Almona Pty Ltd v Parklea Corporation Pty Ltd

[2019] NSWSC 1868

Supreme Court

New South Wales

Medium Neutral Citation:

Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868

Hearing dates:

4-8 March, 29-30 August 2019

Decision date:

20 December 2019

Jurisdiction:

Equity

Before:

Robb J

Decision:

See pars 938 to 945. Direct the parties to confer and determine what short minutes of order will be appropriate to give effect to these reasons and to deal with the further conduct of these proceedings, as soon as is reasonably possible.

Catchwords:

MORTGAGES AND SECURITIES — Mortgages — Duties, rights and remedies of mortgagee — Power of sale — Mortgagee’s duty to exercise power of sale in good faith — Consideration of whether the duty is fiduciary in nature — Whether the mortgagor’s interests have been “sacrificed” — Whether the duty extends beyond the achievement of a fair price — Relevance of collateral purposes of the mortgagee, if any — Mortgagee not obliged to act as if mortgagor had a right of first refusal — Whether mortgagee obliged to provide payout figure to mortgagor — Reasonableness of mortgagee’s refusal to provide complex payout figure in circumstances of mortgagor’s many prior failed attempts at redemption

 

MORTGAGES AND SECURITIES — Mortgages — Duties, rights and remedies of mortgagee — Power of sale — Mortgagee’s duty to exercise power of sale in good faith — Consideration of alleged breaches of mortgagee’s duty of good faith — Where breaches alleged relate to entry into contract for sale, terms of contract for sale, performance of contract for sale, variation of contract for sale, failure to investigate proposed transaction for redemption by mortgagor, providing finance to purchaser, misrepresentation to mortgagor of terms of contract for sale — In circumstances where the mortgagor was at no time ready willing and able to redeem the mortgage — Breach of duty only found in relation to words and conduct of mortgagee which resulted in the mortgagor losing the chance to obtain $4.25 million by the payment of the higher of two purchase prices in the contract for sale

 

MORTGAGES AND SECURITIES — Mortgages — Duties, rights and remedies of mortgagor — Equity of redemption — Consideration of the equity of redemption in the context of Torrens system land — Consideration of when the equity subsists, is suspended, or is extinguished — Requirements for redemption by mortgagor — Equity of redemption suspended during period in which contract for sale is on foot — Where completion of contract for sale is subject to a condition subsequent

 

LAND LAW — Torrens title — Exceptions to indefeasibility — Fraud — Allegations of fraud of mortgagee — Concepts of statutory fraud and breach of equitable duty of good faith distinguished — Where fraud case put on materially similar factual basis as breach of good faith case — No basis for finding of fraud or relevant dishonesty except as to the words and conduct of mortgagee which resulted in the mortgagor losing the chance to obtain $4.25 million by the payment of the higher of two purchase prices in the contract for sale — In circumstances where it would not be proper for the Court to speculate and treat a ground for suspicion regarding the joint venture negotiations as a proper basis for a finding of fraud

 

LAND LAW — Torrens title — Exceptions to indefeasibility — Fraud — Whether purchaser a party to mortgagee’s fraud — Purchaser’s participation in the failure of the mortgagee to inform the mortgagor of the chance to obtain an extra $4.25 million such that purchaser was relevantly a participant in fraud of mortgagee

 

CONTRACTS — Misleading conduct under s 18 of the ACL and s 12DA of the ASIC Act — Misleading or deceptive conduct — Silence — Circumstances in which silence can constitute misleading or deceptive conduct — Misleading or deceptive conduct found because the mortgagee had a general duty to exercise the power of sale in good faith, which imposed a positive duty to inform the mortgagor of the extra $4.25 million — Whether purchaser has accessorial liability for involvement in such conduct

 

CONTRACTS — Unconscionable conduct under statute — Failure of mortgagee to inform mortgagor of extra $4.25 million was unconscionable in the relevant sense, because in this respect the mortgagor was vulnerable and good conscience required disclosure — Purchaser a person involved in such conduct for reasons equivalent to finding of participation in mortgagee’s fraud

 

LAND LAW — Torrens title — Indefeasibility of title — Indefeasibility of third defendant’s title to two registered mortgages — Indefeasibility accepted, as the relevant fraudulent conduct did not actually cause the purchaser to become the registered proprietor of the land — Where likely that other entities would have been required to have been joined as parties — Consideration of whether third defendant was a bona fide purchaser for valuable consideration — In circumstances where mortgages held on trust for another party

 

MORTGAGES AND SECURITIES — Mortgages — Duties, rights and remedies of mortgagee — Power of sale — Burden of proof — Whether burden of proof in relation to the duty of good faith shifts onto the mortgagee exercising the power of sale in circumstances where the mortgagee has an interest in selling to the purchaser — Where the issues in the case before the Court changed substantially after the time at which the defendants were in a practical position to change their forensic strategy

 

ESTOPPEL — Issue and Anshun estoppel — Where no real curial contest and no definition of issues in the first proceedings — Rejection of submission that it was unreasonable for the plaintiff not to have introduced claims in first proceedings because, although the basis for the claims was unknown, it may have been discovered had the plaintiff called upon a notice to produce — Sufficient to decide that the plaintiff is not estopped from pursuing the claims upon which it has succeeded

 

CIVIL PROCEDURE — Pleadings — Fraud — Specific and particular allegations — Requirement for fraud to be pleaded and particularised — Reject plaintiff’s fraud, collusion and breach claims to the extent that such claims were not pleaded, or were otherwise introduced too late during the hearing

 

MORTGAGES AND SECURITIES — Mortgages — Duties, rights and remedies of mortgagee — Appointment of a receiver — Whether knowledge of agent imputed to principal — In circumstances where receivers were not under any duty to inform mortgagor about the terms of the contract for sale — Where defence held not to be available on the pleadings in any case

 

EQUITY — Equitable remedies — Equitable interests in property — Nature of equitable interests — Consideration of appropriate remedy in relation to $4.25 million, including whether the breach or fraud should give rise to a proprietary right

  EQUITY — Defences — Laches and acquiescence —
Consideration of laches defence, but held inappropriate at this stage in the circumstances to exhaustively examine

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth)
Competition and Consumer Act 2010 (Cth), Schedule 2
Conveyancing Act 1919 (NSW)
Evidence Act 1995 (NSW)
Real Property Act 1900 (NSW)
Trade Practices Act 1974 (Cth)

Cases Cited:

A Legudi & Sons (Vic) Pty Ltd v VL Finance Pty Ltd, unreported, Supreme Court of Victoria, 30 April 1997; BC9701590
Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 579
Anderson v Anderson (2017) 94 NSWLR 591; [2017] NSWCA 131
Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195
Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 368 ALR 1
Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Developpement SA [1983] BCLC 325
Bank of Western Australia Ltd v Abdul [2012] VSC 222
Barnes v Addy (1874) LR 9 Ch App 244
Barns v Queensland National Bank Ltd (1906) 3 CLR 925; [1906] HCA 26
BCI Finances Pty Ltd (in liq) v Binetter (No 4) [2016] FCA 1351; (2016) 117 ACSR 18
Beach Petroleum NL v Johnson (1993) 43 FCR 1
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 70 ACSR 1
Belton v Bass, Ratcliffe and Gretton Ltd [1922] 2 Ch 449
Benson v Cook (2001) 114 FCR 542; [2001] FCA 1684
Blatch v Archer (1774) 1 Cowp 63; 98 ER 969
Bogdanovic v Koteff (1988) 12 NSWLR 472
Branwood Park Pastoral Co Pty Ltd v Willing & Sons Pty Ltd [1976] 2 NSWLR 149
Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; [1938] HCA 34
Brockway v Pando (2000) 22 WAR 405; [2000] WASCA 192
Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425; [2015] HCA 2
Charles J Holohan v Friends Provident and Century Life Office [1966] I.R. 1
Chia v Rennie (1997) 8 BPR 15,601
Cityland and Property (Holdings) Ltd v Dabrah [1968] 1 Ch 166
Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; [1981] HCA 70
Commonwealth Bank of Australia v Lee (1996) 22 ACSR 574
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8
Cook v Benson (2003) 214 CLR 370; [2003] HCA 36
Corin v Patton (1990) 169 CLR 540; [1990] HCA 12
Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460; [1967] HCA 3
Dare v Pulham (1982) 148 CLR 658; [1982] HCA 70
Derry v Peek (1889) 14 App Cas 337
Ekes v Commonwealth Bank of Australia [2014] NSWCA 336; (2014) 313 ALR 665
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22
Farrar v Farrars Ltd (1888) 40 Ch D 395
Forsyth v Blundell (1973) 129 CLR 477; [1973] HCA 20
Frazer v Walker [1967] 1 AC 569
Friend v Mayer [1982] VR 941
Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453
Gomba Holdings UK Ltd v Minories Finance Ltd [1988] 1 WLR 1231; [1989] 1 All ER 261
Griffiths as trustee for the Griffiths HWL Practice Trust v Martinez as trustee for the Martinez HWL Practice Trust as representative of the partners trading as HWL Ebsworth Lawyers [2019] NSWSC 664
Groongal Pastoral Co Ltd (in liq) v Falkiner (1924) 35 CLR 157; [1924] HCA 54
Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1994) 8 BPR 15,581
Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; (2018) 356 ALR 440
John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68
Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265
McKean v Maloney [1988] 1 Qd R 628
Meshumar v Otmy (2018) 97 NSWLR 615; [2018] NSWSC 125
Mijac Investments Pty Ltd v Graham (No 2) [2009] FCA 773; (2009) 72 ACSR 684
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31
Nash v Eads (1880) 25 Sol Jo 95
Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; [1912] HCA 9
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; [1982] HCA 29
Pollock v Hicks [2015] NSWCA 122
Pooley’s Trustee v Whetham (1886) 33 Ch D 111 (CA)
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45
Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 97,341
Property and Bloodstock Ltd v Emerton [1968] Ch 94
PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643
Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81; [2007] HCA 53
Quennell v Maltby [1979] 1 All ER 568; 1 WLR 318
Quint v Robertson (1985) 3 NSWLR 398
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477
Routestone Ltd v Minories Finance Ltd [1997] BCC 180
Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40
Small v Tomassetti [2001] NSWSC 1112
Smith v Smith (No 7) [1891] 3 Ch 550
Smits v Roach (2004) 60 NSWLR 711; [2004] NSWCA 233
State Bank of New South Wales v Chia (2000) 50 NSWLR 587; [2000] NSWSC 552
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35
Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462
Tooheys Ltd v Commissioner of Stamp Duties (1960) 60 SR (NSW) 539
Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349
Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646; [2004] NSWSC 114
Upton v Tasmanian Perpetual Trustees Ltd (2007) 158 FCR 118; [2007] FCAFC 57
Vasiliou v Westpac Banking Corporation (2007) 19 VR 229; [2007] VSCA 113
Waring (Lord) v London and Manchester Assuring Co Ltd [1935] Ch 310
Westpac Banking Corporation Ltd v Kingsland (1991) 26 NSWLR 700
Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 9

Texts Cited:

C. Croft and R. Hay, Mortgagee's Power of Sale (3rd ed, 2012, LexisNexis Butterworths)
E.L.G. Tyler, The Hon. P. Young and C. Croft, Fisher & Lightwood's Law of Mortgage (3rd Australian ed, 2013, LexisNexis Butterworths)
M. Bransgrove and M. Young, The Essential Guide to Mortgage Law in New South Wales (2nd ed, 2014, LexisNexis Butterworths)
R.T.M. Whipple, Property Valuation and Analysis (2nd ed, 2006, Thomson Lawbook Co)
Sir F.J. Jordan and F.C. Stephen, Chapters on Equity in New South Wales (6th ed, 1945, University of Sydney Law School)
W.D. Duncan and W.M. Dixon, The Law of Real Property Mortgages (2nd ed, 2013, The Federation Press)

Category:

Principal judgment

Parties:

Almona Pty Ltd (plaintiff)
Parklea Corporation Pty Ltd (first defendant)
Secured Asset Portfolio III Limited (second defendant)
PT Limited (third defendant)

Representation:

Counsel:
DL Williams SC/E Bishop/E Walker (plaintiff)
K Andronos SC/S Keizer (first defendant)
E Hyde/T Epstein; NC Hutley SC (29-30 August 2019) (second defendant)
M Izzo SC/J Burnett (third defendant)

  Solicitors:
HWL Ebsworth (plaintiff)
Norton Rose Fulbright (first defendant)
King & Wood Mallesons (second defendant)
Corrs Chambers Westgarth (third defendant)

File Number(s):

2018/317496

Judgment

Introduction

1. Up until 22 March 2016, the plaintiff, Almona Pty Ltd (Almona), was the registered proprietor of land situated at Sunnyholt Road and Old Windsor Road, Parklea NSW (the Land). The Land was in a number of titles, but although that fact had certain conveyancing consequences, it may be ignored for the purposes of these reasons.

