These reasons need to be read in conjunction with my reasons handed down on 14 August 2015 ("the August reasons"). I shall use the same abbreviations. In the August reasons I concluded that
1. the debts of IFL are not secured over the IFL property
2. the Purchaser will not be liable for amounts due under the SMS (the BMC amounts) for the period when IFL was the registered owner
3. the liability to pay the BMC amounts for the first and second periods, although deferred, was incurred within the period that IFL was the registered owner
4. the plaintiffs were justified in paying the BMC amounts for the first and second periods by reason of clause 86(m) of the Sale Contract and because of cl 86(m) it was not strictly necessary to determine whether the Purchasers would not be liable for those amounts if the plaintiffs did not pay them on or prior to settlement
5. the orders that the plaintiffs sought (supported by the Purchaser and not opposed by any other party) should be made
When I handed down the August reasons I granted time to the parties to consider the reasons before final orders were made. Mr Finnane later that day indicated that
1. the plaintiffs contended that my reliance on cl 86(m) of the Sale Contract to support the orders sought by the plaintiffs (and the Purchaser) was misplaced
2. that the consequence of my conclusion that the liability to pay the amounts for the first and second periods was incurred within the period IFL was registered proprietor and hence were not amounts for which the Purchaser would be liable was that the amounts were not required to be paid as part of the Sale Contract
3. that this would also have a consequence on the liability of the first, second and third defendants to pay the promotional levies
I directed that all parties, including the parties who had filed submitting appearances, who wished to put before me submissions on the effect of cl 86(m) of the Sale Contract and on the form of relief should do so within a specified time.
The parties did provide me with submissions (which I shall describe in more detail below) and on receipt of the submissions I relisted the matter on 3 September 2015.
After hearing further argument about the various matters and having regard to the submissions I can summarise the position of the parties as follows. First so far as the plaintiffs are concerned:
1. the plaintiffs maintain their position that cl 86(m) cannot be relied upon to require the plaintiffs to pay the first and second period amounts to the Purchaser
2. in the light of my conclusion (contrary to the plaintiffs' submission) that the liability to pay the first and second period amounts was incurred within the period that IFL was the registered proprietor, IFL is therefore liable for those amounts (should, I would add, the condition precedent be fulfilled)
3. because IFL is liable for the first and second period amounts and would be required to pay them (if and when the condition precedent is fulfilled I would add) IFL is not required to pay those amounts to the Purchaser as a contractual requirement of the Sale Contract
4. IFL cannot recover the promotional levies of $60,000 per annum from the first defendant other than the first such levy because it will not have paid the first and second period BMC amounts required to be paid by 15.13 of the SMS
5. the orders annexed to the plaintiff's submissions served on all parties on 19 August 2015 ("the Alternative Orders") should, with the modifications proposed by the Purchaser, be made
The Purchaser agrees with this analysis, and the first defendant, consistent with its submitting appearance, accepts that it is for the Court to decide what is the correct position.
The second and third defendants have not in their written submissions advanced any reasons in support of my conclusion in the August reasons in respect of cl 86(m). Nor did they do so in oral submissions on 3 September 2015 although in response to my question Mr Stevens did say that his client does not assert that the reasoning in respect of cl 86(m) in the August reasons was wrong and that if there was an error it was one of opinion not fact (T12.15). Mr Chard sought time to obtain the views of Counsel on the clause but as I had already granted his client (and the second defendant) the opportunity to put forward submissions on the point and no advantage was taken of that leave I refused his application to grant him further time.
The submissions which were received from the second and third defendants ranged well beyond the grant of leave. Strictly I should pay no attention to them since no leave was given to them to advance the matters which they sought to canvas: see Notaras v Waverley Council [2007] NSWCA 333 and Bull v Lee (No 2) [2009] NSWCA 362. I will, however, summarise the contentions of these parties.
