AI Property Investments v National Funding Group
[2014] VSC 315
•27 June 2014
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
S CI 2014 1007
BETWEEN:
| AI PROPERTY INVESTMENTS PTY LTD (ACN 163 353 777) (Under External Administration) and ANTONIO ISKAFF | Plaintiffs |
- and -
| NATIONAL FUNDING GROUP PTY LTD (ACN 161 412 255) PALKIR PTY LTD (ACN 158 616 132) | Defendants |
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JUDGE: | DIGBY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10-12 and 20 June 2014 |
DATE OF JUDGMENT: | 27 June 2014 |
CASE MAY BE CITED AS: | AI Property Investments & anor v National Funding Group & ors |
MEDIUM NEUTRAL CITATION: | [2014] VSC 315 |
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CONTRACT ‑ Sale of commercial property ‑ Loan Agreement and subsequent related Deed ‑ Status and effect of terms of Deed ‑ Specific performance of Deed ‑ Whether plaintiffs in breach of Deed ‑ Relief sought under Competition and Consumer Act 2010 (Cth) s 20 and s 232 and s 243 and Australian Securities and Investment Commission Act 2001 (Cth) s 12CA, s 12CB, s 12GD and s 12GM ‑ Alleged breach of contract of Sale ‑ Failure to remove Real Estate Board.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiffs | Mr A K Panna QC | Basilone Legal |
For the Defendants | Mr J L Evans | Nelson McKinnon Lawyers |
HIS HONOUR:
Background – Urgency
In about May 2013 the first plaintiff purchased a commercial property at 1048-1060 Mount Alexander Road, Essendon (“the property”).
The first plaintiff entered into a Loan Agreement with the defendants and, to secure the defendants’ advance of $2,600,000, the property was also mortgaged to the defendants.
In about August 2013 the first plaintiff breached the Loan Agreement with the defendants.
In about late October 2013 the defendants took possession of the property.
In late October 2013 an estate agent’s “For Sale” board was erected on the property seeking expressions of interest from the public in the purchase of the property.
Between November 2013 and 20 December 2013 the first plaintiff negotiated a refinancing of the Loan Agreement with the defendants. In the same time frame the first plaintiff and the defendants also entered into a Deed of Settlement (the Deed) pursuant to which the first plaintiff was to settle the repayment of its loan by close of business on 31 December 2013.
The first plaintiff did not settle the repayment of the loan under the Loan Agreement on 31 December 2013.
On 3 March 2014, the defendants entered into a contract to sell the property to a third party, Penbury Lodge Pty Ltd, for $3,700,000.
The terms of the Contract of Sale dated 3 March 2014, provide that if the vendor is restrained or prohibited from completing the Contract of Sale, it may bring the contract to an end, without any liability to the purchaser, save as to the return of the purchaser’s deposit. In this regard, Special Condition 42 of the Contract of Sale of 3 March 2014, inter alia, provides that if the vendor is restrained or prohibited from completing the contract by injunction, caveat or otherwise, the vendor may, at its option, rescind the contract and repay all moneys, and it will not be further liable to the purchaser.
The purchaser under the Contract of Sale dated 3 March 2014 has been notified of these proceedings and has chosen not to participate whilst the plaintiffs and the defendants litigate the matter.
The scheduled settlement of the subsequent purchase of the property by Penbury Lodge Pty Ltd is now imminent.
Accordingly, the plaintiffs and the defendants submit that there is an urgent need for the Court to determine this proceeding as soon as possible.
Relief Sought by the Plaintiffs
The plaintiffs seek:
(i)A Declaration that the Deed is valid and enforceable and that the Deed be specifically performed.
(ii)Orders restraining the defendants and their agents from completing the sale of the property to Penbury Lodge Pty Ltd, or any other person.
(iii)A declaration under the Australian Consumer Law (“ACL”) and/or Australian Securities and Investment Commission Act 2001 (Cth) (“ASIC Act”) that the defendants’ conduct, as set out in [30] and [31] of the Amended Statement of Claim, is unconscionable.
(iv)An injunction under the ACL or ASIC Act restraining the defendants and their agents from selling the property.
(v)An order under the ACL or ASIC Act enforcing the settlement contemplated under the Deed, and consequential orders.
Relief sought by the Defendants
The defendants simply seek to have the plaintiffs’ claims dismissed, and obtain any necessary consequential orders upon dismissal.
The Facts
In more detail the relevant facts are as follows.
On 29 May 2013 the first plaintiff, AI Property Investments Pty Ltd (“AI”), entered into a loan agreement with the defendants by which the defendants would provide a loan of $2,600,000 to the first plaintiff (“the Loan Agreement”) (Court Book “CB“ 44).
The first plaintiff provided a mortgage (“the mortgage”) as security for the loan. The mortgage was over the property at 1048-1060 Mount Alexander Road, Essendon, Victoria, more particularly identified in Certificate of Title Volume 08082 Folio 413 and Volume 09105 Folio 051.
The mortgage was granted on 3 June 2013. The loan term was for 3 months from the date of the loan. The interest rate was at the higher rate 6% per month and the lower rate, 3% per month. The first plaintiff was charged a total of $97,200 by the defendants for various costs and charges in relation to the loan and mortgage (CB 86).
The second plaintiff, Antonio Iskaff, executed a guarantee and indemnity in respect of the first plaintiff’s liability to the defendants under the Loan Agreement.
The loan term expired on 3 August 2013. The first plaintiff did not repay the loan at that date.
On 24 October 2013 the defendants served a Default Notice dated 22 October 2013, demanding repayment of the loan within 7 days, failing which the defendants would be entitled to exercise their power of sale in respect of the property (CB 108).
In late October 2013 the defendants took possession of the property.
On about 28 October 2013 an estate agent’s “For Sale” board (“the Board”) was erected on the property seeking expressions of interest from the public in the purchase of the property.
On about 19 November 2013 the first plaintiff threatened to commence legal proceedings against the defendants, seeking orders that the mortgage and the Loan Agreement were void (CB 159).
On 20 November 2013, the first plaintiff executed a loan agreement and mortgage prepared by MFH Australia Pty Ltd (“MFH”) for the refinancing of the loan (CB 112-152).
The offer from MFH was for the sum of $3,190,000, for a 2 year period, at an interest rate of 8.25% per annum. This was substantially less than the interest payable by the first plaintiff under the loan with the defendants.
Between 19 November 2013 and 18 December 2013, the parties had various discussions and negotiations which ultimately led to the execution of the Deed (CB 173).
The terms of the Deed included :
3. Settlement
3.1Subject to clauses 3.2 and 3.3 below, the Borrower agrees to pay to the Lenders the sum of $3,250,000 (Settlement Sum) in the manner outlined in clause 3.2 in full and final satisfaction of all of the Lenders’ Claims in the dispute (including any Claims for interest and legal costs) and otherwise connected with the Loan Agreement;
3.2Subject to clause 3.3 below, the Settlement Sum shall be made to the Lenders on or before the close of business, 31 December 2013 (Settlement) or such other time as the parties may agree in writing;
3.3Upon the Settlement Sum being made to the Lenders by the Borrower, the Lenders shall, at Settlement, simultaneously provide to the Borrower the following:
(a)Duplicate Certificates of Title Volume 8082 Folio 413 & Volume 9105 Folio 051;
(b)Duly Executed Discharge of Mortgage in respect to mortgage number AK396988W;
(c)Duly executed PPSR Release and undertaking to amend registration; and
(d)copy of signed Notice of retirement of Receivers and Managers;
3.4 The Lenders agree to:
(a)forthwith instruct the real estate agent to remove the existing estate agents board from the premises within 48 hours of exchange of this Deed;
(b)use their best endeavours to remove all advertising material regarding the sale of the Property from all forms of media upon the execution of this agreement; and
(c)forthwith instruct the Receivers to lodge electronically with ASIC the Notice of retirement referred to in clause 3.3(d) of this Deed immediately after Settlement.
The plaintiffs executed the Deed and provided a copy of it to the defendants’ solicitors on 18 December 2013 and the defendants provided a copy of the signed counterpart of the Deed, executed by them, to the plaintiffs’ then solicitors, on 20 December 2013.
In breach of clause 3.4 of the Deed, the defendants failed:
(a)forthwith to instruct the real estate agent to remove the Board from the property within 48 hours of exchange of the Deed; and
(b)to use their best endeavours to remove all advertising material regarding the sale of the property from all forms of media upon execution of the Deed.
In about December 2013 the first plaintiff obtained “gap funding“ finance of $150,000 from one Colin Holyoak. The plaintiff asserts that as part of Colin Holyoak’s agreement to provide his $150,000 loan he sought Mr Iskaff’s assurance that the Board would be removed. (Affidavit Holyoak 24/3/14 [8] and Affidavit Iskaff 7/3/14 [23]).
On 23 December 2013 Colin Holyoak, however, withdrew his consent to providing the agreed “gap funding” of $150,000 for the settlement on 31 December 2013 because the Board was not removed by 22 December 2013.
MFH was otherwise able to provide its agreed loan advance of $3,190,000 to the first plaintiff by 31 December 2013.
The first plaintiff, at that time, was not able, from resources then available to it, to provide the “gap funding” needed to pay the settlement sum of $3,250,000 by 31 December 2013.
On 31 December 2013, the first plaintiff notified the defendants of its inability to make payment of the settlement sum on 31 December 2013 and requested further time to settle. The defendants refused to agree to any extension of time (CB 191-193).
On 7 January 2014, MFH withdrew its offer to lend (CB 197).
By 22 January 2014, the plaintiffs had received an indicative letter of offer of refinance (to be secured by a mortgage over the property) from CEG Capital and Equity Group Direct Securities Pty Ltd for the sum of $3,275,000 (CB 202).
On 22 January 2014 the plaintiffs notified the defendants that they had obtained an alternative source of finance and would be able to pay the settlement sum at a mutually convenient time (CB 200).
On about 24 January 2014, the defendants’ solicitors sent a letter dated 24 January 2014 to the plaintiffs’ then solicitors and stated, in effect, that their clients refused to agree to accept the settlement sum in discharge of the mortgage and refused to agree to a new settlement date under the Deed. The defendants did not agree to extend the time for compliance with clause 3.1 of the Deed to permit the first plaintiff to tender the settlement sum after 31 December 2013 (CB 211).
On about 29 January 2014, the first plaintiff obtained another indicative offer of finance, this time from Credit Solutions Group and in the sum of $3,220,000 (CB 216).
On 18 February 2014 the first plaintiff asked the defendants to proceed to settlement on the basis of the Deed and informed them that they could expect to settle within 30 days of the date of the letter (CB 222).
