BOSI Security Services Ltd v Pakwest Pty Ltd (Receiver and Manager Appointed)

[2012] WASC 52

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   BOSI SECURITY SERVICES LTD -v- PAKWEST PTY LTD (RECEIVER AND MANAGER APPOINTED) [2012] WASC 52

CORAM:   CORBOY J

HEARD:   10 FEBRUARY 2012

DELIVERED          :   15 FEBRUARY 2012

PUBLISHED           :  17 FEBRUARY 2012

FILE NO/S:   CIV 3130 of 2011

BETWEEN:   BOSI SECURITY SERVICES LTD

Plaintiff

AND

PAKWEST PTY LTD (RECEIVER AND MANAGER APPOINTED)
Defendant

(BY ORIGINAL ACTION)

PAKWEST PTY LTD (RECEIVER AND MANAGER APPOINTED)
Plaintiff by Counterclaim

AND

BOSI SECURITY SERVICES LTD
First Defendant by Counterclaim

BANK OF WESTERN AUSTRALIA LTD
Second Defendant by Counterclaim

(BY COUNTERCLAIM)
 

Catchwords:

Practice and procedure - Whether trial of preliminary issues should be ordered - Turns on its own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B

Result:

Plaintiff's application for trial of preliminary issues dismissed

Category:    B

Representation:

Original Action

Counsel:

Plaintiff:     Ms K F Banks-Smith

Defendant:     Mr M L Bennett

Solicitors:

Plaintiff:     Norton Rose Australia

Defendant:     Jackson McDonald

Counterclaim

Counsel:

Plaintiff by Counterclaim         :        Mr M L Bennett

First Defendant by Counterclaim  :        Ms K F Banks-Smith

Second Defendant by Counterclaim       :        Ms K F Banks-Smith

Solicitors:

Plaintiff by Counterclaim         :        Jackson McDonald

First Defendant by Counterclaim  :        Norton Rose Australia

Second Defendant by Counterclaim       :        Norton Rose Australia

Case(s) referred to in judgment(s):

Carlo Nobili SpA Rubinetterie v Militaire Nominees Pty Ltd [2004] WASC 47

Moore v Stockland South Beach Pty Ltd [2011] WASC 337

CORBOY J: 

The application

1. BOSI Security Services Ltd (BOSI) seeks a trial of preliminary issues concerning the construction of a mortgage granted by Pakwest Pty Ltd (Pakwest). 

2. BOSI alleges that:

   (a)Pakwest granted a charge over land to St George Bank.

   (b)In September 2010, Pakwest granted BOSI a mortgage (the BOSI mortgage) over the land to secure an advance of $459.8 million (the secured money) made to Westgem Investments Pty Ltd (Westgem) under a facility agreement (the facility agreement).

   (c)In December 2010, the land was subdivided into what was referred to in the pleadings as lots 500 and 501.  New titles were issued on the subdivision and BOSI, as an equitable mortgagee, lodged caveats against the titles. 

   (d)An event of default occurred under the facility agreement when Westgem failed to pay $50 million (the default amount) to BOSI on 31 December 2010.

   (e)The BOSI mortgage became immediately enforceable and BOSI issued a notice of demand to Pakwest requiring payment of the secured money.  The demand was not satisfied. 

   (f)Pakwest sold lot 500 on 10 February 2011.  BOSI withdrew its caveat to enable settlement of the sale of the land to proceed.

   (g)BOSI appointed receivers and managers to Pakwest subsequent to the sale of lot 500.

   (h)Pakwest had let premises located on lot 500.  Rent was collected by an agent during the period between the alleged event of default under the BOSI mortgage and the sale of the lot (the rent money).

3. BOSI claims a declaration that it is entitled to the rent money and consequential orders.

4. Pakwest raises at least four issues by its defence.  It alleges that:

   (a)Various default provisions in the BOSI mortgage were unenforceable as they constituted penalties.

   (b)The mortgage was discharged by BOSI consenting to the sale of lot 500.

