Commonwealth Bank of Australia Trading as BankWest v Mastronardo (No.2)
[2020] FCCA 2609
•23 September 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| COMMONWEALTH BANK OF AUSTRALIA TRADING AS BANKWEST v MASTRONARDO (No.2) | [2020] FCCA 2609 |
| Catchwords: GUARANTEES AND MORTGAGES – Whether liability of debtor to pay the “secured moneys” under guarantees debtor gave is likely to be held to have depended on the creditor first making a demand for the payment of the “secured moneys” under the terms of each guarantee – demand likely necessary – whether rights of creditor to appoint receivers over properties debtor mortgaged to creditor as security for his liability under the guarantees to pay the “secured moneys” is likely to be held to have depended on creditor first making a demand under each of the guarantees for the payment of the “secured moneys” – creditor’s rights are likely to be held to have depended on the creditor making such demands – whether by appointing receivers over the mortgaged properties purportedly pursuant to the terms of the mortgages without having first made a demand under each of the guarantees for the payment of the “secured moneys” it is likely to be held that the debtor was discharged from his liability under each of the guarantees without the debtor having to make an election that he is no longer bound by the guarantees – likely to be held that election required – whether it is likely to be held that before debtor purported to elect not to be bound by each of the guarantees the debtor affirmed his obligations under each guarantee – likely to be held that affirmation not made – whether in these circumstances it is likely to be held that the debtor has a claim against the Bank for an amount representing the proceeds of sale of the mortgaged properties sold by the receivers – likely to be held that the debtor has such claim and likely that at the trial of such claim he will succeed on such claim. |
| CONSUMER LAW – UNCONSCIONABLE CONDUCT – Whether by offering to lend additional amounts under an existing facility on particular terms the creditor is likely to be held to have engaged in unconscionable conduct – whether by appointing receivers over mortgage property the creditor is likely to be held to have engaged in unconscionable conduct – no reasonably arguable case of unconscionable conduct. |
| Legislation: Australian Securities and Investments Commission Act 2001 (Cth), ss.12BAA, 12BAB, 12BD, 12CA, 12CB, 12CC, 12GF, 12GM, Trade Practices Act 1974 (Cth), ss.51AA, 51AC |
| Cases cited: Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 Parras Holdings Pty Ltd & Ors v Commonwealth Bank of Australia [1998] FCA 682 Re Taylor Ex Parte: Century 21 Real EstateCorporation (1995) 130 ALR 723 United Australia Ltd v Barclays Bank Ltd [1941] AC 1 |
| Applicant: | COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 TRADING AS BANKWEST |
| Respondent: | ANTONIO MASTRONARDO |
| File Number: | SYG 310 of 2019 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 19, 22, 24 and 30 June 2020 |
| Date of Last Submission: | 7 July 2020 |
| Delivered at: | Sydney |
| Delivered on: | 23 September 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Dempsey SC and Mr M Rose for the applicant, by video |
| Solicitors for the Applicant: | Norton Rose Fulbright Australia |
| Counsel for the Respondent: | Mr S Golledge SC and Mr D Krochmalik for the respondent, by video |
| Solicitors for the Respondent: | William Roberts Lawyers |
| Solicitors for the Supporting Creditor, Mills Oakley Lawyers (A Partnership): | Mr C Moloney of Davies Moloney for the supporting creditor, by telephone |
ORDERS
There be set down for hearing at a date to be determined the interim application filed by Mills Oakley Lawyers (a Partnership) on 29 April 2020 for an order that Mills Oakley Lawyers (a Partnership) be substituted as a petitioning creditor and for such other orders as may be appropriate.
Costs are reserved.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 310 of 2019
| COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 TRADING AS BANKWEST |
Applicant
And
| ANTONIO MASTRONARDO |
Respondent
REASONS FOR JUDGMENT
Introduction
On 28 August 2019, after hearing a creditor’s petition presented by the applicant (Bank) against the respondent, Mr Antonio Mastronardo (Antonio), I published reasons for judgment (earlier judgment) in which I concluded the Bank established the preconditions for the making of a sequestration order, but that Antonio had a reasonably arguable claim against the Bank for the recovery of $24,390,424 (trespass claim).[1] I was not satisfied, however, that, on the material before me, and the submissions that had been made, Antonio was likely to succeed on that claim.
[1] Commonwealth Bank of Australia Trading as Bankwest v Mastronardo [2019] FCCA 2371
I therefore adjourned the creditor’s petition for a directions hearing on 12 December 2019. I did so to provide Antonio an opportunity to litigate the trespass claim in the proceeding the Bank commenced in the Supreme Court of New South Wales (Common Law proceeding) against Remo 49 Queens Road Pty Ltd (Remo 49), Antonio, and his son, Mr Carmelo Adriano Mastronardo (Adrian). Antonio, however, did not progress in any substantial way his claims in the Common Law proceeding. When the creditor’s petition came before me for directions on 12 December 2019, therefore, I set it down for further hearing for three days in February 2020. In circumstances it is unnecessary to set out, I vacated those and later dates that had been set down for the hearing of the creditor’s petition; and the creditor’s petition eventually came before me for further hearing on 19 June 2020.
At the hearing the parties, by their counsel, adduced further evidence, and made submissions, in relation to three questions.
a)The first is whether Antonio has to establish he is likely to succeed in his claims against the Bank before those claims can be regarded as a “sufficient cause” why “a sequestration order ought not to be made” for the purposes of s.52(2)(b) of the Bankruptcy Act 1966 (Cth) (Act). Counsel for Antonio submitted Antonio is not required to show he is likely to succeed in his claims against the Bank before those claims could constitute such “other sufficient cause”.
b)The second question relates to the nature and strength of two claims Antonio makes. The first is the trespass claim against the Bank as formulated is the current amended defence (Defence) and cross claim (Cross Claim) filed in the Common Law Proceeding, and the latest draft of the Cross Claim Antonio proposes to seek leave to file in the Common Law proceeding (Proposed Cross Claim).[2] The second is a claim based on unconscionable conduct as pleaded in the Proposed Cross Claim. Counsel for Antonio submitted that these claims, particularly the trespass claim, are of sufficient substance to constitute a “sufficient cause” for not making a sequestration order. The Bank submitted to the contrary.
c)The third question relates to the history of the Common Law proceeding. The Bank submits Antonio consciously did not pursue his claims in the Common Law proceeding, and that is a matter that should substantially weigh against the Court exercising its discretion not to make a sequestration order.
[2] The Proposed Cross Claim is annexed to the affidavit of J Tomaras made on 18 June 2020.
Although the evidence and submissions relate to these three questions, there is one question I must decide; and that is whether, having regard to the manner in which Antonio conducted the Common Law proceeding, the claims pleaded in the Defence, Cross Claim, and Proposed Cross Claim constitute a “sufficient cause” why “a sequestration order ought not to be made”. I propose to answer that question by proceeding as follows. First, I will set out the relevant factual background. I have already set out much of that background in the earlier reasons; but it will be convenient if I repeat in these reasons facts I set out in the earlier reasons together with additional facts that are particularly relevant to assessing Antonio’s unconscionable conduct claim. Second, I will consider the principles that regulate the exercise of the discretion under s.52(2)(b) of the Act not to make a sequestration order. Third, I will consider the merits of the trespass claim. Much of this will turn on the proper construction of the guarantees and mortgages Antonio granted to the Bank. Fourth, I will consider the merits of Antonio’s unconscionable conduct claim. Fifth, I will consider the course of the Common Law proceeding. I will then determine whether, given the findings I make about the merits of Antonio’s claims and the course of the Common Law proceeding, Antonio’s claims constitute a “sufficient cause” why “a sequestration order ought not to be made”.
Factual background
In around 2005 Antonio and Adrian became partners in a property development business. They carried on their business through Remo Corporation Pty Ltd (Remo). The two shareholders of Remo were companies. Antonio was the sole director and shareholder of one of the companies, and Adrian was the sole director and shareholder of the other. Antonio and Adrian were both directors of Remo from 2005 until around May 2008, when Antonio retired as a director. Adrian continued to be a director until July 2009 when Antonio replaced him as Remo’s sole director and secretary.[3]
[3] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [3]-[15]
From 2005 Remo, through subsidiary companies, was involved in the development of two sites, one at 49 Queens Road, Five Dock, and one at 97-99 Queens Road, Five Dock. Remo 49 undertook the development of 49 Queens Road (49 Queens Road Property), and Remo 97-99 Queens Road Pty Ltd (Remo 97) undertook the development of 97-99 Queens Road (97 Queens Road Property).[4] Antonio was the registered proprietor of both the Queens Road properties.
[4] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [17]-[22]
12 March 2007 – Bank offers finance facilities to Remo 49 and Remo 97
By letter dated 12 March 2007 the Bank offered Remo 49 a bill line facility of up to $26 million (Remo 49 Facility).[5] The letter states that “[p]articulars of the approved new facility are set out in the attached Acceptance Document”, and that the “Bank makes the new facility available on the terms and conditions in the booklet of Usual Terms and Conditions for Commercial Lending Facilities and the Schedule provided”. The “Acceptance Document” consists of two documents. The first is a document addressed to the Bank recording a request by Remo 49 for the grant of the facility, and various acknowledgments, including an acknowledgment of receipt of the “Usual Terms and Conditions for Commercial Lending Facilities” (UTC).
[5] Affidavit of Antonio Mastronardo 11.12.2019, at [22]; exhibit CB, pages 1268ff
The second document is titled “Terms Schedule”. It identifies the purpose of the facility, namely, to “assist with funding construction of a four (4) level commercial office building with parking for 298 cars at 49-51 Queens Rd FIVE DOCK NSW 2046 & repay existing Westpac debt of approximately $3,314,000.00”. It then sets out information that is required to be included by particular clauses of the UTC. (The UTC is not in evidence before me.) The items include the following information:
a)Item 3, being the “Term”. It provides for 22 months “from funding date – Facility expires 31 March 2009”, and “3 Years from practical completion or 31 March 2012, whichever is earlier”.[6] In his affidavit of 31 January 2020 Antonio explained that as “the date of final repayment of the amount advanced to 49 Queens Road was 31 March 2012 or 3 years from practical completion of the construction of the developments”, practical completion was expected to occur by 31 March 2009; and that “the regime allowed the company a 3 year period following completion of the building work to conduct a sale of the property”.[7]
b)Items 5-7, which relate to “repayments”, with a “once” only “Reductions to Face Value per annum” of $6 million due on 31 March 2009.
c)Item 13, which identifies the security required, this being the security identified in a document titled “Security Schedule”. These include a guarantee from Antonio limited to $26 million, and mortgages over the 49 and 97 Queens Road properties.
