Seifert v Australian Scholarships Group Friendly Society Limited
[2010] VSC 477
•22 OCTOBER 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
No. S CI 2010 5473
| BERNHARD ULRICH SEIFERT AND DEBORAH SEIFERT | Plaintiffs |
| v | |
| AUSTRALIAN SCHOLARSHIPS GROUP FRIENDLY SOCIETY LIMITED | Defendant |
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JUDGE: | DIXON J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 18 OCTOBER 2010 | |
DATE OF JUDGMENT: | 22 OCTOBER 2010 | |
CASE MAY BE CITED AS: | SEIFERT v AUSTRALIAN SCHOLARSHIPS GROUP FRIENDLY SOCIETY LIMITED | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 477 | |
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Practice and Procedure – Interlocutory injunction - To restrain mortgagee in possession – Assignment of mortgage – prepayment by mortgagor to assignor after assignment - No serious question to be tried –Balance of convenience.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A. Schlicht | Simon Nixon |
| For the Defendant | Mr D. Williams | Gadens Lawyers |
HIS HONOUR:
In this matter I have before me an application by the plaintiffs, Mr and Mrs Seifert, for an interlocutory injunction restraining the defendant, which I shall refer to as ASG, from selling land as mortgagee in possession.
Facts
From the affidavits and the exhibits relied on before me I find the facts relevant to this application to be as follows. The plaintiffs are the registered proprietors of land at 255 Great Ocean Road, Apollo Bay in the State of Victoria. It is vacant land held by them as an investment. The land was purchased in 2006, utilising a loan with mortgage security. The mortgagee was Capital Securities (Aust) Mortgage Fund One Pty Ltd (CSAM). The mortgage secured an initial advance of $920,000. In March 2009, a further advance of $304,000 was made. I shall refer to the two separate loan accounts as the facility. The principal advanced under the facility is now $1,224,000. The facility is repayable in full at the end of a term of 30 years. I was told the facility is interest only and this was not disputed, although this does not appear to be consistent with the loan documentation exhibited.
On 18 June 2010 ASG, as mortgagee, demanded repayment of $1,217,278.89 by 19 July 2010 failing which it proposed to exercise its rights and enforce its remedies under the terms of the facility. On 20 July 2010 the mortgagee served a combined notice of default and demand pursuant to s 76 of the Transfer of Land Act 1958 specifying a default in the payment of interest being in arrears of $19,425.55 outstanding as at 16 July 2010. On 5 August 2010 the solicitors for the mortgagee effectively invited the plaintiffs to apply to restrain the mortgagee from acting on the notice, at the same time providing a copy of the defendant’s ledger in respect of the facility as at 3 August 2010. This ledger showed an opening balance (as at 31 March 2010) of $1,199,664.72 with no payments having been credited since then. On 24 August 2010 the solicitors for the plaintiffs stated that the liquidator of CSAM had confirmed that interest on these loans had been prepaid on 13 April 2010 for a period of 12 months. Copies of loan account statements maintained by CSAM were produced. Before me, Mr Williams of counsel for ASG, was critical that this was all that was produced by the plaintiffs at this time and I will come to that issue in due course. The production of the loan account statements was unusual in two respects. Firstly, it was unusual that they were produced at all, for as I shall later explain the loan accounts had been assigned by CSAM in February 2010. Secondly, the loan account statements were issued on 22 July 2010 and covered a period of 6 days only, from 7 April to 13 April 2010. During the period of activity disclosed by the statement, there was one transaction – the crediting of prepaid instalments on 13 April 2010. I pause to observe that the liquidator was appointed to CSAM on 14 April 2010.
The mortgagee’s solicitors immediately took issue with the assertion of prepayment on 13 April 2010 raising the assignment. The liquidator revealed that he had not received any monies from the borrowers. The date of 22 July 2010 was the print date for the production of a copy of the statement and merely indicated when the copy of the statements had been sought. There is no explanation, provided on the material before me, for the limited date range of that statement.
On a date prior to 23 September 2010, ASG took possession of the vacant land at 255 Great Ocean Road, Apollo Bay and has taken steps to auction the property; the auction is scheduled on 30 October 2010.
