Globe Capital Administration Pty Ltd v Cecil Developments Pty Ltd atf the Cecil Developments Unit Trust (Receivers and Managers appointed)

[2023] NSWSC 574

Supreme Court

New South Wales

Medium Neutral Citation:

Globe Capital Administration Pty Ltd v Cecil Developments Pty Ltd atf the Cecil Developments Unit Trust (Receivers and Managers appointed) [2023] NSWSC 574

Hearing dates:

15 May 2023

Date of orders:

31 May 2023

Decision date:

31 May 2023

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Modified orders for preliminary discovery made. Liberty granted to the applicant to further amend its Amended Summons to seek judicial sale of the mortgaged property. Costs of the application reserved.

Catchwords:

CIVIL PROCEDURE – preliminary discovery to identify potential cause of action – reasonable inquiries – Uniform Civil Procedure Rules, r 5.3 – applicant claims to be an unregistered second mortgagee of certain land under development – applicant seeks preliminary discovery of information from the first mortgagee, principally concerning the amount outstanding on the first mortgage and the valuation of the mortgaged property – the registered proprietor is in default to the first mortgagee and under its loan arrangements with the applicant – the applicant’s requests for information from the first mortgagee about the first mortgagee’s dealings with the mortgagor have gone unanswered – whether the applicant’s claim for preliminary discovery is available – whether the applicant’s claim for preliminary discovery is so wide as to be oppressive.

MORTGAGES – application for judicial sale by an applicant who claims to be an unregisterd second mortgagee - mortgagor in default on first and second mortgages – second mortgagee seeks information from the first mortgagee to facilitate the sale of the mortgaged property - the Court notes that the remedy of judicial sale may be available to the applicant and offers the applicant an opportunity to amend to seek judicial sale.

Legislation Cited:

Civil Procedure Act2005, ss 56, 57, 58

Conveyancing Act1919, ss 109, 115(2)

Corporations Act 2001 (Cth), ss 420, 420A, 1324

Insolvency Practice Rules (Corporations) (Cth) 2016, r 70-10

Uniform Civil Procedure Rules 2005, r 5.3

Cases Cited:

Artistic Builders Proprietor Limited v Elliot & Tuthill (Mortgages) Pty Ltd [2002] NSWSC

Australian Mutual Provident Society v Geo Myers & Co Ltd (1932) 47 CLR 65

Bank of Western Australia v Abdul [2012] VSC 222

Bayblu Holdings Pty Limited v Capital Finance Australia Limited [2011] NSWCA 39

BCG Securities (Australia) Pty Ltd v Shillington (No. 2) [2022] SWSC 807 and Gooley & Ors v Breda Pty Ltd [2017] NSWSC 1505

Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506

Hearne v Street (2008) 235 CLR 125

King Investment Solutions v Hussain (2005) 64 NSWLR 441

Morton v Nylex Ltd [2007] NSWSC 562

O’Connor v O’Connor [2018] NSWCA 214

Sood v Christianos [2008] NSWSC 1087

St George Bank Limited v Rabo Australia Ltd (2004) 211 ALR 147

State Bank of New South Wales v Chia (2000) 50 NSWLR 587

Steffen v ANZ Banking Group [2009] NSWSC 666

Tabcorp Holdings Ltd v Entain Group Pty Ltd [2023] NSWSC 220

The Age Company Ltd & Ors v Liu (2013) 82 NSWLR 268

Category:

Procedural rulings

Parties:

Applicant: Globe Capital Administration Pty Ltd ACN 608 004 299
First Respondent: Cecil Developments Pty Limited atf the Cecil Developments Unit Trust (Receivers and Managers appointed) ACN 619 221 644
Second Respondent: Gemi 168 Pty Ltd ACN 638 719 641
Third Respondent: David Hurst in his capacity as Receiver and Manager over properties owned by Cecil Developments Pty Ltd
Fourth Respondent: David Sampson in his capacity as Receiver and Manager over properties owned by Cecil Developments Pty Ltd

Representation:

Counsel:
Applicant: M. Thompson
Respondents: H. Sommerville; will

Solicitors:
Applicant: Ramy Qutami, Madison Marcus Law Firm
Respondents: Peter Leigh Harrison, Thomson Geer Law Firm

File Number(s):

2022/340158

Publication restriction:

No

Judgment

1. The point at issue in these proceedings is whether an applicant, an unregistered second mortgagee of certain development property, should have an order for preliminary discovery against a first mortgagee of the property. The mortgagor is in default to the first mortgagee and to the applicant. The applicant suspects the first mortgagee has been promoting its own financial advantage by dragging its feet in selling the mortgaged property for over 18 months, whilst default interest accrues on the first mortgage at more than $35,000 a day. The first mortgagee denies any such misconduct.

2. The Court here makes amended preliminary discovery orders in favour of the applicant against the first mortgagee and reserves the question of costs. But the Court doubts that this preliminary discovery contest and consequent litigation will quell this dispute either quickly or efficiently. To further the objects of Civil Procedure Act 2005, ss 56, 57 and 58, the Court invites the parties to consider the remedy of the judicial sale of the mortgaged property and gives liberty to the applicant to amend its Summons.

3. These proceedings were heard on 15 May 2023. Mr M. Thompson of Counsel instructed by Marcus Law Firm appeared for the applicant. Mr Somerville and Mr D. Meyerowitz-Katz of counsel instructed by Herbert Geer appeared for the respondents.

4. The applicant executed a form of second mortgagee and will from time to time be referred to as the second mortgagee in these reasons. But describing the applicant this way is without prejudice to the respondents’ contention that the applicant has elected not to pursue its remedies as will a second mortgagee and is merely an unsecured creditor.

Background to the Application

5. The applicant, Globe Capital Administration Pty Limited ("Globe") is in the business of property development and related investment lending. The first respondent, Cecil Developments Pty Limited as trustee for the Cecil Developments Unit Trust ("Cecil") is the registered proprietor of nine parcels of land in the north-western Sydney suburb of Castle Hill, "the Castle Hill properties"). Gemi 168 Pty Ltd (“Gemi”), the second respondent, advanced loan funds to Cecil on security to aid its development of the Castle Hill properties and became the first mortgagee of that land. Gemi’s loan agreement with Cecil is not presently available to Globe or to the Court. Globe does not know the exact amount owing on Cecil's first mortgage to Gemi.

6. Globe advanced funds to Cecil, initially on an unsecured basis. But Cecil defaulted on Globe’s unsecured loan. As a result of Cecil’s default, in October 2020 Globe and other parties commenced proceedings in this Court against Cecil (“the 2020 proceedings”).

7. The 2020 proceedings settled by a Deed of Release ("the Deed") on 14 May 2021. In the Deed Cecil covenanted to grant Globe a second mortgage over the Castle Hill properties, and to do all things reasonably necessary to facilitate registration of Globe’s second mortgage, and to agree to the entry of judgment upon any further default by Cecil. Initially Gemi and Cecil disputed that Cecil had signed the second mortgage to Globe. But execution was conceded later during argument. Globe’s second mortgage from Cecil remains unregistered.

8. The Deed provided for a settlement sum of $17,500,000 plus GST. The Deed contained the following other relevant clauses. Clause 4 of the Deed provides as follows:

“4. Settlement Sum

4.1   In consideration of the Plaintiffs and Merck agreeing to settle the Dispute and all Claims between the parties, the Defendants shall pay the Settlement Sum to Globe as follows, time being of ihe essence:

(a)    $5,000,000.00 plus GST on or before the date that is three (3) months following the Deed Date, less amounts received by Globe under clause 4.2;

(b)   $5,000,000.00 plus GST on or before the date that is six (6) months following the Deed Date;

(c)   $7,500,000.00 plus GST on or before the date that is twelve (12) months following the Deed Date.

4.2   On the Deed Date, the Plaintiffs and the Defendant hereby authorise Madison Marcus Law Firm Pty Limited to release the Garnishee Monies to Globe’ The receipt by Globe of the Garnishee Monies shall be taken as a pan payment of the Settlement Sum.