[6] Affidavit of Antonio Mastronardo 11.12.2019, at [22]; exhibit CB, page 1271
[7] Affidavit of Antonio Mastronardo 11.12.2019, at [29]
By a separate letter dated 12 March 2007 the Bank offered Remo 97 a bill line facility of up to $9 million (Remo 97 Facility).[8] It too has attached to it a document titled “Acceptance Document”. That document states that the purpose of the facility is to “assist with funding construction of a three (3) level commercial office building with parking for 87 cars at 97-99 Queens Road Five Dock NSW 2046 & repay existing NAB debt of approximately $1,695,000.00”. The document then sets out information that is required to be included by particular clauses of the UTC. This included the term of the facility, which was stated to be for 15 months of funding, and the provision of securities, which included a guarantee limited to $9 million and mortgages over the 49 and 97 Queens Road properties.
[8] Affidavit of Antonio Mastronardo 11.12.2019, at [18]; exhibit CB, pages 1259ff
2 May 2007 – Antonio executes Guarantees
On 2 May 2007 Antonio executed a deed of guarantee in favour of the Bank in which he guaranteed up to $9 million of the amount owing or which may become owing by “the Debtor”, Remo 97.[9] On the same day Antonio executed a separate guarantee in favour of the Bank in which he guaranteed up to $26 million of the amount owing or which may become owing by “the Debtor”, Remo 49.[10] (I will collectively refer to these two guarantees as “the Guarantees”.) Each of the Guarantees contained the following clauses:
3.1The Guarantor guarantees that the Debtor will pay the Secured Moneys to the Bank.
3.2Except where the Secured Moneys are payable without prior demand under clause 7, the Guarantor will pay the Secured Moneys to the Bank on demand, or so much of the Secured Moneys as the Bank specifies in its demand. However, the Bank will not make demand on the Guarantor –
(a)in the case of moneys which are payable by the Debtor on demand, before making demand on the Debtor; and
(b)in all other cases, before the Debtor has failed to pay, when due to be paid, the money specified in the demand.
[9] Affidavit of Antonio Mastronardo 31.02.2020, at [25]; exhibit CB, pages 708
[10] Affidavit of Antonio Mastronardo 31.02.2020, at [25]; exhibit CB, pages 696
3.3Subject to sub-clause 3.2, the Bank may make demand on the Guarantor at any time and from time to time. The Bank’s demand may include the interest accruing on the amount demanded from the date of the demand until payment, at the rate or rates referred to in paragraphs (h) and (i) of clause 2.
3.4Subject to clause 4 [which deals with guarantor’s right to give notice to discontinue any further liability under the guarantee], this Guarantee is a continuing guarantee and will not be considered as wholly or partially discharged by:
(a)the payment at any time by the Debtor of any of the Secured Moneys;
(b)the payment at any time by the Guarantor of any of the Secured Moneys, except where the Details state a total amount payable, and the aggregate of all amounts paid by the Guarantor equals or exceeds the total amount payable;
(c)any settlement of account between the Bank and the Debtor or between the Guarantor and the Debtor;
(d)the death or notice of the death of any person who is a Guarantor;
. . . .
(g)any other matter or thing
and will be enforceable notwithstanding that any negotiable or other instrument, security or contract may be still in circulation or outstanding.
The expression “Secured Moneys” is defined in cl.2 of each of the Guarantees to include, among other things, “all moneys . . . now or in the future owing or payable to the Bank by the Debtor”.
Relevant to one of the issues that arises is cl.11 of each of the Guarantees, which is as follows:
As a separate and independent obligation, the Guarantor agrees that any of the Secured Moneys which are not recoverable from the Guarantor on the basis of a guarantee, because of:
(a)any legal limitation, disability or incapacity on or of the Debtor or the Guarantor; or
(b)any other fact, or circumstance,
in any case whether known to the Bank or not, are nevertheless recoverable from the Guarantor as the sole or principal debtor, and will be paid by the Guarantor as if any covenant or agreement by the Debtor to pay the Secured Moneys or any part of them had been a covenant or agreement of the Guarantor.
May 2007 – Antonio applies for increase in Remo 49 Facility to $27.6 million
According to Antonio, in about May 2007 he became aware of an increase in the estimate of the construction costs of the development at 49 Queens Road compared to those which had been originally estimated. He applied to the Bank for an increase in the facility to $27.6 million, and a reduction in the principal that was to be paid “at the end of the construction phase” from $6 million to $5 million.[11]
[11] Affidavit of Antonio Mastronardo made on 11 December 2019, [25]
28 June 2007 – Antonio executes Mortgages
By two instruments of mortgage, both dated 28 June 2007, Antonio mortgaged to the Bank his interest as registered proprietor of each of the Queens Road properties.[12] (I will collectively refer to the two mortgages as “the Mortgages”.) Clause 1 of each Mortgage incorporated the provisions of the memorandum referred to in the clause (Mortgage Terms), and provided that a reference to “this mortgage” in each of the Mortgages, the Mortgage Terms, and any annexure to each of the Mortgages, “is a reference to the mortgage constituted by this mortgage form, the [Mortgage Terms] and each of those annexures”.
[12] Exhibit CB, pages 715ff and 749ff (tabs 15.12, 15.13)
The central obligations provided for by the Mortgage Terms are those contained in cl.A4.1 and cl.A4.2:
A4.Complying with this mortgage
A4.1You must pay us every Amount Owing for which you are liable at the time agreed by you, or if no time has been agreed, when we ask (which we may do on one or more occasions).
A4.2You must ensure that you are not in default under this mortgage. You must also carry out on time all your obligations under every Secured Agreement.
The expression “Amount Owing” is defined in cl.A1 to mean “all money which one or more of you owe us, or will or may owe us in the future, under a Secured Agreement and this mortgage or either of them”. The expression “Secured Agreement” is defined in cl.A1 to mean “an agreement between one or more of you and us (including a guarantee given by one or more of you) whenever made, under which you undertake to pay or repay us money, and which you acknowledge in writing to be an agreement to which this mortgage extends”. The meaning of “Amount Owing” has the extended definition given in cl.B1 of Part B of the Mortgage Terms apply; and that part applies “once you have entered into a Secured Agreement with us relating to credit where no Consumer Credit Law applies”. Antonio does not allege that any Consumer Credit Law applies to the guarantees or the mortgages he gave. That means that “Amount Owing” has the extended meaning given in cl.B1.
Next, it is necessary to consider the relevant provisions of the Mortgage Terms that deal with “default”. First, there is cl.A21, which specifies when the mortgagor is “in default”:
A21.When are you in default?
You are in default if:
(a)you do not pay on time any of the Amount Owing; or
(b)you do not keep to the other terms of this mortgage or of a Secured Agreement; or
(c)you or another Person give us incorrect or misleading information . . . in connection with this mortgage or a Secured Agreement before you sign this mortgage; or
(d)the power of sale arises under any other Security over The Property; or
(e)where Part B applies, any of the events described in clause B4 occurs.
Second, there is cl.A22 of the Mortgage Terms which provides for the consequences of the mortgagor being “in default”:
A22.What can happen then?
A22.1If you are in default, we need not make funds available under any Secured Agreement.
A22.2If you are in default and we choose to enforce this mortgage, then, except in the cases provided in clause A22.3 and A22.4(c), we give you a notice before doing so. The notice must:
(a)tell you what the default is; and
(b)require you to fix the default (if it can be fixed) within the period stated in the notice . . . ; and
(c)contain any other information the law requires us to give you.
A22.3We need not give you a notice referred to in clause A22.2 or wait for the periods specified above where we believe on reasonable grounds that:
(a)the default cannot be remedied; or
(b)we were induced by fraud to enter this mortgage or a Secured Agreement; or
(c)urgent actions is necessary to protect The Property;
or where:
(d)we have made reasonable attempts to locate you without success; or
(e)the court so orders.
Clause cl.22.5 of the Mortgage Terms is also relevant. It provides:
If we have given you a notice under clause A22.2 or A22.4 and you do not fix the default within the time allowed in the notice, or you are in default and we are not required to give you a notice, we may:
(a)decide, without further notice to you, that the Amount Owing is due and payable immediately;
(b)take possession of The Property;
(c)manage The Property;
(d)sell, lease, subdivide or improve The Property or do anything else with or to The Property that an Owner of The Property could do;
(e)do anything else the law allows us to do as mortgagee;
(f)appoint any Person or any two or more Persons jointly and separately to be a receiver to do such of the things in paragraphs (b), (c), (d) and (e) of this clause A22.5 as are set out in the receiver’s terms of appointment.
We may do any or all of the above things in any order and we may do them at any time after the time stated in the notice elapses or, if we are not required to give you a notice, at any time.
29 June 2007 – Bank offers to increase Remo 49 Facility to $27.6 million
By letter dated 29 June 2007 the Bank offered to increase the amount of the Remo 49 Facility to $27.6 million.[13] The “Terms Schedule” attached to the letter extended the construction period from 31 March 2009 to 16 May 2009, and required that the facility be reduced to $22.6 million by 16 May 2009.[14] The “Terms Schedule” also stated that the purpose of the variation was to “partially compensate for increase in the construction costs of a four level commercial office building with parking for 298 cars at 49-51 Queens Rd FIVE DOCK NSW 2048 & repay existing Westpac debt of approximately $3,500,000.00”. Remo 49 accepted the variation on 16 July 2009.
[13] Exhibit CB, pages 1278ff
[14] Exhibit CB, page 1283
August 2007 – Ashe Morgan Capital No.2 provides $5 million facility
In around August 2007 another company, Ashe Morgan Capital No. 2 Pty Limited (AMW),[15] agreed to lend $5 million to Remo 49 and Remo 97.[16] That led to AMW, Remo 49, Remo 97, and the Bank entering into a deed of priority and subordination.[17] Under that deed the parties agreed that the “Senior Securities”, which included the Mortgages, would have first priority for the payment by Remo 49 and Remo 97 of the “First Priority Senior Debt”, which was defined to be $36.6 million.
[15] Which appears to be a subsidiary of AMW Corporation Pty Ltd which, in turn, appears to trade under the name of “Ashe Morgan Winthrop”.
[16] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [35]
[17] Affidavit of Carmelo Adriano Mastronardo made 27 June 2019 in Common Law proceeding, being Exhibit A, [33], tab 8 of exhibit CAM2
October and November 2008 – Strategy for 49 Queens Road development is revised
According to Antonio, from about September 2007, after the “global financial crisis” began, there were no longer any meaningful expressions of interest from investors for the purchase of any of the properties Remo 49 and Remo 97 were developing.[18] In around October 2008 Antonio and Adrian formulated a new strategy which consisted of redesigning the four level office block into small strata title office suites or units, and increasing the building’s gross floor area.[19] Antonio estimated that these changes would increase the costs of the development by around $4.3 million.
