Secure Loan Solutions Pty Ltd v Smith
[2016] VSC 794
•16 December 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S CI 2016 02912
IN THE MATTER of an application for the payment of monies from funds in Court held by the Senior Master in Common Fund No 1 that were paid into Court pursuant to a power of sale under a mortgage or charge and the provisions of s 77(3) of the Transfer of Land Act 1958 (Vic) and s 69 of the Trustee Act 1958 (Vic)
BETWEEN:
| SECURE LOAN SOLUTIONS PTY LTD (ACN 165 272 659) | Plaintiff |
| v | |
| DERICK AUBREY SMITH | Defendant |
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JUDGE: | Ierodiaconou AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 21 November 2016 |
DATE OF JUDGMENT: | 16 December 2016 |
CASE MAY BE CITED AS: | Secure Loan Solutions Pty Ltd v Smith |
MEDIUM NEUTRAL CITATION: | [2016] VSC 794 (First Revision 22 December 2016) |
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FUNDS IN COURT – Surplus proceeds from sale of land by mortgagee paid into court –Application for payment out – Plaintiff second mortgagee – Application opposed by mortgagor – Transfer of Land Act1958, s 77(3)(d) – Trustee Act 1958, s 69 – Melbourne Property Group Pty Ltd v SC Australia Pty Ltd and Ors applied – Plaintiff failed to prove debt – Application refused – Defendant entitled to surplus funds.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Ravech | Boris Pogoriller |
| For the Defendant | Mr J Gray, solicitor | Just Law |
HER HONOUR:
Introduction
This judgment arises from an application for payment of funds out of Court. The funds were paid into Court as surplus funds from a mortgagee sale. The issue for determination is who should be paid out. The plaintiff is the second mortgagee and the defendant is the mortgagor.
The funds are held in Common Fund No.1, account 79754 (‘the Account’). As at 9 May 2016, the funds amounted to $40,543.73.
For the reasons below, the Court will make orders that the defendant be paid out the funds held in the Account.
Evidence
The following evidence was before the Court.
(a) affidavits of David Graer, director of the plaintiff, sworn 21 July 2016 (‘the first Graer affidavit’), and 26 October 2016 (‘the second Graer affidavit’);
(b) the affidavit of Boris Pogoriller, solicitor for the plaintiff, sworn 24 August 2016;
(c) the affidavit of the defendant affirmed 28 September 2016 (‘the defendant’s affidavit’); and
(d) the affidavit of William Wade affirmed 18 November 2016 (‘the Wade affidavit’).
The following factual background is discernible from the affidavit material filed.
On 10 June 2008, the defendant became the registered proprietor of 8 Dallas Court, Hallam in the State of Victoria, more particularly described in Certificate of Title Volume 10889 Folio 905 (‘the Property’).[1]
[1]Exhibit ‘DAG-3’ to the affidavit of David Graer, director of the plaintiff, sworn 21 July 2016 (‘the first Graer affidavit’).
On 18 January 2002, the defendant became the sole director of Independent Civil Contractors Pty Ltd (‘ICC’).[2] On 26 April 2003, the defendant became the director of Independent Plant Hire Pty Ltd (‘IPH’).[3] On 28 February 2013, Ms Vanessa Smith became the sole director and secretary of IPH.[4] On 18 October 2015, IPH was deregistered.[5]
[2]Exhibit ‘DAG-5’ to the first Graer affidavit.
[3]Exhibit ‘DAG’-6’ to the first Graer affidavit.
[4]Exhibit ‘DAG-6’ to the first Graer affidavit.
[5]Exhibit ‘DAG-6’ to the first Graer affidavit.
On or around 20 November 2013, four agreements were executed. The effect of these agreements was that the plaintiff loaned monies to ICC and IPH, and the defendant personally guaranteed that loan. Security for the loan was provided to the plaintiff by way of a mortgage over the property, a general charge over assets of ICC and IPH and a charge of particular assets of ICC and IPH. The four instruments by which the loan, guarantee and provision of security took effect are as follows.
Firstly, the plaintiff, Ms Smith, ICC and IPH entered into an agreement (‘the loan agreement’).[6] Pursuant to that agreement, the plaintiff agreed to loan ICC and IPH a principal sum of $300,000 and the defendant and Ms Smith agreed to be guarantors in respect of that loan. Pursuant to clause 1 of the loan agreement, ICC and IPH acknowledged receipt of the principal sum paid on 21 November 2013.[7] Pursuant to clause 2 of the loan agreement, the principal sum and outstanding interest and bank charges were to be repaid on 21 February 2014 (‘the due date’). Clause 2 of the loan agreement provides a monthly interest rate (calculated daily) equivalent to 48% per annum if the loan was repaid on or before the due date. If not repaid by the due date, clause 2 provides a monthly interest rate (calculated daily) equivalent to 96% per annum.
[6]Exhibit ‘DAG-7’ to the first Graer affidavit.
[7]Note however the agreement is dated the preceding day.
Secondly, the defendant and Ms Smith agreed to guarantee the loan of $300,000.[8] On 20 November 2013, the defendant and Ms Smith mortgaged a number of properties, including the property, to the plaintiff.[9]
[8]Exhibit ‘DAG-10’ to the first Graer affidavit.
[9]Exhibits ‘DAG-11’ and ‘DAG-12’ to the first Graer affidavit.
Thirdly, ICC and IPH and the plaintiff entered into a ‘general security agreement - company comprehensive all assets’.[10] Pursuant to the agreement, ICC and IPH agreed to provide further security for the loan, being the present and after acquired personal property and real property of ICC and IPH. That is, a charge over their property. This charge was specified as the first ranking charge.
[10]Exhibit ‘DAG-9’ to the first Graer affidavit.
Fourthly, ICC, IPH and the plaintiff entered into a ‘general security agreement - personal property’.[11] Pursuant to clause 4 (read with clauses 1 and 3) of the security agreement, ICC and IPH agreed to provide a charge over 14 pieces of earth moving equipment as further security for the loan of $300,000. The earth moving equipment was valued for a fire sale by Slatterys Auctioneers at $500,000 (incl. GST).[12]
[11]Exhibit ‘DAG-8’ to the first Graer affidavit.
