City Garden Australia Pty Ltd (subject to deed of company arrangement) as trustee for the Ming Tian City Garden Unit Trust v Gemi 130 Pty Ltd

Case •

[2024] NSWCA 139

•

06 June 2024

No judgment structure available for this case.

Court of Appeal


Supreme Court


New South Wales

Medium Neutral Citation: City Garden Australia Pty Ltd (subject to deed of company arrangement) as trustee for the Ming Tian City Garden Unit Trust v Gemi 130 Pty Ltd [2024] NSWCA 139
Hearing dates: 29 May 2024
Date of orders: 06 June 2024
Decision date: 06 June 2024
Before: Meagher JA
Decision:

1. Order that until 5pm on 26 July 2024 or until otherwise provided by further order Mr Sam Kaso as receiver and manager over the 22 lots secured by two mortgages dated 15 October 2019 and as receiver and manager over all present and after acquired property of City Garden pursuant to the General Security Deed dated 15 October 2019 be restrained from:

a. paying away moneys received or held as receiver and manager of City Garden to Gemi 130 and or Bridge Street; or

b. assigning, charging or otherwise dealing with any property, real or personal, which is held as receiver and manager of City Garden to or at the direction of Gemi 130 and or Bridge Street.

2. Order that the costs of the present application be costs in the cross-appeal.

3. Direct that, if any of the interested parties or if the receiver and manager seeks to have the terms of order (1) amended, they should provide a note not exceeding two (2) pages to the Associate to Meagher JA by 5pm on Friday 7 June 2024. That note should set out any amendments proposed and the reasons why those amendments are sought. Each other party should respond in writing by 5pm on Tuesday 11 June 2024. The Court will then deal with any such application on the papers.

Catchwords:

APPEALS – interlocutory injunction pending appeal – where properties owned by cross-appellant subject to security interest in favour of third and fourth respondents to cross-appeal as lenders – whether receiver and manager appointed by lenders should be restrained from dealing with rental income and sale proceeds of properties pending appeal – no question of principle – injunction granted until conclusion of hearing of appeal

Legislation Cited:

Corporations Act 2001 (Cth), ss 127(1)(b), 128, 129

Uniform Civil Procedure Rules 2005 (NSW), r 25.8

Cases Cited:

Correa v Whittingham [2013] NSWCA 263

Michael Hill Jeweller (Australia) Pty Ltd v Gispac Pty Ltd [2024] NSWCA 128

Texts Cited:

Nil

Category:Procedural rulings
Parties: City Garden Australia Pty Ltd (subject to deed of company arrangement) as trustee for the Ming Tian City Garden Unit Trust (cross-appellant)
Gemi 130 Pty Ltd (third cross-respondent)
Bridge Street Capital No. 2 Pty Ltd (fourth cross-respondent)
Mr Sam Kaso (receiver and manager of the cross-appellant)
Representation:

Counsel:
F Lim (solicitor) (cross-appellant)
H Somerville / M McGirr (third cross-respondent)
M W Young SC (fourth cross-respondent)
G Gee (Mr Kaso)

Solicitors:
Francis Lim Barristers & Solicitors (cross-appellant)
Summer Lawyers (third cross-respondent)
VMV Lawyers (fourth cross-respondent)
Kingston and Partners (Mr Kaso)
File Number(s): 2023/461689
Publication restriction: In accordance with an order made on 29 May 2024 under s 7 of the Court Suppression and Non-publication Orders Act 2010 (NSW), some references to selling price information in [14] have been redacted.
 Decision under appeal 
Court or tribunal:
Supreme Court of New South Wales
Jurisdiction:
Equity
Citation:

[2023] NSWSC 1498; [2024] NSWSC 22

Date of Decision:
5 December 2023; 31 January 2024
Before:
Rees J
File Number(s):
2020/128125

JUDGMENT

The application for injunctive relief

  1. This is an application for injunctive relief restraining Mr Sam Kaso in his capacity as receiver and manager over the assets of the cross-appellant, City Garden Australia Pty Ltd (City Garden, or the company), from paying away or distributing the “net proceeds of sale” of townhouses owned by City Garden, and rental income from those townhouses, pending the determination of its cross-appeal in an appeal listed for hearing on 24, 25 and 26 July 2024. Mr Kaso is named as a person affected by the orders sought, although not a party to the underlying proceedings or appeal. The other entities substantially interested in the application for injunctive relief are Gemi 130 Pty Ltd (Gemi 130) and Bridge Street Capital No. 2 Pty Ltd (Bridge Street), the third and fourth cross-respondents and secured lenders to City Garden.

