- Unreported Judgment
SUPREME COURT OF QUEENSLAND
Kalatzis Nominees Pty Ltd & Anor v Proton Development Group Pty Ltd & Ors  QSC 283
KALATZIS NOMINEES PTY LTD
BS 1369 of 2013
18 October 2013
15 & 16 July 2013
The judgment and orders of the court are that:
PERSONAL PROPERTY – ALIENATION OF PERSONAL PROPERTY – ASSIGNMENT OF CHOSES IN ACTION GENERALLY – Where parties entered into a loan agreement and agreed to transfer units in a trust to the plaintiff, as part of the security – Where the directors of the company holding the units agreed to transfer the units to the plaintiff and minuted this approval and issued a unit certificate – Where the plaintiff does not appear on the register of unit holders – Whether the plaintiff is or is entitled to be the holder of units in a unit trust – Whether the plaintiff should be entered into the register of unit holders
BANKRUPTCY – PROCEEDINGS IN CONNECTION WITH SEQUESTRATION – PETITION AND SEQUESTRATION ORDER – SECURED CREDITOR – GENERALLY – Where the plaintiff proved in bankruptcy as if unsecured, did not purport to surrender its security to the trustee, and did not estimate the security’s value and prove for any balance – Where the plaintiff did not comply with Bankruptcy Act 1966 (Cth), s 44 and s 90 – Whether the plaintiff elected to give up the security
Bankruptcy Act 1966 (Cth), s 44; s 90
Civil Proceedings Act 2011 (Qld), s 33(3)
Corporations Act 2001 (Cth), s 205B and s 350
Duties Act 2001 (Qld), s 487
Heid v Reliance Finance Corp Pty Ltd  HCA 30; (1983) 154 CLR 326, cited
Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq)  HCA 17; (1963) 113 CLR 265, cited
Mio Art Pty Ltd v Macequest Pty Ltd & Ors (No 2)  QSC 271, cited
Re Ferguson; Ex parte Elder’s Trustee & Executor Co Ltd (1943) 13 ABC 1, cited
Re Independent Quarries Pty Ltd (1993) 12 ACSR 188, cited
Reef & Ravenforest Travel Pty Ltd v Commissioner of Stamp Duties  QCA 249; (2002) 1 Qd R 683, cited
Seventeenth Canute Pty Ltd v Bradley Air Conditioning Pty Ltd (in liq)  1 Qd R 111, cited
Surfers Paradise Investments Pty Ltd (in liq) v Davoren Nominees  1 Qd R 567;  QCA 458, cited
M Bland for the plaintiffs
P Travis for the first defendant (as to costs)
A L Wheatley for the fourth defendant (as to costs)
P Hackett for the fifth defendant
Eliadis Lawyers for the plaintiffs
Redchip Lawyers for the first defendant
Hynes Legal for the second, third and fifth defendants
Cornwall Stodart for the fourth defendant
- JACKSON J: The plaintiffs, Kalatzis Nominees Pty Ltd (“Kalatzis”) and Retail On Line Pty Ltd (“Retail”) claim a declaration that Retail is or is entitled to be the holder of 15 units in the Proton Hybrid Trust and an order that the first defendant, Proton Development Group Pty Ltd (“Proton”), enter the name of Retail in the register of unit holders of the Proton Hybrid Trust as the holder of 15 units.
- At the start of the proceeding Christos Pateras, Thomas Pateras and Stefanos Siperki, who are the directors of Proton, were made parties as second, third and fourth defendants. By the amended claim, the only relief claimed is against Proton. It was then ordered that Christos Pateras and Thomas Pateras be removed as parties. A similar order was made later, that Stefanos Siperki be removed as a defendant.
- The other defendant, who was then added, is the fifth defendant, Saretap Pty Ltd (“Saretap”). It defended the plaintiffs’ claim and counterclaimed for a declaration that from 28 May 2007, any right that Retail had to “legal” ownership of the 15 units was terminated; a declaration that, from 28 May 2007 to 9 October 2009, Simlis Pty Ltd (“Simlis”) was the legal holder of the 15 units; and a declaration that from 9 October 2009, Saretap has been the legal holder of the 15 units. Saretap also claims an order that Proton registered Saretap as the holder of the 15 units. Alternatively, Saretap claims damages against the plaintiffs and interest.
The loan transaction
- In February 2005, Kalatzis agreed to lend the sum of $300,000 to Sweetoz International Pty Ltd (“Sweetoz”), a company associated with Richard Simon Fisher and Leonard Michael Madin. The loan was to be secured by a loan agreement (“Kalatzis loan agreement”), guarantees by Mr Fisher and Mr Madin, and by Kalatzis taking control of and being transferred the shares in Retail. In turn, Retail was to be the holder of units in the Proton Hybrid Trust.
- The proposed security relating to Retail and the Proton Hybrid Trust is dealt with, in part, by the terms of the Kalatzis loan agreement as follows:
“4.1The guarantor RICHARD SIMON FISHER shall transfer all of his shareholding in the Unit Holder [Retail] in favour of the Lender [Kalatzis] as security hereto.
4.2The guarantor RICHARD SIMON FISHER shall appoint IGNATIUS KALATZIS as the sole director of the Unit Holder and resign as director.
4.3It is hereby agreed that payments of all monies from the PROTON DEVELOPMENT TRUST in favour of the Unit Holder shall be directed to RICHARD SIMON FISHER or as he shall direct. However in the event of default of the loan then the payments received from the PROTON DEVELOPMENT TRUST shall be used to repay the loan.
- If the Borrower fails to repay the Loan on the repayment date or fails to pay the interest on the due date such default continues for at lease [sic] seven (7) days then the total sum then owing under the Agreement shall become due and payable and the Borrower and Guarantor shall be in default of this Deed.
7.1The security shall be transferred back to RETAIL ONLINE PTY LTD upon the full repayment of all monies/shares to the Lender.
7.2The security may be sold by the Lender only in the event that there is default by the Borrower or the Guarantors in the repayment of the loan or satisfaction of repayment in kind is mentioned in cl 3.
7.3All of the powers of the Lenders as the trustee under the Trust Act 1973 (Qld) are hereby applied and may be exercised by the Lender, upon default by the Borrower or Guarantor.”
- As a matter of construction or interpretation, these provisions are in some respect confused. It is necessary to consider extrinsic facts which were known to the parties at the time of execution of the Kalatzis loan agreement.
- First, Simlis was another company associated with Mr Fisher and held 15 ordinary units in the Proton Hybrid Trust, numbered 41 to 55 (“Units 41 to 55”). On 21 February 2005, Simlis executed a form of absolute transfer of those units to Retail for the stated consideration of the sum of $15 (“Unit Transfer”).
- Second, according to minutes signed by Christos Pateros, dated 22 February 2005, the directors of Proton, comprising Mr Fisher, Christos Pateras, Thomas Pateras and Mr Siperki, resolved to approve the transfer of Units 41 to 55 from Simlis to Retail (“Transfer Approval”). They also resolved to direct the secretary (Mr Fisher) to complete the documents required to reflect the change to unit holders of the trust and to complete the new unit certificates in accordance with the rules that govern the execution of documents by the trustee company and to cancel any certificates that are no longer required. Although Mr Fisher said that the meeting was not held at the stated place on that day, it was not suggested that the named attendees did not in fact agree to the resolution. It is unnecessary to decide whether or not to accept Mr Fisher’s evidence as to the place and time of any meeting.
- Third, on or about 21 February 2005, Proton issued a certificate that Retail was the registered holder of Units 41 to 55, subject to the provisions of the trust deed which constituted the trust (“Unit Certificate 7”). Mr Fisher signed the document: “in accordance with the rules that govern the execution of documents by the company on 21 February 2005”.