4.3   In the event that the Defendants fail to pay any of the instalments of the Settlement Sum by the relevant due date or otherwise breach any term of this Deed, the parties acknowledge:

(a)   the entire unpaid portion of the Settlement Sum shall become immediately due and payable without the need for demand by Globe;

(b)   interest will accrue on the entire unpaid portion of the Settlement Sum from the date which payment was due until payment of the Settlement Sum (including interest) has been paid in full at the rate of 10% per annum, calculated daily and compounding at the end of each calendar month;

(c)   the Plaintiffs may file Consent Orders 2 with the Supreme Court of New South Wales in accordance with clause 9, provide those orders to the Associate of the Expedition List Judge and/or Sackar J as the case may be, and take any further action that is required to arrange for those orders to be made and entered.”

9. Clause 6 of the Deed provides as follows:

“Mortgage

6.1   Upon execution of this Deed, Globe and the Trustee will execute the Second Mortgage and deliver the executed Second Mortgage to the Defendants.

6.2   Immediately after receipt of the executed Second Mortgage. the Defendants must use its best endeavours to facilitate the registration the Second Mortgage against the Land as soon as practicable and no later than the date that is three weeks after the Deed Date. Without limiting the generality of this clause, the Defendants must. at their own cost use their best endeavours to:

(a)   obtain the consent of the First Mortgages to register the Second Mortgage;

(b)   obtain the consent of the Council to register the Second Mortgage;

(c)   obtain the consent of any other third party that may be required to enable the Second Mortgage to be registered;

(d)   enter into any deed of priority which may be required to permit the registration of the Second Mongage, whether or not that condition has been imposed by the First Mortgages and/or the Council; and

(e)   otherwise produce and/or execute all documents requested by the Plaintiffs to enable the registralion of the Second Mortgage.

6.3   The Defendants mus'l ensure that the Second Mortgage ranks only behind the First Mortgagee and the VPA in order of priority of encumbrances secured against the Land. To the extent that any third party has an interest in the Land that has priority over the Second Mortgage, the Defendants must procure the discharge or postponement of that interest.

6.4   The Defendants must keep the Plaintiffs informed as to all negotiations with any party in connection with procurement of registration of the Second Mortgage. Without limiting the generality of this clause. the Defendants must ensure that:

(a)   the Plaintiffs and their solicitors are copied into all email and written correspondence;

(b)   the Plaintiffs are given prior notice of any proposed meeting conference or telephone attendance and permitted to attend same in the presence of the Defendant(s).

6.5   Once the Second Mortgage is registered under this clause, Globe is not required to remove such mortgage until all amounts due by the Defendants under this Deed have been paid in full.

6.6   The Plaintiffs acknowledge that the Defendants will require re- Inance and/or extension of the facility provided by the First Mortgages in order to pay money due to the Piaintiffs under this Deed. The Plaintiffs must act reasonably in providing any consent (including by signing any document) reasonably required by the Defendants in connection with such re-finance and/or extension so as to facilitate payment of the Settlement Sum in full 0r in part as provided for in this Deed, subject always to clause 16.3.

6.7   Notwithstanding clause 6.6 and 16.1, the Defendants are permitted to, without obtaining the consent of the Plaintiffs, re-finance and/or extension of the facility provided by the First Mortgagee in order to finance the costs of preparing and lodging a development application (DA Costs) in respect of the Land (but for no other purposes) provided always that the:

(a)   Defendants give prior notice to such proposed re-finance and/or extension to the Plaintiffs;

(b)   Defendants give notice to the Plaintiffs prior to and immediately following each drawdown;

(c)   Defendants promptly provide any documents requested by the Plaintiff in connection with the debt that is secured against the Land;

(d)   total amount borrowed to finance the DA Costs does not exceed $3,500,000 incl. GST;

(e)   the total amount which the Plaintiffs are indebted to the First Mortgagee (or any refinancing first mortgagee) does not exceed $64,379,199.07 inclusive of interest and costs; and

(f)   the terms of any refinance or extension of ihe facility provided by the First Mortgages is on terms no less favourable to the Plaintiffs than those which apply as at the Deed Date.”

10. Clause 7 of the Deed provides as follows:

“7.   Charge

7.1   Upon execution of this Deed, the Trustee charges the Land in favour of the Plaintiffs to secure the obligations of the Defendants under this Deed. Without limiting the obligations secured under this clause, the Trustee charges the Land to secure the Defendants obligation to:

(a)   pay the Settlement Sum and any interest under clause 3;

(b)   pay the Rent under clause 8.

7.2   Such charge may be registered and constitutes a caveatabie interest. consented to by the registered proprietor (the Trustee), in favour of the Plaintiffs. The Trustee shall neither raise complaint nor require the lapsing or removal of a caveat, where the Plaintiffs register such interest pursuant to this Deed. This equitable interest accrues and is applicable under the Real Property Act 1900 (NSW) and under the common law.

7.3   Once the caveat is registered under this clause, the Plaintiffs are not required to remove such caveat until all amounts due by the Defendants under this Deed have been paid in full.”

11. Clause 9 of the Deed provides as follows:

“9.   Consent Judgment

9.1   The parties agree to execute the Consent Orders 2 simultaneously to the execution of this Deed and provide those to lhe Plaintiffs.

9.2   The Plaintiffs are to hold the Consent Orders 2 executed in accordance with clause 9.1 in escrow. The Plaintiffs will be entitled to file with the Couri the Consent Orders 2 without any further notice in the event that:

(a)   the Trustee fails, refuses and/0r neglects to execute the Second Mortgage;

(b)   any Defendant breaches any of its obligations under this Deed;

(c)   the Defendants fail to pay any instalment of the Settlement Sum by the date upon which that instalment falls due and payable pursuant to clause 4.1.

9.3   Upon the Plaintiffs receiving all money to which they are entitled under this Deed, the Plaintiffs shall not be entitled to file Consent Orders 2 in the Court or otherwise seek orders to the effect set out in Consent Orders 2 and will at their election either:

(a)   return the originally executed Consent Orders 2 to the Defendants; or

(b)   destroy the Consent Orders 2,

9.4   The Defendants shall not be entitled to raise any defence or take any step to preclude the Court from making Consent Orders 2 should the Plaintiffs become entitled to file Consent Orders 2 under this Deed. For this purpose, the Defendants consent to those orders being made without condition limitation , counter-claim, cross-claim, cross-demand, set-off or any other offsetiing claim, and shall do all things necessary to enable the Court to make such orders.

9.5   If the Court makes Consent Orders 2, the Plaintiffs undertake only to enforce the judgement contained therein, less any amounts paid by the Defendants towards the Settlement Sum.”

12. Globe lodged a caveat to protect its second mortgage interest in May 2021.

13. Cecil defaulted on its obligations to Globe again. Consequent upon Cecil’s further default on 18 August 2021 Globe took advantage of its entitlement under the Deed, clause 9 to enter judgment against Cecil for $19.25 million in the 2020 proceedings. On 18 October 2021 Globe exercised its rights under the second mortgage upon Cecil’s default, to appoint Mr Simon Cathro as a receiver and manager over the Castle Hill properties. Mr Cathro took steps to sell the Castle Hill properties to recover the debt Cecil owed by procuring marketing proposals from real estate agents and engaging a valuer to prepare a valuation of the Castle Hill properties.

14. A month after Globe appointed Mr Cathro, Gemi appointed receivers and managers to the Castle Hill properties under its first mortgage. On 12 November 2021 Mr David Hurst, the third respondent, and Mr David Sampson, the fourth respondent, who are from time to time referred to in these reasons as “the receivers”. Soon after Mr Hurst and Mr Sampson were appointed they informed Mr Cathero that Cecil was indebted to Gemi in the sum of $62,780,104.70.

15. The same day, 12 November 2021, Cecil’s sole director, Mr Marles Zhu appointed Mitchell Ball and Dominic Calabretta as voluntary administrators of Cecil. Also on the same day a company related to Gemi, GI 291 Pty Limited (“GI 291”), lodged a caveat on the title of the Castle Hill properties. Mr Zhu was the director of Cecil until 2 September 2022, when a sequestration order was made against his estate.

16. The voluntary administrators of Cecil held several meetings of creditors between 24 November 2021 and 2 Februay 2022. In the last meeting of creditors held on 2 Februay 2022, against the recommendation of the voluntary administrators the majority of creditors (some of whom Globe says are related to Cecil) passed a resolution to bring the administration of Cecil to an end. Gemi and GI 129 abstaining from voting.