[12]Exhibit ‘DAG-25’ to the affidavit of Mr Graer sworn 26 October 2016 (‘the second Graer affidavit’). In comparison, the defendant asserts the equipment is worth $550,000: Exhibit ‘DS-4’ to the defendant’s affidavit.
On 20 November 2013, Mr Craig Nixon, solicitor, provided a certificate to the plaintiff stating that he had explained a number of documents to the defendant, including the loan agreement, mortgage, deed of guarantee, and both security agreements.[13]
[13]Exhibit ‘DAG-13’ to the first Graer affidavit.
On or about 21 November 2013, loan monies of $277,317.70 were advanced.[14] This appears to be calculated by the plaintiff on the basis of $300,000 less ‘advisory business solutions (establishment fee, fees, charges and legal fees)’ of $22,000, equating to $278,000.[15] The difference of $682.30 between the amount advanced and the calculations is unexplained. The plaintiff’s spreadsheet of calculations records the loan amount as $300,000 and the applicable date as 20 November 2013.[16]
[14]There are no bank statements in evidence. There is a cheque dated 21 November 2013 in evidence payable to the third party who advanced the loan: Exhibit ‘DAG-16’.
[15]Disbursement order addressed to the plaintiff and signed by the defendant: Exhibit ‘DAG-15’ to the first Graer affidavit.
[16]Exhibit ‘DAG-19’ to the first Graer affidavit.
On 18 December 2013, the plaintiff lodged a caveat over the property.[17]
[17]Exhibit ‘DAG-3’ to the first Graer affidavit.
In or around January 2014, the sole loan repayment was made. It was in the amount of $12,000.[18]
[18]There is no evidence as to exactly when the repayment was made. There are, for instance, no bank statements by either party in evidence. The plaintiff’s spreadsheet states it is in ‘January 2014’: Exhibit ‘DAG-19’ to the first Graer affidavit. The defendant states in paragraphs 22 and 23 of his affidavit affirmed on 28 September 2016 (‘the defendant’s affidavit’) that payments were made on 20 December 2013 and 20 January 2014. However, during the hearing his counsel conceded that only one repayment had been made.
Sometime between November 2013 and January 2014, the defendant delivered seven pieces of earth moving equipment to Mr Graer, the director of the plaintiff.[19] These were seven of the 14 items listed in the attachment to the ‘general security agreement - personal property’ (referred to above at [12]).[20] The defendant estimates the total value of these machines to be $295,000.[21]
[19]The defendant’s affidavit paragraphs 12-23. The date is not specified, however, the date range may be ascertained from those paragraphs.
[20]Second Graer affidavit, paragraph 13.
[21]Defendant’s affidavit, paragraph 10.
On 22 February 2014, the plaintiff says it sent notices of default in respect of the loan agreement and mortgage.[22] The defendant denies receiving them. It is not in dispute that the defendant received them in July 2014.[23]
[22]Exhibit ‘DAG-18’ to the first Graer affidavit.
[23]Exhibit ‘DS-6’ to the defendant’s affidavit is a letter from Romanis Cant to ICC and IPH. Copies of the notices of default are annexed to it.
The defendant says that in March 2014 there was approximately $150,000 of plant and equipment removed from his yard, and which he reported to the police as stolen.[24] He believes Mr Graer was involved in this theft. Mr Graer denies the allegations.
[24]Defendant’s affidavit, paragraph 35; Second Graer affidavit, paragraph 28.
On 26 March 2014, the defendant appointed an administrator to IPH and ICC: Mr Richard Rohrt of Hamilton Murphy Pty Ltd. On 20 June 2016 and 7 July 2014 respectively, the plaintiff appointed a receiver to IPH and ICC: Mr Anthony Robert Cant and Mr Simon Patrick Nelson of Romanis Cant.[25]
[25]The first Graer affidavit, paragraphs 28 and 29.
In April and May 2014, four (of the seven) items of earth moving equipment that had been delivered by the plaintiff or his agent to Mr Graer between November 2013 and January 2014, were sold at the behest of the plaintiff for a total of $79,000, less auctioneer costs of $5,247.[26]
[26]Tax invoices attached to the letter from Romanis Cant to the solicitors for ICH and IPH dated 25 July 2014, being Exhibit ‘DS-6’ to the affidavit of the defendant sworn 28 September 2016.
On 10 July 2014, Slattery Valuations did a valuation of some of the earthmoving equipment listed in the attachment to the ‘general security agreement - personal property’ (referred to above at [12]). These were not the machines that had previously been delivered by the defendant or his agent to the plaintiff or its agent. The valuation was done at a property owned by the defendant: 29 Rimfire Drive, Hallam.[27] (This was one of the defendant’s properties over which the plaintiff had security.) The valuation was addressed to a Mr Manuel Hanna of Romanis Cant. The valuation was of a Hitachi dump truck, Samsung excavator and Komatsu excavator; given auction realisable values of $14,000, $9,000 and $20,000 respectively. This amounted to a total of $43,000 of auction realisable value, with the market value of the same machines valued at $72,000.[28]
[27]Exhibit ‘DAG-28’ to the second Graer affidavit and Exhibit ‘DAG-4’ to the first Graer affidavit.
[28]Exhibit ‘DAG-28’ to the second Graer affidavit.
By letter dated 21 July 2014 to Romanis Cant, Mr Smith’s lawyers indicated that all but one Bell dump truck has previously been seized by the plaintiff (‘the 21 July 2014 letter’).[29] The letter alleged that the plaintiff was, amongst other things, in breach of the Personal Properties Securities Act 2009 ‘in that it has not provided an accounting for moneys allegedly owed despite the expiration of 20 business days from the earliest of numerous requests for this information.’ The letter alleged that the appointment of Romanis Cant was illegal. It requested that: ‘you intervene and obtain the information previously sought by our client in order that your appointment might be brought to an early end and whatever debt is legitimately owed to your Appointer [the plaintiff] can be paid.’
[29]Exhibit ‘DS-5’ to the defendant’s affidavit.
The 21 July 2014 letter referred to a letter from Romanis Cant dated 11 July 2014. This is not in evidence. It stated that a Komatsu PC 1600 excavator (‘the excavator’) referred to in that letter had never been in the possession of IPH or ICC but rather had been purchased by another entity, Independent Civil Contractor Group Pty Ltd (‘the Group’), and had always been in the sole possession of the Group.
