Secure Loan Solutions Pty Ltd v Derick Aubrey Smith
[2018] VSCA 71
•26 March 2018
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2017 0086
| SECURE LOAN SOLUTIONS PTY LTD | Applicant |
| v | |
| DERICK AUBREY SMITH | Respondent |
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| JUDGES: | NIALL and HARGRAVE JJA and McDONALD AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 14 March 2018 |
| DATE OF JUDGMENT: | 26 March 2018 |
| MEDIUM NEUTRAL CITATION: | [2018] VSCA 71 |
| JUDGMENT APPEALED FROM: | [2017] VSC 217 (Bell J) |
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MORTGAGES – Entitlement to surplus proceeds from mortgagee sale of land – Where respondent was registered proprietor and applicant was second mortgagee – Where respondent owed debt to applicant – Where affidavit evidence only – Whether judge correct to find on evidence that respondent had established that debt had been discharged – Leave to appeal refused.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr M I Ravech | Boris Pogoriller |
| For the Respondent | Mr J Gray | Just Law |
NIALL JA:
HARGRAVE JA:
McDONALD AJA:
Overview
On or about 9 May 2016, the National Australia Bank paid $40,543 into Court (‘the money’) representing the residue from a mortgagee sale of land of 8 Dallas Court, Hallam in the State of Victoria (‘the property’).
The applicant and respondent each claimed an entitlement to the money: the applicant on the basis that it held a second mortgage over the property and was owed monies that were due and payable to it by the respondent, as guarantor of a loan made to companies associated with him; and the respondent on the basis that he was the registered proprietor of the property and that the debt to the applicant had been discharged.
Both Ierodiaconou AsJ and, on appeal from her Honour, the judge held that the respondent was entitled to the money. Ierodiaconou AsJ found for the respondent on the basis that the applicant had not proved the debt.[1] On appeal, Bell J held that the applicant had proved the loan, the guarantee and the ‘shortfall’ outstanding, but the respondent had established on the evidence that the shortfall had been discharged.[2]
[1]Secure Loan Solutions Pty Ltd v Smith [2016] VSC 794 (‘associate justice’s reasons’).
[2]Secure Loan Solutions Pty Ltd v Smith [2017] VSC 217 (‘judge’s reasons’).
The primary issue on the application for leave to appeal is whether the judge was correct to conclude that, as a matter of fact, the respondent had established that the loan had been repaid by the means his Honour had identified, namely through the applicant taking possession of and selling items of earth moving equipment that had been provided as security for the loan.
In summary, grounds 1 and 2 of the applicant’s proposed appeal seek to challenge the judge’s reasons for concluding that the director of the applicant, David Graer, had not denied that the applicant was in possession and control of all the equipment — in circumstances where that fact had been distinctly alleged in the respondent’s affidavit — and the resulting finding that the applicant had been in possession of the equipment. That finding was the platform for the further finding — which is not challenged by any ground of appeal — that the equipment had been sold by the applicant and the outstanding debt discharged.
Proposed ground 3 relates to whether the judge should have considered whether the applicant was responsible for any acts or defaults on the part of the receivers appointed by the applicant to the corporate borrowers.
The associate judge found that the receivers sold a Komatsu PC 1600 excavator (‘the excavator’) for a sum significantly below its market value and that the applicant was involved in the sale. Before the judge and before us, the applicant contended that it was not responsible for the conduct of the receivers and therefore whether or not the excavator was sold at an inadequate price was irrelevant. The judge held that it was unnecessary to consider this ground because the proceeds of the sale of the equipment covered by grounds 1 and 2 were sufficient to pay out the shortfall due under the loan agreement.
For the reasons that follow, we would refuse leave to appeal on grounds 1 and 2 as no error has been shown in the judge’s findings of fact. Thus, ground 3 does not arise.
The facts
The following narrative is taken from the associate judge’s reasons.[3] No issue was taken either before the judge or before us in relation to the following.
ICC, IPH and the property
[3]Associate judge’s reasons [6]–[58].
The borrowers under the relevant loan agreement were Independent Civil Contractors Pty Ltd (‘ICC’) and Independent Plant Hire Pty Ltd (‘IPH’). The respondent was the sole director of ICC and his wife, Vanessa, was the sole director of IPH at relevant times.
The respondent was the registered proprietor of the property.
The agreements
On or around 20 November 2013, four agreements were executed. The effect of these agreements was that the applicant loaned $300,000 to ICC and IPH, the respondent personally guaranteed that loan and provided security for his obligations by way of a mortgage over the property, and ICC and IPH gave a general charge over their assets and a specific charge over particular assets.
By clause 1 of the loan agreement, ICC and IPH acknowledged receipt of the principal sum paid on 21 November 2013. Clause 2 of the loan agreement provided that the principal sum and outstanding interest and bank charges were to be repaid on 21 February 2014.
The specific charge by ICC and IPH charged 12 items of earth moving equipment as further security for the loan. The equipment identified in this agreement was valued for a fire sale by Slattery’s Auctioneers at $500,000 (GST inclusive). Although the attachment to the agreement referred to 14 items of equipment, only 12 items of equipment were in fact listed in the attachment. Before us, the parties agreed that only 12 items of equipment were secured by the agreement.
