Adelaide Bank Ltd v Property Builders Pty Ltd & ors

Supreme Court of NSW|2009-10-22|Before: Hulme J, Davies J, Property Builders P

CITATION : Adelaide Bank Ltd v Property Builders Pty Ltd & ors [2009] NSWSC 1147 This decision has been amended. Please see the end of the judgment for a list of the amendments.

DECISION : Application for stay of proceedings or further discovery dismissed with costs. Application to set aside notice to produce granted with costs.

Corporations Act 2001 LEGISLATION CITED : Conveyancing Act 1919 Uniform Civil Procedure Rules Real Property Act 1900

Adelaide Bank Ltd v Property Builders Pty Ltd [2009] NSWSC 849 Azzi & Ors v Volvo [2006] NSWSC 283 Firns v Tzovara [2006] NSWSC 925 Hamod v State of New South Wales (No8) [2008] NSWSC 125 CASES CITED : National Australia Bank Ltd v Idoport Pty Ltd [2000] NSWCA 8 Nemeth v Reachcord Pty Ltd (1998) 9 BPR 16,577 NM Rural Enterprises Pty Ltd v Rimanui Farms Ltd [2008] NSWSC 472 Proctor & Gamble v Medical Research [2001] NSWSC 183 Queensland Premier Mines Pty Ltd v French [2007] HCA 53; 235 CLR 81

Adelaide Bank Ltd (Plaintiff) PARTIES : Property Builders Pty Ltd (First Defendant) Michael Phontos (Second Defendant) Eurofinance Capital Limited (Third Defendant)

COUNSEL : Mr M J Cohen (Plaintiff) Ms V E Whittaker (First & second defendants)

SOLICITORS : Bransgroves Lawyers Carlisle Attorneys

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION PROGRESSIVE LIST

14452/08 ADELAIDE BANK LTD v PROPERTY BUILDERS PTY LTD MICHAEL PHONTOS EUROFINANCE CAPITAL LIMITED

JUDGMENT 1 HIS HONOUR: This is an application by the first and second defendants for a stay of proceedings or alternatively for further discovery. In the primary proceedings the plaintiff claims possession against the first defendant and a judgment against the first and second defendants for the principle sum loaned to the first defendant together with interest. There is a related application by the plaintiff to set aside a notice to produce issued by the first and second defendants.

2 The evidence upon which the primary proceeding is based was carefully set out in the judgment of Davies J in Adelaide Bank Ltd v Property Builders Pty Ltd [2009] NSWSC 849 in which his Honour was dealing with a motion by the plaintiff for summary judgment. I am grateful for his Honour's précis of the case which, for convenience, I will quote: The original loan [2] By letter of 10 October 2006 Eurofinance Capital Limited (the Third Defendant) ("Eurofinance") offered to lend the sum of $2,400,000 to the First Defendant Property Builders Pty Ltd ("Property Builders") for a period of nine months. The guarantors of the loan were to be Michael Phontos and Peter Phontos and the solicitors for the borrower were said to be: "Phontos Legal Attn Michael Phontos" [3] Condition 3 said: "Customer's acknowledgment that this proposed mortgage may be transferred to Advance Investment Finance No. 2 Pty Limited and onto Adelaide Bank Limited". [4] At the bottom of the letter there was a section headed "Memorandum of Acceptance" underneath which was written: "We hereby accept Eurofinance Capital Limited's offer as herein described and subject to the terms and conditions herein set forth dated this 12th day of October 2006." There was then space for the common seal to be fixed in the presence of a director and secretary but that part of the letter was left blank. [5] Immediately underneath the signatures of Michael Phontos and Peter Phontos appear as guarantors. Underneath that, in handwriting, the following appeared: "Executed by Property Builders P/L ACN 094 832 792 in accordance with section 127 of the Corporations Act 2001" and the signature of be Michael Phontos appears followed by his name and the words "Sole Director".

