Vartelas v Handberg
[2009] VSCA 196
•21 August 2009
Revised
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No. 3797 of 2009
| PAUL VARTELAS |
| v. |
| GEOFFREY NIELS HANDBERG and ORS |
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APPLICATION ON SUMMONS
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JUDGES: | BONGIORNO JA and HANSEN AJA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 21 August 2009 | |
DATE OF JUDGMENT: | 21 August 2009 | |
MEDIUM NEUTRAL CITATION: | [2009] VSCA 196 | |
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Interlocutory orders – Leave to appeal – Application for stay pending appeal.
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| APPEARANCES: | Counsel |
| For the Applicant | Mr M Gronow |
| For the First and Second Respondents | Mr M Galvin |
| For the Eighth Respondent | Mr C Leonidas |
| No appearance for the third to seventh respondents |
BONGIORNO JA:
We have considered this application for a stay and the judgment I am about to deliver is the judgment of both of us.
On 19 June 2009, Robson J made orders which have been appealed against by two of the defendants to the proceeding, namely MIG Property Services Pty Ltd (the first defendant) and Paul Vartelas (the second defendant). No question arises concerning the appeal of MIG, which was commenced by notice filed on 8 July 2009. The questions that now arise relate only to the appeal by Vartelas, which was commenced by notice filed on 3 July 2009. By that notice, Vartelas has appealed against the whole of the orders of Robson J, relying on a raft of grounds and seeking a suite of orders in lieu. We will refer to Vartelas as 'the applicant'.
Several of the orders of Robson J are clearly interlocutory. That having been pointed out, the applicant now seeks leave to appeal in respect of the interlocutory orders, of which those numbered 6, 7 and 8 provide as follows:
6. The Court orders that there be an inquiry into the amounts and sums that should have been included in the account that the Second Defendant as receiver and manager of the property of the Second Plaintiff should have rendered to the First Plaintiff on the settlement of the sale of the Footscray property on 19 October 2007.
7. The Court orders that there be an inquiry into the amounts and sums that should have been included in the account that the Second Defendant as agent for the First Defendant in its capacity as controller in possession of the property of the Second Plaintiff should have rendered to the First Plaintiff on the settlement of the sale of the Footscray property on 19 October 2007.
8. The Court orders that there be an inquiry into the amounts and sums that should have been included in the account that the First Defendant in its capacity as controller in possession of the property of the Second Plaintiff should have rendered to the First Plaintiff on the settlement of the sale of the Footscray property on 19 October 2007.
In presenting his submissions today, counsel for the applicant was content that the application for leave to appeal be stood over to the hearing of the appeal proper, and we shall accede to that application, it not being opposed.
By order 9, Robson J ordered that the inquiries ordered by orders 6, 7 and 8 be fixed for hearing by himself on 18 August. The hearing has been held over pending the resolution of today's applications.
In addition to leave to appeal, the applicant seeks an order that the operation of orders 6, 7, 8, 9, 15 and 16 of Robson J's orders be stayed pending the hearing and determination of the appeal. It is that application with which we are now concerned.
Order 15 was a procedural order that directed MIG and the applicant respectively, on or before 11 August 2009, to file and serve on the plaintiff any further affidavits on which they intend to rely. Order 16 is a final order in that it determines that the funds referred to herein are charged first with the first plaintiff's costs and expenses of and incidental to the payment into court of the fund to which we refer below. In another sense it is interlocutory because it does not otherwise determine the parties' rights in relation to the funds.
Having regard to the terms and substance of the orders, the application for a stay effectively concerns orders 6, 7 and 8. If the operation of those orders is stayed, the inquiries will be postponed and in consequence that would carry order 15. On any view, a stay of order 16 is not required.
We should say something about the parties to the proceeding. The plaintiffs are Geoffrey Niels Handberg as the liquidator of the second plaintiff, S & D International Pty Ltd, which was also subject to a receiver and manager appointed. They are the first and second respondents to the present application. S & D International Pty Ltd was trustee of the S & D International Unit Trust and as such held two properties, namely a property at 580 Barkly Street, Footscray and a property at 45 Boronia Drive, Hillside. Each property was mortgaged to the Commonwealth Bank of Australia. S & D International Pty Ltd also provided a debenture over its assets and undertaking. These securities came to be held by MIG, which is the eighth respondent.
