BOSI Security Services Ltd v Wright
[2013] WASC 431
•18 NOVEMBER 2013
BOSI SECURITY SERVICES LTD -v- WRIGHT [2013] WASC 431
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2013] WASC 431 | |
| Case No: | CIV:1512/2013 | 15 & 18 NOVEMBER 2013 | |
| Coram: | ALLANSON J | 18/11/13 | |
| 20 | Judgment Part: | 1 of 1 | |
| Result: | Interlocutory injunction granted | ||
| B | |||
| PDF Version |
| Parties: | BOSI SECURITY SERVICES LTD SIMON JON WRIGHT ADAM DAVID WRIGHT |
Catchwords: | Interlocutory injunction Application to restrain sale of land by receiver under mortgage Exception to principle in Inglis where mortgage challenged Turns on own facts |
Legislation: | A New Tax System (Goods and Services Tax) Act 1999 (Cth) Competition and Consumer Act 2010 (Cth) Corporations Act 2001 (Cth) Trade Practices Act 1974 (Cth) |
Case References: | Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 China and South Seas Bank Ltd v Tan Soon Gin [1990] 1 AC 536 Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161 Jones v Dunkel (1959) 101 CLR 298 McMahon v State Bank of New South Wales (1990) 8 ACLC 315 Retail Equity Pty Ltd v Custom Credit Corporation Ltd (1991) 9 ACLC 404 Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 Watson v Foxman (1995) 49 NSWLR 315 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
SIMON JON WRIGHT
First Defendant
ADAM DAVID WRIGHT
Second Defendant
Catchwords:
Interlocutory injunction - Application to restrain sale of land by receiver under mortgage - Exception to principle in Inglis where mortgage challenged - Turns on own facts
Legislation:
A New Tax System (Goods and Services Tax) Act 1999 (Cth)
Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth)
Trade Practices Act 1974 (Cth)
Result:
Interlocutory injunction granted
Category: B
Representation:
Counsel:
Plaintiff : Mr J Garas
First Defendant : Mr J F Park
Second Defendant : Mr J F Park
Solicitors:
Plaintiff : Ashurst Australia
First Defendant : Park Linfoot Legal Solutions
Second Defendant : Park Linfoot Legal Solutions
Case(s) referred to in judgment(s):
Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57
China and South Seas Bank Ltd v Tan Soon Gin [1990] 1 AC 536
Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161
Jones v Dunkel (1959) 101 CLR 298
McMahon v State Bank of New South Wales (1990) 8 ACLC 315
Retail Equity Pty Ltd v Custom Credit Corporation Ltd (1991) 9 ACLC 404
Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110
Watson v Foxman (1995) 49 NSWLR 315
- ALLANSON J: (This judgment was delivered orally and has been edited from the transcript).
1 The defendants are the registered owners of land. There are four titles which together make up a farming property known as Forest Downs. The plaintiff is the mortgagee of the land, and of other land owned by the defendants, under a relatively complicated financing arrangement which I will describe in more detail later.
2 In January 2013, the plaintiff appointed receivers and managers under the mortgage, and the receivers and managers entered into possession of the land. They began a process to market and sell the land, and instructed a valuer to prepare a valuation report. In October, tenders were invited for the purchase of the land. A tender was accepted, and I am told a contract for the sale of the land will be executed today, that is, Monday, 18 November 2013, unless it is restrained. The defendants brought this application to restrain the sale of the land. It was heard urgently on Friday 15 November for a full day. I reserved the decision to this morning, and this morning I received some short further evidence. In my opinion the application should be granted, and these are my reasons.
3 By their chamber summons, the defendants asked for orders in effect that until further order or written agreement between the parties, the plaintiff be restrained from marketing and advertising the sale of the land and from selling, encumbering, or otherwise disposing of or dealing with it. In practical terms, the marketing process being complete, the defendants asked the court to restrain the sale which is scheduled to take place today.
4 There are existing proceedings between the parties; the action was begun by a writ filed on 28 March 2013. Its progress has been delayed by events which I need not now detail, but were sufficient cause to extend time. Pleadings are not yet complete in the action.
5 The action does not directly relate to the farm, it does however relate to agreements and transactions under which the defendants granted the mortgage to the plaintiff, on which the plaintiff now acts.
6 The defendants were the directors of Birchwood Consolidated Pty Ltd, (Receivers and Managers Appointed) (In Liquidation). Birchwood carried out a major property development in the Perth central business district. On 29 August 2008, Birchwood entered into written agreements with the Bank of Western Australia Ltd and BOS International (Australia) Ltd (as lenders), with the plaintiff as security trustee. Pursuant to the agreements, the lenders agreed to provide financial accommodation to Birchwood to a maximum of $202 million.
