Apostolou v VA Corporation of Aust Pty Ltd

The mortgagee sale 20 Challenger Managed Investments Ltd (Challenger), the fifth respondent, was trustee of the Challenger Howard Mortgage Fund (formerly, the Howard Mortgage Trust) (the Fund). The Fund provided a loan facility to VA Corporation under which certain advances were made. The repayment of those advances was secured by two mortgages granted by VA Corporation to the then custodian of the Fund, Permanent Trustee Australia Limited (Permanent). As we will later describe, one of these mortgages was transferred by Permanent to Perpetual. 21 In relation to the claim concerning the mortgagee sale of the St Kilda property, the primary judge, after dealing with certain background matters relating to the advances made to VA Corporation under the loan facility (which do not seem to be controversial), noted a submission that Perpetual was not entitled to exercise any power of sale under the mortgage because it was required to extend the term of the loan. The primary judge found that there was nothing in this contention. No ground of appeal is raised in this regard and no submission was advanced by the appellants to identify error on the part of the primary judge in rejecting this contention. The primary judge also found that, by April 2007, interest on the loan had stopped being paid. The appellants did not dispute this finding. Subsequently a notice of default was served. The primary judge's finding in this regard was as follows: On 2 July 2007 Perpetual served a notice of default as required by s 76 of the Transfer of Land Act 1958 (Vic), calling upon VA Corporation to pay $93,000.00, being the amount of interest then in arrears. The notice stated that if the interest was not paid Perpetual would take possession of the St Kilda Road property with a view to its sale. Mr Vasiliou acknowledged that the company received the notice. Although Mr Vasiliou argued that the notice was not a good one, he could not point to any particular deficiency in it. In particular, he acknowledged that the default referred to in the notice had occurred. 22 In fact, the notice was served by Permanent, not Perpetual, but, for the reasons which follow, nothing ultimately turns on this. This notice and its consequences were the focus of a number of submissions advanced by Mr Vasiliou in this appeal. It is a matter to which we will return. 23 The primary judge then noted a contention by Mr Vasiliou that Perpetual was not entitled to exercise its power of sale because it should have agreed to refinance the loan. The primary judge found that the appellants were not entitled to complain about any failure (if there was one) to grant what would be, in effect, an indulgence. No particular submissions were advanced by the appellants as to how or why the primary judge erred in this finding, particularly in light of other findings by the primary judge that finance, as arranged by the appellants, was conditional and that, at the time when Perpetual effected the sale, there was no certainty that the new lender would put up the required funds. In any event, another significant issue was that, at the time, the appellants did not have title to the St Kilda property. The title was with VA Corporation, then in liquidation. 24 The primary judge recorded that the sum of $4.6 million was obtained from the sale of the St Kilda property and that this was significantly in excess of the valuation provided by the valuer engaged by Perpetual. The primary judge was critical of this valuation, preferring the valuation provided by Mr Dowling who had been retained by the appellants to carry out a valuation for the purposes of the trial. Mr Dowling provided an opinion that, at the date of the sale by auction, the property was worth $5.7 million. 25 The primary judge noted that it was largely, if not exclusively, on Mr Dowling's evidence that the appellants advanced their claim against Perpetual for breach of duty. 26 The primary judge found that, in exercising its power of sale, Perpetual was subject to duties at general law, under the Transfer of Land Act 1958 (Vic) (the Transfer of Land Act) and as a "controller" under s 420A of the Corporations Act 2001 (Cth) (the Corporations Act). The primary judge concluded, however, that there was no evidence to suggest that Perpetual had breached any duties it owed to VA Corporation. 27 In this connection, the primary judge had regard to the line of authority, represented by decisions such as Stone v Farrow Mortgage Services Pty Ltd (in liq) [1999] NSWCA 435; (1999) 12 BPR 22,175 and Stockl v Rigura Pty Ltd [2004] NSWCA 73; (2004) 12 BPR 23,151, which holds that one looks to the price actually obtained on sale as being evidence of the true value of the property (provided proper steps have been taken to advertise and sell the property). 28 In the present case, the primary judge found as follows: … Here, the evidence shows that the price obtained at the auction followed a reasonable marketing campaign. While Mr Dowling's evidence is that the price was below the property's true market value (a view I do not discount), in the absence of something to show that there had been conduct that amounted to a breach of duty on the part of Perpetual (or its agents who conducted the marketing and auctioning campaign) the claim against it must fail. There is no such evidence. Indeed, there is nothing to suggest any act or omission on the part of Sutherland Farrelly which led to the sale price being below the market price. If there was a sale at an undervalue, that is simply a fortuitous result. 