[6] I am informed that Peter Phontos has died and no claim is made against him in the proceedings. [7] On 31 October 2006, and pursuant to the accepted letter of offer, Property Builders executed a mortgage to Eurofinance. Annexure "A" to the Mortgage contained clauses related to the loan. It commenced by saying: "In consideration of $2,400,000 the " Principal Sum " lent or to be lent to the Mortgagor at the request of the Mortgagor, the Mortgagor covenants with the Mortgagee as follows." [8] Clause 2 contained definitions which identified "the Guarantor" as Michael Phontos and Peter Phontos, and defined "Collateral Documents" as including the documents specified in Item 2 of the Schedule. Those two documents were a Deed of Guarantee from the guarantors and: "2. Letter of Offer from the Mortgagee to the Borrower/Mortgagor dated 10 October 2006 and any supplemental or replacement Loan Offer." [9] Clause 3 entitled "Principal Repayment" provided: "The Mortgagor must pay to the Mortgagee the outstanding Principal Sum, and the balance, if any, of the Debt on the date specified in Item 3." [10] The "Principal Sum" was identified as being $2,400,000. There is no definition of "Debt" in the mortgage itself although it was given a meaning in the Memorandum Number 2367091 which was incorporated into the mortgage by clause 1 of annexure "A" to the mortgage. "Debt" was there defined as meaning: "all money owing by You to the Mortgagee now or in the future on any account. The Debt includes any money due or possibly due by You to the Mortgagee as a result of any arrangement including any loans made to You or guarantees given by You to the Mortgagee, and includes any loss or damage suffered by the Mortgagee as a result of those arrangements…" [11] The Memorandum also provided in Clause 2.01: "You must pay the Debt to the Mortgagee on the dates agreed between You and the Mortgagee . Usually, this agreement appears in one or more letters of offer or terms and conditions applying to transactions. If there is no agreement, You must pay the Debt to the Mortgagee on demand." [12] Part 4 of the Memorandum dealt with default. Clause 4.01 relevantly provided: "Default generally occurs if You fail to do something You are obliged to do, …. If any one or more of the following occur the Mortgagee may decide default has occurred. (a) Any clause of the Mortgage is not complied with. (b) There is default of any term of any loan agreement or other agreement relating to the Debt. … (e) You fail to pay any person (including other banks etc) any money by due date." [13] Clause 4.02 of the Memorandum set out the Mortgagee's rights on default which included the following actions: "(a) Demand and require immediate payment of the Debt;

(b) Exercise any right, power or privilege conferred by any law, the Mortgage, or any collateral security;

(c) … (i) eject You or any other occupants from the Land and take possession of the Land." [14] Clause 6.04 headed "How the Mortgagee Can Deal With the Mortgage" provided: "The Mortgagee may assign or otherwise deal with the Mortgage in any way it wishes. You must sign anything and do anything the Mortgagee reasonably requires to enable any dealing with the Mortgage. Of course, any dealing with the Mortgage does not change Your obligations under the Mortgage." [15] Clause 6.06 provides: "(a) your obligations under the Mortgage continue irrespective of anything which happens to You, the Debt, or anything else . For example, the obligations continue if you die or are made bankrupt, if you are a partnership and the partnership ends or the members change, or if you are a company and it is wound up." [16] On the same day (31 October 2006) a Deed of Guarantee was signed by (relevantly) Michael Phontos ("the Guarantor"). Although the actual signed guarantee cannot be located it is not disputed that it was in the form of the guarantee annexed to the affidavit of Yianni Socratous from Eurofinance sworn 12 August 2008.

[17] Clause 2 headed "This is a continuing guarantee" contained the following: "2.3 This guarantee continues despite any change in the amount of money owed by the Borrower to the Lender, or any change in the interest rates on that money. This guarantee continues even if the terms and conditions relating to the money due by the Borrower to the Lender are varied or anything else that happens in relation to the Debt. The obligations continue even though the Debt is repaid and then readvanced.

2.4 Your obligations continue even if for any reason the Borrower is not required to meet its obligation to pay the Debt (including where the Loan Documents become unenforceable), so that despite anything that may happen, You will ensure the Lender is paid the Debt." [18] Clause 6.3 provided that a certificate signed by the Lender as to an amount payable to the Lender was conclusive and binding on the Guarantor.

[19] Clause 6.6 headed "How the Lender can deal with this Guarantee" provided: "The Lender may assign or otherwise deal with this guarantee in any way it wishes. You must sign anything and do anything the Lender reasonably requires to enable any dealing with this Guarantee. Of course, any dealing with this Guarantee does not change Your obligations under this Guarantee." [20] The loan appears to have been made to enable the development of a property at 110-112 Twin Road, North Ryde by the building of a block of 5 units and the registration of a strata plan. The repayment date for the principal sum loan was 1 July 2007 but the money was not repaid on that day.

