry upon lodgement of the withdrawal of caveat, together with a copy of that withdrawal of caveat.
Mr Grundy says that in about mid-November Mr Conn informed him that the warrant had been re‑registered on the title to the property. Subsequently, on 16 November he obtained a title search of the property. That search showed that on 14 October, the warrant had once again been served on the Registrar and consequently recorded in dealing number AJ256824W. He exhibits a copy of the title search together with a copy of the warrant as re‑registered.
Mr Grundy says that it can be seen by comparing this warrant with the warrant exhibited to his first affidavit that they are the same warrant.
On 22 November 2011, Mr Grundy received a call from the first defendant. During that conversation Mr Grundy informed the first defendant that the warrant had been re‑registered on the title of the property. The first defendant denied any knowledge about the re‑registration of the warrant and said that it must have had something to do with the sheriff's office. The first defendant also said to Mr Grundy during that conversation that he had not commenced bankruptcy proceedings against Mr Sartorello as there had been problems with documents he had lodged with the Insolvency and Trustee Service Australia. The first defendant said that he would be starting the process again.
Mr Grundy says that at about this time, on 22 November 2011, Ms Gillard spoke to Kelvin Griffin of the sheriff's office. Ms Gillard informed Mr Grundy, and he believes, that Mr Griffin said that he did not know anything about the re‑registration of the warrant, that he would look at this file and that Douglas Loney, solicitor of Mr Grundy’s firm, could call back the following day to hear Mr Griffin's explanation.
Mr Grundy says that on 24 November 2011, Mr Loney spoke again with Mr Griffin. Mr Loney informed Mr Grundy, and Mr Grundy believes, that Mr Griffin said that the Sheriff was planning to auction the property on Thursday, 1 December and that the Sheriff had advertised that auction and that a letter to that effect had been sent to Rubytime.
Mr Grundy says as neither Mr Loney nor he had received any instructions about that letter, Mr Loney requested that a copy be sent to Mr Grundy's office. Mr Grundy exhibits a copy of the letter and an enclosed copy of the advertisement.
Mr Grundy says that during Mr Loney’s conversation with Mr Griffin, Mr Griffin also said that he had spoken with the first defendant on 21 October 2011 and that the first defendant had said to Mr Griffin that he wanted to renew the warrant on the title and that he wanted to proceed with executing against the property.
Mr Grundy refers to passages in his first affidavit concerning the futility of the warrant being registered on the title of the property. Mr Conn instructs Mr Grundy, and Mr Grundy believes, that no further payments have been made towards Mr Sartorello’s debt to Rubytime. Mr Conn also instructs Mr Grundy, and Mr Grundy believes, that Mr Conn has recently spoken with a representative of the CBA, the first mortgagee of the property. During that conversation, Mr Grundy is instructed that that person said that if the sale of the property were not settled soon, the CBA would take action itself to enforce its mortgage and sell the property.
Mr Grundy says that this would obviously increase the costs already being suffered by Rubytime, as the CBA’s costs of enforcement would be recovered by the CBA under its first mortgage. Mr Grundy says that as far as he is aware the purchaser of the property remains ready, willing and able to settle, although his solicitors have not advised me that he is willing to wait until the warrant lapses in 2012.
Mr Wirth, who appears as counsel for the plaintiff, referred me to a letter to the Registrar of Titles which was deposed to by Mr Grundy of 9 September 2011.
Under the heading of 'Futility of Warrant', Mr Grundy says:
On 14 February 2011, the first mortgagee, the Commonwealth Bank of Australia (CBA), sent to the registered proprietor (Sartorello), a Notice of Default and Notice of Demand.
He encloses a copy of that notice for the registrar's reference.
That notice discloses that as at 14 February 2011, the balance outstanding on the CBA’s mortgage was $141,631.26. The CBA has advised that the payout figure for its mortgage is $149,134.91 together with a daily rate of accrual.
As at 18 August 2011 the balance outstanding on Rubytime’s mortgage was $28,715. Interest continues to accrue at the rate of $525 per month, costs of enforcement and sale also accrue under the mortgage.
