ACT Plasterboard Pty Ltd v Pohorukov

1. [1]

   By summons filed on 14 December 2023, the plaintiff seeks an order for a judicial sale out of Court, but with the supervision of the Court, of the land described in folio identifier 4/243172 in Sutton, New South Wales 2620 (Property).

2. [2]

   The plaintiff relies on a supporting affidavit of Brian Battese dated 12 December 2023 and exhibit BAB-1. The plaintiff further relies upon an affidavit of John Finney dated 26 February 2024 and exhibit JHGF-1. Mr Battese is a director of the plaintiff.

3. [3]

   The first defendant is the sole registered proprietor of the Property. On 3 April 2023, the second defendant was appointed the first defendant’s trustee in bankruptcy. The plaintiff understands that the first defendant and the twelfth defendant reside at the Property.

4. [4]

   The plaintiff seeks an order for judicial sale of the Property by reason of an asserted equitable charge over the Property.

5. [5]

   The basis of the plaintiff's charge is as follows. On 9 November 2011, the first defendant signed a “Confidential Credit Application” (Credit Application) with the plaintiff on behalf of AK Commercial Construction Pty Ltd (AK Commercial). Further, apparently at the same time, the first defendant signed a “Confidential Personal Guarantee and Indemnity Agreement” (Guarantee).

6. [6]

   The plaintiff created a credit account for AK Commercial, and from around November 2011 until around October 2022 the plaintiff provided AK Commercial plasterboard and associated products on credit.

7. [7]

   AK Commercial entered into liquidation on 23 January 2023. The plaintiff asserts that AK Commercial owes it a debt of $1,474,682.94 as at 1 December 2023. The plaintiff claims interest accruing on that sum. The plaintiff does not seek a declaration as to the exact quantum payable pursuant to the agreement and therefore charged on the title; however, the plaintiff does seek a judicial sale and a declaration, on the basis that it is entitled to a charge for outstanding money.

8. [8]

   The relevant clauses of the 2011 Credit Application and Guarantee relied upon by the plaintiff include the following.

9. [9]

   In the Credit Application:

   1. (1)

      Section 1 list the applicant as AK Commercial.

   2. (2)

      Section 2 lists the first defendant, and a property in the ACT.

   3. (3)

      “Supplier” is defined as the plaintiff.

   4. (4)

      “Customer” or “Buyer” is defined as the applicant, and therefore AK Commercial.

   5. (5)

      “Property” is defined as all property owned by the applicant now or in the future.

   6. (6)

      Clause 1 provides that accounts are due in 30 days.

   7. (7)

      Clause 2 provides, in part:

10. [10]

    In the Guarantee, the following clauses are included:

11. [11]

    I accept that the terms of the Credit Application and the Guarantee contain promises by the first defendant to guarantee the due and punctual performance of AK Commercial’s obligations to the plaintiff, including the punctual payment of invoices. I also accept that the first defendant granted the plaintiff a charge over his interest in any real property owned when the Credit Application and Guarantee were signed, or thereafter obtained. That real property includes the Property.

12. [12]

    I also accept that the terms of the Credit Application include a provision for interest to be charged on outstanding amounts. Further, the terms of the agreements provide that the plaintiff’s costs of enforcement action will be paid and are also secured by way of charge.

13. [13]

    In evidence is a second caveat lodged by the plaintiff on title, referencing an interest in the Property by way of charge, supported by a guarantee dated 19 July 2021. That guarantee is not in evidence. I make no decision as to whether that agreement in fact gives rise to an equitable interest in the Property or not.

Should judicial sale be ordered?

1. [14]

   The principles concerning a judicial sale are well known. In Sood v Christianos [2008] NSWSC 1087, Brereton J observed at [16]:

2. [15]

   Further, in Australia and New Zealand Banking Group Pty Ltd v Donnelly [2012] NSWSC 1615 at [29]-[30], Garling J observed that an equitable chargee does not need to demonstrate what steps have been taken to enforce the charge, or any special entitlement to an order for judicial sale. Rather, it suffices that the equitable chargee establishes that the charge exists, the charge is enforceable and that there has been a default. Further, the court has a residual discretion in determining whether judicial sale should be ordered, having regard to the position of those who will be adversely affected by such an order, else the equitable remedy becomes an instrument of injustice. Courts therefore exercise caution in ordering a judicial sale.

3. [16]

   The Court may also make an order for possession as an ancillary order to an order for the judicial sale of property: Morris Finance Ltd v Free [2017] NSWSC 1417 at [124] (Ward CJ in Eq).

Consideration

1. [17]

   There are other parties to the litigation, who are aware of the proceedings and the relief sought by the plaintiff. I am satisfied that all parties have been served with the summons and the supporting affidavit.

2. [18]

   The second defendant has consented to the plaintiff making an application for the sale of the Property.

3. [19]

   Various other parties either have mortgages or caveats appearing registered on the title of the Property. The third defendant holds two registered mortgages over the property. There is no dispute between any of the parties that the third defendant would need to be paid out first from any proceeds of sale.

4. [20]

   The affidavit of Mr Finney provides a table of the various interests of the other parties to the proceedings, identifying from the caveats the asserted dates of priorities and the approximate amounts claimed. In relation to most, if not all, of those amounts claimed, interest and costs are claimed in addition. The table appears below:

5. [21]

   As noted above, the plaintiff’s agreement dated 19 July 2021 and referred to in the table above was not in evidence.

