Hillston Grove Vineyards Ltd v Lushvale P/L - [2000] QSC 1

SUPREME COURT OF QUEENSLAND

CITATION: Hillston Grove Vineyards Ltd v Lushvale P/L [2000] QSC
001
PARTIES: HILLSTON GROVE VINEYARDS LIMITED
ACN 082 449 858
(plaintiff)
v
LUSHVALE PTY LTD ACN 081 175 500
(defendant)
FILE NO: 11363 of 1999
DIVISION: Trial Division
DELIVERED ON: 11 January 2000
DELIVERED AT: Brisbane
HEARING DATE: 5 January 2000
JUDGE: Chesterman J
ORDER: Upon the plaintiff by its counsel giving the usual undertaking as to damages and upon the plaintiff paying the defendant, monthly in advance, interest at the rate of 12.5% per annum on the sum of $7M it is ordered that, until trial of the action or earlier order, the defendant be restrained from taking any step to enforce the bill of mortgage and the equitable deed of charge, both dated 30

July 1999, made between the plaintiff as

mortgagor/chargor, and the defendant as
mortgagee/chargee. the cause.
CATCHWORDS: EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – SERIOUS QUESTION TO BE TRIED – IRREPARABLE INJURY – BALANCE OF CONVENIENCE – UNDERTAKING AS TO DAMAGES – claim by plaintiff (mortgagor/chargor) that instruments of security do not reflect agreement made between it and defendant (mortgagee/chargee) – application by plaintiff for interlocutory injunction restraining defendant from enforcing bill of mortgage or deed of charge until trial of action.
Clarke v Japan Machines (Australia) Pty Ltd (No 2) (1984) 1
Qd R 421
Glandore Pty Ltd v Elders Finance and Investment Co Ltd
(1984) 4 FCR 130
Inglis v Commonwealth Trading Bank of Australia (1972)
126 CLR 161
COUNSEL: Mr D J Jackson QC for the plaintiff
Mr A J Morris QC with him Mr A C Barlow for the
defendant
SOLICITORS: McCullough Robertson for the plaintiff
Michael Standish for the defendant

