Fuji Xerox Australia Pty Ltd v Xtreem Pty Ltd
[2017] VSC 333
•21 June 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2015 000149
| BETWEEN: | |
| FUJI XEROX AUSTRALIA PTY LIMITED (ACN 000 341 819) | Plaintiff |
| AND | |
| XTREEM PTY LTD (ACN 100 183 766) AND OTHERS (ACCORDING TO THE SCHEDULE ATTACHED) | Defendants |
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JUDGE: | Kennedy J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 & 9 June 2017 |
DATE OF JUDGMENT: | 21 June 2017 |
CASE MAY BE CITED AS: | Fuji Xerox Australia Pty Ltd v Xtreem Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2017] VSC 333 |
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CONTRACT - Orders sought to enforce Deed of Settlement - Whether appropriate to use summary enforcement procedure by action in the original proceeding - Construction of Deed - Whether appropriate to grant specific performance - Whether default provision a penalty
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr A Hanak | Polczynski Lawyers |
| For the First and Second Defendants | No appearance | Mason Black Lawyers |
| For the Third Defendant | Mr A Panna QC | DSA Law |
HER HONOUR:
This is the return of a summons dated 10 May 2017 (the Summons) which seeks judgment pursuant to a Deed of Settlement and Release executed on 18 October 2016 (the Deed). In particular, the Plaintiff seeks judgment against the Defendants in the sum of $1,910,851.19 together with orders that the Second and Third Defendants provide properly executed mortgages.
There are two substantive issues for consideration:
· First, whether, on a proper construction of the Deed, it is appropriate to enter judgment both for the sum provided for in the default provision (cl 7) as sought as well as orders for provision of mortgages pursuant to cl 4;
· Second, whether cls 4, 7 and/or 9.2 of the Deed constitute a penalty.
There was a further preliminary issue raised as to whether it was appropriate to enforce the terms by application in the original proceeding pursuant to the procedure provided for in Roberts v Gippsland Agricultural and Earthmoving Contracting Co Pty Limited (Roberts).[1]
[1][1956] VLR 555.
Although the First and Second Defendants were represented, their solicitor advised that they would not be filing submissions, but rather accepted and adopted the submissions of the Third Defendant.
Factual Background
The underlying proceeding was initially commenced by Writ dated 30 April 2015. By an Amended Statement of Claim dated 1 May 2016, Fuji Xerox Australia (Fuji) sought orders against the Defendants as follows:
· a monetary judgment in the sum of $1,910,851.19;
· delivery up of certain equipment leased to the First Defendant, Xtreem Pty Ltd (Xtreem).
· judicial sale of two properties located at 467 Victoria Street, Abbotsford, Victoria (Victoria Street Property) and 23 James Street, Abbotsford, Victoria (James Street Property).
The claim against Xtreem was based upon nine separate agreements relating to the lease of property and equipment. The claims against Cuong Vinh Thoi (Cuong) and Tri Thoi (Tri) were based on a number of guarantees given by each. Each of the guarantees contained a term charging the real property of Cuong and Tri in favour of Fuji as security for payment of all amounts due under the agreements between Fuji and Xtreem.
In the Amended Defence Cuong admitted entry into the relevant guarantees.[2] Xtreem also counterclaimed that some of the equipment was not fit for purpose and claimed damages for breach of contract/misleading conduct.
[2]Defendants’ Amended Defence, dated 13 May 2016, [103]-[106].
On 18 October 2016, the Deed the subject of the current application was executed. On the same day Croft J made orders by consent dismissing the claim and cross claim with liberty to reinstate the proceeding reserved on seven days’ notice.
Deed of Settlement and Release
The Deed is between Fuji, Xtreem, Cuong and Tri. It records that in the period between 27 January 2011 and 13 September 2013 Fuji and Xtreem had entered into various contracts identified in the schedule, pursuant to which Fuji had supplied equipment and services to Xtreem. The recitals include the following:
D.Tri has guaranteed the obligations of Xtreem in relation to the Tri Guaranteed Contracts.
E.Cuong has guaranteed the obligations of Xtreem in relation to the Cuong Guaranteed Contracts.
F.The amount guaranteed by Tri under the terms of the Tri Guaranteed Contracts and by Cuong under the Cuong Guaranteed Contracts is the sum of $1,910,851.19 plus interest (the Guarantee Value).
I.Under the terms of the Contracts Xtreem is indebted to Fuji in the sum of $1,910,851.19 plus interest plus legal fees (the Debt).