On 19 February 2014, the defendants’ solicitors refused to agree to settle on the terms of the Deed and informed the plaintiffs that they would accept service of any process (CB 227).
On 3 March 2014, the defendants entered into a contract to sell the property to a company called Penbury Lodge Pty Ltd for the sum of $3,700,000 (CB 802).
On 6 March 2014, the plaintiffs commenced these proceedings, and sought to enjoin the defendants from exercising their power of sale as mortgagee, or from completing any contract of sale.
On 26 March 2014, the first plaintiff lodged a caveat on the title to the property (CB 448), claiming an estate in fee simple as the registered proprietor, and asserting that the mortgage was void.
The plaintiffs’ Summons seeking to restrain the sale of the property by the defendants was first returnable on 27 March 2014. On that date, the plaintiffs’ then solicitors Kiatos & Co. were given leave to withdraw and the plaintiffs were not legally represented.
On 7 April 2014 the Court made orders restraining the defendants from completing any sale of the property until 24 April 2014 and made further directions for the filing of material.
Issues
The plaintiffs filed a List of Issues for determination, dated 13 June 2014. The defendants did not cavil with the framing of the plaintiffs’ issues. The issues identified were as follows.
Issue 1
In circumstances where the defendants admit they breached clause 3.4 of the Deed, was such breach a cause of the first plaintiff’s inability to pay the settlement sum of $3,250,000 by 31 December 2013?
Issue 2
Was the obligation on the first plaintiff to make the payment of $3,250,000 by 31 December 2013, under clauses 3.1 and 3.2 of the Deed, dependent upon the prior performance by the defendants of clause 3.4(a) of the Deed, in that non-performance of clause 3.4(a) might validly entitle AI not to perform?
Issue 3
The answer to Issue 2, leads to two related issues:
(a)If the first plaintiff was entitled not to pay on 31 December 2013, was it entitled to demand that the defendants perform the Deed and accept payment of the settlement sum at a later date, when the first plaintiff was in a position to remedy its inability to pay caused by the defendants’ breach?
(b)If the first plaintiff was obliged to pay on 31 December 2013, was it nevertheless entitled to demand that the defendants perform the Deed at a later date, when the first plaintiff was in a position to remedy its inability to pay caused by the defendants’ breach?
Issue 4
This issue, identified by the defendants, is whether the plaintiffs were or are in a position to perform their obligations under the Deed.
Issue 5
In circumstances where the defendants breached clause 3.4 of the Deed, was the defendants’ conduct in refusing to accept payment of the settlement sum at a time after the 31 December 2013 and the sale of the property to a third party, unconscionable conduct under ss 20 and 21 of the ACL and/or alternatively ss 12CA and 12CB of the ASIC Act.
Issue 6
What, if any, relief the plaintiffs are entitled to in light of issue 5.
The Submissions
Plaintiffs’ Submissions
The status and nature of clause 3.4 of the Deed: Intermediate or innominate terms
The plaintiffs argue that clause 3.4 of the Deed is in a category of terms that are classified as “innominate” or “intermediate” terms that are neither essential nor inessential, but capable of operating as either, depending on the gravity of the effect of a breach.
The plaintiffs cite the High Court’s decision in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd[1] as authority for the contention that when considering innominate and intermediate terms, courts take “account of the nature of the contract and relationship it creates; the nature of the term; the kind and degree of the breach; and the consequences of the breach for the other party”.
[1](2007) 233 CLR 115.
The plaintiffs contend that the effect of the defendants’ breach of clause 3.4 was so serious that it deprived the plaintiffs of the benefit of the Deed and caused its inability to settle.
The first plaintiff contends that the defendants breached clause 3.4 of the Deed, by failing or neglecting to instruct the real estate agent to remove the Board from the property within 48 hours of the exchange of the Deed, and by not using best endeavours to remove all advertising material regarding the sale of the property from all forms of media upon execution of the Deed. The first plaintiff asserts that this caused its “gap funding“ lender Colin Holyoak, to withdraw his loan offer of $150,000 on or about 23 December 2013. The first plaintiff says that because Mr Holyoak’s loan offer of $150,000 was withdrawn the first plaintiff could not settle with the defendants on 31 December 2013.
The first named plaintiff says that, at all material times, it was ready and willing to perform the terms of the Deed.
The alleged breach of clause 3.4, the plaintiffs argue, meant they could not settle or tender the purchase price. The plaintiffs assert that they sought to mitigate their loss by seeking refinance. The plaintiffs argue that the defendants’ refusal to settle after 31 December 2013 is therefore in breach of the Deed.
The plaintiffs seek specific performance or a mandatory injunction enforcing their rights under the Deed so as to complete the settlement with the defendants. They argue damages are not a satisfactory remedy and seek specific performance as a party at all material times ready and willing to perform the Deed and to settle.
Relief against Forfeiture
The plaintiffs contend that in the circumstances they are not in breach of the Deed as a result of not settling to date.
The plaintiffs argue that if, however, the court deems that they were in breach, they should be relieved of the consequences of such breach.
The plaintiffs rely on the High Court’s decision in Legione v Hateley[2] concerning relief against forfeiture, in which Mason and Dean JJ stated that the fundamental principle according to which equity acts, is that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct.
[2](1983) 152 CLR 406 at 444.
The plaintiffs argue that in not accepting the settlement sum and rather seeking to enforce a higher amount ($4 million), the defendants acted unconscionably.
Time not of the essence
The plaintiffs say that because time is not of the essence under the Deed, their endeavours to defer settlement so as to seek further finance, did not constitute a breach of Deed.
Estoppel
The plaintiffs rely both on common law estoppel and equitable estoppel as a defence to the defendants exercising the power of sale.
The plaintiffs argue that the defendants also have breached their implied obligation to act in good faith in the circumstances.
The plaintiffs contend that the wrongful actions of the defendants have deprived them of the benefit of the Deed. Each party, they say, should perform their duties so that both parties can benefit from the Deed.
Unconscionable Conduct
The plaintiffs further argue that in refusing to accept payment of the settlement sum in full satisfaction of the first plaintiff’s liability under the mortgage to the defendants and the second plaintiff’s liability under the guarantee and indemnity, the defendants have engaged in conduct, in trade or commerce, that in all the circumstances, is unconscionable “under the unwritten law from time to time” within the meaning of s 20 of the ACL and s 12CA of the ASIC Act.
The plaintiffs’ pleaded case in this regard is that:
PARTICULARS
The Defendant have refused to accept the settlement sum under the Deed and to discharge the mortgage in respect the First Plaintiff’s property and the Second Plaintiff’s guarantee of the First Plaintiff’s liability to the Defendants in respect of the mortgage debt, in circumstances where the Defendants breached their obligation under clause 3.4 of the Deed and were the primary cause of the First Plaintiff’s failure to pay the settlement sum on 31 December 2013.
The Defendants have thereafter demanded payment of a sum allegedly owed under the mortgage in excess of the settlement sum and have asserted a right to sell the property to a third party and pay to themselves a sum in excess to the settlement sum.
The plaintiffs also contend that the defendants’ conduct in refusing to accept payment of the settlement sum in full and final settlement of the plaintiffs’ liabilities, was conduct in trade and commerce and was in all the circumstances unconscionable in contravention of s 21 of the ACL and/or s 12CB of the ASIC Act.
The plaintiffs say they will suffer loss and damage unless the defendants are restrained from exercising their power of sale under the mortgage.
Good Faith
The plaintiffs also argue that an implied term of good faith arises in relation to the Deed. The plaintiffs say that the implied term requires each party to do whatever is reasonably necessary to enable the other party to obtain the benefit of the Deed and the defendants by their conduct have breached that implied term of good faith.
Defendants’ Submissions
The defendants contend that in simple summary terms, the plaintiffs’ case is that the defendants’ (admitted) breach of clause 3.4(a) of the Deed caused the first plaintiff to be unable to pay the sum required at settlement by 31 December 2013, namely $3,250,000. In the result, the first named plaintiff contends that it is entitled to require the defendants to accept payment of that amount in exchange for a discharge of the defendants’ mortgage over the property.
The defendants submit that clause 3.4(a) of the Deed relating to the removal of the Board obligated the defendant only to instruct that the Board be taken down, and not to take the Board down.
The defendants submit that clause 3.4(a) does not amount to a warranty or a stipulation which is interdependent on the provisions of the Deed which required the first plaintiff to settle by 31 December 2013.
The defendants submit that if the plaintiffs’ construction of clause 3.4(a) was what the parties intended by clause 3.4(a), that clause would have been framed as such.
The defendants argue that communications prior to settlement show no explicit importance being given by the plaintiffs to the Board being removed. They contend that the term in clause 3.4(a) that the defendants instruct that the Board be removed was not ever considered critical to the Deed transaction and was not identified as such by the plaintiffs or in the Deed, when properly understood.
The defendants point out that during the course of the subject transaction to 31 December 2013 the plaintiffs mentioned only the entity MFH as the provider of funds to the first plaintiff. Mr Holyoak and his “gap funding” were not mentioned by the plaintiffs.
The defendants also submit that it is the plaintiffs’ burden to show that MFH were ‘ready and willing’ to provide the $3.1 million, and that Mr Holyoak removed his offer to provide funds because of the non-removal of the Board at the property.
The defendants also submit that it is necessary for the first plaintiff to demonstrate that it was not able to replace Mr Holyoak’s “gap funding” of $150,000.
The Key terms of the Deed
The Deed (Exhibit “AI-8” to the Affidavit of Antonio Iskaff sworn 7 March 2014) had the stated purpose of settling the earlier existing disputes between the plaintiffs and the defendants in respect of the loan and the defendants’ right to exercise a power of sale under the mortgage.
The terms of the Deed included:
3. Settlement
3.1Subject to clauses 3.2 and 3.3 below, the Borrower agrees to pay to the Lenders the sum of $3,250,000.00 (“Settlement Sum”) in the manner outlined in clause 3.2 in full and final satisfaction of all of the Lenders’ Claims in the dispute (including any Claims for interest and legal costs) and otherwise connected with the Loan Agreement;
3.2Subject to clause 3.3 below, the Settlement Sum shall be made to the Lenders on or before the close of business, 31 December 2013 (“Settlement”) or such other time as the parties may agree in writing;
3.3Upon the Settlement Sum being made to the Lenders by the Borrower, the Lenders shall, at Settlement, simultaneously provide to the Borrower the following:
(a)Duplicate Certificates of Title Volume 8082 Folio 413 & Volume 9105 Folio 051;
(b)Duly Executed Discharge of Mortgage in respect to mortgage number AK396988W;
(c)Duly executed PPSR Release and undertaking to amend registration; and
(d) copy of singed Notice of retirement of Receivers and Managers;
3.4 The Lenders agree to:
(a)forthwith instruct the real estate agent to remove the existing estate agents board from the premises within 48 hours of exchange of this Deed;
(b)use their best endeavours to remove all advertising material regarding the sale of the Property from all forms of media upon the execution of this agreement; and
(c)forthwith instruct the Receivers to lodge electronically with ASIC the Notice of retirement referred to in Clause 3.3(d) of this Deed immediately after Settlement.
