Sandhurst Trustees Limited v Gallerie Investments Pty Ltd & Others No. Scciv-99-995

SANDHURST TRUSTEES LIMITED (Plaintiff) v GALLERIE INVESTMENTS PTY LTD & OTHERS (Defendants)
[2001] SASC 310
Civil

WICKS J This is an application for an extension of time within which to appeal. The application arises out of a decision of a single judge in which he dismissed an appeal against two orders of a master. For the purpose of this matter, we are only concerned with the first of such orders being an order entering summary judgment for the plaintiff against certain defendants, including Dr Efstathios Finikiotis and his sister Ms Chrissafina Zervos, the present applicants (“the applicants”).
An application for leave to appeal was made in writing to the Full Court, the single judge having refused leave to appeal against his decision to which I have referred above. The application to the Full Court was made out of time and accordingly, an extension of time was required for the making of the application. These reasons deal with the application for an extension of time.
In the Full Court, the majority of the judges held that as the appeal against the decision of the single judge was against a final order, it lay to the Full Court as of right by virtue of s 50(1) of the Supreme Court Act 1935. Accordingly, as to the application for summary judgment, the Full Court held that the appropriate course was to make no order on the application for a grant of leave to appeal to the Full Court on the basis that such leave against the decision of the single judge dismissing the appeal against the order for summary judgment was not required. They further held that the applicants had an appeal as of right against that decision but that it would be necessary, however, for the applicants to obtain an order extending the time within which the notice of appeal must be filed.
The single judge and the Full Court treated Dr Finikiotis as representing all the defendants. It has since been discovered, however, that Dr Finikiotis represents himself and his sister Chrissafina Zervos and no other defendant. The application of any order made in relation to an extension of time should be limited to Dr Finikiotis and his sister.
The question of an extension of time within which to appeal was discussed by the High Court in Jackamarra v Krakouer (1998) 153 ALR 276 where the Court accepted the proposition that in a case such as the present there are usually four main factors to be considered in exercising a court’s discretion to extend time, namely, the length of the delay, the reason for the delay, whether there is an arguable case and the extent of any prejudice suffered by the other party. In the present case, the standing of the applicants to bring the appeal may also be relevant.
I shall deal with these one at a time.
(1)The length of the delay
An appeal to the single judge against the order of the master was dismissed on 13 March 2000 and leave to appeal to the Full Court was refused by the single judge on 6 April 2000. An application to the Full Court for leave to appeal against the order of the single judge was made by the applicants on 17 March 2000 and that application was filed that day. An accompanying affidavit set out what could be taken reasonably as a number of grounds of appeal. In the application, the applicants should have sought an extension of time within which to appeal rather than leave to appeal as leave is not required in this case.
The applicants wish to have the decision of the single judge considered by the Full Court. The decision in question is final and in that respect it warrants closer attention than a decision which is merely interlocutory in nature. It seems to me that Dr Finikiotis acted promptly in filing the notice of appeal. I would accept the fact that the delay in this case should not be held against the applicants. Ms Zervos was not named in these documents as an applicant. Nevertheless I am satisfied that it was intended that she be included.
(2) The reason for the delay
The applicants were prompt in putting the plaintiff on notice that they wished to further appeal to the Full Court against the judgment of the single judge. Technically, they might not have gone about the matter in a way which would fully comply with the rules, but bearing in mind the fact that the applicants are unrepresented, I do not think that there are any particular reasons why I should refuse such an extension of time on the ground that the reasons for the delay were unacceptable.
(3)Whether there is an arguable case on the merits
A facility agreement (“the Facility Agreement”) was entered into on or about 12 August 1997 between Sandhurst Trustees Ltd (“the plaintiff”) and Gallerie Investments Pty Ltd (“the borrower”) and various guarantors including the applicants. Under the Facility Agreement an advance of $2.4 million was made to the borrower to assist in the refinancing of existing indebtedness over an arcade in the city of Adelaide known as “The Gallerie”, and provision was made for further advances up to an additional $1.2 million for the purpose of assisting the funding of a construction project to be undertaken in respect to the property. In fact, only $998,000 of this $1.2 million was drawn down.
