Young & Anor v Bridgeport Australian Finance Pty Limited
[2008] FMCA 1641
•11 December 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| YOUNG & ANOR v BRIDGEPORT AUSTRALIAN FINANCE PTY LIMITED | [2008] FMCA 1641 |
| BANKRUPTCY – Application to set aside a Bankruptcy Notice based on a set-off or counter claim – application dismissed. |
| Bankruptcy Act 1966 (Cth), ss.40(1)(g),41(7) Federal Court Rules (Cth), r.2 Federal Magistrates Court Rules 2001 (Cth), r.13.03A Real Property Act 1900 (NSW), s.74P |
| Reading Australia Pty Ltd v Australian Neutral Providence Society [1999] FCA 718 Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567 |
| First Applicant: | BRUCE DONALD YOUNG |
| Second Applicant: | NATELI SOLENKO |
| Respondent: | BRIDGEPORT AUSTRALIAN FINANCE PTY LIMITED |
| File number: | SYG 2165 of 2007 |
| Judgment of: | Lloyd-Jones FM |
| Hearing dates: | 17 March, 27 May, 5 June 2008 |
| Delivered at: | Sydney |
| Delivered on: | 11 December 2008 |
REPRESENTATION
| Applicants: | The first applicant appeared on behalf of himself and the second applicant |
| Counsel for the Respondent: | Mr A. Davis appeared on 17 March 2008 and 27 May 2008 Mr M. Cahill appeared on 5 June 2008 |
| Solicitors for the Respondent: | MacGillivrays Solicitors |
ORDERS
The application of Bruce Donald Young and Nateli Solenko to set aside the Bankruptcy Notice issued by Bridgeport Australian Finance Pty Limited (NN950 of 2007) on the basis that they have a set-off or counter claim against Bridgeport Australian Finance Pty Limited is dismissed.
The applicants are to pay the respondent’s costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2165 of 2007
| BRUCE DONALD YOUNG |
First Applicant
| NATELI SOLENKO |
Second Applicant
And
| BRIDGEPORT AUSTRALIAN FINANCE PTY LIMITED |
Respondent
REASONS FOR JUDGMENT
The proceedings
By an application filed on 11 July 2007, Bruce Donald Young and Nateli Solenko (the applicant debtors) seek, pursuant to s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (“the Act”), to have the Bankruptcy Notice (NN 950 of 2007) issued by the respondent creditor, Bridgeport Australian Finance Pty Limited (“Bridgeport”), set aside on the basis that they have a set-off or a counter-claim against Bridgeport.
The application is opposed by Bridgeport on grounds set out in the Notice Stating Grounds of Opposition to Application filed on 27 September 2007:
1)The Applicants have committed an act of Bankruptcy by failing to make any payment towards a debt, or any arrangements to pay the debt.
2)In relation to any set-off and or cross-claim, the Respondent opposes such application on the following grounds:
a) Any loss incurred by the Applicant’s is not occasioned by the Respondents actions in lodging the Caveat over 27/SP3529A (“the car space”) as the first registered mortgagee (Perpetual Trustee Company Limited) offered the property known as 3/37 Wolseley Road, Point Piper for sale and at that time (without the knowledge or consent of the Respondent) also purported to offer for sale the car space to which they had no title.
b) At the time when the first registered mortgagee offered the property and car space for sale the Applicant had knowledge of the fact that both were being offered for sale, yet the first registered mortgagee had no right in title to offer such car space and the Applicant took no steps to enable the first registered mortgagee to secure a mortgage over the title.
c) At the time of lodging the caveat, the Applicant was aware of and consented to the lodgement of the Caveat by the Respondent.
d) The first registered mortgagee did not seek to register any interest over the car space until on or about 29th March 2007 and further did not seek to remove the Respondent’s caveat until the 29th March 2007 being one day prior to the expiration of a Notice to Complete issued pursuant to the Contract exchanged on the 19th December 2006 with an 84 day completion date.
The Bankruptcy Notice was issued on 14 March 2007. Bridgeport claims a debt of $268,787.05, based on a Supreme Court judgment made and entered on 20 December 2006. Mr Young and Ms Solenko were required, within 21 days after 1 August 2007, to repay Bridgeport the amount of the debt or make arrangements to Bridgeport’s satisfaction for settlement of the debt.
Splitting the issues – quantum
Mr Davis, appearing for Bridgeport on 17 March 2008 and 27 May 2008, requested that the Court split the hearing into two discrete parts, with the question of quantum to be determined first. Mr Davis submits that if this course is adopted Mr Young would not have to abandon his argument, nor does it mean that Bridgeport concedes it did anything wrong. The argument is simply that in relation to the question of quantum, the actions of Bridgeport give rise to a claim.
