Australian Securities Limited v Matwil Investments Pty Ltd & Anor
[2007] VSC 557
•21 December 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7223 of 2007
| AUSTRALIAN SECURITIES LIMITED (ACN 005 428 231) | Plaintiff |
| v | |
| MATWIL INVESTMENTS PTY LTD (ACN 089 817 434) | First Defendant |
| and | |
| BARRY ROBERT WILSON | Second Defendant |
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JUDGE: | HARPER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 7 DECEMBER 2007 | |
DATE OF JUDGMENT: | 21 DECEMBER 2007 | |
CASE MAY BE CITED AS: | AUSTRALIAN SECURITIES LTD v MATWIL INVESTMENTS PTY LTD & ANOR. | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 557 | |
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PRACTICE AND PROCEDURE – Appeal from a Master – Finance facility agreement – Default in payment of first installment of interest – No subsequent payments - Application for possession of land – Borrower applied for rural finance interest subsidy – Alleged oral representations by plaintiff about interest payments pending result of application for interest subsidy – Appeal allowed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Styring | Nicholas O’Donohue |
| For the Defendant | Mr A. Swanwick | Norton White |
HIS HONOUR:
The plaintiff is a money lender. On 29 March 2007, it entered into a contract, known by the parties as a “finance facility agreement”. The first defendant, Matwil Investments Pty Ltd, was the borrower. The sum borrowed was $1,600,000. The second defendant, Mr Barry Wilson, gave a guarantee, backed by mortgages of property in two titles in his name. Further security came from the first defendant itself, which granted mortgages to the plaintiff over the several titles to its farming property near Hopetoun.
The agreement was in writing. Among its terms were that time would be of the essence, that the amount borrowed would be repaid on 15 April 2009, and that interest would be calculated in arrears at 8.89%, so long as it was paid when due; any default would result in the rate of interest rising to 12.89%. The first defendant would, at the option of the plaintiff, immediately be in default without the necessity of any notice or demand if, on the designated date for payment, the first defendant failed to pay any part of the money secured, or any interest due under the agreement. On the other hand, the plaintiff was by the agreement prevented from exercising any of its rights arising out of a default, other than the right to sue for money then owing, until a written notice, specifying the default and the plaintiff’s intention to exercise its rights, was first served on the first defendant.
On 24 April 2007, the plaintiff advanced the principal sum of $1,600,000. Given that, by the agreement, interest was payable on the 15th day of each month, the first instalment of interest became due on 15 May 2007. The defendants, in their defence and counterclaim filed on 15 November 2007, admit that that payment was not met. Indeed, no part of the principal or interest has been repaid.
By notice dated 23 May 2007, the plaintiff gave notice of default to the company. It specified the default of 15 May, and demanded payment of the “default” sum ($19,233.60) at or before noon on 31 May. The demand was not met.
In these circumstances, a summons was issued by the plaintiff on 24 October 2007. That summons came on for hearing before a Master of this Court on 19 November 2007. By it, the plaintiff sought an order that it recover possession of all the mortgaged land, including that held in the name of the Mr Wilson himself. It also sought costs and such further or other relief as the Court might think appropriate to grant.
On 19 November, the matter was adjourned to 28 November. On the latter day, the Master ordered that the defendants have leave to defend. The plaintiff now appeals to a single Judge of this Court from that order. It asserts its right to possession of the land, and does so in reliance upon the finance facility agreement, the mortgages and a “finance facility validation” form which Mr Wilson signed on behalf of Matwil Investments.