According to the Facility Agreement, interest on moneys from time to time outstanding under that agreement was payable monthly. Instalments of interest were payable in arrear on the first day of each calendar month. Any failure by the borrower to pay interest on a due date constituted an event of default. If such an event were to occur, the plaintiff might at any time by notice to the borrower make the outstanding principal being the aggregation of unpaid advances, immediately due for payment.
Payment of all advances and interest thereon was secured by a first mortgage over “The Gallerie” arcade.
By a further agreement made between the plaintiff and the guarantors on or about 12 August 1997 (“the Guarantee”), the guarantors jointly and severally guaranteed payment of all sums of money due by the borrower to the plaintiff pursuant to the Facility Agreement and/or the mortgage and indemnified the plaintiff against the principal sum and any other amount owing under the Facility Agreement being irrecoverable.
Under the Guarantee, the guarantors agreed to pay to the plaintiff all amounts owing by the borrower under the Facility Agreement, but not paid as and when due.
Par 18.2(a) of the Facility Agreement provides that a certificate by the Financier relating to any Transaction Document, is in the absence of manifest error, conclusive against the Borrower of the matters certified. In the Facility Agreement, “the Financier” is defined to mean Sandhurst Trustees Limited, “Transaction Documents” is defined to include the Facility Agreement, and “Credit Support” and “the Borrower” is defined to mean Gallerie Investments Pty Ltd. Also, in the Facility Agreement, “Credit Support” is defined to include “any guarantee by which any person guarantees the Borrower’s compliance with its obligation under the Facility Agreement or any other Transaction Document” and “Guarantee” is defined to include an indemnity.
Acting under the above provision in the Facility Agreement, the following certificate was executed by an alternate director of the plaintiff who asserted that he was a person duly authorised to sign the certification on behalf of the plaintiff. The Certificate was in the following terms:
"CERTIFICATE
I, LEONARD FRANCIS O’BRIEN, of Level 1, 410 Collins Street, Melbourne, in the State of Victoria, being an alternate director or Sandhurst Trustees Ltd (ACN 004 030 737) (“Sandhurst”) and being a person duly authorised to sign a certificate on behalf of Sandhurst pursuant to clause 18.2(a) of the Facility Agreement (“Facility Agreement”) dated 12 August 1997 between Sandhurst as financier, Gallerie Investments Pty Ltd (ACN 063 501 388) (“Gallerie”) as borrower, and Headview Pty Ltd, Anacon Enterprises Pty Ltd, Efsthathios Finikiotis, Chrissafina Zervos, George Con Yanardasis and Nicholas Gianarakis as guarantors (“Guarantors”), being the Facility Agreement which refers to:
A.a mortgage dated 5 August 1997 executed by Gallerie in favour of Sandhurst to secure the repayment by Gallerie of all moneys payable to Sandhurst pursuant to the Facility Agreement, which was subsequently registered with the Land Titles Office as number 8349330 (“Mortgage”); and
B.a guarantee and indemnity dated 12 August 1997 executed by the Guarantors in favour of Sandhurst in which the Guarantors jointly and severally guaranteed the payment of all sums of money due by Gallerie to Sandhurst pursuant to the Facility Agreement or the Mortgage and to indemnify Sandhurst against the principal sum and any other amount owing under the Facility Agreement being irrecoverable (“Guarantee and Indemnity”).
1.HEREBY CERTIFY AND STATE pursuant to Clause 18.2(a) of the Facility Agreement:
(a)on or about 20 August 1997 Sandhurst advanced the sum of $2,460,000 to or at Gallerie’s request;
(b)since 20 August 1997 Sandhurst has advanced various further sums to Gallerie pursuant to the Facility Agreement, details of which are contained in the statements of account of the Facility:
(c)as at 4 May 1999 Gallerie had defaulted in the payment of the Moneys Secured by the Facility Agreement by failing to pay monthly instalments of interest totalling $69,622.83 due and payable thereunder to Sandhurst by Gallerie;
(d)on or about 4 May 1999 a notice to pay was posted to Gallerie’s registered office, demanding payment of the arrears specified in (c) together with the principal sum loaned pursuant to the Facility Agreement and all other moneys secured by the Mortgage within 1 day of the service of the notice to pay;
(e)Gallerie failed to comply with the notice to pay within the period specified in the notice;
(f)on or about 5 May 1999 demands were posted to the Guarantors – where the Guarantor is a company, to the registered office; and where the Guarantor is a natural person, to the person’s residential address – detailing payment of all moneys secured under the Facility Agreement amounting to $3,467,622.83 as at the date of that demand, within 1 day of the service of the demand;
(g)the Guarantors failed to comply with the demand within the period specified;
(h)as at 14 February 2000 the amount due and payable to Sandhurst by Gallerie and the Guarantors under the terms of the Facility Agreement, the Mortgage and the Guarantee and Indemnity will be (in the absence of any payment being made by or on behalf of the first defendant between the date of this certificate and 14 February 2000) the sum of $4,106,759.38 comprising principal of $3,398,000.00, interest of $344,853.59 and fees, charges and costs of $363,905.79.
