Secure Funding Pty Ltd v Torbeckin Pty Ltd (in liq)
[2024] VSC 571
•19 September 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2023 02679
| SECURE FUNDING PTY LTD (ACN 081 982 872) | Plaintiff |
| v | |
| TORBECKIN PTY LTD (IN LIQUIDATION) (ACN 006 306 047) | First Defendant |
| JEREMY STANLEY ROWELL | Second Defendant |
| RODNEY STANLEY ROWELL | Third Defendant |
| INNIS CULL AND TIMOTHY BRADD AS JOINT AND SEVERAL LIQUIDATORS OF TORBECKIN PTY LTD (IN LIQUIDATION) (ACN 006 306 047) | Intervenor |
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JUDGE: | Attiwill J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 3 and 5 June 2024 |
DATE OF RULING: | 19 September 2024 |
CASE MAY BE CITED AS: | Secure Funding Pty Ltd v Torbeckin Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 571 |
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CORPORATIONS — Derivative action — Inherent jurisdiction — Relevant criteria — Application by second defendant for leave to file defence and counterclaim on behalf of first defendant in this proceeding — Where first defendant is in liquidation and the Court previously granted leave pursuant to s 471B of the Corporations Act 2001 (Cth) for plaintiff to proceed with its application for judgment in default of defence — Proposed defence and counterclaim against the plaintiff for, inter alia, unconscionable conduct and breach of duty — Where leave opposed by liquidators — Where no solid foundation for proposed claims against plaintiff — Where no indemnity offered — Where circumstances do not favour the exercise of discretion to grant leave — Leave refused — El‑Saafin v Franek (No 4) [2020] VSC 389, Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 577 applied.
UNCONSCIONABLE CONDUCT — Whether solid foundation for claim that conduct was unconscionable in equity — Where no special disadvantage identified — Where lender alleged to have received false and/or misleading information — Where no solid foundation that lender was on notice of falsity of information received — Where no solid foundation for claim of predatory conduct — Where no solid foundation for claim of unconscientious advantage — Whether lender’s conduct unconscionable within meaning of s 12CB(1) of Australian Securities and Investments Commission Act 2001 (Cth) — Where no relevant matters identified — Stubbings v Jams 2 Pty Ltd (2022) 276 CLR 1 applied.
CONTRACT — Doctrine of penalties — Whether solid foundation for claims that default interest and default management fees under loan agreement are penalties — Person alleging clause is a penalty bears onus of proof — Contractual freedom — Where no solid foundation established — Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 applied.
TORT — Duty of care — Negligence — Whether solid foundation for claim that duty owed by lender to borrower — Where transaction at arm’s length — Where borrower seeks to rely upon own misconduct — Where no solid foundation for claim that duty of care owed by lender or for claims that it was breached.
Australian Securities and Investments Commission Act 2001 (Cth), ss 12CB, 12CC.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms E Delany | Norton Rose Fulbright Australia |
| For the First Defendant | No appearance | N/A |
| For the Second Defendant | In person | N/A |
| For the Third Defendant | Mr P H Caillard | Hicks Oakley Chessell Williams |
| For the Intervenor | Mr A A Segal | Mason Black + Mendelsons Lawyers |
TABLE OF CONTENTS
A.. INTRODUCTION........................................................................................................................ 1
B.. PARTIES AND OTHER RELEVANT ENTITIES AND PERSONS................................... 1
C.. RELEVANT PROCEDURAL HISTORY................................................................................. 2
D.. BACKGROUND........................................................................................................................... 4
NAB Loan....................................................................................................................................... 4
First loan application with Liberty............................................................................................. 5
Second loan application with Liberty........................................................................................ 9
Golden Cube................................................................................................................................ 23
Terms of Loan Agreement......................................................................................................... 26
Guarantee and indemnity.......................................................................................................... 28
Mortgage...................................................................................................................................... 28
Torbeckin’s default..................................................................................................................... 29
Jeremy’s discussions with Liberty post Torbeckin’s default................................................ 30
Appointment of liquidators....................................................................................................... 32
Jeremy’s financial circumstances.............................................................................................. 35
E... APPLICATION FOR DERIVATIVE LEAVE....................................................................... 36
Relevant law................................................................................................................................. 36
Jeremy’s submissions................................................................................................................. 39
Other parties’ submissions........................................................................................................ 46
Consideration.............................................................................................................................. 48
Is Jeremy an appropriate person?................................................................................... 48
Do the claims have a solid foundation?......................................................................... 48
Is there a solid foundation for the claims of unconscionability?................... 48
Is there a solid foundation for the claim that Secure Funding owed Torbeckin a duty of care?................................................................................................... 67
Is there a solid foundation for the proposed relief to be sought by Torbeckin? 69
Conclusion............................................................................................................. 70
Attitude of the liquidators................................................................................................ 70
Practical considerations.................................................................................................... 72
Other relevant circumstances.......................................................................................... 76
Exercise of discretion.................................................................................................................. 76
F... CONCLUSION AND ORDERS.............................................................................................. 76
HIS HONOUR:
A. INTRODUCTION
This proceeding concerns the enforcement by the plaintiff (Secure Funding) of a loan agreement with the first defendant (Torbeckin). Secure Funding alleges that Torbeckin has failed to pay instalments of principal and interest in accordance with the loan agreement. Secure Funding also makes claims against the second defendant, Mr Jeremy Rowell (Jeremy), and the third defendant, Mr Rodney Rowell (Rodney), in their capacity as guarantors of Torbeckin’s obligations under the loan agreement.
There are two applications before the Court. Secure Funding has applied for judgment in default of defence as against Torbeckin pursuant to r 21.03(1)(c) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the Rules). Jeremy seeks derivative leave to file a defence and counterclaim on behalf of Torbeckin in this proceeding. If that leave is granted, Jeremy also seeks orders, on behalf of Torbeckin, for dispensation from compliance with r 1.17(1) of the Rules, thereby permitting Torbeckin to take steps in this proceeding without a solicitor. At hearing, I informed the parties that, in the event that derivative leave is refused, I will hear Secure Funding’s application for judgment in default of defence.
For the reasons that follow, I will refuse Jeremy’s application for derivative leave to file a defence and counterclaim on behalf of Torbeckin and hear from the parties on Secure Funding’s application against Torbeckin for judgment in default of defence.
B. PARTIES AND OTHER RELEVANT ENTITIES AND PERSONS
Secure Funding is a subsidiary and funding entity of Liberty Financial Group Ltd (Liberty).
Torbeckin is the registered proprietor of the land described in Certificate of Title Volume 11487 Folio 268, the address of which is 392 Victoria Street, Richmond VIC 3121 (the Richmond property). It carries on the business of a landlord. On 6 December 2023, Messrs Innis Cull and Timothy Bradd (the liquidators) were appointed joint and several liquidators of Torbeckin upon application by a petitioning creditor unrelated to Secure Funding.
Jeremy is a director and former shareholder of Torbeckin and the son of Rodney. Relevantly, Jeremy was appointed a director and company secretary on 17 May 2022.
Jeremy’s domestic partner, Ms Emma Domino, is the other director of Torbeckin and its sole shareholder. Ms Domino was appointed a director on 25 July 2022. Jeremy and Ms Domino gave evidence that she holds the shares in Torbeckin for ‘safekeeping’ for Jeremy and that Jeremy is the beneficial owner of the shares. However, the position as to the ownership of those shares remains in contention in a related proceeding in this Court (S ECI 2022 04086).
Rodney is a former director and former shareholder of Torbeckin. Rodney ceased to be a director on 17 May 2022. Jeremy gave evidence that he removed Rodney as a director ’for theft of company funds and serious breaches of his fiduciary duties to Torbeckin and [Jeremy] as the shareholder’. Rodney denies these allegations.
The relationship between Rodney and Jeremy is, unfortunately, characterised by bitterness, mistrust and acrimony. This has resulted in numerous disputes between them, including in this Court and other forums.
C. RELEVANT PROCEDURAL HISTORY
On 21 June 2023, Secure Funding commenced this proceeding by writ indorsed with a statement of claim. On 18 July 2023, Rodney filed a notice of appearance. Then, on 27 July 2023, Torbeckin and Jeremy also filed notices of appearance. On 22 September 2023, Rodney filed a defence to the statement claim and a notice for contribution addressed to Torbeckin and Jeremy. Torbeckin, as noted above, was placed into liquidation on 6 December 2023.
Secure Funding, by summons filed on 20 February 2024 and subsequently amended on 5 March 2024, sought orders that:
(a) it has leave to proceed, in respect of the claims in its writ filed on 21 June 2023, as against Torbeckin, pursuant to s 471B of the Corporations Act 2001 (Cth) (Corporations Act); and
(b) pursuant to r 2.07 of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2018 (Vic) (Miscellaneous Civil Proceedings Rules), Secure Funding have leave to file an application for judgment in default of defence pursuant to r 21.03(1)(c) of the Rules and recover possession of the Richmond property.
On 22 March 2024, the Court granted Secure Funding leave to proceed, in respect of its amended summons filed 5 March 2024, pursuant to s 471B of the Corporations Act. The liquidators and Rodney consented to this order. Jeremy was represented at the time by solicitors and counsel and did not oppose it.
On 8 April 2024, Jeremy filed a defence to the statement of claim. In his defence, Jeremy alleges, inter alia, that Secure Funding has engaged in unconscionable conduct. He has not filed a counterclaim. Jeremy, however, sets out the following claim for relief in his defence:
AND THE SECOND DEFENDANT CLAIMS
A.Pursuant to s. 1317E of the Corporations Act 2001, declarations that Third Defendant [sic] has contravened ss. 180, 181 and 182 of the Corporations Act (Cth).
B.An order that his Guarantee and Indemnity to the Plaintiff as described in paragraph 8 of the Plaintiff’s Statement of Claim be set aside.
C.An order that the all terms of loan agreement [sic] in relation to the First and Second defendants be set aside.
D.Costs on an indemnity basis.
E.Such further or other orders as the Court deems fit
By summons filed on 2 May 2024, Jeremy sought derivative leave, pursuant to the Court’s inherent jurisdiction, to file a defence and counterclaim on behalf of Torbeckin.
On 3 June 2024, the Court granted the liquidators leave to be heard on Jeremy’s application for derivative leave.
D. BACKGROUND
The Richmond property is Torbeckin’s principal asset and at all relevant times has been tenanted by:
(a) Golden Cube Pty Ltd (Golden Cube), which operates a brothel trading as ‘Candy Club’; and
(b) various entities including, most recently, JCDecaux Australia Trading Pty Ltd (JCDecaux), in respect of a billboard affixed to the Richmond property.
Jeremy gave evidence that, from around May 2000 to June 2016, he was contracted to perform IT management and software development work for a third party, Cadet Shoes Pty Ltd (Cadet). Jeremy gave evidence that from around April 2003, the fees charged for these services were paid directly to Torbeckin. His work with Cadet eventually ceased but he continued to make substantial contributions to Torbeckin’s finances. In particular, he gave evidence that he sold two residential properties owned by him and loaned or transferred the sale proceeds to Torbeckin.
There was evidence that Jeremy and Rodney would from time to time withdraw funds from Torbeckin’s accounts in order to fund personal expenditures.
NAB Loan
From in or around July 2000, Torbeckin held various loan facilities with the National Australia Bank (NAB). From 28 March 2011, Torbeckin held a ‘Business Markets Loan’ facility of $1,067,000 from NAB, secured by the Richmond property (NAB Loan). The NAB Loan facility limit was increased to $1,655,000 in or around May 2013.
On 9 February 2018, Ms Tina Hopkins, a senior business banking manager at NAB, emailed Rodney and Jeremy stating that the interest only period for the NAB Loan would expire on 30 April 2020, after which Torbeckin would be liable for principal and interest repayments of $23,000 per month until the facility was fully repaid on 30 April 2026. Jeremy gave evidence that this posed a significant problem for Torbeckin as its total monthly revenue, at this time, was $23,685.87 consisting of rent. Rodney gave evidence that, in or around 2019 into 2020, there were reports that NAB would no longer provide financial services to businesses within the brothel industry.
First loan application with Liberty
On 5 December 2019, Jeremy and Rodney met with Mr Geoff Pyers, a finance broker with whom Jeremy had a pre-existing relationship. During that meeting, Mr Pyers said that he could assist with refinancing Torbeckin’s NAB Loan.
