Bonheur Holdings Pty Ltd v Mercia Financial Solutions Pty Ltd
[2018] NSWSC 1962
•14 December 2018
Supreme Court
New South Wales
Medium Neutral Citation: Bonheur Holdings Pty Ltd v Mercia Financial Solutions Pty Ltd [2018] NSWSC 1962 Hearing dates: 12 December 2018 Date of orders: 12 December 2018 Decision date: 14 December 2018 Jurisdiction: Equity - Duty List Before: Stevenson J Decision: First defendant to deliver executed withdrawal of caveat upon delivery to it of executed deed of charge
Catchwords: LAND LAW – Caveats – Removal of caveat - application to remove caveat lodged by first defendant on plaintiff’s property pursuant to s 74MA of the Real Property Act 1900 (NSW) – common ground there is serious question to be tried that first defendant has caveatable interest – balance of convenience – danger that plaintiff’s registered mortgagee would commence recovery action if caveat not removed – director of plaintiff and his mother offered charge over jointly owned alternate property with adequate equity – no evidence of value of undertaking as to damages proffered by caveator Legislation Cited: National Consumer Credit Protection Act 2009 (Cth)
Real Property Act 1900 (NSW)Category: Principal judgment Parties: Bonheur Holdings Pty Ltd (Plaintiff)
Mercia Financial Solutions Pty Ltd (First Defendant)
Revathi Vasan (Interested Party)Representation: Counsel:
Solicitors:
N M Bender (Plaintiff)
P A Horobin (First Defendant)
Mills Oakley (Plaintiff)
Click Law (First Defendant)
Metro Lawyers (Interested Party)
File Number(s): SC 2018/376085
Judgment
-
On 12 December 2018, as Duty Judge, I noted the following undertakings and made the following orders:
Note the undertaking given to the Court by Rajesh Nellore and Revathi Vasan to execute a deed of charge in favour of the first defendant in the form of Exhibit B.
Note the further undertaking given to the Court by Rajesh Nellore and Revathi Vasan not to dispose or further encumber their property at 86 Terry Street, Rozelle NSW without the prior written consent of the first defendant.
Upon delivery by email to the legal representatives of the first defendant of an executed copy of that deed of charge, order pursuant to s 74MA(2)(a) of the Real Property Act 1900 (NSW) that the first defendant forthwith provide the plaintiff with a duly executed Withdrawal of Caveat in registrable form in relation to Caveat AN888221 forthwith.
Order that these orders be entered forthwith.
Reserve the question of costs.
-
These are my reasons for taking that course.
-
Bonheur Holdings Pty Ltd is the registered proprietor of land in Old South Head Road, Bellevue Hill on which it is constructing a residential development.
-
On 27 November 2018 the first defendant, Mercia Financial Solutions Pty Ltd, lodged a caveat on the title of the Bellevue Hill property claiming an interest said to arise from a “Mandate Agreement” made between Bonheur and Mercia on 13 June 2017.
-
Pursuant to the Mandate Agreement, Mercia agreed to provide “Services” (defined to include giving assistance to Bonheur in relation to its fund raising activities) in consideration of which it would be paid a “Success Fee equal to 1.00% plus GST of the funds/loans raised”.
-
National Australia Bank Ltd (“NAB”) advanced Bonheur $12.8 million to fund the development at Bellevue Hill. Mercia claims that it procured that finance under the Mandate Agreement and is now entitled to a Success Fee of $118,800 (taking into account $22,000 already paid).
-
Clause 13.4(c) of the Mandate Agreement provided:
“Our fees and expenses, together with interest at the rate prescribed by the rules of the Supreme Court of New South Wales, will create a caveatable and equitable interest and charge in the proposed security property/ies in which the Client has an interest or may at any time in the future acquire an interest in.”
-
By summons filed on 6 December 2018 Bonheur sought an order pursuant to s 74MA of the Real Property Act that Mercia withdraw the caveat.
-
Mr Bender, who appeared for Bonheur, accepted that there was serious question to be tried as to whether Mercia has a caveatable interest in the Bellevue Hill property.
-
Both Mr Bender, and Mr Horobin, who appeared for Mercia, advanced submissions as to the strength of Mercia’s claim that Bonheur is liable to pay it a Success Fee and as to the strength of its claim to have a caveatable interest in the property. However, in view of Mr Bender’s concession, it is neither necessary nor appropriate that I express any opinion about those matters.
-
In those circumstances argument before me proceeded upon the basis that the critical question was whether the balance of convenience favoured the making of an order that Mercia withdraw the caveat.
-
The conclusion to which I came was that the balance of convenience very strongly favoured making an order to that effect.
-
This was for a number of reasons.
-
First, on 21 November 2018, NAB gave Bonheur notice that it considered that events of default had occurred under Bonheur’s mortgage to NAB and has threatened to take steps to exercise its rights under the mortgage if evidence of alternative finance was not to hand by 12 December 2018.