[18] Affidavit of Antonio Mastronardo made on 11 December 2019, [30]
[19] Affidavit of Antonio Mastronardo made on 11 December 2019, [31]
Antonio and Adrian informed the Bank of their proposal. This first occurred before 10 October 2008 when Adrian sent an email to Mr McLelland of the Bank confirming an earlier discussion that “we are investigating a strata sale proposal of the unleased area of 49 Queens Road”.[20] On 4 November 2008 Adrian sent by email to Mr McLelland a strata scheme, strata plans, and a document titled “Colliers Supply and Demand”.[21] Mr McLelland responded for the Bank by email sent on 7 November 2008, stating that the Bank “has not agreed to the strategy of a strata for this building”; and, to be in a position to assess the strategy, the Bank would need a new valuation on a “one line basis” acceptable to the Bank. Mr McLelland further stated that the strategy “will require full credit assessment and then formal consent”.[22] Remo 97, therefore, applied to the Bank for a further increase of $4.3 million in the Remo 49 Facility.
[20] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C; [38], tab 12 of exhibit CAM1
[21] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C; tab 12 of exhibit CAM1
[22] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C; tab 12 of exhibit CAM1
19 December 2008 – Bank offers to increase Remo 49 Facility to $31.9 million
By letter dated 19 December 2008 the Bank offered to increase the Remo 49 Facility from $27.6 million to $31.9 million.[23] The “Terms Schedule” attached to the letter no longer referred to any construction period. Next to the words “Term of Facility” there is written “4 months” and “The Facility has a maturity date of 30/03/2009”.[24] On about 16 January 2009 Remo 49 accepted the terms on which the Bank offered to increase the amount of the Remo 49 facility.
[23] Exhibit CB, page 1321
[24] Exhibit CB, page 1322
Antonio has made the following observations about the Bank’s offer to increase the amount of the Remo 49 Facility:[25]
It was a condition of the Bank’s 19 December 2008 approval . . . that the Expiry Date under the Loan Agreement was brought forward from 31 March 2012 to 30 March 2009. No explanation was provided by CBA as to why that change was sought. . .
The effect of the Altered Expiry Date Condition was to impose an obligation on Remo 49 to repay to the Bank the whole of the amount outstanding under the First Loan Agreement [i.e., the Remo 49 Facility], within four months from the date of the December 2008 Variation.
For CBA to seek to impose the Altered Expiry Date Condition was contrary to the intentions of the Bank and Remo 49 when the loan was first negotiated and obtained. The building had not been completed at the time that change was imposed and there was no possibility that within that 4 month period that would be achieved and sufficient sales would be negotiated to enable repayment in full of the amount due to CBA.
The Altered Expiry Date Condition provided by the Bank, meant that, as a matter of practical certainty, Remo 49 would, within a short time after the Bank’s approval of the December 2008 Variation, commit a default under the terms of the First Loan Agreement. This is what happened although . . . CBA did not take any enforcement action when the debt was not repaid at the end of March 2009…
[25] Affidavit of Antonio Mastronardo 31.01.2020, at [32]-[36]
By email sent on 26 February 2009 to Adrian and “Ian”, Mr McLelland, on behalf of the Bank, referred to a progress draw having been provided to the Bank, and stated “[a]s you have been advised, we are unable to pay this until the increased Deed of Priority has been executed with AMW”.[26] By email sent on 11 March 2009 AMW informed Mr McLelland that it would execute the variation to the deed of priority.[27] Antonio says that it was not a term of the increase in the Remo 49 Facility from $27.6 million to $31.9 million that there be an amendment of the deed of priority; and that the delay in obtaining such amendment prevented Remo 49 from drawing on its facilities which, in turn, delayed the project by approximately three months.[28]
[26] Exhibit CB, page 1348
[27] Exhibit CB, page 1349
[28] Affidavit of Antonio Mastronardo made on 11 December 2019, [44], [49]
25 June 2009 – Bank offers to increase Remo 49 Facility to $34.7 million
According to Antonio, in about May 2009 he formed the view that Remo 49 required additional funds to cover increased costs and other expenses. He therefore applied to the Bank for a further increase of $2.8 million in the Remo 49 Facility.[29] By letter dated 25 June 2009 the Bank offered to increase that facility to $34.7 million.[30] The “Terms Schedule” attached to the letter did not refer to any construction period. Next to the words “Term of Facility” there is written “3 months” and “The Facility has a maturity date of 30/09/2009”.[31] Antonio and Adrian accepted the offer on behalf of Remo 49 on 26 June 2009.[32]
[29] Affidavit of Antonio Mastronardo made on 11 December 2019, [50], [51]
[30] Exhibit CB, page 1356
[31] Exhibit CB, page 1357
[32] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C; tab 12 of exhibit CAM1
July 2009 – attempt to secure AMW’s agreement to be subordinated to increase in Remo 49 Facility
On 9 July 2009 Mr McLelland of the Bank sent an email to Adrian requesting that AMW “confirm via email that they are aware that the CBA has increased its facility to Remo 49”, and that the Remo 97 Facility “remains the same at $9m”.[33] On 9 July 2009 Mr Lo Surdo from AMW sent an email to Mr Ian Mirels (copied to Adrian) stating that “this is higher than our approved deed of priority amount with cba”, and that he was not “aware that cba were looking to fund outside of our previous arrangements”. Mr Lo Surdo further said that until “we approve and redocument [sic]”, “any further cba advances will be subordinated to amw”.[34]
[33] Exhibit CB, pages 1359-1360
[34] Exhibit CB, page 1359
On or shortly after 13 July 2009 Mr McLelland from the Bank sent an email to Adrian stating the Bank “need[s] AMW to acknowledge that the CBA has increased its facility by $2.8m and this is captured under the existing Deed of Priority”, and requesting that Adrian “have them do so and then advise us accordingly”.[35] Adrian forwarded the email from Mr McLelland to Mr Lo Surdo of AMW. Mr Surdo then sent an email on 13 July 2009 stating the following:[36]
[35] Exhibit CB, pages 1363-1364
[36] Exhibit CB, page 1363
What CBA is asking us to do is to increase the deed of priority amount. We cannot agree to this until we understand the full position with respect to the Queens Road properties and the Coles deal and I have gone through a formal approval process. I have made this clear to you and Ian previously. We were only asked to acknowledge and consent to the increase 3 days ago and I have tried contacting you on both Friday and today to discuss.
We will be sending you a letter outlining what our information needs are, early tomorrow morning.
The strategy on the funding of 49 Queens road [sic] was always to build levels 1 to 3 and to substantially sell these levels before building out the remaining levels. I am not sure why these levels are proposed to be built without substantial sales being achieved.
On or shortly after 13 July 2009 AMW sent to the directors of Remo 49 and Remo 97 a letter dated 13 July 2009, which included the following:[37]
[37] Exhibit CB, page 1361ff
As requested in an email to myself dated 9 July 2009, the Lender [AMW] has been asked by the Borrower [Remo 97] to acknowledge an increase in the Senior Facility debt amount to $43.7m (from the existing priority amount of $40.9m). At this stage, the Lender has not acknowledged or consented to the proposed increase from the Senior Financier.
Although the Borrower had previously advised the Lender that the Senior Financier was considering increasing their Senior Facility debt amount, the first indication that this may have occurred or been approved was via the email dated 9 July 2009 (referred to above). The original funding strategy also required the borrower to achieve considerable sales prior to funding the strata fit out costs of levels 3, 4 & 5. These sales have not been achieved.
In order for the Lender to consider consenting to the proposed increased debt by the Senior Financier, the following will need to be provided:
·A copy of the proposed Letter of Offer (variation letter) outlining the proposed increase from the Senior Financier;
·Details of the allocation of the proposed debt increase and revised funding tables outlining future costs;
·QS report confirming the proposed costs (received);
·An update on sales and leasing on the Security Properties, with the proposed front pages of any exchanged contracts to date;
. . . .
17 July 2009 – Bank offers to increase Remo 49 Facility
By letter dated 17 July 2009 the Bank offered to increase the Remo 49 Facility from $31.9 million to $34.7 million.[38] The offer was subject to a number of conditions, one of which was that the “borrower is to provide the Bank with a satisfactory Deed of Priority and Subordination with AMW”. Antonio accepted the offer on 14 August 2009.[39] Antonio says that on receiving the Bank’s letter of 17 July 2009 he had assumed the Bank had obtained AMW’s prior consent.[40] At the trial of the Cross Claim that evidence would have to be assessed against the Bank’s letter dated 17 July 2009 which contained a condition that the offer was conditional on “the Borrower”, that is, Antonio, providing to the Bank a satisfactory deed of priority and subordination with AMW. Antonio’s assertion would also have to be assessed against whether by 14 August 2009 Antonio provided to AMW the information AMW requested in its letter dated 13 July 2009. In any event, it appears that AMW agreed to vary the priority deed to permit the increase of the “First Priority Senior Debt” from $36,600,000 to $40,900,000.[41]
[38] Exhibit CB, page 1365
[39] Exhibit CB, page 1369
[40] Affidavit of Antonio Mastronardo made on 11 December 2019, [60]
[41] That inference is available from the letter dated 14 October 2010 from AMW to the Bank to which I refer later in these reasons.
26 November 2009 – Antonio seeks extension of time to repay Remo 49 Facility
According to Antonio, on 26 November 2009 he met with Mr Golsby, a manager within the Bank’s credit management division. Antonio said that at the meeting he said “[w]e need to get an extension of the loan in writing”, in response to which Mr Golsby said: “Don’t worry the bank is fine”.[42] At the trial of the Cross Claim Antonio’s account will need to be assessed in the light of the letter dated 27 November 2009 Mr Golsby sent to Antonio stating:[43]
I refer to our meeting on 26 November 2009.
As discussed, the Bank is becoming concerned at the delays in providing the required information, Cost to complete estimates, to the valuer.
The completion of these valuations is critical to the Bank considering your request for additional funding. As mentioned the Bank cannot commence to consider the additional funding until the valuations are complete and in an acceptable format to the Bank.
Should the valuer not be able to confirm that he has all the required information to complete the valuations by 7 December 2009, then the Bank will need to review its position. This may include commencing legal actions under its securities.