On 22 January 2020, Mr Pyers emailed Jeremy to confirm that he had met with Liberty, and requested further information from Jeremy. Later that day, Jeremy forwarded that email to Rodney, who at that time was sole director of Torbeckin. Rodney replied to Mr Pyers’ email stating, inter alia, as follows:
The current tenants have held the lease since 4th June 2010
The current term is the Final Term. The expiry date is 2nd October 2020
The Tenant has advised that they wish to continue the business beyond the expiry date and has accordingly requested the preparation of a New Lease containing 3 Terms of 5 Years each. As security, there will be a $60,000 Bank Guarantee.
The annual income from the Current Property Lease is $266,904 inclusive of GST
The annual income from the LCDecaux Billboard [sic] is $17,322 inclusive of GST.
…
On 24 January 2020, Mr Pyers emailed Rodney and Jeremy proposing the ‘LeaseStream Loan Product’ offered by Liberty. Mr Pyers attached a loan application document, outlined a quote and an estimate of costs, and set out a number of requirements. On 25 January 2020, Rodney emailed Mr Pyers, copying in Jeremy and attaching a completed and electronically signed loan application form. In his covering email, Rodney stated that he would liaise with Golden Cube with a view to preparing a new lease agreement ‘at the earliest’. Later that day, Rodney submitted four subsequent iterations of the loan application form, each time with minor corrections, and bearing his signature and purportedly that of Jeremy. Jeremy did not complete or sign the loan application. Rodney did not dispute that he signed the document for Jeremy but also said that Jeremy was always aware of this and was involved throughout the entire process. Jeremy disputed this.
On 29 January 2020, Rodney emailed Mr Pyers to provide an update on the preparation of a new lease with Golden Cube and stated that he would follow up with Golden Cube in a couple of weeks. Later that day, Mr Pyers responded to Rodney, copying in Jeremy, stating that Liberty would not formally approve a loan in the absence of an executed lease with Golden Cube, but that the application could be conditionally assessed based on the existing lease. Rodney continued to correspond with Mr Pyers with respect to the application. On 1 February 2020, Mr Pyers emailed Rodney and Jeremy attaching a letter from Mr Niall McLynskey, an underwriter at Liberty, stating that the loan for Torbeckin had been approved subject to certain conditions. Later on 1 February 2020, Rodney emailed Mr Pyers, copying in Jeremy, enclosing some further information, including a signed loan application form.
Throughout February 2020, Rodney continued to correspond with Mr Pyers with respect to the loan application. On 17 February 2020, Rodney sent an email to Mr Pyers, copying Jeremy, in which he provided a copy of a draft lease with Golden Cube. Later that day, Rodney sent a further email to Mr Pyers in which he stated that the advertising billboard at the Richmond property generates additional rental income of $18,015 per annum (including GST). Mr Pyers responded as follows:
Given the draft least has been reduced to $220k, If you can please forward the billboard lease when you can would be appreciated.
I’ll be noting to the bank your earlier comments around the reduced rent due to arrangements for tenant to carry out capital works in lieu of full rent, however under the lease doc product I want to ensure the ongoing rental income is evidenced for max as possible.
…
That same day, Rodney provided to Mr Pyers copies of the lease variation documents and the billboard lease with JCDecaux.
On 10 March 2020, Mr Pyers sent an email to Rodney which included the text of an earlier email Mr Pyers had earlier received from Liberty:
Hi Rod,
See below - valuation has come in at $3m. I’ve requested final rates based on LVR and will come back to you shortly.
In the meantime can you please forward electronic copy of signed lease when you have it.
Regards
Geoff
Good morning Geoff,
We can confirm that the valuation report has been received and the property has been valued at $3,000,000, with a net market rental value of $270,142 p/a.
Upon receipt of the following outstanding items, the underwriter will be notified to review the application:
·Require a copy of the lease renewal from the same tenant and must be a minimum of 3 x 5 yr options reflecting annual rent of $266,900 (inclusive of GST).
Please let me know if you have any questions.
Kind regards.
On 12 March 2020, Rodney sent the following email to Mr Pyers:
Hi Geoff
At $3m we’ll take two? Ridiculous valuation. Never mind, it is what it is.
As previously advised, the rental income consists of two streams:
1.Golden Cube Pty Ltd, New Lease 3 x 5 years, commencing 21 Mar 2020 with a rental of $242,000 per annum (incl. GST)
2.JCDecaux Australia Trading Pty Ltd, Lease 2 x 15 years, expiring on 30 Jan 2036, current rental $18,015 per annum (incl. GST)
Total Annual Rental is $260,025
And finally - New Lease attached below!
Regards
Rod.
The attachment to Rodney’s email was a document in the form of an executed lease with Golden Cube which, inter alia, provided for three further terms of five years each, a commencement date of 21 March 2020, and a security deposit in the amount of $60,000. The evidence concerning the provenance of this document is detailed at paragraphs 56 to 61 of this ruling.
On 28 March 2020, Mr Pyers emailed Rodney to advise that Liberty had declined Torbeckin’s loan application. Mr Pyers forwarded an email from Mr McLynskey, which provided:
With regards to the abovementioned Liberty application we advise that we are unable at this present time given the nature of the security and its related income stream. We are however prepared to revisit further down the track once all restrictions are lifted in the economy. As for the fee issue, we are awaiting on approval of this from a higher source and will advise as soon as possible.
In response, Rodney stated, inter alia: ‘We are happy to pursue the matter at a later date.’ Jeremy was copied to this chain of correspondence.
On or about 1 April 2020, Torbeckin received a letter from NAB stating that, amongst other things, the terms of the NAB Loan would be altered. Rodney gave evidence that these altered terms were materially less favourable to Torbeckin than the terms of the proposed loan from Secure Funding. Rodney gave further evidence that he made efforts to renegotiate and refinance the NAB Loan but was unsuccessful. Rodney gave evidence that NAB refused to negotiate and that this, in his view, was because of NAB’s policy to cease the provision of finance to businesses associated with brothels. From 1 April 2020, Torbeckin obtained temporary relief offered by NAB in light of the COVID-19 pandemic. Between 1 April and 30 September 2020, NAB did not require Torbeckin to make any payments. From 1 October 2020, NAB debited Torbeckin for interest of $36,294.01 to make up interest payments not paid during this period. This sum was paid from Torbeckin’s cheque account (#7481). Torbeckin also made a payment of $23,000 on 30 November 2020.
Second loan application with Liberty
On 25 November 2020, Mr Pyers informed Jeremy and Rodney that Liberty were prepared to reassess Torbeckin’s application for refinance. On 3 December 2020, Rodney sent an email to Mr Pyers, copying in Jeremy, which stated, inter alia:
Just to confirm and advise that the tenant Golden Cube Pty Ltd has been trading since 23rd November 2020 and has now paid full rental of $20,166.00pcm for the period 21st November 2020 to 20th December 2020. (See attachment below.)
The next rental payment is due on 21st December 2020.
This is good news and should be reassuring for Liberty to move forward with our loan application. The tenant advises that ‘trade is strong’, which is exactly what we want to hear.
…
On 21 January 2021, Rodney sent a further email to Mr Pyers, copying in Jeremy, in which he stated, inter alia, that rent from Golden Cube had been received in full for each of November, December and January. The attachment to that email was a transaction history of Torbeckin’s account with NAB showing three deposits of $20,166 with the description ‘Rent Golden Cube’, made on 2 and 21 December 2020 and 21 January 2021.
On 31 January 2021, Mr Pyers requested further information from Rodney and Jeremy. The requested documents included, inter alia, ‘6 months statements/transaction list for the NAB loan being refinanced’. On 1 February 2020, Mr Pyers sent an email to Rodney and Jeremy in which he stated that Liberty had conditionally approved the loan and again requested further information. On 4 February 2021, Rodney emailed a completed loan application to Mr Pyers, accompanied by the following attachments:
(a) Letters from NAB entitled ‘Notice of Interest Rate Pricing’ in relation to the NAB Loan dated 2 September 2019, 1 October 2020, 2 November 2020, 2 December 2020, 1 January 2021, and 1 February 2021.
(b) Bank statements for the NAB Loan account for the period 24 March 2020 to 23 September 2020.
(c) Transaction history search the NAB Loan account for 30 November 2020.
(d) Transaction history search for Torbeckin's NAB cheque account (#7481) limited to amounts equal to $20,166.00 in the period 23 November 2020 to 21 January 2021.
(e) Transaction history search for Torbeckin's NAB cheque account (#7481) limited to amounts between $1,501.00 and $1,582.00 in the period 6 October 2020 to 1 December 2020.
(f) Deed of variation of lease with IOM Pty Ltd dated 7 December 2016 for electronic billboard at the Richmond property.
(g) Lease between Torbeckin and Golden Cube dated 21 March 2020.
(h) Works agreement between Torbeckin and Golden Cube dated 3 February 2021 (the works agreement).
(i) City of Yarra rates notice dated 30 November 2020.
The loan application set out the following:
(a) The borrower was Torbeckin and Rodney and Jeremy were guarantors. Rodney was listed as director and Jeremy as shareholder.
(b) The loan applied for was for $1,632,000 for a term of 30 years. The purpose of the loan was ‘refinance’.
(c) Torbeckin owned the ‘Security Property’ (i.e. the Richmond property) which was assigned a value of $3,248,150 with annual rent receipts of $242,000.
Jeremy gave evidence concerning Torbeckin’s finances as at the time of the second loan application to Liberty on 4 February 2021. He expressed the following opinion:
[84] It is abundantly clear that Torbeckin could not pay the Secure Funding loan or any of the other loans when the parties entered into the loan agreement.
The only way to stop the problem was for Golden Cube to pay the rent in full, as it should have, or to sell one of the properties.
…
SUMMARY OF FINANCIAL POSITION AT TIME OF THE LOAN APPLICATION
[88]Torbeckin’s, Rodney’s and my financial position at the time that Torbeckin applied for the loan can be summarised as follows:
Financial Position - 3 February 2021
TORBECKIN ASSETS $5,863,601.42 Land and Building (valued with edited lease) $2,900,000.00 McKay Street Property $1,700,000.00 Total Cash on hand (ANZ #0737 & NAB #7481 $872,601.42 Vehicles (5 vehicles total value) 391,000.00 LIABILITIES $2,529,000.00 NAB #2554 Loan (secured by Victoria Street) $1,609,000.00 *ANZ #2467 Loan (secured by McKay Street) $920,000.00 REVENUE (monthly) $5,561.36 Revenue - Golden Cube $4,000.00 Revenue – JCDecaux $1,561.36 EXPENSES (monthly) $32,354.84 P&I Loan payments NAB #2554 $23,000.00+
$5,357.07Interest Only payment ANZ #2467 $125.11 P&I Loan payments on Jeremy’s NAB #9449 Loan $3,872.66 OTHER A lease agreement with Golden Cube due to expire on 3 October 2020
RODNEY ASSETS *McKay Street Property *$0 LIABILITIES Unknown REVENUE Retired
JEREMY ASSETS Neptune Street Property $1,800,000 100% shareholding in Torbeckin LIABILITIES NAB #9499 Home Loan (secured by Neptune Street) $705,032.78 REVENUE Carer receiving Centrelink payments $946.10 per fortnight The items in red [in this version in this ruling shown in italics] refer to the McKay Street property. I maintain that the property is an asset of Torbeckin for the reasons explained in paragraphs 13, 15, 16, 17 & 18 above.
The ownership of the McKay Street property was a matter before this Court the proceedings referenced in paragraph 5(d) and remains a matter in the related proceedings.
Financial Circumstances at Settlement – 28 April 2022 [sic]
[89]On 28 April 2021, Torbeckin’s NAB #2554 Loan was settled by the Secure Funding loan. The changes, highlighted in blue [in this version in this ruling shown in italics], in the financial circumstances resulting from that refinancing are summarised in the table below:
Financial Position - 3 February 2021
TORBECKIN ASSETS $5,810,854.92 Land and Building (valued with edited lease) $2,900,00.00 McKay Street Property $1,700,000.00 Total Cash on hand (ANZ #0737 & NAB #7481 $819,854.92 Vehicles (5 vehicles total value) $391,000.00 LIABILITIES $2,552,000.00 Secure Funding Loan (secured by Victoria Street) $1,632,000.00 *ANZ #2467 Loan (secured by McKay Street) $920,000.00 REVENUE (monthly) $5,894.36 Revenue - Golden Cube $4,333.00 Revenue – JCDecaux $1,561.36 EXPENSES (monthly) $16,165.87 Interest Loan payments Secure Funding Loan $6,694.00 Interest Only payment ANZ #2467 $263.75 Principal payment ANZ #2467 $5.680.65 P&I Loan payments on Jeremy’s NAB #9449 Loan $3,527.47 OTHER A financially crippling lease agreement with no security deposit that the tenant can terminate 1 with months’ notice.
