Statewide Secured Investments Pty Ltd v Cipcon Pty Ltd
[2016] VCC 18
•10 March 2016
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for publication |
AT MELBOURNE
COMMERCIAL DIVISION
EXPEDITED CASES LIST
Case No. CI-12-02606
| STATEWIDE SECURED INVESTMENTS PTY LTD & ANOR | Plaintiffs |
| v. | |
| CIPCON PTY LTD & ORS | Defendants |
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JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 – 21 and 28 January 2016 | |
DATE OF JUDGMENT: | 10 March 2016 | |
CASE MAY BE CITED AS: | Statewide Secured Investments Pty Ltd v. Cipcon Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 18 | |
REASONS FOR JUDGMENT
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Catchwords: Mortgage – Secured advances for development project – Default – Earlier judgment by consent in the Supreme Court – Later agreement for financier to continue providing loan advances – Whether parties still bound by terms of the mortgage – Whether financier bound to provide advances until completion of the project– Whether financier waived or was estopped from claiming interest – Whether part of the present action merged in the Supreme Court judgment.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Scott QC with Mr S Ure of Counsel | Ashurst Australia |
| For the second and third Defendants | Ms C Kirton QC with Mr K Wolahan of Counsel | Wilmoth Field Warne |
HIS HONOUR:
1In 1998, Cipcon Pty Ltd (“Cipcon”, the company of Walter Cipriani, a builder) together with John Cannon, a real estate agent, bought a property at Hastings. Their intention was to develop the property with 19 apartments, a manager’s cottage and common facilities, including a swimming pool and tennis court.
2They found it difficult to obtain finance for the project. In April 2000, Statewide Secured Investments Pty Ltd (“Statewide”) offered to advance $1m to enable the first six apartments to be completed. Over the next two years, further advances up to a total of about $2.1m were made by Statewide. These advances were secured by a mortgage dated 31 August 2000 (“the Mortgage”) and variations of the Mortgage.
3The project did not run smoothly. Mr Cipriani and Mr Cannon considered that the project was always short of funds. Statewide did not believe the development was efficiently organised and thought that funds advanced were being used, at times, for purposes unrelated to the project.
4In June 2002, Statewide commenced to employ a supervisor, Mr Peter Slattery, who attended the site weekly. Mr Slattery gradually assumed more responsibility in over-seeing the spending of the moneys advanced by Statewide. After April 2004, Mr Slattery gave full time attention to the project. The basis of his employment and his responsibilities were set out in a “Service Deed” executed by all the parties.
5In 2002, Statewide called up the loan and in February 2003, commenced proceedings in the Supreme Court of Victoria seeking a judgment of $2,049,710.20 and possession of the Hastings property. Judgment was entered on 29 March 2004 against Cipcon and Mr Cannon for $2,315,947.50, including interest to the date of judgment and possession of the property. However, within days, the parties (including Mr Cipriani) had executed the Service Deed which allowed the development to proceed. From this time, Statewide closely monitored the payment of the project costs including payments made directly to contractors, suppliers and employees.
6From the beginning of its involvement in the project, Statewide accepted that the advances would be repaid only from the proceeds of the sales of the apartments. This would occur as the units were completed and plans of subdivision were approved which would allow the transfer of title for the individual apartments.
7From August 2006, Statewide refused to make further advances or payments. Mr Cipriani and Mr Cannon said that, at this time, they were told that Statewide had “run out of money”. For a time, Mr Cannon attempted to continue the development, using his own resources. On 19 October 2011, Statewide served notices on Cipcon, Mr Cannon and Mr Cipriani seeking payment of the outstanding amount of the loan advances. The present writ was issued on 29 March 2012.
8On 31 December 2008, Statewide’s accounts disclosed that, apart from all claims for interest and penalty interest, the amount owing was $4,646,517.22. Since that time, a number of properties have been sold and substantial payments made to Statewide. The writ claimed $8,846,346.92 from Cipcon and Mr Cannon as borrowers and mortgagors, and from Mr Cipriani pursuant to the guarantee and indemnity be provided (“the guarantee”). A certificate issued under clause 31(10) of the Memorandum of Common Provisions of the Mortgage noted that, as at 18 January 2016, the amount owing to Statewide in relation to the moneys advanced for the Hastings development was $13,008,357.49.
9Cipcon was wound up in July 2013. In the present action, relief is only sought against Mr Cannon and Mr Cipriani. The second plaintiff is Permanent Custodians Limited (“Permanent”). On 15 March 2013, it took a transfer of Statewide’s rights under the Mortgage and the guarantee.
Issues to be determined in the proceeding
10The matters in dispute between the parties requiring determination are as follows:
1.Whether the consent judgment of the Supreme Court of Victoria against Cipcon and Mr Cannon given on 29 March 2004:
a. prevents the defendants maintaining any cause of action or defence, or litigating any issue determined in that proceeding;
b.prevents Statewide or Permanent from seeking to recover in this proceeding the amount of the Supreme Court judgment.
2.Whether Statewide or Permanent is entitled to contractual or statutory interest on the Supreme Court judgment.
3.Whether following the Service Deed entered into in April 2004:
a. Statewide was required to continue funding the project to completion;
b.Statewide or Permanent was entitled to claim interest on the advances made after April 2004.
4.Whether, in August 2006, Statewide represented that it would cease to charge interest under the Mortgage because it could no longer fund the project.
5.Whether the guarantee is enforceable by Statewide or Permanent against Mr Cipriani.
6.The calculation of any entitlement of Statewide or Permanent.
7.Whether judgment should be entered in favour of Statewide or Permanent.
Background facts
11On 14 September 1998, Cipcon and Mr Cannon were registered as the tenants in common of an equal undivided share in the property at 63 Salmon Street Hastings (“the Hastings property”). Cipcon had been incorporated in July 1998. The purchase price of the Hastings property was $230,000.
12A mortgage over the Hastings property was granted to Wamberal Investments Pty Ltd (“Wamberal”) on 10 April 2000. This was apparently to secure an advance used to “pay out personal creditors” of Mr Cannon and Mr Cipriani, and was intended to rank as a second mortgage behind Statewide. Money had also been borrowed from Forest Investment Pty Ltd through Cornwall Stodart Solicitors “to cover initial construction costs for stage one” of the project. It was intended that the sum of about $305,000 owing under this mortgage would be paid out from funds advanced by Statewide.
13Mr Cannon said in evidence that he had unsuccessfully approached over 20 financial institutions seeking funds for the project. In April 2000, there were discussions between Mr Cannon and Mr Cipriani and representatives of Statewide; a lending manager, Mr Peter Noble, and Mr John Neale, the Managing Director.
14On 10 April 2000, Statewide gave a written indication of the likely terms of any offer it would make for an advance of not more than $1million “or 65% loan to valuation ratio whichever is the less”. The advance was to be for the first 6 units and was subject to a number of other conditions, including the pre-sale of at least 3 units for a minimum price and that, “before the next stage is to be commenced”, five of the six units in the first stage would need to be sold.
