Clarke St Pty Ltd v Nambawan Finance Pty Ltd
[2022] VSC 200
•6 April 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S CI 2022 00891
| CLARKE ST PTY LTD (ACN 625 455 861) & ORS | Plaintiffs |
| v | |
| NAMBAWAN FINANCE PTY LTD (ACN 607 167 233 & ORS | Defendants |
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JUDGE: | Elliott J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 April 2022 |
DATE OF JUDGMENT: | 6 April 2022 |
CASE MAY BE CITED AS: | Clarke St Pty Ltd v Nambawan Finance Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2022] VSC 200 |
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INTERLOCUTORY INJUNCTION – Secured loan agreement – Mortgaged property – Principal repaid – Other amounts claimed disputed – Notice of default – Mortgagees’ agent in possession – Application to restrain imminent auction – Penalties – Serious question to be tried – Balance of convenience – Adequacy of damages – Delay – Undertaking to the court of further security to be proffered – Injunction granted on condition money paid into court.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D J Williams QC Mr A Herskope | Welner Lawyers |
| For the Defendants | Mr C Moller | Norton Rose Fulbright |
HIS HONOUR:
BackgroundA.
This case involves the enforcement of securities provided under a loan agreement entered into in April 2020 for the sum of $10,508,400 (“the Loan Agreement”). The lender under the Loan Agreement is not the entity seeking to enforce the securities encapsulated in the Loan Agreement that are the subject of subsequent agreements, the detail of which is unnecessary to set out for present purposes. It suffices to say that the defendants, having been assigned rights under the Loan Agreement, now seek to enforce securities provided by the second and third plaintiffs.
There is no issue that pursuant to the Loan Agreement the principal has been repaid in full. There is an issue, however, as to the amount of interest outstanding, and there are numerous fees and charges that the defendants claim they are entitled to charge and have not been paid.
One of the properties the subject of a mortgage to secure the loan is lot 1 R, 209 Bay Street, Brighton, which is a commercial property (“the Bay Street Property”). The second plaintiff, who provided a guarantee for the purposes of the Loan Agreement, is the registered proprietor. It is scheduled that the property be sold by the agent for the mortgagee this Friday, 8 April 2022. The Bay Street Property is not tenanted.
The second property the subject of a mortgage under the Loan Agreement is apartment 507, 165-167 Gladstone Street, South Melbourne, which is a residential apartment. At the time of hearing, there was no evidence that this property was subject to any scheduled auction process. On 18 November 2021, a notice to vacate was served on the then tenants of the apartment, who vacated on or about 19 February 2022.
A statement of claim in this proceeding has been filed. The issues raised are of narrow compass. Essentially, the plaintiffs seek to challenge the validity of a notice of default served as far back as 22 September 2021. They do so on the basis that they claim that an amount in excess of amounts actually owing was tendered earlier in September 2021 and that the amounts claimed in the notice of default amount to penalties.
Specifically, it is alleged in the statement of claim that the notice of default was and is invalid in that it required payment of:
(1)Interest at a higher rate, the imposition of which by the Loan Agreement is not a genuine pre-estimate of any loss which might be occasioned by reason of default and which thus constitutes a contractual penalty.
(2)A late repayment fee purportedly payable pursuant to clause 11.4(b) of the Loan Agreement, which clause is unenforceable as it constitutes a contractual penalty.
(3)Termination fee interest purportedly payable pursuant to clause 8.1(d) of the Loan Agreement, which clause is unenforceable as it constitutes a contractual penalty.
(4)Legal fees which purportedly were incurred by the defendants as a consequence of the alleged default but which were not properly so incurred by reasons of the matters set out in sub-paragraphs (1) to (3) above.
I note in passing that the evidence before me was not entirely clear concerning exactly how much interest was owing as at September 2021 at what the plaintiffs contend was the applicable rate of interest. The plaintiffs have been seeking to make a payment with respect to all outstanding amounts under the Loan Agreement from as early as 23 July 2021, when the sum of $513,190.54 was offered. This was based on the calculations set out in a letter of that date. This amount was ultimately paid in December 2021.
Returning to the fees the subject of the plaintiffs’ claims, they are significant. In a letter sent by the defendants’ solicitors on 11 October 2021, in addition to claiming the higher rate of interest by reason of the alleged default under the loan agreement, the defendants claimed a late repayment fee of $208,708.50 and termination interest of $320,177.80.