RODNEY ASSETS McKay Street Property *$0 LIABILITIES Unknown REVENUE Retired
JEREMY ASSETS Neptune Street Property $1,800,000 100% shareholding in Torbeckin LIABILITIES NAB #9499 Home Loan (secured by Neptune Street) $705,032.78 REVENUE Carer receiving Centrelink payments $946.10 per fortnight [90]After making the loans payments, Torbeckin’s had available monthly funds of:
(a) negative $26,379.84 before settlement; and
(b)negative $10,275.51 after settlement;
Torbeckin was unable to pay the Secure Funding loan from the outset.
It is critical to all lending to ensure that the borrower has capacity to pay. To my knowledge the plaintiff did not make a reasonable attempt to ascertain if Torbeckin could pay the loan that it offered at the time.
In doing so the plaintiff put all parties at great risk.
The loan application also recorded that Torbeckin held a business loan account with Australia and New Zealand Banking Group (ANZ) for an amount of $920,000. That loan was secured by a property situated at 1 McKay Street, Richmond (McKay Street property). The loan application contained a statement, signed by Rodney and Jeremy, stating, inter alia, that they expected ‘to have funds available to repay the loan in full and any associated fees and charges at the end of its term as [they intended] to either sell the property or refinance this loan’, they had ‘been advised to obtain legal and financial advice before signing any loan and mortgage documents’, and that ‘if the loan is not paid, [Secure Funding] may be able to sell any security property’. The loan application also provided for a declaration in the following terms: ‘Are you aware of anything that may adversely affect your application for credit or ability to meet your obligations under this loan (e.g. increase in expenses, change in employment, changes to family circumstances, etc.)?’. The answer indicated in the loan application was ‘[n]o’. Jeremy did not give any evidence disputing his signature on these documents.
Mr McLynskey gave evidence of the standardised review process that he usually undertakes when assessing an application for a LeaseStream loan. He deposed that he expects, but could not remember, that he conducted his review of Torbeckin’s application according to this process. This involved, in the first instance, preliminary creditworthiness searches obtained and reviewed by an internal support specialist. When those searches did not reveal any ‘red flags’, the application was referred to Mr McLynskey to undertake a formal credit assessment. This entailed the following:
(a) First, a further review of the preliminary searches in order to satisfy himself there were no ‘red flags’.
(b) Second, a review of the loan application documents to confirm that all relevant documentation has been provided (e.g. the relevant lease and evidence of rent payments received).
(c) Third, an assessment of serviceability. In this regard, Mr McLynskey deposed that a LeaseStream loan product is secured by a mortgage over a property from which the applicant generates rental income from a third party lease, and that serviceability is generally assessed solely by reference to the rental income. Mr McLynskey stated that, in his opinion, the lease with Golden Cube that was provided to Secure Funding was a strong and favourable lease to Torbeckin. For the avoidance of doubt, this version of the lease was for a term of five years, with the option for two further five-year terms.
Mr McLynskey described how an applicant’s capacity to service a LeaseStream loan product is also assessed by reference to a debt-service coverage ratio (DSCR). He deposed that, using Secure Funding’s internal calculation spreadsheet and only taking into account the rental payments by Golden Cube, he determined that Torbeckin’s DSCR exceeded the minimum requirements imposed by Secure Funding in 2021, even when incorporating a stress factor of 2%. It was on this basis that he formed the view that Torbeckin was more than able to service the proposed loan.
On 18 February 2021, Mr McLynskey sent a letter to Mr Pyers which confirmed that Torbeckin’s loan application had been conditionally approved by Secure Funding. The conditions of that approval were set out in that letter.
On 19 February 2021, Mr Pyers emailed Ms Christine Gough of Liberty, stating, inter alia:
2. As per the Works Agreement, some works are already performed (7 out of 8 items) and other works are to be performed during 2021 - so not yet completed… So it stands to reason it's impossible for valuer to confirm ALL works on agreement are completed as of now. ($94k out of $113k total)
Common sense needs to prevail - Valuer to confirm works as per agreement have been completed, excerpt those that have not yet taken place (Carpet for $19k is all remaining). Please confirm that's what is meant by the condition.
On 19 February 2021, Mr Pyers sent the following email to Rodney and Jeremy in which he set out the conditions of approval imposed by Secure Funding:
Hi Rod and Jeremy,
Good new - the loan is now Conditionally Approved. I’ve had a number of discussions with the assessor over last couple of days, they have agreed in principle to do this but please understand the risk/appetite has changed given the environment so we’re going to need to jump through a few more hoops.
There is however a list of conditions that will be required below, and my comments in Blue [in this version in this ruling shown in italics].
Rod, please don’t shoot the messenger here and understand I’m pushing back wherever I can - I desperately want to get this done. But as it stands now we’ll need to provide below.
FYI, I’m tied up most of today. If you need to chat tomorrow would be better for me.
Cheers
Geoff
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Borrower(s): Torbeckin Pty Ltd ACN 006 306 047
Guarantor(s): Jeremy Stanley Rowell/Rodney Stanley Rowell
Loan Amount: $1,632,000.00 or 50.24% of valuation (inclusive of costs), whichever is the lower
Less Total Costs: Approx $17,610.00 (establishment fee $16,320 /Documentation & settlement fees $1,290).
Est. available funds at settlement: $1,614,390.00
Loan Term: 30 years
Interest Rate: 4.90%, Star Commercial Variable IO 5yr, P&I After
Repayments: $6,694.00 includes $30 monthly service fee
Security Address: 392 Victoria Street, RICHMOND VIC 3121
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This loan is approved subject to the following conditions:
� Receipt of fees totalling $3,655.00 (Valuation Fee $2,860.00, Application Fee $795.00). (They require the application fee to be paid up front along with the valuation fee, so need to amend the Credit Card Authority)
� Receipt of satisfactory valuation report for 392 Victoria Street RICHMOND VIC 3121 confirming the market value and net rental at a minimum $220,000 p/annum exclusive of GST (Please note, if acceptable comparable sales or not available, LVR restrictions may apply). The valuation must also acknowledge all stated works have been completed as per the supplied work agreement. (I am arguing this condition as it was not the purpose of the works agreement - leave this with me)
� Max ID requirements to be satisfied (there’s a new online ID certification process - I’ll be in touch with you on this soon)
� Require a Certificate of Legal & Financial Advice (Liberty to provide this prior to settlement)
� Require evidence of rental payment for $20,166 for 02/2021. (They’ve requested evidence of the next lease payment as soon as it’s made - I think due in the next day or 2?)
� Subject to Liberty Credit Committee Approval
� The clients business must be fully operational both prior to Formal Approval and prior to Settlement. (ie: They’re reserving the right to reject if if we were to go into another lockdown)
� 6 months satisfactory and up to date statements in respect of the Mortgage being refinanced NAB #2554. (Statement provided goes to August 2020. Will require statement or corresponding transaction listing showing repayments made from August 20 to current date, evidencing repayments being met)
� 6 mths transaction statements showing repayments being debited from the nominated account as discussed. (Need statements/transaction accounts where repayments have been coming from showing the debits for repayments being made to the NAB Loan #2554 over last 6 months)
� Require evidence of other liquid funds held in other bank accounts in the event the are required to service repayments on this facility over say the next 6 mths as discussed. (They want to see evidence (statement/s) of any facilitates (Cash/Offset/Redraw available that could be called upon should we be shut down again for a period of say 6 months…. Statements balances must be within 14 days of today.
On 23 February 2021, Rodney sent an email to Mr Pyers, copied to Jeremy, which contained a number of attachments, including, inter alia:
(a) transaction history searches for Torbeckin’s NAB cheque account, with the following filters applied:
(i) from 1 July 2020 to 22 February 2021 for amounts between $20,165.00 and $20,167.00;
(ii) from 1 July 2020 to 22 February 2021 for amounts between $1,501.00 and $1,562.00;
(iii) from 1 July 2020 to 22 February 2021 for amounts between $3,001.00 and $3,003.00;
(iv) from 1 July 2020 to 19 February 2021 for amounts between $5,500.00 and $6,100.00; and
(v) from 1 July 2020 to 19 February 2021 for amounts between $36,290 and $36,300;
(b) bank statements for Torbeckin’s NAB Loan account for the periods 24 March 2020 to 23 September 2020 and 24 September 2020 to 22 February 2021;
(c) letter from NAB entitled ‘Notice of Interest Rate Pricing’ in relation to the NAB Loan dated 1 February 2021; and
(d) bank statement for Torbeckin’s ANZ offset account (#4589-50737) for the period 8 January 2021 to 8 February 2021.
Jeremy gave evidence that, later on 23 February 2021, Rodney sent a further email to Mr Pyers attaching a bank statement for Torbeckin’s cheque account with NAB.
Later on 23 February 2021, Mr Pyers forwarded the various documents to Mr McLynskey, accompanied by the following email (recorded in the notes of Mr McLynskey):
Hi Niall,
Please find attached required documents for Formal Approval and notes as below from Applicant: Can you please call me ist [sic] you have any questions at all.
Regards
Geoff.
1. Credit Card Authorisation for $3,655.00 attached below.
2.Online Max ID certification process has been completed for Jeremy & myself.
3. Certificate of Legal & Financial Advice yet to be provided by Liberty.
4.Bank Statement NAB Current Account #7481 with Golden Cube rental payments to date including additional Feb 21 payment, attached below.
5.Bank Statements NAB Current account #7481 with JCDecaux rental payments to date including additional Feb 21 payment, attached below.
6.Bank Statement NAB Business Markets Loan #2554 March 2020 to February 2021, attached below.
o Note: BML (Business Market Loan) is set up whereby the monthly interest charge is debited from another account #7481. Principle [sic] amount remains the same - interest is charged and paid via #7481. It does not have a requirement for 'monthly repayments' to be made into the Business Market loan itself. The $23,000 paid on 30/11/2020 was a voluntary principle [sic] reduction payment.7.Bank Statement with interest payments from current NAB #7481 to NAB #2554, attached below. o Note: Torbeckin Account Statement and transaction listing evidencing Interest payments being debited for BML #2554
8.NAB Business Markets Loan Letter confirming current position, attached below.
9. Evidence of liquidity, ANZ Offset #0737 attached below.
(emphasis added)
On 25 February 2021, Mr Frederick Atkin, an agent from AdVal Property, published an updated valuation on the value of the Richmond property. On 5 March 2021, Rodney emailed Mr Atkin, attaching copies of the purported new lease with Golden Cube, the billboard lease, and the works agreement. Jeremy gave evidence concerning the valuation report:
61.…
I note that Rodney sent Mr Atkin a copy of the lease, the billboard lease, and the works agreement after the Victoria Street property had been valued.
It appears that Liberty failed to provide the works agreement, or the instructions to the valuer, to confirm that the work had in fact been completed.
One of the conditions that Liberty placed on the approval of the loan application … was:
The valuation must also acknowledge all stated works have been completed as per the supplied work agreement.
There is no mention of the works agreement, nor has it been included, in valuation report.
(emphasis in original)
Mr McLynskey gave the following evidence:
26Subject to the following comments, the conditions set out in the Conditional Letter of Approval were (and still are) standard conditions for a LeaseStream loan:
(a)I refer to page 30 of exhibit NM-1 which is a diary note dated 16 February 2021. It records the rental on the Security Property payable under the Golden Cube Lease was lower than the rental that had been payable under the previous lease due to an agreement with Golden Cube that they undertake works to the Security Property for the amount of $113,500. When Secure Funding had first seen the 2020 Loan Application, the annual rent exclusive of GST (under the previous lease) was $266,9000, whereas on the current application (and under the new, Golden Cube Lease) it was $220,000. The diary note is referencing Torbeckin’s explanation that the reduced rental in the new lease was due to a works agreement. To verify the accuracy of this explanation, the Conditional Approval Letter required that the valuation confirm that these works had been undertaken as agreed between Torbeckin and Golden Cube…;
(b)Although Secure Funding generally requires six months of statements showing receipt of rental income, Secure Funding has the discretion to vary this condition and occasionally does so. This discretion sits with the Credit Committee and I understand is exercised based on each individual application and depending on the customer profile. I believe from my review of the relevant business records that at the time the Conditional Approval Letter was issued, Secure Funding was exempted from the need to provide evidence of six months of rental payments … Torbeckin had already provided records of three months’ rental payments, illustrating that each of the tenants were meeting their requirements under their respective lease agreements. The rental payment for February 2021 under the Golden Cube Lease was requested for completeness and to confirm that the most recent rental payment had been received by Torbeckin.
