FEDERAL COURT OF AUSTRALIA
Caratti v Commissioner of Taxation [2018] FCA 555
ORDERS
First Applicant APPLEY HOLDINGS PTY LTD (ACN 160 806 673) Second Applicant PLATINUM SKY PTY LTD (ACN 126 519 935) Third Applicant | ||
AND: | Respondent | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The application to amend is refused.
2. The tender of MFI 2 is rejected.
3. The applicants’ interlocutory application dated 9 April 2018 and filed on 11 April 2018 is dismissed.
4. The applicants pay the respondent’s costs of the application to amend.
5. Judgment in the substantive proceedings is now reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ROBERTSON J:
1 These reasons deal with an application by the applicants to amend their originating application and their statement of essential factual contentions and issues, and with the admissibility of a folder of documents marked MFI 2.
2 The respondent Commissioner submitted, by written submissions dated 13 April 2018 and filed by leave, that the application for leave to amend should be rejected with costs and that MFI 2 ought not be admitted into evidence. MFI 2 was a folder of documents used by counsel for the applicants to cross-examine the Commissioner’s expert valuer, Mr Del Dosso.
3 The applicants submitted, by written submissions dated 19 April 2018 and filed by leave, that leave to amend should be granted. The applicants submitted that the only significant new matter was the claim for relief against forfeiture which, in light of the submissions made by the Commissioner in opposing leave to amend, they did not press at this stage. The other claims for relief related to legal submissions as to the proper construction of the deed of agreement between the applicants and the Commissioner dated 23 September 2015 (Deed) in respect of which issue had already been joined. The applicants also submitted that MFI 2 was relevant and probative and should be admitted into evidence.
4 The proceedings were commenced on 29 August 2017 by the filing of an originating application. So far as relevant, that application was in the following terms:
Details of claim
On the grounds stated in the accompanying affidavit the Applicants apply to the Court for the following relief under section 39B of the Judiciary Act 1903 (Cth) and sections 21 and 23 of the Federal Court of Australia Act 1976 (Cth):
1. An interim injunction restraining the Respondent from taking recovery action against or in respect of the Applicants on the purported basis that there is an existing Event of Default under the deed of agreement between the Applicants and the Respondent dated 23 September 2015 (‘Deed’) until further order of the Court.
2. A declaration that the Applicants have complied with the demand made by the Respondent pursuant to clause 3.6(k) of the Deed.
3. A declaration that the Respondent has not provided any proper notice to the Applicants in accordance with clause 11.3 of the Deed.
4. Alternately to 3, a declaration that the Applicants have remedied in accordance with the Deed:
a. Any non-compliance with the demand made by the Respondent pursuant to clause 3.6(k) of the Deed; and/or
b. Any Event of Default.
5. A declaration that the Respondent does not at the date of the commencement of these proceedings have a right under clause 11.2 of the Deed to exercise his recovery rights in respect of the Taxation Debt.
6. Specific performance of the Deed.
7. Costs.
8. Any further or other order the Court thinks fit.
5 Clause 3.6(k) of the Deed appears under the heading “Additional Security” and is in the following terms:
In the event that a valuation procured by the Commissioner (whether by the Taxpayer’s preferred valuer or, in the event that the Taxpayer has forfeited his right to nominate a valuer, by a valuer selected by the Commissioner) indicates that the valuation of the Property is less than the valuation provided by the Taxpayer or Guarantor, the Taxpayer shall, within 30 days of a written demand from the Commissioner, provide a mortgage over additional property which has unencumbered equity of at least half the difference between the Commissioner’s valuation and the valuation provided by the Taxpayer or Guarantor.
6 On 27 September 2017, I made orders which included the following:
2. The Applicants file and serve a statement of their essential factual contentions, no more than 3 pages, and identify the issues that they see the Court will need to resolve by 18 October 2017.
3. The Respondent file and serve its response, no more than 3 pages, on or before 27 October 2017.
7 Such statements were filed by the applicants on 19 October 2017 and by the Commissioner on 27 October 2017.
8 The factual matters then identified and contended for by the applicants were (as written):
1. On 23 September 2015, the First Applicant, Second Applicant, Third Applicant (the Applicants) and Respondent entered into a deed of agreement (the ‘Deed’).
2. In accordance with the terms of the Deed the Applicants provided by way of ‘Securities’ mortgages over Lot 9005 (Sansimeon Boulevard) and Lot 111 (Lugg Place)(Original Securities).
3. On 29 October 2015, the Applicants provided a Valuation Report prepared by a registered property valuer who was not proscribed under the Deed properly in accordance with cl 3.6 that valued the Original Securities at $14,500,000.
4. On 11 November 2015 the Respondent registered the mortgage he held over Sansimeon Boulevard.
5. On 30 March 2016, the Respondent issued a demand under cl 3.6(k) that the Applicants provide within 30 days “additional property which has an unencumbered value of at least $4,550,000”. The 30 day period expired on 29 April 2016.
6. On 27 April 2016, the Applicants advised the Respondent that the additional collateral property provided under cl 3.6(d) was lots 819 and lots 820 (Bedford Place).
7. On 5 May 2016, the Respondent issued the Applicants with a Notice of an Event of Default under cl 11.1 and 11.3. (5 May 2016 Notice)
8. At the time of giving the Notice of an event of Default referred to in [7] above the Respondent had failed to register the mortgage over Lugg Place.
9. On 11 May 2016, the Applicants provided a Valuation Report for the additional security, Bedford Place, in accordance with cl 6.3(b) of the Deed.
