Scald Pty Ltd v Turner Developments Pty Ltd
[2015] ACTSC 270
•5 November 2015
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Scald Pty Ltd v Turner Developments Pty Ltd & Ors |
Citation: | [2015] ACTSC 270 |
Hearing Date(s): | 1 June 2015 |
DecisionDate: | 5 November 2015 |
Before: | Burns J |
Decision: | See [41] – [42] |
Category: | Principal Judgment |
Catchwords: | PRACTICE – Accounts – application for account – disputed questions of fact and law – what constitutes a preliminary question – whether account should be ordered. |
Legislation Cited: | Court Procedures Rules 2006 (ACT) rr 2721, 2722 |
Cases Cited: | Lang v Simon (1953) 53 SR (NSW) 508 Le Mesurier v Connor (1926) 29 WALR 66 Rockhampton Permanent Building Society v Petersen [1986] 1 Qd R 128 |
Parties: | Scald Pty Ltd (Plaintiff) Turner Developments Pty Ltd (First Defendant) Canberra Contractors Pty Ltd (Second Defendant) Rovera Constructions Pty Ltd (Third Defendant) Desi Nominees Pty Ltd (Fourth Defendant) Agi De Simone (Fifth Defendant) Mart Pty Ltd (Sixth Defendant) Space Developments Pty Ltd (Seventh Defendant) Multifield Civil Engineering Pty Ltd (Eighth Defendant) David John Dal Molin (Ninth Defendant) |
Representation: | Counsel Mr D Ash (Plaintiff) Mr R Arthur (First, Second, Third, Fourth, Fifth, Seventh, Eighth and Ninth Defendants) No appearance (Sixth Defendant) |
| Solicitors Joe Weller, Solicitor (Plaintiff) Bradley Allen Lawyers (First, Second, Third, Fourth, Fifth, Seventh, Eighth and Ninth Defendants) No appearance (Sixth Defendant) | |
File Number(s): | SC 823 of 2009 |
BURNS J:
This matter arises out of a dispute between companies and persons involved in a joint venture for the development of 74 residential units at Turner, known as the Space Apartments. The first defendant company, Turner Developments Pty Limited, was to serve as the vehicle for the joint venture and was incorporated for that purpose. The plaintiff and the other defendants were lenders to the first defendant for the purposes of the joint venture. It was envisaged that the joint venture would return a profit sufficient to repay all lenders with interest along with an additional return. However, the Space Apartments have been sold and there are insufficient funds to repay the lenders’ interest in full. Some money has been repaid, however the correctness of those repayments are in issue. A substantial balance is held by solicitors in a trust account pending the outcome of this litigation.
The plaintiff now claims the right to an account. This matter has a long and complex history, which is set out in detail in Master Harper’s judgments Scald Pty Ltd v Turner Developments Pty Ltd & Ors [2014] ACTSC 72 and Scald Pty Ltd v Turner Developments Pty Ltd & Ors (No 2) [2014] ACTSC 264. I will briefly set out the facts relating to the remaining issue in dispute.
Factual history
It is the plaintiff’s case that, in June 2004, it lent $230,000.00 to the first defendant at an interest rate of 18 percent per annum. In September 2004, it lent a further $45,000.00 to the first defendant, also at an interest rate of 18 percent per annum. All defendants except for the first defendant also lent money to the joint venture at interest.
By December 2006, neither the money lent nor the interest accrued had been repaid. By a written agreement between the plaintiff and each defendant (the December 2006 Agreement), the time for repayment of the loans was extended on conditions that the first defendant agreed:
(a)to capitalise the interest due to each of the lenders as at December 2006;
(b)to pay interest on the capitalised amount; and
(c)to provide security in relation to the sum of the loans by way of mortgage over the land on which the apartments were being constructed.
The December 2006 Agreement comprises of two documents, one headed “loan agreement” and the other “mortgage”, both executed on or about 13 December 2006. The loan agreement included Schedule 1, which set out the sum each lender had advanced to the first defendant. The total amount was $3,139,484.21. The plaintiff asserts that the lenders hold their rights under the December 2006 Agreement as tenants in common, and that each are entitled to a proportion of the total amount as set out in Schedule 1, calculated by dividing the sum or sums that each lender has reported as having advanced, divided by the total.
