Care A2 Plus Pty Ltd v GI 305 Pty Ltd
[2023] VSC 394
•12 July 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2023 00478
BETWEEN:
| CARE A2 PLUS PTY LTD (ACN 631 178 115) | Plaintiff |
| v | |
| GI 305 PTY LTD (ACN 654 844 461) & ANOR | Defendants |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 June 2023 |
DATE OF JUDGMENT: | 12 July 2023 |
CASE MAY BE CITED AS: | Care A2 Plus Pty Ltd v GI 305 Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 394 |
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MORTGAGES – Whether event of default arose under mortgage agreement – Terms of commercial agreement to be construed as a whole and through lens of reasonable businessperson – Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 – Notice of default still valid even if it incorrectly states amount owed – Whild v GE Mortgage Solutions Ltd [2012] VSC 212.
RECEIVERS – Whether appointment of receiver is valid despite event of default – Consideration of terms of mortgage agreement and surrounding circumstances in contractual construction – Re Media, Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379.
TRESPASS – Whether borrower is entitled to damages as a result of receiver taking possession of mortgaged property – Whether evidence as to consequences of trespass is required to assess damages – Lewis v Australian Capital Territory (2020) 271 CLR 192.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | P Willis SC with N Dour of counsel | Nakat Law |
| For the Defendants | M Galvin KC with H Somerville of counsel | Thomson Geer |
HIS HONOUR:
Introduction
On 2 December 2022, the first defendant, GI 305 Pty Ltd (‘GI 305’), appointed the second defendant, David Anthony Hurst (the ‘Receiver’), as receiver in respect of property owned by the plaintiff, Care A2 Plus Pty Ltd (‘Care A2’), which included the land comprised in Certificate of Title Volume 08696 Folio 413, described as Lot 20 on Plan of Subdivision 076200 and more commonly known as 25 Pickering Road, Mulgrave in the State of Victoria (the ‘Mortgaged Property’). The Receiver was appointed pursuant to a mortgage agreement executed on or about 15 November 2021 between Care A2 as mortgagor and GI 305 as mortgagee (the ‘Mortgage’).[1]
[1]Note that the Mortgage was effected through various agreement documents, detailed below in paragraphs [5] and [25]. The effective date of the Mortgage is taken to be 15 November 2021 throughout these reasons.
Care A2 seeks declarations and associated orders to the effect that there was no default under the Mortgage and hence that the appointment of the Receiver is invalid. Alternatively, in the event that there was a default, Care A2 seeks declarations and associated orders that GI 305 was not in any case entitled to appoint a receiver.
For reasons which follow, an event of default arose under the Mortgage by reason of the failure to repay the principal, well before the issue of a default notice on 6 October 2022, which alleged such default, and the appointment of the Receiver on 2 December 2022. I also reject the alternative contention that GI 305 was not entitled to appoint a receiver in the event of default.
Chronology of relevant events
By the Mortgage agreed on 15 November 2021 between GI 305 as lender and Care A2 as borrower, GI 305 agreed to advance the sum of $2,177,405.86 (the ‘Principal’) to Care A2. Interest was payable monthly, in arrears, seven days prior to the anniversary of the date of the Mortgage. The interest rates specified were 16.5% and 21.5%, described as the ‘discount rate’ and the ‘standard rate’ respectively, with the higher rate payable in the event of default.[2] The ‘Payment Date’, which in substance, was the repayment date, was six months after the date of the agreement, being 16 May 2022.[3]
[2]The agreement refers to the higher 21.5% amount as the ‘standard rate’, although the ‘discounted rate’ of 16.5% was employed throughout the ordinary operation of the Mortgage (up until default by the ‘Obligors’).
[3]The last day of the six month period was 15 May 2022. In argument, GI 305 noted that there is a lack of clarity as to whether six months after the date of the agreement was 15 May 2022 or 16 May 2022, however, nothing turns on this. In these reasons, 16 May 2022 is taken as the repayment date.
By way of security for the advance, Care A2 granted a registered mortgage to GI 305 over the Mortgaged Property. The Mortgage agreement incorporated the short form memorandum of common provisions contained in document reference AA7402 (the ‘MCP’). Appended to the MCP is a fee schedule (the ‘Fee Schedule’), which specifies certain fees payable by Care A2. The Mortgage agreement otherwise contains terms set out in a document headed ‘Facility Summary1’ (the ‘Facility Summary’).
By letter sent 2 May 2022, by GI 305’s solicitors, the mortgagee gave notice (the ‘May Notice’) to Care A2, purportedly pursuant to s 76 of the Transfer of Land Act 1958 (Vic) (the ‘Transfer Act’), of an event of default arising from the alleged failure on the part of Care A2 to pay interest for the months of March 2022 and April 2022. Notwithstanding that the May Notice alleged a default in those terms, the notice specified that such failures gave rise to a default as at 15 December 2021. The May Notice required payment of the sum of $2,379,114.88, comprised of the secured monies owing to the lender of $2,377,614.88, together with legal fees of $1,500, within one month of the date of the demand, failing which GI 305 would take action to recover the amount secured pursuant to the Mortgage, without further notice to Care A2.
By a further email sent by GI 305’s solicitors on 31 May 2022, the solicitors advised that despite Care A2 remaining in default,[4] GI 305 agreed to forebear from taking any enforcement action, subject to Care A2 agreeing to the terms set out in an attached deed of support. The email stipulated that the deed, together with certificates of independent legal and financial advice, be executed and returned by no later than 7 June 2022.
[4]The default was not specified in this email, but it appears to be a reference to the failure to repay the Principal together with the interest on 15 May 2022, which is the date which was 6 months from the date of the Mortgage agreement and which was the default specified in the attached deed of support.
