Secure Loan Solutions v Smith (No 2)
[2017] VSC 217
•10 May 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S CI 2016 02912
| SECURE LOAN SOLUTIONS PTY LTD (ACN 165 272 659) | Appellant |
| v | |
| DERICK AUBREY SMITH | Respondent |
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JUDGE: | Bell J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 April 2017 |
DATE OF JUDGMENT: | 10 May 2017 |
CASE MAY BE CITED AS: | Secure Loan Solutions v Smith (No 2) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 217 |
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APPEAL – application by second mortgagee/guarantee for payment of funds out of court in part satisfaction of alleged debt owing as shortfall due under loan agreement – objection by mortgagor/guarantor otherwise entitled to residue – whether mortgagor/guarantor indebted to second mortgagee/guarantee as guarantor of defaulting borrower under agreement – order for payment of funds to mortgagor/guarantor by associate justice – whether in error – whether finding that second mortgagee/guarantee had failed to prove its debt involved error of law – whether onus lay on mortgagor/guarantor to prove discharge of debt – whether onus discharged – Supreme Court (General Civil Procedure) Rules 2015 (Vic) O 77, Transfer of Land Act 1958 (Vic) s 77(3(d).
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APPEARANCES: | Counsel | Solicitors |
| For the appellant | Mr M Ravech | Boris Pogoriller |
| For the respondent | Mr J Gray | Just Law |
HIS HONOUR:
This is an appeal under O 77 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) against orders made by Ierodiaconou AsJ on 21 December 2016.
Such an appeal is conducted by way of a rehearing in which the appellant must demonstrate error on the part of the associate justice.[1] If error is established, the judge must determine the issues in the proceeding on the merits.
[1]Neely v Southern Cross Feeds Pty Ltd (No 2) [2013] VSC 238 (14 May 2013) [5] (Hargrave J); Schreuders v Grandiflora Nominees Pty Ltd (2014) 14 ASTLR 50, 62 [30] (Garde J); Glass v Chief Examiner [2015] VSC 29 (30 January 2015) [2] (Garde J); Re Ascot Vale Self-Storage Centre Pty Ltd (in liq) (2014) 98 ACSR 243, 247–9 [10]–[15] (Robson J).
The proceeding before the associate justice was one in which the appellant, a lender under a loan agreement secured by a second mortgage, made application for payment of funds (approximately $40,543.73) out of court. It claimed to be owed a much greater amount ($121,500) by the respondent as the guarantor of the loan, which was made to his family companies. The funds were paid into court by a bank, as a first mortgagee under unrelated transactions, by way of surplus funds from a mortgagee sale of real property belonging to the respondent. As the mortgagor otherwise entitled to the residue, the respondent objected to the payment of the funds to the appellant. The key figures in the transaction were David Graer on behalf of the appellant and Derick Smith on behalf of himself, the respondent. The associate justice had to determine whether the appellant as the second mortgagee and the guaranteed party or the respondent as the mortgagor and guarantor should receive the funds. Her Honour decided that the funds should be paid to the respondent.[2] She temporarily stayed the orders pending appeal. [3]
[2]Secure Loan Solutions Pty Ltd v Smith [2016] VSC 794 (16 December 2016) (Ierodiaconou AsJ) (‘Secure Loan Solutions (No 1)’).
[3]The orders of the associate justice were further stayed pending appeal by Riordan J on 23 December 2016.
The orders made by the associate justice relevantly were:
1.The following sum be paid from Common Fund No. 1 and debited to Account No. 79754:
To the Defendant, by payment to his solicitors, an amount equal to the balance of the said Account, but subject to the retention of a sum sufficient to cover any taxation liability.
2.Upon payment of a sum equivalent to the balance of the said Account, in accordance with paragraph 1, there also be paid to the Defendant, by payment to his solicitors, from Common Fund No. 1 and debited to Account No. 10, an amount equivalent to interest accrued on the balance of Account No. 79754 from 1 June 2016 at the rate last fixed in respect of Common Fund No. 1.
3.The plaintiff pay the defendant’s costs of the proceeding on the standard basis, to be taxed in default of agreement …
The appellant appeals from the whole of the judgment and paras 1–3 of the orders. The orders sought by the appellant on appeal are:
1. This appeal be allowed.
2.The whole of the judgment of Associate Justice Ierodiaconou be set aside.