By letter dated 25 July 2014 to Mr Smith’s solicitors (‘the 25 July 2014 letter’), Romanis Cant responded to the 21 July 2014 letter.[30] The letter states that ‘the Receivers and Managers have sighted documentation (letter and email) written by Derick Smith (on ICC letterhead) advising that the Komatsu Excavator is owned by ICC.’ The Komatsu excavator is not listed as one of the 14 items of equipment ‘general security agreement - personal property’ over which there was a charge.
[30]Exhibit ‘DS-6’ to the defendant’s affidavit.
The 25 July 2014 letter requested documentation to support the assertion the Komatsu Excavator was owned by the Group. It noted it was unable to locate that entity on the ASIC register and requested details. It demanded that the location of a Caterpillar Scraper be provided.
The 25 July 2014 letter rejected the assertion that the appointment of Romanis Cant was illegal and stated that the plaintiff’s security ‘became enforceable upon the appointment of an Administrator to ICC as per paragraph 12 of the General Security Agreement’.
The 25 July 2014 letter stated that accounting had been sought from the plaintiff ‘in relation to any assets subject to its security that were realised’ prior to the appointment of Romanis Cant. The letter enclosed a statement of account. The letter attached two invoices from Slattery Auctions and copies of the Notices of Default dated 22 February 2014. The letter demanded documents from Mr Smith in respect of IPH and ICC.
By letter dated 2 September 2014 to Romanis Cant (‘the 2 September 2014 letter’), Mr Smith’s solicitors responded to the 25 July 2014 letter. They asserted ‘that you and your client still refuse to quantify the debt allegedly owed’ to the plaintiff. Further:
We are instructed that despite many requests, our client has still now [sic] been advised as to what items of plant and equipment have been seized and what has become of the plant and equipment. We note that your client has quite specific obligations set out in the Personal Properties Securities Act and is [sic] default of those obligations.
We are instructed that the directors and shareholders of [ICC] and [IPH] are not in possession of any plant and equipment owed [sic] by either of those entities. Our clients instruct that all books and records of the two companies have been forwarded to you and Hamilton Murphy.
We seek your urgent advices concerning the present state of your purported administration and in particular details of the balance of any debt claimed by [the plaintiff].
There is no response to the 2 September 2014 letter in evidence.
On 12 November 2014, the plaintiff registered a mortgage over the property.[31]
[31]Exhibit ‘DAG-3’ to the first Graer affidavit.
In November 2014, a Mr William Wade, earthmoving contractor, deposed that he made an offer of $250,000 to buy the Komatsu excavator from Mr Smith.[32] Mr Wade deposed that he ‘had known of Derick Smith for many years because the earthmoving industry is a very small industry but I have only got to know him a little bit personally over the last few years.’ Mr Wade deposed that Mr Smith accepted the offer of $250,000 subject to certain conditions, and told him that Mr Graer had to approve the sale, and he needed to speak with Romanis Cant, who had been appointed as receivers.[33] Mr Smith gave evidence, in turn, of providing Mr Wade’s written purchase offer dated 6 November 2014 to Mr Hanna of Romanis Cant.[34] On the other hand, Mr Graer deposes that that he has been informed by Mr Cant of Romanis Cant that his office did not receive such an offer.[35] Mr Graer deposed that he had not previously seen the written offer exhibited or had it brought to his attention.[36]
[32]Affidavit of William Wade affirmed on 18 November 2016 (‘the Wade affidavit’) paragraph 4.
[33]Wade affidavit, paragraphs 4-5.
[34]Exhibit ‘DS-8’ to the defendant’s affidavit; the Wade affidavit.
[35]Second Graer affidavit, paragraph 31.
[36]Second Graer affidavit, paragraph 32.
Mr Graer deposed that on 26 November 2014, Mr Smith brought a civil claim in the Victorian Civil & Administrative Tribunal (‘VCAT’) against the plaintiff claiming $600,000.[37]
[37]First Graer affidavit, paragraph 45.
On 24 December 2014, the plaintiff sent letters of demand to the defendant, giving notice that it was taking possession of the property. The letter of demand claimed the debt was $448,109.60.[38]
[38]Affidavit of James Grey affirmed 28 September 2016, paragraph 46; Exhibit ‘DS-9’.
Mr Wade deposed that he had further discussions with representatives of Romanis Cant and was told that he could buy the Komatsu excavator for $40,000. On 19 January 2015, he accepted that offer and sent an email to Romanis Cant confirming that offer. Romanis Cant then sent him an invoice that did not indicate they had clear title.[39]
[39]Wade affidavit, paragraphs 5-6.
Mr Wade deposed that, on 4 February 2015, he met with Mr Graer immediately after a mediation at VCAT with Mr Smith.
Derick [Mr Smith] asked David Graer if he had considered the $250,000 offer for the excavator. Mr Graer didn’t answer the question directly – he said to Derick: “You wont [sic] have to worry about that, both you and your wife will soon be in gaol.” Mr Graer then asked who I was and I said I was the person who offered $250,000 for the excavator and now had an offer for $40,000 accepted.
Mr Graer then said my $40,000 would not be accepted and I would have to pay $250,000 for the excavator. I sent Romanis Cant an email the same day to clarify.[40]
[40]Wade affidavit, paragraphs 8-9
The email sent on 4 February 2015 by Mr Wade to Mr Nelson of Romanis Cant states:[41]
[41]Exhibit ‘WW-1’ to the Wade affidavit.
I refer to previous correspondence and telephone conversion [sic] with Manuel Hannah last Monday.
I also advise that I have just returned from VCAT meeting this morning with Derick Smith and Mr David Graer.
I attended this meeting in an attempt to find clarity regarding ownership of the machine.
The registrar clearly stated that it is my responsibility to check ownership before finalising sale.
I advised Mr Graer that I had previously offered $250,000 dollars [sic] for the machine, and that I have subsequent to negotiation with you, had an offer of $40,000 including GST accepted.
Mr Graer then stated that my offer of $40,000 would not be accepted and that I would have to pay the $250,000 previously offered.
Can you please clarity the situation as I do want to buy the machine and wish to do so with agreement of all parties.
I don’t want arguments regarding title/ownership.
