Knight v Young[2011] QDC 133

DISTRICT COURT OF QUEENSLAND

1. [1]
   At a hearing on 11 July 2011 the court substantially determined the plaintiffs’ application for leave to amend the claim, leaving unresolved a couple of the amendments for which leave was sought and also the other part of the application which asked for joinder of the defendant’s parents as additional defendants in the proceeding. They had been served with the application to join them but not appeared. The court had some concerns about whether they were in a position to understand and pursue their best interests. The point of joining them ensured that all appropriate parties be before the court should the claim be permitted to be amended to incorporate a claim for sale of a house property understood to be their residence pursuant to s 38 of the Property Law Act 1974.  That is a property of which the defendant owns a 100^th share, his parents owning the balance.

2. [2]
   The application was adjourned to a date to be fixed on the understanding that the court would consider the remaining aspects of the application to amend the claim and the application for joinder. Urgency existed at the hearing given that the plaintiffs wish to use the proceeding as one to support the continuation of a caveat lodged in respect of the property. The three months allowed for commencement of such a proceeding expires at the end of the week. The amendments which the plaintiffs have leave to make already include an amendment to assert that the plaintiffs have a charge over the defendant’s interest in the property. Mr Locke, who represented the plaintiff applicant and Mr Frampton, who represented the existing defendant (but not his parents) were agreed that a District Court proceeding is capable of satisfying the requirements of the caveat continuing in effect. It is unnecessary for the court to express any view about that in the circumstances.

3. [3]
   The amendments to the claim for which leave was given (and, to the extent necessary, also to amend the statement of claim conformably) increased by more than $100,000 the amount claimed “pursuant to a Debt Factoring Facility Deed agreement”, add a claim for an order requiring the defendant to allow access to his books of account, etc, a claim to an injunction restraining Brent Warren Young from expending $173,511.23 and requiring payment thereof to the plaintiffs together with interest “pursuant to the Contract” and claims to declarations that the first defendant has granted a charge or equitable mortgage over his interests in the property to secure payment of all monies due and owing by him to the plaintiff.

4. [4]
   Orders made by the court for leave accordingly satisfied Mr Locke’s pressing concerns. There would appear to be no reason why amendment to seek “costs on an indemnity basis” rather than “legal costs” as in the filed claim would not be appropriate.

5. [5]
   Mr Frampton opposed the granting of leave to claim “interest on $173,511.23 at 0.1% per day pursuant to the Contract”. The filed claim seeks interest pursuant to s 47 of the Supreme Court Act 1995 “as specified in the current practice direction at 10 per cent per annum”.  The new claim seeks interest at a rate of 36.5 per cent per annum, presumably.  There could be no difficulty about mounting a more ambitious claim for interest particularly if justified by contractual arrangements the parties have made.  As Mr Frampton says, they have made no such arrangement.  The relevant instrument says nothing whatever about interest.^[1]  There is a schedule in the agreement according to the proposed amended statement of claim which provides in part:

“Part 10: The Overdue Fee: 0.1% per day of the outstanding balance of the debt.”

Mr Locke could not refer to any obligation in the instrument (and none was pleaded) referring to any obligation to pay the overdue fee and “overdue fee” is not among the 25 defined terms.

6. [6]
   The point of the factoring facility was explained as being to ensure the cash flow of the defendant who supplies goods to outlets such as Harvey Norman (whose name appears many times in the documents) with a view to avoiding difficulties that might occur should such outlets be slow in paying. The plaintiffs step in and, it appears, acquire debts owing to the defendant at a discount. It seems that certain recourse may be available against him should the relevant outlet fail to pay. Mr Frampton contends that if (contrary to his submission) any overdue fee becomes payable, it may be the supplier, rather than his client, who bears responsibility.

7. [7]
   A useful test in respect of the discretion to allow or direct amendment of a claim under rule 375 is expressed by Davies JA (McMurdo P agreeing) in Landoro (Qld) Pty Ltd (Administrator Appointed) v Jensen International Pty Ltd BC 9905021 (Appeal No 5983 of 1998, 20 August 1999) at paragraph [9]:

“In considering whether to disallow the amendments it should be borne in mind that these claims involve an area of law which is developing and which is by no means clear.  In these circumstances, in particular, this Court should not prevent them from being litigated unless they are so obviously untenable that they cannot possibly succeed.  See for example Rajski v Powell (1987) 11 NSWLR 522 at 524.” 

Effectively, this brings in a test along the lines of that in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125.  The decision Mr Frampton referred the court to, on the basis that it had to do with bringing in additional defendants, is JK International Pty Ltd v International Comtrade & shipping Pty Ltd [2005] QSC 026.  Moynihan J said:

“[22] The plaintiff relies on King & Anor v Milpurrurru & Ors^[2] for the proposition that a director may become personally liable by his close connection with wrongful decisions, actions etc; see 351 and 336.  That may be accepted but again the pleading is deficient in pleading the facts giving rise to the “close connection” sustaining the liability sought to be relied on.