The deed of support stipulated a breach by Care A2, comprised of the failure to pay the secured money by 15 May 2022, but further provided for ‘a lender support period’ to extend to the ‘end date’ of 25 August 2022, on the basis, inter alia, that Care A2 acknowledge that it would be required to pay a rollover fee of 2.2% of the secured money, which would form part of the secured money. Otherwise, the deed provided that GI 305 would not charge interest at the standard rate (which was the higher rate provided during the ‘lender support period’), on condition that the secured money was paid by the end date (of 25 August 2022). The deed further contained, inter alia, an acknowledgment by the borrower that a default had occurred, and that the lender could terminate the lender support on written notice in the event of a further default.
A loan statement sent out by GI 305 to Care A2 for the period 1 May 2022 to 31 May 2022 specified a closing balance of $2,234,227.13 and referred to the interest rate for that period as 16.50%.[5] The statement included:
[5]The date on which the loan statement was sent out is not clear on the evidence, but it is inferred that it was sent out on 31 May 2022 or shortly after, but in any event, not before 31 May 2022.
(a) a debit on 25 May 2022 of $33,484.06, representing interest from 1 May 2022 to 25 May 2022;
(b) a debit on 26 May 2022 of $89,591.12, representing three months prepaid interest at the rate of 16.5%;[6] and
(c) a debit of $62,321.27, also effected on 26 May 2022 and described as a rollover fee.
[6]Three months from 26 May 2022 would correspond to 25 August 2022, being the end date in the deed of support.
The May loan statement also recorded two credit entries on 30 May 2022 of $107,958.05 and $89,591.12, described respectively as ‘loan repayment’ and ‘interest repayment’.
By an email sent by its solicitors on 23 June 2022, Care A2 denied that it was in default. The email noted that a payment of $50,000 had been made on 11 April 2022 and another payment had been made of $197,549.17 on 30 May 2022, on a ‘without prejudice basis and in good faith’. The email described the payments as being made ‘on account of the purported interest incurred from [sic] the [secured amount]’. Otherwise, Care A2 denied that it was in default, relying on, inter alia, the reference in the May Notice to the default arising at 15 December 2021 and otherwise because it was not required to pay any interest ‘until the end of the term with a minimum amount of 3 months payable and that [Care A2] will have the opportunity to refinance the’ secured amount. Care A2 requested the withdrawal of the May Notice within seven days.
Care A2 further asserted that the levying of the rollover fee of $62,321.27 in the May 2022 statement had resulted in a renewal of the facility, and a withdrawal or waiver of the May Notice.
The loan statements sent out by GI 305 for the months of June 2022 and July 2022 recorded opening and closing balances of $2,234,227.13 in each case (being the same as specified in the May loan statement) and specified the applicable interest rate at 16.50%.
By letter sent by GI 305’s solicitors on 19 August 2022, GI 305 noted Care A2’s assertion that a renewal had occurred and the payment of the rollover fee as required by the deed of support. The letter further advised that GI 305 would proceed on the basis that ‘the facility has been extended until 25 August 2022 by agreement between the parties’, and that in the ‘absence of signed loan documentation, [GI 305] will proceed on the basis that the renewal was on the terms set out in the [deed of support]’.
The letter concluded by confirming that the ‘facility will expire and is due to be repaid in full on or before 25 August 2022’ and that ‘the amount of $2,248,148.14 will be due and payable to [GI 305] on 25 August 2022’. There were no details as to how the sum of $2,248,148.14 had been calculated.
The loan statement for the month of August 2022 recorded an opening balance of $2,233,823.32,[7] and a closing balance of $2,303,401.77. The increase in the closing balance arose largely because of debits to the loan account effected on 26 August 2022, being:[8]
[7]The opening balance of the loan statement for August 2022 of $2,233,823.32 did not in fact correspond to the closing balance of the July 2022 statement of $2,234,227.13.
[8]This is the day following the ‘end date’ specified in the deed of support, which was also the date of extension of the facility advised by GI 305’s solicitors in the letter of 19 August 2022.
(a) $49,173.06, described as a ‘line fee’;
(b) $12,293.27, described as a ‘loan management fee’; and additionally,
(c) an interest charge of $8,112.12, debited on 31 August 2022.
The August 2022 loan statement specified the applicable interest rate as 21.50%, which was the higher, or so called ‘standard rate’, which enlivens following default. Subsequent monthly loan statements from September 2022 onwards included charges of a loan management fee and interest, presumably calculated at the rate shown on the statements of 21.50%.
By letter sent 6 October 2022, by GI 305’s solicitors, the mortgagee gave notice (the ‘October Notice’) to Care A2, purportedly pursuant to s 76 of the Transfer Act, of an event of default arising from the alleged failure on the part of Care A2 to pay ‘the [Principal] to GI 305 in full by the due date’. The notice required payment of the sum of $2,424,875.51, calculated as at 4 October 2022, comprising:
(a) the Principal of $2,177,405.86;
(b) ‘[costs] fees and expenses’ of $143,450.46; and
(c) interest of $104,019.19,
within one month of the date of service of the notice, failing which GI 305 would enforce its rights as it saw fit under the Mortgage agreement without further notice.
By notice given 2 December 2022 sent to Care A2, the Receiver advised that he had been appointed receiver of the Mortgaged Property by GI 305 and intended to take steps to market and sell the Mortgaged Property. The Receiver requested access to the Mortgaged Property and further informed Care A2 that if it wished to continue its occupation on an interim basis it would be necessary to enter into an agreement with the Receiver. A deed of appointment of the Receiver accompanied the notice.
By letter sent by Care A2’s solicitors dated 14 December 2022, Care A2 asserted that the October Notice was invalid as the notice did not specify the alleged default with sufficient certainty and that the Principal was not due and payable, as the rollover fee had been levied (on 26 May 2022) which had brought about a renewal for a period of not less than 6 months.[9] It otherwise asserted that the appointment of the Receiver was in bad faith and invalid. Care A2 further advised that it was undertaking a refinance and requested a payout figure, along with the revocation of the appointment of the Receiver.
