Lets We Forget Pty Ltd v Westpac Banking Corporation

[2005] NSWSC 1165

Reported Decision: 56 ACSR 126

New South Wales

Supreme Court

CITATION:	Lets We Forget Pty Ltd v Westpac Banking Corporation & Ors [2005] NSWSC 1165
HEARING DATE(S):	11/11/05
JUDGMENT DATE :	14 November 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	Application for interlocutory injunction dismissed

CATCHWORDS:	MORTGAGES - remedies of mortgagee - appointment by mortgagee of agents - mortgagee purports to appoint "as mortgagee in possession" - whether actions of mortgagee through agents and actions of agents should be enjoined if mortgagee not in truth "in possession" - ability of mortgagee to make new appointment at any time - no utility in order sought
LEGISLATION CITED:	Corporations Act 2001 (Cth), Part 5A.1, ss.9, 430 Criminal Assets Recovery Act 1990
CASES CITED:	CAI v Westpac Banking Corporation [2005] VSC 317 New Brunswick and Canada Railway and Land Co v Muggeridge (1859) 4 Drew 686; 62 ER 263 Park v Brady [1976] 2 NSWLR 329
PARTIES:	Lets We Forget Pty Ltd - Plaintiff Westpac Banking Corporation - First Defendant Stephen James Parbery - Second Defendant Mark Julian Robinson - Third Defendant
FILE NUMBER(S):	SC 5402/05
COUNSEL:	Mr R.R.I. Harper SC - Plaintiff Mr P.J. Dowdy - Defendants
SOLICITORS:	Sage Solicitors & Accountants - Plaintiff Henry Davis York - Defendants

LOWER COURT JURISDICTION:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

MONDAY 14 NOVEMBER 2005

5402/05 LETS WE FORGET PTY LIMITED v WESTPAC BANKING CORPORATION AND ORS

JUDGMENT

1 The plaintiff, a company, has received financial accommodation from the first defendant, a bank, and has granted to the first defendant mortgages of two properties, one at Chester Hill and the other at Parramatta, to secure its indebtedness. The first defendant also holds a guarantee of the plaintiff's indebtedness from its sole director and secretary, Mr Nasser Kalache. In purported exercise of a right or power under the mortgages, the first defendant has appointed the second and third defendants to be its agents.

2 By its summons filed on 14 October 2005, the plaintiff seeks final relief by way of declaration to the effect that certain circumstances concerning de-registration and re-registration of the plaintiff under Part 5A.1 of the Corporations Act 2001 (Cth) did not constitute events of default under the mortgages; that the first defendant has not gone into possession of the mortgaged properties as mortgagee; that the second and third defendants were not validly appointed as agents of the first defendant; and that the first defendant was and is not entitled to charge a particular interest margin on the plaintiff's accounts. There are also claims directed towards termination of any appointment of the second and third defendants as agents and for the following final order:

"An order that the defendants and each of them, their servants and agents, be restrained from selling, negotiating to sell, entering into contracts for the sale of, or otherwise dealing in any manner whatsoever with [the two mortgaged properties].”

Finally, there are claims for damages and equitable compensation.

3 As an interlocutory measure, the plaintiff seeks an order restraining all three defendants until trial in the terms I have just quoted, that is, in effect, from taking steps to sell the properties. This judgment deals with that interlocutory application.

4 While the plaintiff does not concede that there has been any default enabling the first defendant to exercise its powers as mortgagee, the primary contention of the plaintiff is that the purported appointment of the second and third defendants as agent by the first defendant is of no effect. For that reason, according to the plaintiff, the second and third defendants cannot properly and lawfully act for the first defendant in exercising its powers as mortgagee.

5 As finally formulated in the course of argument, the plaintiff's claim became, as I understood it, a claim for an interlocutory order that neither the second and third defendants as the supposed agents of the first defendant nor the first defendant through the agency of second and third defendants should take steps towards sale of the properties.