In addition to the lenders secured by the December 2006 Agreement, the first defendant was apparently also subject to an earlier mortgage executed in 2004 (the 2004 Mortgage). The defendants submit that the plaintiff knew of the existence of the loans secured under the 2004 Mortgage, and that the loans secured under the 2004 Mortgage had mortgage priority over the December 2006 Agreement. The defendants asserted that the 2004 Mortgage was discharged in circumstances where the first defendant, as mortgagor, paid nothing to obtain the discharge in the belief, shared with the mortgagees, that they were all secured by the December 2006 Agreement (which they were not). I understand, based on counsels’ oral submissions, that a number of the current defendants are also mortgagees under the 2004 Mortgage, and that there is at least one mortgagee under the 2004 Mortgage who is not subject to the December 2006 Agreement, however, this is does not seem to be relevant to the task at hand.
The first defendant sold the property the subject of the mortgage.
In or around December 2008, the first defendant made a number of repayments. The plaintiff submits that the amounts repaid were not in accordance with the proportions stipulated in the December 2006 Agreement. Relevantly, the plaintiff asserts that, as stipulated in Schedule 1 of the December 2006 Agreement, the plaintiff was entitled to a proportion of 12.713 percent of the total fund, however the proportion they actually received amounted to 6.512 percent, being a sum of $73,977.46. The plaintiff asserts that the other lenders were either repaid amounts that were more or less than the proportion to which they were entitled under the December 2006 Agreement.
The balance not yet repaid is held in the trust account of a law firm, Meyer Vandenberg. For all intents and purposes, the collective parties, other than the first defendant, are the beneficiaries of that. The fund, in total, comprises approximately $7.5 million. As of today, approximately $1.1 million of that fund has been paid out to various lenders subject to both the December 2006 Agreement and the 2004 Mortgage, those payments being the trigger for these legal proceedings. In November 2012, a further $3.1 million was paid out pursuant to an order made by Master Harper, the purpose of which, it seems, was to ensure that the parties were in receipt of at least some of the funds to which they were entitled without further delay. Consequentially, approximately $3.2 million remains in the Meyer Vandenberg trust account.
The defendants (excluding the sixth defendant, who has not appeared or participated in this litigation) claim that, by an administrative error, Schedule 1 of the December 2006 Agreement does not reflect the true agreement between the parties. It is claimed that, prior to the Agreement being executed, Michael De Simone, the director of the first defendant, prepared a loan spreadsheet on his laptop computer which was to show all outstanding loans, including interest accrued, as at 31 December 2006. When emailing the spreadsheet to the solicitors preparing the loan documentation, it is said that Mr De Simone accidentally attached an incorrect and incomplete spreadsheet. The spreadsheet was not checked at the time the parties signed the December 2006 Agreement and the error was not detected until some time after the Agreement had been signed by all parties.
The defendants alleged that the true agreement between the parties was that the December 2006 Agreement was not only intended to provide security for the recent lenders, but to also proffer fresh security to the mortgagees subject to the 2004 Mortgage, which was discharged without repayment on this basis. The practical effect of the 2004 Mortgage being discharged without repayment, and without then incorporating those mortgagees into the December 2006 Agreement, is to increase the sum of the funds available for the lenders subject to the December 2006 Agreement such that the plaintiff would stand to be paid out a significantly higher sum than it otherwise would.
The defendants claim that repayments were made in accordance with the true agreement between the parties.
Procedural history
The plaintiff now seeks an account and payment of such amount as is found to be payable under the Agreement or under statute. These proceedings were commenced by Originating claim in September 2009. An Amended Statement of Claim was filed in December 2009.
The plaintiff submits that, to the extent that the first defendant had made repayments to any of the other defendants in excess of their entitlements under the December 2006 Agreement, such defendants had received those proceeds in the knowledge of a breach by the first defendant of a fiduciary duty to the plaintiff and should be required to account to the plaintiff for the amount of overpayment received. The plaintiff further submits that the first defendant and any other defendants who received an overpayment have breached implied terms of the loan agreement.
In December 2009, the defendants filed a Defence and Counterclaim seeking rectification of Schedule 1 to the December 2006 Agreement such that it would be rectified to reflect the true agreement or common intention of the parties, namely, it would include all of the 2004 mortgagees.
The plaintiffs filed a Defence to the Counterclaim in which they denied that there was any true agreement between the parties other than that which was set out in the December 2006 Agreement.
By agreement between the parties, Master Harper determined the Counterclaim first, as, if the Counterclaim was decided in the defendants’ favour, there would be no basis for the plaintiff to claim an account based on the December 2006 Agreement. On 30 April 2014, Master Harper ordered that the defendants’ Counterclaim be dismissed, as his Honour was not satisfied that the defendants had established a common intent which all parties understood and which was then capable of being recorded as a written contract, other than that which was set out in the December 2006 Agreement.
The matter was referred for mediation on 5 March 2015, however, mediation was unsuccessful.