[21] The strata plan was registered on 26 October 2007. On 16 November 2007 unit 4 was sold with Eurofinance receiving $545,321.11 and on 25 January 2008 unit 2 was sold with Eurofinance receiving $569,786.84. The loan is rolled over [22] On 31 March 2008 Eurofinance wrote to Property Builders saying that they were prepared to roll over the existing loan facility. The amount to be rolled over was $1,528,602 and was to be lent for a 3 month period expiring on 1 July 2008. Because of the sale of units 2 and 4, the security for the roll over facility was to be a registered first mortgage over units 1, 3 and 5. This further offer was accepted by the signature of Michael Phontos.

[23] On 2 May 2008 at 4:30pm there was a meeting of the Directors of Eurofinance. A resolution was passed as follows: "In accordance with the company practice of freeing up funds in Eurofinance Capital Ltd and in accordance with the letter of offer to Property Builders Pty Ltd dated 10th October 2006, the following loan is to be transferred to Advance Investment Finance No. 2 Pty Ltd under their facility with Adelaide Bank Ltd." [24] At 4:32pm on the same day there was a meeting of the Directors of Advance Investment Finance No. 2 Pty Ltd ("AIF2"), the Directors being identical with those who met as Directors of Eurofinance. A Resolution was passed as follows: "In accordance with the company practice of freeing up funds in Eurofinance Capital Ltd and in accordance with the letter of offer to Property Builders Pty Ltd dated 10th October 2006, the following loan was accepted to be transferred to Advance Investment Finance No. 2 Pty Ltd under their facility with Adelaide Bank Ltd." [25] On 6 May 2008, Colin Sherry, a Director and the General Manager of Eurofinance sent an email to Anthony Woods at Gadens headed "Property Builders Pty Ltd". The email relevantly said: "As discussed, please arrange transfer of the above mortgage to ABL . We would like to settle on Thursday so if we can have your certification by tomorrow, that would be appreciated.

Please note there are only 3 remaining titles/units. The current principal is $1,528,601.69." (emphasis added) [26] The following day (7 May) Mr Woods prepared and sent to Mr Sherry a Solicitor's Certificate identifying the lender as "Adelaide Bank Ltd (Advance Investment Finance No. 2 Pty Ltd)", the Borrower as Property Builders and the Guarantor as Michael Phontos and Peter Phontos. The security referred to Lots 1, 3 and 5 at 110 Twin Road and the facility amount was $1,528,601.69. The Certificate asked for transfer to the Gadens Lawyer's Trust Account of that amount and it then said: "The cheques requested on settlement are as follows:

Advance Investment Finance No. 2 Pty Ltd - $1,528,601.69." [27] On the same day a document called "Schedule 4 Funding Notice" was signed on behalf of AIF2 by Mr Sherry (who was a Director and General Manager of Eurofinance as well as a Director of AIF2) and another Director of both companies, Mr Jim Socratous, and addressed to Adelaide Bank Ltd. It said: "This is an irrevocable notice under clause 4.1(1) of the Facility Agreement dated 21 March 2005 (the Facility Agreement) between Advance Investment Finance No. 2 Pty Ltd and the Bank.

… 1. We require funding of $1,528,601.69 on 8/5/2008 being one Business Day after the date of this Funding Notice. 2. The funding is to be used for the following loan:

Name of Account: Gadens Lawyers Trust Account" [28] There is a settlement cheque request on Gaden's letterhead referring to Property Builders with the settlement date 9 May 2008. The document says: "Funds coming from: Adelaide Bank Ltd

Amount to be received: $1,413,956.56" It refers to a telegraphic transfer to NAB in relation to the account of Eurofinance. [29] On 9 May 2008 Gadens deposited into the account of Eurofinance with National Australia Bank the amount of $1,413,956.56 (the difference between this figure and $1,528.601.69 is described as "Retained Subordination" in a letter from a company called AB Management Pty Limited to AIF2). [30] There is a letter dated 9 May 2008 from Gadens to Mr Colin Sherry at AIF2. The letter has as part of its heading a reference to the lender who is described as "Adelaide Bank Ltd (Advance Investment Finance No. 2 Pty Ltd)" and the borrower being Property Builders. The letter said: "We confirm that $1,413,956.56 was transferred to your account today.

