EASTGATE PROPERTIES PTY LTD (ACN 099 766 215) AND J HUTCHINSON PTY LTD (ACN 009 778 330)

[2003] QSC 360

[2003] QSC 360

SUPREME COURT OF QUEENSLAND
CIVIL JURISDICTION

MULLINS J

No 8870 of 2003

EASTGATE PROPERTIES PTY LTD	Plaintiff
(ACN 099 766 215)
and
J HUTCHINSON PTY LTD	Defendant
(ACN 009 778 330)

BRISBANE

..DATE 21/10/2003

JUDGMENT

21102003 T01/PAF23 M/T 1/2003 (Mullins J)

HER HONOUR: The plaintiff and the defendant are parties to a	1
building contract made on 29 May 2003 whereby the plaintiff as owner of the relevant land engaged the defendant as builder to construct a warehouse facility. The development is known as
Eastgate Industrial Park.

10

On 29 May 2003 the plaintiff granted a mortgage in favour of the defendant over the relevant land to secure the payment to the defendant of the moneys due and payable by the plaintiff from time to time under the building contract. The mortgage

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was lodged for registration under dealing number 706916975
("the mortgage") on 22 August 2003.

At the time the development commenced the relevant land comprised six separate freehold titles. Those titles are

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being reconfigured. The development comprises four attached industrial office and warehouse buildings each of which will have a separate title, and a strata titled building that will

have eight separate units.

40

The parties were in dispute about various matters, including the fact that the defendant had constructed the works so that they encroached upon two adjoining properties. The parties entered into a deed dated 6 August 2003 ("the deed") that recited the various disputes that had arisen between the

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parties in connection with the contract and set out
obligations described as what the parties had agreed to in
order to resolve the matters.
21102003 T01/PAF23 M/T 1/2003 (Mullins J) 2 JUDGMENT 60

Recital E of the deed referred to there being a total payable	1
of $4,353,171 for the building work under the building contract. Clauses 6 to 9 of the deed provide:

"6. Removal of Caveat

Hutchinsons shall provide Eastgate with a withdrawal of	10
caveat in exchange for the delivery of a bank cheque made
payable to them for the sum of $3,785,275.00 together
with a mortgage over Lot 14 on proposed SP 146462 or Lot
4 on RP 12846 (whichever is the current real property
description of the land at that time) ("the relevant
land") in immediately registrable form by Eastgate in
favour of Hutchinsons to secure the sum of $567,896.00 ("the balance of the contract price") provided however that upon such payment Hutchinsons shall provide a	20
release of the existing bill of Mortgage over the for the balance of the contract price shall rank after the first ranking mortgage to be provided by Eastgate to its financier over the relevant land.
7. Rectification of Encroachment
Hutchinsons shall undertake all such steps as are
necessary to rectify the encroachment referred to in	30
recital H so as to permit the registration of the strata
plan for lots 1-8 cancelling Lot 14 on proposed SP 146462
and Lots 98 and 99 on proposed SP 157341 ("the strata
plan") within thirty days of the date hereof and
Hutchinsons shall pay for all compensation, costs,
charges and expenses associated with the rectification of the encroachment including but not limited to legal fees, registration fees, surveyors fees and stamp duty.	40

8.    Payment of Balance of Contract Price

Eastgate shall authorise the payment to Hutchinsons directly by its financier of the balance of the contract price immediately upon Hutchinson discharging its obligations under Clause 7.

9.    No action by Hutchinson

Hutchinsons shall refrain from:- 50

(a) registering its mortgage;

(b) taking any action against Eastgate pursuant to its mortgage;

(c) commencing any proceedings or making any demand

3 JUDGMENT 60

21102003 T01/PAF23 M/T 1/2003 (Mullins J)

upon Eastgate seeking the payment of any monies	1
under the Building Contract;

- until 21 days after the date of this Deed after which
time it shall be at liberty to take such action as it
deems necessary against Eastgate to recover any monies
that it alleges are owing to it by Eastgate pursuant to

the Building Contract."

