Supreme Court New South Wales Medium Neutral Citation: Bank of Queensland Ltd v Tsakmakis [2013] NSWSC 164 Hearing dates: 25 February - 1 March 2013 Decision date: 06 March 2013 Jurisdiction: Equity Division - Commercial List Before: Stevenson J Decision: Plaintiff entitled to judgment against third defendant for amount owed to it and for possession of property Catchwords: BANKING - commercial loan facility - default - claim for possession - alleged breach of duty by bank to customer Category: Principal judgment Parties: Bank of Queensland Limited (plaintiff / cross-defendant) George Tsakmakis (first defendant / first cross-claimant) Demmi Jim Spyros Tsakmakis (second defendant / second cross-claimant) Constantine Tsakmakis (third defendant / third cross-claimant) Representation: Counsel: J M White (plaintiff / cross-defendant) D Reid (defendants / cross-claimants) Solicitors: HWL Ebsworth Lawyers (plaintiff / cross-defendant) Emmaus Legal (defendants / cross-claimants) File Number(s): SC 2010/69993 Publication restriction: Nil Judgment Introduction 1The issue in these proceedings is whether Bank of Queensland Limited ("the Bank") is entitled to recover from the defendants: - (1)money allegedly owing to it under a commercial facility executed by each of the defendants; and (2)possession of a property in Hill Street, Tweed Heads ("the Property") pursuant to a first registered mortgage. 2The defendants are the registered proprietors of the Property. 3The first and second defendants are the sons of the third defendant. 4On the fourth day of the hearing, the proceedings between the Bank and the first and second defendants were settled. Those defendants consented to judgment for possession of the Property in favour of the Bank. Various consequential orders were made. Otherwise, the Bank's proceedings, and cross claims made by those defendants against the Bank, were dismissed. 5What remains for consideration is the Bank's claim against the third defendant, Mr Constantine Tsakmakis ("Mr Tsakmakis"). 6In its case in chief, the Bank satisfied the requirements to obtain orders for possession and judgment against Mr Tsakmakis. As Mr White, who appeared for the Bank, submitted, all forensic inquiry in the case was directed to the cross-claim brought by Mr Tsakmakis against the Bank. 7In the course of the trial, Ms Reid, who appeared for the defendants, confined the case put on behalf of the defendants. By the time of final submissions, after the settlement between the Bank and the first and second defendants, the case put by Ms Reid on behalf of Mr Tsakmakis was confined to the 6 issues outlined below, several of which were closely related. Decision 8In my opinion the Bank is entitled to judgment against Mr Tsakmakis for the amount owed to it and for possession of the Property. Mr Tsakmakis's cross-claim should be dismissed. Background The Facility 9On 10 October 2007, the defendants, including Mr Tsakmakis, executed a Commercial Rate Loan Facility ("the Facility") with the Bank. The Facility was for a term of one year with a limit of $3,232,900. 10The purpose of the Facility was to enable the defendants, and Mr Tsakmakis in particular, to fund the construction of a development ("the Development") on the Property to be known as "Circular Vue". The Development was to comprise a penthouse and three units. 11On 24 September 2007, the defendants executed a mortgage in favour of the Bank over the Property ("the Mortgage") to secure their obligations under the Facility. 12There were terms of the Facility as follows: - "1. The Bank is to use the services of the appointed QS acceptable to the Bank to: ... - Complete progressive inspections during the construction period and certify prior to drawing on a cost to date and cost to complete basis. - As a pre-requisite to each progress payment, confirm that all required contractor/subcontractor payments are up to date in terms of contractual arrangements. ... 5. No variation of the building contract without the Bank's prior written consent." 13The Facility expired on 17 October 2008. The Bank agreed to the following extensions: - (a)on 16 October 2008 for 30 days; (b)on 18 November 2008 for four months, to 28 February 2009; (c)on 23 January 2009 to 31 March 2009; and (d)on 19 May 2009 to 31 July 2009. 14There was no obligation on the Bank to agree to these extensions. 15On 7 July 2009, the defendants executed a second facility ("the Second Facility") with a limit of $3,315,000 and a maximum term of three months. The stated purpose of this facility was to facilitate the issue of title, a full refinance of the Facility and the potential marketing of one unit for sale to reduce the Facility balance. 16The effect of the Second Facility was, in practical terms, to make an additional sum of $82,500 available to the defendants, to be used, in part, to pay subcontractors. 