7 These arrangements were the subject of the following written agreements, all executed 29 August 2008, which collectively are described as the Transaction Documents:
1. a Syndicated Facilities Agreement between Birchwood, the financial institutions who were the initial lenders, that is, the Bank of Western Australia and BOS International, the bank as the facility agent and overdraft lender, and the plaintiff as security trustee;
2. a Guarantee and Indemnity, executed as a deed, between each of the defendants and the plaintiff;
3. a Mortgage over seven lots of land of which the defendants were registered proprietors and mortgagors, including the farm land; and
4. a Security Trust Deed between the plaintiff, Birchwood, and the lenders.
8 The Bank of Western Australia then held an existing mortgage over the farm land, which was registered in 2005. It may relate to the purchase of the site on which the development occurred.
9 The parties to the Syndicated Facilities Agreement executed a Variation Agreement on 14 May 2010, by which the Syndicated Facilities Agreement was amended and restated. Additional parties, including the defendants, were named in the Variation Agreement as guarantors. By cl 6 of the Variation Agreement, the defendants consented to the variation, acknowledged and agreed that the guarantee each had given would secure the total principle outstanding and confirmed that the Syndicated Facilities Agreement and the Variation were 'guaranteed agreements', which is a defined term for the purposes of the guarantee.
10 On 11 November 2011, the Deputy Commissioner of Taxation issued a statutory demand on Birchwood under the Corporations Act 2001 (Cth)for a debt described as a Running Balance Account deficit debt of $9,510,268.52. The parties agreed that the debt, or at least the major part of it, was unpaid GST. Two important consequences flowed from the statutory demand: first, it was an event of default under the Facilities Agreement and second, it resulted in the liquidation of Birchwood. A liquidator was appointed on 21 February 2012.
11 On 12 December 2011, the Bank of Western Australia, as Facility Agent, notified Birchwood that amounts outstanding under the Facilities Agreement were immediately due and payable. At 12 December 2011, the total amount owing under the Facilities Agreement was approximately $36.9 million. This amount has reduced since then, as sales of units in the development have been completed. It was not entirely clear on the evidence, but my understanding was that there may still be sales yet to occur.
12 On or about 29 November 2012, the plaintiff issued a letter of demand to each of the defendants, demanding the repayment of the amount of about $25.5 million that Birchwood then owed under the Facilities Agreement. The defendants failed to comply with the letters of demand, and on 8 February 2013 the plaintiff gave notice to each of the defendants that he was in default under the terms of the mortgage. The defendants did not remedy the default.
13 In the action, the plaintiff claims remedies including delivery of possession of the three residential properties owned by the defendants and all monies owing under the guarantees. The plaintiff does not claim relief regarding the farm land. Receivers were appointed to the farm under the mortgage on 18 January 2013, and the defendants delivered vacant possession of the land to the receivers.
14 In the action, the two defendants are represented by the one firm of solicitors. In substantially identical defences, the defendants deny liability on a range of grounds. By counterclaim, they seek declarations, including a declaration that cl 2.1 of the guarantee is void, that they have no liability to the plaintiff under the guarantee, and that they have no liability to the plaintiff under the mortgage. Although the prayer for relief specifies that those declarations are sought under s 87 of the Trade Practices Act 1974 (WA) and the Australian Consumer Law, the body of the pleading makes it clear that relief is sought on a much wider basis. Nevertheless, it is important that relief is sought under the Trade Practices Act.
15 The general principles which apply to an application for interlocutory relief are not in dispute, and have been conveniently summarised in Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] - [13]. It is necessary to first identify the legal or equitable rights which are to be determined at trial, and in respect of which final relief is sought. The court may grant the injunction for the purpose of keeping matters in status quo until the parties’ rights are determined after a full trial.
16 The defendants must show a sufficiently likelihood or probability of success to justify preserving the status quo until the trial of the action. How strong the probability of success must be depends upon the nature of the rights the defendants assert, and the consequences likely to flow from the order. The decision whether to grant an injunction, or the injunction sought by the defendants in this case, involves balancing the injustice which the plaintiff might suffer if it cannot complete the sale of the land to the successful tenderer and the defendants later fail at trial, against the injustice which the defendants might suffer if the land is sold and they later succeed.