10. On 23 May 2016, the Respondent notified the Applicants under cl 11.2 and 11.3 of the Deed that he sought an immediate right recovery of the Taxation Debt, without first having registered the registerable mortgage the Respondent held over Lugg Place.
11. On 26 May 2016, the Applicant commenced proceedings seeking inter alia that the Respondent refrain from recovery action in purported reliance on the Deed, matter number NSD 792 of 2016
12. Your Honour heard this matter on 16 June 2016 and made orders and delivered judgment on 29 June 2016: Caratti v Commissioner of Taxation [2016] FCA 754.
13. On 13 July 2016, the Respondent without purporting to exercise his rights under cl 3.6(i) and (i) of the Deed obtained a property valuation of Bedford Place.
14. On 15 July 2016 the Respondent issued the Applicant with a new Notice of an Event of Default under cl 11.3 (15 July 2016 Notice). At the time of issuing this Notice the Respondent still had not registered the mortgage it held over Lugg Place.
15. On 29 July 2016, the Applicants provided the Respondent with a new and proper Valuation Report for the purposes of cl 6.3(b) for Bedford Place which valued Bedford Place at $4.5 million together with a new mortgage for Bedford Place and Lugg Place.
16. On 16 August 2016, the Respondent notified the Applicants that he would not accept Lugg Place and Bedford Place as Securities.
17. On 17 August 2016 the Applicants filed an Amended Originating Process in Matter Number 792 of 2016.
18. The hearing of this matter set down for 23 November 2016 was adjourned and discontinued by consent on 25 November 2016.
19. On 14 March 2017 the Respondent registered the mortgage he held over Lugg Place.
20. On 4 May 2017, the Respondent made a new demand for additional property under cl 6.3 (k) the Deed (‘2017 Demand’). The Respondent had obtained new valuations of the Original Securities that valued the Original Securities at $2,800,000.
21. On 10 May 2017, Mr Graeme Macewan a registered property valuer within the terms of cl 3.6(b) prepared a new valuation report in relation to Bedford Place, which valued Bedford Place at $5,700,000.
22. On 2 June 2017, the Applicants provided to the Respondent executed mortgages over Bedford Place and a further property Lot 9001 (Beckenham) (Additional Property). The registerable mortgages over the Additional Property secured the sum of $5,850,000.
23. On 7 August 2017, the Respondent under cl 3.6(i) of the Deed obtained a valuation report in relation to Bedford Place which valued Bedford Place at $770,000 (including GST of $70,000).
24. On 11 August 2017, the Respondent gave the Applicants a new Notice purportedly under cl 11.1 (a) of the Deed that an Event of Default had occurred.
25. On 25 August 2017, the Applicant filed a new Originating Process which is the subject of these proceedings: NSD 1495/2017.
26. On 28 August 2017, the Respondent under cl 11.1 (a) and (j) advised that the Applicants had 10 Business Days to remedy an alleged Event of Default under the Deed.
9 The issues identified by the applicants were (as written):
27. In light of the Respondents conduct which culminated in proceedings NSD 792 of 2016 is the Respondent estopped from raising a further dispute in respect of the quantum of the Securities under the Deed?
28. If no to 27, have the Applicants complied with their obligations under cl 3.6(d) of the Deed?
29. What is the proper construction of cls 3.6(d) and (k) read with the definition of ‘Equity Value’?
30. Is the Respondent entitled under cl 3.6(k) of the Deed to seek additional property?
31. Does the Deed as properly construed operate to allow the Respondent (or the Applicant) a unilateral right to challenge the valuation of the Securities as determined by a non proscribed registered valuer and unilaterally reject any such valuation?
32. Does the Deed as properly construed operate to give the Respondent the right to procure his own valuation repeatedly over additional property offered under cl 3.6(k) of the Deed?
33. Did the Respondent act reasonably in the exercise of his discretions (cl 6.2) and in good faith (cl 9)?
34. Did an event of default occur which was not remedied by the Applicants within the period provided under cl 11.l (a) and (j) of the Deed?
10 The Commissioner’s response to those issues was as follows (as written):
1. The central question in this proceeding is whether the applicants provided, as they were obligated to do under clause 3.6(k) of the Deed of Agreement, Guarantee and Indemnity dated 23 September 2015 (Deed), “a mortgage over additional property which has unencumbered equity of at least” $5,850,000.
…
5. The following is a list of the issues the respondent contends that the Court needs to resolve in this proceeding and the summary of his contentions in relation to the issues set out in the Applicants’ Statement.
6. As to paragraph [27] of the Applicants’ Statement, whether a discontinuance is capable of giving rise to issue estoppel. The respondent contends it is not.
7. As to paragraph [28] of the Applicant’s Statement, the respondent contends the alleged compliance with clause 3.6(d) is not relevant to the issues in this proceeding.
8. As to paragraphs [29] to [32] of the Applicants’ Statement, the issue is how the phrase “provide a mortgage over additional property which has unencumbered equity of” in clause 3.6(k) of the Deed ought to be construed. The respondent contends that phrase requires the Court to determine, whether, as a matter of fact, the applicants provided a mortgage over “additional property” of at least $5,850,000 when required by the respondent to do so.
9. As to paragraph [33] of the Applicants’ Statement, the issue is which discretion or dealing (i.e. under which clause of the Deed) do the applicants seek to impugn, what was the content of any such discretion or dealing and whether clauses 6.2 and 9 have any application to any such discretion or dealing. The respondent contends that it is entirely unclear which of his “acts” the applicants seek to impugn.
10. As to paragraph [34], as stated above, this issue would be determined consequent to the determination of the central issue in this proceeding, which has been encapsulated in paragraph [1] above.