[9]Presumably to 15 November 2022.
GI 305’s solicitors responded by letter dated 16 December 2022, denying that there was a renewal of not less than six months and referring to the correspondence of 23 June 2022 and 19 August 2022. It asserted that Care A2 was in default by reason of the failure to pay the Principal, which was due on 25 August 2022. A payout figure was provided. The appointment of the Receiver was not revoked.
By summons dated 30 January 2023, Care A2 sought interlocutory orders to the effect that the appointment of the Receiver was invalid and that GI 305 and the Receiver be restrained from preventing Care A2 from entering into possession, and that the Receiver be restrained from selling the Mortgaged Property. Procedural orders were made such as to facilitate the hearing of Care A2’s claim for final relief to substantially the same effect, which hearing took place on 13 June 2023.
Was there a default at the time of the October Notice?
It is uncontroversial that the Principal advanced on 15 November 2021 of $2,177,405.86 had not been repaid as at the date of the October Notice. Care A2’s case is that the time for repayment had not arisen, because the repayment date had been extended on two occasions; firstly, on about 26 May 2022 to 15 November 2022 and, secondly, on about 26 August 2022 for a further six month period to 15 May 2023.
Care A2 submits that the first extension arose by reason of the debit of $62,321.27 effected on 26 May 2022 described in the loan statement as a ‘rollover fee’, and that the second extension occurred on 26 August 2022, when the loan account was debited with the ’line fee’ of $49,173.06. Care A2 submits that the debiting of the line fee gave rise to a further six month extension from 15 November 2022 to 15 May 2023.
The MCP states expressly that the Mortgage agreement comprises of the MCP, the Facility Summary, the Fee Schedule, any mortgage documentation executed at around the time of the agreement and other items.[10]
[10]Clause 1.
The Fee Schedule, as the name suggests, sets out a series of fees in a table, which has four columns. Relevant for present purposes are item 1 and item 5, which comprise the line fee and loan renewal/extension fee respectively. An extract of the table, omitting those fees which are not relevant, appears below:[11]
[11]Capitalised terms are removed for clarity.
Description of fee Amount Date for the payment
of fee1 Line fee – a fee to be paid by the [obligor] to the lender as an establishment fee for this agreement $47,902.93 At or prior to the entry into this agreement or the advance by the lender of the principal … … … … 5 Loan renewal/extension fee – a fee that is payable upon expiration of the term of the agreement, payable on the final repayment date. The obligors acknowledge and agree the fee is payable regardless of whether a formal renewal or extension has been agreed upon with the lender 2.2% of the secured money outstanding Immediately upon demand by the lender
The Facility Summary specifies that the date of the agreement is the earlier of 15 November 2021, or the date when the Principal, or any part of the Principal, is paid by the lender. It is common ground that 15 November 2021 is the relevant date of the agreement.
Clause 2 of the MCP specifies that if any special conditions contained in the Facility Summary are inconsistent with a term of the MCP, the special conditions take precedence over the MCP.
Clause 20 of the MCP provides that the borrower agrees to pay the lender the Principal together with the rest of the secured money remaining unpaid on the ‘Payment Date’. The payment date, as defined in the Facility Summary, is ‘[o]n the same day which is [six] months after the [date of agreement]’, that is, 16 May 2022.
The first limb of Care A2’s argument is that the debiting of the ‘rollover fee’ of $62,321.27 effected on 26 May 2022 represented a renewal of the loan for a further period of six months, thus extending the term of the Mortgage facility and hence extending the (re)payment date to 15 November 2022 (being six months from the last date of the ‘initial term’, which was 15 May 2022).
Care A2 relies upon the decision of Heerey J of the Federal Court of Australia in Elizabeth Grove Shopping Centre Pty Ltd & Anor v Commonwealth Bank of Australia (‘Elizabeth Grove Shopping Centre’),[12] which it submits stands for the proposition that the debiting of a rollover fee evinces an intention to ‘roll over’ the agreement in the sense of renewing the agreement for a further term, for the same period as the initial term and on the same terms.
[12]Elizabeth Grove Shopping Centre Pty Ltd & Anor v Commonwealth Bank of Australia (Federal Court of Australia, Heerey J, 22 June 1994) 34.
Elizabeth Grove Shopping Centre is of no assistance to Care A2. The issue in that case was the validity of a termination by the Commonwealth Bank of Australia (‘CBA’) of a facility agreement. The facility agreement was for a term of five years and was terminated by CBA with two years to run, in reliance on an event of default which had occurred some years prior to the termination. The relevant default was a failure by the borrower to provide annual financial statements each year to CBA. The trial judge held that the relevant failure did give rise to a default, which would have entitled CBA to terminate, but that CBA’s conduct disentitled it from relying on the default as a breach entitling termination. A party who has a right to terminate an agreement may lose that right if it engages in conduct which is inconsistent with termination. The innocent party is required to elect whether to terminate the agreement or not. His Honour found that CBA acted inconsistently with termination in reliance on default by rolling over the facility after the time for provision of the annual financial statements and debiting a rollover fee accordingly. Elizabeth Grove Shopping Centre is an orthodox illustration of election between inconsistent rights. It is of no assistance to Care A2.
The Fee Schedule is not an exemplar of clear drafting. The description of the fee, viz loan renewal/extension, suggests that the fee is payable in the event of either a renewal or an extension. The next part of its description, however, suggests that it is payable upon expiration of the term of the agreement, which is suggestive of a balloon payment. On the other hand, the ‘Final Repayment Date’ is not defined but is a contrasting term to ‘Payment Date’, which appears in the Facility Summary. The last part of the description does not clarify much either; on one reading, it provides support for the ‘balloon payment’ interpretation, which is payable at the end of the initial loan term, regardless of agreement as to a renewal or extension. The other alternative is that it is payable in the event of an agreed renewal or extension, albeit one not formally documented. The time at which the fee is payable is not clear either; it is either payable upon expiration of the term of the agreement, in the sense of the original term of the original agreement and on demand by the lender, or that it is payable on demand, but not until the ‘Final Payment’ date, being the extended date agreed.