Since that time there has been a considerable increase in the amounts claimed based on fees related to enforcement and the like. As at 1 April 2022, the amount claimed is nearly $1,500,000. Relevantly, the agent for the mortgagee has now incurred fees, some of which are ongoing. The undisputed evidence is that in preparation for the auction of the Bay Street Property, a vendor’s statement and contract of sale for the Bay Street Property were prepared. During the preparation of the vendor’s statement, it became apparent that the second plaintiff had not paid certain outgoings for the Bay Street Property, with arrears totalling $28,445.59, some of which had not been paid since 30 June 2020. A breakdown of those fees was given in the evidence. In addition, advertising costs have been incurred by the agent for the mortgagee in the sum of $9,437.85.
Postponing the auction will give rise to further costs, namely, obtaining an updated valuation for the sale at a later date (estimated at $3,366), any additional land tax on the Bay Street Property, and outgoings which continue to accrue at the rate of an owners corporation annual fee of $33 per day plus interest, Bayside City Council rates of $6.92 per day plus interest and South East Water charges of approximately $5.07 a day.
AnalysisB.
There is no issue between the parties about any applicable principles in determining whether or not an interlocutory injunction ought to be granted.
These principles were relevantly clarified by the judges of the High Court forming the majority in Australian Broadcasting Corporation v O’Neill.[1] In considering whether to grant an interlocutory injunction, the court will have regard to 2 main enquiries, being:[2]
(1) Whether the plaintiff has made out a prima facie case, or there is a serious question to be tried,[3] in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief for which damages will not be an adequate remedy. The phrase “prima facie case” means “it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial”.[4]
(2) The balance of convenience; that is, whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs the injury which the defendant would suffer or be likely to suffer if an injunction were granted.[5] The likelihood or otherwise of a plaintiff suffering injury for which damages would not be an adequate remedy may also be relevant in considering the balance of convenience.[6]
[1](2006) 227 CLR 57.
[2]Ibid, 81-82 [65] (Gummow and Hayne JJ), citing Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, 622-623 (Kitto, Taylor, Menzies and Owen JJ).
[3]Ibid, 68 [19] (Gleeson CJ and Crennan J), 83-84 [70]-[71] (Gummow and Hayne JJ).
[4]Ibid, 82 [65] (Gummow and Hayne JJ).
[5]Ibid, 68 [19] (Gleeson CJ and Crennan J).
[6]Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2019] VSCA 318, [106] (Beach, McLeish and Hargrave JJA).
Many other enquiries may be relevant depending on the nature of the case. These include whether there has been any delay in making the application such that it ought to affect the appropriateness of ordering interlocutory relief.
Counsel for the defendants very properly accepted that there was a serious question to be tried as to whether the amounts as claimed in the notice of default might be penalties. I do not wish to express any real view about the strength or otherwise of the case in that regard, as it is likely I will be the trial judge. It suffices to say that the amounts claimed are significant, as is the difference between the competing claims for the appropriate rate of interest to be charged.
It has already been foreshadowed that in seeking to defend the claims made, expert evidence will be called. In short, the question to be tried is serious in the sense that there is sufficient substance to it such that it is likely that there will be a real contest with respect to those issues at trial.
As the injunction is being opposed by a mortgagee in possession, there are some other further matters that need to be referred to.
As a general rule, the sale by the mortgagee of mortgaged property will be restrained only if the mortgagor pays into court the full amount claimed to be outstanding.[7] However, as touched upon in Inglis v Commonwealth Trading Bank of Australia,[8] and discussed more recently by Macaulay J in Swann Road Pty Ltd v Sterling and Freeman Advisory Pty Ltd,[9] there are some exceptions to the general position.
[7]Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161, 164.4 (Walsh J, at first instance), 169.1 (Barwick CJ, with whom Menzies and Gibbs JJ agreed).
[8]Ibid, 166.3, 167.7 (Walsh J).
[9][2019] VSC 136, [5].
In Maviglia Investments Pty Ltd v BKSL Investments Pty Ltd (in liq),[10] Slattery J stated that an exception may be enlivened “where the amount claimed by the mortgagee is obviously wrong, and where there is a question as to whether the mortgagee’s power has become exercisable at all”.[11] Thus, in some instances where a default under a mortgage is alleged, it may be appropriate for a court to grant an injunction in favour of a mortgagor to prevent a mortgagee from exercising its rights or powers. Obviously, such matters are relevant to whether there is a serious question to be tried.