4. Event of default
The Borrower will commit an Event of Default under this Deed if any one or more of the following events occur (for whatever reason):
(a)if the Borrower does not pay the Settlement Sum in cleared funds by the close of business 31 December 2013 or such other time as the parties may agree in writing; and/or
(b) if any of the other material terms of this Deed are breached.
5. Consequence of event of default
5.1In the event that the Borrower commits an Event of Default under this Deed (for whatever reason) the Borrower and the Guarantor irrevocably:
(a)agree and acknowledge that the Lenders have a current entitlement to vacant possession of the Essendon Property and have obtained vacant possession of the Essendon Property;
(b)notwithstanding clause 5.1(a) above, agree to do all acts, matters and things required of them to deliver up vacant possession of the Essendon Property to the Lenders and/or the Lenders’ agents within two (2) days of any request made in writing by or on behalf of the Lenders to the Borrower’s lawyers;
(c)consent to any proceeding (whilst acknowledging the Lenders currently have secured vacant possession of the Essendon Property and that such proceedings are not a condition precedent to vacant possession) being commenced against the Borrower by the Lenders seeking vacant possession of the Essendon Property (Possession Proceeding); and
(d)agree to the Lenders selling the Essendon Property as a mortgagee in possession (i.e. upon it obtaining vacant possession of the Essendon Property in accordance with paragraph (i) above) and, upon settlement of the mortgagee sale, the Lenders applying the Net Sale Proceeds to the amount then due and payable pursuant to the Loan Agreement and/or any of the Securities. For the avoidance of doubt, the amount due and payable will include any costs of selling the Essendon Property, all interest that will have accrued prior to the sale in accordance with the terms of the Loan Agreement, and any additional enforcement and/or legal expenses incurred by or on behalf of the Lenders.
5.2In the event that the Borrower commits an Event of Default under this Deed, the Borrower and the Guarantor each agree that they will not take any steps to oppose, restrain, impede, prevent or otherwise prejudice the sale of the Essendon Property, and further agree that this Deed may be relied upon in any court proceeding initiated by the Borrower and/or the Guarantor intended to oppose, restrain, impede, prevent or otherwise prejudice the sale of the Essendon Property as conclusive and irrevocable evidence of their consent to the mortgagee sale of the Essendon Property.
5.3An Event of Default committed by the Borrower under this Deed will be sufficiently and conclusively proven if deposed to in a Statutory Declaration or affidavit sworn by an officer of any of the Lenders or any solicitor engaged by the Lenders. …
6.1Subject to the Lenders complying with their obligations under this Deed, the Borrower and the Guarantor hereby release and forever discharge the Lenders (and all of their servants, agents and legal advisors) in relation to any and all Claims they may have against the Lenders (and all of their servants, agents and legal advisors) or may have in the future arising from or in connection with the loan Agreement and the Securities.
6.2Following payment of the Settlement Sum in full, the Lenders release and forever discharge the Borrower and the Guarantor (and all of their servants, agents and legal advisors) in relation to all and any Claims they may have against the Borrower or the Guarantor (and all of their servants, agents and legal advisors) or may have in the future arising from or in connection with the Loan Agreement and the Securities.
Issue 1
In circumstances where the defendants admit they breached clause 3.4 of the Deed, was such breach a cause of the first plaintiff’s inability to pay the settlement sum of $3,250,000 by 31 December 2013?
The defendants submit that the resolution of this issue principally concerns the establishment of causation. Here the defendants assert the plaintiffs must establish that:
(1)Mr Holyoak withdrew his consent to providing “gap funding” of $150,000 for the settlement on 31 December 2013 because the Board was not removed by 23 December 2013;
(2)MFH, the plaintiffs’ financier was otherwise ready, willing and able to provide its agreed loan advance of $3,190,000 to the first plaintiff between 23 December 2013 and 31 December 2013; and
(3)The first plaintiff was not able, from resources then available to it, to provide the “gap funding” needed to pay the settlement sum of $3,250,000, between 23 December 2013 and 31 December 2013.
I agree with the defendants’ submission that, as a matter of logic and common sense the plaintiffs must show more than that Mr Holyoak withdrew his offer to provide “gap funding” of $150,000 because the Board was not removed by 23 December 2013.
The defendants submit that Mr Holyoak’s loan of $150,000 would not have provided the plaintiffs with sufficient funds to complete the transaction which required the payment of a total sum in excess of $3 million. If the plaintiffs in fact had access to no funds in addition to the $150,000 which the plaintiffs argue became unavailable because of the defendants’ breach of clause 3.4(a), then the defendants’ breach of clause 3.4(a) of the Deed did not itself prevent the first plaintiff from paying the settlement sum by 31 December 2013. It would in those circumstances be the case that the first plaintiff’s inability to settle the transaction by the stipulated date was due to its own inability to raise the balance of the settlement sum.
I consider that given the way the plaintiffs assert the effect of the loss of Mr Holyoak’s funds, only if the first plaintiff was otherwise in a position to settle, but was prevented from doing so by the defendants’ breach of clause 3.4(a) of the Deed, would it be the case that the defendants’ breach prevented the first plaintiff from performing the Deed.[3]
[3]Nina’s Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613; Ruthol Pty Ltd v Tricon (Australia) Pty Ltd [2005] NSWCA 443 at [22] per Giles JA.
The defendants submitted that the evidence of each of the witnesses, Mr Iskaff, Ms Plesa, and Mr Holyoak lacked credibility on certain issues. This, the defendants submit is sufficient to impugn the credibility of those witnesses on other issues, principally the fact and significance of the withdrawal of Mr Holyoak’s funds and the availability between 23 and 31 December 2013 of an advance from MFH sufficient to enable the first plaintiff to settle on or before 31 December 2013.
The defendants also seek to directly impugn the evidence of Mr Iskaff, Ms Plesa, and Mr Holyoak as to the fact and significance of the withdrawal of Mr Holyoak’s funds and the availability of an advance from MFH.
The defendants submit that the evidence of each of Mr Iskaff, Ms Plesa and Mr Holyoak was unsatisfactory in relation to numerous issues, and that the Court should generally treat all of their evidence with considerable caution.
Findings and Conclusions
The evidence on Issue 1
The burden of proving the case they assert falls on the plaintiffs.
The plaintiffs called three witnesses, Mr Iskaff, Mr Holyoak and Sonja Plesa. Ms Plesa is, and was at the material times, a director of MFH. Mr Iskaff’s evidence was that his broker, Tim Rodda[4] dealt with MFH and that he, Mr Iskaff did not deal directly with MFH. Ms Plesa stated that she did not deal directly with Mr Iskaff.[5]
[4]T 47.22-48.13.
[5]T 67.28-31.
A number of other potential witnesses who are prominent in the email communications to do with arranging for settlement under the Deed were not called by the plaintiffs. Further, the plaintiffs did not seek to explain why such witnesses were not called. The witnesses in point were:
(1)Con Kiatos of Kiatos & Co, the solicitor for the plaintiffs between about mid November 2013 and 26 March 2014;
(2)Tim Rodda of “Loans on the Run Pty Ltd”, apparently the primary broker engaged by the plaintiffs to arrange for the refinancing of AI’s debt under the Loan Agreement;
(3)Joe Cullia, a close friend of Mr Iskaff[6], who was involved with the plaintiffs’ refinancing arrangements;
(4)Tome Zrilic, another of the plaintiffs’ finance brokers;
(5)Giuseppe Augello, a further broker involved with the MFH refinance of AI’s debt to the defendants; and
(6)Eric Chan of Aura Legal, the solicitor for MFH in respect of the refinancing of AI’s debt.
[6]T 49.15.
The potential witnesses referred to in sub-paragraphs (1), (4) and (6) above are shown by emails concerning arrangements for the settlement under the Deed in December 2013, and the evidence of Mr Iskaff and Ms Plesa, to be very likely to be able to give evidence for the plaintiffs as to whether the plaintiffs were in a position to settle by 31 December 2013, without Mr Holyoak’s gap funding. No explanation was given as to why these witness were not called, yet the issue of whether the plaintiffs were able to provide all the funds to settle by 31 December 2013 even if Mr Holyoak’s “gap funding“ was available, were clearly brought to the plaintiffs’ attention as a result of the defendants filing the affidavit of Mr Agosta, sworn 25 March 2014 [30], [32] and [39] to [41], and Mr Agosta’s second affidavit, sworn 23 May 2014, [15] and [17], and the issues raised in the Amended Statement of Claim [27].
For these reasons I infer that the above absent witnesses would not, if called by the plaintiffs, have supported the plaintiffs’ case in relation to the plaintiffs being otherwise in a position to settle on or by 31 December 2013 if Mr Holyoak’s funds were available.
Was MFH ready, willing and able to provide its agreed loan advance of $3,190,000 to AI at a date between 23 December 2013 and 31 December 2013?
The only witness who could speak directly as to MFH’s disposition and decision making process concerning the advance of $3,190,000 to the first plaintiff was Ms Plesa. She swore an affidavit which was filed by the plaintiffs and Ms Plesa was cross examined.[7]
[7]Plesa affidavit sworn 23 April 2014 (CB 252-261).
The defendants submitted that Ms Plesa’s evidence by way of affidavit and her oral evidence were “generally vague“ and should be treated with caution by the Court, unless corroborated by documentation.
I accept that Ms Plesa’s evidence was often vague and I also accept that Ms Plesa appeared to have very little specific recollection of events surrounding the potential making of a loan by MFH to the first plaintiff.