15On 21 May 2000, Cipcon and Mr Cannon submitted an “application for finance” to Statewide for the “Hastings Marina Place Developments” project which was described as involving the construction of “19 two story units and manager’s residence”. The application recorded that the “total funds required” were $1 million.
16On 18 May 2000, Mr Brendan Rice, a valuer, provided a written valuation to Statewide that the unencumbered market value of the Hastings property was then, $855,000. The valuer had been informed that by 9 May 2000, 5 units had been pre-sold, including 3 in the first stage (units 2, 5 and 6).
17On 30 June 2000, Statewide approved the loan application and agreed to advance not more than 65% of the value of the security, up to $1 million. This sum was said to be repayable by “instalments of $9,620 per month based on a 20 year term and calculated on principal and interest repayments”. It seems, however, that the understanding of the parties was that no repayments would be made to Statewide, except from the proceeds of sale of the units.
18On 12 July 2000, Cipcon, Mr Cannon and Mr Cipriani signed an “acceptance” of Statewide’s offer. The Mortgage between the parties is dated 31 August 2000 with a commencing date of 13 September 2000. The Mortgage records an advance of $1 million with interest payable at a “lower rate” or 9.95% per annum and a “higher rate” or 12.95% per annum. The Mortgage was registered on 27 November 2000, apparently behind the Wanberal mortgage.
19Mr Cannon said that by the time the valuation was made by Mr Rice, and Statewide had advanced funds, a number of slabs had been poured and other improvements made to progress the development of the property. Mr Cannon said that the lending ratio of 65% made it “difficult to get to the next stage”. At the time of the valuation in May 2000 of $855,000, only 65% (or $555,750) could be advanced. On 18 September 2000, $409,467.42 was paid out to meet existing debts.
20Over the next 16 months, further advances were made by Statewide. This involved increasing the total level of borrowing, and the execution by all parties (including Mr Cipriani) of 4 variations of Mortgage, as follows:
a.10 July 2001, further advance $200,000, total $1.2m;
b.6 September 2001, further advance $500,000, total $1.7m;
c.7 December 2001, further advance $200,000, total $1.9m;
d.18 January 2002, further advance $200,000, total 2.1m.
21These further advances reflected the continuing need by Cipcon and Mr Cannon of further moneys to fund the project. However, by at least January 2002, Statewide’s managers believed that not all the Statewide advances had been spent on the Hastings development. In a call from Mr Cipriani on speaker-phone with Mr Noble and Mr Neale on 15 January 2002, Mr Cipriani admitted that funds had been used on another building project at Dava Drive.
22The first proceeds from the sale of apartments on the project were credited to the loan account in May 2002. These included:
| 7 May 2002, | $159,985 |
| 7 May 2002, | $162,616 |
| 14 May 2002, | $208,640. |
23By June 2002, Mr Neale believed that about $400,000 had been “oversubscribed”, or used for purposes other than the project. Mr Neale considered that there had only been expenditure of about $1.7million for the project. At a meeting with Mr Neale and Mr Noble on 7 June 2002, Mr Cannon and Mr Cipriani did not admit to any misuse of funds although they did say that “they’d spent $12,000 or $15,000 on John Cannon’s house, bought a car and a ute and a van and a few other things”.
24Accordingly, Mr Neale proposed to Mr Cannon and Mr Cipriani that Statewide “employ our person on site to manage the project”. Mr Neale told them that Mr Peter Slattery would be appointed to “give us good advice as to what [Statewide] could pay” and that “from now on we would be paying wages direct to employees’ accounts and we would also be paying bills direct”. Mr Cannon and Mr Cipriani said they were both “happy to have a site manager”.
25The proposal was finalised in a letter from Statewide dated 6 August 2002 which confirmed the appointment of Mr Slattery “from 13 June 2002” and that he would report to Statewide “on a weekly basis”. Further, to “ensure the satisfactory progress of the development”, Mr Slattery would sanction the employment of the trades and authorise all future accounts with retailers.
26By letter dated 19 September 2002, Statewide gave notice under the Mortgage that it required the “loan to be repaid in full by no later than October 31 2002”. At this stage, Statewide was dissatisfied with the progress being made on site. On 7 November 2002, Mr Neale attended at Hastings with Mr Noble and Mr Slattery and met with Mr Cannon and Mr Cipriani. Mr Neale told Mr Cannon and Mr Cipriani that he was unhappy that promises by them about the project had not been kept and works had been “completed months behind”. Neale said that notices to pay and writs would be issued, judgment and possession of the properties obtained, and if “they don’t toe the line and get themselves organised” there would be Mortgagee’s sales and if Statewide “end up being short we would make sure we bankrupted them”.
27The meeting discussed the use to which Statewide’s advances had been put and Mr Cannon and Mr Cipriani “acknowledged they’d gone to Hong Kong to purchase some equipment” and spent about $30,000. Mr Neale told them that Statewide “would not consider any further monies to John and Walter unless they sold three units prior to Christmas”.
28Mr Cannon said in evidence that, at that time, the units were in various stages of construction. There were cash flow problems and Mr Slattery was approving all payments. In December 2002, a plan of subdivision was lodged to allow settlements of the completed units to be effected. Settlement of the sale of 4 further units took place between September 2002 and May 2003 with the following proceeds of sale being credited to the loan account by Statewide:
19 September 2002,
$19,354.13
20 September 2002,
$173,547.82
14 February 2003,
$279,711.60
19 June 2003,
$144,571.08.
29On 20 March 2003, a meeting was held between Mr Neale and Mr Noble representing Statewide and Mr Cannon, Mr Cipriani and their solicitor, Ms Geraldine Vaughan. Mr Neale again raised Statewide’s complaints which had led to the appointment of Mr Slattery, including the use of the Statewide advances for unrelated purposes.
30Mr Neale’s notes of the meeting record that he “said we were not charging penalty interest and we were not charging management fees”. Mr Neale’s notes are relied upon by the defendants to support their claim that Statewide had “waived its entitlement to charge default interest in relation to the outstanding balance”.
31On 23 May 2003, Statewide issued proceedings in the Supreme Court of Victoria against Cipcon and Mr Cannon claiming $2,049,710.20 and, alternatively, possession of the remaining parcels of the Hastings property. Judgment was entered on 29 March 2004. Mr Cannon said in evidence that, by that time, the project was substantially advanced “with 9 completed units, five units…past lockout stage [and] we had commenced work on” three other units and the amenities block.
32On 31 March 2004, there was a meeting on site between Mr Neale, Mr Slattery and Statewide’s solicitor Mr Charles Hart with Mr Cannon, Mr Cipriani and Ms Vaughan. Mr Slattery had, prior to the meeting, estimated that, if the defendants were to complete the project themselves, it would cost an additional $1,915,000. An estimate from another builder to take over and complete the works for $2.6million had been received.