17. The receivers obtained appraisals from real estate agents in about December 2021. They entered into an agency agreement with a real estate agent, Colliers, six months later, on 11 April 2022. The Castle Hill properties have not yet been publicly marketed for sale.

18. Globe claims Cecil and other defendants to the 2020 proceedings are presently indebted to it and other plaintiffs in the 2020 proceedings in the sum of $19.25 million plus post judgment interest pursuant to the judgment of this Court entered on 18 August 2021 in the 2020 proceedings.

19. Globe through Mr Cathro and its solicitors has sought multiple updates regarding the sale process in relation to the Castle Hill properties. Globe has initiated almost monthly correspondence from February 2022 seeking such information and has only received perfunctory responses at a high level of generality that give Globe little information as to what has really been going on in the sale process. The receivers declined to provide information on the basis of its confidentiality. In response Globe offered confidentiality undertakings but the solicitors for the receivers refused to agree to a confidentiality regime.

20. But one part of what the receivers did disclose about the sale process through their proxy later turned out to be inaccurate. The receivers indicated in February 2022 that a decision would be made about the appointment of a real estate agent to conduct the sale process prior no later than 7 February 2022. Later materials disclose that the agents, Colliers were not appointed to manage the sale process until April 2022, some five months after the receivers were appointed. The delay of five months and the incorrect information about the appointment of Colliers have not been explained. No significant public marketing campaigns of the Castle Hill properties have been identified.

21. Globe has also made demands for registration of its mortgage. Cecil has not facilitated its registration. Globe has sought the consent for its registration from both Gemi, the first mortgagee, and GI 291. Despite many requests neither Gemi nor the caveator GI 291 have consented to the registration of Globe’s second mortgage. It emerged in these proceedings that the respondents dispute Globe’s right of enforcement of its second mortgage because Globe has entered judgment for $19.25 million in the 2020 proceedings pursuant to the Deed. And despite many requests Gemi has failed to provide Globe with a current payout figure on the first mortgage or any information about efforts to sell the Castle Hill properties.

12. The proceedings started with Gemi and Cecil putting in issue of whether Cecil had executed Globe’s second mortgage. But using its powers under Civil ProcedureAct s 70 the Court required the respondents to indicate whether execution of the second mortgage was genuinely in dispute. Execution was admitted in the course of argument, eliminating that issue.

Globe Commences These Proceedings

23. Globe commence these proceedings in November 2022 and filed an Amended Summons on 27 February 2023, which sought the following relief by way of preliminary discovery:

“Pursuant to order pursuant to r 5.3(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), an order that the defendants give discovery to the plaintiff of any document or thing in their possession, custody or power relating to or concerning any of the following matters:

(a)   the loan provided by Gemi to Cecil that is secured by way of first registered mortgage over the Cecil Properties, including any variations thereto;

(b)   all valuation reports in respect of the Cecil Properties obtained for or in respect of the loan provided by Gemi to Cecil that is secured by way of first registered mortgage over the Cecil Properties, including but not limited to the valuation report dated 13 February 2020 purportedly issued by Jarrod Morgan and Andrew Duguid of m3property, valuing the Cecil Properties at $197,900 exclusive of GST;

(c)   the steps taken by Hurst and Sampson to appoint a real estate agent for the purpose of marketing and selling the Cecil Properties;

(d)   the appointment of Colliers as the real estate agent engaged by Hurst and Sampson to market and sell the Cecil Properties;

(e)   the steps taken by Hurst and Sampson and Colliers to market and sell the Cecil Properties during the Relevant Period, including:

(i)   all marketing appraisals and valuations of the Cecil Properties;

(ii)   the marketing campaign undertaken by Colliers in relation to the Cecil Properties;

(iii)   all expressions of interest and offers, including indicative and/or conditional offers, received by Colliers to purchase the Cecil Properties and any negotiations concerning those expressions of interest and offers; and

(iv)   all instructions and directions provided to Colliers by Gemi, Hurst Sampson in relation to the marketing and sale of the Cecil Properties;

(f)   the DOCAs proposed by or on behalf of Zhu in relation to Cecil during the Administration Period.”

24. The respondents dispute that they should give any preliminary discovery of this type to Globe.

25. The commencement of these proceedings has thrown up an incidental argument raised by the respondents that Globe elected to abandon its right to enforce its second mortgage, given that it has entered judgment for $19.25 million under the deed. The Court does not have to resolve this question now. The case law discussed below cautions against using a preliminary discovery application to advance to a final determinations of issues between the parties.

26. But Civil Procedure Act s 56, 57 and 58 require the Court to be vigilant to use Court procedures to reduce issues and address the real issues between the parties if that can be done cost effectively.

27. The respondents’ argument on this matter does not appear to be complex. The respondents argue that the Deed, clause 9.5 means what it says and that by entering judgment for $19.25 million in the 2020 proceedings that Globe has by reason of the Deed, clause 9.5 elected only to pursue its unsecured rights of recovery from Cecil and has disentitled itself from pursuing its other rights as a second mortgagee. The respondents argue that the words of the Deed, clause 9.5 that “the Plaintiffs undertake only to enforce the judgment contained therein”, mean what they appear to say and that that Globe and the other plaintiffs cannot enforce any remedy other than its unsecured rights on the judgment it had entered.

28. Globe foreshadows contesting this construction. Globe can field arguments such as that the Deed, clause 9.5 is designed to prevent Globe from pursuing any more than the money sum which with accrued interest at Court prescribed rates to which it would become entitled under the judgment and it could not continue calculate what would otherwise be due to it under the second mortgage itself. Globe would submit that far clearer words than clause 9.5 would be required for it to be held to have abandoned enforcement of all its non-pecuniary remedies under its second mortgage, which was attached to the Deed.

29. The issue is clearly contestable but does not appear to be more than a matter of construction of the terms of the Deed.

Applicable Legal Principles

30. The applicant invite the Court to exercise its power under UCPR, r 5.3 to order a prospective respondent to give preliminary discovery. That rule provides as follows:

“(1) If it appears to the court that:

(a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and

(b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and

(c) inspection of such a document would assist the applicant to make the decision concerned,

the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person’s possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief.”

31. UCPR, r 5.3 has been extensively analysed by appellate Courts. In Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506; [2010] NSWCA 69 at [47] – [52] (“Hatfield”), McColl JA collected the following “key principles” that govern applications under UCPR, r 5.3 for preliminary discovery:

First, “[i]n order for it to 'appear' to the Court that the applicant 'may be entitled' to make a claim for relief, it is not necessary for the applicant to show a prima facie or pleadable case”: Morton v Nylex (at [25]).

Secondly, while “the mere assertion of a case is insufficient…[i]t will be sufficient if there is reasonable cause to believe that the applicant may have a right of action against the respondent resting on some recognised legal ground” : Morton v Nylex (at [25]).

Thirdly, “belief requires more than mere assertion and more than suspicion or conjecture. [It] is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action”: St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; (2004) 211 ALR 147 (at [26](d)) per Hely J, referring in turn to John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679 (at [13], [14], [17] and [73]) per Emmett J. The use of the word “may” indicates the court does not have to reach “a firm view that there is a right to relief”: Telstra Corp Ltd v Minister for Broadband, Communications and the Digital Economy [2008] FCAFC 7; (2008) 166 FCR 64 (at [58]).

Fourthly, the requirement that the matters set out in UCPR 5.3 “appear[s]” to the court to establish an entitlement to an order under the rule may be wider than the requirement in the Federal Court Order 15A r 6 that there “is reasonable cause to believe”: see Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399; (2006) 69 IPR 595 (at [22]) per Young CJ in Eq; Papaconstuntinos v Holmes à Court [2006] NSWSC 945 (at [17] per Simpson J; Hornsby Shire Council v Valuer General of NSW [2008] NSWSC 1179 (at [33]) per Adams J. Nevertheless Hely J’s statement in St George Bank Ltd (at [26](e)) remains apposite, namely that “whilst uncertainty as to only one element of a cause of action might be compatible with the ‘reasonable cause to believe’ required by subparagraph (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe”.

