Atanasovski v Huu Loi Yarra Valley Pty Ltd
[2021] VSC 594
•17 September 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2021 03232
| BEN ATANASOVSKI and THE BELMONT COLLECTION LO PTY LTD (ACN 645 220 408) as trustee for The Belmont Collection Lo Trust | Plaintiffs |
| v | |
| HUU LOI YARRA VALLEY PTY LTD (ACN 633 876 454) | First Defendant |
| REGISTRAR OF TITLES | Second Defendant |
| CRAIG PETER SHEPARD | Third Defendant |
| LEANNE KYLIE CHESSER | Fourth Defendant |
| HAVENPORT FIXED MATURITY FUND SPC | Fifth Defendant |
| QI YONG 7 PTY LTD | Sixth Defendant |
| QI YONG 8 PTY LTD | Seventh Defendant |
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JUDGE: | Keogh J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 September 2021 |
DATE OF RULING: | 17 September 2021 |
CASE MAY BE CITED AS: | Atanasovski & Anor v Huu Loi Yarra Valley Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2021] VSC 594 |
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DECLARATIONS – Injunctions – Real property – Priorities – Application by purchaser for declaration that mortgagee vendor not entitled to refuse to perform settlement obligations – Oral application for interlocutory injunction restraining completion of contract of sale by different purchaser under earlier contract with registered proprietor – Availability of specific performance where registered proprietor has lost right to redeem mortgage – Prima facie case – Balance of convenience – Property Law Act 1958 (Vic) s 49 – Transfer of Land Act 1958 (Vic) ss 76, 77.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | WF Rimmer | Tisher Liner FC Law |
| For the First Defendant | No appearance | N Hu, solicitor, Nova Lawyers, attended as observer |
| For the Second Defendant | No appearance | |
| For the Third, Fourth and Fifth Defendants | No appearance | J Chan, solicitor, Ashurst, attended as observer |
| For the Sixth and Seventh Defendants | TP Mitchell | United Associates Barristers & Solicitors |
| For Bundoora Park Estate Development Pty Ltd and Toorak Property Holdings Pty Ltd | N Paterson | Madison Branson Lawyers |
HIS HONOUR:
The first plaintiff, Ben Atanasovski (‘Atanasovski’), is the purchaser of a property at 328–338 McKimmies Road, Mill Park (‘the property’), under a contract of sale with the sixth defendant, Qi Yong 7 Pty Ltd (‘Qi Yong 7’) as mortgagee in possession. Atanasovski nominated the second plaintiff, The Belmont Collection Lo Pty Ltd (‘Belmont’), to be the substitute transferee of the property in accordance with general condition 4 of the contract of sale.
Issues have arisen with settlement of the contract of sale, which was due on 1 September 2021. The plaintiffs commenced this proceeding seeking to remove a caveat from the title which was an impediment to settlement. Issues relating to the caveat, and other issues which arose after the proceeding was commenced, were resolved by 9 September, and it was at that stage anticipated settlement would take place on 10 September. However, Qi Yong 7 declined to settle because an allegation was made against it by the mortgagor and registered proprietor of the land, Bundoora Park Estate Holding Pty Ltd (‘BPEH’) that notice of default required by s 76 of the Transfer of Land Act 1958 (Vic) (‘TLA’) had not been validly served. In response, the plaintiffs applied for a declaration under s 49(1) of the Property Law Act 1958 (Vic) (‘PLA’) that Qi Yong 7 is not entitled to refuse to perform its settlement obligations under the contract of sale. The plaintiff’s application was listed for hearing on 14 September 2021.
On 10 September 2021, BPEH gave notice of intention to commence a proceeding against Qi Yong 7 and others seeking declarations to the effect that prior to entering into the contract of sale with Atanasovski, Qi Yong 7 did not validly serve notice of default required under s 76 of the TLA; as a consequence Qi Yong 7 was not entitled to exercise the power of sale conferred by s 77 of the TLA; and the contract of sale was liable to be set aside. BPEH sought interlocutory and final injunctions restraining Qi Yong 7 and Atanasovski from completing the contract of sale.
On the morning of the hearing two companies associated with BPEH, Bundoora Park Estate Development Pty Ltd (‘BPED’) and Toorak Property Holdings Pty Ltd (‘Toorak’) filed affidavit material in the Atanasovski proceeding, and sought to be heard at the hearing, to support the position adopted by BPEH. BPED and Toorak alleged they were the purchaser and purchaser’s nominee under an earlier contract for sale of the property with BPEH as vendor.