33At a meeting between the parties on 1 April 2004, it was agreed that the defendants would continue with the work on the project. Matters discussed included the fact that Statewide was not charging penalty interest, Mr Slattery’s role, the sequencing of the completion and sale of the units and the payment for work performed on site by Mr Cannon and Mr Cipriani. Mr Neale recorded in a file note that Mr Hart “took notes and was to draft up an agreement” which was to be sent to Ms Vaughan. A document drafted by Mr Hart and headed “Service Deed” was executed by the parties in about mid April 2004.
34The Service Deed was entered into between Statewide, Cipcon, Mr Cannon and Mr Cipriani. The deed recited the loan, the Mortgage and the judgment on 29 March 2004 for possession of the unsold portions of the Hastings property and for the sum of $2,315,947.40 (including interest) and costs.
35Recital D of the Service Deed recorded that the parties “wish to enter into an arrangement to build the remaining units on the land and then to sell the units to satisfy the judgment debt and any further loan advances made” to Cipcon and Mr Cannon. Both Mr Cannon and Mr Cipriani asserted that, by the recital, Statewide had undertaken to provide all the necessary advances in order to complete the whole project.
36The provisions of the Service Deed will be examined in more detail later in these reasons. The deed essentially provided that Mr Cipriani, through Cipcon would “provide building services” for the project in liaison with Mr Slattery and these costs would be paid by Statewide. The agreement would continue until completion of the building works, or Statewide’s Mortgage debt was refinanced and discharged or the termination of the deed on 1 April 2005, whichever occurred first.
37Mr Cipriani said that he signed the Service Deed because the defendants were given an “ultimatum” that Statewide “were going to stop the project and throw us off the job”, if they did not execute the deed.
38Mr Cipriani said that his solicitor Ms Vaughan was present at the meeting where he was “forced” to sign the deed. I consider that this is unlikely because Mr Slattery witnessed Mr Cipriani’s and Mr Cannon’s signatures. It is more likely that there was a meeting on 1 April 2004 at which Mr Hart and Ms Vaughan were present and that after the discussion at the meeting, Mr Hart went away to draft the deed and, as Mr Neale said, after the deed was prepared, Mr Slattery took the document to Hastings to be executed by the defendants.
39Mr Cipriani said in evidence that, before he signed the deed, “he was not asked to read the deed and he did not read it before he signed it”. Mr Cipriani said that, “after the service deed, I thought they [Statewide] were going to be there to the end”. Mr Cipriani said that he “got down to work straight away” although after April 2004, “we were definitely restricted [as] everything had to go through Mr Slattery”.
40Mr Cipriani said that because of Mr Slattery’s position, he saw his role as a “worker” from then on, although he “could work and tell people what to do”. Mr Slattery was now on site full time and he took on “more responsibility”, including the ordering of materials. Mr Slattery paid wages direct to the tradesmen although generally it was Mr Cipriani, and only “sometimes” Mr Slattery, who told the tradesmen what to do.
41Mr Cipriani said that from April 2004, “[Statewide] took possession” and were “running the show”; it was “their project”. On 19 July 2004, Mr Cipriani and Mr Cannon sent a joint letter to Mr Neale. The letter accused Mr Slattery of having “meddled with past and future purchasers” and that he “says things and gets involved where he shouldn’t, in matters he has no right to, even to our trade suppliers, subcontractors and staff”. The letter said that Mr Slattery’s “constant interference is placing our project in jeopardy, and therefore, your company”.
42On 23 July 2004, Mr Neale wrote to Mr Slattery reporting on a meeting he and Mr Noble had with Mr Cipriani and Mr Cannon the previous day. The letter stated, “We have reiterated very strongly to John and Walter that you are our agent at Hastings and that we require you to be completely in touch with the proposed development including dealings with subcontractors and other matters that protect our company’s interest. We have advised Mr Cannon and Mr Cipriani that if they are not prepared to work with you then we will issue a notice under our agreement and replace Mr Cipriani as the builder with an outside contractor”.
43Statewide’s records indicate that the proceeds of the sale of units on the project after April 2004, were as follows:
15 September 2005
Unit 14
$26,500.00
4 October 2005
Unit 10
$299,953.80
7 September 2006
Unit 15
$498,457.93
13 October 2006
Unit 14
$62,500.00
18 October 2010
Unit 17
$474,731.76
18 November 2011
Unit 13
$464,581.43
20 June 2013
Unit 16
$490,209.86
13 August 2013
Unit 19
$200,248.27
27 September 2013
Unit 12
$118,689.18
9 October 2013
Unit 18
198,079.86
7 November 2013
Unit 11
$49,706.85
8 November 2013
Unit 11
$60,000.00
12 November 2013
Unit 11
$9,300.00
24 April 2014
Unit 1/63 Salmon Street
$242,196.34
24 April 2014
Unit 2/63 Salmon Street
$222,042.01.
44Mr Neale said that after April 2004 the accounts for the project were paid by the defendants although they were monitored by Mr Slattery. From October 2005, Statewide established an “at call account” for Mr Cipriani through which he paid the project costs.
45On 14 September 2005, Mr Noble reported to Statewide’s Board of Directors that, “all the advice we have received is that we need to complete the development which would see us get the best possible return…We need to consider whether it is appropriate for us to take possession of the unit sites”.
46At the Statewide Board’s meeting on 14 February 2006, it was recorded that Mr Slattery had advised that the “owners’ belief [was] that the properties will realise with a profit in excess of $400,000”. The Hastings project was further discussed by the Board at its meetings on 17 March, 18 April and 6 June 2006. The April meeting “empowered” Mr Neale “to advance appropriate funds to finalise the project” although this was apparently dependent upon obtaining a revaluation of the property and a quantity surveyor’s report.
47Cipcon and Mr Cannon prepared a memorandum dated 13 April 2006 headed “problems and over expense which now need to be stopped to enable the development to come to an end with some small profit”. The memo cited specific examples of Mr Slattery’s involvement with decisions on the project and concluded, “We are presently wasting about $3,000 per week which needs to stop as it should be in everyone’s interest to make this project at least make some profit”.
48These matters were discussed on site at a meeting that day between Mr Neale, Mr Slattery, Mr Cannon and Mr Cipriani. Mr Neale noted in minutes he prepared of the meeting that, if there were a disagreement between Mr Cannon and Mr Cipriani with Mr Slattery “as to what should happen, then I am to be advised and I will make the decision. I advised all concerned that we are not going to have a situation where they quibbled over $1k - $2k when there is a $4.5million debt outstanding with interest amounting to $1,100 a day approx. so it was important that things were not delayed”.
49On 31 July 2006, Mr Slattery wrote to Mr Neale in relation to a number of matters concerning the project. Mr Slattery reported that he had “contacted Walter’s insurance company again on Friday, but to date they have not heard from Walter’s accountant and as a result Walter is still unregistered. As you are aware without the registration there can be no Builder’s Warranty insurance and no settlement” of sales of units.