DATED the 10^th day of February 2000
……[sgd] L.F. O’Brien……
Leonard Francis O’Brien
Alternate Director,
Sandhurst Trustee Ltd
(ACN 004 030 737)"
Interest in respect of all advances was paid regularly until November 1998. Payments appear to have generally been a few days after the period of seven days allowed for payment. On 18 August 1998, Heine Commercial lending, a company associated with the plaintiff, wrote to the borrower reminding it that payment was to be made no later than the 7^th day of the month but that generally a grace period of a further five days would be allowed. The lender would accept payment of interest up to the 12^th day of the month. For example, interest which accrued in November 1998 would become due for payment on 1 December 1998 and must have been paid by 12 December 1998 at the latest.
Clause 18.5 of the Facility Agreement provided as follows:
"18.5 Waiver
(a)A right in favour of the Financier [the plaintiff] under a Transaction document, [including the Facility Agreement] subject to an express provision of any Transaction document to the contrary, may be waived prospectively or retrospectively by writing signed by the Financier.
(b)No other act omission or delay by the Financier will constitute a waiver or right."
This clause provides for the giving of a waiver in respect of something required to be done under the Facility Agreement. To be valid, such a waiver must be in writing.
It appears from a letter written on behalf of the plaintiff to the borrower (the date of which is not discernible) in relation to the November 1998 payment of interest totalling $21,974.06, in respect of both loans then outstanding in this matter, that a request for an extension of time to pay overdue interest was made on 21 December 1998 and that an extension of time to 4 January 1999 was granted within which to pay the overdue amount. The letter continued: “Failure to make this payment by 4.00pm on Monday 4^th January 1999 will constitute default under the mortgage and the Higher Rate of interest will apply.” In fact the payment was still late. It was made on 6 January 1999 as appears from the bank deposit slip.
A further letter was written on behalf of the plaintiff to the borrower (the date of which is not discernible) in which an extension of time in relation to the instalment of interest for December 1998 of $22,705.86 was given to 12 February 1999. In the same letter, an extension of time in respect of the instalment for January 1999 of $22,595.60 was granted to 25 February 1999. The letter continued: “Failure to make either of the above payments by their respective due dates will constitute a default under the mortgage and the Higher Rate of interest will apply.” The January payment of $22,595.60 was in fact not made until 10 March 1999. The December payment of $22,705.86 was made on 12 February 1999.
A further letter dated 13 January 1999 was written on behalf of the plaintiff to Dr Finikiotis on behalf of the Borrower in the following terms:
“Further to our telephone conversation on Monday 11^th January 1999 in respect to payment of you [sic] interest for December 1998, we advise that the first mortgagee is NOT prepared to allow you until 4^th February 1999 to make the December 1998 interest payment, unless it receives the information requested per our letter dated 26^th November 1998 (and a reminder sent to you on 14^th December 1998) by 4:00pm Friday 15^th January 1999.
If this information is received then we will allow you until 4:00pm Thursday 4^th February 1999 to make the December 1998 interest payment.
If this information is not received we remind you that interest will be due and payable by Monday 18^th December 1998 and failure to receive this payment will result in the Higher Rate of interest being charged.
Please take note that the first mortgagee expressly reserves all of its rights under the mortgage.”
There are no documents before me which would suggest that a waiver had been obtained in relation to the subsequent payments of interest in respect of February, March and April 1999. As of 4 May 1999, outstanding interest and charges amounted to $46,523.83. Of this, $16,204.93 could be regarded as current (being within the grace period of 12 days from 1 May 1999) and the remainder, $30,318.07, as interest in arrear. Similarly, as of the same date interest in respect of the loan of $998,000 was $18,203.90. Of this, $6,467 (being within the grace period of 12 days from 1 May 1999) could be regarded as current and the remainder, $11,816, as interest in arrear.
