(2) First Defendant's proposed defence and cross-claim failed to disclose reasonable prospects of success - obiter discussion of penalties
(3) Leave for the First Defendant to file the proposed defence and cross-claim refused
Source
Original judgment source is linked above.
Catchwords
(2) First Defendant's proposed defence and cross-claim failed to disclose reasonable prospects of success - obiter discussion of penalties(3) Leave for the First Defendant to file the proposed defence and cross-claim refused
Judgment (4 paragraphs)
[1]
Judgment
Batmor Mortgages Pty Ltd ("Batmor") is the trustee of a trust known as the Residential Trust ("the Trust"). The sole significant property of the Trust was, until recently, a property at Warrimoo Avenue, St Ives ("the Property"), of which Batmor was the registered proprietor.
The Plaintiffs, Mr Rodney Kent and Mr Timothy Orlizki, are solicitors who conduct a practice known as Kent Attorneys and I shall refer to them as "Kent".
In April 2019, Kent, Batmor, Mr Gregory John Huxley, Vangory Holdings Pty Ltd ("VH"), Vangory Services Pty Ltd ("VS") and MFA Custodians Pty Ltd ("MFA") entered into a deed ("2019 Deed").
By the 2019 Deed, Batmor acknowledged that it was indebted to Kent in the sum of $1,601,340.85 and agreed that if it did not pay $950,000 by 30 June 2019, or alternatively, $970,000 by 30 September 2019, it would repay the $1,601,340.85 by five business days after 30 September 2019. There was a provision in the 2019 Deed for another party, MFA, to obtain an assignment to it of the debt, but the conditions precedent for the assignment have not been met and there has been no payment to Kent by MFA nor any assignment.
Batmor and the other parties to the 2019 Deed (except MFA) had been clients of Kent for whom Kent had carried out work and who, according to the 2019 Deed, were also debtors of Kent in respect of past costs.
In November 2019, Kent commenced these proceedings against Batmor. At that time, Batmor was in possession of the Property through a director of Batmor, Mr Huxley, and his family. Westpac Banking Corporation ("Westpac"), the Second Defendant, had a registered mortgage over the Property and each of the other Defendants had claims against Batmor in respect of which they had lodged caveats.
Westpac subsequently exercised its power of sale and sold the Property. Out of the proceeds of sale, it discharged the debt owed to it. It also discharged the debt owed to the Third Defendant, the Chief Commissioner of State Revenue ("Commissioner"). There being a surplus of funds following settlement of the sale in the amount of $693,683.37, this amount has been paid into the trust account of Westpac's solicitors, HWL Ebsworth.
The Fourth Defendant, Prosperity Max Pty Ltd (ACN 165 775 968) (formerly Maxiwealth Holdings Pty Ltd) ("Prosperity"), has not filed an appearance in these proceedings. Further, neither Prosperity's caveat, nor the documents or circumstances giving rise to its purported claim against Batmor, are before the Court. Prosperity was served with a copy of the Amended Statement of Claim ("ASOC") via post on 4 December 2019 pursuant to r 10.22 of the Uniform Civil Procedure Rules (2005) ("UCPR") and s 109X of the Corporations Act 2001 (Cth) ("Corporations Act"): see CB 107, 115-116.
The Fifth Defendant, Mr Steven Alexander Clements, has filed a submitting appearance and has not taken an active role in the proceedings. It appears that the basis of Mr Clements' claim against Batmor, and presumably the basis of his caveat over the Property, is a debt purportedly owed by Batmor to Mr Clements in the amount of $476,890, which Mr Clements asserts is due and payable pursuant to a loan agreement: see CB 169-171. Nevertheless, as Mr Clements has not taken an active role in these proceedings to date, nothing further can be said of Batmor's purported indebtedness to him, save that he does not raise a priority claim to oust or defer Kent's claim.
The Sixth Defendant, Ms Gail Jacqueline Simpson, has similarly filed a submitting appearance and has not taken an active role in the proceedings to date. Again, however, it appears that Ms Simpson's claim against Batmor, and presumably the basis of her caveat over the Property, is a debt purportedly owed by Batmor to Ms Simpson in the amount of $154,511, which Ms Simpson asserts is due and payable pursuant to a deed of loan dated on or about 5 August 2017. Again, as Ms Simpson has not taken an active role in these proceedings to date, nothing further can be said of Batmor's purported indebtedness to her, save that she does not raise a priority claim to oust or defer Kent's claim.