(c)Although the Conditional Approval Letter refers to provision of ‘bank statements’, it is not unusual for Secure Funding to be provided with a transaction history. The purpose of these documents is to verify rental payments being received or loan repayments being made. For the LeaseStream loan product, as mentioned above, Secure Funding is assessing whether the rental income will be sufficient to service the loan, not undertaking a broader assessment of the company’s financial position. Consequently, in my experience, a transaction history that verifies the rental payments is often considered acceptable. I do not recall making repeated requests of the Company to be provided with bank statements (instead of a transaction history). My recollection is consistent with the diary notes exhibited at pages 17 to 35 of NM-1.
27Based on my review of the file maintained by Secure Funding each of the conditions set out in the Conditional Approval Letter were satisfied by the Company or otherwise waived or varied by Secure Funding at its discretion.
28Copies of the key documents provided to Secure Funding in satisfaction of the conditions set out in the Conditional Approval Letter are exhibited to NM-1 as follows:
(a)Evidence of six months’ repayment of current loan obligations: bank statements for the Torbeckin’s NAB account #2554 the period of 24 March 2020 to 23 September 2020 and 24 September 2020 to 22 February 2021…;
(b)Evidence of loan repayments being debited from the Company’s transactional loan account: bank statement for the Company’s NAB account #7481 for the period of 1 January 2021 to 29 January 2021 and transaction history report for Torbeckin’s NAB account number #7481 for the period covering 1 July 2020 to 19 February 2021…;
(c)Evidence of four months rental income being received: transaction history report for the Torbeckin’s NAB account #7481 for the period covering 1 July 2020 to 22 February 2021…;
(d)Evidence of liquid funds: bank statement for the Torbeckin’s ANZ account #0737 showing liquid funds of $896,027.62…;
(e)Valuation received from AdVal…;
(f)Certificates of independent legal and financial advice: certificate signed by Jeremy on 26 March 2021 and certificate signed by Rodney Rowell, the third defendant, on 26 March 2021…
(g)Confirmation that the tenant’s business was fully operational: refer page 21 of NM-1 which is a diary note dated 17 March 2021 in which I record that the guarantors (Rodney and Jeremy Rowell) have confirmed that the tenant’s business is fully operational.
29In terms of the valuation, based on my review of the diary notes, I believe Ms Nyugen instructed AdVal to proceed with the valuation of the Security Property on or around 25 February 2021. I refer to pages 22 to 23 of NM-1 which is a diary note recording Ms Nguyen’s correspondence with AdVal on 25 February 2021.
30I am informed by Ms Nguyen and believe that on 10 March 2021, Ms Nguyen received an email from Nima Komelli of AdVal 2021, attaching a valuation report for the Security Property (AdVal Report)…
31I notice that the AdVal Report exhibited at pages 143 to 231 of NM-1 is dated ‘25 February 2021’ on the front page and ‘25 February 2020’ on page iv. The footer also refers to ‘25 February 2020’. I expect that the references to ‘2020’ are typographical errors and should instead refer to ‘25 February 2021’. It may be that reference to’25 February 2021’ on the front page is a reference to the date on which AdVal was instructed to undertake the valuation and attended the Security Property. This, in my view, is consistent with:
(a)The diary note exhibited at pages 22 to 23 of NM-1 which shows that AdVal was only instructed to proceed with the valuation on 25 February 2021;
(b)A diary note exhibited at page 22 of NM-1 which shows that as at 1 March 2021, Secure Funding was still waiting for the valuation to be provided; and
(c)The email from Ms Komelli of AdVal exhibited at pages 141 to 143 sending Ms Nyugen the AdVal Report on 10 March 2021.
32As set out above, it was a condition to the approval of the 2021 Application that the Security Property valuation confirm that the works agreed to be undertaken by Golden Cube (Works) had been completed. I refer to pages 21 on NM-1 which is a diary note completed by me dated 17 March 2021 in which I record, among other things, ‘noted that the valuer has confirmed all required works completed in line with stated rental reduction.’ I do not recall now what led me to make that comment in the diary note but I have no reason to doubt its accuracy. I suspect that I may have spoken with the valuer via a telephone call around the time the valuation was issued and he confirmed this point with me over the phone. Further, I have reviewed the AdVal Report for the purposes of preparing this affidavit and note that the AdVal Report at paragraph 10.4 refers to the ‘refurbishment works recently concluded’ at the Security Property.
(emphasis in original)
Mr McLynskey further deposed that, because the proposed loan to Torbeckin exceeded his approval limit, he was required to submit the application to Secure Funding’s internal Credit Committee for approval. On or about 18 March 2021, he completed a credit paper for Torbeckin’s application, recommending that it be approved. Later that day, the Credit Committee approved the application.
On 19 March 2021, Mr Pyers sent an email to Rodney which stated, inter alia, that Torbeckin’s loan application had been formally approved.
Jeremy gave evidence:
26. …
Despite numerous requests from Mr Pyers and Liberty’s underwriter, Rodney has never provided Torbeckin’s bank statements.
Rodney has only provided transaction history searches. He has filtered out and supplied the rental payments from Golden Cube and JCDecaux and provided little to no other financial information.
…
27.The content of Torbeckin’s emails reveal how Rodney misled and deceived and Mr Pyers, Liberty and me and Liberty’s negligence and failure to satisfy the conditions in put on approving Torbeckin’s loan application [sic]. The failure that resulted in the commercial loan agreement.
On 23 March 2021 at 4:03pm, Rodney emailed Mr Sean Kirby of the accounting firm Progression Group, requesting a certificate of independent financial advice. Mr Kirby replied at 4:15pm, attaching a signed certificate of independent financial advice.
On 26 and 29 March 2021, Rodney and Jeremy attended their solicitor’s office to execute documentation for the loan from Secure Funding.
The loan agreement was in writing and comprised a commercial loan agreement and guarantee schedule (the Schedule), and a set of standard loan agreement terms and conditions (the Terms and Conditions) (the Loan Agreement). The Loan Agreement was signed and dated by Rodney on behalf of Torbeckin on 26 March 2021. The terms of the Loan Agreement are set out in further detail at paragraphs 70 to 73 of this ruling.
On 28 April 2021, Torbeckin’s loan with Secure Funding settled and the company’s account with the NAB (#2554) was closed.
Golden Cube
Torbeckin leased the Richmond property to Golden Cube pursuant to an original lease dated 26 August 2005. The lease was renewed for a number of further terms, including on 11 July 2017 for a further term ending on 2 October 2020.
On 28 February 2020, Ms Lin Gao, director of Golden Cube, emailed Ms Joanne Faillal, a conveyancer at Residential & Commercial Property Transfer Co., copying in Rodney, stating that she had met with Rodney that day and agreed the following changes for the new lease:
1. One month notice instead of three months as covered in Item 22
2.No security deposit. This would require either $0 under Item 20, or remove Item 20 and Section 13 altogether, whichever is easiest.
…
Later that day, Rodney emailed Ms Faillal, copying in Ms Gao, confirming the content of Ms Gao’s email:
Following a further meeting with the Tenant (Lin Gao) this afternoon, I write to confirm the content of her email below, i.e.
1. Reduction of the Security Deposit (Item 20) to zero
2.Reduction of three (3) month written notice (Item 22) to one (1) month written notice.
…
On 12 March 2020 at 1:54pm, Ms Faillal emailed Rodney, attaching an executed lease for the Richmond property, with Torbeckin as landlord and Golden Cube as tenant. That document provided, inter alia:
(a) Item 20: ‘Security deposit: Not applicable’; and
(b) Item 22: ‘Additional provisions: …the Tenant can give the Landlord one (1) month written notice to terminate this Lease during its term and during any further terms’.
That same day, Rodney also corresponded with Mr Pyers, and at 3:05pm, sent an email to Mr Pyers stating that the rental income consisted of two streams i.e. Golden Cube and JCDecaux, and attaching an executed lease for the Richmond property, with Torbeckin as the landlord and Golden Cube as the tenant. In contrast to the document exchanged with Ms Faillal, this version of the lease provided for a security deposit in the amount of $60,000.00 and did not include any additional provisions. Jeremy provided a tabulated summary of the differences between the two versions of the lease:
12 MARCH 2020 - 1:54PM
From Ms Fallaj (Conveyancer)
To Rodney12 MARCH 2020 – 2:26PM
From Rodney
To Geoff Pyers (Finance Broker)Page 5:
ITEM 20 – Security Deposit: Not Applicable
Page 5:
ITEM 20 – Security Deposit: $60,000Page 5:
ITEM 22 – The Landlord and the Tenant hereby specifically agree that the Tenant can give the Landlord one (1) month written notice to terminate this Lease during the term and during any further terms.Page 5:
ITEM 22 –
Jeremy gave evidence that the PDF of the lease document sent by Rodney to Mr Pyers was altered on 12 March 2020 at 2:20pm.
Jeremy also gave evidence that Rodney made a number of bank transfers from his personal bank account to that of Golden Cube, which in turn paid amounts to Torbeckin, giving the impression that Golden Cube was paying more rent than it was. In particular, Rodney transferred funds from his personal account to Golden Cube, as follows:
(a) $20,166.00 on 25 and 26 November 2020;
(b) $10,083.00 on 17 December 2020; and
(c) $10,083.00 on 18 January 2021.
Jeremy provided a summary of these transactions in a table:
Date Rent Paid By Total Rodney Golden Cube 2-Dec-20 $20,166.00 $0.00 $20,166.00 21-Jan-21 $10,083.00 $10,083.00 $20,166.00 21-Feb-21 $15,833.00 $4,333.00 $20,166.00 Total $46,082.00 $14,416.00 $60,498.00
On 18 January 2021, Rodney sent the following email to Ms Gao:
Hi Lin
In the matter of ongoing rental assistance for your business, I have today transferred $10,083.00 from my personal account to Golden Cube Pty Ltd.
It will be very much appreciated if you would pay the full rental of $20,166.00 on the due date, Thursday 21st January, to the following account.
Torbeckin Pty Ltd
BSB: 083-781
Account number: 60-910-7481
[…]
Rodney admits to transferring funds from his personal account to Golden Cube so that Golden Cube could meet its rental payments to Torbeckin. He stated this was done because there was no other way to refinance the NAB Loan without demonstrating that Torbeckin was receiving rental income.
Rodney also gave evidence that between 2020 and 2021, Torbeckin agreed to reduce the rent payable by Golden Cube in light of the onset of the COVID-19 pandemic. Rodney gave further evidence that on 18 March 2022, Torbeckin agreed to reduce the rent payable by Golden Cube for the period 21 March 2022 to 21 June 2022 to $5,041 per calendar month (including GST and outgoings).
Jeremy gave evidence that he met with Ms Gao on 29 September 2022 and that Ms Gao agreed to resume full rental payments to Torbeckin.
Jeremy gave evidence as to the impact of the rental reductions, the edited lease, and Rodney's use of Torbeckin's funds and assets from March 2020 to August 2022 inclusive. Jeremy’s evidence is that in the period between May 2021 to August 2022 inclusive, Torbeckin lost $260,412 in lost rent from Golden Cube.
Jeremy gave evidence that Torbeckin should receive rent of $1,826.57 per month from JCDecaux and $20,166.66 per month from Golden Cube.
Terms of Loan Agreement
The Schedule incorporated into the Loan Agreement provides for the following:
(a) Loan amount: The loan amount was $1,632,000.00 with estimated fees and charges of $18,636.60.
(b) Loan term: The loan term was 30 years commencing from and including the settlement date.
(c) Interest rate: The interest rate was defined as a variable rate which was initially 4.90% per annum.
(d) Default rate: The default rate was the interest rate plus a margin of 6.00% per annum.
(e) Repayments: For the first 60 months commencing from the settlement date, Torbeckin had to make consecutive monthly interest only repayments calculated in accordance with the Terms and Conditions. Following the first 60 months, Torbeckin would have to make consecutive monthly principal and interest repayments over the remainder of the loan term of $9,475.63 each and a final repayment of $9,475.63.
(f) Security: The Loan Agreement was secured by a registered mortgage over the Richmond property (the Mortgage).
The Schedule was signed on 29 March 2021 by Rodney on behalf of Torbeckin and also by Rodney and Jeremy as individual guarantors.