[10][2017] NSWSC 490.
[11]Ibid, [59]. See also Swann Road Pty Ltd v Sterling and Freeman Advisory Pty Ltd [2019] VSC 136, [24].
The facts before me presently show that these exceptions to the general rule are relevant to the court’s discretion in this case.
As referred to above, there is an issue about whether all interest has been paid, even at the lower rate. Counsel for the defendants advised the court that if the calculation was to be done as at 23 December 2021 (when the amount of $513,190.54 was actually paid), then even on the plaintiffs’ case there was a shortfall in the vicinity of an amount over $250,000.[12] Whether this is correct or not, the plaintiffs have undertaken to the court to pay into court a sum well in excess of this, namely cleared funds of $350,000. The court was informed that this can be paid immediately upon an authenticated order being made. The plaintiffs accepted that any injunction should be conditional upon such a payment being made forthwith.
[12]Some calculations were explained by the defendants’ counsel, the detail of which is unnecessary to set out.
Further to these issues relating to a mortgagor seeking interlocutory relief, in addition to providing the usual undertaking as to damages, the plaintiffs have undertaken to the court to provide second mortgage security over properties that are already the subject of first mortgages. Although there is not up-to-date evidence as to the value of these properties, the first mortgagee of those properties was only willing to lend in July 2021 at a loan-to-value ratio of 65 per cent, which means that, as at May 2021, there was approximately $1,379,000 in equity remaining in these properties. In short, whatever their current value, the proposed second mortgages are likely to provide significant additional security to the defendants.
I note that there was no evidence of any consent from the first mortgagee in relation to these properties if second mortgages were to be granted. The plaintiffs undertook to proceed to provide second mortgages regardless of whether or not the first mortgagee consents.
A trial on this matter has now been scheduled to be heard on 6 June 2022. The issues in dispute are likely to remain confined to the matters raised as part of this application. Accordingly, if the injunction is granted, it is unlikely that it will result in any significant delay in determining the issues in dispute, at least at first instance. The parties have been informed that the progress of the proceeding will be closely monitored by the court.
On the question of delay, the timing of this application is less than ideal. It comes only 2 days before the scheduled auction of the Bay Street Property in relation to matters that have been the subject of dispute since July 2021.
However, the defendants have also been content to defer enforcing what they claim are their rights as mortgagees. Any prejudice or inconvenience that might be suffered by the defendants if the injunction is granted must be seen in light of the fact that the defendants have chosen not to exercise their purported rights for many months and, relatively speaking, any further delay should be modest. Although it is accepted some costs will be wasted if an injunction is granted, the detail of which has been set out above,[13] these are also relatively modest and will ultimately be borne by the plaintiffs if the defendants are successful at trial. In short, given the additional security that is to be provided, the inconvenience to the defendants does not really go beyond not being paid moneys that they claim they are entitled to for a few months more than the many months they have already not acted in choosing not to attempt to realise on their security. Indeed, on 1 view of the evidence, the additional security offered by the plaintiffs ultimately may well improve the ability of the defendants to recover the moneys claimed.
[13]See par 10 above.
As to whether damages are an adequate remedy, obviously, if the Bay Street Property is sold, it is lost to the second plaintiff once and for all. Further, there is a real issue as to whether damages will be an adequate remedy in circumstances where all but 1 of the defendants is a trustee.[14] The defendants have not put on any evidence to address the issue as to what value, if any, any right of indemnity these trustees may have might be worth.[15]
ConclusionC.
[14]Swann Road Pty Ltd v Sterling and Freeman Advisory Pty Ltd [2019] VSC 136, [22] (Macaulay J).
[15]Although the issue was touched upon by the defendants’ counsel during argument, there was no offer from the defendants to hold the proceeds of any sale on trust until the determination of the issues in this proceeding.
In all the circumstances, adopting the approach of the Court of Appeal in
Bradto Pty Ltd v State of Victoria,[16] an injunction should be ordered as the granting of an injunction carries with it a lower risk of injustice if it turns out at trial that the injunction should not have been granted than if the court were to wrongly refuse the injunction.[17][16](2006) 15 VR 65 (Maxwell P and Charles JA).
[17]Ibid, 73 [35].
Accordingly, orders will be made substantially in the form of the draft put forward by the plaintiffs.
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