The Seventh Defendant, Worldwide Finance Group Pty Ltd ("Worldwide"), has filed an appearance, but has not taken an active role in the proceedings. The basis of Worldwide's claim against Batmor, and the documents and/or circumstances giving rise to its purported interest in the Property, are not before the Court.
Therefore, all of the Defendants other than Batmor have either chosen to take no part in the proceedings (the Fourth to Seventh Defendants) or no longer have an interest in the proceedings (the Second and Third Defendants).
Batmor, for whom Mr D Allen of Counsel appears, was served with the ASOC via post on 22 November 2019 pursuant to r 10.22 of the UCPR and s 109X of the Corporations Act: see CB 107, 115-116. Batmor did not file a defence to the claim within the time required (i.e. December 2019). Batmor, by Notice of Motion filed on 30 September 2020, now seeks leave to file a defence (found at CB 71-78) and a cross-claim (found at CB 79-103). In support of that Motion, it relies on the Affidavit of Mr Huxley sworn on 23 September 2020 (CB 352).
Kent, for whom Mr M Young SC appears, resists the application for leave on a number of grounds which include:
1. Batmor has offered no explanation for its failure to lodge a defence and cross-claim within the time required by rr 14.3 and 9.1 of the UCPR respectively, nor has it explained the delay from that time until 30 September 2020.
2. The defence has no real prospects of success.
3. The cross-claim is poorly drawn, opaque and to the extent any issues can be discerned, they do not have any real prospects of success.
By Notice of Motion filed on 24 February 2020, Kent seeks default judgment or, alternatively, summary judgment against Batmor (see CB 51). When that Motion was initially filed, it sought various orders and declarations in the nature of judicial sale of the Property. Kent also sought judgment against Batmor for $1,678,205.21. It should be noted that, at the time Kent's Motion was filed on 24 February 2020, Westpac had not yet exercised its power of sale and, further, Batmor was the registered proprietor of the Property. However, as I mentioned above, Westpac has since exercised its power of sale and, as a result, the relief sought by Kent in the nature of judicial sale is no longer available. Kent therefore moves the Court for default judgment based on its ASOC.
The starting point of any inquiry into the Court's power to grant leave to file a defence and/or cross-claim that is otherwise out of time is the UCPR and Civil Procedure Act 2005 (NSW) ("CPA"). Relevantly, r 14.3(1) of the UCPR reads:
"(1) Subject to these rules, the time limited for a defendant to file a defence is 28 days after service on the defendant of the statement of claim or such other time as the court directs for the filing of a defence."
Rule 9.1(1) relevantly provides:
"(1) A party (the cross-claimant) may make a cross-claim -
(a) in proceedings commenced by statement of claim, within the time limited for the party to file a defence, or
(b) in proceedings commenced by summons, before the return day specified in the summons,
or within such further time as the court may allow."
In exercising a power such as the present, regard must also be had to ss 56-60 of the CPA: see, eg, Juul v Northey [2010] NSWCA 211 at [247] per McColl JA; Tom Kerr (Subaru) Pty Ltd v Hanks [2018] NSWSC 1871 at [40] per Slattery J. The Court needs to be conscious of the importance of adherence to rules of the Court and recognition of the public interest in requiring litigants to adhere to directions of the Court: see Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [30] per French CJ; Hartigan v International Society for Krishna Consciousness Inc [1999] NSWSC 57 at [11] per Bryson J (as his Honour then was).
Batmor is required to establish:
1. the reason for its failure to advance any claim prior to 30 September 2020; and
2. that it has a reasonable basis for defending the claim and advancing the cross-claim.