- Fourth, the Unit Transfer, the Transfer Approval and Unit Certificate 7, were all forwarded to Kalatzis’s solicitor as part of the transaction documents supporting the arrangements under the Kalatzis loan agreement.
- These conclusions are reinforced by another agreement described as a “Deed of Arrangement” executed in early April 2005. Kalatzis, Proton, Retail and Mr Fisher are parties to that agreement. Christos Pateras’s initials appear on it, on behalf of Proton. Mr Fisher executed it. Inter alia, Proton warranted that “[Retail] holds 15 units in the Trust.”
- The transfer of Units 41 to 55 by Simlis to Retail, as just described, was made in contemplation of the Kalatzis loan agreement, so that Retail would be the unit holder and would be able to enter into the Kalatzis loan agreement as the party which provided security in accordance with the provisions of the Kalatzis loan agreement as set out above.
- Further, as provided by cl 4.1 and cl 4.2 of the Kalatzis loan agreement, all of the shares in Retail were transferred by Mr Fisher to Kalatzis by a transfer of shares dated 6 April 2005 (“Share Transfer”), and management control of Retail was to be passed by Mr Fisher resigning as director of Retail and Ignatius Kalatzis being appointed as a director in his stead in early April 2005. The context was that, by cl 4.3 of the Kalatzis loan agreement, it was envisaged that, upon default, payment of monies from the Proton Hybrid Trust to Retail, as unit holder, would become available to Kalatzis for payment of money due upon the loan. As events transpired, neither Kalatzis nor Mr Kalatzis sought to involve themselves in Retail’s business until mid-2008, which was well after default occurred.
- Clause 7.2 of the Kalatzis loan agreement is ambiguous or unclear in referring to “the security” - it is not clear whether that was the shareholding in Retail or the unit holding in the Proton Hybrid Trust. For present purposes it does not matter. In my view, there was an implied negative obligation under the Kalatzis loan agreement on the part of Retail not to deal with the 15 units other than in accordance with the provisions of the Kalatzis loan agreement.
- Lastly, the provision that the security should be transferred back to Retail upon the full payment of all monies to the lender confirms what would otherwise be expected under a security transaction, namely that the Kalatzis shareholding in Retail and Mr Kalatzis’s appointment as a director, which conferred the control of Retail, were intended to be held by way of security for payment of the loan monies.
- On the strength of these arrangements and having been provided with the documents described above, Kalatzis made the loan of $300,000 under the Kalatzis loan agreement.
Register of unit holders
- The deed of trust of the Proton Hybrid Trust (“Deed”) is the instrument under which the trust was constituted. By cl 1(i) of the Deed, “Unit Holder” is defined to mean: “the person for the time being registered under the provisions of this Deed as the holder of a unit and includes persons jointly so registered.”
- By cl 7(a) of the Deed, the beneficial interest in the assets of the Trust Fund as originally constituted and as existing from time to time shall be vested in the Unit Holders for the time being. By cl 7(b), each person who becomes registered as a Unit Holder shall be deemed to have agreed to become a party to the Deed and any supplemental deed, and shall be entitled to the benefit of and shall be bound by the terms and conditions of the Deed and any supplemental deed.
- Clause 8 provides in part:
“EACH unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as an entirety but subject thereto shall not entitle a Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof…”
- Clause 9 provides, in part:
“THE Trust Fund as originally constituted shall be divided into Ordinary Units units of One Dollar each which shall be held by the original Unit Holder’s whose names and addresses and the number of units to be held by each of are set out in the First Schedule.”
- The First Schedule identified Simlis as Unit Holder of 15 Ordinary Units fully paid.
- Clause 11 of the Deed provides, in part:
“(a)UNIT certificates to be issued to the Unit Holders shall be in the form specified in the Second Schedule or on such other form from time to time determined by the Trustee. Every certificate shall specify the name of the Unit Holder the number of units to which it relates and shall bear its distinctive number.
(f)Unit certificates shall be prima facie evidence that the person named in the Certificate is entitled to the number of units therein specified.
(g)The Trustee shall keep a register of Unit Holders in which there shall be entered the following particulars –
(i)the names and address and descriptions of the Unit Holders;
(ii)the number of Units in respect of which they are registered and the distinctive numbers or letters of the Certificates held by them respectively;
(iii)the date at which the name of every Unit Holder was entered in the register in respect of units standing in his name; and
(iv) any other details considered necessary by the Trustee.”
- Clause 12 of the Deed provides, in part:
“NO notice of any trust express implied [sic] or constructive shall be entered in the register and the person from time to time entered in the register as the Unit Holder shall be the only person recognised by the Trustee as entitled to the units registered in his name or to exercise the rights and privileges of the registered holder thereof pursuant to this Deed.”
- Clause 13(a) of the Deed provides:
“(a)UPON delivery to the Trustee by any Unit Holder of a unit certificate together with a properly completed instrument of transfer the Trustee shall subject to the provisions of this Deed cancel the unit certificate and issue a new unit certificate for the units transferred to the transferee, and a further certificate for the balance not being transferred shall be issued to the transferor.”
- Clause 14 of the Deed provides, in part:
“(a)SUBJECT to the provisions of this Deed every Unit Holder shall be entitled to transfer any of the units for the time being held by him by an instrument in writing in such form as the Trustee may have from time to time approved;
(b)Every such instrument must be signed by both the transferor and the transferee and the transferor shall be deemed to remain the holder of the units comprised in such instrument until the name of the transferee is entered in the register as the holder of such units;
(c)Every instrument of transfer must be duly stamped at the expense of the transferor or transferee and left with the Trustee for registration accompanied by the unit certificate relating to the units to be transferred and such other evidence as the Trustee may require to prove the title of the transferor or his right to transfer units.”
- A document or documents comprising pages headed “Register of Unit Holders” were tendered at the trial showing three Unit Holders. Of the 100 units identified, 45 are shown to be held by Orphien Pty Ltd (“Orphien”), a company associated with Christos and Thomas Pateras. Orphien is identified as a Unit Holder as trustee for the Pateras Family Trust. Secondly, 40 units are shown as being held by Mr Siperki. Thirdly, Units 41 to 55 are shown as held by Simlis. Each of the entries in the register is dated 13 November 2003.
- In other words, the register does not reflect the transfer by Simlis to Retail of Units 41 to 55. Although Mr Fisher was called as a witness by Saretap, no explanation was given for that omission or the inconsistent representation that was made by Unit Certificate 7 signed by Mr Fisher that Units 41 to 55 were held by Retail, or the warranty by Proton in the Deed of Arrangement to the same effect.
- Nevertheless, both Proton and Saretap filed defences relying upon the absence of registration of Retail as the holder of Units 41 to 55 as a ground of defence to Kalatzis’ claim for declaratory relief that it was the holder of those units. By the time of the trial, Proton took a different position, choosing to abide any order that the Court might make.
- However, Saretap continued to contend that neither Kalatzis nor Retail were the holders of Units 41 to 55 by reason of the omission of Retail’s name from the register. Of course Kalatzis’s claim was then erroneous. Retail was the putative holder of Units 41 to 55.
- Although the forms, resolutions, certificates and provisions of the Deed which were employed in relation to the transfer of Units 41 to 55 owe their origins to counterparts utilised for the transfer of shares in a company, the legal starting point for a transfer of units under the Deed is not the same. There are no statutory provisions analogous to those in the Corporations Act 2001 (Cth) which are engaged in the case of the transfer of units in a small private unit trust of this kind.