17 One important principle is that where there is uncertainty about whether final relief will be granted, and that uncertainty depends in whole or in part on a contested question of fact, it is generally not appropriate for the court to decide that factual question on the interlocutory application. That does not mean, however, that the defendants are entitled to the injunction unless it is shown that their claim has no real prospect of succeeding on the facts they assert. That would reverse the onus on such an application, and obscure the real question: Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 [72].
18 Whether the plaintiff is entitled to sell the land under the mortgage depends on the defendants’ liability under the guarantee. The defendants filed extensive submissions and addressed me at length on why they assert they are not liable under the guarantee. The submissions largely follow the defences pleaded in the action, although they do go further on occasion. On the claims made by the defendants in their pleadings and submissions, and the principles applying to an application of this kind, I need to consider the following questions:
(1) Is the injunction in aid of final relief to which the defendants may be entitled at trial?
(2) Do the defendants have an arguable claim that they are not liable under the guarantee? This question requires consideration of several sub-issues:
(i) Is the guarantee void because there is no consideration passing between the plaintiff and the defendants?
(ii) Are the defendants liable to the plaintiff under the guarantee when it secures money owed by Birchwood to the lenders, but Birchwood does not owe money to the plaintiff?
(iii) Have the lenders prejudiced the defendants' rights against the principle debtor so as to discharge the security?
(iv) Did the lenders and the plaintiff fail to comply with an implied obligation of good faith under the various contracts? There are several aspects to this issue: did the lenders fail to co-operate with Birchwood to achieve contractual objects of the Facilities Agreement; did the lenders 'manufacture' Birchwood's default?; did the lenders act reasonably in relation to the 'Birchwood GST money', a term I will explain later; and are the lenders and the plaintiff acting in bad faith in endeavouring to use the proceeds of the farm to ensure they receive a 'success fee' and 'risk fees' under the Facilities Agreement?
(v) Did the service of the statutory demand by the Australian Taxation Office frustrate the Facilities Agreement, so that it terminated in or about 18 November 2011?
(vi) Was there a collateral warranty or a collateral agreement that obliged the lenders to hold the Birchwood GST money separately and make it available when GST was due and payable?
(vii) Were the lenders holding the GST money on trust for payment to the ATO?
(viii) Did the Bank of Western Australia, as a lender, make representations or otherwise engage in conduct such that it was in breach of the Australian Consumer Law when it failed to make available to Birchwood the GST money when Birchwood's GST liability was due and payable?
(ix) Did the lenders engage in unconscionable conduct?
(x) Did the defendants mortgage the beneficial interest in the farm?
(3) Should the defendants, in the event they are ultimately successful, be confined to their remedy in damages should the farm be sold?
19 As you can see, the way in which the matter was put to me on Friday raised very many separate questions.
20 Both parties referred to the delay in bringing this application, which was very much an eleventh hour application. The issue of delay is complicated by various factors. First, there were events in the middle of this year that affected the first defendant's ability to attend to this action. Second, the parties made an agreement that the plaintiff would keep the defendants informed about matters relating to marketing and sale of the land. There is some dispute about whether the plaintiff complied with that agreement and what effect any non-compliance would have had when the defendants were kept informed (so, the plaintiff asserts) by the receivers. In the end I have not found it necessary to rely on the question of delay, although, in assessing the balance of convenience, I have had regard to the following matters which were not in controversy: the defendants gave up vacant possession of the land to the receivers; the receivers were, to the knowledge of the defendants, marketing the land with a view to its eventual sale; and the defendants had themselves attempted to sell the land before the receivers took possession of it.
21 The written submissions on behalf of the defendant also referred to an estoppel, but, with respect, I cannot understand the argument. The assertion in the written submissions is that the plaintiff is estopped from relying on the representations made by the bank because of the unconscionable conduct of the bank. It does not, in my view, create an estoppel. In any event, such a plea in estoppel based on misleading representations made in trade and commerce would add nothing to the defendants' claims. I will not consider the estoppel argument further.
22 So, I will now deal with each of those questions in the order in which I referred to them. The first is whether the injunction is in aid of final relief. While the principal action does not directly relate to the farm land, if the defendants are not liable under the guarantee (as they assert by counterclaim), the plaintiff has no right to possession of the farm land or to sell it. As a result, I do not accept the plaintiff's argument that the proposed injunction is not in aid of any final relief. If the defendants are correct in their contention in the action then they are entitled to restrain the sale of the land.
23 The next question is whether the guarantee is void because there is no consideration passing between the plaintiff and the defendant. The defendants conceded at the hearing that the guarantee and mortgage being both by deed, the question of consideration falls away.