We enclose our tax invoice for this matter." [31] The tax invoice was also addressed to Mr Sherry at AIF2 and was headed as follows: "Lender: Adelaide Bank Ltd

Principal Security: Lots 1, 3 and 5 110 Twin Road, North Ryde, NSW." Similarly, on the remittance slip attached to the invoice, Adelaide Bank is described as the Lender and AIF2 is described as the Manager. [32] There is a Transfer of Mortgage dated 9 May 2008 in respect of Lots 1, 3 and 5 in SP77529 which is the relevant strata plan. The transferor is Eurofinance and the transferee is Adelaide Bank Ltd. [33] According to the evidence of Yianni Socratous there was failure on the part of Property Builders to pay interest on 1 June 2008 amounting to $17,664.77 and there was a failure to repay the principal sum loaned on 1 July 2008. A s 57 Notice was given on 8 July 2008.

[34] There is in evidence a Statement of Account on the letterhead of AIF2 in respect of Property Builders dated 31 July 2008. It discloses that on 9 May 2008 there was a "new Contract Payment" of $1,528,601.69 so that the debit balance on that date equalled that amount.

[35] Also on 31 July 2008 AIF2 wrote to Property Builders saying that they had been forced to increase further their interest rates on all loans by .15% pa from 1 August 2008.

[36] On or about 23 September 2008 an undated letter was posted to Property Builders from a firm of chartered accountants called Pace Rowlands Bell. The letter relevantly said: "We are writing as the auditor of Advance Investment Finance No. 2 Pty Limited.

As part of our normal audit procedures, we request that you confirm your liability to our above-named client as of 30 June 2008.

Balance as of 30 June 2008 $1,558,235.63." On 1 October 2008 another letter from AIF2 to Property Builders gave notice of an interest rate decrease on the loan. Notice of assignment [37] On 21 August 2008 a letter addressed to: "Att: Michael Phontos Phontos Legal" was sent by the solicitors for the Plaintiff making reference to a letter dated 6 August 2008 from Michael Phontos which (the letter said): "implies you act for Property Builders Pty Ltd and Michael Phontos. Please confirm by return this is the case." [38] The letter then enclosed a notice said to be pursuant to s 12 Conveyancing Act 1919 and asked for confirmation that the firm was instructed to accept service. The letter in fact enclosed a number of documents in identical terms except for the address of the person to whom it was directed. Each letter was marked "Att: Michael Phontos" at each of units 1, 3 and 5, 110 Twin Road as well as to unit 4, 18 Hancott Street, North Ryde. In each case the notice was as follows: "RE: Adelaide Bank Ltd enforcement of mortgage to Property Builders Pty Ltd

Security 1: Unit 1/110 Twin Road, North Ryde. Folio: 1/SP77529. Security 2: Unit 3 1/110 Twin Road, North Ryde. Folio: 3/SP77529.

Security 3: Unit 5 1/110 Twin Road, North Ryde. Folio: 5/SP77529. This is a notice pursuant to s 12 Conveyancing Act 1919.

We hereby notify you as guarantor under the Agreement, that the Agreement, in its entirety, has been assigned to Adelaide Bank Ltd in accordance with the terms of the Letter of Offer. Your obligations pursuant to the Guarantee are therefore owed to Adelaide Bank Ltd.

In this notice the following definitions apply: the Agreement - the Agreement between Eurofinance Capital Ltd and Property Builders Pty Ltd, Michael Phontos and Peter Phontos consisting of the following documents:

mortgage over the above security properties dated 31 October 2006 (the "mortgage")

letter of offer dated 10 October 2006 (the "letter of offer")

deed of guarantee dated 31 October 2006 (the "guarantee")

memorandum 2367091 (the "Memorandum")" (italics added) [39] It appears that the letter referred to in para 37 above and the letter in para 38 above addressed to 1/110 Twin Road were faxed on 21 August 2008 to Michael Phontos. So much appears from a facsimile transmission report showing that 2 pages, the first of which was the letter in para 37 above, were faxed at 17:47 hours on that day. Mr Phontos admits to receiving a 2 page facsimile and confirms that it consisted of the letter in para 37 and the letter addressed to Michael Phontos at unit 1/110 Twin Road which is set out in para 38.

[40] The Plaintiff issued its Statement of Claim on 27 August 2008. [41] Mr Phontos says that on 29 August 2008 he received a letter by fax from the Plaintiff's solicitors addressed to him at his firm at 4/18 Hancott Street, Ryde saying: "We refer to our letter dated 21 August 2008 and note you have not accepted service of the s 12 notice addressed to Michael Phontos.

Accordingly, we have mailed the same to the address for service provided in the loan documentation." [42] Thereafter, Mr Phontos received a letter enclosing the Statement of Claim both sent by fax and then he received 4 letters, the text of which is set out in para 38 above addressed to him at each of units 1, 3 and 5, 110 Twin Road and unit 4/18 Hancott Street, Ryde. The letter was post marked 5 September 2008.