Fifthly, “the question posed by [UCPR 5.3(1)(a)] … is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent [but]… whether the applicant has sufficient information to make a decision whether to commence proceedings in the Court. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences”: St George Bank Ltd (at [26](f)) (emphasis in original); see also Morton v Nylex (at [33]). Thus application of the rule will not be precluded by the fact that the applicant already has available evidence establishing a prima facie case for the granting of relief, as there might be matters of defence which could defeat a prima facie case: Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500 (at [41]) per Lindgren J; referred to with approval by the Full Federal Court (French, Weinberg and Greenwood JJ ) in Telstra Corp Ltd (at [60]).

Sixthly, as Hely J said in St George Bank Ltd (at [26](a)), “the Rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the Court, exercised in the particular circumstances of each case”.

32. In O’Connor v O’Connor [2018] NSWCA 214 (“O’Connor”) the Court of Appeal applied Hatfield but emphasising (at [28]) that r 5.3 imposes a lower threshold test than the Federal Court counterpart. In O’Connor (at [21]) Simpson AJA identified that five matters should appear to the Court before an order may be made against a prospective defendant under the rule. These are that:

1. The applicant may be entitled to make a claim for relief against the prospective defendant;

2. the applicant has made reasonable inquiries to obtain sufficient information to decide whether or not to commence proceedings;

3. having made those inquiries, the applicant is unable to obtain sufficient information to make that decision;

4. the prospective defendant may have or have had possession of a document or thing that could assist in determining whether the applicant is entitled to make a claim for relief; and

5. inspection of such a document would assist the applicant to make the decision (that is, the decision whether or not to commence proceedings).

33. Stevenson J applied these five criteria in Tabcorp Holdings Ltd v Entain Group Pty Ltd [2023] NSWSC 220 (“Tabcorp”) pointing out that to order preliminary discovery against a prospective defendant, all five circumstances set out in UCPR, r 5.3(1) must exist: O’Connor at [21]; Tabcorp at [35]).

34. As Simpson AJA identified in O’Connor at [86] – [90], r 5.3(1) presents a difficulty of construction which is resolved by taking a broad view of the operation of the section:

“[86] ... The ultimate order that the Court is empowered to make is an order for the discovery of documents in the possession of the prospective defendant “that relate to the question of whether the applicant is entitled to make a claim for relief”. That is directed to questions concerning the existence of a cause of action. In its terms, it does not appear to relate to the practical decision whether or not to commence proceedings, a decision that will, ordinarily, at least in part, include questions such as whether there exist defences that might defeat the claim, and, importantly, for this discussion, whether a claim would potentially be worthwhile in the sense of yielding an award of damages or other order sufficient to justify the commencement of proceedings.

[87] That analysis raises a question about the relevance of the closing words of para (a) of r 5.3(1):

“the applicant … is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant”.

[88] That decision is different from an evaluation of whether a cause of action exists, and will ordinarily be informed by matters beyond the entitlement to make a claim, and extend to defences and quantum.

[89] If the documents required to be produced are limited to those relating to the entitlement to commence proceedings (as in the chaussure) the point of the closing words of para (a) is lost. There is a latent tension between para (a) and the chaussure.

[90] On a literal reading of the rule priority would be given to that part of the Rule that, when an order is made, will impose obligations on the prospective defendant. On that reading, the documents to which an applicant would be entitled under rule 5.3 are those going to their entitlement to make a claim, and documents going only to the potential value of the claim would be excluded. But that construction would effectively write the closing words of para (a) out of existence. The concept of “decid[ing] whether or not to commence proceedings” as distinct from determining whether or not there is an entitlement to commence proceedings must be given some weight. If the rule is to be given a beneficial construction and “the fullest scope that its language will reasonably allow”, it must be taken to include documents going only to quantum”.

35. Once these preconditions are met, the Court has a discretion whether or not to order the respondents to provide discovery of the documents in question that are or have been in the respondents’ possession. In the exercise of this discretion the applicant’s prospects of success can be relevant and the operation of the discretion operates as a brake on any excesses that may flow from a beneficial construction of the rule: St George Bank Limited v Rabo Australia Ltd (2004) 211 ALR 147; [2004] FCA 1360 at 154 [26].

36. The Court of Appeal in The Age Company Ltd & Ors v Liu (2013) 82 NSWLR 268; (2013) 296 ALR 186; [2013] NSWCA 26 (“Liu”) made clear the limited procedural scope of proceedings such as this. Bathurst CJ commented in Liu that applications for preliminary discovery should not be treated as a dress rehearsal for the proceedings, and did not entitle litigants to findings on matters which would ultimately depend upon the assessment of the whole of evidence and that contested issues of fact between the parties should not be either litigated much less decided upon: Liu at [102], [104], [107] and [108].

37. The second requirement of making reasonable enquiries raises its own special issues. It does not follow from the mere fact that further enquiries could have been made, and would have been helpful, that the omission to make those inquiries is a failure to make reasonable inquiries: Steffen v ANZ Banking Group [2009] NSWSC 666 at [87].

38. The third requirement of inability to obtain sufficient information to make a decision, has not uncommonly lead to a misunderstanding on the part of the applicants. White J had to deal with just such a problem on an applicant’s application for preliminary discovery under UCPR, r 5.3 in Morton v Nylex Ltd [2007] NSWSC 562 (“Nylex”). There White J concluded that the applicant had failed to prove why the applicant was unable to obtain sufficient information to decide whether or not to commence proceedings, which led his Honour to dismiss the application. His Honour addressed the question of sufficiency of information at [33] – [34] (emphasis added):

“[33] The onus is on the plaintiffs to make it appear to the Court that, having made reasonable inquiries, they are unable to obtain sufficient information to decide whether or not to commence proceedings against Nylex. The third requirement of r 5.3(1)(a) requires an objective assessment of the information already possessed by the plaintiffs to determine whether that information is sufficient for such a decision to be made….

…. An applicant must disclose what information he or she already has relevant to making such a decision, and identify what information is lacking. Preliminary discovery cannot be used to build up a case which an applicant has already decided, or could decide, to bring (Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd (Lindgren J, Federal Court of Australia, 24 May 1996, unreported); St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 154 [26]; Glencore International AG v Selwyn Mines Ltd (recs and mgrs apptd) (2005) 223 ALR 238 at 241 [15]; Matrix Film Investment One Pty Ltd v Alameda Films LLC [2006] FCA 591 at [15]-[19], [25])….

[34] There is no issue that the plaintiffs have made reasonable inquiries. They have made persistent inquiries over a number of years. However, there is little evidence before me of what information they have obtained as a result of those inquiries. None of the documents they have obtained from HRL was produced. No attempt was made to summarise the contents of such documents. No explanation was given as to what the plaintiffs have learned as a result of their inquiries, or in what particular respects their information is deficient so that they are unable to decide whether or not to commence proceedings against Nylex”.

39. Aspects of the argument advanced on behalf of the respondents in the present case drew upon issues of a similar character to those discussed by White J in Nylex.

40. Other cases are referred to in the course of the Court’s analysis of the parties’ submissions.

The Applicant’s Submissions

41. It is convenient to set out the applicant’s submissions in some detail in this section. The Court then deals with the respondents’ submissions in the course of its consideration and analysis of the parties’ contentions in the next section of these reasons.

42. Globe emphasises in its written submissions the following salient facts as founding its potential causes of action against the respondents:

“a.   Gemi appointed the Receivers as receivers and managers over the Cecil Properties at a time where Globe had already appointed Cathro as receiver and manager (i.e., there was no need for their appointment as another controller had already been appointed to market and sell the Cecil Properties);

b.   The Receivers were appointed as receivers and managers over the Cecil Properties by Gemi over seventeen (17) months ago;

c.   The Receivers first obtained appraisals from real estate agents in about December 2021 but did not enter into an agency agreement with a real estate agent (Colliers) until about 11 April 2022 (six (6) months after their appointment);

d.   Gemi has been entitled to charge interest on the debt allegedly owed to it at its default rate of potentially 25 per cent per annum since at least November 2021;

e.   The significant delays in the marketing and sale process continue to benefit Gemi to the detriment of all other creditors with an interest in the Cecil Properties, including Globe;

f.   The Receivers and Gemi have all in substance refused to respond to Globe’s reasonable requests to provide it with information relating to the marketing and sale of the Cecil Properties, including:

i.   details of expressions of interests and offers; and

ii.   updates in relation to Gemi’s payout figure.

g.   GI, an entity related to Gemi, registered a caveat over the Cecil Properties at the time that Globe exercised its right to appoint a receiver over the Cecil Properties and refused to allow Globe to register its mortgage.”