The second defendant, through submissions authored by Mr S Epstein SC, and a further set authored by Mr M Stevens of Counsel, contended:
1. the second defendant filed a Submitting Appearance and was content to do so having regard to the fact that the joint advice concluded that whilst the amounts for the third period were not required to be paid to the BMC the amounts for the first, second and fourth periods were required to be paid to the BMC to ensure that the Purchaser was not saddled with the responsibility of paying these amounts after settlement
2. that there was a compromise effected by the parties with the second defendant filing a Submitting Appearance shortly prior to the hearing. An email of 29 July 2015 annexed to Mr Epstein's submissions is referred to
3. as the plaintiffs now wish to seek, by the Alternative Orders, orders which do not require the plaintiffs to pay the first and second BMC amounts this is an unconscionable resiling from their earlier position which they should not be permitted to do
4. that the plaintiffs were seeking in effect leave to reopen argument and challenging my decision in some sort of quasi-appeal for which, it was asserted, there could be no justification
5. the reasons for Judgment are flawed on grounds quite unconnected with the cl 86(m) point- that I was wrong to conclude that s 28W of the Strata Schemes (Freehold Development) Act 1973 (NSW) has the effect that the Purchaser would not be liable for the BMC amounts after settlement, and in my interpretation of the terms of the SMS
6. if the Court was not minded to hold the plaintiffs estopped then the second defendant wishes to withdraw its submitting appearances and embark on a full scale hearing before a different Judge with evidence called on the questions raised in the Summons (although cognisant of the limited amount of money involved in the questions)
7. that the proceedings on 31 July were "ex parte"
The third defendant, through its submissions, asserts that it would be unconscionable for the plaintiffs to be allowed to seek the Alternative Orders because they had handed up proposed orders to the Court on 31 July and the Alternative Orders are far more favourable to the plaintiffs than the 31 July proposed orders. It is submitted that had the third defendant's solicitor known that the plaintiffs were seeking Alternative Orders the third defendant would have briefed Senior Counsel to run various arguments relating to Amended Clause 15.13, s 28W of the Strata Schemes (Freehold Development) Act 1973 (NSW) and s 70A and s 71 of the Conveyancing Act 1919 (NSW). By withdrawing its appearance the third defendant, it is said, altered its position to its detriment.
In oral submissions Mr Chard advanced the further point that he had, before he sought to be excused on 31 July, been handed a copy of the orders that the plaintiffs were seeking from the Court (which orders reflected the conclusions of the joint advice) and he did not anticipate that any other conclusion might be reached; he also referred to the obligation on parties to minimise costs.
The third defendant submitted that I should grant leave to it to withdraw its Submitting Appearance and order the plaintiffs' application be set down for a further hearing.
The third defendant referred to what Palmer J had said in Fitter v Public Trustee [2007] NSWSC 1487:
"[19] Where a defendant files a submitting appearance, that defendant is not thereafter entitled to contest the plaintiff's claim, so that the Court may proceed to judgment against that party in his or her absence and without further notice: see e.g. Trust Co of Australia Ltd v Perpetual Trustees (WA) Ltd (No 2) (1995) 36 NSWLR 654.
[20] The right to be heard and to have notice of proposed orders, which is protected by UCPR 36.16(2)(b), is surrendered once a submitting appearance is filed. A party who has filed a submitting appearance cannot thereafter avail himself or herself of that rule unless that submitting appearance has been procured by fraud or some other vitiating factor. A vitiating factor might be, for example, if a plaintiff amends the claims for relief against a submitting defendant in such a way as to alter substantially the extent or nature of the relief originally sought and does not give notice of that amendment to the submitting defendant."
and contended that the actions of the plaintiffs in seeking Alternative Orders was a 'vitiating factor' contemplated by Palmer J in Fitter.
It appears that the second defendant (and the third defendant) intended that I should decide the issues canvassed by them in their written submissions without the necessity of their filing any Notice of Motion or affidavit in support. When Mr Finnane pointed out the absence of any compliance with procedural requirements Mr Chard sought an opportunity to file a motion seeking to withdraw the third defendant's Submitting Appearance. I refused that application. If it was to be made it should have been made in proper form prior to 3 September when the submissions were filed and in any event for the reasons I indicate below the basis for it, identified in the submissions of the third defendant, is misconceived.
