Burke v Riversdale Road Pty Ltd v Gemini Investments Pty Ltd (No 2)
[2003] VSC 48
•25 February 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
PRACTICE COURT
No. 4476 of 2003
| BURKE AND RIVERSDALE ROAD PTY LTD | Plaintiff |
| v | |
| GEMINI INVESTMENTS PTY LTD | Defendant |
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JUDGE: | NETTLE, J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25 February 2003 | |
DATE OF JUDGMENT: | 25 February 2003 | |
CASE MAY BE CITED AS: | Burke v Riversdale Road Pty Ltd v Gemini Investments Pty Ltd (No 2) | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 48 | |
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Sale of Land – equity – relief against forfeiture – injunction - interlocutory injunction to restrain disposal of land pending hearing and determination of claim for relief against forfeiture of a rescinded contract of sale of land – discretionary considerations – security for undertaking as to damages inadequate
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G.D. Bloch with Mr D.V. Aghion | Kalus Kenny |
| For the Defendant | Dr Gavan Griffith QC with Mr M.F. Wheelahan | Vadarlis & Assoc. |
HIS HONOUR:
In this proceeding I have already given judgment on the question of whether or not the contract of sale of land dated 11 May 2001 between the plaintiff and the defendant came to an end by reason of service of a notice of rescission on 10 January 2003, or alternatively by reason of service on the purchaser of the defendant’s solicitor's letter of 28 January 2003. For the reasons expressed on 21 February 2003, I determined that the contract came to an end by reason of service of the letter of 28 January 2003, and I so declared.
At the conclusion of the hearing of that question, Mr Bloch, who appears with Mr Aghion on behalf of the plaintiff, asked that the further hearing of the plaintiff’s application for interlocutory injunction be adjourned so that the plaintiff might file further affidavit material in support of the application and so that Dale Howard Robertson might be made available for cross-examination on his affidavit of 11 February 2003. I acceded to that request and thus the further hearing of the application for interlocutory injunction comes before me today.
In accordance with the indication given by Mr Bloch on the last occasion, a further affidavit of Joseph Katz, solicitor, has been filed and served on behalf of the plaintiff, and in that affidavit Mr Katz deposes to attempts which have been made on behalf of the plaintiff to raise finance to complete the contract of sale. A number of letters from Messrs Abbott Stillman & Wilson concerning a proposed loan to the plaintiff in an amount of some $4.25m are exhibited to the affidavit.
Mr Robertson has this day been cross-examined on his affidavit and has deposed to having a personal wealth of somewhere between $3m and $4m. He said, however, that that was largely comprised of interests in companies and other structures and that the only assets in his own name consist of a rural property said to be worth some $25,000 and a half interest in five other rural properties, said in total to be worth $80,000 (giving him total assets in his own name of no more than $65,000)[1].
[1]Even that figure over-states the position a little. One of the properties is not in his name but in the name of a company of which he said he is sole director.
In the course of cross-examination Mr Robertson conceded that the reason the plaintiff purchaser did not complete and has still not completed the contract is because the plaintiff has been unable to raise finance with which to do so; that the several notices of rescission to which I referred on the last occasion have had the beneficial effect of allowing more time to the plaintiff in which to seek finance; that each of the property developments with which Mr Robertson is associated is conducted through a sole purpose special vehicle company, of which the plaintiff is but one, and of which another is a special purpose vehicle incorporated for the purposes of the re-development of the Chaucers' site in Canterbury; and that the Chaucers’ special purpose company is also in litigation as a result of an alleged failure to complete.
Over objection, I permitted Mr Bloch to ask questions in re-examination as to whether there were any other assets to which Mr Robertson might have access in order to provide security for the performance of the plaintiff’s obligations, and Mr Robertson answered that although time had proved insufficient to get any sort of finance into place, he had significant sums of money available to him as and when they were needed. But he was unable or chose not to be any more precise about what those sums of money were and as to how quickly they might be made available.
Dr Griffith QC, who appears with Mr Wheelahan for the defendant, moved that I should treat the application for interlocutory injunction as the trial of the question of relief against forfeiture. But Mr Bloch on behalf of the plaintiff opposed that application, on the basis that he may need or wish to adduce further evidence in support of his case for relief against forfeiture at trial.