2. The Land was the site of an enterprise called the Parklea Markets (the Markets). Part of the Land was used as the residence of Almona's director, Mr Con Constantine (the Residence).

3. The Land was sold on 22 March 2016 by the second defendant, Secured Asset Portfolio III Ltd (SAP), as mortgagee in possession under a contract for sale made on 13 January 2016 (the Contract) with the first defendant, Parklea Corporation Pty Ltd (Parklea). The power of sale arose under a registered mortgage and a general security deed granted by Almona to SAP.

4. SAP was a member of a group of companies that the parties to these proceedings have referred to as PAG, or the PAG group. As I understand it, PAG is a reference to Pacific Alliance Asia Special Situations Fund LP (and its associated entities), which acted by its general partner Pacific Alliance Special Situations Management Ltd. The evidence shows that, relevantly to the issues in these proceedings, the centre of business for PAG was Hong Kong. PAG acted as a financier through special purpose vehicles incorporated in the British Virgin Islands and Cayman Islands. SAP was such a special purpose vehicle. In conformity with the approach adopted by the parties, I will simply refer to PAG when there is no need to identify the particular entity within the group and I am not specifically referring to SAP.

5. Parklea was also a special purpose vehicle, in its case primarily as a company associated with an Australian group of companies, who were primarily involved in real estate development, which has been called the Dyldam group and of which Dyldam Developments Pty Ltd was a related entity. Unless it is necessary to differentiate between them, I will refer to the Dyldam group and Dyldam Developments Pty Ltd simply as “Dyldam”. A principal of Dyldam is Mr Remon (Sam) Fayad. Mr Chris Jarrett assisted Mr Fayad.

6. Following a default by Almona in respect of its obligations under its loan agreement with SAP, SAP appointed Mr Philip Carter and Mr Daniel Walley, of PPB Advisory, as receivers and managers of Almona on 17 April 2015 (the receivers).

7. The evidence shows that the persons who directed the day-to-day operations of PAG in respect of the transactions and conduct the subject of these proceedings were Mr James McMurdo and Mr Anshumann Woodhull. Mr Peter Law was the legal counsel of PAG at relevant times. The Court was also informed that PAG primarily came under the control of Mr Jon Robert Lewis, Mr Horst Geicke and Mr Christopher Gradel.

8. Mr Stuart Dixon-Smith, a partner of King & Wood Mallesons, was the primary solicitor acting for and advising PAG, SAP, and other relevant PAG entities, in respect of the transactions the subject of these proceedings.

9. A number of solicitors at Gilbert + Tobin acted for the receivers in respect of different aspects of the transactions.

10. Parklea, and other relevant entities in Dyldam, were represented by Madison Marcus, primarily by a solicitor named Mr Ramy Qutami.

11. The primary solicitor acting for Mr Constantine was Mr Norman Donato, an executive lawyer at Bartier Perry. Mr Donato also, from time to time, claimed to act on behalf of Almona, notwithstanding the appointment of the receivers, on the basis of what Mr Donato described as Almona's equity of redemption.

12. It will be convenient to defer mentioning the other lawyers who acted for the various parties until the context in which their involvement is considered.

13. It will be convenient, at this stage, also to note that a company called Wesco Capital Pty Ltd (Wesco), a company associated with a Mr Tony Merhi, is of significance to the dispute, in that Wesco initially made the highest offer to purchase the Land, but then reduced its offer to an amount less than the price offered by Dyldam. Dyldam, through Parklea, ultimately became the purchaser, but, at about the time of completion of the Contract, Wesco secured an interest in the unit trusts whose trustees owned the shares in Parklea. Those facts form part of the basis of Almona's complaint in this matter.

14. Sometime after the completion of the Contract on 22 March 2016, the receivers retired, after SAP had been paid the amount of the debt claimed by it, and the receivers' costs, out of the sale price. A balance was paid to Almona. Control of Almona reverted to Mr Constantine, who has caused Almona to commence these proceedings.

15. An unusual feature of the Contract was that it provided for alternative prices to be paid by Parklea. The price was $85,350,000 on the basis that Mr Constantine had vacated his possession of the Residence, and $81,100,000 if vacant possession was not given on completion. There is an issue as to whether Almona was informed of the alternative prices, given that the receivers were aware of the terms of the Contract. On the facts, it appears that Mr Constantine was not informed of the alternative prices, and he claims that Almona was not relevantly aware of that term. In any event, in his ignorance, Mr Constantine did not give vacant possession, the parties to the Contract varied its terms to specify only a price of $81,100,000, and the Contract was completed on that basis. According to Almona, it lost the opportunity to receive an additional $4,250,000 as a result of the sale of the Land.

16. Almona accepted that the Contract was entered into in the context of a marketing campaign run by the receivers, and that the process, on its face, appeared to be regular.

17. Specifically, Almona did not contend that the sale price agreed by SAP and Parklea was an undervalue, although the claim that Almona ultimately sought to make that SAP and Parklea had caused Wesco to reduce the price that it offered to pay throws doubt on that concession.

1. Parklea's obligation to pay the purchase price under the Contract was substantially financed through another related special purpose vehicle of PAG, incorporated in the British Virgin Islands, named Lord Business Holdings VI Ltd (Lord VI). Another PAG special purpose vehicle, Lord Business Holdings VIII Ltd (Lord VIII), was given the opportunity to acquire 80% of the shares in Parklea by means of a call option that I will explain in more detail below.

2. At the time of completion, the securities granted by Parklea to secure its obligations to Lord VI were issued to a professional, independent security trustee, who is the third defendant in these proceedings, PT Ltd (PT), which is apparently a subsidiary of Permanent Ltd. PT did not have notice of any of the facts and circumstances that give rise to Almona's claims in these proceedings.

3. Following completion, Parklea became the registered proprietor of the titles that constitute the Land, and the real property mortgages granted by Parklea to PT were also registered against the titles.

Outline of claim made by Almona

21. The principal objective of Almona in these proceedings was to obtain orders that had the effect of setting aside the transfer of the Land to Parklea, notwithstanding that Parklea had become the registered proprietor of the Land and, ordinarily, Parklea's title would be indefeasible.

22. In order to undermine the indefeasibility of Parklea's title to the Land, Almona was required to establish that Parklea became registered proprietor by its own fraud, or the fraud of SAP as vendor to which Parklea was a party.

23. As will be seen, Almona initially based its claim that SAP and Parklea had engaged in fraud by alleging that, in exercising its mortgagee's power of sale, SAP had breached its duty to act in good faith towards Almona. Almona alleged that SAP's conduct so deliberately sacrificed Almona's interest in the Land that it could properly be characterised as fraudulent.

24. Almona initially accepted that the sale process that led to the Contract being made between SAP and Parklea was a proper one, and Almona based its case of fraudulent conduct by SAP in which Parklea participated on the steps taken by SAP and Parklea in the performance and completion of the Contract. Almona made a number of complaints, but the primary one was that Almona had informed SAP that it had negotiated a potential agreement with a third party that may have enabled it to raise the funds necessary to repay the debt that it owed to SAP so that it could redeem the mortgage. Almona requested SAP to provide it with a payout figure, and to give Almona time for the due diligence process required to take place, so that Almona could enter into the funding agreement with the third party. Instead, Almona complained that SAP responded by making the Contract unconditional and, with the cooperation of Parklea, accelerated the completion of the Contract for the purpose of denying Almona the opportunity to redeem the mortgage.

25. Although Almona accepted that the contract price was in accordance with the market value of the Land, by reason of disclosures that occurred during the course of the proceedings, Almona later sought to widen its fraud claim against SAP and Parklea to claim that those companies had acted fraudulently by undertaking joint venture negotiations during the sale process that led to Lord VI funding the purchase of the Land by Parklea and Lord VIII obtaining the right to acquire 80% of the shares in Parklea by means of the call option. The joint venture negotiations were coincident with Wesco reducing its offer to acquire the Land by $13,000,000, so that the offer made by Dyldam that led to the Contract being made with Parklea was the highest offer. It has ultimately been discovered that Mr Merhi, through his Visy companies, acquired a 20% interest in Parklea at the time the Contract was completed.

26. Separately, Almona claimed that the completion by SAP and Parklea of the Contract for a price of $81,100,000, without giving Almona the opportunity to arrange for Mr Constantine to vacate the Residence, and so increase the price payable by $4,250,000, as well as the making of a variation to the Contract to remove any trace of the higher price, was fraudulent conduct by SAP and Parklea.

27. Even if Almona succeeded in establishing that the transfer to Parklea should be set aside and Parklea ordered to retransfer the Land to Almona, Almona faced the difficulty that PT was on no view party to any fraudulent conduct by SAP and Parklea. To get an effective remedy, it was necessary for Almona to challenge the indefeasibility of the mortgages granted by Parklea to PT. Almona sought to do that by making legal arguments as to why PT's title to the mortgages does not take priority over Almona's title to the Land.

28. Almona put its claim for relief on other grounds that are best considered below, and also sought an accounting from SAP as mortgagee, as well as an inquiry into the damages suffered by Almona. Consequently, this judgment will not determine all of the issues that arise in these proceedings.

29. It will be necessary in this matter for the Court to analyse the parties’ pleadings and particulars in detail. That will be a more intelligible process if the material facts are set out first.

Background

30. As the evidence was almost exclusively documentary, it will be appropriate for the Court to consider, and in some cases to extract, the evidence that is material to the determination of the issues in these proceedings in some detail. I consider that this exercise will be best done in a generally chronological way.

31. As the parties each produced their own tender bundles, which were extensive and overlapping, the Court has relied substantially on the parties’ identification in their final submissions of the relevant aspects of the documentary evidence.

Facility granted by SAP to Almona

32. PAG initially offered to make a facility available to Almona by a letter to Mr Constantine dated 8 March 2013. Almona applied the facility to repay a debt owed by it to Westpac Banking Corporation.

33. Almona entered into a Loan Notes Subscription Agreement (2013 LNSA) with SAP on 31 May 2013. Almona was identified as the Issuer in Schedule 1 of the 2013 LNSA. In that capacity, cl 2.1 permitted Almona to issue Loan Notes which were required to be subscribed for by the Financier. SAP entered into the 2013 LNSA as Original Financier, Agent, Security Trustee and Arranger. By cl 2.2, the aggregate principal amount of the Loan Notes that could be issued by Almona was the Facility Limit, which was defined in cl 1.1 as being $53,200,000.

