Agro Corporation Pty Ltd v Corio Sand Pty Ltd - [2019] WASC 113

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   AGRO CORPORATION PTY LTD -v- CORIO SAND PTY LTD [2019] WASC 113
CORAM:   MASTER SANDERSON
HEARD:   18 FEBRUARY 2019
DELIVERED          :   4 APRIL 2019
FILE NO/S:   CIV 2781 of 2018
BETWEEN:   AGRO CORPORATION PTY LTD
Plaintiff

AND

CORIO SAND PTY LTD
Defendant

Catchwords:

Practice and procedure - Plaintiff's application for summary judgment - Turns on own facts

Legislation:

Nil

Result:

Summary judgment entered for the plaintiff

Representation:

Counsel:

Plaintiff	:	Mr A P Hershowitz
Defendant	:	Mr T M Clavey

Solicitors:

Plaintiff	:	Robertson Hayles Lawyers
Defendant	:	Sparke Helmore Lawyers

Case(s) referred to in decision(s):

Nil

MASTER SANDERSON:

This is the plaintiff's application for summary judgment. A statement of claim was annexed to the writ of summons and it pleads the plaintiff's claim in the following way. By a share sale agreement made in writing on or about 23 June 2010 between the plaintiff, the defendant, Avila Shareholdings Pty Ltd and ATA Construction Pty Ltd ('Share Sale Agreement'), the plaintiff agreed to loan the sum of $1,500,000 to the defendant ('the Loan'). The plaintiff says it was an express term of the Share Sale Agreement the plaintiff would have the right to lodge a mortgage over property in Nambeelup as security for the Loan. (Paragraph 4 of the statement of claim refers to 'the defendant' having the right to lodge a mortgage. That is clearly a misprint).[1]
[1] Paragraphs 3 and 4 of the statement of claim annexed to the writ of summons filed 11 October 2018.
The defendant duly executed a deed of mortgage on or about 5 July 2010. By par 7 of the statement of claim the plaintiff pleads the terms of that mortgage. Relevantly, the plaintiff says it could call for repayment of the amount outstanding on 364 days' notice to the defendant (cl 7). It is also pleaded that if the defendant was in default in payment of any amount due under the terms of the mortgage then the full amount of the mortgage would, without demand, become due and payable forthwith (cl 8).[2]
[2] Clauses 7 and 8 of Mortgage dated 5 July 2010 annexure RT‑4 to the affidavit of Richard Kam Weng Tang filed 12 November 2018.
By letter dated 28 May 2015 the plaintiff served on the defendant written notice requiring the defendant to repay the Loan no less than 364 days from the date of the letter.[3] The plaintiff pleads between November 2015 and July 2016 the defendant paid the plaintiff the sum of $150,000 as part repayment of the Loan. As at 31 May 2016 the amount outstanding was $1,350,000. The defendant paid the plaintiff a further sum of $50,000 on or about 21 October 2016 leaving a balance of $1,300,000. The plaintiff says a notice of default was served on the defendant on 13 March 2018 but repayment of the outstanding $1,300,000 has not been paid. The plaintiff seeks judgment for the outstanding sum and vacant possession of the Nambeelup property.
[3] Annexure RT‑5 to affidavit of Richard Kam Weng Tang filed 12 November 2018.
In broad terms, the defendant agrees with the facts alleged in the statement of claim. However, it is the defendant's position there are further facts and circumstances which give rise to a triable issue. What follows is a summary of the defendant's position taken from written submissions filed 15 February 2019.
The defendant says that rectification of the mortgage is available to the defendant and can be pursued by counterclaim. The defendant says the issue of entitlement to rectification is a matter for trial and not to be dealt with summarily. As an alternative, the defendant says that any right conferred on the plaintiff by the mortgage merged into the terms of a deed made in about October 2016. The defendant says the plaintiff's rights under the mortgage are only revived upon termination of the deed of discharge and release. The defendant says the deed of discharge and release has not been terminated pursuant to its terms, such that any rights under the mortgage have not been revived. The defendant says that this point constitutes a triable issue and summary judgment should therefore not be granted.[4]
[4] Paragraphs 3 and 4 of the defendant's submission filed 15 February 2019.
In making these submissions counsel referred to certain background facts which are to be found in the affidavit of Daniel Joseph Avila sworn 21 December 2018 and filed in opposition to this application.