17The Second Facility has not been repaid. Approximately $4.098 million is outstanding. The Development 18On 4 October 2007, the defendants entered into a fixed price contract with Clayton Iskov Building Pty Ltd ("the Builder") to construct the Development ("the Building Contract"). The fixed price, or "Guaranteed Maximum Price" was $2,239,361 plus GST, subject to variations. 19The Bank appointed Simon Hanau & Associates Pty Ltd (later known as Red Line Quantity Surveyors Pty Ltd) to be its quantity surveyor on the Development ("the Bank's Quantity Surveyor"). 20Construction of the Development was delayed. There was disagreement between Mr Tsakmakis and the Builder throughout much of the project. Disputes arose from contentious variations to the scope of the Building Contract, and the alleged non-payment by the Builder of subcontractors, and various other matters. 21The Development was completed in about August 2009 (shortly after execution of, and during the term of, the Second Facility). 22Since August 2009 units two and three have, occasionally, been let on a monthly basis. Unit one has remained vacant. 23The present position is that units one and three are vacant. Unit two has a monthly tenancy. Mr Tsakmakis has occupied the penthouse (unit four) since early 2009, before completion. 24Each of the units has been on the market for sale. No sale has been effected. The issues 25In written and oral submissions, Ms Reid stated that the issues raised by Mr Tsakmakis were now confined to the Bank's "failure in its duty" to Mr Tsakmakis in relation to: - (1)variations to the Building Contract; (2)the Bank's "failure to act to replace the Builder"; (3)non-payment to subcontractors; (4)approval of Progressive Draw Downs under the Facility; (5)the execution of the Second Facility; and (6)the Bank's "non-co-operation in assisting" Mr Tsakmakis to sell the units. 26No challenge is made to the mortgage. 27Although Mr Tsakmakis claims, amongst other things, damages in his cross-claim against the Bank, I have not been taken to any evidence of what damage Mr Tsakmakis may have suffered as a result of any of the matters referred to in [25] above. 28Indeed, it did not emerge clearly from Ms Reid's submissions what relief Mr Tsakmakis contended should flow from the six issues to which I have referred. First issue - variations 29Ms Reid referred to the condition of the Facility that there be "no variation of the building contract without the Bank's prior written consent" (see [12] above). 30Ms Reid drew attention to a variation concerning footings for which the Builder contended, submitting that: - "Mr Tsakmakis should never have been required to pay for this variation to the contract price, and the Bank should have upheld his right not to do so." And that: - "...all variations should have been the subject of approval in writing by...Mr Tsakmakis... These in turn should have been approved by the Bank." 31This submission involved, in my opinion, a misapprehension of the significance of the condition in the Facility concerning "variation of the building contract". That condition addressed variations to the Building Contract itself; not variations to the work relevant to the Development (for which the Building Contract made specific provision). I see nothing in the Facility, or in the dealings between the parties, that would impose upon the Bank an obligation to play any role in any dispute between Mr Tsakmakis and the Builder concerning variations to the development, the subject of the Building Contract. 32Ms Reid also submitted that: - "There is not one signed Variation Agreement throughout the entirety of the Court Books, the simple explanation for this being that no variations were ever approved in writing by Mr Tsakmakis or anyone else." 33That submission was contrary to the evidence. There were many examples in the Court Books of written approval given by Mr Tsakmakis to variations submitted to him by the Builder. 34I see no basis for any conclusion that the Bank acted in breach of any "duty" to Mr Tsakmakis so far as concerns variations. Second issue - the Bank's alleged "failure to act to replace the Builder" 35Mr Tsakmakis said that he had suggested to various officers of the Bank that there be a "change of builder". 36Mr Michael Simson, then Manager of Property Finance for the Bank, agreed that Mr Tsakmakis "at some point rang me up directly to ask me to get rid of the builder". 37Mr Simson said: - "I conveyed to [Mr Tsakmakis] that it was not the responsibility for the bank or me to replace the builder and this was a decision for him to make." 38Mr Simson told Mr Tsakmakis that the Bank could not "get rid of the builder" unless it took possession of the site. Mr Simson said, and I accept, that he tried to explain this to Mr Tsakmakis in different ways and that: - "In the end it took me to say you would have to hand the keys to me. And he understood." 