Recognising that the various documents must be construed as a whole and that the meaning of terms in a commercial agreement is to be determined by what a reasonable businessperson would have understood those terms to mean,[13] the better interpretation of the event which gives rise to an obligation on the part of the borrower to pay the ‘loan renewal/extension fee’ is if there is an agreement between the lender and the borrower to either renew or extend the period of the loan agreement, in which case the fee is payable at the new repayment date as agreed. Such a construction recognises that the parties have chosen to describe the fee as a loan renewal/extension fee and have also used the words ‘Final Repayment Date’ in contrast to ‘Payment Date’, which is used in the Facility Summary.
[13]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 (‘Mount Bruce Mining’).
However, some matters are clear. Whilst renewal and extension are different words and may amount to different things, they need not be; in the present case, an extension of six months is the same thing as a renewal of a six month agreement for a further six months. Care A2 relies by analogy with a renewal clause in a lease in support of its submission that the imposition of the fee speaks to a renewal for the same period as the original loan term. However, in such cases, the renewal occurs on the same basis as the original lease, because there is a term in the original lease which provides for its renewal on that basis, on notice from the lessee. That is not this case. Even if one assumes in Care A2’s favour that a renewal amounts to an extension of the agreement for the same period as the original term, this does not shed light on the terms on which the renewal is to take place.
Moreover, unlike the lease cases relied upon by analogy by Care A2, there is no unilateral right of the borrower, Care A2, to bring about a renewal on the same terms. In lease cases, the lease is renewed because of the presence of a renewal covenant in the original lease. The presence of a right to renew the lease is regarded as either an agreement to confer an option in favour of the lessee to renew the lease on the same terms or a conditional agreement made at inception to extend for the same period of time on notice from the lessee. In both cases, the resultant event of renewal arises because the original agreement (the lease) contains a term which provides for that event to arise on the giving of notice. That is not this case. There is nothing in the original agreement which confers on the borrower the right to renew or extend on the same terms by the giving of notice, much less anything in the agreement which binds the lender to the same outcome because of the levying of a fee. In the present case, a new agreement is required, albeit that an agreement manifested in an informal way, that is not signed under seal or executed at all, may suffice.
The second point which is clear is that there is no reference to a rollover fee at all in the Fee Schedule. Care A2’s argument equates a ‘rollover fee’ with a ‘renewal fee’, and then proceeds from that elision to argue that the mere levying of such a fee binds the lender to a renewed agreement on the same terms.
In fact, the evidence makes quite clear the purpose for which the ‘rollover fee’ was to be imposed. The deed of support attached to the email from GI 305’s solicitor of 31 May 2022 specifies as a condition of the ‘lender support’ that the borrower and the guarantor acknowledge that they must pay a ‘rollover fee’ of 2.2% of the secured money, in which case the facility would be ‘rolled over’, not to 15 November 2022 as Care A2 argues, but rather to 25 August 2022, which was the ‘end date’ to the lender support period set out in the deed of support.
Of course, this deed of support was not signed and returned by Care A2. By its solicitor’s email of 23 June 2022, Care A2 asserted that the application of the 2.2% fee in the sum of $62,321.27 amounted to a waiver or abandonment of the May Notice and an assertion of a rollover and renewal of the loan for some unspecified period of time and on unspecified terms. The solicitor’s email did not specify the period of rollover, renewal or the terms, but just asserted that it had come about as a result of the application of the 2.2% fee. Absent a clause in the agreement as entered into on 15 November 2021 to the effect that the charging of a ‘rollover fee’ has the effect of renewing the agreement for the same term and on the same conditions as the original agreement, and there is none, Care A2’s assertion does not make it so. All that the solicitor’s email of 23 June 2022 amounts to is a rejection of the offer embodied in GI 305’s letter of 31 May 2022. The failure to sign and return the deed of support reinforces the rejection of the offer.
Nor can the email be construed as some sort of counteroffer, and nor did Care A2 advance such an argument. The language used is of assertion by Care A2, and a mistaken one at that:
Given that the [rollover amount] levied against [Care A2] has resulted in what seems to be a renewal of the facility, we anticipate that [the solicitors for GI 305] are renewing the [loan] regardless of any formal documentation …
[w]e note that [the solicitors for Care A2] received loan documents and certificates which we will revert to you separately by correspondence.
In that sense, it seems clear that the debiting of the rollover fee by GI 305 as evidenced in the May 2022 loan statement was premature and anticipatory of the acceptance by Care A2 of the extension of the end date to 25 August 2022 and the offer of lender support as set out in the deed of support.
Aside from the continued inclusion of that fee in the relevant account balances for June and July 2022, there is no evidence of any other communication between the parties after the sending of the solicitor’s email of 23 June 2022 until 19 August 2022. Certainly, the loan documents and certificates had not been signed and returned.
On 19 August 2022, GI 305’s solicitor noted the assertion that the loan had been renewed and further noted that the rollover fee had been paid. In respect of the latter assertion, presumably the solicitor was referring to the payment of $107,958.05 referred to in the May statement as a ‘loan repayment’.[14] The solicitor further advised that GI 305 would proceed on the basis that the facility had been extended until 25 August 2022 by agreement between the parties, and that in the absence of signed loan documentation, GI 305 would proceed on the basis that the renewal was on the terms set out in the deed of support. The deed of support was not in fact a renewal of the facility; but rather an agreement to forbear to 25 August 2022 in respect of a default occurring on 16 May 2022, but not much turns on the inaptitude of this description. As noted above, the letter concluded by confirming that the ‘facility will expire and is due to be repaid in full on or before 25 August 2022’ and that ‘the amount of $2,248,148.14 will be due and payable to [GI 305] on 25 August 2022.’
