New South Wales Supreme Court CITATION : Muriti v Prendergast [2005] NSWSC 922 HEARING DATE(S) : 29,31/08/05, 01,12/09/05 JUDGMENT DATE : 13 September 2005 JUDGMENT OF : Burchett AJ DECISION : Report of expert adopted subject to variations and deletions. CATCHWORDS : Practice and Procedure - reference of questions to expert - Part 72 of the Supreme Court Rules - transitional provisions of Civil Procedure Act - reference to continue under Part 72 - report adopted with variations and certain questions referred back. Civil Procedure Act 2005 LEGISLATION CITED : Uniform Civil Procedure Rules 2005 Supreme Court Rules 1970 Vincent Carl Muriti (first plaintiff) Keanlong Pty Limited (second plaintiff) PARTIES : John Francis Prendergast (first defendant) Rolcross Pty Limited (second defendant) Worthbrook Pty Limited (third defendant) FILE NUMBER(S) : SC 5094 of 2004 COUNSEL : Mr J W J Stevenson SC, Mr G Curtin, Ms N C Bearup (plaintiffs) Henry Davis York (plaintiffs) SOLICITORS : The first defendant appeared in person and (by leave) for the other defendants LOWER COURT JURISDICTION : - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BURCHETT AJ 13 September 2005 5094 of 2004 VINCENT CARL MURITI AND KEANLONG PTY LIMITED V JOHN FRANCIS PRENDERGAST, ROLCROSS PTY LIMITED AND WORTHBROOK PTY LIMITED JUDGMENT 1 These reasons for judgment concern yet another stage in the progress, much interrupted by litigation, of a complex commercial transaction towards completion. When the agreement initiating the transaction was made on 4 August 2004, it was contemplated by its clause 13 that completion would take place "as soon as practicable" and, subject to preparation of documents and rearrangement of securities, "prior to 30 September 2004". Almost twelve months later, and after a specific performance suit, a rectification suit, an application for leave to rescind for repudiation and various applications for declaratory and other relief, the date of completion seems still to be receding like a traveller's weary horizon. As the facts have already been recited in two detailed judgments, one delivered by White J on 11 April 2005 and the other by myself on 2 June 2005, I shall not repeat them here, except to say what is essential for an understanding of the nature of the present issues. 2 Subject to the rectification relief granted by White J, which did not concern any of the matters now before me, and some further terms agreed in connection with the specific performance proceeding, the core agreement between the parties is that of 4 August 2004 to which I have already referred. That agreement was called "Heads of Agreement". It provided the terms on which Messrs Prendergast and Muriti and entities controlled by them should separate their respective interests in a Mercedes Benz dealership known as "Marshalls Motors", a motor vehicle repair business known as "Perfect" and various properties associated with these businesses. The object was to leave the businesses in the hands of Mr Muriti and Keanlong Pty Limited, a company controlled by him, and the real estate in the hands of Mr Prendergast and entities controlled by him, Rolcross Pty Limited and Worthbrook Pty Limited, subject to leases to enable the businesses to be carried on at their existing locations. It was envisaged that at completion there should be a process of setting off but also substantial sums should be paid in cash. 3 It is convenient that I should divide into separate sections my discussion of the particular issues that now arise. (a) An aspect of the agreement, in respect of which some dispute developed early in the history of the matter, was the form of the leases to be entered into. After some debate, the parties decided to refer for the decision of an expert, being the solicitor Margaret C Hole, those issues which arose, in respect of the drafting of the leases, from their agreement that the clauses to be inserted, other than those they had specified, should be "Normal commercial terms". Subsequently, when further disputes developed in respect of various matters of detailed conveyancing practice, I made on 25 May 2005 an order pursuant to Part 72 Rule 2 of the Supreme Court Rules referring to Ms Hole a number of additional questions. On 27 June 2005 she furnished her report under Part 72, and the question arises under Rule 13 of that Part whether the report should be adopted and what orders I should make in respect of it. I should note that an earlier report in relation to a number of aspects of the form of the leases had been made by Ms Hole on 24 November 2004, one important aspect of which was the subject of a separate question raised before me as to which separate reasons will be delivered. The first question which arises now is whether the present proceeding, and any further step to be taken by Ms Hole, should continue to be governed by Part 72 of the Supreme Court Rules, 1970 or, now that the Civil Procedure Act, 2005 and the Uniform Civil Procedure Rules 2005 have come into effect, should for the future be governed by those Rules. Section 6 (3) of the Civil Procedure