- Rather, the relevant rights and obligations are sourced in the common law, equity and the statute law which affects assignments of equitable property. As McPherson JA said in Reef & Ravenforest Travel Pty Ltd v Commissioner of Stamp Duties:
“It is, I think, necessary to analyse what is involved in the transfer in this case. A unit in a unit trust, at least in the simple form of the Blue Wings Unit Trust with which we are concerned here, is an aliquot share of interest in the undivided assets of a trust that are held for investment or profit by the trustee for the benefit of the unit holders or beneficiaries of that unit trust. For convenience those shares are identified, and their ownership and transfer facilitated by a system of private registration or recording in the books of the trustee. The transfer of a unit in the unit trust is therefore simply an assignment of the beneficiary’s equitable interest in part of the trust assets as a whole. To be effective, the transfer or ‘disposition’ of an equitable interest must be manifested and proved by some writing signed by the person disposing of it: Property Law Act 1974 (Qld), s 11(1)(c); Oughtred v Inland Revenue Commissioners (1960) AC 206. That requirement is satisfied in this case by transfer ‘G’ which was signed by Mandalee in the way I have explained. The result was, at the very least, to constitute Mandalee a constructive trustee for the 88 units for the transferee, or proposed transferee, Reef. See Neville v Wilson  Ch 144. Because the units are equitable interests or choses in action, no question of transferring any legal title to the units or to the assets of the unit trust arises here.”
- In the present case, the Unit Transfer must have the same effect. In other words, at the least, Simlis was constituted a constructive trustee for Retail of the 15 units numbered 41 to 55.
- As well, the requirement of the Trustee’s approval under the Deed was satisfied by the February 2005 resolution of Proton’s board of directors reflected in the Transfer Approval. As the minutes of that meeting signed by the chairperson Christos Pateras record, the individuals associated with each of the existing Unit Holders at the time of that resolution participated in the resolution, including the provision that the secretary of Proton, Mr Fisher, complete the documents required to reflect the change of Unit Holder of the Units 41 to 55 from Simlis to Retail.
- Further, Mr Fisher did so to the extent that he issued Unit Certificate 7, showing Retail as the holder of Units 41 to 55. That Unit Certificate 7 was issued to Retail by Proton is necessarily inconsistent with the prior certificate issued to Simlis as holder of those units continuing to operate under the Deed, or Simlis being registered as Unit Holder in respect of those units. Before issuing Unit Certificate 7, Mr Fisher should have, in accordance with the resolution of the directors of Proton, entered Retail as the holder of Units 41 to 55 in the register of unit holders. And upon issue of Unit Certificate 7 Mr Fisher should have cancelled the existing certificate of Simlis – a certificate of which he should have had possession as the controller of Simlis.
- I note the written submission made by Saretap, in another context, that “the consent of the trustee and the unit holders to the transfer of the units … was given so that the units could be used as security for the loan by the first plaintiff”. Once that is accepted as fact, the proposition is that all concerned within the organisation of the affairs of the Proton Hybrid Trust agreed that Retail would become the transferee of Units 41 to 55 for the security of Kalatzis’s loan. That is the transaction which both Kalatzis and Retail seek to vindicate by the claim for relief in the amended statement of claim. Whether or not, as between Kalatzis (and Sweetoz) and Mr Fisher, the transaction was by way of security, is beside the point.
- It is Mr Fisher’s ministerial failure to enter Retail as member in the register of Unit Holders which is relied upon, by both Proton and Saretap in their defences. It is unconscientious for Proton to do so because it directly represented by the Transfer Approval that a contrary course was to be adopted and did not at any relevant stage inform Kalatzis that it had not been done. As well, it contractually warranted that it had been done by the Deed of Arrangement. It is unconscientious for Saretap to do so because Saretap is and was at all material times affected by the knowledge of Mr Christos Pateras and Mr Thomas Pateras who are Saretap’s directors and who were directors of Proton at all relevant times. There does not seem to be any basis or reason to doubt that at February and April 2005 the common assumption of all was that Retail had become the Unit Holder of Units 41 to 55.
- Even in the case of a company, as opposed to a unit trust of this kind, it does not follow that the absence of the entry of the name of a member in the register of members necessarily has the effect that such a person is not recognised as a member. For example in Re Independent Quarries Pty Ltd, Williams J recognised that the register of members is only prima facie evidence of matters contained therein, so that in a case where a person was the holder of a share certificate issued in their name stating that they were the registered holder of the shares referred to therein it did not necessarily follow that they were not a member for all purposes because their name did not appear in the register.
- Saretap relied upon the fact that the Unit Transfer was not stamped. Although that may have been a reason for Proton to refuse to approve the transfer under cl 15 of the Deed, Proton did not do so. Instead it made the Transfer Approval. There is no reason why all Unit Holders and Proton could not agree to waive the requirement for prior stamping. In my view, the absence of a stamp on the Unit Transfer is not a ground of defence.
- Saretap also alleged that Simlis’s original unit certificate had not been given to Proton, as trustee, in connection with the transfer. It does not seem to me that represents an independent ground of defence. Mr Fisher was the controller of Simlis. It was his function as secretary of Proton to attend to the necessary steps to make the transfer. It was his function as the controller of Simlis to produce its unit certificate to enable the transfer to proceed.
- These last two points were not raised until Saretap’s defence was filed in the proceeding, shortly before the trial. Yet from before the end of February 2005, it was represented, in effect by all concerned, to Kalatzis and Retail that Retail was the holder of Units 41 to 55.
Section 487 Duties Act 2001 (Qld)
- By paragraph 19 of Saretap’s defence it is alleged that “the documents pursuant to which the plaintiff relies [sic] fail to comply with” s 487 of the Duties Act 2001 (Qld).
- The documents identified in submissions were the Unit Transfer, the Share Transfer and the Kalatzis loan agreement. However, the submission of Saretap was that the transfers of the units and the shares was made by way of security so that they were not dutiable. The plaintiffs’ counsel offered an undertaking by Emanuel Elias Eliadis, solicitor, to pay any stamp duty on the Unit Transfer or the Kalatzis loan agreement.
- Under s 487(2), if an instrument is not properly stamped, a court may receive the instrument in evidence if the instrument is given (after it is received in evidence) to the commissioner, as required by arrangements approved by the court, by the person who produces the instrument. If the person who produces the instrument is not liable to pay the duty, the name and address of the person so liable, and the instrument, are to be given to the commissioner as required by arrangements approved by the court.
- It should be noted that the Unit Transfer was executed in Victoria by the transferor and transferee, which appear to have carried on business there. The Proton Hybrid Trust as constituted by the Deed, provides that it “shall be construed and take effect in accordance with the laws of the State of Victoria”. The Deed appears to have been executed there. It is not immediately apparent why the Unit Transfer is a dutiable transaction as a transfer of dutiable property under the Duties Act. Equally, the shares in Retail are not apparently a Queensland marketable security. Nor was any attention directed to whether the Kalatzis loan agreement was an exempt asset-backed security.
- But it is unnecessary to form any concluded view on any of these questions, which were not argued. Kalatzis’s solicitor provided the undertaking. Because the undertaking was offered and because of Saretap’s submissions as to the security nature of the transaction, the objections as to admissibility of the documents were not pressed. Alternatively, the undertaking may be viewed as an arrangement approved by the Court.
- Saretap also alleges that the loan and security arrangements described above gave rise to an escrow of the Unit Transfer, the Share Transfer and the appointment of Mr Kalatzis as a director of Retail.
- The operation of the provisions of the Kalatzis loan agreement in relation to the security held over the shares in Retail and the control of Retail by Kalatzis and Mr Kalatzis has been previously described. It is inconsistent with those provisions to suggest that the Share Transfer was to be held in escrow. It is also inconsistent with those provisions to say that the appointment of Mr Kalitzis should operate in escrow. There is no concept of appointment of a company director in escrow. It is not to the point that Kalatzis did not in fact seek to actively manage Retail after February or April 2005. The question is whether there was an agreement to hold the relevant documents in escrow. There was no such agreement about the shares or directorship of Retail.