[14]The May statement is summarised above in paragraphs [9] and [10].
The relevant question here is whether the October Notice is valid insofar as it specified a default with respect to repay the Principal on the ‘due date’, albeit without specifying the due date. On GI 305’s case, the due date was either 16 May 2022 (the initial due date under the Mortgage) or 25 August 2022 (the date stipulated in the deed of support), which meant that there was a relevant default as at the date of the October Notice.
Given that the Principal had not been repaid, the only answer to GI 305’s case is if Care A2 can establish that there was an agreement to extend the term of the loan agreement beyond 15 November 2022. I do not accept that such an agreement arose.
The debit entry rollover fee alone, even if it is considered in isolation, is equivocal at best and begs the question of the terms on which the rollover occurred.
Moreover, the argument is weakened when viewed in its relevant evidentiary context. The rollover fee was debited prematurely in anticipation of the acceptance by Care A2 of the offer made by GI 305 in its letter of 31 May 2022. The fact that such an offer was rejected by a combination of the non-execution of the deed of support and the email from Care A2’s solicitors dated 23 June 2022 simply means that there was no contractual obligation to pay the fee.
As I do not accept that the mere debiting of the rollover fee gives rise to an agreement to renew or extend on the same terms to 15 November 2022, there was no agreement to extend the repayment date to 15 November 2022.
Care A2 also argues that a further agreement was entered into between Care A2 and GI 305 to extend the repayment date to 15 May 2023.
Here, Care A2 points to the debit to its loan account effected on 26 August 2022 of the line fee of $49,173.06.
Care A2 submits that the debiting of this line fee to the loan account evinces an agreement between GI 305 and Care A2 to extend the period of the loan for a further six months, in similar effect to the argument raised in relation to the rollover fee. I do not accept this argument for similar reasons as I reject the argument about the rollover fee.
Care A2 argues that because the Fee Schedule included a ‘line fee’ payable as an ‘establishment fee’ for ‘this Agreement’, being the initial agreement, the subsequent levying of a fee means that a new agreement on the same terms comes into existence. There is no support from the terms of the original agreement, nor otherwise, for the proposition that the unilateral debit of a fee by the lender could have such effect.
In the particular context here, the proposition is weaker still. An extension for a further six months is completely at odds with the letter sent on GI 305’s behalf dated 19 August 2022, which made it clear that the facility would expire and be due for repayment in full on or before 25 August 2022. There is an air of commercial unreality about the argument that the mere imposition of a ‘line fee’ of $49,173.06 the very next day, absent any other form of communication between the parties, gave rise to an agreement to extend the repayment date for a further six months.
The ‘line fee’ is described in the Fee Schedule as being payable as an establishment fee for the agreement and in the amount of $47,902.93. Whilst this is of similar amount to the $49,173.06 which is described as the line fee in the August 2022 loan statement, how the latter sum was calculated was not explained on the evidence. GI 305 did not seek to justify the imposition of that fee in either its written or oral submissions, and Care A2 elided over the difference in the fees in much the same way as it ignored the difference between the ‘rollover’ fee and the ‘renewal/extension’ fee.
I cannot see how GI 305 had any contractual entitlement to levy that fee either, in which case, the amount designated as the closing balance as at 31 August 2022 of $2,303,401.77 is overstated.
However, this is of no consequence. The October Notice specifies as the relevant default the failure to pay the Principal (of $2,177,405.86) to GI 305 by the due date.
Whilst the $2,424,875.51 may also have been an overstatement of the amount required to be paid,[15] Care A2 accepts that a notice of default will still be valid if it does not state the amount due or overstates the amount, provided the default is correctly identified.[16] The relevant distinction is between the overstatement of an amount owed because of a correctly identified event of default as distinct from the inclusion of an act or event of default in the notice which did not exist at all.
[15]Being the total amount stipulated in the October Notice.
[16]Clare Morris Ltd v Hunter BNZ Finance Ltd (1988) 4 BPR 9609; Whild v GE Mortgage Solutions Ltd [2012] VSC 212, [39], [43] (Croft J).
Given my rejection of the submission that the term of the Mortgage agreement had been extended to 15 November 2022, it follows that the reference in the October Notice to there being a default occasioned by reason of the failure to pay the Principal in full by the due date was a correctly identified event of default. The due date was either 16 May 2022 (the initial due date under the Mortgage) or 25 August 2022 (the date stipulated in the deed of support).
The better view is that there was no agreement for a rollover or extension of the facility for the period of six months after 15 May 2022. If that is so, then the repayment date was 16 May 2022, and GI 305 unilaterally forewent taking enforcement action for a period of three months, that is, until 25 August 2022.
In the result, there was an event of default as set out in the October Notice.
In the event of a default, was GI 305 precluded from appointing a receiver?
Care A2 also submits that even if an event of default arose, the proper construction of the agreement prevented GI 305 from appointing a receiver.
Care A2 placed particular emphasis on special condition 3, which appears in the Facility Summary.
Special condition 3 reads as follows:[17]
[17]Capitalised terms are removed for clarity.
3 Payment of secured money
(a)The mortgagors warrant to the lender that they will repay the secured money due under this mortgage by way of a refinance of the mortgaged properties by not later than the payment date.
(b)If the mortgagors fail to refinance the mortgaged properties by the payment date they acknowledge and agree that an event of default has occurred under this mortgage and the mortgagors irrevocably undertake and agree to sell the mortgaged properties by taking the following steps:
(i)provide the lender an agency agreement for the auction sale of the mortgaged properties with a real estate agent approved by the lender and on terms agreeable to the lender by not later than the payment day plus [one] day;
(ii)provide the lender unconditional and unrestrictive authority to discuss the sale of the mortgaged properties with the agent including the setting of the reserve price for the auction;
(iii)hold an auction sale of the mortgaged properties by not later than the payment date [plus five] weeks;
(iv)provide the lender and its solicitors … a copy of an approved executed unconditional contract for sale of the mortgaged properties including any special conditions by not later than the payment date [plus five] weeks;
(v)release any deposit received on payment of the sale of the mortgaged properties directly to the lender or its solicitors immediately upon receipt of any such deposit;
(vi)complete the contracts for the sale of mortgaged properties not more than [three] months after the payment date failing which the mortgagors agree to provide the lender vacant possession of the mortgaged properties.