In this regard, at paragraph 1 of her affidavit of 23 April 2014, Ms Plesa stated that she was the sole director of MFH. However, the ASIC extract exhibited to her affidavit disclosed that she was one of two directors of MFH, since its incorporation in August 2013.[8]
[8]CB 257 at 258
The defendants point out and emphasise in relation to the question of MFH’s being ready, willing and able to provide the agreed loan advance of $3,190,000 to the first plaintiff, that in the critical period between 23 December 2013 and 31 December 2013:
(1)MFH was incorporated on 5 August 2013, only shortly before the date of the agreed loan to the first plaintiff;
(2)Ms Plesa is MFH’s sole shareholder;
(3)MFH has a paid up capital of $100;[9]
(4)Ms Plesa is MFH’s sole employee;[10]
(5)MFH apparently had two bank accounts with Westpac in December 2013, however, only one set of statements was produced by MFH in response to the defendants’ subpoenas.[11] The bank statements produced showed that MFH had only $50 in the bank throughout December 2013 and January 2014.[12]
(6)In her evidence under cross examination Ms Plesa also confirmed that no money had ever been placed in Eric Chan’s trust account in relation to the potential loan to the first plaintiff; [13]
(7)In her evidence under cross examination Ms Plesa conceded that from its incorporation in August 2013 to the end of January 2014, a full month after the date on which the first plaintiff was seeking the $3,190,000 advance from MFH, MFH had “not advanced any money to any arm’s length borrower”;[14] and
(8)Neither Ms Plesa nor MFH sought to prove that as at 31 December 2013, MFH had, or could have had the capacity to advance a sum of $3,190,000 to the first plaintiff.[15]
[9]CB257-259.
[10]T 67.24.
[11]CB 865 and 887 respectively.
[12]CB843B-843C.
[13]T86.25-27.
[14]T 67.2-4 and T 69.5-7.
[15]The evidence on this issue was given by Ms Plesa at T86.28-30 namely that “we had capacity, but it wasn’t here”: and evidence in re-examination (at T88-89).
The evidence of Ms Plesa in her affidavit at [8] (CB 254) was that, “due to the failure of AI Property investments to settle this matter it was our opinion that our primary lender in America would not look favourably on the loan proceeding due to AI’s position and property value being comprised (sic)”. On MFH’s ability to advance the loan, the following evidence is particularly telling:
(1)Ms Plesa also said under cross examination [T86]:
Evans: So there was no capacity to settle at that point in the sense that MFH didn't have the money?‑‑‑
Plesa: No, we had capacity but it wasn't here.
(2)No loan documentation was ever executed by MFH in relation to the loan agreed to be advanced by MFH to AI.[16]
[16] T 68.3-68.15.
In her affidavit of 23 April 2014 Ms Plesa says that “all necessary documents including Loan Agreement, Mortgage and associated documentation had been prepared by our lawyers and executed by the borrower and guarantor in anticipation of settlement on 31 December 2013”.
Ms Plesa’s stated reason for the loan documents not being executed by MFH was that: “Well, I was overseas. When I got back and discovered that there was no actual settlement dates actually scheduled, I did not sign everything till everything was sorted.”[17]
[17] T68.16.
However, under cross examination Ms Plesa accepted that she was not in fact overseas[18] when AI executed the loan documents.[19] Her evidence in my view also established the following:
[18]T68.23-69.3.
[19] CB112-156 and T68.23 - 31.
(1)She was familiar with the requirements for the delivery of a drawdown notice under the loan agreement clauses 3.1(h), 4.1, 4.2 and 4.3.[20] She confirmed that she was aware that it was a requirement under the loan agreement that a drawdown notice was to be received 5 business days before the date of the proposed advance.[21] Ms Plesa also confirmed that no drawdown notice was ever received by MFH from AI;[22]
[20]T 69.30-70.1. See CB 126, at clause 3.1(h).
[21]T70.21-70.25. See CB 126 - 127, clause 3.1(h) and 4.1, 4.2 and 4.3(a).
[22]T 72.2-72.4.
(2)MFH did not execute the loan agreement which AI had executed (CB 152);
(3)Under clause 4.1(b) of the loan agreement, MFH was not bound to make an advance of funds and could decide not to make an advance for any reason whatsoever, including that MFH did not have funds available to advance;[23]
[23]CB 127 at clause 4.1(b).
(4)She first became aware of a proposed settlement date for the loan of 31 December 2013 “sometime middle of December”;[24]
[24]T 76.20-22.
(5)At some time at the end of December 2013, she was told by Tome Zrilic that there were issues with the potential settlement of the loan to the first plaintiff.
Ms Plesa’s Affidavit of 23 April 2014 [6] (CB 253) was unequivocal that she was informed of issues with the Deed, prior to 31 December 2013;
(6)Under cross examination Ms Plesa was not sure when she was first aware that issues had arisen in relation to the settlement, and she gave evidence that her first knowledge of such issues could even have been as late as after Christmas 2013, or could have been at the end of December 2013 sometime[25];
[25]T 76.24-T 78.2.
(7)She had no meaningful knowledge or understanding of any of the suggested specific issues between the first plaintiff and the defendants[26];
[26]CB 253-4 at [6]-[8]. T 78.3-79.20.
(8)Her affidavit of 23 April 2014 contained substantial passages which had in effect been cut from a letter to which her electronic signature had been affixed in April 2014 (Exhibit “SP-2” CB 260-261) and pasted into the text of her 23 April 2014 affidavit.
(9)She accepted that “some of the information” in the letter (at CB 261) came from Tome Zrilic, and that the letter at CB 251 was written with his guidance. Ms Plesa however denied that Tome Zrilic had written the letter without her input.
(10)Under cross examination Ms Plesa accepted that “some of the information” in the letter (at CB 261) came from Tome Zrilic,[27] and that the letter was written with his guidance[28]. Ms Plesa however denied that Tome Zrilic had written the letter without her input;
[27]T 80.22-27.
[28]T 82.28-31.
(11)As a result of Ms Plesa’s cross examination on the point and a comparison of the letter at CB 261 and the below paragraphs of Ms Plesa’s affidavit, I am satisfied that, although Ms Plesa gave evidence that the words in her affidavit of 23 April 2014 were her words,[29] in fact the substance, including many passages, in that affidavit at [6], [7], [8] and [9] came from the letter at CB 261, a draft of which was provided by Mr Iskaff’s friend Joe Cullia to Tome Zrilic and Joe Augello by email on 3 April 2014;[30]
[29]T 79.25-80.2; T 80.17. and T 83 - 84
[30]See CB 843D-843F.
(12)Eric Chan, MFH’s solicitor, who was responsible for arranging settlement of any loan by MFH to the first plaintiff, sent an email to Con Kiatos (the first plaintiff’s solicitor) on Monday 23 December 2013 at 4.29pm stating “Unfortunately I still haven’t instructions from my client to settle. Best to speak to Tome (broker) to see where it is at”.[31]
[31]CB 843K.
I consider that this email establishes on the balance of probabilities that at that time, MFH had not given instructions for settlement;
(13)Ms Plesa confirmed that the loan could not proceed without her giving such instructions[32]. Ms Plesa’s evidence was that she did not give any such instructions to Eric Chan between 23 December 2013 and 31 December 2013;[33]
[32]T 86.20-22.
[33]T 85.20-86.19.
(14)There was no probative evidence that Con Kiatos tried to speak to, or in fact spoke with Tome Zrilic between 23 December 2013 and 31 December 2013;
(15)It appears likely from the evidence by way of the proforma note at the end of the Aura Legal email dated 7 January 2014[34] that Aura Legal’s offices were closed from 23 December 2013 to 6 January 2014.
[34]See the email at CB 197.
I accept the defendants’ submission that there was no evidence to suggest that Mr Chan was contacted by any person during this period, to try to arrange settlement of the potential loan by MFH to the first plaintiff;
(16)Ms Plesa’s evidence was that it would take 3 to 5 banking days to obtain money from the USA in order to settle a loan.[35]
[35]T 88.27-T 89.2.
Therefore, even if (which is not established) MFH gave an instruction to obtain funds on Tuesday 24 December 2013, Tuesday 31 December 2013, only 3 banking days after that date (Wednesday 25 December and Thursday 26 December were public holidays), would be earliest any advance would be available;
(17)Ms Plesa’s explanation as to why the necessary funds had not been requested from the funding source in America, was: “I got extremely annoyed with all, everything that was going on and I just felt it was way too messy for us to proceed with this. And I wasn’t comfortable moving forward. There was too many people involved.“[36]
[36]T 90.13-90.18.
This explanation, in my view sits most uncomfortably with MFH’s explanation on 7 January 2014 as to MFH’s withdrawal of its offer of finance to the first plaintiff, as set out at paragraphs 8 and 9 of the Plesa affidavit[37] which put forward that somehow the first plaintiff’s position and the property value had been “severely comprised”(sic) by the failure to complete on 31 December 2013.
[37]Exhibit “SP 2” to the Plesa Affidavit.
I consider that the above explanation in Ms Plesa’s affidavit at [8] and [9] is incongruous and incredible, if, as the plaintiffs assert, the failure to settle by 31 December 2013 was indeed due to the defendants preventing the first plaintiff from settling at that time. I also find the earlier Plesa affidavit evidence on this issue is quite inconsistent with Ms Plesa’s evidence under cross examination as to why MFH had not arranged for the necessary funds to be transferred from America.
In short I consider as unsatisfactory and unacceptable Ms Plesa’s evidence as to why the proposed advance to the first named plaintiff did not take place by 31 December 2013 and as to the availability of, and access to, the funds from MFH necessary to enable the first plaintiff to settle with the defendants on, or before 31 December 2013;
(18)Mr Steven Agosta, solicitor for the defendants, gave evidence of his conversations with Con Kiatos on 23 December 2013, 24 December 2013 and 27 December 2013[38]. That evidence was to the effect that:
[38]CB 300-301, at [36]-[41].
(a)Mr Kiatos was still attempting to contact Eric Chan on 24 December 2013 in an effort to arrange settlement of the MFH loan, but without success; and
(b)Mr Kiatos had not received any instructions from Mr Iskaff regarding potential issues with his loan from Mr Holyoak;
(19)I accept the defendants’ submission that the explanation proffered by MFH to the first plaintiff on 7 January 2014, for withdrawing its offer of finance[39], restated at [8] and [9] of the Plesa affidavit,[40] is unsatisfactory because Ms Plesa gave no meaningful and probative evidence which in any way linked MFH’s decision to withdraw its offer of finance to the plaintiffs with any conduct on the part of the defendants, or which linked the plaintiffs’ inability to make up the entire sum required to settle with the funds which Mr Holyoak had earlier offered to advance; and
(20)I also regard Ms Plesa’s evidence as unsatisfactory and unconvincing because even Ms Plesa, a director of MFH, could not cogently explain the reason for MFH’s withdrawal of its offer beyond saying that, “it was a mess and I just did not feel comfortable moving forward…“
Ms Plesa said in relation to AI’s position and property value, “Because it’s continuously changing. We were told valuations were different than the – not figures but figures diff – there was so much going back and forth that it was – I just didn’t want to deal with the mess“.
As to Ms Plesa’s knowledge of the obligations the defendants had failed to meet under the Deed, she said, “I can’t recall specifically but there were many conversations going back and forth“.[41]
[39]See CB 197.