The defendant accepts that pursuant to the Share Sale Agreement the plaintiff obtained a contractual right to take a mortgage over the property. The defendant says prior to the Share Sale Agreement, ATA Construction and Avila Shareholdings held all the issued share capital in the defendant. Pursuant to the Share Sale Agreement ATA Construction and Avila Shareholdings agreed to sell to the plaintiff 255,417 shares in the defendant. The plaintiff thereby acquired approximately 39% of the issued capital in the defendant. The consideration given by the plaintiff comprised the purchase price ($1,000,000) for the shares. The purchase price was included in the defined term 'Invested Capital'.
Invested capital was defined to mean the amount of $3,600,000 consisting of:
(1)the purchase price for the shares of $1,000,000;
(2)the loan amount of $2,500,000; and
(3)working capital payable by the plaintiff of $100,000.
The 'Loan Amount' is also a defined term. It means $2,500,000 consisting of $1,500,000 payable by the plaintiff and $1,000,000 payable by a company named Superland Corporation Pty Ltd. At the completion of the share purchase the plaintiff was required to pay the balance of the purchase price, its portion of the Loan Amount and $100,000 for working capital.
The defendant says there were certain material terms of the Share Sale Agreement which are relevant to this application. First, the plaintiff, ATA Construction and Avila Shareholdings intended to share the management of the defendant (cl 15(a)). Second, the defendant was to extract sand and sell sand from the property and to develop the property into special rural, or village development, real estate to maximise the possible yield (cl 15(b)(i) and (ii)). Third, it was anticipated that sand extraction would be completed in a three year period and during that period the board of directors of the defendant would authorise planning for the housing development and would use their best endeavours to cause the housing development to be completed within a further two years (cl 15(b)(ix)). Fourth, the plaintiff was to receive 100% of the profits of the defendant until it had recovered its share of the 'Invested Capital' which comprised the purchase price, Loan Amount, and working capital (cl 15(c)(i)). Fifth, the plaintiff's loan amount was to be applied to existing loans owed to the Commonwealth Bank and the balance was to be paid to the defendant to satisfy a credit loan account of Avila Shareholdings (cl 15(d)(i) and (ii)). Sixth, the plaintiff had the right to lodge a mortgage over the property as security for the loan made to the defendant for $1,500,000 (cl 23(a)). Finally, when the Invested Capital had been repaid in accordance with cl 15 the mortgage would be discharged (cl 23(d)).[5]
[5] Share Sale Agreement annexure RT‑3 to the affidavit of Richard Kam Weng Tang filed 12 November 2018.
Pursuant to these clauses the defendant says that under the Share Sale Agreement the plaintiff was an investor. It alleges the entitlement to be repaid the purchase price and its loan amount of $1,500,000 was from the profits earned in pursuit of the common endeavour between the four parties. The corporate vehicle for their common endeavour was the defendant. The defendant says that pursuant to the Share Sale Agreement no date was fixed for repayment of the Invested Capital including the plaintiff's share of the Loan Amount.
It is the defendant's position that on the proper construction of the Share Sale Agreement the parties did not intend the terms of the mortgage granted in favour of the plaintiff would confer rights that were more extensive than the parties' obligations as expressed in the Share Sale Agreement. This argument is to the effect that the rights of the plaintiff to recover its share of the Loan Amount was confined to profits made by the defendant. In other words, this was what is sometimes known as a 'non‑recourse' loan. The defendant says that as the mortgage does not reflect that arrangement, it is liable to rectification. Before dealing with that issue I should complete the factual matrix upon which the defendant relies.
By April 2011, investigations were underway in relation to the development of the land as a park home site. To progress the matter, so as to realise a profit, it was necessary to obtain a development approval which required the defendant to engage consultants. Mr Avila says he could not secure the agreement of the plaintiff for the defendant's shareholders to provide additional working capital to proceed with the development application.