As noted above, clause 2 of the MCP provides that if any special condition contained in the Facility Summary is inconsistent with a term of the MCP, the special condition takes precedence.
Clause 20 of the MCP provides that the borrower agrees to pay the lender the Principal, together with the rest of the secured money remaining unpaid, on the ‘Payment Date’.
Clauses 41 and 42 of the MCP read as follows, under the heading ‘Default’:[18]
[18]Capitalised terms are removed for clarity.
41Any of the following shall be considered an event of default on the part of the obligors under this agreement:
(a)if any of the obligors fails to pay any money under this agreement on the due date;
(b)if any of the obligors fails to meet any obligation of any sort under this agreement;
(c) if any of the obligors:
(i) is unable to pay his/her/its debts when [they] fall due;
(ii) is deregistered, wound up or made bankrupt;
(iii)has a receiver, receiver and manager, liquidator, provisional liquidator or administrator appointed or is declared bankrupt;
(iv)takes any step to enter into any compromise or scheme of arrangement with his, her or its creditors; or
(v)is a corporation which ceases or threatens to cease business or otherwise acts in a fashion likely to materially impair its ability to meet its obligations under this agreement.
(d)if any obligor repudiates that obligor’s obligations under this agreement or alleges that this agreement is void in whole or part;
(e)if any encumbrance held by a third party over any of the mortgaged properties becomes enforceable;
(f)if any writ or levy is recorded or made against any of the mortgaged properties or any real estate forming part of the charged property;
(g)if any of the mortgaged properties or any real estate forming part of the charged property is confiscated, resumed, forfeited or the subject of an application to designate the same as proceeds of crime;
(h)if, in the lender’s reasonable opinion, the obligors are certain to default with respect to any one or more specified obligations under this agreement; or
(i)if the lender reasonably forms the opinion that the value of the mortgaged property has fallen materially below the amount necessary to secure adequately (without recourse to any other part of the charged property) the obligations of the mortgagor under this agreement.
42If an event of default occurs, the lender can choose to take one or more of the following actions without needing to give any advance notice (save as required by law):
(a) take possession of any or all of the mortgaged properties;
(b) lease the mortgaged properties;
(c) sell the mortgaged properties;
(d)appoint a receiver over any or all of the assets of any obligor that is a corporation;
(e)by written notice accelerate payment of the secured monies such that the secured monies are payable as specified in the said notice;
(f) sue for the secured money or any part thereof;
(g)do anything else a mortgagee can normally do in a case of default under a mortgage; and/or
(h)enforce the lender’s interest in any or all of the charged property.
Clause 45 also provides that if the lender appoints a receiver, the receiver will be deemed to be the agent of the company over whose assets the receiver has been appointed, notwithstanding that the receiver will be instructed by the lender. Clause 50 provides that nothing the lender says or does shall be deemed to waive any rights of the lender, unless the lender expressly says so in writing.
Care A2 submits that there is an inconsistency between special condition 3 of the Facility Summary and clause 42 of the MCP, and that by reason of clause 2 of the MCP, special condition 3 prevails.
Accordingly, Care A2 submits that as it had failed to refinance the Mortgaged Property by the (extended) payment date of 15 November 2022 or 15 May 2023, GI 305’s right to, inter alia, appoint a receiver under clause 42 of the MCP is displaced and that in the event of default, the regime set out in special condition 3(b) applies, that is, Care A2 would agree to sell the Mortgaged Property and to that end would provide GI 305 with both visibility and effective conduct of that auction sale.
The submission advanced at trial was that there is an inconsistency between special condition 3(b) and clause 42, such that special condition 3 prevails. I do not accept that there is such inconsistency. The agreement must be read as a whole. There is nothing inconsistent between a further obligation imposed on the borrower by special condition 3 and the rights given to the lender by clause 42 of the MCP. Whilst the lender may in practice be willing to defer the exercise of its clause 42 rights, in the event that the borrower in fact adheres to the further obligation imposed by special condition 3, the fact that a different outcome follows from the lender’s choice does not make the provisions inconsistent, any more than an inconsistent outcome follows depending on the choices the lender makes as to the various options in clause 42 (for example, between leasing the Mortgaged Property and selling it).
In effect, Care A2 submits that there is a term implied into the agreement to the effect that GI 305 would not exercise its right to appoint a receiver under clause 42 of the MCP without first giving Care A2 the ability to sell the Mortgaged Property at auction.
Whether such an implied negative covenant arises is a question of construction of the underlying agreement, which must be determined having regard to the terms of the agreement as a whole.[19]
[19]Re Media, Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379, 386–7 (Mason CJ, Brennan, Dawson, Toohey, Gaudron and McHugh JJ); Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd & Ors (2008) 249 ALR 458, 480 [85] (French, Jacobson and Graham JJ).
Of course, that process of construction will require the determination of the rights and liabilities of the parties objectively by reference to the text of the agreement, its context and purpose.[20] In determining the meaning of the terms of the contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean, which enquiry will require consideration of the language used by the parties, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.[21]
[20]Mount Bruce Mining (n 13) 116–7 [46]–[52] (French CJ, Nettle and Gordon JJ).
[21]Ibid.
The construction process may, if an expression in the contract is ambiguous, include consideration of surrounding circumstances mutually known to the parties. However, evidence of surrounding circumstances cannot be introduced to contradict its plain meaning.[22]
[22]Ibid.