Accordingly, I proceed on the basis that this is an application for interlocutory injunction to restrain the defendant until the hearing and determination of the plaintiff’s claim for relief against forfeiture, or alternatively to restrain the defendant for some lesser time sufficient to enable the plaintiff to raise the finance necessary to complete.
I have had the benefit of detailed written submissions from both sides in addition to those with which I was favoured on the last occasion, and they deal at length with the authorities and the principles which are said to inform the grant of relief against forfeiture and, in that context, the balance of convenience upon application for interlocutory injunction. But given the time which is available to deal with this application it is impractical to rehearse those submissions at length. It must suffice to say for present purposes that, despite the quality of the arguments which have been presented on behalf of the defendant, I accept the submission made by Mr Bloch that the plaintiff has made out a serious question to be tried as to its entitlement to be relieved against forfeiture (when and if it has the money to complete and pay compensation).
I have to say, however, that I do not regard it as being a strong case, for in the end it turns largely on the argument accepted by Sheller JA[2] in Pentagold Investments Pty Ltd v Romanos[3]: that a condition of a contract which entitles a vendor to rescind upon the purchaser's failure to pay a deposit is a condition which operates as security for the payment of the deposit, and thus that default in the payment of deposit under a cash contract of sale can be equated with default in the payment of instalments under a terms contract of sale[4]. With very great respect, I prefer the analysis of Giles JA[5] that provisions affording a vendor the right to rescind a contract for failure to pay a deposit strictly so called are not provisions to secure the payment of the deposit but are provisions to secure the performance of the contract. That seems to me to accord much more closely with what was said by the High Court in Legione v Hately[6] and Sterm v McArthur[7] and by the Privy Council in Union Eagle Ltd v Golden Achievement Ltd[8].
[2]With which Mason P agreed.
[3][2001] NSWCA 425 at [47]
[4]cf. Stern v McArthur (1988) 165 CLR 489 at 527
[5]In dissent, at [58]
[6](1983) 152 CLR 406
[7]supra
[8][1997]AC 514 at 523
Despite those difficulties Mr Bloch submitted that there are six factors which demonstrate that it would be unconscionable in the sense essayed in Legione v Hately and Stern v McArthur to permit the defendant to treat the contract as being at an end.
The first factor identified by Mr Bloch was that in this case the mode of discharge of the contract was not that provided for in Condition 6 of Table A, but rather the consequence of the defendant accepting the plaintiff’s repudiation of the contract (by failure to comply with an obligation to pay of which time was of the essence).
I do not regard that as rendering the rescission unconscionable. Each of the cases to which I have referred already and the additional cases which are referred to in the written submissions of the plaintiff, suggest that something additional and exceptional is required before the court will relieve against forfeiture.
The second consideration identified by Mr Bloch was that although the contract provided that time should be of the essence, on at least two occasions the defendant withdrew rescission notices, thus permitting time to cease to be of the essence for a period of time. I dealt with the notices in my reasons for judgment on the question of rescission and Mr Bloch is correct in his contention that the defendant did serve a number of notices of rescission and that at least on one occasion, and arguably on two, the defendant subsequently withdrew them. But I do not think that that can be regarded as a circumstance which renders it unconscionable for the defendant now to treat the contract as being at an end. It is not suggested, and there is no evidence that the plaintiff was lulled into a false sense of security by reason of the service of the notices and their subsequent withdrawal. It might have been different if the defendant had attempted to rescind the contract immediately after withdrawing one or other of the notices. Its actions might then have been regarded as unconscionable. But in the circumstances which occurred, with which I also dealt in some detail in my reasons for judgment on the question of rescission, it was made plain at all times that the defendant was pushing for performance and demanded that the plaintiff’s obligations under the contract be complied with timeously. This was not a case like Legione v Hately and possibly also Pentagold where the purchaser was so much lulled by the vendor's conduct into a false sense of security as unwittingly to overlook the necessity to pay on the due date. Upon the evidence before me there is no doubt that the plaintiff knew that the defendant required strict performance, despite any errors or difficulties which occurred in the defendant’s first attempts to bring the contract to an end pursuant to General Condition 6.
