The offsetting claim issue
20 Gucce says that its claim against the Bank in respect of the sale of the properties of Success at less than market value was deferred by the orders of Mitchell J of 19 June 2015. It contends that on that basis the orders of the judge were a legal, rather than a practical, bar to the offsetting claim being dealt with in the hearing before him.
21 Gucce contends that in the Supreme Court proceedings:
the Bank admitted that the relevant properties were sold for $5.7 million, leaving a shortfall of $2,274,515.87 after the sale of the securities; and
the evidence of the Bank tendered at the trial was that the relevant properties had a value of $14.29 million as at February 2010, having regained "prior decreases caused by the GFC". In that regard, it refers to Ms Bazzo's affidavit at p 135.
22 Accordingly, Gucce contends that, as the judgment debt relied on by the Bank was significantly less than the difference of $8,570,000, it has an offsetting claim which would completely exhaust the amount of the debt.
23 Additionally, it notes that the judgment debt had been reduced by payments made since December 2015 to the extent of $700,000, referred to below, and by a further payment of $100,000 in March 2016.
24 Gucce contends that if it were successful in its claim in the Supreme Court proceeding, or if an appeal from the judgment of Mitchell J were to be successful, the Bank would be required to repay Gucce the $800,000 paid to date, and any further amount paid, in addition to having its claim extinguished.
25 In relation to the affidavit of Mr Clarke, filed on behalf of the Bank and referred to below, which included a valuation report prepared by Burgess Rawson, Gucce contends that the properties were valued at $8.17 million. It submits that even at that sum there would have been a surplus of funds, not a shortfall, so the valuation also establishes that the offsetting claim of Gucce exceeds the debt claimed.
26 As to a valuation report by Opteon relied on by the Bank as showing an undervalue sale, included in Mr Clarke's affidavit, Gucce contends it was made for PPB Advisory, not the Bank. It says that report expressly restricts the use of the report to PPB, not the Bank, and confirms the "assessment of Market Value is considered to be highly subjective". It submits the report does not provide any evidence upon which the Bank can rely, although if it could, it would not assist in circumstances where the Court does not engage in any form of a balancing exercise between the strengths of competing contentions.
27 Accordingly, Gucce submits the material before the Court is sufficient to establish that there is a "plausible contention" that it has an offsetting claim which exceeds the claim of the Bank.
28 At the hearing, Gucce made a number of other submissions about the values for which the properties of Success were sold. Following the hearing, the parties were given leave to put further written submissions about those submissions.
29 Gucce submitted in writing as follows:
1. During the hearing on 24 October 2016, the plaintiff submitted that:
1.1 properties of Success Assets Pty Ltd (Success): were sold for less than the valuation the defendant obtained for the properties;
1.2 a party offered to purchase Success properties on Muriel Court for more than the properties were subsequently sold for, and the purchaser refused to agree to provide sewer works for adjoining land being sold by the same receiver, for the defendant;
1.3 the ultimate purchaser of the Success properties on Muriel Court previously offered more for the Success properties than the ultimate sale, which achieved an increased sale price for the adjoining land being sold by the same receiver, for the defendant;
1.4 The defendant did not rely on the suspension of claims clause in the guarantee, as it related to claims against Success, not the defendant.
2. The references to the evidence in respect of each of these matters are set out below.
Sale for less that valuation
3. The defendant admits that the sale of the properties of Success Assets Pty Ltd (Success), for $5,720,000 including GST occurred between July 2012 and October 2013 (defence and counterclaim at [39]). (Affidavit of Ms Bazzo, at pages 87 - 88)
4. The defendant's valuation from Burgess Rawson in March 2012, valued the Success properties at $8,170,000 plus GST. (Affidavit of Mr Clake, at page 141, valuation certificate)
Higher offer to purchase properties without sewer works
5. The defendant admits it appointed the receiver to the Success properties and to Dawnlink Pty Ltd (defence and counterclaim at [24] and [25]) (Affidavit of Ms Bazzo, at page 77) and that Knight Frank were appointed as the selling agent for both the Success and Dawnlink land in or about February 2013 (re-amended statement of claim at [60C] and defence and counterclaim at [32G]). (Affidavit of Ms Bazzo, at pages 56 and 79).