[40]And also in the letter which is exhibit “SP 2” to the Plesa Affidavit: CB 254 and 261 respectively.
[41]T 78.7-80.13.
I am not satisfied on the basis of the above evidence that, but for the withdrawal of Mr Holyoak’s offer to provide $150,000, the plaintiffs would have been in a position to settle the mortgage with the defendants on or before 31 December 2013. Put in another way, and in the positive, I am satisfied that it is unlikely that the withdrawal of Mr Holyoak’s offer to provide funds caused the plaintiffs to be unable to settle on or before 31 December 2013.
The evidence adduced by the plaintiffs did not persuasively explain what had caused the plaintiffs to be unable to provide the necessary funds to settle on or before 31 December 2013. I consider however, on the basis of the conclusions referred to at paragraph [98] above, that it is unlikely that MFH was in a position to, or intended to, provide the advance required by the first named plaintiff up to, or on 31 December 2013.
Further, I am not satisfied that it has been established by the plaintiffs that the reason the first plaintiff was not able to settle with the defendants on or before 31 December 2013 was the loss of Mr Holyoak’s $150,000, nor as I deal with separately, am I satisfied that Mr Holyoak’s withdrawal of his funds was caused by the Board remaining at the property.
For the above reasons I find that the plaintiffs have failed to establish that they were in a position, between 23 December 2013 and 31 December 2013, where, because of the defendants’ breach of clause 3.4 of the Deed, the plaintiffs were unable to provide the necessary funds to settle with the defendants on or before 31 December 2013.
Did Colin withdraw his consent to providing “gap funding” of $150,000 for the settlement on 31 December 2013 because the Board was not removed by 22 December 2013?
I do not accept the evidence given by Mr Iskaff and Mr Holyoak in connection with Mr Holyoak’s alleged withdrawal of his earlier offer to provide Mr Iskaff with the sum of $150,000, to apply to the settlement sum of $3,250,000.
It is, however, clear that on 13 December 2013 Mr Holyoak paid the sum of $150,000 into an account, in the name of Iris Apartments Pty Ltd, controlled by Mr Iskaff.
It is the plaintiffs’ case concerning Mr Holyoak’s withdrawal of consent to the use of that money and the evidence adduced to establish what precipitated Mr Holyoak’s withdrawal of consent, which I consider to be unacceptable.
My reasons for rejecting the plaintiffs’ evidence on this issue are as follows:
(1)Mr Iskaff and Mr Holyoak are by each of their own accounts, close friends.
(2)Mr Holyoak had previously provided a number of short-term[42] loans[43] of perhaps $10,000 or $15,000[44], to Mr Iskaff, the largest of which was for $50,000, in about 2006.
[42]T 99.18-99.30; 100.2.
[43]T 98.18 – in respect of a “few shop” and a “few blocks of land”.
[44]T 99.31-100.1.
(3)All loans from Mr Holyoak to Mr Iskaff were made on a handshake basis[45], without interest or security.[46]
[45]T 162.23-163.6.
[46]T 98.18-98.24; 99.11-99.17.
(4)Mr Iskaff’s evidence under cross examination was that the subject $150,000 loan was originally made without any conditions,[47] although he had confirmed to Mr Holyoak that he would make sure that the Board was removed.[48]
[47]T 103.28ff.
[48]T 106.8.
This evidence is materially different to Mr Holyoak’s affidavit evidence in which he swears in substance that what Mr Holyoak initially required was the removal of the Board and subsequently the removal of the receiver.[49]
[49]CB 34 at [13].
(5)Mr Holyoak’s evidence regarding the Board was that Mr Iskaff had told him that if Mr Holyoak advanced the money, the Board would “come down within days, so to speak. It would happen immediately.“[50]
[50]T 165.8-10.
However, the obligation to remove the Board did not arise until 20 December 2013.
(6)Mr Iskaff’s evidence was that between 13 and 23 December 2013 he spoke with Mr Holyoak by telephone about the loan.[51]
[51]T 112.7-112.15.
(7)Mr Holyoak’s evidence was that the only conversation he had with Mr Iskaff over the days 13 to 23 December 2013 occurred on 22 December 2013. This conversation was to arrange to meet with Mr Iskaff the next day, and on that occasion the loan was not discussed.[52]
[52]T 174.22-175.12.
(8)Mr Iskaff gave evidence that at some point he told Mr Holyoak “We make agreement between me and mortgagee to come up to a decision to the board be moved in the next 48 hours.“[53]
[53]T 106.28-31.
This is a more detailed description by Mr Iskaff than said to be made by him in any other statement by Mr Holyoak. Further, this alleged communication was immediately before Mr Iskaff referred to the purported conversation of 23 December 2013.[54]
[54]T 107.1.
(9)In my view Mr Iskaff and Mr Holyoak gave materially varying and divergent versions of the alleged 23 December 2013 conversation:
(a)Mr Iskaff’s version in his affidavit sworn in March 2014 stated:
17.On or about 23 December 2013, I was contacted by Holyoak who was extremely distraught and informed me that despite my prior absolute assurances to him that the board would be removed, there was still an agent’s board erected at the property. Holyoak accused me of deceiving him and refused to allow his money to be used for settlement.
18.I contacted Holyoak by telephone and informed him that the agent’s board had remained on the property by mistake and that I would take steps to remove the board. Holyoak rejected my offer to immediately remove the board from the property. He told me that he was withdrawing his loan offer to the plaintiff and demanded that I repay the money to him given that he was of the opinion that I had misled him regarding the status of the ownership of the property.
(b)In cross examination[55], Mr Iskaff stated various different things about this alleged conversation. These statements revealed numerous inconsistencies both within themselves, and in respect of what he had earlier sworn to in his affidavit. In cross examination Mr Iskaff stated that:
[55]T107 and T113-119
(i)Mr Holyoak “didn’t say much” and “was a bit upset”.[56] This is to be contrasted with his evidence that Holyoak was “extremely distraught”[57];
[56]T ll3.29-31.
[57]Iskaff affidavit 7 March 2014 [18].
(ii)Mr Holyoak hung up on him at the end of their initial conversation, and did not answer when Mr Iskaff tried to call him back;[58]
[58]T 114.19-114.30.
(iii)Mr Holyoak did not accuse Mr Iskaff of deceiving him;[59]
[59]T 117.20-118.4.
(iv)Mr Iskaff said to Mr Holyoak “I’m not sure why the board is there” and “they promised us to take it off and I’ll follow up on that”, and “If it will make you happy I’ll come down and take the board myself”. Mr Holyoak then hung up.[60]
[60]T 188.22-31.
(v)Mr Holyoak did not demand repayment of his money.[61]
[61]T 119.1-3.
(vi)Mr Holyoak did not say to Mr Iskaff that Mr Holyoak thought Mr Iskaff had misled him.[62]
[62]T 199.14-19.
(c)However, by stark contrast Mr Holyoak’s version in his affidavit sworn in March 2014 was:[63]
[63]CB 251 at [12]-[13].
12.That I immediately contacted Sam and told him that he had lied and deceived me as the board was still on site and that the whole deal is “bull***t” and that in no way known was he to use my money for this property.
13.Despite Sam’s promises to me that he would arrange for the board to be immediately removed, I had lost faith and did not want to be involved further.
(d)Mr Holyoak’s evidence under cross examination was that Mr Iskaff “said “Settle down” and that was about it and I didn’t want to settle down”. He did not recall whether Mr Iskaff said to him that he, Mr Iskaff, would follow up on the Board.[64]
[64]T 176.22-31.
(e)Remarkably, notwithstanding the obvious seriousness and importance of this conversation to Mr Iskaff, Mr Iskaff gave evidence that he spoke to Mr Kiatos on 24 December 2013, but did not specifically mention the loss of the Mr Holyoak loan of $150,000 but only that he had a problem with raising money.[65]
[65]T 120.15-120.27.
(10)Mr Agosta gave evidence that on 27 December 2013, Mr Kiatos said to him that the plaintiffs had “a couple of hundred grand in cash” that they could use at settlement. I infer from this evidence that Mr Iskaff had not informed him of any issue with the loan funds from Mr Holyoak.
(11)I do not accept, however, the defendants’ submission that in the conversation referred to in the last sub-paragraph Mr Kiatos was referring , at least in part, to the money already advanced by Mr Holyoak. In my view the statement about the availably of a couple of hundred thousand in cash being available is so general as to be unsupportive of the conclusion submitted by the defendants.
(12)The plaintiffs first notified the defendants of the issue of the breach of clause 3.4(a) of the Deed on 31 December 2013. This was 8 days after Mr Holyoak is said to have withdrawn his offer to lend $150,000.[66]
[66]See paragraph 42 of the affidavit of Steven Agosta, at CB 302.
(13)If Mr Holyoak’s evidence was accurate it would be likely that the availability of the “gap funding” would have been raised immediately by Mr Iskaff with his solicitor Mr Kiatos, and by Mr Kiatos with Mr Agosta. This is because given the very tight timing for settlement under the Deed this circumstance would have amounted to a very pressing crisis for Mr Iskaff which almost certainly he would have immediately discussed with his solicitor.
(14)Despite the alleged express demand by Mr Holyoak that Mr Iskaff not use the sum of $150,000 advanced on 13 December 2013, between 30 December 2013 and 6 January 2014, Mr Iskaff made a series of unauthorised withdrawals of the funds Mr Holyoak provided in relation to the settlement of the property.[67] The unauthorised withdrawals by Mr Iskaff were in the sum of about $23,000.
[67]See CB 843L.
(15)Despite the alleged demand from Mr Holyoak to Mr Iskaff that Mr Iskaff not use the sum of $150,000 advanced on 13 December 2013,[68] Mr Holyoak gave evidence that he did not take steps to recover the money from Mr Iskaff. Further, I note that Mr Holyoak did not express concern about that position or in relation to Mr Iskaff accessing the loan which he, Mr Holyoak, says he specifically said to Mr Iskaff he was not to use.[69]
[68]T119.
[69]T 177.28 to 178.5.
(16)This evidence also strikes me as incredible. I do not accept that Mr Holyoak prohibited Mr Iskaff’s use of his $150,000 for settlement in relation to the property and I consider that it is reasonable to infer from the evidence referred to in the preceding paragraph that Mr Holyoak did not impose any restriction on the use by Mr Iskaff of the money. If Mr Holyoak had imposed a restriction not to use the advance in relation to the settlement of the property it is most improbable he would have made no complaint about other unauthorised drawdowns by Mr Iskaff in the sum of about $23,000, and that he would still not have recovered, or at least made demands for return of, his money by the time he gave his evidence at trial in June 2014.