Clause 3 relates to the ‘Secured Settlement Sum’ which was defined (in cl 1.9) as the amount of $1,200,000.00 payable by Xtreem, Cuong and Tri in accordance with cl 3 of the Deed. Clause 3.1 provides as follows:
3 Secured Settlement Sum
3.1Xtreem, Cuong and Tri must pay to Fuji the Secured Settlement Sum in accordance with the following payments:
3.1.1 $300,000.00 by no later than 15 November 2016; and
3.1.2plus $33,333.33 per month payable by way of direct debit
for a period of twenty seven months with the first instalment payable by no later than 15 December 2016 and the final instalment payable by 15 March 2019.
Security was also to be provided for the payment of the Secured Settlement Sum as provided in cl 4 which read as follows:
4 Security
4.1 As security for the payment of the Secured Settlement Sum:
4.1.1Cuong is to provide Fuji at exchange of this deed with a registered mortgage in the form annexed to this Deed and marked “C” in respect of the property at 467 Victoria Street, Abbotsford, Victoria 3067 (Abbotsford Mortgage); and
4.1.2Tri is to provide Fuji at exchange of this deed with a registered mortgage in the form annexed to this Deed and marked “D” in respect of the property at 23 James Street, Abbotsford Victoria 3067 (James Street Mortgage).
No forms of mortgage were annexed to the Deed although the Plaintiff invited the Court to infer they were identical to the ones subsequently executed, as described below.
Clause 6 provided that, upon execution of the Deed, the parties consented to orders being made that the proceedings be discontinued with a right of reinstatement and each party to bear their own costs. Clause 7 then contained the default provisions which read as follows:
7Default provisions
7.1In the event that the Secured Settlement Sum is not paid in accordance with this Deed or the Abbotsford Mortgage or James Street Mortgage are not provided in accordance with this Deed or Xtreem, Cuong or Tri breach the warranties and undertakings set out in clause 10 below then the whole of the Guarantee Value and the Debt shall immediately become due and payable (without any demand therefor) and Fiji shall forthwith be at liberty to reinstate the Proceedings and:
7.1.1 enter judgment by consent against Cuong and Tri for:
(a)the whole amount of the Guarantee Value then outstanding;
(b)interest on the Guarantee Value calculated in accordance with the Penalty Interest Rate Act 1983 (Vic) from the 4 March 2015, being the date of service of a demand under the guarantees to the date of judgment if any;
(c)the costs of reinstating the proceedings and entering judgment on an indemnity basis;
7.1.2conclusively prove the default of Cuong and Tri and the amount of the Guarantee Value then outstanding (including interest) by an affidavit of the solicitor for Fuji based on information and belief; and
7.1.3tender to the Court, without further proof or authentication, this deed as conclusive evidence of the irrevocable consent of Cuong and Tri to such application and judgment;
7.1.4 enter judgment by consent against Xtreem for:
(a) the whole amount of the Debt then outstanding;
(b)interest on the Debt calculated in accordance with the Penalty Interest Rate Act 1983 (Vic) from the 4 March 2015 to the date of judgment;
(c)the costs of reinstating the proceedings and entering judgment on an indemnity basis;
7.1.5conclusively prove the default of Xtreem and the amount of the Debt then outstanding (including interest) by an affidavit of the solicitor for Fuji based on information and belief; and
7.1.6tender to the Court, without further proof or authentication, this deed as conclusive evidence of the irrevocable consent of Xtreem to such application and judgment.
Clause 8.1 provided that once Fuji had received payments in accordance with cl 3.1 then Fuji would provide Cuong and Tri with discharges of mortgages.
Clause 9 related to ‘Releases’ and provided for mutual releases. Clause 9.2 provided that upon payment of the Secured Settlement Sum in accordance with the terms of the Deed, Fuji would release and forever discharge Xtreem, Cuong and Tri from the ‘Released Claims’ (broadly defined in cl 1.8 to mean all claims of any nature which the parties may have against each other).
Clause 10 provided for warranties and undertakings as follows:
10 Warranties and Undertakings
10.1 Each of Xtreem, Cuong and Tri undertake and warrant to Fuji
that they:
10.1.1have full capacity, power and authority to enter into, execute and perform or cause to be performed his or its obligations set out in this Deed;
10.1.2have relied upon their own enquiries and has not entered into this Deed in reliance on, or as a result of, any representation, promise, statement, conduct or inducement by or on behalf of Fuji otherwise than has been expressly recorded in this Deed;
10.1.3have taken independent legal advice as to the nature, effect and extent of the agreement and this Deed; and
10.1.4are aware that Fuji have relied upon the warranties and undertakings set out above in entering into this Deed.
