Appellant v Respondent

2 Riverside is mortgaged to the National Australia Bank Ltd. The mortgage was granted to secure a home loan and a bill facility. As at 20 November 2008, the bank was owed $291,771.40 under the home loan and $1,523,238.79 under the bill facility. With accrued interest, the total outstanding indebtedness to the bank now exceeds $2 million. The respondent claims that her interest in Riverside should not be encumbered by the amount due to the bank under the bill facility because she did not derive any benefit from it, but merely signed facility and mortgage documents at Mr Brassil's request. In the proceeding before the Victorian Civil and Administrative Tribunal ('VCAT'), the subject of the present appeal, the respondent announced that she proposed to challenge the bank's right to claim against her interest in the property.

3 In 2008, the bank commenced a proceeding for possession of Riverside and judgment for the amounts owed to it under the home loan and the bill facility. I was informed by counsel for the respondent that the proceeding brought by the bank had been settled, presumably with the consequence that the bank will take possession and exercise its power of sale over Riverside. Notwithstanding the potential significance of the terms of settlement, the court was not assisted with any further information as to the terms.

4 The bank also holds a mortgage over another property, at 92 Benalla Road, Shepparton, as security for the bill facility. The Benalla Road property is owned by Nazaire Pty Ltd as trustee of the Brassil Property Unit Trust. Raydox Pty Ltd, as trustee of the GJ Brassil Family Trust, holds all of the units in the Brassil Property Unit Trust pursuant to a transfer from CBF Superannuation Pty Ltd, which acted as trustee of a superannuation fund. I was informed that the respondent is the sole director of Nazaire and Raydox. In proceedings in this court, commenced in 2007, the appellant claims half of the units in the Brassil Property Unit Trust on the basis that they represent property of Mr Brassil.

5 In 2008, the bank commenced another proceeding in this court, against Nazaire, seeking possession of the Benalla Road property and judgment for the amount owed under the bill facility. That proceeding remains unresolved, although may be affected by the terms of settlement mentioned above.

6 On 25 June 2008, the appellant filed his application in VCAT under s 228 of the Property Law Act 1958 ('the Act') for an order that Riverside be sold and any proceeds of the sale, after discharge of the mortgage in favour of the bank, be divided among the co-owners. At the time of the application, Riverside was valued at between $967,500 and $1,160,000. The tribunal was persuaded that a sale would result in payment of the whole of the proceeds to the bank in satisfaction of the secured debt. Consequently, there would be no amount available to the appellant as co-owner. The tribunal concluded:[1]

(39) In my view the order which is sought in this application and the order which Section 225 of the Property Law Act authorises me to make is one which entails the distribution of property between co-owners. Here, one of the co-owners I accept would receive a distribution of proceeds in that the bank would take money and credit it to the account of Mrs Brassil. There would be no receipt by Mr Yeo of any money nor would these moneys be being paid to the credit or any account in his name. Clearly paying off the bank could free-up equity for the bankrupt estate but that is not I think what is contemplated by Section 225 of the Property Law Act.

(40) In my view the application fails on this ground. In the circumstances I think it inappropriate for me to express any opinion upon the question whether a mere issue of hardship would be a proper ground for declining to make an order under Section 225.

7 It is not easy to identify the precise basis for the tribunal's refusal to make an order, save that it turned on the conclusion that the appellant would not receive any part of the proceeds from a sale of Riverside. The tribunal appears to have accepted the respondent's jurisdictional argument although the respondent, in submissions made in this court, seems to have assumed that the tribunal merely exercised a discretion to refuse an order. There may be some basis for that assumption, arising from the tribunal's view that the "discretion is an open one", although I have reached a different conclusion.

8 Doing the best I can to discern the true basis for the tribunal's decision, I am persuaded that the tribunal accepted the respondent's jurisdictional argument and, having found that the appellant would receive nothing from a sale, rejected the application on that basis.

9 The difficulty and confusion caused by the tribunal's concluding paragraphs are not of any enduring consequence. I find the jurisdictional argument and the basis for its application are misconceived. I also find that there was no general discretion, or "an open one", as the tribunal found, to refuse an order. I find that it was not open to the tribunal to reject the application, in the exercise of discretion, because of a view it formed concerning the appellant's likely benefit from a sale.

10 The tribunal declined to express any opinion upon the question of whether a mere issue of hardship would be a proper ground for declining to make an order for sale. The potential hardship to the respondent caused by a sale had a number of elements. The respondent had relied on her unresolved challenge to the bank's security insofar as it purported to secure more than the home loan component of around $300,000. The respondent had apparently made an offer to purchase the appellant's interest in Riverside for $450,000, which the appellant had rejected. In any event, the tribunal found that the respondent had not arranged the necessary finance and that such a transaction would require the cooperation of the bank. The respondent also argued before the tribunal that the sale of the Benalla Road property would be sufficient to discharge the whole of the bank's debt, leaving Riverside unencumbered. It was in that context that evidence from a Mr Kalafidis was advanced concerning the possible sale of the Benalla Road property.

