CONTRACTS - unjust contracts - s 7, Contracts Review Act - entitlement to relief
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CONTRACTS - unjust contracts - s 7, Contracts Review Act - entitlement to relief
Judgment (11 paragraphs)
[1]
Solicitors:
Keypoint Law (Ps)
Kekatos Lawyers (Ds)
File Number(s): 2015/2175062017/046918
[2]
Judgment (Ex tempore - REVISED 10 July 2019)
HIS HONOUR: I delivered judgment in the substantive proceedings (2015/217506) on 7 June 2019, [1] when I directed the parties to bring in short minutes to give effect to it on a date to be fixed, upon which occasion submissions might be made as to a number of issues, including:
1. any amounts said to have been paid in respect of the first plaintiff Wyse & Young International Pty Limited's ("WYI") claim for which credit had not been given;
2. the total amount of repayments made in respect of the principal advance under the deed of loan;
3. the recalculation of the debt under the deed of loan in conformity of the judgment;
4. interest;
5. costs; and
6. any interest arising from the second defendant DCL Construction Group Pty Limited ("New DCL") having gone into liquidation, which might necessitate that leave to proceed be obtained before judgment could be entered.
The proceedings were adjourned to 20 June for that purpose. On that occasion, counsel for the defendants proffered an affidavit and some short minutes to give effect to calculations made by the defendants, but the plaintiffs were not in a position to proceed, and the proceedings were adjourned to 28 June.
On that day, although some short minutes were proffered date by the plaintiffs, a number of issues which were required to be addressed - including in particular those arising from New DCL having gone into liquidation - were not; nor was there evidence upon which an order for payment out of Court of the amount paid in by the plaintiffs by way of security for costs could be made as sought; in addition, in connection with the related proceedings (2017/046918) in which an order had been made, but stayed, that Wyse & Young International Pty Ltd (WY) be wound up, there was an absence of evidence to support the plaintiffs' assumption that the stay of the winding up should continue. In those circumstances, the proceedings were adjourned, in the expectation that all issues could be addressed today.
As it seems to me, the following issues now fall for resolution:
1. First, the question of leave to proceed against the second defendant New DCL, it now being in a creditors' voluntary winding up;
2. Secondly, a dispute as to the amount for which judgment should be given against Mr Sanna under the Deed of Loan and General Security agreement, in circumstances where the parties appear to differ on the interest calculation and, in particular, as to whether interest should be calculated on a simple or compound basis;
3. Thirdly, whether a pre-existing costs liability of the plaintiffs to the second defendant New DCL should be set off against the judgment to which the plaintiffs are now entitled;
4. Fourthly, the costs of the proceedings;
5. Fifthly, what should happen with the amount paid into Court by way of security for costs;
6. Sixthly, the future course of the proceedings, and in particular whether they should be transferred to the Federal Court; and
7. Seventhly - in the related proceedings - whether the stay of the winding up of WYI should be terminated, as the defendants had on 20 June foreshadowed they would seek.
[3]
Leave to proceed
As to the first issue - namely, the question of leave to proceed under (CTH) Corporations Act 2001, s 500(2) - the liquidator of New DCL has been notified of the orders proposed to be made, including the judgments proposed to be given against the company in liquidation, and that leave to proceed would be limited to obtaining judgment and not extend to enforcement against the company's assets. On that basis, the liquidator does not oppose a grant of leave to proceed although he does oppose the proposed set-off order, to which I will come.
In circumstances where the proceedings have been litigated to judgment, it would be futile, and unfair to the plaintiffs when they have established an entitlement to judgment, to require them to proceed by way of proof in the liquidation. No hardship or inconvenience will be occasioned to the administration, because further leave will be required if there is to be any enforcement against the assets of the company in liquidation.
Accordingly, I will in due course order that the plaintiffs have leave to proceed against the second defendant New DCL under Corporations Act, s 500(2), upon terms that no judgment be enforced against the assets of the company in liquidation without the further leave of the Court.