11 On 12 December 2017, the application was listed for final hearing on 6 April 2018.
12 Also on 12 December 2017, I made the following orders:
1. The applicants’ time for filing and service of any affidavit evidence on which they intend to rely be extended until 22 December 2017.
2. The respondent’s time for filing and service of any affidavit evidence on which he intends to rely be extended until 16 February 2018.
3. The applicants file and serve any affidavit evidence in reply on which they intend to rely on or before 2 March 2018.
4. The applicants file and serve their written outline of submissions (not exceeding 10 pages) by 16 March 2018.
5. The respondent file and serve his written outline of submissions (not exceeding 10 pages) by 23 March 2018.
6. The applicants file and serve any written submissions in reply (not exceeding 5 pages) by 3 April 2018.
13 By interlocutory application dated 9 April 2018, filed on 11 April 2018, the applicants applied for the following interlocutory orders:
1. Leave be granted to the Applicants to amend the originating application in terms of the proposed amended originating application attached as Attachment MAR-8 to the Affidavit of Michael Anthony Robson sworn 9 April 2018.
2. Leave be granted to the Applicants to amend the Statement of Essential Factual Contentions and Issues in terms of the proposed Amended Statement of Essential Factual Contentions.
3. The Applicants pay the Respondent’s costs of and incidental to the application to be taxed if not agreed.
14 The proposed amended originating application, so far as relevant, was in the following terms:
1. An interim injunction restraining the Respondent from taking recovery action against or in respect of the Applicants on the purported basis that there is an existing Event of Default under the deed of agreement between the Applicants and the Respondent dated 23 September 2015 (‘Deed’) until further order of the Court.
2. A declaration that the Respondent was not entitled to demand additional property under the terms of the Deed.
3. A declaration that the demand made by the respondents under clause 3.6(k) was invalid and in breach of the requirements of clause 3.6(j).
2.4. A declaration that the Applicants did not have to have complied with the invalid demand made by the Respondent pursuant to clause 3.6(k) of the Deed.
3.5. A declaration that the Respondent has not provided any proper notice to the Applicants in accordance with clause 11.3 of the Deed.
4.6. Alternately to 3, a declaration that the Applicants have remedied in accordance with the Deed:
a. Any non-compliance with the demand made by the Respondent pursuant to clause 3.6(k) of the Deed; and/or
b. Any Event of Default.
7. A declaration that on a proper construction of the Deed, the Respondent was not entitled to procure property valuations 2 years after the Deed was executed and call for additional property when he had failed to register the mortgages he held over Lugg Place.
5.8. A declaration that the Respondent does not at the date of the commencement of these proceedings have a right under clause 11.2 of the Deed to exercise his recovery rights in respect of the Taxation Debt.
9. Specific performance of the Deed.
6.10. Alternately, the Second Applicant, Third Applicant and any other person or company whose legal or equitable proprietary interests are affected be granted relief against forfeiture of the properties which mortgages were granted to the Commonwealth under the deed of agreement dated 23 September 2015.
7.11. Costs.
8.12. Any further or other order the Court thinks fit.
15 The proposed amended statement on the part of the applicants was as follows:
ESSENTIAL FACTUAL CONTENTIONS
1. On 23 September 2015, the First Applicant, Second Applicant, Third Applicant (the Applicants) and Respondent entered into a deed of agreement (the ‘Deed’).
2. In accordance with the terms of the Deed the Applicants provided by way of ‘Securities’ mortgages over Lot 9005 (Sansimeon Boulevard) and Lot 111 (Lugg Place)(Original Securities)
3. On 29 October 2015, the Applicants provided a Valuation Report prepared by a registered property valuer who was not proscribed under the Deed properly in accordance with cl 3.6 that valued the Original Securities at $14,500,000.
4. On 11 November 2015 the Respondent registered the mortgage he held over Sansimeon Boulevard.
5. On 30 March 2016, the Respondent, without having done a valuation of the Properties and in breach of the requirements of cl 3.6(j) of the Deed issued a demand under cl 3.6(k) that the Applicants provide within 30 days "additional property which has an unencumbered value of at least $4,550,000". The 30 day period expired on 29 April 2016.
6. On 27 April 2016, the Applicants advised the Respondent that the additional collateral property provided was under cl 3.6 (d) which was lots 819 and lots 820 (Bedford Place St Spalding).
7. On 5 May 2016, the Respondent issued the Applicants with a Notice of an Event of Default under cl 11.1 and 11.3. (5 May 2016 Notice)
8. At the time of giving the Notice of an event of Default referred to in [7] above the Respondent had failed to register the mortgage it held over Lugg Place.
9. On 11 May 2016, the Applicants provided a Valuation Report for the additional security, Bedford Place Street Spalding, in accordance with cl 6.33.6(b) of the Deed.
10. On 23 May 2016, the Respondent notified the Applicants under cl 11.2 and 11.3 of the Deed that he sought an immediate right recovery of the Taxation Debt, without first having registered the registerable mortgage the Respondent held over Lugg Place.
11. On 26 May 2016, the Applicant commenced proceedings seeking inter alia that the Respondent refrain from recovery action in purported reliance on the Deed, matter number NSD 792 of 2016
12. Your Honour heard this matter on 16 June 2016 and made orders and delivered judgment on 29 June 2016: Caratti v Commissioner of Taxation [2016] FCA 754.
13. On 13 July 2016, the Respondent without purporting to exercise his rights under cl (sic) 3.6(i) and (j) of the Deed obtained a property valuation of Bedford Place Street Spalding but not of the Properties in Schedule 1 Item 2 of the Deed.