The next question is the quantum of the claim and whether the Court can be satisfied that it would give rise to a cross-claim or set-off. In other words, whether the claim would result in an award of damages equal to or greater than the amount in the Bankruptcy Notice. If the applicants can prove that the quantum is greater than the amount in the Bankruptcy Notice, then consideration would have to be given to the more substantive question of whether there is an arguable case with respect to the actions of Bridgeport. If, however, the quantum of the claim is less than that in the Bankruptcy Notice, the substantive argument does not need to be addressed. The relevant provisions of the Act go to the question of quantum and whether the claim could have been made at the appropriate time.
An adjournment was granted to allow counsel for the respondent to explain to Mr Young this proposed course, and then for them to decide if they agreed with this approach (Transcript, 17 March 2008, p.12).
Although Mr Young is a self-represented litigant, I am satisfied that the proposed course has been explained to him and that he agrees with this approach. In the circumstances, I will exercise my discretion and split the issues in this matter so that the issue of quantum can be decided first.
The reasons for considering the issue of quantum first were explained to Mr Young by Mr Davis. Mr Young confirmed to the Court that he understood the proposal to proceed on that basis. Further, Mr Young confirmed his agreement to proceed and resolve this issue. The Court was invited to assume, for the purposes of this part of the application only, that the applicants had a viable case on the “liability” issue, thus alleviating the need to explore these issues during this part of the hearing. The rationale for this approach was to save the parties considerable time in dealing with potentially complex issues (and matters of credit) in circumstances whereby even if the claim was completely successful the quantum of any set-off or cross claim does not satisfy the requirements of s.40(1)(g) of the Act. I am satisfied that there can be no prejudice to the applicants in this approach. This part of the hearing proceeded on a basis entirely favourable to them because of the concession of the respondent.
Non-appearance of Ms Solenko
Mr Davis raised Ms Solenko’s absence at the hearing and that she had not sought to be heard although she was as an applicant in the proceedings. He submits that Mr Young is entitled to appear for himself but cannot appear for Ms Solenko. Mr Davis submits that on this basis alone, the application of Ms Solenko should be dismissed.
I will make further reference to this issue below.
The absence of Ms Solenko was raised immediately before the luncheon adjournment on 17 March 2008 (Transcript 17 March 2008, p.31). Despite this being drawn to Mr Young’s attention, Ms Solenko did not appear at any time during the remainder of the hearing.
The following evidence was filed in these proceedings:
a)Affidavit of Bruce Donald Young sworn on 11 July 2007 with Exhibit “BDY1” annexed (“first affidavit of Mr Young”).
b)Affidavit of Bruce Donald Young sworn on 13 September 2007 (“second affidavit of Mr Young”). This affidavit also annexed an Exhibit “BDY1” but to avoid confusion I will refer to this Exhibit as “BDY2” for the purposes of this decision. The second sentence of para.10 and paras.28, 38 and 39(a) were excluded.
c)Affidavit of Dennis Raymond Bluth sworn on 13 March 2008.
d)Affidavit of Bruce Donald Young sworn on 17 March 2008 (“third affidavit of Mr Young”) (conditionally admitted).
e)Exhibit “R1” – Bundle of documents tendered by Bridgeport:
(i)Letter of Sunman & Walker to Messrs McGillivrays of 15 February 2008;
(ii)Letter from Sunman & Walker to Mr Stone of Challenge Commercial Lending of 25 October 2007;
(iii)Settlement sheet for sale to Richtoll Pty Ltd;
(iv)Email from Nick Grant of Challenger to Lisa Smith.
f)Exhibit “R2” – Chronology
g)Affidavit of Tatijana Hudapeb sworn on 5 March 2008.
Background
I rely on the second affidavit of Mr Young for a summary of the background in these proceedings. In oral submissions, the parties clarified the issues in dispute.
Mr Young and his wife, Ms Solenko, were the registered proprietors (as joint tenants) of real property consisting of:
a)Lot 3 in SP56842, which is a five-bedroom, three-bathroom, two-car park penthouse apartment of approximately 600 square metres and known as 3/37 Wolseley Road, Point Piper.
b)Lot 27 in SP3529A, which is a one-third share in the real property known as Lot 27 in SP3529. Lot 27 is a two car space at SP3529 (45 Wolseley Road). Each of the three lot owners in 37 Wolseley Road holds a one-third share as tenants in common over Lot 27. The three owners have together leased the car spaces for 99 years, one by lease number 6933344 to Barbara Graf and the other by lease number 8043728 to Mr Young and Ms Solenko. The one-third share entitles the applicants to use the common property at 45 Wolseley Road, Point Piper as tenants-in-common, including the swimming pool and gardens surrounding it. The real property land known as Lot 27 in SP 3529A also provides entitles revision of the leasehold for two car spaces in approximately 90 years time. The lease of the car space numbered 8043728 (Lot 27 in SP3529A) actually provides for the use of car spaces, pursuant to strata by-laws, by the registered proprietor of a unit in 37 Wolseley Road, Point Piper. The real property referred to as Lot 27 in SP3529B provides for a one-third share of the revised car spaces and the use of the common property at 37A Wolseley Road, Point Piper (Lot 1 in SP56842). Leonard Wallace Boyd and Helen Frances Boyd are the registered proprietors of that property.
c)Lot 27 in SP3529C is a one-third share of the common property revision of the real property known as Lot 27 in SP3529, the real property land known as Lot 1 in SP356842.