[42] Affidavit of Antonio Mastronardo made on 11 December 2019, [63]
[43] Exhibit CB, page 1373
10 December2009 – Bank says it will delay recovery action until 30 March 2010
Antonio says that on 3 December 2009 Adrian paid from his own resources $5,017,860.97 towards the debt Remo 49 owed to AMW.[44] By letter dated 10 December 2009 the Bank informed Antonio that the Bank was prepared to delay recovery action until 30 March 2010, subject to the conditions stated in the letter. One of these was that an independent property consultant acceptable to the Bank is engaged by February 2010 to complete a review of the sale strategy, and advise on the “additional fit out request”.[45]
[44] Affidavit of Antonio Mastronardo made on 11 December 2019, [65]
[45] Exhibit CB, page 1374
Remo 49 then drew down $1,364,319 on the facility.[46] On 2 March 2010 the strata plan for the 49 Queens Road property was registered.[47]
[46] Affidavit of Antonio Mastronardo made on 11 December 2019, [68]
[47] Affidavit of Antonio Mastronardo made on 11 December 2019, [70]
20 July 2010 – Bank informs Antonio Remo 49 and 97 facilities are in default
In a letter dated 20 July 2010 addressed to “Mr A Mastronardo Director Remo 49 Queens Rd Pty Ltd Remo 97 Queens Road Pty Ltd”, the Bank stated as follows:[48]
Failure to repay the Bank’s debt in full by 31 March 2010 was a default under the Bank’s security documentation. The Bank reserves its rights and remedies under that default.
The Bank is considering its position in regards to your facilities. While acknowledging your efforts to date to sell the properties, the Bank’s [sic] remains concerned at the length of time it is taking to achieve the sales and the associated debt reduction.
While this should not be considered an approval, the Bank, as a minimum, would expect that sales, exchanged contracts, and settlements totalling at least 50% of the Bank’s debt, $22m, be achieved by 30 September 2010. Failure to achieve this level of debt reduction is likely to see the Bank commence recovery action under its securities.
. . . .
Due to the facilities now being in default, the Bank, under its documentation, is entitled to immediately increase the interest rate applying to your facilities from 11.5% pa to 15.49% pa. In recognition of your efforts to sell the properties, the Bank will not apply the full increase rather [sic] apply a rate of 13.5% from 30 July 2010. It would be prudent to expect further increases, if sales are achieved [sic] in line with the Bank’s expectations.
Please note that as Adrian Mastronardo is a guarantor to the facilities, a copy of this letter has been provided to him for his information.
[48] Affidavit of Carmelo Adriano Mastronardo made 27 June 2019 in Common Law proceeding, being Exhibit A, tab 19 of exhibit CAM2
14 July 2010 – implementation of sales strategy
Adrian says that on 14 July 2010 Ernst & Young had assessed and approved a proposed sales strategy for the 49 Queens Road lots. Remo 49 began to implement the strategy, and weekly reports were provided to the Bank.[49]
[49] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [49]-[51], tabs 17 and 18 of exhibit CAM1
14 October 2010 – Bank and AMW enter into priority dispute
By 14 October 2010 the Bank and AMW entered into a dispute.[50] In its letter to the Bank dated 14 October 2010 AMW claimed it had consented to the increase in the “First Priority Senior Debt” on “the specific understanding that such amounts already included an amount of drawn principal plus capitalised interest on that amount”. The dispute between the Bank and AMW arose at a time when, according to Adrian, the lots at 49 Queens Road had been completed and sold or were ready to be sold. In an email sent to Antonio on 18 October 2010 AMW stated that its position for repayment of the loans it made had been compromised, and “we would like a resolution with CBA prior to consenting to any future settlements”. By email sent on 9 November 2010 AMW informed Antonio that it was not prepared “to consent to further settlements until the priority issues are resolved”.[51] AMW’s position was repeated in an email sent on 25 November 2010.[52]
[50] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [54], tab 13 of exhibit CAM1
[51] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [58], tab 21 of exhibit CAM1
[52] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [58], tab 21 of exhibit CAM1
Early December 2010 – Bank informs Antonio it intends to appoint receivers
According to Antonio, in early December 2010 he met with Mr Golsby. Antonio told Mr Golsby he had spoken with Mr Ashe Morgan (of AMW) who agreed to settle AMW’s loan for $600,000. Mr Golsby said he would not “even give them a $1”. Mr Golsby also said “by the way I have the receiver here to represent us”. According to Antonio, the conversation continued as follows:[53]
Mr Golsby: We have had in mind to put the receiver in some time ago, but we have now decided to do it now”.
Antonio:We have sold above 50% of the offices, if you give the $600,000 to pay Ashe Morgan out and then give me an extra 6-12 months to sell the remaining units, everything will be paid.
Mr Golsby: Ok let me think it over and I will talk to someone else and get back to you.
[53] Affidavit of Antonio Mastronardo made on 11 December 2019, [73]
10 December 2010 – Bank demands repayment of loans
By two letters dated 10 December 2010, one addressed to Remo 49, and the other addressed to Remo 97, the Bank, through its lawyers, claimed Remo 49 and Remo 97 were in default of the Remo 49 Facility and the Remo 97 Facility respectively because Remo 49 and Remo 97 failed to repay the amounts that were advanced to them by 30 March 2010, being the claimed maturity date for both facilities as had previously been extended by the Bank. The letters claimed that Remo 49 and Remo 97 owed the Bank $32,863,492.40 and $9,834,482.50 respectively, and demanded that Remo 49 and Remo 97 pay these amounts to the Bank by 17 December 2010.
The Bank’s lawyers provided to Antonio a copy of the demands they gave to Remo 49 and Remo 97 under cover of two separate letters addressed to Antonio.[54] Each letter stated:
[54] Affidavit of Antonio Mastronardo made on 29 April 2016 (being Exhibit D), [44], tab 12 of exhibit AM1
We act for Commonwealth Bank of Australia (ACN 123 123 124) (“the Bank”).
Please find enclosed a copy of our letter of demand on behalf of the Bank to [Remo 49/Remo 97] dated 10 December 2010 for your information as guarantor.
Antonio says he did not receive a letter of demand “issued to me as guarantor to the loans”, or a “notice of default issued to me personally as the mortgagor of the Queens Road Properties”.[55] Adrian says that he, too, “never received any formal demand to enforce the guarantees which I provided for the debts of Remo 49 and Remo 97”.[56]
[55] Affidavit of Antonio Mastronardo made on 29 April 2016 (being Exhibit D), [45]
[56] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [60]
Neither Remo 49 nor Remo 97 met the demands.
20 December 2010 – Adrian meets with Mr Golsby and Mr Needham
According to Adrian,[57] on 20 December 2010 he met with Mr Golsby and Mr Needham, one of the receivers the Bank appointed in December 2010. Mr Golsby told Adrian that “the Bank has decided to appoint a receiver and that is why Andrew Needham is here – he will be the receiver”. Adrian expressed surprise. He told Mr Golsby that “we are doing well with the sales” but with the appointment of receivers “the market will dip and it will jeopardise the sales which are in progress”, and that “we will get a lot less money out of the project and it will be so much harder to repay the Bank’s debt”. Mr Golsby said “[w]e are sick of having to deal with Ashe Morgan”, and said “Don’t give Ashe any more money – you must pay us before you pay them”. Adrian asked “what do we do then?” After again stating that money should not be given to AMW, Mr Golsby said “I will take what you are saying to my superiors and will come back to you tomorrow”.
[57] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [65]
23 December 2010 – Bank appoints the Receivers
Adrian says that on 23 December 2010 Mr Golsby telephoned him and said “we have had to appoint receivers to the Queens Road Properties”, and that “[a]ll I can say is you need to cooperate with the Receivers to the best of your ability to make sure that the sales progress smoothly and returns are maximised”.[58]
[58] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [71]
On the same day the Bank entered into a deed of appointment with Mr Needham and Mr Taylor (Receivers).[59] That deed recited that Antonio was indebted to the Bank; the Bank holds a registered mortgage over the land described in item 1 of Schedule 1 to the deed, that land being lots in a strata plan “commonly known as 49-51 Queens Road, Five Dock” (49 Queens Road lots), and the property “commonly known as 97-99 Queens Road, Five Dock”; Antonio “is in default under the terms of the Mortgage”; and the “Mortgage has become enforceable and the Mortgagee is entitled to appoint receivers and managers of the Mortgaged Property under the powers conferred in the Mortgage”. The deed then purported to appoint the Receivers as receivers of the properties referred to in the recitals, and authorised them to exercise “[a]ll and every power discretion and authority conferred upon a receiver and manager by the Mortgage, under any Act of Parliament or otherwise by law”.
[59] Affidavit of Adrian Mastronardo made on 28 April 2016 in the Common Law proceeding, being Exhibit C, [72]; tab 26 of exhibit CAM1
By letter dated 23 December 2010 the Receivers informed Antonio they had been appointed receivers and managers of the 49 Queens Road lots and the 97 Queens Road Property pursuant to the powers contained in the 49 Queens Road and the 97 Queens Road mortgages.[60] The Receivers further said that as “a consequence we are now in control of the properties and all matters relating to them”, and that as “owner of the properties, we put you on notice that you should not deal or purport to deal with the properties in any way whatsoever”. Antonio responded with a facsimile sent to the Receivers on 31 December 2010 in which he acknowledged receipt of the letter, and stated “[w]e are more than happy to assist and co-operate [with] you in the matter”.[61]
[60] Affidavit of Antonio Mastronardo 29.04.2016 (being Exhibit D), [50], tab 14, exhibit AM1
[61] Exhibit CB, page 1732
Relevant to one of the issues I consider in these reasons is a facsimile Antonio sent to the Receivers on 19 January 2011 in response to the Receivers’ response to “Rajeev’s email”.[62] The facsimile refers to a particular prospective buyer, and to a meeting with an officer of the Bank who “suggested us to work in collaboration with you”; and it states that “[w]e were trying to work in conjunction with you and help you the most, but if you do not want it then we leave totally in your hands how you want to handle the issue”. The facsimile concludes with: “any ways now I totally leave it with you, please handle the matter the way you think it is most appropriate”.