  2. The appeal is brought by an incorporated legal practice, Gerrard Toltz Pty Ltd (Toltz), from the judgment against it and in favour of City Garden for $16,403,016 (City Garden Australia Pty Ltd (in administration) as trustee for the Ming Tian City Garden Unit Trust v Meng Dai [2023] NSWSC 1498 (J1); City Garden Australia Pty Ltd (in administration) as trustee for the Ming Tian City Garden Unit Trust v Dai (No 2) [2024] NSWSC 22). City Garden’s cross-appeal is relevantly from the primary judge’s dismissal of its claim to set aside a secured loan transaction completed on 16 October 2019 whereby Gemi 130 ($4,292,543) and Bridge Street ($1 million) lent $5,292,543 to City Garden.

  3. In the alternative to the injunctive relief described above, City Garden seeks an order that the “net proceeds of sale” and rent received or collected by the receiver and manager be paid into court. The granting of such relief is opposed by Mr Kaso and each of the lenders. Their respective positions overlap and are described below.

The positions of Mr Kaso and the cross-respondents

Receiver and manager (Mr Kaso)

  1. Mr Kaso notes that it is common ground between the company and the lenders that the townhouses should be sold. He was appointed for that purpose and the relief presently sought allows for that to occur. By way of background, City Garden undertook a large property development in North Rocks, NSW. The development provided for the construction of 50 townhouses. 22 have been sold and a construction loan from Westpac repaid. There remain 28 townhouses owned by the company, 22 of which are the subject of mortgages granted to Gemi 130 and Bridge Street. In addition, by a general security deed, the company gave those lenders a charge over all of its present and after acquired rights and interests in land and other property. The 22 lots are referred to as the Secured Lots. The validity of those securities is the principal issue in the company’s cross-appeal. The ownership of the remaining six lots is the subject of a dispute between City Garden and North Rocks St Pty Ltd (North Rocks St). For that reason they are referred to as the Disputed Lots. They are subject to the charge given by the general security deed.

  2. As at 3 May 2024, the receiver and manager had identified 17 lots (14 of the Secured Lots and three of the Disputed Lots) as able to be marketed and sold. Two of those are now scheduled for auction: the first, Lot 42, on 15 June 2024 and the other, Lot 16, on 22 June 2024. The likely time for completion of those contracts is six weeks, such that the first sales might be expected to be completed and funds received around the time the appeal is heard. No other sale dates have yet been fixed.

  3. Mr Kaso opposes the interlocutory relief sought for the following reasons. First, it would interfere with his sale of the lots by preventing rent collected from being used to pay the costs of holding, preserving, preparing for sale and selling the lots. (That rent is currently about $60,000 per month.) Secondly, the relief would prevent the distribution of the “net proceeds of sale” to the lenders in partial discharge of their registered mortgage. That partial discharge would need to be obtained before the sale of the relevant lot could be completed. Thirdly, the injunctive relief sought makes no allowance for payment of the ongoing costs and liabilities incurred by the receiver and manager in preparing the properties for sale. Nor does it make any allowance for the general costs of the receivership or payment of Mr Kaso’s remuneration. To date he has incurred approximately $165,000 in legal costs and disbursements and $170,000 in remuneration for performance of his duties and those of his staff.

  4. The second of these matters may be put to one side in view of the concession made in argument by the lenders (Bridge Street expressly for itself and on behalf of Gemi 130) that the fact of registration of the mortgages would not be used to frustrate the sale process pursued by the receiver and manager.

Gemi 130

  1. Gemi 130 also opposes the relief sought. First, for the same reasons as are advanced by Bridge Street (as to which see below at [19]), Gemi 130 does not accept that there is a serious question to be tried.

  2. Secondly, it contends that there are critical deficiencies in the form of relief sought. They include that no undertaking as to damages in the “usual” form (see Uniform Civil Procedure Rules 2005 (NSW), r 25.8) is proffered, either by City Garden or any creditor or creditors standing to gain from the success of the cross-appeal; that the lenders have registered mortgages and should not be required to give a partial discharge unless they are paid what they are entitled to from the proceeds of sale; that the relief sought does not define “net proceeds of sale”, leaving unclear whether outstanding costs and remuneration of the receiver and manager, or some part of them, may be paid upon completion of any particular sale; and that the form of relief sought would prevent the application of rental income to pay costs associated with preserving and improving the properties.