Perpetual Trustee Australia Limited (now Challenger) is the first registered mortgagee, Huntley Custodians Limited (now Teys or International Mezzanine Funds) the second registered mortgagee and Bridgeport the third registered mortgagee of the penthouse apartment (Second affidavit of Mr Young, Exhibit “BDY2”, p.11).
Perpetual Trustee obtained a judgment for possession against Mr Young and Ms Solenko in Supreme Court of New South Wales proceedings 13042 of 2006 (first affidavit of Mr Young, p.2). Huntley Custodians commenced proceedings against Mr Young and Ms Solenko in District Court of New South Wales proceedings 297 of 2007 (Exhibit “BDY1”, p.21). On 20 December 2006 Bridgeport obtained judgment, by consent, against Mr Young and Ms Solenko in the Supreme Court of New South Wales (proceedings 16142 of 2006; Exhibit “BDY1”, pp.8-10).
As at 13 March 2007, the date scheduled for completion under the proposed Brooks sale (see [19] below), the monies owed by Mr Young and Ms Solenko were:
a)About $2,403,204 to Challenger (Exhibit “BDY2”, pp.101-103). The principal sum loaned was $2,100,000 at the applicable interest rate of 12.25% (“the higher rate”). The interest rate would reduce to 8.25% (“the lower rate”) on prompt payment. The loan document also allowed Perpetual Trustee discretion to vary the interest rate. From 31 March 2007 to 13 September 2007, the amount of interest which accrued at the higher rate was approximately $79,267.81. The amount which accrued at the lower rate was approximately $17,700.68. The interest continues to accrue at $704.79 a day at the higher rate and $470.66 a day at the lower rate.
b)About $354,126 to International Mezzanine Funds (Exhibit “BDY2”, pp.104-106). The principal sum loaned was $300,000 and the applicable interest rate was the aggregate of the lower rate and 4% per annum, being 19% at the higher rate and 15% at the lower rate. From 31 March 2007 to 13 September 2007, the amount of interest which accrued was approximately $32,618.20 at the higher rate and approximately $10,202.79 at the lower rate in additional fees pursuant to the mortgage. Interest continues to accrue at $147.69 a day.
c)About $262,817.83 to Bridgeport. The principal sum loaned was $225,000. The applicable interest rate was 19% with a default interest rate of 27%. From 31 March 2007 to 13 September 2007, the amount of interest that accrued is approximately $27,795.20 at the higher rate, and $19,559.59 at the lower rate. The interest continues to accrue at $166.44 a day at the higher default rate, and $117.12 at the lower rate.
Proposed sale of 37 Wolseley Road, Point Piper to Mr and Mrs Brooks
Challenger was in possession of the real property. Challenger entered into a contract for sale of real property with James Sutherland Brooks and Kristen Maree Brooks on 19 December 2006, with completion to take place 84 days from the contractual date. The land subject to the sale (as listed on the contract) was the real property known as Lot 3 in SP56842 and Lot 27 in SP3529A.
Initially, Lot 27 in SP3529A was not provided as security to Perpetual Trustee which meant that the sale did not complete. In order to enable the sale to take place Mr Young and Ms Solenko provided Perpetual Trustee with a mortgage over Lot 27 in SP3529A dated 16 March 2007 (Exhibit “BDY2”, pp.16-48). The mortgage was lodged with the NSW Department of Lands but registration was prevented due to a caveat that Bridgeport had lodged and not removed.
The date for completion of the contract for sale was 13 March 2007. On 14 March 2007, Mr and Mrs Brooks served a notice to complete on Perpetual Trustees and its solicitors, Sunman & Walker, requiring completion to take place on or before 30 March 2007 (Exhibit “BDY2”, p.83A). On 29 March 2007, Sunman & Walker wrote to Jones King Lawyers (solicitors for Bridgeport) requesting withdrawal of the caveat. This request was initially denied, however, in Sunman & Walker’s correspondence to Jones King Lawyers dated 30 March 2007, it was proposed that a sum of $40,000 be retained from the settlement proceeds of sale (being the estimated value of Lot 27 in SP3529A) in exchange for Bridgeport withdrawing the caveat to permit the contract of sale to proceed. On 2 April 2007, Sunman & Walker advised Jones King Lawyers that the contract of sale had been terminated and requested Bridgeport to contribute to the mitigation of any damages sustained by Perpetual Trustee. Jones King Lawyers responded on 4 April 2007 and disputed any liability in respect of damages.