The latter document is important. It is divided into segments. The first of these, designated “Part A”, discloses that Andre Ong of Sharrock Pitman Legal, a legal practitioner currently practising in Australia, interviewed “the applicant” and had no interest in “the transaction” “except to provide the applicant independent legal advice.” The expression “the applicant” is defined as Matwil Investments Pty Ltd, although the segment designated “Part H”, which is headed “Applicant Declaration and Certificate”, is signed by Mr Wilson above his name – which is printed on the form. Mr Ong also signed. In doing so, he certified that he had seen Mr Wilson sign, that he had explained to Mr Wilson “[t]he general nature, effect and representations contained in the loan documents”, and that there was a risk that the security could be lost. The finance facility validation form then goes on to state that, after having been given those explanations, Mr Wilson told Mr Ong that he understood “the general nature and effect of the documents, the representations, obligations, and risks involved”.
The finance facility validation form is dated 29 March 2007. By signing it, Mr Wilson acknowledged that he “had read and understood the documents identified in this certificate.” They are listed in “Part C” as the finance facility application, the finance facility agreement, the Matwil mortgages and the Wilson mortgages, together with the relevant memorandum of common provisions. Mr Wilson also acknowledged that Mr Ong had signed the certificate at his request, and that the applicant had sufficient surplus income “to pay $13,040.00 each month without experiencing financial hardship.”
It is in this context that the defendants deny any default. They argue that the agreement between the parties was not wholly in writing. According to them, an oral term provided that, in the events which happened, a failure to pay the first instalment of interest on 15 May would not amount to a default.
The evidence upon which these contentions are based is contained in two affidavits in opposition to the application for possession. The principal of these was sworn by Mr Wilson on 23 November 2007. He there deposes that Matwil Investments had – to the plaintiff’s knowledge – applied for a rural finance interest subsidy from the Rural Finance Corporation. The plaintiff also knew that, unless the subsidy were granted, the first defendant would not be able to meet its obligations under the financial agreement. In particular, it would not be able to meet its obligation to pay interest on the 15th of each month. An application had been made to the Corporation, and the plaintiff itself had supported it. Indeed, the plaintiff had supplied a document to the Corporation “identifying the detail of the proposed finance facility agreement and certifying that the plaintiff agreed to continue to support the first defendant for a further 12 months unless default occurred.”[1]
[1]Affidavit of Barry Robert Wilson sworn 23 November 2007 at [3].
Mr Wilson further deposes to conversations he had with an employee of the plaintiff named Mark Dunstan. According to Mr Wilson, he explained to Mr Dunstan that the interest subsidy “was critical both to the short term viability of the first defendant and to the ability of the first defendant to meet its obligations under the proposed finance facility agreement.”[2]
[2]Ibid at [5].
Mr Wilson asserts that he was told by Mr Dunstan that the latter understood the importance of obtaining, and then retaining, the interest subsidy. Consistently with this, in a conversation which Mr Wilson had with Mr Dunstan some seven to ten days before the finance facility agreement was signed, Mr Dunstan told Mr Wilson “of the proposed date for settlement”.[3] This, says Mr Wilson, provoked him into an immediate response. He told Mr Dunstan “that there was little possibility of the rural finance application being granted, and the funds being released, by that date.” In response, Mr Dunstan suggested, and Mr Wilson agreed, that at least part of the additional time required before the subsidy was approved could be covered by the plaintiff taking the initial payment out of the settlement proceeds, thus making the first payment of interest due not on 15 April but on 15 May. Mr Wilson’s affidavit continues:
He [Mark Dunstan] asked me what was required to enable that application [for an interest subsidy] to be granted. I told him that I had supplied all of the necessary information to the Rural Finance Corporation; that I understood the Corporation might be seeking additional information or verifications direct from my accountant; that there was nothing further which I could do to expedite the matter; but that from my previous experience it might well be at least a couple of months before approval was granted and the funds released. Dunstan then suggested and I agreed that at least part of the additional time required before the subsidy was approved could be covered by the plaintiff taking the initial payment of interest out of the settlement proceeds. This would have made the first payment of interest due on 15 May. That arrangement was in fact implemented in the finance facility agreement.