10.2Each of Cuong and Tri undertake and agree will not increase the amounts outstanding under mortgages or charges ranking ahead of the Abbotsford Mortgage or the James Street Mortgage.
10.3In the event the warranties and undertakings at clause 10.1 above is found to be false, or there is a breach of clause 10.2 the releases provided by Fuji to Xtreem, Cuong and Tri pursuant to clause 9.2 of this Deed will not apply and Fuji may, at its option, take the steps as foreshadowed at clause 7.1 above.
Clause 15.10 finally provided for ‘Severance’ as follows:
15.10 Severance
Any provision of this Deed that is invalid, unenforceable or illegal must be read down to the extent necessary to avoid that effect. If that is not possible, that provision must be excluded from this Deed but only to the extent necessary to avoid that effect. All other provisions of this Deed continue to be valid and enforceable.
Other Matters
By correspondence of 14 October 2016, the Plaintiff’s solicitor emailed the Defendants with draft mortgages (in circumstances where the parties had reached in principle agreement).
On 17 October 2016, Mr Sinisgalli (the Defendants’ solicitor) returned the mortgages together with a declaration by the mortgagors and Australian Legal Practitioner’s Certificates.
After noticing that the first page of the mortgage had not been signed, the Plaintiff’s solicitor sought further copies of the mortgages which were subsequently emailed.
In the result, by correspondence of 20 October 2016, Mr Sinisgalli enclosed:
· mortgages which were executed by Cuong and Tri (and in the case of the James Street Property, the joint registered proprietor, Hieu Vinh Thoi). The mortgages purported to secure the Secured Settlement Sum and ‘all other monies payable … under the Deed of Settlement and Release’.
· A declaration by each mortgagor that he had received independent legal advice regarding the Deed, Memorandum of Common Provisions AA2712, and the mortgage and that, after receiving this advice, he had ‘freely and voluntarily signed the Deed of Settlement and Release and the mortgage’;
· Australian Legal Practitioner’s Certificates from Mr Sinisgalli of 18 October 2016 in each case which included a statement that he had explained the general nature and effect of the documents required to be signed.
However, although the mortgages were now executed, it was found on review that the mortgages had not been signed on every page, and further that certified photocopies of the mortgagors’ driver’s licenses and passports had not been included.
The evidence of Ms Megan Eunice Goodwin (the town agent responsible for registering the mortgages) was, that on speaking to the Land Titles Office, she was informed by the technical advice officer that the mortgages needed to be signed on each page and that the Land Titles Office would otherwise not accept them.
In the meanwhile, no payments at all were made pursuant to cl 3 of the Deed.
The Plaintiff’s solicitor thereafter sent a letter on 19 January 2017 requesting re-execution of the mortgage and also notifying of the breaches of the Deed.
No response has been received to this request.
On 10 May 2017, the Summons was then issued.
The matter was returned on 25 May 2017 at which time an order by consent was made to reinstate the proceeding. The matter was then adjourned to provide an opportunity for the Defendants to put on material (by 1 June 2017) and obtain advice.
In the result, no material was filed on behalf of the Defendants.
The parties then provided oral submissions to the Court on 7 June 2017 and, further, on 9 June 2017.
Preliminary Issue
A preliminary issue is whether it is appropriate to summarily enforce the compromise through the existing proceeding (otherwise known as the ‘Roberts jurisdiction’) being commonly identified in this State with the 1956 decision of the Court of Appeal in Roberts.[3]
[3][1956] VLR 555.
The matter has been considered by the Court of Appeal in the decision of Seachange Management Pty Ltd v Pital Business Pty Ltd where their Honours state the following:
In summary, therefore, the net effect of the authorities to this point seems to be that, although the power summarily to enforce a compromise is discretionary and is wider now than once was the case, it is not to be invoked unless the court is ‘clearly satisfied that justice can be done’; and whether justice can be done is a question of degree. Consistently with the equitable origins of the power, one must weigh among other competing considerations the extent to which enforcement would involve extraneous matters, how substantial the questions to be determined as a precursor to enforcement may be, and procedural considerations like the desirability of pleadings and discovery and substantial cross-examination.[4]
[4](2009) 23 VR 396, [40].