[4]
Judgments and interest
The parties are not in dispute as to the amounts of the judgments, inclusive of interest, to be given in conformity with the principal judgment, (with effect from 7 June 2019, being the date of the principal judgment), for the first plaintiff WYI against the first defendant Mr Sanna under the first costs agreement, and for WYI against the Mr Sanna and the second defendant DCL under the second costs agreement. Nor is there any dispute as to the amount of judgment to be given for the second plaintiff DPI against the second defendant New DCL under the Deed of Loan and the General Security Agreement. However, there is a dispute as to the amount of the judgment to which DPI is entitled under the Deed of Loan and the General Security Agreement for DPI against the first defendant Mr Sanna. The different position vis-à-vis DCL and Mr Sanna in that respect arises because relief under the (NSW) Contracts Review Act 1980 was granted to Mr Sanna, but was not available to New DCL.
The plaintiffs submit that the amount of the judgment against Mr Sanna should be $530,622.73, while the defendants submit that it should be $364,893.42. The difference between the two calculations is that the plaintiffs' calculation includes compound interest, in accordance with the terms of the Deed of Loan; whereas the defendants' calculation includes only simple interest.
The Deed of Loan, as I have said, provides for compound interest. I have varied the Deed of Loan and the General Security Agreement in respect of the rate of interest under the Contracts Review Act, because of my conclusion that it was "unjust" within the meaning of that Act for Mr Sanna to have visited on him, in the circumstances in which the Deed of Loan and General Security Agreement were made, an interest burden very greatly in excess of that which obtained under the mortgage to Australian Executor Trustee Limited ("AETL") which the facilities provided by DPI replaced, without that difference having been distinctly brought to his attention. I was able to reach that conclusion inter alia because the evidence included the pro forma two-page mortgage between the Sanna's and AETL and also the facility letter which set out the terms of the loan.
On 28 June, when it emerged that there was an issue about the applicability of compound interest, I observed that I had not in the principal judgment adverted to the impact of compound interest. That I did not do so is hardly surprising, given that while the defendants' Contracts Review Act distinctly impugned the interest rates as excessive, the argument was addressed exclusively to the numerical rates of 20% and 30%, and the circumstance that it was compounding was not a part of the challenge, and was not mentioned during the trial. However, on 28 June I offered the observation that in principle, if the AETL mortgage provided for interest to be calculated on a compound basis, then there was no injustice in the replacement mortgage similarly doing so, but that if the AETL mortgage provided for interest only on a simple basis, then the same reasoning which resulted in my varying the applicable interest rate would also apply so as to lead to a variation of the Deed of Loan by substituting simple interest for compound interest.
The onus of proving that the contract was "unjust" for the purposes of obtaining relief under the Contracts Review Act fell upon the defendants who invoked the Act. The only evidence pointed to today that illuminate this question was the facility letter to which I have referred, and from which I derived the applicable interest rates referred to in the principal judgment. That document does not explicitly set out the interest provisions, which it suggests are contained in another document called the SEIZA General Terms and Conditions. However, insofar as it goes, the facility letter does contain at least an indication that the AETL mortgage incurred interest on a compound basis: on the second page, under the question, "How much are your repayments?", after a statement that the loan was an interest-only one for a term of five years from the settlement date, appears: "During any interest-only period each monthly repayment represents interest for the previous month calculated on the daily balances on the amount you owe us at the applicable rate", suggesting that interest compounded daily.
As I have said, the defendants had the onus of proving that the contract was unjust in this respect. Not only have they not done so, but the available evidence, if anything, tends to the contrary. In those circumstances, I am not satisfied that the contract was unjust insofar as it provided for compound as distinct from simple interest, and I decline to vary the Deed of Loan and the General Security Agreement in that respect.
Accordingly, the compound-interest calculation is the applicable one, with the consequence that the appropriate amount of the judgment against the first defendant (with effect from 7 June 2019) is $530,622.73.
[5]
Set off of costs in other proceedings
The plaintiffs sought an order that a lump sum costs order of $22,000 in favour of the second defendant New DCL against the second plaintiff DPI made on 23 June 2017 in proceedings 2016/384565 [2] be set off against the judgment to which DPI is entitled against New DCL in these proceedings. The liquidator of the second defendant has indicated opposition to such an order.
It seems to me that whether DPI is entitled to set off those judgments is a matter to be resolved either in the liquidation, or upon any application or attempt by New DCL to enforce the costs order, rather than by any order to be made in these proceedings.