6. The defendant admits that in March 2013, Riviera Street Pty Ltd offered to purchase the Muriel Court land of Success Assets Pty Ltd (Success), for $4,300,000 plus GST (defence and counterclaim at [33]). (Affidavit of Ms Bazzo, at page 80)
7. The defendant admits that the selling agent requested Riviera Street Pty Ltd agree a condition in relation to sewer works (defence and counterclaim at [34.1]), which Riviera Street Pty Ltd rejected (defence and counterclaim at [34.2]). (Affidavit of Ms Bazzo, at page 81) The relevant condition is set out in paragraph 61A.1 of the re-amended statement of claim. (Affidavit of Ms Bazzo, at page 57)
8. The defendant admits that on 24 April 2013, the receiver accepted an offer of Shineton Australia Pty Ltd to purchase the Muriel Court land of Success for $3,470,000 plus GST (defence and counterclaim at [37.1]). (Affidavit of Ms Bazzo, at page 86)
Accepted offer less than previous offer for Success & more for Dawnlink
9. The defendant admits that in March 2013, Shineton Australia Pty Ltd offered to purchase the Muriel Court land of Success, for a total of $3,676,000 plus GST, being $1,973,105 plus GST (defence and counterclaim at [35.1]) (Affidavit of Ms Bazzo, at page 82) and $1,702,895 plus GST(defence and counterclaim at [35.5]). (Affidavit of Ms Bazzo, at page 84).
10. The defendant admits that in March 2013, Shineton Australia Pty Ltd offered to purchase the Muriel Court land of Dawnlink, for a total of $2,624,000 plus GST, being $969,024 plus GST (defence and counterclaim at [35.2]) (Affidavit of Ms Bazzo, at page 83), $825,545 plus GST (defence and counterclaim at [35.2]) (Affidavit of Ms Bazzo, at page 83) and $829,431 plus GST(defence and counterclaim at [35.4]) (Affidavit of Ms Bazzo, at page 84), and the offers were subject to the purchase and settlement of the Muriel Court land of Success.
11. The defendant admits that in April 2013, the receiver accepted an offer of Shineton Australia Pty Ltd to purchase the Muriel Court land of Success for $3,470,000 plus GST (defence and counterclaim at [37.1]). (Affidavit of Ms Bazzo, at page 86)
12. The defendant admits that in April 2013, the receiver accepted an offer of Shineton Australia Pty Ltd to purchase the Muriel Court land of Dawnlink for $3,434, 670 plus GST (defence and counterclaim at [37.2]) (Affidavit of Ms Bazzo, at page 86) and the offers were subject to the purchase and settlement of the Muriel Court land of Success.
Suspension of claims clause
13. The defendant pleaded a claim based a suspension of claims clause in the guarantee as follows;
13.1 'By clause 15(a), until the Moneys Secured are paid or satisfied and the Guarantor is no longer liable under the Guarantee, the Guarantor must not claim or have the benefit of any set-off' (defence and counterclaim at [5.4]). (Affidavit of Ms Bazzo, at page 69)
14. During the defendant's closing in the trial before Mitchell J, the defendant's counsel materially stated
14.1 'I omitted to give you an answer with respect to whether the bank relied on clause 15 of the guarantee. It does not.' (Transcript of Supreme Court proceedings dated 7 October 2015, at page 293)
30 The Bank challenges these submissions.
31 By affidavit of Mr Michael Arthur Clarke filed 17 March 2016, the Bank states that the statutory demand in question relates to the Bank's demand for payment of the judgment sum of $2,555,309.53 (judgment sum) awarded in its favour by Mitchell J in the Supreme Court proceeding, in which Gucce was, as Ms Bazzo says, one of four plaintiffs and the Bank was the defendant.
