Lake Maintenance (NSW) Pty Limited v Todd Hadley Pty Limited & Ors

1. [1]

   HER HONOUR: This judgment deals with an application by the defendants for a hearing to be held, preliminary and separate to the hearing of the plaintiff’s Statement of Claim, to determine a number of distinct questions relating to it. The questions posed deal with the determination of limitation defences advanced by the defendants relevant to the claims pleaded in the plaintiff’s claim. The plaintiff opposes the application.

The Notice of Motion

1. [2]

   The Notice of Motion, filed by the defendants on 20 November 2018, seeks orders pursuant to rule 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”).

2. [3]

   The Motion asks the Court to answer the following questions:

   1. (1)

      Did the plaintiff suffer loss and damage on or before 1 May 2012?

   2. (2)

      Did the plaintiff suffer loss and damage on or before 23 May 2012?

   3. (3)

      Did the plaintiff suffer loss and damage on or before 13 June 2012?

   4. (4)

      Are the proceedings against the defendants not maintainable by reason of s 14 of the Limitation Act 1969 (NSW), s 262 of the Australian Consumer Law, s 82 of the Trade Practices Act 1974 (Cth) or s 68 of the Fair Trading Act 1987 (NSW)?

3. [4]

   The Background to the Motion

4. [5]

   On 12 February 2010, the defendants valued property at 137 High Street Wallalong (“the land” or “the property”) in the sum of $7,450,000.00 (excluding GST) (“the $7.45M valuation”). The property was owned by Mr David Bone and it was Mr Bone who commissioned the valuation.

5. [6]

   In assessing the value of the property the defendants took into account the “likely future rezoning” of the land.

6. [7]

   Subsequently, Mr Bone provided the $7.45M valuation to the plaintiff, in support of a loan agreement he sought. The plaintiff’s claim is that it relied upon the valuation in advancing $3,073,000.00 to Mr Bone as borrower under a loan agreement on 23 June 2010. The loan monies were repayable with interest on 23 December 2011.

7. [8]

   Interest under the loan agreement was secured by way of a mortgage over the property on or about 21 June 2010. Under this mortgage, the plaintiff was given powers to enter into possession of the property if Mr Bone defaulted on the loan agreement.

8. [9]

   Mr Bone did default on the loan, being unable to pay the sum of $5,038,000.00 that was due on 23 December 2011. Default interest accrued thereafter at the daily rate of $7,557.

9. [10]

   Between 22 December 2011 and 10 January 2012 Mr Bone was in email correspondence with the plaintiff endeavouring to make arrangements to settle his debt and retain ownership of the land. By 2 February 2012 he had advised the plaintiff that the debt would be discharged “100 cents in the dollar”.

10. [11]

    Despite that assurance the debt to the plaintiff remained unpaid and, after providing notice to Mr Bone to remedy the default, the plaintiff entered into possession of the property pursuant to the powers conferred on it by the mortgage. On 25 February 2012 receivers were appointed, and a real estate agency, Raine & Horne Commercial (“Raine & Horne”), was engaged to sell the property.

11. [12]

    On 26 April 2012 the plaintiff received an offer by way of tender for the purchase of the land, in an amount of $910,000. A second offer was received on 27 April 2012 from another prospective purchaser, in an amount of $1,005,000 (“the Lidbury offer”).

12. [13]

    In 1 May 2012 Mark Yazbeck, having been instructed to do so by the receiver, prepared a valuation of the property in the sum of $900,000 (“the Yazbeck valuation”).

13. [14]

    On 9 May 2012 the Lidbury offer was increased, to $1,105,000 for the land.

14. [15]

    At about that time Raine & Horne estimated the market value of the property as “circa” $1 million - $1.5 million.

15. [16]

    On or around 14 May 2012 the sole director of the plaintiff made an offer to the receiver to purchase the land for $1.25 million. A Contract for Sale of the land was signed by an entity related to the plaintiff, Wallalong Land Developments P/L, as purchaser, for the purchase price of $1.25 million. The plaintiff entered into the Contract for Sale on 23 May 2012, accepting the price of $1.25 million from Wallalong Land Developments P/L.

16. [17]

    Just prior to the settlement of the Contract for Sale Mr Bone was still seeking to refinance with a view to paying the debt to the plaintiff. Whilst the plaintiff was not prepared to delay settlement of the Contract as Mr Bone requested, it did for a time agree to delay the registration of the transfer of Title to enable Mr Bone to continue in his attempts to repay the loan.

