A Saraya Nominees Pty Ltd v National Australia Bank Limited
[2014] VSC 524
•9 OCTOBER 2014 (Revised 16 October 2014)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
S CI 2014 05449
| A SARAYA NOMINEES PTY LTD in its own right and as trustee for the A Saraya Family Trust & ORS | Plaintiffs |
| v | |
| NATIONAL AUSTRALIA BANK LIMITED | Defendant |
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JUDGE: | DIXON J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 9 OCTOBER 2014 |
DATE OF RULING: | 9 OCTOBER 2014 (Revised 16 October 2014) |
CASE MAY BE CITED AS: | A SARAYA NOMINEES PTY LTD v NATIONAL AUSTRALIA BANK LIMITED |
MEDIUM NEUTRAL CITATION: | [2014] VSC 524 |
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INJUNCTIONS – Interlocutory injunction – Urgent application to restrain imminent mortgagee’s auction of real property – Power of sale properly exercisable – Applicants unable to arrange refinance and seeking further time - No serious question to be tried – Delay by applicants – No prospect or immediate repayment and no offer to secure outstanding balance – Balance of convenience favours lender - Application refused.
PRACTICE AND PROCEDURE – Individual director applies to represent corporate plaintiff – Not legally qualified - Tenth plaintiff a director of first plaintiff whose property being sold – Tenth plaintiff seeks no relief – Application by tenth plaintiff to represent company on application and in proceeding – Tenth plaintiff given leave to represent first plaintiff on application only.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | ||
| For the Defendant | Mr J. Mereine | K&L Gates |
HIS HONOUR:
Tomorrow at 12 noon a property at 355 Bell Street, Preston is to be auctioned. The property is in the possession of the defendant, the National Australia Bank. The registered proprietor of the property is the first‑named plaintiff in the proceeding A Saraya Nominees Pty Ltd. On Saturday, 11 October 2014 a property at 46 Austin Crescent, Pascoe Vale is to be auctioned by the National Australia Bank. The registered proprietor of that property is another plaintiff, Mohamed Toufic Bahouche.
Today, at approximately midday, ten plaintiffs made application in the Practice Court to restrain the auctions.
Those plaintiffs have this morning issued a generally endorsed writ. The plaintiffs allege that on 29 January 2014, the plaintiffs and the Bank, signed a ‘Forbearance and Repayment Deed’. The plaintiffs plead that the Bank breached clause 6A of that Deed by failing to provide a pay‑out figure without default interest to permit them to complete refinancing as contemplated by the Deed. The plaintiffs allege that statements that were provided to the plaintiffs' finance broker, Peter Sangster, included default interest. The plaintiffs’ contend that by reason of that breach they were unable to refinance. They seek the following relief:
(a) The Bank be restrained from selling any properties until further order of the court.
(b) The Bank provide the pay‑out figure, excluding any default interest, within 14 days of this order.
(c) The Bank provide six months from the date of the court order to refinance all of the plaintiffs' existing facilities.
(d) The Bank remove from all databases, records, credit agencies any defaults of the plaintiffs forthwith.
The plaintiffs' summons is supported by an affidavit sworn 9 October 2014 by a director of the first‑named plaintiff, Mrs Aysha Saraya. Mrs Saraya states that she is a director of the first, second, third and fourth plaintiffs and is herself the tenth plaintiff. Further, she has a power of attorney for her son Mohamed Toufic Bahouche, who is the eighth plaintiff. She states that she is authorised to make this affidavit on behalf of all of the plaintiffs. Her affidavit merely exhibits a bundle of documents said to be relevant to the proceeding.
That bundle of documents consists of a copy of the Deed dated 29 January 2014 and an email chain between the Bank’s representatives and Mr Sangster, by which communication over 100 bank statements were provided to Mr Sangster. Copies of those bank statements comprise the bulk of the exhibited bundle of documents. The bundle included an email dated 10 September 2014 from Vincent Gao, on behalf of the Saraya Group and Bahouche Group, directed to ISL International 2008 Limited in China. This email puts an offer to settle with the Bank for the mortgaged properties by way of a payment of $1 million within 14 days and the remaining outstanding amount of approximately $3.5 million no later than 30 days after the first payment. It refers to some six properties. Unsurprisingly, the offer did not interest the Bank. The remaining documents in the bundle are historical company extracts for some of the corporate plaintiffs.