11 Before the tribunal, Demetrius Kalafidis gave evidence that he had, through his company Jared Pty Ltd, proposed to purchase the Benalla Road property for $2 million. That sale did not proceed. Mr Kalafidis was a business associate of the Brassils. He also produced a deed, dated 11 June 2008, between Onesteel Trading Pty Ltd and Jared Pty Ltd in which Onesteel purported to assign to Jared a judgment debt of $845,707.90 against Mr Brassil for consideration of $170,000. Mr Kalafidis said that the debt due from Mr Brassil to Onesteel was secured against any property interest of Mr Brassil and that accordingly his company, Jared Pty Ltd, had a secured interest in the Riverside Property. The claim by Mr Kalafidis was the basis for another element of the hardship or unfairness advanced by the respondent to the tribunal. She pointed to the impact of an order for sale on the security claimed over Riverside by Mr Kalafidis through his company. It was submitted that his security would be defeated by an order which would have the effect of causing the proceeds of sale to be paid to the bank, whereas an ideal sale of the Benalla Road property would preserve the value of the security claimed by Jared Pty Ltd.

12 Finally, the respondent advanced an allegation which, properly characterised, attributed an improper purpose to the appellant in bringing the proceeding. When pressed, the respondent did not contend in this court that the proceeding commenced in VCAT was an abuse of process and no such case was advanced in VCAT. The suggestion of an improper purpose was based on the contention that because the appellant would not benefit from an order for sale, he had no proper purpose in bringing the application, which should be characterised as vindictive and improper. I am not persuaded that there is or was any substance to the allegation. The premise - that the appellant would not benefit - was misconceived.

13 The contention that the appellant would not benefit from an order for sale sought by him was also employed before the tribunal as a challenge to the jurisdiction of the tribunal to make the order. The respondent submitted that an order for a sale could only be made where there were proceeds to be divided between the co-owners. The argument seemed to pre-suppose that, in the absence of a net amount for division between the co-owners after the discharge of any encumbrance, the tribunal was deprived of any power to make an order for sale. The argument ignored the fact that repayment of the bank was a benefit to the respondent and the estate of Mr Brassil. As I have said, the decision of the tribunal appears to have been predicated on an acceptance of the jurisdictional argument advanced by the respondent.

14 The questions of law, which are a fair reflection of the grounds to be considered on appeal, were stated as follows:

(a) whether s 225(2) of the Act operates to limit the jurisdiction of the tribunal to make orders under Division 2 of Part IV of the Act;

(b) whether the sale of a property and the payment of all of the proceeds of the sale to a mortgagee involves a division of the proceeds between the co-owners as contemplated by s 225(2) of the Act;

(c) whether the discretion conferred by Part IV of the Act should be exercised with a propensity in favour of the sale or division of co-owned property in the absence of any contractual, proprietary or fiduciary obligation with which an order for sale or division could be inconsistent.

15 Section 225 of the Act provides -

1. Application for order for sale or division of co-owned land or goods

(1) A co-owner of land or goods may apply to VCAT for an order or orders under this Division to be made in respect of that land or those goods.

(2) An application under this section may request -

(a) the sale of the land or goods and the division of the proceeds among the co-owners; or

(b) the physical division of the land or goods among the co-owners; or

(c) a combination of the matters specified in paragraphs (a) and (b).

(3) A person who makes an application under subsection (1) must give notice of the application to the holder of a security interest over the land or goods to which the application relates.

16 The appellant submitted that s 225(2) of the Act does not prescribe matters going to jurisdiction. He argued that it was not a jurisdictional requirement for an order that a co-owner receive a distribution of proceeds from any sale. In my opinion that submission is plainly correct. The jurisdictional requirement for an order is an application by a co-owner of land or goods for an order in respect of that land or those goods. The tribunal erred insofar as its decision to refuse an order was based upon an absence of jurisdiction because there would be no proceeds for distribution to the appellant. The jurisdictional foundation for an order was not in dispute. Moreover, the tribunal overlooked the benefit to the estate of Mr Brassil.

17 The tribunal held[2] that it enjoyed an open discretion as to whether to make an order upon an application made by a co-owner for sale, division or a combination. Notwithstanding its conclusion regarding the scope of the discretion, I am persuaded that the tribunal found it unnecessary to decide the application on that basis, confining its decision to the jurisdictional ground. Out of an abundance of caution, on the assumption that the tribunal rejected the application in the exercise of an "open" discretion as the respondent seems to think, I will also determine the appeal on that assumption.

