Abercrombie and Fitch Pty Ltd v Portland Property Holdings Pty Ltd
[2011] NSWSC 517
•25 May 2011
Supreme Court
New South Wales
Medium Neutral Citation: Abercrombie & Fitch Pty Ltd v Portland Property Holdings Pty Ltd [2011] NSWSC 517 Hearing dates: 25 May 2011 Decision date: 25 May 2011 Jurisdiction: Equity Division Before: Windeyer AJ Decision: 1. Notice of motion filed by the defendant on 18 May 2011 dismissed with costs.
2. The oral application for removal of the receiver is dismissed but not so as to prevent a further application being made. Any further motion seeking that order should be filed within seven days.
Catchwords: LAND LAW - caveats - entitlement of second mortgagee to retain caveat Cases Cited: Sarge Pty Ltd v Cazihaven Homes Pty Ltd (1994) 34 NSWLR 658 Category: Interlocutory applications Parties: Abercrombie & Fitch Pty Ltd (plaintiff)
Portland Property Holdings Pty Ltd (defendant)Representation: C D Wood (plaintiff)
T J Brennan (defendant)
Pigott Stinson (plaintiff)
William Chan & Co Lawyers (defendant)
File Number(s): SC 2010/300962
EX TEMPORE Judgment
This is an application by notice of motion that the plaintiff remove caveat No. AF315085 entered against the title to three properties, namely, 7 Deane Street, Burwood; 3 Marmaduke Street, Burwood; and 1 Marmaduke Street, Burwood.
Those three properties are subject to a first mortgage in favour of Perpetual Nominees Ltd ( "Perpetual" ) as agent for Colonial First State Wholesale Pooled Mortgage Fund. Those three properties have been sold by the registered proprietor, Portland Property Holdings Pty Ltd (now Yuen Long Investments Pty Limited) (" Portland "), two of them for $1,400,000 each and the other for $1,500,000.
The contracts for sale are dated 30 November 2010 in respect of 3 Marmaduke Street and 7 Deane Street, and 31 December 2010 in respect of 1 Marmaduke Street. The purchaser in each case is Sky Profit Properties Development Pty Ltd. There has been previous litigation respecting the properties and the rights of the parties but it is not really necessary to go into those details here.
The first mortgagee appointed a receiver and manager to the subject properties pursuant to its rights under its charging documents; that the receiver has presently been withdrawn and the arrangement is that unless the settlement of those sales takes place on 31 May 2011 the receiver will be put back.
The plaintiff in these proceedings entered a caveat against the title to the three properties on 15 February 2010, claiming an estate or interest in the land under a mortgage "securing the registered proprietor's performance of its obligations under a construction contract". While in some ways that may not seem to be a very good or clear explanation of the interest claimed, the mortgage secures whatever monies are due by the defendant to the plaintiffs under the Equity Share Agreement. The documents have not been stamped. The liability would be on the defendant to pay the duty and, therefore, I think it appropriate to accept the undertaking of the plaintiffs to inform the Chief Commissioner of Stamp Duties of the document and the person liable to pay. The undertaking is given by the plaintiffs through their counsel.
There is no doubt that the plaintiffs have an argument which would indicate that there may be a proper basis for the interest which they claim and which would support the caveat. It is not necessary at this stage to determine that on a final basis, but it could not be suggested that this was a claim which was certain to fail and it could not be suggested that this was not a proper issue to be tried on that question.
What has happened is that the defendant company has sold the three properties in breach of a covenant in the mortgage given to the plaintiff under which it is provided that it will not sell the mortgaged properties without consent of the plaintiff. To some extent, as counsel to the plaintiffs put it, the defendant is the wrongdoer and it has brought the consequences of that act on itself.
In circumstances where the Court is satisfied that the caveator may have a proper interest to protect, it would be unusual to order the removal of a caveat unless there were nothing to be gained by it. In general, where there is evidence before the Court which shows that it is certain or reasonably certain that a caveator claiming as second mortgagee will receive nothing from a sale because all monies under the sale would go to the first mortgagee, there would be little purpose in upholding the caveat which would only be preventing a reasonable sale of the mortgaged properties.
If the sale is by the first mortgagee, it can sell irrespective of the caveat. That is not the case here. What the plaintiff says is that it has some reason to think that the sale at $4.3 million is a sale at an undervalue. From the evidence which was given today by Mr Pang, I do not think the Court could be satisfied that there had been any reasonable marketing of the subject property but nevertheless Mr Pang is of the view, as I understand it, that he has sold for a proper price.