34. Clause 7.1 required Almona to redeem each Loan Note in full on the Redemption Date, which was defined in cl 1.1 as being the Original Redemption Date as may be extended under cl 2.6. The Original Redemption Date was defined in cl 1.1 as meaning the date which was 12 months from the Effective Date. That date was 31 May 2013, so, absent an extension, the Loan Notes were required to be redeemed on 31 May 2014. Clause 2.6 provided for a mechanism for SAP to agree to extend the Redemption Date in certain circumstances.

35. Mr Constantine and Constantine Holdings Pty Ltd, in that company’s own capacity and in its capacity as trustee of the Constantine Family Trust, signed the 2013 LNSA as guarantors.

36. Schedule 8 to the 2013 LNSA contained a number of Milestones which placed obligations on Almona designed to ensure the financial viability of the Land and the Markets that were operated on that land. There is evidence that Almona did not meet these obligations, but it is not necessary to analyse that evidence in detail.

37. On 31 May 2013, Almona granted a number of mortgages in favour of SAP, including a mortgage that was registered over the titles that constituted the Land (the Mortgage).

38. Clause 6.1(a) of the Mortgage gave SAP a power of sale of the Land if any Event of Default occurred. By means of cl 1.2(a) of the Mortgage and cll 1.1 and 16.1(a) of the 2013 LNSA, “Event of Default” included a failure to pay any amount due and payable under the 2013 LNSA.

39. Clause 7 of the Mortgage empowered SAP to appoint any persons as receivers and managers of Almona if any Event of Default occurred.

40. By cl 7.2, the receivers and managers were granted all of the powers conferred on the mortgagee by the Mortgage. Those powers were in common form, and were listed principally in cl 6.1. They were expressed in extremely wide terms, but were broadly directed to empowering the mortgagee to exercise all of the mortgagor’s powers in respect of the Mortgaged Property and to operate its business in respect of that property.

41. In the common manner, cl 7.5 had the effect that any receivers and managers of Almona appointed by SAP would be the agents of Almona, and Almona would “be solely responsible for all acts and omissions” by each receiver and manager.

42. Also on 31 May 2013, Almona entered into a General Security Deed in favour of SAP, which also contained a term that entitled SAP to appoint receivers and managers of Almona upon default.

43. On 31 May 2013, Almona entered into a Call Option Deed with Ratio Development Ltd (RDL). The evidence established that RDL was an entity controlled by PAG. The deed entitled RDL to purchase the Land for $50,000,000 if, inter alia, the amount owing under the 2013 LNSA was not repaid in full on or before the Original Redemption Date, with the option being exercisable at any time from the date of default until the amount owing under the 2013 LNSA was zero: see cll 2.1, 3.1, 3.4 and the relevant definitions in cl 1.1.

Default by Almona and appointment of receivers

44. Between about 23 May and 30 May 2014, Almona sought an extension of the Redemption Date under cl 2.6 of the 2013 LNSA for a further period of nine months, but, on the latter date, that request was rejected by SAP, as the terms of the agreement permitted it to do.

45. The Redemption Date of 31 May 2014 passed without Almona redeeming the issued Loan Notes.

46. On 15 April 2015, a formal demand was served on Almona under the 2013 LNSA on behalf of SAP requiring Almona to pay the amount of $66,720,149.08 by midday on 17 April 2015, exclusive of any amounts in respect of costs and other liabilities or losses to which SAP was entitled.

47. Almona did not pay the amount claimed by SAP, or any other amount, by 17 April 2015.

48. As mentioned above, SAP appointed the receivers as receivers and managers of Almona, exercising its power under the Mortgage and the General Security Deed, on 17 April 2015.

Valuations of the Land

49. On 29 June 2015, the receivers, on their own behalves and on behalf of Almona, obtained a formal valuation of the Land from Preston Rowe Paterson. The net realisable value assigned to the existing Service Centre and all other components of the Land sold ‘in one line’ was $47,360,000, subject to certain listed conditions. Those conditions included assumptions that the Land could be subdivided into different components. The valuer assigned a second value to the Land of $67,500,000 for a sale ‘in one line’ on the assumption that a “Residential and Commercial Master Plan” could be achieved. That Master Plan was described at page 17 as involving an existing Service Centre being subdivided and sold separately, and that the balance of the Land, being 20.96 ha, would receive development approval in accordance with a plan proposed by Urbis within a period of three years. That plan contemplated the construction of total commercial gross floor area of 10,396 m², total residential gross floor area of 130,972 m², and 1,612 residential units. As appears from page 87 of the valuation report, the valuer derived the $67,500,000 valuation on the basis that the bulk of the Land would be acquired as a development site, and used the residual cash flow feasibility model to assess the value.

50. Thus, the higher valuation was determined on the basis of a positive assumption that development approval could be obtained for a particular concept development within three years of the sale of the Land.

51. The receivers obtained a second formal valuation of the Land from CBRE Valuations Pty Ltd on 18 July 2015. The values assigned to the property were $48,700,000 “as is – subject to continuing existing use”, and $70,000,000 “alternative use based on a residential development scenario (per Urbis Town Planning Status Report)”.

52. Mr Constantine, on behalf of Almona, also obtained a valuation report in respect of the Land. The valuation was prepared by Abbotts Valuers as at 1 June 2015. The valuation was prepared for Almona’s “Internal Purposes”. The valuation adopted as the Current Fair Market Value was $115,000,000. Unlike the two valuations obtained by the receivers, the valuer in this case did not have the benefit of a town planning report of the nature of the Urbis report provided by the receivers to their valuers (see par 4.1). The valuer was required to assume his own development plan using the Blacktown City Council online mapping service. The valuer assumed that 147,861 m² would be approved for medium density residential development, 45,370 m² “for an international hotel such as the Novotel Sydney Norwest Hotel at nearby Baulkham Hills”, and 24,150 m² for commercial uses (see par 4.2). The total area assumed to be available for development was 217,381 m², compared to the 141,368 m² the subject of the Urbis town planning report. On the basis of a comparable sales analysis of en-globo development sites in neighbouring areas, the valuer adopted values of $350 psm, $1,000 psm and $750 psm for the three different uses respectively (see par 7.3). The value arrived at was sensitive to the assumption of a substantially greater area for development, and that an international hotel could be constructed on the Land. The latter assumption contributed $45,370,000 to the total value. In very broad terms, it is likely that the valuer would have adopted a comparable value to the other two valuations if he had adopted the same assumptions. While this valuation appears to have been professionally prepared, its utility would necessarily depend upon the validity of the assumptions made concerning the area available for redevelopment and the feasibility of the construction of an international hotel. The valuer did not attempt to justify his assumptions in this respect.

53. Although the Abbotts Valuers valuation was admitted into evidence, it was not admitted as proof of the value of the Land.

54. Almona did not suggest that it was unreasonable for the receivers or SAP to rely upon the two valuation reports obtained by the receivers. The receivers were not provided with the Abbotts Valuers report.

Failure of Almona’s attempts to repay SAP

55. There was evidence concerning communications between the legal representatives of Almona and the receivers concerning the possibility that Almona would refinance the debt that it owed to SAP. It is common ground that Almona’s efforts in this regard were unsuccessful. It is not necessary for the Court to note all of the correspondence. It is material to note that, on 3 August 2015, King & Wood Mallesons provided Mr Donato with a payout figure as at 31 July 2015 of $70,989,568.64, together with an explanation as to why certain additional components of the amount due could not be estimated in advance of the payout. SAP relied upon the evidence of Almona’s regular failure to implement proposals to repay SAP, after SAP and the receivers had gone to some lengths to facilitate the payout, as evidence justifying their later scepticism that Almona’s claims that it would soon repay its debt to SAP were reliable.

56. On 18 August 2015, Mr Donato advised Gilbert + Tobin on behalf of the receivers that the target date for the refinance was 31 August 2015.

57. Gilbert + Tobin, on 21 August 2015, provided to Mr Donato detailed figures concerning the receivers’ estimated net cash position as at 31 August 2015.

58. In respect of the proposed refinancing, by 30 August 2015, Gilbert + Tobin had prepared a suite of deeds and discharges necessary to effect the discharge of relevant mortgages, the retirement of the receivers, and the release of securities.

59. Mr Donato advised the lawyers for the other parties on 31 August 2015 that the date for the refinancing had been deferred to 4 September 2015.

60. On 3 September 2015, a solicitor at King & Wood Mallesons requested confirmation by email from Mr Donato that the refinance would take place at 2 PM on 4 September 2015. The same solicitor sent a further email on 4 September 2015 to representatives of PAG and the receivers noting that, as at 12:39 PM on that date, she had not received a response from Mr Donato.

61. On 11 September 2015, Mr Donato advised the solicitor at King & Wood Mallesons that Almona’s lender would be in a position to settle the refinance on 18 September 2015.

62. Mr Donato confirmed by email on 14 September 2015 that it had been confirmed that the documentation for the refinance had been agreed with the incoming lender’s solicitor, and that Almona would be in a position to settle the refinance on 18 September 2015.

63. On 17 September 2015, Mr Dixon-Smith wrote to Mr Donato giving a payout figure as at 18 September 2015 of $75,615,868.71, and explaining the composition of that figure. A detailed set of settlement instructions was prepared to guide all parties in the settlement.

64. On 21 September 2015, Mr Dixon-Smith provided Mr Donato with a schedule setting out the receivers’ calculation of their net cash position “as at Wednesday’s scheduled settlement”, which causes me to infer that the settlement scheduled for 18 September 2015 had been further deferred.

65. Mr Donato advised Mr Dixon-Smith by email on 23 September 2015: “I am troubled to have to information [sic] you that due to an issue which the lender first raised with our client at 9:40 PM last night, and which has not yet been resolved, settlement will not be occurring at 2:30 PM this afternoon”.

66. Later on 23 September 2015, Mr Donato asked Mr Dixon-Smith “if you would provide us the discharge figures for next Wednesday, 30th September as soon as possible”. Nothing came of the attempt by Almona to refinance the debt owed to SAP.

Service of s 57(2)(b) notices

67. In the meantime, on 7 August 2015, Mr Dixon-Smith, on behalf of SAP, served a notice on Mr Constantine under s 57(2)(b) of the Real Property Act 1900 (NSW) (Real Property Act). The amount of the debt claimed was $71,262,096.22 excluding certain descriptions of fees and costs. On 20 August 2015, Mr Dixon-Smith also served a s 57(2)(b) notice on Almona. It advised that, if the amount demanded was not satisfied within one month after service, SAP proposed to exercise its power of sale in respect of the Land.

Receivers’ attempts to get Mr Constantine to sign a tenancy agreement

68. For a considerable time, Mr Constantine and his family had lived at the Residence under an informal arrangement with Almona. The Residence is a two-storey dwelling with multi-car parking, pool and gardens.

69. After the receivers were appointed, they made a number of attempts to persuade Mr Constantine to enter into a tenancy agreement with them on behalf of Almona. The receivers did not consent to Mr Constantine’s continuing informal occupation of the Residence.

70. On 18 August 2015, the receivers, acting on behalf of Almona, offered to enter into a residential tenancy agreement with Mr Constantine in respect of the Residence.

71. The receivers made a further request in that respect in a letter dated 11 September 2015, in which they noted that Mr Constantine’s occupation of the Land had not been ratified by the receivers. The letter included the following:

The Parklea Markets site has been offered for sale subject to the tenancies in the Markets and no residential tenancy. We strongly recommend you immediately sign and return to us the residential tenancy agreement /lease/licence provided to you by no later than 25 September 2015. If we do not receive the documents by this date we will commence proceedings to obtain vacant possession of the residence.

72. Mr Constantine did not comply with these requests. The receivers did not commence proceedings to obtain vacant possession of the Residence before the completion of the sale of the Land to Parklea.