50On 3 August 2006, Mr Neale met with Mr Cipriani and Mr Cannon. Mr Neale recorded in letters to them on 11 August 2006 that, at the meeting, he “advised as a result of the continued failure of you to complete the various tasks in the specified time including maintaining builders insurance etc that we would no longer [be] funding any further part of the development”.
51In the letters dated 11 August 2006, Mr Neale also advised that Mr Slattery “will be finishing up and will no longer be employed or work at the site”. Before that happened, Mr Slattery would “arrange to pay the outstanding accounts” and wages to that date and that trades people and suppliers would be advised to send all future accounts to Mr Cannon. Mr Neale noted his understanding that Mr Cipriani and Mr Cannon were seeking finance from the Bank of Queensland to repay the amount outstanding on the Statewide loan of “approximately $4.9 million”.
52Mr Cipriani gave evidence that in August 2006, Mr Neale attended the site with a person he recalled as Mr Bob Arnold from “Banksia”, Banksia was a financial group which in 2009 “merged” Statewide’s business with its own. Mr Neale told Mr Cipriani and Mr Cannon that “they were cutting funding, they had run out of money or something to that effect”. Mr Cipriani said that no other reason was given by Statewide for terminating the arrangement. The issue of his builder’s registration and the unpaid insurance was “not discussed”.
53Mr Cannon said in evidence that “around August” 2006, Mr Noble and “Mr Bob Arnold from Banksia” came to the unit he was occupying at the site. Mr Noble said to him and Mr Cipriani that Statewide “have had a run on our funds. We are out of money … We are unable to fund you from now on”. Mr Cannon said that Mr Neale’s “demeanour” towards them was “apologetic”. Mr Cannon said that Mr Neale told them, “Look, we’re not charging you interest at the moment; were in strife”. The only reason Mr Cannon could recall for the project coming to a halt was that Mr Neale had said there were “no more funds”.
54Mr Neale said that the reason Statewide determined not to make further advances for the project “wasn’t lack of funds”. Statewide’s merger with Banksia took place in 2009 and Mr Neale had not met Mr Arnold until then. Mr Arnold was not present at the meeting with Mr Cannon and Mr Cipriani in August 2006. Statewide had funded other developments between 2006 and 2009.
55Mr Neale said that there had not been a “run on Statewide’s funds” resulting in there being no money to continue funding the Hastings project. Mr Neale denied that he had told Mr Cannon and Mr Cipriani that, “Statewide would not be charging any interest on the amount outstanding because at that point in time Statewide was not able to continue funding the project”. Mr Neale’s version of these events was substantially confirmed by the contemporaneous documents, particularly the letters dated 11 August 2006 sent by Statewide to Mr Cannon and Mr Cipriani.
56Mr Cannon said that he used his own funds to complete two units over a period of a couple more years. He said he “believed that Statewide would probably get clients back and have money to reinvest … to complete the remaining units”. Mr Cannon stated that “John Neale had said to us, ‘Look, we're not charging you interest at the moment; we're in strife’”.
57Mr Cannon said that he would not have continued to work on the development if he had thought that interest was being charged or if he thought Statewide would not continue to fund the project. I note that these two propositions seem inconsistent. Mr Cannon also said he spent $287,335 on materials and labour between July 2006 and July 2010 to complete further units so that they could be sold.
58Further units were sold as they were completed and the net proceeds applied to reduce the amount owing under the Mortgage. In 2009, Statewide became part of the Banksia Group. Statewide’s rights under the Mortgage and the guarantee were transferred to Permanent on 15 March 2013.
Credibility of witnesses
59Plaintiffs’ counsel, Mr Scott QC with whom Mr Ure of counsel appeared, called two witnesses, Mr Neale and Ms Alison Staines, a credit manager with Banksia Securities Ltd (Receivers and Managers appointed) (in Liquidation) (“Banksia”), a member of the Banksia Financial Group of companies.
60Plaintiffs’ counsel also tendered in evidence and relied upon affidavits by Mr Graham Cope, a representative of Banksia’s receivers and managers, by Mr Charles Hart, Statewide’s solicitor and by Ms Jacqueline Chan of the plaintiffs’ solicitors. Mr Slattery was not called as a witness, although the affidavit by Ms Chan explained his absence and no submission was made by defendants’ counsel as to the plaintiffs’ failure to call Mr Slattery.
61Defendants’ counsel Ms C Kirton QC with whom Mr Wolahan of Counsel appeared, called two witnesses, Mr Cannon and Mr Cipriani. The critical events about which the three principal witnesses, Mr Neale, Mr Cannon and Mr Cipriani, gave evidence, occurred about ten or more years ago. The memory of each of these witnesses was limited. All relied on contemporaneous documents to refresh their memories or to help construct the versions of events which they gave in evidence.
62The principal documents which recorded contemporaneous discussions were file notes prepared by Mr Neale. I am satisfied that the file notes were prepared soon after the events they recorded and are likely to be a full and accurate account of the discussions. From a study of the contents of the file notes, I do not consider that the notes were selective or were intended to be “self-serving”. No submission was made by defendants’ counsel that the notes were an unreliable record.
63In regard to Mr Neale’s evidence, the only hesitancy I had related to his inability to recall whether the defendants’ loan had only been discussed by Statewide’s Board on a single occasion, or at other meetings. When he was cross-examined about this matter on the afternoon of 19 January 2016, Mr Neale explained that the loan had been principally discussed by a sub-committee to whom the Board had delegated the matter and which included, as members, two or three of the directors, including himself.
64Any doubts I had about the reliability of Mr Neale’s recollections were removed the following morning when Mr Neale was cross-examined about three further Board meeting minutes which recorded discussions about the defendants’ loan. These minutes were in the Court Book immediately following the minutes of the meeting on 14 February 2006 about which Mr Neale had been cross-examined the previous day, and which had apparently been overlooked by counsel themselves when I had raised with Mr Neale the limited recollection he had of the matter.
65Mr Cannon and Mr Cipriani gave evidence on a number of critical matters which was “at odds” with the evidence of Mr Neale. Generally, the evidence of Mr Cannon and Mr Cipriani did not receive any independent support from the contemporaneous documents. In all cases of conflict in the evidence, I have preferred the evidence of Mr Neale to the evidence of Mr Cannon and Mr Cipriani.
66Mr Cipriani frequently in his evidence acknowledged his lack of recollection of matters which occurred many years ago. His recall of events on site and particularly the progress of the works he was organising was very imprecise. In these circumstances, it was surprising that he confidently maintained the accuracy of his recollection of other critical matters including conversations.
67Mr Cannon also asserted that he remembered matters that were important in the litigation, but which were unlikely to have had the same significance at the time. When challenged about these matters, Mr Cannon gave long, convoluted answers which rarely shed further light. Both Mr Cannon and Mr Cipriani appeared to tailor their answers on certain key issues in a way which they presumably believed would assist the defendants’ case. In this regard, their evidence was less convincing than the evidence of Mr Neale.