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The deed does not contain a provision making time of the

essence. It is apparent that the encroachments have caused

delays in bringing the development to the stage of the issue

of the strata titles and the reconfigured titles.	20
On the basis of the material that has been filed on behalf of
each party, it is apparent that the parties are now in dispute
about the effect of the deed, the construction of its terms	30
and whether, in fact, it remains in operation. For the first
time at the hearing on 17 October 2003 the defendant asserted
that the deed had been abandoned by the parties.
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On 16 September 2003 a meeting was held between representatives of each of the plaintiff and the defendant.
The defendant alleges that the parties agreed at that meeting
to vary the obligations under the deed and/or the building
contract. That is disputed by the plaintiff.	50
The sum of $3,785,275 which was due to be paid by the

plaintiff to the defendant under clause 2 of the deed within
21102003 T01/PAF23 M/T 1/2003 (Mullins J) 4 JUDGMENT 60

21 days from the date of the deed in respect of the	1
defendant's claim under the building contract was paid on 22
September 2003 from moneys advanced by the plaintiff's
financier, Perpetual Nominees Limited ("Perpetual").

10

Under cover of letters dated 25 September 2003 the solicitors

for the defendant forwarded the executed contracts, transfers

and development applications to the solicitors for the

plaintiff relating to the resolution of the encroachment	20
problem. In those letters it was asserted that the defendant
had discharged its obligations under clause 7 of the deed by
providing those documents to the plaintiff's solicitors. That
is disputed by the plaintiff.
30
By notice of demand dated 6 October 2003 the defendant, in
reliance on the building contract, the mortgage and the deed,
demanded payment from the plaintiff by 9 a.m. on 7 October
2003 of the sum of $737,201.35. The plaintiff disputes that	40
the defendant was entitled to make that demand.
This proceeding was commenced by claim filed on 7 October 2003
seeking declarations as to the entitlements arising under the
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building contract and the deed and an injunction restraining the defendant from taking any step in enforcing the mortgage
against the plaintiff. Although the volume of the

correspondence passing between the plaintiff's solicitors and
21102003 T01/PAF23 M/T 1/2003 (Mullins J) 5 JUDGMENT 60

the defendant's solicitors leading up to the issue of the	1
proceeding was extensive, Messrs MacGillivrays declined to
accept service of the proceeding and the proceeding was served
on the defendant at its registered office.

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The defendant purported to appoint receivers and managers

under the mortgage on 7 October 2003 who attended at the

property on that day but to whom the plaintiff refused access

to the property. The defendant asserts that the receivers and	20
managers were validly appointed. This is disputed by the
plaintiff.
Undertakings were given to the Court on 10 October 2003 which
resulted in orders being made by consent that the oral	30
application for an injunction sought by the plaintiff on that
day be adjourned. On that day the plaintiff gave the usual
undertaking as to damages. The defendant undertook by itself,
its servants, agents and contractors, to refrain from taking
any further step in enforcing the mortgage against the	40
plaintiff until 4 p.m. on 17 October 2003 and the receivers
and managers undertook to refrain from entering on to or entering into possession of the property pursuant to the mortgage and from taking any other step as receivers and managers of the property pursuant to the mortgage prior to 4	50

p.m. on 17 October 2003.
21102003 T02/MMV16 M/T 1/2003 (Mullins J) 6 JUDGMENT 60

Perpetual and Australian Unity Funds Management Limited gave	1
notice to the plaintiff on 16 October 2003 that it considered the appointment by the defendant of receivers and managers constituted default under the various securities held by them and that the plaintiff would be charged penalty rates and

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legal costs in relation to enforcement of securities pending the outcome of the plaintiff's application for interlocutory relief. The amount owing under the securities is $4,821,700,
which includes and interest reserve of $521,700 invested in

the name of the plaintiff for 18 months.

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The application for interlocutory relief was filed by the plaintiff on 16 October 2003. At the hearing on 17 October 2003 it was indicated by the parties that the undertakings which had been given on 10 October 2003 would continue on the

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same terms, except that the undertakings were offered until
trial or earlier order. The issue that was argued at the
hearing on 17 October 2003 was whether the plaintiff was
entitled to the interlocutory relief sought in paragraphs 3

and 4 of its application, which were in the following terms:

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"3. That upon the undertaking of the plaintiff to pay
the sum of $567,896.00 into an interest bearing account
in the name of both the plaintiff and the defendant after
the completion of the Contract of Sale entered into
between the plaintiff and Propertylink Investments Pty

Ltd, the defendant shall deliver to the plaintiff a stamped Release of Bill of Mortgage No 706916975 in registrable form at the time set for completion of the	50
said Contract of Sale.
4. The sum of $567,896.00 in the interest bearing account shall not be disbursed until further order or by agreement of the plaintiff and the defendant."