Appointment of Colliers to sell the Land

73. In their 11 September 2015 letter, the receivers advised Mr Constantine that they had appointed Colliers International (Colliers) as sales agent for the Land.

Sale of security properties by receivers

74. On 21 September 2015, the receivers sold a property at Glenwood Park that Almona had mortgaged in favour of SAP for $2,000,000. The contract was completed on 23 November 2015. A further property located in Hunter Street, Newcastle West that was similarly mortgaged to SAP was sold by the receivers on 9 November 2015 for $11,001,000, with completion occurring on the same day.

Expressions of interest campaign

75. Colliers conducted an expressions of interest campaign on behalf of the receivers in two stages to obtain the best price from the market for the sale of the Land.

76. Colliers provided a detailed written proposal to the receivers in respect of the marketing and sale of the Land on 25 August 2015. Colliers recommended a dual marketing approach, seeking interest from the market for the sale of the whole property in one line, or the sale of the service centre and the balance of the property in one line. Colliers considered that the market value was in the order of $85,000,000 to $91,000,000. The target market recommended was investors seeking to capitalise on the current operations of the Markets complemented by the service centre, and residential developers seeking to land bank for the future with the benefit of short to medium term holding income. Colliers recommended offering the property on the basis of expressions of interest, leading to a competitive second-round tender for selected participants.

77. Colliers specifically nominated likely participants in the expressions of interest process. One of the local possibilities identified was Dyldam, which Colliers described in the following terms: “A large private residential developer active in Sydney’s western suburbs. Has been active in acquiring residential sites in Parramatta, Baulkham Hills and Castle Hill. Dyldam has a strong appetite for planning risk while also holding an extensive investment portfolio. Furthermore, Dyldam recently signed a $200 million JV partner deal with a large capital partner from Shanghai”. Colliers did not mention Wesco in the list of local prospects.

78. After its appointment, Colliers circulated a detailed information memorandum to potential purchasers of the Land, as well as a draft confidentiality deed for execution, and terms of access to the online data room.

79. Colliers provided weekly marketing reports to the receivers, commencing in early October 2015. The second report, dated 14 October 2015, recorded that Mr Chris Jarrett of Dyldam had received a copy of the information memorandum and requested a copy of the confidentiality deed, access waiver and online data room terms. The third report, dated 22 October 2015, advised that Mr Jarrett had organised a meeting to view the site, and that Dyldam was investigating planning options and the best method to manage the Markets. In their fourth report, dated 28 October 2015, Colliers advised that the meeting with Mr Jarrett had been productive and that planning opportunities had been discussed. Dyldam was: “Showing strong interest”.

80. There was no reference in the Colliers reports, or anywhere else in the evidence, to Mr Merhi or anyone else on behalf of his companies having contacted Colliers, inspected the Land, or shown any interest in submitting an expression of interest.

81. There were 13 responses to the first round of the expressions of interest as at 30 October 2015.

82. The highest price stated was $92,000,000 by Wesco, whose contact was Mr Merhi. Wesco specified a deposit of 5%, with a due diligence period of 21 days and settlement within six months.

83. The second-highest amount offered was a price of $85,350,000 by Dyldam, whose contact was Mr Fayad. The deposit stipulated was 5%, with a due diligence period of 21 days and settlement within 12 weeks.

84. Toplace Pty Ltd (Toplace) offered a price of $84,250,000, with a 15% deposit, a due diligence period of four weeks, and a settlement period of six months after the exchange.

85. There were two other prices proposed at $80,000,000 or above, being $83,000,000 by Billbergia Pty Ltd (the group will be referred to as Billbergia Group) and $80,000,000 by Mulpha Australia Ltd. The next-highest price proposed was $70,000,000.

Mr Constantine’s dealings with Mr Merhi

86. It emerged during the cross-examination of Mr Constantine, on the fifth day of the hearing, that, on 27 October 2015, Mr Constantine, Mr Merhi and a company called Australia International Investment Holdings Group Pty Ltd entered into a Deed of Agreement concerning the Land. The deed recited that Mr Constantine and Mr Merhi were contemplating a joint venture and/or a share sale and/or another transaction involving the assets of Almona. This was notwithstanding that the receivers were, at the time, in control of those assets. Clause 2 of the deed provided that, if an agreement was reached that involved Mr Merhi injecting money into Almona to allow it to discharge all securities it had granted to SAP, with each of Mr Constantine and Mr Merhi holding an interest in Almona or its assets, they would procure that Almona pay a commission of $5,000,000 to Australia International Investment Holdings Group Pty Ltd.

87. Mr Constantine admitted that he had signed the Deed of Agreement (and that his signature was witnessed by his wife). Mr Constantine’s evidence on this issue was most unsatisfactory. He grudgingly admitted the existence of the deed, but seemed to deny that he had ever made an agreement as to some of its terms.

88. The principal significance of the Deed of Agreement is its existence and the fact that it was made some three days before the close of the first round of the expressions of interest campaign. Almona was entirely unforthcoming about the deed or the circumstances in which it was made in Almona’s own case. The Court was told nothing about the deed other than its terms. Mr Constantine said that he had only met Mr Merhi on a single occasion when Mr Merhi visited Almona’s office at the Land to seek some vaguely-worded information concerning Almona’s circumstances.

89. In the context of Almona making a claim that SAP colluded with Dyldam and Mr Merhi to subvert the expressions of interest process, it is telling that there is no objective evidence of any representative of SAP dealing personally with Mr Merhi, or any representative, or knowing anything more about any company of his other than the submissions of expressions of interest by Wesco. The only positive evidence of any party dealing with Mr Merhi is that concerning Mr Constantine’s entirely unexplained, and unauthorised, entry into the Deed of Agreement on behalf of Almona.

Events following first round of expressions of interest

90. Between the deadline for the submission of first-round expressions of interest and the final date on or around 16 December 2015, which was the close of the second round, various events occurred that are significant to Almona’s claim.

91. The receivers gave Colliers an instruction, on 27 November 2015, that they should limit the second round of expressions of interest to four participants. On 27 November 2015, Colliers wrote to Dyldam to invite it to submit its best offer. Colliers made a similar invitation to “a select number of parties”, being Wesco, Toplace and Billbergia Group as well as Dyldam, although those other invitations are not in evidence.

92. Colliers sent amended special conditions to the Contract to Dyldam on 8 December 2015.

93. One of the amendments to the special conditions was to special condition 55.1, which consisted of a disclosure by the vendor concerning the occupancy of the Residence. The effect of the amendment was to disclose that the house and gardens on the Land were occupied at the date of the Contract without any written agreement and may remain occupied after completion. The special condition, as amended, prevented the purchaser from requiring the vendor to take steps to achieve the vacation of the house and gardens before completion, and provided that the purchaser “releases the vendor in respect of the occupation of the house and gardens and, subject to this contract, any other part of the property”.

94. Almona made a submission (see for example par 2(f) of Almona’s reply submissions) that draft contracts for sale were being exchanged with Dyldam before the expressions of interest process closed on 16 December 2015. To the extent that this submission is true, it is because the receivers provided draft contracts to Dyldam. SAP did not have any direct role in this process. Although the evidence is not complete concerning the receivers’ communications with the other three remaining participants, I would infer that the receivers treated them in the same way that they did Dyldam, at least to the extent that the other participants wished to be so treated. The evidence does not support any conclusion that SAP pre-empted the completion of the expressions of interest process by negotiating the terms of the Contract with Dyldam, before that process had been completed by the receivers.

Preliminary negotiations between SAP and Dyldam

95. On 10 December 2015, Mr Dixon-Smith travelled to Hong Kong in order to attend conferences with representatives of PAG. He returned on 11 December 2015.

96. King & Wood Mallesons’ tax invoice described Mr Dixon-Smith’s involvement, over 2.5 hours, in the following terms:

Parklea Joint Venture – Meeting with Dyldam in Hong Kong. Prepare and edit Parklea Profit Distribution Table [document reference stated]; compose email to James McMurdo and Anshumann Woodhull

97. On 11 December 2015, Mr Dixon-Smith sent an email to Messrs McMurdo and Woodhull of PAG, which attached a spreadsheet showing how Mr Dixon-Smith saw “the profit ratchet working”. There was no oral evidence or other documentary evidence that explained in any detail the purpose of the email and spreadsheet. The spreadsheet, on its face, calculated the marginal profit for Dyldam and PAG for net profits of some apparent proposed venture from $50,000,000 to $700,000,000 in $5,000,000 (and then $25,000,000) increments.

98. Dyldam's marginal profit was nominated at 20% for zero net profit. For net profits between $50,000,000 and $700,000,000, Dyldam's marginal profit ranged from $10,000,000 (25%) to $254,625,000 (40%).

99. PAG's profit ranged from $40,000,000 for a net profit of $50,000,000 to $445,375,000 for a net profit of $700,000,000.

Incorporation of companies controlled by Mr Merhi

100. On 12 November 2015, Visy Group Holdings Pty Ltd and Visy Projects Pty Ltd were registered. The shareholders were Mr Merhi and Wesco Ventures Pty Ltd. Wesco Ventures Pty Ltd had itself been incorporated on 8 October 2015. I will explain the significance of the Visy companies below in connection with the completion of the Contract.

The second round of expressions of interest

101. On 14 December 2015, Mr Matthew Meynell of Colliers advised one of the receivers, Mr Philip Carter, that he would "be flying up tomorrow morning and flying out of Hong Kong on Wednesday evening. I am have [sic] a meeting at Dyldam's office today at 2:30 PM." I infer that the meeting was to take place in Sydney.

102. The second round of expressions of interest ended on 16 December 2015. Wesco's price offered was reduced to $79,000,000, with a 10% deposit, no requirement for due diligence, and a 90-day settlement period. Thus, Wesco's nominated price was reduced by $13,000,000 by comparison to the first round. The offer was made subject to vacant possession, which would presumably have made the offer less attractive given the required amendments to special condition 55.1 of the draft Contract.

103. Dyldam made two alternative offers of $85,350,000 and $81,100,000, each with a proposed deposit of 5%, no requirement for due diligence, and a four-week settlement period. The distinguishing feature of the two offers was that the larger price was subject to vacant possession, and the smaller price was subject to the following condition: "The offer is subject to the existing leases/occupancy arrangements".

104. Toplace, which had proposed a price of $84,250,000 in the first round of expressions of interest, did not submit an expression of interest in the second round.

105. The Billbergia Group, which had proposed a price of $83,000,000 in the first round, submitted alternative offers as part of the second round of the expressions of interest. The two prices were $80,000,000 and $60,000,000. The only difference between the two submissions was that the higher amount was offered subject to vacant possession, and the lower was "subject to the existing leases/occupancy arrangements".

106. Almona sought to make a claim that Wesco’s $79,000,000 offer was a result of the alleged collusion between SAP, Dyldam and Mr Merhi on behalf of Wesco. It may be observed that, if there had been the collusion alleged, Wesco would have been much better served by not submitting any second round expression of interest, in the same way that Toplace did not do so. Making an offer $13,000,000 less than the original offer only served to invite suspicion.

107. In an email dated 17 December 2015, Brett Schofield of PPB Advisory sent a summary of the second round expressions of interest to Gilbert + Tobin, with the instruction that the receivers would be proceeding with the offer from Dyldam. The email included an instruction that the "contract will be signed as MIP", which the evidence establishes meant mortgagee in possession. There is a statement that "PAG requires exchange early next week".

Further negotiations between SAP and Dyldam

108. By an email exchange between the receivers and Colliers on 21 December 2015, Colliers explained that Dyldam had advised that the higher of the two offers would apply if Mr Constantine had vacated the Residence before the completion of the Contract, even though the licence holders at the Markets might continue to occupy their stalls.