A subsequent auction of the property took place on 7 August 2007, but the property was passed in as no bids were made.
Eventual sale of 37 Wolseley Road, Point Piper to Richtoll Pty Limited
The completion of the sale of 3/37 Wolseley Road, Point Piper to Richtoll Pty Limited was on 24 October 2007, and the amount paid out to Challenger was $2,573,386.07. The differential amount between the proposed sale to Mr and Mrs Brooks and the eventual sale to Richtoll Pty Limited amounts to $170,182.07, plus additional funds which had fallen due and were payable but not included in the payout figures.
The period between the date of the proposed sale to Mr and Mrs Brooks (16 March 2007) and the eventual sale to Richtoll Pty Limited on 24 October 2007 equates to 222 days.
Counter-claim, set-off and/or cross-demand
The applicants claim that by reason of Bridgeport’s conduct in relation to the caveat which resulted in the sale to Mr and Mrs Brooks being rescinded, they have a counter-claim, set-off or cross-demand within the meaning of s.40(1)(g) and s.41(7) of the Act, equal to or exceeding the amount of Bridgeport’s judgment debt. The applicants further submit that this could not have been raised in the Supreme Court proceedings in which Bridgeport obtained judgment (No.16142 of 2006).
The applicants also claim entitlement to compensation under s.74P of the Real Property Act 1900 (NSW):
(1)Any person who, without reasonable cause:
(a)lodges a caveat with the Registrar-General under a provision of this Part,
(b)procures the lapsing of such a caveat, or
(c)being the caveator, refuses or fails to withdraw such a caveat after being requested to do so,
is liable to pay to any person who sustains pecuniary loss that is attributable to an act, refusal or failure referred to in paragraph (a), (b) or (c) compensation with respect to that loss.
(2)Compensation referred to in subsection (1) is recoverable in proceedings taken in a court of competent jurisdiction by the person who claims to have sustained the pecuniary loss.
(3)A person who is a caveator is not entitled to bring proceedings under subsection (1)(b) if that person, having had an opportunity to do so, has failed to take all reasonable steps to prevent the caveat from lapsing.
Mr Young claims in his second affidavit that the counter-claim, set-off and/or cross-demand are particularised as follows:
a)Calculated at the lower rates of interest accruing between 31 March 2007 to 13 September 2007:
(i)To Perpetual Trustee in the sum of $79,267.81 and accruing at the daily rate of $474.66.
(ii)To Huntley Custodians in the sum of $42,820.99 and accruing at the daily rate of $147.69.
(iii)To Bridgeport in the sum of $19,559.59 and accruing at the daily rate of $117.12.
(iv)Total: $341,648.39.
b)Accruing at the higher rate of interest between 13 March 2007 and 13 September 2007:
(i)To Perpetual Trustee in the sum of $117,700.68 and accruing daily at the rate of $704.79.
(ii)To Huntley Custodians in the sum of $42,820.99 and accruing at the daily rate of $147.69.
(iii)To Bridgeport in the sum of $27,779.29 and accruing daily at the rate of $166.44.
(iv)Total: $388,316.87
Bridgeport lodged the following:
a)On or about 6 March 2007, caveat no. AC977232Y on each of 27/SP3529A and 27/SP3529C (Exhibit “BDY1”, p.25).
b)On or about 23 March 2007, caveat no. AD12777N on each of 27/SP3529A and 27/SP3529C (Exhibit “BDY1”, p.27).
Mr Davis’ submissions for the respondent
Mr Davis made oral submissions and invited the Court to assume that there was a case against Bridgeport in damages due to the failure to remove the caveat prior to the proposed Brooks sale. He also prepared a series of calculations to extrapolate the various outcomes from the affidavits filed. Importantly, there are three mortgages in question. Mr Davis submits that the only possible mortgage which may lead to recovery of some interest is the first, because there has been no accrued additional interest in relation to the second and third mortgages. This is on the basis that the interest which has accrued on the second and third mortgages was going to accrue in any event, irrespective of whatever actions were taken by the respondent. It is also based on the assumption that the first mortgage would not be fully paid from the proceeds of the Brooks sale. Even assuming that the first mortgage would be fully paid, nothing would be applied to the second or third mortgages from the sale proceeds.