[62] Exhibit CB, page 1738
Required strength of cross claim
In the earlier reasons I adjourned the hearing of the creditor’s petition rather than dismiss it because, although I was satisfied Antonio’s trespass claim against the Bank is reasonably arguable, I was not satisfied, on the material and submissions before me, it was likely Antonio would succeed in that claim. Counsel for Antonio, however, submits that the distinction I there drew does not reflect a correct construction of the discretion conferred by s.52(2)(b) of the Act, at least as such discretion applies to circumstances in which a debtor asserts a cross claim against the petitioning creditor. Counsel submitted, first, that s.52(2)(b) of the Act confers a discretion, and it is to be exercised in a manner consistent with, or advances the apparent purposes for which it is conferred; second, it is an abiding concern of the Act that it is only a person who is undoubtedly a creditor who is entitled to move for a sequestration order of a debtor’s estate; third, that consideration is particularly relevant to where a debtor relies on a cross claim against the petitioning creditor, rather than against another creditor, because the cross claim goes to the petitioning creditor’s standing as a creditor; and, for these reasons, it is inconsistent to assess the significance of an asserted cross claim against a petitioning creditor on whether it is likely to succeed as opposed to the cross claim being reasonably arguable. In support of these submissions counsel for Antonio referred to the judgment of Allsop CJ in Totev v Sfar.[63]
[63] Totev v Sfar [2006] FCA 470
I do not accept counsel’s submission that the principles I stated in paragraphs 36 and 37 of the earlier reasons do not accurately reflect what the cases have held is the approach a bankruptcy court should take when determining whether an asserted cross claim by the debtor against the petitioning creditor may be taken to constitute a “sufficient cause” for not making a sequestration order. The judgment of Allsop CJ in Totev, directed as it was to the issue that was before his Honour, namely, whether the primary judge failed to direct “himself to the correct framework of analysis under s 52(2)(b)”, says nothing different.[64] For the purposes of these reasons, it is sufficient if I refer to the statement of principles contained in the recent judgment of Griffiths J in Li v Wu,[65] and in particular, his Honour’s observation that, while “the Court does not try the cross-claim in advance, the debtor must adduce sufficient evidence to show that it is a real claim which is likely to succeed”.[66]
[64] Totev v Sfar [2006] FCA 470, at [51]
[65] Li v Wu [2020] FCA 776, at [96]
[66] Li v Wu [2020] FCA 776, at [96(f)]
Antonio’s trespass claim
To be in a position to understand the trespass claim, it will be necessary to refer to the pleadings currently filed in the Common Law proceeding, and defences the Bank has not pleaded in the Common Law proceeding but which it submits affords an answer to the trespass claim.
The amended statement of claim
The current statement of claim in the Common Law proceeding is that filed on 28 August 2015.[67] The Bank there alleges as follows:
[67] Exhibit CB, pages 400ff
a)Antonio was the registered proprietor of the various lots that comprised the 49 Queens Road Property, and the registered proprietor of the 97 Queens Road Property.[68]
[68] ASC, [2], [4]
b)By mortgages dated 28 June 2007 Antonio granted the Mortgages to secure the “Amount Owing”.[69] It was a term of each of the mortgages that Antonio would observe the Mortgage Terms.[70]
c)From time to time to time the Bank advanced money to Remo 49 under two loan agreements, one dated 16 August 2007 and varied on 19 December 2008 and 24 June 2009; and the other dated 13 March 2007 and varied on 2 November 2007.[71]
d)Remo 49 breached the first and second loan agreements by failing to pay money on 30 March 2010, being the day by which each of the loans under the first and second loans was due and payable.[72]
e)By deeds of guarantee dated 2 May 2007, each of Remo 97, Antonio, and Adrian guaranteed to the Bank Remo 49’s obligations under the first loan agreement up to the maximum amount of $31.9 million; and by deed of guarantee also made on 2 May 2007 each of Antonio and Adrian guaranteed to the Bank Remo 49’s obligations under the second loan agreement.[73]
f)On or about 12 December 2010 the Bank served on Remo 49 a letter of demand dated 10 December 2010 demanding payment of $32,863,492.40 “in respect of its obligations under the First Loan”; and, on the same day, the Bank served on Remo 97 a letter dated 10 December 2010 demanding payment of $9,834,482.50 “in respect of its obligations under the Second Loan”. Both Remo 49 and Remo 97 failed to comply with the demands.[74]
g)Pursuant to each of the mortgages, by deed of appointment dated 23 December 2010 the Bank appointed the Receivers as receivers and managers of each of the Queens Road properties, and later as agents of the Bank as mortgagee; and by later deeds, the Receivers retired as receivers and managers, but were reappointed as agents for the bank in possession.[75]
h)On about 8 June 2011 the Bank served on Antonio a notice dated 6 June 2011 pursuant to s.57(2)(b) of the Real Property Act 1900 (NSW) demanding payment of money “in respect of which” Antonio “was in default”, but Antonio did not comply with the notice.[76]
i)Pursuant to their powers as receivers and agents under the deeds of appointment and the mortgages, the Receivers have sold the lots comprising the 49 Queens Road Property and the 97 Queens Road Property for a total amount of $24,390,424.[77]
j)On about 19 January 2013 the Bank served on each of Remo 49, Antonio, and Adrian a demand under each of the guarantees they had given to the Bank in relation to the first loan agreement demanding payment of $21,422,986.53; and on about 19 January 2020 the Bank served on each of Antonio and Adrian a demand under each of the guarantees they had given in relation to the second loan agreement demanding payment of $8,565,049.23; but none of Remo 49, Antonio, or Adrian complied with the demands.[78]
k)By not complying with the demands, each of Remo 49, Antonio, and Adrian have breached the terms of the guarantees they granted in relation to the first and second loans.[79]
[69] ASC, [3], [5]
[70] ASC, [6]
[71] ASC, [9]-[12]. These paragraphs appear to be incorrect, because they allege both loans were made to Remo 49. Later the ASC alleges separate demands were given to Remo 49 and Remo 97.
[72] ASC, [14], [15]. These paragraphs appear to be incorrect, because they allege both loans were made to Remo 49. Later the ASC alleges separate demands were given to Remo 49 and Remo 97.
[73] ASC, [16]-[20]. These paragraphs appear to be incorrect, because they allege both loans were made to Remo 49. Later the ASC alleges separate demands were given to Remo 49 and Remo 97.
[74] ASC, [21]-[24]
[75] ASC, [25]-[31]
[76] ASC, [32]-[35]
[77] ASC, [36]
[78] ASC, [37]-[47]
[79] ASC, [47]
The Defence
The Defence was filed by Antonio on 28 September 2017.[80] Antonio admits he was the registered proprietor of the Queens Road properties; that he granted to the Bank the 49 Queens Road and the 97 Queens Road mortgages; denies it is a term of either of these mortgages that he would pay all moneys secured by the mortgage to the Bank; admits money was advanced to Remo 49 pursuant to the two loan agreements pleaded in the amended statement of claim; admits that the amounts advanced under the two loan agreements have not been repaid; admits he granted the guarantees in relation to the first and second loans; admits that on 10 December 2010 the Bank sent letters to Remo 49 and Remo 97 demanding payments of $32,863,492.40 and $9,834,482.50 respectively, and those demands have not been met; admits the Bank appointed the receivers over the Queens Road properties on 23 December 2010, but denies the Bank was entitled to do so; and admits the Bank made a demand on the guarantees Antonio gave in relation to the first and second loans which Antonio did not meet, but denies Antonio breached any term of the guarantees he gave.
[80] Exhibit CB, pages 414ff. The Defence amends the defence that was filed on 29 October 2015 – see affidavit of I M Stevens 14.08.2019, [15]
Antonio, however, pleads a number of affirmative defences. Relevant to the trespass claim is the allegation the Receivers were not validly appointed as receivers and managers of the 49 Queens Road lots or of the 97 Queens Road Property. That claim is based on the following allegations:[81]
[81] Defence, [25(e)-(f)]
a)It was a term of each of the 49 Queens Road and 97 Queens Road mortgages that the Bank would be entitled to appoint a receiver of the mortgaged land if Antonio were in default under the mortgage.
b)Antonio would only default under each of the mortgages if he did not pay on time any of the “Amount Owing” for which he would be liable at the time agreed by him or, if no time has been agreed, when the Bank asks.
c)It was a term of each of the Guarantees that Antonio will pay the “Secured Moneys” as that expression is defined in each of the Guarantees; and Antonio was so liable “upon demand by the Bank”.
d)At the time it appointed the Receivers the Bank had made no demand on Antonio under the Guarantees.
e)Because of (d):
i)at the time the Bank appointed the Receivers there was no “Amount Owing” that Antonio had failed to pay to the Bank;
ii)because of (i), Antonio was not in default and, therefore, the Bank was not entitled to appoint the Receivers over the 49 Queens Road lots or over the 97 Queens Road Property; and
iii)the Receivers had no authority to enter into possession of the 49 Queens Road lots or the 97 Queens Road Property and sell them, and, to the extent they did those things, they acted as trespassers and at the direction of the Bank.
The Defence also alleges as follows:
a)It was a term of each of the Guarantees that Antonio would pay the “Secured Moneys” “on demand” or so much of the “Secured Moneys” as specified in the demand.[82]
b)On their proper construction, cl.3.1 and cl.3.2 of each of the Guarantees required as a condition precedent to Antonio’s liability under the Guarantees that the Bank would provide to him a notice of demand as required by cl.3.2. (The Defence then defines the alleged requirement of the Bank to make a demand under cl.3.2 of the Guarantees as “the Conditions Precedent”.)[83]
c)On their proper construction, by “the Conditions Precedent the Bank promised not to seek to enforce” the Guarantees “without first making a demand upon [Antonio] in accordance with the Conditions Precedent”.[84]
d)It was an implied term of each of the Mortgages that the Bank would not exercise or purport to exercise its rights under the Mortgages other than in circumstances in which it was entitled to do so.[85]
e)The Bank “breached the Conditions Precedent”, and it breached the implied term referred to in (d), by purporting to appoint the Receivers without first having made a demand under cl.3.2 of each of the Guarantees.[86]
f)Because of (e), Antonio was discharged from the performance of any obligations he may otherwise have had under the Guarantees;[87] or, in the alternative, the Bank repudiated the Guarantees.[88]
g)Further, or in the alterative, each of the Guarantees contained an implied term that the Bank would not seek to enforce the Guarantees, other than in circumstances in which it was entitled to do so;[89] and the term was an essential term of each of the Guarantees.[90]
h)Further, or in the alternative, each of the Guarantees contained an implied term that the Bank would not exercise or purport to exercise any of its powers under the Mortgages other than in circumstances in which it was entitled to do so;[91] and the term was an essential term of each of the Guarantees.[92]
i)By purporting to appoint the Receivers, the Bank acted in circumstances in which it was not entitled to appoint the Receivers and, for that reason, the Bank breached each of the terms referred to in (g) and (h).[93]
j)As a consequence of (i), Antonio was discharged from the performance of any obligations he may otherwise have had under the Guarantees;[94] or, in the alternative, the Bank repudiated the Guarantees, and Antonio is “entitled to and does hereby accept that repudiation and terminates” the Guarantees.[95]
[82] Defence, [87], [88]
[83] Defence, [89]
[84] Defence, [90]
[85] Defence, [98]
[86] Defence, [99]-[101]
[87] Defence, [102]
[88] Defence, [103]
[89] Defence, [104]
[90] Defence, [105]
[91] Defence, [106]
[92] Defence, [107]
[93] Defence, [119(a), (b)]
[94] Defence, [120]
[95] Defence, [121]
The Reply
In its reply the Bank denies it was not entitled to appoint the Receivers.[96] The Bank says:[97]
a)it relies on the terms of the mortgages for “their full form [sic] and effect”;
b)the Bank issued a notice on Antonio “based on a default under the Mortgages”, that notice being contained in a letter dated 20 July 2010 from the Bank to Antonio;
c)Antonio failed to comply with the terms of the notice;
d)further or in the alternative, Antonio received a letter dated 10 December 2010 “which enclosed a demand dated 10 December 2010 which was not complied with”; and
e)further or in the alternative, the Bank was not required to issue a notice to Antonio under the mortgages because the Bank believed on reasonable grounds, pursuant to cl.A22.3 of the mortgages, that “the default could not be remedied”.