The loan, the appointment of receivers, and the sale of the property
On or about 21 November 2013, net loan monies of $277,317.70 were advanced by the applicant, being $300,000 less ‘advisory business solutions (establishment fee, fees, charges and legal fees)’.
In or around January 2014, the sole loan repayment of $12,000 was made.
Following default in repaying the loan, the applicant appointed receivers to IPH and ICC.
In late 2015, the National Australia Bank, as mortgagee in possession, sold the property. The money was paid into Court on or about 9 May 2016. The applicant was by then registered as second mortgagee, having previously protected its interests by a caveat.
The parties’ positions
Before the associate judge and the judge, the applicant contended that the loan remained outstanding and that it was entitled to the money on that basis. The respondent contended that the loan debt had been discharged because the applicant had taken possession of the equipment under the specific charge and had sold these items to discharge the debt.
Notably, the applicant did not produce the receivers’ accounts, nor was there evidence from them about the steps they took under the receivership in relation to the equipment that had been provided as security for the loan.
The evidence before the judge (as it was before the associate justice) was by affidavit, and there was no cross-examination of any deponent. The principal witness for the applicant was Mr Graer. The respondent, Mr Smith, gave evidence on his own behalf. There was significant conflict in the affidavit evidence tendered by each party, making determination of the facts more difficult than it would have been had there been cross-examination and/or discovery of key documents such as the accounts kept by the receivers.
The decision of the judge
The judge found that the associate judge had erred in approaching the matter on the basis that the applicant bore the onus of proving its debt.[4] His Honour regarded as applicable the principle propounded by Dixon CJ, McTiernan and Taylor JJ in Young v Queensland Trustees Ltd[5] that, speaking generally, the defendant must allege and prove payment by way of discharge as a defence to an action for indebtedness in respect of an executed consideration.[6] No issue is taken in the present application about the approach taken by the judge.
[4]Judge’s reasons [14]–[16].
[5](1956) 99 CLR 560.
[6]Ibid 569–70 (Dixon CJ, McTiernan and Taylor JJ).
His Honour held that the applicant had proved the loan, a ‘shortfall’ of $121,500 in repayment of the principal, and the guarantee; and that accordingly it was entitled to be paid the money as second mortgagee of the property unless the respondent could establish that the shortfall of the principal debt had been repaid in full.[7] The appeal before the judge, and the application before us, proceeded on this basis; without reference to any accrued interest.
[7]Judge’s reasons [12]–[13], [17].
Relevantly for the purposes of the present application, the judge found that the applicant had possession of the equipment that had been specifically charged as security for the loan.[8] There was some dispute in the evidence as to whether the equipment was valued at $500,000 or $550,000.[9] However, given that the shortfall was $121,500, the judge put that difference to one side.
[8]Ibid [18]–[23].
[9]The applicant asserted that the equipment was valued at $500,000: see exhibit DAG-25 to the affidavit of David Arthur Graer sworn 26 October 2016. The respondent asserted that the equipment was valued at $550,000: see exhibit DS-4 to the affidavit of Derick Aubrey Smith affirmed 28 September 2016. We note that the respondent included in his valuation a 10m tipper which does not appear to be one of the 12 items of equipment that had been specifically charged as security for the loan.
The judge inferred that the equipment had been sold by the applicant and that the debt had thereby been satisfied.[10] Before us, the only attack on that inference was that it was based on the anterior finding that the specifically charged equipment was in the possession of the applicant.
[10]Judge’s reasons [24].
The failure of Mr Graer to specifically deny an allegation made in a particular paragraph of Mr Smith’s affidavit was critical to the judge’s reasoning. Paragraph 39(b) of the Smith affidavit (set out in full below) contained the allegation that Mr Graer had all 12 items of the specifically charged equipment in his possession. His Honour noted that, although he had every opportunity to do so, Mr Graer did not deny this paragraph of the Smith affidavit.[11] His Honour therefore accepted Mr Smith’s evidence that the applicant had the equipment.
[11]Ibid [22]–[23].
The equipment that was the subject of his Honour’s finding did not include the excavator. His Honour held that it was unnecessary to consider whether the applicant was responsible for the acts and defaults of the receivers in allegedly selling the excavator for a sum significantly below its market value.[12]
[12]Ibid [28].
The evidence relevant to grounds 1 and 2
By grounds 1 and 2, the applicant seeks to overturn the judge’s finding that the applicant had taken or received possession of the equipment, valued at $500,000, which he inferred had been sold.
Before us, both parties focussed on particular paragraphs in the Smith affidavit and the affidavit in reply sworn by Mr Graer on 26 October 2016.
The relevant paragraphs of the Smith affidavit are as follows:
35In March 2014 approximately $150,000 of plant and equipment, owned by Independent Civil Construction Group Pty Ltd (‘ICCG’) not ICC, was removed from my yard at 29 Rimfire Drive on a weekend and after hours and I reported the theft to Narre Warren Police Station. Police advised it is a civil matter and not an insurance claim as ICC was under external administration. I understand David Graer was involved in the theft as about one week prior to the theft he informed me that he had a buyer for a stainless steel water cart that was stored in my yard.