However in the same conversation I said to Dunstan that I still regarded it as uncertain that the subsidy would be available by that date and that it might require a month or two thereafter before funds were available. Dunstan’s response was to say: “No, don’t worry, you’ll get it on time, it won’t take more than six weeks” or words to that effect. I cannot now recall his precise words. I replied with words to the effect: “I’ve done everything I can do to get it approved, but I still think the approval and payment might happen after 15 May. I can’t be sure that it will happen within the six weeks.” I mentioned that my accountant would be paid his fees from the settlement proceeds so that there would be no delay caused by the accountant waiting for his money. Dunstan replied to me with words to the effect: “Well, if it looks like being further delayed let us know so that we can avoid repercussions.”
[3]Ibid at [6].
Mr Wilson further deposes that, had Mr Dunstan not made his declaration of support as set out above, he (Mr Wilson) would not have signed the finance facility agreement on behalf of the first defendant, and would not have become a guarantor to that agreement. He was always doubtful about the prospects of obtaining the subsidy by 15 May. With this doubt in his mind, and knowing that, without the subsidy, the interest obligation could not be met, he relied upon what he took to be Mr Dunstan’s assurance “that non-payment of interest pending the approval of the subsidy would not be treated as a default” at least “so long as subsidy approval was expected within a reasonable period.”[4]
[4]Ibid, at {8] and [9].
Mr Wilson now puts forward the declaration of support as an inherent part of the contractual arrangements binding on the lender, the borrower and the guarantor alike. He similarly relies upon the assurance that non-payment of interest pending the approval of the subsidy would not be treated as a default.
The problem is that, after the declaration was made and the assurance given, (accepting, for present purposes only, that indeed they were) Mr Wilson told the plaintiff, in writing, that he (or Matwil Investments) had “sufficient surplus income to pay $13,040.00 each month without experiencing financial hardship.” He also told the plaintiff, in writing, that he had read and had understood the finance facility agreement (which provides, among other things, that time was of the essence, that the interest commencement date was 30 March 2007, and that payments were to be made on day 15 of each month). In addition to these representations, Mr Wilson told the plaintiff that Mr Ong had explained to him, in terms that he understood, the general nature, effect and representations contained in the loan documents and the “risk of the loss of the security and other assets owned by the applicant.” Mr Ong also advised Mr Wilson, as the latter acknowledged in writing, to seek independent financial advice before signing the documents if any doubt existed. Having given these explanations and this advice, Mr Ong signed the certificate at Mr Wilson’s request. Again, Mr Wilson acknowledged that this was so.
It is plain that the plaintiff did take into consideration Mr Wilson’s application for an interest subsidy. It did so by subtracting the April interest from the principal sum that, at settlement, was drawn down. That interest was in the amount of $6,235.18, calculated from 30 March to 15 April. The same could, in theory at least, have been done for May, although of course the amount involved would have been greater, given that it covered an entire month. Likewise, had Mr Wilson and the plaintiff agreed, the date of settlement could have been postponed until the Rural Finance Corporation had made its decision known on the application for an interest rate subsidy. Or Mr Wilson could simply have refused to go ahead unless his (or Matwil’s) financial vulnerability had been adequately protected.
By their defence and counterclaim, the defendants plead a term of the finance facility agreement upon which they rely. It is that the plaintiff would not make impossible Matwil’s performance of its obligations under the agreement. That is a good pleading as far as it goes; one party to a contract cannot deny to an opposite party the ability to comply with that other party’s obligations. But the answer in this case is that the plaintiff did no such thing. It merely exercised rights which were given to it by the agreement itself. If it were indeed impossible for Matwil to meet its commitments under the agreement, that was because - in the absence of an interest subsidy - it did not have the necessary financial capacity. The plaintiff was not responsible for that. On the contrary, the plaintiff supported Matwil’s application for the grant of the subsidy. It is true that, after Matwil’s default, the Rural Finance Corporation declined to consider Matwil’s application further. But insofar as the plaintiff had any influence on that decision, it was only to the extent that, before the attitude of the Rural Finance Corporation was known, it exercised its rights under the agreement.