Batmor accepts that if it is not given leave to defend Kent's ASOC, and bring the proposed cross-claim, then judgment should be given against it in the amount claimed by Kent and that the amount currently held in the trust account of HWL Ebsworth, Westpac's solicitors, should be paid to Kent in partial satisfaction of that judgment debt. The requirements for payment out from court should, I think, apply by analogy to the monies held in the HWL Ebsworth account. The principles in relation to payment out of monies previously paid into court are set out in Avco Financial Services Ltd v Commonwealth Bank (1989) 17 NSWLR 679 and Commonwealth Bank of Australia v Estate of the Late Mahmoud Slieman [2010] NSWSC 661. As no other claimant sought to be heard in these proceedings to resist Kent's claim to the Property based on its unregistered mortgage and caveat, and as all persons with a potential interest in the net proceeds of sale are before the Court or have been given an opportunity to be heard, if judgment is entered in Kent's favour, it will be entitled to those proceeds.
In support of its Motion, Kent relies on the Affidavit of Timothy Orlizki sworn on 24 February 2020: CB 107-112. He deposes, inter alia, to the fact that as at 24 February 2020, the principal debt due under the 2019 Deed was $1,601,340.85 and that interest of $76,846.36 had accrued on the total debt of $1,601,340.85 at a rate of 12% per annum.
[2]
The 2019 Deed
As I have mentioned, in the 2019 Deed, Batmor acknowledged that it owed $1,601,340.85 to Kent: see clause 2.1(a). The 2019 Deed also contains the following salient provisions:
"4.1 Upon or concurrently with payment, in Cleared Funds, of the Discharge Amount as set out in clause 4.2, the [Plaintiffs] agree to:
(a) accept the Discharge Amount in full satisfaction of the Debt;
…
4.2 The Discharge Amount is:
(a) if paid before 30 June 2019 or such later date as the [Plaintiffs] may agree in writing, the amount of $950,000 plus interest on that amount at the rate of 6% per annum from 10 September 2018 until the date of payment;
(b) if paid after 30 June 2019, the amount of $970,000 plus interest on the amount of $970,000 at the rate of 6% per annum from 10 September 2018 until the date of payment.
…
4.5 Upon receipt of the Discharge Amount:
(a) the [Plaintiffs] as beneficial owners assign to [MFA] absolutely all of the [Plaintiffs'] right title and interest in:
(1) the Debt together with all interest which has accrued or which may accrue in the future on the Debt and all amounts payable by [Batmor, VH, VS and Mr Huxley] to the [Plaintiffs];
(2) the [agreement between Batmor, Mr Huxley and the Plaintiffs, which was entered into in 2017];
(3) the [costs certificates issued by C F Wall in relation to costs assessments initiated by the Plaintiffs];
…
5.1 Conditional upon:
(a) 14 days having passed after [MFA] has given written notice to Batmor and the [Plaintiffs] of its intention to exercise its right to acquire the [Plaintiffs'] interest in the Debt and Security in the form of Schedule 2; and
(b) Batmor not having discharged the Debt in accordance with Clause 4; and
(c) payment in Cleared Funds by or behalf of [MFA] of the Acquisition Consideration as set out in clause 5.2,
the [Plaintiffs] as beneficial owners assign to [MFA] absolutely all of the [Plaintiffs'] right title and interest in:
(1) the Debt together with all interest which has accrued or which may accrue in the future on the Debt and all amounts payable by [Batmor, VH, VS and Mr Huxley] to the [Plaintiffs];
(2) the [unsigned Deed between the Plaintiffs and Joanne Dib in her capacity as trustee of the Trust];
(3) the [unregistered mortgage in relation to the Property between Batmor and the Plaintiffs];
(4) the Security;
(5) the [agreement between Batmor, Mr Huxley and the Plaintiffs, which was entered into in 2017];
(6) the [costs certificates issued by C F Wall in relation to costs assessments initiated by the Plaintiffs].
5.2 the Acquisition Consideration is:
(a) if paid before 30 June 2019, the amount of $950,000 plus interest on that amount at the rate of 6% per annum from 10 September 2018 until the date of payment;
(b) if paid after 30 June 2019, the amount of $970,000 plus interest on the amount of $970,000 at the rate of 6% per annum from 10 September 2018 until the date of payment.
…
11.1 If:
(a) the Discharge Amount is not paid; or
(b) the conditions for the assignment to [MFA] in clause 5.1 are not satisfied;
by 30 September 2019 or such later date as may be agreed in writing by the [Plaintiffs] (the Sunset Date) Batmor shall pay the Debt within five (5) Business Days of the Sunset Date.