  3. Thirdly, Gemi 130 does not contest City Garden’s contention that it will suffer some prejudice or damage if the injunction sought is not granted and its cross-appeal is successful.

  4. Gemi 130’s remaining contentions address the balance of convenience and the competing rights of the parties. In short, it is said that if the relief sought were granted the damage to Gemi 130 would be considerable and, in the absence of a “secured undertaking” as to damages, it would likely be “incurable”.

  5. Specifically, and based on an analysis undertaken by Mr Cooper, a director of Gemi 130 and Gemi Investments Pty Ltd, the following matters are relied on. First, that Gemi 130 sourced the relevant funds from separate lenders under individual limited recourse loan agreements which provide that it must pay each lender “interest on its loan” whilst any part of the City Garden debt remains outstanding. That is so. However, under those standard form agreements, no moneys are payable to a lender unless there is an “Aggregate Amount Available”, in which event each lender is entitled to be paid the “Lender’s Proportion” of that amount (cll 1.1(b), 6.1). In other words, Gemi 130 has no obligation to pay interest at the “Lower Rate” (a flat ‘rate’ of either 12.5% or 16.5% per annum) unless and until specified amounts have been received and various of its costs and fees paid. The 14 copy unexecuted agreements attached to Mr Cooper’s affidavit, each for a “Lender Funding Sum”, total $5,473,967, including one for $1,000,000 from “The Gemi Principals Fund”, which according to counsel for Gemi 130 is not the means by which the Bridge Street loan was made and managed by Gemi 130. The evidence does not otherwise explain the reason for the difference between that total amount and the amount lent by Gemi 130 and Bridge Street.

  6. Secondly, it is Mr Cooper’s view that, having regard to the estimate of the net sale proceeds in the Byrons Recovery (Mr Teng) Report to Creditors of City Garden dated 29 April 2024 and his analysis of the amount due over time (which does not include all relevant costs and expenses), by 31 October 2024 the amount owing to Gemi 130 and Bridge Street will exceed the value of the townhouses. That analysis assumes that the proceeds of sale of all 28 townhouses would be available to the lenders. As such, it involves an unlikely scenario as six of the townhouses are subject to a dispute with North Rocks St and the “preliminary position” of Mr Teng, one of the liquidators and administrators of City Garden, was that North Rocks St “may have an equitable claim” to those properties. In addition, on 19 April 2024, the solicitor acting for City Garden advised the solicitors acting for Gemi 130 that his client did not dispute “the interest asserted/claimed” by North Rocks St, without specifying what that interest was.

  7. Mr Cooper then considers the position on the alternative assumption that only the proceeds of sale of the 22 townhouses are available. He does so by reference to an analysis undertaken by Mr Werry, the sole director of Bridge Street. Mr Werry’s analysis was in turn based on valuation appraisals obtained in September 2023 by Mr Teng. Using the upper-range estimate for the 22 Secured Lots of Savills, after allowing for agent’s fees and the GST payable on sale, Mr Werry concluded that the total proceeds from the sale of the 22 lots would be around $22,580,884. That estimate is to be compared with the receiver and manager’s upper-range estimate of the sale value of the 22 lots as at May 2024, which was [redacted], resulting in net proceeds, after estimated sale costs, receivership costs and ongoing costs, of [redacted]. The receiver and manager’s estimate is based on advice provided by the current selling agent. If Mr Cooper’s methodology in respect of his earlier analysis based on the net sale proceeds in the Creditor’s Report is adopted and applied using the receiver and manager’s estimate of [redacted], the amount owed to Gemi 130 and Bridge Street might exceed the value of the Secured Lots sometime after the hearing of the appeal around September 2024.