The Bank was informally notified that this application was about to be made and attended by counsel. However, when the application was called on the defendant had not been served with the writ, summons or Mrs Saraya's affidavit.
Further, the plaintiffs did not appear by a legal representative. Mrs Saraya sought leave to represent the plaintiffs on the application.
The application was stood over until approximately 4 pm to enable the Bank to review the plaintiffs' material and prepare an affidavit in response, which it did. At that time I also indicated to Mrs Saraya that it was highly desirable that she arrange for legal representation when the application resumed, stating that I would permit her to provide me with sufficient information to enable me to determine whether it was, in all of the circumstances of the case, appropriate that the plaintiffs be represented by a legally unqualified individual.
When the hearing resumed, the Bank filed and served an affidavit of Stephen Peter Hume, the Bank’s solicitor. There are a number of exhibits to that affidavit. A copy was provided to Mrs Saraya who had a brief opportunity to peruse it.
Mr Hume's affidavit establishes that the Bank is the proprietor of a first registered mortgage over each of the Preston and Pascoe Vale properties. The existence and validity of that mortgage is not in dispute.
Mr Hume has also deposed to the circumstances of default. Demands and default notices under s.76 of the Transfer of Land Act, 1958 were served by the Bank on the registered proprietors; A Saraya Nominees Pty Ltd on 23 August 2012 and Mr Bahouche on 11 September 2012. Neither the fact of the defaults, nor that the power of sale has become exercisable, has been put in dispute.
It appears that, in March 2013, the plaintiffs lodged a complaint against the Bank with the Financial Ombudsman service. Following on that complaint and the response of the Financial Ombudsman, in January 2014, the plaintiffs and the Bank entered into the Deed. Clause 3 of the Deed provides that the plaintiffs each acknowledged and agreed that the amount owing, which at the time of entry into the deed was $6,474,868, was secured by the securities more particularly referred to in the Deed. Those securities included the mortgages over the Preston and Pascoe Vale properties. The deed had been negotiated, I was informed, over a period of some months prior to its formal execution during a period when the plaintiffs were attempting to refinance their debts.
The Deed gave the plaintiffs approximately two months to satisfy the Bank in writing that they had unconditional refinance approval for an amount sufficient to repay the ‘pay‑out figure’ in full. The obligation was to provide such notice of unconditional refinance approval by 31 March 2014. The refinance agreement was, under the Deed, to settle by 30 April 2014.
The Deed defined pay‑out figure as, ‘the amount owing but excludes any default interest charged to facilities. For the avoidance of doubt, interest will accrue on the facilities at the normal contractual rates and this forms part of the pay-out figure’. The term ‘amount owing’ was also defined to mean, ‘All moneys outstanding at any time under the facilities, and includes costs and any further amounts outstanding under the facilities or securities, including enforcement costs and under this document.’
The plaintiffs were unable to satisfy the obligations they assumed by the Deed. On the application, Mrs Saraya asserted from the floor of the court that the plaintiffs were unable to refinance because the amount secured by the deed was unexpectedly increased. Mrs Saraya told me that the plaintiffs had sold five properties netting approximately $500,000 all of which was paid to the bank. She asserted that the pay‑out figures that were provided must have included default interest because the amount that was to be paid out in April of 2014 was considerably above the sum that they expected to have to pay.
In support of that contention, Mrs Saraya took me to various bank statements in the bundle of documents, (Exhibit AS2), and drew my attention to various entries in the statements described as interest charges. In the statements were descriptions of the applicable interest rate as 17.22 per cent, which Mrs Saraya said was the default rate.
In September 2013, the Bank provided to the plaintiffs' solicitors indicative pay‑out figures. This information appears to have been provided following a negotiation involving the Financial Ombudsman that lead the Bank to agree to accept pay-out of the loans without claiming interest at the default rate. The Bank agreed to provide the Saraya Group with statements confirming the pay‑out figures on that reduced basis, reflecting interest charged to the loans recalculated at the standard contractual interest rates.