- Secondly, the suggestion that the Unit Transfer would be held in escrow is inconsistent with the provision in the Kalatzis loan agreement that before default Retail’s payments in respect of Retail’s units from the Proton Hybrid Trust should be directed to Mr Fisher and after default that they shall be used to repay the loan. Again, the question is whether there was an agreement to hold the relevant document in escrow. There was no such agreement.
- In support of its contention as to some agreement for an escrow, Saretap relied on a number of features which were said to “objectively establish the existence of the escrow requirement” but notably none of those features actually bespoke of any agreement to hold any documents in escrow. For example, reliance is placed on the fact that Retail was not entered in the register as a Unit Holder. Yet it is not suggested that anyone on Kalatzis’s behalf even knew that had not occurred. That is not positive evidence of any escrow arrangement.
- Similarly, that neither Kalatzis nor Mr Kalatzis sought to exercise their control over Retail before default, or for some time after, is not positive evidence of any escrow arrangement. There was no commercial reason for Kalatzis to take control of Retail in any positive way. On the evidence, Retail was apparently a single asset holding entity, namely Units 41 to 55. It was specifically agreed in the Kalatzis loan agreement that any payments of monies from the Proton Hybrid Trust would be directed to Mr Fisher or as he shall direct, until default. The delay by Kalatzis looking towards its rights as shareholder of Retail or Mr Kalatzis’s powers as director of Retail did not prove any escrow arrangement.
- Nothing supported the allegation of escrow made by Saretap. In my view, it was an unmeritorious and time wasting fiction raised for the first time by Saretap’s defence, delivered shortly before the trial.
Oral agreement to vary the Kalatzis loan agreement
- In May 2007, Kalatzis agreed to accept a part payment of $162,090 against what was due from Mr Fisher, as guarantor of the loan, as consideration for not proceeding on the judgment it had obtained against him and the bankruptcy notice it had then served on him (“May 2007 agreement”).
- Saretap alleges that the agreement contained an oral term that the plaintiffs release “the security over the units” in exchange for the payment by Saretap (“May 2007 alleged release”).
- The agreement which was reached in late May 2007 is evidenced in writing by emails exchanged between the parties, starting in April 2007. The background was that by then Sweetoz, as borrower, had not repaid the loan. On 8 February 2007, Kalatzis started a proceeding against Sweetoz, Mr Fisher and Mr Madin, claiming the balance comprising the debt and interest. On 28 March 2007, Kalatzis obtained judgment against Sweetoz and Mr Fisher in the sum of $332,398.82.
- On 26 April 2007, Mr Fisher sent an email to Mr Kalatzis setting out his unsuccessful attempts to make payment to that date and his intentions to pay what was then due under the judgment debt. It appears that Kalatzis had at the start of the prior week served a bankruptcy notice on Mr Fisher. Inter alia, Mr Fisher said:
“Currently you own my units in Proton – which is [sic] worth more than the debt. These are saleable units as you know, and we have just secured the car park next door to that property …”
- On the same day, 26 April 2007, James Conomos Lawyers sent an email to Mr Fisher. Details were sought of the proposal to repay the outstanding debt on the basis that if an agreement could be reached no action would be taken upon the judgment or the bankruptcy notice that had been served.
- On 27 April 2007, Mr Fisher responded to Mr Conomos by email. He undertook to provide the information requested and said:
“Please note that the security for this loan are the units held in the Proton development Group [sic] held by Retail on Line [sic] of which Iggy is the sole shareholder and has control over these units.
These units represent equity in an unlisted trust with assets of some $16M and debts of $8M – will attend to the transfer of the shares and Iggy’s resignation at the settlement time, or do you want me to produce the forms …”
- Mr Fisher was thereby reiterating Kalatzis’s security through Retail’s holding of units in the “Proton Development Group” – ie the Proton Hybrid Trust - and was suggesting that the security would be returned by transfer of the shares in Retail and Mr Kalatzis’s resignation, as a director of that company, upon repayment of the loan.
- On 18 May 2007, Mr Conomos, by email to Mr Fisher, expressed his and Kalatzis’s growing impatience. On 22 May 2007, a follow up email was sent.
- On 23 May 2007, Mr Conomos sent an email to Christos Pateras. Mr Conomos’s email recorded that he had spoken to George Grigoras. It appears that Mr Grigoras was approached on behalf of Kalatzis and had been speaking to Christos Pateras in relation to the debt owing by Mr Fisher. Included in Mr Conomos’s email was the following:
“We understand that you have made a proposal to George Grigoras to pay the debt on behalf of Mr Fisher on the basis that $20,000.00 be paid immediately, $80,000.00 in a further week and the balance in a further week. This has been confirmed to us by Mr Fisher to whom we have copied this email. …
We therefore invite you to set out precisely the proposal you are making. We will then obtain our client’s instructions and the payer (we assume that is you) will need to sign the agreement …”
- The reference to the agreement was to a deed of settlement which had been forwarded by Mr Conomos to Mr Fisher dated 18 May 2007, a further copy of which was attached to the email.
- On 25 May 2007, by an email from Mr Fisher to Mr Conomos, Mr Fisher said as follows:
“My associate in Proton Chris Pateras has been discussing the matter with Gator Lads and placed forward a possible two step solution.
The Kalatzis family view from our understanding is that this debt is in two names that the responsibility is equally shared between Madin and myself.
What we propose is
- A payment of $165K being half the debt within 7 days
- Allow you to chase through Madin and see what you can recover including the value of the assets held with Kronos and his business with George.
- My guarantee stays in place
- And if there is a shortfall of the primary debt, then unfortunately for me, then I pick up the balance”
- Notably, no reference was made to the security arrangements.
- On 25 May 2007, Mr Grigoras sent an email to Mr Chris Pateras attaching a letter prepared by Mr Conomos about the proposed settlement. The attached letter provided in part:
“Our understanding of the discussions is that 50% of the debt plus interest plus costs as at today would be paid today or at the latest on Monday. As for the balance, we understand that we are to do our best to chase the balance of the monies from Len Madin and to try and recover the 50% owing by him. This is being done on the basis that if the balance monies owing to our client are not paid by Mr Madin, you will pay the balance, whatever that might be.
Our client is agreeing to this arrangement as a gesture of good faith even though it is not obliged to do. In doing so our client’s judgment against you will remain in place and in the absence of recovery from Mr Madin in whole or in part, our client will look to pay the balance of his debt plus interest plus costs.
Please confirm your acceptance of this arrangement by 1.00 p.m. today so that payment can be made by Mr Pateras today.”
- After two other emails, Mr Grigoras sent an email to Mr Chris Pateras with a copy to Mr Conomos as follows:
“As discussed, you have on behalf of Simon Fisher agreed to bank into the Kalatzis Nominees Account by the close of business on Monday the 28/05/07 the amount of $162,090.38. The issue re the $30/15K interest payments should not stop this payment going ahead and will be adjusted eventually either by collecting 100% of the overall debt from Len Madin (50%) and Simon Fisher (50%) or failing that, 100% from Simon Fisher, as per our solicitor’s previous emails. If this transaction does not occur on Monday, then we will not negotiate along these lines any further and proceed with action to recover the whole debt as quickly and easy as is possible.
Can you please send us confirmation of the transaction made on Monday when it has been completed.”