The third consideration advanced by Mr Bloch as rendering it inequitable that the defendant be permitted to treat the contract as at an end is that there is evidence that one or other of the companies controlled by or associated with Mr Robertson has expended some $800,000 on assessing and planning for possible development of the property, and it is said that all of that would be lost if relief against forfeiture is not granted.
It is to be noted, however, that the contention does not quite accord with the evidence. For it is said in paragraph 24 of Mr Robertson's affidavit of 11 February 2003 that $800,000 has been spent to date in developing a concept for the development; not $800,000 in planning the development. That may be the same thing but it is not clear that it is. According to the evidence, the bulk of the work undertaken has been directed to production of an information memorandum for a mixed development comprised of a civic square or area, residential unit development and retail and office facilities.
The evidence given by Mr Robertson as to the expenditure of $800,000 was not challenged and thus, as far as it goes, I accept it. Nevertheless, there is nothing to show that the $800,000 was expended by the plaintiff as opposed to other entities involved and, even if that inference were drawn, other evidence given by Mr Robertson suggests that the intellectual property is valuable and could be sold. It is not contended that the intellectual property might be used without fee by the defendant or by persons or entities to whom the defendant might resell the property.
It is true, as Mr Bloch points out, that in Pentagold the majority regarded the purchaser’s expenditure in obtaining planning approval for the property as relevant if not sufficient reason to grant relief against forfeiture. But plainly there is a difference between expenditure of that kind, which upon rescission of the contract would inure to the benefit of the vendor, and expenditure of the kind said to have been incurred by the plaintiff in this case, which may not benefit the defendant at all. Doubtless it is unfortunate for a purchaser in the position of the plaintiff to lose some and perhaps all of the benefit of expenditure incurred in the expectation that the contract will proceed. But in my view it does not render the vendor’s insistence upon due performance of the contract in any way unconscionable.
Mr Bloch's fourth consideration was a submission that it ill-behoved the defendant to demand strict compliance with the terms of the contract, and thus to insist upon forfeiture of the contract for failure on the part of the plaintiff to perform its obligations within time, when the defendant was itself delinquent in the preparation of its notices of rescission. I do not think that there is any substance in that point. It takes the matter no further than Mr Bloch’s second consideration.
The fifth consideration advanced by Mr Bloch was that the plaintiff has paid a large sum of money, namely, $1.67m (nominally by way of deposit), and that the plaintiff will lose those funds unless it is relieved from forfeiture; and that that would be inequitable. It appears to me that the submission overlooks the distinction drawn in Stern v McArthur between a deposit, against the loss of which equity will not ordinarily relieve, and an instalment of purchase price or part payment, against the retention of which equity may well relieve; other things being equal.
At the moment there is nothing before me to suggest that the sum of $1.67m was anything more than a deposit. It exceeds the $1.1m or so that would constitute 10% of the purchase price. But it is to be remembered that the contract provided for a long settlement period and the evidence shows that the property is no longer occupied and that it is subject to mortgage. In the absence of any better evidence I infer that so much of the deposit as exceeds 10% was intended to provide a security to the defendant against the expense which it would incur by standing out of the purchase price for such a long period and then having the plaintiff default.
Accordingly, I do not regard the amount of the deposit as sufficient reason to regard the defendant’s rescission of the contract as inequitable.
Mr Bloch's sixth consideration was an argument that there is an absence of countervailing considerations, such as that another purchaser is willing to pay the same or a higher price than the plaintiff, and therefore it is in a sense in the interests of the defendant to be restrained, at least for some time, in order to afford to the plaintiff a further chance to raise the finance to complete the contract and pay just compensation
I am not persuaded by that argument. When and if the plaintiff is in a position to pay the purchase price and compensation for the loss suffered by reason of lateness in performance, application might be made for relief against forfeiture; although I express no opinion upon the likelihood success. But until and unless the plaintiff is in a position to pay the purchase price and full compensation, it does not lie in its mouth to say that it is in the interests of the defendant to continue to stand out of its money on an unsecured basis in respect of an unoccupied property which is the subject of mortgage, incurring outgoings and receiving no income, while awaiting the performance of an obligation which may never occur.
So far from it being in the interests of the defendant to be restrained for some further time, it appears to me that, unless the undertaking as to damages be adequately secured, any injunction must heap upon such loss as has already been suffered by the defendant a significant risk that further damage will be suffered (by reason that there may be a decline in the value of the property, or that some part of the assets upon the property may be damaged, or that interest rates applicable under the mortgage may increase, or indeed that there may occur any number of other problems of the kind of which risk assessment informs the decisions of people who deal in commercial property).