-
In that regard, Ms Felicia Whiting, a director of Bonheur gave this uncontested evidence:
“[52] If NAB does appoint a receiver to take other steps to realise their security, I believe it will have irreparable consequences for the development and Bonheur. Bonheur is not in a position to pay out the NAB facility without new finance.
[53] Bonheur has been trying to organise new finance. That new finance will discharge the existing finance with NAB. However, it has been approved subject to the condition that there are no caveats on the title to the Property.
…
[66] If the [caveat] lodged by Mercia…remain[s] on the title of the Property, Bonheur will not be able to obtain its refinance and will be in default of the terms of the NAB facility.
[67] From the correspondence received from NAB, I expect NAB to take steps to realise its security over the Property. This will have irreparable consequences for Bonheur as it does not hold sufficient funds to payout NAB to prevent this from occurring.
[68] Moreover, there have been approximately 10 apartments sold ‘off the plan’. If the [caveat] lodged by Mercia…remain[s], the strata plan cannot be registered and the sales cannot be completed.
[69] If the sales cannot be completed, Bonheur may be served with notices by each of the purchasers requiring the completion of those sales. Bonheur will be unable to comply and may be sued as a consequence.
[70] I anticipate that the combined effect of the above will lead to the development project failing and the likely winding up of Bonheur.”
-
Second, although Mercia has, as is customary in cases like this, given the usual undertaking as to damages, it has not adduced any evidence of its financial position. Thus, the value of that undertaking is not known.
-
Third, and most importantly, Bonheur has offered Mercia alternative security for its rights under the Mandate Agreement.
-
That security is in the form of a “Specific Security Deed” to be executed in Mercia’s favour by Dr Rajesh Nellore (another director of Bonheur) and Dr Nellore’s mother, Ms Revathi Vasan.
-
Dr Nellore and Ms Vasan are the registered proprietors of a residential property in Rozelle. Dr Nellore has a one tenth interest in that property and Ms Vasan has a nine tenths interest in the property.
-
By the proposed Specific Security Deed, Dr Nellore and Ms Vasan will covenant with Mercia that they will “collectively pay” to Mercia, on demand, such amount that a court determines is payable to Mercia under the Mandate Agreement.
-
The Deed will also provide that Dr Nellore and Ms Vasan “acknowledge and agree that the interest created by this Deed shall constitute a caveatable interest” of Mercia in the Rozelle property.
-
There is evidence that the Rozelle property is currently valued at $1.9 million.
-
The Rozelle property is encumbered by a mortgage in favour of Westpac Banking Corporation pursuant to which some $1.4 million is owing.
-
Thus, Dr Nellore and Ms Vasan have equity in the Rozelle property in the sum of some $500,000; considerably more than the amount that Mercia claims is due to it under the Mandate Agreement.
-
On the face of it, this proposal will provide Mercia with security for its asserted claim at least equivalent to that it currently enjoys, and will confer upon it the additional benefit a personal covenant, in effect a guarantee, from Dr Nellore and Ms Vasan.
-
Mr Horobin informed me that Mercia acted as broker for Westpac in relation to the mortgage that presently encumbers the Rozelle property. Mr Horobin said that, in those circumstances, Mercia was concerned that if it agreed to accept the benefit of the Specific Security Deed proposed it might be seen by Westpac to be acting inconsistently with its obligations under the National Consumer Credit Protection Act2009 (Cth). Mr Horobin informed me that Mercia had this apprehension because the entry by Dr Nellore and Ms Vasan into the proposed Specific Security Deed may (although there is no evidence of this) constitute a breach by them of their obligations under their mortgage to Westpac; and that Westpac may take the view that Mercia, as its broker acting on that transaction, might be seen to be knowingly involved in such breach.
-
A good deal of speculation was involved in these propositions.
-
Overall, my conclusion was that, despite Mercia’s apprehension as to Westpac’s possible reaction, the balance of convenience favoured the making of an order compelling Mercia to cause its caveat of the Bellevue Hill property to be withdrawn provided that Dr Nellore and Ms Vasan executed the proposed Specific Security Deed and caused it to be delivered to Mercia.
-
It will be up to Mercia to decide whether, in those circumstances, to exercise what will then be its right to lodge a caveat on the Rozelle property.
-
It is for those reasons that I noted the undertakings and made the orders to which I have referred.
-
As to costs, Mr Horobin foreshadowed that Mercia would in due course commence proceedings in an appropriate court to recover the Success Fee that it contends is due to it from Bonheur. In those circumstances Mr Horobin submitted that the appropriate costs order was that the costs of these proceedings be costs in that cause.
-
I do not accept that submission.
-
Bonheur has achieved success against Mercia in these proceedings, which are now complete.
-
The appropriate order is that Mercia pay Bonheur’s costs.
-
Accordingly, in addition to the orders already made, I order that the first defendant pay the plaintiff’s costs of the proceedings.
-
For completeness, I note that, earlier on 12 December 2018, the proceedings between the Bonheur and the second defendant, Secured Lending 2 Pty Limited, were settled.
**********
Decision last updated: 14 December 2018
0
0
2