18 The respondent submitted that the basis for the broad discretion is to be found in ss 228 and 229 of the Act. Section 228(1) and (2) of the Act provides:

(1) In any proceeding under this Division, VCAT may make any order it thinks fit to ensure that a just and fair sale or division of land or goods occurs.

(2) Without limiting VCAT's powers, it may order -

(a) the sale of the land or goods and the division of the proceeds of sale among the co-owners; or

(b) the physical division of the land or goods among the co-owners; or

(c) that a combination of the matters specified in paragraphs (a) and (b) occurs.

19 Section 229(1) provides:

1. Sale and division of proceeds to be preferred

(1) If VCAT determines that an order should be made for the sale and division of land which is, or goods which are, the subject of an application under this Division, VCAT must make an order under section 228(2)(a) unless VCAT considers that it would be more just and fair to make an order under section 228(2)(b) or (c).

20 The respondent submitted that sub-s 228(1) conferred on the tribunal a discretion to refuse to make an order because it "may make any order it thinks fit". In my opinion the submission misunderstood the purpose of s 228, which is to enable the tribunal to fashion a remedy, "to ensure that a just and fair sale or division of land or goods occurs". The section presupposes the exercise of the power to sell or divide land or goods. It does not purport to confer discretion to refuse to exercise the power if jurisdiction otherwise exists.

21 The appellant conceded that there may be circumstances in which a court may refuse to exercise the power of sale or division notwithstanding the existence of the jurisdictional foundation. He submitted, however, that hardship or general unfairness did not justify a refusal of an application. While there are no decided cases dealing with the relevant sections of the Victorian legislation, the New South Wales Supreme Court and Court of Appeal, when dealing with corresponding powers of sale, recognised there may be circumstances in which an order may be refused, although the circumstances are limited. In McNamara, Re & Conveyancing Act[3] Myers J held,

As I have previously said I do not consider that there is an absolute duty in the Court to make an order merely because the parties are co-owners and although I adhere to my refusal to attempt to define the nature of the matters which would be a bar to the application, what I had in mind was some proprietary right, or some contractual or fiduciary obligation with which an order for sale would be inconsistent. I see no reasons for reconsidering the view I previously took, and I am still of the opinion that the Court has no general discretion which would enable it to refuse an application on such grounds as hardship or unfairness.

22 In Hogan v Baseden[4] the New South Wales Court of Appeal held,

It would not be a proper exercise of the power to decline relief under s 66G of the Conveyancing Act to refuse an application on grounds of hardship or general unfairness: See Re McNamara and the Conveyancing Act (1961) 78 WN (NSW) 1068; Ngatoa v Ford (1990) 19 NSWLR 72 at 75. It follows that in the unhappy event that the parties are unable to settle their differences then the making of an order appointing trustees for sale seems inevitable unless the respondent could establish a legally binding agreement not to put her out of occupation of her home, or circumstances that would ground some estoppel to similar effect.

23 I would respectfully adopt the general principles applied by the Supreme Court of New South Wales and the New South Wales Court of Appeal as providing appropriate boundaries to the circumstances in which a court may properly decline to exercise the power to order a sale or division of property when it has jurisdiction to do so. The court has no general discretion which would enable it to refuse an application on grounds of hardship or unfairness.

24 The evidence before the tribunal and this court did not disclose the existence of a legal or equitable right with which the making of an order for sale would be inconsistent. An existing contract of sale would, no doubt, constitute such a right, but a mortgage, charge or other form of security would not. Section 225(3) required notice to be given to the holder of a security interest over the land. There was no suggestion that notice was not given to the bank and there was no evidence that the bank had itself taken any step inconsistent with the making of the order sought.

25 The terms of settlement between the respondent and the bank have not been produced. Nothing has been said by way of explanation to support the existence of an inconsistent right. Had the bank taken possession of Riverside, I have no doubt the court would have been informed and that fact, or the existence of a proposed sale by the bank, disclosed. It is conceivable that an imminent sale by the bank may justify a deferral of an order for sale under Part IV of the Act. The terms of settlement were not before the tribunal. The respondent's case in the tribunal was inconsistent with any such agreement.

26 I am persuaded that the tribunal erroneously concluded that it had no jurisdiction to make the proposed order; and that it had an open or unfettered discretion to refuse an order. There was no legal or equitable right asserted by the respondent which would have justified the tribunal refusing an order where jurisdiction plainly existed. In my opinion, mere hardship or unfairness will not be a proper basis upon which to refuse to exercise the power once jurisdiction exists. In any event, the hardship and unfairness relied upon by the respondent was either without substance or misconceived. Hardship to Jared Pty Ltd seems entirely irrelevant. The respondent's desire to have the Benalla Road property sold first may be a matter within the control of the bank but it was not suggested that the appellant had that option available to him. The respondent's complaint against the appellant focused on an allegation that he would derive no benefit from the sale. That allegation was plainly wrong.