[6]
Costs of the proceedings
Logically the next question is that of costs. The plaintiffs foreshadowed, but ultimately did not press for, a lump sum order; their primary position became that there should be an order that the defendants/cross-claimants pay two-thirds of the plaintiffs/cross-defendants' costs.
The third plaintiff Wolgan Consulting failed in its claims in the proceedings entirely, and there does not seem to be any reason why it should recover any costs.
The first plaintiff substantially succeeded on its claims, as did the second plaintiff on its claims. However, the first defendant Mr Sanna (but not the second defendant New DCL) secured a measure of success on his Contracts Review Act cross-claim. The proceedings were protracted by the pursuit of the unsuccessful forgery allegations, which also necessitated that the plaintiffs obtain of expert evidence. In my view, the plaintiffs' proposal that they should recover two-thirds of their costs overall, including the costs of the cross-claims, represents a realistic reflection of the relative responsibility of the parties for the costs of the proceedings.
Mr Allen, for the defendants, submitted that any costs order in favour of the plaintiffs should be limited to up to 7 June 2019. There was always going to have to be one further appearance after 7 June, to deal with short minutes; however, there should not have had to be three. It seems to me that the appearances on 20 June and 28 June should not be visited on the defendants; they were wasted because the plaintiffs were not ready. I will therefore exclude from the costs order in favour of the plaintiffs the costs of the appearances on 20 June and 28 June 2019.
Accordingly, I propose to order that the first and second defendants pay two‑thirds of the first and second plaintiffs' costs of the proceedings, including the cross-claims, but excluding the costs of the appearances on 20 June and 28 June 2019. Of course, that is without affecting any existing outstanding unpaid costs order.
[7]
Security for costs
The plaintiffs seek an order that the sum paid into court by way of security for costs be paid out to the second plaintiff DPI. On 28 June, opposition to this was foreshadowed on the basis that the WYI was the subject of a winding‑up order notwithstanding that its operation was stayed, and Mr Dimitriou was personally bound by a freezing order.
The evidence now adduced in connection with this application indicates that although the order for security appears to have been made against the three plaintiffs jointly and severally, the security was paid in by DPI. That the funds paid in were sourced from DPI is clearly established. Following the provision of that evidence, no further submissions were made today in opposition to the release of the security to DPI. In those circumstances, as there will be no costs order against the plaintiffs which those funds would be required to secure, it is appropriate that they be released to the party beneficially entitled to them, namely DPI.
Accordingly, I propose to order that the funds in court be paid out to the second plaintiff DPI.
[8]
Transfer of proceedings to Federal Court
The final question in the substantive proceedings concerns the future course of the proceedings.
As I indicated in the principal judgment, the final relief claimed includes declarations that the mortgage of the Green Valley property between Ms Sanna and Mr Sanna as mortgagors and DPI as mortgagee dated 26 July 2012 is valid, and that the property is charged for the outstanding loan, and judgment for possession and orders for sale of the Green Valley property. The amended statement of claim includes, by way of claims for relief:
(2)
3. A Declaration that the Mortgage over [The Green Valley Property] between Lepa Sanna and the First Defendant; as the Mortgagors, and the Second Plaintiff, as the Mortgagee dated 26th July 2012, is valid and subsisting.
4. A Declaration that 'The Green Valley Property' owned by Lepa Sanna and the First Defendant is validly charged in favour of the Second Defendant for the payment of all monies outstanding to it pursuant to the Deed of Loan dated 26th July 2012.
5. A Declaration that the Second Plaintiff is entitled to possession of, and transfer to, all personal property and other present and after acquired property belonging to the First Defendant, the Second Defendant pursuant to the provisions of the General Security Agreement Personal property dated 26th July 2012.
Although in the course of today's submissions it was suggested that the judgment might be enforced by appointment of a receiver to Mr Sanna's interest in at least the Green Valley property, that is not the only possibility; at least if, as claimed in the amended statement of claim, the mortgage is valid against Ms Sanna as well as against Mr Sanna, then it might potentially stand in priority ahead of the trustee in bankruptcy, such that DPI might have a security interest that stands outside the bankruptcy. That would not be affected by the circumstance that there is no monetary judgment against Ms Sanna, because the mortgage might secure, on the whole of the property, the liabilities of either of Mr Sanna or Ms Sanna severally, as well as any joint liability.
