Southside Industries (Aust) Pty Ltd v D.B. CLS-B1 Pty Ltd
[2023] VSC 187
•14 April 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
MORTGAGE RECOVERY LIST
S ECI 2022 02733
BETWEEN:
| SOUTHSIDE INDUSTRIES (AUST) PTY LTD (ACN 077 156 720) & ORS (according to the attached Schedule) | Plaintiffs |
| v | |
| D.B. CLS-B1 PTY LTD (ACN 169 037 512) & ANOR (according to the attached Schedule) | Defendants |
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JUDGE: | Barrett AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 February 2023 |
DATE OF JUDGMENT: | 14 April 2023 |
CASE MAY BE CITED AS: | Southside Industries (Aust) Pty Ltd & Ors v D.B. CLS-B1 Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2023] VSC 187 |
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PROPERTY LAW – Equitable charge - Judicial sale pursuant to s 91 of the Property Law Act 1958 (Vic) where prior registered mortgage – Judicial sale ordered.
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APPEARANCES: | Counsel | Solicitors |
| For the Fourth and Seventh Plaintiffs | Mr A Silver | Bransgroves Lawyers |
TABLE OF CONTENTS
Background......................................................................................................................................... 1
Legal principles.................................................................................................................................. 4
The fourth and seventh plaintiffs’ submissions.......................................................................... 6
Consideration...................................................................................................................................... 7
HIS HONOUR:
This is an application by the fourth and seventh plaintiffs for orders for the judicial sale of the property situated at Basement, 416-420 Collins Street, Melbourne VIC 3000 (‘Basement Property’).
The fourth and seventh plaintiffs rely on:
(a) affidavits of Suzanna Asciak sworn 8 November 2022 and 3 February 2023;
(b) affidavits of service of Wei Zheng affirmed on 12 December 2022 and 19 December 2022;
(c) two affidavits of service of Sarah Elbarhoun affirmed on 6 February 2023;
(d) affidavit of service of Kate Cooper sworn on 9 February 2023;
(e) written submissions filed on 3 February 2023 and emailed to the Court on 4 April 2023.
Background
The second defendant is the registered proprietor of the Basement Property.
On or about 26 July 2021, the fourth and seventh plaintiffs entered into an agreement with the second defendant and Victory Constructions Pty Ltd (ACN 165 370 052), pursuant to which, on or about 27 July 2021, the fourth and seventh plaintiffs advanced the sum of $2,825,000 to Victory Constructions. The loan is secured by:
(a) an unregistered mortgage over the Basement Property executed on 26 July 2021 by the second defendant (‘Basement Mortgage’). The Basement Mortgage was not registered on title but on 27 July 2021 the fourth and seventh plaintiffs lodged a caveat providing notification of their interests as mortgagees;
(b) a registered mortgage over Level 2, 416-420 Collins Street, Melbourne VIC 3000 (‘Level 2 Mortgage’), which is not owned by the second defendant but rather by an associated entity.
The Basement Mortgage incorporates Victoria-registered Memorandum of Common Provisions Number AA3553 (‘Memorandum of Common Provisions’). The terms of the Basement Mortgage include the following:
(a) the advance is defined as $2,825,000;
(b) interest was fixed at a lower rate of 18% per annum and a higher rate of 23% per annum payable monthly in advance;
(c) the term of the loan was 6 months with a minimum term of 3 months, from the date of the advance. As the advance was made on or around 27 July 2021, the due date for repayment of the loan was on or around 27 January 2022;
(d) an event of default occurs if the mortgagor does not pay the whole or any part of the secured money when it is due (Memorandum of Common Provisions cl 8.1(a)(1));
(e) in the event of default by the mortgagor, the mortgagee may take possession of the land and deal with the land as if the mortgagee owns it to the extent permitted by law (including selling the land in any way the mortgagee thinks fit) (Memorandum of Common Provisions cls 8.2(a)(2)-(3)).
The Basement Property is also subject to a prior registered mortgage, dealing number AQ007696K, in favour of the seventh defendant (Westpac Banking Corporation Ltd) which was registered on 4 July 2017. The seventh defendant stated in correspondence dated 8 August 2022 that it did not intend to file an appearance in the proceeding, and in correspondence dated 1 February 2023 that it would not disclose the amount secured unless ordered by a court to do so. After the first return of the application I directed the seventh defendant to disclose the amount of its debt, which it did by email dated 23 February 2023. As at 23 February 2023, the payout figure secured by the seventh defendant’s mortgage was $241,870.82. The seventh defendant noted that this was an indicative figure and that interest and other charges would continue to accrue.
