Piccolo & Anor v McVeigh (No.1) [2002] FMCA 8 (15 January 2002)

Last Updated: 16 April 2002

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PICCOLO & ANOR v McVEIGH (No. 1)

[2002] FMCA 8

INJUNCTIONS - Interlocutory

Applicant:

SHARON DENISE PICCOLO & WOODARDS (CENTRAL) PTY LTD

Respondent:

DEAN ROYSTON McVEIGH

File No:

MZ 21 of 2002

Delivered on:

15 January 2002

Delivered at:

Melbourne

Hearing Date:

14 January 2002

Judgment of:

Connolly FM

REPRESENTATION

Counsel for the Applicant:

Mr Tsalanidis

Solicitors for the Applicant:

Best Hooper 563 Little Lonsdale Street MELBOURNE VIC 3000

Counsel for the Respondent:

Mr Rodbard-Bean

Solicitors for the Respondent:

Abbott Stillman & Wilson Level 4, 575 Bourke Street MELBOURNE VIC 3000

UPON the Applicants by their counsel undertaking:

(a) To submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) thereof; and

(b) To pay compensation referred to in (a) to the person there referred to.

THE COURT ORDERS

(1) The Respondent whether by his servants, agents or otherwise howsoever be restrained until the hearing and determination of this proceeding or further order from disposing of, applying or otherwise dealing with any money paid to him by or on behalf of the Applicants pursuant to the Terms of Settlement being exhibit SDP 12 to the affidavit sworn by Sharon Denise Piccolo on 11 January 2002.

(2) The Applicants file and serve a statement of claim on or before

25 January 2002.

(3) The Respondent file and serve a defence and any cross claim on or before 4 February 2002.

(4) The Applicants file and serve a defence to the cross claim on or before

11 February 2002.

(5) The parties exchange a list of documents on or before

15 February 2002.

(6) The Applicants file and serve any further affidavits relied upon on or before 22 February 2002.

(7) The Respondent file and serve any further affidavits relied upon on or before 1 March 2002.

(8) The Applicants file and serve any other affidavits relied upon on or before 8 March 2002.

(9) The parties exchange contentions of fact and law on or before

15 March 2002.

(10) The matter be listed for final hearing on 20 March 2002 with an estimated hearing time of 3 to 4 days.

(11) The costs of both parties be reserved.

(12) The Applicant prepare and file a court book containing current pleadings, any affidavits relied upon and any documents to be referred to on or before 12 March 2002.

(1) FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE

MZ 21 of 2001

SHARON DENISE PICCOLO & WOODARDS (CENTRAL) PTY LTD

Applicants

And

DEAN ROYSTON McVEIGH

Respondent

REASONS FOR JUDGMENT

The proceedings

1. This is an extempore judgment arising from the application by the applicants dated 11 January 2002, for the following interlocutory relief:

a) an injunction to restrain the respondent, whether by his servants, agents or otherwise, howsoever until the hearing and determination of this proceeding or further order from disposing of, applying or otherwise dealing with any money paid to him by or on behalf of the first applicant, pursuant to the said terms of settlement,

b) such further or other order as the court deems fit.

2. The respondents sought that the application be dismissed.

3. The application is supported by:

a) an affidavit by the applicant, Sharon Denise Piccolo, sworn 11 January 2002.

4. The respondent relies on

a) an affidavit sworn by the respondent, Dean Royston McVeigh, on 14 January 2002.

5. There are numerous exhibits annexed to both parties' affidavits, but I do not intend to refer to them specifically unless they are cited in support of a contentious issue.

The history

6. The applicant, SHARON DENISE PICCOLO, "Sharon Piccolo", and her husband, JOHN PETER PICCOLO, "Peter Piccolo", became the registered proprietors on 30 July 1985 of the land contained in certificate of title volume 6106 folio 044, and known as 20 Kooyongkoot Road, Hawthorn, in the state of Victoria, "the Hawthorn property". The Hawthorn property was purchased for $239,000, using the proceeds from the sale of the property at 18 Stevedore Street, Williamstown, registered in the name of John Peter Piccolo, but financed and renovated with the joint savings of Sharon Piccolo and Peter Piccolo, and a housing loan from the National Australia Bank, "the NAB".

