Leda Holdings Pty Ltd v Securcorp Limited

REASONS FOR JUDGMENT 1 This is an application by the first and second respondents in the principal proceeding to transfer the proceeding from the New South Wales District Registry to the Queensland District Registry of the Court. 2 The applicant in the proceeding opposes the application for transfer. The third respondent neither supports nor opposes the application for transfer.

Background 3 The proceeding was commenced by an originating application supported by a statement of claim filed on 27 September 2013. The interlocutory application seeking the transfer was filed on 14 November 2013. It is supported by an affidavit sworn on 14 November 2013 by David Robert Walter Tucker. Mr Tucker is a partner in Tucker & Cowen Solicitors, the first and second respondents' solicitors in the proceeding. The applicant relies on an affidavit sworn on 25 November 2013 by Amanda Kim Banton. Ms Banton is a partner in Piper Alderman, the applicant's solicitors. 4 In the proceeding, the applicant claims damages, and equitable and other compensation, against the respondents arising out of the applicant's failed investment in a registered managed investment scheme known as the Securcorp Mortgage Income Scheme (the SMIS). 5 The principal allegations made by the applicant can be summarised as follows. At all times until 8 May 2013, the first respondent was the responsible entity for the SMIS. At all material times, the second respondent has been a director of the first respondent and was knowingly involved in the first respondent's conduct about which complaint is made. Since about 8 May 2013, the third respondent has been the responsible entity for the SMIS and has assumed the first respondent's liabilities and obligations in respect of the SMIS. 6 In about June 2007, the first respondent was approached by Backpackers Australia Pty Ltd (Backpackers) to provide funding to enable it to acquire certain land at Kirra on the Gold Coast in Queensland (the Kirra development). The first respondent was provided with valuations of the land undertaken by LandMark White Gold Coast Pty Ltd (LandMark White). These valuations had been prepared for the Commonwealth Bank of Australia (the CBA), the initial financier of the development. The CBA made a loan to Backpackers in respect of the Kirra development and became registered as first mortgagee in respect of the land. 7 During August and September 2007, the first respondent made certain offers to provide a loan to Backpackers in relation to the Kirra development. 8 On about 1 October 2007, the applicant, which is based in New South Wales, received an information memorandum from the first respondent. The applicant says that it accepted the terms of the information memorandum and paid $11.4 million to the first respondent to acquire units in the SMIS. 9 On about 2 October 2007, the first respondent advanced $11.4 million to Backpackers and took a second registered mortgage of the land. 10 During November 2008, Backpackers defaulted on its loan with the CBA. Subsequently, Backpackers went into liquidation and the CBA realised its security. The applicant says that, as events have transpired, the second mortgage held by the first respondent in respect of the land is of no value and that, consequently, the units acquired by the applicant in the SMIS are of no value. 11 There is a dispute between the parties as to the identity of the land that comprises the Kirra development. It would appear, however, that the land comprises at least the following properties (the properties): Lots 1-40, SP 100108, County of Ward, Parish of Tallebudgera, Title References 50208700-50208739 (Kirra on the Beach), at 92 Musgrave Street, Kirra, Queensland; Lots 1-5, BUP 104748, County of Ward, Parish of Tallebudgera, 4 Churchill Street, Kirra, Queensland; Lot 14, CP C28530, 9 Miles Street, Kirra, Queensland; Lot 13, CP C28530, 11 Miles Street, Kirra, Queensland; Lot 12, CP C28530, 17 Miles Street, Kirra, Queensland; Lots 1-4, BUP 3063, 51 Winston Street, Kirra, Queensland; Lot 9, SP 144095, 10 Churchill Street, Kirra, Queensland; and Lot 10, CP C28530, 12 Churchill Street, Kirra, Queensland. 12 An important question of fact in the proceeding will be the loan-to-value ratio (the LVR) respecting the funds advanced by the first respondent to Backpackers. There will be a question whether valuations provided by LandMark White to the CBA in June 2007 and September 2007 were properly arrived at. There will also be a question whether, had the first respondent obtained its own valuation of the properties, it would have become aware that the LVR respecting the loan it had made to Backpackers exceeded 80%. 13 In this connection, the applicant says that, under a constitution filed on 20 October 2009 with the Australian Securities and Investments Commission in respect of the SMIS (the constitution), the first respondent was only to invest members' funds if the LVR in respect of the secured property was lower than 80%, unless mortgage insurance was provided. It can be taken that it is the applicant's case that no mortgage insurance was provided in relation to the first respondent's loan to Backpackers. 