There is relevant background. CSAM is a subsidiary of Capital Securities (Australia) Pty Ltd (CSA). Mr Bernhard Seifert, the first plaintiff, is the sole director of each of these companies. CSAM was the trustee for the Mortgage Fund Number One Trust. The Trust is a pool of $50 million, which is lent to borrowers on the security of mostly residential registered first mortgages. ASG contributed the capital of the mortgage fund and was the beneficiary of the Trust. The income earned by the Trust from mortgage investments was applied by CSAM, firstly, to pay an agreed yield to ASG. Secondly, the income earned by the Trust was applied to pay operating expenses. Thirdly the residue was paid to CSA as management fees.
Kevin John Lucas, the accountant for the CSA group, stated that during 2008 and 2009 while CSA earned management fees, “it did not elect to receive them”. The fees apparently accumulated, being shown in the financial statements of the Trust as a liability. By 30 November 2009, this liability for management fees owed to CSA appeared in the accounts produced on behalf of the plaintiffs at $3,648,049.
Prior to November 2009, disputes had arisen between CSA and CSAM, of the one part and ASG of the other. The dispute was apparently resolved on terms of settlement, which were produced. The settlement agreement provided that the management of the Trust by CSAM was to end on 30 November 2009, although I was informed that there is ongoing Federal Court litigation including an issue of when the management of the Trust ceased. I was not further informed of the issues raised or remaining for determination in the Federal Court proceedings.
By clause 9 of the settlement agreement, the Trust terminated at midnight on 30 November 2009. By clause 3 of the settlement agreement, CSAM was entitled to receive the management fees described in clause 6 of the Trust deed in accordance with its terms but only up to the date of termination of the Trust. CSAM surrendered its entitlement to receive the remuneration described in clause 7.5 of the trust deed after termination of the Trust.
I was taken to financial statements of the Trust for the year ended 30 June 2009 and the period ended 30 November 2009, which recorded the accrued liability for management fees in the figures to which I have referred. Mr Williams informed me that, on this application, no issue is being taken with these figures. The effect of the settlement agreement is described by both counsel as being to collapse the Trust. A critical operative provision of the settlement agreement obliged CSAM to transfer each and every mortgage in the portfolio to ASG.
The evidence before me shows that the loan contracts of the plaintiffs were assigned by deed to ASG on 23 February 2010 and a transfer of the mortgage from CSAM to ASG was registered on 25 February 2010. By the assignment deed, CSAM covenanted:
(a) that the sum of not less than $1,199,664.72 was then due and owing under the loan contracts; and
(b) that the assignment of the debt is taken by ASG free and clear of any mortgages, pledges, liens, charges or other encumbrances or claims or absolute or defeasible interests of any other person.
Further, on and from the date of the assignment, all of the right, title and interest of CSAM in the loan contracts, together with all interest which has or may accrue in the future under the loan contracts and all other amounts payable by the borrower to CSAM under the loan contracts, were assigned to ASG. ASG was appointed as the attorney of CSAM to receive and give effectual discharges for all monies payable or to become payable under the loan contracts.
Plainly, the first plaintiff was aware of these transactions. His role was central in the affairs of the CSA group. On its behalf he signed the settlement agreement. In respect of his personal loan, the subject of this proceeding, the first plaintiff signed the deed of assignment of debt and the transfer of mortgage on behalf of CSAM. Further, by letters of 23 February and 6 April 2010, formal notification of the assignment and a request for all further payments to be directed to ASG was given to the plaintiffs. Mr Seifert signed, on behalf of CSAM, the formal notice of assignment to himself and his wife.
This notice of the assignment on 23 February 2010 included an irrevocable direction that all monies to become due and owing under the loan contracts, including interest payable by the plaintiffs to ASG, was to be paid to ASG at its office in Oakleigh or in such other manner as ASG from time to time in writing directed. The letter of 6 April 2010 from ASG to Mr Seifert recorded that no payments had been received since the letter of 23 February 2010 and restated the fact of the assignment, and that all monies payable pursuant to the facility must be paid to ASG. It also stated that failure to do so could constitute an event of default. It was not contended before me that any of the formalities in relation to the assignment of the loan accounts or the transfer of the mortgage were in issue in the proceeding.