(17)Further, I agree with the defendants’ submission that the requirement for the removal of the Board from the property as a term of Mr Holyoak’s agreeing to lend $150,000 to Mr Iskaff does not make commercial sense, bearing in mind in particular:
(i)On settlement the defendants’ mortgage would be discharged and control of the property would revert to the first plaintiff.
(ii)Mr Holyoak knew it was the purpose of his loan to achieve this end.[70]
[70]CB 250 at [6].
(iii)On settlement Mr Iskaff would be able to remove the Board, if the defendants had not done so.
(iv)In cross examination, although counsel for the defendants explored this likely common sense position with Mr Holyoak, in my view he gave no reasonable response or explanation.[71]
[71]T 172-173.
In particular, Mr Holyoak said under cross examination at T172-173:
It's your affidavit?‑‑-Yeah.
Is it?‑‑-Yeah. That's what it says, so yeah.
You say you agreed to lend Sam the sum of 150,000 in December 2013?‑‑-That's what he said would be required to - to clear up the receivership and him gain possession, et cetera, again yes.
Did he explain to you that the money was going to be used to get rid of the existing mortgagee and carry out a refinance?‑‑-That's basically what he said to me without the nitty gritties. That's how I understood it.
Did you understand when he said that to you that that meant that when the mortgagee - when the refinance took place the existing mortgagee would be paid out?‑‑-Well again, the actual nitty gritties I can't tell you, but it was on the understanding that the hundred and fifty would clear everything up so he had control and access, and the receiver would be out of his hair.
And you understood that that control and access ordinarily wouldn't be until the money was paid. It's common sense, isn't it?‑‑-Well, I'm not sure about that. All I know is I gave him the one hundred and fifty, he said it would be paid and everything would be sorted out.
What did he say to you then about the board, removal of the board from the premises?‑‑-He assured me that it would - once he had the money and he was able to distribute it, so to speak, that the board would come down immediately, if not sooner, that I'd have no concerns about him not having control of the block again and access, et cetera, et cetera.
So he told you in essence, as you said, once the money was distributed the board would come down?‑‑-He didn't tell me, he promised me. He said over and over, "Just trust me. This will happen, I'm telling you."
And is what he told you to trust him what you just said to
me - which is he told you that once the money was distributed the board would come down?‑‑-Once I gave him the money and he was able to distribute it he would ensure that the board would be ‑ ‑ ‑Then he'd ensure that the board would come down?‑‑-Down, yes.
He didn't tell you that the board would come down before you'd distributed the money, did he?‑‑-Not that I recall.
So the condition of you lending the money was that he wouldn't use it unless the board was going to come down?‑‑-No, I lent him the money and he assured me that the board would come down once he had those funds to be able to sort everything out.
I'm just trying to get this straight, on 13 December when did you understand the board would be coming down?‑‑-Without a specific date - there was no date mentioned - but as soon as practicable.
As soon as practicable?‑‑-In layman's terms for me anyway.
So you didn't really know how long it might be after 13 December that the board would be coming down?‑‑-Well, again, there was no specific date but I made it clear, and he assured me, it was days - it would take days to sort things out.
He told you it was days. Did he talk to you about whether or not a formal settlement had been reached between him and the existing mortgagees of the property?‑‑-Again, the actual details and nitty gritties I wasn't privy to…
(v)This evidence in my view establishes that the likely true position was that Mr Holyoak did not lend the subject money to Mr Iskaff on the condition that he would not use it unless the Board was going to come down. Rather, he agreed to lend Mr Iskaff the $150,000, at its best for the plaintiffs’ case, on an agreement by Mr Iskaff that the Board would come down once he had those funds to be able to sort everything out.
(vi)Mr Holyoak also said more than once that the arrangement with Mr Iskaff was that the Board would come down once Mr Holyoak gave him the money and he was able to “distribute” that money.
(vii)In my view this evidence given by Mr Holyoak amounts to much less than an arrangement that his advance was conditional upon the Board coming down within 48 hours of the exchange of the Deed. In my view Mr Holyoak’s evidence establishes that it is likely that he only required Mr Iskaff to remove the Board after he had used the $150,000 to settle the transaction or, put in Mr Holyoaks’ language, “distributed the money” and had by doing so “sorted everything out“.
(18)In my view there are also many other elements of the evidence and surrounding circumstances which render the plaintiffs’ and Mr Holyoak’s evidence unlikely and unacceptable. Those elements and circumstances are that although:
(i)Mr Iskaff and Mr Holyoak were good friends, and
(ii)Mr Holyoak had earlier lent sums of up to $50,000 on a “handshake” to Mr Iskaff, and
(iii)Mr Holyoak knew that Mr Iskaff needed his money to pay the settlement sum to the defendants, and
(iv)the obligation to remove the Board had only arisen on 20 December 2013, and only needed to be performed by 23 December 2013,
nevertheless, Mr Holyoak and Mr Iskaff assert that Mr Holyoak, visited Mr Iskaff in Melbourne on 23 December 2013 and on that occasion “blew up” on the telephone to Mr Iskaff on 23 December 2013, and as a result withdrew the offer of the $150,000 loan.
They also assert that Mr Holyoak hung up on his friend Mr Iskaff without waiting for any explanation from Mr Iskaff as to why the Board had not been removed, knowing (as it is reasonable to infer) that by withholding his $150,000 loan, particularly at a time so close to the appointed date for settlement, his action would be likely to prejudice his friend Mr Iskaff’s ability to settle the purchase of the property on 31 December 2013.
(19)Further, Mr Iskaff and Mr Holyoak’s evidence is that after 23 December 2013 , and while travelling from Melbourne to Walhalla, Mr Holyoak , determined not to meet with Mr Iskaff. That is, knowing the likely consequence to his friend, as I infer he did, Mr Holyoak, turned off his mobile phone and drove back to his farm in Gippsland where he knew that he was out of mobile phone range. Further, Mr Holyoak’s evidence was that he did not then leave the farm until after New Year 2014, by which time, as Mr Holyoak well knew, the date for settlement had passed.
In my view the evidence of both Mr Iskaff and Mr Holyoak as to the non-removal of the Board being the cause of Mr Holyoak’s withdrawal of his loan offer and the suggested impasse which followed on the part of Mr Holyoak, as a result of seeing the Board still on display at the property on 23 December 2013, is improbable and unacceptable.
This evidence is improbable and unacceptable because of Mr Holyoak’s own evidence referred to above about the basis of his offer of funds and because of the inherent improbability, in the circumstances, of Mr Holyoak reacting as he stated he did because of the continued posting of the Board.
The evidence of Mr Iskaff on this aspect is also improbable and unacceptable, as I have highlighted, including that he did not raise the withdrawal of Mr Holyoak’s funds with the lawyers assisting the plaintiffs to arrange settlement.
Was AI not able, from resources then available to it, to provide the “gap funding” needed to pay the settlement sum of $3,250,000 at a date between 23 December 2013 and 31 December 2013?
The defendants submit that the plaintiffs have to satisfy the Court that it is likely that the alleged withdrawal of the “gap funding” by Mr Holyoak on 23 December 2013 prevented the plaintiffs from being able to settle by providing the required settlement sum on 31 December 2013.
The above argument by the defendants is separate from and additional to the defendants’ assertion that the plaintiffs must also establish on the balance of probabilities that they were in a position to obtain funds in the sum of $3,190,000 from MFH by 31 December 2013.
This argument focuses on the ability to meet the “gap” of $150,000, which on the plaintiffs’ case, is the critical shortfall. This issue of gap funding is still critical irrespective of whether or not it is likely MFH was in a position to provide the sum of $3,190,000 by or at 31 December 2013.
The defendants say in their submissions that there is evidence that the first plaintiff and Mr Iskaff in fact had access to various funds, notwithstanding the alleged withdrawal of support by Mr Holyoak, which together with the net funds which they assert they were able to obtain from MFH, would have been sufficient to pay the settlement sum on 31 December 2013.
The defendants submit the following evidence should lead to the conclusion that the plaintiffs have not discharged their burden of proof on this issue:[72]
[72]Defendants’ Submissions dated 18 June 2014 [18].
(1)The amount of the loan identified in MFH’s loan agreement was $3,190,000.[73] After deduction of the establishment fee of $95,700, net funds of $3,094,300 would be made available to AI. (No interest would be deducted at settlement of the loan, as it was payable in arrears: see clause 5.1 of the Loan Agreement.)[74] This meant that in order to pay the settlement sum of $3,250,000 on 31 December 2013 (assuming the MFH funds were made available) the plaintiffs needed to find a little over $150,000.
[73]CB 150.
[74]CB 128.
(2)Mr Iskaff did give some evidence that a broker’s fee of 1% of the amount of the loan would be payable to Tim Rodda, but no documents were produced in support of this assertion. It should be disregarded. Even if this is not accepted, then the amount which Mr Iskaff needed to find by 31 December 2013 was about $190,000.
(3)Mr Iskaff retained the sum of $150,000 apparently advanced to Iris Apartments Pty Ltd on 13 December 2013, and was willing to use it in late December 2013 and early January 2014.[75] Between 20 December 2013 and 30 December 2013, there was over $173,000 in this account. It should be inferred that he would have been willing to use the whole of this money (not just $23,000) to contribute to the settlement sum, despite Mr Holyoak’s alleged withdrawal of consent to that course. (Mr Iskaff also said that he had kept the $150,000 and used it “for a lot of things”.[76])
(4)Mr Iskaff had USD100,000 sitting in an account in his own name with Arab Bank Australia, at all times between 11 October 2013 and 31 December 2013[77] which was available to him to use towards the payment of the settlement sum.[78] He accepted that this was worth at least AUD100,000.[79]
(5)Iris Apartments Pty Ltd had a second account, controlled by Mr Iskaff, which as at 31 December 2013 had a balance of over $9,000.[80]
(6)Mr Iskaff gave evidence that he had further bank accounts, both in his current name and his “old name”. He was very vague about both the existence of such accounts, and their balances.[81]
(7)Mr Iskaff had executed a “Personal Financial Statement” in September 2013 as part of his application for finance from MFH.[82] This statement asserted that (putting the Essendon property and the mortgage in respect of it to the defendants to one side) he had assets at the time of over $3,000,000, and liabilities of $370,000, and that he had income of $8,000 per month as rental income and $22,000 per month as business income, as at the date of signing the statement. Mr Iskaff at times sought to downplay the representations in this document, which supported the idea that he could readily raise at least a further $100,000.
(8)Mr Iskaff repeatedly said that he had a family (in Lebanon) that could help him with money,[83] and who were the co-owners of the $1,350,000 worth of overseas properties, and $1,000,000 in business assets (a one-quarter share) which Mr Iskaff identified in the “Personal Financial Statement”. His evidence on this topic smacked of a desire to downplay his ability to borrow money from his family, while maintaining that they owned valuable assets. It should be treated with real caution.