- In that sequence of correspondence, there was not one email by Christos Pateras. However, there was also not one indication in the documents to and fro that proposed withdrawal or deferral of any of Kalatzis’s then rights, on the footing that Kalatzis also agreed to relinquish the security over the shares in Retail, or the indirect security that represented by access to the cashflow of Retail’s units in the Proton Hybrid Trust. Further, Saretap was never mentioned.
- It should be observed that no reference was made to Units 41 to 55 or to the shares in Retail or Mr Kalatzis’s position as director of Retail in any of the later emails in the sequence, even though Mr Fisher had started the correspondence on the footing that pending payment which would fully discharge the debt there was in place security for the loan by way of the “Proton Development Group” units held by Retail.
- The documents thus provide no support for the May 2007 alleged release of the security. When, then, did that contention first appear?
- On 21 December 2007, Mr Conomos wrote to Mr Fisher outlining how Kalatzis’s attempts to recover the balance from Mr Madin had progressed. They included an agreement by Mr Madin to pay the sum of $155,900 (by instalments over the ensuing couple of years). On behalf of Kalatzis, Mr Conomos sought the balance, $54,757.11, from Mr Fisher. On 22 February 2008, Mr Conomos followed up his letter of 21 December 2007.
- On 26 February 2008, Mr Fisher replied as follows:
“The payment I made last year I thought, was the end of the matter, and I shall explain why.
During the discussion an associate of my, Mr C Pateras, acted as my adjudicator and spoke at length with George Grigoras – Chris had intervened to assist, and had spoken with George G before this matter, and as there was a relationship established, Chris took on the role to debate the matter. George had the authority to discuss and resolve a settlement – Chris and George debated the matter and George sought the council [sic] from Iggy (I assume), to agree to the settlement.
At that point, the amount included legal fees, interest and charges and the only matter that was deducted was the additional interest I had paid over and above Len at that point.
Chris was addiment [sic] when I spoke to him that the deal was complete, that the other side through GG had agreed to this settlement.”
- That statement of position was inconsistent with the exchanges of emails set out above as to the extent of Mr Fisher’s responsibility for any outstanding amount after the agreed attempt to recover from Mr Madin was made. On 26 February 2008, Mr Conomos responded to Mr Fisher’s email, making that point in detail.
- On 3 March 2008, Mr Fisher sent an email to Mr Conomos as follows:
“I have read the extensive notes you sent, met with Chris and he confirmed with your understanding, in that his final call with George (to which I was not present) stated any shortfall from Len my responsibly [sic].
So I will need until the end of March to finalise, upon which I assume at settlement, we transfer the shares in the company Retail on Line [sic].”
- The last sentence is telling, in my view. Not only did Mr Fisher acknowledge his responsibility for the shortfall after having spoken with Christos Pateras. As well, Mr Fisher identified the occasion for the “transfer [of] the shares in the company Retail on Line” as being “at settlement”, meaning on paying out of the balance of the monies owing. This is completely inconsistent with Saretap’s case, including the oral evidence given by Mr Fisher that an oral agreement to immediately discharge the security was made by the May 2007 alleged release, which he said he heard on speaker phone.
- On 8 October 2008, Mr Conomos sent an email to Chris Pateras. He expressed Kalatzis’s frustration with Mr Fisher’s failure to pay the balance which remained owing. He referred to the security under which Kalatzis had all of the shares in Retail which held units in the “Proton Unit [sic] Trust”. On behalf of Retail he sought updated financial information in relation to the trust. He proposed either to use money payable to Retail to discharge the Kalatzis debt or that Kalatzis was prepared to sell the units held by Retail to another unit holder.
- There was no response to that letter which denied Kaltzis’s interest in Retail or Retail’s unit holding in the Proton Hybrid Trust or which alleged that Kalatzis, by Mr Grigoras, had agreed to release its security immediately by the May 2007 alleged release.
- On 29 May 2012, for the first time in the correspondence, Mr Fisher stated that in the May 2007 discussions:
“Grigoras also stated that this would end Kalatzsis [sic] entitlement to the Proton units. Kalatzsis and you both saw the Units as collateral security for the debt and as nothing else. At no time did you try and sell the units (assuming Kalatzsis had a right too [sic]), offer the units to Pateras to settle the debtor [sic] to any other party – you chose to settle the debt as a debt with no reference to ownership rights. The actions of this settlement are a testimony to how these Proton units were viewed – as collateral for the Kalatzsis loan.”
- Thus, it was not until May 2012 that any assertion was made that Kalatzis had agreed to release or give up the security it held by way of its shareholding in Retail and Mr Kalatzis’s position as a director and therefore control of Retail or Retail’s unit holding in the Proton Hybrid Trust by the May 2007 alleged release.
- The oral evidence in support of the May 2007 alleged release was given by Mr Fisher and Christos Pateras.
- Mr Fisher says that he overheard Christos Pateras say to George Grigoras: “That’s the end of it for Simon. It’s all over.” And George Grigoras said: “Yes”. There was no express mention in that evidence of the security held under the Kalatzis loan agreement or the Proton units. And, contrary to that language, there was no basis to dispute that Mr Fisher was to remain responsible for any amount unpaid by Mr Madin.
- Christos Pateras said that: “…we were prepared to pay for half of the debt… in exchange for releasing Simon from all debt” and “…But we confirmed, George no more Proton, no more issues with the 15 %. There’s your money, take it up with Madin. If there’s a shortfall you go Fisher, end of story, and this is where it was left.”
- The other party to the conversation or conversations in question was George Grigoras. He was asked whether Christos Pateras said that: “He was doing this for Mr Fisher because they required the units to be released from the security?” He responded that: “I certainly don’t recall that discussion.” He confirmed that: “…I’ve never had discussion about release of any security…on behalf of the Kalatzis Nominees.”
- I accept Mr Grigoras’s evidence. It is consistent with the documents. As well, Mr Grigoras, unlike the other two witnesses, had no apparent financial interest in the outcome of the issue one way or the other. Lastly, I also formed the view that he gave his evidence in a preferable manner to Mr Fisher and Christos Pateras.
- I find there was no term of the oral agreement of May 2007 whereby Kalatzis agreed to release the security that it held.
- By paragraph 14(d) of the Saretap defence, Saretap also sets up the subject matter of the May 2007 alleged release as an estoppel. In effect, Saretap alleges that if there was no contractual variation, then the plaintiffs are in any event estopped from denying that Kalatzis released the security under the Kalatzis loan agreement. The assumption alleged in paragraph 14(d), particular (iv), is that Saretap, and other parties, assumed that the matter was finalised and in effect that Units 41 to 55 were free from security. The assumption is alleged to have been relied on in making the payment on 28 May 2007 and since.
- First, I find that Saretap by Christos Pateras had no such belief and made no such assumption, either as at 28 May 2007, for the reasons previously stated, or subsequently for the additional reasons discussed below under the heading “Saretap Acknowledgement of Deed and Release”.
- Secondly, I find that, from February 2005 and up to the end of June 2007, when the “Saretap transaction” discussed below was apparently entered into, to the extent that Christos Pateras had any belief as to the holder of Units 41 to 55 in the Proton Hybrid Trust, he believed that Retail held those units.
- Thirdly, in any event, I find that Saretap by Christos Pateras was aware, from 8 October 2008, that Kalatzis relied on the security it had under the Kalatzis loan agreement including the security that those arrangements gave over Units 41 to 55.
- There is thus no basis for the alleged estoppel.
- Saretap became a party to the proceeding because it claims an interest in and entitlement to Units 41 to 55 inconsistent with Kalatzis’s claim.
- A transaction first potentially having that effect occurred in June 2007, not long after the May 2007 alleged release under which Kalatzis accepted $162,090 from Christos Pateras, on behalf of Mr Fisher.