7. Peter Piccolo was a director of the company Poole Levy and Appel Pty Ltd between the dates of 14 September 1987 and 9 May 1996, being the date on which he became a bankrupt. On 27 March 2001, Poole Levy and Appel changed its name to Woodards (Central) Pty Ltd.

8. On 29 August 1995, the NAB offered Poole Levy and Appel facilities totalling $1,050,000, comprising:

a) an overdraft facility of $50,000, a bill facility of $1 million, both to be secured by a charge over the assets of Poole Levy and Appel;

b) a guarantee and indemnity for the $1,050,000 by Peter Piccolo and Sharon Piccolo, supported by a mortgage (further to the housing loan) over the Hawthorn property.

9. The offer was accepted on 8 September 1995 by a resolution of the directors of Poole Levy and Appel.

10. On 18 September 1995, Poole Levy and Appel gave a charge to the NAB over its assets, registered on 12 October 1995, number 511065, "the charge". On 18 and 20 September 1995, Peter Piccolo and Sharon Piccolo executed a guarantee and indemnity in favour of the NAB for $1,050,000, in respect of the borrowings of Poole Levy and Appel, the guarantee and indemnity.

11. On 18 September 1995, Peter Piccolo and Sharon Piccolo mortgaged the Hawthorn property to the National Australia Bank, "the mortgage". The mortgage was registered on the title on 24 October 1995, in number T292577L.

12. On 9 May 1996, Peter Piccolo filed a debtor's petition for bankruptcy, and the official trustee became his trustee in bankruptcy. On

30 September 1996, Dean Royston McVeigh, "McVeigh", was appointed trustee of the estate of Peter Piccolo. The interest of Peter Piccolo in the Hawthorn property was vested in McVeigh, such interest being registered on title on 5 February 1997.

13. On 29 October 1996, the NAB replaced the bill facility of $1 million with a fully-drawn advance OF $1 million. The charge, the guarantee and indemnity and the mortgage continued to secure the fully-drawn advance.

14. In September 1997, McVeigh commenced a proceeding in the Federal Court of Australia against the NAB, seeking a declaration that the mortgage over Peter Piccolo's interest in the Hawthorn property was null and void to the extent that it secured the indebtedness of Poole Levy and Appel to the NAB. Also sought was an injunction to restrain the NAB from acting upon the mortgage. Sundberg J, at first instance, on 14 April 1999, and the Full Federal Court on appeal by McVeigh on 28 February 2000, held that the mortgage was valid and continued to secure the facilities provided by the NAB to Poole Levy and Appel.

15. The application and appeal by McVeigh was dismissed with costs against McVeigh.

16. On 2 June 2000, an originating motion in the Supreme Court of Victoria, "the Supreme Court proceeding", for an order for the petition and sale of the Hawthorn property pursuant to sections 222 and 223 of the Property Law Act (1958) Victoria - a number of affidavits were filed in the Supreme Court proceeding.

17. In December of 2000, the amount owing to the NAB by Poole Levy and Appel exceeded $1 million. The amount owing to the NAB under the fully-drawn advance was $950,000.

18. The value of the Hawthorn property was insufficient to pay the debt to the NAB. If the Hawthorn property was sold, as proposed by McVeigh in the Supreme Court proceedings, all the proceeds of sale would have been paid to the NAB under the mortgage.

19. On 10 December 2000, Sharon Piccolo obtained an instalment loan of $450,000 from the NAB for a term of 10 years.

20. On 12 December 2000, a fully-drawn advance of $950,000 was repaid by the instalment loan of $450,000 to Sharon Piccolo, and a $500,000 bank cheque from the Macquarie Bank for Poole Levy and Appel. As a result of these payments, Peter Piccolo was released from the guarantee and indemnity, and McVeigh's interest in the Hawthorn property that was secured by the mortgage became unencumbered. McVeigh was aware of this outcome, from the correspondence with the NAB in April 2001.

21. On 18 October 2001, the Supreme Court proceeding was settled and terms of settlement were executed, pursuant to which Sharon Piccolo agreed to purchase the Hawthorn property for $425,000, with a sum of $25,000 to be paid by 16 November 2001, and the sum of $400,000 to be paid by 15 January 2002. At paragraph 7 of the terms of settlement, Sharon Piccolo reserved the right to claim equitable contribution and other relief against McVeigh, arising out of the release by the NAB of the guarantee and indemnity, the mortgage and any other security over McVeigh's interest in the Hawthorn property, except that such right had to be exercised no later than 17 April 2002. Paragraph 9 of the terms of settlement required the payment obligations of the defendant to be met in full, without any adjustment, claim, deduction, set-off or counterclaim whatsoever.