The third respondent had conducted a grocery business at the Footscray property. His wife was also involved in the business, and she held the units in the trust. Differences arose between them and he lodged a caveat over both properties claiming an estate in fee simple.
The fifth respondent is the son of the third respondent's wife. They caused S & D International Pty Ltd to grant an unregistered mortgage to the Australia and New Zealand Banking Group Ltd (“ANZ”) and a registered mortgage debenture as security for loans. The ANZ lodged a caveat giving notice of its unregistered third mortgage.
The third respondent brought a proceeding in the Supreme Court in which he succeeded in establishing a beneficial entitlement to a one-half interest in the trust and its assets.
In that proceeding the third respondent's wife retained solicitors, Velos & Davis, to act for her and S & D International Pty Ltd which gave an equitable charge over the properties to secure payment of legal fees.
Velos is the fourth respondent. On 6 August 2007 Velos & Davis obtained judgment against the third respondent's wife for $190,708.52 plus costs. Velos & Davis claimed priority to the funds at court.
The third respondent's wife appealed against the above decision. While the appeal was pending the third respondent and his wife appointed the sixth and seventh respondents as administrators of S & D International Pty Ltd. At about this time the CBA called up its loan to the company. The third respondent arranged for another person to repay the CBA loan.
Ultimately, the sixth and seventh respondents recommended the business be wound up; approximately $240,000 was owed to the CBA. In June 2005, the creditors of S & D International Pty Ltd resolved to wind up the company and the sixth and seventh respondents became the liquidators.
The sixth and seventh respondents have lodged a caveat over the properties claiming a lien for unpaid fees and expenses.
In September 2006 the person who had paid out the CBA loan assigned the securities to the eighth respondent, MIG.
Subsequently the third respondent sought the termination of the winding up and removal of the sixth and seventh respondents as liquidators. He was successful and in June 2007 the first respondent was appointed liquidator.
In October 2006, acting under the mortgage debenture, the eighth respondent appointed the applicant receiver and manager of the assets and undertaking of the second respondent. In August 2007 the eighth respondent appointed the applicant its agent who as such entered into possession of the properties. The principal debt was then $242,540.38.
In September 2007 the eighth respondent, through the applicant, sold the Footscray property for $1.36 million. At settlement on 18 October, withdrawals of caveat were provided by the third, fifth, sixth and seventh respondents. The third respondent provided his withdrawal on the basis that the eighth respondent pay any surplus of the proceeds of sale into court.
On 19 October 2007 the eighth respondent received the balance of the proceeds of sale. This was far more than was required to pay the debt owed to the eighth respondent.
Every person who claimed an interest in the trust property asked the eighth respondent and the applicant to pay the surplus proceeds into court. They did not do so claiming, among other things, that the debt was not satisfied and an entitlement to retain the funds. Nor did the eighth respondent provide an account for the moneys it retained or state what was owed.
Then, in 2008, the first and second respondents commenced the proceeding. In September 2008, on the application of the first respondent, the eighth respondent and the applicant were ordered to pay into court the balance of the moneys they retained from the sale of the Footscray property and the receivership of S & D International.
At the time of the trial, the eighth respondent had still not finally accounted to the liquidator for the other encumbrances including as to the moneys applied to discharge the debt.
Robson J decided that the first respondent as liquidator was entitled to priority for his costs in preserving the fund by having it paid into court. This was recognised in order 16.
Robson J also decided that the applicant and the eighth respondent should have discharged the mortgage debt on 19 October 2007 and forthwith paid the surplus moneys into court. Accordingly, he declared, by orders 1 and 2, that the mortgage over the properties was discharged and satisfied in full on 19 October 2007; ordered, by order 3, that the eighth respondent deliver to the first respondent instruments effecting the discharge of mortgage and the debenture; ordered, by order 4, that the applicant forthwith cease to act as receiver and manager of the property of the second respondent; and ordered, by order 5, that the eighth respondent and the applicant forthwith give up possession and control of the Hillside property.
Robson J then made the orders 6 to 9 referred to above, by order 10 reserved the question of the costs of the inquiries, ordered (by orders 11 and 12) that the applicant render to the first and second respondents proper accounts as receiver and manager and as the eighth respondent's agent as controller in possession; ordered (by order 13) that the eighth respondent render to the first and second respondents proper accounts as controller in possession; and made some other orders including order 16.
