Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd & Anor (No 2)

[2004] SASC 229

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

ANDREW GARRETT WINE RESORTS PTY LTD & ANOR v NATIONAL AUSTRALIA BANK LTD & ANOR (NO 2)

Judgment of The Honourable Justice Besanko

28 July 2004

MORTGAGES - MORTGAGES AND CHARGES GENERALLY - RIGHTS AND LIABILITIES OF MORTGAGOR AND MORTGAGEE - POSSESSION - RIGHT OF MORTGAGEE TO POSSESSION

Application seeking discharge of order with injunction restraining applicant from making any demand or taking any steps to enforce any rights under certain mortgages - where the order restraining the applicant was made upon conditions that the respondents undertake to pay into court outstanding interest under the bill facility and interest falling due  under the bill facility at the end of each consecutive month - where the respondents failed to make the payment of interest due at the end of June 2004 - where  the respondents unable to specify any date by which they may be able to pay outstanding interest - order with injunction discharged and order made that the respondents deliver up possession of the property to the applicant.

Law of Property Act 1936 s 55A, referred to.
Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank Ltd [2004] SASC 60, considered.

ANDREW GARRETT WINE RESORTS PTY LTD & ANOR v NATIONAL AUSTRALIA BANK LTD & ANOR (NO 2)
[2004] SASC 229

Civil:  Application

1. BESANKO J:        The plaintiffs to this action are Andrew Garrett Wine Resorts Pty Ltd (“Resorts”) and Mrs Averil Garrett.  The defendant is the National Australia Bank Ltd (“the Bank”).  There is a counterclaim by the Bank to which Mr Andrew Garrett is a defendant but it is not necessary for me to set out the details of the counterclaim. 

2. The nature of this action is set out in my reasons for judgment delivered on 2^nd March 2004 and I will refer to these reasons as my earlier reasons (Andrew Garrett Wine Resorts Pty Ltd and Anor v National Australia Bank Ltd [2004] SASC 60; (2004) 232 LSJS 314 at [21] – [23]).

3. On 5^th March 2004, I made various orders including the following order:

   “1.Save and except for the making of a demand in compliance with Section 55A of the Law of Property Act for the sum of $1.5 million pursuant to the mortgage dated 21^st June 2002 and any claim made on pleadings in the consolidated proceedings until further order the National Australia Bank Limited is restrained from making any demand or taking any steps to enforce any rights with respect to the following mortgages whether by itself or by its agents or employees and whether directly or indirectly:

   1.1     Registered Mortgage Number 9374752 dated 21 June 2002

   1.2     Registered Mortgage Number 9617285 dated 29 May 2003”

4. Resorts and Mrs Garrett gave certain undertakings which, as my earlier reasons make clear, were necessary before an order in the above terms was made.  Relevantly for present purposes, was an undertaking to pay into court outstanding interest pursuant to the terms of a bill facility dated 3^rd January 2003 from 21^st July 2003 to 29 February 2004 of $195,864.23 and an undertaking to pay into court interest falling due under the bill facility dated 3^rd January 2003 at the end of each consecutive month the first payment being due on 31^st March 2004 until the determination of the consolidated proceedings or further order.  The reasons for making the order and requiring the undertakings are set out in my earlier reasons.

5. On 8^th July 2004 the Bank issued a notice for specific directions seeking orders discharging the above order, and an order that Resorts and Mrs Garrett give up possession of the property known as Springwood Park to the Bank.

6. The Bank’s application was supported by a number of affidavits from its solicitor.  Resorts and Mrs Garrett filed affidavits in opposition to the Bank’s application.

   The Basis of the Bank’s application

7. Resorts and Mrs Garrett have not made the payment of interest which was due at the end of June 2004. The amount due is $29,617.10.  The payments of interest due at the end of March and May 2004 were not made until the 6^th April 2004 and 18^th June 2004 respectively.  In both cases, the Bank issued an application for immediate relief by reason of the failure of Resorts and Mrs Garrett to make timely payments, and in both cases the Bank’s application was dismissed with costs in favour of the Bank at a subsequent hearing.