(9)Mr Iskaff was asked questions regarding the asserted income of $8,000 per month as rental income and $22,000 per month as business income.[84] His answers, particularly in relation to the $22,000 per month were not credible, and reflect on his general credit. He maintained that in September 2013 he was earning $22,000 per month, through selling cars, and short-term money lending, but very soon after “the car business stopped, ceased, and also I couldn’t lend any more money to people”.[85] No explanation was given as to why these alleged changes occurred, nor why he could no longer lend money to people.
(10)The evidence either leads to a conclusion that Mr Iskaff was giving false evidence on these topics (and had made false representations to MFH in the “Personal Financial Statement”), or that he was deliberately playing down his ability to raise money in December 2013 so as to avoid the conclusion that he could have found the additional $150,000 to $190,000 over and above the MFH loan amount, in order to pay the settlement sum.
(11)Steven Agosta gave evidence that on 27 December 2013, Mr Iskaff’s lawyer, Mr Kiatos stated to him words to the effect that the plaintiffs had “a couple of hundred grand in cash” that they could use at settlement. It should be inferred that Mr Kiatos had been informed of this matter by Mr Iskaff, that as at 27 December 2013, Mr Iskaff had not stated anything to Mr Kiatos to inform Mr Kiatos that this position was no longer the case, and that the reason for these statements was that they were true. (A Jones v Dunkel inference may be properly drawn in these respects, in respect of the plaintiffs’ failure to call Mr Kiatos to give evidence.)
[75]See CB 843L.
[76]T 122.1-122.7.
[77]CB 843A.
[78]T 44.7-11.
[79]T 128.29-129.6.
[80]CB 843N.
[81]T 124.31.
[82]CB 843P-843Q.
[83]E.g. T 139.8-142.15.
[84]T 142.16-145.31.
[85]T 145.24-31.
I accept the defendants’ submission that the first named plaintiff and Mr Iskaff likely had access to sufficient money between 23 December and 31 December 2013 to replace the $150,000 of funds unavailable from Mr Holyoak. I accept the accuracy of the summary of evidence in the last paragraph and the evidence summarised. In particular I am satisfied that:
(i)The amount which Mr Iskaff needed to find by 31 December 2013 was about $190,000;
(ii)Between 20 December 2013 and 30 December 2013, there was over $173,000 in the account controlled by Mr Iskaff. I infer that Mr Iskaff would have been willing to use the whole of this money (not just the $23,000 of Mr Holyoaks’ money that he apparently unilaterally used) to contribute to the settlement sum, despite Mr Holyoak’s alleged withdrawal of consent to that course;
(iii)Mr Iskaff had USD100,000 sitting in an account in his own name with Arab Bank Australia, at all times between 11 October 2013 and 31 December 2013[86] which was available to him to use towards the payment of the settlement sum.[87] He accepted that this was worth at least AUD100,000;
(iv)Iris Apartments Pty Ltd had a second account, also controlled by Mr Iskaff, which as at 31 December 2013 had a balance of over $9,000;
(v)In September 2013 as part of his application for finance from MFH[88] Mr Iskaff declared that (putting the Essendon property and the mortgage in respect of it to the defendants to one side) he had assets at the time of over $3,000,000, and liabilities of $370,000;
(vi)Mr Iskaff probably had income of $8,000 per month as rental income and $22,000 per month as business income, as at the date of signing the application for finance from MFH; and
(vii)Mr Iskaff had family (in Lebanon) that could help him with money,[89] and who were the co-owners of the $1,350,000 worth of overseas properties, and $1,000,000 in business assets (a one-quarter share) which Mr Iskaff identified in the “Personal Financial Statement”.
[86]CB 843A.
[87]T 44.7-11.
[88]CB 843P-843Q.
[89]E.g. T 139.8-142.15.
I consider this to be an additional reason why the plaintiffs’ case fails to establish that Mr Holyoak’s withdrawal of his loan offer of $150,000, (assuming on this analysis that in fact occurred) in fact resulted in the plaintiffs not being in a position to settle with the defendants on 31 December 2013, in accordance with the terms of the Deed.
Issue 2
Was the obligation on AI to make the payment of $3,250,000 by 31 December 2013, under clauses 3.1 and 3.2 of the Deed, dependent upon the prior performance by the defendants of clause 3.4(a) of the Deed, in that non-performance of clause 3.4(a) might validly entitle AI not to perform?
This issue depends on the proper construction of the Deed of Settlement, as a whole.
Clauses 3 and 4 of the Deed are set out above in full.
It is to be noted that the Deed provides that:
(1)The obligation in clause 3.2 to pay the sum of $3,250,000 is “subject to clause 3.3”, but it is not expressed to be subject to clause 3.4(a).
In my view the identification of one obligation as expressly dependent upon the performance of another obligation, as with clauses 3.2 and 3.3, indicates an intention of the parties that other obligations not so interlinked are probably not dependent.
(2)Clause 4 provides that a failure to pay the settlement sum on or before 31 December 2013 “for whatever reason” will be an Event of Default.
These clear terms support a construction that the parties intended that the obligation on the first plaintiff to pay on time was a paramount obligation. It is unlikely the parties would have intended that failure to perform such paramount obligation could be forgiven on the basis that there had been a breach of clause 3.4(a) by the defendants.
(3)Clause 5 of the Deed, dealing with the consequences of the occurrence of an Event of Default, particularly clause 5.2, also supports the above construction because clause 5.2 seeks to prevent the plaintiffs from taking any steps to prevent the sale of the property upon the occurrence of an Event of Default.
(4)Under clause 3.4(a) the defendants were obliged to “forthwith instruct the real estate agent to remove the existing estate agents board from the premises within 48 hours”.
It is unlikely that the parties intended this stipulation to amount to a warranty that the Board would be removed. Rather, the stipulation is likely intended only to be an obligation to instruct the agents.
This limited extent of the obligation flows from the natural meaning of the words employed by the parties which are limited to requiring the giving of the instruction to the real estate agent.
Accordingly, in the event that the instructed real estate agents failed to comply and remove the Board, there would no breach of contract by the defendants.
If the parties considered that it was of such importance to have what was required under clause 3.4(a) interdependent with the payment obligation under clauses 3.1 and 3.2, it would have been a simple matter for the parties to so provide. This did not occur.
Further, Mr Agosta gave evidence for the defendants as to the history of the communications between the parties, leading to the execution of the Deed of Settlement. This contributes to establishing the “objective background facts which were known to both parties”.[90] It also establishes what was not known to both parties. This factual background, according to the defendants’ evidence, is that:
(a)The evidence does not establish that the removal of the Board and the withdrawal of other advertising in respect of the sale of the property was a condition precedent of payment of the settlement sum.
(b)There was no evidence adduced by the plaintiffs, or at all, to the effect that in any of the negotiations between the parties prior to the execution of the Deed of Settlement it was suggested that the removal of the Board, or the withdrawal of other advertising of the sale of the property, were to be conditions precedent to the payment of the settlement sum.
(c)Nor was there any evidence that payment of the settlement sum was in some way to be conditional upon the removal of the Board or the withdrawal of other advertising of the sale of the property.
(d)Further, no evidence was adduced to the effect that the availability of the finance that the plaintiffs required to settle, or any part of such finance, could or would be affected by failure to remove the Board or failure to withdraw advertising of the sale of the property.
(e)Finally, at no stage during any of the negotiations between the parties leading up to the execution of the Deed of Settlement was the existence of any lender to the plaintiffs, other than MFH, ever identified or suggested by the plaintiffs or their lawyers or representatives.[91]
(f)The evidentiary position at trial was as described above, even though Mr Agosta’s evidence, filed on about 23 May 2014, made it quite plain that the defendants highlighted the above matters as deficits in the plaintiffs’ case and part of the battle ground in this proceeding.[92]
[90]To quote Mason J in Code/fa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352.
[91]CB 513 at [17].
[92]CB 512 – 513 at [15] and [17].
Issue 3
The answer to Issue 2, leads to two related issues:
The plaintiffs have raised two questions by Issue 3:
(1)If AI was entitled not to pay on 31 December 2013, was it entitled to demand that the defendants perform the Deed and accept payment of the settlement sum at a later date, when AI was in a position to remedy its inability to pay caused by the defendants’ breach; and
(2)If AI was obliged to pay on 31 December 2013, was it nevertheless entitled to demand that the defendants perform the Deed at a later date, when AI was in a position to remedy its inability to pay caused by the defendants’ breach?
I agree with the defendants’ submission on these questions. “If the first plaintiff was entitled not to pay on 31 December 2013” (Issue 3(1) above) then the probable answer to Issue 3(1) would be “yes”, both as a matter of interpretation of the Deed and as a result of equitable remedies likely to be available to the plaintiffs.
However, in my view for the reasons I have given above, in the circumstances of the matter, the plaintiffs were not entitled not to pay on 31 December 2013. The premise of Issue 3(1) therefore falls away.
On the contrary, at all events and pursuant to clause 3.1 and 3.2 of the Deed, and as further reinforced by clause 4 of the Deed, the plaintiffs remained bound to settle by 31 December 2013.
The second question above is not hypothetical given my above conclusions. However, I consider that the answer to the second question is “no“ because, for the reasons I have expressed above, the plaintiffs’ inability to settle was unlikely to have been caused by the defendants’ breach of clause 3.4 of the Deed and the defendants were entitled, in the circumstances, to insist on settlement on 31 December 2013.
In relation to the plaintiffs’ contention that the contractual date for settlement under the deed was not essential, that is, time was not of the essence in relation to settling by 31 December 2013, and in relation to the plaintiffs’ arguments that clause 3.4 of the Deed should be properly characterised as a condition or intermediate term, I agree with the defendants’ submissions that the second of these questions is not relevant to the outcome of this proceeding. In relation to the first question in my view the requirement to settle by 31 December 2013 was mandatory, fundamental and essential under clauses 3.1 and 3.2 of the Deed, as reinforced by clauses 4 and 5 thereof.
This is because the defendants have not at any time sought to terminate the Deed. In this proceeding the defendants seek to affirm the Deed and have it specifically performed. The proper characterisation of clause 3.4 as a condition or intermediate or innominate term, in contrast with a fundamental term the breach of which would amount to repudiation of the agreement, might be very relevant if the plaintiffs were seeking to establish repudiatory conduct by the defendants and bring the Deed to an end. However this is not the plaintiffs’ case in this proceeding.