The matter came before me for hearing on 1 June 2015 to determine the form of the order for accounting under rr 2721 and 2722 of the Court Procedures Rules 2006 (ACT).
The hearing
The plaintiff handed up the following proposed orders:
1. The Court directs that an account be taken of:
a) All moneys received by the First to Fifth and Seventh to Ninth Defendants or any of them [“the Defendants”] since 12 December 2006 as proceeds of the sale referred to in paragraph 8 of the Amended Statement of Claim [the proceeds of sale].
b) Any interest on any bank account into which any of the net proceeds have been deposited which has accrued since 12 December 2006.
c) All payments made from the proceeds of sale or from any such bank account since 12 December 2006.
2.The Court directs that the account be taken as an account of administration in common form.
3.The Court directs that the Defendants itemise and verify the account in accordance with [Court Procedures Rules 2006 (ACT) (CPR)] rule 2724.
4.The Court directs that the Defendants file and serve the account and verifying affidavit in accordance with CPR rule 2725, within 28 days.
5.The Court directs that the Plaintiff serve any notice challenging the account it may wish to serve in accordance with CPR rule 2726, within 42 days, with any challenge to be heard and determined by the Court after hearing the parties.
6.Pursuant to CPR rule 1532 and if there is no challenge or after any challenge is heard and determined, the Court appoints a referee and directs that the following questions be referred to him or her for written report:
a) What amount(s) should be taken from or added to each co-owner’s share of the current balance of the fund, as to compensate for over- (sic) or underpayments in 2008 or 2012 by way of interest at a rate of [Court rate or, depending on the view of the Court on this application 18%pa payable monthly]?
b) What amount is payable from the fund to each co-mortgagee after that question is determined, having regard to the answer to Question (a) above and after providing for the fees & disbursements referred to in Order 7 below?
7.Pursuant to CPR rules 1532(2) & 1538(2), the Court directs that the referee be a chartered accountant agreed to by the parties or in lieu appointed by the chief executive of CPA Australia and that the referee’s fees & disbursements be borne by the co-mortgagees in proportion to their tenancies in common.
8.The Court reserves questions of costs of the proceedings not already determined.
9.The Court grants each party liberty to apply on seven days’ notice in relation to the implementation of these orders, or (if the manner of payment out cannot be determined after the referee gives their report) for further directions, or (if costs cannot be agreed) for argument on costs.
(emphasis as per original)
The dispute at hand is quite narrow, as the defendants accept that the plaintiff has demonstrated a right to an account and that the orders proposed by the plaintiff are appropriate. The only real dispute that remains is the question of whether the defendants should be precluded from considering the 2004 mortgagees’ potential entitlements to a share in the fund in the taking of an account, and at what point in proceedings that question should be dealt with. The plaintiffs argue that that question should be, or should have been, determined as a preliminary issue that should be determined prior to any order being made as to the taking of an account. The plaintiff also foreshadows that, even if the defendants were to raise the issue of the 2004 Mortgage as a preliminary issue, either by way of filing an amended defence or starting fresh proceedings, the plaintiff may raise a defence of Anshun estoppel on the ground that the issue should have been raised at the time the Master considered the Counterclaim. On the other hand, the defendant argues that the question would be more appropriately resolved as part of the accounting process through the mechanism provided by proposed order 5.
The plaintiffs refer to the case of Rockhampton Permanent Building Society v Petersen [1986] 1 QD R 128, where the Full Court of the Supreme Court of Queensland held that, where preliminary questions raised by the parties to go the right of another party to recover, in whole or in part, it would be rare for an order for accounts to be made before those questions have been resolved, as it would be impossible for the officer taking the account to determine what each party is due before those questions have been resolved. The plaintiff submits that the question of whether the 2004 Mortgage should be taken into account amounts to a determination of a right as it would determine each party’s entitlement to a repayment and, as such, should be, or have been, determined as a preliminary matter.
The defendants submit that, whilst there may have been an earlier opportunity for this issue to be raised, it was not in fact the appropriate time to do so and it would better be raised in the context of the account. The defendants deny that the authorities suggest that every question should be determined as a preliminary matter; rather, that it is for the court to determine on the basis of efficacy whether it should be so, unless the question affects the right to an account itself. The defendant refers to the decision of Le Mesurier v Connor (1926) 29 WALR 66 as authority for the principle that certain questions, although they may raise questions of fact or law, may nonetheless be appropriately dealt with within the confines of the accounting process. I note that this decision is not of great assistance as it is a very brief decision and does not state the subject matter of the preliminary points raised.