24 Third, are the defendants liable to the plaintiff under the guarantee when it secures money owed by Birchwood to the lenders but Birchwood does not owe money to the plaintiff? The plaintiff and the defendants are parties to the guarantee. Under the guarantee the defendants guaranteed Birchwood's payment 'to us' of the guaranteed money. The defendants contended that because Birchwood owed money to the lenders and not to the plaintiff, there is no obligation secured by the guarantee. But this contention is, in my opinion, quite misconceived.
25 The guarantee must be read as part of a connected group of agreements all executed on the same day. And it must be read with reference to the capacity in which the different parties executed those agreements. Relevantly, the plaintiff executed the Syndicated Facilities Agreement as 'Security Trustee'. The plaintiff, Birchwood, and the lenders also entered into a Security Trust Deed, which recited that the plaintiff had agreed at the request of Birchwood 'to act on the terms set out in this document as Security Trustee for the benefit of certain lenders who have provided or will provide financial facilities to or for the benefit of [Birchwood]'.
26 The deed established a trust known as the Birchwood Security Trust. And by cl 2.6, Birchwood was obliged to pay the secured money (defined, in effect, as all amounts that were payable, owing but not payable or otherwise remained unpaid by Birchwood to the plaintiff or the lenders on any account, in connection with the facility provided by the lenders) to the plaintiff. And such payment would operate in satisfaction of the obligation of Birchwood to pay that money to either the plaintiff, the facility agent or the lenders. Clause 2.6 further provided that payment by Birchwood to the lenders in accordance with the transaction documents operated in satisfaction of its obligations.
27 When the parties entered into the Variation Agreement, the defendants, (as guarantors) acknowledged that the guarantee they had given would secure the total principle outstanding under the Syndicated Facilities Agreement and confirmed that the Syndicated Facilities Agreement and the Variation Agreement were 'guaranteed agreements' for the purpose of the guarantee.
28 Reading all of the documents together, it is not, in my opinion, arguable that the guarantee did not secure repayment by Birchwood of the money it owed under the suite of Transaction Documents. Within the scheme established by the Transaction Documents, Birchwood was in the relevant sense obliged to pay the plaintiff in its capacity as a trustee.
29 The fourth question is have the lenders prejudiced the defendants' rights against the principal debtor so as to discharge the security? The defendants submit that, on the evidence they have put forward, the lenders have prejudiced both Birchwood and the defendants in their capacity as sureties. They say that by not releasing the Birchwood GST money to Birchwood when its GST obligations were due, the lenders caused Birchwood to default. As a result, the defendants became liable under the guarantees.
30 The defendants referred to China and South Seas Bank Ltd v Tan Soon Gin [1990] 1 AC 536 for the principle that a surety is discharged if the principal creditor has done acts which prejudice the surety in his rights against either the principal debtor or co-sureties. So that, for example, if there were securities which secure the principal debtor's indebtedness, those securities are to be preserved, or ought to be preserved, for the benefit of the guarantor or indemnifier. But with respect, I believe that the submissions of the defendants have misunderstood the principle. It is not sufficient that the defendants or Birchwood, or both of them, have been prejudiced in some way by a breach of duty by the lenders. The defendants' entitlement to relief under this equitable principle would arise if the value of their rights against Birchwood, should they pay the secured sum, have been impaired as a result of the breach. And there is no evidence before me that any such rights have been impaired.
31 Fifth, did the lenders and the plaintiff fail to comply with an implied obligation of good faith under the various contracts? The defendants contend that the lenders 'manufactured' the situation in which the ATO issued the statutory demand by failing to comply with an implied obligation of good faith. The same conduct is the basis also of allegations that the lenders failed to cooperate in achieving the objects of the contract: that is, the completion of the development, the sale of the project units and the repayment of the lenders from the sale proceeds.
32 The factual basis of the submission arises from what the defendants describe as the Birchwood GST money. Their contention, in short, is that the lenders were to be repaid out of the sale proceeds of the project units. The Project Sale Proceeds (a term defined in the Facilities Agreement) in respect of each unit sold was the sale price less the sale costs. The sale price, to the knowledge of the lenders, included the GST paid by the purchaser and which Birchwood would, when it became due, be required to pay to the ATO. When Birchwood paid Project Sales Proceeds to the lenders, the whole amount including GST (the amount described as the Birchwood GST money) was received by the lenders against the debt. This reduced the sum owing and, accordingly, the interest payable by Birchwood. Birchwood, however, they say, were entitled to draw the GST component when the money was required to meet their tax obligations. The same basic contention is restated in various guises: as an implied warranty, an implied obligation of good faith, the obligation on the parties to cooperate in achieving contractual objects, and the claim that the lenders held the GST component on trust (although it was not entirely clear to me who would be the object of the trust, Birchwood, the purchaser or the ATO).