The plaintiffs responded to the second and third defendants' submissions as follows:
1. the plaintiffs have not changed their position- they continue to adhere to the position they took on 31 July ie that the joint advice (save for one matter identified on 31 July) is correct and that the orders which they sought should be made. What they are responding to are the August reasons which do not accept the entirety of the joint advice and they have sought to draw to the Court's attention what they perceive as an error in relation to cl 86(m)
2. the plaintiffs always identified as an alternative the Court determining what was payable and what was not in different terms to the principal relief sought by the plaintiffs. The plaintiffs point out that the inclusion of the alternative relief in paragraphs 5 and 5A is entirely inconsistent with any reasonable lack of appreciation by the second and third defendants that the Court might take a different view of the amounts that were to be paid than that advanced by the plaintiffs
3. the reasoning in the August reasons would lead to the plaintiffs having to pay not only the first and second BMC amounts but also the third BMC amount (in addition to the fourth BMC amount as to which there is no issue)
4. an administrator is bound to draw attention to an apparent error that will affect the appropriateness of the directions. There is an obligation to make full and frank disclosure of material facts and the plaintiffs would have misled the Court if attention had not been drawn to the problem
5. by providing the Alternative Orders and their comments the plaintiffs were responding to the Court's request
6. the Alternative Orders follow the logic of the August reasons "correcting for the identified error"
7. the plaintiffs do not seek to reopen their case
8. the second defendant is seeking to estop the plaintiffs from advancing the Alternative Orders and alternatively seeking leave to withdraw its Submitting Appearance, have a new hearing and have me recuse myself in circumstance in which no accident or mistake on the part of the second defendant has been identified and where the second defendant has been represented at all times: see Evergreen Tours Pty Ltd v McLaren [2010] NSWSC 1362 at [19], Garsec v His Majesty Sultan of Brunei [2007] NSWSC 882 at [49]- [50]. The third defendant is in a similar position. No consent orders were signed by the second or third defendants and they were always able to make submissions against any of the propositions in the joint advice which they both chose not to do
The plaintiffs rejected any suggestion of unconscionability or resiling on their part and objected to any proposed withdrawal of submitting appearances by the second and third defendants.
The fourth defendant does not contend for a different construction of cl 86(m) to that propounded by the plaintiffs. The fourth defendant submits that if I accept that cl 86(m) does not require the plaintiffs to pay the first and second period amounts I will need to determine whether s 28W does render a purchaser liable for obligations prior to becoming registered as I had said it was not strictly necessary to form a view on the point because of my view of cl 86(m): [42] of the August reasons. The Purchaser also proposed some changes to the terms of the Alternative Orders which were not the subject of any contest before me. In particular the Purchaser contends that the promotional levy of $60,000 due on 1 July 2015 is payable by the first defendant because that promotional levy was due at a time after the interdependency regime established by clause 15.3 of the SMS had come to an end.
I set out the terms of the Uniform Civil Procedure Rules 2005 Rule 6.11:
"(1) A defendant who intends to take no active part in proceedings may include in the defendant's notice of appearance a statement to the effect that the defendant submits to the making of all orders sought and the giving or entry of judgment in respect of all claims made, to which may be added the words ", save as to costs".
(2) Except by leave of the court, a defendant who has filed a notice of appearance containing a statement referred to in subrule (1) may not file a defence or affidavit or take any other step in the proceedings."
There are I think a number of fundamental flaws in the contentions of the second and third defendants.
The first is that, as the plaintiffs submit, the second and third defendants' submissions ignore the fact that the Amended Originating Process, whilst it sought relief in accordance with paras 1,3, 4, 4A, also sought:
"5. In the alternative to paragraphs 1 to 4A, a declaration by the Court as to the amount or amounts that:
(a) are recoverable by the BMC against the Lands;
(b) would be and remain recoverable by the BMC, following completion of a sale of the Lands, against the fourth defendant or any other purchaser of the Lands (unless paid to BMC at the time of such completion) and
(c) payable by the first defendant to the second plaintiff by way of promotional levies upon payment by the second plaintiff to BMC of amounts falling within (a) and (b)."