The defendants assert that it would be preferable to raise this argument at the point in the accounting process covered by the proposed order 5. The defendants foreshadow that their intention would be to provide an account setting out all the payments that have been made out of the fund to date as well as the payments that, the defendants say, are still to be made. The defendants intend to stipulate payments that they say should still be made to the 2004 mortgagees. Whilst this would not be in accordance with the December 2006 Agreement, the defendants would argue that a failure to do so would be unconscionable. The plaintiff would then have the opportunity to challenge the correctness of those payments by way of being given an opportunity to cross-examine the accounting party and filing surcharges and/or falsifications. It would then be for the Court to determine the questions of fact and law that arise from the surcharges and falsifications and determine whether the payments to the 2004 mortgagees should be included in the account, before then referring the matter to a referee under the process outlined in proposed order 6.
Consideration
Accepting that all parties agree with the orders proposed by the plaintiff and that the plaintiff’s right to an account is not disputed, the only issue that remains for me to determine at this stage is the appropriate time and forum for the issue of the 2004 Mortgage to be heard. The bottom line of the plaintiff’s case is that they would seek the Court to make the orders proposed and, if the defendants are to pursue the 2004 Mortgage issue, they should be directed to do so by way of, for example, applying to amend their defence or commencing fresh proceedings and applying to stay the accounting process. The defendants also effectively consent to the proposed orders being made, however, this would be on the understanding that the issue of the 2004 Mortgage could be raised as part of the accounting process.
At this stage, it is not for me to determine the substantive issue, nor whether Anshun estoppel would prevent the defendants from raising the issue at all.
The relevant legislation is r 2721 of the Court Procedures Rules 2006 (ACT):
2721Account – order for account
(1)If an account is claimed in the first instance or a claim involves taking an account, the court may at any stage order that an account be taken.
(2)Without limiting subrule (1), the court may order that an account be taken if –
(a)an originating application seeks the taking of an account; and
(b)the defendant fails to satisfy the court that there is a preliminary question to be decided.
(3)An order directing that an account be taken must state –
(a)the transaction or series of transactions of which the account is to be taken; and
(b)the basis of the account; and
(c)the period of the account.
Rule 2721 (2) (b) makes it clear that I should not order that an account be taken if I am satisfied that there is a preliminary question to be decided. This is also a well established principle as supported by authorities: Rockhampton Permanent Building Society v Peterson; Bonzalie v Cullu [2013] NSWSC 1576 at [117]; Rapid Metal Developments (Australia) Pty Ltd v Rosato [1971] Qd R 82.
I note that the wording of r 2721 (2) (b) implies that it will always be a defendant who will seek to satisfy the court that there is a preliminary question to be decided. That is clearly not the case in this matter, where it is the plaintiff who seeks to satisfy the court that there is a preliminary question to be decided. In my opinion, this does not make a great deal of difference. It seems clear that the intention of the rule is that the court should not make an order for the taking of an account if it is satisfied that there remains a preliminary question to be decided.
Consequentially, I am left with two issues to determine: first, what constitutes a preliminary question; and secondly, whether the issue of the 2004 Mortgage constitutes a preliminary question.
What is a preliminary question
In order to determine what constitutes a preliminary question, it is useful to consider case law.
The matter of Rockhampton Permanent Building Society v Peterson is particularly on point. That case involved an appeal against an order that an account be taken of the principle and interest due to the respondent from the appellants under a mortgage between the parties. The appellants argued that the mortgage was illegal and unenforceable by reason of alleged contraventions of a number of provisions of the Building Societies Act 1886 (Qld). The Court of Appeal judges held that, if the allegations of illegality were made out, the consequences could range from irrecoverability of the principal and interest to the unenforceability of particular items in the mortgage, and that it would be impossible to ascertain the amount due to the mortgagee until those questions were resolved. Despite this, the primary judge made orders for the taking of an account so that the dispute could be placed in its “financial setting”. However, the Court of Appeal found that the dispute did not depend upon the “financial setting”, but on an application of the law to the facts, noting that it would be impossible for an officer taking the accounts to determine what is due until the questions of illegality and unenforceability were resolved. In upholding the appeal, it was held that, where preliminary questions are raised that go to the ability of a party to recover in whole or in part, “it must be rare indeed for an order for accounts to be made before the questions of principle have been resolved” (at 130).