3.All the orders of Associate Justice Ierodiaconou be set aside and in lieu of them, the following orders be made:
(1)The appellant be paid out the funds held in Common Fund No 1 account 79754 which amounted to $40,543.73 as at 9 May 2016.
(2)The respondent pay the costs of this appeal and of the hearing below.
(3) Such further or other orders as this Court deems appropriate.
The evidence before the associate justice consisted entirely of affidavits filed on behalf of the parties. The affidavits were in significant conflict in relation to certain fundamental facts. By conscious election and to their peril, no party sought to cross-examine the witnesses of the other party. With respect to the making of findings of fact, her Honour was left to do the best she could upon the basis of the affidavits, as I have been.
The associate justice gave the following factual background to the application before her, as discerned from the affidavits, and which I would adopt (the footnotes are in the original and refer to affidavit evidence in the proceeding):[4]
[4]Secure Loan Solutions Pty Ltd (No 1) [2016] VSC 794 (16 December 2016) [6]–[16] (Ierodiaconou AsJ).
6On 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’).[5]
[5]Exhibit ‘DAG-3’ to the affidavit of David Graer, director of the plaintiff, sworn 21 July 2016 (‘the first Graer affidavit’).
7On 18 January 2002, the defendant became the sole director of Independent Civil Contractors Pty Ltd (‘ICC’).[6] On 26 April 2003, the defendant became the director of Independent Plant Hire Pty Ltd (‘IPH’).[7] On 28 February 2013, Ms Vanessa Smith became the sole director and secretary of IPH.[8] On 18 October 2015, IPH was deregistered.[9]
[6]Exhibit ‘DAG-5’ to the first Graer affidavit.
[7]Exhibit ‘DAG-6’ to the first Graer affidavit.
[8]Exhibit ‘DAG-6’ to the first Graer affidavit.
[9]Exhibit ‘DAG-6’ to the first Graer affidavit.
8On 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.
9Firstly, the plaintiff, Ms Smith, ICC and IPH entered into an agreement (‘the loan agreement’).[10] 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.[11] 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.
10Secondly, the defendant and Ms Smith agreed to guarantee the loan of $300,000.[12] On 20 November 2013, the defendant and Ms Smith mortgaged a number of properties, including the property, to the plaintiff.[13]
11Thirdly, ICC and IPH and the plaintiff entered into a ‘general security agreement — company comprehensive all assets’.[14] 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.
12Fourthly, ICC, IPH and the plaintiff entered into a ‘general security agreement — personal property’.[15] 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).[16]
13On 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.[17]
14On or about 21 November 2013, loan monies of $277,317.70 were advanced.[18] 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.[19] 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.[20]
15On 18 December 2013, the plaintiff lodged a caveat over the property.[21]
16In or around January 2014, the sole loan repayment was made. It was in the amount of $12,000.[22]
[10]Exhibit ‘DAG-7’ to the first Graer affidavit.
[11]Note however the agreement is dated the preceding day.
[12]Exhibit ‘DAG-10’ to the first Graer affidavit.
[13]Exhibits ‘DAG-11’ and ‘DAG-12’ to the first Graer affidavit.
[14]Exhibit ‘DAG-9’ to the first Graer affidavit.
[15]Exhibit ‘DAG-8’ to the first Graer affidavit.
[16]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.
[17]Exhibit ‘DAG-13’ to the first Graer affidavit.
[18]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’.
[19]Disbursement order addressed to the plaintiff and signed by the defendant: Exhibit ‘DAG-15’ to the first Graer affidavit.
[20]Exhibit ‘DAG-19’ to the first Graer affidavit.
[21]Exhibit ‘DAG-3’ to the first Graer affidavit.
[22]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.
Her Honour’s judgment, which brought considerable clarity to the factually-confusing commercial dealings between the parties, mainly consists of a careful examination of the affidavit evidence and the factual contentions made on behalf of the parties in relation to whether the balance of the loan moneys had been repaid by reason of the seizure and realisation by the appellant of the respondent’s property. Although there were some legal issues, her judgment turned on the central finding of fact that the appellant had not proved its debt. So finding, she ordered that the funds be paid out of court to the respondent, as required by s 77(3)(d) of the Transfer of Land Act 1958 (Vic).
