CFI Rentals Pty Ltd v Roussos [2017] QDC 128

DISTRICT COURT OF QUEENSLAND CITATION: CFI Rentals Pty Ltd (ACN 166 603 578) v Roussos & Anor [2017] QDC 128 PARTIES: CFI RENTALS PTY LTD (ACN 166 603 578) (applicant) v MICHAEL IVON ROUSSOS (first respondent) and JULIE KATHRINE GARDINER (second respondent) FILE NO/S: BD 4837/16 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: District Court at Brisbane DELIVERED ON: 17 May 2017 DELIVERED AT: Brisbane HEARING DATE: 8 May 2017 JUDGE: Farr SC DCJ ORDER: 1. The application is dismissed. 2. The applicant is to pay the respondents costs of and incidental to this application on the standard basis unless written submissions to the contrary are received by the court by 4.00pm on 18 May 2017. CATCHWORDS: EQUITY - GENERAL PRINCIPLES - EQUITABLE CHARGES AND LIENS - GENERALLY - where the first respondent entered into a guarantee with the applicant regarding a lease agreement - where the applicant alleges default under that lease agreement - where the respondents are registered owners as joint tenants and tenants in common of real property - where the applicant seeks a declaration that it has an equitable charge over the real property of the first respondent. AJ Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2009] VSCA 310 Re Colonial Finance Mortgage, Investment and Guarantee Corporation (1905) 6 SR (NSW) 6. -- 1 of 6 -- 2 Property Law Act 1974 (Qld), s 38 Uniform Civil Procedure Rules 1999, r 14 COUNSEL: P O’Brien for the respondents SOLICITORS: SLF Lawyers for the applicant Shand Taylor Lawyers for the respondents [1] The applicant is seeking a declaration that it has an equitable charge over the interest of the first respondent in the land and improvements at 8 Avinia Place, Westlake and at 5/5 Burra Street, Surfers Paradise, pursuant to a signed Secured Guarantee between the applicant and the first respondent dated 13 May 2016. [2] If successful in the application, the applicant also seeks orders relating to the appointment of statutory trustees for the sale of those properties pursuant s 38 of the Property Law Act 1974 (Qld) (PLA) and other associated orders relating to the remuneration of those statutory trustees and as to the disposal of the proceeds of those sales. [3] The parties agree that the total value of the two properties is such that this is a matter which falls within the jurisdiction of this court.1 Factual background [4] The first and second respondents are the registered owners as joint tenants of the land and improvements situated at 8 Avinia Place, Westlake and as tenants in common of the land and improvements situated at 5/5 Burra Street, Surfers Paradise.2 [5] On 18 May 2016, the applicant, Zetland Fitness Management Pty Ltd (“Zetland”), Rebecca Roussos and Michael Roussos entered into a written agreement (“the agreement”) comprising of: (a) a lease schedule and tax invoice; (b) a Direct Debit Request Authority and Direct Debit Request Service Agreement; and (c) lease terms and conditions. 3 [6] The agreement was a lease agreement whereby the applicant loaned monies to Zetland to allow it to establish a gymnasium with clauses that covered the lease terms and conditions, the rental instalments, the essential terms, default provisions, termination provisions, costs, duties, charges, commissions, indemnities, guarantee and indemnity and undertakings. [7] In summary, Zetland entered into a lease of gym equipment from the applicant on 18 May 2016. The first respondent entered into a guarantee in respect of the obligations of Zetland with the applicant on 13 May 2016.4 1 District Court of Queensland Act 1967, ss 68(1)(b)(vi) and (2). 2 Affidavit of James Scurr filed 14 February 2017 (court document no 2) at para 5, Exhibit B, p 16 and para 6, Exhibit C, p 17. 3 Affidavit of James Scurr filed 14 February 2017 at para 7, Exhibit D, p 18-27. 