…
12.2 Batmor and [Batmor, VH, VS and Mr Huxley] represent and warrant to the [Plaintiffs] that they have:
(a) had a reasonable opportunity to obtain legal, financial and other advice;
(b) been provided with or obtained all information;
(c) obtained independent legal advice;
in relation to this Deed, its subject and their decision to enter into this Deed."
The 2019 Deed referred to a "Mortgage", which is defined at clause 1.1 as "the unregistered Mortgage in relation to the Property between Batmor and the [Plaintiffs], a copy of which is Annexure C to this Deed". Annexure C to the 2019 Deed is found at CB 556-589. On CB 556, it has been signed by Mr John Batiste on behalf of Batmor. By clause 3.1 of the 2019 Deed, Batmor "acknowledged that, subject to clause 3.3:
1. it is bound by the Mortgage;
2. it is bound by the 2015 Deed as if it had executed the 2015 Deed as trustee of the Trust;
3. the terms of the 2015 Deed apply to the Mortgage;
4. the Debt is "Secured Money" under the terms of the Mortgage"
and by clause 3.2, "Batmor agrees to execute any documents reasonably required by the [Plaintiffs] or [MFA] to give effect to the acknowledgments in clause 3.1".
By the proposed defence and cross-claim, Batmor seeks to put forward a number of claims, but in oral submissions at the hearing, Mr Allen reduced the scope of the case which Batmor wishes to advance to the following:
1. As at the date of the 2019 Deed, Kent remained in a fiduciary relationship with Batmor and owed fiduciary duties to Batmor.
2. As at the date of the 2019 Deed, Mr Huxley and Mr Batiste owed fiduciary duties to Batmor.
3. The 2019 Deed involved Batmor agreeing to make the $1.6M debt a secured debt and one available to MFA even though the real debt was only $950,000 and it was not secured. Mr Allen drew attention to the documents at CB 928 and CB 932-934, and paragraph 76 of Mr Huxley's Affidavit, to support the contention that $950,000 was the amount that Kent was willing to accept.
I should note that at T5.11-18, Mr Allen put the argument this way:
"It is a fraudulent scheme, if anything, by Mr Huxley and the plaintiff in what they have done is Kent Attorneys have agreed that the fee owing is $950,000, or that they are willing to suffer payment of $950,000. Then on the behest of Mr Huxley, it was agreed to actually say that the sum was 1.6 million dollars, but (inaudible) upon receipt of the $950,000, would assign a debt worth 1.6 million dollars to a third party. That would give that third party a windfall of some $600,000 at the expense of the trust."
The assertion of fraud is contained in the proposed cross-claim but at T10.50-T11.1, Mr Allen referred to a breach of fiduciary duty.
I had thought that, in essence, Batmor was asserting that it should only be required to pay Kent $970,000. This was, in fact, conceded by Mr Allen in an application before Darke J on 20 March 2020. Relevantly, Mr Allen said (at CB 56):
"I understand there's a motion listed for default judgment against my client for possession and a summary amount. I've done some written submissions to deal with why the order shouldn't be made today. The short point is that order for possession ought not be made on an application for default judgment, which is a technical point. The substantive point is: the orders shouldn't be made because Westpac is going to take possession, and there is an embryonic argument in relation to the judgment debt, in that whilst it's conceded there is a debt, $1.6 million is being asked for by the plaintiff. My client's argument is that its 970,000 which is owing, and the entitlement to the larger sum is void as a penalty or it would be unconscionable for the plaintiffs to seek $1.6 million instead of the 970,000."
As I have mentioned, MFA did not, in fact, take up the assignment. The proceeds of sale are $693,683.37, much less than the $950,000 which Batmor accepts was the figure which it agreed to pay before the assignment idea was introduced by Mr Huxley. In a practical sense, the assignment of the Debt is a non-issue and judgment for $950,000, $970,000 or $1.6M will yield nothing more than $693,683.37. Mr Allen contended, however, that an appropriate outcome of the case on Batmor's approach is rescission of the 2019 Deed, leaving Kent as an unsecured creditor of Batmor for the $950,000.