14. On 15 July 2016 the Respondent issued the Applicant with a new Notice of an Event of Default under cl 11.3 (15 July 2016 Notice). At the time of issuing this Notice the Respondent still had not valued the Securities as required under the terms of the Deed or registered the mortgage it held over Lugg Place making the call for additional property under cl 3.6(k) invalid.
15. On 29 July 2016, the Applicants provided the Respondent with a new and proper Valuation Report for the purposes of cl 6.33.6(b) for Bedford Place Street Spalding which valued Bedford Place Street Spalding at $4.5 million together with a new mortgage for Bedford Place Street Spalding and Lugg Place.
16. On 16 August 2016, notwithstanding the Respondent’s obligation under Recital E, cls 3.1, 3.3 and 3.6(h) to accept Lugg Place and Bedford Street Spalding as Securities, the Respondent notified the Applicants that he would not accept Lugg Place and Bedford Place Street Spalding as Securities.
17. At the date he rejected Lugg Place and Bedford Street Spalding, the Respondent had not procured a property valuation in accordance with the terms of the Deed that put a value on the Properties at less than $10.3 million.
17.18. On 17 August 2016 the Applicants filed an Amended Originating Process in Matter Number 792 of 2016.
18.19. The hearing of this matter set down for 23 November 2016 was adjourned and discontinued by consent on 25 November 2016 with no order as to costs.
19.20. On 14 March 2017 the Respondent registered the mortgage he held over Lugg Place.
20.21. On 4 May 2017, the Respondent made a new invalid demand for additional property in breach of cl 3.6(j) under cl 6.3 (k) (sic) the Deed (‘2017 Demand’). The Respondent had-obtained new valuations of the Original Securities Properties that valued the Original Securities Properties at $2,800,000. These valuations were never put into evidence in these proceedings.
21.22. On 10 May 2017, Mr Graeme Macewan MacEwan a registered property valuer within the terms of cl 3.6(b) prepared a new valuation report in relation to Bedford Place Street Spalding, which valued Bedford Place Street Spalding at $5,700,000.
22.23. On 2 June 2017, the Applicants provided to the Respondent executed mortgages over Bedford Place Street Spalding and a further property Lot 9001 (Beckenham)(Additional Property). The registerable mortgages over the Additional Property secured the sum of $5,850,000. The mortgages provided by the Applicants were in identical form to the ones provided for under the terms of the Deed.
23.24. On 7 August 2017, the Respondent under cl 3.6(i) of the Deed, but not in conformity with cl 3.6(j) of the Deed, obtained a valuation report in relation to Bedford Place Street Spalding which valued Bedford Place Street Spalding at $770,000(including GST of $70,000).
24.25. On 11 August 2017, the Respondent gave the Applicants a new Notice purportedly under cl 11.1(a) of the Deed that an Event of Default had occurred.
25.26. On 25 August 2017, the Applicant filed a new Originating Process which is the subject of these proceedings: NSD 1495/2017.
26.27. On 28 August 2017, the Respondent under cl 11.l (a) and (j) advised that the Applicants had 10 Business Days to remedy an alleged Event of Default under the Deed.
ISSUES TO BE DETERMINED BY THE COURT
27.28. In light of the Respondents conduct which culminated in proceedings NSD 792 of 2016 is the Respondent estopped from raising a further dispute in respect of the quantum of the Securities under the Deed?
28.29. If no to 27 (sic), have the Applicants complied with their obligations under cl 3.6(db) of the Deed to provide a Valuation Report in respect of the Properties and additional properties under cl 3.6(d)?
30. Is the Respondent entitled to demand additional property without ever having obtained a valuation of the Properties in accordance with the terms of cl 3.6 of the Deed at the time of making that demand?
29.31. What is the proper construction of cls 3.6(d) and (k) read with the definition of ‘Equity Value’?
30.32. Is the Respondent entitled under cl 3.6(k) of the Deed to seek additional property without having provided the applicants with a list of 6 alternative property valuers as required under 3.6(j)?
33. Can cl 3.6(k) be enlivened without the Respondent first complying with his obligation to procure a valuation under cl 3.6(j)?
31.34. Does the Deed as properly construed operate to allow the Respondent (or the Applicant) a unilateral right to challenge the valuation of the Securities as determined by a non proscribed registered valuer and unilaterally reject any such valuation two years after the Applicants executed the Deed and provided the Respondent with the Securities?
32.35. Does the Deed as properly construed operate to give the Respondent the right to procure his own valuation repeatedly and over extended periods of time over of additional property offered under cl 3.6(k) of the Deed?
33.36. Did the Respondent act reasonably in the exercise of his discretions (cl 6.2) and in good faith (cl 9)?
37. Did an event of default occur which was not remedied by the Applicants within the period provided under cl 11.1 (a) and (j) of the Deed?
34.38. Are the Guarantors (and other persons or companies) whose legal or equitable proprietary interests are affected entitled to relief against forfeiture of the properties which mortgages were granted to the Commonwealth under the Deed because the Respondent has caused or contributed to the default by the Applicants?
16 In what follows I leave out of account purely typographical or textual amendments which are of no consequence.
17 How things stood a day and a half before the final hearing may be discerned from the applicants’ written submissions filed on 19 March 2018. Under the first heading, “Issue for Determination”, the applicants submitted:
1. The issue that divides the parties is one of construction of the Deed of Agreement Guarantee and Indemnity (the “Deed”) that was executed by the applicants and the respondent on 23 September 2015.
2. The question for this Court is whether the applicants have complied with all of the requirements of clause 3 of the Deed.