4 Affidavit of Michael Ivon Roussos filed with leave on 8 May 2017 at para 3. -- 2 of 6 -- 3 [8] The gymnasium business of Zetland did not commence operations although the equipment lease was signed.5 [9] Zetland was in arrears in or around December 2016 having failed to pay the applicant: (a) the sum of $50.48 being the balance of the sum of $1,024.48 due on 9 November 2016; (b) the sum of $1,024.48 due on 16 November 2016; and (c) the sum of $1,024.48 due on 23 November 2016.6 A purported notice of termination was sent to Zetland by the applicant along with an overdue notice to the first respondent on 12 December 2016. In breach of the notice provisions in the lease terms, the notices however were sent to the unoccupied gymnasium premises rather than the address for notices as set out in the lease agreement and guarantee.7 [10] Those notices were never received.8 Despite that purported termination, payments continued to be made by Zetland to the applicant and correspondence occurred between them as to the maintenance of payments continuing into January 2017.9 [11] The applicant was informed in writing on 10 January 2017 to send all correspondence to Zetland at a specified address in Alexandria in New South Wales because it had not received the earlier correspondence that had been sent to the address of the gymnasium.10 [12] The first respondent received an “Overdue Notice” on or around 22 February 2017 in respect of the guarantee,11 and subsequently engaged in correspondence with Mr Scurr from the applicant.12 [13] A further default notice was sent to Zetland dated 15 February 2017 but again to the wrong address (it was sent to the unoccupied gymnasium’s address again) despite Zetland’s previous advice as to the correct address.13 [14] The gymnasium equipment was repossessed by the applicant on or around 4 May 2017.14 [15] On 5 May 2017, Zetland terminated the lease agreement and reserved its right to damages.15 Has the applicant established an equitable charge over the interest of the first respondent in respect of each property? [16] The applicant has submitted that pursuant to clause 7(c) of the Guarantee, the first respondent charged in favour of the applicant, by way of a fixed charge, all real and 5 Affidavit of Michael Ivon Roussos filed with leave at para 4. 6 Affidavit of James Scurr filed 14 February 2017 at para 12. 7 See clause 28.1 of the lease and the lease schedule. 8 Affidavit of Michael Ivon Roussos filed with leave at para 6, p 7. 9 Affidavit of Michael Ivon Roussos filed with leave at paras 7 and 8, see Exhibits, p 6-11. 10 Affidavit of Michael Ivon Roussos filed with leave at Exhibits, p 7. 11 Affidavit of Michael Ivon Roussos filed with leave at para 11 and MIR-5, p 18. 12 Affidavit of Michael Ivon Roussos filed with leave at paras 13, 14, and 15. 13 Affidavit of Michael Ivon Roussos filed with leave at p 19. 14 Affidavit of Michael Ivon Roussos filed with leave at para 16. 15 Affidavit of Michael Ivon Roussos filed with leave at para 32. -- 3 of 6 -- 4 personal property at any time held by the first respondent as security. It is further submitted that the terms of clause 7(c) of the Guarantee reveal an intention on the part of the first respondent to grant a fixed charge over his interest in the two subject properties. It follows, so it is submitted, that an equitable charge over those interests was created by clause 7(c). [17] Clause 7(a) and (c) state: Undertakings The Guarantor: (a) must pay to Cashflow IT all amounts which are actually or contingently owing to Cashflow IT now or in the future, by any persons specified in the Details as Guarantor; and … (c) as beneficial owner, charges in favour of Cashflow IT, by way of fixed charge, all real and personal property at any time held by the Guarantor with the payment of the amounts referred to in clause 7(a). [18] However, before the applicant could have the benefit of the equitable charge pursuant to clause 7(c), the applicant is required to show that there is an amount which is actually or contingently owing to it by any persons specified in the Details as Guarantor,16 and pursuant to clauses 7(d) and 7.2 the applicant must prove default. [19] Furthermore, and importantly, pursuant to clause 2.3 of the secured guarantee, the “Guarantor as principle debtor agrees to pay Cashflow IT on demand a sum equal to the liability or loss or costs described in this clause 2.” [20] So, a precondition to any equitable charge arising is the requirement of a demand being made for the sum equal to the liability or loss. The applicant submits that it has issued such a demand on the first respondent on two occasions by way of letters dated 12 December 2016 and 15 February 2017. [21] Both letters are worded identically, although, as I have already indicated, in breach of the notice provisions in the lease terms, the first letter was sent to the unoccupied gymnasium premises rather than the address for notices as set out in the lease agreement and guarantee.17 [22] The letter dated 12 December 2016 is in the following terms: “OVERDUE NOTICE – TO GUARANTOR You have provided a guarantee in relation to the finance contract referred to on the page following. Payment has not been made in relation to the contract and we attach our Overdue Notice for your information. In the event that the customer does promptly pay the overdue amount you may become liable for the amount owing. As guarantor you are responsible for all obligations incurred by the customer under the contract. If the customer has already made this payment, please disregard this notice. 