[23] The proposed statement of claim is in my view inadequate to sustain the case sought to be made against the proposed defendants.  The connection with this jurisdiction is on the face of the pleadings at best tenuous.

[24] It is submitted that the plaintiff has not been able, despite significant endeavours, to serve Commodity Traders and the plaintiff seeks an order that it be excused from the necessity to affect such service.  There has been no attempt to obtain an order for substituted service.  I am not persuaded on the material as it stands to dispense with service.

[25] It follows that in my view the proposed statement of claim does not found the claim the plaintiff seeks to advance against van Vlymen.  Leave to amend should be refused.

[26] I dismiss the application.”

8. [8]
   Leave to make this amendment should be refused. I am not prepared to say that an “overdue fee”, assuming there is entitlement to one, can be equated with interest. Had the amendment sought been one to claim the “overdue fee”, the application would have been difficult to resist.

9. [9]
   Encountering some difficulty from the court, Mr Locke did not pursue an amendment that would have the court order the plaintiffs entitled to “trace the proceeds of $237,457.72 in respect of the invoices referred to in paragraph 8 of the amended statement of claim”. Those invoices are pleaded to be ones that the plaintiffs purchased from the debtors identified. They include Harvey Norman and three others multiple times. It is not sought to be pleaded that the defendant has any such proceeds.

10. [10]
    The next contentious amendment sought too the claim would add “a declaration that the moneys paid to the first defendant in the sum of $173,511.23 is charged for the benefit of the Plaintiff”. The original statement of claim asserted that debts on various invoices were overdue and that there were outstanding sums with the consequence that the defendant was required to repurchase those debts. The proposed amended statement of claim appears to refer to the same set of invoices but without totalling them allege in paragraph 10 that on or about 10 June 2010 the amount of the Factored Debts that remained unpaid was $173,511.23. I cannot understand how the proposed (or existing) pleading supports the claims to the declaration of a charge. It does not seem to me that these are concerned with money that the defendant has or is likely to get. Perhaps the declaration ought to be in terms of moneys that might be paid to the first defendant. In the circumstances I am disinclined to give leave for that amendment. Mr Locke did not show that the proposed amended statement of claim supported it.

11. [11]
    The remaining contentious amendments, so far as relief to be sought against the existing defendant is concerned, seek an order for sale of the Property and “further or other orders including … an order creating or vesting in the plaintiff a legal estate in interest in the property to enable the plaintiff to carry out the sale”. I am at a loss to understand how the plaintiff could conceivably be in a position to sell the whole of the property which Brent Warren Young and the proposed second and third defendants hold in common, or any more than the one hundredth interest referred to. It may be that the definition of “the Property” in paragraph 7 of the proposed amended claim is intended to apply only to the first defendant’s interest. Confusion arises because the definition – (“the Property”) – follows immediately after a reference to Lot 20 on RP 120893, County of Canning, Parish of Mooloolah, title reference 14294059.  That the whole of the Property including the vital 99/100ths interest is intended to be sold is suggested that by the proposed claims for relief against the second and third defendants which are that:

“1. Statutory trustees for sale be appointed to the Property pursuant to Section 38 of the Property Law Act 1974.

2. Such land thereupon vest in the statutory trustees subject to encumbrances affecting the entirely but free from encumbrances affecting any undivided shares to be held by them upon trust to sell the same and to stand possessed of the net proceeds of sale, after payment of costs and expenses, and of the net income until sale after payment of rates, taxes, costs of insurance, repairs properly payable out of income and other outgoings for one percent (1%) to the First Defendant and for the Second and Third Defendants in equal shares of ninety-nine percent (99%).

3. That upon such sale each of the Defendants be at liberty to purchase such land upon terms that he or she shall not be required to pay any deposit and that he or she may set off against the purchase price the whole of his or her share in the land.”

12. [12]
    It may be noted that new solicitors came into the matter for the plaintiff in May 2011. The claim was filed on 1 July 2010.

13. [13]
    Although the court has allowed the plaintiffs to make it, their claim to a charge for mortgage must be regarded as highly problematic. The only charge that the contractual arrangements refer to (“Charge” being defined to mean “the charge granted by the Vendor in favour of the Purchaser pursuant to clause 6 hereof” is one over “all the Vendor’s present and future book debts, hereinafter called “the Mortgaged Property”).

14. [14]
    6.2 provides that:

“The Purchaser may, if it so deems necessary to protect or enlarge its security hereunder, lodge a caveat against any interest in real estate held by the Vendor or the grantors of the other Securities referred to in Part 2 of the Schedule hereto.” 