17. [18]

    The settlement of the sale of the land occurred on 15 June 2012. After payment of various fees and charges, the sum of $1,017,561.70 was realised, and applied to monies due by Mr Bone under the loan agreement. There was a multi-million dollar shortfall.

18. [19]

    On 29 June 2012 the plaintiff commenced proceedings against Mr Bone for recovery of the remaining debt owed pursuant to the loan agreement, although Mr Bone was still endeavouring to discharge the debt through refinancing.

19. [20]

    On 22 August 2012, having delayed registration of the transfer of the Title to the land pending any payment by Mr Bone of outstanding loan monies, the plaintiff took steps to transfer the Title to Wallalong Land Developments P/L, its related entity. The transfer was ultimately registered on 8 November 2012.

20. [21]

    On 20 February 2015 the plaintiff and Mr Bone attended formal mediation of the claim against Mr Bone, the parties entering into a Deed of Settlement providing for the payment of $5 million by Mr Bone to the plaintiff. The settlement date was delayed until 20 February 2017 due to an expectation that Mr Bone would settle the debt by that time. He did not in fact discharge the debt as agreed in the Deed of Settlement, and Lake Maintenance entered judgment against Mr Bone for $5 million on 20 February 2017.

21. [22]

    Mr Bone sought an injunction on 23 May 2017 to stop the enforcement of Lake Maintenance’s consent judgment. This application for an injunction was dismissed on 21 June 2017.

22. [23]

    In September 2017 the plaintiff served a Creditor’s Petition on Mr Bone, with the Federal Circuit Court ordering on 28 September that Mr Bone be sequestrated under the Bankruptcy Act 1966.

23. [24]

    On 17 November 2017 Mr Bone’s trustee in bankruptcy reported to creditors (including the plaintiff) that no dividend to creditors could be expected. A further report to the same effect was made by the trustee on 21 February 2018 and, on 29 March 2018, the trustee finalised that report.

24. [25]

    During the period of negotiations between the plaintiff and Mr Bone, and the subsequent period of litigation and mediation, Mr Bone appeared to have substantial assets. In December 2011 Mr Bone declared that he had $30,350,000.00 in assets, encumbered in the sum of $17,632,500.00, placing his declared net worth at that time at $12,717,500.00. In 2012, Mr Bone owned 4 properties and was a judgment creditor for the sum of $1.271 million.

25. [26]

    From 2012 until 2017, Mr Bone was the holder of 29,999 of a total 30,000 ordinary shares in Gelrol Pty Limited, a company of which he was the sole office holder. Gelrol owned a property in Eleebana, from March 2003 until its sale by the mortgagee in April 2012; property at Clarence Town from 2006 until its sale by receivers in October 2012; another Clarence Town property, from 2007 until its sale by the mortgagee, also in October 2012; and a third property in Clarence Town from acquisition in 2011 until its sale by receivers in August 2014. Gelrol owned a property at Warners Bay, which it had acquired in 2001. The company transferred this property to Mr Bone and his wife in September 2017 for consideration of $1.

26. [27]

    Mr Bone transferred his 29,999 shares in Gelrol to his wife in September 2017 for “no consideration”.

27. [28]

    Another company of which Mr Bone was the sole office holder and shareholder was Bushsalt Investments P/L. That company also had assets, including a quarter interest in property at Redgum Drive Clarence Town (which was sold in December 2013); and shares in a company known as Redgum Clarence Town P/L (the director of which was Mr Bone’s wife).

28. [29]

    Mr Bone personally or with his wife also owned a number of properties in the period 2012 to 2016: property at Clarence Street Wallalong (sold by receivers in September 2012); jointly with his wife, property at Merewether (sold in a mortgagee sale in December 2013); property at Boomerang Beach (sold in a mortgagee sale in October 2015); and another property at Clarence Street Wallalong (sold in a mortgagee sale in June 2016).

29. [30]

    The plaintiff has been unable to recover any monies from Mr Bone, beyond the net proceeds of the sale of the land.

30. [31]

    On 14 June 2018 the plaintiff filed its Statement of Claim against the defendants, pleading professional negligence in the preparation of the $7.45M valuation, and related statutory breaches. In a defence filed on 21 September 2018, the defendants pleaded a number of defences, including that no duty of care was owed to the plaintiff; that the valuation it provided was arrived at in a manner accepted as competent within the meaning of s 5O of the Civil Liability Act 2002 (NSW); and, relevantly for present purposes, that the plaintiff’s cause of action is statute barred. The defence refers to s 14 of the Limitation Act 1969 (NSW), s 236 of the Australian Consumer Law, s 82 of the Trade Practices Act 1974 (Cth), and s 68 of the Fair Trading Act 1987 (NSW).