Initially, when the only application on foot was for leave to appeal, the written outline of argument of counsel for the applicant submitted that leave should be granted as there was sufficient doubt as to the correctness of the orders made and substantial injustice would result if the orders were permitted to stand.[1]
[1]See Neimann v Electronic Industries Limited [1978] VR 431.
Doubt as to the correctness of Robson J's decision and orders was said to arise in several areas. It was said he should have followed the approach in Ex Parte Australian Cooperative Development Society Ltd (in liq)[2] concerning the duties of a mortgagee and his agent such as a receiver. It was arguable that the applicant had a duty to make inquiries and satisfy himself as to who should be the recipient of the surplus funds. Paying the money into court was not the only option, and a receiver who did not take reasonable steps to satisfy himself as to the correct recipient might be open to criticism or action under s 77(3) of the Transfer of Land Act1958. Here there was complexity in the various dealings and the respective claims. Further, the Corporations Act imposed duties on the receiver which had to be satisfied even after receipt of the funds. There was also a serious question which Robson J incorrectly excluded from recovery under the mortgage costs incurred by the eighth respondent against the assignee from the CBA to enable the eighth respondent (and the applicant) to enjoy the security.
[2][1978] Qd R 395, 396-397.
For these reasons, so it was submitted, it would be unjust to subject the applicant to an inquiry pursuant to orders 6 to 8 when what he did was justified by authority and the surrounding circumstances. Having an unnecessary inquiry would add unjustified and considerable trouble and expense.
The first and second respondents provided an outline of submissions on 23 July. Pointing out that orders 6 to 8 were interlocutory, made in the discretion of the court, and procedural in nature, it was submitted that leave should be refused. There would be no injustice if leave were refused. Further, the prospects of a successful appeal were poor. Moreover, the application was futile as no stay was sought on the operation of the order.
Doubtless stung by the latter point, on the following day, 24 July, the applicant filed the summons for a stay. This application for a stay is now the only matter before the Court today. In an affidavit in support, the applicant's solicitor deposed that the costs and disbursements for a one-day inquiry would be approximately $17,000, which would be potentially thrown away if the appeal were successful. Further, if the appeal was successful in part, the basis for the inquiry could alter significantly and may need to be conducted again. If a stay was not granted, it was conceivable that moneys could be paid out of court and put beyond the reach of the appellant and the eighth respondent prior to the hearing and determination of the appeal. If the appeal succeeded, the applicant and the eighth respondent may turn out to be entitled to further moneys in priority to other creditors.
In response, the solicitor for the first and second respondents deposed in an affidavit that on 4 August 2009 Robson J had refused an application by the applicant to adjourn the inquiry fixed for 18 August. The solicitor further deposed that to date the first and second respondents had incurred costs and expenses of approximately $200,000. As to costs of the inquiry and notice of objections pursuant to order 14, a large proportion, being some $37,000, had been incurred already. The solicitor, noting that the applicant had been removed as receiver and manager and as agent of the property for the eighth respondent, stated that the third to seventh respondents did not object to the first respondent realising the Hillside property and holding the net proceeds of sale, after payment of the first respondent's remuneration, costs and expenses associated with the sale, on trust for the parties pending the outcome of the balance of the proceeding. As to that, all of the remaining claims are between the first and second respondents and the third to seventh respondents, and do not involve the applicant. Finally, it was noted that the eighth respondent had not sought a stay.
The applicant recognised that to obtain a stay there must be special or exceptional circumstances.[3] As to this, relevant factors include the right of a successful party to enjoy the fruits of success, the prospects of success in the appeal, the consequences of not granting leave, and the balance of convenience. Counsel relied on what had already been said as to the prospects of success, and noted that an appeal in respect of orders 6 to 8 would be futile if the inquiry was had before the hearing of the appeal and application for leave.
[3]See Maher v Commonwealth Bank of Australia [2008] VSCA 122; Bresam Investments Pty Ltd v Sharee Pty Ltd [2008] VSCA 251.
On the balance of convenience, counsel relied on the possibility of wasted costs and time if the stay is not ordered, there being likely to be more than a single day of hearings, that the fund now being in court there was no urgency, and that in the meantime hearings between the other parties could proceed.