I need Derick’s cooperation to dissemble, move, reassemble the machine, and release claim on title [sic]
I also need Mr Graer to relinquish any claims on the machine or it’s title (as he appears to believe that he has a say in the sale because of his PPRS register) [sic]
Your agreement to indemnity me is a consolation but it doesn’t preclude Mr Graer taking action for an amount in excess of the $40,000 agreed sale price [sic]
Mr Wade exhibits an email sent from Romanis Cant to him on 10 February 2015. It states, inter alia:
Mr David Graer of Secure Loan Solutions (our appointer) consents to the sale of the [Komatsu] excavator for the purchase price of $40,000 (incl GST).
Accordingly, please deposit the funds to the following Macquarie Bank account…[42]
[42]Exhibit ‘WW-2’ to the Wade affidavit.
On 11 February 2015, Mr Wade responded by email to Mr Hanna, seeking a face-to-face meeting to discuss final details.[43]
[43]Exhibit ‘WW-2’ to the Wade affidavit.
Mr Wade deposed that, on 19 February 2015, he met with Mr Hanna and Mr Nelson of Romanis Cant to clarify the excavator issue. ‘They said they were aware of my previous offer of $250,000 for the machine in November 2015 but it was rejected because the offer came via Derick Smith.’[44] At that meeting, Mr Wade says that he was told by Mr Hanna and Mr Nelson that ‘they owned the machine but David Graer had a PPSR registration lodged on the machine and he appointed them in about June 2014’.[45] Further, that they would ‘clarify with the PPSR and a court process whether they could sell to me with clear title.’[46]
[44]Wade affidavit, paragraph 7.
[45]Wade affidavit, paragraph 11.
[46]Wade affidavit, paragraph 14.
On 24 February 2015, Mr Smith caused a valuation of the Komatsu excavator to be done, and the valuation was for $250,000 plus GST.[47]
[47]Exhibit ‘WW-3’ to the Wade affidavit.
On 20 May 2015, Mr Smith sent an email to the solicitor acting for the National Australia Bank (‘NAB’) regarding the property. He asserted that the second mortgage produced by the plaintiff was a fraud, that Alan Munt who initiated the contract is a convicted fraudster serving 8 years, and the broker Denis Angeler (alias Frank Martin) was also a convicted fraudster serving 10 years.[48]
[48]Exhibit ‘CJE-14’ to the affidavit of Craig Edwards, solicitor for the National Australia Bank, sworn 27 April 2016 (‘the Edwards affidavit’). This affidavit was provided to Funds in Court at the time of the payment of the surplus funds into Court.
On 29 May 2015, Mr Smith’s proceeding against the plaintiff in VCAT was struck out for failing to file and serve amended points of claim by the due date.[49]
[49]Exhibit ‘DAG-24’ to the first Graer affidavit.
On or about 8 October 2015, the NAB, as mortgagee in possession, entered into a contract of sale for the property. Settlement of the sale of the property occurred on 26 November 2015. The property was sold for the sum of $676,500.[50]
[50]Edwards affidavit.
By letter dated 16 October 2015, the solicitors for the NAB wrote to the plaintiff’s solicitors indicating that it understood the validity of the second mortgage was the subject of court proceedings and its client intended to make an application to pay any surplus funds into Court.[51] On 10 November 2015, the plaintiff’s solicitors replied to the NAB solicitor’s letter stating that there were no Court proceedings contesting the validity of their client’s mortgage and that the NAB was required to pay the plaintiff the surplus. Further, in the event of payment into Court, they would seek an order from the NAB for payment of costs that had been incurred on an indemnity basis.[52]
[51]Exhibit CJE-15’ to the Edwards affidavit.
[52]Exhibit CJE-15’ to the Edwards affidavit.
On 3 December 2015, the solicitors for the NAB wrote to Mr Smith seeking, amongst other things, further documentation regarding Mr Smith’s assertions the second mortgage to the plaintiff was fraudulent.[53] On 8 December 2015, Mr Smith’s solicitors wrote to the NAB’s solicitors by way of reply. Amongst other things, the letter stated:
We are instructed the Second Mortgage held by [the plaintiff] relates to a $300,000 loan from November 2013 for which [the plaintiff] has in 2014 already seized and sold earthmoving equipment worth over $500,000 which more than satisfies the debt.[54]
[53]Exhibit CJE-14’ to the Edwards affidavit.
[54]Exhibit CJE-14’ to the Edwards affidavit.
By letter dated 4 December 2015, the Bank’s solicitors replied to the plaintiff’s solicitors. The letter noted that the contract of sale for the property, had settled on 26 November 2015 and a surplus from the sale proceeds was expected. Further, it appeared there were conflicting claims between the plaintiff and Mr Smith; noting it would pay the surplus of the sale proceeds into Court.[55]
[55]Exhibit CJE-14’ to the Edwards affidavit.
By letter dated 22 December 2015, the NAB’s solicitors wrote to Mr Smith’s solicitors and the plaintiff’s solicitors stating that Mr Smith maintains he has a claim against the second mortgagee and that accordingly their client had no choice but to pay the surplus funds into court.[56]
[56]Exhibit CJE-14’ to the Edwards affidavit.
By letter dated 23 December 2015 (‘the 23 December 2015 letter’), the plaintiff’s solicitor wrote to the NAB’s solicitors stating ‘that vat [sic] no stage have I or my client been given any notice of any claim in the form of a letter of demand or Court proceedings from either the Mortgagor or any solicitor acting on his behalf.’[57] The letter referred to the mortgage documents. It stated that if the funds were paid into Court ‘NAB will be joined as a party to my client’s application and an order will be sought that it pay my client’s costs on an indemnity basis of the application which would otherwise be unnecessary.’[58]
[57]Exhibit CJE-14’ to the Edwards affidavit.
[58]Exhibit CJE-14’ to the Edwards affidavit.
By letter dated 27 January 2016, the NAB’s solicitors responded to the plaintiff’s solicitors. The letter attached correspondence from Mr Smith’s solicitors disputing the plaintiff’s mortgage. It concluded that if all interested parties were unable to reach an agreement then the surplus money would be paid into Court.[59]
[59]Exhibit CJE-14’ to the Edwards affidavit
Mr Wade deposed that, in January 2016, the title issue with the Komatsu excavator was resolved and Romanis Cant sold the machine to him with clear title for $35,000.[60] Mr Wade exhibits a copy of the tax invoice dated 12 January 2016, addressed to him from Romanis Cant, with the price of $35,000 for the excavator.[61]
[60]Wade affidavit, paragraph 14.