29 By ground 9 of their notice of appeal, the appellants contend that the primary judge erred in not taking into account the evidence given by Mr Dowling as to the value of the St Kilda property. As the above quotation and other findings of the primary judge make clear, his Honour did take that evidence into account. By this ground the appellants also seem to challenge the primary judge's finding that the price obtained at the auction followed a reasonable marketing campaign. However, no submissions were advanced in the appeal as to why the primary judge erred in the finding he had made in this regard. 30 As we have noted, the focus of this aspect of the appeal was the notice of default and its consequences. In this connection Mr Vasiliou advanced three submissions under the overarching contention that the mortgagee did not have power to sell the St Kilda property. First, he submitted that, contrary to the express finding made by the primary judge, no notice of default had been served entitling Perpetual to exercise a power of sale with respect to the St Kilda property. In this connection Mr Vasiliou drew attention to the fact that the notice that was served was one that had been given by Permanent, not Perpetual, as mortgagee of the St Kilda property. Secondly, he submitted that the notice that was served was not for money due under the mortgage to Permanent. He said, somewhat incongruously, that the money was owing to Perpetual, not to Permanent. Thirdly, he submitted that the amount claimed under the notice included penalty interest which VA Corporation was not liable to pay. He said that, but for the inclusion of penalty interest, there was no default entitling Permanent to issue a notice under s 76 of the Transfer of Land Act. 31 The first submission is reflected in ground 3 of the notice of appeal. At trial, Mr Vasiliou accepted in cross-examination that a notice under s 76 of the Transfer of Land Act was served on VA Corporation, which, by then, was in liquidation, and that VA Corporation did not comply with that notice. 32 Section 76(1) of the Transfer of Land Act provides: If default is made in payment of the principal sum interest or annuity secured or any part thereof or in the performance or observance of any covenant express or implied in any such mortgage or charge and continues for one month or such other period as is therein expressly fixed, the mortgagee or annuitant may serve on the mortgagor or grantor of the annuity and such other persons as appear by the Register to be affected notice in writing to pay the money owing or to perform and observe the covenants (as the case may be). 33 Section 77(1) of the Transfer of Land Act provides: If within one month after the service of such notice or demand or such other period as is fixed in such mortgage or charge the mortgagor grantor or other persons do not comply with the notice or demand the mortgagee or annuitant may, in good faith and having regard to the interests of the mortgagor grantor or other persons, sell or concur with any other person in selling the mortgaged or charged land or any part thereof, together or in lots, by public auction or by private contract, at one or several times, and for a sum payable in one amount or by instalments, subject to such terms and conditions as the mortgagee or annuitant thinks fit, with power to vary any contract for sale and to buy in at any auction or to rescind any contract for sale and to resell without being answerable for any loss occasioned thereby and with power to make such roads streets and passages and grant and reserve such easements as the circumstances of the case require and the mortgagee or annuitant thinks fit, and may make and sign such transfers and do such acts and things as are necessary for effectuating any such sale. 34 We have already remarked that the requisite notice was served by Permanent, whereas the power of sale was exercised by Perpetual. Those events are explained by the fact that, at the time the notice was served on 2 July 2007, Permanent was, indeed, the mortgagee of the St Kilda property. Evidence before the primary judge showed that Permanent had subsequently transferred the mortgage to Perpetual by instrument dated 22 August 2007, which was, in turn, registered on 27 August 2007. As we have noted, the sale of the property by Perpetual took place on 6 March 2008. 35 On appeal, Perpetual submitted that, as a result of the transfer, it had "stepped into the shoes" of Permanent and had taken all the rights that had accrued to Permanent from having given a notice under s 76 of the Transfer of Land Act. It relied on a general statement to this effect in Tyler ELG, Young PW and Croft C, Fisher and Lightwood's Law of Mortgage (2nd Australian Ed, Lexis Nexis Butterworths, 2005) in para 14.2 on page 368, citing Ashenhurst v James (1745) 3 Atk 270; 26 ER 958. 