The relevant aspects of her Honour’s findings and reasons for judgment are to be found in the following paragraphs of the judgment (the footnotes are in the original):
72The 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.
73The 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.
74The 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.
75In 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. [23] Mr Graer does not deny this.[24] 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.
[23]Exhibit ‘DS-4’.
[24]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).
76As 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.
77The 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,[25] 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.
[25]Exhibit ‘DS-6’, Romanis Cant letter.
78There 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.
79The 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.
80Mr 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.
81The 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.
82For 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.
83The 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.[26] 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.[27] 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.[28] 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.
84It 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.
…
89Section 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.[29]
[26]Exhibit ‘DS-2’ to the defendant’s affidavit.
[27]Defendant’s affidavit, paragraph 29.
[28]Defendant’s affidavit, paragraph 23.
[29]Secure Loan Solutions Pty Ltd (No 1) [2016] VSC 794 (16 December 2016) [72]–[84], [89] (Ierodiaconou AsJ).
As specified in the amended notice of appeal, the grounds of appeal are as follows:
1.(a) Her Honour erred in finding that the appellant had not proven that the principal sum of $300,000.00 advanced by the appellant by way of loan had not been repaid.
(b)There being no contradictory evidence, and no good reason to reject it, her Honour ought to have concluded that the appellant’s spreadsheet of entries, being exhibit ‘DAG-19’ to the affidavit of David Graer sworn 21 July 2016, was sufficient proof that the principal sum of $300,000.00 had not been repaid and that there was a shortfall of $121,500.00 ($300,000.00 less credits of $178,500.00) by reason of which the appellant was entitled to payment of the funds held in Court.
2.(a) Her Honour erred in concluding that no certificate signed by the mortgagee, stating the amount owing under the mortgage, was in evidence for the purposes of clause 14 of the memorandum of common provisions which provided that a certificate signed by the mortgagee, stating the amount owing under the mortgage, was prima facie evidence of that fact.
(b)Her Honour should have concluded that the statement contained in paragraph 31 of the affidavit of Mr Graer sworn 21 July 2016 and made by him on behalf of the mortgagee of which he was the sole director, together with the spreadsheet of entries being exhibit DAG-19 to that affidavit, constituted a certificate as to the amount owing for the purposes of clause 14 of the memorandum of common provisions to the mortgage and was prima facie evidence of that fact.
3.(a) Insofar as her Honour concluded that the appellant was responsible for any acts or defaults of Romanis Cant, being the receiver and manager appointed to sell items of equipment under the ‘General security agreement-company comprehensive all assets’ (the First Agreement) and the ‘General security agreement-personal property’ (the Second Agreement) by which the borrowers, Independent Civil Contractors Pty Ltd and Independent Plant Hire Pty Ltd (to whom the appellant advanced the loan of $300,000.00) had granted a Personal Property Security charge over their assets in favour of the appellant as security for the loan, her Honour erred in law.
(b)Her Honour should have concluded that by operation of clauses 16(v) and 19(a) of the First Agreement (exhibit DAG-9 to the affidavit of David Graer sworn 21 July 2016) and clause 15(e) of the Second Agreement (exhibit DAG-8 to the affidavit of David Graer sworn 21 July 2016) the appellant was not responsible for any acts or defaults of Romanis Cant.
4.(a) Her Honour’s finding that there were 14 items of earth moving equipment, in addition to the Komatsu excavator, provided by or on behalf of Independent Civil Contractors Pty Ltd and Independent Plant Hire Pty Ltd that were in the possession of Mr Graer or the appellant, was in error because it was premised upon the incorrect conclusion that Mr Graer did not deny that allegation of fact made by the respondent.
(b)Her Honour ought to have made no such finding because, in paragraph 28 of his affidavit sworn 26 October 2016, Mr Graer deposed that the said allegation of fact was untrue, baseless and misconceived.
5.(a) There was no evidence upon which her Honour could find that the principal sum of $121,500.00 which remained owing under the mortgage had been repaid to the appellant.
(b)Her Honour should have found that the principal sum of $121,500.00 had not been repaid and that the said sum remained due and payable to the appellant under the mortgage.