[61]Exhibit ‘WW-4’ to the Wade affidavit.
By letter dated 10 February 2016, Mr Nelson of Romanis Cant informed Mr Wade that the sum of $35,000 as full consideration for the purchase of the Komatsu excavator had been received and he was authorised to remove it.[62] It was requested that he do so within seven days.
[62]Exhibit ‘WW-4’ to the Wade affidavit.
Mr Graer deposed that around about March 2016, the Komatsu excavator was sold ‘by the receivers in open market for the best obtainable price, which I recall was $33,000 inclusive of GST’.[63] This amount is not recorded in the plaintiff’s spreadsheet of loan calculations. However, an amount a payment of $35,000 made on 4 March 2016 is recorded.
[63]Second Graer affidavit, paragraph 32.
On 1 April 2016, the plaintiff’s solicitors wrote to the solicitors for the NAB referring to their client’s instructions to pay the surplus funds into Court and that if so no costs orders would be sought against the Bank.[64]
[64]Exhibit CJE-14’ to the Edwards affidavit.
The appointment of Mr Nelson and Mr Cant as receivers of IPH ceased on 3 August 2015 and of ICC on 4 April 2016.[65]
[65]Exhibit ‘DAG-5’ and ‘DAG-6’ to the first Graer affidavit.
On 9 May 2016, following payment into Court by the solicitors for the NAB, a Certificate of Receipt was issued by Funds in Court in respect of the monies paid into the Account.
On 25 July 2016, the plaintiff filed an originating motion for payment to it of the monies held in the Account.
On 5 August 2016, the Court made orders that notice of the application be given to all parties whose registered interest was recorded on the title to the property at the time of the mortgagee sale by the NAB. Notice of this proceeding was duly given.[66] On 31 August 2016, the Court made orders adding the defendant to the proceeding. None of the other interested parties sought to be added to the proceeding.
[66]Affidavit of Boris Pogoriller, the plaintiff’s solicitor, affirmed 24 August 2016.
Submissions
Both parties made written and oral submissions. The key submissions are summarised below. It is unnecessary to reiterate all the submissions.
Plaintiff’s submissions
The plaintiff submits that money is still owing under the loan agreement. It relies on a schedule of amounts owing.[67] It states that interest was due under clause 3 of the loan agreement or, alternatively, a reasonable rate of interest should be inferred under the common law. It states that as the principal amount is still owing, being a total of $121,500 ($300,000 less credits of $178,500), it is unnecessary to consider how much interest is owing. Alternatively, interest should be calculated under the loan agreement or a reasonable rate of interest implied.
[67]Exhibit ‘DAG-19’.
The plaintiff claims the notice of default was not required to be given as the first mortgagee took possession of the property and that constituted a default. Further, it served notices of default anyway.[68] The plaintiff submits the registration of its mortgage creates a legal interest by statute which is paramount and has priority over a later unregistered interest. This may be discharged by the mortgagor in the equity of redemption upon paying out the amount. It has not paid out the amount. The plaintiff submits that all earthmoving equipment seized has been sold and accounted for.[69] If there is a complaint about the sale of equipment it can be made to Romanis Cant. Mr Graer did not have anything to do with the sale of the Komatsu excavator. Romanis Cant made the decisions.[70] The Corporations Act 2001 (Cth) (‘Corporations Act’) (s 420A) imposes a duty on controllers in the exercise of their powers. This means that an asset cannot be sold under value. It beggars belief that Romanis Cant would not take a higher offer for the Komatsu excavator if offered.[71]
[68]Exhibit ‘DAG-18’.
[69]Transcript pages (‘T’) 45-6.
[70]T 18-9.
[71]T 19.
The plaintiff says that a party cannot be left with the fruits of a transaction about which it complains. Further, it makes allegations of insolvent trading against the defendant. It refers to the defendant’s unsuccessful attempts to litigate in VCAT. It says that the defendant’s complaints relate to conduct that occurred after its default and are therefore not relevant to this proceeding.
The plaintiff says that the defendant has been inconsistent. It refers to correspondence between the defendant and the NAB’s solicitors alleging that the mortgage with the plaintiff was a fraud. There is no longer any suggestion that the mortgage was a fraud.
Defendant’s submissions
The defendant says that the plaintiff has not proven its debt. It refers to the earth moving equipment held by the plaintiff and says that their sale proceeds could satisfy the $121,500 of principal debt owing. The defendant says that there is no explanation as to where the sale proceeds have gone. Further, the defendant says that the plaintiff refused to accept an offer of $250,000 for sale of the Komatsu excavator. This alone could have paid out the debt. The defendant says the offer of $250,000 was not accepted by Romanis Cant because the debt was exhausted.
The defendant says that there was no notice of default given as required by clause 3 of the loan agreement. There are no particulars of service in relation to the alleged notices provided. It says that the loan agreement interest rate is a penalty clause.
The defendant relies upon decisions in other proceedings: one in the County Court, and one in this Court. It says that the decision in this Court indicates that Mr Graer is not credible and that the County Court decision indicates that the conveyancer, solicitor Alan Munt, was not independent as claimed by Mr Graer in his affidavit evidence. It says Mr Graer gave evidence for Mr Munt in respect of the latter’s criminal conviction in the County Court and did so as Mr Munt’s employer.
Applicable principles
The applicable principles were not in dispute between the parties.
Section 77 of the Transfer of Land Act applies:
77 Power of sale under a mortgage or charge
(1)If within one month after the service of such notice or demand or such other period as is fixed in such mortgage or charge the mortgagor grantor or other persons do not comply with the notice or demand the mortgagee or annuitant may, in good faith and having regard to the interests of the mortgagor grantor or other persons, sell or concur with any other person in selling the mortgaged or charged land or any part thereof, together or in lots, by public auction or by private contract, at one or several times, and for a sum payable in one amount or by instalments, subject to such terms and conditions as the mortgagee or annuitant thinks fit, with power to vary any contract for sale and to buy in at any auction or to rescind any contract for sale and to resell without being answerable for any loss occasioned thereby and with power to make such roads streets and passages and grant and reserve such easements as the circumstances of the case require and the mortgagee or annuitant thinks fit, and may make and sign such transfers and do such acts and things as are necessary for effectuating any such sale.