  8. Based on Mr Cooper’s evidence, Gemi 130 submits that any delay in the sale of the townhouses or in the distribution of some of the proceeds of those sales to the lenders will result in significant interest, fees and other costs continuing to accrue to the lenders, which “will likely be irrecoverable unless an undertaking [as to damages] is proffered by City Garden and appropriately secured”. It is undoubtedly correct that in the absence of repayment the amount owing will continue to rise. The loan was repayable on 15 April 2020, ie six months after the “Interest Commencement Date”. Accordingly, the only interest paid has been the prepaid interest ($582,180), which formed part of the amount advanced. Since that time interest has been accruing at the rate of 27% per annum capitalised monthly. The lenders are also entitled to a monthly “Loan Management Fee” calculated at 0.55% of the amount then outstanding and payable on the 15th day of each month (cl 5.8). Mr Cooper’s analysis shows that currently the Loan Management Fee is about $127,000 per month and that interest is accruing at more than $478,177 per month. (Those numbers may be higher because some fees and legal costs and interest on those fees and costs do not appear to be included in Mr Cooper’s analysis.)

  9. At this point, it is relevant to note that Gemi 130 and Bridge Street accept that if the judgment in favour of City Garden and against Toltz for $16,403,016 were to be upheld, they would have more than adequate security to recover the amount currently outstanding and the interest, fees and other costs continuing to accrue. If City Garden’s cross-appeal is allowed and the third loan transaction is set aside, it will also be necessary to revisit the equitable compensation awarded in favour of City Garden against Toltz, which may not be justified solely by reference to 75% of the then current indebtedness of City Garden.

  10. Mr Cooper says that as a “bridging lender” the Gemi group, a member of which is Gemi 130, albeit one established for the sole purpose of “lending funds to City Garden”, is suffering ongoing damage by being denied the opportunity to deploy surplus funds received from the repayment of the City Garden loan to “meet existing liabilities” and “pursue further business opportunities”. It is said that the longer that loan remains unpaid, the longer the funders who lent money to Gemi 130 “continue to lose valuable opportunities to make other investment choices”. Of course, for so long as the Gemi 130 loan remains fully secured by reason of the registered mortgages and charge, including over the Toltz judgment debt, the lenders will receive a return by way of interest and management fees in excess of 33% per annum compounding monthly.

  11. Finally, Gemi 130 submits that in circumstances where the lenders may already be owed more than the value of their underlying security and City Garden is “hopelessly insolvent”, the “usual” undertaking as to damages should be given and should be secured. It is suggested that security could be given by Mr Liang, the other director of City Garden. Two companies owned or controlled by Mr Liang are creditors of City Garden, each for an amount in excess of $26 million, they being NCC Fashion Group Pty Ltd (NCC Fashion) and Rose Ives Pty Ltd (Rose Ives). By two funding deeds, each dated 29 February 2024, Mr Liang and NCC Fashion agreed to pay $160,000 towards the remuneration of the liquidators and retention of an independent lawyer to advise the liquidators in relation to the current litigation. Mr Liang and NCC Fashion also agreed to provide a bank guarantee to cover the liquidators’ liability for an adverse costs order in the appeal. In April 2024, consent orders were made for the provision of security for costs in the cross-appeal in the amount of $110,000. That security was provided by a bank guarantee issued by the Commonwealth Bank which records the Court as favouree and Rose Ives as customer. Given City Garden’s parlous financial position, Gemi 130 submits that Mr Liang, either by himself or his companies, should be required to secure any undertaking as to damages as a condition of the grant of any injunctive relief.

Bridge Street

  1. Bridge Street also opposes the interlocutory relief sought by City Garden. First, it does not accept that there is a serious question to be tried, noting that City Garden had not yet filed its written submissions in the appeal. It describes the prospects of the cross-appeal as “very low”. It has adopted the same position as Gemi 130 in relation to whether City Garden will suffer prejudice or damage if the injunction sought is not granted, not disputing City Garden’s contentions that it will. Secondly, the refusal of City Garden to proffer any undertaking as to damages, and the absence of any such undertaking from Mr Liang or NCC Fashion, is said to weigh significantly against the granting of the relief sought. Thirdly, it contends that the company’s submission that the lenders are not prejudiced because of the “value” of the 28 townhouses is to be rejected. If the North Rock St claim is valid, only 22 townhouses may be sold for the benefit of the lenders. If the current balance outstanding including the receiver and manager’s costs and legal costs is $25,894,000, a shortfall of more than $3.3 million is likely. Fourthly, it suggests that the Court is unlikely to deliver judgment in any short period following the hearing. By that time the debt will have increased substantially, assuming no payments are made in the meantime. Fifthly, Bridge Street accepts that even if the six Disputed Lots are not available to the lenders, there will be a shortfall to the lenders only if Toltz is successful on its appeal. Finally, reference is made without further explication to “likely substantial losses to the lenders suffered by the delay in receiving their money”. If Bridge Street were to receive such moneys, it is said they could use them towards loans “and earn an interest at the rate of not less than 2% per month”.