33 But in my opinion, none of these arguments can stand up against the express terms of the agreement between the parties. In considering this question I will refer to the Facilities Agreement as amended in 2010. To the extent that it differs from the initial agreement it reinforces the critical point that the parties, by their agreements, set out how the Project Sale Proceeds were to be applied.
34 First, there is no doubt that the Project Sale Proceeds included, in respect of each purchase, the amount of GST paid by the purchaser. Second, the Facilities Agreement recognised GST in providing for a GST Float Overdraft Account, opened by Birchwood with the Bank of Western Australia (as overdraft lender) for the purposes of the deposit of GST receipts and said to be the subject of a GST Set Off Agreement. There was no evidence before me of a GST Set Off Agreement. The Facilities Agreement also defines GST Float Overdraft Facility and GST Float Overdraft Facility Commitment - in effect, an overdraft facility to be provided by the Bank of Western Australia to Birchwood up to the amount of $1.5 million. The Facility Agreement contemplated a GST account mortgage to secure the GST Overdraft Facility. I must say that certainly in the time that I have, and on my perusal of the document, it has been difficult to understand the way in which the GST facility was to operate. I have been to some extent assisted by the evidence given this morning by Mr de Klerk but it is still a matter on which considerably further enlightenment is needed before I will understand what was intended.
35 The Facilities Agreement provided also for the payment by Birchwood, out of the Project Sales Proceeds, of a Success Fee and a Risk Fee. Clause 7 provided for repayment. Relevantly it required:
(a) Birchwood was to ensure that the Project Sale Proceeds were paid by it immediately upon receipt into the Project Sale Proceeds Account with the Bank of Western Australia. And as I have said, the Project Sales Proceeds were net of sales costs but apparently included the GST component;
(b) Birchwood irrevocably authorise the facility agent on the last day in each month to apply all amounts then standing to the credit of the Project Sale Proceeds Account in the following order of application:
(i) first, in payment of the senior debt facility including capitalised interest and fees;
(ii) second, following payment in full of the senior debt facility, in payment of the extended senior debt facility;
(iii) third, following payment in full of the extended senior debt facility, in payment of the Success Fee;
(iv) fourth, following payment in full of the Success Fee, in payment of any Risk Fee incurred;
(v) lastly, following payment in full of any Risk Fee, in payment of the GST Float Overdraft Facility, including any unpaid interest and fees.
37 By cl 8.1 Birchwood was required to make each payment under the document 'without any set-off, counterclaim or any other deduction and (to the extent permitted by law) free and clear of and without deduction or withholding for or on account of, any Taxes (other than Excluded Taxes)'. Subclauses 8.7 and 8.8 provided for where at any time, an applicable law obliged Birchwood or the facility agent to make deduction or withholding in respect of taxes from payment. Neither party suggested that there was any obligation on Birchwood to withhold any amount of tax from its receipts of Project Sale Proceeds, and further, although it was not the subject of detailed submissions, my understanding is that the obligation to pay GST is on the supplier. That is, as the supplier of a taxable supply Birchwood was obliged under s 9.40 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) to pay the GST on any taxable supply it made, subject to the set off of any input tax credits. The common reference to the supplier collecting the GST from its customers is not an accurate statement of where the obligation to pay that tax lies.
38 The intention of the parties to the document must be ascertained from its terms. In my opinion, even on this interlocutory basis, the likely intention of the parties manifested in the terms of the agreement is that the whole of the Project Sale Proceeds, including any GST collected, was payable to the lenders until the debt was discharged. Birchwood, on the face of the document, was to meet its taxation obligations from its own resources, perhaps in part from the separate GST facility under the Agreement, and from any retained input tax credits. It is not in my opinion consistent with cl 7 and cl 8 that there was any contractual reservation of rights in the 'GST component' of any Project Sale Proceeds, and that, in my opinion, excludes both an implied term and a collateral contract. The terms of the agreement are inconsistent with any implied obligation on the lenders to disgorge those amounts on request, and they are inconsistent with any trust, whether express or constructive, under which the Bank of Western Australia was to hold those sums for the benefit of Birchwood, the purchasers or the ATO. I note in this regard that the ATO did not issue a garnishee notice, claiming any part of the Project Sale Proceeds held by the bank.