Determination of Issues
68Effect of the Supreme Court judgment: On 29 March 2004, Statewide entered judgment against Cipcon and Mr Cannon for $2,315,947.40 (including interest to the date of judgment) and for possession of the remaining parcels of the Hastings property.
69In this proceeding, plaintiff’s senior counsel, Mr Shaw QC submitted that it was appropriate that judgment be entered in favour of Permanent, as the transferee of Statewide’s rights under the Mortgage and guarantee. Mr Shaw did not seek that judgment be entered on behalf of Statewide.
70In these circumstances, it is appropriate, if the plaintiffs succeed in this proceeding, that either:
a.judgment is given to Permanent for the whole amount of the claims to which it is entitled, including the matters covered by the Supreme Court judgment; or
b.Statewide (or Permanent in its place) is entitled to enforce the Supreme Court judgment, and the judgment in this proceeding is limited to the matters which have arisen subsequently to the judgment on 29 March 2004.
71In my view, the first approach is more appropriate, as neither option produces a result which differently affects the defendants. There has been a transfer of rights from Statewide to Permanent and both these parties are jointly represented as the plaintiffs in this proceeding.
72I consider that the Supreme Court judgment is conclusive of certain matters and issues which fall to be determined in the present proceeding. The following matters are relevant:
a.the orders made in the Supreme Court on 29 March 2004 were made by consent and upon the adjourned hearing of Statewide’s summary judgment application;
b.the parties in the Supreme Court proceeding included Statewide as plaintiff and Cipcon and Mr Cannon as defendants;
c.Permanent was not a plaintiff in the Supreme Court proceeding. It does, however, claim in the present proceeding as transferee on the Mortgage and assignee of the guarantee, pursuant to transactions effected in March 2013;
d.Mr Cipriani was not a party to the Supreme Court proceeding. He was, however, a party to the Service Deed entered into in April 2004 which acknowledged the judgment debt, and Mr Cipriani was the sole director and shareholder of Cipcon during that company’s involvement in the Supreme Court proceedings as a defendant;
e.the Supreme Court judgment was entered after Statewide’s claim, and the responses of Cipcon and Mr Cannon, had been articulated;
f.Ms Kirton QC conceded in this proceeding that the defendants do not query the fact that the Supreme Court judgment reflects the amount owing pursuant to the Mortgage up to the date of judgment.
73In these circumstances, it is not appropriate that I should permit the defendants, including Mr Cipriani, to raise issues which either were or might reasonably have been expected to have been raised as claims in the Supreme Court proceeding or by way of defence to the claims.
74From Statewide’s perspective, I consider that the Supreme Court judgment dated 29 March 2004 precludes it from raising, either because of the principles of res judicata or issue estoppel or because it would be unreasonable and an abuse of process to do so, any matters which relate to the quantification of the quantum of the judgment that was obtained.
75For example, and this is a matter not clear from the materials before me, whether the interest included in the sum of $2,133,520 as the initial judgment sum or the further interest of $182,427.48 from 1 August 2003 to 29 March 2004, represents the total amounts that might have been claimed by Statewide pursuant to the Mortgage.
76I note that the “Borrowers Loan Statement” in evidence shows the balance as at 1 August 2003 as $2,185,832.55, which sum appears to include “interest charged at 9.50% PA”, and “default interest” for perhaps only part of the period of the Mortgage. The interest calculation of $182,427.28 involves the application of the interest rate equivalent to a rate closer to the higher rate under the Mortgage.
77From the defendants’ perspective, they are not able in this proceeding to raise by way of defence the matters raised in the amended defence dated 1 May 2015 as follows:
a.by paragraphs 3A to 3H, so far as the allegations relate to a date prior to the judgment;
b.by paragraphs 3I to 3L, which although they purport to rely upon matters which occurred after the date of the judgment (by the inclusion of the word “thereafter” or the phrase “at all times thereafter”), the specific matters relied upon refer to events prior to the judgment. I have disregarded the end dates for certain periods referred to in these paragraphs of “1 April 2004” or “2 April 2004”, in the absence of any particulars of events relied upon after the judgment. The specific matters the defendants rely upon after the date of the judgment (eg. the Service Deed) are referred to in other parts of the amended defence;
c.by paragraph 5, which seeks to distinguish advances pursuant to “the loan agreement” and pursuant to “the Mortgage”;
d.by paragraphs 6EA to 6EJ, which raise matters prior to the judgment in support of the conclusions which the defendants allege in paragraph 6EK, must follow, namely that “the rights of Statewide and each of the first and second defendants … merged in the judgment”.
78The High Court, in Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28 at paragraphs 22 and 24, said that the “consideration of finality and fairness” apply both to the forms of estoppel which “result from the rendering of a final judgment in an adversarial proceeding” as well as to the “doctrine of abuse of process [which may have application] in any circumstances in which the use of a court’s procedures would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute”.
79In paragraphs 6EK of their amended defence, the defendants allege that certain conclusions should follow from the entry of the Supreme Court judgment. Those assertions, and my comments upon them are as follows:
a.the rights of Statewide, Cipcon and Mr Cannon are “merged in the judgment”. For the reasons I have given, I consider that the effect is also the same for Permanent and for Mr Cipriani;
b.Statewide’s “right to possession” of what remained of the Hastings land was confirmed. Statewide did not, apparently, seek to execute upon the judgment by the issue of a warrant and did not enter into possession of the property. Only Statewide’s right to do so, was determined by the judgment;
c.the defendants asserted that the plaintiffs had no right in the present proceeding to seek recovery of the amounts included in the calculation of the judgment. This issue was not pursued in final submissions by defendants’ counsel after Mr Shaw QC had referred in his opening address to authority which supported the entitlement of the plaintiffs to pursue those matters in the present action.
80Interest on the 2004 Supreme Court judgment: The defendants submitted that “interest on the judgment should not be pursuant to contract, as the obligation to pay interest merged with the obligation to pay the debt”. They further submitted that the parties had not, as they might have, provided “in their agreement an obligation to pay interest that does not merge in the judgment debt”.
81Mr Shaw QC submitted that the Memorandum of Common Provisions did provide that the obligation to pay contractual interest survived, and did not merge with the judgment. He relied upon the following provisions:
a.clause 5(2) which provided that, “the mortgagor shall pay to the Mortgagee interest upon the principal money secured or so much thereof as shall from time to time be outstanding…”;
b.clause 31(f) which defined “moneys hereby secured” as meaning “the principal money secured and each and all sums of money in which the mortgagor may now or hereafter be indebted or liable…to the Mortgagee in any manner or on any account whatever including interest…”.
82Einstein J stated in State Bank of NSW v Kit Cheng Chia [2000] NSWSC 552 (“Chia”) at paragraph 918, “Upon a judgment being entered for payment of a debt, it is ordinarily the case that the contractual obligation to pay the debt and attendant interest merges in the judgment. However, the parties can, by drafting their agreement to this effect, provide that an obligation to pay interest does not merge in the judgment for the debt. The question is one of construction”.