   (c)The BOSI mortgage was not enforced prior to the sale of lot 500 and it cannot now be enforced so as to enable BOSI to claim the rent money.

   (d)No money was owed by Westgem under the facility agreement as at 31 December 2010.  Further, no event of default occurred for the purpose of the BOSI mortgage even if the default amount was owed by Westgem.

5. Pakwest further alleges that Bank of Western Australia Ltd (BankWest) was a party to the facility agreement and that it engaged in conduct that contravened s 12CC and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), alternatively s 51AB and s 52 of the Trade Practices Act 1974 (Cth) (TPA). Those allegations are the subject of a counterclaim. The pleading of that claim is lengthy and it is not necessary to reproduce the detail of what is alleged. It is sufficient to note two matters that arise on the counterclaim.

6. First, allegations are made concerning whether the default amount was owed as at 31 December 2010.  Although it is not entirely clear, as I understand the counterclaim it is alleged that the default amount represented, at least in a substantial part, amounts that BankWest had in the past determined were payable under the facility agreement and for which it had made demands and issued default notices.  The determinations, demands and default notices are the subject of Pakwest's allegations that BankWest engaged in unconscionable conduct, alternatively conduct that was misleading or deceptive.  It is further alleged that the determinations were made in breach of express or implied terms of the facility agreement and that Westgem was not indebted as at 31 December 2010 by reason of those various matters.

7. Second, it is alleged that BankWest's conduct caused Westgem to procure Pakwest to, among other things, grant the BOSI mortgage. The relief sought by Pakwest on its counterclaim includes an order under s 12GM ASIC Act or s 87 TPA declaring the mortgage void ab initio or from such date as the court might fix.  It is on that basis that Pakwest alleges by its defence that there would have been no event of default under the BOSI mortgage even if Westgem was obliged to pay the default amount under the facility agreement.

8. BOSI accepted that the counterclaim raises issues of some complexity; indeed, the complexity of the issues raised by the counterclaim provided the context within which it made its application for a trial of preliminary issues.  It relied in support of its application on the affidavit Christopher Francis McLeod, a partner in the firm of solicitors who appear on the record for BOSI.  Mr McLeod stated that similar issues to those raised in Pakwest's counterclaim had also been raised in proceedings involving BOSI, BankWest and parties associated with Pakwest.  Mr McLeod further stated that by reason of his involvement in those proceedings, he considered that the matters pleaded in Pakwest's counterclaim would 'involve issues of a very wide compass' requiring a number of expert and lay witnesses to give evidence and would be incapable of a speedy determination.  He further noted that the parties will incur legal costs in litigating the issues raised on the counterclaim that will far exceed the amount of the rent money (par 22). 

9. BOSI also accepted that the question of whether an event of default had occurred for the purpose of the BOSI mortgage should not be determined as part of the proposed preliminary issues.  Rather, those issues should be decided by reference to what was described as an assumption:  that 'on or about 1 January 2011 an event of default by Pakwest under the BOSI Mortgage occurred and the Mortgage became enforceable by BOSI'.

The proposed preliminary issues

1. It is necessary to briefly mention some of the provisions of the BOSI mortgage to enable the statement of the proposed preliminary issues to be understood.

2. Clause 13.1 permitted a receiver to be appointed to the land that was the subject of the BOSI mortgage and all of Pakwest's estate and interest in the land (the secured property) if the mortgage became enforceable.  Clause 13.3(2) provided that any receiver appointed would have the power to receive rents and profits derived from the secured property.  Clause 12.2(1) permitted BOSI to exercise any of the powers that might have been exercised by a receiver on the mortgage becoming enforceable.

3. Clause 17.2 provided that the mortgage was a continuing security that remained 'in full force until a final irrevocable discharge' if the mortgage was given to BOSI 'despite any transaction or other thing'.  Clause 17.3(1) provided that until the secured money had been irrevocably paid and discharged in full, Pakwest could not share in any money received or receivable in relation to the secured money or receive, claim or have the benefit of any payment from or on account of BOSI (as a Transaction Party) or any other person.