39 In summary, on the evidence before me I am not satisfied that there is an arguable case in contract that the lenders were in breach of any contractual duty to Birchwood, or to the defendants, that would justify restraining the exercise of the plaintiff’s powers as mortgagee.
40 In considering these issues some further points can be briefly made. First, the lenders relied on the statutory demand issued by the ATO as the basis for the default notice. The lenders had however issued earlier notices of default on 1 August and 9 September 2011. The lenders are entitled to rely on those defaults, even if they might not have been aware of the particular failures at the time of the default notice: McMahon v State Bank of New South Wales (1990) 8 ACLC 315 and Retail Equity Pty Ltd v Custom Credit Corporation Ltd (1991) 9 ACLC 404. In giving notice of the earlier defaults, the lenders expressly reserved their rights. In particular, the lenders were entitled to rely on those defaults in declining to make further advances under the facility.
41 Second, the defendants assert improper, ulterior and dishonest motives on the parts of the lenders in exercising their security over the farm. The argument, in brief, is that as the Success Fee and Risk Fees are payable from Projects Sales Proceeds, after payment of all debt, by using the securities given by the defendants personally to reduce the debt the lenders maximise the prospects of there being a surplus of Project Sales Proceeds on which they can be paid those fees. The defendants contend that the plaintiffs and the lenders are improperly trying to realise their security for an ulterior purpose of ensuring payment of the Success Fee. The defendants have given no particulars of these allegations of bad faith and, on the material currently before me, I agree with the plaintiff's submission that the allegations do not rise above the level of speculation, that is if they rise to the level of speculation. There was also no evidence from which I could find, as a matter of fact, that the sale of the farm will result in reduction of the debt sufficient to result in the surplus of proceeds; that is, the contended result may not in any event come about.
42 Next is the question of whether the Facilities Agreement was terminated by frustration. The defendants' argument that the Facilities Agreement was frustrated has, as a premise, that there was a contractual promise to pay the Birchwood GST money to the ATO when it was due. The submission is couched in terms of frustration of contract, but it is in essence a claim that the lenders breached that contractual promise. For the reasons I have given above, I am not satisfied on the material now before me that such a promise (whether expressed or implied) is arguable.
43 The next issue is whether the bank engaged in misleading conduct or engaged in unconscionable conduct. These claims are the most difficult to deal with because in such an application the court cannot, and normally should not, determine contested issues of fact.
44 The evidence which has been presented at this stage is scant. In his affidavit in support of the application, the first defendant says that during his negotiations on behalf of Birchwood and before he signed the Facilities Agreement, two employees of the Bank of Western Australia, on behalf of the lenders, promised that the lenders would deal with GST money that formed part of the sale price for each project unit in the same way in which the bank had dealt with GST money in an earlier development carried out by Elmbridge Pty Limited, a company also associated with the defendants.
45 At [19] Mr Simon Wright says that in the Elmbridge development the bank collected the sales proceeds at settlement and 'held the [GST money] on trust offsetting the principal and interest Elmbridge then owned to BankWest for the specific purpose of the Elmbridge GST Money being paid to the ATO when the Elmbridge GST Money was due and payable to the ATO by Elmbridge'. The bank provided a cheque to the value of the Elmbridge GST Money, made payable to the ATO when that money was due to be paid by Elmbridge. That evidence was not contested and it was, in effect, supported by what Mr de Klerk said in his evidence this morning.
46 Mr Simon Wright further says at [23] that specific promises were made to him that:
(a) Birchwood would pay the Birchwood GST Money to the lenders at settlement of the sale of each project unit for the specific purpose of the Birchwood GST Money being paid to the ATO when that money was due and payable;
(b) the lenders would hold the Birchwood GST Money on trust and offset against Birchwood's then indebtedness to the lenders under the Facilities Agreement for the specific purpose of the money being paid to the ATO when it was due and payable by Birchwood; and
(c) the lenders would provide a cheque to Birchwood to the value of the GST Money made payable to the ATO, in payment of Birchwood's GST liability in respect of each project unit sold in the development when that money was due to be paid.
47 Mr de Klerk did not support the evidence that those specific promises were made, nor for that matter did he deny it. He had no recollection of any specific discussion regarding the treatment of the GST Money.
48 The first defendant says that he only signed the Facility Agreement, guarantee and mortgage in reliance on those representations because Birchwood had no independent means to pay GST Money to the ATO.
49 Finally, the first defendant says that his daughter met with an officer of the bank on 23 August 2011 and the bank officer told her words to the effect that the settlement of the project units would follow the same process as for the Elmbridge development. While that may be relevant in some regards, it is of course well after the relevant agreements including the Variation Agreement had been executed.