7 JUDGMENT 60

21102003 T02/MMV16 M/T 1/2003 (Mullins J)

On 30 July 2003 the plaintiff entered into a contract to sell	1
one lot of land encompassed within the development, for which it was intended to obtain a separate title, including the industrial warehouse constructed on the land, being proposed Lot 12 on Survey Plan 146462, for the sum of $2,451,500. The

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Purchaser is Propertylink Investments Pty Ltd.

According to the affidavit of one of the directors of the plaintiff, Mr I.C. George, which was sworn on 10 October 2003 and filed on 13 October 2003, to which a copy of that contract

20

of sale is exhibited, that contract is now unconditional and
due for completion within 21 days. The defendant relies on
one of the affidavits of Mr McLeod sworn and filed by leave on
17 October 2003, which contains an assertion of being informed

by the solicitor for the purchaser that the contract is not

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unconditional for various reasons, most of which appear to

have been met by the plaintiff's material.

In order for the separate title for Lot 12 to issue Survey

Plans 146462 and 153026, which have been sealed by the

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Brisbane City Council and which require consents for registration from the defendant, need to be lodged for registration. The defendant did not in submissions and could hardly seek to oppose the application on the basis that the contract for Lot 12 was unlikely to become unconditional,

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having regard to the actions required of the defendant to
facilitate the issue of a separate title for Lot 12. There is
no suggestion in the material that the sale of Lot 12 is not
at market value.
21102003 T02/MMV16 M/T 1/2003 (Mullins J) 8 JUDGMENT 60

1

It was submitted on behalf of the plaintiff that the proceeds of the sale of Lot 12 will provide sufficient funds to allow the entirety of the amount set out in the deed to be paid into an account pending resolution of the dispute. The plaintiff

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disputes that it owes any moneys to the defendant pursuant to
the building contract or the deed but submits that on the
basis of the deed no more than the sum of $567,896 could be
owing by the plaintiff to the defendant and therefore seeks a

release of the mortgage upon payment of that amount from the

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proceeds of sale into an interest bearing account in the name
of both the plaintiff and the defendant to be held pending the

determination of this proceeding.

The plaintiff has also entered into contracts of sale for

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three of the strata titled units which were due for completion
on 10 September 2003 and have not yet been completed.

The defendant calculates that the amount due and owing by the plaintiff as at 6 October 2003 under the mortgage was

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$737,201.35, calculated in the manner set out in another
affidavit of Mr McLeod sworn and filed by leave on 17 October
2003. Mr McLeod estimates that legal fees and receivership
costs since the issue of the notice of demand on 6 October

2003 to 17 October 2003 would exceed $50,000 and that interest

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of at least $8,598 monthly, which would then be compounding,
was accruing on the amount of the demand.
21102003 T03/BP17 M/T 1/2003 (Mullins J) 9 JUDGMENT 60

There is a lack of precision in the material filed on behalf	1
of the defendant as to what sum it seeks in order to discharge the mortgage.
The defendant contends that the order sought by the plaintiff

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should not be made because it is in substance seeking summary
judgment for a mandatory order compelling redemption of the
mortgage. It was submitted that the defendant would be
prejudiced if it could not enforce its right to interest under

the mortgage.

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The defendant relies on the fact that it holds a mortgage over all the relevant land and is entitled to insist on its rights as mortgagee arising from the mortgage which was described as creating a "stand alone relationship" between the plaintiff as

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mortgagor and the defendant as mortgagee.

Mr Cooper of senior counsel, who appeared with Mr Quayle of counsel for the defendant, drew my attention to the observations of Hutley JA in Adams v. Bank of New South Wales

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[1984] 1 NSWLR 285 at 296, which were applied by Bryson J in (1996) 22 ACSR 744 at 745 to the effect that a mortgagor can call upon the mortgagee to account only where the mortgagor is prepared to make an offer to redeem.