39Mr Tsakmakis gave evidence to similar effect and said that Mr Simson had said to him: - "The only way the Bank will change the builder would be if you turn the title over to us." 40Mr Tsakmakis said that his response was to state, emphatically, that he was not prepared to take that step. 41Ms Reid submitted: - "That the Bank did not act on Mr Tsakmakis's stated wish that the builder be changed, even in the form of supporting Mr Tsakmakis's expressed wish to do so, ...amounts to unconscionable, unreasonable and unfair conduct." 42I do not accept that submission. Nor can I see any basis arising out the evidence for a conclusion that the Bank failed in its "duty" to Mr Tsakmakis. In my opinion, Mr Simson's observation that the decision to replace the builder was one for Mr Tsakmakis and not the Bank to make, was correct. Third issue - non-payment of subcontractors 43The Builder made approximately 10 progress claims. Each was accompanied by a statutory declaration that subcontractors had been paid. The Bank's Quantity Surveyor certified to the Bank, in each of its recommendations for the making of progress claims, that it had sighted these statutory declarations. Mr Tsakmakis approved the making of each progress claim as a draw down from the Facility. He knew that the Bank paid each progress claim to the Builder - except for part of the $82,500 referred to at [16] above which, on Mr Tsakmakis's instructions, was paid directly to two subcontractors. 44In relation to one such approval, Mr Tsakmakis gave the following evidence: - "Q: You signed it? A: Yes and I approved it. Q: And you returned it to the Bank? A: Yes. Q: And by doing so, you intended that the bank will use it as evidence of your approval for the drawdown payment for this payment? A: Yes, sir. Absolutely, yes. Q: You knew that that payment would be made to [the Builder]? A: And hopefully will go to the contractors which they've done the work, which I approved. That was an approval of the work done because the work was done." 45The Bank did become aware of Mr Tsakmakis's contention that the Builder was not paying subcontractors. 46On 4 April 2009 Mr Craig Tuckwell, the Owner/Manager of the Tweed Heads South branch of the Bank, wrote to Mr Kevin Ryan, then the Regional Manager Business Management of the Bank: - "The builder is obviously in financial distress and is not passing on our payments to subcontractors. What is [the Bank's] policy in this situation (i.e. making payments when we know the builder is in difficulty and not passing on to subcontractors)? Whose responsibility is it to ensure subcontractors are paid from the money we advance? I would assume it is the builder's not ours or [Mr Tsakmakis's] or even the QS's." 47Mr Ryan replied: - "I can assure you progressive draws are substantiated with a Stat Dec by the builder saying all trades have been paid. I have no reason to question the Stat Dec until your advices re the plumber, however I suspect his account is not that old." 48Ms Reid pointed to the memorandum written by Mr Ryan on 23 June 2009 (shortly before execution of the Second Facility, part of which was used to pay subcontractors) which stated that "[u]npaid builders/contractors are awaiting payment". 49Ms Reid submitted that: - "If the [Bank] had taken notice of [Mr Tsakmakis] when he first began to point out to them that subcontractors were not being paid by the builder, the project would not have suffered as it did as far as building time was concerned." And: - "The Bank's behaviour in all the circumstances was unconscionable, unreasonable and unfair." 50I cannot see any basis in the evidence for that submission. There may well have been a problem with payment of subcontractors (although the evidence suggests this was only brought to the Bank's attention in April 2009; well after the Facility had expired and shortly before further funds were advanced under the Second Facility which did result in two subcontractors being paid). Throughout the period of construction Mr Tsakmakis had approved the making of the progress payments by the Bank, knowing that they were being paid to the Builder. As he said, "hopefully" funds were being passed on to subcontractors. 51But it was no part of the Bank's function to ensure this happened. There is simply no basis to conclude that the Bank's conduct was unconscionable, unreasonable or unfair (let alone in breach of a "duty" owed by it to Mr Tsakmakis). 