Mr Williams submitted it was significant that the next step was not revealed by return correspondence but rather by an affidavit filed in Court on the morning of the hearing. The plaintiffs at that time produced minutes of two directors’ meetings – that of CSA and CSAM held on 21 October 2009 at 5.00 pm attended by Mr Seifert. The minutes have not been verified as true and correct by Mr Seifert, although Mr Simon Nixon, the plaintiffs’ solicitor, in that affidavit states that he has been advised by Mr Seifert, apparently in the United States of America, and verily believes that the minutes of the meeting for each company is true and correct. The effect of the CSAM minutes of meeting is that it purports to:
(a) reduce its debt to CSA for accrued management fees by a direction that part of the debt be applied to prepayment of interest for a period of 12 months effective on or before 30 June 2010 on certain loans recorded in a schedule; and
(b) confirm the direction that the debt due from CSAM to it is reduced by reason of the same payments.
The two loans of the plaintiffs, identified in the accounts of CSAM as loans No. 36 and No. 569, are noted in the schedule to the minutes to receive the amounts which later appeared in the loan statements produced by the liquidator, as a credit of prepaid instalments on 13 April 2010.
Mr Williams submitted that the date of this purported prepayment of interest on the plaintiffs’ loan accounts was 13 April 2010, not 21 October 2009. He contended it is untenable to assert that there was a serious question for trial that the date of the prepayment transaction was any earlier date.
The liquidator of CSAM, Mr Andrew Dunner, stated in an affidavit that for CSA to take part of its management fees from CSAM, by directing that they be credited to nominated loan accounts by way of prepaid interest, was a legitimate method of payment of the accrued debt for management fees and that he had no reason to question the efficacy of these transactions. However, Mr Dunner was not, like the deponents of all the affidavits read before me, cross-examined. Mr Dunner’s affidavit makes no mention of the assignments of the loan accounts or the transfers of the mortgages. Neither does he refer to the terms of the loan agreement and the mortgage.
It may be that the opinion that Mr Dunner expresses about the accounting treatment of the payment of management fees is, in the abstract, not inconsistent with accounting practice. It is clear that that opinion has not been informed by the existence of the assignment of the debts, the loan accounts and the mortgages nor the terms thereof. His opinion is not relevant to the question of whether any payment was received by ASG; it cannot assist the plaintiffs. His opinion is limited to the manner of payment of the debt owed by CSAM to CSA.
The evidence in respect of the payment of the management fees pursuant to the minutes of meeting is to be found in the affidavit of the accountant to CSA and CSAM, Kevin Lucas, who deposes that CSA elected to be paid its management fees in April 2010 and did so by crediting interest paid to various accounts held within the Trust with amounts of prepaid interest for 12 months. The evidence advanced for the plaintiffs is that the “payment” was made on 13 April 2010. There is no serious question on the plaintiffs’ own evidence that this purported payment was made on any other date.
Applicable Principles
The applicable principles on this application are identified by the High Court in Australian Broadcasting Corporation v O’Neill.[1]
[1](2006) 227 CLR 57 Gleeson CJ and Crennan J [19], [65]–[83] per Gummow and Hayne JJ. See also Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618.
The plaintiffs must demonstrate that there is a serious question to be tried. They must prove, prima facie, a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending trial. In the context of this case they must show that they have a putative legal or equitable right in respect of which final relief is sought, which will justify restraining the proposed mortgagee’s sale. See also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd.[2]
[2](2001) 208 CLR 199 at [8]–[13].
The injury which the plaintiffs are likely to suffer must be one for which damages will not provide an adequate remedy.
The balance of convenience must favour the granting of an injunction. The balance of convenience requires a consideration of the relevant matters favouring or militating against granting an injunction and will necessarily involve a consideration of the strength of the plaintiff’s claim, assuming that a serious issue has been identified. In Victoria, this consideration is further clarified by the decision of the Court of Appeal in Bradto Pty Ltd v Victoria.[3] The Court must, in determining whether to grant an interlocutory injunction, “take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial”.[4] See also Magna Alloys and Research Pty Ltd v Coffey.[5]
[3](2006) 15 VR 65.
[4](2006) 15 VR 65 [35].
[5][1981] VR 23.
There may be other discretionary considerations which militate against granting the injunction.