Mr Grundy says that his client has provided to him a schedule that sets out the amount borrowed, interests and costs accrued, payments made and a running outstanding balance of the debts secured by Rubytime’s mortgage. He encloses a copy of that schedule for the Registrar’s reference.
Mr Grundy also encloses copies of the real estate agent's account and says:
As you will see from the deposit paid of $17,500, there is a balance available at settlement of $11,050.
Mr Grundy further encloses a draft statement of adjustments prepared by Morgan Legal, solicitors for the purchaser of the property, and noted that the figure of $154,902.84, is the amount noted as settlement cheques ‘to be advised’.
Under the heading of 'Financial Position' Mr Grundy states that the CBA is owed $149,134.91; Rubytime is owed $28,715.00; Rubytime's legal and other costs associated with the enforcement of its mortgage is estimated at $10,000; the balance of funds available after adjustments as at 31 August, which is consistent with the settlement of adjustments, is $154,902.84; the balance from the deposit is $11,050; and the total equity in the property is negative $21,897.07.
Mr Grundy says:
As illustrated by the above figures, after adjustments are allowed for in the usual conveyancing practice, there is only a balance of $165,952.84 to be distributed to the CBA and Rubytime, which is grossly insufficient.
Mr Wirth took me to a decision of Dodds‑Streeton J in the matter of Capital Finance Australia Ltd v O’Bryan Group Pty Ltd [2003] VSC 355. Her Honour says in paragraph 31:
The judgment’s debt is its land. In this context it is limited to its interest in land subject to any incumbrances, charges or interests held by a purchaser for valuable consideration.
She goes on:
The position of the judgment creditor is analogous to that of a trustee in bankruptcy. The creditor stands in the shoes of the judgment debtor and is subject to all the interests including unregistered and uncaveated interests which bind the debtor's interest in the land. The warrant authorises recovery only against the debtor’s equity in the land after satisfaction of the interest to which it is subject.
I also refer to the following passage from her Honour's decision:
A judgment creditor seeking to execute a warrant is an unsecured creditor. Its claim is validated by a judgment and it is employing a legitimate statutory mechanism. The vulnerability of unsecured creditors and the position of secured creditors on insolvency is widely recognised. The warrant provides an enforcement resource which prior to insolvency may result in satisfaction of the judgment creditor's liability. Once insolvency intervenes, the execution of the warrant is general stayed or, if it is executed within the claw back period prior to sequestration or winding up, any proceeds can be reclaimed by the liquidator or the trustee in bankruptcy.
In my opinion the court should approach with caution an application by a secured creditor which will deprive an unsecured creditor of its entitlement to pursue a statutory mechanism which provides some prospect of payment.
Sometimes a debtor does not pay its liabilities for reasons other than a want of resources. The debtor may be recalcitrant. In some circumstances the warrant and the prospect of enforced sale may influence the debtor or persons associated with it to pay in order to avoid detrimental consequences.
The pressure exerted on the debtor by the mere maintenance of the warrant is not, in my view, illegitimate or an abuse of the statutory enforcement procedure.
In light of such considerations, the maintenance and execution of a warrant could not be considered futile or an abuse of the court's processes unless there were no realistic prospect that it would either result in payment to the judgment creditor from the proceeds of the property or influence the debtor or associated parties to satisfy the debt.
So long as the debtor appears potentially able to pay from other resources, the prospect of such payment cannot be discounted. The debtor may have an interest in maintaining its commercial reputation or in retaining its equity even if currently of no value, until a later date when it may have recovered some value. Therefore irrespective of whether the debt has any equity in the property, I would not be disposed to make an order depriving a judgment creditor of the only enforcement mechanism available to it in the absence of clear evidence that the judgment debtor is unable to satisfy the claim from other resources.
Under the heading of 'Futility of warrant', her Honour said:
In my opinion the futility of maintaining execution of the warrant depends on the establishment of two matters. First, that there is no reasonable likelihood of O’Bryan recovering any payment from the sale because the value of the land is such that the deduction of the proceeds necessary to satisfy parties will leave a nil amount and; (2) that the maintenance of the warrant will not be effective to result in payment of O'Bryan's claim by the developer from other resources or by persons who have an interest in maintaining the corporate developer's solvency, commercial reputation or possibly in retaining the property until the equity of redemption is of value.