There are several facts to which attention needs to be drawn:
1. In 2017, Batmor brought proceedings 2017/291363 ("the 2017 Proceedings") against Kent seeking to have the caveat lodged by Kent on 14 May 2015 removed. That caveat asserted an interest in the Property arising out of the Mortgage. Batmor was represented in those proceedings initially Mr James Beresford Loel of Lillas & Loel Lawyers and then by Mr Kekatos.
2. In June 2018, Pembroke J ordered that the parties in the 2017 Proceedings mediate their dispute. A mediation was held on 10 September 2018 but it did not settle on that occasion. The record shows that after that date, Batmor continued to be represented in the 2017 Proceedings and that there is a Notice of Change of Solicitor filed by Mr Kekatos on 6 December 2018.
3. There is evidence that Mr Kekatos was made aware of the negotiations that led to the 2019 Deed (see CB 932) and that Mr Kekatos was acting for Batmor in September 2019 and through to 2020: see CB 939, 940, 945, 946, 983, 988. Mr Kekatos also acts for Batmor in these proceedings.
4. In his Affidavit of 23 September 2020, Mr Huxley says that he resigned as a director of Batmor on 1 September 2020. An ASIC search of 23 February 2021 records no such resignation and according to that search, Mr Huxley remains the sole director and shareholder of Batmor (as and from 18 November 2019). The search also reveals that as at the date the 2019 Deed was signed (18 April 2019), Mr Batiste was the sole director and shareholder of Batmor. It follows that Mr Huxley was not a director of Batmor at the time the 2019 Deed was entered into.
5. No evidence has been put forward by Batmor other than evidence of Mr Huxley. If Mr Huxley is not currently a director, no director has provided evidence in support of the present application.
6. If Mr Huxley is in fact still the sole director of Batmor, then he is not prepared to make the case that Batmor advances in its proposed cross-claim; in fact as I shall demonstrate, quite the opposite. If he is not, in fact, a director of Batmor, then whoever is a director is not prepared to provide evidence to support the contentions set out in its proposed cross-claim and the 'fraudulent' scheme to which Mr Allen adverted.
7. Mr Huxley does not, in his Affidavit, assert that by proposing that MFA have the opportunity to pay $950,000 to Kent and take an assignment from Kent he was acting in breach of any duty owed by him to Batmor or the Trust or that in agreeing to his proposal, Mr Batiste was doing so.
8. Mr Huxley does not explain the failure of Batmor to file a defence and cross-claim in accordance with the UCPR, nor does he explain its failure to take any steps to do so until September 2020. Mr Allen contended that the Court should infer that Mr Huxley was the sole director until 1 September 2020 and that he would not have wanted to advance the case that Batmor is now advancing since it involves an assertion that Mr Huxley was involved in a breach of fiduciary duty and a dishonest scheme: see paragraphs 86 to 104 of the proposed cross-claim and [24] above. Given the fact that it is Mr Huxley whose Affidavit is read in support of Batmor's motion, there is nothing to indicate that Mr Huxley does not continue to exercise control or influence over Batmor as he appears to say he has done in the past.
9. According to Mr Huxley's Affidavit, the Huxley Family Trust is the beneficial owner of all shares in MFA. The beneficiaries of the Huxley Family Trust are Mr Huxley and his family.
10. According to the ASIC search (Exhibit B) Mr Batiste and VS are the shareholders in Batmor.
At T12.26-T13.9, Mr Young SC described the case advanced by Batmor which had been articulated by Mr Allen in colourful terms as follows:
"Your Honour, this point should point to the extraordinary audacity of my friend's submissions. It is said that there was a fraud involving a document that was sent to the principal of my friend's instructing firm, which is clear from Batmor's own evidence, prior to it being agreed. The proposed fraudster is the sole director and sole secretary of Batmor who is giving my friend and those solicitors instructions. And the principal evidence my friend relies upon, if not the sole evidence, is from that very same director. This is tantamount to the case of someone killing both their parents and then pleading for clemency on the grounds that they were an orphan. There is just no genuineness in this defence whatsoever. That is clear from the get go.