36Now produced and shown to me and marked ‘DS3’ is a true copy of the list of plant and equipment taken from Rimfire Drive. Now produced and shown to me and marked ‘DS4’ is a true copy of the list of plant and equipment David Graer or SLS had in its possession and for sale, owned by ICC and IPH and ICCG.
…
39As of April 2014 I had no plant and equipment under my control. But David Graer had in his possession as follows:
a. Equipment removed from yard (‘DS3’) $150,000
b. Equipment for sale (‘DS4’) $500,000
Total estimate $650,000[13]
[13]Emphasis added.
The reference to the plant and equipment listed in exhibit DS-4 is to the 12 items of specifically charged equipment only. The allegedly stolen plant and equipment is altogether different.
We turn now to the critical paragraphs of Mr Graer’s affidavit in reply. In response to paragraphs 35 and 36 of the Smith affidavit, Mr Graer deposed in his affidavit as follows:
28I refer to paragraph 35 and 36 of the Smith affidavit. The allegations made by the defendant are untrue, baseless and misconceived. They have not been raised previously. I deny any involvement by the plaintiff or by me in any alleged theft of equipment from Independent Civil Construction Group Pty Ltd (officially renamed ACN 102 028 888 after 20 August 2013).
…
30I refer to sub-paragraph 39(a) of the Smith affidavit. I deny the defendant’s allegations and refer to and repeat paragraph 28, above.
Consideration of grounds 1 and 2
The central plank of grounds 1 and 2 was a contention that the applicant had denied Mr Smith’s evidence that the 12 items of plant and equipment identified in exhibit DS-4 were in the possession of Mr Graer, and that the judge erred in finding to the contrary. The basis for the denial was said to be paragraph 28 of Mr Graer’s affidavit, where he deposed that the allegations of Mr Smith were ‘untrue, baseless and misconceived.’ Accordingly, so it was argued, the judge was in error in treating the evidence of Mr Smith as uncontradicted and accepting it on that basis.
The applicant’s submissions, as developed in oral argument, were that seven of the 12 items of specifically charged equipment were delivered by the respondent to the applicant, as deposed to by Mr Smith. The other five items of equipment were said to have remained on the premises of the respondent at Rimfire Drive, Hallam. It was submitted that the judge had misunderstood the evidence.
We do not accept the applicant’s contentions. Reading the affidavits and exhibits contained in the application book as a whole, the judge was right to find that paragraph 39(b) of Mr Smith’s affidavit, supported by exhibit DS-4, was not denied by Mr Graer. He denied only that he was involved in the theft of the miscellaneous plant and equipment which was not the subject of the specific charge. Mr Smith’s evidence that he had none of the relevant equipment in his possession or control, because it was in the applicant’s possession, was plausible and highly relevant. In the context of the affidavit material as a whole, which contained conflicting statements on many issues, the failure of Mr Graer to deny paragraph 39(b) and the contents of exhibit DS-4 was correctly held by the judge to have great significance.
After all, the Court was being asked to determine competing claims to the money in circumstances where, in the face of conflicting affidavits, neither party chose to cross-examine the other. The judge was right to observe that the parties acted at their ‘peril’ in not cross-examining in these circumstances, and leaving it to the Court to resolve conflicting affidavits.[14] In these circumstances, the judge was justified in taking the course he did, and resolving the conflicts in the evidentiary chaos created by the parties as best he could. We agree with his approach.
[14]Judge’s reasons [5].
That being so, the applicant has not made out the fundamental premise on which grounds 1 and 2 depend and those grounds must fail.
We are fortified in that view by the failure of the applicant to adduce evidence from the receivers or to produce their relevant books, records or reports. The failure to call evidence from the receivers or adduce in evidence a final statement of affairs is significant because the receivers were plainly in a position to give an independent account of what had happened to the secured assets. In those circumstances, the judge was left to draw inferences from the incomplete documentary record.
The judge was entitled to conclude that the 12 items of equipment were in the possession of Mr Graer or the applicant and had not been fully accounted for. We agree with that conclusion and would refuse leave to appeal on grounds 1 and 2.
Ground 3
In light of our conclusion on proposed grounds 1 and 2, it is unnecessary to consider proposed ground 3 — which concerns the sale of the excavator by the receivers at an alleged undervalue. Counsel for the applicant accepted that ground 3 could not succeed if grounds 1 and 2 failed.
Conclusion on the application for leave to appeal
The application for leave to appeal is refused. We will hear the parties on the question of costs and the form of any consequential orders.
Before departing the matter, we note that the application for leave to appeal was the third hearing in this Court over the money. This is so notwithstanding the relatively modest sum involved, the absence of any point of principle requiring elucidation, and the unsatisfactory state of the evidence. The evidence relied on by both parties included incomplete and contradictory affidavits that were not in admissible form and not tested in cross-examination, and an incomplete documentary record. The deficiencies in the evidence has meant that on each occasion the Court has had to do its best to make factual findings.
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