The Third Defendant challenged the appropriateness of determining the matter through the existing proceeding pursuant to Roberts. The primary basis for this challenge appeared to be the potential impact on third parties.
I will deal with this particular complaint about third parties hereunder. However, I have taken into account that only two substantive issues were raised; that no material was filed on behalf of the Defendants; and that pleadings and discovery did not appear to be necessary. Overall then, having regard to the overarching purpose of the Civil Procedure Act,[5] I am satisfied that ‘justice can be done’ by resolving the issues pursuant to Roberts without further delay or cost.
[5]Pursuant to s 7 of the Civil Procedure Act 2010, the overarching purpose is to facilitate the just, efficient, timely and cost‑effective resolution of the real issues in dispute.
Construction - Whether Plaintiff Entitled to Relief
Before considering the issues of construction raised, the Plaintiff has established, prima facie, two breaches of the Deed. First, that the Defendants have not paid the Secured Settlement Sum pursuant to cl 3.1. Second, that although the Defendants have purported to provide a registered mortgage, they have not taken all necessary steps to enable the mortgages to be registered. In these circumstances, I am satisfied that there is a breach of cl 4.1, as the concept of ‘providing a registered mortgage’ may be read as the taking of all necessary steps (within the power of the mortgagor) to ensure the mortgage may be registered.[6]
[6]And see Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607
The Defendants nevertheless submitted that it was not appropriate for the Plaintiff to pursue orders in the nature of specific performance for the mortgages under cl 4 as well as pursuant to cl 7.1 (making reference also to cl 8.1). Secondly, that the remedy of specific performance was not appropriate where there was already adequate provision for damages and given it was premature. Finally, that specific performance was not appropriate given the potential effect on third parties.
The first point, in particular, raised a construction issue in relation to the Deed.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean.[7] The determination is made objectively, by reference to the text, context and purpose of the contract.[8]
[7]Mount Bruce Mining v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [47]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 91 ALJR 486, 496 [45], 502 [73] (Ecosse); Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656 [35] (Electricity Generation Corporation).
[8]Mount Bruce Mining (2015) 256 CLR 104, 116 [46].
In considering the proper construction of the Deed, it is significant that both the Second and Third Defendants acknowledge that they have given the guarantees (Recitals D and E) which contained the charges. Further, that ‘the amount guaranteed’ is the sum of $1,910,851.19 plus interest. Pursuant to Recital I the parties also acknowledge that Xtreem ‘is indebted’ in the sum of $1,910,851.19 plus interest.
In the light of these acknowledgments, a reasonable businessperson would understand that, although Fuji was entitled to receive the Debt/Guarantee Value of $1,910,851.19 plus interest (as acknowledged), it was prepared to extend an opportunity to the Defendants to pay a lower amount ($1,200,000.00) over time in circumstances where Fuji obtained the mortgages and the litigation was finalised.
In this context, I do not consider that cl 7.1 constitutes an exhaustive statement of the Plaintiff’s remedies. In particular, although the Deed provides the Plaintiff with an independent contractual remedy for the full debt under cl 7.1 (if a relevant default occurs) I do not regard this as excluding the Plaintiff’s ordinary remedies to enforce cl 4.1 and obtain the security to which it was entitled at the exchange of the Deed.
In relation to cl 8.1, it is true that it makes provision for a discharge when Fuji receives the settlement sum in accordance with cl 3.1. Further, that, by reason of the default of the defendants, the mortgage may not be discharged pursuant to this provision. However, the defendants cannot rely on their own default (being non-compliance with clause 3) to absolve them from complying with their obligations to give security in the first place. The defendants may also seek to cure their default by making payment of the full $1.2 million in order to obtain a discharge of the mortgage.
I am therefore satisfied that the Plaintiff is entitled to enforce its entitlement to security in addition to utilising cl 7.1 (in the case of default) to enforce its (full) debt. Although it is not entitled to use the ‘conclusive’ provisions in cl 7.1 in seeking security, the uncontroverted evidence satisfied me that the mortgages had not been given in registrable form, for reasons given already.
The material also satisfied me that the remedy was necessary given the difficulty with registering the mortgages. I am not satisfied that there is an adequate remedy in damages in circumstances where the Defendants have not paid any money whatsoever despite being given opportunity to do so.
For similar reasons I do not regard the remedy to be premature.