109. Also on 21 December 2015, Mr Dixon-Smith gave an instruction to Gilbert + Tobin to issue a new draft sale contract to Dyldam, which included a new clause making the sale subject to the approval of the PAG investment committee.

110. On 22 December 2015, Gilbert + Tobin, who had instructions to act for SAP on the sale, and Madison Marcus, for the purchaser, commenced negotiating the detailed terms of the Contract.

Structure of the proposed joint venture

111. On 23 December 2015, Mr Dixon-Smith sent an email to Mr Qutami, with a copy to Mr McMurdo of PAG, concerning the proposed funding of Dyldam’s acquisition of the Land. The email referred to discussions "in our recent meetings on this issue". The email included the statement:

For ease of reference I have prepared the below diagram which depicts the proposed "Diamond Entity Structure (based on a total funding of $90m, with $51m from the senior debt facility) discussed at those meetings".

112. A comment in the email suggested that meetings occurred in Hong Kong, as Mr Dixon-Smith referred to a discussion of the “diamond structure” during “our meetings in Hong Kong”.

113. The so-called "Diamond Entity Structure" depicted in the email showed a proposal for how a company given the name Dyldam Parklea Developments Pty Ltd would be owned by two companies called Dyldam Parklea Holdings #1 Pty Ltd and Dyldam Parklea Holdings #2 Pty Ltd as to 20% and 80% respectively.

114. The diagram then showed the distribution of proposed ownership and funding as between Dyldam Developments Pty Ltd and PAG. It appears that Dyldam Developments Pty Ltd was to own 100% of the two Dyldam Parklea Holdings companies. It appears that Dyldam Developments Pty Ltd was to provide $2,000,000 in equity and $5,000,000 in mezzanine finance. The diagram is not entirely clear, but it may be intended to convey that PAG was to provide $24,000,000 in “Mezz equity”. It is not clear from the email how the total funding of $90,000,000 was to be made up.

115. Mr Dixon-Smith noted that it was not feasible to have the entities referred to in the diagram incorporated in time for exchange of contracts to take place the following day. He suggested an arrangement whereby the contracting party would be Dyldam Developments Pty Ltd, and the contract would include a term that would permit the subsequent incorporation of Dyldam Parklea Developments Pty Ltd, in a manner that would avoid stamp duty being incurred twice.

116. Mr Qutami replied on 23 December 2015, by attaching a proposed corporate structure, which he had been instructed to set up the following day. The structure contemplated that Parklea Pty Ltd would be established as the proposed purchaser, with Mr Fayad as both director and secretary. 50% of the shares in that company would be held by each of Parklea Holdings 1 Pty Ltd and Parklea Holdings 2 Pty Ltd, which would be established as trustees for unit trusts, with the unit holdings to be determined.

117. Mr Dixon-Smith replied to Mr Qutami's email on 24 December 2015. Mr Dixon-Smith agreed to work with the entity names suggested by Mr Qutami.

118. Mr Dixon-Smith made two additional comments. First, he said:

1. The holdings of Parklea Holdings 1 and 2 in Parklea Corporation P/L should be 80/20 reflecting the agreed "base" share of the economic interests between the two entities, with any "earn up" by Dyldam Group earned through a performance based component of the Development Management Fee. Let’s say Parklea Holdings 2 is the entity that PAG will primarily fund through, then it should hold 80%.

119. Mr Dixon-Smith's second comment was to the effect that the two trusts and shares in the two Parklea Holdings companies would be held 100% by Dyldam in order to avoid the effect of the thin capitalisation rules.

120. Mr Qutami advised on 24 December 2015 that the unit holders were unlikely to be Dyldam Developments Pty Ltd "but a wholly owned Dyldam group entity".

121. It is to be noted that in none of the emails or the diagrams of the proposed structures that had been circulated to this time was there any reference to any involvement of Wesco, or any entity associated with Mr Merhi. Both Mr Dixon-Smith and Mr Qutami made positive references to the units being "held 100% by Dyldam", or by "a wholly owned Dyldam group entity".

122. As there was no suggestion by Almona that Mr Qutami was involved in any collusion concerning the price to be offered for the Land, or entities associated with Mr Merhi acquiring an interest in the proposed joint venture, I would infer that, at the time Mr Qutami provided this information to Mr Dixon-Smith, Mr Qutami believed that the units in the proposed unit trusts would be wholly-owned by entities associated with Dyldam. It is most likely that, if Mr Qutami had known otherwise, he would have given that information to Mr Dixon-Smith.

Further negotiation of the terms of the Contract

123. On 24 December 2015, Madison Marcus advised Gilbert + Tobin that an entity called “Parklea Corporation Pty Ltd”, which at that time was yet to be incorporated, would be the purchaser. They also advised that Dyldam was still obtaining advice with respect to the GST provisions in the Contract. Madison Marcus asked for information concerning the composition and operation of the PAG investment committee.

124. On 3 January 2016, Gilbert + Tobin advised Madison Marcus that SAP had agreed to a request made on 29 December 2015 for the insertion of a special condition that provided that payment of the deposit would be staged. Gilbert + Tobin declined to provide a response to the questions asked about the investment committee.

125. Parklea was incorporated on 4 January 2016. Mr Fayad became the sole director.

126. On 13 January 2016, Madison Marcus requested that the special condition dealing with the deposit be further amended so that the second instalment of the deposit became payable three days after notification of investment committee approval. On the same date, agreement was reached as to the day by which the approval of the investment committee would be required to be notified.

123. It does not appear from the evidence that Mr Dixon-Smith, acting for SAP, was involved in the negotiation of the detailed terms of the Contract. King & Wood Mallesons’ tax invoice contains an entry that, on 23 December 2015, Mr Dixon-Smith prepared draft funding term sheets and reviewed the purchase structure for the proposed joint venture. No fee was claimed for Mr Dixon-Smith carrying out work in relation to the Contract.

Contract

128. On 13 January 2016, SAP, as mortgagee exercising a power of sale pursuant to a registered mortgage and general security deed, entered into a contract for the sale of the Land, as vendor, to Parklea, as purchaser.

129. The purchase price was defined by reference to special condition 61, and the deposit was $4,267,500.

130. Special condition 61 provided as follows:

61 Price and Vacation of Residence

(a)   The parties agree that the price for the property will vary depending on whether that part of the property referred to in clause 55.1(a) (Residence) is being occupied as at completion, as follows:

(I)   if the Residence is not occupied the price will be $85,350,000; and

(II)   if the Residence is occupied the price will be $81,100,000.

(b)   Without limiting clause 61(a), a document signed by a Con Constantine, which states that the Residence has been vacated is conclusive evidence that the Residence is not occupied.

131. I will refer to special condition 61 as the “Occupation Condition”, as that is the term given to it by the parties.

132. Special condition 55.1 contained a disclosure by SAP, and the agreement of Parklea, that the house and gardens on the property were occupied at the date of the Contract without any written agreement and may remain occupied after completion. The special condition prohibited Parklea from requiring SAP to take steps to have the house and gardens, or any other part of the property, vacated before completion, or to take any other steps in respect of the validity of the Contract based upon the disclosed occupation of part of the property.

133. Special condition 36.1 provided that the completion date would be the latest of (a) 28 January 2016; (b) 14 days after approval from the Investment Committee had been obtained in accordance with clause 63; and (c) any extended completion date in accordance with clause 59.1.

134. Special condition 63 (Approval Condition) provided:

63 Sale is subject to the approval of the vendor's investment committee

(a)   The vendor discloses that the vendor requires approval of the Investment Committee to sell the property under this contract.

(b)   The parties agree that completion of this contract is conditional on the vendor notifying the purchaser that the Investment Committee has approved the sale of the property under this contract by no later than 14 March 2016.

(c)   If the vendor has not notified the purchaser that the Investment Committee has approved the sale of the property under this contract by 14 March 2016, then either party may rescind this contract by notice in writing to be other, such notice given any time before the vendor notifies the purchaser that the Investment Committee has approved the sale of the property under this contract.

135. "Investment Committee" was defined in the Dictionary to the Contract as meaning "the investment committee established by the Pacific Alliance Group of companies ("PAG Group") responsible for approvals for significant transactions undertaken by PAG Group members and investment funds managed by PAG Group members”.

136. It will be convenient to note that, on its face, special condition 63 did not take the form of a condition precedent to the existence of the Contract. It provided that completion of the Contract was conditional on notification being given of Investment Committee approval by the stipulated date. Absent that notification, either party could rescind the Contract, which otherwise would remain on foot.

137. I interpolate that there was no evidence that the Investment Committee approved SAP entering into the Contract. As will be seen, a time arrived shortly before the completion of the Contract when an assertion was made that Investment Committee approval had been given. Almona expressly agreed that the proceedings have been conducted on the basis that, in fact, Investment Committee approval was given in January 2016.

138. Clause 29 of the standard printed terms of the Contract provided that it applied only if a provision said that the Contract or completion was conditional on an event. In that case, clause 29.4 provided: "If anything is necessary to make the event happen, each party must do whatever is reasonably necessary to cause the event to happen".

139. Special condition 31.24 deleted clause 29 of the printed terms.

140. Special condition 59.1, as referred to in special condition 36.1(c), had the effect that, if any proceedings relating to the Contract were instituted against SAP or the receivers, or any order was made by a court, or a caveat was registered, or "for any reason the vendor is not able to perform a requirement of this contract in the specified time", SAP may give notice at any time prior to completion that completion will be delayed to enable the removal of the impediment to completion. In that event, special condition 59.2 required SAP to use reasonable endeavours to remove the impediment, in which case the completion date would be the date 14 days after SAP served notice that it was ready willing and able to complete the Contract. However, if completion did not occur within six months after the date of SAP's notice advising that completion would be delayed, either party could (if not in default) rescind the Contract.

141. Special condition 64 dealt with the payment of the deposit in the following terms (Deposit Clause):

64 Payment of Deposit

64.1 Deposit

The parties acknowledge and agree that the deposit is 10% of the price.

64.2 Payment of deposit

The deposit is payable as follows:

(a)   $1,000,000 on the contract date;

(b)   $3,267,500 within three (3) business days from receiving written confirmation from the vendor that approval from the Investment Committee has been obtained in accordance with clause 63; or; and [sic]

(c)   the balance of 10% of the price on the earlier of:

(i)   completion; and

(ii)   the date the vendor is entitled to terminate this contract by reason of the purchaser's default and in default of payment, the vendor shall be entitled to recover such amount as a liquidated debt, and in addition, the vendor may exercise such other rights as may be available to the vendor either at law or in equity.

142. Finally, as regards the relevant terms of the Contract, the special condition governing the issue of liability for GST, special condition 50, contained an obligation on Parklea, by special condition 50.8, as soon as possible after the date of the Contract to apply, at its own expense, for a private ruling from the Commissioner for Taxation confirming the extent to which the sale of the Land was a Taxable Supply (GST Condition). One effect of the special condition was that any consideration payable in respect of a Taxable Supply was to be increased by the amount of any GST that was payable in respect of that Taxable Supply. Special condition 50.8(f)(i) had the effect that, if any private ruling was obtained after completion of the Contract, Parklea would be required to pay SAP the amount of any GST payable on demand.

143. It is to be noted that special condition 50 did not require Parklea to obtain the private ruling before completion of the Contract. It contained express provision for the payment of any GST assessed after completion.

Events leading to completion of the Contract

144. Parklea lodged a caveat against the title to the Land on 14 January 2016, claiming an “Equitable interest in the land pursuant to the Contract for Sale of Land dated 13 January 2016” between SAP and Parklea.