83Mr Shaw QC submitted that “‘all sums of money’ in clause 31(f) include the mortgagors’ liability for the judgment debt”. The decided cases suggest, however, that something more precise is required.
84In Chia, the relevant clause provided that, “In the event that the interest payable under any agreement and / or mortgage becomes merged in any judgment or order of any court, interest payable on the money hereby secured shall be at the rate which is the higher rate of the interest rate as agreed or provided to be paid under such judgment or order as aforesaid”.
85At paragraph 922, Einstein J concluded, “The parties contemplated that the contractual obligation of Dr Chia to pay interest is to merge in the judgment for the debt, but further contemplated that any award for interest made by the Court should be at the rate provided for in the agreement if that rate was higher than the prescribed rate”.
86A similar result was reached by Rogers J in Mercantile Credits Ltd v McDowell [1980] 2 NSWLR 101 in construing a covenant, “That in the event of the liability of the mortgagor hereunder becoming merged in any judgment or order the mortgagor shall pay interest on the amount owing for the time being under such judgment or order at the rate of 12 ½ per centum per annum”.
87Similarly, Begg J in General Credits (Finance) Pty Ltd v Brushford Pty Ltd [1975] 2 NSWLR 786, reached the same conclusion where the relevant clause commenced, “That the mortgagor will so long as any moneys shall remain owing on the security of these presents or on any judgment or order which the covenant for payment thereof may be merged pay interest on the principal sum …”.
88In my view, clause 31(5) of the Mortgage does not sufficiently signal the intention of the parties that what is “ordinarily the case that the contractual obligation to pay the debt and attendant interest merges in the judgment”, should be displaced.
89Accordingly, it is appropriate that interest should be allowed on the Supreme Court judgment pursuant to section 101(1) of the Supreme Court Act 1986, “at the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 from the time the judgment was given”. Any judgment given in this proceeding in favour of Permanent will reflect that method of calculation.
90Effect of the Service Deed on the mortgagee’s entitlement to interest: Ms Kirton QC submitted that generally the defendants’ liability in the proceeding should be limited to the Supreme Court judgment debt and statutory interest plus further advances pursuant to the Service Deed less the net proceeds from the sale of the units.
91The defendants submitted that the April 2004 Service Deed was “an entirely separate agreement” as:
a.Mr Cipriani was a party to the deed;
b.the mortgagors were not required to execute a further variation of the Mortgage;
c.Statewide’s rights in relation to the loan and to contract interest merged with the Supreme Court judgment.
92The defendants further submitted that the obligations of Cipcon, Mr Cannon and Mr Cipriani pursuant to the Service Deed were limited because:
a.by Item 5.1 in Schedule 1, Statewide was to “purchase the required building materials” and there was no obligation upon the defendants to pay for the materials or to reimburse Statewide;
b.the deed made no specific provision as to the payment of interest;
c.the payment or advances made by Statewide as a consequence of the deed were not “moneys hereby secured” by the Mortgage or as arising from a relevant indebtedness or liability to the mortgagee, as the parties had agreed that the Service Deed was a “separate arrangement…regulating their relationship”;
d.the further advances pursuant to the Service Deed did not attract interest, until a demand was made. In this case, no demand prior to the issue of the Writ in the proceeding in 2012 had been established or, alternatively, the debt to Statewide had not become a sum certain until that time.
93The Service Deed is a commercial contract and must be construed in accordance with well established principles. In order to determine the intention of the parties, the words used must be given their ordinary meaning, the document must be construed as a whole, regard should be had to the circumstances in which the agreement was entered into and, if there is any ambiguity, the relevant clause must be construed against the party preparing the document; in this case the plaintiffs.
94I consider that the following matters should be considered in relation to the context in which the parties entered into the deed:
a.Statewide was a financier which had advanced money for a development secured by the Mortgage over the property;
b.the development had not proceeded as anticipated and had required a high level of supervision and involvement by Statewide;
c.Statewide had obtained a judgment only days earlier for the outstanding money under the Mortgage and for possession of the property;
d.Mr Cipriani had continued to be responsible for carrying out the construction tasks in relation to the project;
e.Mr Cannon and Mr Cipriani considered that if the project were completed, and the units sold and the amount owing to Statewide repaid, that there would be a profit to be shared between Cipcon and Mr Cannon.
95The Service Deed did not essentially alter the arrangement between Statewide, as financier, and Cipcon and Mr Cannon, as developers, because:
a.Cipcon and Mr Cannon were to share the profits of the development;
b.Statewide could not be regarded as a “joint venturer” with them. Statewide was never entitled to a share of profits and always claimed to be entitled to the repayment of moneys advanced with interest pursuant to the Mortgage;
c.the deed recited its objective as being the completion and realisation of the development “to satisfy the judgment debt and any further loan advances” (recital D);
d.the deed was “Subject to [Statewide’s] rights pursuant to the instrument of Mortgage” (clause 6.1);
e.the deed “does not in any way waive any of [Statewide’s] rights pursuant to the Mortgage” (clause 6.2) or “its rights to exercise any of its rights under the Mortgage or under the judgment” (clause 6.5).
96Further, for reasons I will refer to shortly, I consider that the construction of the deed offered by the defendants is inconsistent with specific provisions of the deed and, therefore I should be reluctant to conclude that the defendants’ contentions represent the parties’ intention as reflected in the deed.
97The defendants rely upon the words of Recital D which states that the parties “wish to enter into an arrangement to build the remaining units on the land and then to sell the units to satisfy the judgment debt and any further loan advances made to Cipcon and” [Mr Cannon]. The defendants submit that this clause obliged Statewide to continuing providing funds until the project was complete.
98This submission ignores clause 2.2 of the deed which provides that, “This deed shall commence on the commencement date and terminate on 1 April 2005 or on completion of the building works referred to in Schedule 1, whichever occurs sooner”. Schedule 1 nominated the “commencement date” as “1 April 2004” and defined the “scope of work” as “to provide building services on the said land…and ongoing communication with [Statewide] and Peter Slattery…on all relevant issues relating to such building works”.
99Clause 9.1 of the deed noted that Cipcon and Mr Cannon “may at any time refinance and discharge their indebtedness to” [Statewide] and, in that event, the deed would “terminate”. It would be inconsistent with this provision to anticipate that such a refinancing would replace existing finance which, according to the defendants, imposed no obligation on the borrowers to pay interest on further advances and which required Statewide to finance the project to completion.
100In my view, the factual basis for the claim by Mr Cannon for loss and damage resulting from Statewide’s alleged refusal to provide further funds to complete the construction of the development has not been established. Mr Cannon claims the expenditure he personally advanced between 1 April 2004 and 3 September 2010 of $472,013.07 “to fund the development of the units on the project”. Even if the factual basis were established, it is difficult to see how expenditure by a joint owner of the property who was to share in the profits of the project with Cipcon could be regarded as recoverable loss and damage.