3. If so the applicants have abided by their obligations under the Deed and the respondent's recovery powers in cl 6.6 are not enlivened.
18 The applicants’ submissions concluded as follows, as written:
42. By Clause 3.6(i), the respondent could elect to obtain his own Property Valuation. The Deed does not operate to give the respondent a power to pick and choose between his and the applicant's valuations of individual properties that made up the Property. By Clause 3.6(j) the Commissioner was first to provide to the applicant a list of six alternative licenced property valuers and the applicant was to be given the opportunity to choose a preferred valuer from that list.
43. Clause 3.6(k) set out what was to happen if the valuation of the Property obtained by the respondent differed from the applicant's Valuation Report and that valuation resulted in the Equity Value (that is taking into account the first mortgagees debts) being less than $10.3 million.
44. Unencumbered Equity is not a defined term, but on the basis of the definition of Encumbrance a reasonable businessperson would have understood the term to mean any of the remaining equity in the property after subtracting from its market value all of the mortgages or charges over that property. This is apparent from the definition of Encumbrance and Equity Value.
45. Where Cause 3.6(k) is enlivened, the Equity Value of the Properties is treated as below $10.3 million and the applicant is required (by cl4.1(j)) to provide additional security to bring the Equity Value notionally back up to $10.3 million. That is, the applicant must do over the precise process outlined in Clauses (a), (b) and (c). The applicant must provide a Valuation Report for the additional property and a statement from any prior ranking mortgagee as to the priority debt.
46. The Deed does not contain any requirement as to the form or methodology to be used by a licenced valuer other than the Valuation Report be prepared on or after 15 July 2015 by a registered property valuer other than the proscribed valuer.
47. Once that occurs, and the Equity Value of that security is sufficient, then the taxpayer’s obligations to provide Security are satisfied, no further dispute over the quantum of the security can arise under the Deed. The provisions of clause 3.6 are not iterative.
48. The purpose of Clause 3.6(k) is to reach a compromise if the Equity Value of $10.3 million is reached on the applicant’s valuation of the Property but not on the respondent’s valuation of the Property. If the respondent’s valuation reaches an Equity Value of more than $10.3 million then the requirement for additional security for the Taxation Debt is not engaged.
49. The respondent’s construction of Clause 3.6(k) should be rejected having regard to Clause 1.1 definition of Equity Value and Encumbrance and the purpose of Clause 3.6 of the deed, which is to ensure that the agreed Equity Value of $10.3 million is reached in a manner that avoids an actual dispute over the market value at a point in time.
50. Clause 3.6(k), as with the preceding subclauses and Clauses 3.4 and 3.5, is tied to the agreed Equity Value of at least $10.3 million and that the value of the additional property, as with the Property, is ‘as determined by a market valuation from a licenced valuer engaged at the Taxpayers cost.’ Clause 3.6(k) is not to be construed in isolation and the definition of Equity Value must apply.
51. If the Court holds that Clause 3.6(k) is correctly to be construed in isolation and the definition of Equity Value is not to apply such that the Clause requires the Securities and the additional property to be found by the Court as a fact to be at least $5.85 million then the Securities and the additional property (Spalding and Beckenham) should be found to have that market value on the evidence before the Court, being the valuations of Mr MacEwan in 2016 and 2017 on the basis that Mr MacEwan is a licenced, certified, practicing valuer who prepared a Valuation Report for the purposes of the Deed after 1 July 2015. The provisions of Clause 6.3(d) are not iterative, the process cannot be repeated indefinitely.
52. The language of the Deed precludes the Court from going behind the valuation prepared by a Registered Valuer and direct its own mode of valuation because the Deed sets out a methodology or mode of arriving at a market value for the purposes of the Deed. Only if the Deed were silent as to the mechanism the parties were to adopt to establish a valuation for the property would (sic) be open for the Court to adopt any means for establishing that value including hearing evidence from expert witness with respect to the Valuation Report prepared by Mr MacEwan.…
The Deed in question is essentially the same as an agreement to sell at a valuation to be made by a named person. In this case a valuation by a registered property valuer who is not a proscribed valuer. The agreement the respondent is seeking to elicit from the Deed is akin to an agreement to sell at a fair market value where no particular means of ascertaining the value are provided for in the Deed. If this was in fact the case there would be nothing to prevent the Court from adopting any means adapted to that purpose. However that approach is not available on the proper construction of the terms of the Deed and must be rejected.
19 The application to amend was first foreshadowed by the filing of the applicants’ written submissions in reply on 3 April 2018, although no specific indication of the proposed amendments or any application to amend was then made. The issue was referred to in the course of an interlocutory hearing on the afternoon of 4 April 2018 concerning the applicants’ application to set aside subpoenas issued by the Commissioner. Also dated 4 April 2018 was a proposed “Amended Outline of the Applicants’ Submissions”, the applicants’ outline of submissions having been ordered to be filed by 23 March 2018 for the 6 April 2018 final hearing.
20 An oral application to amend, without further notice to the Commissioner, was made at the commencement of the final hearing on 6 April 2018. Counsel for the applicants said that the applicants would be “seeking leave of the court to amend the pleadings to seek relief against forfeiture should your Honour find that our client has breached – the applicants have breached the contract.” No form of proposed amendment was then available. It was later foreshadowed that the application to amend would extend to whether or not the Commissioner had complied with cl 3.6(j) of the Deed so as to question whether the calling for property under cl 3.6(k) was properly enlivened. The proposed application to amend extended to amending the applicants’ factual contentions. I directed that such an application be made formally, with supporting documents indicating the proposed amendments, and that was done, by leave, by application dated 9 April 2018, filed 11 April 2018.