22. On 14 November 2001, a letter was sent by the solicitors for Sharon Piccolo, Best Hooper, to McVeigh's solicitors, Abbott Stillman and Wilson, advising that the payment of $25,000 was to be made by

16 November 2001, and sought an undertaking that the amount of $25,000 would be held in trust. McVeigh did not give the undertaking and on 19 November 2001, the sum of $25,000 was paid to McVeigh, pursuant to the terms of settlement.

23. On 11 January 2002, a meeting of creditors of Peter Piccolo was held. McVeigh was asked by the creditors to have an audit of the estate, including McVeigh's expenditure and remuneration, and to undertake not to distribute any moneys received until the audit had been completed. McVeigh declined and refused to put these matters to the vote. Also on 11 January 2002, this application was filed.

The law

24. The law is established by authority that the principles for the granting of an interlocutory injunction are:

a) whether there is a serious question to be tried; and

b) whether the balance of convenience favours the granting of interlocutory relief. Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1988) 161 CLR 148 at 153, per Mason ACJ.

25. In Australia Coarse Grain Pool v Barley Marketing Board of Queensland (1983) 57 ADJR 425 at 425, Gibbs CJ said:

It seems to me that the proper approach in considering whether an interlocutory injunction should be granted is first to inquire whether there is a serious question to be tried and then to determine the matter on the balance of convenience.

26. In McDonald's System of Australia Pty Ltd v McWilliam's Wines

Pty Ltd (1979) 41 FLR 431, Franki J described the court's role in determining the application for interlocutory relief as follows:

The court's function in considering the application is not to conduct a preliminary trial to forecast the result of the case, nor indeed is it necessary that the applicant should establish that it is more likely than not it would succeed if the evidence remains as it is in the application for interim relief.

Conclusions

A serious question to be tried

27. In respect to the issue of whether there is a serious question to be tried, counsel for the applicant says that there are a number of serious questions to be tried.

28. Firstly, there is the claim of Sharon Piccolo for equitable contribution from McVeigh arising from the payment of $450,000 on 12 December 2000, to pay out the fully-drawn advance. He says that the effect of the payment, together with the other payment of $500,000, was that the guarantee and indemnity given by Peter Piccolo, supported by the mortgage over his interest in the Hawthorn property, was released or discharged. Consequently, McVeigh received an unencumbered interest and at law and is liable to make contribution to indemnify Sharon Piccolo to the extent she has borne more than her just share.

29. Counsel for the applicant argues that the equitable doctrine of contribution recognises that the guarantor or co-sureties for the same debt or obligation have a common interest or common burden. Accordingly, if one guarantor pays the debt, that guarantor can claim contribution from the other guarantor, because the former has discharged their obligations to the creditor. The principle is founded upon natural justice and is an illustration of the broader principle of unjust enrichment - he referred me to O'Donovan and Phillips, the Modern Contract of Guarantee, third edition at page 615.

30. Mr Tsalanidis further contends that the doctrine of contribution applies wherever one surety has paid or becomes liable to pay more than his or her portion of the debt, and can therefore look at other surety for the excess, and he relies on the authorities of McLean v Discount Finance Pty Ltd (1939) 64 CLR at 328, 336 to 337, and 341, and Mahoney v McManus (1981) 180 CLR at 376, 385 and 387 to 388

("Mahoney's case").

31. Secondly, Mr Tsalanidis' argues that under the terms of the guarantee and indemnity clause, clause 10 in exhibit SDP2B, Peter Piccolo undertook additional obligations, being that of the principal debtor, separately from his obligations as a guarantor.

32. Peter Piccolo therefore stood in the same position as Poole Levy and Appel, being that of a direct borrower from the NAB. Peter Piccolo was therefore a principal debtor to the fully-drawn advance of $950,000.

33. The payment of $450,000 by Sharon Piccolo to the NAB to repay the fully-drawn advance conferred a benefit on Peter Piccolo and consequently his trustee, McVeigh. It was therefore argued that Sharon Piccolo is entitled to be indemnified by McVeigh for the whole of the payment of $450,000. He referred to and relied on O'Donovan and Phillips, the Modern Contract Guarantee, third edition, pages 585 to 586.