The second defendant did not repay the principal on or before 27 January 2022, nor is there any evidence that they have attempted to tender the payment subsequently, and accordingly since that date they have been in default in respect of the unregistered mortgage. Significant interest has also accrued. In her 3 February 2023 affidavit, Ms Asciak deposes that as at 27 January 2023, the total amount of $3,827,734.69 was owing pursuant to the loan and secured by the Basement Mortgage and Level 2 Mortgage.
The Level 2 Mortgage is second ranking behind a mortgage in favour of the Commonwealth Bank of Australia (‘CBA’). A default notice provided by the CBA indicates that as at 6 September 2022 the CBA was owed $1,276,329.29, plus enforcement expenses and interest, which is secured against the Level 2 Property. The CBA is enforcing its rights as first mortgagee against the Level 2 Property. Three appraisals of the Level 2 Property suggest a value of between $2,965,000 and $3,700,000. It is apparent from those appraisals that the amount realised from the sale of the Level 2 Property will not be sufficient to discharge the amount owing to the fourth and seventh plaintiffs as second mortgagees.
The second defendant has not taken any steps to remedy the default under the loan agreement.
On 19 July 2022, the plaintiffs issued a writ in this Court seeking, amongst other things, orders for the judicial sale of the Basement Property pursuant to s 91(2) of the Property Law Act 1958 (Vic) (‘PLA’).
On 29 July 2022, the first to sixth defendants filed an appearance. On 18 October 2022, judgment in default of defence was entered against the first and third to sixth defendants, for the plaintiffs to recover possession of seven properties (but not including the Basement Property).
On 23 November 2022, the fourth and seventh plaintiffs issued a summons seeking orders for judicial sale of the Basement Property. That summons was returnable on 13 December 2022, on which date Englefield JR recorded in Other Matters that the solicitors on the record for the first to sixth defendants had that day informed the plaintiff’s solicitors and the Court that they intended to file a notice of ceasing to act. Englefield JR ordered that the fourth and seventh plaintiffs file and serve further affidavits and legal submissions by 3 February 2023, and that the second defendant file and serve any affidavit and legal submissions in opposition by 10 February 2023. On 13 December 2020, the solicitors for the first to sixth defendants filed a notice of ceasing to act. The second defendant has not taken any steps in the proceeding since then.
Legal principles
The Court has power to order a judicial sale both pursuant to s 91 of the PLA and its inherent jurisdiction.[1]
[1]Hycenko v VHY Enterprises Pty Ltd [2020] VSC 834, [35]-[36] (Derham AsJ).
Section 91(2) of the PLA provides:
In any action, whether for foreclosure, or for redemption, or for sale, or for the raising and payment in any manner of mortgage money, the Court, on the request of the mortgagee, or of any person interested either in the mortgage money or in the right of redemption, and, notwithstanding that—
(a)any other person dissents; or
(b)the mortgagee or any person so interested does not appear in the action—
and without allowing any time for redemption or for payment of any mortgage money, may, if it thinks fit, direct a sale of the mortgaged property, on such terms as it thinks fit, including the deposit in court of a reasonable sum fixed by the Court to meet the expenses of sale and to secure performance of the terms.
The relevant principles in respect of judicial sale are were set out by Derham AsJ in Hycenko v VHY Enterprises Pty Ltd as follows:
(a) judicial sale is a remedy ‘available for an unregistered second mortgagee’, but it is ‘necessary to join as parties the registered mortgagees and to join or give notice to other unregistered mortgagees and chargees’;[2]
[2]Ibid [35] (citations omitted).
(b) ‘[i]f a prior mortgagee or incumbrancer does not consent to the judicial sale, then ordinarily the sale will be subject to payment out of its mortgage or incumbrance.’[3]
[3]Ibid [39] (citations omitted).
(c) ‘[i]f the Court is authorising the sale, it should exercise some control over the terms and manner of conduct of the sale, including the fixing of a reserve price, the timing of the sale, who has the conduct of the sale and whether there should be conditions for the protection of the first mortgagee.’[4] Generally this will require evidence of the value of the property and any secured interests.[5]
[4]Ibid [40(b)] (citations omitted).
[5]Ibid [40(c)] (citations omitted).
(d) ‘[i]n relation to the fixing of the reserve price, where the sale is to be conducted by a second mortgagee or chargee, the reserve price should also be sufficient to cover the principal, interest and costs of the first mortgage.’[6]
[6]Ibid [44] (citations omitted).
(e) ‘[i]n relation to the timing of the judicial sale, the exercise of the discretion whether to order an immediate sale depends on whether the mortgagor or chargor should be given further time to redeem the mortgage or charge.’[7] That will depend upon the amount owing,[8] the value of the property,[9] and whether the property is productive and rents generated are enough to service the loan.[10]
[7]Ibid [45].