27 Having found errors of law at the root of the tribunal's decision, whether approached as one based on the absence of jurisdiction or the exercise of an "open" discretion, the appeal must be allowed and the orders of the tribunal set aside.

28 Following the publication of reasons for judgement on 18 August 2010, I was informed of the proposed sale of the Benalla Road property. I was also informed of steps taken in other proceedings, relating to the Riverside property, and requested the preparation of a memorandum describing all related proceedings. I declined to make final orders until fully informed of the circumstances of the proposed sale, the impact on the mortgage over the Riverside property and related proceedings.

29 One matter of concern to the court was the discovery that orders had been made by consent on 6 August 2010, by another judge of this court, which concerned the Riverside property. Undertakings had been given by the defendants in that proceeding, including the respondent and Nazair, not to deal with the Riverside property pending the hearing and determination of that proceeding or further order. The orders had the effect of discharging orders made by Hargrave J on 20 June 2007, which preventing dealings with the property.

30 To enable the parties to assemble the necessary information, this proceeding was adjourned to 25 August 2010. On that day the appellant provided a summary of related proceedings. I was informed that settlement of the sale of the Benalla Road property was imminent, and that following settlement the parties anticipated that the bank would be paid out in full, and that Nazair, a company controlled by the respondent, would take an assignment from the bank of the mortgage over Riverside. Those events have now taken place and the matter returned to the court for final orders.

31 Shortly after the hearing on 25 August 2010, the appellant forwarded draft orders for sale to the respondent's solicitors for their consideration and response. The draft orders were in a form commonly made by the Tribunal in such cases. They contemplated a sale by auction. On 9 September 2010, the respondent's solicitors wrote to the appellant's solicitors, informing them that the respondent did not agree with some aspects of the proposed auction process, and advised that Nazair wished to intervene in the proceeding, and to be heard on the proposal for the sale of the property. The letter from the respondent's solicitors plainly indicated that they had received the draft orders and sought and obtained instructions from the respondent. That was done in contemplation of the matter returning to court for final orders on 10 September 2010.

32 On 10 September 2010, counsel for the respondent sought an adjournment of the proceeding for another week. The application was supported by an affidavit filed by a solicitor employed by the respondent's firm of solicitors. The deponent said that she required an opportunity to provide advice to the respondent in relation to the proposed orders, and that the opportunity to do so had been interrupted by recent flooding in and around the respondent's home. The deponent said that the respondent was, "only able to leave the Riverside property last night after the flooding had subsided from the driveway."

33 The deponent went on to say that she was instructed that the respondent and her family had to seek crisis accommodation pending an assessment of the damage caused to the Riverside property. She concluded - "in these circumstances neither I nor my principals have had an opportunity to have a conference with our client in order to obtain full instructions from her as to the form of orders proposed by the plaintiff in light of the orders by her Honour Justice Emmerton on 6 August 2010 and settlement on 1 September 2010." The deponent did not suggest that she had been unable to provide advice in relation to the draft orders; and the content of the letter of 9 September would suggest otherwise. Nor did she suggest that particular matters had not been addressed. No mention was made in the affidavit of any proposed application by Nazair to intervene.

34 I am, of course, concerned for the wellbeing of the respondent and her family, confronted by the trauma and stress that must have been caused by the flooding that has taken place in central Victoria. I accept that the flooding has adversely affected them and the Riverside property. I am also concerned, however, that this proceeding be brought to an end.

35 When an application is made under the Property Law Act for sale, by a party with the required interest in property, the court is not entitled to refuse an order, unless there are circumstances of the very limited kind mentioned in the reasons for judgment. No such circumstances exist in the present case.

36 I reject the respondent's application for an adjournment for one week. No useful purpose would be served by such an adjournment. I do not understand the respondent to be resisting an order for sale. Her concern was confined to the sale process. The proposed orders leave open the opportunity for the respondent, if so advised, to seek a variation to paragraph 3, which prescribes the steps to be taken to affect the sale.

37 I propose to make an order for sale. It is appropriate that this court make the order rather than sending the matter back to the Tribunal. The power is found under s 148 of the Victorian Civil and Administrative Tribunal Act 1998. I propose making orders in terms of the draft, propounded by the appellant, which was forwarded to the respondent, and which has already been the subject of correspondence and discussion between the parties. I have extended the date for the proposed auction to 11 December 2010.

[1] VCAT Reference No. W88/2008 [39], [40].

[3] (1961) 78 WN (NSW) 1068. See also Ngatoa v Ford (1990) 19 NSWLR 72, 77; Williams v Legg (1993) 29 NSWLR 687, 693.