The spread sheet that was then provided showed the pay‑out figures calculated on that reduced basis, providing that the total owing on all facilities was $6,210,226.74. This figure is approximately $260,000 less than the figure later recorded in the Deed, which presumably reflects an increased pay-out by the accrual of interest at the contractual rate between September and January. However, what seems clear is that for the purposes of securing refinancing the plaintiffs had been provided with the total pay‑out figure as at September 2013 calculated according to the agreement that had been brokered, and a pay-out figure in January 2014 that had increased by accrual of contractual interest during that quarter.
Although the refinance dates passed without refinance occurring, the Bank did not immediately act to enforce its rights.
On 15 May 2014, Mr Sangster reported to the Bank that a refinancing deal was possible with Arab Bank, who still required a copy of one statement. Mr Sangster gave particulars of what was required. On 19 May 2014, Mr Sangster acknowledged receipt of the required statement and said, ‘the latest figures have gone to the credit manager in Sydney today and it is expected he will authorise release of the loan letter today or, at the latest, tomorrow and I am authorised to send you a copy.’
The bank did not receive an unconditional loan approval and on 27 May 2014 the Bank’s representative, Mr Masters, informed Mr Sangster that the Bank would be re‑instigating recovery action against the borrowers and guarantors unless an acceptable unconditional letter of offer was provided by close of business on 31 May 2014. Mr Masters stated that the Bank had held off taking this action despite the agreed milestones under the Deed having passed, but was not prepared to hold off acting on the breach of the Deed beyond 31 May, irrespective of how close the plaintiffs were to receiving a formal refinancing approval.
On 30 May 2014, Mr Sangster replied, stating that the plaintiffs were still in negotiations with Arab Bank. The Arab Bank had officially informed the plaintiffs that it would not accept two properties as securities, properties which the plaintiffs had understood during negotiations would have been acceptable to a refinancer. Arab Bank’s refusal to accept those two properties as securities supporting refinancing meant that there would not be sufficient funds to pay out the Bank.
It is significant that the Arab Bank’s reasons for their refusal to provide a refinancing package sufficient to pay out the Bank are confined to the unsuitability of two security properties and not to the issue of the quantum of the pay-out figure because of interest accruing at default rates, as suggested today by Mrs Saraya.
In the context of seeking to restrain the forthcoming auctions, the delay of the plaintiffs in seeking to allege and assert their rights is significant.
On 26 June 2014 and 30 June 2014 respectively, the Bank changed the locks of the Preston and Pascoe Vale properties and entered into possession. I was informed that these properties were tenanted. Mrs Saraya disputed that possession had been obtained as early as June 2014, stating that the tenants did not complain about being unable to gain access to the properties until much later. She initially suggested September, and then later suggested August. I am not persuaded that a tenant would have delayed complaining to his or its landlord that the locks had been changed. I am satisfied that from at least late June or early July 2014, the plaintiffs were aware that the Bank had taken possession of the properties.
On 12 September 2014, Mr Masters gave notice to the plaintiffs of the scheduled auction dates for each of the properties. On 25 September 2014, the Bank’s solicitors wrote to the plaintiffs' solicitors noting their breach of the terms of the Deed, their failure to have provided evidence of unconditional refinance approval, and to have paid out the debt by the date of that letter. Those solicitors recorded the prior occasions when they had given notice of the Bank’s intention to reinstitute recovery action and stated again, as a formal notice, that the plaintiffs remained in default of the Deed and that the Bank would continue with the enforcement of the facilities and the securities.
Notwithstanding these matters, it was not until approximately 24 hours before the first of those auctions that the plaintiffs have come to this court seeking assistance. The urgency of the application might have, but did not prejudice the Bank. The plaintiffs application was poorly supported by affidavit material and presented by Mrs Saraya, who made up for advocacy skill with emotional appeal. It appears that, until quite recently, the plaintiffs were assisted by solicitors but no solicitors were available to help with this application.
The principles to be applied on this application were identified by the High Court in Australian Broadcasting Corporation v. O'Neill.[1] I summarise those principles as follows:
(a)The plaintiff must demonstrate a prima facie case. This requirement is to be understood as to whether there is a serious question to be tried as to the plaintiff's entitlement to relief, not whether it is more probable than not that the plaintiff will succeed at trial. The sense in which the test is understood is that the plaintiff must prove prima facie a sufficient likelihood of success to justify in the circumstances preservation of the status quo pending trial. In context, it must show that it has a putative legal or equitable right in respect of which final relief is sought which will justify the restraint sought. The requisite strength of the probability of ultimate success depends on the nature of the rights asserted and the practical consequences likely to flow from the interlocutory orders sought.