[8]Ibid [46], quoting King Investment Solutions v Hussain [2005] NSWSC 1076, [119] (Campbell J) (‘King Investment Solutions’.
[9]Ibid.
[10]Ibid [45] (citations omitted).
(f) ‘[i]n relation to who should have the conduct sale, the Court has full discretion … Generally, the person who should be chosen is the person with the interest in obtaining the largest price for the property, rather than to those who are only interested in obtaining sufficient to cover their security, so:’[11]
[11]Ibid [47] (citations omitted).
(i) ‘when the security is insufficient to cover all moneys secured, the mortgagee or chargee with the greatest interest in maximizing the sale price; and’[12]
(ii) ‘when the security is sufficient to cover all moneys secured, the mortgagor or chargor, because the mortgagee or chargee has not a sufficient interest in maximising the sale price.’[13]
[12]Ibid [47(a)].
[13]Ibid [47(b)].
The fourth and seventh plaintiffs’ submissions
The fourth and seventh plaintiffs submit that an order for immediate judicial sale is appropriate given that the amount loan was not repaid when due, the amount outstanding is secured by an equitable mortgage over the Basement Property, and since 26 January 2022 the mortgagor has not taken any steps to remedy the default and has also not engaged in this proceeding. It is submitted that the Court can safely conclude that court intervention is required.
As to who should conduct the sale, the fourth and seventh plaintiffs submit that they should have the conduct of such sale, subject to the usual duties of mortgagees in possession. They rely on three real estate appraisals:
(a) an appraisal from Fitzroys which appears to have been prepared in December 2022, which provides an estimate of the value of the Basement Property. It includes an advertising schedule setting out various expected outgoings, but it appears those outgoings relates to five separate properties and not just the Basement Property. The appraisal proposes a fee of 0.5% plus GST of the sale price, but indicates that the setting of a reserve price should be delayed until the final stages of the marketing campaign;
(b) an appraisal from Gross Waddell ICR Pty Ltd dated 13 December 2022 which provides an estimate of the value of the Basement Property. This appraisal suggests sale by expressions of interest, sets out a marketing budget in relation to five properties, and proposes a success only fee of 1.5% plus GST of the sale price;
(c) an appraisal from Savills dated December 2022 which provides an estimate of the value of the Basement Property. This appraisal suggests sale by expressions of interest, sets out a marketing budget in relation to five properties, and proposes a fee of 1% plus GST of the sale price.
As noted above, as at 23 February 2023 the payout figure secured by the seventh defendant’s mortgage was $241,870.82, noting that this was an indicative figure and that interest and other charges continue to accrue. It is apparent from the appraisals referred to in the preceding paragraph that the value of the Basement Property will be sufficient to pay out the seventh defendant’s mortgage.
The fourth and seventh plaintiffs submit that the Court could order any of the three state agencies identified to conduct the sale of the Basement Property, and that the Court is empowered to dictate the terms of the sale process including by setting a reserve price.
Consideration
I am satisfied that it is appropriate for orders to be made for the sale of the property. The fourth and seventh plaintiffs have established that they have a charge over the Basement Property to secure moneys owing and that the second defendant is in breach of the terms of the loan. The second defendant has had the opportunity over many months to address issues raised by the fourth and seventh plaintiffs and to put forward its position. It has not done so.
I am satisfied that the value of the Basement Property is sufficient to discharge the first registered mortgage in favour of the seventh defendant, and that in those circumstances it is appropriate for the fourth and seventh plaintiffs, by an appropriately qualified legal practitioner or conveyancer, to have the conduct of the sale.
A number of matters will need to be addressed before orders for the conduct of the sale can be made. These matters include:
(a) the appointment of a real estate agent to conduct the sale, and the terms of the sale including: the reserve price; method of sale; timing of sale, including for settlement; commission to be charged; advertising expenses and other disbursements. This is so in part because the appraisals relied on relate to several properties, rather been just the Basement Property. Depending upon what the real estate agents recommend, it may also be necessary to make orders granting access to the property for the purpose of the real estate agent’s preparation of proposals, and inspections prior to sale.
(b) the appointment of a conveyancer to act, who may be an appropriately qualified lawyer acting for the fourth and seventh plaintiffs, the proposed charge out rate and total anticipated costs of acting. An order may also be required authorising the conveyancer to sign the contract of sale as vendor; and
(c) orders as to how the proceeds of sale are to be dispersed.