The Terms and Conditions provide, inter alia, that:
(a) interest charges for each day are calculated at the daily percentage rate on the balance owing on Torbeckin’s loan account for the end of that day (cl 3.1);
(b) Torbeckin would be in default if it did not pay on time all amounts due under the Loan Agreement (cl 8.1(a));
(c) Torbeckin would be in default if it became insolvent (cl 8.1(h)), which was defined by the terms of the Loan Agreement as, inter alia, having a controller appointed in liquidation;
(d) if Torbeckin is in default, then Secure Funding may give Torbeckin a notice stating Torbeckin is in default, and if Torbeckin does not, or cannot, correct the default within any period given in the notice or required by law, then the total amount owing becomes immediately due for payment and Secure Funding may sue Torbeckin for that amount and/or enforce any security (cl 8.2); and
(e) if Torbeckin is in default, it must pay interest at the default rate on the balance owing on the loan account (cl 8.4). These charges would accrue daily, and on each repayment date (and monthly after the end of the loan term), these charges would be added to the overdue amount. Torbeckin would then be liable for default interest charges on the new amount overdue (cl 8.5).
The Loan Agreement also incorporates, inter alia, a ‘Default Management Fee’ of $195.00 payable to Secure Funding on each day on which a repayment is due and Torbeckin ‘have been in default for at least 90 days at any time in the period after the immediately preceding payment was due’. The Default Management Fee, therefore, is charged once per month when Torbeckin is in default for at least 90 days.
Guarantee and indemnity
Jeremy and Rodney jointly and severally guaranteed the obligations of Torbeckin under the Loan Agreement pursuant to a deed of guarantee and indemnity in favour of Secure Funding executed on 26 March 2021.
Mortgage
The Mortgage was executed on behalf of Torbeckin by Rodney on 26 March 2021. The instrument executed at that time identified the security property by land title reference 6423/549. This was not the correct land title reference for the Richmond property. This error was identified by an employee of Liberty on 9 April 2021. The Mortgage was amended prior to settlement by a Liberty employee to refer to the correct land title reference (i.e. 11487/268). This amendment was made pursuant to a document titled ‘Authority and Direction’ which, inter alia, authorised Secure Funding to ‘…amend [the mortgage documents and any collateral documents] by way of addition, omission or variation in any manner which may be requisite for the purpose of completing the same in order to give effect to the agreed terms and conditions of the advance and for the filing, stamping and/or registration of such documents’. I address Jeremy’s submissions concerning the Authority and Direction later in this ruling at paragraphs 145 and 146.
The amended mortgage instrument was registered at the Land Titles Office on 28 April 2021 with reference number AU282859H. The Mortgage incorporated a memorandum of common provisions which provided, inter alia:
(a) terms defined in the Loan Agreement have the same meaning when used in the Mortgage unless expressly defined in the mortgage (cl 30.1). Accordingly, the meaning of ‘event of default’ is as set out in the Loan Agreement;
(b) if an event of default occurs, the amount owing is payable on demand (cl 21.1); and
(c) after an event of default has occurred, then Secure Funding may sue Torbeckin for the amount owing, appoint one or more receivers, or do anything that a receiver could do under cl 22.4, which includes taking or giving up possession of the property as often as it chooses, severing, removing and selling fixtures, and doing anything else the law allows an owner or a receiver of the property to do, including improving, selling or leasing it (cls 21.2 and 22.4).
Torbeckin’s default
Rodney gave evidence:
5.From 22 March 2021 until 17 May 2022, I always made repayments to Secure Funding in accordance with the terms of the facility agreement with Secure Funding. Secure Funding was set up with a direct debit authority to automatically pay itself from rental payments paid into Torbeckin’s bank account each month.
6.As described in pages 10 and 11 of the Liquidator’s Report which commences at page 5 of the exhibit to my affidavit sworn on 18 March 2024, each month Torbeckin received rent from Golden Cube Pty Ltd (Golden Cube) and JCDecaux Australia and New Zealand (IOM).
7.The rental income from Golden Cube and IOM would be paid into the account held by Torbeckin being the ANZ account number 642558188 with BSB 013275, from which Secure Funding would draw funds from a direct debit…
8.At that time, Torbeckin was receiving approximately $21,449.00 in rent per month and the interest only loan repayments to Secure Funding at the time were approximately $6,694.00 per month. The rent received from the tenants was easily sufficient enough to make the monthly repayments to Secure Funding. Jeremy and I would use the surplus to pay personal expenses from time to time, before the breakdown of our relationship.
9.I obtained a bank statement from Secure Funding, and the bank statement shows that:
(a)since my removal as a director of Torbeckin on 17 May 2022 by Jeremy, Torbeckin only made further repayment to Secure Funding on 27 May 2022;
(b)the first default under the Secure Funding loan was on 29 June 2022, being over a month after I was removed as a director of Torbeckin; and
(c)since then, Torbeckin has completely stopped making any repayments of the Secure Funding Loan of which I am a guarantor.
…
On 29 June 2022, Torbeckin first defaulted in making repayments of the loan. It then made a repayment on 28 July 2022 but since that date has not made any repayments.
Ms Natasha Toholka, solicitor for the plaintiff, gave evidence that as at 10 May 2023, Torbeckin had failed to pay instalments of principal and interest totalling $167,152.54, in breach of its obligations under the Loan Agreement. On 11 May 2023, Secure Funding served a notice of default on Torbeckin requiring Torbeckin to remedy the default by 25 May 2023. The default notice specified that if the default was not rectified by 25 May 2023, Secure Funding may, inter alia, commence proceedings for possession of the Richmond Property and/or exercise its power of sale. Torbeckin failed to remedy the default by 25 May 2023 and Secure Funding subsequently commenced this proceeding on 21 June 2023.
Ms Toholka gave evidence that, as at 28 May 2024, Torbeckin was indebted to Secure Funding under the Loan Agreement in the sum of $2,240,669.65 with interest continuing to accrue at the rate of 15.15% per annum (i.e. $908.83 per day as at that time).
Jeremy’s discussions with Liberty post Torbeckin’s default
Jeremy gave evidence that, in September 2022, he resolved to sell the Richmond property. He received advice from an estate agent that the terms of the lease with Golden Cube (i.e. one month notice period and no security deposit) materially impacted the achievable sale price.
Jeremy gave evidence that in late October or early November 2022, he advised Mr Matthew Menzies, Asset Realisation Manager at Liberty, of the circumstances surrounding the lease provided to Liberty in support of Torbeckin’s loan application. Jeremy also gave evidence that he reported the same information to Victoria Police and the Australian Securities and Investments Commission.
On 16 November 2022, Mr Menzies sent the following email to Jeremy:
Hi Jeremy,
We didn’t receive any paperwork until 15 Feb 2021 when the loan was first applied for.
The first lease is the one I think you have from 2020. I have also found a few pages from a 2017 amendment that is dated and a works agreement from 2021 that’s also dated.
I hope these help.
Regards.
On 25 November 2022, Mr Menzies sent an email to Jeremy which stated:
Hi Jeremy,
As discussed some more loan documents attached. I have also included a title search and in Vic the lease does not have to be on the title.
The loan was refinanced to us April 2021, prior to that the loan was with NAB, it might be worth contacting them to see what lease paperwork they may have.
Regards.
Jeremy gave further evidence that, in late November or early December 2022, he explained to Mr Menzies that Torbeckin was experiencing difficulty selling the Richmond property because of the conditions on the lease and because it was the holiday season.
On 2 December 2022, Mr Menzies sent an email to Jeremy which stated:
Hi Jeremy,
As discussed we happy to extend the time to sell agreement until 5 Feb 2022 at this stage.
Please also see our Banking details below:
Bank name – National Australia Bank
Account name – Secure Funding
BSB – 083001
Account Number – 834908365
Reference – 3547728
Regards.
Jeremy’s evidence was that Mr Menzies provided Liberty's banking details because he had advised Mr Menzies on the telephone that he and Torbeckin were facing extreme financial hardship and the only option to remedy Torbeckin's default was to obtain and sell Torbeckin’s vehicles.
Appointment of liquidators
On or around 3 October 2022, Torbeckin entered into a loan agreement with Ms Estela Rodriguez (Estela) which contemplated an advance of $200,000 for an initial duration of 3 months, to be repaid out of the proceeds from the sale of the Richmond property. Estela was the mother of Ms Jessica Rodriguez (Jessica), an associate of Jeremy and Emma.
On 12 October 2022, Rodney commenced proceeding No. S ECI 2022 04086 in this Court against Torbeckin. On 18 October 2022, Rodney lodged a caveat over the Richmond property on the basis of an implied, resulting, or constructive trust.
Jeremy gave evidence that in late January 2023, he discussed with Jessica the possibility that Torbeckin would disclaim the lease with Golden Cube, and that Jessica subsequently introduced him to Mr Cull. Jeremy’s evidence is that on 19 May 2023, he had a telephone conversation with Mr Cull to discuss the lease agreement and his various allegations against Rodney.
From around August 2023, the relationship between Jeremy and Jessica deteriorated. On 18 August 2023, Jessica sent a letter of demand to Torbeckin, on Estela’s behalf. On 25 August 2023, Jeremy sent a responding letter on behalf of Torbeckin, denying that Torbeckin was in default under the loan agreement with Estela. The parties exchanged further correspondence without achieving any resolution, and by late August 2023, all communication had broken down.
On 16 November 2023, Jeremy began taking steps to refinance Torbeckin’s debts. He gave evidence that he obtained a valuation report from Sovereign Valuations for this purpose which estimated a sale price for the Richmond property of $3,454,000 with vacant possession, and $2,992,000 with the lease to Golden Cube in place.
On 6 December 2023, the liquidators were appointed to Torbeckin upon the petition of Estela. Torbeckin did not appear at the hearing of that application. In this respect, Jeremy submitted that the winding up application was not validly served upon Torbeckin’s registered office. Jeremy gave evidence that, had he been on notice of the winding up application, Torbeckin would have opposed it.
On 22 December 2023, Jeremy signed a Report on Company Activities and Property (ROCAP) in relation to Torbeckin. The ROCAP listed the following amounts owed to creditors:
#
Creditor’s Name
Amount owing
1. Secure Funding Pty Ltd $1,996,563.93 2. Lumi Australia $55,000 3. Complete Credit Solution $26,500 4. KKI Lawyers $50,000 5. Estela Rodriguez $200,000
Jeremy provided the following explanation why he did not include himself as a creditor of Torbeckin:
4. In early December, I sought legal advice from Moray & Agnew Lawyers regarding including myself as a creditor of the company and was advised it was inconsequential because I am the beneficiary of all the shares in Torbeckin and would therefore receive the same dividend as being an unsecured creditor.
5.It was considered that the dividend would be the same because the value the company’s property at 392 Victoria Street, Richmond alone exceeded the company’s liabilities by more than $2,000,000 at that time.
6.Furthermore, Ms Domino as the sole shareholder and a director of the company was about to file an application to terminate the liquidation. That application required Torbeckin’s current directors to obtain finance to satisfy all debts owed to the company’s creditors.
7.If I were to include myself as a creditor then Torbeckin directors would have needed to borrow more money to terminate the liquidation. This was not in the best interests of the company or the other creditors.
Mr Cull gave evidence that on 23 January 2024, he obtained a desktop valuation of the Richmond property from Mr Paul Doherty of Australian Professionals Property Service. Mr Doherty expressed the following views:
(a) If the capitalisation rate for the property is 12.5% to 15% which he believes may be appropriate for properties with tenants that operate a brothel, then the Richmond property may be worth between $1.46 million to $1.76 million.
(b) If the capitalisation rate for the property is between 8% to 10%, then the Richmond property may be worth between $2.2 million to $2.75 million.
(c) If the property was valued on a vacant possession basis, it would be worth between $1.6 million to $1.8 million.
Ms Domino also gave evidence concerning the valuation of the Richmond property:
26.This year I have had several discussions registered property valuers, real estate agents and lenders regarding the value of the Victoria Street property.
27.All the professionals estimated the value of the property to be in excess of $3,200,000 and many estimated that the property is worth over $4,500,000.
28.If required to substantiate the advice that I received I will contact all the professionals who advised me and request that they provide me with their appraisal.
29.I did not obtain appraisals because I never could have imagined that the liquidators, or anyone for that matter, would estimate the value of the Victoria Street property to be as low $1,290,000.
30.In December 2023 and February 2024, Jeremy and I obtained copies of two valuation reports from two registered valuers that are experienced in valuing brothels. Those valuers were instructed by the lenders who had provided Jeremy and me with a letter of offer to refinance the existing loan.