After the hearing commenced, a further affidavit was filed deposing to service of the notice by Qi Yong 7 under s 76 of the TLA. As a consequence of that affidavit BPEH conceded valid service of the notice and said it would consent to its proceeding being dismissed.
BPED then made an oral application for an interlocutory injunction restraining Atanasovski and Qi Yong 7 from completing the contract of sale pending determination of the competing interest in the property of BPED in a proceeding which it undertook to issue.
At the hearing Qi Yong 7 adopted what it said was a position of neutrality. It submitted it had the benefit of a term of the contract of sale with Atanasovski which permitted it to extend settlement for 60 days if it was unable to give good possession and title. It submitted that if the Court upheld the claim by BPED it would necessarily decline to grant the declaration sought by Atanasovski on the basis that Qi Yong 7 cannot settle the sale to him, and that if it did not resolve its differences with BPED and BPEH within 60 days it would be at liberty to terminate the contract of sale with the plaintiffs.
The issues to be determined were:
(a) Are the plaintiffs entitled to declaratory relief?
(b) Has BPED made out a prima facie case that it has an equitable interest in the property with priority over the interest of Atanasovski?
(c) Does the balance of convenience favour making the interlocutory injunction sought by BPED?
On 15 September 2021, I ruled answering these questions yes, no and no, indicating that my reasons would follow. These are the reasons for my ruling.
Background
Atanasovski is a property developer and the director of numerous companies, including a company called 328-338 McKimmies Road Pty Ltd (‘McKimmies Road’). In around March 2017 he purchased the property through McKimmies Road with the intention of carrying out a development on it.
In around September 2018 Atanasovski accepted an offer from BPEH to purchase the property from McKimmies Road for $16,800,000. That sale settled in July 2019. Most of the settlement funds were sourced from loans to BPEH from Qi Yong 7 secured by first registered mortgage, and Qi Yong 8 secured by second registered mortgage. Because BPEH did not have sufficient funds to settle, Atanasovski agreed to allow the sale to proceed with the outstanding amount of approximately $1 million secured by a registered third mortgage to McKimmies Road.
Nhut Quang Dai Huynh (‘Huynh’) is the sole director of BPEH and BPED. In an affidavit made on 14 September 2021 filed in this proceeding in support of the position taken by BPED, Huynh states that the contract of sale to BPEH included a permit to develop the property by construction of 106 townhouses, and that in December 2018 BPED entered an agreement with BPEH for the development of the property. The development agreement included an option for BPED to purchase the property for $14,700,000, with a deposit payable of $500,000.
Huynh states that in April 2019 he approached mortgage manager Elissa Dai to discuss a loan from Qi Yong 7 to fund purchase of the property by BPEH, and in the course of discussions provided a copy of the development agreement to Ms Dai.
In October 2019 BPED entered a contract to purchase the property from BPEH (the ‘Bundoora contract’). Lawyer Jenny Tran of Jem Lawyers was the legal practitioner for both parties. The Bundoora contract records that $30,000 of the deposit of $500,000 had been paid, with the balance to be paid by 30 December 2019. The settlement date was 14 April 2020.
In November 2019 BPEH and BPED agreed to extend the settlement date of the Bundoora contract to 10 January 2021. At about the same time BPED nominated Toorak to purchase the property under the Bundoora contract. The directors of Toorak are Huynh’s wife Casey Wong and Kim Hoa Dai.
The balance of the deposit was paid in December 2019 and January 2020. It appears the deposit was released to BPEH, and payments were made to its creditors, including approximately $107,000 to Qi Yong 7.
The fifth defendant, Havenport Fixed Maturity Fund SPC (‘Havenport’) loaned BPEH funds to pay the deposit when it purchased the property from Atanasovski and McKimmies Road. In February 2020 Havenport appointed the third and fourth defendants, Leanne Chesser and Craig Shepard, of KordaMentha as receivers and managers of BPEH (the ‘receivers’).
Huynh states that on 29 February 2020 he had a conversation with Ms Dai about the appointment of the receivers by Havenport during which he requested that Qi Yong 7 agree to proceed with the Bundoora contract.