32 Mr Clarke says the judgment was delivered on 27 November 2015 after a trial of preliminary issues in which the Bank was entirely successful.
33 He says that before issuing the impugned statutory demand, the Bank's solicitors made inquiries of the plaintiffs, including Gucce, as to their intentions to seek a stay of the judgment.
34 He says the Bank received a letter from the solicitor for those plaintiffs in reply, but a payment proposal mentioned in it was not acceptable to the Bank and was rejected.
35 Mr Clarke says that at the date of making his affidavit he was not aware of any application having been made by Gucce or any of the other plaintiffs for a stay of execution of the judgment in the Supreme Court proceeding.
36 As to Gucce's allegation that it has an offsetting claim of the nature referred to by Ms Bazzo, Mr Clarke says that paras [75] to [76B] (among others) of the filed statement of claim refer to damages being claimed, but do not specify what amount Gucce (among other parties) is seeking to recover from the Bank.
37 Mr Clarke says that a copy of the minute of amended statement of claim dated 11 December 2015 was circulated by Gucce, but it has not been given leave to file that minute. In any case, he says, paras [80] to [81.1] inclusive of that minute also refer to damages being claimed, but do not specify what the amount is.
38 In relation to the attachment TMB12 to Ms Bazzo's affidavit, referred to above, Mr Clarke says it is a "commercial long form submission" dated 6 May 2010 of the Bank, which is an internal business record. It is not generally available to the public and is not ordinarily made available to anyone other than the Bank or its advisors. That submission was discovered by the Bank in the course of the Supreme Court proceeding. It is not a document, he says, which would be provided to a customer, borrower, guarantor or security provided by the Bank at any stage of a transaction.
39 Mr Clarke goes on to say that he is informed by the Bank's solicitors and believes that the solicitors have sought clarification on several occasions as to the quantum of the damages sought by the plaintiffs in the Supreme Court proceeding and has received the range of responses that appear at MAC7, MAC8, MAC9, MAC10, MAC11, MAC12 and MAC13 to his affidavit.
40 He says the receiver appointed to the properties of the borrower obtained valuation reports, including that of Burgess Rawson dated 21 February 2012 (MAC14) and a valuation report from Opteon dated 24 August 2012 (MAC15).
41 Mr Clarke adds that the Bank has applied for security for costs in, and a stay of, the Supreme Court proceeding, which application at the time he made his affidavit was listed for hearing on 24 March 2016. He also produces correspondence between the solicitors for the parties concerning the security for costs application.
42 At the date of Mr Clarke's affidavit, the Supreme Court appeal was still pending. He also noted that since the judgment, a total sum of $700,000 had been paid into an account maintained by the Bank in respect of the judgment sum, comprising payments on 23 December 2015, 1 February 2016 and 29 February 2016.
43 The Bank, noting that by s 459H of the Act an offsetting claim is defined as a "genuine claim that the company has against the respondent by way of counterclaim, set‑off or cross‑demand" and recognising that the test the Court applies in this regard is to consider whether it is satisfied that there is a "serious question to be tried" or an "issue deserving of a hearing" submits that there is no offsetting claim on this test.
44 The Bank submits the contention of Gucce to the contrary is fundamentally flawed:
(1) There must be an offsetting claim for money and here, Gucce seeks declaratory relief only.
(2) Even if the relief is for a monetary amount, Gucce has not discharged its onus of proving that it has an offsetting claim. It has not adduced any evidence in support of its claim.
(3) Even if the claim is a monetary one and Gucce has adduced some evidence, it has not claimed against the correct party, the reason being the Bank did not effect the sale of the properties as suggested, but the receiver and manager did.