36 We accept this submission. In our view there can be no doubt that the power of sale conferred by s 77 of the Transfer of Land Act on a "mortgagee" includes a transferee from that mortgagee. So much is made clear by the extended definition of "mortgagee" in s 4(2) of the Transfer of Land Act, which relevantly provides: In and for the purposes of this Act unless inconsistent with the context or subject-matter any description of or reference to any person as ... mortgagee … shall extend to his executors administrators successors transferees and assigns to the intent that every right power authority liability or obligation vested in or imposed on any such person by or under this Act shall devolve upon any such executor administrator successor transferee or assign. 37 The appellants do not dispute that VA Corporation did not comply with the notice served on it by Permanent. After the period prescribed in s 77(1) of the Transfer of Land Act, Permanent had the "right, power and authority" to sell the St Kilda property as thereby provided. That "right, power and authority" was vested in Permanent "by or under" the Transfer of Land Act. Upon the transfer of the mortgage to Perpetual that "right, power and authority" devolved upon Perpetual by operation of the Act. 38 As to the second and third submissions, it was a point of contention on the appeal that these submissions had been advanced by the appellants at the hearing before the primary judge. The primary judge recorded in his reasons (see at [21] above) that Mr Vasiliou had argued that the notice was not a good one, but said that Mr Vasiliou had pointed to no particular defect in it. Mr Vasiliou contended, but counsel for the fourth and fifth respondents (Perpetual and Challenger) disputed, that each of the second and third submissions had been advanced at the hearing before the primary judge. Neither submission is reflected in any ground of appeal. 39 We have looked at the transcript of the hearing before the primary judge and are unable to see that the second submission had been advanced. Moreover, we are unable to understand the factual basis for that submission. The material currently before us shows that two mortgages were originally registered in respect of the St Kilda property, both in favour of Permanent as mortgagee. The suggestion that money was owing to Perpetual, but not to Permanent, at the time that Permanent served the notice under s 76(1) of the Transfer of Land Act, sits discordantly with the objective fact that Permanent, and not Perpetual, was, at the relevant time, the mortgagee of the St Kilda property. We are satisfied that there is no basis for the second submission. 40 As to the third submission, Mr Vasiliou did complain, in the course of his oral evidence, that VA Corporation was not obliged to pay penalty interest. He was cross-examined on that matter. The cross-examination demonstrated that Mr Vasiliou's complaint was misconceived. Under the Deed of Loan into which it had entered, VA Corporation was obliged to pay interest at a rate defined as the "Higher Rate" (being the aggregate of the "Lower Rate" (as defined) and 4% per annum). In the event that VA Corporation paid interest as provided in the Deed of Loan, and also "duly observed and performed each and every covenant on [its] part contained or implied in each Transaction Document to which it is a party", then interest would be accepted at the Lower Rate (namely, 7.5% per annum) in lieu of the Higher Rate. The Deed of Loan incorporated the provisions of Memorandum No. AA674 filed in the Land Titles Office. An event of default under that document included the filing of an application for, or the making of an order for, the winding up of (in this case) VA Corporation. VA Corporation was wound up by order of the Supreme Court of Victoria on 29 March 2006. From March 2006 VA Corporation was charged interest at the Higher Rate. This is the penalty interest to which Mr Vasiliou referred in making the third submission. In the hearing before the primary judge Mr Vasiliou's only response was that he had never agreed to penalty interest being charged other than for the non-timely payment of interest. The evidence comprising the Deed of Loan and Memorandum No. AA674 plainly shows that contention to be incorrect. The third submission is thus without foundation. 41 There is an additional matter. In the course of his cross-examination, Mr Vasiliou did appear to suggest that, before the St Kilda property could be sold, it was necessary for a notice to be served calling for all moneys due under the mortgage to be paid (which Mr Vasiliou described as a notice of demand), in addition to the notice required by s 76(1) of the Transfer of Land Act (which Mr Vasiliou distinguished as a notice of default). This submission is reflected in the appellants' written outline of submissions to which we have referred, but not in their notice of appeal. The extent to which this point was agitated in the course of the hearing is unclear. Regardless, the point is bad. Section 76(1) of the Transfer of Land Act does not proceed on the basis that a "notice of demand" as well as a "notice of default" must be served before the power conferred by s 77(1) of the Act can be exercised. 42 The appellants did not advance any argument in relation to the other grounds of appeal apparently directed to the mortgagee sale of the St Kilda property: see grounds 11 and 12.