43. Globe submitted that based on the respondent’s conduct, it had the following potential general law and statutory claims available to it.

“Potential General Law Claims

22.   Globe has a number of potential causes of action against each of the Respondents if it is shown that the sale process is not being undertaken in good faith or in a way to unfairly prejudicial to Globe.

23.   The Receivers must “exercise their powers in good faith and an exercise of the powers of a receiver for any colourable purpose is an exercise of those powers in bad faith”. State Bank of NSW v Chia and Anor (2000) 50 NSWLR 587 at 629.

24.   While the Receiver has a primary duty to realise the security for the purposes of Gemi, an exercise of theirs powers “which wilfully sacrifices the interests of the mortgagor or subsequent creditors by, for instance….. conducting the receiver’s powers in such a deficient fashion as to impugn the sincerity of the desire of the receiver to obtain the proper price for the assets of the mortgagor.” State Bank of NSW v Chia and Anor (2000) 50 NSWLR 587 at 629.

25.   Gemi, as the Mortgagee comes under these duties where it directs the exercise of the powers of the receivers. State Bank of NSW v Chia and Anor (2000) 50 NSWLR 587 at 630; citing American Express International Banking Corporation v Hurley [1985] 3 All ER 564 at 571.

26.   As Lord Denning explained in Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410, 1416:

“… The debenture holder, the bank, is not responsible for what the receiver does except in so far as it gives him directions or interferes with his conduct of the realisation. If it does so, then it too is under a duty to use reasonable care towards the company and the guarantor.”

27.   If it is shown that Gemi is directing the Receivers in the exercise of their duties, and the Receivers are undertaking the sale process for an improper purpose (e.g. to allow Gemi to continue to accrue additional default interest on its debt), then Globe would potentially have a claim against each of them.

Statutory Claims

28.   Globe may also have claims under the Corporations Act 2001 (Corporations Act). Pursuant to s. 420A, in exercising a power of sale in respect of a property, the Receivers are required to take all reasonable care to sell the property for “market value” or otherwise “the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold”.

29. Section 1324(1) of the Corporations Act allows Globe to apply for an injunction where a person “has engaged in, is engaging or is proposing to engage” in conduct that would constitute “a contravention of this Act” or “aiding, abetting, counselling or procuring a person to contravene this Act”. Standing under s. 1324(1) of the Corporations Act is granted on very wide terms, and the “Court may grant an injunction restraining contravention of the Corporations Act, including no doubt contravention of s. 420A”. GE Capital Australia v Davis [2002] NSWSC 1146 at [60].

30.   The broad nature of the potential claims provided for by the Corporations Act could potentially capture misconduct by any of the Respondents.”

44. Globe submits that it has made reasonable enquiries. It says it has made numerous attempts over 12 months to enquire into the conduct of the receivers in conducting the sale and has had no adequate response. Globe says it cannot obtain the documents it wants by other means. It says that it “cannot make an informed decision about whether or not to bring claims for relief against any of the respondents” without the documents. And it submits the prospective respondents will have the documents as the documents are documents of Gemi, the receivers or Cecil.

45. Globe then submits the documents it seeks are crucial to its ability to decide whether to commence proceedings against any of the respondents. It submits as follows:

“37.   Each of the categories of documents contained in the Amended Summons are crucial to Globe’s ability to decide whether to commence proceedings against any of the Respondents. In particular, without these documents, Globe cannot ascertain inter alia the following:

a.   the marketing and sale campaign undertaken by the Receivers and/or Colliersunder instructions from the Receivers;

b.   whether or not legitimate, bona fide offers were made by prospective purchasers and if they were, whether those offers were unreasonably refused;

c.   what (if any) instructions Gemi provided to the Receivers in relation to the marketing and/or sale of the Cecil Properties;

d.   the reasons (if any) for the inordinate delay in the marketing and sale process undertaken by the Receivers and/or Colliers under instructions from the Receivers;

e.   the quantum of the debt allegedly owed by Cecil to Gemi, which is critical for Globe to ascertain, for example, whether there is any benefit in it taking steps to wind Cecil up in insolvency;

f.   the legitimacy or otherwise of the loan facility provided by Gemi to Cecil (which underpins the debt owed by Cecil to Gemi and also the appointment of the Receivers by Gemi); and

g.   To what extent have the Receivers actions been consistent with duties owed.”

46. The respondents answered these submissions as follows.

Consideration

47. The respondents’ written and oral submission contend that the applicant does not meet the five indicia contained within UCPR, r 5.3 in this section. The Court considers the issue that the respondents’ contentions in relation to each of these five indicia followed by the Court’s analysis.

48. (1) May Be Entitled to Make a Claim for Relief. The first indicium is that the applicant may be entitled to make a claim for relief against the prospective respondent. Based on statements by Simpson AJA in O’Connor (at [30] and [70]), the respondents submit that although this indicium does not mandate the demonstration of a pleadable case, an applicant for preliminary discovery must nevertheless provide a rational basis for an entitlement to the postulated claim and some particularisation of the nature of the relief in contemplation and that an application for a preliminary discovery should be refused where the asserted entitlement to relief is so weak as to be unarguable.

49. Globe meets this standard here. The respondents advanced a range of arguments why a Corporations Act, s 420A case advanced on behalf Globe would not succeed. They may be right. But such a claim is not unarguable. Globe has profiled the nature of the claim sufficiently well to satisfy this first indicium.

50. The respondents put their argument on this first indicium another way. They submit that because UCPR, r 5.3 does not extend to obtaining documents from persons other than the prospective defendant “care must be taken to consider whether documents sought from a particular party are relevant to a claimed entitlement against that person, or whether documents are instead sought which go to claims against a different person, the latter being impermissible”. The respondents complain that no attempt has been made in the Amended Summons to draw any distinctions among the prospective defendants, and to identify which of the documents sought are relevant to which prospective defendant and why they are relevant.

51. This argument is not persuasive. The causes of action that Globe describes in its submissions may, if made out, create joint and several liability in the respondents or liability predicated upon one of the respondents being “knowingly concerned in” contraventions of the Corporations Act by other respondents: Corporations Act s 1324(1). The documents sought against each respondent would arguably be admissible against all respondents. It is therefore not necessary for Globe to make the kind of distinctions, which the respondents seek to draw here among respondents in preliminary discovery.

52. The respondents then put more specific submissions about the lack of a arguable case against each of the four respondents, Cecil, Gemi and the receivers, Mr Hurst and Mr Sampson. The arguments advanced in respect of each of those is now considered.

53. As to Cecil, the respondents submit that Globe does not identify any claim against Cecil and the Amended Summons should be dismissed. But to the extent there may be a claim against the receivers, there may be a claim against Cecil. The receivers were appointed out of Court pursuant to Gemi’s first mortgage. Ordinarily receivers appointed in those circumstances are the agents of the mortgagor, not the mortgagee by whom they were appointed: Conveyancing Act1919, s 115(2) and Australian Mutual Provident Society v Geo Myers & Co Ltd (1932) 47 CLR 65. But cases such as State Bank of New South Wales v Chia (2000) 50 NSWLR 587 at [868] – [870] (“Chia”) and Bank of Western Australia v Abdul [2012] VSC 222 (“Abdul”) recognise the reality that this particular species of agency is something of a contrivance for the benefit of the mortgagee to allow it to escape liability and that notwithstanding the formal agency Courts can look at the substance of the relationships to determine what duties the mortgagee owes.

54. As to Gemi, the respondents say that Globe’s claims can best be described “as a conspiracy theory” postulated from “an unsubstantiated hypothesis, based on a suspicion that Gemi is conspiring with the receivers to deprive Globe of any remaining equity” in the Castle Hill properties. The “suspicion” is said to have arisen primarily by reason of “the effluxion of time”.