6 The agency status or capacity of second and third defendants that the plaintiff seeks to impugn derives from a deed dated 15 July 2005. It is a deed between the first defendant of the one part and the second and third defendants of the other part. After defining "Mortgages" and "Property" in ways that relate to the mortgages of the Chester Hill and Parramatta properties by the plaintiff to the first defendant, the deed provides as follows in clauses 2.1 and 2.2.

“2.1: Westpac, being entitled under the powers conferred upon it by the Mortgages, appoints the Agents jointly and severally as agents of Westpac in its capacity as mortgagee in the possession of the Properties with all of the powers conferred upon Westpac by virtue of the Mortgages or any other means (Appointment).
2.2: The Agents agree to accept the Appointment.”

7 The basic proposition the plaintiff advances is that the purported appointment of 15 July 2005 is inoperative or ineffective because, at that date, the first defendant was not mortgagee in possession and therefore did not have the capacity upon which the appointment was predicated. In support of that proposition, the plaintiff points to evidence which it says shows that the first defendant has not taken in relation to the properties any steps which, according to principles perhaps most often associated today with the judgment of Samuels JA in Park v Brady [1976] 2 NSWLR 329, justify a finding that the first defendant as mortgagee has gone into possession either actively or constructively. The properties are leased, with the result that steps of relevant kind might be expected to relate mainly to rents.

8 The defendants say that the appointment or attempted or purported appointment by the deed of 15 July 2005 is entirely a matter between the first defendant on one hand and the second and third defendants on the other. If the appointment is somehow defective (and they do not concede that it is), the defendants say that it can quite easily be rectified by a new appointment and that, in any event, there is no need for an appointment of agent to be in writing.

9 The defendants also say that events of default have clearly happened entitling the first defendants to enforce its securities, even leaving to one side the event involving the de-registration and subsequent re-registration of the plaintiff upon which the first defendant at first purported to rely.

10 The defendants point to a number of events they consider to be events of default. One of them focuses upon a provision of the mortgages referring to "any material adverse change in or affecting any Security, or the business, capital, assets or financial condition of ... anyone who gives a Security". An event of default occurs if the first defendant forms the opinion that there is any such material adverse change. The defendants maintain that the term "Security" is defined in a way which includes a guarantee of the plaintiff’s indebtedness, so that the guarantee of that kind given by Mr Kalache is a “Security” as defined.

11 The defendants have put before the court evidence that Mr Kalache represented at the time of giving the guarantee in 2003 that he had net assets of $2.650 million. There is evidence of the making on 18 February 2005 of an order of this court against Mr Kalache under the Criminal Assets Recovery Act 1990 requiring him to pay a sum of $1.300 million in respect of his "serious crime related to activities of conspiring to cheat and defraud, and money laundering with which he is charged as at the date of these orders ". A subsequent order made on the same occasion indicates that the monies so ordered to be paid were to satisfy, in whole or in part, three banks (not including the first defendant) upon which Mr Kalache had allegedly perpetrated fraud.

12 This major inroad upon the guarantor’s financial resources is said by the first defendant to involve a material adverse change effecting the assets or financial condition of someone who has given a “Security” as mentioned in the event of default provision to which I have referred. The circumstances of this case are, in these respects, very similar to those considered by Mandie J in CAI v Westpac Banking Corporation [2005] VSC 317.

13 The defendants have also adduced evidence of numerous instances in which monies that ought to have been paid by the plaintiff were not paid. These are detailed in Mr Starkey's affidavits. I need not go into the detail. The amounts are, in the context, not particularly large. But for the purposes of the relevant event of default, which is simply failure to pay the first defendant any amount due under any agreement with it, the size of the sum involved does not matter.

14 On the evidence before me, it appears to be open to the first defendant to form the opinion going to material adverse change event of default. Mr Starkey, an officer of the first defendant, deposes that he, himself, has already formed that opinion. The evidence also shows that non-payment defaults have occurred. In those circumstances, I am not at all satisfied that the plaintiff has shown that there is a serious question to be tried as to the unavailability of the first defendant's power of sale or that there would be an invasion of some legal or equitable right of the plaintiff if that power were exercised according to the proper and applicable procedures involving the giving of notices and the like.