145. NSW Land & Property Information gave a notice of caveat to Almona on 18 January 2016, to which was attached a copy of the caveat lodged by Parklea.

146. On 18 January 2016, Madison Marcus asked Gilbert + Tobin whether the Residence had been vacated and whether the meeting of the Investment Committee had been scheduled.

147. On 21 January 2016, Amanda Hempel of Gilbert + Tobin asked Mr Dixon-Smith by email to: “Let us know if the Investment Committee meeting has been scheduled”. She also asked: “Let us know how discussions with Con about vacant possession are progressing”.

148. Ms Hempel sent reminders to Mr Dixon-Smith on 2 and 18 February 2016 as well as 2 March 2016. In the last-mentioned email, Ms Hempel reminded Mr Dixon-Smith that “the last date for advising the purchaser that investment committee approval has been obtained is 14 March 2016”.

149. Madison Marcus wrote to Gilbert + Tobin on 25 January 2016 asking to be provided with the information necessary to enable Parklea to draft the application for a private ruling concerning GST required by special condition 50.8 of the Contract. Email correspondence ensued between Madison Marcus and Gilbert + Tobin whereby the former tried to get the latter to respond in respect of the draft application.

150. On 8 February 2016, the receivers advised Gilbert + Tobin that: “At this point in time, we have not commenced any process or conducted any discussions to obtain vacant possession”.

Almona’s communications concerning repayment of SAP

151. On 22 February 2016, Stephen Sharpe, a lawyer at Bartier Perry assisting Mr Donato, sent an email to a number of lawyers at Gilbert + Tobin, with a copy to Philip Carter and other representatives of the receivers. The substance of the email was:

I am assisting Norman Donato in relation to the above matter.

Our client has instructed us that he requested an indication of the payout figure recently just before Christmas, to which he did not receive a response. Following this, he made a similar request again after Christmas, and again received no response.

As you are aware, and naturally as one would assume, a person in our client's position is endeavouring to raise the funds to pay the balance of the debt. However his ability to do so is being hindered by the lack of information and certainty surrounding the current level of debt.

Would you please provide our client with the information he has requested and advise us when that information will be made available. If there is any reason why you have not or do not intend to comply with this request please provide us with your reasons.

152. On the same day, the primary addressee of Mr Sharpe's email, Jessica Arscott, sent an email to Mr Dixon-Smith in which she set out the terms of her proposed reply to Mr Sharpe’s email. The proposed reply was in the following terms:

Thanks for your email.

Can you please advise of the date of the proposed refinance.

As previously noted in Stuart Dixon-Smith's letter of 17 September 2015 (reattached for your reference), the calculation of a payout figure is a complex process given that the properties are in receivership and subject to a MIP regime, with expenses being incurred constantly. In such circumstances, the payout figure will always be a moving target. As such, if your client wants a meaningful payout figure, it will need to advise us of the date on which the refinance is due to occur (something, which we note, we have not been advised of yet).

153. Mr Dixon-Smith responded to Ms Arscott on 22 February 2016 in the following terms:

A few things:

I have checked my emails (admittedly just by searching for Donato, Sharpe, and Bartier) and I didn’t receive any request for an updated payout figure. My recollection is that he was requested to direct any requests to me, so if he didn’t…

As we know, the property has been sold and (subject to the possible issue of the "subject to Investment Committee” condition precedent) [sic], the equity of redemption has now been wiped out and they can’t repay the mortgage. I know there are issues around the fact that the sale hasn’t (I think) yet been communicated to Con, but I’d be concerned about responding in any way that could be construed as suggesting that the mortgage is capable of being refinanced. This is tricky to deal with until PAG actually have that meeting with Con, but I think we should tread warily.

Not helpful, I know, but those are my thoughts.

154. Gilbert + Tobin informed Mr Sharpe of Bartier Perry on 23 February 2016 that King & Wood Mallesons would respond to the request for a payout figure.

Further negotiation of joint venture terms

155. King & Wood Mallesons’ tax invoice contained the following entries in relation to work done by Mr Dixon-Smith in the period 29 February to 9 March 2016:

29-Feb-2016   Attending re Investment Committee approval to sale and advice to PAG re declaring contract to be unconditional. Emails and telephone calls with James McMurdo and Woody.

02-Mar-2016   Preparing release documentation in anticipation of settlement sometime in March. Catch up with James McMurdo and discuss travel to Hong Kong to attend discussions with PAG senior executives on finalisation of sale and arrangements to obtain vacant possession, including review of purchaser funding arrangements.

04-Mar-2016   Preparing for trip to Hong Kong. Review of status of sale contract, telephone calls with James McMurdo, Woody, Gilbert + Tobin and Phil Carter.

09-Mar-2016   Reviewing information from purchaser re funding arrangements to report to PAG. Consider providing notice of IC approval to trigger completion date. Prepare generally for meetings in Hong Kong. Discussions with James McMurdo and G + T.

156. The entry for 2 March 2016 suggests that Mr Dixon-Smith intended to discuss with the representatives of PAG the issue of obtaining vacant possession of the Land by the date of completion of the Contract, which was a condition for requiring Parklea to pay the higher purchase price.

157. On 8 March 2016, a solicitor at Gilbert + Tobin sent an email to a solicitor at Madison Marcus advising that he had been instructed that Parklea had agreed to revise the “sunset date” from 14 March 2016 to 29 April 2016.

158. Madison Marcus confirmed on 9 March 2016 that Parklea agreed to amend the sunset date to 29 April 2016.

Draft heads of agreement

159. On 10 March 2016, Mr Dixon-Smith sent an email to Mr Qutami and Mr Jarrett of Dyldam, with a copy to Mr McMurdo of SAP, to which he attached a draft heads of agreement outlining the funding arrangements proposed for the Land acquisition "reflecting discussions with PAG and the proposed structure previously discussed". The fact that a draft of the heads of agreement was circulated on 10 March 2016, some two months after the date of the Contract, suggests that Parklea may have entered into the Contract without a firm arrangement to pay the purchase price.

160. The draft heads of agreement described the parties as the Landowner, Intermediate Holding Trust, Holding Trust 1, Holding Trust 2, Development, Manager, Ultimate Holding Trust, PAG and Security Trustee.

161. Recital A stated that the Landowner had entered into a contract to acquire the Property (being in fact the Land).

162. Clause 1.1 contained a definition of “Project" as meaning, in effect, the acquisition, development and sale of the Land.

163. Clause 2.1 referred to the earlier negotiations between members of Dyldam and the PAG group "regarding the funding of the Project by members of the PAG Group”.

164. Clause 2.2 then described the intention of the parties in the following terms:

2.2 Intentions of the parties

Following these discussions that parties [sic] have agreed to enter into the following transactions so as to allow Dyldam Group to carry out the Project:

(a)   PAG will provide a credit wrap under the Senior Debt Wrap Facility Agreement, so as to enable the Landowner to enter into the Senior Debt Facility;

(b)   PAG will provide a mezzanine debt facility under the Mezzanine Facility to Trust 2;

(c)   PAG will provide a debt facility under the Dyldam Facility Agreement;

(d)   members of the Dyldam Group will provide further funding to Trust 1;

which facilities will together fund the acquisition of the Land, acquisition costs and initial development costs, as further detailed in clause [ ], [sic]

(e)   the Landowner will appoint the Development Manager as development manager for the Project under the Development Management Agreement;

(f)   the Landowner intends to appoint members of the Dyldam Group to be the builder of stages of the Project;

(g)   the Ultimate Holding Trust will grant the Call Option to PAG; and

(h)   the parties to the Unitholder and Joint Venture Agreement will enter into the Unitholder and Joint Venture Agreement.

165. By reference to the definitions in clause 1.1 and the Key Financial Parameters in clause 8, clause 3 contemplated the following Funding Arrangements for the Project.

166. Clause 3.1 contained an agreement by PAG to make available the Senior Debt Wrap Facility to the Borrower with a Facility Limit of $51,000,000 on terms to be set out in Annexure B (which required completion). The object of the Senior Debt Wrap Facility would be to provide credit support for the Senior Debt Facility Agreement.

167. By clause 3.2, the parties agreed to work collaboratively to procure and enter into the Senior Debt Facility, which was to be used for the funding of the acquisition of the Land and the carrying out of the Project. The Facility Limit of the Senior Debt Facility was to be $51,000,000, and the security was to be bank guarantees provided by PAG under the Senior Debt Wrap Facility.

168. Clause 3.3 contemplated that PAG would provide a Mezzanine Facility (whose Facility Limit was not yet specified in the heads of agreement) to Trust 2 to provide funding to Trust 2 to enable it to provide the necessary funding under a proposed Unitholder and Joint Venture Agreement for the acquisition of the Land.

169. By clause 3.4, PAG was required to make available the Dyldam Facility to Trust 1 (also with a Facility Limit to be agreed) to enable Trust 1 to provide the funding required under the Unitholder and Joint Venture Agreement for the acquisition of the Land.

170. Clause 3.5 contemplated that Dyldam would provide an unspecified amount to the Ultimate Holding Trust, as equity, to enable it to provide funding to Trust 1 for the acquisition of the Land.

171. Clause 4 of the draft heads of agreement provided for a Development Management Agreement, a Building Contract and a Builders Side Deed. By clause 4.1, the Development Management Agreement between the Landowner and the Development Manager would provide for the management of the development of the Project on the Land.

172. By clause 4.1(b)(ii), a Development Management Fee would be payable to the Development Manager in an amount set out in clause 8.5.

173. Clause 8.5 provided that the Development Management Fee would be: "base fee of $[60,000] per month plus a performance fee based on net profit generated by the Project as outlined in Annexure E".

174. Annexure E consisted of a schedule with three columns. It was stated to be a worked example only. The first column listed possible Net Profit of $0, and then $50,000,000 increasing in $5,000,000 increments to $150,000,000, and then in $25,000,000 increments to $700,000,000. The second column stipulated the Development Manager Performance Fee as a percentage from 0.0% to 20%. The third column set out the proposed Development Manager Performance Fee in dollar terms, starting at $2,750,000 for a net profit of $55,000,000 to $140,000,000 for a net profit of $700,000,000.

175. Clause 4.2 provided for the Landowner to appoint members of Dyldam to be the builder of stages of the Project and for the manner in which the terms of the Building Contract would be agreed.

176. Under clause 4.3, a Builder's Side Deed would be entered into between the Landowner, the Development Manager, the relevant builder and the Security Trustee to ensure compliance by the relevant parties with all of the contemplated agreements.

177. Clause 5 provided that the arrangements relating to unit holdings and shareholdings of the entities to carry out the Project would be as shown in the structure diagram in Annexure A.

900. Thus, the title of a registered proprietor who acquires registration by fraud, or to whom the fraud is brought home, is not protected by s 42 of the Real Property Act. If a registered proprietor is not so tainted by fraud, its title is protected by s 42 even if the registered proprietor is a volunteer. If, however, a registered proprietor has acquired its title from or through a person who has acquired its title by fraud (and so would not have been protected by s 42), in proceedings for the possession or recovery of the land, the title of that person will not, by reason of s 118 of the Real Property Act, be indefeasible, unless the person was a transferee bona fide and for valuable consideration.

901. This application of the relevant provisions is consistent with earlier authority of the Court of Appeal in this State, which held that s 42 conferred indefeasibility of title on volunteers who did not acquire their registered title through their own fraud or by the fraud of another that is brought home to them: Bogdanovic v Koteff (1988) 12 NSWLR 472 at 478-480; Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453 at [81], [82] and [123]; and Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 (Sze Tu v Lowe) at [241].