(2)An instrument of transfer by a mortgagee or annuitant expressed to be in exercise of the power of sale and in an appropriate approved form may be accepted by the Registrar as sufficient evidence that the power has been duly exercised.
(3) The purchase money received arising from the sale shall be applied—
(a)firstly in payment of all costs charges and expenses properly incurred incidental to the sale and consequent on such default;
(b)secondly in payment of the monies which are due or owing on the mortgage or charge;
(c)thirdly in payment of monies owing under or in respect of subsequent mortgages and charges in the order of their respective priorities;
(d)fourthly in payment of the residue (if any) to the mortgagor or into the Supreme Court under the provisions so far as they are applicable of section sixty-nine of the Trustee Act 1958 and the rules referred to therein, or if the sale is made by a mortgagee and the land is charged with a subsequent annuity or if the sale is made by an annuitant, in payment of the said residue into an account on deposit at interest in an authorised deposit-taking institution within the meaning of the Banking Act 1959 of the Commonwealth in the joint names of the annuitant and the Registrar to satisfy the accruing payments of the charge and subject thereto for the benefit of the parties who are or become entitled to the residue of the deposited money.
(4)Upon the registration of any transfer under this section all the estate and interest of the mortgagor or grantor of the annuity as registered proprietor of the land mortgaged or charged shall vest in the purchaser as proprietor by transfer, freed and discharged from all liability on account of such mortgage or charge and (except where such a mortgagor or grantor is the purchaser) of any mortgage charge or encumbrance recorded in the Register subsequent thereto and the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorize the sale or that due notice was not given or that the power was otherwise improperly or irregularly exercised but any person thereby indemnified shall have his remedy in damages against the person exercising the power, and for the purposes of Part III the purchaser shall be deemed to have dealt with the registered proprietor of the land.
Section 69 of the Trustee Act applies:
69 Payment into court by trustees
(1)Trustees or the majority of trustees having in their hands or under their control money or securities subject to a trust may pay the same into court; and the same shall, subject to rules of court, be dealt with according to the orders of the Court.
(2)The receipt or certificate of the proper officer shall be a sufficient discharge to trustees for the money or securities so paid into court.
(3)Where money or securities are vested in any persons as trustees and the majority are desirous of paying the same into court, but the concurrence of the other or others cannot be obtained, the Court may order the payment into court to be made by the majority without the concurrence of the other or others.
(4)Where any such money or securities are deposited with any banker broker or other depositary, the Court may order payment or delivery of the money or securities to the majority of the trustees for the purpose of payment into court.
(5)Every transfer payment and delivery made in pursuance of any such order shall be valid and take effect as if the same had been made on the authority or by the act of all the persons entitled to the money and securities so transferred, paid or delivered.
(6)Notwithstanding the repeal of the Trusts Act 1915 where monies have been paid or securities transferred or deposited under the provisions of sections sixty-one and sixty-two of the said Act the Court may on application by any person interested make any such order as is authorized by section sixty-three or section sixty-four of the said Act and every such order shall have the same effects and consequences as if formerly made under such sections or the Court may make such other order as it thinks fit and in particular may make an order that such monies or securities shall be paid into court so as to come under the provisions of the preceding subsections of this section or any of them.
(7) In this section, Court means the Supreme Court.
The relevant principles were adequately summarised by Derham AsJ in Melbourne Property Group Pty Ltd v SC Australia Pty Ltd and Ors.[72]
[72][2013] VSC 701, [47]-[57]. The corresponding citations are as were in Derham AsJ’s reasons.
The Transfer of Land Act
47Section 77 of the TLA provides the source of the power of sale of a mortgagee of land under the TLA and regulates the disposition of the purchase money received by the mortgagee from the sale.
48Section 77(3) provides, so far as presently relevant, that the purchase money shall be applied –
(a)First, in payment of all costs charges and expenses properly incurred incidental to the sale and consequent on such default;
(b)Secondly, in payment of the moneys which are due or owing on the mortgage or charge;
(c)thirdly, in payment of moneys owing under or in respect of subsequent mortgages and charges in the order of their respective priorities;
(d)fourthly, in payment of the residue (if any) to the mortgagor or into the Supreme Court under the provisions so far as they are applicable of section sixty-nine of the Trustee Act 1958 and the rules referred to therein…for the benefit of the parties who are or become entitled to the residue of the deposited money.
49 Section 69 (1) of the Trustee Act1958 provides that –
Trustees or the majority of trustees having in their hands or under their control money or securities subject to a trust may pay the same into court; and the same shall, subject to rules of court, be dealt with according to the orders of the Court.
50There is a good deal of authority, some of it venerable, that on the sale of the mortgaged property under the Torrens system, the mortgagee holds the surplus on trust for the subsequent unregistered mortgagees or chargees and that irrespective of how the moneys were actually applied the beneficiaries could follow the moneys and uphold an equitable interest in them: Beeby v Official Assignee of Pickering and Pickering;[73] Re Morrison; Bennell v Smith;[74] Hope v Hope;[75] Ex parte Australian Co-operative Development Society Limited;[76]
[73][1953] NZLR 832.
[74][1962] Tas R 337.
[75][1977] 1 NZLR 582.
[76][1978] Qd R 395.
51However, as Robson J points out in Re S&D International (In Liq) (R & M App),[77] Hope v Hope[78] is not authority, as Dr Robinson supposes[79] for his assertion that s 77(3)(c) refers to unregistered mortgages as well as registered mortgages. Hope v Hope is authority for the proposition that the second unregistered mortgagee has an equitable charge over the surplus moneys from the sale that is not defeated by the statutory provision that the first mortgagee pay the surplus to the registered proprietor.
[77][2009] VSC 225, [115].
[78][1977] 1 NZLR 582.
[79]Transfer of Land in Victoria (1979), 320.
52In Re S&D International (In Liq) (R & M App),[80] Robson J reviewed the authorities referred to above, and many others, relating to s 77 of the TLA, and co-ordinate provisions in Torrens legislation in other States of Australia and in New Zealand, and concluded, in summary, that:[81]
[80][2009] VSC 225, [115].
[81] ` [2009] VSC 225, [160].