[43] On 26 September 2008 unit 3 was sold with the Plaintiff receiving $586,789.24. In that regard, although the Amended Statement of Claim filed 25 March 2009 continued to seek possession of unit 3, the Notice of Motion for summary judgment claims possession only of the 2 remaining units owned by Property Builders being units 1 and 5.

A second further amended defence identifies the issues

3 The nature of the response of the first and second defendants to the plaintiff's claim is most encapsulated in paragraphs 14 to 17 of the second further amended defence. The substance of these paragraphs were foreshadowed in the proceedings before Davies J on 19 August 2009 and formalised with the filing of this version of the defence on 4 September 2009. Paragraphs 14 and 15 are relevant to the proceedings before me. They claim, in essence, that prior to the transfer of the mortgage to the plaintiff the third defendant, Eurofinance, assigned its interest in the loan to AIF2 and that the transfer of the mortgage was not effective to transfer any interest in the loan to the plaintiff. As Ms Whittaker put it in submissions, this part of the defence is concerned with a question as to which entity owns the debt and is in a position to sue. Paragraphs 16 and 17 concern whether notices pursuant to s 12 of the Conveyancing Act 1919 were served and whether the guarantee by the second defendant had been assigned.

4 There is, apparently, no dispute that the initial loan was made by Eurofinance to the first defendant and that it was secured by the mortgage and the guarantee by the second defendant.

5 On 20 October 2008 a registrar of this Court made various routine orders including that the parties were to propose categories of documents for discovery by 10 November 2008 and that both parties were to serve verified lists of documents by 24 November 2008. On behalf of the first and second defendants the following categories of documents for discovery were proposed: 1 All documents upon which the plaintiff shall rely towards evidence of the assignment of the mortgage to the plaintiff;

2 All documents relating to or concerning the assignment by Eurofinance Capital Limited to the plaintiff of the mortgage;

3 All documents relating to or concerning assignment by Eurofinance Capital Limited to any other person or corporation prior to the assignment to the plaintiff of the mortgage;

4 All documents relating to or concerning assignment by any other person or corporation to the plaintiff of the mortgage;

5 Any invoice, statement of account, bill or other document which claims an amount payable by the defendant(s) to the plaintiff together with any document which purports to calculate the amount payable; and

6 All correspondence between the plaintiff and the defendant(s).

6 On 24 November 2008 there was a response by way of discovery of a number of documents in categories 1, 2, 5 and 6. The verifying affidavit was sworn by Mr Yianni Socratous, an officer of Eurofinance Corporation Pty Limited which was said to hold the files on behalf of the plaintiff. The affidavit includes that "at all times Euro Finance Corporation Pty Limited have managed this loan and therefore hold all of the documents required to be produced."

7 The fact that documents were discovered in respect of category 2 was to be expected in that it is the plaintiff's case that there was an "assignment by Eurofinance Capital Limited to the plaintiff of the mortgage". The fact that no documents were listed under categories 3 and 4 in the list can be taken to amount to an assertion by Mr Socratous that there was no assignment by Eurofinance "to any person or corporation prior to the assignment to the plaintiff of the mortgage" and no assignment "by any other person or corporation to the plaintiff of the mortgage" because if either type of assignment had occurred it would be expected there would be some documentation.

8 Correspondence from the solicitors acting for the first and second defendants from the end of May 2009 raised a question, perhaps more aptly a complaint, that the plaintiffs had not given discovery of all documents relating to the movement of the loan. There were two letters in this vein and whilst the plaintiff's solicitors responded to other issues raised in the correspondence there was no response in respect of the discovery issue. In a letter of 3 June 2009 the plaintiff's solicitors suggested that the matter was ready to be listed for trial.

9 On 5 June 2009 there was filed on behalf of the first and second defendants a notice of motion seeking discovery of "all documents prepared in relation to, concerning or evidence the movement of the loan as identified in paragraph 15 of the affidavit of Yianni Socratous sworn 12 December 2008". The motion was listed before a registrar on the 12 June 2009. On the day before the return date the plaintiff's solicitors wrote to the solicitors for the first and second defendant indicating that the plaintiff's "entire file" had been provided during discovery and that the only outstanding item was a misplaced solicitor's deed packet. The solicitors for the first and second defendant wrote back that day indicating that they were not seeking the solicitor's papers but suggested that there should be commercial records in relation to the movement of the loan and none had been discovered. Examples were given of accounting records in relation to the movement of the loan, ledgers recording outstanding loans, and the movement of those loans between companies, auditors reports concerning the loan and its movement, and some form of documentation evidencing the "movement of the loan" by which it was assumed that the plaintiff meant "transferring". The hearing of the motion was deferred until 17 June 2009 on which occasion a registrar made orders in the terms sought by the first and second defendants.