8. On 5^th March 2004 I made certain orders in a related Action (No 1506 of 2003) designed to ensure that the claims between the parties proceeded to trial as soon as possible.

9. The Bank filed and served its defence and counterclaim on 19^th March 2004 which was the date specified in the orders I made on 5^th March 2004.  Resorts and Mrs Garrett and the defendant by counterclaim (Mr Andrew Garrett) had been ordered to file and serve any reply and defence to counterclaim by 2^nd April 2004 but that in fact was not done until 11^th May 2004.  The list of documents of Resorts and Mrs Garrett and the defendant by counterclaim was not filed until 8^th June 2004 which was three weeks after the close of pleadings and approximately eight weeks after the time anticipated by the orders made on 5^th March 2004.  The date fixed for trial is 8^th November 2004.

10. Resorts and Mrs Garrett have provided no clear explanation for the delay in complying with the orders made by me on 5^th March 2004 or for the delay in making the payments of interest at the end of March and May respectively.

11. The Bank submits that I should discharge the injunction and other orders because Resorts and Garrett have not made the payment of interest which was due at the end of June 2004, and will not make the payment due at the end of July 2004 and because I cannot be satisfied that they will be able to pay those amounts and the interest which will fall due in the future either at all or by an acceptable date in the near future.

    The Case of Resorts and Mrs Garrett

12. On 19^th March 2004, Resorts and Mrs Garrett paid into court outstanding interest of $195,864.00.  The interest payments for March, April and May were paid on 6^th April, 30^th April and 18^th June 2004 respectively in accordance with their undertaking albeit that two of the payments were late.

13. Resorts and Mrs Garrett state that they anticipated that the action would come to trial within four to six months of the hearing on 5^th March 2004.  They say that they did not anticipate that the hearing would not take place until 8^th November 2004.  They submit that the delay is causing them difficulties in terms of meeting interest payments.  On the evidence before me Resorts and Mrs Garrett are at least partly responsible for the fact that the trial will not come on until November 2004.  In any event, the relevant consideration is that there is no evidence that the Bank is responsible for the fact that the trial will not come on until November 2004.

14. Resorts and Mrs Garrett say that there is a royalty stream payable by Beringer Blass Wine Estates Ltd (previously Mildara Blass Ltd) under a settlement deed dated 26^th July 2000 which is an asset worth between $1,000,000.00 and $1,400,000.00.  They have put forward evidence of negotiations in relation to the sale of the royalty stream.  They say that if the sale of the royalty stream proceeds then they will have sufficient funds to pay outstanding interest and the interest payments which will fall due in the future.

15. Mr and Mrs Garrett are trustees of the Andrew Garrett Family Trust.  Mr Garrett states that the Trust was entitled to the royalty stream but that on 15^th July 2003 the royalty stream was assigned to the Andrew Garrett Family Trust No 2.  The beneficiaries of the Andrew Garrett Family Trust and the Andrew Garrett Family Trust No 2 are the same.  The present trustee of the Andrew Garrett Family Trust No 2 is Evajade Pty Ltd.  Mr Garrett states that the royalty stream is subject to a security interest in favour of a Mr Shu Mu Tseng.

16. The sole director of Evajade Pty Ltd is Mr John Jackson, and he has deposed to how he will dispose of the funds received from the sale of the royalty stream if and when it is sold.

    The Bank’s application dated 26^th July 2004

17. It seems that the possible sale of the royalty stream led to an application by the Bank by notice for specific directions dated 26^th July 2004 seeking orders in the nature of what the Bank refers to as “asset preservation”, or a Mareva order and that a receiver be appointed to the remaining assets of the Andrew Garrett Family Trust.  Other than to mention one point, I do not propose to go into the details of the application or the evidence put forward in support of the application.  The Bank claims that Mr and Mrs Garrett as trustees of the Andrew Garrett Family Trust gave the Bank a negative pledge on 21^st June 2002.  The negative pledge involved an undertaking by the trustees not to transfer assets of the Trust to another trust or to distribute assets of the Trust without the prior written consent of the Bank which consent would not unreasonably be withheld.  As I understand it, the Bank asserts that the trustees acted in breach of the negative pledge when they purported to transfer the royalty stream to the Andrew Garrett Family Trust No 2.