On 2 March 2020 Qi Yong 7 issued a notice of default by BPEH under the first mortgage. Huynh states that on the same day he met with Ms Dai and discussed the Bundoora contract, handed her a copy of the contract and agreement to extend the settlement date, and told her money paid to Qi Yong 7 in December 2019 had come from payment of the deposit under the Bundoora contract. Huynh states:
Shortly after 2 March 2020, Ms Dai told me that she had met with [Qi Yong 7’s] lawyer and the receivers, and that she had raised the [Bundoora contract] with the receivers, that the receivers asked that she cancel that contract, and that she refused to do so.
On 17 March 2020 Qi Yong 7 took possession of the property as mortgagee.
The receivers conducted an expression of interest campaign through real estate agents to sell the property, and in late April 2020 presented offers from prospective purchasers to Qi Yong 7 and Qi Yong 8. Qi Yong 7 then undertook its own sale process through different agents. On 29 May 2020 the receivers retired as receivers of BPEH.
On 23 June 2020 Atanasovski entered the contract of sale with Qi Yong 7 to purchase the property for $12,500,000 (the ‘contract of sale’).
On 30 June 2020 Ms Tran emailed James Xi, a lawyer representing Qi Yong 7 at the time, stating that she acted for Huynh, who was the purchaser of the property under the Bundoora contract, that funds were finalised for settlement of the contract, that it had come to her client’s attention that Qi Yong 7 had listed the property for sale, and that Qi Yong 7 was not permitted to deal with the property while the Bundoora contract remained on foot. The email was copied to Ms Dai.
Huynh states that in September 2020 Ms Dai emailed him attaching a letter of offer from Qi Yong Capital Group Pty Ltd to finance the purchase of the property. Ms Dai’s email simply refers to ‘Mill Park new offer’. The document headed ‘Letter of Offer’ is for a loan amount of $11,400,000, describes security as a proposed first mortgage from Huynh, and states it is indicative only.
On 2 November 2020 Ms Tran wrote to the lawyers for Qi Yong 7 requiring that it honour the Bundoora contract.
Huynh states that in November 2020 a deed was prepared between BPEH and Qi Yong 7 reciting the Bundoora contract and requiring part repayment of $650,000 towards the loan from Qi Yong 7 secured by first mortgage. Huynh states that on 27 January 2021 he paid $850,000 to Qi Yong 7.
The Bundoora contract did not settle on the due date in January 2021. There is no evidence about what if anything occurred in relation to the contract at that time.
Huynh states that on 13 July 2021 Ms Dai, on behalf of Qi Yong 7, requested that he provide evidence of Toorak’s ability to settle the Bundoora contract, and that on the same day he emailed to Ms Dai an unconditional letter of offer for finance sufficient to settle the contract and undertake development of the property.
Huynh states that on 10 September 2021 the lawyers for Qi Yong 7 and Qi Yong 8 emailed two default notices to him in respect of their mortgages with BPEH, and on the same day he was informed by his lawyers that Atanasovski was seeking specific performance of the contract against Qi Yong 7.
In an earlier affidavit made on 13 September 2021, Huynh states that he was recently advised by his solicitor as to the requirements for valid service of a default notice under s 76 of the TLA, and that:
Upon becoming aware of this I advised my solicitor to take steps to restrain the first defendant from completing settlement of the [sale of the property] to [Atanasovski and Belmont]. I did this because prior to the mortgagee issuing a Default Notice, [BPEH] had entered into a contract of sale for the sale of the [property] for the amount of $14,700,000. [Qi Yong 7] is aware of the contract of sale and I believe that contract has not been terminated, that is to say that I believe that no notice to rectify default has been issued pursuant to the terms of that contract …
On 7 September 2021 Ms Tran of Jem Lawyers, acting for Huynh, wrote to lawyers for Qi Yong 7 stating their client had not validly served the notice of default, and must not proceed with settlement of the contract of sale. In response Qi Yong 7 did not admit the allegations but confirmed it would not proceed with the settlement that day until an investigation of the matter was concluded. On 8 September 2021 Ms Tran again wrote to Qi Yong 7’s lawyers repeating the notice under s 76 of the TLA was not validly served and Qi Yong 7 had failed to comply with preconditions to exercising its mortgagee’s power of sale. Ms Tran demanded Qi Yong 7 immediately terminate the contract of sale ‘failing which my client will seek orders preventing the sale and that if the sale proceeds then my client will seek freezing orders for all proceeds to be held on account of damages.’ The solicitors for Qi Yong 7 replied that the process of investigation of the allegations was still proceeding, but that their client’s position was the default notice had been validly served. Ms Tran responded the same day with further allegations as to the inadequacy of service of the notice. On 9 September 2021 Ms Tran again wrote to the solicitors for Qi Yong 7 attaching the originating motion and summons which was subsequently filed in the Bundoora proceeding.