14 The applicant's pleaded case is that, if the first respondent had become aware that the LVR in respect of the loan to Backpackers exceeded 80%, and was, according to the applicant, outside the first respondent's lending policy, it would not have made the loan of $11.4 million to Backpackers. The applicant also says that, in those circumstances, the applicant would not have made its investment of $11.4 million for units in the SMIS. 15 The substantive allegations in the proceeding concern: whether the first respondent breached the constitution in making the loan to Backpackers; whether the first respondent breached various provisions of the Corporations Act 2001 (Cth) (the Corporations Act) in making the loan to Backpackers; whether the second respondent was a person knowingly involved in the first respondent's alleged contraventions of the Corporations Act; whether the first respondent breached certain trust duties, including those arising under the Trusts Act 1973 (Qld); whether the first respondent breached a duty of care owed to the applicant; and whether the first respondent or the second respondent engaged in conduct that was misleading or deceptive. 16 Mr Tucker has expressed the view that, in light of the allegations pleaded in the statement of claim, and the answer made in the first and second respondents' defences, it is likely that the first respondent would call evidence on: The dealings between the first respondent, the CBA and Backpackers, involving former employees of the first respondent (located in Queensland) and employees or former employees of the CBA who were located in Queensland at the time of the alleged events. The dealings between the first respondent and the applicant. The valuations and dealings with the valuations of the properties that had been prepared by LandMark White. Whether and in what circumstances the first respondent would have made a loan to Backpackers if it had known that the LVR respecting its loan to Backpackers exceeded 80%. The steps taken by the first respondent to ascertain the financial position of the two directors of Backpackers who guaranteed repayment of the loan to the first respondent. The feasibility of the Kirra development. 17 Mr Tucker said that he anticipates receiving instructions from the first and second respondents to call the three current directors (including the second respondent) and one former director of the first respondent, all of whom reside in Queensland. He said that he also anticipates that the first respondent would seek to call evidence from the current director and secretary of Backpackers and a former director of Backpackers (the two guarantors), both of whom reside in Queensland. He also anticipates that expert witnesses, who have expertise in the Gold Coast property market, and who reside on the Gold Coast or in Brisbane, will give evidence. Mr Tucker said that reliance would be placed on the first respondent's records that are held electronically or in hard copy form at Surfers Paradise in Queensland. Mr Tucker described these records as "extensive documentation". The first respondent's principal place of business is recorded as being at Miami in Queensland. Its registered office is recorded as being at Bundall in Queensland. 18 Ms Banton has given evidence that, while the applicant's position has not been finalised, she anticipates that the applicant will call evidence from the current directors of the applicant, Robert John Ell and William Robert Ell (Bob Ell); a former director, Colin Allerdice; the applicant's former development manager, Phillip O'Callaghan; an executive assistant of the applicant, Craig Cornish; and Howard Schmiede, who formerly worked in the applicant's Sydney office, but who no longer works for the applicant. 19 Ms Banton said that Bob Ell and Mr Allerdice are likely to be the applicant's principal lay witnesses. They both reside in Sydney. She said that the other possible witnesses played a lesser role in the subject matter of the proceeding and she does not anticipate that their evidence would be lengthy. Mr O'Callaghan lives and works on the Gold Coast, but is no longer employed by the applicant. Mr Cornish lives on the Gold Coast and works at the applicant's Gold Coast office. Mr Robert Ell lives in Sydney. Ms Banton did not provide an address for Mr Schmiede. 20 Ms Banton also said that she has had initial discussions with an expert witness located in Sydney. From oral submissions made by the applicant's counsel, I assume that this witness, if called, would be involved in giving valuation evidence. 21 As will be apparent from the evidence recorded at [19] above, the applicant has an office on the Gold Coast. 22 For completeness, I should record that the third respondent's currently recorded registered office and principal place of business is at Surfers Paradise in Queensland. Backpackers' currently recorded registered office is at North Tamborine in Queensland. Its currently recorded principal place of business is at Chevron Island in Queensland. That said, Backpackers is in liquidation. The applicant's counsel informed me that the liquidators are in Sydney. In oral submissions, he suggested that this must mean that its documents are held in Sydney. I do not think that that would necessarily be the case. There is simply no evidence on that particular matter.