4. BOSI seeks a trial of the following preliminary issues:

   (a)Is BOSI entitled to the rent money pursuant to either or both of cl 12.2(1) and cl 13.3(2) of the BOSI mortgage?

   (b)Further, or in the alternative, by reason of either or both of cl 17.3(1) and cl 17.3(4) of the BOSI mortgage, is Pakwest entitled to receive or claim or have the benefit of, the rent money in preference to BOSI?

The relevant principles

1. The principles relevant to an application for a trial of preliminary issues are well‑established.  They are conveniently summarised in the decision delivered by McKechnie J in Carlo Nobili SpA Rubinetterie v Militaire Nominees Pty Ltd [2004] WASC 47 [4]. I gratefully adopt his Honour's summary of the relevant authorities. I would only add that applications of this kind are to be determined according to the case management objectives embodied in O 1 r 4A and r 4B of the Rules of the Supreme Court 1971 (WA) and that, as I observed in Moore v Stockland South Beach Pty Ltd [2011] WASC 337, judges have consistently warned that the suggested benefits of a trial of preliminary issues may ultimately prove to be illusory.

The determination of the application

1. Whether a preliminary trial of some issues is the best means of effectively managing an action must necessarily be a matter of impression.  I consider that it is unlikely that the effective management of this action will be best advanced by acceding to BOSI's application for the following reasons:

   (a)It is not entirely clear what issues would be determined on BOSI's application or the significance of those issues to the ultimate resolution of the dispute between the parties.  It was said by BOSI that the issues involved matters of construction.  However, there is no question concerning the proper construction of the various provisions of the BOSI mortgage that are referred to in the statement of the proposed preliminary issues that is expressly raised by Pakwest in its defence.  It is possible that Pakwest's defence that the BOSI mortgage was discharged by the sale of lot 500, alternatively that BOSI's claim to the rent moneys could only be enforced prior to the sale of that lot, raise questions of construction.  It appears that those allegations primarily raise questions of law but there may be a further question concerning whether cl 17.2 and 17.3(2) preserved any claim that BOSI might have had to the rent money following a discharge of the mortgage.  However, it is apparent that the allegations made by Pakwest in its counterclaim and the relief that it seeks by that claim lie at the heart of the defence to BOSI's claim.  Those matters are the subject of the assumption on which the preliminary issues would be determined.

   (b)Consequently, a decision in favour of BOSI on the proposed preliminary issues would not finally determine whether it was entitled to the rent money.  That dispute could only be finally resolved by a determination of the matters raised by Pakwest in its counterclaim.

   (c)A finding on the proposed preliminary issues that was adverse to BOSI would determine its claim to the rent money.  However, that would not end the action as Pakwest's counterclaim would remain to be litigated.

   (d)The various provisions of the BOSI mortgage to which the proposed statement of preliminary issues refers are not said by Pakwest to constitute penalties.  Consequently, that aspect of Pakwest's defence would only be considered at a trial held after the determination of the preliminary issues.

   (e)It was suggested that a hearing of the preliminary issues would take only one day and the time required to prepare for the hearing would not be lengthy as the issues were confined.  On the other hand, a trial of the allegations made in Pakwest's counterclaim would be protracted and it was suggested by Mr McLeod, could not be ready for hearing before some time in 2013.  Although I accept that there may be some benefit derived from an immediate determination of some issues in those circumstances, I also consider that there is force in the observation made by counsel for Pakwest that a hearing of preliminary issues could act as a diversion from the efficient completion of the interlocutory steps required for preparing the counterclaim for trial.  The proposed preliminary issues are not sufficiently germane to the real disputes between the parties ‑ BankWest's conduct culminating in the demand made under the BOSI mortgage for payment of the secured money ‑ to justify the risk that the orderly management of the litigation will be disrupted.  The determination of the proposed preliminary issues is unlikely to assist in the settlement of the action for that reason.

   (f)I also consider that there is a risk that a trial of the preliminary issues proposed by BOSI may result in some disproportionality between the costs incurred in litigating those issues and their significance for the resolution of all of the disputes between the parties.