It is clear that although the position reflected in paras 1-4A of the Amended Originating Process was the primary position of the plaintiffs the plaintiffs understood that the Court might not accept either in whole or in part the conclusions in the joint advice and hence sought alternative relief against that very possibility. There alternative orders were not, as Mr Chard submitted, akin to "any further orders that the Court thinks fit" that are often contained in a summons.
Whilst there is some scope for declarations to be made by consent (see Young, Croft and Smith, 'On Equity' (2009, Thomson Reuters) 16.830) the declarations sought here were not sought by consent.
Since there was no consent to the orders sought by the plaintiffs but only a Submitting Appearance by the first, second and third defendants I fail to see on what basis it could reasonably have been thought by the second and third defendants and those advising them that the Court would necessarily come to a conclusion with which those filing their submitting appearances were content. The fact that alternative relief was sought underscored the possibility that the Court would reach a conclusion different to that for which the plaintiffs contended. The second defendant's description of the hearing as 'ex parte' is a very loose use of that expression when generally speaking 'ex parte' describes processes in which no notice has been given to a defendant (usually where an interlocutory injunction is sought). The second and third defendants chose to absent themselves and made no submissions in support of conclusions in the joint advice favourable to their position or against conclusions in the joint advice adverse to their position.
Next I think that the attack on the plaintiffs by the second and third defendants that suggested that the plaintiffs were opportunistic is entirely without foundation. Mr Finnane and those instructing him cannot be criticised for having sought to bring to my attention what they perceived to be an error of reasoning which would be perpetuated in the making of orders in the form they had themselves sought. As Mr Finnane points out, part of what was being sought were directions that would provide protection to Mr Hathway as administrator. In Traianedes in his Capacity as Deed Administrator of Mercury Brands Group Pty Ltd (Subject to Deed of Company Arrangement) v Mercury Brands Group Pty Ltd (No 2) [2010] FCA 1140 Finkelstein J said
"[7] It would be contrary to the purpose of such a proceeding to permit an administrator who, in good faith, puts forward all he/she knows to obtain a direction, to take advantage of that direction if, since the hearing, he/she discovers further facts which, had they been before the court, would have led to a different, or no, direction being given. Logically it follows that if after the hearing but before any direction is given the administrator discovers new facts which may affect the judge's decision the administrator should bring those facts to the attention of the judge. At that point the judge could reconsider the matter."
Although Finkelstein J was dealing with the discovery of facts in my view a concern that the Judge has or may have proceeded on a misapprehension in reaching a conclusion (ie opinion) that an administrator would be justified in taking a particular step is in a similar category, particularly where the point on which I had proceeded was not the subject of argument and I had provided the reasons and invited a response to those reasons before finalising the orders.
It follows in my view that the plaintiffs were entitled to bring what they perceived to be an error to my attention, lest the declaration and orders proceed on a flawed basis. I do not accept that the plaintiffs are seeking leave to reopen or that they have resiled from their previous position. I cannot accept that the second and third defendants could have reasonably formed the view that there could be no other result than acceptance of the contentions of the plaintiffs' submissions and hence the making of the original draft orders. If the plaintiffs had amended their claim to seek different relief than that which they had sought that might found an application for withdrawal of the submitting appearance but there is no 'vitiating factor' present in this case. I do not accept that by virtue of having filed a Submitting Appearance there was any implicit agreement or compromise between the plaintiffs and the defendants as asserted by the second defendant. The email of 29 July 2015 from the plaintiffs' solicitors to the solicitors for the second and third defendants and annexed to Mr Epstein's submissions is of no assistance to the second (or third) defendants.