There are no other securities mentioned in the schedule.  This provision is the one relied on to support the claim to a charge over the defendant’s interest in the property (Lot 120 on RP 120893).  I am at a loss to understand how that provision in the circumstances could operate to create a charge.  It may be accepted that should the defendant have or claim to have an interest in any real estate, there may arise an entitlement to lodge a caveat, with the likely consequence of it placing pressure on Mr Young or others.  In my opinion, it cannot possibly create a charge or an entitlement to sell or have recourse to the property or the defendant’s interest in it.  The possibility ought to be acknowledged that, if matters get so far, r 156, if the plaintiffs (who are allowed to seek to establish a charge by the amendments leave for which has been given) succeed in establishing one, they may well be able to obtain orders facilitating the enforcement of the charge.  That, in my view, is very much a matter for the future and is insufficient to authorise the inclusion of a claim relating to sale of the property.  There is nothing in the statement of claim that would support an entitlement to seek sale of the property.

15. [15]
    It would follow from that conclusion that there is no necessity for the second and third defendants to be involved in the proceeding. Indeed, I think nothing is gained beyond trouble to them (which I trust is not behind the request for the joinder) from bringing them in.

16. [16]
    While the right to have trustees for sale appointed pursuant to s 38 is generally seen as an incident of ownership (one that is extended to an encumbrancee by s 37), a court asked to make orders under s 38 has a discretion in the matter, as is well established.  See Re Permanent Trustee Nominees (Canberra) Ltd [1989] 1 Qd R 314.  That decision and others acknowledging the discretion to withhold relief and exhibiting such outcomes were considered in Mulherin v Quinn Villages Pty Ltd [2006] QSC 338.  It occurred to me to wonder whether the miniscule interest of the existing defendant (which it is assumed for present purposes the plaintiffs may get into a position to exploit) will be a basis for refusing an order.  In Club Esplanade Ltd v Acott [2002] QSC 256, where the applicant had only a 1/51 interest, relief was refused under s 38, but not on that ground.  The court’s concern was that the mode of sale proposed might not fairly give effect to the interests of all co-owners, which were not necessarily equal.  Of 50 potential interests opposing the making of an order, only one did.  There is no occasion for embarking on these interesting considerations at the moment, but one might anticipate that opposition from holders of 99/100 of the beneficial ownership in the property might have an important bearing on the way in which the court exercised the discretion it has under s 38, especially if, as appears, they might lose their home:  this was a factor in Broadway Credit Union v Bellamy [2000] NSWSC 778; BC200004694, in which relief under the New South Wales equivalent of s 38 was refused.  The justice of requiring the defendant’s parents to bear 99% of the costs of sale and the costs of stamp duty, conveyancing and the like should they become the successful purchasers at a sale is of little concern at the moment, given that the issue is simply about what the plaintiffs may claim, rather than what they ought to get in the end, if successful.

17. [17]
    In my opinion, it would be offensive to involve the proposed second and third defendants in this proceeding. It is unnecessary. If things reach the stage where the plaintiffs are entitled to pursue a sale, a s 38 application can conveniently be made then.

18. [18]
    In considering this matter I have read with interest Macquarie Bank Ltd v Lin [2002] 2 Qd R 188; [2001] QSC 341, a decision upon r 69(1)(b), the rule which is relied on to support joinder of the proposed second and third defendants.  There are intriguing parallels with the facts here, with the bank having an interest in a form of “negative pledges” which, perhaps like the caveat arrangements here, might have the effect of preserving a debtor’s assets for possible recourse to them by a creditor, but do not amount to a security or charge.  The bank was allowed to join in proceedings by parents against the debtor, their son, calculated to establish that he had no proprietary or equitable interest in a property at Norman Park.  The bank was fearful that the son would not mount any defence in the circumstances, with possible consequences adverse to them.  There is no special feature of that kind here.  If the parents ever have to become involved, which is dependent on a security interest in the property being established by the plaintiffs, among other things, that can be attended to in due course.  One would expect that there would be no proceedings in that event, and that a commercial resolution involving provision in some safe place of a fund representing the maximum that could be obtained by the plaintiffs from realisation of their security would be established somehow, to avert any necessity of a costly and inconvenient sale.  It is inappropriate at this stage to have the parents oppressed or threatened into providing some such security.

19. [19]
    The court has a discretion about making orders under r 69, which uses the word “may”.  It would be a reproach to the system in my opinion to bring in the proposed additional defendants at this stage, subjecting them to the worry, trouble and cost associated with being party to litigation, when the necessity to involve them at all will not arise unless and until the plaintiffs establish an entitlement to have the son’s interest in the jointly owned property sold.  There is no limitation period that might concern the plaintiffs at the moment, as regards joinder; there would not seem to be anything the proposed new defendants could do to frustrate the plaintiffs, assuming they are kept out of the proceeding.

20. [20]
    The application results in the leave which the plaintiffs already have to amend its claim to include proposed Clauses 1, 3, 6, 7 and 8; they should have Clause 10 added to that list.  Otherwise the application ought to be dismissed.  So far as costs are concerned, the plaintiffs, following a change of legal representation and a different view being taken of how their interests ought to be pursued, ought to pay the costs of the defendant of the application to be assessed if not agreed.  It would not appear that his parents have had to bear any costs.  Orders will not be made until the parties have an opportunity to consider these reasons and make submissions.