In opposing the application for a stay counsel for the first and second respondents submitted that there were no special or exceptional circumstances that would warrant a stay. On the matter of the estimated costs of the inquiry, the following factors were relevant:
(a)It is not apparent how the costs will be wasted. The inquiry is as to amounts which should have been included in the accounts of the controller on settlement of the sale of the Footscray property. Thus, the inquiry simply went in aid of determining the liability of the applicant and the eighth respondent to account to the second respondent as mortgagor and to the first respondent as liquidator and pursuant to the Corporations Act.
(b)Most of the costs have been incurred.
(c)The applicant's concern as to costs could be addressed by an appropriate order of the Court of Appeal. There was no risk that the applicant might not be restored to his former position if the order for an inquiry was set aside.
(d)There was no basis for the concern that the proceeds of sale, if paid out, might be put beyond the reach of the applicant and the eighth respondent.
It was further submitted that there was no real risk of the applicant's appeal being rendered nugatory. First, regardless of the outcome of the appeal, the applicant and the eighth respondent had obligations to account to the respondents at law and under the Corporations Act. Further, there was no reason to anticipate that the applicant and the eighth respondent would not recover their costs or other amounts that might ultimately be found to be due to them. Nor, it was submitted, was there any basis for concern that the moneys in court might be removed from the jurisdiction or beyond the reach of the appellant. Moreover, the applicant's concerns must be weighed against the principle that a successful party is entitled to the fruits of a judgment.
It was submitted without further development - which had in fact been done extensively in the first and second respondent's initial submissions on the leave application- that the applicant's prospects of success were extremely weak, if not hopeless. Aside from that, there was a strong presumption that the orders being made in the exercise of the discretion were correct.[4] Far from the exercise of the discretion to order the inquiries having miscarried or been plainly wrong, it was evidently correct when the delaying and wrongful conduct of the applicant and the eighth respondent were borne in mind.
[4]See House v R (1936) 55 CLR 499, 504-505; Lovell v Lovell (1950) 81 CLR 513, 533.
As counsel have pointed out, a stay should only be granted in special or exceptional circumstances.[5] In our view, there are no such circumstances in this case. There is every reason for the inquiries to be had, and no irremediable prejudice will be occasioned to the applicant if they are had. Indeed, there seems very good reason for the inquiries to proceed in view of the clarity that will thus be provided, apart from the fact that the first and second respondents and the other respondents should be able to have the benefit of the inquiries in the process of moving to finalisation concerning the surplus fund. In addition, permitting the inquiries to proceed in no way renders the appeal from the final orders nugatory. And, if the appeal succeeds and it turns out the inquiries were wasted, the Court of Appeal could make an appropriate order for costs. As to the applicant's concerns that the moneys in court might be put out of reach, there is simply no basis for this. Nor, in the light of the amounts incurred thus far and the preparatory work already undertaken, is the further cost and time of the inquiries of enough significance, considered overall, to warrant a stay. All of this can be adjusted on costs. In the circumstances, it is not necessary to consider the prospects of success of the appeal on this particular issue of the grant or refusal of a stay. Finally, it is not to be overlooked that if and when the inquiries are concluded and orders made, which assumedly would be final, the applicant may appeal from such orders if so advised. This further demonstrates the lack of prejudice, and certainly irremediable prejudice, to the applicant if a stay is refused.
[5]See Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653; 1-5 Grantham Street Pty Ltd v Glenrich Builders Pty Ltd [2008] VSCA 228.
For all of these reasons, regarding the matter overall, the application for a stay will be refused.
(Discussion ensued concerning costs.)
BONGIORNO JA:
We consider that the applicant, having failed on the application for a stay, should pay the costs of the application. However, having regard to the referral of the application for leave to the hearing of the appeal, the costs on that application should be reserved.
Accordingly, the orders of the Court will be:
1.The application for leave to appeal brought by summons of 3 July 2009 be stood over to the hearing of the appeal.
2.The application for a stay of orders made by the Honourable Justice Robson on 19 June 2009 be refused.
3.The costs of the application for leave to appeal be reserved.
4.In respect of the application for a stay, the applicant pay the first and second respondents' costs of the application to be taxed.
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