Huynh states:
(a) Toorak remains ready, willing and able to settle the Bundoora contract;
(b) If the Bundoora contract does not settle, Toorak will have lost the opportunity to profit from the development of the property;
(c) To date BPED has incurred expenses relating to the development of the property of just under $1.2 million, including engineering, architecture, marketing costs, agent commission, legal costs and interest;
(d) Guarantees provided by him and his parents exceed the purchase price under the contract of sale, and they will be at risk on those guarantees to Havenport, Qi Yong 7, Qi Yong 8 and McKimmies Road.
Atanasovski commenced this proceeding seeking removal of a caveat on the property to allow settlement of the contract to take place. That issue, and a subsequent claim made by the receivers and Havenport relating to payment of the receiver’s fees, have been addressed and are no longer impediments to settlement of the contract of sale.
Atanasovski explains the urgency of the contract settling:
(a) It was expected that on-site demolition, which will take approximately four weeks, would commence on 2 September 2021, being the day after the original settlement date.
(b) Belmont has a contract with Civ2Con Pty Ltd, a civil contractor, to carry out all infrastructure works at the property to prepare it for the construction of the townhouses. The infrastructure includes but is not limited to underground services such as sewerage and piping and the construction of roads. The contract price with Civ2Con Pty Ltd is approximately $3 million.
(c) The civil contracting works are due to commence immediately after demolition has occurred. Building works cannot commence until the first stage of the civil works are completed, which is expected to take approximately eight weeks.
(d) Belmont has entered into a building contract for the construction of townhouses at the property with Saw Construction Pty Ltd for an amount of approximately $30 million, and a commencement date of 1 December 2021. The building contract contains a provision that if works do not commence by 1 December 2021 the builder has the right to review and increase his costs.
(e) There are currently significant price increases occurring in the building industry as a result of lack of supplies. The builder has received price increase letters from many suppliers advising of the price increases in the vicinity of 10% to 15%, which would equate to a $3 million to $4,500,000 increase in the building price if passed on to Belmont.
Atanasovski further explains that Belmont has entered into approximately 100 ‘off the plan’ sales of townhouses which are to be built as part of the development of the property. There is a sunset date of 38 months from the date of each contract to register a plan of subdivision. If the sunset date is not met, the purchaser of a townhouse has the right to terminate the contract. The plaintiffs must obtain possession of the property to ensure the contractual dates can be met.
The Bundoora proceeding
On 13 September 2021 BPEH issued an originating motion against Qi Yong 7 and others seeking declarations to the effect that it did not validly effect service of any notice under s 76 of the TLA on BPEH or Havenport, as a consequence was not entitled to exercise the power of sale conferred by s 77 of the TLA and the contract was liable to be set aside (‘Bundoora proceeding’). During the hearing on 14 September Jacqueline Chan, the lawyer representing the receivers and Havenport, made a further affidavit confirming valid service of the notice of default on Havenport at a time when the receivers were appointed as receivers and managers of BPEH. After receiving that affidavit BPEH conceded the Bundoora proceeding should be dismissed.
Submissions
There was no objection to BPED and Toorak being heard on 14 September 2021, and making an oral application for injunctive relief restraining settlement of the contract of sale.
BPED
A mortgagee, having a registered interest, would usually be entitled by reason of s 77(4) of the TLA to complete a sale with a subsequent purchaser despite the existence of a prior extant contract of sale between the registered proprietor and a buyer. However, in this case Qi Yong 7, by its conduct, affirmed or bound itself to the Bundoora contract and, aside from entering into the contract with Atanasovski, treated the Bundoora contract as being on foot at all material times. Qi Yong 7 received part of the deposit paid under the Bundoora contract. In March 2020 Ms Dai, on behalf of Qi Yong 7, led Huynh to understand that Qi Yong 7 agreed to perform the Bundoora contract, which Ms Dai told the receivers.
The conduct of Ms Dai, on behalf of Qi Yong 7, after it entered a contract with Atanasovski, informs the pre-contract conduct.