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In the latter case, however, Bryson J did accept at 747-748 that in an appropriate case where a mortgagor has commenced a redemption proceeding which is not finalised, a Court may, by 21102003 T03/BP17 M/T 1/2003 (Mullins J) 10 JUDGMENT 60

interlocutory order, direct a mortgagee to release its	1
security prior to the finalisation of the action, if the interests of justice require an order to that effect.
An interlocutory injunction may also be ordered to restrain a

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mortgagee, if there is a serious question to be tried that
there is nothing owing under the mortgage: Westpoint Finance

Pty Ltd v. Chocolate Factory Apartments Ltd [2002] NSWCA 287.

These authorities illustrate aspects of the general rule

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referred to in Inglis v. Commonwealth Trading Bank of actual payment is regarded as sufficient to extinguish a mortgage debt and the Court will not interfere to deprive the mortgagee of the benefit of the mortgage, except upon terms

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that an equivalent safeguard is provided to the mortgagee by
means of the mortgagor bringing in an amount sufficient to

meet what is claimed by the mortgagee to be due.

From the many factual matters which are in dispute between the

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plaintiff and the defendant, it is not possible to determine
on a summary basis what amount, if any, is owed by the
plaintiff to the defendant to enable a complete discharge of

the mortgage.

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It is not disputed by the defendant that there are serious questions to be tried in respect of the claim put forward by the plaintiff. It therefore needs to be considered whether, as a matter of law, the plaintiff can obtain the interlocutory 21102003 T03/BP17 M/T 1/2003 (Mullins J) 11 JUDGMENT 60

mandatory relief which is sought against the defendant and, if	1
so, whether the balance of convenience favours making such an order.
The mortgage that was granted by the plaintiff to the

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defendant was ancillary to the relationship between the
plaintiff as owner of the land and the defendant as builder in
respect of the construction of the warehouses by the defendant

on the plaintiff's land under the building contract.

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The deed came into existence as a result of disputes between the plaintiff and the defendant in respect of the payment due under the building contract and in respect of encroachments on the adjoining land caused by the construction undertaken by the defendant.

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Although the parties purported to settle these disputes by the deed and each party has undertaken some obligations pursuant to the deed, the parties are now in dispute on the effect of the deed and the extent of the obligations undertaken by each

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of the parties under the deed.

It is against this background that the defendant wishes to curtail the consideration of what interlocutory relief can be granted to the plaintiff solely to that which can be given in

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the context of the mortgagee/mortgagor relationship between
the parties.
21102003 T03/BP17 M/T 1/2003 (Mullins J) 12 JUDGMENT 60

I remain of the view that I expressed in the course of	1
argument on 17 October 2003, that it is unrealistic to consider the matter on the basis of a stand alone relationship between the parties under the mortgage.

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The authorities relied on by the defendant to preclude the discharge of the mortgage without a redemption action can be distinguished on the basis that, to do so, would obscure the true relationship between the parties in this matter which is much more than parties to a mortgage.

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In any case, even if the substance of the relief sought by the plaintiff is treated as a discharge of the mortgage, it is sought on the basis that there is nothing owed by the plaintiff to the defendant which can be characterised as

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seeking redemption of the mortgage for no further payment. As a mortgagee and mortgagor must be finalised in one proceeding and therefore must include an offer to redeem, is subject to
was recognised in Equus Financial Services Ltd v RMBL

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an exception in the interests of justice. The general rules
benefiting a mortgagee are not inflexible: Clarke v Japan

Machines (Australia) Pty Ltd (No. 2) [1984] 1 QDR 421 at 422.

The parties must have contemplated, as the outcome of this

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development, that the plaintiff would seek to sell one or more
of the titles to be created together with the improvements
constructed by the defendant. There is no attack made by the
defendant on the proposed sale of Lot 12.
21102003 T04-05/KLP20 M/T 1/2003 (Mullins J) 13 JUDGMENT 60

The circumstances giving rise to the dispute between the	1
parties, which I have detailed, whether arising out of the building contract, the mortgage, the deed, or subsequent oral agreement or a combination of these dealings are such that, subject to the balance of convenience, the interests of

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justice may require an interlocutory order.

The plaintiff offers the usual undertaking as to damages, and there is material which supports a conclusion that that undertaking is worthwhile. The plaintiff sought to have the

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mortgage totally discharged upon the holding, from the
proceeds of sale of Lot 12, of the sum of $567,896 or such
higher amount, as determined by the Court, pending the
determination of the dispute between the parties as to what

amount, if any, was owed by the plaintiff to the defendant.