CHESTERMAN J: The plaintiff is respectively the mortgagor and chargor under a bill of mortgage and deed of charge, both dated 30 July 1999, securing the payment of $7M. The defendant is the mortgagee and chargee and has issued notices of demand requiring payment of the secured debt and outstanding interest. The plaintiff has applied for interlocutory injunctions restraining the defendant from taking any step to enforce the bill of mortgage or deed of charge until the trial of the action or earlier order. The basis for the injunction is that the plaintiff contends that the instruments of security do not faithfully reflect the terms of the agreement made between it and the defendant. Both instruments make the principal sum of $7M repayable on demand. The plaintiff’s claim for rectification, if successful, would result in the documents being altered to record the obligation as one to repay the principal debt on 10 October 2003.
It is common ground that the plaintiff is presently unable to pay the defendant $7M and if the defendant is entitled to demand immediate payment the plaintiff will be in default of both the bill of mortgage and the deed of charge. The defendant indicates that it does not presently intend to sell the mortgaged property but does intend to appoint a receiver if payment is due but not made.
There is another aspect in which the plaintiff claims rectification but it is of less immediate relevance for reasons which will emerge. The second alteration sought by the plaintiff is to reflect an alleged agreement that only $3M of the total amount of the principal was to bear interest.
The plaintiff is the registered proprietor of little over 32,000 acres of land located in the South West of New South Wales which is being developed as a vineyard. The land was formerly owned by the defendant which transferred it, apparently pursuant to a contract of sale, to the plaintiff for a disclosed consideration of $3M. No part of the price was paid but the defendant executed the necessary documents to effect transfer and registration of title in the land to the plaintiff.
The parties cannot agree whose idea it was to develop the land into a vineyard but there is no doubt that the land was transferred to allow it to be developed for that purpose and that both plaintiff and defendant hoped to prosper from the development. The money to pay for the land and the capital improvements necessary to transform it into a productive vineyard was to come from members of the public who would subscribe for units entitling them to an interest in vines in designated areas of the vineyard. The nature of the interests conferred by the units was intended to provide significant income tax advantages to the unit holders. Those interests would entitle them to be treated as primary producers who would then claim significant deductions in respect of the cost of capital development.
The plaintiff has sold far fewer units to the investing public than was projected when the development was planned. The result is a shortfall in funds from which it was to pay for the land and its improvement.
Essentially the parties’ scheme was that the plaintiff should acquire the land from the defendant pursuant to an option agreement made between them and dated 14 July 1998. Investors (who were called farmers) would subscribe for shares in the plaintiff and would be issued with units conferring rights with respect to vines on a specific part of the vineyard. The individual farmers would make an agreement with the manager who would operate the vineyard as a whole, for obvious reasons.
The manager (who has been recently changed) contracted with the defendant for the latter to carry out the work necessary to make the land into a vineyard. The work included the provision of irrigation, the erection of trellises and the planting and tending of the vines. The consideration was the sum of $4,500 for every unit sold by the plaintiff to an investor. The cost to an investor of a unit is $9,705 for which the investor receives an interest in an area of land on which 150 vines are planted.
The option to purchase the land given by the defendant to the plaintiff contained a draft contract of sale and a draft mortgage which were to constitute the terms of the bargain if the option were exercised. The contract price was $3.5M of which $1.75M was payable on settlement and the balance of $1.75M on 10 October 2003. The outstanding balance was secured by the mortgage. There is a dispute as to whether the option was exercised. The plaintiff asserts it was sometime in November 1998. The defendant denies ever receiving notice of exercise of the option. It will be recalled that the defendant had transferred the land. It is the circumstances in which the transfer took place that gives rise to the litigation.
Because the incentive to invest in vineyard units is the availability of substantial tax deductions most investments occur shortly before 30 June each year. Early in July 1999 the principals of the plaintiff and defendant met to review the level of investment and the monies received from the sale of units. The defendants had by then performed a substantial amount of work pursuant to its agreement with the vineyard manager but had not been paid for the full value of that work because of the mechanism which geared payment to the sale of units. Although the plaintiff claims that the options had been exercised about 7 months earlier the land had not been transferred.
The parties met on 4, 27 and 29 July 1999. As a result of these meetings the solicitors, who acted for both plaintiff and defendant, prepared another contract of sale, the bill of mortgage and deed of charge the terms of which are the subject matter of the litigation. The defendant’s contention is that the mortgage and deed of charge accurately set forth the agreement made. It is accepted that, at least in one respect, the contract of sale does not record what the parties actually agreed. The plaintiff contends that the mortgage and deed of charge do not contain the agreement actually made in July 1999.
At the heart of the dispute is whether the parties made a new agreement during the 3 meetings or whether there was a variation to the existing agreement. The point is that if what happened is properly to be characterised as a variation to the existing agreement then, except to the extent that there was express agreement to vary terms, the original terms remain intact. If, on the other hand, a new agreement were made then its terms would be found in the documents the parties executed.
It appears common ground between all the deponents that there was no discussion at any of the meetings about whether the debt to be secured was to be repayable on demand or on a fixed and future date. The plaintiff asserts that it contracted on the basis that the prior agreement stood subject to a limited number of express changes. The defendant contends there was no such understanding. Its case is that the option had not been exercised and there was no existing agreement which could be varied.
Affidavits were prepared for an urgent application over the Christmas-New Year holiday period. Perhaps for that reason they are not as explicit or as comprehensive as they might have been. Perceived deficiencies in the plaintiff’s material is the basis of the defendant’s submission that the plaintiff has not established a serious question to be tried. Despite short comings in the material some facts do appear sufficiently established for present purposes. They are:

(a) The purchase price of the land was to be reduced to $3M by a corresponding deletion in the defendant’s obligation to construct a crushing/refrigeration/storage complex, the estimated cost of which was $500,000;
(b) The land would be transferred without payment leaving the whole of the purchase price of $3M unpaid but secured;
(c) The value of the work performed by the defendant pursuant to its agreement which had not been paid for would also be secured by the mortgage. The amount, rounded down, was $4M which, together with the purchase price of $3M, totalled $7M, the total principal sum found in the mortgage and deed of charge;
(d) The plaintiff would execute a deed of charge in addition to the mortgage to secure the debt.