As put and developed in the hearing of the appeal, the grounds of appeal were grouped and described as follows (the footnote under Ground 4 is in the original):
Grounds 1, 2 and 5:
The conclusion that the appellant did not prove that, of the principal sum of $300,000.00 advanced by way of loan, there was outstanding in favour of the appellant an amount of $121,500.00 secured by the mortgage, is in error.
Ground 4:
The finding that there were 14 items of earth moving equipment, in addition to the Komatsu excavator, provided by or on behalf of ICC and IPH that were in the possession of Mr Graer or the appellant,[30] is in error (the Finding).
[30]The Finding was made at [75] of her Honour’s Reasons.
Ground 3:
The conclusion that the appellant was responsible for any acts or defaults on the part of Romanis Cant, is in error.
I will address the grounds of appeal under those headings.
Grounds 1, 2 and 5:
The conclusion that the appellant did not prove that, of the principal sum of $300,000.00 advanced by way of loan, there was outstanding in favour of the appellant an amount of $121,500.00 secured by the mortgage, is in error.
Section 77(3)(d) of the Transfer of Land Act relevantly provides that purchase money received arising from the sale of property under a mortgage or charge must be applied in order of priority and in the last instance the residue (if any) is to be paid ‘for the benefit of the parties who are or become entitled to the residue of the deposited money’.
The appellant was a second mortgagee claiming entitlement to the residue of the deposited money upon the basis that the respondent was indebted to it in the amount claimed as the guarantor of the defaulting borrower. This is analogous to the position of a lender proceeding against a borrower for recovery of the debt constituted by the borrower’s failure to pay amounts due under a loan agreement. Therefore, the following statement by Dixon CJ, McTiernan and Taylor JJ in Young v Queensland Trustees Ltd[31] was applicable to the respondent’s objection under s 77(3)(d) of the Transfer of Land to the appellant’s claim:
The law was and is 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.[32]
[31](1956) 99 CLR 560 (‘Young’).
[32]Ibid 569–70.
As the appellant proved the loan, the shortfall and the guarantee, this principle required the respondent to prove discharge of the debt constituted by the shortfall. The associate justice did not approach the matter in this way. Her Honour did not ask herself whether the respondent had proved discharge of the debt constituted by the shortfall but whether the appellant had proved that debt.
In the appeal, the appellant submitted that this constituted an error of law. More fully, the submission was (the footnotes are in the original):
7.Having found that the principal sum of $300,000.00 was advanced by the Appellant to ICC and IPH under the Loan Agreement,[33] her Honour ought to have concluded that:
(a)the onus was on the Respondent to prove that the loan had been repaid;[34] and
(b)the Respondent had neither alleged nor proven payment, by way of discharge, of the claimed shortfall of $121,500.00,[35] secured by the Mortgage, with the result that the Appellant was entitled to the funds in Court.
[33]See her Honour’s Reasons at [9].
[34]Young (1956) 99 CLR 560, 569–70.
[35]There was no evidence upon which her Honour could conclude that the shortfall of $121,500 had been repaid to the Appellant.
I would accept paragraph (a) of these submissions. It was an error of law to approach the matter in the way that the associate justice did. The advance of the principal sum under the loan agreement and the making of a claim for the debt constituted by the alleged shortfall were established facts, as was the respondent’s liability under the guarantee for the borrower’s default under the loan agreement.[36] Therefore the onus did not lie upon the appellant to prove the debt but upon the respondent to prove its discharge.
[36]There were issues in the proceeding below and this appeal as to whether the respondent was liable under the guarantee (the respondent alleged that notice of default had not been duly served) but it is not necessary to determine these issues.
Error having been established, I think it is now for me to determine on the merits whether an order should be made for the funds in court to be paid to the appellant. In accordance with the principle stated in Young, I approach this issue upon the basis that, the loan and guarantee having been proved and the appellant having claimed entitlement to the debt constituted by the shortfall, the onus is upon the respondent to prove that the debt has been discharged.
The main submissions of the respondent were that the debt had been discharged because the appellant took or received possession of machinery of the respondent which, on any view, was sufficiently valuable on resale to more than cover the shortfall. The evidence of the respondent in this regard was set out in his plain-speaking affidavit dated 28 September 2016:
35.In 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.
36.Now 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.