As a first step I propose to order and declare that:
(a) the fourth and seventh plaintiffs have leave to file an amended summons in the form attached to the affidavit of Suzanna Asciak sworn on 3 February 2023;
(b) the fourth and seventh plaintiffs serve a copy of the amended summons and a copy of the declaration and orders made this day, on the second and seventh defendants as soon as reasonably practicable;
(c) the fourth and seventh plaintiffs have an equitable interest as chargees in the land at Lot 1A on registered plan of subdivision 017142 certificate of title volume 11151 folio 852, and more commonly known as Basement 416-420 Colins Street, Melbourne, VIC 3000, registered in the name of the second defendant, securing moneys owing pursuant to an agreement entered into on or about 26 January 2023, such equitable interest as chargees ranking second behind the first ranking registered mortgage AQ007696K, granted by the second defendant to the seventh defendant;
(d) by 4:00 pm on 6 May 2023, the solicitor for the plaintiff shall file and serve on the second and seventh defendants a confidential affidavit exhibiting written proposals from two experienced and independent real estate agents operating in the locality of the Basement Property for the marketing and sale of the Basement Property, with such proposals to include:
(iii) the estimated range of market values of the Basement Property;
(iv) the recommended method of sale of the Basement Property;
(v) the recommended timing of the sale of the Basement Property;
(vi) the recommended reserve price for the sale of the Basement Property;
(vii) the proposed commission to be charged by the agent;
(viii) the proposed advertising expenses and other disbursements; and
(ix) the qualifications and experience of the agent;
(e) by 4:00 pm on 6 May 2023, the fourth and seventh plaintiff’s solicitor shall file and serve on the second and seventh defendants an affidavit nominating two conveyancers, which may include a solicitor or conveyancer in the plaintiffs’ firm, who is prepared to act for the fourth and seventh plaintiffs in the sale of the Basement Property, specifying:
(i) the name and qualifications of the person;
(ii) the proposed charge out rate of the conveyancer and the total anticipated costs of acting for the vendor in relation to the sales of the Basement Property; and
(iii) whether the conveyancing can be performed on a fixed fee basis, plus disbursements, and if so specify the fees for the conveyancing in relation to the Basement Property;
(f) subject to any further or other order of the Court, the affidavits filed pursuant to orders (d) and (e) above, and the exhibits to those affidavits, shall only be served on the second and seventh defendants and shall be kept confidential by them;
(g) by 4pm on 15 May 2023, the fourth and seventh plaintiffs file and serve a short submission of no more than three pages regarding the costs order sought in this proceeding;
(h) the further hearing of the proceeding, including the question of costs, is adjourned to 10:30am on 18 May 2023;
(i) liberty to the parties to apply, on three days’ notice in writing, for such further or other orders as may be necessary or appropriate concerning the implementation of these orders or for any necessary or appropriate variation to these orders.
SCHEDULE OF PARTIES
| S ECI 2022 02733 | |
| BETWEEN: | |
| SOUTHSIDE INDUSTRIES (AUST) PTY LTD (ACN 077 156 720) | First Plaintiff |
| PROPERTY RESOURCES & INVESTMENTS PTY LTD (ACN 084 861 530) | Second Plaintiff |
| HARDMAN SUPERANNUATION FUND PTY LTD (ACN 623 548 523) as trustee for HARDMAN SUPER FUND | Third Plaintiff |
| WILLOW GRANGE PTY LTD (ACN 006 444 391) as trustee for THE VAN DER SLUYS FAMILY TRUST | Fourth Plaintiff |
| YABBY PTY LTD (ACN 100 798 141) | Fifth Plaintiff |
| REGALITY PTY LTD (ACN 625 140 114) | Sixth Plaintiff |
| TRUSTWORTHY NOMINEES PTY LTD (ACN 005 092 624) as trustee for BEISSEL FAMILY TRUST | Seventh Plaintiff |
| WEST BEACH OPERATIONS PTY LTD (ACN 114 692 152) | Eighth Plaintiff |
| JOHN GRIFFITHS PATON and JUDITH LOUISE PATON as trustee for PATON FAMILY SUPERANNUATION FUND | Ninth Plaintiff |
| LABEEB ELTURK | Tenth Plaintiff |
| ASHISH KANDOI | Eleventh Plaintiff |
| NEHA MARODIA | Twelfth Plaintiff |
| MAXIMILIAAN EUGENE GOOSSENS | Thirteenth Plaintiff |
| GEORGE JAWORSKY | Fourteenth Plaintiff |
| - v - | |
| | First Defendant |
| D.B. CLS-B1 PTY LTD (ACN 169 037 512) | Second Defendant |
| | Third Defendant |
| | Fourth Defendant |
| | Fifth Defendant |
| | Sixth Defendant |
| WESTPAC BANKING CORPORATION (ABN 33 007 457 141) | Seventh Defendant |
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