34. Counsel for the respondent did not disagree with the law that the applicant relied on to establish her claim, but argued that she did not pay as a guarantor. He argued that there was no evidence of a demand under the guarantee, and that the whole of the applicant's argument was predicated on the basis that there had been a payment by the surety. He says that it is simply not correct and the payment by Mrs Piccolo is a payment on behalf of Poole Levy and Appel. In support of his contention, counsel referred me to McLean's case (1939) 64 CLR 336, and emphasised the argument that flows from the liabilities arising from the guarantee. He also referred me to Mahoney's case and the judgment of Gibbs CJ at page 376 as follows:

"In these circumstances, the learned judges of the Supreme Court correctly considered that the crucial question in the present case was whether the appellant has made payment under the guarantees, or whether the true position was that he had lent money to the company, out of which it had paid off part of its indebtedness. If the company had itself paid its creditors, obviously the sureties would then no longer have been liable for the amount by which the debt of the company had been thus reduced, and the fact that the company had been unable to make the payment by an advance made by a person who happened to be a surety, would not entitle the latter to contribution, since there is no principle of law which requires a person to contribute to an outlay merely because he has obtained a benefit from it."

35. In his reply to this argument, counsel for the applicant indicated that the payment had been made by Sharon Piccolo as guarantor, pursuant to the guarantee mortgage, and he referred me to page 2 of the mortgage, which was exhibit SDP2C, wherein the mortgagor, Sharon Piccolo, agrees with the bank that "the mortgagor will pay the moneys on demand or other than on demand". Counsel argues that this means "payable on demand or by some other means", and the taking out of the instalment loan was "some other means". In support of this I was referred to the letter of Mrs Piccolo from the NAB on 7 December 2000, which was exhibit SDP8, being the affidavit of Sharon Piccolo of 15 October 2001, with SP3 being the letter annexed to the affidavit. The bank's loan was a 10-year monthly instalment, which was accepted by Sharon Piccolo on 10 December 2000.

36. Mr Tsalanidis then again referred me to the headnote of Mahoney's case and pointed out that the court had held that the guarantor had provided the money not as a loan to the company out of which it had paid off part of its indebtedness, but as payment under the guarantee, and he was accordingly entitled to contribution from the other guarantor. The following excerpt from Gibbs CJ judgment at page 378 is also relevant:

"It should be remembered that the doctrine of contribution is based on the principle of natural justice that if several persons have a common obligation they should as between themselves contribute proportionately in satisfaction of that obligation. The operation of such a principle should not be defended by too technical an approach to the question whether a surety has paid the creditor, when he has supplied moneys to the principal debtor for the purpose of making such payment."

37. I am not requested to make findings with respect to these arguments. However, I am satisfied that in all the circumstances there is a serious issue to be tried with respect to Sharon Piccolo's claim for a contribution from McVeigh in respect of the payment made by her as a surety and with respect to the issue she is entitled to be indemnified by McVeigh for the whole of the payment of $450,000 arriving from Peter Piccolo's position as a principal debtor of the fully funded advance of $950,000.

38. The second applicant, Poole Levy and Appel, bases its claim against McVeigh for breach of duty as a trustee arising from the administration of the estate. It is claimed that McVeigh undertook fruitless litigation against the NAB and incurred costs and expenses and derived fees exceeding $500,000. It is claimed that McVeigh declined to have his fees and costs audited. Poole Levy and Appel has incurred substantial interest charges and other costs it seeks against McVeigh.

39. Mr Rodbard-Bean of counsel for the respondent says that this allegation is without substance and there is not enough particulars to make out the threshold issues.

40. Whilst I concede that the material is not extensive I am content that there is sufficient material to give rise to a serious question to be tried.