In any event, your Honour, there is nothing unusual about a settlement mechanism whereby someone agrees first of all, there is an acknowledgment that the full amount is due, then there is a mechanism whereby if some concessional amount is paid within a particular period, that amount is accepted in full and final satisfaction.
Even if one in colloquial terms agrees "I will accept X amount", X amount being a discount, it is very common when the final settlement agreement is drawn up that there be some security in effect for that amount and that security very commonly in the form here. There is nothing exceptional or fraudulent about that whatsoever.
The deed in any event doesn't just present MFA with some discount, it grants the same discount to Batmor itself.
And there was nothing underhanded going on. My friend's own evidence, in his document and the attached email, shows that Mr Huxley, a non director of Batmor at the time, ran the proposal past Batiste, who was a director of Batmor at the time, and people who must be assumed to be Batmor's lawyers, Kekatos, and apparently notwithstanding that, the actual director of Batmor and Mr Kekatos, whose name appears regularly in the emails exchanged with Kent Attorneys that are in the court book following on from that initial email. They were clearly quite happy with that, and why wouldn't they be."
I have mentioned that Mr Huxley claims that he resigned as a director on 1 September 2020 but that the ASIC search (Exhibit B) shows that he remains the sole director and secretary of Batmor. It is not clear who is giving Batmor's solicitors instructions because there is no evidence from anyone other than Mr Huxley, but I accept Mr Young SC's submissions that there is a bizarre quality to Batmor's application and I also accept, for reasons which I shall discuss, that the case articulated by Mr Allen and which forms part of the proposed cross-claim (and hence, the proposed defence) has no real prospects of success. Coupled with the absence of any clear evidence of who it is who has decided on behalf of Batmor to seek to bring forward the defence and cross-claim, there is no explanation for the delay in filing those documents outside of the requisite time or for the delay since January 2020 in seeking now to file these documents out of time.
I have referred in [29(1)], [29(2)] and [29(3)] above to the representation of Batmor in proceedings in which Batmor was suing Kent over the caveat which Kent had lodged to protect its claim to an interest in the Property created by the unregistered mortgage and to Mr Kekatos' involvement with Batmor at the time of the 2019 Deed. It will be observed that Batmor was represented in Court in the 2017 Proceedings on the day that the 2019 Deed was executed. The significance of these matters is that they strongly undermine the proposition that Batmor seeks to advance that Kent owed any continuing fiduciary duty to Batmor at the time of the 2019 Deed and the factual assertion that the proposed cross-claim seeks to make that Batmor had terminated Mr Kekatos' retainer.
The proposed cross-claim contains the following significant pleading:
"99. The Solicitors accepted the Proposal so that they could obtain payment of an additional $750,000.00 at the expense of the Residential Trust and in preference to other creditors of the Residential Trust.
100. The Solicitors knew that, in accepting the Proposal they were part of a dishonest and fraudulent scheme designed to make the Residential Trust liable for money it was not legally or otherwise obliged to pay to the Solicitors.
101. Further, the Solicitors knew that Huxley expected them to continue performance of the Batmor Retainer to the extent that the Solicitors were to assist in refinancing the Property, and that the chances of a refinance occurring were diminished if they did not assist."
The 2019 Deed did not give Kent any rights to obtain more from Batmor than $970,000 if that amount was paid by the Sunset Date: see clause 4.1(a) of the 2019 Deed.
The proposed cross-claim seeks to construct a case that Mr Huxley (as agent of Batmor) was carrying out activities that were inimical to Batmor and the Trust. The proposed cross-claim does not make a clear allegation that Mr Batiste was involved in this dishonest scheme to benefit Mr Huxley or his interests. Mr Huxley's Affidavit does not assert that the assignment plan which he advanced was designed to adversely affect the interests of Batmor and the Trust, in breach of obligations he and Mr Batiste owed to Batmor.
I make the following further observations:
1. There is nothing to support the claim that the debt revealed in Schedule 1 of the 2019 Deed was not the debt genuinely claimed by Kent. Mr Huxley's note at CB 930 makes it clear that he understood that Kent was claiming that it was owed approximately $1.7M.