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That is not necessary to enable the plaintiff to settle the sale of the proposed Lot 12. It preserves the status quo to limit the relief to a partial release of the mortgage to enable proposed Lot 12 to be transferred to the current

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purchaser, as the mortgage and the obligations under the
mortgage (to the extent to which they govern the relationship

between the parties) can then remain extant.

It is difficult to fathom the motivations of the defendant for

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the approach it has taken to dealing with this dispute on an
interlocutory basis.
21102003 T04-05/KLP20 M/T 1/2003 (Mullins J) 14 JUDGMENT 60

The plaintiff has already been prejudiced under its securities	1
with Perpetual by the appointment of the receivers and managers in view of Perpetual's decision to charge penalty interest. There is potential for the plaintiff to be in breach of the contract for the sale of the proposed Lot 12, if

10

it is unable to settle because of being unable to obtain a
release of the mortgage over the proposed Lot 12.

Mr George, in his affidavit sworn on 10 October 2003 and filed on 13 October 2003, which exhibits the contract of sale of the

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proposed Lot 12, deposes to the balance of the proceeds of
that sale being in excess of $1 million and being available to
the plaintiff "after payment of 55 per cent of the net

proceeds of sale (after deduction of costs of sale)".

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I infer that the figure of 55 per cent of the net proceeds of sale is what is required to obtain the release of Perpetual's securities over the proposed Lot 12. The problem for this
application, however, is that if that inference is not correct

and Perpetual required the entire net proceeds from the sale

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of Lot 12 to be paid to it, there would be no fund which could
be held to preserve the status quo for the defendant. The
plaintiff's material is therefore deficient in respect of the
requirements of Perpetual in respect of the release from its

securities of each parcel of land that is subject to its

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mortgage.

The plaintiff's material is also deficient in that there is no
current title search of the land which will be the subject of
21102003 T04-05/KLP20 M/T 1/2003 (Mullins J) 15 JUDGMENT 60

the registration of survey plan 146462 in order to ascertain	1
what the current state of the registered title is. The only title search which is exhibited is of Lot 4 on RP12846 but that title search was obtained on 18 September 2003, before the loan was made by Perpetual.

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There is also insufficient information about the arrangement between the plaintiff and another mortgagee, Yellowrock Pty Ltd, ("Yellowrock") about what its requirements are in respect of the sale of proposed Lot 12. On the one hand, Mr George

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swears in his affidavit sworn on 8 October 2003 and filed on
13 October 2003, that the plaintiff has entered into a written
agreement with Yellowrock that Yellowrock is only entitled to
be paid its debt from the proceeds of the lots which,

presumably, would include proceeds from the sale of Lot 12.

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On the other hand, Mr George swears in his affidavit sworn on
10 October 2003 and filed on 13 October 2003 that the
plaintiff and Yellowrock have entered into a deed of
compromise pursuant to which the moneys advanced by Yellowrock

(a shareholder and joint-venturer of the plaintiff) of

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$2,000,050 are not "presently payable."

There is insufficient information about the status of the contracts pending the sale of three of the strata titled units and when completion is expected of those sales.

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The balance of convenience is a critical issue when a
mandatory interlocutory injunction is sought: Bingham v 7-
Eleven Stores Pty Ltd [2003] QCA 402 at paras 106 to 108.
21102003 T04-05/KLP20 M/T 1/2003 (Mullins J) 16 JUDGMENT 60

Although I consider that there are factors which favour	1
granting a mandatory order in respect of a partial release of the mortgage to allow the completion of the sale of the proposed Lot 12 on condition that most, if not all, of the net proceeds of sale after payment out of the amount required by

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Perpetual are set aside as a fund, pending the determination of this proceeding, the matter of balance of convenience cannot be determined in the light of the deficiencies in the material to which I have referred.

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It is ordered that:

(1) The application for the relief sought in
paragraphs 3 and 4 of the application filed on
16 October 2003 be adjourned to a date to be

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fixed.

(2) Liberty to either party to apply on one day's
notice in writing to the other.

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(3) Costs be reserved.

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17 JUDGMENT 60