52In any event, there is no evidence of whether, and if so, the extent to which, the Project "suffered" by reason of non-payment of subcontractors. Fourth issue - approval of progress payment draw downs 53Ms Reid accepted that Mr Tsakmakis had approved all of the progress payment draw downs but submitted that: - "... he had no choice but to do so. If he had not approved the drawdowns the project would have come to a halt...The situation wherein the Bank had full control over the actual payment out to the builder placed Mr Tsakmakis in an even weaker position on the question of drawdowns...No matter how many times Mr Tsakmakis complained to the Bank about variations and non-payment of subcontractors, the Bank insisted that the Builder continue being paid. The Bank obviously wanted the project completed at whatever cost to [Mr Tsakmakis]. This amounted to unconscionable, unreasonable and unfair conduct." 54Once again, I cannot see any basis in the evidence for coming to such a conclusion. There was no evidence that the Bank "insisted" that the Builder be paid. What the Bank did was to comply with Mr Tsakmakis's written instruction to pay the Builder. Nor is there any evidence that the Bank "wanted the project completed at whatever cost". 55It may well be that if Mr Tsakmakis had not approved the draw downs "the project would have come to a halt". But that was not a result of any breach of "duty" by the Bank or any other conduct of the Bank. Fifth issue - the signing of the Second Facility 56Ms Reid submitted: - "Mr Tsakmakis gave evidence a number a times during cross-examination that he did not want to sign the [Second Facility]. He was of the view that its terms were harsh and that the Bank's charges were unfair. However, Mr Tsakmakis was under economic duress at the time and the Bank was in a far stronger bargaining position, and he signed the facility agreement as a result." 57The claim of "economic duress" was not pleaded and arose, for the first time, in Ms Reid's final written submissions. 58For that reason, this claim should be rejected. 59In any event, there is no evidence of "economic duress". As I have said, the Facility expired on 17 October 2009 and was extended on a number of occasions, ultimately to 31 July 2009. The practical effect of the Second Facility was to extend, until October 2009, the time by which Mr Tsakmakis was obliged to repay the funds advanced by the Bank, and to enable subcontractors and some arrears of interest to be paid. 60If Mr Tsakmakis was subject to any pressure to sign a Second Facility it came from his son, Mr George Tsakmakis (the first defendant) and not the Bank. 61Mr George Tsakmakis gave evidence that, in 2009, Mr Tsakmakis was not speaking to him (or his brother - the second defendant) "due to family arguments" and that, following a conversation with Mr Tuckwell, he contacted Mr Tsakmakis and said: - "Explain to me what the hell is going on up there. I've been told you have run out of money, how did this happen, you are going to get yourself into trouble. Sign the paperwork and finish your project before you lose everything." 62Mr Tsakmakis had been seeking additional funds for some time prior to his execution of the Second Facility. He actively sought additional monies from the Bank. As Mr White submitted, the plain alternative facing Mr Tsakmakis was the Bank's refusal to further extend the Facility and to enforce its rights as mortgagee. The sixth issue - the Bank's alleged "non-cooperation in assisting" Mr Tsakmakis to sell the Property 63Again, this complaint was not pleaded and was first raised in Ms Reid's final written submissions. It should be rejected for that reason. 64In any event, there is no substance to the complaint. 65Ms Reid's submission was that the Bank engaged in "unconscionable, unreasonable and unfair" conduct because: - "Mr Tsakmakis...made significant attempts to sell the apartments at 20 Hill St. When he requested that the Bank inform him of mortgage release conditions, he received no reply from the Bank and no co-operation." 66Mr Tsakmakis said that in about August or September 2009 (by which time the Project was complete) he received two or three offers for purchase of one or more of the units. He informed Mr Ryan of these offers but did not receive a response. 67However, Mr Tsakmakis agreed that, since January 2010 he had "not taken any instruction from anyone at the bank" concerning the sale of the units. 68The evidence of Mr Tsakmakis's attempts to sell the properties (especially the penthouse, where Mr Tsakmakis has resided since August 2009) suggests that those efforts were desultory and at an unrealistically high price. Conclusion 69In my opinion there is no substance in any of the complaints made by Mr Tsakmakis about the Bank's conduct. 70Mr Tsakmakis's cross-claim should be dismissed and judgment should be entered in favour of the Bank. 71I invite the parties to bring in short minutes to give effect to these reasons. ********** 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 06 March 2013