Act gives effect to Schedule 6 in which are to be found transitional provisions and, in particular, clause 5 dealing with pending proceedings. By clause 5 (1) the Uniform Rules apply to a proceeding commenced before the commencement of the Civil Procedure Act, but they do so subject to sub-clause (2) of that clause. Under sub-clause 2, the Court "may make such orders dispensing with the requirements of the uniform rules in relation to the proceedings, and such consequential orders …, as are appropriate in the circumstances". In my opinion, it would be appropriate, the reference having been made under Part 72 of the old Rules, that it continue to be dealt with under those Rules. I shall order accordingly. It is then necessary to consider the adoption of the report of 27 June 2005 pursuant to Part 72 Rule 13. It has been pointed out in the course of argument that there appear to be a number of errors of the nature of typing errors in the report. I accept that this is so and that the errors set out in clause 2 (a) of the short minutes of order submitted to me should be identified and corrected as is there done. I also note that in paragraph 3 (2) of the report an opinion is expressed as to whether a particular issue dealt with in the earlier report dealing with the settlement of the form of the leases should be reopened. That is a matter which has been fully argued before me and in respect of which I am to deliver judgment. Therefore, the opinion in the present report on that matter should simply be deleted and the matter should be resolved in accordance with the decision of the Court. Another small change which the plaintiffs seek, if the report is to be adopted, relates to paragraph 3 (4) where reference is made to outgoings including land tax and council and water rates. A statement is made (as regards the adjustments required at settlement): "Outgoings are required to be paid in accordance with the leases are those as set out in the Second Schedule to the Leases." This sentence, of course, is not grammatical. The word "that" should be inserted after the opening word "Outgoings". Also, since outgoings may not be outstanding at settlement but, indeed, may be prepaid, the sentence should be qualified by the addition after the word "paid" of the words "so far as they are outstanding". I shall order accordingly. (b) A more significant matter is to be found in paragraph 3 (3) of the report in which, under the heading "Vendor Exit Duty/Stamp Duty", Ms Hole discusses the need for the provision of stamped transfers. Having done so, she adds: "The matter of an incoming mortgagee is for the transferee. The mortgages to the existing mortgagee(s) would need to be discharged and a discharge of mortgage handed over at settlement. In this matter the transferor would be responsible for obtaining the discharge of the mortgage in so far as that party, as mortgagor, is concerned. The transferee as a registered proprietor would need to obtain the relevant discharge of the remainder of the liability to permit the incoming mortgagee to receive a full discharge of a prior encumbrance. As the transferor would be transferring the properties to the transferee, in the absence of a pre agreement permission to transfer subject to a mortgage the mortgage 9or [sic] mortgage relating to the indebtedness of the transferor would not be shown as a prior encumbrance." After a reference to the need for access to the certificates of title to allow registration of the transfers, Ms Hole adds a further comment: "(ie of the part for which the transferor is responsible). In the event that there is a new mortgagee then the relevant discharge obtained on behalf of the transferee in respect of the transferees [sic] indebtedness together with the discharge (partial) of the transferors [sic] indebtedness would be handed to the incoming mortgagee together with the certificate of title." And finally, there is a note: " Certificate of Title – If mortgage remaining then mortgagee holds the title, transferee is responsible for partial discharge. If mortgage being fully discharged then each discharging mortgagor is responsible for obtaining the discharge of their [sic] part of the mortgage." For the plaintiffs, it is pointed out that these comments are really otiose, since this part of the report is not dealing with the topic of encumbrances. Perhaps for that reason, the comments appear to have been made per incuriam . In fact, an examination of the Heads of Agreement shows that certain mortgages were not intended to be discharged at all. Recital (e) identifies six properties in Parramatta and Alexandria as being "the Partnership Properties" and recital (f) states: "JFP [ie Mr Prendergast] and VCM [ie Mr Muriti] have agreed to separate their respective interests in Marshalls, Perfect and the Partnership Properties on the terms of this Agreement." Clause (9) subclause (a) then provides: "(a) Keanlong [Keanlong Pty Limited] will sell and Rolcross [Rolcross Pty Limited] will buy from it all of the right, title and interest of Keanlong in each of the Partnership Properties … for a price of $3,600,000 which will deem [ scil be deemed] to have been paid by Rolcross and received by Keanlong on completion of the transactions contemplated by this Agreement by virtue of clause 5." Clause (5) (in clause 5 (b) (ii)) contains a provision as to the $3,600,000 and "the sale of Keanlong's interest in the Partnership Properties to Rolcross pursuant to clause 9". There is, in clause 9, a subclause (b) providing for the delivery of a form of transfer, and that "pending completion neither Keanlong nor Rolcross will without the consent of the other enter into any agreement or do any act, matter or thing which would prejudice the rights of the other in respect of the sale and purchase transactions referred to in this clause". That seems consistent with a transfer of right, title and interest which is not to have its value at the date of the agreement reduced by the incurring of some new charge. It is also consistent with a transfer of right, title and interest which may leave identified existing obligations in place. Also clause 14 (b) provides: "Each of the parties will use reasonable endeavours to procure the release of guarantees given by VCM to ANZ Banking Group Limited in respect of the Partnership Properties on or as soon as practicable after completion of the transactions contemplated by this Agreement". In the context of these provisions, the plaintiffs contend that clause 16 (c) (i) and (ii) should be understood as clearly indicating that the relevant transfers will be subject to the existing mortgages to Australia and New Zealand Banking Group Limited which will be taken over so as to bind the purchaser of each of the Partnership Properties. Clause 16 (c) provides: "Each party which is the vendor of assets in any transaction contemplated by this Agreement warrants to the party which is the purchaser of those assets that now and at completion: (i) it is the legal and/or beneficial owner of those assets and has title to those assets; (ii) the assets are not now and will not on completion be subject to any encumbrance, liability or third party right which would attach to the asset or bind the purchaser other than mortgages to ANZ Banking Group Limited over the Partnership Properties; … " In my opinion the plaintiffs' submissions should be accepted. The comments of Ms Hole concerning the discharge of mortgages, which do not contain the necessary qualification, are therefore not only not relevant to the topic being dealt with in that part of the report where they are to be found, but are also incorrect. The Australia and New Zealand Banking Group Limited mortgages are not intended to be discharged and the protection of the purchaser of each property falling within the definition of the Partnership Properties is to be found in clause 9 (b). It will be necessary, in the orders to be made in respect of the report of Ms Hole, to provide accordingly. I note that my conclusions, arrived at from my reading of the agreement and upon the arguments presented at the hearing, are consistent with declarations 3 and 4 made by White J in this matter on 11 April 2005 at paragraph 200 of his judgment. (c) Although until very recently Mr Prendergast and the defendant companies were represented by a succession of solicitors in relation to the agreement and the various disputes, at the hearing of the present matter Mr Prendergast appeared in person and sought leave to represent the defendant companies himself as a director. That was not opposed, and I gave leave. However, shortly before they ceased to act for the defendants, the firm of Phillips Fox, as the solicitors then acting for the defendants in the matter, indicated to the plaintiffs' solicitors, Henry Davis York, that certain further items not dealt with in Ms Hole's report should be remitted to her. The plaintiffs' solicitors have expressed their agreement with that course, and have sought an order for the referral of these matters, all of which could be described as questions appropriate for consideration in relation to the final performance of the conveyancing requirements of the transaction. I consider that it is appropriate that these issues be referred back to Ms Hole, and that this be done, by virtue of the transitional provision to which I have already referred, pursuant to Part 72 Rule 13 of the Supreme Court Rules 1970. (d) Machinery orders are also sought in the short minutes which have been submitted to me on behalf of the plaintiffs, and I am prepared to make those orders subject to a small variation of date for action specified in them. In addition, a declaration is sought in respect of the matter of the mortgages to the Australia and New Zealand Banking Group Limited, a declaration which it follows from what I have already said that I should make. I adopt the report of Ms Hole dated 27 June 2005 subject to the variations, deletions and remittals specified in the short minutes of orders and I make the other orders set out in those short minutes. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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