55. The respondents are advancing a straw man argument here, raising the bar for Globe’s case higher than it needs to be set. Globe does not have to establish that Gemi and the receivers have engaged in a conspiracy to injure it or that the receivers have acted in breach of their professional duty. All that Globe must establish is a failure to take “all reasonable care to sell the property” either for its market value or the best price that is reasonably obtainable: Corporations Act, s 420A.

56. The respondents submit that Globe does not have any claim for relief under Corporations Act, s 420A until Gemi sells the property in a manner or with an outcome that breaches the standards set by the section. But this is not correct. The authorities clearly contemplate that this duty is enforceable by injunction under Corporations Act, s 1324, if a breach of the duty is threatened: Bayblu Holdings Pty Limited v Capital Finance Australia Limited [2011] NSWCA 39 at [69]. And on terms equity will restrain an improper exercise of a power of sale before it has occurred: Artistic Builders Proprietor Limited v Elliot & Tuthill (Mortgages) Pty Ltd [2002] NSWSC at [105] et seq.

57. Moreover, Globe relies not just upon “the effluxion of time”, as the respondents characterise it. Globe relies on the following further matters against Gemi and the receivers: misleading Globe about the appointment of agents, excessive delay, no external evidence of the marketing of the Castle Hill properties, and failure to provide basic information about the sale process on request from a subsequent mortgagee. These matters could be the external evidence of a breach of Corporations Act, s 420A by those in control of the sale of the Castle Hill properties. Far more would need to be established to make out such a case but those identified factors are a reasonable start for preliminary discovery purposes.

58. There “may be” a cause of action against Gemi within the first indicium based on this material but it would be necessary for Globe to prove a degree of control of the sale on Gemi’s part to raise a case of Gemi’s participation in a breach of s 420A or as a principal of the receivers in the conduct of the sale, notwithstanding the formal agency that exists between the receivers and Cecil. The determination of this question is ultimately a matter of fact, which will be based upon the range and intensity of the actual communications that took place between Gemi and the receivers in relation to the conduct of the sale. Einstein J in Chia, at [885] and Croft J in Abdul, at [41] explained that the communications between the mortgagee and the receiver may show the mortgagee was in fact “heavily involved” in the sale process and was “so intimately involved in the performance of the receivers’ activities as to transform the character of the relationship between the mortgagee… and the receiver into one of principal and agent”.

59. As to the receivers, the respondents submit that any case against the receivers must be speculative because it is highly unlikely that independent professionals such as the receivers would have engaged in conspiratorial conduct of the kind alleged. But the Court does not need to dwell upon the probabilities or improbabilities of such professional misconduct. In deciding whether to grant relief based upon a mortgagee such as Gemi taking control of the sale process, the Court only needs to look at the degree of Gemi’s actual control over the sale process. And that will be evidenced from the communications between Gemi and the receivers. It is quite plausible that without any professional misconduct on their part the receivers may in fact submit to degree of practical direction from the mortgagee in conducting the sale process.

60. Globe does not have to prove some “direction” to “go slow” from Gemi to make out this kind of case. An accumulation of poorly grounded prompts by Gemi, to the effect that the receivers could take a longer route to sale rather than a shorter route, may be enough to establish the case that Globe seeks to make out. An invitation to the receivers to take their time may be far more nuanced than a “direction” in the context of a commercial structure in which default interest runs at 21.5% per annum into ample equity.

61. The respondents submit that this “statutory claim is entirely speculative and prospective” and relies upon “cascading contingencies” which do not rise higher than “mere suspicion”.

62. The respondents describe Globe’s complaints of slowness as Globe imposing a “unilateral time frame” on the sale process, which it has not defined or disclosed. It can be accepted that the Castle Hill properties are likely to attract a limited number of interested commercial buyers capable of acquiring them. But the lack of evidence of external marketing for 18 months nevertheless requires explanation and cannot be characterised merely as “Globe’s unilateral time frame”.

63. On the known facts it takes little to infer, if there is substantial equity in the Castle Hill properties, that Gemi will benefit from doing little or nothing. Some available evidence suggests that the Castle Hill properties had a valuation of $197 million in February 2020. Cecil’s indebtedness to Gemi in November 2021 was $62,780,140.70. Counsel for the respondents submitted the applicable default interest rate under the first mortgage was 21.5 per cent, meaning that if simple interest that annual rests accrued the annual interest bill would be $13,499,872 or a daily interest accrual of $36,985.95. Globe argues that this is a handsome reward for Gemi beingf a slow moving first mortgagee.

64. The respondents submit that Globe’s contentions “exemplify the type of speculative approach expressly disavowed at well-established authority” citing O’Connor at [27] – [30]. But the Globe’s particularisation of this claim does not warrant criticism on the basis of the application of O’Connor. Simpson AJA said in O’Connor at [30] the following:

“It may be emphasised that there is no requirement that an applicant for preliminary discovery establish even a prima facie case for relief; nor is it necessary that an applicant specify with precision the cause of action proposed, although it will be necessary, in order to make it “appear to the court” the applicant “may be entitled to make a claim for relief” that the applicant provide some particularisation of the nature of the relief in contemplation. That is so, not only to enable the court to form a view about whether the applicant may be entitled to make a claim for relief, but also to enable the prospective defendant, if an order is made, to determine which, if any, documents in possession are to be discovered.”

65. Here Globe has provided some particularisation of the nature of the relief in contemplation. In the Court’s view it is sufficient to form a view about whether Globe may be entitled to make a claim for relief.

66. (2) Has made Reasonable Enquiries. The respondents admit that at least two of the categories of documents being sought should be available on public records or through a public process in which the applicant has participated. These two categories are the terms of Gemi’s first mortgage and the Cecil DOCA.

67. Preliminary discovery should not place the cost burden on a respondent of searching for, identifying, copying, and transmitting to the applicant, documents which are readily searchable on public records or through public processes. The fact that the documents are likely to be findable through public sources or processes but have not been obtained before the preliminary discovery application was made, suggests at least to a prima facie level that reasonable enquiries have not been made in respect of the documents in question.

68. All the other documents sought in the summons are now in the possession of Cecil, Gemi or the receivers and are not publicly available. Globe has made ample enquiries of the respondents for access to these documents and has done so on many occasions in a reasonable fashion and describing the documents sought with sufficient particularity.

69. (3) Unable to Obtain Sufficient Information to Decide. There are many elements to making out an action under Corporations Act, s 420 A. The discussion above in relation to indicium (1) covers the range of issues over which documents would need to be examined to decide whether to commence proceedings. Globe has not been able to obtain or inspect most of these documents which are critical to any decision about whether to commence proceedings. The range of documents is discussed in more detail below in relation to indicium (5) and the form of the prayers for relief.

70. (4) The Respective Respondent May have Possession of a Document. The respondents have not denied they have documents of the kind requested. Moreover, it is apt for the Court to infer from the nature of the categories requested that the documents are likely to be in the possession of the respondents.

71. The respondents also argued that Globe cannot complain that Gemi has not given it commercially sensitive information regarding the progress of the sale process, because there is no obligation on a first ranking secured creditor to provide such information to the documents and other information requested.

72. This contention is correct as far as it goes. It is true that there is no such obligation. But some of what Globe has requested of Gemi could have been provided in summary form or in a manner that minimised the disclosure of confidential information.

73. The Court can make orders about the handling of commercially sensitive information, including offers made in the past for the acquisition of the Castle Hill properties. Although perhaps the most commercially sensitive information in question here would be in relation to existing offers in relation to the Castle Hill properties. All of these may be able to be disclosed under specific protocols to preserve necessary confidentiality. The Court will provide an opportunity the parties to agree upon such protocols before preliminary discovery takes place.

74. The respondents can rely upon the implied obligation that strictly limits the use that Globe can make of information obtained through compulsory processes of Court, which include preliminary discovery: Hearne v Street (2008) 235 CLR 125, [2008] HCA 36, Hayne, Heydon & Crennan JJ [96]. If the respondents wish to propose a reasonable regime for quarantining that information then the Court will consider it. Directions have been made to this effect in the orders today.

75. (5) Inspection of such a document would assist deciding whether to commence proceedings. This indicium is best addressed by reference to the precise form of the prayers for relief seeking different categories of documents. The respondents take issue with the form of the Amended Summons, contending that its prayers for relief are too wide. There is merit in this argument. The relief sought needs to be modified in several respects.