45 So far as the position of the Bank vis-a-vis the receiver is concerned, the Bank observes that Gucce claims against the Bank relying on the basis of an allegation that the Bank breached some purported duty to Gucce:
by not terminating the receiver's appointment to the company;
as a result of which inaction, the receiver sold the property at an alleged undervalue, whereby the Bank was unjustly enriched; and so,
the Bank is liable for the wrongdoings of the receiver as the receiver is its agent.
46 As to each of these propositions, the Bank contends:
There is no evidence before the Court that suggests the bank did not act in good faith in appointing and not terminating the receiver's appointment.
The evidence before the Court is that the Bank has not been unjustly enriched and, indeed, is still owed the due debt.
There is no evidence to support the claim that the receiver is an agent of the Bank.
47 More fundamentally, the Bank submits there is a failure by Gucce to actually quantify the value of its counterclaim. The Bank notes that despite its numerous requests over three years for Gucce to quantify its claim, it has never done so.
48 The Bank notes that the sole piece of evidence produced by Gucce as evidence of the quantum of its claim is an internal commercial submission prepared by employees of the Bank in 2010.
49 The Bank says this document is only before the Court because Gucce and its solicitors breached their implied undertaking not to use a document discovered in one proceeding (the Supreme Court proceeding) in another proceeding (this proceeding) and that the Bank objects to its production.
50 The Bank also objects to para [20] of Ms Bazzo's affidavit which claims that the Bank admitted the properties had a value of $14.29 million. It says no such admission has ever been made. It says that Gucce's submission to that effect must be disregarded.
51 The Bank also contends, in any event, that its evidence in the trial before Mitchell J in the Supreme Court proceedings was not (as submitted by Gucce) that the properties had the value ascribed by the Bank's submission, for the simple reason that the Bank did not lead any evidence as to the value of the properties at trial.
52 Accordingly, the Bank submits that its internal document is of little evidentiary value for the purpose that Gucce now contends. It is an internal document prepared by the Bank in May 2010. It is not in any way, shape or form, evidence of the quantum of market value of the properties.
53 For this reason, the Bank submits the claim must fail.
54 The Bank says if the Court is prepared to accept the Bank's submission has some evidentiary value, then it should be noted:
(1) it is dated 5 May 2010, over 3 years prior to the date at which the properties were sold; and
(2) the values in it were the current (2010) estimates of Ms Tina Bazzo, the director of Gucce, not the defendant and, so, at best it is an estimate from Ms Bazzo of the value of the properties in 2010.
55 The Bank says there is no explanation given as to why Ms Bazzo has not provided an updated estimate, and presumably the reason is she does not have the expertise or qualifications to provide expert evidence as to the value of the properties.
56 The Bank says the properties were sold in January 2013, March 2013 and October 2013 and there is no evidence as to market value of the properties at those dates. No explanation for this is provided by Gucce.
57 The Bank says it has, however, produced some evidence as to the historical value of the properties in the form of the valuation from Burgess Rawson prepared in February 2012 and Opteon Valuers in August 2012, which show that the total sale price for the properties was $5,787,500.
58 It notes that according to the Opteon valuation, the most recent, the properties were not sold at an undervalue, but rather they were sold:
(1) in excess of the range for a forced sale (being $4.13 million to $4.72 million); and
(2) at the upper end of the range for market value (being $5.175 million to $5.9 million).
59 The Bank submits that even assuming that the market value of the properties was $5.9 million, being the top of the range ascribed by Opteon, the difference between that value and the value the properties were sold for ($5,787,500) is only $112,500, which is not sufficient to reduce the debt owed to the Bank below the statutory minimum and accordingly, Gucce's claim must fail.
60 As to the further oral submissions made on behalf of Gucce at the hearing, the Bank was given leave to file further submissions concerning the evidence, which it did in the following terms (footnotes omitted):
Leave granted
1. The plaintiff was granted leave to file an Outline of Evidence at the conclusion of the hearing of these proceedings on 24 October 2016.