The defendants submit that clause 5 of the Deed prescribes the consequences of the occurrence of an Event of Default and that an Event of Default has occurred by reason of the non-payment by the plaintiffs of the settlement sum by 31 December 2013. It follows, the defendants contend, that they are entitled to enforce the rights which they have under clause 5 of the Deed.
I agree with the defendants’ submissions and contentions in respect of the operation of clauses 4 and 5 of the Deed f following the plaintiffs’ failure to pay the settlement sum by close of business on 31 December 2013.
Issue 4
Was or is AI now in a position to perform its obligations under the Deed?
The plaintiffs plead for specific performance of the Deed.
A party seeking specific performance of an agreement must establish, on the balance of probabilities, that it is in a position to perform the agreement at the time of trial.[93]
[93]Bahr v Nicolay (No.2) (1988) 164 CLR 604.
Accordingly, here the plaintiffs must establish that they are in a position to pay the settlement sum of $3,250,000, at trial.
The defendants submit that they have not discharged the above burden of proof.
I accept the defendants’ submission that the only evidence on this issue is[94]:
(1)The “letter of offer” dated 29 January 2014 from Credit Solutions Group;[95] and
(2)An assertion by Mr Iskaff that the offer remained open for acceptance as at 3 June 2014.[96]
There was no evidence given by the plaintiffs as to the first plaintiff’s present financial position. It is reasonable to expect that this proof, if available, could have been put on by way of bank statements or similar financial substantiation.
It is also relevant to this issue that Mr Iskaff gave evidence that he had used all of Mr Holyoak’s $150,000 loan.[97]
[94]Defendants’ Submissions 18 June 2014 [28].
[95]CB 216.
[96]See CB 263 at [4].
[97]T 122.1-122.7.
The plaintiffs did not call evidence from Credit Solutions Group, its current proposed financier. Nor did the plaintiffs explain the lack of evidence from Credit Solutions Group.
In these circumstances and given that the issue of the plaintiffs being ready and willing to perform the Deed was always in dispute,[98] I infer that any potential witness from Credit Solutions Group would not have assisted the plaintiffs’ case.
[98]Plaintiffs’ Amended Statement of Claim [27] and Defence to Amended Statement of Claim [27].
Further, I accept that there were numerous limitations established by the “letter of offer” dated 29 January 2014 from Credit Solutions Group[99]. In my view, on the balance of probabilities, even if there is still a basis on which it might be found that the Credit Solutions Group offer could still be “accepted” by the plaintiffs, a circumstance which I do not in any event accept as established by the plaintiffs, I agree with the defendants’ submission that such a finding would not result in it being likely that the plaintiffs could presently perform the Deed.
[99]CB 216.
This is because of the numerous limitations included in the “letter of offer”. I accept the accuracy of the defendants’ submissions in relation to those limitations,[100] namely that:
[100]Defendants’ Submissions dated 18 June 2014 [30].
(1)The proposed loan was for the sum of $3,220,000;
(2)The proposed loan required payment of “Engagement & Due Diligence & Brokerage” fees of 3.3% of the face value of the loan, “required to be paid up front”[101]. These fees would therefore be $106,200, deducted before the advance would be made;
(3)The proposed loan also involved the payment of a “Funders Loan Establishment Fee” of $4,950 plus GST, or $5,445;
(4)The Indicative Interest Rate was 3% per month, payable in advance. This would mean that, if the loan were made, a further $96,600 would be deducted at settlement;
(5)Therefore, although the proposed loan was nominally for $3,220,000, less than $3,015,000 would be advanced to AI if the proposed loan were made. This would result in the plaintiffs needing at least another $235,000 to make the payment of the settlement sum;
(6)The loan offer was dated 29 January 2014. It stated that it was “not designed to comprise a formal letter of offer”, and that if it were not accepted by 21 January 2014 it might be withdrawn without further notice;[102]
(7)The loan only contemplated a 6 month term, such that if it had been made in January or February 2014, the term would expire in July or August 2014;
(8)The loan offer was based on a valuation of $4,600,000 for the Essendon property, apparently given in July 2013. There was no evidence as to whether Credit Solutions Group had had disclosed to it the fact that the defendants had entered into a contract of sale for the property for $3.7 million in early March 2014.[103] Mr Iskaff’s evidence was that “I can’t remember” when asked if this fact had been disclosed to the potential lender.[104] I accept that the value of the security property is obviously a highly relevant fact to a potential lender. I infer that the contract price would likely have had a negative impact on the willingness of Credit Solutions Group to make a loan of $3,220,000, had they been apprised of the earlier contract for $3.7 million. In this regard I reflect that the inference I have drawn is supported by the circumstance that the plaintiffs did not call any witness from Credit Solutions Group;
(9)The conditions of the loan included the lender obtaining a satisfactory valuation, and that the “letter of offer” was subject to continued due diligence enquiries[105]; and
(10)The “letter of offer” stated that “The lender reserves the right to withdraw this indicative offer at any time prior to settlement of the loan without reason.”[106]
[101]See CB 216 and CB 217. The fees of 3% - exclusive of GST.
[102]CB 219.
[103]CB 802-843.
[104]T 157.9-157.13.
[105]CB 217.
[106]CB 218.
Mr Iskaff stated in his evidence that the “offer” from Credit Solutions Group remained open for acceptance as at 3 June 2014. However, under cross examination he said he “couldn’t remember” if he had received an updated letter from Credit Solutions Group[107]. Further, Mr Iskaff was not re-examined on this issue. In my view the other evidence which Mr Iskaff gave on this point, relating to conversations with “somebody in Adelaide” at an unspecified date, was vague, unsatisfactory and unconvincing.
[107]T153.16-19.
In the circumstances, including in my view the likely circumstance that the plaintiffs have not been able to meet the requirements and accommodate the limitations of the Credit Solution Group “letter of offer”, this issue having long been highlighted and yet not addressed by any satisfactory evidence adduced by the plaintiff, I am not satisfied by, or willing to give any weight to, Mr Iskaff’s evidence that the offer from Credit Solutions Group is still open to be accepted by the first named plaintiff. Nor am I satisfied on the evidence I have detailed above that the first plaintiff is likely to ultimately obtain the finance sought from Credit Solutions Group. Accordingly, the plaintiffs have not established that AI is now in a position to perform its obligations under the Deed.
Issue 5
In circumstances where the defendants breached clause 3.4 of the Deed, was the defendants’ conduct in refusing to accept payment of the settlement sum at a time after 31 December 2013 and in attempting to sell the property to a third party, unconscionable conduct under sections 20 and 21 of the ACL and/or alternatively sections 12CA and 12CB of the ASIC Act?
In my view, in the circumstances of this matter, the ACL has no application. This is because the foundation of the plaintiffs’ claim relates to the making of a loan to them by the defendants. The applicable legislation is the ASIC Act.
The ACL is inapplicable because the making of a loan, and the disposal of a loan by a lender (such as was contemplated by the Deed), falls within the definition of “financial service” in section 12BAB of the ASIC Act, a loan being a financial product under section 12BAA(7)(k) of the ASIC Act. The exclusion of the ACL in respect of conduct in relation to financial services is found in section 131A of the Competition and Consumer Act 2010 (Cth) (“CCA”).
Further, the plaintiffs’ claims under the ACL/CCA are forlorn for the same conclusions I have expressed below concerning the application of the ASIC Act. The fatal flaw in the plaintiffs’ case in that regard, is that in reality, and at law, all that the defendants have done here is to insist on their legitimate legal rights under the Deed, in the face of a borrower which has breached the Deed in a cardinal way, that is by failing to pay the settlement sum due by the prescribed date.
The plaintiffs assert that the defendants have acted unconscionably in refusing to accept payment of the settlement sum, where the breach by the defendants of clause 3.4(a) of the Deed caused the plaintiffs to be unable to make payment of the settlement sum by 31 December 2013.
The defendants submit that section 12CA of the ASIC Act, which deals with unconscionable conduct “within the meaning of the unwritten law” can have no application to the facts of this case.
The defendants submit that this is because there is neither a pleading nor evidence of any special disadvantage on the part of the plaintiffs, which is a necessary element of the cause of action.[108] The defendants also note that the plaintiffs were legally represented throughout the relevant period when they allege unconscionable conduct occurred.
[108]See ACCC v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51.
I am in agreement with the defendants’ submission referred to in the last paragraph.
In relation to the plaintiffs’ claim under s 12CB of the ASIC Act, the defendants submit that the plaintiffs have not pointed to any conduct on the part of the defendants which would lead to a conclusion that the defendants acted unconscionably, after 31 December 2013, in refusing to accept payment of the settlement sum after that date.
I accept that the evidence establishes that the defendants have at all times since the Deed was entered into made it clear that they expected the plaintiffs to perform their obligations under the Deed. Therefore, in the circumstances of the matter I have detailed above, in my view the defendants have done no more than seek to enforce their contractual rights.
I note at this point that the Deed was extensively negotiated and was then entered into by two commercial parties, assisted by their lawyers, in a context where they and their commercial clients were seeking to resolve legal disputes between them.
It is accepted by the defendants that they breached clause 3.4(a) of the Deed by not instructing the real estate agent to remove the Board from the property within 48 hours of exchange of the deed. The consequences, if any, that flow from that breach are matters to be determined at common law by reference to the Deed which the parties agreed would rule their rights and liabilities. I have already dealt above with the plaintiffs’ contentions as to the nature of this clause and the plaintiffs’ contentions as to the consequences of the defendants breach.
I agree with the defendants’ submissions that in the circumstances of this matter there is no warrant for the application of equitable principles. Further, on the evidence before me and for the reasons I have explained above, there is no basis for the plaintiffs to rely on assertions of bad faith or estoppel against the defendants’ contractual rights.[109]
[109]Esso Australian Resources Pty Ltd v Southern Pacific Petroleum NL [2005 ] VSCA 228 at 3, 4, 5, 23 – 28.
I agree with the defendants’ submission that in the circumstances of this matter there is no warrant for the application of equitable principles.
Further, there is no evidence before the Court which provides any basis for a finding other than that the defendants’ breach of clause 3.4(a) of the Deed was an inadvertent error.
On the evidence and at law, I think it is again worth emphasising that all that the defendants have done here is to insist on their legitimate legal rights under the Deed, in the face of a borrower which has breached the Deed in a cardinal way, that is, by failing to pay the settlement sum due by the prescribed date.
Issue 6
What, if any, relief the plaintiffs are entitled to in light of issue 5?
I consider that for the above reasons the plaintiffs’ claims should fail and that the plaintiffs are not entitled to any aspect of the relief they claim.
Decision
For the above reasons there will be judgment for the defendants in this proceeding.
Orders
(1) The plaintiffs’ claims be dismissed.
(2) I shall hear the parties as to costs and any consequential orders.
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