2. By the 2019 Deed, Kent was agreeing to accept $950,000 or $970,00 from Batmor or alternatively, MFA. If the $950,000 or $970,000 was paid by Batmor, Kent accepted that that payment discharged the Debt. If MFA paid $950,000 to Kent, Kent had no more claims on Batmor. It did not benefit from the grant of an assignment to MFA and MFA did not in fact exercise its right to an assignment.
3. There is a faint attempt in the proposed cross-claim (see paragraphs 112 and 113) to assert a continuing retainer by Batmor of Kent, but there is no reference to such a retainer in any document put forward by Batmor. Given that Batmor had commenced proceedings against Kent it is very difficult to see any substance in the claim that in negotiating the terms of the 2019 Deed, Kent owed any fiduciary duties to Batmor. Batmor had commenced proceedings against Kent and had lawyers acting for it in those proceedings and any previous retainer must have come to an end. No fiduciary duties are owed after the termination of the retainer except in relation to confidentiality: see Blythe v Northwood (2005) 63 NSWLR 531 at [195] per Mason P, quoting Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 at 235 per Lord Millett. Not only that, but Mr Kekatos was copied into correspondence between Mr Huxley and Kent: see CB 932.
4. The 2019 Deed gave Batmor the right to pay out the $950,000 or $970,000 and obtain a discharge of the $1.6M debt. It was open to Batmor to avail itself of that opportunity.
5. The mortgage over the Property entered into in 2015 was signed by Batmor (through Mr Batiste). There is no evidence from the only director of Batmor at the relevant time (i.e. Mr Batiste) in relation to the transaction.
6. Given that Batmor is facing other claims of at least $630,000 (see [9] and [10] above), which does not include the monies claimed by Prosperity and Worldwide, there appears to be no real incentive to Batmor to resist the claim, other than to ensure that Kent does not receive payment of the $690,000.
Since the evidence is that, to Mr Huxley's knowledge, Kent was claiming an entitlement to $1.6M of fees, had an unregistered mortgage in respect of the Property and had, as at June 2018, what appeared to the Court to be a sound basis for the caveat lodged in 2015 (see Judgment of Pembroke J in Batmor Mortgage Pty Ltd dealing as Trustee of the Residential Trust v Rodney Kent trading as Kent Attorneys, unreported, Supreme Court of New South Wales, 5 June 2018), there is no evidence put forward which supports the conclusion that:
1. Mr Huxley and Mr Batiste were using the assignment to adversely affect the Trust; and/or
2. Kent was aware that the use of assignment was inimical to the interests of the beneficiaries of the Trust (who were principally Mr Huxley and his family). Contrary to Mr Allen's assertion, Kent contended in 2019 that $1.6M of fees was due and payable by Batmor but was willing to accept $950,000 - the $1.6M was not manufactured for the purpose of the 2019 Deed.
There are several pieces of evidence which not only undermine Batmor's claim that Kent knew that there was some improper purpose, but that point to there being no such purpose, namely:
1. In a note from Mr Huxley at CB 930, he says:
"I would like this Deed to reflect this settlement deed to reflect [sic] the full gross claim of KA including all costs etc - so that the debt being assigned is acknowledged by the parties as being say $1.7M; and KA agrees to assign the debt to MFA atf (a new trust) on the terms set out within this Proposal document."
1. The following conversation, which is set out in Mr Huxley's Affidavit, suggests that Mr Huxley was attempting to protect the Trust's interests vis-à-vis Batmor's other creditors, particularly once regard is had to the fact that the beneficial owner of all of the shares in MFA is the Huxley Family Trust:
"Greg: Tim, you know I'm not happy with this. I walked out of the mediation because to be quite frank, I was disgusted. To listen to Kent tell me how he is owed $1.6 million makes me sick. You and I had a discussion about $600,000. Anyhow - you know something, I'm 66 years of age - I'm unwell - I've got dependent kids that I have to look after - I want to move on. I listened to John Batiste. He has told me it is time to move on. So, on his advice, I will cop the $950,000. However, I need you and I to have an understanding. The only way I'm going to be able to pay you and keep the house is to refinance and that can only be done if I can get an assignment from Westpac of the first mortgage and write your debt at the amount that Kent is now alleging is owed of $1.5 million - we'll take it by assignment.