(a)there is no authority that suggests the reference to ‘subsequent mortgages and charges’ in s 77(3)(c) is limited to registered mortgages;
(b)the authorities establish that irrespective of the true construction of s 77(3)(c), the interests of unregistered mortgagees and chargees are recognised and any surplus should be distributed according to their priority otherwise established at law. There is no suggestion in any of the authorities that s 77(3) should be applied literally in disregard of recognised equitable interests.
53 In greater detail, he derived the following conclusions:[82]
[82][2009] VSC 225, [159]; omitting the references to authority.
(a)Section 77 of the TLA does not abrogate the rights of mortgagees and chargees under equitable mortgages and charges – it merely postpones them to those mortgagees and chargees under registered mortgages and charges;
(b)The reference to subsequent mortgages and charges in s 77(3)(c) of the TLA includes unregistered mortgages and charges;
(c)A mortgagee under a mortgage, whether it is a general law mortgage or a registered mortgage under the TLA, holds the surplus from the sale of the mortgaged land on trust for the mortgagor and the subsequent encumbrancers; [83]
[83]As to which now also see: Bofinger Kingsway Group (2009) 239 CLR 269, [50]; where the obligation is described as a fiduciary obligation to account rather than a full blown trust.
(d)The provisions in s 77(3) of the TLA do not alter the order of priorities otherwise established by law;
(e)The payment of the surplus from a sale by a registered mortgagee to the mortgagor under s77(3)(d), or otherwise, does not free the surplus from all equities otherwise recognised at law. In equity, the equitable charge on the land is converted to a charge on the proceeds;
(f)The first mortgagee who sells the mortgaged property is obliged, if asked, to account to the mortgagor and the subsequent mortgagees in respect of his claims under the mortgage in respect of principal, interest and costs;
(g)The mortgagee must account as at the date that he receives the proceeds from the sale of the mortgaged property;
(h)The mortgage of the first mortgagee who sells the mortgaged property for an amount sufficient to meet his claim for principal, interest and costs is discharged upon the sale at the date of settlement of the sale;
(i)Likewise, any subsequent mortgage is discharged if sufficient proceeds are received to meet the subsequent mortgage at the mortgagee’s sale. The mortgagor is not responsible for interest to the subsequent mortgagee if the first mortgagee fails to account to the subsequent mortgagee as it should. The subsequent mortgagee is treated as having the moneys owed to it under its security held on trust for it by the first mortgagee as and from the receipt by the first mortgage of the proceeds of sale;
(j)The mortgagee who accounts is only obliged to do so once and that is when his mortgage is discharged at settlement;
(k)If there is any doubt on the entitlement, priority or quantum of the subsequent encumbrances, the mortgagee should put aside the trust moneys in an interest bearing account until the entitlements have been determined or alternatively, pay the money into court.
53In Residential Housing Corporation Pty Ltd v Esber[84] Campbell JA of the New South Wales Court of Appeal disagreed with Robson J’s view that the reference to subsequent mortgages and charges in s 77(3)(c) of the TLA includes unregistered mortgages and charges. It was concluded that the equivalent NSW provision, s 58(3) of the Real Property Act 1900, does not authorise the payment out of subsequent unregistered mortgages.
54Despite this holding, it was also held that the mortgagee who holds surplus proceeds of the sale of mortgaged property is under a fiduciary obligation to account to all subsequent interest holders, including unregistered mortgagees.[85]
55In Bofinger Kingsway Group, [86] the High Court approved the holding in Bank of New South Wales v Adams[87] that s 58(3) of the NSW Real Property Act is to be read in a manner consistent with the equitable duty of the first mortgagee to account to puisne mortgagees, including those claiming equitable interests, as trustee for any surplus.
56In the result, in this case where the moneys have been paid into Court by the selling mortgagees, and where there are no competing registered interests in the several parcels of land, if it is established that MPG has an equitable charge to secure repayment of its loan moneys due under the Consolidated Loan Agreement, then it is entitled to the funds in court because the equitable charge on the land is converted to a charge on the proceeds.
57Another relevant principle is that a binding contract for sale by the mortgagee destroys or suspends the equity of redemption in the mortgaged property.
A binding contract for sale by the mortgagee destroys (or suspends, …) the equity of redemption in the mortgaged property, and constitutes the mortgagee exercising their power of sale a trustee of the surplus proceeds of sale, if any, for the persons interested according to their priorities [citations omitted] … [88]
[84](2011) 80 NSWLR 69; [2011] NSWCA 25, [80] – [99] per Campbell JA, MacFarlane JA agreeing.
[85](2011) 80 NSWLR 69; [2011] NSWCA 25, [167] – [169] per Campbell JA, MacFarlane JA agreeing.
[86](2009) 239 CLR 269, [35].
[87][1982] 2 NSWLR 659.
[88]Lightwoods Law of Mortgage, 3rd edition by E L G Tyler and others (2014) at 20.43, 556.
In respect of evidence of other decisions, the Evidence Act s 91 provides:
Exclusion of evidence of judgments and convictions
(1)Evidence of the decision, or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding.
(2)Evidence that, under this Part, is not admissible to prove the existence of a fact may not be used to prove that fact even if it is relevant for another purpose.
Note
Section 178 (Convictions, acquittals and other judicial proceedings) provides for certificate evidence of decisions.
Consideration
The lack of evidence filed by the parties reflects poorly upon them both. Neither party filed bank statements. There are gaps in the evidence regarding the movement of earthmoving equipment from the defendant to the plaintiff. Neither party sought leave to cross-examine the deponents of affidavits relied upon by the other party.
The plaintiff has not proven its debt. Clause 14 of the Memorandum of Common Provisions provides that a certificate signed by the mortgagee stating the amount owing is prima facie evidence of those facts. No such certificate is in evidence. The spreadsheet does not meet the requirements of such a certificate.
The plaintiff’s submission that conduct that post-dates the mortgage is irrelevant is rejected. The conduct post the mortgage is relevant as to whether or not the defendant is indebted to the plaintiff.
In addition to the Komatsu excavator, there were 14 items of earth moving equipment provided by or on behalf of ICC and IPH that were in the possession of Mr Graer or the plaintiff. [89] Mr Graer does not deny this.[90] The evidence, referred to above, is that Slattery Auctions had valued it at $500,000. This valuation is to be preferred over Mr Smith’s valuation of $550,000.