A summary of the quantum issues was prepared by Mr Davis in a chronology (Exhibit “R1”) and is as follows:
a)Financial position as at date of completion for first contract:
(i)Proposed sale to Brooks, contract terminated as at 30 March 2007 (first affidavit of Mr Young, p20) = $2,450,000.00
(ii)Deductions from sale for agents fees etc (second affidavit of Mr Young, p.94) = $54,600.00
(iii)Balance of sale proceeds available to be applied as outstanding mortgages = $2,205,482.70
(iv)Amount outstanding to first registered mortgage (second affidavit of Mr Young, para.25(a)) = $2,403,204.00
(v)Amount outstanding to second registered mortgage (Teys) (second affidavit of Mr Young, para.29(b)) = $354,126.00
(vi)Amount outstanding to third registered mortgage (Bridgeport) (second affidavit of Mr Young, para.29(c)) = $262,817.00
b)Interest calculations for the lower rates of interest:
(i)First mortgage for the period 31 March 2007 to 13 September 2007 (second affidavit of Mr Young, para.39(b)) = $79,267.81
Additional interest for the period to 25 October 2007 (42 days x $474.66) = $19,935.72
Subtotal = $99,203.53
(ii)Second mortgage for the period 31 March 2007 to 13 September 2007 (second affidavit of Mr Young, parag.39(c)) = $42,820.99
Additional interest for the period to 25 October 2007 (42 days x $147.69) = $6,202.98
Subtotal = $49,023.97
(iii)Third mortgage for the period 31 March 2007 to 13 September 2007 (second affidavit of Mr Young, para.39(d)) = $19,559.59
Additional interest for the period to 25 October 2007 (42 days x $117.12) = $4,919.04
Subtotal = $24,478.63
Total potential interest claim for the lower rate of interest = $172,706.13
c)Interest calculated for the higher rate of interest: (same as for (b)):
(i)First mortgage for the period 31 March 2007 to 13 September 2007 (second affidavit of Mr Young, para.39(b)) = $117,700.68
Additional interest for the period to 25 October 2007 (42 days x $704.79) = $29,601.18
Subtotal = $147,301.86
(ii)Second mortgage for the period 31 March 2007 to 13 September 2007 (second affidavit of Mr Young, para.39(c)) = $42,820.99
Additional interest for the period to 25 October 2007 (42 days x $147.69) = $6,202.98
Subtotal = $49,023.97
(iii)Third mortgage for the period 31 March 2007 to 13 September 2007 (second affidavit of Mr Young, para.39(d)) = $27,795.20
Additional interest for the period to 25 October 2007 (42 days x $166.44) = $6,990.48
Subtotal = $34,785.68
Total potential interest claim for higher rate of interest = $231,111.51
d)Difference between sale prices:
First sale contract = $2,450,000.00
Second sale contract = $2,420,000.00
Total difference = $30,000.00
e) Young and Solenko’s Absolute Best Scenarios of Success:
Assumes totally successful on “liability” issues.
Assumes that all additional interest becomes payable under all three mortgages for calculation.
Assumes that all additional interest accrued on second and third mortgages can in some way be attributed to the failure of the sale to complete.
Difference in sale price = $30,000.00
Additional interest (lower rate) = $172,706.13
Subtotal = $202,706.13
Difference in sale price = $30,000.00
Additional interest (higher rate) = $231,111.51
Subtotal = $261,706.14
f)Young and Solenko’s “Best” Possible Outcome:
Assumes totally successful on “liability” issues.
Allows for additional interest that accrues on first mortgage (in totality) which ignores the fact that even the original sale price would not have satisfied the first mortgage.
Difference in sale price = $30,000.00
Additional interest (lower rate) = $99,203.53
Subtotal = $129,203.53
Difference in sale price = $30,000.00
Additional interest (higher rate) = $147,301.86
Subtotal = $177,301.86
Bankruptcy Notice = $268,787.05
I acknowledge that the Court has not been provided with draft pleadings in respect of the applicants’ asserted claim. Although it is usual for such pleadings to set out the nature and basis for a claim, together with a calculation of damages sought, this has not been clearly provided in this matter.
Mr Davis submits that there are two potential losses which can be asserted:
a)The differential between the proposed Brooks sale price and the subsequent Richtoll Pty Ltd sale price. This amount is $30,000 and is clear from the evidence before the Court.
b)The additional interest which accrued on the first mortgage during the period between the proposed completion date of the first sale and the completion date of the ultimate sale of the property.
Mr Davis submits that most significantly, the proposed original sale of the property (including the car space) failed to realise proceeds sufficient to satisfy the debt owed under the first registered mortgage. This is clear from the documentary evidence and was conceded by Mr Young in cross examination (Transcript 17 March 2008, p.21). Even if all the other calculations or deductions are ignored it is clear that the contract price was $2,450,000 (first affidavit of Mr Young, p.20). From this was to be deducted the agent’s commission of $54,600 (second affidavit of Mr Young, p.94). Excluding any other deductions, the balance would be $2,395,400. The payment required for the first registered mortgage was $2,403,204 (second affidavit of Mr Young, p.101).
Mr Davis submits that in circumstances whereby the sale of the property was never going to realise an amount sufficient to satisfy the first mortgage, any additional interest and expenses which have accrued on the other mortgages can not be said to have flowed from the actions of the Bridgeport. Even if the original sale had settled the full amount of the first mortgage, the second and third mortgages would have remained payable by the applicants.