31.Mark Ferrier of Sovereign Valuations valued the property on 7 December 2023 at $2,992,000 with the current lease and $3,454,000 with vacant possession...
32.The other valuer, who has requested that I do not disclose his identity, valued the Victoria Street property on 13 February 2024 at $3,840,000. I have a copy of his sworn valuation in my possession.
On 6 March 2024, the liquidators published their statutory report to creditors pursuant to s 70-40 of the Insolvency Practice Rules (Corporations) 2016 (Report to Creditors).
In the Report to Creditors, the liquidators identified assets of $1.29 million and liabilities of $3,236,376.06. Jeremy was not listed as a creditor. The liquidators stated that their enquiries indicated that the value of the Richmond property may be between $1.46 million and $2.75 million. The liquidators estimated that the secured creditors were owed $2,965,086.06 and the unsecured creditors were owed $271,290. Mr Cull said that, based on his investigations to date, he is concerned that the sale of the Richmond property will not satisfy the amounts owing to Secure Funding under the Loan Agreement.
Jeremy’s financial circumstances
Jeremy gave evidence that he lacked adequate financial resources to, inter alia, meet the legal costs associated with these legal proceedings. He deposed that:
(a) since 26 April 2020, he has performed a full-time caretaker role for his elderly mother for which he receives weekly Centrelink payments of approximately $500;
(b) all of his personal funds have otherwise been invested in Torbeckin and are no longer available to him;
(c) he has no money and or ability to raise capital or service a loan in order to fund for legal fees for these proceedings;
(d) he and Emma had sold most of their personal chattels in order to raise funds for legal fees; and
(e) he is currently indebted to ANZ and Moray & Agnew Lawyers for a total amount of approximately $30,000, which he is also unable to pay.
E. APPLICATION FOR DERIVATIVE LEAVE
Relevant law
It is well established that the Court has inherent jurisdiction to grant leave for an appropriate person to bring proceedings on behalf of a company in liquidation. Those persons include ’creditors and contributories of a company, and others in whose interest the winding up is carried out and who are entitled to derive benefits from the assets of the company in the winding up’.[1]
[1]El‑Saafin v Franek (No 2) [2018] VSC 683 [165] (Lyons J) (El‑Saafin (No 2)) (emphasis added).
The power to grant leave comprises a general equitable discretion emanating from the Court’s supervisory jurisdiction over liquidators.[2] In El‑Saafin v Franek (No 4) (El‑Saafin (No 4)),[3] Lyons J also explained that:
the exercise of the discretion is based on or analogous to principles upon which a court of equity would allow a beneficiary to sue on behalf of a trust, namely the ordinary rule is that the trustee brings proceedings on behalf of a trust and a beneficiary of trust is only to be allowed to sue on behalf of a trust in ‘special circumstances’. Those special circumstances would ‘embrace a failure, excusable or inexcusable, by the trustees … to protect the trust property or to protect the interests of the beneficiary in the trust estate…[4]
[2]El‑Saafin v Franek (No 4) [2020] VSC 389 [144(1)] (Lyons J) (El‑Saafin (No 4)).
[3]Ibid.
[4]Ibid [144(3)] (Lyons J), quoting Hayim v Citibank NA [1987] AC 730.
There are three principal factors to which the Court will have regard in exercising its discretion:[5]
[5]El‑Saafin (No 2) (n 1) [167] (Lyons J).
(a) whether the proposed claims have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and present reasonable prospects of success;
(b) the attitude of the liquidator to the question of whether the claims should be pursued; and
(c) the question whether practical considerations support the initiation of the proceedings (or in this case the pursuit of a defence and counterclaim), with particular reference to financial protection of the liquidator and the assets of the company by means of indemnity and, if indicated, security.
These factors are not exhaustive nor determinative. The discretion is exercised having regard to all relevant circumstances of each case.[6]
[6]Ibid [169] (Lyons J); Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 57, 586–7 [34]–[36] (Barrett J) (Carpenter).
The first principal factor—that is, the existence of a solid foundation to the proposed claims—requires the Court to consider whether there are reasonable prospects of success and the possibility of some tangible benefit to the company.[7] This inquiry is not confined to an analysis of any draft pleadings. Rather, as Lyons J explained El‑Saafin (No 4): ’the Court must consider whether the cause of action asserted in the pleading and other evidence before the Court relied upon on the application demonstrate some solid foundation’.[8]
[7]El‑Saafin (No 4) (n 2) [159] (Lyons J), quoting Carpenter (n 6) 585 [30] (Barrett J).
[8]El‑Saafin (No 4) (n 2) [160] (Lyons J) (emphasis added).
The second principal factor—the attitude of the liquidator—is an incident of the ordinary position in a winding up scenario that it is the liquidator who determines whether the company should take or continue legal proceedings.[9] The liquidator’s view on a proposed derivative action may be an important consideration for the determination of an application where, for example, a creditor or contributory seeks to take proceedings on behalf of a company.[10]
[9]Ibid [144(4)] (Lyons J). See also Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1988) 17 FCR 344, 350 (Gummow J).
[10]See, eg, In the matter of Barokes Pty Ltd (in liq) [2022] VSC 642 [118] (Barokes) [118] (Attiwill J) citing El‑Saafin (No 4) (n 2) [144]–[205] (Lyons J). See also Carpenter (n 6) 585 [31] (Barrett J).
The principal concern underlying the third factor is the protection of the company in liquidation and the liquidator.[11] To this end, the Court will have regard to an applicant’s capacity to provide the company with financial protection in determining whether leave should be granted.[12] As Lyons J said in El‑Saafin (No 2):
[T]he Court is keen to ensure that the assets of the company in liquidation are not put at risk by the proceeding and that the liquidator is not exposed to personal liability. As a result, the Court may require that the person who conducts the litigation ‘gives an indemnity supported by security for the benefit of the company and the liquidator, and perhaps also security for costs to protect the other party to litigation’.[13]
[11]El‑Saafin (No 4) (n 2) [162] (Lyons J).
[12]Carpenter (n 6) 591 [57] (Barrett J).
[13]El‑Saafin (No 2) (n 1) [168].
In Cadima Express Pty Ltd (in liq) v Deputy Commissioner of Taxation (Cadima),[14] Austin J clarified that:
[t]he Court will wish to be satisfied that the assets of the company in liquidation are not put at risk by the proceedings and that the liquidator is not exposed to personal liability without proper protection, and may also properly have regard to the risks which the litigation poses for the other party, given that the plaintiff is a company in liquidation, the assets of which are to be protected.[15]
[14](1999) 33 ACSR 527 (Cadima).
[15]Ibid [49] (Austin J), quoted in El‑Saafin (No 4) (n 4) [163] (Lyons J).
These concerns are ordinarily addressed by the provision by the applicant of, inter alia, an indemnity for the benefit of the company.[16] The Court may require that such an indemnity be supported by security and, in an appropriate case, security for the costs of the other party to the litigation.[17]
[16]El‑Saafin (No 4) (n 4) [163] (Lyons J), citing Cadima (n 14) [49] (Austin J). More recently, see Tarleton & Peters Pty Limited (in liq) v Peters [2021] FCA 749 [37]–[42] (Colvin J).
[17]Carpenter (n 4) 586 [32] (Barrett J) quoting Cadima (n 14) [49] (Austin J).
In certain cases, additional security may become necessary as the proceeding develops if the costs of proceedings taken on behalf the company exceed the amount of any security provided upon the initial application for derivative leave. In Challis v Hoffmann,[18] Gleeson JA addressed this possibility through the imposition of a condition of the grant of leave ‘that the defendants have liberty to apply to revoke the grant of leave if [the applicant] fails to provide additional security to the company upon request by the liquidators, acting reasonably’.[19]
[18](2017) 121 ACSR 585.
[19]Ibid 607 [139].
Further, s 13(2) of the Code provides:
(2)It is presumed for the purpose of this Code that credit is not provided or intended to be provided under a contract wholly or predominantly for any or all of the following purposes (a Code purpose):
(a) for personal, domestic or household purposes;
(b) to purchase, renovate or improve residential property for investment purposes;
(c) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes;
if the debtor declares, before entering the contract, that the credit is to be applied wholly or predominantly for a purpose that is not a Code purpose, unless the contrary is established.
(emphasis added)
The prescribed form for such a declaration is found in reg 68 of the National Consumer Credit Protection Regulations 2010 (Cth). Secure Funding relied upon a declaration in substantially that form dated 3 February 2021 and signed by Rodney and Jeremy. This forms part of the loan application. At the hearing of this application, Jeremy submitted that he does not believe he signed this declaration. He did not give evidence that he did not sign it. It follows that the Loan Agreement is presumed not to fall within the purposes outlined in 5(1)(b) of the Code. I am not satisfied that Jeremy has adduced any probative evidence that establishes a solid foundation to displace that assumption.
For the following reasons, I am not satisfied there is a solid foundation for the claim that Secure Funding engaged in any wrongdoing by any failure to obtain Torbeckin’s bank statements:
(a) Jeremy referred to the condition in the letter from Secure Funding to Mr Pyers dated 18 February 2021 that stated, inter alia: ‘6 months satisfactory and up to date statements in respect of the Mortgage being refinanced’ and ‘Require 6 mths current loan repayment statements for this refinance along with 6 mths transaction statements showing repayments being debited from the nominated account as discussed.’ Jeremy said that these were not provided and submitted that they are not exhibited in Mr McLynskey’s evidence. I do not accept this submission. Torbeckin provided bank statements that showed Torbeckin was making repayments of NAB loan. I refer to the evidence of Mr McLynskey in his affidavit made 17 May 2024 at [28(a)–(b)]. The relevant bank statement are exhibited to his affidavit at pages 118–125. I also refer to the matters I have addressed at paragraph 138(c) above.
(b) There was no condition in the letter from Secure Funding to Mr Pyers dated 18 February 2021 that stated that bank statements were required in relation to the receipt of rent by Torbeckin from Golden Cube. It required evidence of the latest payment by Golden Cube. As I have said, this was provided. Torbeckin provided transaction histories, and not bank statements, concerning its receipt of rent from Golden Cube. Those transaction histories showed that Torbeckin was receiving rent from Golden Cube. I refer to the evidence of Mr McLynskey in his affidavit made 17 May 2024 at [28(c)].
(c) I accept the submission of Secure Funding that:
[t]he absence of bank statements versus transaction histories cannot in isolation seriously be contended to be conduct ‘offensive to conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society’.
(emphasis in original)
I am not satisfied there is a solid foundation for the claim that the claim that Secure Funding failed to confirm that Golden Cube was fully operational:
(a) Jeremy referred to the condition in the letter from Secure Funding to Mr Pyers dated 18 February 2021 that stated: ‘The clients business must be fully operational both prior to Formal Approval and prior to Settlement’. Jeremy said that by reason of the pandemic restrictions in place at that time, the business could not have been fully functional. Jeremy submitted that the business operated by Golden Cube was experiencing ongoing disruption and that Secure Funding obtained no evidence that it was fully functional. Jeremy submitted that he has never spoken with Secure Funding about this. Rodney gave evidence that Golden Cube ‘was not able to operate its legal brothel business between 25 March 2020 until 20 April 2022’. Rodney, however, informed Mr Pyers that Golden Cube had been trading since 23 November 2020. I refer to paragraph 33 of this ruling.
(b) Secure Funding relied upon a contemporaneous dairy note of Mr McLynskey dated 17 March 2021 stating: ‘have confirmed that the business is fully functional after liaising with gtrs’. McLynskey recorded a further file note on 18 March 2021 stating: ‘have made contact with the clients and their business is fully operational’. Jeremy and Rodney did not give evidence disputing that they had spoken with Mr McLynskey.
(c) Rodney had provided evidence that Golden Cube had paid rent to Secure Funding in the period 2 December 2020 to 22 March 2021.
I am not satisfied there is a solid foundation for the claim that Secure Funding failed to properly instruct the valuer and to check that the required works had been completed:
(a) Jeremy referred to the condition in the letter from Secure Funding to Torbeckin dated 18 February 2021 that stated: ‘The valuation must also acknowledge all stated works have been completed as per the supplied work agreement’. He said that was not done. He referred to photographs of the Richmond property that he submitted showed that works had not been completed. He also said that the valuation report contained many errors. He further submitted that he did not believe the valuer inspected the property due to the lockdown restrictions in place at that time.
(b) Mr Pyers, on behalf of Torbeckin, told Secure Funding that, as at 19 February 2021, seven out of eight items under the works agreement had been performed and that only carpet remained to be done which would be attended to. I refer to paragraph 42 of this ruling.