  2. At this point it is convenient to set out the relevant principles and then to consider, in turn, the “serious issues for determination” question and the balance of convenience and the competing rights of the parties.

Relevant principles

  1. There was no controversy between the parties as to the applicable principles. As Payne JA recently observed in Michael Hill Jeweller (Australia) Pty Ltd v Gispac Pty Ltd [2024] NSWCA 128 at [5]:

“The principles governing the grant of a stay pending an appeal are well-settled, as the parties on this application agreed. They are analogous to those which govern the grant of interlocutory relief before trial: Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 at 694-5, Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 at [18]. A party applying for a stay must show, first, that the appeal raises serious issues for determination by the appellate court; and secondly, that there is a real risk that the appellant will suffer prejudice or damage if the stay is not granted. If an appellant prevails on those two questions, then the Court is to consider the balance of convenience and the competing rights of the parties: Pamplin v Irwin [2024] NSWCA 112 at [11] per Leeming JA.”

Serious issues for determination

Factual context in which issues arise

  1. Mr Liang first became an investor in the development project in August 2016 and, in July 2017, he became a director of City Garden. By that time he was the majority shareholder in the company, the directors of which were Mr Dai and Mr Liang. Mr Dai’s wife, Ms Zhu, had previously been a director of City Garden but ceased to hold that position in August 2016. The present dispute concerns three loans obtained by Mr Dai, each of which was undertaken without Mr Liang’s knowledge and approval. The first and third were loans to City Garden, and the second was secured by that company. The funds from the first ($2 million) were advanced to Ming Tian Real Property Pty Ltd (in liq) (MTRP), the building company controlled by Mr Dai which undertook the property development. The funds generated by the second loan were used to repay the first, and the funds generated by the third were used to repay the second. The issue in the cross-appeal is whether the third loan and its security are enforceable. The relevant loan agreement, mortgage and general security deed were signed on behalf of City Garden by Mr Dai as director and Ms Zhu as company secretary. In fact, Ms Zhu was not validly appointed as company secretary. Accordingly, Corporations Act 2001 (Cth), s 127(1)(b) was not satisfied in relation to the purported execution of those documents.

  2. City Garden sought to set aside the three loan transactions on the basis that Mr Dai had no authority to enter into those transactions without Mr Liang’s agreement as the other director of City Garden. At J1[101]-[107], the primary judge observed that cl 11 of City Garden’s constitution was in the same terms as Corporations Act, s 198A. Whilst not conferring authority on a single director, directors could nevertheless make ‘informal’ decisions by a “meeting of minds”, which would have the effect of a resolution passed at a duly convened meeting. City Garden sought damages from Mr Dai for breaches of his duties as a director under ss 180, 181 and 182 of the Corporations Act, as well as breaches of his fiduciary duties, with respect to the entry into the three transactions. In relation to those breaches, the primary judge made a compensation order in favour of the company against Mr Dai under Corporations Act, s 1317H(1) in the amount of $20,264,043.61. The primary judge also held that Toltz had breached its fiduciary duties to the company in acting in the first transaction for it as well as the lenders; and ordered that Toltz pay equitable compensation in an amount of $16,403,016, being 75% of City Garden’s then indebtedness to the ‘third round’ lenders.

Issues for determination

  1. In response to City Garden’s claim to set aside the third transaction, the primary judge held that in entering into that transaction the lenders were entitled to make the assumptions in s 129 of the Corporations Act, and in particular that each of Mr Dai and Ms Zhu had been duly appointed, the former as a director and the latter as a company secretary, and that each had authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary (J1[421]-[432]). Her Honour recorded, but did not consider or decide, the alternative ways in which the lenders maintained that the loan agreement and securities were valid and enforceable. Her Honour then dealt with the question whether the lenders had the benefit of ss 128 and 129 on the basis that Mr Dai did not have actual authority to enter into the third transaction on behalf of the company; that Ms Zhu had not been validly appointed as company secretary; and that Mr Liang could not be said to have impliedly ratified any decision of Mr Dai to make that appointment where he did not have full knowledge of the material facts as to why Ms Zhu had been appointed or as to what she had been doing as company secretary (J1[420]).