The first defendant says that he does not believe the sale price of the property was at a market value. He says that in 2008 the property was purchased for $150,000 but it was only sold in 2011 for $175,000, after improvements were made in the nature of a small building, but more importantly, relevant permits to enable the property to be built on were obtained, which he says were of considerable value.
He also says that the loan documentation of the plaintiffs put a limit on the amount they would lend to no more than 75 per cent of the value of the property and he says in this instance the loans appear to have breached the plaintiffs’ own security documents.
The first defendant says that the caveat that he lodged was on the property before the plaintiff made a loan on security and he submits that appropriate investigation should have been made by the plaintiff before it advanced any moneys.
The evidence satisfies me that the first and second defendants do not have any proprietary interest in the property flowing from their judgment debt in their favour; that, as Dodds‑Streeton J said, their claim over the proceeds of the property is subject to the prior registered proprietary interests in that property which include the first and second mortgage. The evidence satisfies me that after payment of costs and such like, there will not be any sum left over after discharge of the first and second mortgage and it is therefore futile, in the words of Dodds‑Streeton J, to maintain the warrant.
In any event, I also find that there were no grounds for lodging the caveat. The caveat is only entitled to be lodged where a person claims a proprietary interest in the land. No such proprietary interest was claimed and the caveat should be removed.
I also take into account, and this evidence was not disputed, that the defendants said that they would allow their initial warrant to lapse and that the renewal of the warrant, which evidence is undisputed, was in breach of that agreement and it has put the plaintiff to considerable trouble and expense.
Although I have great sympathy for the defendants in the sense they have been caught up in a legal process where they have been frustrated by their attempts to be compensated for the orders the court has made in their favour, their frustration and loss has not been caused in any shape, way or form by the plaintiff and there is no reason why the plaintiff should have been put to the trouble and expense it has been in starting these second proceedings.
In my view, the facts as I have recited justify the making of the orders sought by the plaintiff. I have taken into account the matters raised by the first defendant . There is no evidence that the property was sold at an undervalue. I have taken into account his comments about the breach of the loan documents by the plaintiff. Whether they were in breach or not is neither here nor there and the fact that they made the loan even though the plaintiff's caveat was lodged is again neither here nor there as the caveat gave rise to no proprietary interest in favour of the caveators.
Accordingly, I propose to order:
1. That the fourth defendant remove the notations, the warrant of seizure and sale contained in dealing numbers AJ126805D and AJ256824W from Certificate of Title volume 11082 folio 702.
2. That the fourth defendant remove the caveat being the transaction lodged in dealing number AJ256823Y from the title of the property.
3. The fourth defendant do all things reasonably required to effect the immediate removal of the warrant I have referred to and the caveat I have referred to from the Certificate of Title in respect of the said property.
4. That the first, second and third defendants are restrained from serving the said warrant on the fourth defendant.
5. The fourth defendant is restrained from further registering the said warrant on the title of the property.
I have considered the application made by Mr Wirth that any costs I might order against the first and second defendants include the costs of the first proceedings.
In my view, it would not be appropriate to follow this course for the following reasons. The evidence establishes that an agreement was made and on the basis of that agreement, the proceedings were struck out or dismissed. The first defendant has reneged on that agreement. There may be a question which arises on that issue and those costs might be reclaimed on a breach of contract basis. I do not believe it is appropriate to incorporate that issue in the costs of this proceeding.
I do, however, believe that the first defendant should pay the costs on an indemnity basis. The basis of his opposition was hopeless; the caveat was hopeless and the first defendant was fully aware that there was no equity left in the property. He also extended the warrant in breach of his promise not to do so. That evidence is undisputed despite what the first defendant says from the Bar table.
Therefore, I will order that the first and second defendant pay the costs of and incidental to this application including any reserved costs on an indemnity basis, such costs to be taxed in default of agreement.
1
0