10 Three lists of documents were discovered to the first and second defendants on 3 July 2009. They comprised documents that were part of the Adelaide Bank's files held by Eurofinance, documents that were otherwise in the possession of Eurofinance, and documents that were in the possession of Adelaide Bank itself.

11 On 14 July 2009 the first and second defendants filed a notice of motion seeking a stay of proceedings or in the alternative an order that the plaintiff file and serve a further list of documents with verification by 30 July 2009. It did not specify any category of documents.

12 Later that day the first and second defendants had two further documents discovered to them, one from the files of Eurofinance and the other from the files of the plaintiff that were held by Eurofinance.

13 On 21 July 2009 the solicitors for the first and second defendants served upon the plaintiff's solicitors a notice to produce to the court under rule 34.1 Uniform Civil Procedure Rules (UCPR). It required production to the court on 23 July 2009 the following documents: 1 All correspondence received by or sent by Pace Rowlands Bell concerning the alleged liability of Property Builders Pty Ltd to Advance Investment Finance No 2 Pty Ltd dated 1 July 2006 to date;

2 All audits reports and financial documents prepared in relation to Advance Investment Finance No 2 Pty Ltd disclosing or referring to the alleged liability or Property Builders Pty Ltd to Advance Investment Finance No 2 Pty Ltd dated 1 July 2006 to date;

3 All agreements between Advance Investment Finance No 2 Pty Ltd and Adelaide Bank Ltd or Euro Finance Capital Ltd, concerning or referring to loans made to Property Builders Pty Ltd dated during the period 1 July 2006 to date.

14 There was a reply from the plaintiff's solicitors the same day in which a number of points were raised including that the documents sought were irrelevant, that the pleading then appearing in a Further Amended Defence was evasive and merely put the plaintiff to proof and that the notice to produce was an impermissible substitute for discovery and was an abuse of process.

15 On 23 July 2009 the plaintiff filed its motion seeking to set aside the notice to produce. On 11 August 2009 it filed a notice of motion seeking summary judgment.

16 Davies J heard the plaintiff's motion for summary judgment on 19 August and gave judgment dismissing it on 7 September 2009.

17 His Honour granted leave on 19 August 2009 for the first and second defendants to file in court an amended notice of motion in relation to the stay. That notice of motion, together with the plaintiff's notice of motion to set aside the notice to produce, came before me for hearing on 22 October 2009.

18 The amended notice of motion seeks first a stay and, alternatively, an order for further discovery of the following categories of documents: 1 All correspondence received by or sent by Pace Rowlands Bell concerning the alleged liability of Property Builders Pty Ltd to Advance Investment Finance No. 2 Pty Ltd dated 1 July 2006 to date.

2 All audits reports and financial documents prepared in relation to Advance Investment Finance No. 2 Pty Ltd disclosing or referring to the alleged liability of Property Builders Pty Ltd to Advance Investment Finance No. 2 Pty Ltd dated 1 July 2006 to date.

3 All agreements between Advance Investment Finance No. 2 Pty Ltd and Adelaide Bank Ltd or Euro Finance Capital Ltd, concerning or referring to loans made to Property Builders Pty Ltd dated during the period 1 July 2006 to date.

4 The facility agreement made between the plaintiff and Advance Investment Finance No 2 Pty Ltd dated 21 March 2005.

19 The first three categories are identical to the three categories of documents listed in the notice to produce.

20 The case for the plaintiff is that there is a complete answer to the contention of the first and second defendants that the debt was assigned to AIF2 and it is founded upon the provisions of s 52 of the Real Property Act 1900. It was submitted that "the transfer of mortgage is not just a transfer of the mortgage but all of the intimately related elements under it and includes the debt". Reliance is placed upon the construction of s 52 by Young J (as he then was) in Nemeth v Reachcord Pty Ltd (1998) 9 BPR 16,557. That may be so, and it appears this contention found favour with Davies J on the application for summary judgment. However, it is not an issue that I need to determine and nor is it appropriate that I express a concluded view about it. Ms Whittaker submitted, correctly in my view, that this is a matter for determination at the final hearing of the matter and she referred to there being a question as to the correct application of s 52 in the light of Queensland Premier Mines Pty Ltd v French [2007] HCA 53; 235 CLR 81.