65. The introductory words to the relief sought in the Amended Summons are far too wide. They have been a major stumbling block for the respondents in resisting the present claim and with good reason. However beneficially UCPR r 5.3 is construed, applicants for preliminary discovery are seeking an exercise of judicial discretion and must always seek to limit unnecessary oppression to respondents in what can be an intrusive remedy if not limited. The introductory words that “the defendants give discovery to the plaintiff of any document or thing in their possession, custody or power relating to or concerning any of the following matters” transfers to the respondents the burden of working out which documents concern the various subject matters. That may be an appropriate formula when issues have been joined on pleadings.

66. But this formula can place an unfair burden upon respondents in preliminary discovery applications, when something less intrusive is available. The formula that the Court has therefore used in the orders below is to delete from the introductory words the words “relating to or concerning any of the following matters” and only to require the production of documents that record activities that can be defined with some precision. In the Court’s view the respondents were entitled to resist the orders sought in their original unamended form, a matter which may well go to the consideration of issues of costs.

67. As to prayer for relief 1(a) the respondents submit that this category calls for documents which could not sensibly be suggested as necessary to determine whether to bring proceedings.

68. This criticism is valid. This prayer for relief will need to be read down. All Globe needs to decide about commencing proceedings is the full terms of the primary loan agreement founding Cecil’s liability to Gemi. But if this is available by a public search of the Register maintained under the Real Property Act 1900, Gemi, which would otherwise be the primary party required to produce it, will not be required to do so.

69. As to prayer for relief 1(b), the claim for production of all valuation reports is too wide. The respondents correctly point out that the applicant could easily obtain information as to the valuation of the property without resorting to preliminary discovery, by commissioning its own valuations and indeed Mr Cathro appears to have engaged a valuer during his appointment. In the absence of more detailed evidence the Court will assume that valuation is already available to Globe.

70. Globe seeks to decide now whether to commence proceedings. The economics of the decision to do so are likely to be driven by the current valuation of the property. For that purpose, all Globe needs is the most current valuation of the Castle Hill properties available to the respondents. Each of the respondents may have obtained recent valuations and they should all be subject to this order.

71. The respondents other answer to this category is not compelling. It is not enough to say that Globe is a property developer and can obtain its own valuations to make its decision to commence proceedings. The respondents will have information relevant to and insights into valuation issues that are not presently available to Globe. If for example the respondents become aware that there is some undisclosed and not readily ascertainable impediment to the development of the Castle Hill properties which depresses their valuations, the respondents valuations will be useful guide to commencing proceedings than Globe’s valuations.

72. The respondents cannot plead that they are being treated oppressively or unfairly by being required to disclose their own valuations in this way. As the discussion in the next section of these reasons shows, Globe would be entitled to subpoena these valuations on an application for judicial sale of the Castle Hill properties.

73. Whilst it is true that earlier valuations may be relevant to assessing Gemi’s conduct and the receivers’ conduct of the sale, even when considering the past, the more relevant information to have available to decide whether or not to commence proceedings now is correspondence referring to and showing the respondents’ knowledge of the valuations.

74. As to prayers for relief 1(c) and 1(d), in relation to the engagement of Colliers and the receiver’s appointment of real estate agents and other efforts to market and sell the Castle Hill properties, including through Colliers is an important part of the request and is reasonable and will be permitted. The respondents argued that these requests represent a “Trojan horse” for Globe’s wider unsubstantiated conspiracy allegations. But the Court has already rejected the respondents’ contentions about conspiracy allegations when dealing with indicium (1) above.

75. As to prayer for relief 1(e), the respondents object to these documents being made available based on their commercial sensitivity. That invites examination of their necessity for the applicants’ decision to commence proceedings. And if they are disclosed whether they should be subject to a non-publication order or a confidentiality regime to cure any issues of commercial sensitivity.

76. It is not difficult to understand the relevance of these documents, as indicative offers or expressions of interest which were not followed up by the receivers may be an indication of an attitude on the part of the receivers towards their task. Similarly, it can be seen that “instructions and directions provided to Colliers” if they exist, may be relevant to a kind of possible claim that Globe foreshadows, which is discussed in indicium (1) above. These documents could not be obtained by reasonable inquiry because of the position that has been taken by the respondents.

77. As to prayer for relief 1(f), the respondents complain that there is no evidence that enquiries have been made in the voluntary administration of Cecil regarding the DOCAs. It is noted that Globe is a creditor of Cecil and has attended each of the creditor’s meetings during the voluntary administration and is likely to have received the DOCAs proposed.

78. The respondents have a point here. The position is much the same as in relation to the terms of Gemi’s first mortgage and the Court will not order the DOCAs be disclosed, if they are available through any public process. Again, as with the terms of Gemi’s second mortgage, if Globe has already received or the opportunity to receive a DOCA from the voluntary administrator by means of a generally available right such as is conferred under the Insolvency Practice Rules (Corporations) (Cth) 2016, r 70-10, the court will not impose the burden on the respondents of having to produce such a document at their expense.

Judicial Sale of the Castle Hill Properties and Registration of Globe’s Mortgage

90. The Civil Procedure Act, ss 56, 57 and 58 affirm the public interest in bringing civil litigation to an end justly, quickly and cheaply. This was once commonly expressed in a latin maxim, interest rei publicae ut sit finis litium. The public interest behind these statutory provisions is multifaceted. It includes aspects of the public interest such as the reduction of social tension that might otherwise lead to violence due to unresolved disputes and the opportunity for resolving disputes when memories are fresh and material evidence is available. This public interest also informs the doctrine of estoppel and the judicial doctrine of stare decisis and the passing of limitation acts.

91. But where, as here, land is the central subject of the dispute, an aspect of the relevant public interest can also be the advantage of releasing land from sterile disputes to promote its development to the advantage of the public. Civil Procedure Act2005, ss 56, 57 and 58 prompt the Court to consider this aspect of the public interest in this dispute.

92. Provided Globe can establish that it holds an enforceable charge over the Castle Hill properties. The use of the remedy of judicial sale may bring the real issues in dispute between these parties to a conclusion more quickly than the kind of legal action contemplated by this preliminary discovery application. Globe’s discernible objective is to conserve and realise the equity in the Castle Hill properties as soon as it can. If there is a deficiency in that equity, that may involve bringing action against Gemi for its alleged misconduct through the remedies that were being posited as the basis of the present preliminary discovery application. Realising Globe’s equity would be incidental to those remedies.

93. But judicial sale may be a faster remedy. Judicial sale would aim directly at realising Globe’s equity, and would not require Globe to prove misconduct by Gemi or other respondents. If Globe further amends its Amended Summons and establishes that it holds a second unregistered charge over the Castle Hill properties, Globe can apply for the discretionary remedy of judicial sale. Incidental to Globe’s exercise of that right it is entitled to know the available equity in the Castle Hill properties.

94. The essential features of remedy of judicial sale at the suit of an unregistered second mortgagee were comprehensively described by Campbell J, as His Honour then was, in King Investment Solutions v Hussain (2005) 64 NSWLR 441; [2005] NSWSC 1076 (“King”). Some of these features that are relevant to the present case may be summarised as follows:

1. The power of sale conferred by Conveyancing Act1919, s 109 attaches to the interest of an unregistered second mortgagee: King, at [60].

2. The judicial sale of a mortgaged property will ordinarily be ordered to be free from the prior incumbrances, if any, of such of the incumbrancers as shall consent to the sale, and subject to the incumbrances of such of them as shall not consent, leaving the prior incumbrancers to consent to the sale, if they think fit: King, at [95].

3. The jurisdiction that the Court exercises, when ordering the judicial sale of charged property, is to give effect to the personal obligations that arise between the chargor and the chargee as a result of the giving of the charge. By agreeing that its property shall be subject to the charge, the chargee is agreeing that his interest in the property will be a security for the relevant debt.: King, at [97].