At [28(f)] above, Mr Davis set out what he suggests is the applicants’ best scenario which gives and allowance for the $30,000 differential and the additional interest from all three mortgages. This results in an amount of $220,000 if calculated on the lower interest rate or $261,000 if calculated on the higher interest rate. The Bankruptcy Notice amount is for $268,000 and the best case scenario (using the higher rate of interest) does not produce an amount equal to or greater than the amount claimed in the Bankruptcy Notice.
At [28(g)] above, Mr Davis extrapolated the applicants’ best possible outcome on the assumptions listed there. This takes into account the difference in sale price, the additional interest rate at both the lower and higher rates and the additional interest which accrued in relation to the first mortgage. Mr Davis submits that consequently, even accepting that liability is established, a claim for a set-off or counter claim cannot be satisfied.
Mr Davis’ written submissions of 3 April 2008 takes issue with Mr Young’s submissions of 26 March 2008 which states:
6. The date on which the respondent’s damage first affected this matter adversely was not 30 March 2007 as claimed by Mr Davis, but 13 March 2007 date that the Brookss purchased was scheduled to settle, 84 days from the date of exchange. The notice to complete dated 14 March given by Brooks solicitors clearly state that the purchaser is “ready, willing and able to complete the purchase” (BDY-1 p.84). The differential between that date and the final settlement date must then be 222 days rather than the 208 days claimed by Mr Davis.
Mr Davis contends that it is clear from annexure to Mr Young’s second affidavit that the first registered mortgagee did not seek to file the mortgage over the car space until 16 March 2007 at the earliest (second affidavit of Mr Young, p.84). It was not until 29 March 2007, being the day prior to the date of completion required under the Notice to Complete, that the respondent was advised of the pending sale. Accordingly, Mr Davis submits that in circumstances whereby the respondent was aware of the sale until 29 March 2007 (second affidavit of Mr Young, p.88), it cannot be liable for damages in the form of additional interest dating back to 13 March 2007. Mr Davis submits that any such claim can only be directed to the mortgagee in possession.
Mr Davis also contends that Mr Young had agreed to provide security over the “parking space” (folio 27/SP3529A) to enable the sale to complete (second affidavit of Mr Young, p.88). Mr Davis contends that any damage could only be calculated from 31 March 2007 consistent with para.39 of the second affidavit of Mr Young. He also submits that it is of some relevance that this affidavit was prepared when the applicants had legal representation.
Mr Young was cross-examined on the calculations in his second affidavit and the amount of additional interest which would have accrued from the rescinding of the Brooks sale up until the date of completion of the Richtoll sale (Transcript 17 March 2008, pp.16-29). Mr Davis admits that Mr Young did not disagree with the propositions put to him. A set of calculations prepared by Mr Davis is reproduced above at [28].
Mr Davis submits that an alternative basis would be to rely upon the correspondence of Sunman & Walker dated 14 March 2008 (third affidavit of Mr Young). This correspondence suggests an additional amount of $170,182.07 which accrued by reason of failure to settle the property on the first completion date. Again this falls well short of the amount of Bankruptcy Notice even if an additional $30,000 for the sale differential is added.
Mr Young’s submissions for the applicants
At the completion of the hearing on 17 March 2008, Mr Young was granted leave to file written submissions by 26 March 2008 which he complied with. Mr Young filed supplementary submissions on 28 March 2008 on the basis that the hearing transcript only recently became available to him. He sought leave to make further submissions. A substantial part of the supplementary submissions raised issues in respect of the title to the car space which is not related to the quantum issue.
Mr Young submits that he and Ms Solenko are able to show that they have a set-off or cross-claim equal to or greater than the amount claimed in the Bankruptcy Notice. Mr Young submits that this set-off or cross-claim arose from Bridgeport thwarting settlement of the proposed Brooks sale, and from Bridgeport’s lack of care in placing caveats on the title and refusing to remove them when requested by Challenger. Mr Young argues that Bridgeport was given security of at least $50,000 in the form of a car space but that security was abandoned.
Mr Young further submits that this damage continued to the second sale of the penthouse property and was only able to be estimated up to 24 October 2007. The sale price at that date was $2,420,000. Mr Young submits on the assumption that Bridgeport is responsible for damages to the applicants up until the 24 October 2007 sale, the value of that loss is as set out below.
Mr Young’s written submissions contends that the date on which the respondent firstly affected this matter adversely was not 30 March 2007 (being the date that the notice to complete expired), but 13 March 2007 (the date that the Brooks purchase was scheduled to settle 84 days from the date of exchange). The Notice to Complete dated 14 March 2007 given to solicitors for Mr and Mrs Brooks clearly states that the purchaser is “ready, willing and able to complete the purchase” (Annexure “BDY-1”, p.84). Mr Young claims that the difference between the date of the Brooks settlement and the final date of settlement with Richtoll Pty Ltd is 222 days, rather than 208 days as used by Mr Davis in his calculations.