21 The first and second defendants assert that there are indications within the material that has been made available to them of an assignment of the debt not from Eurofinance to the plaintiff but from Eurofinance to AIF2. For this proposition Ms Whittaker pointed to three matters.

22 First there is a paragraph in the affidavit of Mr Socratous referred to in the notice of motion filed on 5 June 2009 (see above at [9]): On or about 9 May 2008, EuroCap was looking to free up some funds and therefore moved the loan over to AIF to utilise the Adelaide Bank facility. Accordingly I transferred the Mortgage into the name of the plaintiff.

23 The references to "EuroCap" and to "AIF" are references to the entities I refer to as Eurofinance and AIF2.

24 It was contended that the reference to EuroCap having "moved the loan over to AIF" should, or could, be understood as meaning that there was an assignment of the loan to AIF2.

25 Reference was made to the letter from Pace Rowland Bell, Chartered Accountants, to the first defendant in September 2008 (see the judgment of Davies J at [36]). It was asserted that this was a further indication that the liability of the first defendant was to AIF2 and that this must be a consequence of the debt having been assigned to it rather than to the plaintiff.

26 Then there was reference to the document entitled "Schedule 4 Funding Notice" (see the judgment of Davies J at [27]). It is signed on behalf of AIF2 and is addressed to the plaintiff. Ms Whittaker submitted that this should be understood as a request by AIF2 for funds from the plaintiff in order to enable AIF2 to purchase for itself the debt from Eurofinance.

27 On behalf of the plaintiff it was submitted that none of these matters, either individually or collectively, were capable of establishing that the debt was assigned to AIF2 rather than the plaintiff. I accept that submission. The reference by Mr Socratous in his affidavit to Eurofinance having "moved the loan over to AIF" is not a statement of legal effect or a term of art. It is explained elsewhere in that affidavit that AIF2 and Eurofinance were both companies within the Eurofinance Group. Eurofinance raised funds from public investment and pooled those funds to invest in mortgages. AIF2 was a vehicle created to loan funds on behalf of a financial institution, initially by a merchant bank, then by Bendigo Bank which acquired the merchant bank, and then by the plaintiff when AIF2 found its terms more commercially attractive. AIF2 was not a lender in its own right. The reference to "moving the loan over to AIF" was clearly a reference to it going to an entity which would manage the loan on behalf of the plaintiff with the plaintiff in turn making payment to Eurofinance. The fact that this occurred is confirmed by the transfer from the plaintiff to Eurofinance of $1,423.956.56 on 9 May 2008 (see the judgment of Davies J at [28] - [29]). There is further confirmation in the tax invoice and remittance slip which described the plaintiff as the "lender" and AIF2 as the "manager" (judgment of Davies J at [31]).

28 As to the letter from the chartered accountants, it is natural that they would regard the liability of the first defendant being to AIF2 because they were engaged to audit the accounts of AIF2 and the first defendant had been making repayments to AIF2. In a non legal or technical sense, as one would expect in the circumstances, it is perfectly understandable for there to be a reference to "liability" to AIF2.

29 As to the funding notice, the fact that AIF2 were seeking funds from the plaintiff is equivocal as to whether it was purchasing the debt from Eurofinance in its own right or on behalf of the plaintiff.

30 Within the funding notice there is reference to the "facility agreement" between AIF2 and the plaintiff. That facility agreement is the one and only specific document that the first and second defendants have pointed to as not having been produced. It was submitted that it was necessary for that document to be discovered in order to properly understand the funding notice itself because the two documents were "intimately connected", particularly when the funding notice included: Definitions in the Facility Agreement apply when used in this Funding Notice.

31 There is nothing, however, in the funding notice that bears upon whether AIF2 or the plaintiff was the purchaser of the debt. No submission was made that any word, phrase or expression was used in the notice that might have some meaning that would shed light on that issue if definitions in the facility agreement were applied.

32 It has not been demonstrated that the facility agreement can be said to be a document that is relevant to a fact in issue in these proceedings in the sense that "it could, or contains material that could, rationally affect the assessment of the probability of the existence of" a fact in issue: r 21(2) UCPR. I am not even satisfied that it has "chain of inquiry" value, but even if it did that would not be enough: National Australia Bank Ltd v Idoport Pty Ltd [2000] NSWCA 8.