(b)The injury which the plaintiff is likely to suffer must be one for which damages will not provide an adequate remedy.
(c)The balance of convenience must favour the granting of an injunction. The balance of convenience requires a consideration of the relevant matters favouring or militating against the granting of an injunction and will necessarily involve a consideration of the strength of the plaintiff's claim, assuming that a serious issue has been identified. In Victoria, this consideration is further clarified by the decision of the Court of Appeal in Bradto Pty Ltd v. State of Victoria.[2] The court must, in determining whether to grant an interlocutory injunction "take whichever recourse appears to carry the lower risk of injustice if it should turn out to have been wrong in the sense of granting an injunction to a party who fails to establish his right at the trial or in failing to grant an injunction to a party who succeeds at the trial".[3]
[1](2006) 227 CLR 57, [19] (Gleeson CJ and Crennan J), [65]–[83] (Gummow and Hayne JJ). See also Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 and Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, [8]–[13].
[2](2006) 15 VR 65.
[3]Bradto Pty Ltd v State of Victoria; Tymbook Pty Ltd v State of Victoria (2006) 15 VR 65 [35]. See also Magna Alloys and Research Pty Ltd v Coffey [1981] VR 23.
There may be other discretionary considerations which militate against granting an injunction, and on this application there are two relevant matters. The first is the delay of the plaintiffs in seeking relief, which was unexplained. The second consideration is the rule in Inglis:[4]
The general rule applicable is that when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument, failing payment into court of the amount sworn by the mortgagee as due and owing under the mortgage, no restraint should be placed by order upon the exercise of the respondent mortgagee's rights under the mortgage.
[4]Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161, 169.
Although the rigid application of this rule has at times been questioned,[5] the circumstances in which that has occurred are not here present.
[5]Bayblu Holdings Pty Ltd & Anor v Capital Finance Australia Limited, (2011) 279 ALR 166, Joiner v Firstmac Finance Pty Ltd [2013] VSC 633, Pearl Beach Property Administration Pty Ltd v Wisewoulds Nominees Limited [2014] VSC 113.
As I understand what Mrs Saraya was trying to put to me from the floor of the court and from her material, the serious question that the plaintiffs seek to raise in this proceeding is that, in breach of the Deed, the Bank failed to give them the proper pay‑out figure, being the amount owing excluding default interest charged to the facilities, and it was by reason of that breach that the plaintiffs could not refinance.
For the following reasons, I have not been persuaded that there is a serious question to be tried in relation to those issues.
The plaintiffs' affidavit does not directly address or establish either proposition. Rather, the evidence suggests that pay‑out figures were given on a basis that excluded the interest calculated at the default rate and provided a proper calculation as agreed by the Deed. The Bank demonstrated, by reference to several bank statements within the plaintiffs' bundle, a recalculation of the amount owing to it on the basis of the applicable contractual interest rate had been carried out and provided to the plaintiffs agents. These statements showing that recalculation were for the 2013 calendar year, during which the interest rate varied between 5.68 per cent and 5.18 per cent.
Further, the correspondence set out above demonstrates that the plaintiffs were belatedly seeking to satisfy their obligations under the Deed by obtaining an unconditional refinancing offer from Arab Bank, and the Bank was indulging the attempt. That correspondence discloses that the plaintiffs failed to obtain refinance because Arab Bank considered two of the security properties offered to be unacceptable. There is no evidence that the plaintiffs were unable to refinance the loans because of any breach by the defendant of clause 6B of the Deed. The evidence established that the Bank did give the plaintiffs a pay‑out figure calculated at the contractual interest rate.
As I have already noted, there is no dispute about the validity of the mortgage, there is no dispute that there has been a default or that the power of sale has become exercisable. The assertion that the plaintiff has been unable to refinance because of conduct by the defendant in breach of the Deed is not made out. I am not satisfied on the material presented on this application that there is a serious question to be tried in the proceeding.
The relief sought by the plaintiffs indicates the circumstances in which they now find themselves. The plaintiffs are effectively seeking a further period, essentially by way of indulgence, to continue to seek refinance. The bank is entitled to refuse to further indulge the plaintiffs.