21 It is necessary to attempt to identify, to the extent possible, the new proposed issues and then to consider which of those new issues depends on new and contentious facts or arguments.
22 One issue is the effect of the discontinuation of proceedings NSD 792 of 2016 between the parties. This was raised in the applicants’ statement of their essential factual contentions and issues, at [27]. Nothing was said about it in the applicants’ outline of submissions filed on 19 March 2018. In the applicants’ reply submissions, at [3], it was said that the applicants had not abandoned their position that the discontinuance of the proceedings by consent in November 2016 gave rise to an issue estoppel. In my opinion this issue does not raise any disputed or unexplored factual matters and despite the applicants’ failure to raise the point in their outline of submissions filed on 19 March 2018, there is no prejudice to the Commissioner. In particular no occasion for further submissions arises from this issue. I propose therefore to allow the applicants to make the submissions they have made on this point. No amendment is necessary.
23 Another proposed issue is the effect of the Commissioner’s claimed failure to register a mortgage over the property at Lugg Place. This was referred to in the applicants’ statement of their essential factual contentions and issues at [8], [10] and [14] but by way of background. Only in light of the applicants’ application to amend may the issue be discerned in [30] of that statement: “Is the Respondent entitled under cl 3.6(k) of the Deed to seek additional property?” It was referred to in the applicants’ written outline of submissions at [8] under “Background Facts” relating to a demand by the Commissioner on 30 March 2016 and which led to the provision by the applicants of additional security and to the proceedings being discontinued by consent on 26 November 2016. It was also referred to in the applicants’ written outline of submissions at [40]. It was there submitted that had the Commissioner registered Lugg Place, the parties’ ongoing relationship would have been governed by cll 3.4 and 3.5 “at that Equity Value.”
24 The matter was sought to be put clearly for the first time in the applicants’ written reply submissions at [5]-[6], as well as raising a further issue as to a list of six alternative licensed property valuers, as follows:
5. Notwithstanding that at the date the Deed was delivered;
a. the “evidence furnished in accordance with 3.6(a)” demonstrated that the Properties had “Equity Value” of $12.46 million,
b. the respondent had failed to register the mortgage it held over Lugg Place,
c. cl 3.6(h) operated to prevent the respondent from requiring additional securities because he held “mortgages over Property which, on the basis of property valuations and evidence of existing encumbrances, presently has unencumbered equity of at least $10.3 million”, and
d. without providing the taxpayer with a list of six alternative licensed property valuers as required under cl 3.6(j);
the respondent invalidly invoked his right pursuant to cl 3.6(k) and gave the applicant a written demand… “to provide a mortgage over additional property which has unencumbered equity of at least half the difference between the Commissioner’s valuation and the valuation provided by the Taxpayer”.
6. At the time the respondent initially called for the additional property, 16 March 2016, he had no right to do so and was in breach of the terms of the contract.
25 The issue of six alternative licensed property valuers was further developed at [12]-[13] of the applicants’ written reply submissions filed on 3 April 2018. It was said that the six valuers in the Commissioner’s list were all employed by the same valuations firm and thus the list provided was not a list of six alternative licensed property valuers.
26 The next proposed new issue is found under the heading “reasonable time” at [14]-[17] of the applicants’ reply submissions filed on 3 April 2018. The point was opened in these reply submissions, at [14], by stating that the valuations prepared by the Commissioner with respect to the securities, Byford and Lugg Place, were prepared by Mr Tristram, an employee of Opteom Property Group. It was submitted that these valuations were not in evidence. It would appear, the submission continued, from correspondence annexed to an affidavit of Mr Caratti that these valuations were prepared two years after the valuation reports prepared by the applicants’ registered property valuer were provided to the Commissioner together with evidence of the encumbrances registered against both properties, as the applicants were required to do under cl 3 of the Deed. Those valuations, not being in evidence, could not be relied upon by the Commissioner as an alternative valuation. It was next submitted, at [16], that it was unreasonable for the Commissioner to wait for two years to elapse after the original securities were offered under the Deed before exercising his right to procure a property valuation that challenged the applicants’ valuation and then on the basis of those valuations call for further property pursuant to cl 3.6(k). The very nature of the valuation methodology in the Deed imposed an obligation on the Commissioner to take reasonable steps, if he intended to procure a valuation under cll 3.6(i) and (j), to do so expeditiously in order to ensure the contract had business efficacy. The concluding submission on this proposed point, at [17], was that the Commissioner was not entitled to seek additional property under cl 3.6(k) two years after the Deed was executed, when he had failed to register the mortgages he held over the property (Byford and Lugg Place) at the time they were provided by the applicants under cll 3.1 and 3.3 of the Deed. The applicants submitted that at that time the evidence was that the equity value of the securities exceeded $10.3 million. In any event, the Commissioner had not done so because he had not complied with the contractual requirements by providing the names of six alternative valuers. This proposed issue is also put as the respondent Commissioner not being entitled to demand additional property because he had not procured a valuation at the time in accordance with the terms of the Deed that demonstrated the equity value of the properties was below $10.3 million.
27 The last proposed new issue is found under the heading “Relief against forfeiture of property” in four unnumbered paragraphs, which follow after [23], in the applicants’ reply submissions filed on 3 April 2018. I do not see that this issue is within the applicants’ statement of issues nor within the applicant’s written outline of submissions dated 19 March 2018.