37.I reported this theft to the administrator Hamilton Murphy by phone and email, they knew nothing about it. I further requested Hamilton Murphy to offer $200,000 to pay out SLS over and above the plant in their possession as I had several buyers, namely Ground Moves and Tooradin Excavations. This would have at least protected my house, factory and yard, and provided SLS with a very large profit on its investment.
38.I was advised by Hamilton Murphy that the offer was rejected by Mr Graer.
39.As 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’) $500,000Total estimate $650,000.
It is unmistakably clear that para 35 of this affidavit states the respondent’s ‘understanding’ that Mr Graer was involved in the alleged theft and that para 39 states directly that Mr Graer (implicitly on behalf of the appellant) had possession of the specified equipment specified differentially in paras (a) and (b).
The response of the appellant to this evidence was set out in Mr Graer’s affidavit dated 26 October 2016:
28.I refer to paragraphs 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).
29.I refer to paragraph 37 of the Smith affidavit. The assertions contained in the last sentence of that paragraph are incorrect and I deny them. Specifically:
(a)By 21 February 2014 the loan term had expired and the full loan debt of $300,000 had become due and payable.
(b)On the defendant’s own admission contained in paragraph 33 of the Smith affidavit, interest totalling $48,000 had also become due and payable and has not been paid.
(c)The total unpaid loan debt at the expiry of the loan term was therefore at least $348,000, excluding the plaintiff’s costs.
(d)The equipment was valued by Slattery’s Auction in November 2013 at $500,000 inc GST (exhibit DAG-25 annexed hereto).
(e)On this basis, the purported offer of $200,000 introduced by the defendant via the liquidator of the borrower companies was uncommercial because:
(i)this sum was insufficient to repay even the principal loan debt; and
(ii)was approximately $300,000 below the valuation provided by Slattery’s.
30.I refer to sub-paragraph 39(a) of the Smith affidavit. I deny the defendant’s allegations and refer to and repeat paragraph 28, above.
To repeat, in relation to this evidence, the associate justice made the following findings (again, the footnotes are in the original):
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.[37] Mr Graer does not deny this.[38] 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.[39]
[37]Exhibit ‘DS-4’.
[38]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).
[39]Secure Loan Solutions Pty Ltd (No 1) [2016] VSC 794 (16 December 2016) [75] (Ierodiaconou AsJ).
I reject the appellant’s attack on these findings which, upon my own consideration of the evidence, were clearly correct. Although he had every opportunity to do so, Mr Graer did not deny para 39(b) of the respondent’s affidavit. The denial in para 28 of Mr Graer’s affidavit is carefully confined to paras 35 and 36 of the respondent’s affidavit, which contains allegations of involvement in theft. Paragraph 30 of Mr Graer’s affidavit carefully confines the expressed denial to para 39(a) of the respondent’s affidavit. He does not deny the contents of para 39(b) of that affidavit. I reject the contention put by counsel on his behalf that the paras 28 and 30 of his affidavit, taken together, represent a denial of the whole of paras 35, 36 and 39 of the respondent’s affidavit.
I also reject the submission made for the appellant that it could not have been in possession of the subject machinery because it never took possession or had control of the Rimfire Drive property from which the machinery was alleged to have been taken. The appellant did not have to be in possession or control of that property to be able to take possession of the machinery, which it did not deny taking.
It is reasonable to draw the inference the appellant sold the machinery concerned and realised an amount at least in the value of the shortfall due under the loan agreement. Upon this basis, I find that the respondent has discharged its onus of proving that the debt under the loan alleged by the appellant has been discharged.
It is not necessary to resolve the issues raised in the submissions in relation to the common provisions, the service of notices of default or certification of the shortfall under the loan agreement.
This ground of appeal is rejected.
Ground 4:
The finding that there were 14 items of earth moving equipment, in addition to the Komatsu excavator, provided by or on behalf of ICC and IPH that were in the possession of Mr Graer or the appellant, is in error (the Finding).
The footnote in this description, which we have seen is in the original, refers to the finding of the associate justice that I have independently endorsed in relation to grounds 1, 2 and 5. This ground of appeal is rejected upon the same basis.
Ground 3:
The conclusion that the appellant was responsible for any acts or defaults on the part of Romanis Cant, is in error.
It is unnecessary to consider this ground.
For those reasons, the appeal will be dismissed. I will hear the parties in relation to costs.
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