[96] The Bank’s reply is at pages 545ff of Exhibit CB
[97] Reply, [1]
The Cross Claim
In relation to the trespass claim, the Cross Claim (which was filed on 21 December 2015) repeats the claim made in the Defence that the purported appointment of the Receivers was invalid, and the allegations on which that claim is made; and, on the basis of those allegations, claims:
a)he was discharged from the performance of any obligations he may otherwise have had under each of the Guarantees;[98]
b)from 23 December 2010 until at least January 2011 the Receivers were in wrongful possession of the 49 Queens Road lots and the 97 Queens Road Property;[99] and
c)the amounts the Receivers received on the sale of 49 Queens Road lots and on the sale of the 97 Queens Road Property, and for which they accounted to the Bank, is money the Bank is not entitled to retain; and
d)Antonio has suffered loss and damage.
[98] Cross Claim, [84]
[99] Cross Claim, [80]
The Proposed Cross Claim does not propose to amend that part of the Cross Claim that pleads the trespass claim. It does, however, provide for the addition of a new paragraph alleging that, in the circumstances on which it relies for its trespass claim, the Receivers were not agents of Antonio, but were agents of the Bank.[100]
[100] Proposed Cross Claim, [186]
Defence to Cross Claim and defences not pleaded
The current version of the defence to the Cross Claim is that filed on 19 January 2016.[101] In relation to the trespass claim, the Bank incorporates in its defence to the Cross Claim the allegations it makes in its reply.[102] In the hearing of the creditor’s petition, however, the Bank relied on three additional defences.
a)The first is cl.11 of each of the guarantees. The Bank submits this clause did not require it to give notice to Antonio under the Guarantees because its effect was to equate Antonio’s liability with that of Remo 49 and Remo 97 under the Remo 49 and Remo 97 facilities.
b)Second, the Bank submits that, even if the Bank was required, but failed to give Antonio a demand, the Bank’s failure to do so did not by itself discharge Antonio’s obligation under each guarantee; any failure by the Bank to make a demand gave rise to an election by Antonio to terminate the guarantee. The Bank submits Antonio not only did not elect to terminate the guarantees; he affirmed the guarantees by offering to cooperate with the Receivers’ management of the sale of the Queens Road properties.
c)Third, even if, as Antonio claims, the Bank failed to give demand in breach of the terms of the guarantees, Antonio did not suffer any damage.
[101] Exhibit CB, pages 662ff
[102] Defence to Cross Claim, [77]
Issues
In the light of the pleadings and additional defences on which the Bank relies, the following questions arise:
a)Did the Bank make a demand under each of the Guarantees, as the Bank alleges in its defence, or otherwise, before it purported to appoint the Receivers?
b)Assuming (a) is answered in the negative, was the Bank required to make a demand before it could appoint receivers under each of the Mortgages?
c)Assuming (b) is answered on the affirmative, did the Bank’s appointing the Receivers without first making a demand under the Guarantees discharge Antonio of his obligations under each of the Guarantees?
d)Assuming (c) is answered in the negative, did Antonio take any action that discharged him from his obligations under each of the Guarantees?
e)Assuming (c) or (d) are answered in the affirmative, to what remedies is Antonio entitled?
The determination of the second and third questions largely turns on the proper construction of the Guarantees and on the proper understanding of Antonio’s central allegation that the cl.3.2 of each of the Guarantees was “a condition precedent”. Before I consider these questions, it will be useful to identify the principles that should guide me in construing the relevant terms of the guarantees, and the legal connotation(s) of “conditions precedent”.
Principles of construction – general
The Guarantees are commercial documents; and the general principles of construction that apply to the construction of commercial documents also apply to construing contracts of guarantee. The general approach to construing commercial contracts was stated by the High Court in Electricity Generation Corporation v Woodside Energy Ltd:[103]
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties ... intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
[103] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7, at [35] (references omitted)
There are other general principles of construction of contracts that apply to contracts of guarantee. One is the principle that the contract as a whole must be considered when construing a particular term or expression:[104]
It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another.
[104] Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36, at [3]; (1973) 129 CLR 99, at page 109 (Gibbs J)
There are, however, principles of construction that are peculiar to contracts of guarantee and indemnity. These have been authoritatively stated by the plurality in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd:[105]
At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety. The doctrine of strictissimi juris provides a counterpoise to the law’s preference for a construction that reads a provision otherwise than as a condition. A doubt as to the status of a provision in a guarantee should therefore be resolved in favour of the surety and so the provision should be interpreted as a condition, or perhaps as an innominate term, instead of a mere warranty. If the surety is to be discharged for breach of a promissory term in the suretyship contract, the justification for the discharge must be that the creditor has failed to comply with a provision that, as a matter of interpretation, requires strict performance as a condition precedent to the surety's obligation or at least requires substantial performance of the promise such that the surety would not have entered into the contract if it had not been assured that there would not be a breach such as the breach which in fact occurred. If on its true interpretation the term is not intended so to operate, it is not easy to understand why the surety should be discharged by its breach. Of course, in construing the contract the court is entitled to look to the general setting in which the contract has come into existence . . . .
[105] Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, at page 561 (Mason CJ, Wilson, Brennan, and Dawson JJ). In Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28, the plurality said (at [20-21], that in “Chan v Cresdon Pty Ltd [[1989] HCA 63; (1989) 168 CLR 242 at 256)] Mason CJ, Brennan, Deane and McHugh JJ described the statement in Ankar set out above as evidencing a “settled principle governing the interpretation of contracts of guarantee” and that it “may be noted that the conclusions reached in Ankar and Chan as to the principles to be applied to the construction of contracts of guarantee are binding”.
There are two particular topics of construction that are relevant to assessing the trespass claim. The first topic is “conditions precedent”.
Conditions precedent in the context of guarantees
A “condition precedent”, in the context of the law of contract, may be described as an event parties to a contract or proposed contract agree must occur (or not occur) before a contract comes into being or before a party to the contract comes under an obligation to perform any one or more of his or her obligations under the contract. It has been said “it is competent to the contracting parties, if both agree to it and sufficiently express their intention so to agree, to make the existence of anything a condition precedent to the inception of any contract; and if they do so the non-existence of the thing is a good defence”.[106]
[106] Thomson v Weems (1884) 9 App Cas 971, at page 683 (Lord Blackburn)
It is also open to parties to a contract to agree that the performance by one party of his or her obligations is a condition precedent to the performance by the other party of his or her obligations under the contract. An early example is Ritchie v Atkinson,[107] where the question was whether it was a condition precedent to a master’s right to recover freight that he deliver the precise amount of cargo he had contracted to carry. Lord Ellenborough CJ said:[108]
If the delivery of a complete cargo were a condition precedent to the recovery of any freight, no doubt the defendant would be entitled to require the strictest performance of it: but the question is, whether it be a condition precedent? And that depends not on any formal arrangement of the words, but on the reason and sense of the things reciprocally stipulated to be done, as is to be collected from the whole contract: whether of two things reciprocally stipulated to be done, the performance of the one does not in sense and reason depend upon the performance of the other.
[107] Ritchie against Atkinson [1808] EngR 366; (1808) 10 East 295; 103 E.R. 787
[108] Ritchie against Atkinson [1808] EngR 366; (1808) 10 East 295; 103 E.R. 787, at page 791
A condition precedent, however, is to be distinguished from what is sometimes referred to as a “promissory condition”. Samuels JA identified the distinction in Tricontinental Corporation Ltd v HDFI Ltd:[109]
[109] Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689, at pages 703-704
The word “condition” has been used with a variety of different meanings in Australian contract law . . . . I use the term “promissory condition” to mean a promissory stipulation in a contract a breach of which entitles the innocent party to treat himself as discharged from his obligations under the contract. The test for determining whether such a stipulation is a promissory condition of the contract is that stated by Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Pty Ltd (1938) 38 SR (NSW) 632, where his Honour said (at 641-642):
“. . . The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.”
. . . .
A condition precedent, on the other hand, need not be promissory in nature. It is a stipulation in an agreement upon the fulfilment of which the existence of a contract, or of a principal obligation under an existing contract, is made contingent. The stipulation may involve the occurrence of an event that is independent of both parties, or it may require a unilateral act: see Halsbury's Laws of England, 4th ed, vol 9, par 511 at 353.
If the condition precedent is the performance of some act by one party, it is not necessary to inquire whether the failure to do the act was also a breach of contract unless the party promised to do the act which is the condition precedent: . . .
Where an act by one party is a condition precedent to the liability of the other, whether it has occurred or been fulfilled depends upon if the act proffered matches the description of the condition precedent in the contract, and not upon the seriousness of the divergence from that description.
In a note published in 1990 Treitel made the following observations about the variety of senses in which “condition precedent” is used in the law of contract:[110]
One of the most notorious sources of difficulty in the law of contract is the variety of senses in which it uses the expression “condition.” One source of confusion is the use of the expression “condition precedent” in both a contingent and a promissory sense; and . . . that failure to distinguish between these two senses can lead to arguments which are “unnecessarily complicated”. . . . Even the concept of promissory condition is used in two senses . . . . The first relates to the order of performance, while the second relates to the conformity of the performance rendered with that promised . . . . “[C]onditions precedent” (when used in relation to the order of performance) refers to an event (i.e. the performance of one party’s obligation) while “condition” (when used in relation to the conformity of the performance) refers to a term of the contract (or to the content of one party’s obligation).