The contracts, neither of which has been completed, created two equitable interests in the property. First was the equitable interest given by BPEH, the registered proprietor, to BPED by the Bundoora contract, which was the first in time. Second was the interest given by the mortgagee in possession, Qi Yong 7, to Atanasovski by the contract of sale. Because the right of Qi Yong 7 as mortgagee in possession was encumbered by the conduct of Ms Dai on its behalf affirming the Bundoora contract, the equitable right of Atanasovski in the property is diminished, and the equitable right of BPED as purchaser under the Bundoora contract takes priority.
By adopting the Bundoora contract Qi Yong 7 has in effect elected to proceed with that contract pursuant to its rights under the memorandum of common provisions as mortgagee. In those circumstances, the question of redemption does not arise, and BPED is entitled to specific performance.
The case raised by BPED should not be dealt with summarily, and should be subject to a final hearing in a new proceeding which it will issue. In that proceeding the priority of interests claimed by BPED and Atanasovski in the property can be determined after evidence is heard.
BPED, Toorak, Huynh and his parents will suffer significant losses if an injunction restraining settlement of the contract is not granted.
Counsel for BPED and Toorak advised his clients would give the usual undertaking as to damages if the application for an injunction was granted.
Qi Yong 7
In the absence of a successful claim by BPED, the declaration sought by the plaintiffs would be appropriate.
BPEH is insolvent, and has not offered to redeem the first and second mortgages or pay the amount owed into Court. BPED has not offered security for the undertaking it has given.
Qi Yong 7 faces competing claims from Atanasovski as purchaser under a mortgagee’s contract of sale and BPED as purchaser from the registered proprietor. Qi Yong 7 adopts a neutral stance in relation to the relief sought by the plaintiffs and BPED. However it notes that if the plaintiffs are successful and the injunction sought by BPED is not granted, but the claim it seeks to make ultimately succeeds, Qi Yong 7 may face claims it would not otherwise have to face. Where the evidence relied on by BPED raises the possibility of equitable claims against Qi Yong 7, which include arguments based on estoppel, it may be inappropriate to proceed in a summary fashion without the benefit of all of the evidence.
Atanasovski and Belmont
There is no basis to conclude that there is any entitlement to prevent Atanasovski from exercising his right to have the contract with Qi Yong 7 performed. Even if rights suggested on behalf of BPED are found to exist, they would not give rise to a right to have the contract set aside.
For the following reasons BPED has not made out a prima facie case, in the sense of there being a sufficient likelihood, if the evidence remains as it is, that it has an equitable interest in the property that has priority over the interest of Atanasovski. First, the effect of s 77(4) of the TLA is to empower the mortgagee to convey the interest of the mortgagor as registered proprietor of the land to a purchaser. In equity, the mortgagor loses the right to redeem the mortgage on the mortgagee entering into a valid contract. Because there is a valid contract of sale from Qi Yong 7 as mortgagee to Atanasovski, there can be no right for BPEH to redeem the mortgage, and therefore no right of BPED to specific performance. Whether the resulting loss of any rights to BPED is an actionable wrong is a different issue which may give rise to a claim for damages, but does not affect the entitlement of Atanasovski to performance of the contract. The material that BPED relies on does not raise an arguable case that it has a right to specific performance.
Second, a mortgagor that sells land must have the ability to redeem the mortgage at settlement. All encumbrances on the land must be discharged by the mortgagor tendering amounts owed to the respective secured interests. In this case, that goes to the redemption of mortgages to Qi Yong 7, Qi Yong 8, McKimmies Road and the charge for the receivers’ fees. The purchase price under the Bundoora contract is only sufficient to pay out the first mortgagee and some of the debt owed to the second mortgagee. There is no evidence that as vendor under the Bundoora contract, BPEH can or has any intention to redeem all of the secured interests on the property. The interest of BPED as purchaser can only be commensurate with the availability of specific performance. Because there is no evidence BPEH can or intends to redeem the secured interests, there is no evidence BPED has an interest entitling it to specific performance.