902. As to the application of s 118, Almona submitted that, even though PT itself was innocent and thus acquired title to the PT Mortgages bona fide, as Parklea was a person who has been registered as proprietor of the Land through fraud, and PT has derived its interest in the PT Mortgages through Parklea "otherwise than as a transferee…for valuable consideration", PT does not have the protection afforded by s 118.

903. Similarly, Almona submitted that s 45 of the Real Property Act does not avail PT, as it was not a "mortgagee bona fide for valuable consideration".

904. As appears from par 248 of Almona's closing submissions, Almona's argument was based upon a particular feature of the transaction, whereby the financial accommodation was not made available to Parklea by PT, but was made available directly by Lord VI. PT did not itself advance any money to Parklea, as consideration for the grant of the PT Mortgages by Parklea to PT. Presumably, Almona relied upon the principle of contract that, for a promise made by a promisor to be enforceable by the promisee, consideration must move from the promisee: see generally J.D. Heydon, Heydon On Contract (2019, Thomson Reuters Australia) (Heydon) at [5.320], [5.330]. Almona's argument was that the feature of the transaction whereby the mortgages were granted to PT, but the advance was made by Lord VI, had the consequence that PT did not provide consideration for the PT Mortgages.

905. PT submitted that s 118 of the Real Property Act did not apply to it, because the present action is not a proceeding for the possession or recovery of land within the chapeau to s 118(1), as PT is defending its mortgages and does not care who has possession of the Land. It may be that the claim is not one for possession in so far as Almona seeks a discharge of the PT Mortgages. It is not so clear that the claim is not one for the recovery of land. PT also submitted that the action is not one of recovery at all, as the PT Mortgages were created at the time of completion of the Contract and cannot as such be recovered. It is the fee simple interest that Almona is seeking to recover. PT relied upon the use of the definite article in both (i) and (ii) of s 118(1)(d) in the expression “the land” to support the argument that the provision was not intended to apply to the grant of a mortgage. Finally, PT submitted that the reference in s 118(1)(d)(ii) to “a transferee” is not apt to apply to a mortgagee.

906. Were it necessary to decide the validity of these arguments, I would prefer the view, based upon my understanding of what the majority in the High Court meant by the statement of principle in Cassegrain set out above, that s 118(1)(d)(ii) of the Real Property Act will defeat the indefeasibility of the registered proprietor of any form of interest in the land, who acquires that interest from a registered proprietor whose own indefeasibility was vitiated by fraud, unless the holder of that interest acquired it bona fide for valuable consideration. In my view, it would be proper to give a liberal interpretation to the expression “Proceedings for the…recovery of land”, so that it applied to a proceeding to establish that the plaintiff was entitled to a retransfer of the title to the land free of an encumbrance registered in the name of the defendant. The reference to both purchasers and mortgagees in s 45 of the Real Property Act provides some comfort for the view that, wherever the registered interest was derived from or through a person registered as proprietor of the land through fraud, indefeasibility of title will depend upon whether the interest was acquired bona fide for valuable consideration.

907. It is sufficient for the present to note that Almona's argument depends on the proposition that PT did not acquire the PT Mortgages for value. If it is necessary to do so, I would reject that argument for the following reasons.

908. It is to be noted at the start that, if the transaction had been structured differently, and the financial accommodation provided through a bank account in the name of PT, and on the basis that formally PT was the lender, it is clear that PT would have provided valuable consideration and have the benefit of indefeasibility.

909. The question for examination is whether that protection is lost because of the bifurcation in roles between the lender and the holder of the security.

910. In Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460; [1967] HCA 3, Barwick CJ and Taylor, Windeyer and Owen JJ held in obiter that, in a contract between A of the one part and B and C jointly of the other part, C can enforce a promise made to B and C jointly if only B provided consideration to A to support A’s promise. At 493, Windeyer J said (footnotes omitted):

Still, it was said, no consideration moved from her. But that, I consider, mistakes the nature of a contract made with two or more persons jointly. The promise is made to them collectively. It must, of course, be supported by consideration, but that does not mean by considerations furnished by them separately. It means a consideration given on behalf of them all, and therefore moving from all of them. In such a case the promise of the promisor is not gratuitous; and, as between him and the joint promisees, it matters not how they were able to provide the price of his promise to them. That is the position as I see it. It accords with the very old decision in Rookwood's Case and with general principle.

On this view, that Coulls and Mrs. Coulls were joint promisees, an action against the construction company would, during their joint lives, have had to be brought in the names of both. If one had refused to be joined as a plaintiff, he or she could, after an offer of indemnity against costs, have been made a defendant: Whitehead v. Hughes; Cullen v. Knowles; Rodriguez v. Speyer Brothers. After the death of either of two joint promisees an action on a contract can be brought by the survivor alone: see Halsbury's Laws of England , 3rd ed., vol. 8, p. 67. Therefore Mrs. Coulls, on the basis that she is a surviving joint promisee, could now bring an action on the contract; and in respect of moneys becoming due and payable under it since the death of her husband recover them for herself alone.

911. His Honour then, at 493, turned to consider the question of whether C can personally enforce a promise made by A to B in a contract between those parties, where B provides consideration for A’s promise in favour of B and C jointly. He concluded at 495: “…For us the rule prevails that a plaintiff who sues on a promise must shew a consideration for it provided by him…” and observed at 499: “…Whether we like them or not, the rules relating to consideration seem to me a stubborn part of our law…”

912. Windeyer J did not consider the case where A, B and C are all parties to the contract and only B provides consideration to A to support promises made by A to B and C severally. Heydon considers this question briefly at [5.340], and appears to accept Treitel’s view that C cannot enforce the several promise made to C if C has not personally provided consideration to A.

913. In the present case, both Lord VI and PT were parties to the Loan Notes Subscription Agreement with Parklea. Analysis of the question of which parties provided consideration for which promises is impeded by the fact that Parklea did not make a promise in the agreement to provide the PT Mortgages. As noted above, the delivery of those mortgages to Lord VI was a condition precedent to Lord VI’s obligation to acquire the Loan Notes. However, as the intention of the parties was that PT would be the mortgagee and hold the PT Mortgages on trust for the benefit of Lord VI, it is not possible to identify any relevant promise made by Parklea jointly to Lord VI and PT, for which Lord VI’s promise to provide financial accommodation to Parklea was consideration.

914. It therefore appears to be necessary to identify consideration provided by PT to Parklea for the grant of the PT Mortgages. There may be scope to argue that, on the proper interpretation of ss 45 and 118 of the Real Property Act, PT did derive its title to the PT Mortgages for valuable consideration, as it was a trustee of the mortgages where the consideration for the grant was provided by the beneficiary of the trust. It may be that the point upon which Almona relies simply does not arise on the proper interpretation of the sections. It does seem to be a blinkered interpretation which is blind to the reality that in equity the party with the benefit of the mortgages has provided valuable consideration, and to consider the title of PT divorced from that reality. However, that is an issue not raised by PT and I would not have based my judgment on an interpretation of the sections that allowed the value to be provided by a party other than the holder of the title.

915. Almona relied upon a number of cases of high authority that seem to establish that, where property is transferred to a transferee without payment of any price as the consideration for the transfer, but the transfer is a settlement of the property on the transferee to be held on a particular trust, the obligations accepted by the transferee to perform the trust do not constitute consideration for the transfer. As Walsh J said on behalf of the Full Court in Tooheys Ltd v Commissioner of Stamp Duties (1960) 60 SR (NSW) 539 at 548: “…An acceptance of a trust and an agreement to hold the trust property upon the terms of the trust and to administer it accordingly, do not constitute the giving of consideration by the trustees for the property so accepted. If it were so, every trust would have to be regarded as created for full consideration”. See also Corin v Patton (1990) 169 CLR 540; [1990] HCA 12 per Deane J at 577 and Benson v Cook (2001) 114 FCR 542; [2001] FCA 1684 per Hely J at [137]-[140] in dissent.

916. In my view, care must be taken in assessing the relevance of these authorities in the present context. It is true that PT did not directly make any financial accommodation in favour of Parklea. Equally, Parklea did not settle the PT Mortgages on PT. PT held the mortgages on trust by reason of the Security Trust Deed and the terms of the Loan Notes Security Agreement. In both form and substance, Parklea granted the PT Mortgages to PT at the direction of Lord VI, which unquestionably provided consideration to Parklea by means of its agreement to provide financial accommodation. Lord VI determined that PT would hold the mortgages on trust for Lord VI and possible substituted financiers. Moreover, the delivery to Lord VI of the PT Mortgages was a condition to Lord VI being obliged to acquire Loan Notes, so the delivery of those mortgages constituted an executed part of the consideration provided by Parklea for the financial accommodation, the other part being Parklea’s personal covenant to repay the debt. Lord VI was not the agent of PT for the purpose of giving consideration to Parklea for the grant of the PT Mortgages to PT. Nor was Lord VI the holder of any relevant interest on trust for PT. The agency and trust relationship was the other way round.

917. It is well-established that extrinsic evidence is admissible to show that there was consideration for an agreement and the true nature of that consideration: see Heydon at [9.200].

918. The evidence makes it clear, and the references to the Transaction Documents in the various agreements confirms, that all of the parties to the Transaction Documents, which included the fee agreement between PT and Parklea, entered into the various agreements on the basis that they were intended to operate in an interlocking way as part of a single transaction.

919. By means of its fee agreement with Parklea, PT agreed to hold the PT Mortgages on trust for the identified beneficiaries, and to deal with the mortgages for their benefit. PT also agreed to undertake the potentially onerous responsibilities of the Security Trustee set out in the Loan Notes Subscription Agreement. The obligations that PT assumed were not the obligations of a trustee created by the fee agreement. They were obligations accepted by PT at the request of Parklea, as a party who could only achieve the benefit of the financial accommodation if PT agreed with it to accept those obligations.

920. It is trite law that consideration may take the form of a benefit bestowed by the promisee on the promisor. The effect of PT assuming the obligations to Parklea created by the fee agreement was that it enabled Parklea to satisfy the pre-condition in the Loan Notes Subscription Agreement to the obligation upon Lord VI to subscribe for any Loan Notes issued by Parklea. PT conferred that benefit on Parklea partially in return for the grant of the PT Mortgages to PT, as that step was necessary to enable PT to perform the duties necessary to enable it to earn its fees. In my view, PT did provide valuable consideration to Parklea for the grant of the PT Mortgages, notwithstanding that it was Lord VI who ultimately became bound to provide the financial accommodation to Parklea. That consideration took the form, first, of the obligations assumed by PT under the fee agreement, which were commercial and not trustee obligations as between PT and Parklea. Secondly, in accepting the grant of the PT Mortgages, and the obligations that arose out of its role of Security Trustee, PT enabled Parklea to satisfy the essential pre-condition to its receipt of the financial accommodation from Lord VI.

921. The joint decision of Gleeson CJ, Gummow, Hayne and Heydon JJ in Cook v Benson (2003) 214 CLR 370; [2003] HCA 36, particularly at [35]-[37], demonstrates how, when a payment is made to or property settled on a transferee, on an arm’s length basis, to be held on the terms of a trust under which the trustee agrees to perform services for and provide benefits to the transferor, valuable consideration can be provided for the transfer even though the transferee does not pay a price, as such, for the transfer. In that case, a person who later became bankrupt had rolled over his superannuation entitlement into new superannuation funds. Their Honours described the effect of the transactions as follows:

20   In the case of each of the “roll-over” transactions, the substance of what occurred was as follows. The first respondent applied for membership of a superannuation fund. The fund was administered by a trustee. The general scheme was that the trustee would receive the amount contributed by the first respondent and apply it in taking out a policy on the life of the first respondent and in making other forms of investment. The first respondent was entitled to death and retirement benefits in accordance with the terms of the deed governing the fund. The detail of the manner in which the value of the first respondent's entitlements varied from time to time is not a matter of relevance to the present appeal. Each of the three payments in question was made for the acquisition of the rights secured by the respective deeds of trust. Those rights were enforceable by the first respondent against the respective trustees.