Tim: Greg, conceptually, I've got no problem with what you suggest. I'll need to think it through. I don't want us to enter into an agreement and then subsequently be sued by Westpac or somebody else. But I think we can do it properly with an assignment. I know you'll need time to settle. You need help with Dean. I'm happy to do that but you'll need to pay me. I'm happy to work with John and get Westpac across the line.
Greg: Tim, I'm happy with that. I'll take your word on this. The document has to be bulletproof so that it will withstand scrutiny. I'm not going to get into detailed discussion in writing - I'll email Jim and John and leave it to you - that is all I want is an understanding with you that is how this will work."
1. Mr Huxley also deposed that the following conversation took place shortly thereafter:
"Greg: John, I met with Tim. I've talked this through. I've shaken hands with him. I've got his assurance - he understands why it has to be done this way - we need to be able to assign their full debt so that you can go mortgagee in possession and pay Westpac and Kent out - . I reminded him of what had happened with the Dib mortgage - he knows I have to protect the equity for my kids - they have always ranked ahead of Kent - I'm not going to see Kent paid out and them get nothing from the house - he understands that.
John: I understand. So, Tim has committed to assist with Westpac?
Greg: Yes. John, Tim has been in regular contact with Belinda Prior from HWL. He seems to get on well with her. That is important. This will only go through with his help. You'll need to stay on his back."
1. An email that Mr Huxley wrote in April 2020 (CB 990-991) reflects the same theme of protecting his children's interests in the Property. He relevantly said:
"8. Batmor will consent to judgment in the current proceedings to end them.
9. My kids: It is in my interests to maximise value of the property. The only scope for any return to my children is through the Kent mortgage at its maximum amount plus interest at the maximum rate. I ask that you be equitable in this regard. It is not up to me to suggest what I think - I would prefer if "we" can reach something that reflects what Kent considers an equitable return and acknowledges some equity as perhaps a % above a certain minimum etc."
It seems from the documents at CB 928-929 and the matters referred to in [38] above that in 2018 Kent was proposing to accept $950,000 as the figure that Batmor was required to pay to enable Kent to discharge the mortgage but that by April 2019, Mr Huxley had decided that better protection for the Trust would be obtained if a company connected with Mr Huxley could pay the $950,000 and take an assignment of the full debt: see, in particular, paragraphs 76 and 78 of Mr Huxley's Affidavit (CB 368-369). It appears that Mr Huxley thought that without such an arrangement, other creditors of Batmor would be able to take what remained after Kent took the $950,000 (or $970,000) that it had agreed to accept.
Finally, whilst I think it was clear from Mr Allen's submissions that Batmor was not maintaining its penalty argument I should note that I accept Kent's submissions that an agreement by a creditor to accept a lesser sum that the full debt claimed if it is paid by a certain date does not, when that temporal condition is not met, make a claim for the full amount a penalty: see Di Gregorio v Jersey Developments 27 Pty Ltd [2018] NSWSC 966; and see O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 366-367 per Gibbs CJ, 380 per Wilson J and 386 per Brennan J; see also Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 at 518 per Mason ACJ (as his Honour then was), Wilson, Brennan and Dawson JJ; Lachlan v HP Mercantile Pty Ltd (2015) 89 NSWLR 198 at [41]-[42] per Bathurst CJ, Beazley P and McColl JA.
[3]
Conclusion
Batmor has therefore failed to establish that it is appropriate that leave be given to file the proposed defence and cross-claim and it has been agreed that, in that eventuality, judgment should be entered in favour of Kent against Batmor, and as discussed in [20] above, that the surplus funds held by HWL Ebsworth should be paid to Kent.
There were no submissions on the issue of costs or interest and interest was not claimed in the ASOC. Costs were sought in the relief specified in the ASOC "in accordance with the terms of the Mortgage" but, at paragraph 26 of the ASOC, only "costs" were sought without any specificity. Accordingly, judgment should be entered in the amount of $1,601,340.85 and I will order that Batmor pay Kent's costs of the proceedings against Batmor as agreed or assessed. There should be no order as to costs as between the Plaintiffs and the Second to Seventh Defendants. The amount currently held by HWL Ebsworth as the surplus funds from the sale of the Property is to be paid to Kent.
[4]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 01 April 2021