The plaintiff contends that it was expressly agreed that only $3M of the debt would bear interest. It is common ground that nothing was said about the due date for payment.
The plaintiff’s directors depose to having executed the contract, mortgage and charge without having read their terms and therefore without noticing that the sums secured were to be paid on demand.
Counsel for the defendant submits that clear and cogent evidence of an agreement on an antecedent common intention different to that which appears in the document is necessary before a court would order its rectification. I accept the submission. It is then said by the defendant that the affidavits do not establish with sufficient exigency the existence of such an antecedent common intention or prior agreement. There is evidence from Mr Jellyman, a director of the plaintiff, that he and Mr O’Leary (who spoke for the defendant) expressly agreed that interest should be paid only on $3M. There was no express agreement with respect to the due date for payment.
Whether there was a common intention that the date be the same as that earlier agreed is really to be determined as a matter of inference from all of the evidence which could be led at a trial. It is because the common intention is to be inferred, rather than established by explicit testimony, that the characterisation of the negotiations in July 1999 becomes critical. If they were, as the plaintiff argues, variations to an existing agreement, the inference becomes much easier to draw.
All the plaintiff need establish to obtain interlocutory injunctions is that its case is sufficiently arguable to justify restraining the defendant from exercising its prima facie legal right to demand payment and exercise its powers as a secured creditor.
I think the material does raise a serious question to be tried. The circumstances in which the parties came together offer some support for the plaintiff’s position. When the parties first negotiated in 1998 for the purchase of the land it was expressly recognised that the plaintiff could not pay the price on completion. Payment of half, $1.75M, was to be deferred for 5 years. When the parties negotiated in 1999 it was known that the plaintiff’s financial position had deteriorated because of the slow rate of unit sales. It was because of the plaintiff’s impecuniosity that the land was to be transferred without any part of the price being paid on completion. It is unlikely that in view of the plaintiff’s diminished financial prospects the parties should have intended that it might be liable to pay the whole of the price at any time when earlier, when its prospects were brighter, they had intended that half the price should be deferred for a fixed term of 5 years.
A second indication is that the agreement for vineyard development provided for payment from the proceeds of unit sales. Although it was hoped that sales would be sufficiently brisk to pay for the work as and when it was done, the parties must have contemplated that there could be a discrepancy between performance of the work and payment. The effect of the new documentation is to oblige the plaintiff to pay for work done despite not having received proceeds of sale from which alone it could make the payment. It is possible the plaintiff may have made such an improvident bargain but, at least arguable, that the circumstances point to a common intention that the plaintiff should have some time before having to make the payment.
A third factor is that one of the 3 documents prepared by the solicitor to give effect to the agreements made in July 1999 does not do so. The contract of sale is admittedly defective in that it does not contain a description of the work which it was agreed the defendant would perform. There was another deficiency. The standard conditions of contract, which have not relevantly been varied by any special condition, provides that completion is to occur 42 days after the contract date (20 July 1999) and that, on completion, the full purchase price, less a deposit of $300,000, was to be paid. As far as I can see from the material there is no suggestion that any deposit was paid. Furthermore it was not the parties’ agreement that the price be paid on completion. The defendant’s case is that completion would occur without payment of any part of the price, but that payment could be demanded any time after completion.
The fact that one of the documents has been carelessly prepared and admittedly does not record what was agreed reduces one’s confidence that the other documents, forming part of the transaction, do actually contain the parties’ intentions.
I conclude there is a serious question to be tried.