28 In the affidavit sworn by Mr Robson, the solicitor for the applicants and filed on 9 April 2018, the following was said by way of identifying the subjects of the application to amend. It was:
to include and make clear that the applicants contend:
5.2.1 that the demand for additional property under 3.6(k) of the deed of agreement dated 23 September 2015 (‘deed’) was in breach of the requirements of 3.6(j) of the deed;
5.2.2 the Respondent was not entitled to demand additional property because the Respondent had not procured a valuation at the time in accordance with the terms of the deed that demonstrated the Equity Value of the Properties was below $10.3 million;
5.2.3 the Respondent is not entitled to seek additional property under 3.6(k) two years after execution of the deed given the time requirements in the deed; and
5.2.4 alternately, that the applicants are entitled to relief against forfeiture because of the conduct of the Respondent which contributed to or caused the Applicants’ default…
29 The Commissioner submitted that the applicants sought leave fundamentally to amend their case. There needed to be an explanation for the delay in raising any matters in respect of which amendment was sought but no such explanation had been provided, especially in the face of the ample time that the applicants had to formulate or amend their case. The proposed amendments were futile and did not disclose any reasonable cause of action or any arguable case. The new prayers 2, 3, 4 and 5 were futile because on the facts admitted in the applicants’ statement of essential factual contentions and issues filed on 19 October 2017, this new case simply did not arise. There was no application to withdraw the admissions apparent from that statement. Further, there was no evidence supporting this new relief. The proposed relief against forfeiture was futile because it was based on the abovementioned relief and because there had been no identification of the legal rights, the exercise of which would effect the forfeiture. Breach of the Deed did not lead to forfeiture. Relief against forfeiture simply did not arise. The new claims were futile and lacked bona fides, the Commissioner submitted. With reference to Commonwealth Bank of Australia v Susan Hannaford Pty Ltd (No 2) [2013] NSWSC 574 at [71], the Commissioner submitted that Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; 239 CLR 175 made it clear that the earlier approach of seeing costs as a sufficient compensation for amendment was no longer a proper approach. In the same way an absence of any particular prejudice to the other side, beyond the obvious delay caused by the proposed amendments, may not be sufficient to mean that the amendment will be allowed. This will be because of the overriding obligations under the statutory regime, in the Susan Hannaford case the provisions of the Civil Procedure Act 2005 (NSW) and particularly ss 56–58.
30 The Commissioner also submitted that dilatory conduct by a party weighed against the granting of leave. The applicants’ conduct had been unreasonable, especially given the extensions previously granted by the Court. The applicants had every opportunity to articulate this new case months ago and inexplicably failed to do so.
31 Finally, the Commissioner submitted, the granting of leave would involve opening a completely new case, which would involve another round of evidence and hearing. The Court would not heed the applicants’ invitation to decide the case (now posited on the absence of evidence by the Commissioner where there was no issue previously raised as to the new relief) without such additional evidence and hearing. The prejudice was palpable and irreparable.
32 If leave were granted, the Commissioner submitted, he should be given the opportunity to lead additional evidence to meet the new case, together with additional submissions.
33 The applicants submitted, in their written submissions filed by leave on 19 April 2018, that the original application sought specific performance of the Deed. This included the applicants’ obligation to comply with the requirements of clause 3.6(j), which required the applicants to be provided with a list of six alternate licensed property valuers. The applicants had previously contended this was not done although it was not a point expressly made in its submissions in chief. It was not a point which could possibly cause the Commissioner any embarrassment, nor did his submissions contend so. It was a simple question of the construction of the Deed. The issue of the construction of the Deed in its entirety was always in issue before the Court in these proceedings and in previous proceedings.
34 On a proper construction of the Deed, the applicants submitted, the Commissioner was not entitled to call for additional security under cll 3.6(d) or 3.6(k) until he had registered the mortgages he held over both properties listed as the securities in Schedule 1 Item 2. Nor was the Commissioner entitled to substitute his view of the value of the properties for the required contractual benchmark when serving the Notice of Default under cl 11.1 of the Deed. In relation to relief against forfeiture the applicants had to date assumed that the Commissioner was seeking to exercise his rights under cl 3.6(d) with a view to realising the properties by exercising the mortgagee’s power of sale. In light of what was said in the Commissioner’s submissions, the applicants did not press for this amendment at this stage but reserved their position should any notice of the exercise of the power of sale be given to them. Therefore, no new evidence was required at this stage.
Consideration
35 In considering the application to amend, I must also have regard to s 37M of the Federal Court of Australia Act 1976 (Cth) which provides:
37M The overarching purpose of civil practice and procedure provisions
(1) The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes:
(a) according to law; and
(b) as quickly, inexpensively and efficiently as possible.
(2) Without limiting the generality of subsection (1), the overarching purpose includes the following objectives:
(a) the just determination of all proceedings before the Court;
(b) the efficient use of the judicial and administrative resources available for the purposes of the Court;
(c) the efficient disposal of the Court’s overall caseload;
(d) the disposal of all proceedings in a timely manner;
(e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.
(3) The civil practice and procedure provisions must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose.
(4) The civil practice and procedure provisions are the following, so far as they apply in relation to civil proceedings:
(a) the Rules of Court made under this Act;
(b) any other provision made by or under this Act or any other Act with respect to the practice and procedure of the Court.
36 I now apply these principles, especially to facilitate the just resolution of the dispute as quickly, inexpensively and efficiently as possible.
37 There has been no explanation for why the proposed amendments were made so late. I note that the first inkling of any proposed amendment was in the applicants’ written submissions in reply dated 4 April 2018 for a trial set down for a single day, being 6 April 2018. No written version of the proposed amendments was available during the hearing. There was no prospect of even the application to amend being dealt with during the course of the hearing as the application was extensive and of some complexity. There was no application for an adjournment.