The defendants also plead a term, partly oral and partly to be implied, of the finance facility agreement. It was to the effect that the plaintiff would not, for a reasonable period, exercise its rights arising out of non-payment of interest. This is not, however, what – according to Mr Wilson – Mr Dunstan told him. When informed of Mr Wilson’s concern that the subsidy would not be approved before the May interest became due, Mr Dunstan said “Don’t worry, you’ll get it on time” and then “if it looks like being further delayed let us know so that we can avoid repercussions.”
The defendants seek to overcome this problem by asserting that the term for which they contend is, to the extent that it is not oral, to be implied. The law, however, will not imply a term that is inconsistent with other terms of the agreement in question. Nor is it possible in this case successfully to argue that the implied term on which the defendants seek to rely is necessary to give the agreement business efficacy. It would, if incorporated into the agreement, give rise to uncertainty and doubt. Even if one could readily define what in the circumstances qualified as a “reasonable period”, one would be left with no certainty about what would happen if, at the end of that period, the Rural Finance Corporation still had not come to a decision, or had declined to accede to the application.
The representations relied upon by the defendants in their defence, and also in their counterclaim, run into the same problem. They do not, as pleaded, accord with what Mr Wilson says Mr Dunstan said. They are, in addition, inconsistent with the agreement, and with the representations made by Mr Wilson and by Mr Ong in the finance facility validation certificate. Those latter representations were made to the plaintiff after the relevant conversation(s) with Mr Dunstan. For this reason, it does not necessarily follow that the plaintiff knew, at the time the validation certificate was signed, that Mr Wilson was not telling the truth about (for example) the applicant’s ability to service the loan. Even if it knew that, at an earlier time, Matwil could not have met its interest commitments unaided, circumstances might have changed.
There is another point. Unlike the representations made by Mr Dunstan, those made to the plaintiff by Mr Wilson and Mr Ong are consistent with the finance facility agreement. Not only that, but it seems to me to be impossible for Mr Wilson to say that he relied upon Mr Dunstan when at the same time he was prepared to sign a document the effect of which is to the contrary.
In the circumstances of this case, the plaintiff is in my opinion entitled to rely on what Mr Wilson and Mr Ong put to it in writing; and nothing said by Mr Dunstan is in my opinion capable of supporting either the defence or the counterclaim.
None of that which I have said is intended to indicate that the Court does not sympathise with Mr Wilson, or anybody else who finds themselves in his position. But commerce would be impossible in the absence of a degree of certainty. There must also, of course, be a degree of flexibility. Here, it seems to me that the balance which should be struck favours the plaintiff. The finance validation process put in place by it ought in my opinion to have been sufficient, at least given the involvement of Mr Ong, to enable the defendants to take action to avoid that which in fact occurred. Adoption of the defendants’ arguments would mean that the validation process was a waste of time, and could never be relied upon by a financier. Yet if the validation process in operation here was not sufficient to give the plaintiff certainty, it is difficult to know how commerce would ever attain the degree of certainty it needs if it is to operate to the advantage of borrowers, and the community generally.
Of course, this is not to be taken as an invitation to representatives of lenders to make misleading and deceptive representations to borrowers. That should not be done, no matter what validation procedures are in place.
But it is equally true that consumers should not sign validation certificates knowing that they are untrue. That too could, and probably would, be misleading and deceptive conduct, whether under the common law or under the Trade Practices Act. In the validation certificate, Mr Wilson gave an unqualified representation that the borrower could service the interest on the loan from the plaintiff. At the time that representation was made, Mr Wilson knew that it was untrue.
For these reasons, it seems to me that the appeal should be allowed. Subject to the question of costs, the plaintiff is entitled to the relief sought in its summons of 24 October 2007.
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