In view of the plight in which the borrower found itself as of May 1999, if there had been any further concessions granted in respect of any of the payments of interest due on 1March, 1April and 1 May 1999, Dr Finikiotis, as a person intimately involved with the day to day management of the borrower, would surely have known precisely what was going on so far as arrears of interest were concerned. He says that he is unable to say what further documents on this topic exist and that he cannot know the answer to that until the process of discovery and inspection has been completed.
As I have said, Dr Finikiotis must know what letters or other written communications exist granting a waiver in respect of interest payments due on 1 March, 1 April and 1 May 1999. It would be highly unlikely that the plaintiff would simply waive payment of outstanding interest, having regard to the extent of the arrears.
I have no doubt that if documents relating to a waiver of payment of interest accrued in respect of any of the periods February, March and April 1999 were in existence, Dr Finikiotis would have had no difficulty in producing them. He has been able to provide documents in existence as far back as February 1998, including letters waiving payment, deposit slips and facsimile messages, but for some unexplained reason he has been unable to produce the most important documents, namely those required to establish whether there were in fact arrears of interest as at 4^th May 1999 in relation to the two loans outstanding to the plaintiff and if so, whether a waiver of payment had been granted to some later date. In my view, it is very likely in all the circumstances that a letter of waiver of outstanding interest has not been produced because such a letter simply does not exist.
The plaintiff has been pressing for payment of outstanding interest for some time. By December 1998, the plaintiff has been imposing strict deadlines for payment. The statements of account in respect of all advances show substantial arrears in the payment of interest by the time the March payments had become due on 1 April 1999 and the 12 days of grace had expired. It would be very surprising indeed if any further latitude had been given to the borrower in relation to the payment of interests on the loans.
In my opinion, as of 4 May 1999 there were arrears of interest outstanding and not the subject of any waiver of payment. The Facility Agreement, the mortgage and Guarantee all became enforceable in or about May 1999. Moneys were immediately due and payable in respect of the Facility Agreement at the time of the issue of the summons in this action.
On or about 6 May 1999, a cheque for $22,000 exactly was sent by the borrower to the plaintiff. In my opinion, this cheque was sent too late to have any effect on whether the payment of the principal of the loans had been accelerated by reason of late payment of the interest. Such a cheque also had the character of desperation about it. Rather than waiting for a precise sum to be calculated, a cheque for a round figure of $22,000 was sent off to the plaintiff.
It must be remembered that by May 1999 and probably earlier, the plaintiff was sick and tired of having to press for each monthly payment. Also, the plaintiff must have become alarmed at the increasing level of interest on the loans remaining unpaid. The plaintiff’s Statements of Account in respect of the borrowings is clear testimony to that. The notice to pay under which the payment of outstanding principal in respect of each loan was accelerated, was sent out on or about 4 May 1999. For the plaintiff to get to that point there would have been a period in which arrears of interest would have accumulated enabling the plaintiff to act. Arrears of interest accruing in March 1999 and payable on 1 April 1999 would have been sufficient for this purpose.
As I understand the applicants’ complaints, their principal concern is that no valid demand could be made based on the fact that interest was overdue because there had been a waiver of payment. In my view, there is a strong case for holding that no such waiver existed or, if it did exist, that it was insufficient to cover all the interest which was overdue for payment as of 4 May 1999.
Dr Finikiotis complains that because of the summary judgment application he has been deprived of discovery and inspection of documents in relation to these proceedings and that if the usual discovery and inspection had taken place, it would have been possible to ascertain whether any such documents were in existence. However, Dr Finikiotis was not able to identify the documents which he had in mind other than those documents referred to in annexure “EFC” to his affidavit sworn in this action on 7 January 2000, referred to in exhibit “EF” to his affidavit in this action sworn on 3 July 2000 and referred to in exhibit “EF” to his affidavit in this action sworn on 31 July 2001. None of these documents relates to interest for the month of February, March and April 1999. It seems to me that if Dr Finikiotis was closely concerned with the management of the Borrower, as appears to be the case, he would have had no difficulty in identifying such documents. The fact of there being any further documents relating to the period February to May 1999 is very unlikely indeed.