As I say, therefore, I do not regard the case for relief against forfeiture which is advanced by the plaintiff as being particularly strong, even if there is a serious question to be tried about it.
When I then turn to the balance of convenience, it seems to me that it is all the defendant’s way. This matter first came on for hearing in the Practice Court before his Honour Mr Justice Ashley on 13 February 2003 after the Writ was filed on 11 February 2003. On that day the hearing was adjourned upon the application of the plaintiff so that further affidavits might be filed. The matter then came on before me in the Practice Court on 18 February 2003, and subsequently, on 21 February 2003, after I delivered judgment upon the trial of the question of rescission, I was asked by Mr Bloch further to adjourn the hearing of the application for interlocutory injunction in order to enable his client to prepare additional evidence in support of the application. Now, after two weeks of additional time to prepare material, the only evidence before me to demonstrate the ability of the purchaser to perform is what is contained in Mr Katz's affidavit of today's date and the exhibits to it. And it shows that the only arrangements the plaintiff has been able to put in place to this point are subject to contract; subject to a number of conditions, including discontinuance of two legal proceedings, one of which is for the removal of the caveat lodged on the title to the property, and the other of which is unidentified; and subject to a requirement that there be brought into existence and executed securities satisfactory to the financier. It may also be observed, as was pointed out by Dr Griffith, that the correspondence exhibited to Mr Katz's affidavit is far from complete. References are made to other documents, such as an earlier fax, that have not been exhibited and to conditions upon which the loan is to be made available, which have not been produced. No explanation has been provided by Mr Robertson or otherwise as to why that is so.
Thus the position is that even now the plaintiff has failed to demonstrate that it has the financial capacity to complete the contract or with which to secure the defendant in the event that an injunction be granted. As has already been seen, Mr Robertson's assets are worth much less than the sort of security which would be required, and I regard as risible his asseveration in the witness box that he has authority to speak on behalf of his wife and that she is willing to put up by way of security their matrimonial home, said to be worth in the order of $2m. When one considers authorities like Yerkey v Jones[9] and Garcia v National Australia Bank[10], it may be assumed that the security would be worthless.
[9](1939) 63 CLR 649
[10](1998) 194 CLR 395
Despite all these difficulties, I have given consideration to Mr Bloch's application that I grant an injunction of very short duration, say until early next week, in order to allow the plaintiff still further time to attempt to finalise the finance which is deposed to in Mr Katz's affidavit and thus avoid the loss of the deposit. But I am not inclined to grant such an injunction. The plaintiff has already been given considerable time to put forward its best case for interlocutory relief and it has failed to do so. The relevant authorities make plain that for a plaintiff to stand any chance of obtaining an interlocutory injunction of the kind which is sought, the defendant needs to be secured not only against the losses which may have been incurred to this point but also in respect of the future. Furthermore, counsel for the defendant made clear in their submissions at the hearing of the question of rescission that they would ask the court to refuse any application for injunction unless security were provided and unless it were demonstrated by cogent evidence that the security is of value. That warning has not been heeded.
Mr Bloch has submitted that if that be my attitude I should allow a further short period of time to the plaintiff to put on additional evidence of the attempts which it has made to raise finance, and of the point to which it has come as a result of those attempts, and otherwise as to the likelihood that it is or would be in a position within a very short period of time to provide the sort of security which is required.
I am, however, disinclined to allow even that period of time, for there must be an end to it sometime. If upon a further application it is made to appear that the plaintiff does have the wherewithal to provide security in the sort of amount which has been suggested, there may be a basis for interlocutory injunction. If it is as easy as it is suggested it might be for the plaintiff to obtain the additional evidence within a day or two there is no reason why the application should not then be renewed and, subject to the quality of the additional evidence, it may be that the plaintiff will succeed. But I need not and do not express a view on that for the time being. That application is not before me. All I am determining for the time being is the question of whether or not interlocutory injunction should go on the basis of the material which is before me.
On the material which is before me, no security of worth has been offered. Therefore, although a serious question to be tried has been made out, the application for interlocutory injunction will be refused.
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