4. It would not be a proper exercise of a judicial discretion to order sale at the suit of a second mortgagee unless there was some evidence of value and how much is owed to the first mortgagee – such evidence can, for example, be obtained by subpoena or other order for production. Without that evidence, it would not be possible to fix a reserve price for any sale, would not be possible to form a view about whether it was appropriate to give the mortgagor time to pay before a sale could be made (and if so how long), and there would be serious difficulties in deciding who should have the conduct of the sale, and what conditions ought be imposed for the protection of the first mortgagee: King, at [101].

5. The Court will ordinarily fix a reserve price when ordering judicial sale. Such a reserve is calculated so as to be sufficient to cover the amount due for principal and interest and costs of the first mortgagee when the mortgagor is given the conduct of the sale. And by analogy, when a second mortgagee is given the conduct of the sale it should also be sufficient to cover the principal, interest and costs of the first mortgagee: King, at [104] and [105].

6. Judicial sale involves an exercise of discretion which should be undertaken cautiously: King, at [111] to [119]. The discretion is more likely to be exercised expeditiously, where the security is insufficient or at risk of becoming insufficient.

7. Depending upon the equity available in the property, the conduct of a judicial sale will often be given to the party who has an interest in obtaining the highest price for the property rather than to a party who is only interested in obtaining what is sufficient to cover its security. If the security is sufficient to cover the second mortgage, the conduct of the sale may be placed in the hands of the mortgagor but if security is insufficient it may be placed in the hands of the second mortgagee: King, at [120] to [122].

95. A disadvantage of judicial sale from Globe’s perspective is that unless the first mortgagee, Gemi, consents a sale must take place subject to Gemi’s mortgage which is likely to be an unattractive commercial real estate offering. But once an order for judicial sale is in contemplation and where the Court may place the conduct of the sale in the hands of a second mortgagee, a first mortgagee can be motivated to give consent to the sale of the whole property, or be galvanised into the more rapid exercise of its own power of sale to keep control of the sale process: see for example, Sood v Christianos [2008] NSWSC 1087.

96. The Court will provide an opportunity to the parties to consider the possible advantages of this remedy more closely before finalising these proceedings. The Court will therefore grant leave to Globe to further amend its Amended Summons within 7 days to seek judicial sale of the Castle Hill properties, if it is so advised.

Other Issues

97. If the amendment is made the Court may perhaps first determine, the limited issue arising from the proper construction of the Deed: whether Globe’s second charge over the Castle Hill properties is not enforceable because Globe has elected to enter judgment against Cecil for $19.25 million pursuant to the Deed.

98. The issue of the proper construction of the Deed and Globe’s entitlement to enforce a second mortgage should be resolved in less than two hours of argument, or perhaps even on written submissions. In making this estimate the Court assumes this issue is one of construction only and does not involve any contested questions of fact.

99. If that issue is resolved in Globe’s favour, then the Court can consider the parties’ respective submissions in relation to judicial sale, including any ancillary orders for production of valuations and the ascertainment of the amount currently outstanding on the mortgage. And if Globe does not wish to pursue judicial sale remedies, the issue of the enforceability of Globe second mortgage will nevertheless be resolved before other proceedings are commenced.

100. If that issue were to be resolved against Globe, then the proceedings can be dismissed and Globe will be left to pursue any remedies as an unsecured creditor it can discern, arising out of the documents obtained from this preliminary discovery application.

101. Finally, in the light of the respondent’s admission that Globe’s second mortgage was validly executed by Cecil, once the argument that Globe has elected to pursue its unsecured rights rather than its second mortgagee is resolved, there seems to be no good reason also why Globe’s second mortgage should not also be registered.

102. Therefore in the interests of reducing issues and determining the real issues in dispute between these parties there seems to be good reason why upon an appropriate amendment to the Amended Summons, the Court should now make an order for the registration of Globe’s second mortgage. Apart from the construction issue, why there should be any other delay in registration of Globe’s second mortgage is not presently obvious to the Court. Globe’s interest in maintaining a second mortgage was protected by a caveat lodged in May 2021. This caveat would appear to have priority over GI 129’s caveat. If the respondents dissent from that course being taken the parties should have an opportunity to put short arguments on the issue.

103. The question of who will pay the costs of these proceedings will be reserved until Globe decides whether or not it wishes to further amend its Amended Summons. The parties are encouraged to agree upon an appropriate costs outcome in relation to the preliminary discovery application. The parties should be mindful that neither party has had complete success and that costs orders in preliminary discovery cases often need to take account of what happens in any later proceedings that may be commenced as result of the preliminary discovery: BCG Securities (Australia) Pty Ltd v Shillington (No. 2) [2022] SWSC 807 and Gooley & Ors v Breda Pty Ltd [2017] NSWSC 1505.

104. The Court will appoint a date for further directions and any costs argument on Friday, 9 June 2023. If the applicant does not further amend the Amended Summons pursuant to the liberty granted, and if the parties cannot agree upon costs, then the parties should provide a written outline of submissions about costs at least the day before the appointed directions hearing on 9 June 2023. If that date is not suitable then the legal representatives of the parties should contact my associate with a view to fixing an alternative convenient date.

Conclusions and Orders

105. For these reasons the Court makes the following orders and directions:

1. Note that for the purposes of these orders that the following expressions have the following meanings,

1. “the Castle Hill properties” means the properties at Castle Hill owned by the first respondent which are the subject of Gemi’s first mortgage,

2. “Gemi’s first mortgage” means the second respondent’s first mortgage over the Castle Hill properties,

3. “Gemi’s loan” means a loan advance secured by Gemi’s first mortgage, and

4. “Globe’s second mortgage” means a form of mortgage of the Castle Hill properties which was attached to a deed of release made between Globe and Cecil and other parties on 14 May 2021, and which has been executed on behalf of Cecil and on behalf of Globe

2. Order pursuant to r 5.3(1) of the Uniform Civil Procedure Rules2005 (“UCPR”) that the respondents give discovery to the applicant of any document or thing in their possession, custody, or power which was created after 12 November 2021 and,

1. records the terms of the loan provided by Gemi to Cecil secured by Gemi’s first mortgage, including any variations thereto, if and only if such terms are not publicly available on the Register maintained under the Real Property Act 1900,

2. is the most recent valuation report of the Castle Hill properties obtained before these orders for the purposes of Gemi’s loan or Gemi’s first mortgage, plus a valuation report dated about 13 February 2020 said to be issued by Jarrod Morgan and Andrew Duguid of m3property, valuing the Cecil Properties at $197,900 exclusive of GST,

3. records steps taken by the third and fourth respondents to appoint any real estate agent to market and sell the Castle Hill properties,

4. records the third and fourth respondents’ appointment of Colliers as the real estate agent to market and sell the Castle Hill properties,

5. records steps taken by the third and fourth respondents by themselves and their agents to market and sell the Castle Hill properties, including:

1. marketing appraisals for the Castle Hill properties,

2. any marketing campaign undertaken by Colliers for the Castle Hill properties,

3. expressions of interest and offers, including indicative and/or conditional offers, received by Colliers to purchase the Castle Hill properties and communications consequent upon those expressions of interest and offers, and

4. instructions and directions provided to Colliers by the second, third and fourth respondents in relation to the marketing and sale of the Castle Hill properties; and

6. any DOCAs proposed during the voluntary administration of Cecil in the period 12 November 2021 to 2 February 2022, which were not made available to the applicant by the administrator of Cecil;

3. Grant leave to the parties to bring in before Friday, 9 June 2023 agreed short minutes of order (or short minutes marked up to show the differences between the parties’ respective positions) to provide a regime to prevent the further disclosure by the applicant of any particular documents discovered to the applicant pursuant to order (2);

3. Grant leave to the applicant to further amend its Amended Summons by Wednesday, 7 June 2023 to seek relief for

1. the judicial sale of the Castle Hill properties;

2. the registration of Globe’s second mortgage; and

3. a declaration that the applicant is entitled to enforce the Globe second mortgage despite the applicant’s entry on 18 August 2022 of judgment in this Court against the first respondent for $19.25 million in other proceedings;

5. Costs are reserved;

6. List the proceedings on Friday, 9 June 2023 for directions as to the resolution of all issues relating to costs and consequent upon any further amendment of the Amended Summons by the applicant pursuant to the liberty granted in (3) above; and

7. Grant liberty to apply.

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Decision last updated: 31 May 2023