6. [22]

   In relation to the twelfth defendant, there is little information about the interest that is claimed. There is in evidence the caveat that has been lodged by the twelfth defendant, claiming an equitable interest by reason of a constructive trust, based on contributions and an alleged common intention. Mr Finney’s belief is the quantum of that claim is between $800,000 and $900,000. The twelfth defendant has communicated with the plaintiff’s lawyers through a lawyer, but has not appeared at the hearing of this application.

7. [23]

   It is not necessary to determine now the exact sums that might be payable from the proceeds of sale to each of the defendants, including the plaintiff.

8. [24]

   The evidence of value of the Property is in the form of a valuation by Jones Land LaSalle Advisory Services Pty Ltd dated 13 September 2022, which values it at $4,575,000. There is also in evidence an email dated 7 December 2023 from Stone Real Estate Agents, who have provided a valuation in the vicinity of $3,250,000.

9. [25]

   Currently the mortgage debts of the third defendant are in the sum of approximately $1,794,156.24. Therefore, I am satisfied that it is probable that a sale of the Property will result in those debts being discharged. However, it is appropriate to include protection in orders for a judicial sale, to ensure the registered mortgagee is not prejudiced.

10. [26]

    Based on the evidence, there is a real possibility that all those who claim an interest in the Property will not have their debts discharged from the proceeds of sale after the third defendant’s mortgage debts have been paid. The parties who have appeared accept that a future determination of any priority dispute will be necessary.

11. [27]

    In terms of those parties who have appeared, no party actively resists a judicial sale order being made. Other parties who have not appeared have indicated to the plaintiff’s lawyers that they also do not oppose the orders, but not all of the parties consent to the orders being made.

12. [28]

    The plaintiff seeks orders that it carry out the sale of the Property out of court, rather than through the appointment of independent trustees. While the plaintiff has not yet demonstrated that it is entitled to the largest portion of the sale proceeds after the discharge of the mortgages, it may be that the plaintiff is able to demonstrate that fact, and I note that no other party opposes the plaintiff being appointed as the trustee.

13. [29]

    Mr Battese is a director of a company, being the plaintiff, and in those circumstances I have no reason to believe he is not familiar with the obligations of a director, including of a fiduciary nature, which may be relevant to the plaintiff exercising the obligations imposed when carrying out a sale by order of the Court. There is also nothing to indicate that the plaintiff would not seek to obtain the highest possible sale price, in circumstances where it asserts it is owed significant sums of money, possibly over $2 million, and in circumstances where the plaintiff’s priority to that money may not be straightforward.

14. [30]

    In circumstances where the sale proceeds may not be sufficient for all those entitled to an interest in them, I consider that the cost saving of the plaintiff being appointed to carry out the sale, rather than independent trustees being appointed, is of benefit to all the parties. However, it is appropriate in the circumstances, where there are so many interested parties, to grant leave to any party to apply in relation to the progress of the sale process.

15. [31]

    In the circumstances, I consider it is appropriate for the court to exercise its discretion to order a judicial sale on terms. Those terms have been ventilated in court and every party who has appeared is content with the form of the orders that have been proposed.

16. [32]

    In the circumstances, there is no reason not to make an order for possession so that the sale can be carried out. I am satisfied that the first and twelfth defendants, if they are residing there, have been notified of these proceedings and the orders that have been sought by the plaintiff.

Orders

1. [33]

   The Court makes the following declarations and orders:

   1. (1)

      The interest of the first and second defendant in the Property is charged to secure payment of sums proven to be payable by the first defendant plus any further interest accruing thereon from 1 December 2023 plus legal costs of these proceedings by reason of an agreement dated 9 November 2011 between the plaintiff and AK Commercial and a guarantee given by the first defendant to the plaintiff for moneys owing to the plaintiff by AK Commercial.

   2. (2)

      The Property be sold subject to the supervision of the Court.

   3. (3)

      The first and twelfth defendants deliver to the plaintiff vacant possession of the Property within 28 days of the making of this Order.

   4. (4)

      The Property be sold by the plaintiff in such a manner and on such terms as the Court may in these Orders and from time to time direct, except to the extent of such direction, as the plaintiff sees fit.

   5. (5)

      The plaintiff be appointed to transfer the Property to the purchaser or purchasers of the Property to effectuate sale of the Property.

   6. (6)

      The plaintiff shall not offer the Property comprising sale of the Property at a total price that is less than the current payout figure to the third defendant being $1,794,156.24 and not less than reasonable market value.

   7. (7)

      If the plaintiff reasonably believes the payout figure is unlikely to be realised or exceeded on a sale of the Property, the plaintiff shall not proceed to sell the Property or to offer the Property for sale, but shall instead cause the matter to be relisted before the Court for the purpose of the Court making directions as to a minimum reserve price for any auction and minimum sale price for any sale by private treaty.

   8. (8)

      An order that the plaintiff is to act at all times in relation to the selling of the Property in accordance with the duties owed by a mortgagee in exercising a mortgagee’s power of sale.

   9. (9)

      Upon sale of the Property, and after the payment of all expenses with respect to the sale, the plaintiff is to pay to the third defendant the amount outstanding under the mortgages as at the date of completion.

   10. (10)

       After complying with order 9, the plaintiff is to pay the balance of the sale proceeds into Court.

   11. (11)

       The plaintiff have its legal costs of bringing the Property to sale in these proceedings to be paid from the sale proceeds next in order after the payment of the payout figure to the third defendant.

   12. (12)

       Leave be granted to any party to apply on 2 days’ notice setting out the relief sought.

   13. (13)

       Adjourns the summons to 24 May 2024 for directions.