2 The scope of leave was limited to the provision of evidentiary references to certain paragraphs of the pleadings in Supreme Court of Western Australia proceedings George 218 Pty Ltd & Ors v Bank of Queensland Limited [2015] WASC 434, CIV 2431 of 2014 (Primary Proceedings). (Transcript, page 33, 5-35.)
3 The evidentiary references were identified by the plaintiff's Counsel during oral submissions as those identifying the offers to purchase the properties the subject of the plaintiff's asserted off-setting claim.
4 This is the defendant's response to the plaintiff's outline of evidence filed 31 October 2016.
The alleged offsetting claim
5 The plaintiff asserts it has an off-setting claim because of an internal bank document dated 6 May 2010 recording the value of the Success Asset Pty Ltd properties (Properties) as $14,290,000 as at February 2010: see Bazzo Affidavit, "TMB12", p116.
6 That submission - which appears to suggest the off-setting claim is quantified at $14,290,000 - overlooks the fact that:
6.1 The value recorded in the bank document is "based on Ms Bazzo's current estimates:" see Bazzo Affidavit, "TMB12", p116 (penultimate dot point).
6.2 There is no valuation actually in evidence by the plaintiff (or indeed at all) determining the value of the Properties at $14,290,000 or any other amount.
6.3 The bank document is historical; it is dated 6 May 2010; relevantly some 3 years prior to the actual sale of the Properties by the receivers PPB Advisory (Receivers).
6.4 The valuation of the Properties dated 24 August 2012, which valuation was prepared for the Receivers by Opteon certified practising valuers (Affidavit of Michael Arthur Clarke, "MAC-15," p 182, cf: p256) (noting the Properties were the subject of contracts of sale by the Receivers in January, March and October 2013).
7 At the hearing the plaintiff asserted that the figure of $14,290,000 was a valuation derived by Knight Frank. That submission does not accord with the evidence: "TMB12", p119 (last two paragraphs), cf: at p116 last dot point as to March 2009 valuations.
8 In the defendant's submission, the evidence relied upon by the plaintiff in support of either:
8.1 the quantification; or
8.2 the very existence, of the alleged off-setting claim
can not properly constitute admissible evidence as to value (or at all) and should be disregarded.
9 Even if the plaintiff overcame these evidentiary considerations, at its most generous, the plaintiff's off-setting claim is not such as to extinguish the amount specified in the statutory demand. The defendant refers to:
9.1 paragraphs 19-22 of its written submissions filed 12 April 2016 in which it outlines the valuations and contracted sale prices for the Properties; and
9.2 paragraph 12 of this response.
Offers to purchase
10 The plaintiff's outline, at [6]-[8], overlooks the defendant's pleadings in the Primary Proceedings concerning the Receivers' doubts as to Riviera Street Pty Ltd's financial capacity to complete the offers made for the Properties. (Affidavit of Tina Michelle Bazzo, "TMB10," pp 66-107, [34.3]- [34.5] at pp 81-82.) Those pleadings are at paragraphs 34.3 to 34.5 of the defendant's defence and counterclaim in the Primary Proceedings. (Affidavit of Tina Michelle Bazzo, "TMB10," pp 66- 107, at pp 81-82.) In relation to the Shineton offer, the Plaintiffs outline [9 to 12] overlooks the conditional nature of the offers provided. (Affidavit of Tina Michelle Bazzo, "TMB10,'' pp 66-107, [35] and [37] at pp 82 and 85-87.)
11 In any event, as to the plaintiffs outline at [6]-[12] , the defendant submits the offers are not relevant in circumstances where the Properties were sold for $1M more than the forced sale valuation and within the market value attributed to the Properties by an expert around the time of the sale. (Affidavit of Michael Arthur Clarke, "MAC-14," page 138; affidavit of Michael Arthur Clarke, "MAC-15," 182; defendant's submissions filed 12 April 2016, [20], [21].) The defendant refers to paragraphs 19 - 22 of its written submissions filed 12 April 2016 in which it outlines the valuations and contracted sale prices for the Properties.