The matter of Rapid Metal Developments (Australia) Pty Ltd v Rosato [1971] Qd R 82 involved a claim for an account to be taken of dealings and transactions between the two relating to the the hiring by the plaintiff from the defendant of many pieces of metal frame-work. There was some dispute between the parties as to what items were actually delivered on the hire and at what rates, and whether items were returned damaged or were returned at all. It was held that those disputes needed to be determined prior to the taking of accounts as, where the state of the account depends upon the determination of disputed questions of fact, those questions must first be decided before, if it remains necessary, an order may be made for the taking of accounts upon the basis of those findings of fact (at 89-90).
In the matter of Lang v Simon (1953) 53 SR (NSW) 508, the defendant employed the plaintiff to manage his pig farm. Disputes arose between the parties and a suit was commenced for discovery and an account. The employment agreement entitled the plaintiff to 50 percent of the profits of the farm, however, there was a dispute as to the method of calculation of profits and as to whether there were, in fact, any profits at all; the plaintiff argued that substantial profits had been made, whilst the defendant argued that there had been a substantial loss over the relevant period. The plaintiff submitted that the dispute as to the calculation of profits should be determined as part of the accounting process, however the Court was not persuaded by that argument (at 514):
Mr St John on behalf of the plaintiff has submitted that I should simply make the order asked for him by him for an account, leaving the issues which will arise between the parties in the taking of the account to be sorted out and determined in the first instance in proceedings before the Master... I do not think that this course would be either a proper or an expedient one to take in the circumstances of this case. When the account is taken the Master should, I think, in the first instance know the basis on which net profits are to be calculated.
I shall stand the further hearing of the suit over to a date to be fixed for the purpose of determining the terms of the contract between the plaintiff and the defendant.
Thus, it was held that, whilst the plaintiff was entitled to an account, that order was to be stood over pending the determination of the dispute, as it would be impossible for the officer taking the account (the Master in this case) to know the basis upon which net profits were to be calculated, and so impossible to determine what the plaintiff was due, if anything.
What I distil from these cases is that a preliminary question is one that goes to the right of a party to recover “in whole or in part”, and one that must be resolved in order for a court appointed referee taking the accounts to be able to determine what each party is due.
Whether the issue of the 2004 Mortgage constitutes a preliminary question
In my opinion, the issue of the 2004 Mortgage is an issue that will affect the plaintiff’s (and other lenders’) right to recover a particular proportion of the funds. A court appointed officer would clearly not be able to determine what each party is due without this question first being answered. I am not persuaded that this is an issue that could be appropriately or more expediently determined as part of the accounting process.
It follows that the issue of the 2004 Mortgage constitutes a preliminary question and should be determined prior to making an order that an account be taken. How this question is raised, be that by way of an amended defence, or a further counterclaim, or some other means, is a matter for the defendants.
Further, I am of the view that the defendants’ submission that argument regarding the 2004 Mortgage could be dealt with during the accounting process demonstrates a misconception of the accounting process. Proposed order 3 would require the defendants to itemise and verify an account in accordance with r 2724, setting out and verifying the transactions that took place within the relevant period and stipulating interest that has been accrued on payments made. It is not an opportunity for the defendants to also argue for or against the proprietary of payments already made and to propose additional payments that should be made (presumably to the 2004 mortgagees). The question of what payments should be made following the accounting process is a matter that will be determined by the appointed referee, a process that would take place according to proposed order 6.
It seems to me that the provision for a challenge to the accounts at proposed order 5 is appropriately intended to provide the plaintiff an opportunity to challenge issues that go to the accuracy of the transactions verified in the account. It is not an opportunity for substantive argument as to the legal basis upon which payments to each party should be calculated.
Furthermore, the defendants’ proposal, to my mind, would not expedite the matter. As the defendants rightly accept, if they are successful in arguing the issue of the 2004 Mortgage as part of the accounting process and it is found the 2004 mortgagees are entitled to recover, this would essentially obviate the need for the Court to appoint a referee as the parties would likely be able to determine the matter for themselves. If this eventuated, the defendants would have undertaken the time consuming and complex process of preparing an account for no good reason, as the question of the 2004 mortgagees’ right to recover would be determined on the application of the law to the facts rather than the financial setting. On the other hand, if the defendants were unsuccessful in their argument, they may need to prepare a second account, or at least substantially amend their account, based on the December 2006 Agreement to provide to the Court appointed referee. Either way, dealing with the issue of the 2004 Mortgage as part of the accounting process seems significantly more arduous and time consuming than dealing with it as a preliminary issue.
Conclusion
As I am satisfied that there remains a preliminary issue to be decided, I am not prepared to order that an account be taken. Once this preliminary question has been decided, the Court may reconsider making the orders proposed by the plaintiff.
I order that the question of costs be reserved.
| I certify that the preceding forty-two [42] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Burns. Associate: Date: 5 November 2015 |
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