50 The second defendant says, in effect, that he also entered into the agreements on behalf of Birchwood in reliance on the representations which had been passed onto him by his brother.
51 The defendants also say that the plaintiff has called no evidence contradicting what they say about the representations, but I do not regard rules such as the rule in Jones v Dunkel (1959) 101 CLR 298 as having any particular application in interlocutory proceedings of this nature.
52 The claim of unconscionable conduct, as I understand it, is largely based on the lenders conduct in not releasing funds for Birchwood to pay its GST liability. There are two strands to it: first, the defendants appear to rely on the representations that those funds would be released; second, the defendants contend that failure to treat the GST funds as available for the borrower was setting both the borrower and the project up to fail. Birchwood was, and it was known to the bank (on the evidence of Mr de Klerk), a single project vehicle with no assets or liabilities outside the project. The GST on the sale of the units could not be paid by funding from other sources if the money received was not available to the developer when the time came for the developer to pay its GST obligation.
53 In response, the plaintiff says, first, that there was no contemporaneous note or anything of that nature currently in evidence to support that representations such as those claimed by Mr Wright were made. Should this matter proceed to trial, the evidence regarding oral representations will be assessed, and no doubt the authority of Watson v Foxman (1995) 49 NSWLR 315, 319, will be cited yet again.
54 Second, not only is there no contemporaneous note consistent with the representations alleged, but that they are prima facie inconsistent with the terms of cl 7 and cl 8 of the Facilities Agreement. While it is not conclusive where a claim is made under the Australian Consumer Law, each of the Facility Agreements contains a clause that the Transaction Documents contain the entire agreement between the parties about the subject matter, and any previous understanding, agreement, representation or warranty relating to that subject matter is replaced and has no further effect. That clause, in the way in which it is expressed, particularly in the second or the restated Facility Agreement, is a powerful factor, but as I said, it does not necessarily preclude a claim under the statute.
55 Third, the plaintiff entered into the amended Facilities Agreement after the initial agreement with no modification of those clauses dealing with the repayment and taxes, except for the inclusion of the risk fee which was also to be paid from sales proceeds.
56 Fourth, there is nothing in the correspondence and other documents that were created after the question of how Birchwood would pay its GST liability arose, in which Birchwood asserts that there were any representations made to it, or that any agreement was made or any promises were made. These are all matters going to the strength of the evidence.
57 The plaintiff also referred to evidence which may or may not show that Birchwood did have other funds available to it, other than from the Project Sales Proceeds by which it could have met at least part of its GST liability. In particular, the plaintiff contends that Birchwood may have lent substantial sums to related parties, including the defendants. On the evidence as it stood on Friday, I think the conclusions which the plaintiff asked the court to draw were too speculative to be of assistance. Following the evidence given this morning by Mr de Klerk confirming the bank's understanding that Birchwood was a single project vehicle, I am more strongly of the view that it would be a conclusion which it is unsafe to draw.
58 I have misgivings about how the finance arrangements were going to be effective if no allowance was made for the payment of GST by the borrower. If there is an industry practice, it would need to be proved in evidence. The defendants do not rely on any practice, but on representations which were made to them in the context of previous dealings with the same bank as lender. And in this regard, I have permitted the defendants to call Mr Louis de Klerk, formerly with the bank. While Mr de Klerk did not recall that the parties discussed anything specific regarding GST, he did say that:
(1) The GST facility in the loan was not to cover GST receipts on the sale of units. I accept that that is a matter of construction, but it is also a matter of the understanding of the parties at the time when things were said and agreements were entered into.
(2) The standard practice of the bank (used in the previous loan taken out by the defendants through the development vehicle Elmbridge) was that the bank would not have contemplated that GST came to the bank in debt reduction. The loan would have been structured, and ratios worked out on the basis of the sale price for the sale of the project units, net of GST.
(3) In referring to the Elmbridge development, Mr de Klerk said it is likely that the bank would have received the full proceeds, and would have returned the GST portion to the developer, thus supporting what Mr Simon Wright said.
(4) Discussions with the Wrights regarding the Birchwood facility were in the context of the existing relationship between the bank and the Wrights, and were at the time when the Elmbridge development was not yet complete.
(5) The bank used standard documents.
59 Mr de Klerk apparently knew that Birchwood had no assets outside the development from which it could meet GST obligations, other than from money received from the sale of units, and it is likely that his knowledge would be imputed to the bank.