(c) The valuer provided the valuation report on 25 February 2021. The valuer referred at paragraph [10.4] of the valuation to the ‘refurbishment works recently concluded at the property’.
(d) On 5 March 2021 Rodney provided the works agreement to the valuer. I accept that this was done after the valuer had provided his report.
(e) On 17 March 2021, Mr McLynskey made a file note that ‘the valuer has confirmed all required works completed in line with stated rental reduction’.
The evidence establishes that on 19 February 2021 Secure Funding was told seven out of eight items had been completed and the valuer acknowledged to Secure Funding that the works have been completed. That being the case, even if the photographs relied upon by Jeremy establish that the works were not substantially completed or even commenced, this would not impugn the position of Secure Funding with respect to the condition stipulated in its letter of 18 February 2021.
I am not satisfied there is a solid foundation for the claim that a proper investigation of Jeremy and Rodney’s financial circumstances would have raised concerns about their ability to discharge Torbeckin’s loan obligations and that Torbeckin had other debts potentially precluding it from servicing the loan to Secure Funding.
Jeremy relied, inter alia, upon an internal file note prepared by persons within Secure Funding 17 February 2021 that stated Jeremy had an income above $300,000 per annum. He submitted that Secure Funding never verified this. He also relied upon other circumstances, such as other loans payable by Jeremy and Rodney. The evidence bears out that:
(a) Torbeckin applied for the loan from Secure Funding to repay the NAB Loan;
(b) Torbeckin provided bank statements that showed Torbeckin was repaying the NAB Loan. I refer to the evidence of Mr McLynskey in his affidavit made 17 May 2024 at [28(a)-(b)]; and
(c) I refer to the statements and declarations provided by both Rodney and Jeremy as part of the loan application. I refer to paragraph 38 of this ruling.
(d) Torbeckin provided documents that showed Golden Cube paying the rent.
In those circumstances, there was no reason for Secure Funding to consider that Torbeckin would not be able to repay the loan by reference to the assets and liabilities of Jeremy and / or Rodney.
Jeremy also referred to the condition in the letter from Secure Funding to Torbeckin dated 18 February 2021 that stated: ‘Require evidence of other liquid funds held in other bank accounts in the event the [sic] are required to service repayments on this facility over say the next 6 months as discussed’. He submitted that the disclosure of liquid funds in an offset account indicated that there were other undisclosed debts or loans.
Secure Funding confirmed that there were liquid funds. I refer to the evidence of Mr McLynskey in his affidavit made 17 May 2024 at [28(d)].
I am also not satisfied there is a solid foundation for the claim that Secure Funding acted unconscionably in the period from October 2022, being the time Jeremy submitted Secure Funding were ‘advised of the situation’. I refer to Jeremy’s submissions concerning what he said he told Secure Funding set out at paragraphs 113 to 115 and 118 above.
First, I am not satisfied that there is a solid foundation for the claims that Secure Funding failed to act:
(a) Jeremy submitted that Secure Funding should have developed a payment plan. He otherwise referred to ‘plenty of options to assist’ but did not identify any specific possibilities apart from a repayment plan. There is no evidence that Torbeckin proposed a repayment plan. In addition, Jeremy’s submission that Secure Funding should have developed a payment plan implicitly acknowledges that Secure Funding was entitled to its monies under the Loan Agreement.
(b) Jeremy did not identify any relevant policies concerning family violence or any other applicable policies. He referred to them being on Secure Funding’s website. Jeremy did not identify any particular policy or how it was breached by Secure Funding.
(c) The matters relied upon by Jeremy involved allegations concerning ‘financial crimes’ and matters concerning the alleged ‘non-existent’ lease with Golden Cube and its non-payment of rent. These allegations concerned the conduct of Torbeckin itself when it obtained the loan when it was under the control of Rodney.
(d) Secure Funding was entitled to take action concerning the default by Torbeckin pursuant to the Loan Agreement.
Second, I am not satisfied that there is a solid foundation for the claims that Secure Funding charged fees and default penalty interest that were harsh and a penalty.
The legal principles concerning relief against penalties can be briefly summarised. The foundational principles of the law of penalties are those stated by Dunedin LJ in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd (Dunlop).[28] His Lordship stated, inter alia, that:
[28][1915] AC 79.
2The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage.
3The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach.
4To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:
(a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach …
(b)It will be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid …[29]
[29]Ibid 86–7 (citations omitted).
In Ringrow Pty Ltd v BP Australia Pty,[30] the High Court confirmed that Dunedin LJ’s observations accurately represented ‘the principles governing the identification, proof and consequences of penalties in contractual stipulations’.[31] Moreover, the Court of Appeal has said that ‘[i]t is clear law in Australia that the principles by which the courts determine whether the damages clause gives rise to the inference that it is a penalty have their foundation in the speech of Lord Dunedin in [Dunlop]’.[32]
[30](2005) 224 CLR 656.
[31]Ibid 663 [12] (Gleeson CJ, Gummow, Kirby, Hayne, Callinan and Heydon JJ).
[32]Yarra Capital Group Pty Ltd v Sklash Pty Ltd [2006] VSCA 109 [12] (Warren CJ, Chernov and Ashley JJA) (Yarra Capital).
The High Court, more recently, addressed the relevant principles in Paciocco v Australia and New Zealand Banking Group Ltd (Paciocco).[33] The propositions emerging from the reasoning of the majority in Paciocco were conveniently summarised in Arab Bank Australia Ltd v Sayde Developments Pty Ltd (Arab Bank),[34] as follows:
[33](2016) 258 CLR 525 (Paciocco).
[34](2016) 93 NSWLR 231 (Arab Bank).
(1)Lord Dunedin’s propositions were not ‘rules of law’, but ‘distillations of principle’.
(2)The essence of a penalty is that it is a collateral stipulation, the (or a predominant) purpose of which is to punish the borrower for breach, and thus to compel performance.
(3)One way of testing whether the impugned stipulation is penal — intended to punish — is to inquire whether the sum that it stipulates to be payable on breach (as I have indicated, the equitable origins and continuing equitable operation of the principle have no present relevance) is to ask whether the stipulated sum is extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to follow from the breach.
(4)‘Damage’ in this sense is not limited to damages recoverable upon breach of contract, but may extend to damage, or losses, caused by the impairment of other legitimate commercial interests that were intended to be protected by the stipulation.
(5)The analysis is to be made at the time, and taking into account the circumstances applicable, when the contract was made; not at the time of breach; the analysis is prospective, not retrospective (or as is said in some judgments, is ex ante, not ex post).
(6)Mere disproportion between the stipulated sum and the possible damage is not enough to indicate ‘penalty’; the disproportion must be such that it is unconscionable for the lender to rely on the stipulation.[35]
[35]Ibid 243–4 [74] (citations omitted), adopted in Jasper Nominees Limited v Kairouz and Murdaca [2023] VSC 718.
The burden of proof rests with the party seeking to establish that a particular contractual provision is a penalty.[36] The terms of the contract, however, may support an inference that the clause is a penalty. A contractual provision for the payment of a higher interest rate upon default (which does not operate retrospectively) is not a penalty so long as it constitutes a genuine pre-estimate of compensation for loss the lender would suffer by being kept out of its money.[37] The jurisdiction to relieve against penalties requires the courts to strike a balance between ‘the freedom of the parties to contract as they wish and the public interest that calls for the protection by the courts of the weaker party from oppressive burdens or the unconscionable use of power by the stronger party’.[38]
[36]Paciocco (n 33) 581 [167] (Gageler J (as he then was)). See also Arab Bank (n 34) 243–4 [74]; Cani Portfolio Pty Ltd v Badov [2018] VSC 257 [35] (Ierodiaconou AsJ); Jasper Nominees Limited v Kairouz and Murdaca [2023] VSC 718 [322] (M Osborne J); Yarra Capital (n 32) [11] (Warren CJ, Chernov and Ashley JJA).
[37]See Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251 [48] (White J).
[38]Yarra Capital (n 32) [11].
I am not satisfied that these claims have a solid foundation:
(a) Jeremy’s submissions were cursory and vague;
(b) Jeremy’s submissions concerning the default rate of interest were contradictory. He submitted that it was not excessive and probably the market rate and then submitted very shortly afterwards that it is excessive when compared to the market rate;
(c) Jeremy did not provide any evidence in support of his submission that the default rate of interest was excessive when compared to the market rate;
(d) the ‘Default rate’ equals the ‘Interest rate’ plus a margin of 6.00% per annum. I am not satisfied that this fact establishes a solid foundation for the claim that it was a penalty;
(e) Jeremy did not adequately address the Default Management Fee and why it is a penalty;
(f) the Default Management Fee is $195 and payable monthly. I am not satisfied that this fact establishes a solid foundation for the claim that it is a penalty;
(g) the focus of Jeremy’s submissions was on the compounding nature of the interest. Jeremy’s submissions were based on matters that are erroneous. I do not accept Jeremy’s submissions that the loan compounded at the rate of $4,000 per day for May 2024 or that Secure Funding charged interest of $150,000 in May 2024. First, the evidence established that in the months of January and February 2024 the total interest (including default interest) was $52,418.85 (i.e. approximately $888 per day). The relevant statements are exhibited to Jeremy’s affidavit made 24 May 2024. Second, the evidence established that as at 28 May 2024 the debt was $2,240,669.65 and interest on that amount at 15.15% was $908.83 per day; and
(h) there is insufficient material before the Court to be satisfied that the claims concerning penalties have any solid foundation.
Is there a solid foundation for the claim that Secure Funding owed Torbeckin a duty of care?
I am not satisfied that there is solid foundation for the claim that Secure Funding owed a duty of care to Torbeckin or that it was negligent in that it did not ‘look at this situation and…verify that the documents [provided in support of the loan application] were correct’. This is because Secure Funding did not owe any duty to Torbeckin to assess its capacity to repay the loan or to verify the details provided in the loan applications.
In Perpetual Trustees Australia Ltd v Schmidt (Schmidt),[39] J Forrest J said:
It is clear that Perpetual, as the lender, owed no duty to [the borrower] … It contracted at many arms’ length. It knew nothing of the irregularities in the loan documents. It knew nothing of any potential vulnerability of [the borrower]. It merely provided the funds.[40]
[39][2010] VSC 67 (Schmidt).
[40]Ibid [176].
His Honour also said:
The law, however, does not recognise any duty upon a lender to assess the capacity of a borrower to repay a loan, or to ascertain the viability, of a loan or to verify the details provided in loan applications. Nor is a lender under any duty to provide either a borrower or third party with commercial advice, although once such advice is tendered, the financier may assume a duty of care.[41]
[41]Ibid [173] (citations omitted).
In Perpetual Trustee Company Ltd v Burniston (No 2),[42] Edelman J said: ‘There is no general common law duty upon a lender to advise or to protect a borrower against fraud.’[43]
[42](2012) 271 FLR 122.
[43]Ibid 189 [331] (emphasis in original).
Secure Funding contracted at an arm’s length with Torbeckin. It dealt with its broker, Mr Pyers. Jeremy did not submit that Secure Funding knew anything of the irregularities in the documents supporting the loan application, including the different version of the lease with Golden Cube. Secure Funding did take steps to verify information provided by Torbeckin. Secure Funding provided funds to Torbeckin. It did not provide any advice to it. In addition, Jeremy’s proposed claims concern, inter alia, alleged misrepresentations made by Torbeckin, by its sole director, when applying for the loan from Secure Funding.
In any event, even if Secure Funding did owe a duty of care to Torbeckin, I am not satisfied that there is a solid foundation for any of the claims concerning the particular conduct relied upon by Jeremy. I refer to the matters I have addressed above at paragraphs 143 to 168 above.
Is there a solid foundation for the proposed relief to be sought by Torbeckin?
I am also not satisfied that the proposed relief to be sought by Torbeckin has a solid foundation. I have already set out that relief at paragraph 111 above.
First, I am not satisfied that there is a solid foundation for the claim that Torbeckin would be entitled to retain the principal advanced to it by Secure Funding.
In Schmidt, J Forrest J found that a lender had engaged in unconscionable conduct. His Honour set aside the loan agreement and the mortgage and, subject to one exception, the claim for repayment of the moneys borrowed plus interest was dismissed as was the claim for possession. In relation to the exception J Forrest J said:
233 In Vadasz v Pioneer Concrete (SA) Pty Ltd the High Court said:
Thus unconscionability works in two ways. In its strict sense, it provides the justification for setting aside a transaction. More loosely, it provides the justification for not setting aside the transaction in its entirety or in doing so subject to conditions, so as to prevent one party obtaining an unwarranted benefit at the expense of the other.