The balance of convenience is in favour of the injunctions. The period for which it will be required is likely to be quite short if the parties bestir themselves to prepare the action for trial. There is no evidence that the value of the land, which alone secures the debt, will fall in the space of a few months. Indeed, barring accidents, as more work is performed on the land and as the vines grow, its value should be enhanced. The plaintiff by its counsel has offered to pay interest at the agreed rate of 12.5% per annum on the whole of the debt, $7M as and from 1 December 1999 until the trial of the action or earlier order. The offer is made despite the plaintiff’s case being that it was to pay interest on only $3M. The payment of interest will protect the defendant for the period until trial when the rights of the parties will be determined.
The plaintiff is likely to suffer considerable commercial detriment in the event the defendant exercises any of its powers as a secured creditor. What detriment the plaintiff might suffer would depend upon which of the powers the defendant seeks to exercise. The defendant’s present intention is to do no more than appoint a receiver though, of course, its intention may change. Even the appointment of a receiver is likely to have serious consequences for the plaintiff. Apart from having to find substantial additional money to pay the receiver’s fees his presence would act as a powerful disincentive for investors to buy further units.
The defendant points to the worthlessness of any undertaking of the damages offered by the plaintiff. It is accepted that the plaintiff’s undertaking has no substantial value. However, if interest is paid as promised, the defendant does not point to any damage it might suffer for which the undertaking is required. It is possible, of course, that if ultimately successful the defendant may realise less from the securities than it would if it acted under them now. But as I have said, there is no indication that the secured property will diminish in value and the period for which the injunctions will exist should not be long.
The defendant refers to the authority of Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 and seeks, as a condition of the grant of an injunction, the payment of the secured debt. Other cases, such as Clarke v Japan Machines (Australia) Pty Ltd (No 2) (1984) 1 Qd R 421 and Glandore Pty Ltd v Elders Finance and Investment Co Ltd (1984) 4 FCR 130, establish that where the basis for an injunction against the exercise of a secured creditor’s powers is that the occasion for the exercise of the power has not arisen it is not an inflexible requirement that the mortgagor pay the debt into court. In the present case where the plaintiff contends that the defendant agreed to accept payment of $4M of the secured debt from the proceeds of unit sales, as and when they occurred, and agreed to wait until October 2003 for the payment of that part of the debt which represents the purchase price of the land, it is not necessary in the interests of justice that the plaintiff be required to pay any part of the debt into court. If the plaintiff is right it should not yet have to pay the money. If the defendant is right it will be entitled to enforce the security after the trial. In the meantime its position is protected by the payment of interest. To require the plaintiff to pay the money would be to defeat its claim at the outset. It would deprive the proceedings of any utility.
Upon the plaintiff by its counsel giving the usual undertaking as to damages and upon the plaintiff paying the defendant, monthly in advance, interest at the rate of 12.5% per annum on the sum of $7M I order that, until trial of the action or earlier order, the defendant be restrained from taking any step to enforce the bill of mortgage and the equitable deed of charge, both dated 30 July 1999, made between the plaintiff as mortgagor/chargor, and the defendant as mortgagee/chargee.
I order that the costs of and incidental to the application be costs in the cause.

(a)	The purchase price of the land was to be reduced to $3M by a corresponding deletion in the defendant’s obligation to construct a crushing/refrigeration/storage complex, the estimated cost of which was $500,000;
(b)	The land would be transferred without payment leaving the whole of the purchase price of $3M unpaid but secured;
(c)	The value of the work performed by the defendant pursuant to its agreement which had not been paid for would also be secured by the mortgage. The amount, rounded down, was $4M which, together with the purchase price of $3M, totalled $7M, the total principal sum found in the mortgage and deed of charge;
(d)	The plaintiff would execute a deed of charge in addition to the mortgage to secure the debt.