Balance of convenience

41. In determining the balance of convenience I am encouraged by Mr Tsalanidis to find that the damages in this case would not be an adequate remedy, and that it is appropriate to make an order for an injunction. He referred me to a decision of Hedigan J in Nicholas John Holdings Pty Ltd and Others v ANZ Banking Corporation [1992] VicRp 98; (1992) 2 VR 715 at 723 to 724:

"The authorities do not appear to have settled the question whether the essential test on the balance of convenience is whether damages would provide the plaintiff with an adequate remedy. Some have asked the question whether it is just, in all the circumstances, that the plaintiff should be confined to his remedy of damages: Evans Marshall and Co Ltd v Bertola SA (1973) 1 All ER 992; (1973) 1 WR 349; State Transport Authority v Apex Quarries [1988] VicRp 26; (1988) VR 187; City of Melbourne v Hamas and Co Ltd (unreported, 20 February 1987). It is to be noted that Evans Marshall was decided before American Cyanamid, State Transport v Apex Quarries was a negative stipulation case and Kaye J. in any event formed the view that damages were not an adequate remedy. I dare say that it is almost inevitable that the Chancellor's foot treads the legal landscape yet again in consideration of the balance of convenience in these cases. The estimation of whether the inconvenience and detriment which the plaintiff would be likely to suffer, if denied an injunction would outweigh any injury, inconvenience or detriment which the defendant would sustain if an injunction were granted, ought, it possible to be made on harder-edged considerations as well as the justice of the case, particularly in the case of secured debts. It may well be, as the learned author of J.C.F. Spry, Equitable Remedies, Injunctions, and Specific Performance, 4^TH ED.,PP.375-77 suggests, that particularly in certain classes of damage, eg to land, or special value chattels, or a special fund of money, there has developed some inclination to regard damages as an inadequate remedy".

42. In this case it is argued by Mr Tsalanidis that no prejudice will be suffered by McVeigh by the granting of an injunctive relief. The money held by him will not be lost but preserved.

43. If an injunction were refused McVeigh will apply the amount of $425,000 to meet his fees and expenses. There will be nothing left for the applicants should they succeed at trial.

44. Mr Rodbard-Bean, in the course of his address, raised a number of other issues.

45. He submitted that the injunctive relief sought amounts to a Mareva injunction and that a Mareva injunction should not lie to prevent the payment of debts in the ordinary course of business. In support of that proposition he referred me to the Polly Peck case (1992) All ER at 782:

"As a general principle a Mareva injunction ought not to interfere with the ordinary course of business of the defendant. It is not intended to give the plaintiff security in advance of judgment but merely to prevent the defendant from defeating the plaintiff's chances of recovery by dissipating or secreting away assets. The principle makes the grant of a Mareva injunction against a bank at any rate a bank carrying on a normal banking business very difficult. Mareva injunction ought never to prevent a defendant from paying his creditors their due debts."

46. Mr Tsalanidis says if the proposition is extended to McVeigh it would mean that courts have no proper control over their own affairs to assist those who have come to the court seeking the aid of equity.

47. He further argues that unless the trustee is restrained the substantial claims of the applicants in these proceedings will be unsatisfied and any judgment rendered nugatory.

48. Mr Rodbard-Bean also submitted that the injunctive relief in some ways circumvents the statutory order provided by section 82 of the Bankruptcy Act.

49. The counter argument put by Mr Tsalanidis is that there is no substance to that argument; that the applicant is seeking an injunction in circumstances that the court prescribes as appropriate as an equitable remedy. Mr Rodbard-Bean also submitted that the time delay in the bringing of the claim was to be construed as detrimental. Mr Tsalanidis says that the claim has been brought in appropriate time given that the agreement to transfer the property was not entered in until 18 October when the Supreme Court proceeding was settled and terms of settlement executed pursuant to which Sharon Piccolo agreed to purchase the Hawthorn property for $425,000, and further to those terms of settlement the sum of $25,000 was paid in November of last year and the balance of $400,000 remains to be paid today.

50. Finally Mr Rodbard-Bean submitted that paragraph 9 of the terms of settlement, which is exhibit SDP12, would preclude the granting of an injunction because it would create in effect an equitable obligation to hold the moneys secure.

51. Mr Tsalanidis says that that is not the position; that paragraph 7 of the terms clearly anticipated Sharon Piccolo's claim and she is merely seeking the relief available to her.

52. I have taken all these matters into account in determining that both applicants have established a serious question to be tried, and further, I am satisfied on the balance of convenience that it is appropriate to exercise my discretion to grant an interlocutory injunction. I am satisfied that there will be no prejudice to McVeigh by granting the injunctive relief, and if I refuse there may be nothing left for the applicants should they succeed at trial. Accordingly, I make orders as stipulated above.

I certify that the preceding fifty-two (52) paragraphs are a true copy of the reasons for judgment of Connolly FM

Associate:

Date: 15 January 2002