Third, the better equity in the property lies with Atanasovski as purchaser under the contract of sale. It is relevant that BPEH, the registered proprietor and vendor, and BPED, the purchaser alleging an equitable interest in competition with Atanasovski, are companies with the same person as director and secretary. Both companies are the alter ego of Huynh, and the Bundoora contract is, in commercial terms at least, between the same people. The consequence is that at all times the purchaser, BPED, should be taken to have all of the knowledge of BPEH about default under the mortgage and the steps to enforce the mortgage taken by Qi Yong 7, appointment of the receivers by Havenport, and the inability of BPEH to specifically perform the Bundoora contract. The discussion between Huynh and Ms Dai, representing Qi Yong 7, on 2 March 2020 can have no impact on the subsequent purchaser in a mortgagee sale. From the position of Atanasovski there were two expression of interest campaigns running which were conducted by reputable agents, one appointed by the receiver and manager, and Qi Yong 7 had served a notice of default. In that context, failure by BPED to lodge a caveat on title putting prospective purchasers such as the plaintiff on notice of the alleged prior claim under the Bundoora contract, or to seek to injunct a mortgagee sale by Qi Yong 7 would result, if the question arose, in a reversal of priorities.
While Qi Yong 7 as mortgagee would have the right to join in the sale by BPEH to BPED, there is no evidence of a contractual obligation binding on the mortgagee from the Bundoora contract upon which BPED could rely to make out a claim for specific performance.
If it becomes relevant, the balance of convenience weighs heavily against granting the injunction sought by BPED. Further, there is no comfort in the undertaking proffered by BPED and Toorak, and no offer of security by those companies.
If the Court concludes Qi Yong 7 is able to provide title, there is no other encumbrance on the property which would prevent clear title being provided at settlement, so that clause 2.5 of the contract, which Qi Yong 7 submits permits it to extend settlement for 60 days if it is unable to give good possession and title, simply does not arise. In any event, Qi Yong 7 as vendor could not rely on the condition to excuse it from performing the contract if the clause was only activated by its default as vendor.
Analysis
The starting point is that Atanasovski as purchaser under the contract of sale from Qi Yong 7 as mortgagee in possession has an equitable interest in the property and is entitled to have the contract of sale performed. The summary application for declaratory relief under s 49(1) of the PLA does not require resolution of disputed questions of fact.[1] Leaving to one side the application for an interlocutory injunction by BPED, it is appropriate, as Qi Yong 7 conceded, that the declaration sought by the plaintiffs is made.
[1]Wollert Epping Developments Pty Ltd v Battan (2019) VR 92, 102 [35] (Derham AsJ).
The test applied in determining whether to grant the injunction sought by BPED to prevent settlement of the contract of sale is as outlined in Australian Broadcasting Corporation v O’Neill.[2] There are two enquiries:
(a) Whether BPED has made out a prima facie case in the sense of there being a sufficient likelihood, if the evidence remains as it is, that it has an equitable interest in the property with priority over the interest of Atanasovski.
(b) Whether the inconvenience or injury which BPED and associated persons would be likely to suffer if the injunction is refused is outweighed by the injury which Atanasovski and Belmont would suffer if the injunction were granted.
[2](2006) 227 CLR 57, 82–4.
If, by conduct of Ms Dai on and shortly after 2 March 2020, Qi Yong 7 affirmed or adopted the Bundoora contract, that means no more than that it may have been required to allow it to proceed. However, there is no evidence of any contractual obligation binding on Qi Yong 7 which could be the basis of a claim for specific performance by BPED.
There is no evidence that BPEH can or intends to redeem the secured interests on the property at a settlement of the Bundoora contract. The evidence suggests otherwise. BPEH appears to have borrowed most if not all of the funds to purchase the property. The purchase price paid by BPEH is over $2 million above the price on the Bundoora contract. BPEH has had receivers and managers appointed on three occasions. There is no evidence it has serviced loans secured against the property. The interest of BPED as purchaser under the Bundoora contract can only be commensurate with the availability of specific performance, which will depend on the ability and intention of BPEH to redeem interest secured on the property at settlement.
The effect of default by BPEH was to empower Qi Yong 7 to take possession of the property and sell it as mortgagee. Assuming no lack of bona fides in the exercise of the power of sale, the right of BPEH to redeem the mortgage was extinguished upon Qi Yong 7 entering into a valid contract of sale with Atanasovski.[3] Because BPEH had no right to redeem the mortgage with Qi Yong 7 there could be no corresponding right of BPED to specific performance of the Bundoora contract.
[3]Transfer of Land Act 1958 (Vic) s 77(4); R v Registrar of Titles; Ex parte Watson (1952) VLR 470, 476–7 (Herring CJ); Saafin Constructions Pty Ltd (in liq) v MAG Financial and Investment Ventures Pty Ltd [2021] VSC 489, [341] (Riordan J) (‘Saafin Constructions’); Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265, 275 (Kitto J); Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd (1999) 196 CLR 245, 264 [26] (Gaudron, Gummow and Callinan JJ).