The plea for further time made emotionally by Mrs Saraya from the floor of the court cannot raise a serious question warranting the intervention of this court in a regular commercial transaction. It is not uncommon for borrowers who find themselves in the position of these plaintiffs, having reached the end of the line, to make an urgent application of this sort. However, it is in my view clear that the plaintiffs have been on notice since the end of May 2014 that recovery action was recommencing and there have been unmistakable signs of its progress throughout that period.
The effect of the delay in bringing this application before the court has been that the application has not been brought by the plaintiffs' legal advisers. There is no explanation as to why that is so.
The effect of the court’s procedural rules is that corporations do not have the same unconditional right of access to the court as do natural persons. The rule of practice is that appearances on behalf of a corporation are limited to persons legally qualified and admitted to practice as lawyers. This rule is not based on technicalities. It is based on considerations central to the proper administration of justice and the protection of the position of all parties to the litigation. The sound policy reasons why a corporation ought to be represented by a lawyer have been discussed in the authorities.
In Worldwide Enterprises Pty Ltd v Silberman & Anor,[6] J Forrest J summarised the relevant circumstances that may warrant a company being permitted to take a step in a proceeding without being represented by a legally qualified person. Some of those circumstances are relevant today.
[6][2009] VSC 165.
I have already noticed the manner in which the case has progressed to the time that the application is made. On the one hand, it might be said that the extreme urgency of the application justifies it being presented to the court by an unqualified practitioner, but I am satisfied that the circumstances of extreme urgency are the work of the plaintiffs alone.
The manner in which the case might proceed in the future is a different question but I do not understand the application to be that Mrs Saraya seeks to represent the plaintiffs beyond this application today. If I am wrong about that, I refuse leave for the plaintiffs to be represented generally in the proceeding by Mrs Saraya. The application has been presented on the basis of the urgency of the application, which urgency dissipates once the auctions are conducted.
The third issue is the complexity of the issues involved in the case. The disadvantage to the court and the litigants in permitting an unqualified person to advocate on complex issues has been demonstrated on this application. Mrs Saraya said on a number of occasions that there are other documents that she does not have at court that might have, in some way, influenced the particular matter under discussion. This demonstrates the importance of ensuring that the issues in a complex case are understood and managed by a person who is able to marshal the appropriate evidence to make the application. It is simply not possible for a busy Practice Court hearing an application of the utmost urgency to allow parties to make an application in a piecemeal manner, by adding to the material as it appears or becomes relevant. When a case is not conducted in an ordinary and responsible fashion without a solicitor, there will often be costs consequences for the other party. There can also be a negative effect on the court's resources.
In this case, Mrs Saraya has not sought to stand the matter down to seek to put further or other material before the court, but has argued her application upon the material that she had with her in court.
I gave Mrs Saraya limited leave to explain the plaintiffs’ position and the nature of this application not simply because of the urgency of the application that was being presented to the court, but also because the merits of the situation are relevant to the discretion to be exercised.
Bearing all of these matters in mind, I would confirm the grant of leave for Mrs Saraya to represent the first plaintiff on this application but only to the extent of representing the first plaintiff today on this urgent application. In other words, there is no ongoing grant of leave and leave expires with the making of my order.
Finally, returning to the balance of convenience, the references to tenants in these properties permits an inference that they are investment properties. There is no evidence to suggest otherwise. It will be the case that if the plaintiff is successful in the proceeding, damages will be capable of assessment and will be an adequate remedy.
Returning to the Inglis principle, the plaintiffs do not offer to bring the pay‑out amount, or indeed any sum, into court. There is no unconditional offer of refinance of any kind brought before the court. The plaintiffs express the hope that with the benefit of at least three, and preferably six, months such an offer might be obtained. In the meantime the defendant must accept the risk that the sum owed to it is increased by the accumulation of interest even at the standard contractual rate and would be shut out of exercising its rights.
Bearing all of these considerations in mind, refusing to grant the injunction carries the lower risk of injustice if it should turn out that I am wrong.
For all of these reasons the application is refused and I order that the first, eighth and tenth‑named plaintiffs pay the costs of and incidental to the application on an indemnity basis.
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