In the present case, Care A2 submits that the process of construction should have regard to the desire of Care A2 to list on the Australian Stock Exchange (the ‘ASX’). To that end, Care A2 sought to rely upon a media release issued 9 July 2022, which recorded approval by the ‘United States Food & Drug Administration’ for Care A2 to deliver up to 4.8 million tins of its infant formula into the US.
This media release can be put to one side; it post-dates the entry into the agreement; there is no evidence that the press release was seen by any representative of GI 305 at all, much less prior to the agreement, and its overall relevance to the process of construction is far from clear in any event. The same applies to the second document relied upon by Care A2, which is a put option agreement apparently dated 22 December 2020 between Care A2 and two unidentified businesses, one registered for business in the British Virgin Islands and the other registered for business in Wyoming (presumably the US), by which Care A2 agreed to accept a $50 million put option on the terms set out in the option deed. Whilst the put option does precede the Mortgage agreement, and does reference a possible listing on the ASX of another company, not Care A2, but a company which resulted from a ‘transaction, amalgamation, merger, arrangement or other transaction involving [Care A2] and an existing company listed on the ASX’, there is no evidence that this put option agreement was something that a representative of GI 305 was aware of prior to the entering into of the Mortgage agreement, much less as to how it would inform the necessary process of construction of the agreement. Accordingly, the put option agreement should also be put to one side.
It is important, however, to recognise that the Mortgage agreement constituted an agreement between a lender and a borrower which, among other things, conferred upon the lender specific rights in the event of a default by the borrower. In that context, one would expect that any delimitation on the rights of the lender to take action in the event of a default would be specified with precision.
I do not accept that special condition 3 operates so as to restrict the rights of GI 305 in the event of default. There is no reference in special condition 3 or otherwise to any limitation or displacement of the rights that attend to the lender on default. Further, clause 50 of the MCP requires any waiver of the lender’s rights to be expressly stated in writing. There is nothing which can be construed as an express waiver of the lender’s rights under clause 42. In fact, special condition 3 contains no words of limitation, much less obligation or restraint imposed on the lender at all. In contrast, the special condition contains a promise on the part of Care A2 as to what Care A2 will do in the event that it fails to refinance the Mortgaged Property by the payment date. Far from imposing any fetter or restraint on the rights of the lender, special condition 3 does no more than establish a further obligation on the part of the borrower.
Importantly, that obligation extends to providing the lender with an agency agreement between the borrower and a real estate agent approved by the lender, on terms agreed by the lender, by not later than the payment date plus one day; and holding an auction sale of the property by not later than the payment date plus five weeks.
Given that I have rejected the contention of Care A2 to the effect that the term of the agreement was extended to 15 November 2022, and instead the repayment date was 16 May 2022, or at the latest given GI 305’s forbearance, 25 August 2022, it follows that Care A2 did not in any event comply with the further obligation imposed upon it by special condition 3(b)(i) or 3(b)(iii).
On the more favourable view to Care A2 that the extended repayment date was 25 August 2022, special condition 3(b) required, inter alia, Care A2 to sign an agency agreement by 26 August 2022 and to hold an auction sale of the Mortgaged Property by not later than five weeks after that date. It did not do either of those things. Even if Care A2’s construction is correct and the lender’s rights under clause 42 must give way to special condition 3(b)(i), then I do not accept that the deferral is such that the lender’s rights are limited to an action for specific performance of special conditions 3(b)(i) and (iii). At best, any deferral of rights is contingent on Care A2 acting in accordance with special conditions 3(b)(i) and (iii), which it did not do. Had it done so, then regardless of questions of construction, at a practical level GI 305 may well not have taken any steps to appoint a receiver over the Mortgaged Property. I note in any event, it did not seek to do so until 2 December 2022.
It follows therefore that I reject Care A2’s submission to the effect that GI 305 was not entitled to appoint a receiver to the Mortgaged Property because of a purported inconsistency with special condition 3(b) of the Facility Summary.
Damages for trespass
In the circumstances, it is not necessary to address Care A2’s claim that it is entitled to substantial damages for trespass arising as a result of the Receiver taking possession of the Mortgaged Property. However, as the matter was addressed in submissions, I will deal with it, in case I am later held to be wrong in relation to the conclusions above.
Care A2’s claim for substantial damages for trespass was neither pleaded nor referred to in its written submissions filed in advance of trial. The claim was first adverted to in oral submissions made at the hearing, and then supplemented by later written submissions in accordance with leave granted at the hearing. In the written submissions, Care A2, whilst maintaining the claim advanced orally for substantial general damages in respect of the trespass, also advanced a claim for aggravated damages for the persisting trespass arising by reason of the appointment of the Receiver.
Because the claim was neither pleaded nor adverted to in pre-trial written submissions and only briefly addressed in oral submissions, it was not entirely clear as to whether the claim was brought against GI 305 and the Receiver, or against the Receiver alone. Given that there is no basis to allege that GI 305 itself, other than by the Receiver, entered into possession of the land, I shall make the same assumption as the defendants did, which is that the claim for damages for trespass is brought against the Receiver alone. Some support for this characterisation is derived from Care A2’s post-trial written submissions on damages for trespass, which refer to Harold Meggitt Ltd v Discount & Finance Ltd (‘Harold Meggitt’),[23] a case involving trespass by an invalidly appointed receiver. Relevantly, as noted above,[24] the MCP provides that if the lender appoints a receiver, the receiver will be deemed to be the agent of the borrower. This provides further support for an interpretation of the claim as one brought against the Receiver alone.
[23]Harold Meggitt Ltd v Discount & Finance Ltd (1939) 56 (WN) (NSW) 23.
[24]See above [67].
The defendants oppose leave being granted to advance a claim which had not been pleaded, nor addressed, in any of the evidence filed. The defendants submit that had they been on notice of such a claim, the Receiver may well have applied for relief from liability under s 419(3) of the Corporations Act 2001 (Cth) (the ‘Corporations Act’). Section 419(3) entitles a person, who has been purported to be appointed as a controller in respect of property and who has entered into possession of the property, to relief in respect of any liability that would not have been incurred had the controller been properly appointed. Relief from liability can only arise if the Court is satisfied that the controller believed, on reasonable grounds, that the controller had been properly appointed.