- The origins of the transaction in the evidence are vague. Oral evidence was given as to debts said to be owed by Mr Fisher to Christos Pateras, Thomas Pateras or their companies without the production of any documents. In any event, on 25 June 2007, Pauline Madin, a solicitor acting on behalf of Mr Fisher, sent a draft loan agreement to Mr Fisher by email. A printed copy of the email which was tendered in evidence has an attached copy of the loan agreement executed by the parties thereto, namely Mr Fisher as borrower and Saretap as the lender (“Saretap loan agreement”).
- The Saretap loan agreement recited that “the lender has agreed to lend to the borrower the sum of $162,090 on 29 May 2007.” Thus is it was a document expressed to operate prospectively but which was brought into existence retrospectively.
- Clause 1 of the Saretap loan agreement provided that the lender, Saretap, “lent to the borrower the principal sum of $162,090 the receipt of which is hereby acknowledged to be repaid on 31 July 2007.” The inescapable inference is that the sum referred to as the sum lent was the amount paid on Mr Fisher’s behalf to Kalatzis by Christos Pateras in May 2007, because they are the same amounts.
- Clause 3 of the Saretap loan agreement provided:
“In the event of default the borrower grants to the lender the rights to acquire Units held by the borrower in the Proton Hybrid Trust to the value of the debt. The units are held by Retail Online Pty Ltd (ABN 60 510 144 736) and 54% of the issued units will be allotted to the lender.”
- As at 25 June 2007, some things are clear from the context previously described. First, as cl 3 of the Saretap loan agreement recorded, Retail was considered to be the holder of units in the Proton Hybrid Trust, notwithstanding the inconsistent statement that they were held by the borrower, Mr Fisher. Second, cl 3 purported to grant to Saretap the right to acquire some units. Third, there had been no transfer back to Mr Fisher or any entity associated with him of the shares in Retail, as originally contemplated by Mr Fisher in his email to Mr Conomos dated 27 April 2007. Fourth, as at that date, there had been no change of directors of Retail. Mr Kalatzis had not resigned.
- There was no evidence given as to any reason why any of the parties involved in the Saretap loan agreement would have thought at the time that Mr Fisher was in a position to exercise any immediate power by which Retail could transfer any units to Saretap. Notwithstanding that the loan became repayable on 31 July 2007, no transaction by which Saretap acquired any units from Retail ever took place. Also, no one suggested that at the time of execution of the Saretap loan agreement they thought that Simlis was the holder of the units.
- The Saretap loan agreement was executed by Christos Pateras and Thomas Pateras on behalf of Saretap and by Mr Fisher personally.
Saretap Acknowledgement of Deed and Release
- On 9 October 2009, Saretap and Mr Fisher (and Simlis) entered into a further written agreement styled “Acknowledgement of Debt and Deed of Release”. It recited various advances made by Saretap to the “Fisher Parties”. Those parties were defined to be Mr Fisher and Simlis. Secondly, it recited that Mr Fisher was the registered holder of 15 shares in Proton. Thirdly, it recited that Simlis was the registered holder of the units meaning Units 41 to 55.
- Notably, each of those alleged facts appears for the first time in this deed. The assertion that Units 41 to 55 were held by Simlis was inconsistent with the Unit Transfer, the Transfer Approval, Unit Certificate 7 and the Deed of Arrangement.
- A weak suggestion was made in oral evidence that the relevant parties believed that Simlis had remained the owner of the units. I reject that that was what the parties believed. Even the Saretap loan agreement is expressly inconsistent with that.
- Not only that, on 8 October 2008, Mr Conomos had sent an email to Christos Pateras notifying that Kalatzis intended to receive the payments from the Proton Hybrid Trust (under the Kalatzis loan agreement) and to sell the units held by Retail. Neither Saretap nor Christos Pateras, as its director, challenged whether Kalatzis held the right to deal with the units at the time.
- In my view, the Saretap Acknowledgment of Deed and Release was an attempt by both Mr Fisher and Saretap to deal with the shares in Proton and Units 41 to 55 inconsistently with the Kalatzis loan agreement. I find that they entered into the Saretap Acknowledgment of Deed and Release with knowledge of the Kalatzis loan agreement and of Kalatzis’s claims under it.
- It is not necessary to make an express finding that the Saretap Acknowledgement of Deed and Release was a deliberate attempt to obtain security over the units in a way that would defeat Kalatzis’s claim. But if it were necessary to do so, I would make that finding against both Saretap and its director, Christos Pateras. There is no other rational explanation for the circumstances in which the Saretap Acknowledgment of Deed and Release came to be executed in that form in 2009, after Christos Pateras had received express notice of Kalatzis’s contrary claims on 8 October 2008.
Competing equities or equitable interests
- By paragraph 13(h) of Saretap’s defence it is alleged that in reliance upon the May 2007 alleged release Mr Fisher transferred his shares in Proton to Saretap and Simlis transferred Units 41 to 55 to Saretap.
- The Saretap Acknowledgement of Deed and Release contained Simlis’s agreement to transfer Units 41 to 55 to Saretap. However, the evidence did not show that the agreement was carried into execution. Saretap was not shown to have been entered as the Unit Holder of Units 41 to 55.
- Therefore, the position at trial, at the worst for Kalatzis, was that there were competing equitable interests or competing equities claiming entitlement to the property comprised in Units 41 to 55.
- Where there are competing equitable interests, the first in time will prevail, where the equities are equal. It is unnecessary in this case to decide whether Retail’s interest in Unit 41 to 55 was an equitable interest or a mere equity. Although it is an answer to a claim upon a mere equity that the defendant acquired an equitable interest in the relevant property as a bona fide purchaser for value without notice, there is no basis for concluding that Saretap acted without notice of Retail and Kalatzis’s claimed interests in Unit 41 to 55, on the findings of fact I have made.
- Saretap sought to set up a number of pleas in answer to these elementary propositions of law.
- First, it contended that because the affairs of the Proton Hybrid Trust were conducted after 2005 “without regard to the plaintiffs”, the plaintiffs’ rights were to be postponed. In my view, this is far too general a plea to be accepted. Under the Kalatzis loan agreement it was contemplated that payments from the Proton Hybrid Trust in respect of Units 41 to 55 would be made to Mr Fisher at least until default. There was no reason why, on a day by day basis, it was expected that Kalatzis or Mr Kalatzis would interfere or be involved in the running of the trust.
- Secondly, it is alleged that in 2009, and afterwards, there were dealings between the Trustee and Unit Holders which involved the Unit Holders making contributions to (and receiving substantial distributions from) the Proton Hybrid Trust.
- From April 2007, and as confirmed in October 2008, there was no basis for Mr Fisher or Christos Pateras, or Saretap, to think that Kalatzis did not claim to be entitled to its security under the Kalatzis loan agreement. If they chose to act inconsistently with Kalatzis’s and Retail’s rights (and obligations) that was a matter for them. But there is no basis to assert that Kalatzis caused them to believe it had no claim to the security.
- Thirdly, the failure by Kalatzis to bring this proceeding more promptly was relied upon by Saretap as laches. For the same reasons as previously mentioned, there is no basis in the facts for any assumption by Saretap that Kalatzis did not maintain its claim to the security.
Surrender of security
- Paragraph 14(e) of the Saretap defence alleges that “any security that [Kalatzis] had from Mr Fisher pursuant to the [Kalatzis loan agreement] was surrendered by… filing the creditor’s petition against Mr Fisher on 27 July 2010… on the basis that it had no security… [and] lodging a proof of debt dated 22 December 2010… on the basis that [Kalatzis] held no security…”
- Saretap relied on the principle that “a secured creditor who proves for the full amount of the claim will usually be regarded as having elected to give up the security.”