  2. The grounds of cross-appeal identified as relevant for the purposes of the present application are grounds 25 to 34. Ground 28 misstates her Honour’s conclusion at J1[423] and ground 34 does not add anything to the grounds which precede it. Ground 33 assumes that the primary judge expressed a conclusion in the last sentence of J1[416], whereas this paragraph appears only to record a contention of Gemi 130 which was not otherwise dealt with.

  3. The remaining grounds concern three of the requirements for the application of ss 128 and 129 of the Corporations Act. The first (the subject of ground 26) is that the person seeking to rely on the assumption must be engaged in “dealings with a company”(s 128(1)).

  4. The second requirement is that the information upon which an assumption may be made concerning a director or a company secretary must be “information provided by the company that is available to the public from ASIC”. Grounds 25 and 27 make an argument which turns on earlier findings made by the primary judge directed to whether the relevant information under s 129(2) was “provided by the company”. That argument would appear to include that the completion and lodging of the Form 484 by the company’s former registered agent, SSA Tax Services Pty Ltd trading as “Smart Wealth Advisors” (SWA), on 8 November 2018 was not authorised by a meeting of directors (contrary to the evidence of Mr Dai and Ms Zhu, which was rejected). Whilst SWA was in general terms authorised to lodge documents on the company’s behalf, it was not authorised to complete a Form 484 by inserting information as to the outcome of a directors’ meeting which had not occurred. It is not clear that this argument was made to the primary judge (cf J1[239], [240]).

  5. The third requirement is that a person is not entitled to make an assumption under s 128 in respect of a matter in s 129 if at the relevant time that person “knew or suspected” that the assumption was incorrect (s 128(4)). The application of this exception is the subject of grounds 29, 30, 31 and 32. The underlying argument directs attention to the primary judge’s factual findings as to the actual knowledge of the lenders. City Garden appears also to rely on the imputation of knowledge of the lenders’ solicitor, Mr Toltz, to the lenders, a question considered by Gleeson JA in Correa v Whittingham [2013] NSWCA 263 at [168(d)].

  6. At the outset of her reasons, the primary judge observed (at J1[7]) that resolving the company’s claims “is no easy matter”, the series of transactions being on any view complex, the various witnesses proving to be unreliable, and the informality of the arrangements leading “to what could fairly be described as a mess”. Against this background, and in circumstances where I have very limited written and oral submissions directed to identifying and explaining the arguments to be made in support of these grounds, I am satisfied that the cross-appeal raises as a serious issue for determination by this Court whether the lenders, whose personnel were also involved in the earlier loan transactions, were entitled to rely upon the assumption in s 129(2)(a) of the Corporations Act.

Balance of convenience

  1. The principal questions which arise are directed to the form of any injunctive relief which might be granted and whether that relief should be granted in circumstances where no undertaking as to damages is proffered, let alone an undertaken that is supported by security.

  2. The subject matter of the relief sought is moneys received and to be received by Mr Kaso from the sale of the Secured Lots and Disputed Lots or as rental income from the letting of those properties. The latter is currently approximately $60,000 per month. At the present time none of that rental income has been paid to Gemi 130 or Bridge Street in partial discharge of any outstanding interest or loan management fees. Rather, it is being used by the receiver and manager to pay costs and expenses in relation to the holding, improvement, marketing and sale of the townhouses. That expenditure is necessary to enable the realisation of the “best market value” of the townhouses, an endeavour which all of the interested parties agree should be undertaken. At the same time, the receiver and manager is also incurring expenses, including legal costs, and earning remuneration (for work undertaken by him and members of his staff) in the conduct of a receivership, the focus of which is the sale of the townhouses. Those expenses and obligations are being incurred for the benefit of the company and its lenders. There is no reason why an injunction, if granted, should prevent the receiver and manager from being reimbursed or remunerated for activities he is conducting for the benefit of all interested parties.