Insofar as third parties were concerned, there was no evidence filed in support of any such claims (despite vague reference being made to them in an affidavit in support of the adjournment of Mr Franklin of 24 May 2017). Rather, the evidence suggested that the Plaintiff may face hurdles in obtaining registration/the full benefit of the mortgages in the following ways:
· First, given Tri was shown as one of two joint proprietors of the James Street Property a security will be valid in respect of his interest only;[9]
· Second, the existence of a caveat over the Victoria Street Property (of 4 May 2017) may also present issues for the mortgagee in obtaining registration.
[9]Fisher & Lightwood, Law of Mortgage, 2nd ed, [11.4]
However, notwithstanding these issues for the Plaintiff, they do not prevent Cuong and Tri from taking necessary steps (within their power) to provide properly executed mortgages in registrable form.
It follows that, subject to the penalty issue, the Plaintiff is entitled to the relief sought. In so saying, I reject the Plaintiff’s suggestion (made only on 9 June 2017) that the relief should be enlarged such that the mortgage extend to the full debt. Although it may be the case that the form of mortgage provided purported to extend to all monies due under the Deed, the clear intention of cl 4 was that the security only be security ‘for the payment of the Secured Settlement Sum’ ($1,200,000 million).
Whether Clauses Give Rise to a Penalty
The rule against penalties has been recently considered by the High Court in the decision of Paciocco v Australia and New Zealand Banking Group Limited (Paciocco).[10] By majority, French CJ, Kiefel, Gageler and Keane JJ (Nettle J dissenting) held that the relevant fees levied by the bank on consumer credit card accounts and on consumer business deposit accounts were not penalties.
[10](2016) 333 ALR 569.
Kiefel J (as her Honour then was), with whom French CJ agreed, highlighted the significance of the requirement stated by Lord Dunedin in the decision of Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd (Dunlop)[11] that the sum stipulated be ‘extravagant and unconscionable’ before it can be characterised as a penalty. Further, that the relevant question was ‘whether a provision for the payment of a sum of money on default is out of all proportion to the interests of the party which it is the purpose of the provision to protect.’ [12]
[11][1915] AC 79.
[12]Paciocco (2016) 333 ALR 569, 579 [29] and see also [69].
Gageler J emphasized the penal purpose of a penalty, stating:
Framing the inquiry in terms of whether the stipulation in issue is properly characterised as having no purpose other than to punish compels a more tailored inquiry into the commercial circumstances within which the parties entered into the contract containing the stipulation than might be involved in asking, as did the Supreme Court of the United Kingdom in Cavendish, whether the stipulation serves a ‘legitimate interest’. That is not, of course, to say that the differently framed inquiries might not lead to the same result.[13]
[13]Ibid 605 [166].
Keane J also noted Lord Dunedin’s statements in Dunlop and then referred to another High Court decision in Andrews v Australia and New Zealand Banking Group Ltd (Andrews),[14] before stating the following:
Accordingly, the question to be addressed in order to distinguish a penalty from a provision protective of a legitimate interest is:
‘whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract.’ [15]
[14](2012) 247 CLR 205.
[15]Paciocco (2016) 333 ALR 569, 628 [270] citing Cavendish Square Holding BV v Makdessi [2015] 3 WLR 1373; [2016] 2 All ER 519; [2015] UKSC 67 (citations omitted).
In written submissions the Third Defendant submitted that cls 4, 7.1 and 9.2 ‘in combination’ constituted a penalty.
When asked to articulate the precise basis for the penalty allegation the Third Defendant relied on four matters in oral submissions as follows:
· First, that the entire Deed amounted to a penalty because the Defendants obtained no release on signing the Deed, but rather a liability to pay a greater amount (in the event of non-payment of the secured settlement sum);
· Second, that cl 7.1 provided for an entitlement to the whole amount regardless of the severity of the particular breach;
· Third, that the Plaintiff obtained an entitlement to a registered mortgage without giving a corresponding release; and
· Fourth, that the entitlement to the full amount was out of proportion when considered in the context of the Plaintiff’s entitlement immediately prior to execution (at which time they were not entitled to a registered mortgage nor to rights against a third party).
Before turning to these matters, for reasons given already, I consider that the Defendants have already acknowledged their liability for the full amount of the Debt/Guarantee Value. This has been significant in authorities dealing with penalties.[16]
[16]See Calcorp (Australia) Pty Ltd & Ors v 271 Collins Street Pty Ltd (2010) 29 VR 462 and authorities cited therein.