Mr Schlicht reminded me of the observations of Maxwell P and Charles JA in Bradto at [12]–[14] (omitting citations) when they stated:
[12]The "serious question to be tried" test has been applied throughout Australia for more than 20 years. It has been found, in countless cases, to afford an appropriate criterion for determining – at the threshold – whether the claims of the party seeking injunctive relief are of sufficient substance to justify the court’s consideration of the exercise of its injunctive power pending trial. (In the same way, a "reasonably arguable" test operates in this Court to filter out unmeritorious applications for leave to appeal against sentence).
[13]Whether there is a "serious question to be tried" requires a judgment to be made, for the purpose of which the Court or Tribunal will examine both the legal foundations of the claim(s) made in the proceeding and such of the evidence in support as is exposed on the interlocutory application. Unless upon such examination the court concludes that the applicant’s claims are not reasonably arguable, that is, they do not have "any real prospect of succeeding", then the court will ordinarily be satisfied that there is a serious question to be tried.
[14]This state of satisfaction will be all the more quickly and confidently arrived at in a case where the applicant’s claims are met by cogent counter-arguments from the respondent to the application. In this way, vigorous opposition to an injunction application, intended to show that the applicant’s claim is untenable in law and/or on the evidence, will very often do no more than reinforce the court’s impression that there are serious questions to be investigated at the trial.
Serious Question
The identified serious question to be tried is a short point. The plaintiffs assert that there was a prepayment of interest credited to their loan accounts and that there was accordingly no default. Mr Schlicht submitted that it is at least arguable on the evidence that the procedure by which the debt was purportedly discharged, that is by direction that funds be credited against nominated loan accounts, was a legitimate way of dealing with monies owed by CSAM to CSA. On 21 October 2009, Mr Seifert was the sole director of each company. To the extent that there was a debate before me as to whether all of this was recent invention, I have no doubt that such an issue, if material, would be a matter for trial. I must, and do, assess the issue of whether there is a serious question for trial on the basis of whether the allegations made by the plaintiffs can be established; I accept that the transactions advanced by the plaintiff are as documented.
Mr Schlicht referred to uncontradicted evidence of audit reports to submit that there were substantial management fees owing to CSA. I accept this. Mr Dunner has stated that the partial discharge of the debt owed by CSAM, as trustee of the fund, to CSA for management fees, by crediting that money against loan accounts of individual borrowers from the Trust, is a legitimate way to discharge the debt. This proposition, too, I will accept as arguable for the purposes of this application. However, the serious question for trial is not whether CSA has been paid but whether ASG, the lender/mortgagee, has been paid. As I have noted, Mr Dunner’s evidence does not address that issue.
The assignment is relevant. Mr Schlicht submitted that at the time of authorisation of the book entries later made on 13 April 2010 to partially discharge the debt owed to CSA, the assignor CSAM held legal title to the loan accounts and the mortgage. Based on the evidence of Mr Lucas and Mr Dunner, had that transaction been immediately implemented on 21 October 2009 there would clearly be a serious question for trial. But that did not happen.
Mr Schlicht submitted that there are two reasons why the implementation of the payment, in reduction of the management fee debt to CSA as authorised by the minutes, was not frustrated or rendered impossible of performance by the fact of assignment. First, he submitted that according to the minutes the monies were to be paid in reduction of a legitimate debt. I do not disagree with that submission but, in my view, it does not assist the plaintiffs since the legitimate debt to be reduced is the management fees owed to CSA and not the unpaid interest which constitutes the default upon which ASG relies. Mr Schlicht’s second contention was that the debt assigned to ASG cannot be any better than that possessed by CSAM at the time. In other words, the debt was assigned with this agreement attached.
His second contention is not tenable. There is no basis on the affidavits, and none was put to me as likely to arise, to conclude that the “payment” authorised by the two Directors’ meetings and the accompanying ledger entries was effected any earlier than 13 April 2010. At that time the relevant loan accounts and the mortgage had been assigned to ASG upon the terms set out above. Those terms make it clear that on and from 23 February 2010, the assignor no longer had any entitlement or authority to receive, and give effectual discharges for, monies payable pursuant to the loan agreements and the mortgage.