60 On the evidence which is now put forward, the defendants' case under the Trade Practices Act or Australian Consumer Law claims has some quite obvious deficiencies, but it cannot be dismissed. The apparent strength or weakness of the claim is something to which I must have regard, together with the consequences of the relief they seek, when considering whether the balance of convenience favours making an order.
61 Before dealing with the balance of convenience, there is one further issue raised by the defendants, and that is whether the mortgage was a mortgage of the beneficial interest in the farm. This argument arises out of the plea made on behalf of each defendant that he denies that he mortgaged the beneficial interest in the farm land to the plaintiffs. Even at this preliminary stage, the argument must be rejected for several reasons. First, assuming that the land is trust property, cl 7.3 of the trust deed which the defendants put into evidence gives the trustee the power to borrow money and execute mortgages over all or any part of the real and personal property of the trust.
62 Second, the defendants warranted that they had full power to mortgage the land in the manner provided in cl 7.2 of the mortgage. And third, the mortgage was registered with no notice of any trust. The title of the mortgagee is indefeasible under the Transfer of Land Act 1893 (WA), s 68 and s 134.
63 In summary, the defendants have put forward some evidence that representations were made, and that they relied on those representations in causing Birchwood to enter into the Facilities Agreement and in the defendants personally giving security. Although, as the plaintiff submits, the chain of causation between those representations and the proposed sale of the farm is long, it is not hopeless. The mortgages were part of the security given for the guarantee. Relief under s 87 of the Australian Consumer Law could, arguably, extend to the whole of the Transaction Documents if there was misleading or deceptive or unconscionable conduct of the kind which has been alleged against the lenders.
64 None of the other grounds on which the defendants relied appear to me to have any substance, at least on the evidence which is before me at this stage.
65 The relief which the defendants seek on an interlocutory basis is to prevent the sale of land. I do not know if it can be said to be a general rule, but it is at least frequently the case that damages are not regarded as an adequate remedy for the loss of land. There is also evidence that, on any sale, the defendants will be potentially exposed to a taxation liability, which could have severe consequences for them.
66 While the plaintiff will lose the opportunity of an immediate sale, the evidence does not show that it will be unable to sell the land at a later time for a comparable price. The loss it would suffer, at least in dollar terms, cannot now be estimated.
67 There are factors to be considered on the other side. The defendants did not initially give an undertaking in the usual form. When the matter was raised, each of them gave an undertaking, but the plaintiff questions their capacity to meet it. There was no evidence specifically directed to this point.
68 On the whole of the material before me, I am aware that there is currently something owing over $11 million. On the other hand, that amount, as I understand it, may still be reduced if there are to be further sales of units. Interest is accruing. There are questions about whether the undertaking offered will be of value, but the evidence that I have in front of me does not enable me to answer those questions satisfactorily.
69 I take into account that the defendants gave up vacant possession of the farm land in January this year, and that the land was valued and marketed. A buyer has now been found at a price which is reasonable in light of the valuation prepared on the instruction of the receivers. In this context, I have had regard also to the higher valuations suggested by the defendants, but also to the fact that the land could not be sold earlier when they attempted to do so, and to the risk that another sale may not be possible until the next favourable season for marketing the land, which would be a delay of a year. I have also had regard to the evidence that the defendants themselves attempted to sell the land.
70 Importantly in this case, the plaintiff relies on what is described as the principle in Inglis' case: Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161. As a general rule, a mortgagee should not be restrained from exercising its rights under the mortgage, failing payment into court of the amount sworn by the mortgagee to be due and owing under the mortgage. There may be exceptions to the rule. It may not apply with a debt on which the mortgagee's action is based is itself impeached, for example in a claim for injunctive relief under the Trade Practices Act.
71 The defendants' claims in the current matter have not, in my opinion, been adequately pleaded at all. The claims to the extent which they are discernible from the matters which are pleaded do go to the basis on which the defendants executed the guarantee, and were they successful, they would be entitled to relief that would, in my opinion, have the potential to impeach the mortgage itself. And that, in my opinion, brings them within one of the exceptions to the general rule established in the case of Inglis.
72 Taking all of those matters into account, it is difficult to say that any particular factor is decisive. In the end, I am satisfied that the defendants have demonstrated a case sufficient to justify restraining the receivers, because there is at least an arguable case that they will be able to achieve relief which would set aside the guarantee in the mortgage under the Trade Practices Act.
73 It is not a strong case, but I am not, at this stage, prepared to preclude any prospect of it succeeding, and the consequences of refusing relief, in my view, are so serious that I ought, in the present instance, grant the injunction.
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