- On 7 June 2010, Kalatzis’s solicitor lodged a Form 484, “Change to company details”, showing Kalatzis as the member holding the shares in Retail.
- On 27 July 2010, Kalatzis’s solicitor filed a creditor’s petition by Kalatzis for a sequestration order against the estate of Mr Fisher. Paragraph 2 of the petition stated “The applicant creditor does not hold security over the respondent debtor”.
- It was not true that Kalatzis did not hold security over Mr Fisher’s property, because it held his shares in Retail as security for repayment of the debt which was owed, inter alia, by Mr Fisher. Those shares were transferred by Mr Fisher to Kalatzis by a transfer dated 6 April 2005. The transfer was made under clause 4.1 of the Kalatzis loan agreement and was subject to Kalatzis’s promise to retransfer the security in clause 7.1, which in context, must mean or include the shares in Retail.
- However, Units 41 to 55 were not Mr Fisher’s property held by Kalatzis by way of security. They were the property of Retail.
- On 25 August 2010, Mr Fisher was made bankrupt.
- On 22 December 2010, Kalatzis lodged a proof of debt with the trustee in bankruptcy. On page 2, Kalatzis answered the question: “Do you hold any security?” by crossing the box labelled “No”.
- Sections 44 and 90 of the Bankruptcy Act 1966 (Cth) at the time provided:
“Conditions on which creditor may petition
44(1)A creditor's petition shall not be presented against a debtor unless:
(a)there is owing by the debtor to the petitioning creditor a debt that amounts to $2,000 or 2 or more debts that amount in the aggregate to $2,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $2,000;
(b)that debt, or each of those debts, as the case may be:
- is a liquidated sum due at law or in equity or partly at law and partly in equity; and
- is payable either immediately or at a certain future time; and
(c)the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.
(2)Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.
(3)A secured creditor may present, or join in presenting, a creditor's petition as if he or she were an unsecured creditor if he or she includes in the petition a statement that he or she is willing to surrender his or her security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.
(4)Where a petitioning creditor is a secured creditor, he or she shall set out in the petition particulars of his or her security.
(5)Where a secured creditor has presented, or joined in presenting, a creditor's petition as if he or she were an unsecured creditor, he or she shall, upon request in writing by the trustee within 3 months after the making of a sequestration order, surrender his or her security to the trustee for the benefit of the creditors generally.
(6)A secured creditor to whom subsection (5) applies who fails to surrender his or her security when requested to do so by the trustee in accordance with that subsection is guilty of contempt of court.
Proof of debt by secured creditor
90(1)A secured creditor is entitled to prove the whole or a part of his or her secured debt in the debtor's bankruptcy in accordance with the succeeding provisions of this Division, and not otherwise.
(2)A secured creditor who surrenders his or her security to the trustee for the benefit of creditors generally may prove for the whole of his or her debt.
(3)A secured creditor who realizes his or her security may prove for any balance due to him or her after deducting the net amount realized, unless the trustee is not satisfied that the realization has been effected in good faith and in a proper manner.
(4)A secured creditor who has not realized or surrendered his or her security may:
(a)estimate its value; and
(b)prove for the balance due to him or her after deducting the value so estimated.
(5)A secured creditor to whom subsection (4) applies shall state particulars of his or her security, and the value at which he or she estimates it, in his or her proof of debt.”
- Depending on the value of the security, it may be that Kalatzis was not a qualified creditor because of the operation of s 44(2). There was no statement in the petition that Kalatzis was willing to surrender the benefit of its security, within the meaning of s 44(3). Kalatzis did not comply with s 44(4) because it did not set out particulars of its security in the petition. However, there was no evidence that the trustee in bankruptcy had requested Kalatzis to surrender its security within 3 months after the making of the sequestration order, or at all.
- Kalatzis also did not comply with s 90. It proved in the bankruptcy as if it was unsecured. It did not purport to surrender its security to the trustee for the benefit of creditors generally or estimate the security’s value and prove for any balance. It purported to prove for the whole of its debt, then said to be $136,909.19.
- Kalatzis said that the conduct set out above occurred by mistake. Mr Eliadis, Kalatzis’s solicitor, gave evidence that at the times the petition was prepared and the proof of debt was lodged “he wasn’t sure that there was any security or not.”
- Saretap did not address the operation or application of ss 44(1) or 90 with precision. Instead, it relied on the broadly stated “principle” set out above, relying on Seventeenth Canute Pty Ltd v Bradley Air Conditioning Pty Ltd (in liq) and Surfers Paradise Investments Pty Ltd (in liq) v Davoren Nominees.
- In Seventeenth Canute, the appellant was the assignee of a company in liquidation which by a scheme of arrangement assigned its debts. The respondent was a creditor of the company which had proved in the scheme in the winding up but sought to maintain a claim to a charge upon a debt which had been owed to the company in liquidation. The appellant successfully contended that the respondent by coming in under the scheme had elected to surrender its charge as security to the liquidators who had assigned the company in liquidation’s debts to the appellant under the scheme.
- In the circumstances of that case, the respondent was held by the majority to have elected to “waive any right to rely on its charge” as against the appellant “by intentionally proving pursuant to the scheme for the whole debt by satisfying the queries of the scheme trustees as to the quantum thereof and by accepting the dividend paid thereunder.”
- Similarly, in Surfers Paradise, a secured creditor proved in a winding up, valuing its security at nil, and received a dividend calculated upon the acceptance of its debt in the full amount as unsecured. It was held that by proving and receiving payment of a dividend on that basis the secured creditor had elected to surrender its security. Dutney J, with whom Williams and Jerrard JJA agreed, said “a point at which it became necessary in this case to make an election was, in my view, when the dividend cheque was received. At that point in time the respondent was required to make a choice between accepting the cheque or returning it and notifying the liquidator that a mistake had been made in relation to the proof of debt.”
- First, it seems to me that s 44(5) and (6) are inconsistent with the view that by filing the petition, alone, a secured creditor surrenders their security.
- Second, there is no suggestion that Kalatzis received any sum by way of dividend based on its proof of debt. The occasion for an election by acceptance of a dividend calculated on a full proof of debt, as in Seventeenth Canute or Surfers Paradise, has not arisen. Nor is it alleged that there has been an exercise of other rights dependent on the amount of that proof, such as voting rights, which create an occasion for an election. No necessary election has occurred, on either of those bases.
- Still, Saretap insists that the principle is wider. It relied on the statement in Re Ferguson; Ex parte Elder’s Trustee & Executor Co Ltd, where Paine J said:
“In re Chidley; ex parte Lennard ((1875) 1 Ch D 177) … the Court of Appeal held in effect that by petitioning as an unsecured creditor and proving for his full debt the petitioner had lost the benefit of the security which the execution might have given him.”
- However, on closer examination of Chidley, it appears that apart from petitioning and proving there were other circumstances relevant to the finding that the creditor “lost” the benefit of the rights of “security” of an execution creditor in that case. First, on the making of the sequestration order, the creditor’s “security” under an incomplete execution of chattels became subject to the trustee in bankruptcy’s rights on behalf of unsecured creditors. Secondly, the creditor had stood by while the unsecured creditors had resolved to annul the bankruptcy in favour of a composition and that resolution had been approved by the court, with the consequence that there was an assignment to a trustee on the terms of the composition. Thirdly, it was after the annulment of the bankruptcy that the creditor sought to contend for the revival of his rights as execution creditor, notwithstanding the intervening annulment and composition, which would have operated to the prejudice of the other creditors under the composition. Thus understood, Chidley does not stand as authority for the wide proposition as stated by Paine J, in my view.