101Representation in August 2006 that Statewide would cease to charge interest because it could no longer fund the project: The defendants allege that in August 2006, Statewide represented to Cipcon and Mr Cannon that “because Statewide had breached the [Service Deed] by failing to advance funds to complete the development, Statewide would cease to charge interest to [Cipcon and Mr Cannon] on amounts due to Statewide by them”.
102The representation was alleged to be made:
a.in a conversation at Hastings between Mr Neale, Mr Cannon and Mr Cipriani;
b.by being “repeated at subsequent meetings involving the same persons at the offices of Statewide at Kyabram”;
c.in borrower loan statements sent by Statewide to Mr Cannon which showed “the interest rate being adjusted from ‘10.200%’ to ‘0.001%’ on 4 May 2007”;
d.by being “confirmed by Statewide by letter dated 21 July 2008 to [Cipcon and Mr Cannon] seeking confirmation for the purpose of communication to its auditors to the effect that the loan account for the first and second defendants was then [30 June 2008] holding a balance of $4,647,207.59 and the applicable interest rate was then 0.001%”;
e.in a similar “audit confirmation request” sent by Statewide to Mr Cannon in respect of the loan balance as at 30 December 2008.
103Cipcon and Mr Cannon were said to have relied upon the representation that interest would not be charged and, induced by it, “continued to work to complete the development”, and Mr Cannon “advanced funds to the development on his own account”.
104The defendants submit that Statewide is “estopped from claiming interest from August 2006” because both Mr Cannon and Mr Cipriani have “suffered detriment”, because “from August 2006 they worked on the development for no wages or remuneration and [Mr] Cannon advanced funds in order to continue the development”. In these circumstances, the defendants say that “it would be unconscionable to allow the plaintiffs to benefit from [Statewide’s] voluntary promise not to enforce its claim to interest”.
105I have previously set out a summary of the evidence given in relation to the meeting in early August 2006. I do not accept the evidence of Mr Cannon and Mr Cipriani. I consider that Mr Cipriani had little recollection of the conversation apart from the general impression that Mr Neale told him and Mr Cannon that Statewide would not provide any further funds. I consider that the suggestion by Mr Cannon that Mr Neale said that Statewide “had run out of money” and would, for this reason not be charging interest, should not be accepted.
106There is little dispute between the witnesses that:
a.a meeting took place on 3 August 2006 at Mr Cannon’s unit at the Hastings development;
b.Mr Neale told Mr Cannon and Mr Cipriani that Statewide would no longer be funding the project;
c.these facts are confirmed in the letters Mr Neale sent to Mr Cannon and to Mr Cipriani on 11 August 2006. The letters give as reasons for the termination of the funding, “the continued failure of you to complete the various tasks in the specified time including maintaining builders insurance”.
107The letters dated 11 August 2006 nowhere refer to the following matters asserted by Mr Cannon and Mr Cipriani, namely that:
a.Mr Bob Arnold from Banksia was present at the meeting;
b.Statewide had had a run on its funds;
c.Statewide could no longer afford to advance further funds;
d.Statewide would not thereafter charge interest.
108Mr Cannon and Mr Cipriani stated that there had been no discussion at the meeting of any difficulty with Mr Cipriani’s builders registration. However, on 31 July 2006, Mr Slattery had written to Mr Neale informing him that the sale of a unit due to settle on 8 August 2006 “cannot take place” without the occupancy certificate and without “Walter’s registration”. As Mr Slattery said, “without the registration there can be no Builder’s Warranty insurance and no settlement”.
109Mr Cipriani’s builders registration had been subject to a number of suspensions as a result of the failure by Mr Cipriani to submit appropriate financial documents to the regulatory authority. The Register of the Building Practitioner’s Board certified on 3 June 2015 the following details of Mr Cipriani’s registration as a domestic builder, which are relevant to the Hastings project:
2 December 1996
first registration
16 February 2001
registration suspended
9 February 2005
registration reinstated
8 May 2005
registration suspended
4 September 2006
registration reinstated
21 November 2009
registration suspended
2 June 2010
registration reinstated
15 October 2011
registration suspended
29 December 2011
registration reinstated
22 August 2012
registration suspended
28 August 2013
registration reinstated.
110Mr Cipriani’s registration was suspended on each occasion because he “failed to renew registration”. Mr Cipriani said in evidence that this was because his tax return for the relevant year had not been prepared and he did not submit it, as he was required to do, so that the Board could register him as a builder.
111Both Mr Cannon and Mr Cipriani suggested in their evidence that this was a matter of little consequence because the project was being run by them as “owner builders” and therefore the units would be covered by insurance when they were sold. There was no independent evidence to confirm that assertion.
112What is, however, clear from the evidence, and particularly the contemporaneous documents and objective evidence, is that the progress of the development after July 2000 was extremely slow. The project commenced prior to Mr Cannon and Mr Cipriani seeking finance from Statewide in 2000. Statewide provided the $1 million advance sought in the initial application, further advances to $2.1million pursuant to the variations to January 2002 and continued finance up to August 2006. The dates of settlement of the sales of the completed units provide an indication of the lack of progress on the site over many years.
113On the evidence available, I accept that this is most likely to be related to the way in which the project was managed by Mr Cipriani as the builder and Cipcon and Mr Cannon as the developers. Statewide’s engagement of Mr Slattery, initially part time and, from June 2004 on a full time basis, seems to have been a necessary step to protect its security and is likely to have assisted the completion of the project.
114In the circumstances, I reject the suggestion of the defendants that the cessation of further advances in August 2006 occurred for reasons other than the inability by the defendants to demonstrate over many years that they had the will or the capacity to complete the project with any regard for their responsibilities to Statewide. There is no basis for the claim for a set off by Mr Cannon and Mr Cipriani.
115Further, no waiver or estoppel arises in respect of the claim by the plaintiffs for interest, including default interest. As I have discussed, there is no factual basis for the claims advanced by the defendants. Also, the Memorandum of Common Provisions would ordinarily provide protection against these defences. Clause 31(11) of the memorandum provides that,
“Notwithstanding any rule of law or equity to the contrary:
(i) no indulgence granted by the Mortgagee to the mortgagor or failure of the Mortgagee to take action in respect of any breach or default in the performance by the mortgagor of the mortgagor’s obligations hereunder shall constitute a waiver of all or any of the provisions of this Mortgage with respect to any subsequent or continuing breach or default;
(ii) the failure of the Mortgagee to exercise any power or discretion given to it by this Mortgage shall not, unless agreed by the Mortgagee in writing, constitute a waiver by the Mortgagee of the right of the Mortgagee at any time thereafter to require the mortgagor to comply strictly with the provisions of this Mortgage”.