16 Clause 7(a). 17 Clause 28.1 of the lease and the lease schedule. -- 4 of 6 -- 5 If you would like to discuss this Overdue Notice, please contact a member of our Collection team on 1300 244 032.” [23] The letter to the first respondent on 15 February 2017 is in identical terms other than for a correction of the apparent typographical error that is contained in the 12 December letter where it is said that the first respondent’s obligations arise if the customer does pay the overdue amount. [24] Whilst there is no distinct wording required in order to constitute a demand, it must nevertheless be a clear and unconditional demand. There must be a clear intimation that payment is required.18 Neither of those letters came close to achieving that. In fact, they do no more than remind the first respondent that he may become liable for the amount owing if the customer does not promptly pay the overdue amount. The “overdue amount” stated in the attached “Overdue Notice” was $2,099.44 in the 12 December 2016 notice and $6,298.20 in the 15 February 2017 notice. [25] To add to the confusion, the attached “Overdue Notices” were in fact entitled “Default Notice and Notice of Intention to List Default” and lists both the overdue amounts as well as the total amount owing under the contract after the applicant had purportedly exercised its right to terminate the contract. Contrary to the requirement that a demand be clear and unconditional, the two letters and their attachments to the first respondent are internally inconsistent, ambiguous in the extreme and highly confusing. Significantly, neither make any demand. [26] Furthermore, as I have said, the original December 2016 “default notice” was forwarded to the unoccupied gymnasium premises contrary to the lease agreement. The “customer”, Rebecca Roussos (of Zetland) has deposed that she never received that notice and there is no evidence to the contrary. In fact, consistent with that assertion, she made further payments pursuant to the lease conditions in January 2017 to the applicant which were accepted. It appears from that fact alone that the applicant had not considered the contract to be terminated at that time, despite its current assertions to the contrary. [27] Accordingly, the applicant has not proved, on balance of probabilities, that a demand for payment from the first respondent has been made, as required by clause 2.3 and the applicant has therefore failed to establish an equitable charge over the interest of the first respondent in respect of each property. [28] The application is therefore dismissed. [29] The first respondent has also raised a number of other arguments as to why the application should fail. Given my conclusion above, it is unnecessary for me to consider those arguments notwithstanding the apparent attractiveness of some of them. [30] Given that the applicant has failed on this threshold issue, it is also unnecessary for me to consider the provisions of s 38 of the PLA and the authorities relating to it regarding the degree of discretion that a court has with respect to the making of the orders sought. 18 AJ Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2009] VSCA 310 citing Re Colonial Finance Mortgage, Investment and Guarantee Corporation (1905) 6 SR (NSW) 6. -- 5 of 6 -- 6 Other issue [31] The respondents have submitted that the proper course would be for the matter to proceed by way of pleadings pursuant to r 14 of the Uniform Civil Procedure Rules 1999. That is, that the court should consider that the application should have been started by a claim. However, as the applicant has failed on a threshold issue and there is no factual basis for the matter to be before this court, such an approach is not appropriate. [32] It would be inappropriate therefore to make the order sought by the respondent. Orders 1. The application is dismissed. 2. The applicant is to pay the respondents costs of and incidental to this application on the standard basis unless written submissions to the contrary are received by the court by 4.00pm on 18 May 2017. -- 6 of 6 --