[110] Treitel, G.H., “”Conditions” and “Conditions Precedent”” (1990) 106 LQR 185, at page 185 (emphasis in original).
On this analysis, a “condition precedent” is an event the occurrence of which, on the proper construction of a given contract, is a prerequisite to one party’s performing his or her obligations under the contract; and the event conditioning another party’s performance of his or her obligations under the contract can be constituted by the other party’s first performing his or her obligations under the contract. Characterising the party’s obligation to perform a term of a contract as an event that conditions the other party’s obligation to perform a term, rather than as a term, may be relevant to the legal consequences that may attach to a party’s not performing his or her obligation. This was noted by Treitel:[111]
[B]reach of condition by one party enables the other to put an end to his [or her] obligations, while failure by one party to perform a condition precedent (or a concurrent condition) prevents the other party’s obligation from accruing.
[111] Treitel, G.H., ““Conditions” and “Conditions Precedent”” (1990) 106 LQR 185, at page 192
The distinction between a condition precedent and a promissory condition is to some extent blurred in contracts of guarantee; and that is so for at least two reasons. First, as the plurality observed in Ankar, there “has been a natural tendency to refer to the creditor’s promise as a condition precedent rather than as a condition” because “many guarantees are unilateral instruments, containing no promises on the part of the creditor”.[112] Second, as the plurality in Ankar also observed, English cases support the principle that, at least where the creditor alters its relationship with the debtor, and to that extent alters the guarantor’s obligations, the guarantor’s obligations under the guarantee are discharged without the guarantor being required to elect to terminate the guarantee.[113] Although the plurality noted that the principle “is a by-product, not so much of the general law of contract, as of the special relationship between creditor and surety arising out of the surety contract upon which equity fastened to protect the surety when the creditor’s conduct affected the surety’s liability”, it did not reach a concluded view on whether the principle applies in Australia. The plurality was not required to reach a view on that question because it was common ground that the guarantor in that case had elected to terminate the guarantee in question. The “fundamental question” the plurality considered was whether “the rule of strict construction, derived from the equitable rule which protects the surety from any alteration in its liability, [is] subsumed in the general principles of the law of contract so that the surety may treat itself as discharged from liability if, but only if, the breach is such as to entitle the surety at law to rescind the contract”; and it answered that question by concluding that “[i]n truth there is no difference between the equitable rule and the legal rule”.[114] Deane J, on the other hand, was of the view there was “no need for the surety to rescind the contract for repudiation or breach of an essential or fundamental term”.[115]
It is true the Proposed Cross Claim alleges that the imposition of the “Altered Expiry Date Condition” was not reasonably necessary to protect the Bank’s legitimate interests “in recovering amounts payable to it by Remo 49 pursuant to the terms of the” Remo 49 Facility.[198] But the Bank did not purport to impose the condition to protect its interests under the Remo 49 Facility as it then existed; it was a term on which the Bank offered to lend $4.3 million it was not otherwise liable to lend under the Remo 49 Facility, and which Remo 49 accepted. In any event, the “Altered Expiry Date Condition” was consistent with the Remo 49 Facility, and it recognised the commercial reality that confronted Remo 49. Under the Remo 49 Facility, as amended by Remo 49’s acceptance of the offer contained in the Bank’s letter dated 29 June 2007, Remo 49 was required to reduce the debt to $22.6 million by May 2009. The Proposed Cross Claim does not allege Remo 49 would have been in a position to make that reduction. It is therefore inevitable that by May 2009 the Remo 49 Facility would have become payable in any event even if the Bank lend the additional $4.3 million on terms that did not include the “Altered Expiry Date Condition”.
[198] Proposed Cross Claim, [112]
It is also true that Antonio in effect alleges he felt compelled to accept the additional $4.3 million on terms that included the “Altered Expiry Date Condition”. But any sense of compulsion Antonio may have felt could not arguably have been induced by any unconscionable conduct by the Bank; it would have been induced by the legal and commercial circumstances in which Antonio found himself. Remo 49 needed an additional loan of $4.3 million; and it had no legal right to demand from the Bank any such additional loan. Antonio, therefore, needed to bargain for something he had no legal right to obtain. The Bank offered what Remo 49 needed, namely, an additional $4.3 million loan; and it did so on terms that included the “Altered Expiry Date Condition”. Antonio accepted the bargain the Bank offered him, presumably because he felt that was the best he could do in the circumstances that confronted him and also, perhaps, because he was confident the Bank would recognise that it would not make commercial sense for the Bank to call up the Remo 49 Facility on 30 March 2009, given that it had previously contemplated that time would be needed for the orderly sale of the completed development. In any event, many, and perhaps most, bargains have an element of compulsion because it is in the nature of a bargain that a party must give up something he or she would otherwise be unwilling to give up in return for the thing bargained for.
For these reasons, I am satisfied that at the trial of the Proposed Cross Claim (assuming leave were granted for it to be filed) Antonio would have no reasonable prospects of establishing the Bank’s offering to lend an additional $4.3 million on terms that included the “Altered Expiry Date Condition” was against conscience; and, for that reason, I am satisfied Antonio would not have reasonable prospects of succeeding on this part of the Proposed Cross Claim. Even if, however, Antonio would have reasonable prospects of establishing the Bank engaged in unconscionable conduct, difficulties would arise in relation to the remedy to which he would be entitled. In assessing the loss Antonio suffered because of the Bank’s unconscionable conduct, it would be necessary to compare the position Antonio would have found himself in had the conduct not taken place with the position in which he found himself given the conduct.
There are at least two possibilities. One is the Bank would not have offered an additional $4.3 million. On that hypothesis the 49 Queens Road project would have halted in December 2008. The second is that the Bank would have advanced the additional $4.3 million without the “Altered Expiry Date Condition”. But on that assumption there would have remained the term that by May 2009 Remo 49 reduce the 49 Remo Facility to $22.6 million. On the evidence before me, it is not arguable that Remo 49 would have been in a position to reduce the facility to $22.6 million. It is therefore inevitable that at the very least by May 2009 the Bank would have been entitled to demand the repayment of such amount as would reduce the Remo 49 Facility to $22.6 million and had it sought to recover that amount by the exercise of its rights under the Mortgage Terms, the 49 Queens Road project would have been halted.
The Proposed Cross Claim alleges that, had the Bank agreed to provide the additional $4.3 million on terms that did not include the “Altered Expiry Date Condition”, and if the Remo 49 Facility was repayable on 31 March 2012, Remo 49 would have completed the project by no later than the last quarter of 2011, and it would have sold the project for an amount sufficient to repay the amount owing under the Remo 49 Facility, leaving a surplus of $8 million.[199] That is not reasonably arguable for at least two reasons. First, it ignores that Remo 49 required more than the additional $4.3 million the Bank agreed to lend to Remo on terms that included the “Altered Expiry Date Condition”. That is evident from Remo 49 having later applied for an additional $2.8 million to fund the construction of the development. Second, it ignores that under the Remo 49 Facility, as amended by Remo 49’s acceptance of the offer contained in the Bank’s letter dated 29 June 2007, Remo 49 was required to reduce the debt to $22.6 million by May 2009. In other words, this part of Antonio’s case assumes the Bank would have ignored the terms of the Remo 49 facility. That is not a reasonable assumption for assessing the loss Antonio claims he suffered because of the Bank’s offering the additional $4.3 million loan on terms that included the “Altered Expiry Date Condition”.
[199] Proposed Cross Claim, [115]
Thus, even if Antonio were to succeed on this part of his unconscionable conduct claim, he would have no reasonable prospects of proving he suffered any loss.
Asserted unconscionable conduct claim based on July 2009 offer
This allegation of unconscionable conduct is directed to what the Proposed Cross Claim alleges is the Bank’s imposition of “the Further Expiry Date Condition”.[200] That is a reference to one of the conditions on which the Bank, by letter dated 25 June 2009, offered to increase the Remo 49 Facility by $2.8 million to $34.7 million, that condition being that the Remo 49 Facility be repaid by 30 September 2009. The Proposed Cross Claim alleges the Bank’s offering to lend an additional $2.8 million on terms that included the “Further Expiry Date Condition” was unconscionable for the following reasons:
a)It was not reasonably open to Remo 49 or Antonio to reject the “Further Expiry Date Condition”;[201] and the Bank was aware Remo 49 and Antonio had no reasonable alternative but to accept the condition.[202]
b)The Bank was aware or ought reasonably to have been aware there was no reasonable likelihood that Remo 49 would have been able to comply with the “Further Expiry Date Condition”.[203]
c)The Bank was aware or ought reasonably to have been aware that the best prospect of realising the 49 Queens Road development was to permit Remo 49 to complete the project, and, once completed, for Remo 49 to sell the completed development and use the proceeds of sale to pay the amounts owing under the Remo 49 Facility.[204]
d)The imposition of the “Further Expiry Date Condition”, therefore, was not reasonably necessary for the protection of the Bank’s legitimate interest in recovering the amounts payable to it under the Remo 49 Facility.
[200] Proposed Cross Claim, [128]
[201] Proposed Cross Claim, [130]
[202] Proposed Cross Claim, [131]
[203] Proposed Cross Claim, [132]
[204] Proposed Cross Claim, [133]
This claim is similar to the claim based on the Bank’s offering to lend an additional $4.3 million on terms that included the “Altered Expiry Date Condition”; and it has the same difficulties. Thus, the Proposed Cross Claim does not allege Antonio or Adrian or any other person involved in the management of Remo 49 did not understand the “Further Expiry Date Condition”; it does not allege Antonio or any other person attempted to negotiate with the Bank not to include the “Further Expiry Date Condition” in its offer to lend an additional $2.8 million and the Bank refused to negotiate; it does not allege the Bank applied any undue influence on Remo 49, or that it engaged in any unfair tactics; it does not allege the Bank was obliged under the terms of the Remo 49 Facility to provide any additional loan to Remo 49; and it does not allege the Bank acted in bad faith. The Proposed Cross Claim also does not allege that, by Remo 49 accepting the Bank’s offer to lend an additional $2.8 million on terms that included the “Further Expiry Date Condition”, Remo 49 was any worse off. It is difficult to see how it could reasonably be submitted that Remo 49 could have been worse off. At that time Antonio assessed Remo 49 needed an additional $2.8 million to complete the project. The Proposed Cross Claim does not allege Remo 49 could have obtained the additional $2.8 million from any other source.