116In relation to Mr Cipriani, as guarantor, the plaintiffs rely on clause 28(2)(c), particularly subclause (iii) which provides that, “this guarantee and the rights or remedies of the Mortgagee against the guarantor shall not in any way be prejudiced or affected by any time given to the mortgagor or the covenantor or any other person in connection with any of the obligations or any other indulgence granted to or composition compromise or agreement made with the mortgagor or the convenantor whether with or without the consent of or notice to the guarantor”. Mr Scott also relied upon the fact that Mr Cipriani had provided an indemnity as well as a guarantee.
117Services of notices on Mr Cannon and Mr Cipriani: The plaintiffs claim that appropriate notices were served on Cipcon, Mr Cannon and Mr Cipriani in accordance with the Memorandum of Common Provisions. Mr Cipriani, in his evidence, asserted that he had not received the following notices:
Date
Description
15 March 2013
Transfer of mortgage, charge or lease from Statewide to Permanent
21 March 2013
Transfer of guarantee from Banksia to Permanent addressed to Mr Cipriani at his then address at Wood Street, Flinders
19 October 2011
Notice to pay addressed to Cipcon at its accountant’s address in Riversdale Road Camberwell with an accompanying letter
19 October 2011
Notice to pay addressed to “Walter Cipriani (Guarantor)” at his then address of Wood Street, Flinders with an accompanying letter
11 August 2006
Letter from Statewide to Walter Cipriani.
118Mr Cipriani’s evidence in respect of each notice was as follows:
a.when asked whether he had received the Transfer of mortgage, charge or lease dated 15 March 2013, Mr Cipriani replied, “No. Never seen it”;
b.when asked about the Transfer of guarantee dated 21 March 2013, Mr Cipriani said he did not “remember receiving this document” and that he had, “Never seen it”;
c.when asked about the Notice to Pay dated 19 October 2011 and the accompanying letter, Mr Cipriani said that he “never received it” and his accountants “never” showed it to him;
d.when asked about the Notice to Pay and accompanying letter dated 19 October 2011 addressed to him personally, Mr Cipriani said that, “No”, he could not remember getting this letter or the notice, and that he had “Never seen” the documents;
e.when asked about the letter dated 11 August 2006, Mr Cipriani said that he had “never seen it” and could not recall being shown the document.
119The plaintiffs relied upon an affidavit by Mr Hart, Statewide’s former solicitor, as proof of service of the Notices to Pay and accompanying letters dated 19 October 2011. Mr Hart deposed to the fact that:
a.copies of the notices and letters were on the solicitors’ file;
b.the letter “M” had been handwritten on each copy of the letters on the file;
c.the standard office practice was that, after the original of a document had been placed in the mail, the letter “M” would be written on the file copy of the letter, indicating that it had been mailed.
120Mr Cannon was asked in examination in chief about the letter dated 11 August 2006 and whether he had received the letter. He said, “I don’t believe I have, no. Like, I saw it yesterday, but I haven’t seen it before”. In cross examination by Mr Scott QC, Mr Cannon repeated that he did not recall getting the letter and that, “if I had’ve, I would’ve had a copy of it”.
121Mr Scott referred Mr Cannon to the cross-examination of Mr Neale by Ms Kirton QC, two days earlier in which she took him to the letters dated 11 August 2006 to Mr Cipriani and Mr Cannon. Ms Kirton was seeking to establish that in the discussion on site on 3 August 2006, Mr Neale had not raised as the reason for Statewide “no longer funding any further part of the development”, the matters referred to in the letter dated 11 August 2006, namely, “the continued failure of you to complete the various tasks in the specified time including mainlining builders insurant etc”.
122Ms Kirton asked, “Mr Neale, my clients say that they didn’t have any other discussion with you in early August. They said they had a discussion with you in early August and then after that discussion they’ve got this letter here”? This question suggests that Ms Kirton had express instructions from Mr Cipriani and Mr Cannon that they had received the letters dated 11 August 2006. Notwithstanding, when Mr Cannon was referred to Ms Kirton’s question by Mr Scott, he said, “No, I don’t believe I’ve seen this letter”.
123The plaintiffs rely upon clause 31(8) of the Memorandum which provides that, “A party to this Mortgage may give any notice to any other party by posting the notice by prepaid post to the address of that party set out in the schedule or such other address as may have been advised in writing by such party and such notice shall be deemed to have been received three days after the date on which it was posted”.
124In my view, the evidence of Mr Cipriani and Mr Cannon is unreliable in relation to their individual recollections as to whether documents had been served upon them, including the formal notices and the letters dated 11 August 2006. Their recollections were limited in matters generally and there is no reason to expect that they would have specifically recalled receiving a particular piece of correspondence.
125I consider, in the case of the Notices to pay and the accompanying letters dated 19 October 2011, that it is probable in this case, that the practices of Statewide’s solicitors would have ensured that there had been compliance with the requirements of the Memorandum of Common Provisions. In regard to the transfer of the Mortgage or the assignment of the guarantee to Permanent, I do not consider that it was necessary for a written notice to have been given to the mortgagors or the guarantor, or for a notice to have been received by them.
126Calculation of the quantum of the plaintiff’s claim: The plaintiffs rely upon a certificate issued pursuant to clause 31(1) of the Memorandum of Common Provisions which provides that an appropriate certificate “shall be prima facie evidence” of a “matter fact or thing stated in such certificate”, including:
a.the moneys secured;
b.the details of the default;
c.“anything else relevant to the establishment of any right or remedy of the mortgagee or the liability of the mortgagor”;
d.“any sum payable pursuant to the guarantee”.
127The plaintiffs filed a certificate as an exhibit to an affidavit sworn by their present solicitor. The certificate asserts that the sum owing by Mr Cannon and Mr Cipriani under the Mortgage as at 18 January 2016 was in excess of $13 million.
128As a result of my conclusions in relation to the effect of the Supreme Court judgment, and the entitlement to interest on that judgment, it is necessary for the sum owing to be recalculated. Both senior counsel, in their final submissions, informed me that this was a matter the parties would be able to undertake after I have delivered my reasons for decision.
129Permanent should recover judgment: Mr Scott SC submitted that the judgment should be entered in favour of Permanent and not Statewide, as Permanent was the transferee or assignee of Statewide’s rights under the Mortgage and the guarantee. In final submissions, no argument was addressed to the contrary by Ms Kirton QC.
Proposed orders
130Accordingly, the following orders would seem appropriate:
1. The claim by the first plaintiff is dismissed.
2. Judgment for the second plaintiff against each of the second and third defendants for [a sum to be calculated by the parties in accordance with these reasons for judgment, or as ordered by the Court after hearing further submissions from the parties].
3. The second and third defendants must pay the plaintiffs’ costs of the proceeding including all reserved costs, to be assessed by the Costs Court on the basis of their legal costs as between a solicitor and own client in default of agreement.
131I will not make any orders until the parties have had the opportunity to study these reasons, and if necessary, to make further submissions.
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Certificate
I certify that these 27 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 10 March 2016.
Dated: 10 March 2016.
Carla Cianfaglione
Associate to His Honour Judge Anderson
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