922. Their Honours held:

35   Hely J, whose reasoning in this respect was supported by the appellant, denied the provision of valuable consideration by treating the case as analogous to a transfer of property to a trustee who agrees to hold it upon the terms of the trust and administer it accordingly. It may be accepted that, if the first respondent had simply paid $80,000 to a person to hold on trust for him, the trustee would not be a purchaser for valuable consideration…However, that is not what occurred in the present case. The trustees of the superannuation funds did not undertake to accept funds, hold them on trust for the first respondent, and administer them on his behalf. The rights and benefits to which contributors to the funds were entitled, although they might vary with the success or otherwise of the investment policies of the fund managers, were governed by the rules of the superannuation scheme. As Kiefel J pointed out, in at least one case those rights included a “capital guarantee”.

36   …On the other hand, in the present case the first respondent made contributions in return for the undertaking by the trustees of the funds of obligations to pay death, retirement or other related benefits, to him or his nominees, in accordance with the rules of the respective funds. He obtained consideration in money's worth in return for the payments.

923. In the present case, PT did not receive the PT Mortgages to hold them on any trust in favour of Parklea. It did so in the exercise of the trust in favour of Lord VI, and it agreed to provide services to Parklea, and its agreement to provide services to Lord VI conferred a benefit on Parklea as it fulfilled the condition precedent for Parklea’s entitlement to oblige Lord VI to provide the promised financial accommodation.

924. As the making of an order by the Court against PT that it discharge the PT Mortgages without the repayment to Lord VI of all monies secured by the mortgages would clearly damage Lord VI’s interests, as the beneficial owner of the PT Mortgages, Lord VI was a necessary party to these proceedings. As Lord VI was not joined as a party, the Court could not make the order sought by Almona against PT in any event: John Alexander’s Clubs at [132], [138]. Lord VI was the beneficial owner of the PT Mortgages and its interest in those mortgages would be destroyed if the Court made the order sought by Almona.

925. As I have explained above, I do not consider that the terms of the Loan Notes Subscription Agreement, or any other Transaction Document, have the effect of authorising PT to prosecute these proceedings in the name of and on behalf of Lord VI to protect its beneficial interest in the PT Mortgages, and not in any event to the exclusion of Lord VI. If PT’s defence of Almona’s claim were to fail, because the structure of the transaction did not involve the financial accommodation being provided to Parklea through PT, it is plain that Lord VI did provide valuable consideration for the PT Mortgages that it directed be granted to PT to be held on trust for Lord VI. If the Court were to accede to Almona’s argument, Lord VI would be deprived of its beneficial interest in the registered security the provision of which was a pre-condition to its having provided the financial accommodation to Parklea.

926. As the High Court made clear in John Alexander’s Clubs at [138]-[140], it is incumbent upon the party who makes the claim that will affect the interest of a party to join that party, and it is not the party with the interest who is burdened with the need to apply to be joined.

Claim that PT Mortgages only secure PT’s fees and other entitlements

927. Almona’s second argument assumed that the Court was satisfied that PT was a mortgagee bona fide for valuable consideration, with the result that the PT Mortgages are indefeasible. Almona then submitted that, as the Loan Notes Subscription Agreement does not contain any personal covenant binding Parklea to pay any monies to PT, the PT Mortgages do not secure any monies owing between mortgagor and mortgagee, save for the fees payable to PT by Parklea. Almona then submitted that: “[w]hether the PT Mortgages have the effect of securing a particular debt will depend upon the existence of a debt owed by Parklea to PT (not Lord)…” (closing submissions par 275).

928. This aspect of Almona’s claim appears to be based on the notion that a mortgage can only secure a debt owed by the mortgagor to the mortgagee, so that if a creditor makes an advance to the mortgagor on the basis of a mortgage granted by the mortgagor to a third party as trustee mortgagee, where the mortgage is expressed to secure repayment of the advance to the creditor, the mortgage secures nothing.

929. Almona did not identify any authority to support the proposition that a mortgage cannot be held on trust by a third party mortgagee for the benefit of the creditor, to secure repayment of the advance made by the creditor. The decisions of PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 and Small v Tomassetti [2001] NSWSC 1112, upon which Almona relied, establish that the indefeasibility of a registered mortgage protects only the estate in the land subject to the covenants, conditions and contingencies specified in the mortgage. Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81; [2007] HCA 53 establishes that, where a borrower agrees in a loan agreement to repay an advance, and separately grants a mortgage to the creditor which contains a personal covenant to repay the advance, the assignment of the mortgage by the creditor or the discharge of the mortgage has no effect on the entitlement of the creditor to sue on the promise in the loan agreement. To similar effect, as submitted by Almona, Groongal Pastoral Co Ltd (in liq) v Falkiner (1924) 35 CLR 157; [1924] HCA 54 may be authority for the proposition that, as a mortgage is a form of security conferring powers against land, it can be discharged without affecting a personal covenant to pay. These authorities say nothing about the question of whether a mortgage can be granted to a trustee mortgagee to secure, by creating a security interest in the land mortgaged, a covenant contained in the mortgage (as well as in the loan agreement) to repay the advance to the creditor who is the beneficiary of the trust in the mortgage. There is no reason of which I am aware why a mortgage cannot validly create an interest in land to secure a promise to the mortgagee contained in the mortgage to repay an advance to a third party creditor in these circumstances.

930. A subsidiary aspect of this second argument by Almona appears to be that the estate in land which is created by the registration of a mortgage “is a charge which secures a particular sum” (closing submissions par 276). As PT has not proven the actual amount that is owed to Lord VI, which is an amount that cannot be derived from an inspection of the PT Mortgages, and has not otherwise been proved, Almona submitted that it has not been established that the PT Mortgages secure any amount, save perhaps for outstanding fees due to PT.

931. It is a misconception that a mortgagee must positively prove the amount outstanding that is secured by a registered mortgage in order to resist an application by the mortgagor for an order that the mortgagee discharge the mortgage. A mortgage, once granted and registered, creates an estate in the land the subject of the mortgage. The mortgagee is entitled to the continuing benefit of the mortgage and its registration until the mortgagor takes proper steps to redeem the mortgage. Those steps will involve the tender by the mortgagor of the amounts secured, and at that stage the need to resolve a difference as to the amount secured may arise. Depending upon the terms of the mortgage and the circumstances, at this point the mortgagee may be required to prove the amount that is outstanding. The mortgagee does not have to prove that a particular amount is outstanding in order to resist a bare application by the mortgagor for an order that the mortgagee discharge the mortgage, without any proof by the mortgagor of the tender of the amount claimed by the mortgagor to be outstanding.

Claim that PT’s title is subject to a personal equity

932. The final argument made by Almona was that PT is obliged to discharge the PT Mortgages because of a personal equity that it came to owe to Almona, of the nature considered in Frazer v Walker [1967] 1 AC 569 at 585, that arose when PT, as an innocent volunteer, learned that it had been granted the PT Mortgages as a result of fraudulent conduct by SAP and Parklea. This argument was based on a passage in the judgment of Allsop P (as his Honour then was) in Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252 (Heperu) at [154], where his Honour said that the equitable obligation arises from the later discovery of the fraud and is based upon “the touching of the conscience of the volunteer recipient to deal with the property of another conformably with the interests of the owner, now discovered”.

933. The first counter to this argument is my finding above that PT was not relevantly a volunteer. Secondly, even if I am wrong and PT was technically a volunteer, it would not be against its conscience to refuse, as the trustee of the PT Mortgages for Lord VI, to discharge those mortgages without repayment in full of the amount owed to Lord VI, which on any view was not a volunteer, and made the advance to Parklea on condition that the PT Mortgages were granted. Finally, the volunteer in Heperu did not receive, as a result of the impugned transaction, the grant of an interest in land that acquired indefeasibility by registration.

934. I adhere to the view that I expressed in Meshumar v Otmy (2018) 97 NSWLR 615; [2018] NSWSC 125 from [463] and particularly at [473] concerning the circumstances in which the registered proprietor of an estate or interest in land may lose the right to indefeasibility as a result of the existence of a personal equity in a rival claimant to the land, which I believe is consistent with Sze Tu v Lowe. At [473], I said:

…It is fundamental to the preservation of the entrenched doctrine of indefeasibility of title by registration of dealings that notice of some existing, unregistered claimed interest does not lead to a finding that a refusal to recognise the prior claim is unconscionable, unless there is a proper basis for that finding that does not undermine the effective operation of the doctrine. That basis may in particular circumstances exist where the prior claim was enforceable in a manner that allowed the claimant to prevent the opponent becoming registered proprietor. The unconscionability comes from resiling from some agreement or undertaking after registration where the registered proprietor would have been prevented from achieving apparent indefeasibility of title but for the making of the agreement or the giving of the undertaking.

935. It is not necessary to explore that question further in this judgment. No relevant personal equity arose against PT on the facts of this case.

936. Although I have not found it necessary to deal with all of the arguments put by PT against Almona’s claim, I am satisfied that, even if I am wrong in my conclusions about Almona’s fraud case, and even if Almona has some proprietary claim over the Land as a result of the failure to disclose the Occupancy Condition to Almona, PT is entitled to indefeasibility in respect of the PT Mortgages.

937. There is nothing incongruous in the conclusion that PT's title to the PT Mortgages may be indefeasible, even if Parklea had become registered proprietor of the Land by fraud, before granting the PT Mortgages to PT. Although it did not occur, Lord VI may have transferred some or all of its Loan Notes to substitute Financiers. To the extent that Lord VI has retained the Loan Notes, if fraud had been proved, there may have been remedies available in equity against Lord VI to compel it to deal with its equitable interest in the PT Mortgages, and its right to give instructions to PT, in a manner that would provide some remedy to Almona. The availability of any such relief would likely depend upon issues of knowledge and control as between SAP, PAG and Lord VI. These are not issues that arise for consideration in these proceedings.

Result

938. In the result, Almona has substantially succeeded against both SAP and Parklea on the issues that arose out of the inclusion of the Occupation Condition in the original Contract and the circumstances that led to the Contract being completed for a price that was $4.25 million less than the price that would have been paid had the Occupation Condition been disclosed to Almona.

939. Almona has failed in its claim against SAP and Parklea to relief setting aside the transfer of the Land on the ground that it was obtained by the fraudulent conduct of SAP and Parklea.

940. I have found that, in any event, PT's title to the PT Mortgages obtained by their registration is indefeasible.

941. It will be necessary for the parties to consider the issue of the relief that should be given to Almona in respect of the part of its claim that has succeeded.

942. It will also be necessary for the parties to consider the case management orders that will be appropriate for the determination by the Court of the issues that arise from the FASOC that are outstanding.

943. As will be apparent from these reasons, the issues that have been required to be dealt with in this matter are complex. There is some scope for misunderstanding as to the issues that were required to be dealt with in this judgment as a result of the hearing, and the issues that are to be deferred to a further hearing. If any party takes the view that I have omitted to deal with some issue required to be determined by this judgment at this stage of the proceedings, they are invited to inform the other parties and my associate.

944. Finally, the Court will have to deal with the question of costs, whether that be now or when all issues in the proceedings have finally been determined.

945. The parties should confer and determine what short minutes of order will be appropriate to give effect to these reasons and to deal with the further conduct of these proceedings. The parties may communicate with my associate to arrange a suitable time for a directions hearing, if that is thought convenient for the purpose of charting the future direction of these proceedings.

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Decision last updated: 20 December 2019