Any application for an order that the mortgage was valid and enforceable insofar as it affected Ms Sanna's interest in the property would be an application for a declaration adverse to the title of the trustee in bankruptcy. So would be the application for a declaration that Ms Sanna's personal property is charged in favour of DPI. As I foreshadowed in the judgment given on 23 August 2017, [3] such applications would involve an aspect of "jurisdiction in bankruptcy" as defined in the (CTH) Bankruptcy Act 1966, s 5, which is a special federal matter for the purposes of the (CTH) Jurisdiction of Courts (Cross-vesting) Act 1987, s 3(e), such that this Court is obliged to transfer them to the Federal Court, unless there are "special reasons" for retaining them here and appropriate notice to the Federal and State Attorneys-General has been given. [4]
The plaintiffs seek that the proceedings be transferred. The defendants do not oppose it; indeed it was an application by the defendants for a transfer that resulted in the judgment of 23 August 2017, when their application for a transfer was adjourned for further consideration after determination of the plaintiffs' claims for monetary judgments. The claims for declaratory relief and orders for possession in respect of the Green Valley property plainly provide a proper basis for supposing that there is a "special federal matter" involved, and thus for transferring the proceedings; and it seems to me that insofar as other issues arise, they would then fall within the accrued jurisdiction of the Federal Court.
I therefore propose to transfer the balance of the proceedings to the Federal Court.
[9]
Orders
Accordingly, before turning to the winding-up proceedings, in proceedings 2015/217506 Wyse & Young International Pty Ltd v Corrado Sanna the Court makes the following orders:
1. Order pursuant to (CTH) Corporations Act, s 500(2), that the plaintiffs have leave to proceed in these proceedings against the second defendant DCL Construction Group Pty Ltd (ACN 158 381 821) (in liquidation), upon terms that no judgment given be enforced against the assets of the company in liquidation without the further leave of the Court.
2. In respect of the first costs agreement, give judgment that the first defendant Mr Corrado Sanna pay the first plaintiff Wyse & Young International Pty Ltd the sum of $62,056.95.
3. In respect of the second costs agreement, give judgment that the first defendant Mr Corrado Sanna and the second defendant DCL Construction Group Pty Ltd (in liquidation) pay the first plaintiff Wyse & Young International Pty Ltd the sum of $124,227.61.
4. Order that the Deed of Loan dated 26 July 2017 and the General Security Agreement dated 26 July 2017 each be rectified by substituting in the attestation clause, for the reference to Defined Property Holdings Pty Limited (ACN 155 050 285), reference to Defined Properties Investment Pty Limited (ACN 146 084 451).
5. Order pursuant to (NSW) Contracts Review Act 1980, s 7, that the interest rate applicable under the Deed of Loan and the General Security Agreement be varied as between Mr Corrado Sanna and Defined Property Investment Pty Ltd to 11.7 per cent in lieu of 20 per cent and 30 per cent per annum, and the monthly instalments to $11,700 in lieu of $20,000 and $30,000.
6. In respect of the Deed of Loan and the General Security Agreement, give judgment that:
1. the first defendant Mr Corrado Sanna pay the second plaintiff Defined Property Investment Pty Ltd the sum of $530,622.73.
2. the second defendant DCL Construction Group Pty Ltd (in liquidation) pay the second plaintiff Defined Property Investment Pty Ltd the sum of $2,591,972.34.
3. any payment or recovery in satisfaction of either judgment be satisfaction pro tanto of the other judgment.
1. Give judgment for the first defendant Mr Corrado Sanna on the third plaintiff Wolgan Consulting Pty Ltd's claim against him.
2. Order that the first and second defendants pay two-thirds of the first and second plaintiffs' costs of these proceedings, including of the cross‑claims (other than the costs of the appearances on 20 and 28 June 2019).
3. Order that the funds paid into court by way of security for costs on 10 May 2016 amounting $81,500 together with all accrued interest thereon, be paid out to or as directed by the second plaintiff Defined Property Investment Pty Ltd.