I also consider that the Plaintiff’s ‘interests’ in this case turned on their interest in receiving appropriate satisfaction for their (acknowledged) Debt.
Although it might be appropriate to consider cl 7 in context (including in context of cls 4 and 9.2) there is also considerable difficulty with the proposition that they ‘in combination’ constitute a penalty.
Thus, the High Court has stated that a penalty is ‘in the nature of a punishment for non-observance of a contractual stipulation and consists, upon breach, of the imposition of an additional or different liability’.[17]
[17]Andrews (2012) 247 CLR 205, 216 [9].
Clause 4 cannot consist of ‘an additional liability’ for the non-observance of a contractual stipulation. Rather, it constitutes a primary stipulation in its own right for the Defendants to provide the mortgages.
Clause 9.2 does not impose any liability on the Defendants at all. To the contrary, it imposes an obligation on Fuji to release the Defendants on payment.
Returning to the allegations made. Firstly, although there was an obligation to pay a ‘higher amount’ in the event of default pursuant to cl 7.1, this was appropriate so as to protect the Plaintiff’s interest in obtaining appropriate satisfaction of the (acknowledged) Debt. The ‘absence of a release’ was not penal and could not amount to any ‘additional detriment’. In any event, it was appropriate that no release was given in the absence of payment so as to secure the Plaintiff’s interests as identified.
The second point raised may draw support from the third ‘test’ of Lord Dunedin in Dunlop to the effect that there is a presumption that a sum will be a penalty where it is a single sum made payable on the occurrence of one or more of several events, some of which may occasion serious, and others only inconsequential damage.[18]
[18][1915] AC 79, 87.
However, as the judgments in Paciocco make clear, the Dunlop ‘tests’ should be treated with care and are a guide only.[19]
[19]Paciocco (2016) 333 ALR 569, 580 [32], 599-601 [142]-[152], 628 [268].
In any event, each of the breaches giving rise to the entitlement are in my view serious. Thus the non-provision of security and the non-payment of the Secured Settlement Sum relate to critical obligations. The breach of warranties the subject of cl 10 might, at first glance, appear to be less significant. Nevertheless, cl 10.3 clarifies that it is only if the warranties in cl 10.1 are found to be ‘false’, or the amounts outstanding under earlier instruments are increased pursuant to cl 10.2, that cl 7.1 is to be utilised. The word ‘false’ carries a serious connotation as to the conduct of the Defendants, going to matters as to the integrity of the Deed. Clause 10.2 is also pivotal given an increase in the amounts outstanding on the mortgages would seriously undermine the relevant security. Seen in this light, I do not see the breach of the warranty/undertaking as being inconsequential, bearing in mind that the provision should be read down to the extent necessary to avoid that effect pursuant to cl 15.10. Even if it was seen as penal, given the Plaintiff is not pursing a breach of the warranty, that breach might readily be severed from cl 7.1 with no corresponding consequence for the Plaintiff.
In relation to the last two points, the fact that the Plaintiff obtained a mortgage without a release was not collateral to a primary obligation such as could constitute a penalty for reasons already given. It is thereby inappropriate to consider the rights of the Plaintiff prior to entry into the Deed (at which time it already held a charge) in circumstances where the Deed made provision for a substituted agreement creating a fresh entitlement to a mortgage. The plaintiff has further not sought, and no order will be made, against any third party.
Insofar as the ‘full amount’ was payable on default under cl 7.1, as I have already determined, this was commensurate with the Plaintiff’s entitlement to be paid the full Debt as already acknowledged by the Defendants.
Overall then, I am not satisfied that cl 7.1 provides for a penalty even considered in the context of the overall Deed. The remedy provided by cl 7.1 is not ‘out of all proportion’ or ‘exorbitant or unconscionable’ when considered against the Plaintiff’s entitlement to appropriate satisfaction of its Debt. More particularly, I am not satisfied that it merely serves to punish the Defendants in the event of default.
Conclusion
I am satisfied that it is appropriate to make orders against the defendants for the provision of properly executed mortgages together with judgment in the amount of $1,910,851.19 plus interest and costs.
I will hear from the parties as to the precise form of order.
SCHEDULE OF PARTIES
| BETWEEN: | |
| FUJI XEROX AUSTRALIA PTY LIMITED (ACN 000 341 819) | Plaintiff |
| - AND - | |
| XTREEM PTY LIMITED (ACN 100 183 766) | First Defendant |
| CUONG VINH THOI | Second Defendant |
| TRI THOI | Third Defendant |
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