Further, the Bank did not purport to impose the “Further Expiry Date Condition” to protect its interests under the Remo 49 Facility as it then existed; it was a term on which the Bank offered to lend $2.8 million it was not otherwise liable to lend under the Remo 49 Facility, and which Remo 49 accepted. In any event, as with the “Altered Expiry Date Condition”, the “Further Expiry Date Condition” was consistent with the Remo 49 Facility as amended in June 2007. Under the Remo 49 Facility, as amended by Remo 49’s acceptance of the offer contained in the Bank’s letter dated 29 June 2007, Remo 49 was required to reduce the debt to $22.6 million by May 2009. The Proposed Cross Claim does not allege Remo 49 was in a position to make that reduction by May 2009. The Proposed Cross Claim does not allege that had the Bank not included the “Altered Expiry Date Condition” and the “Further Expiry Date Condition” as terms on which it was prepared to lend the additional $4.3 million and $2.8 million, Remo 49 would have been in a position to have reduced the Remo 49 Facility to $22.6 million by 30 September 2009.
It is true that Antonio in effect alleges he felt compelled to accept the additional $2.8 million on terms that included the “Further Expiry Date Condition”. Any sense of compulsion Antonio may have felt, however, could not arguably have been induced by any unconscionable conduct by the Bank; it would have been induced by the legal and commercial circumstances in which Antonio found himself. Remo 49 needed an additional loan of $2.8 million; and it had no legal right to demand from the Bank any such additional loan. Antonio, therefore, needed to bargain for something he had no legal right to obtain. The Bank offered what Remo 49 needed, namely, an additional $2.8 million loan; and it did so on terms that included the “Further Expiry Date Condition”. Antonio accepted the bargain the Bank offered him, presumably because he felt that was the best he could do in the circumstances that confronted him and also, perhaps, because he was confident that the Bank would recognise that it would not make commercial sense for the Bank to call up the Remo 49 Facility on 30 September 2009, given that it had previously contemplated that time would be need for the orderly sale of the completed development.
For these reasons, I am satisfied that at the trial of the Proposed Cross Claim (assuming leave were granted for it to be filed) Antonio would have no reasonable prospects of establishing the Bank’s offering the lend an additional $2.8 million on terms that included the “Further Expiry Date Condition” was against conscience; and, for that reason, I am satisfied Antonio would not have reasonable prospects of succeeding on this part of the Proposed Cross Claim.
The Proposed Cross Claim alleges that, had the Bank agreed to provide the additional $2.8 on terms that did not include the “Further Expiry Date Condition”, and if the Remo 49 Facility was repayable on 31 March 2012, Remo 49 would have completed the project by no later than the last quarter of 2011, and it would have sold the project for an amount sufficient to repay the amount owing under the Remo 49 Facility, and leaving an $8 million surplus.[205] That is not reasonably arguable because it ignores the terms of the Remo 49 Facility, as amended by Remo 49’s acceptance of the offer contained in the Bank’s letter dated 29 June 2007. Remo 49 was required to reduce the debt to $22.6 million by May 2009. The Proposed Cross Claim assumes the Bank would not have enforced this term, and the Bank would and ought to have allowed Remo to complete and sell the 49 Queen Road project by continuing to provide such additional fuds as Remo 49 considered it required. It is not reasonably arguable that in assessing whether Antonio suffered any loss, assuming it was unconscionable the Bank to offer an additional $2.8 million on terms that included the “Further Expiry Date Condition”, it would be assumed the Bank would and ought to have allowed Remo to complete and sell the 49 Queens Road project by continuing to provide such additional funds as Remo 49 considered it required.
[205] Proposed Cross Claim, [137]
Thus, even if Antonio were to succeed on this part of his unconscionable conduct claim, he would have no reasonable prospects of proving he suffered any loss.
Unconscionable conduct claim based on appointment of the Receivers
The Proposed Cross Claim alleges the Bank’s appointment of the Receivers constituted unconscionable conduct.[206] This relies on three broad matters. The first is that Antonio had assumed, based on representations the Bank allegedly made,[207] and the Bank’s having extended the day by which the Remo 49 Facility was to repaid, that Remo 49 would be permitted to retain control of the sale process. The second is that the appointment of the Receivers was not likely to result in quicker sales, but was more likely to adversely affect the sale of the development. The third is the claim that the Bank decided to appoint the Receivers “to extricate itself from the dispute” it had with AMW to enable the Bank or the Receivers “to sell the remaining Redeveloped 49 Queens Road Lots as mortgagees in possession without the interference of the [AMW]”; and that “in the absence of the dispute between the Bank and [AMW], the Bank would not have made the appointment and would have been content to permit Remo 49 to retain control of the process for the sale”.[208]
[206] Proposed Cross Claim, [180]
[207] In particular, what the Proposed Cross Claim identifies as the “Hold Safe Representation” pleaded at [141]
[208] Proposed Cross Claim, [180(h)]
This claim is directed to the purported exercise of legal rights the Bank had under the mortgages. Although in other parts of the Proposed Cross Claim Antonio alleges the Bank had no legal right to appoint the Receivers because it had not made a demand before it purported to appoint them, this part of the Proposed Cross Claim does not rely on an allegation that the Bank’s appointment of the Receivers was not made in conformity with the Mortgage Terms. This part of the Proposed Cross Claim, therefore, is to be assessed on the assumption that the Bank appointed the Receivers in conformity with the Mortgage Terms.
On that assumption, Antonio would have no reasonable prospects of succeeding on a claim that the appointment of the Receivers was against conscience. The Proposed Cross Claim itself alleges the Bank appointed the Receivers as a means of resolving its dispute with AMW. The Proposed Cross Claim does not allege the interest the Bank sought to protect by the appointment of the Receivers was not legitimate; or that the appointment of the Receivers was not a legitimate response to protect those interests. The Proposed Cross Claim alleges that Antonio was in a position to pay the amount claimed by AMW and that the Bank ought to have informed him that he should take steps to pay AMW.[209] That is not supported by the evidence; and in any event, it is difficult to see how this could constitute unconscionable conduct by the Bank.
[209] Proposed Cross Claim, [180(i), (j)]
Damages
In his affidavit made on 31 January 2020 Antonio sets out the losses he claims he suffered as a consequence of the Bank’s appointment of the Receivers.[210] The losses relate not only to the 49 Queens Road Property and 97 Queens Road Property, but also profits he claims he would have been made in other developments, and in particular in what he describes as the “West Ryde Project”. The claimed losses rely on valuations, and counsel for Antonio referred to a valuation of a property at Greenacre.[211] There is no evidence, however, of valuations of the other properties on which Antonio relies in support of what he says are the losses he suffered. Thus, even if Antonio were to establish the Bank engaged in unconscionable conduct, there is nothing before me that could support a finding that he would have reasonable prospects of proving at the trial of the Proposed Cross Claim that he suffered loss and damage in an amount that exceeds the debt on which the Bank relies.
[210] Affidavit of Antonio Mastronardo made 31 January 2020, [88]-[141]
[211] Exhibit CB, vol 3, at pages 1077, 1099 and 1119
Common Law proceeding
The evidence is clear that Antonio did not in the Supreme Court proceeding pursue the Cross Claim in any substantive way. That is a matter that would weigh against dismissing the creditor’s petition. That, however, must be viewed against two matters. The first is my conclusion that at the trial of the Cross Claim it is likely it will be found that Antonio’s liabilities under each of the Guarantees has been discharged and that, if he so elects, he has an action for the recovery of $24,390,424.
Second, there is the Bank’s conduct in the Common Law proceeding. The Bank commenced that proceeding in 2013. The Bank consented or did not oppose Antonio seeking extensions of time for the filing of an amended defence and an amended cross clam; and it took no active step in response to Antonio’s repeated breaches of orders requiring him to file an amended defence and amended cross claim. Mr Stevens, who is the officer of the Bank who has been responsible at least over the last eight months for the Bank’s conduct in the Common Law proceeding, was cross-examined about the Bank’s attitude towards the applications Antonio made for more time to file an amended defence and an amended cross claim. Mr Stevens’ evidence included the following:[212]
Now – and what I asked you about previously was the decision-making process by the bank over the past eight or nine months when it was asked to consider at various directions hearings in those proceedings what course it would take in response to applications for deferral by Antonio Mastronardo of the time by which he was to file any amendment application. Correct? Remember I asked you about that decision-making process?‑‑‑Yes.
And I think you previously accepted that you appreciated that by – that the effect of those applications, if they were granted from time to time by the court, would be to delay the date by which the bank could expect to have its case on its own claim heard and determined. Correct?‑‑‑Yes.
And I – my recollection – the transcript will correct me if I’m wrong though – my recollection is that you agreed that you determined on each of those occasions that notwithstanding that that would be the effect of Antonio’s applications, it remained in the bank’s interests not to ask for a hearing date and rather – but rather to acquiesce in his request for an extension or grant of a new date. Correct?‑‑‑Yes.
And the benefit or advantage I want to suggest to you, sir, in taking that course, or in the bank taking that course, is that if by reason of these proceedings Antonio were to be made a bankrupt that in all likelihood the bank will never have to answer or reply to the claims raised by Antonio in his defence and Cross Claim. That’s the advantage, correct?‑‑‑Potentially, yes.
[212] T217.25-T281.5
There is nothing in this evidence that merits criticism, and counsel for Antonio has made no submissions criticising the decisions the Bank made in the Common Law proceeding or the reasons for which it made them. He submits, however, that the evidence undermines the criticism the Bank has made about Antonio’s conduct.
In my opinion, Antonio’s conduct in the Supreme Court proceeding is not a matter which, having regard to my findings about the merits of Antonio’s trespass claim, and the Bank’s attitude in that proceeding, ought to lead me away from exercising the discretion under s.52(2)(b) of the Act not to make a sequestration order.
Conclusion and disposition
I have concluded Antonio is likely to succeed on the trespass claim and is likely to be held to be entitled, if he so elects, to recover $24,390,424 which represent the proceeds of sale of the properties the receivers sold. That exceeds the debt of $9,938,954.27 on which the Bank relies in the creditor’s petition. I would therefore exercise the discretion under s.52(2)(b) the Act in favour of not making a sequestration order.
It is not open to me, however, to dismiss the creditor’s petition. A supporting creditor, Mills Oakley Lawyers (a Partnership), filed an interim application for an order under s.49 of the Act that it be substituted as a petitioning creditor. In those circumstances, I propose only to order that there be set down for hearing at a date to be determined the interim application filed by Mills Oakley Lawyers (a Partnership) that it be substituted as a petitioning creditor, and for such other orders consequential on that application. I will reserve the question of costs.
I certify that the preceding one hundred and seventy-two (172) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 23 September 2020
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