If it was accepted that by Ms Dai’s conduct Qi Yong 7 affirmed or adopted the Bundoora contract, it may be arguable it did not act bona fide in the exercise of the power of sale. Although it is not entirely clear, I assume this argument was made by BPED. In that case, the equity of redemption would not be extinguished and there would be no principle which postponed the rights of BPEH as mortgagor and BPED as purchaser under the Bundoora contract to the rights of Atanasovski.[4] On the facts of this case, this is not a strong argument. Qi Yong 7 had already served a notice of default on BPEH. Within a short time it took possession of the property, and the expression of interest campaign was commenced on its instruction. At the same time the receivers were appointed as receivers and managers of BPEH. In those circumstances, Huynh, BPEH and BPED knew Qi Yong 7 was exercising the mortgagee power of sale, and could not have taken much comfort from Ms Dai saying in early March 2020 that she had told the receivers she refused to cancel the Bundoora contract.
[4]Saafin Constructions (n 2) [341] (Riordan J); Forsyth v Blundell (1973) 129 CLR 477, 499 (Walsh J).
The Bundoora contract was made in October 2019. Huynh states the deposit of $500,000 was paid in December 2019 and January 2020. I accept that because of the relationship between the companies, and the common directorship of Huynh, BPED should be taken to have the knowledge of BPEH. This includes knowledge of default by BPEH under the mortgage with Qi Yong 7, appointment of the receivers in respect of the Havenport facility and the notice of default issued by Qi Yong 7 in March 2020. It is relevant that Qi Yong 7 took possession of the property as mortgagee in March 2020, and that there were two expression of interest campaigns conducted to sell the property. Armed with that knowledge BPED failed to take steps to protect its interest under the Bundoora contract such as lodging a caveat on title or bringing proceedings to restrain Qi Yong 7 and the receivers from selling the property. No question has been raised as to the conduct of Atanasovski as purchaser under the contract of sale. There is no suggestion he was on notice of the Bundoora contract or the interest of BPED as purchaser at the time he entered the contract with Qi Yong 7. Atanasovski acted to his detriment on the faith of the mortgagee’s right to sell the property. The contract of sale records payment of a deposit of $1,250,000 on the contract date. Atanasovski and Belmont have secured finance and entered contracts for development of the property. It is very likely they will suffer considerable loss if deprived of priority. The evidence strongly supports a conclusion that, if BPED did establish an equitable interest in the property, that interest would be postponed to the subsequent interest of Atanasovski because of the conduct of BPED and the detriment that would be suffered by Atanasovski if this did not occur.[5]
[5]Hili Mimi v Millennium Developments Pty Ltd [2003] VSC 260 (Nettle J).
Atanasovski has provided cogent evidence of the very considerable detriment he and Belmont will suffer if the injunction sought by BPED is granted. While the usual undertaking would be given by BPED and Toorak, no supporting security has been offered, and the value of the undertaking is uncertain. The evidence of Huynh is far less convincing. No particulars have been given of the expenses incurred by BPED referred to in para 31(c) above. Given the history of events outlined above, it is far from certain that the Bundoora contract would settle if the opportunity arose. It is unclear what losses Huynh and his parents will suffer if the injunction sought by BPED is not granted. BPED and Toorak’s loss of opportunity to profit from development of the property is speculative.
For these reasons I concluded BPED had not established a prima facie case with a sufficient likelihood of success, and that the balance of convenience strongly favours Atanasovski and Belmont. The injunction sought by BPED is refused.
Conclusion
I concluded that:
(a) The declaration sought by the plaintiffs that Qi Yong 7 is not entitled to refuse to perform its settlement obligations under the contract of sale should be made; and
(b) The application for an interlocutory injunction by BPED should be refused.
Qi Yong 7 submitted the declaration application was necessary because of the unfounded allegation of BPEH that the default notice was not validly served, it adopted a neutral stance on the application and there should not be an order making it responsible for the plaintiffs’ costs of the application. I disagree. Qi Yong 7 was on notice by 7 September 2021 that BPEH alleged invalid service, but did not notify the plaintiffs until days later or take steps open to it to establish the validity of service.
In all the circumstances I will not accede to the plaintiffs’ application that its costs be paid by Qi Yong 7 and BPEH on an indemnity basis.
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