The Competing Arguments as to Separate Questions

1. [32]

   The defendants argue that the determination of the issue of the limitation defence by separate questions will be dispositive of the litigation, and thus would expeditiously deal with the claim, with a significant saving of costs.

2. [33]

   They contend that, by 23 May 2012 at the latest, that being the date upon which a Contract for the Sale of the land at a purchase price of $1.25 million was entered into by the plaintiff, it was aware that the property was worth substantially less than the $7.45M valuation, and that its sale would not recoup the monies owed by Mr Bone. That event confirmed information earlier available to the plaintiff from the Yazbeck valuation, and the Raine & Horne estimate of a sale price for the land.

3. [34]

   The prospect of the plaintiff recovering its loss was hopeless or remote, and that was clear by May 2012. The defendant argues that the latest date upon which the plaintiff incurred loss, and the tort alleged by it was complete, was 23 May 2012. It is submitted by the defendants that this proposition can be readily established with limited documentary evidence, perhaps even by a statement of facts pursuant to s 191 of the Evidence Act 1995 (NSW), and without the need to call testimony from witnesses, or place the credit of any witness in issue. The defendants argue that the “limitation defence is clear cut, on facts which are undisputable”.

4. [35]

   It is submitted that the cost of conducting a hearing to determine the separate questions relevant to the limitation defence would be (relatively) low, and would result in a significant overall saving to both the parties and the resources of the Court. Reliance is placed on the affidavit of the plaintiff’s solicitor of 25 January 2019, as to the limited time and costs involved in resolving the matter in this way.

5. [36]

   The plaintiff argues that, for the limitation defence to be successful, the defendants must establish that it was reasonably ascertainable by May 2012 that recoupment of the monies advanced to Mr Bone in reliance on the $7.45M valuation was impossible, and this they cannot do. It is submitted that the relevant date from which the limitation period runs is not the date on which it was clear to the plaintiff that the sale of land would be insufficient to recoup its loss, but rather the date on which it was known that it was not possible to recoup the monies personally from Mr Bone pursuant to the personal covenant in the mortgage. This occurred much later, well after May 2012, with the consequence that the limitation defence relied upon by the defendants must fail.

6. [37]

   The plaintiff relied upon an estimate from its solicitor of the costs and time required to conduct a hearing concerning separate question overall. It is contended that costs would be significant, and there would be no saving of time because it would be necessary to call a significant part of its case to deal with the questions, including witness testimony, in circumstances where the same evidence would be called at trial. The plaintiff was firm in its rejection of any possibility that separate questions could be determined on the basis of documentary evidence alone and, particularly, that there was no prospect of agreement as to a statement of agreed facts being submitted to the Court.

7. [38]

   Further, the plaintiff argued that splitting the issues with a separate questions hearing would create two avenues for appeal that would cause delay and inefficiency, in circumstances where an appeal by the party discontented with the determination of the questions by the Court was inevitable.

The Law

1. [39]

   Rule 28.2 falls within Division 2 of Part 28 of the UCPR and provides:

2. [40]

   Rule 28.1 defines a "question" as follows:

3. [41]

   There is a considerable amount of authority on the making of such an order, and the circumstances in which it should be made. Both parties referred the Court to authorities which, each contended, fully supported their respective, and wholly opposed, positions.

4. [42]

   A summary of the principles to be applied to the question of whether separate questions should be determined was given by Hallen ASJ in Southwell v Bennett [2010] NSWSC 1372, at [15] as:

5. [43]

   His Honour’s summation has been cited in a number of decisions, including Commissioner of the Australian Federal Police v Pharmacy Depot Hurstville Pty Ltd [2018] NSWSC 1284 at [11], per Davies J; and Crawley v Vero Insurance Ltd & Ors [2012] NSWSC 593 at [15], per Beech-Jones J. In the latter decision, Beech-Jones J added five further points at [16] – [20]:

6. [44]

   A further collation of principles may be found in Allandale Blue Metal Pty Ltd v Roads and Maritime Services [2013] NSWCA 103, where Ward JA (as she then was) said at [89] – [92]:

7. [45]

   A nutshell summary that might be taken from those and other authorities is that separate questions should only be posed for the determination of the court where the questions can be formulated with precision, determined on the basis of clear facts, and in circumstances where the procedure would plainly save time and costs. The task of persuading the court that the procedure should be adopted falls on the party seeking that outcome, and it is no slight burden.