The liquidators' conduct 43 The primary judge noted that the appellants' claims against the liquidators of VA Corporation had two elements: first, the liquidation was unnecessarily delayed because the liquidators sought a court order to sell the St Kilda property; secondly, the liquidators failed to take steps to terminate the liquidation once it became apparent to them that VA Corporation was solvent. 44 As to the first of these matters, the primary judge found that VA Corporation's debts had been incurred as trustee of the VA Unit Trust. VA Corporation had a right of indemnity in respect of those debts, supported by an equitable lien or charge over the trust assets. There were, however, no cash assets from which it could, as trustee, exercise its rights of reimbursement or exoneration in respect of those debts. It apparently had no other funds at its disposal to pay those debts. 45 An equitable lien or charge does not confer a right of sale of the property in respect of which the lien or charge is held. Thus a trustee's right of indemnity against non-cash assets is enforceable by a court order for sale (Grissel v Money (1869) 33 LJ Ch 312; Hewett v Court (1983) 149 CLR 639 at 663)) or the appointment of a receiver with a power of sale: see the discussion in Heydon JD and Leeming MJ, Jacobs' Law of Trusts in Australia (7th ed, Lexis Nexis Butterworths, 2006) at [2104]; Sykes EI and Walker S, The Law of Securities (5th ed, Lawbook Co., 1993) at 198. 46 The primary judge reasoned that, in the present case, the liquidators had two sources of power to sell the St Kilda property in order to enforce the right of indemnity. First, clause 8.3 of the deed constituting the VA Unit Trust conferred a power of sale on the trustee. After reviewing a number of authorities, the primary judge concluded that, where a trustee has legal title to property coupled with such a power of sale, the trustee may resort to that power in order to get in funds against which to exercise the trustee's right of indemnity: see at [40]-[46]. His Honour also considered that there was no reason why, in the present case, the liquidators could not resort to the power of sale conferred by s 477(2)(c) of the Corporations Act to enable the indemnity to be enforced. No issue arises on this appeal concerning his Honour's conclusions in this regard. 47 Notwithstanding these sources of power, the primary judge held that there were, in the present case, good reasons for the liquidators to seek a court order to sell the St Kilda property. His Honour expressed the position thus at [53] and [54]: Notwithstanding the existence of a power of sale, there were in this case good reasons for the liquidators to apply to the court for permission to sell. First, there was in existence a transfer by which VA Corporation had purported to transfer the property to Ms Apostolou. The transfer had been lodged in the Stamps Office and had been assessed to duty. That assessment was being challenged. Second, Mr Vasiliou had informed the liquidators that VA Corporation had no right to remain as the registered proprietor of the property. Third, Mr Vasiliou also denied that the trustee had a right of indemnity. Fourth, Mr Vasiliou was making a variety of complaints about the liquidators' conduct. Finally, the liquidators were acting on their solicitors' advice regarding matters which were not legally straightforward. These reasons made it proper, if not necessary, for the liquidators to seek the protection of a court order. No doubt proceedings would have been issued challenging any attempt on their behalf to sell the property. As things turned out, it was unnecessary for the Supreme Court to rule on the liquidators' application. The mortgagee's taking of possession rendered the liquidators' application redundant. 48 The primary judge then turned to consider the position of a company being wound up in insolvency where it turns out that the company is solvent and all that is required to pay out creditors is some reorganisation of the company's finances. The primary judge expressed the view (at [57]) that, if a reasonable restructuring is proposed by the contributories, a liquidator should take the steps necessary to facilitate that restructure. 49 The primary judge then made the following findings: It was highly likely that VA Corporation was solvent when it was wound up. At that time, in addition to the debt owed to Perpetual, there were two unsecured creditors: the State Revenue Office ($147,525.31 for unpaid land tax together with interest); and the City of Port Phillip ($55,188.93 for unpaid rates and costs). The liquidators had been in discussions with Mr Vasiliou regarding the potential refinancing of the St Kilda property, but "did not go out of their way to assist Mr Vasiliou, or to raise with him the possibility of seeking a stay or alternative orders to facilitate a potential refinance": at [64]. 50 In the end result, however, the primary judge found (at [65]) that there were a number of factors which justified a decision not to facilitate a refinance of the company's debts. His Honour found, importantly, that Mr Vasiliou would not have gone along with any arrangement that would have resulted in the payment of the two unsecured creditors. This led his Honour to conclude (at [66]) that it was "inevitable" that there could be no arrangement which the liquidators could reasonably adopt and that the St Kilda property would be sold, whether by the liquidators or the mortgagee. The appellants do not challenge these findings. 51 On 6 May 2008 the winding up of VA Corporation was permanently stayed. It was clear that the proceeds of sale of the St Kilda property (which the primary judge described as "a handsome profit for the company") would be more than enough to pay known creditors. The primary judge also made orders relating to how the proceeds of sale of the St Kilda property were to be paid. Those orders included an order that the balance of the proceeds of sale be paid to VA Corporation after certain sums had been paid into court. His Honour also made directions providing for (a) a review, pursuant to s 473(6) of the Corporations Act, of the liquidators' remuneration and expenses (other than in relation to the costs of the proceeding before his Honour), and (b) the taking of accounts in relation to sums due to Perpetual as mortgagee of the St Kilda property, including its costs and expenses (but excluding a claim by Perpetual to retain a certain sum against future legal costs arising out of the mortgage). 