Apart from the admissions and denials in relation to the statement of claim, I have found the defence on the part of the Applicants very confusing. I have no idea what defence they are putting forward. What they allege seems more appropriate to a cross-action or counter-claim in which relief by way of damages, for example, is sought from the plaintiff or possibly the plaintiff and some other party.
During the hearing of the application in this matter, Dr Finikiotis appeared to suggest that the guarantors would be able to maintain a claim for damages for negligence against Knight Frank (S.A.) and others, including the plaintiff. I am puzzled as to what cause of action Dr Finikiotis would seek to assert against the plaintiff. As I have said on a number of occasions, if no cause of action lies against the plaintiff, but one does lie against other parties not being parties to this action, then such a claim must be dealt with in a separate action. Even if the plaintiff is to be a defendant in relation to a claim against Knight Frank (S.A.) Pty Ltd, there is not reason why the Knight Frank matter should not be a separate action.
I note that proceedings were taken in the Federal Court in July 2000 by the applicants, Efstathios Finikiotis and Chrissafina Zervos, against Knight Frank (S.A.) Pty Ltd, Heine Mortgage Management Pty Ltd and Sandhurst Trustees Limited claiming relief under s 52, s 53 and s 59 of the Trade Practices Act 1974 in relation to a valuation prepared by Knight Frank (S.A.) Pty Ltd. Among other things the judge in that case found that the applicants did not have standing to bring such proceedings on the ground that the alleged losses were initially suffered by the proprietor of “The Gallerie” arcade and not by the applicants who were merely guarantors. How the applicants as guarantors could suffer such losses has not been pleaded with any, or any sufficient, particularity. The Federal Court proceedings were dismissed against each of the respondents in those proceedings on the ground that in respect of each of them no reasonable cause of action had been disclosed.
In my opinion, the applicants do not have an arguable case in these proceedings.
(4) The extent of any prejudice suffered by the plaintiff
In my opinion, the plaintiff has not suffered any material prejudice. It has been on notice since on or about 17 March 2000 that the applicant desires to appeal. In view of the prompt filing and service of the application for leave to appeal on 17 March 2000, I do not think that the respondent is in any position to be taken to have suffered material prejudice.
(5)Whether Dr Finikiotis and Ms Zervos have standing to prosecute the appeal as appellants
On 19 February 2001, a sequestration order was made against the estate of both applicants by a Registrar of the Federal Court of Australia in relation to the judgment the subject of this present application. On 12 March 2000 a Notice of Motion was filed in the Federal Court seeking an order that the sequestration order be set aside. According to an affidavit of James Arthur Neate sworn on 6 June 2001, no listing of the matter had been received as of that date.
In Cummings and Fuller v Claremont Petroleum NL (1995-1996) 185 CLR 124 (at p 137), the majority of the High Court held:
“So far as a judgment entered in action against a bankrupt creates or evidences a provable debt, we respectfully agree that the bankrupt has no financial interest which would confer locus standi to appeal in his own name against the judgment. That is because it is fundamental to the law of bankruptcy that the bankrupt is divested of both his interest in his property and liability for his provable debts.
Of course, a money judgment entered against a bankrupt has the effect of increasing the amount of the debts provable in his estate. But it is immaterial that, if an appeal against judgment were successful, there would or might be a surplus in the estate after the remaining creditors are paid. A bankrupt’s contingent interest in a surplus does not give him an interest which would allow him to sue to enforce proprietary rights and, that being so, it cannot give him an interest to appeal to minimise liabilities.”
Where a sequestration order has been made, it would appear that the debtor cannot institute and prosecute an appeal against a judgment upon which the sequestration order was based (through the applicable bankruptcy notice) because of difficulties created by the absence of locus standi. There is an exception to the rule that a debtor against whom a sequestration order has been made cannot institute an appeal for want of standing but such exception does not arise in this case.
In the present case, as sequestration orders have been made against both applicants, they no longer have locus standi to maintain their application for an extension of time within which to institute an appeal. It is the making of a sequestration order which leaves the debtor in a quite untenable position. I understand that as a general rule it is not the practice of the Federal Court to make a sequestration order where the judgment on which it is founded is still subject to an appeal or other process to have it set aside.
For all of these reasons the applicants’ application for an extension of time within which to appeal to the Full Court is dismissed.

[2001] SASC 310

14 September 2001