Mr Young contends that if the Brook sale had been finalised the total realisation from the sale of the penthouse and the subsequent sale of the car space would have been $2,500,000. The subsequent distribution would have been $2,393,136 to Perpetual Trustee (Challenger), $10,000 to Huntley Custodians (Teys or International Mezzanine Fund) and $50,000 to Bridgeport.
Mr Young submits that due to the intransigence of Bridgeport in failing to remove the caveat placed on the car space which resulted in rescission of the Brooks sale, Bridgeport was denied $50,000. In addition the applicants had a corresponding loss of 222 days interest they were forced to pay on the principle sum until the final sale. Mr Young’s written submissions are unclear but I believe that he is attempting to convey that in addition to the further interest payments on the Bridgeport loan, additional interest accumulated on the other two loans.
Mr Young submits that it is unfair use a strict monetary calculation for the basis of the claim without first checking its legality because the amounts are directly affected by the actions of the parties. Presumably this is a further reference to the structure and legality of title to the car space which underlies this dispute. Mr Young submits that if his claim relating to Bridgeport’s duties to remove the caveat and title to the car space are correct, there is a difference of $50,000. The consequence of that difference translates further:
First mortgage to perpetual trustee due at 13 March 2007 $2,393,136
Additional interest for 222 days calculated at higher rate of 12.5% (see 14(a)) $159,657,000
Plus differential in realisation figures $80,000
Total $239,657
Amount claimed in Bankruptcy Notice $268,787
Reduction if sale had proceeded $50,000
Balance due $218,787
Application to re-open
On 8 May 2008 the applicants filed an Application in the Case seeking that the matter be re-opened to allow them to submit further and better evidence to the Court. The matter was listed on 5 June 2008 for hearing of this application.
The applicants submit that they were unable to tender this evidence at the previous hearing. Specifically, this related to valuation evidence in respect of the car space. Mr Young claims that counsel for the respondent tried to persuade the Court that the amount of damages to be awarded to the respondent could not possibly amount to the money sought in the Bankruptcy Notice.
Mr Young contends that the new affidavit he wishes to submit will show the full extent of the damage caused to the applicants through the actions of the respondent and its legal representatives. Also that another affidavit prepared by Mr Young contains details of the extra advertising expenses by the first mortgagee (Challenger) for marketing the property and also confirms the final payout figure to the Challenger on 24 October 2008. There is evidence in respect of the proposed purchase and development of 13 Chalmer Street, Belmore.
Mr Young indicates that his claim is not that the applicants should be compensated for the failure of that project in Belmore, but that the project may have assisted them in paying off part of the debt outstanding either to the respondent or the second mortgagee. Mr Young contends that it cannot be said that there was no chance that such a contribution would not have occurred. The affidavit also deals with the title to the car space given to Bridgeport, which Mr Young believes to be vital to his case. He claims that Bridgeport was given unequivocal notice of the exact and only title reference to the car space.
Mr Cahill, for the respondent on this occasion, opposed the applicants’ application substantially on the basis that it was an abuse of process. Twelve months had passed since the Bankruptcy Notice was issued and Mr Cahill submits that the respondent’s costs incurred are a significant and serious prejudice to it, which is exacerbated by the fact that the applicants are unable to meet their debts.
Mr Cahill acknowledges that the Court has been lenient in granting Mr Young latitude because he was self represented. Mr Cahill referred to the Court inquiring, several times, if Mr Young had any further submissions of relevance before the respondent’s submission. On more than one occasion Mr Young responded that there was none. Mr Cahill submits that the Court also allowed into evidence documents of the applicants which were objected to in the exercise of its discretion.
Mr Young now seeks to produce further evidence after submissions have closed. Mr Cahill contends that although it is claimed that the material was unavailable at the time of the hearing, all the emails and invoices referred to in the affidavits in fact pre-date the hearing.
I indicated to the parties that although I have the discretion to re-open the matter, I believe that I have been considerably lenient to Mr Young because he is a self represented litigant. However, it was agreed between the parties that the initial question to be resolved was that of quantum and that the issue of liability would only be considered if it was established that the amount of the set-off or counter claim equalled or exceeded the value of the Bankruptcy Notice.
I am not satisfied that any of the material the applicants now seek to be placed before the Court specifically addresses the issue of quantum. Despite the original decision to split the issues as agreed by the parties, Mr Young has repeatedly attempted to make submissions on the structure of the titles relevant to the car space. The second issue, being the actual value of the car space, does not significantly impact on the determination of quantum.
Consideration
Rule 2 of the Federal Court Rules (Cth) states:
2. The Court may make orders for –
a) the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings; and
b) the statement of a case and a question for decision.
The respondent initially sought to split the issues of liability and quantum in order to determine whether the applicants could overcome the hurdle of the quantum amount being equal to or greater than the amount in the Bankruptcy Notice.