  3. The first income from the sale of the properties will not be received, assuming the sales proceed as currently proposed, until around 26 July 2024, the last day scheduled for the hearing of the appeal. The second sale will likely settle around 2 August 2024. The evidence is that the receiver and manager intends to sell the available units in “tranches” of two or three, staggered over a period of two to three weeks. The period in which there might be no sales between each tranche is not clear on the evidence. What is clear, however, is that the commencement of the second tranche of sales is not likely to result in settlements before early to mid August 2024.

  4. Turning to the interests of the lenders, it is likely on the evidence that their security interests in the Secured Lots will not over time generate sufficient moneys to enable the full repayment of City Garden’s liability. That is principally because the outstanding balance will continue to accrue interest and fees at a combined annual rate of 33.6% compounding monthly. That their security interests will prove sufficient becomes more probable if that security interest includes the full value of the six Disputed Lots, although this appears unlikely.

  5. What is not controversial is that City Garden currently has a judgment against Toltz in the amount of $16,403,016, which is a property right secured in favour of Gemi 130 and Bridge Street under the general security deed. So long as that judgment remains, it is accepted that the lenders’ security would be sufficient to enable the full repayment of City Garden’s liability over time. However, I am not in a position to assess the likely prospects of Toltz’s appeal. To the extent that its appeal is against the findings of breach and liability, that outcome does not turn on the outcome of City Garden’s cross-appeal. However, if City Garden’s cross-appeal is allowed, then as has already observed above at [16] it may be necessary for the Court to reconsider the quantification of the award of equitable compensation.

Conclusion

  1. In these circumstances I propose to make an interim order continuing until 5pm on 26 July 2024 or otherwise provided by further order. That order will not impede the receiver and manager from continuing to apply rental income in the satisfaction of costs and expenses of the receivership incurred by him or his firm, including in relation to the preparation and sale of properties. Nor will it prevent the receiver and manager from applying any proceeds of sale in satisfaction of costs and expenses incurred by him or his firm in the course of the receivership or to satisfy any remuneration to which he may be entitled.

  2. Any question as to whether the injunction should continue in the same or different terms and whether it be subject to the provision of a secured or unsecured undertaking as to damages in favour of the receiver and manager and or the lenders will fall to be considered at that time (assuming the hearing date is not vacated), and by a Court having had the benefit of argument in the appeal and thereby being able to assess more fully the prospects of City Garden’s cross-appeal succeeding, as well as the likelihood of the lenders’ retaining a security interest in a judgment against Toltz. If the interim injunction which I propose is not continued, neither the receiver and manager nor the lenders could be said to have suffered any meaningful damage as a result of the granting of the interim injunction in circumstances where the cross-appeal is subsequently dismissed. As matters presently stand, the interim injunction will terminate either days before or after settlement of the first two sales , making it most unlikely that this injunction will cause any delay in any distribution by the receiver and manager of funds to the lenders following those settlements.

  3. It might be said that there is little or no utility in the making of the proposed interim order. However, it ensures from City Garden’s perspective that none of the rental income is distributed to the lenders and also accommodates the possibility that settlement of one or other of the first proposed sales is accelerated. These matters provide sufficient reason for the making of the interim order.

  4. Accordingly, I make the following orders:

  1. Order that until 5pm on 26 July 2024 or until otherwise provided by further order Mr Sam Kaso as receiver and manager over the 22 lots secured by two mortgages dated 15 October 2019 and as receiver and manager over all present and after acquired property of City Garden pursuant to the General Security Deed dated 15 October 2019 be restrained from:

  1. paying away moneys received or held as receiver and manager of City Garden to Gemi 130 and or Bridge Street; or

  2. assigning, charging or otherwise dealing with any property, real or personal, which is held as receiver and manager of City Garden to or at the direction of Gemi 130 and or Bridge Street.

  1. Order that the costs of the present application be costs in the cross-appeal.

  2. Direct that, if any of the interested parties or if the receiver and manager seeks to have the terms of order (1) amended, they should provide a note not exceeding two (2) pages to the Associate to Meagher JA by 5pm on Friday 7 June 2024. That note should set out any amendments proposed and the reasons why those amendments are sought. Each other party should respond in writing by 5pm on Tuesday 11 June 2024. The Court will then deal with any such application on the papers.

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Decision last updated: 06 June 2024

Most Recent Citation
Cases Citing This Decision

2

Dogra v Dogra (No 3) [2024] NSWCA 208
Toltz Pty Ltd v City Garden Australia Pty Ltd (in liq) (stay application) [2024] NSWCA 179