12 Even if the plaintiff overcame the legal and evidentiary hurdles necessary to establish an off-setting claim, then the best claim the plaintiff can advance (in the absence of expert, or any, evidence as to the value asserted by the plaintiff) is that the combined sale of the Properties and the Dawnlink properties resulted in a loss of $206,000. That amount is the difference between the offers set out at:
12.1 [35.1] and [35.5] on the one hand; and
12.2 [37.1] on the other hand;
references being to paragraphs of the defendant's defence and counterclaim. (Affidavit of Tina Michelle Bazzo, "TMB10," pp 66- 107, at pp 82, 84, 86 respectively.)
Defendant's objections
13 Paragraphs 3 and 5 of the plaintiffs outline appear to exceed the scope of the leave granted by this Honourable Court to the plaintiff.
14 In relation to paragraphs 3 and 4 of the plaintiff's outline, the defendant agrees that the Properties were sold for $5,720,000; contrary to the suggestion in paragraph 4 of the plaintiff's outline, the matters set out in paragraphs 5 - 10 of this response carry greater evidentiary weight as to value.
15 As to paragraphs 5 - 12 of the plaintiffs outline, irrespective of the Receivers' concurrent appointments to the Properties and the Dawnlink Pty Ltd properties, the matters set out in paragraphs 5 - 9 and 11 - 13 of this response negative any off-setting claim asserted.
Suspension
16 Paragraphs 13 and 14 of the plaintiffs outline appear to exceed the scope of the leave granted by this Honourable Court to the plaintiff.
17 In any event:
17.1 the effect of clause 17 of the guarantees upon which the defendant-bank relied in the Primary Proceedings has the effect of requiring payment by the plaintiff, among others, without deduction or set-off including in respect of any kind of sale at undervalue claim asserted by the plaintiff or its co-guarantors. That was the very purpose of the trial of preliminary issues before His Honour Justice Mitchell; and
17.2 the plaintiff, among others, consented to orders staying the deferred issues in the Primary Proceedings (which include the asserted sale at undervalue claim).
61 I accept the submissions made on behalf of the Bank concerning what it has called the fundamental issue concerning an undervalue sale. The attempt by Gucce to identify a genuine claim, one in which there is a serious question to be tried or deserving of a hearing, lacks any cogency.
62 The claim is ultimately based on a suggestion that an internal Bank document from 2010, some three years before the material valuation dates, and an estimate made by Ms Bazzo, an officer of Gucce, somehow provides a plausible basis for proving a later undervalue sale by receivers.
63 Even assuming that the actions of the receiver can be attributed to the Bank, and leaving aside the production by Gucce in the proceeding, without any leave of the Supreme Court of a document disclosed by the Bank in the course of discovery in the Supreme Court proceeding for use in that proceeding, no real evidence is offered by Gucce, save for this insubstantial evidence in the internal Bank memorandum that it relies upon, to support an undervalue sale. All that Gucce has done is focus on figures in a document - the informal Bank document - in order to try to contrive an undervalue case. The argument is not, however, arguable on this material.
64 As to Gucce's further written submissions at [30] above, I accept and adopt the Bank's responsive submissions set out at [61] above. Nothing in the further valuation analysis contended for by Gucce raises a serious issue to be tried. There is nothing exceptional about the process by which the security land was sold. Comparisons with the Dawnlink sale and the earlier offers do not create even a prima facie case of an actionable undervalue sale, but simply constitute part of the history of tenure and land sales in the area.
65 In these circumstances, I am not satisfied that Gucce has demonstrated to the requisite standard, having regard to relevant evidence, that it has an offsetting claim equal to, or in excess of, the judgment debt in this case that forms the basis of the statutory demand.