The Court may determine the issue of liability separate to the issue of quantum, particularly when the parties agree that such a course is appropriate: Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567 per Wilcox J. As indicated above at [4] to [8], I gave a brief adjournment to allow the parties to discuss and Mr Young with suitable time to make his decision.
The parties advised that they agreed on this path. The issue for the Court is whether it is just and convenient for the order to be made: Reading Australia Pty Ltd v Australian Neutral Providence Society [1999] FCA 718 at [8]-[9] per Branson J. I believe it was appropriate to make the order as I needed to be satisfied, upon the actual evidence, of the potential value of the claim and whether the requirements of s.40(1)(g) of the Act could be met.
Mr Young subsequently submitted that he did not agree with this course. I decline to accept this submission as Mr Young had this explained to him and had agreed to it. The remainder of the hearing was conducted based upon the agreement and to then allow divergence from this approach would significantly prejudice the respondent.
I allowed evidence to be put before the Court which would not have been admissible if the issues of liability and quantum were considered together. The issue of quantum was determined based upon the admitted evidence as agreed between the parties and they had the opportunity to make oral and written submissions. Consequently, I will not allow the late filing of additional material not specifically related to the issue of quantum, nor will I permit the re-opening of the hearing to allow issues not specifically related to the issue of quantum to be canvassed.
I rely on the calculations prepared by Mr Davis (Exhibit “R2”) which I believe provide for determination of the scope of the quantum in this matter. It establishes that the quantum does not exceed the amount in the Bankruptcy Notice. However, I have had considerable difficulty in verifying the figures in Mr Young’s affidavits and submissions. It is suffice to say that on different occasions, different amounts were given without show of methodology. More significantly, the figures do not correspond to any actual evidence. It appears that Mr Young has engaged in an exercise of construction in an attempt to create figures that will simply be greater than amount in the Bankruptcy Notice.
There are three mortgages held by three separate organisations covering the penthouse and the parking space. The funds realised from sale of the property do not completely repay the first mortgage and, despite arbitrarily attributing various amounts to the second and third mortgage, in reality this did not occur. Any interest accruing on the second and the third mortgage would have accrued irrespective of whatever action was taken by the respondent. Nothing has been placed before the Court to indicate any other source of funds which would first satisfy the balance owing on the first mortgage and then the second and third mortgages. There is reference in subsequent submissions to another development project in Belmore, but no indication as to how funds from that project would be available to repay the outstanding mortgages after application of the funds from the sale to Richtoll Pty Ltd.
The assessment and calculations prepared by Mr Davis in Exhibit “R2” are based upon Mr Young’s own evidence set out in Mr Young’s second affidavit. They also assume that the applicants would succeed on the liability argument. I am satisfied that the real potential of the applicants’ claim does not satisfy the requirements of s.40(1)(g) of the Act.
The decision to split the proceedings has been discussed above. However, Mr Young persisted in suggesting that he suffered some prejudice because the evidence on liability had not been dealt with. Despite this, all the evidence Mr Young has produced in respect of liability, including the report of Mr Booth, has been admitted into evidence. This evidence was placed before the Court prior to the application to hear the issue of quantum separately. Mr Young was given a number of opportunities to say whether he relied on any other evidence not before the Court and he did confirmed that there was nothing further.
I acknowledge that Mr Young is a self-represented litigant who had on a number of occasions stated that he was not conversant with court rules and procedures. Considerable indulgences have been extended to him because of this. Mr Young persisted in trying to cross examine the solicitor representing the respondent, Ms Doherty. Although Ms Doherty’s affidavit was filed in these proceedings, it was not read by Mr Davis as it pertained to the liability issue rather than quantum. It has been suggested by Mr Young that he was not afforded a fair hearing, yet every piece of evidence he sought to rely upon was allowed into evidence with some conditions. I indicated to him that I would review the evidence and apply such weight to them as I considered appropriate.
Mr Young has also suggested that he is prejudiced by the failure of Mr Davis to adduce evidence on behalf of the respondent. I am satisfied that there was no prejudice to Mr Young and Mr Davis is entitled to run his client’s case as he sees fit.
I have before me a series of applications made by the respondent in respect of the non-appearance of Ms Solenko. This was brought to Mr Young attention several times, in particular immediately prior to the luncheon adjournment on 17 March 2008. However Ms Solenko did not appear at any stage of the hearing. The respondent has asked me to dismiss the application in respect of Ms Solenko under r.13.03A of the Federal Magistrates Court Rules 2001 (Cth). Due to the ultimate outcome of this application I do not believe it necessary to make such an order.
I am satisfied that the application brought by Mr Young and Ms Solenko pursuant to s.40(1)(g) of the Act to have the Bankruptcy Notice (NN 950 of 2007) issued by Bridgeport Australian Finance Pty Limited set aside, on the basis that they have a set-off or counter claim against Bridgeport, must fail. The application is dismissed.
I certify that the preceding sixty-seven (67) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.
Associate:
Date: 11 December 2008
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