234In Elkofairi, Beazley JA (with whom Santow JA and Campbell AJA agreed) said:
When a transaction is set aside for unconscionability or fraud, such order may be conditional on the repayment of any unwarranted benefit. The remedy to redress the effect of unconscionability should do no more than the minimum necessary to do so. The court thereby seeks to achieve ‘practical justice’
235The loan contract and the mortgage should be set aside, as a result of VHLA’s unconscionable conduct which is attributable to Perpetual. Accordingly, subject to one exception, the claim for repayment of the moneys borrowed plus interest should be dismissed as should the claim for possession of Mr Schmidt’s home.
236The exception is the amount used to pay out the Asset Builder loan. That loan and the obligation to repay it existed before any of the impugned conduct on the part of VHLA. Consistent with what was said in Elkofairi, it would be inequitable to relieve Mr Schmidt of this obligation. It follows that as a condition of dismissing Perpetual’s claim Mr Schmidt is obliged to repay to Perpetual the sum of $85,269 plus interest. Counsel for Mr Schmidt did not, properly, contend otherwise.
237The question of an appropriate allowance for interest may be resolved by reference to what was said by the High Court in Maguire v Makaronis and by the New South Wales Court of Appeal in Elkofairi.[44]
[44]Schmidt (n 39) [233]–[237] (citations omitted).
His Honour said that ‘[t]he loan contract and the mortgage should be set aside. However as a condition of that relief, Mr Schmidt is required to repay to Perpetual [the principal] plus interest’.[45]
[45]Ibid [242(d)].
In the present case, Torbeckin was obliged to repay the NAB Loan prior to having any dealings with Secure Funding. I am not satisfied that there is a solid foundation for the claim that Torbeckin would be able to, in effect, retain the principal advanced to it by Secure Funding given that it used the principal to repay the pre-existing debt to NAB where that obligation existed prior to any impugned conduct on the part of Secure Funding.
Second, Jeremy did not adequately explain how the advance of the monies by Secure Funding resulted in other losses such as equity in the Richmond property, the cash reserves in its ANZ offset account and the rent from Golden Cube. No nexus between these matters was adequately identified or addressed.
Conclusion
As a result, I am not satisfied that the proposed claims have some solid foundation in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and present a reasonable prospect of success. This is a significant factor weighing against the grant of derivative leave.
Attitude of the liquidators
The second principal factor is the attitude of the liquidators. As I have said, in the ordinary case it is a liquidator who will determine whether proceedings should be issued on behalf of a company in liquidation. The liquidators have stated they do not intend to defend the claim for possession brought by Secure Funding. On the question of whether Jeremy’s proposed claims against Secure Funding have a solid foundation, the liquidators said at the hearing that those matters have ‘been covered’ by counsel for Secure Funding and Rodney. Instead, the liquidators’ principal ground of opposition to Jeremy’s application for derivative leave was that it would not be in the interests of Torbeckin’s creditors in circumstances where Jeremy is unable to provide financial protection to Torbeckin by means of an indemnity supported by security. The liquidators submitted that this was their fundamental concern. The liquidators made further submissions that, even if the mortgage in favour of Secure Funding were set aside, the doctrine of subrogation would cause the mortgage in support of the NAB Loan to be re-enlivened for the benefit of Secure Funding. I have addressed this at paragraph 179 above. The liquidators also expressed concern about the increased legal costs of Secure Funding and additional interest on its debt which would reduce any remaining equity in the Richmond property. Mr Cull gave evidence that on 19 December 2023, he emailed Secure Funding’s solicitors and noted his ‘intention to facilitate commercial outcomes that related to the Secure Funding matter as quickly and cheaply as possible’.
Jeremy submitted that the liquidators were in breach of various duties to Torbeckin and had failed to understand Torbeckin and its financial position. He submitted that their attitude was therefore irrelevant. More specifically, he submitted that:
(a) he is concerned about the liquidators’ competence and the circumstances surrounding the liquidation;
(b) the liquidators’ attitude should be dismissed as they do not understand the situation;
(c) the liquidators have ‘grossly underestimated’ the value of the Richmond property in the vicinity of about $3 million;
(d) the liquidators’ report is ‘riddled with errors’;
(e) the costs incurred by the liquidators are excessive, particularly where the liquidators do not understand Torbeckin. Jeremy submitted that the liquidators were unable to determine the ownership of a caravan once registered to Torbeckin and had not obtained a sworn valuation of the Richmond property; and
(f) if the liquidators were ‘across these matters’ they would proceeding with the proposed defence and counterclaim by Torbeckin themselves.
The opposition of the liquidators is premised upon the existence of a number of practical considerations against the grant of leave. In those circumstances, the matters raised by the liquidators may be conveniently addressed in considering the third factor, being the practical considerations concerning the grant of leave. For reasons I am about to give, the practical considerations against the grant of leave have merit. The opposition of the liquidators to the grant of leave is a factor against granting it.
Practical considerations
The third principal factor concerns practical considerations, with particular reference to the financial protection of the liquidators and the assets of the company by means of an indemnity and, if indicated, security.
Jeremy made the following submissions:
(a) all of his money is ‘in Torbeckin’;
(b) the Richmond property is worth $4.5 million and Rodney owes Torbeckin approximately $3 million;
(c) Torbeckin owes him $4 million to $5 million. He separately submitted that he deposited more than $5,793,903 in Torbeckin;
(d) Torbeckin has a positive asset position of $2 million whereas the liquidators say it is a negative asset position of $2 million;
(e) it not in the interests of the creditors for the liquidators to have control of the Richmond property which may then be sold at an undervalue;
(f) he has already provided an indemnity to Torbeckin as he has ‘deposited every dollar’ that he has into Torbeckin and these monies are ‘in the value of the [Richmond property]’ which is not being realised. He submitted that the indemnity is in the value of the Richmond property; and
(g) the grant of leave will afford the creditors an opportunity for a partial recovery of their claims, whereas upon the position of Secure Funding and the liquidators, Torbeckin has negative assets. He submitted that there was accordingly no prejudice to the creditors.
There is conflicting evidence of the value of the Richmond property. This is Torbeckin’s principal asset. Jeremy submitted that Torbeckin’s assets exceed its liabilities by ‘a lot’. Jeremy referred to the possibility of there being residual equity in the Richmond property even after all creditors and the liquidators have been paid. He also submitted that if the ‘true value’ of the Richmond property is realised then the available equity ‘far exceeds what is owed to Torbeckin’s creditors’. Jeremy has adduced evidence of a valuation, obtained on 7 December 2023, which valued the Richmond property at $2,992,000 (incl. GST) (with the lease in place) or $3,454,000 (incl. GST) (with vacant possession). Ms Domino deposed to having obtained valuations over $4.5 million. Jeremy stated in the ROCAP that the Richmond property had a value of $4.8 million. The liquidators obtained a desktop valuation of the Richmond property on 23 January 2024 in the amount of $1,466,666 and $1,760,000 (at a commercial lease capitalisation rate of 12.5%–15%) or $2.2 million to $2.75 million (at a commercial lease capitalisation rate of 8%–10%) or $1.6 million to $1.8 million (on a vacant possession basis).
The liquidators, in their Report to Creditors, identified liabilities of Torbeckin totalling $3,236,376.06. This figure includes a claim by Rodney in the amount of approximately $875,079 which remains the subject of ongoing disputation. Jeremy gave evidence of the total claims of creditors being in the sum of $2,608,353.95 as at April 2024 and separately submitted that he is owed $4 million to $5 million by Torbeckin.
Jeremy has not offered to provide any indemnity to Torbeckin, including for any adverse cost orders in the proceeding, in the event that derivative leave is granted, or concerning the additional interest and fees that may be payable in connection with the loan from Secure Funding. Jeremy submitted that he does not have the funds or the access to funds to provide an indemnity. Jeremy gave evidence that he and Ms Domino have ‘become and remain homeless and penniless’ and they have ‘been surviving off the kindness and generosity of friends and Ms Domino’s family’. Jeremy gave evidence that he currently has ‘no money and or ability to raise capital, or service a loan, for legal fees to assist [him] in these or the related proceedings’.
I reject Jeremy’s submission that he has already, in effect, given the indemnity to Torbeckin. No such indemnity has been provided. Even assuming that Jeremy has provided Torbeckin with substantial monies over time, this does not constitute an indemnity to Torbeckin in relation to the potential claims that he seeks to make on behalf of Torbeckin in this proceeding.
Torbeckin may be liable to pay the costs of Secure Funding if derivative leave is granted and Torbeckin fails in its defence and counterclaim. In addition, in the event that derivative leave is granted, the debt owed by Torbeckin to Secure Funding will continue to accrue interest at the default rate together with applicable fees.
In the absence of an adequate indemnity, the creditors may be prejudiced in the event that leave is granted and Torbeckin’s claims are unsuccessful. In light of the uncertainty of the asset position of Torbeckin, including due to the disparate valuations relied upon by the parties, it is not possible to ascertain the precise value, if any, of the equity in the Richmond property. It is however clear that, to the extent equity remains in the Richmond property, it is likely to be materially eroded in the event of protracted litigation between Torbeckin and Secure Funding. This is a real risk. If Torbeckin’s claims are unsuccessful, this will inevitably reduce the pool of funds available for distribution to creditors. In Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd,[46] Bryson J treated the absence of an adequate indemnity in respect of the company's exposure as to costs as determinative to the exercise of his Honour's discretion to withhold leave.
[46](Supreme Court (NSW), Bryson J, 10 December 1987, unrep).
In addition, even if Torbeckin’s liabilities currently exceed its assets, a practical and important consideration nonetheless arises. In Carpenter, Barrett J considered the following submission on an application for derivative leave:
It is said on behalf of Mr Carpenter that his impecuniosity makes no difference in this particular case and that there will be no prejudice to the company or its creditors if the $62,032.22 he is required by order of the court to pay is left unpaid. The argument seems to be that, because Pioneer Park has no assets and creditors will receive nothing, it makes no difference that further liabilities are added to those already existing; whereas, if and when the appeal is won, there will be substantial recourses recovered from the ANZ Bank for the benefit of all.[47]
[47]Carpenter (n 6) 591 [55].
In rejecting that submission, his Honour observed:
The interests of Pioneer Park would not be served by a grant of leave to Mr Carpenter, even if financial protection orders were made – unless suitable and adequate security for Mr Carpenter’s compliance with such orders were provided. In saying this I expressly reject the argument that, because Pioneer Park has no assets, it suffers nothing if more liabilities are heaped upon it. As Mr Mullette made clear on behalf of the liquidator, the administration would have been completed long ago had it not been for the litigation in which Mr Carpenter caused Pioneer Park to engage. The liquidation has had to continue. That of itself has a financial cost. The liquidator has incurred expenses in preparing for this application and being represented in court. He is unable to recover these. It is, in my view, an unacceptably cynical approach to say, in effect, that if there is no blood to be had from a stone, it is a matter of indifference that one increases the demands upon the stone for blood.[48]
[48]Ibid 592 [59] (emphasis added).
These observations apply with equal force in the present case. If derivative leave is granted, the liquidation of Torbeckin would likely be delayed for some considerable period of time. This would occasion further financial cost which may not be recovered.
As a result, the lack of an indemnity is a significant factor weighing against the grant of derivative leave.
Other relevant circumstances
The parties did not rely upon any other relevant circumstances and I have not identified any.
Exercise of discretion
I am not satisfied from my consideration of the relevant factors that the circumstances of this case favour the exercise of the Court’s discretion to grant leave for Jeremy to prosecute a defence and counterclaim on behalf of Torbeckin. This is because I am not satisfied that the claims, including the relief sought, have a solid foundation, the liquidators oppose the grant of leave and Jeremy has not offered any indemnity. I will exercise my discretion to refuse Jeremy’s application for derivative leave to prosecute a defence and counterclaim on behalf of Torbeckin and dismiss his summons filed 2 May 2024. Even if I was satisfied that some or all of the claims had a solid foundation, I would have exercised my discretion to refuse Jeremy’s application for derivative leave because the liquidators oppose the grant of leave and Jeremy has not offered an indemnity.
F. CONCLUSION AND ORDERS
For the reasons I have given, I will exercise my discretion to refuse Jeremy’s application for derivative leave to prosecute a defence and counterclaim on behalf of Torbeckin and dismiss his summons filed 2 May 2024.
I will hear the parties on the precise form of the orders and as to costs.
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