The plaintiff has some documents which could not really be described as valuations which express views by agents who might be involved in the sale of the property that its value is greater than $4.3 million. There is a 2009 valuation in the sum of $7,050,000. There are other marketing appraisals by two other agents in May of this year, one of which gives what is described as a lower figure of $6,434,000 and another which gives a lower figure of $11,200,000. There is a further valuation, or draft valuation but not a final one, which Mr Pang had in his possession made on 18 February 2011 which gives a figure of $9,470,000. None of these documents provide any certainty that a Court would find that the sale is at an undervalue, but they do at least give some credence to the claim of the plaintiff that the properties are worth more than the combined price under their contracts for sale.
As a general rule, if all the monies from the sale will go to the first mortgagee in any event, as I have said, there is no purpose in keeping the caveat there and if the monies which would go under the contracts to the first mortgagee together with any additional amount which the plaintiff might establish could be obtained on another sale together would not be sufficient to pay out the first mortgagee, then in the ordinary circumstances the Court would not allow the caveat to continue. Here all moneys owing by Portland under the first mortgage have been repaid but the properties also stand as third party securities for a guarantee by Portland to the same mortgagee, Perpetual, of moneys owing by Oakland Property Holdings Pty Ltd ( "Oakland" ).
Two other properties, namely, 10 Help Street, Chatswood, and a property at Frenchs Forest which are owned by Oakland are mortgaged to Perpetual under collateralised securities. What the plaintiff says is that if a higher price were obtained then its marshalling position against the Help Street and Frenchs Forest properties as a result of the exception to the doctrine of a common debtor which is explained in Sarge Pty Ltd v Cazihaven Homes Pty Ltd (1994) 34 NSWLR 658 would be stronger. It is not clear whether there could be any right of marshalling in the case of sale by the debtor rather than the mortgagee. This was not argued but in general terms the doctrine is enlivened by sale by a security holder.
There is some evidence that those two other properties might have a value of $23 million. If the current contract goes ahead then there would be monies available to reduce the total debt owing by the defendant on the first mortgage due to the collateralisation of securities and its guarantee. The present amount due to the first mortgage is approximately $23 million. Thus, it may be that there would be some monies available to the plaintiff as second mortgagee by virtue of its right to marshal, and if the mortgaged properties are being sold at an undervalue then the value of the right to marshal would be reduced. It is that which is said to give rise to the right to maintain the caveat.
This is a matter which I think is quite difficult, but I have come to the conclusion that the plaintiff is entitled to keep the caveat in force pending a final hearing provided that suitable undertakings as to damages are given. It is accepted that an ordinary undertaking by the plaintiff company would not be of sufficient or real value. In the circumstances, there are two undertakings which have been proffered to the Court and which I am prepared to accept. The first is by Mr Bilal Yassine and his brother Talal Yassine, through their counsel, give to the Court the usual undertaking as to damages.
The second is an undertaking also given to the Court by those two gentlemen through their counsel that if called upon by the defendant or the present mortgagee of the said properties at any time, they will purchase the said three properties for a total figure of $4.5 million unless there is then in existence a contract to sell for more than $4.3 million. That undertaking is given on the basis that the contracts for sale would be upon the same terms, so far as they are appropriate, as the existing three contracts for sale. These two undertakings have been given through counsel who for that purpose has the necessary instructions from Messrs Yassine who are in Court.
It should be understood that it is highly likely as a result of this decision that the first mortgagee will appoint a receiver again and in any event take steps to sell the property exercising its rights under the mortgage. That is something which is understood I think by all parties, but nevertheless the plaintiff is of the view that it may get some benefit if that event does occur and in fact it may be it is such a sale that gives a right to marshal.
The second application was an application that the receivers and managers who were appointed by the plaintiffs to the assets of the defendant company today pursuant to its right under a charge should be removed. In view of what I have said, there is no need or no urgency to remove that receiver at this stage and I would stand that matter over for a short time. It seems likely that the position will be crystallised at least by the end of this month and after that it would be possible, if there is any purpose in it, to pursue the orders there sought which were sought under an oral application which I allowed to be made this morning.
The result of all of this is that the notice of motion filed on 18 May 2011 should be dismissed with costs. If an application for removal of the receiver appointed by the plaintiff is still sought to be made by the defendant then a motion seeking that order should be filed within seven days. The oral application for removal of the receiver is dismissed but not so as to prevent a further application being made.
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Decision last updated: 01 June 2011
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