18. I made an interim order restraining Evajade Pty Ltd from disposing of the right to receive moneys from Mildara Blass Ltd or Beringer Blass Estate Wines Ltd pursuant to the deed dated 26^th July 2000 between inter alia Mildara Blass Ltd and the Andrew Garrett Family Trust.  Other than that order, I have not made a decision on the Bank’s application dated 26^th July 2004.  A decision in favour of the Bank on that application (or at least some of the orders sought in the application) may have the result that the Bank’s application to discharge the injunction must succeed bearing in mind that Resorts and Mrs Garrett have not identified any other source for the payment of outstanding interest and the interest which will become payable in the future.  However, it was unnecessary for me to deal with the application because I decided that the injunction should be discharged in any event.

    The Reasons for the decision to discharge the Injunction

19. On 26^th July 2004 I made an order that the order with injunction made on 5^th March 2004 is discharged, and orders requiring Resorts and Mrs Garrett to give up possession of the property to the Bank.  For present purposes it is not necessary to set out the precise terms of the orders.  I said I would publish reasons, and these are my reasons.

20. In my opinion, it is no longer appropriate to restrain the Bank from enforcing any rights it has under the mortgages.  It was a condition of the relief granted that Resorts and Mrs Garrett pay interest falling due under the bill facility dated 3^rd January 2003 at the end of each consecutive calendar month.  Resorts and Mrs Garrett have not made the payment due at the end of June, and it is clear from the evidence and the submissions made to me that they will not be in a position to make the payment due at the end of July.  Before me, Resorts and Mrs Garrett were able to put the matter no higher than to say that they may be able to pay the interest instalments in the future.  They were unable to specify any date by which they may be able to pay outstanding interest.  In those circumstances I do not think it appropriate to continue the injunction.  The trial of Action No 127 of 2004 is listed for November 2004.  For the reasons I have already given, I do not think the fact that the date for trial is later than might have been anticipated is a reason not to discharge the injunction.  In any event, the injunction must be discharged because I cannot be satisfied that interest will be paid by Resorts and Mrs Garrett on a date in the near future or at all.

21. The order discharging the injunction may be justified on another basis.  Resorts and Mrs Garrett submit that the amount secured by the first mortgage is the sum of $1,500,000.00.  At the time I delivered my earlier reasons on 2^nd March 2004 the only notices served by the Bank pursuant to s 55A of the Law of Property Act 1936 were notices claiming the sum of $2,100,000.00. Since that time, the Bank has served notices pursuant to s 55A of the Law of Property Act claiming the sum of $1,500,000.00.  On the fact of it, there is nothing to suggest that the notices are invalid.  There is a dispute as to the amount secured by the first mortgage, but that does not mean that the right to enter into possession has not become enforceable.  It seems that the case is therefore what I described in my earlier reasons as an ordinary case for the purposes of the general principle and that any relief granted to the mortgagors would be conditional upon payment in by the mortgagors of the amount claimed by the mortgagee.  Even if it was appropriate to order the payment in of the amount the mortgagor says is due, it is clear that they do not have the capacity to pay any sum of substance into Court, and certainly not an amount of $1,500,000.00.  In those circumstances, the interlocutory relief in favour of the mortgagor should be discharged.  I refer to [53] in my earlier reasons.

22. Resorts and Mrs Garrett submitted that if I was minded to make orders that they deliver up possession of the property, I should stay the operation of the orders to give them an opportunity to secure the necessary finance to pay the interest which has fallen due and which will fall due under the terms of the undertaking.  I reject that submission.  In the circumstances which I have set out above, it is not appropriate to make such an order.

23. It was for these reasons that I discharged the order with injunction, and made an order that Resorts and Mrs Garrett deliver up to the Bank possession of the property.