- In my view, the facts in the present case as outlined previously do not amount to a relevant election by Kalatzis which defeats its rights under the Kalatzis loan agreement which are in the nature of security for repayment of the debt.
- It is unnecessary, therefore, to proceed further to consider what the scope of any relevant election might have been (since only the shares in Retail were Mr Fisher’s property) and whether Saretap is in any way a privy or party entitled to take any benefit of such an election which might operate inter partes, not in rem. There is no suggestion, for example, that Saretap acquired any of its rights by dealing with the trustee for the bankrupt or company in liquidation, which was the context of the elections made in the cases on which it relied.
Conclusion on claim
- In my view, it follows that Retail is entitled to the declaratory relief it claims against Proton and Saretap.
- Saretap’s counterclaim for declaratory relief against Proton and Kalatzis sets up Saretap’s title to Units 41 to 55 under the Acknowledgement of Deed and Release. In my view, as Retail has the prior equitable interest in the units, it follows from the declaration that I propose to make on Retail’s claim that this part of the counterclaim must be dismissed.
- Saretap also makes a claim for damages against Kalatzis. The claim is based on the contention that Saretap has paid sums by way of contribution as Unit Holder in respect of Units 41 to 55.
- In my view, Saretap’s claim for damages is unsustainable. The counterclaim does not identify the cause of action pleaded. To the extent that Saretap relies upon an estoppel in the defence, I have found that Saretap did not make the assumption alleged as to Kalatzis’s or Retail’s continuing interest or claim to an interest in Units 41 to 55.
- The counterclaim presently pleaded must be dismissed. There may be questions of account that will have to be worked out at some time. However, given the relatively small monetary amount of the unpaid Kalatzis debt, it may be that it will be unnecessary for accounts to be taken. The point is that there may be no reason why, once Kalatzis’s claim is satisfied Saretap will not be entitled to obtain the transfer of units it was promised by the Fisher parties. However that may be, no party presently seeks any order that any relevant accounts be taken.
- For the reasons given, in my view Retail is entitled to an order that Saretap pay its costs of the proceeding. As well, Kalatzis and Retail should have an order that Saretap pay their costs of the counterclaim brought against them.
- As to Kalatzis’s costs of the proceeding, I do not accept that it was an appropriate plaintiff for the declaratory relief sought. Kalatzis’s contracting parties were Sweetoz and Mr Fisher, not the defendants. Kalatzis’s legal interests were as the holder of the shares in Retail and as lender under the Kalatzis loan agreement. Although the value of its security under the Kalatzis loan agreement is vitally affected by whether Retail is entitled to Units 41 to 55 and the claim to have Retail’s name entered in the register of unit holders, that did not make Kalatzis the appropriate plaintiff in respect of those claims. Any other claims were abandoned by amendment to the claim and statement of claim deleting them at the time when Saretap was made a party. Thus, I do not consider that Kalatzis should have an order for costs of the proceeding against Saretap.
- The orders should be that the fifth defendant pay the second plaintiff’s costs of the proceeding and that the fifth respondent pay plaintiffs’ costs of the fifth defendant’s counterclaim against them.
- Christos and Thomas Pateras seek an order that Kalatzis pay their costs of the proceeding until they were removed as parties. Kalatzis responds that they were appropriate parties until Kalatzis amended to delete the alternative claim it brought against them for damages. That may be, but it does not answer why that claim was made against them in the first place. The explanation seems to be that until an amended defence was filed, Kalatzis could not have known what the basis of the defence was and that it was therefore necessary or appropriate to join them. I do not agree. In my view, the first plaintiff should be ordered to pay the second and third defendants’ costs of the proceeding, including the costs before the transfer of the proceeding to this Court. As to the costs before the transfer, see s 33(3) of the Civil Proceedings Act 2011 (Qld).
- Similarly, Mr Siperki applied for an order for costs. In my view, for largely the same reasons as apply to the second and third defendants, the first plaintiff should be ordered to pay the fourth defendant’s costs of the proceeding including the costs before the transfer of the proceeding to this Court. As well, it appears that Mr Siperki made it clear from an early point in the proceeding in the Distract Court that he did not dispute Retail’s entitlement to be a unit holder. The fourth defendant sought an order including costs “of and incidental to” and “reserved costs” but it is not necessary to expressly provide for those matters.
- Lastly, Proton applied for a special order for costs. It applied for an order that the first plaintiff pay its costs of an appearance in the District Court on 13 February 2013 on the indemnity basis, and that otherwise the unsuccessful party in the proceeding pay its costs including the costs before the transfer of the proceeding to this Court. The basis of the indemnity costs order was that on 12 February 2013, the first defendant informed the first plaintiff that the District Court lacked jurisdiction to make the order claimed as the proceeding was then constituted. The basis of the order otherwise was that, since the joinder of Retail and since the proceeding was transferred to this Court, Proton has taken the position of a submitting appearance.
- Up to the joinder of Retail, there was a question whether the proceeding was properly constituted in terms of joinder of parties. As well, it was apparently brought in the wrong court in terms of the declaratory relief sought. Kalatzis did not apply for an order that Proton pay its costs before the transfer of the proceeding, notwithstanding that it sought to defend the claim until then. But it was Proton’s default in failing to enter Kalatzis as the Unit Holder of Units 41 to 55 in the register of unit holders which occasioned this dispute. In the circumstances, I do not consider that it is appropriate that Kalatzis be ordered to pay Proton’s costs of the proceeding on 13 February 2013.
- As to the costs of the proceeding otherwise, although Saretap was the unsuccessful party, I do not consider it should be ordered to pay Proton’s costs before the transfer, when it was not a party.
- From transfer to this Court and the contemporaneous joinder of Retail, Proton sought to minimise the costs incurred by abiding the result at trial. However, Proton is clearly a necessary party which was properly joined. Saretap joined issue with the plaintiffs on the claim for declaratory relief, but there was no issue between Saretap and Proton, except on the counterclaim by Saretap against Proton. In my view, it is not appropriate to order that Saretap pay Proton’s costs of the proceeding.
- As to Saretap’s counterclaim against Proton, Proton did not apply for a specific order for costs. However, such an order would fall within Proton’s general application for an order for costs of the proceeding against the unsuccessful party. Accordingly, it should be ordered that that the fifth defendant pay the first defendant’s costs of the fifth defendant’s counterclaim against the first defendant.
  QCA 249; (2002) 1 Qd R 683 at .
 I note that the date of Unit Certificate 7 is one day before the date of the Transfer Approval.
 (1993) 12 ACSR 188.
 See pages 191-192 and see also Quiqiao v Una Fang Chen & Ors BC 9707693.
 The same contention is also pleaded as an estoppel in par 14(d) of the defence.
 T 1-74.15-.30 and T 1-90.15 - T 1-91.05.
 T 1-93.20 - T1-94.05, T 2-10.40 - T2-11.33 and T 2-12.10-.35.
 T 1-32.25-.30
 Heid v Reliance Finance Corp Pty Ltd  HCA 30; (1983) 154 CLR 326.
 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq)  HCA 17; (1963) 113 CLR 265.
 See ss 205B and 350 Corporations Act 2001 (Cth).
  1 Qd R 111.
  1 Qd R 567;  QCA 458.
 (1943) 13 ABC 1 at 7.
 Mio Art Pty Ltd v Macequest Pty Ltd & Ors (No 2)  QSC 271.
- Published Case Name:
Kalatzis Nominees Pty Ltd & Anor v Proton Development Group Pty Ltd & Ors
- Shortened Case Name:
Kalatzis Nominees Pty Ltd v Proton Development Group Pty Ltd
 QSC 283
18 Oct 2013
No Litigation History