Further, what was assigned was not reduced or encumbered by the direction authorised by the minutes. The accounts prepared to 30 November 2009 show that there was no immediate reduction in the debt owed to CSA by the amount of $2,342,606.64 (the total of the proposed directions for crediting prepaid interest to nominated loan accounts). There were no financial statements after 30 November 2009 in evidence. However, the deed of assignment of debt contains a covenant by CSAM that the sum of not less than $1,199,664.72 was due and owing under the loan contracts as at 23 February 2010. It follows that the amounts identified in the schedules to the minutes, as nominated interest prepayments, had not been credited to these loan accounts by the time of the assignment. These matters support the inference to be drawn from the loan account statements obtained from the liquidator, and proffered by the plaintiffs, that the crediting of prepaid interest to the plaintiffs’ loan accounts occurred on 13 April 2010.
It is untenable to argue that the assignee, ASG, must accept this purported prepayment of interest by book entries in the ledgers maintained by the assignor CSAM. I was not referred by counsel to relevant terms of the assignment or to the terms of the relevant loan documents but they are in evidence before me. I have already referred to the terms of the deed of assignment. No provision can be identified in that document which obliges the defendant to accept that an effective discharge of its obligation to pay interest for the relevant period was, or could be, given by CSAM on 13 April 2010 by book entries it made in loan accounts which had earlier been absolutely assigned to ASG. The conclusion that ASG was not so obliged is supported by reference to the terms of the loan agreements and the mortgage.
Clause 5 of the loan agreements deals with payment obligation and provides:
5.1You agree to pay all of the principal monies, interest and fees and charges due under the loan agreement in accordance with the terms of the Offer.
5.2All payments are to be made by use of a direct debit system nominated by Us from time to time. You will need to complete and sign appropriate forms in accordance with this clause. We will debit each payment to the account nominated by You in accordance with your direct debit request form. You agree to at all times maintain a current direct debit request form.
Clause 2.2 of the memorandum of common provisions states:
The mortgage is security for payment to Us of the Secured Money and for the performance of all your obligations under the Mortgage. You agree to pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of each secured agreement or the Mortgage.
Clause 9.1 of the mortgage states:
9.1All payments under the mortgage are to be made direct to Us or to any other person as directed by Us without deduction or withholding for tax and without any setoff or counterclaim by such payment method and to such account or address as may be specified in the applicable secured agreement or as otherwise advised to you.
9.2In applying any money towards satisfaction of the Secured Money your account must be credited with only so much of the money available for that purpose as we actually receive such credit to date from the time of receipt.
Clause 7.1 of the memorandum of common provisions states that a failure to pay any of the Secured Money on time and/or a failure to comply on time with any obligation under the mortgage is an event of default.
Finally, there is the formal notification of the assignment sent on two occasions to the plaintiffs, as I have recorded above, which clearly and unambiguously requires that -
all further dealings in relation to the mortgage loan facility must now be with ASG Home Loans Department and all loan repayments must, from now on, be made payable to “Australian Scholarships Group” and sent or delivered to the address shown at the head of the letter. No further payment should be made to [CSAM], Perpetual Custodians Ltd or any other company in the Capital Securities Group. Any payments by you to [CSAM] after the date of this letter will not be treated as a reduction of your loan or as a payment of interest until we receive the money from [CSAM].
The validity of these documents is not challenged in the proceeding.
I find no serious question to be tried that the crediting by ledger entry in loan accounts maintained by CSAM on 13 April 2010 in respect of the assigned loans as described above constituted a discharge of the mortgagor’s obligations which was, or arguably ought to be, accepted by the mortgagee. There is no serious question for trial that the plaintiffs are not in default pursuant to the terms of the mortgage.
Balance of Convenience
What I have said is sufficient to dispose of the application. However, I do not consider the balance of convenience is in favour of the plaintiffs. The plaintiffs did not offer to make any payment into court or otherwise secure the position of ASG as mortgagee if the injunction is granted. I know nothing about the subject property except that it was purchased in 2006 and is vacant land being held as an investment. There is no evidence before me that there is any inconvenience to the plaintiffs; they have not gone on oath about the nature of the land as an investment or their intentions in dealing with it as an investment. If it turns out at trial that an injunction should have been granted, the plaintiffs will have their rights in damages and there is nothing in the circumstances of this case to suggest that damages would not be an adequate remedy. On the other hand, there is no proposal from the plaintiffs to service the outstanding loan accounts or maintain the value of the security. There was no evidence concerning the current value of the security or the likely outcome of a mortgagee’s sale, whether such sale occurs in the near or the medium term.
The summons filed 8 October 2010 is, subject to any further submissions from counsel, dismissed with costs.
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