15 If, as the plaintiff says, the first defendant has charged more interest than it was contractually entitled to charge, that is a matter that goes to a proper accounting between mortgagor and mortgagee, not one that affects the power of sale.

16 In any event and as I have already said, the case ultimately put on behalf the plaintiff did not involve the proposition that, if default had truly occurred, the first defendant should be precluded from resort to power of sale. The real attack is upon the authority of the second and third defendants to act as agents of the first defendant under the deed of 15 July 2005. It may be that there is a defect or, at least, an anomaly, for want of a better expression, in the appointment deed between the first defendant, and the second and third defendants. It may be that, as at the time of the appointment, the first defendant was not "mortgagee in possession of the Property" and therefore did not then have the "capacity" in which it purported to make the appointment. There will be a question, which is a question of construction based upon the intention of the parties to the deed of 15 July 2005 objectively ascertained, as to the true effect of an appointment in those terms.

17 At this stage, however, I see no need to attempt to answer that question. The second and third defendants have not to this point exercised their agency except by way of what purports to be a requirement imposed by them under s.430 of the Corporations Act that Mr Kalache, as a director of the plaintiff, furnish a report as to affairs. Only a "controller of property of a corporation" can impose such a requirement under s.430. The purported imposition of the requirement by the second and third defendants therefore implies a view on their part that they are within the s.9 definition of "controller":

“’controller, in relation to property of a corporation, means:
(a) a receiver, or receiver and manager, of that property; or
(b) anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a charge.”

18 It is, for present purposes, beside the point whether the s.430 demand was validly or invalidly made. The interlocutory order I am asked to make is concerned with future action directed towards sale of the properties. The terms of the restraint ultimately sought are concerned with action towards sale by or through the second and third defendants.

19 Mr Dowdy of counsel who appeared for the defendants pointed to the futility of such an order. Assume in favour of the plaintiff that the purported appointment of 15 July 2005 is entirely without effect. There is nothing to stop the first defendant making a new appointment of the second and third defendants tomorrow or next week or next month, being an appointment which refers to no “capacity” of the first defendant and simply recites the clear power to delegate expressly conferred and recognised in clause D9 of the mortgage terms. Indeed, in the light of the points raised by the plaintiff about the deed of 15 July 2005, it would be astonishing if the first defendant did not make a new appointment, assuming that it wished to exercise any of its mortgagee powers through the agency of the second and third defendants. It would then be quite proper for the first defendant to exercise those powers through the new agency involving the second and third defendants, assuming that it was not affected by any vitiating factor. The plaintiff has no equity that would entitle it to obtain an injunction restraining the making of any such new appointment.

20 Vice-Chancellor Kindersley said in New Brunswick and Canada Railway and Land Co v Muggeridge (1859) 4 Drew 686; 62 ER 263 that a court of equity "will not make an order in vain". In my opinion, for the reasons Mr Dowdy stated, it would be an exercise in futility for this court to make any order precluding the first defendant from taking steps towards exercise of its power of sale through the intermediation or agency of the second and third defendants; or restraining the second and third defendants from taking such steps as the agents of the first defendant. A narrower order – that is, an order precluding such steps in exercise of the agency created by the deed of 15 July 2005 - might conceivably be made but would also be of no real utility given the obvious power of the first defendant to make a new and uncontroversial appointment at any time.

21 I should mention one matter in conclusion. It was said in the course of the hearing that the plaintiff has contracted to sell one of the properties and that the completion of the sale is expected later this week. There was some apprehension that the purported appointment of 15 July 2005 would interfere with this. There was no evidence about this matter and I need really say nothing about it except that, even if the appointment is valid and subsisting, there is no apparent reason why it would interfere in any way with the mortgagor’s right to redeem.

22 The application for an interlocutory order, that is, an order until further order in terms of paragraph 6 of the summons, is dismissed with costs.

23 I stand over the balance of the summons to the Registrar’s list on Thursday, 24 November 2005.

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