52 The notice of appeal raises four grounds apparently directed to the conduct of the liquidators: see grounds 6, 7, 8 and 15. None of these grounds was explored or developed in any way, and in the course of the appellants' oral argument no attempt was made to relate them to any of the primary judge's findings. 53 In their written outline of submissions the appellants did refer to the issue apparently supporting ground 8, and perhaps ground 15, of the notice of appeal, namely the allegation that VA Corporation had been replaced as trustee of the VA Unit Trust. We have already referred to that part of the primary judge's reasons dealing with the fact that a transfer purportedly transferring the St Kilda property to Ms Apostolou had been lodged in the Stamps Office and had been assessed to duty. 54 Whether a new trustee had been appointed to the VA Unit Trust is not a matter that needs to be decided in relation to the determination of the present appeal. The fact is that the St Kilda property remained registered in the name of VA Corporation and there is no material before us to suggest that VA Corporation had not incurred the debts to which we have referred, either as trustee of the VA Unit Trust or on its own account. On the material before us, there is no reason to doubt that VA Corporation had no funds to pay those debts. Once the St Kilda property had been sold by Perpetual exercising its power of sale, funds became available to pay the mortgage debt and the two unsecured creditors, as well as the expenses properly incurred in relation to the sale of the property and the liquidation of the company (including the liquidators' remuneration to be determined on review).

Conclusion 55 None of the grounds of appeal apparently directed to the mortgagee sale and the conduct of the liquidators is made out. 56 There are other "grounds" in the notice of appeal that are apparently directed to other matters that are a source of contention for the appellants but that do not relate directly to the judgment from which this appeal is brought: see grounds 2, 5 and 10. It is not necessary for us to deal with those "grounds". 57 Ground 13 complains that the primary judge "did not allow adequate time for hearing", but no attempt was made to develop this complaint. There is no material before us that would suggest that the appellants did not have a full and proper hearing of their claims. 58 Ground 4 is unintelligible and ground 14 is irrelevant. 59 In relation to ground 15, the appellants did not articulate any additional ground of appeal they wished to rely on or seek leave to amend the notice of appeal to reflect such a ground. Mr Vasiliou did raise the possibility of the appellants being given general leave, after the hearing of the appeal, to file an amended notice of appeal. This was refused. The appellants were informed that the Court would consider an application to amend the notice of appeal when an amendment application was articulated. No such application was made. 60 It follows from the foregoing that the appeal should be dismissed. The appellants must pay each of the respondents' costs.

Other matters relating to these appeals 61 Orders were made on 19 October 2010 for the preparation of both appeals for hearing, including orders requiring the appellants to file draft indexes to the appeal books and to file outlines of submissions, by certain times. These orders were ignored by the appellants. As a consequence, no appeal books were filed. On the morning of the hearing of the appeals, the appellants delivered an outline of their submissions, outside the time provided for in the orders. We have already noted that this outline does not illuminate matters greatly. 62 Prior to the appeals coming on for hearing, the failure of the appellants to comply with the Court's orders was brought to their attention. On a number of occasions the appellants canvassed the possibility of the appeals being adjourned but made no formal application in that regard. When the appeals were called on for hearing, Mr Vasiliou commenced to make submissions on his own behalf and on behalf of Ms Apostolou. 63 Some documents that were in evidence before the primary judge were handed up in the course of argument during the hearing. In the absence of appeal books having been filed or otherwise made available, the appellants were given leave to file "an appeal book" within 14 days after the appeal hearing. Corresponding leave was granted to the respondents after the appellants' "appeal book" had been served. The appellants and the fourth and fifth respondents (Perpetual and Challenger) thereafter provided respective bundles of documents on which they sought to rely in this appeal. The fourth and fifth respondents, and the second and third respondents (the liquidators), objected to the reception of a number of documents in the appellants' bundle on the ground that they were not in evidence before the primary judge. Ultimately, we do not need to deal with that objection. The contentious documents do not advance the appellants' respective appeals, as argued. 64 After the hearing of the appeals, the appellants sought, on successive occasions, to make what could be regarded as additional submissions. No leave was granted to the appellants to pursue that course. We have had no regard to that additional material for the purpose of determining these appeals.

DISPOSITION 65 As we have indicated, leave to appeal in VID 704 of 2008 will be refused, with costs, and the appeal in VID 143 of 2010 will be dismissed, with costs. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Perram, Nicholas & Yates.