For reasons which I shall briefly explain I accept the plaintiffs' contention that cl 86(m) does not produce the result that contractually the plaintiffs are required to pay the first and second amounts on or before the sale and that therefore the August Reasons contain an erroneous conclusion on that point. Had I so concluded on 14 August there would have been no basis for either of the second or third defendants to seek to be heard or to resist the conclusions which flowed therefrom. In a sense the second and third defendants were granted an indulgence which permitted them to contend that my conclusion in respect of cl 86(m) was correct or that the Alternative Orders proposed by the plaintiffs do not reflect the conclusions that flow from my reasons if amended in the fashion advanced by the plaintiffs. That is not the course which they have chosen. For reasons which I have indicated in [8] above and because of the filing of submitting appearances, which remain in place undisturbed, I have not had any regard to the submissions of the second and third defendants on any aspect of the substantive issues.
[2]
Clause 86(m)
In my August reasons I noted that cl 86(m) provided that the deferral of payment by virtue of 15.3 of the SMS is to be ignored in determining the BMC amounts for which IFL is liable. Contrary to the implicit assumption in the August reasons it does not follow that because the amount is one for which IFL is liable it must, by the terms of the Sale Contract, be paid on or prior to the settlement. The scheme of cl 86 is that what is to be paid by the Vendor on or before settlement are amounts for which the Purchaser is or may be held liable not amounts for which IFL is solely liable. This is emphasised by cl 86(e) which provides:
"e. save as provided above, all unpaid Vendor BMC Contributions shall remain unpaid by the Vendor on Completion and shall not be adjustable, to the intent that, as between the Vendor and the Purchaser, the Vendor is under no obligation under this Contract to pay Vendor BMC Contributions or any interest, penalty or costs associated with any Vendor BMC Contributions which might otherwise be recoverable;"
Cl 86(m) reflects the agreement between the plaintiffs and the Purchaser that the interdependent quality of the BMC amounts and the promotional levies for the first and second periods will be ignored, so that as between them the plaintiffs accept that IFL is liable for those BMC amounts. If the conclusion is that an unpaid BMC amount or obligation in connection therewith is not recoverable from the Purchaser or the Land then the condition precedent in cl 86(f) is met.
The question which remains therefore is whether a liability incurred by IFL within the period that it is a registered proprietor is an amount for which the Purchaser could for reasons extraneous to the Sale Contract be liable to the BMC after settlement. I have held that the words "successor in title" in the SMS are not intended to impose on a purchaser an obligation in respect of obligations already incurred by IFL as debts of IFL (see [32] and [33] of the August reasons). In my view s 28W does not impose on a purchaser an obligation to pay debts which had accrued for reasons which I have previously given and I think that would extend to obligations which were incurred within the period that IFL was registered as the owner of the Property even if the condition precedent giving rise to the requirement to pay was met after settlement. As noted in [42] of the August reasons s 28W speaks of obligations which have been incurred and not debts, with the consequence that a liability contingent upon an event is an obligation incurred by IFL whilst registered as owner and is not imposed on the Purchaser. It follows that s 28W does not make the Purchaser liable for any of the BMC contributions (even where payment was subject to a condition) for the periods it was not the registered proprietor.
At present the first and second BMC amounts are not due to be paid by IFL because the condition precedent has not been met but if it is met whether before or after the settlement with the Purchaser the Purchaser will not be liable to pay those amounts.
Since my conclusion is that the unpaid contributions for the first and second periods are a liability incurred by IFL (although one subject to a condition precedent which has not as yet been met) it follows that that liability, if it ever crystalises and if sustainable after the sale of the property, is one of IFL and will not be a liability of the Purchaser. It follows then, that the first and second period BMC amounts are in the same category as the third period BMC amount.
[3]
Conclusion
It follows that in my view the declarations and orders sought by the plaintiffs in the Alternative Orders should be made subject to the amendments identified by Mr Carruthers and accepted by the plaintiffs.
[4]
Amendments
22 September 2015 - Typographical correction
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Decision last updated: 22 September 2015