[89]Exhibit ‘DS-4’.
[90]Mr Smith makes the assertion in paragraph 39(b) of his affidavit and the list of equipment is referred to in Exhibit ‘DS-4’. Mr Graer denies paragraph 39(a) of Mr Smith’s affidavit but does not deny paragraph 39(b).
As discussed above, in letters to Romanis Cant from his solicitors, the defendant sought information from the plaintiff as to the quantification of the debt and what had become of the earthmoving equipment that had been seized. No such information was forthcoming. The statement of account provided by Romanis Cant did not explain what had happened to all the seized earthmoving equipment.
The plaintiff has failed to account for all of the earthmoving equipment seized. Aside from the sale of the Komatsu excavator and the four items sold by Slattery Auctions that are the subject of the invoices provided by Romanis Cant,[91] there is no explanation as to what has happened to the remaining earth moving equipment and how the money from the sales of the equipment has been accounted for. The schedule of amounts that the plaintiff says is owing provides for credits in respect of the four items sold by Slattery Auctions. It also provides for further credits of $23,000 on 1 July 2014, $24,500 on 27 October 2014, and $5,000 on 18 May 2015. These payments are unexplained.
[91]Exhibit ‘DS-6’, Romanis Cant letter.
There is evidence from Mr Smith and Mr Wade that the Komatsu excavator could have been sold to Mr Wade for $250,000. Mr Wade’s evidence corroborates Mr Smith’s evidence that the offer of $250,000 was made. The plaintiff did not call evidence from Romanis Cant to refute the evidence of Mr Wade, and the Court draws an adverse inference from this failure. Mr Graer deposed that he has been informed that Romanis Cant did not receive the written offer of $250,000 from Mr Smith or Mr Wade. Mr Wade’s affidavit evidence is compelling, and is corroborated by contemporaneous documentary evidence that has not been refuted by the plaintiff. In particular, there is no evidence from the plaintiff refuting Mr Wade’s evidence of his meeting with Mr Graer on 4 February 2015, and the email, referred to above, sent that same day to Romanis Cant referring to that very meeting in some detail. There is no evidence refuting Mr Wade’s evidence of his email exchanges with Romanis Cant, and with his communications with them. Mr Wade’s evidence that he made the offer of $250,000 is accepted. There is no explanation as to why such an offer, which would have discharged, or significantly discharged, the monies owed to the plaintiff, was not accepted.
The plaintiff’s submission that the plaintiff had nothing to do with the sale of the Komatsu excavator is not accepted. The email from Romanis Cant referred to above (Exhibit ‘WW-2’) indicates that Romanis Cant had sought instructions from Mr Graer as to whether he would consent to the sale of the Komatsu excavator for $40,000 and he indicated that he had consented, and accordingly sought payment of the sale monies.
Mr Graer’s evidence that there was a sale of the Komatsu excavator for $33,000 and that it occurred in about March 2016 on the open market is not accepted. The evidence from Mr Wade is preferred as it is consistent with the letter from Romanis Cant dated 10 February 2016, and the tax invoice from Romanis Cant dated 12 January 2016, indicating the Komatsu excavator had been sold to Mr Wade for $35,000.
The plaintiff made submissions that an offer of $250,000 for the Komatsu excavator had not been made because it beggars belief that it would not have been accepted had it been made, and that Romanis Cant had duties as receivers under the Corporations Act (s 420A) to accept the highest offer. The Court must decide on the evidence before it, and the evidence, as discussed above, is that such an offer was made. It is unhelpful to speculate why it was not accepted.
For the sake of completeness, it is observed that there is no finding that Romanis Cant has breached the Corporations Act. Romanis Cant was not a party to this proceeding and there was no evidence that it was on notice as to this proceeding.
The plaintiff’s submission that the defendant’s default, or the actions of the NAB in taking possession of the property absolved the plaintiff from responsibility to provide the notice of default, is rejected. The notice of default was required by clause 3 of the loan agreement. The notice was to be provided to ICC and IPH at the address of the defendant’s accountants. There is evidence that they received no such notice.[92] It was also to be provided to the defendant and Ms Smith at their address in Narre Warren. The defendant deposed that he did not receive it.[93] There are no particulars of service in evidence. In the circumstances, the Court finds that the notices of default were not served. However, the defendant was certainly aware of the defaults of ICC and IPH. The defendant was aware from at least January 2014 that the loan repayments were overdue. On 20 January 2014, he advised Mr Graer that eight items of plant were on auction at his designated auctioneer, Slatterys, in Dandenong.[94] It is not explained why the defendant said there were eight items of plant on auction when the evidence, discussed above, is that between November 2013 and January 2014, the defendant delivered seven earth moving machines to Mr Graer.
[92]Exhibit ‘DS-2’ to the defendant’s affidavit.
[93]Defendant’s affidavit, paragraph 29.
[94]Defendant’s affidavit, paragraph 23.
It is unnecessary to determine the amount of interest applicable to the loan from the plaintiff to the defendant. This is because the plaintiff has failed to prove the principal amount was unpaid.
Applying s 91 of the Evidence Act, the Court has disregarded both the decisions in other proceedings relied upon by the plaintiff. As to the reference to the defendant’s VCAT proceeding, the evidence is that it was dismissed because pleadings were not filed on time.[95] Accordingly, no relevant findings in respect of the substantive issues in the dispute can be made. The plaintiff’s reliance on the VCAT proceeding is surprising given the 23 December 2015 letter from its solicitor to the NAB asserting that at no stage had it been given notice of any claim in the form of a letter of demand or Court proceedings from the mortgagor or anyone acting on his behalf.
[95]Exhibit ‘DAG-24’.
The plaintiff’s allegations of insolvent trading are irrelevant to this ruling.
The defendant’s allegations of theft against Mr Graer are uncorroborated and unproven. Moreover, this is not the forum for such allegations.
The defendant’s equity of redemption was destroyed by sale of the property.
Section 77 of the Transfer of Land Act is applicable. The plaintiff has failed to prove its debt, and therefore failed to prove its entitlement to the monies held in the Account. Pursuant to s 77(3)(d), the defendant is therefore entitled to be paid out the surplus of monies, that is, the monies held in the Account.
Conclusion
The Court will make orders for payment to the defendant of the monies held in the Account.
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