38 In my opinion, as I have said, the applicants should be permitted to rely on their estoppel argument. Leave to amend should be refused for the following reasons.
39 I would refuse leave to contend that the demand for additional security was in breach of the requirements of cl 3.6(j) of the deed. This is the point that the Commissioner did not provide the taxpayer with a list of six alternative licensed property valuers. I would refuse leave because the point was not raised in the applicants’ statement of essential factual contentions, it was not raised in the applicants’ written submissions in chief, and it would depend on further evidence as to whether the property valuers were “six alternative licensed property valuers”. I would also refuse leave on the basis that this proposed contention would involve further submissions, either with or without a further hearing.
40 For similar reasons, I would refuse leave to raise the issue that the Commissioner was not entitled to demand additional property because the Commissioner had not procured a valuation at the time in accordance with the terms of the deed that demonstrated the equity value of the properties was below $10.3 million. This seems to me to involve the putting into evidence of material that was unnecessary on the case as presently articulated. Again, I would also refuse leave on the basis that this proposed contention would involve further submissions, either with or without a further hearing.
41 For similar reasons, I would refuse leave to raise the issue that the Commissioner was not entitled to seek additional property under cl 3.6(k) two years after execution of the deed given the time requirements in the deed.
42 I would also refuse leave to amend to raise the issue whether the applicants are entitled to relief against forfeiture because of the claimed conduct of the Commissioner which contributed to or caused the applicants’ default. Again, the point was not raised in the applicants’ statement of essential factual contentions, it was not raised in the applicants’ written submissions in chief, it would or might depend on further evidence as to the conduct and state of mind of the relevant officers of the Commissioner and it would also involve further submissions. It is not satisfactory for the applicants to say they do not intend to raise the issue “at this stage”.
43 For completeness, and although I note that this was not referred to as part of the subject of the application to amend in Mr Robson’s affidavit of 9 April 2018, for similar reasons I would also refuse leave in relation to the proposed issue concerning the Commissioner’s claimed failure to register a mortgage over the property at Lugg Place.
MF1 2
44 The Commissioner submitted that the tender of MFI 2 should be rejected. First, it was submitted, it was not proved that any of the valuations were Mr Del Dosso’s. As such, if the documents were used for the purpose of impugning his credibility they were irrelevant and of no probative value. Second, the Commissioner submitted, there was no evidence of the underlying facts pertaining to the various properties as Mr Del Dosso repeatedly pointed out in his oral evidence.
45 The applicants submitted that the five valuation reports prepared by Colliers, the firm at which Mr Del Dosso was employed, which formed part of MFI 2, and the significant differential between those valuations and other valuations or contracts of sale in MFI 2, must cast doubt over the valuations prepared by Mr Del Dosso in these proceedings. The applicants also submitted that the material in MFI 2 went to Mr Del Dosso’s credibility as an expert witness.
46 The applicants submitted that Mr Del Dosso demonstrated a clear pattern of bias against the applicants. For a valuation to be submitted in evidence as an expert opinion it was necessary for the valuer to be independent of the parties, that is, neither leaning in favour of or against the applicants. The applicants submitted that it was put to the witness that there was such bias in the case of the subject valuations, which exhibited the same pattern in the valuations contained in MF1 2. The applicants submitted MF1 2 was relevant and probative of the fact that Mr Del Dosso did not fairly apply his mind to the true value of the property that was offered as additional security because Mr Caratti was its owner and therefore the valuation could not be relied on.
Consideration
47 For the following reasons, I reject the tender of MFI 2.
48 First, a mere difference between one valuation figure and another establishes nothing. Mr Del Dosso was not taken to the detail of any of the valuations and there was no evidence from the applicants’ valuer, Mr MacEwen, about any of the valuations put to Mr Del Dosso. The facts underlying the valuations were not explored or established.
49 Secondly, in terms of s 103 of the Evidence Act 1995 (Cth), the evidence could not substantially affect the assessment of the credibility of the witness Mr Del Dosso. No ground was established within the terms of MFI 2 or otherwise capable of achieving that purpose. The material was too general, the questions put to Mr Del Dosso were likewise at an abstract level. It was put by counsel for the applicants that the material went to “the history of your significant discrepancies”. Mr Del Dosso had either no personal knowledge of the particular valuation; or reviewed the report at the time as a quality assurance process but without seeking to influence the principal valuer in their conclusion; or had not been given any opportunity to reread the material so could not answer the question; or said that the proposed comparison was irrelevant because it was made across different marketplaces. The question was put to him that his valuations in MFI 2 were biased and his answer, which I accept, was that they were not his valuations.
50 In addition, I would refuse to admit the evidence under s 135 of the Evidence Act. That section provides as follows:
135 General discretion to exclude evidence
The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might:
(a) be unfairly prejudicial to a party; or
(b) be misleading or confusing; or
(c) cause or result in undue waste of time.
51 In my opinion, given the questions put to Mr Del Dosso and his answers to those questions and the lack of any foundation for the material in MFI 2, the probative value of MFI 2 is substantially outweighed by the danger that the evidence might be unfairly prejudicial to the respondent Commissioner, be misleading or confusing and cause or result in undue waste of time.
Conclusion and orders
52 The orders I make are that the application to amend is refused; the tender of MFI 2 is rejected; the applicants’ interlocutory application dated 9 April 2018 and filed on 11 April 2018 is dismissed; and the applicants pay the respondent’s costs of the application to amend.
53 Judgment in the substantive proceedings is now reserved.
I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson. |