4. Order pursuant to (NSW) Jurisdiction of Courts (Cross-Vesting) Act 1987, s 5(1) and s 6, that the balance of these proceedings be transferred to the Federal Court of Australia (New South Wales District Registry).
5. The judgments contained in paragraphs 2, 3 and 6 take effect from 7 June 2019.
[10]
The WYI winding up proceedings
I turn then to proceedings 2017/046918 in which, on 13 July 2017, I ordered that the company Wyse & Young International Pty Ltd - the first plaintiff in the substantive proceedings - be wound-up and a liquidator appointed, but stayed the operation of that order until 13 August 2017 or further order. The stay was of the operation of the order, as distinct from being a stay under Corporations Act, s 420, of the winding-up. Thereafter the stay was extended from time to time and eventually when judgment was reserved until further order, and that stay remains on foot.
Initially, the stay was granted because there was foreshadowed an application to the Court of Appeal to reinstate an appeal against the judgment upon which the petitioning creditor's claim was founded. Subsequently, when that application failed, the stay was maintained because of the pendency of the substantive proceedings. The fundamental basis for the continuation of stay, once the application to reinstate the appeal had failed, was that it would be disruptive and disadvantageous to the prosecution and determination of the substantive proceedings if it became necessary for a liquidator of WYI to decide whether or not to adopt them.
The company has now filed an application for termination of the winding-up, which is returnable on 15 July 2019. Its director Mr Dimitriou says that he proposes to obtain a solvency report. However, it seems to me that the question of solvency will not really turn on what an expert opines as to whether the company can pay its debts as and when they fall due, but more on what are the debts of the company - and in particular the position of the petitioning creditor on whose application the winding-up order was made, namely Ms Huybers.
There was a suggestion - which could not be dignified with the description of "evidence" - that some arrangement has been made which has resulted in Ms Huybers' claim being substantially satisfied. None of the material that has been adduced goes close to establishing that, although it suggests that some arrangements might have been made with others - namely the Rubinos - which might be intended to satisfy Ms Huybers.
Although the short minutes proffered by the defendants on 20 June included provision for termination of the stay, Mr Allen's submissions today were confined to the proposition that, a winding up order having been made, Ms Huybers was no longer the proper contradictor, and that the stay should be lifted so that the liquidator could investigate and report on whether the liquidation should be terminated. I do not agree that Ms Huybers is not the proper contradictor: as I have said, it is the operation of the winding-up order, as distinct from the winding-up itself, that has been stayed, so that the order has not come into effect, and the liquidator has not in law been appointed, although there is an order for his appointment. It seems to me that Ms Huybers, who sought the winding-up, is at least an appropriate contradictor.
Because of my repeated indications that it is necessary to have some appropriate evidence to support the continuation of the stay in the circumstances that its previous rationale no longer applies, I have serious misgivings about indulging the company in this respect any longer. However, as I have said, the application for termination is returnable on 15 July. Despite my misgivings, I do not propose to terminate the stay, but to leave it on foot until at least 15 July, when the application for termination will be before the Corporations List judge. It will be a matter for the Corporations' List judge whether the stay should then be terminated. The company would be ill advised to assume that the stay would continue thereafter simply to enable a solvency report to be obtained, and ought to approach 15 July on the basis that it will need to have available on that day, and served in advance of it, the best evidence to show at least that there are reasonable prospects of proving that it is solvent. That may include showing, by admissible evidence, that Ms Huybers' claim has been substantially satisfied.
As the stay is expressed to be until further order, no further order is required in that respect. However, I direct that by 10 July 2019 the company lodge with the Corporations List judge and serve any evidence upon which it proposes to rely on 15 July in opposition to the termination of the stay.
[11]
Endnotes
Wyse & Young International Pty Limited v Sanna [2019] NSWSC 683.
In the matter of DCL Construction Group Pty Ltd [2017] NSWSC 839.
Wyse & Young International Pty Ltd trading as Wyse & Young Accounting v Corrado Sanna [2017] NSWSC 1871, in particular at [15]-[17].
(CTH) Jurisdiction of Courts (Cross-vesting) Act 1987, s 6.
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Decision last updated: 10 July 2019