I accept that had the Receiver been on notice of the claim now advanced, he would have sought to invoke s 419(3) of the Corporations Act. Given that such relief requires evidence to be given by the Receiver, which has not been adduced in the proceeding, I accept that granting Care A2 leave to advance the further unpleaded claim in the circumstances may well work to the prejudice of the Receiver. Accordingly, I would not allow Care A2 to advance a claim for damages for trespass.
Had such a claim been open, and had the Receiver not been validly appointed contrary to my earlier conclusion, I accept that the elements of the claim have been made out.
A trespass to land occurs where a trespasser enters upon another’s land without the express or implied authority, licence or consent of the owner and without some other lawful excuse.[25]
[25]See Halliday v Nevill (1984) 155 CLR 1, 10 (Brennan J).
Although Care A2 adduced no evidence relevant to its claim for damages for trespass, including as to the Receiver in fact taking possession, which has importance in relation to the quantification of any such award, in paragraph 15 of the statement of claim, Care A2 pleads that, on or about 16 December 2022, the Receiver entered into possession and/or assumed control of the land and the personal property at the land and changed the locks to the factory on the land. Shortly prior to trial, the solicitors for the defendants served a defence which, for unexplained reasons, was in the name of GI 305 only, notwithstanding that it was signed by solicitors and counsel who acted on behalf of both defendants. In the defence, GI 305 admitted that allegation. As the defence was filed on behalf of GI 305 only, the admission only binds GI 305, however in circumstances where the Receiver has not filed a defence, its failure to plead to the allegation constitutes a deemed admission with the effect that there is a relevant admission of the taking of possession made by both defendants.
Aside from the admission on the pleadings, there is no evidence however which addresses the consequences of the Receiver taking possession of the Mortgaged Property. I do not accept that the media release issued on 9 July 2022 is of assistance to Care A2,[26] including because it does not permit any relevant inference to be drawn as to what activities Care A2 was engaged in as at 16 December 2022, at the Mortgaged Property or otherwise. Nor do I accept that the assertion by Care A2’s solicitors in their letter to the Receiver dated 14 December 2022 to the effect that Care A2 ‘is currently attending to an IPO to become a publicly listed company’ on the ASX establishes that as a fact, including in circumstances where it is contrary to the put option agreement dated 22 December 2020,[27] and overall, where Care A2’s apparent inability to either pay out or refinance a secured debt of under $3 million is at odds and difficult to reconcile with an imminent listing on the ASX and the shipping of substantial quantities of infant formula to the US. In any event, it was well open to Care A2 to adduce evidence as to the adverse consequences of the Receiver taking possession of the Mortgaged Property. It did not do so. In the result, there is no evidence of any cogency as to the adverse consequences which followed from the Receiver taking possession of the Mortgaged Property.
[26]See above [75].
[27]See above [76].
The submission that the Court should still award substantial damages for trespass, notwithstanding the absence of evidence of loss, is said to be supported by the proposition that a plaintiff in such circumstances is entitled to substantial damages in vindication of the right to exclude a defendant from property of the plaintiff, notwithstanding the absence of establishment of actual loss.[28]
[28]Plenty v Dillon (1991) 171 CLR 635, 639, 645 (Mason CJ, Brennan and Toohey JJ); TCN Channel Nine Pty Ltd v Anning (2002) 54 NSWLR 333, 365 [178] (Spigelman CJ).
However, the circumstances of each of the cases relied upon by Care A2 and the relevant observations in the judgments relied upon must be placed in context.
As Edelman J noted in Lewis v Australian Capital Territory:[29]
Nothing in either set of reasons in Plenty v Dillon required that the substantial damages to which Mr Plenty was entitled should be an amount which was fixed for the violation of his rights without reference to any of the consequences of the trespass. To the contrary, the reference by Gaudron and McHugh JJ to the sense of injustice felt by plaintiffs such as Mr Plenty was to the consequences of the tort to Mr Plenty and within the community. Indeed, after the case was remitted to the Supreme Court of South Australia the damages were assessed at $122,000, which was comprised of $100,000 for a depressive illness suffered by Mr Plenty as a consequence of the trespass, together with other consequential awards including aggravated damages, for the distress and humiliation Mr Plenty suffered, and exemplary damages, for the ‘contumelious disregard’ of the right held by Mr Plenty and the ‘sense of injustice’ to which Gaudron and McHugh JJ referred.
[29]Lewis v Australian Capital Territory (2020) 271 CLR 192, 251–2 [161] (Edelman J) (emphasis added) (citations omitted).
The absence of such evidence also distinguishes this case from Harold Meggitt.[30] In that case, there was evidence that the receiver took possession of the mortgagor’s assets and in addition controlled and supervised the mortgagor’s business. The main issue in the case was whether the power of appointment conferred power on the receiver to act as receiver and manager, or receiver only. The judge held that the deed of appointment conferred only the powers of a receiver, and not receiver and manager. In that context, the judge observed that it was a most serious invasion of a person’s rights if possession of assets and the management and control of the person’s business is taken out of their hands, even for a short period, without legal justification. Here, it is not controversial that the appointment was limited to that of receiver of the Mortgaged Property alone, not receiver and manager. In any event, as noted above, there is no evidence from any officer of Care A2 as to the consequence of such trespass. In that respect, I obtain only limited assistance from the cases relied upon.
[30]See above n 23.
Whilst the burden of authority is to the effect that nominal damages are not appropriate, the absence of any evidence as to the consequences of the Receiver taking possession is such that had it been necessary to do so, I would have fixed damages at no more than $10,000.
Conclusion
Care A2’s claim is dismissed. I shall hear the parties as to costs.
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