Determination

1. [46]

   The defendant relied upon Kenny & Good v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25, at 424 – 425 [16], where Gaudron J said,

2. [47]

   It is the last sentence, “At the earliest it will be when default occurs and, at the latest, when the property is sold”, that the defendants place emphasis on in support of their claim as to the May 2012 timing of the completion of the tort, and thus the ready and straightforward resolution of questions directed to the availability of the limitation defences.

3. [48]

   The defendants submit that the questions posed for determination can be resolved discretely, with resolution of a discrete question of law, by agreed facts, on the basis of written submissions, in a day, at very low costs.

4. [49]

   If all of that was clearly the case, this would be an appropriate matter in which to direct that separate questions be determined. However, I am not persuaded that the matter is as clear as the defendants contend.

5. [50]

   Both parties directed the Court to Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; [1992] HCA 55, a decision concerning the timing at which a cause of action accrued under s 82 of the Trade Practices Act 1974 (Cth). Since “loss or damage is the gist of the statutory cause of action for which s 82(1) provides” the decision is apposite. At 532, Mason CJ, Dawson, Gaudron and McHugh JJ said,

6. [51]

   The plurality warned, at 533,

7. [52]

   The plaintiff submits that this is a case of contingent loss, as in Wardley, and time did not begin to run until the relevant contingency, the possibility of recouping the losses from Mr Bone personally pursuant to the personal covenant, was at an end. The plaintiff argues that it was only after it had pursued all possible avenues to recoup its loss from Mr Bone without success, that it became clear that recoupment was impossible, and loss was suffered. Only at that point did time begin to run.

8. [53]

   The plaintiff relies upon Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Limited (2012) 247 CLR 613, where French CJ, Hayne and Kiefel JJ said, at [32]:

9. [54]

   Here, the plaintiff had the benefit of Mr Bone’s personal covenant pursuant to which it could seek to recover its losses from him. It was not confined to recovery from the sale of the land only. In those circumstances, I do not think it could necessarily be said that it was apparent recoupment was impossible at the time of default, or at the time when the Contract for the Sale of land was exchanged.

10. [55]

    That fact muddies the clarity of the position asserted by the defendants as to when the plaintiff’s loss was occasioned. Whilst it is tempting to conclude that it should be a straightforward exercise to ascertain when a cause of action arose, in practice it is likely that determination of that issue will depend upon the impact of complex findings of detailed facts, upon principles of law the interpretation of which is flexible or, at least, arguably so. The variables are many, and an easily determined answer to a preliminary and dispositive question is almost certainly illusory.

11. [56]

    That conclusion is reinforced to a degree by the attitude of the parties which, although not determinative, is a relevant feature. As I have already observed, the defendants argue that separate questions can be answered quickly, efficiently, and cheaply on the basis of documentary material only. The plaintiff puts quite a contrary position, arguing that any hearing of separate questions would take at least two weeks, and require it to call much of its factual case, at great expense and with likely duplication. A likely appeal by the dissatisfied party will only add to the costs needlessly incurred.

12. [57]

    With such starkly differing approaches, there can be no realistic prospect that separate questions could be answered on the basis of a statement of agreed facts, since agreement is highly unlikely. If a two week hearing with considerable oral testimony resulted, one cannot be sanguine as to the procedure ensuring or at least facilitating the quick and cheap disposition of part or all of the claim.

13. [58]

    In such circumstances the usual procedure of determining all disputed facts and legal principles at a single hearing should prevail.

Costs

1. [59]

   Given the conclusion I have reached I propose to make an order for costs to be in the cause, subject to any application from the plaintiff for a different order. It is likely that only time and the ultimate resolution of the litigation will make clear the justice of the respective positions adopted by the parties.

2. [60]

   The following orders are made:

   1. (1)

      The Notice of Motion filed on 20 November 2018 is dismissed.

   2. (2)

      Subject to order (3), costs are costs in the cause.

   3. (3)

      If the plaintiff seeks a different order to order (2), it is to file and serve any evidence and written submissions in support of the application by close of business on 29 March 2019. The defendants are to file and serve any evidence and submissions in reply by close of business on 5 April 2019. Any application will be dealt with on the papers.

   4. (4)

      Adjourned to the Registrar’s call-over at 9am on 23 April 2019 for directions.