33 That disposes of the category of documents in prayer 6(iv) of the amended notice of motion. No other specific documents were identified on behalf of the first or second defendants that were in existence but had not been produced. The categories of documents specified in prayers 6(i) to 6(iii) would all have fallen within the description of the order made by the registrar on 17 June 2009. The plaintiff has responded to that order by way of discovering a number of documents on 3 and 14 July 2009. Mr Socratous and Mr Olsen have sworn affidavits to the effect that there are no other documents known to exist that are within the class of documents sought. Their affidavits are accompanied by a solicitor's certification pursuant to r 21.4(4) UCPR.

34 The first and second defendants contended that there has been a history in these proceedings of inadequate and incomplete attention to discovery obligations by the plaintiff. This was said to be demonstrated by the fact that documents were disclosed in July 2009 that had not been disclosed in November 2008. A lax attitude of the plaintiff, as was asserted, was also said to be demonstrated by the fact that in an affidavit of 3 July 2009 Mr Socratous claimed that Eurofinance held all of the plaintiff's files and he listed certain documents found in them. The claim that Eurofinance held all the plaintiff's files was demonstrated to be incorrect, so it was submitted, by the fact that Mr Olsen produced certain documents held by the plaintiff. Whilst it was not contended that this resulted in any documents being withheld, it was submitted that it supported the proposition that there was inadequate liaison between Eurofinance and the plaintiff on the discovery issue. I do not think that anything turns on these matters, even assuming that liaison between the plaintiff and the third defendant was required. The categories of documents sought in November 2008 were differently described to that sought in June 2009. Whilst those discovered in July 2009 might have been discovered in November 2008, none, apart from the funding notice, was asserted on behalf of the first and second defendants to have significance. The inconsistency between the affidavits of Mr Socratous and Mr Olsen simply means that Mr Socratous was unaware that the plaintiff held some potentially relevant papers and is of no practical consequence.

35 In Proctor & Gamble v Medical Research [2001] NSWSC 183, Hunter J stated: [64] I think the true rule in resolving a question of sufficiency of discovery is as follows: The affidavit verifying discovery is conclusive of the question unless it can be shown (i) by recourse to the documents discovered; (ii) from the content of the affidavit verifying discovery; (iii) from the pleadings, or "from any other source that constituted an admission of the existence of a discoverable document" that the discovery has been insufficient. Further, where the discovering party has misconceived the nature of the obligation of discovery it is not necessary to infer the existence of relevant documents other than those discovered (see Mulley v Manifold (1959) 103 CLR 341 at 343 and Falk v Finlay , Supreme Court of New South Wales, Austin J, 24 December 1999, unreported).

36 In NM Rural Enterprises Pty Ltd v Rimanui Farms Ltd [2008] NSWSC 472, Harrison J observed: [11] A court must "have reasonable grounds for being fairly certain that there were other relevant documents which ought to have been disclosed": see [ British Assn of Glass Bottle Manufacturers Ltd v Nettlefold [1912] AC 709] at 714; Beecham Group Ltd v Bristol-Myers Co [1979] VR 273 at 276; Preston v Star City Pty Ltd [2007] NSWSC 293 per Hoeben J at [21].

37 I am not satisfied that by recourse to the documents discovered or from any other source there is legitimate cause to think that there are documents that are known, or that should be known, to the plaintiff or third defendant, that are relevant to any fact in issue in the proceedings that have not been discovered. Viewed superficially it might be argued that the plaintiff providing successive lists of documents indicates that discovery to date has been less than complete: see Firns v Tzovaras [2006] NSWSC 925 at [15]. Examined in detail however, I am satisfied that it has not been established that there are "reasonable grounds for being fairly certain" that "other relevant documents exist which ought to have been disclosed".

38 The issuing of the notice to produce by the first and second defendants was a completely unnecessary step. In has no practical utility and, in any event, was an inappropriate alternative to seeking further discovery: Azzi & Ors v Volvo [2006] NSWSC 283; Hamod v State of New South Wales (No 8) [2008] NSWSC 125.

39 The amended notice of motion of the first and second defendants seeking a stay of proceedings and an order for further discovery is dismissed.

40 On the plaintiff's motion I make the order sought, that is that the notice to produce served on the plaintiff by the first and second defendants dated 21 July 2009 is set aside.

41 The first and second defendants are to pay the plaintiff's costs in respect of each motion. **********

03/11/2009 - Insert "to" between "references" and "the" - Paragraph(s) 23

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