In or about October 2016 the parties entered into a deed entitled 'Deed of Settlement' ('the Deed') as a consequence of the plaintiff and Superland threatening to assert rights under the mortgage.[6] Under the Deed the defendant agreed to pay $50,000 to Superland upon execution of the Deed. That sum was paid. The defendant also agreed to pay $3,500,000 to the plaintiff and Superland by 31 March 2017. The defendant says cl 8 of the Deed provided that if the defendant failed to perform its payment obligations then the plaintiff and Superland were entitled to terminate the Deed. Upon termination the plaintiff was entitled to exercise all its rights in respect of the mortgage. The defendant's written submissions note that by cl 10 of the Deed time was of the essence although it is not entirely clear why that clause is highlighted.
[6] Deed of Settlement as annexure RT‑6 to affidavit of Richard Kam Weng Tang filed 12 November 2018.
The defendant acknowledges it did not perform its obligations under the Deed. However, on the defendant's case, that does not mean the plaintiff is entitled automatically to exercise its rights under the mortgage. In his written submissions counsel for the defendant put the position this way (par 21):
The right of termination in clause 8 is expressed in terms of a liberty to terminate. It involves the exercise of an election by [the plaintiff] and Superland. As a matter of proper construction of the deed, an election to terminate requires communication of the election to terminate to [the defendant].
In his affidavit Mr Avila says that as a former director and secretary of the defendant he conducted negotiations in relation to the Share Sale Agreement. He says he understood the mortgage was a formality and consistent with the terms of the Share Sale Agreement. He says he was not aware there was an independent obligation to repay on the part of the defendant and that it was his understanding repayment of any monies would be from the cash flow of the defendant. Based upon that evidence, it was the defendant's position the mortgage did not reflect the parties' true intentions as expressed in the Share Sale Agreement and that rectification is open. Counsel made the point both in his written and oral submissions that the question was whether the defendant's position was arguable, not whether it would ultimately be successful at trial.
In answer to Mr Avila's affidavit the plaintiff relied on an affidavit of Abdul Halim Bin Che Din affirmed 22 January 2019. Effectively Mr Bin Che Din takes issue with Mr Avila's version of events. Given this is a summary judgment application I have to assume the version of events most available to the defendant. So while I acknowledge there is a factual dispute on this issue I will approach the matter on the basis of the evidence of Mr Avila.
But even on that basis, there is, in my view, no reasonable defence to this claim. Any fair reading of the Share Sale Agreement leads to the conclusion the defendant was obliged to repay $1,500,000 to the plaintiff. There is nothing in the terms of the Share Sale Agreement which could lead to the conclusion it was non‑recourse. If that was the case the mortgage would simply have made no sense. Furthermore, the defendant entered into the Deed. That Deed anticipated payment by the defendant to the plaintiff – it was not predicated on the basis there had been some change in the arrangement between the parties. The Deed is simply inconsistent with any alleged non‑recourse agreement. The defendant's arguments on this point cannot be accepted.
Assuming cl 8 of the Deed required notice to be given by the plaintiff to the defendant of termination of the Deed, that was done by a letter from the plaintiff's solicitors to the defendant dated 12 March 2018.[7] There can be no doubt that notice was effective for all purposes and the defendant thereafter became obliged to repay the outstanding amount to the plaintiff.
[7] Annexure RT‑7 to the affidavit of Richard Kam Weng Tang filed 12 November 2018.
For these reasons the plaintiff is entitled to summary judgment in this matter. On publication of these reasons I will hear the parties as to the form of orders and as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DG
Associate to Master Sanderson
4 APRIL 2019