Lincoln v McNamara
[2014] FCCA 1573
•7 July 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| LINCOLN & ANOR v MCNAMARA & ORS | [2014] FCCA 1573 |
| Catchwords: CONSUMER CREDIT – Injunctions – unconscionableness. |
| Legislation: Transfer of Land Act 1958 (VIC) Property Law Act 1958 (VIC) National Consumer Credit Protection Act 2009 (Cth) Schedule 1 - National Consumer Credit Protection Code |
| Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30 Australian Broadcasting Corporation v O’Neill [2006] HCA 46; 80 ALJR 1672; 229 ALR 457 Edgelow v McElwee (1918) 1 KB 205 Shakespeare Haney Securities Limited v Crawford (2009) QCA 85 |
| First Applicant: Second Applicant: First Respondent: | MARK CLIFFORD LINCOLN PRIME VISIONS REAL ESTATE PTY LTD RHYS MATTHEW MCNAMARA (AS TRUSTEE OF THE MCNAMARA SUPERANNUATION FUND) |
| Second Respondent: Third Respondent: Fourth Respondent: Fifth Respondent: Sixth Respondent: | JONEEN VENA MCNAMARA (AS TRUSTEE OF THE MCNAMARA SUPERANNUATION FUND) BRIAN MCNAMARA JASON BELL HARVARD CAPITAL AUSTRALIA PTY LTD SHINEWEST CORPORATION PTY LTD |
| File Number: | MLG 1340 of 2014 |
| Judgment of: | Judge Riethmuller |
| Hearing date: | 7 July 2014 |
| Date of Last Submission: | 7 July 2014 |
| Delivered at: | Melbourne |
| Delivered on: | 7 July 2014 |
REPRESENTATION
| Counsel for the First and Second Applicants: | Mr Cull |
| Solicitors for the First and Second Applicants: | ICA Lawyers |
| Counsel for the First, Second, Third, Fifth and Sixth Respondents: | Mr Robertson |
| Solicitors for the First, Second, Third, Fifth and Sixth Respondents: Counsel for the Fourth Respondent: | Clamenz Evans Ellis Lawyers There being no appearance by or on behalf of the Fourth Respondent |
ORDERS
The matter be adjourned to A DATE TO BE FIXED IN 2015 for final hearing (with an estimated hearing time of 4 days).
The Applicants file and serve a statement of claim within 14 days.
The Respondents file and serve a defence on or before 15 August 2014.
The Applicants file and serve any reply on or before 29 August 2014.
There be disclosure between the parties within 28 days of the pleadings being filed and served.
The matter be listed for mediation with a Registrar of the Federal Court of Australia on a date to be fixed in November 2014.
The First Applicant and Third Respondent (Mr Brian McNamara) attend the mediation referred to in paragraph 6 hereof in person.
The question of the parties’ costs be reserved.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1340 of 2014
| MARK CLIFFORD LINCOLN & PRIME VISIONS REAL ESTATE PTY LTD |
Applicants
And
| RHYS MATTHEW MCNAMARA & JONEEN VENA MCNAMARA (AS TRUSTEES OF THE MCNAMARA SUPERANNUATION FUND) and BRIAN MCNAMARA and JASON BELL and HARVARD CAPITAL AUSTRALIA PTY LTD and SHINEWEST CORPORATION PTY LTD |
Respondents
REASONS FOR JUDGMENT
The applicant, Mr Lincoln, is a licensed real estate agent in Victoria, operating a real estate agency, the second applicant, Prime Visions Real Estate Pty Ltd (PVRE) in the inner suburbs of Melbourne.
Mr Lincoln is the sole registered proprietor of a unit at South Yarra. The unit is encumbered by a mortgage in favour of Westpac Banking Corporation securing around $460,000. The unit is also encumbered with a mortgage in favour of the first respondents (the Lenders).
Mr Lincoln brings the application urgently claiming that it was only on Wednesday, 18 June 2014 that he:
Learned that the purported lenders intended to sell the relevant property as mortgagees in possession.
The application was filed on 3 July 2014 and heard urgently by me on 4 July 2014. As there was insufficient time to deliver reasons on the day I advised the parties I would deliver brief reasons later. These are my reasons.
The history of the matter commences in late 2011. Mr Lincoln had signed a contract to purchase a home in Altona North which he and his wife intended to use as a primary residence.
He says in his affidavit that in 2011 he signed a contract to purchase the Altona property on 13 August 2011 with settlement due on 13 February 2012. He had paid a $2000 deposit and was required to pay a further $28,000 towards the total deposit of $30,000 on or before 19 December 2011. He required a further sum of $85,000 in order to complete the purchase.
Mr Lincoln had insufficient funds to pay the entirety of the deposit amount, nor to complete the purchase. He says that at the time the fifth respondent, Mr Bell, was a director of Harvard Capital Australia Proprietary Limited (Harvard Capital) which was a finance broking company set up to market negative gearing arrangements to Self-Managed Super Funds. He came to meet Mr Bell at the borrower’s company and Harvard Capital’s shared office space. At the time he understood that Harvard operated a:
Credit related business and specialised in self-managed superannuation fund (SMSF) lending or investment.
The business relationship between Mr Bell and Mr Lincoln included an arrangement where Mr Bell would provide tax invoices to Mr Lincoln’s company PVRE for consultancy services in the same amount that was due by Harvard Capital by way of rental, and that PVRE would pay the rental sum on behalf of Harvard Capital.
At that time Mr Brian McNamara was a director of Harvard Capital, whose shares were divided between three corporations, 50 of 101 shares belonging to Terms Capital Partners Proprietary Limited (a company operated by Mr Bell), 50 of the shares were owned by Jonrian Proprietary Limited, and one share owned by Shine West Corporation Pty Ltd (a company operated by Mr Brian McNamara).
At the relevant time it is apparent that Harvard Capital was providing financial services to self-managed super funds, stating on its website:
Harvard Capital Australia Pty Ltd (Harvard Capital) is a boutique funds management company specialising in the delivery of structured financial products and services to the Self Managed Superannuation Fund and investor markets.
The company is committed to providing all Australians with access to the expertise and advice necessary to initially set up and then maintain and grow a SMSF. Harvard Capital’s focus will include the identification of direct property opportunities and the development of associated products and services that will fit and complement individual SMSF investment strategies.
Harvard Capital’s multidisciplinary team and partners consists of experienced passionate trust advisory experts who will always go above and beyond to secure the right structure and strategy that best suits you now and in your future retirement.
Harvard Capital is an Authorised Representative of Churchill Securities Pty Ltd (Churchill) under Churchill’s Australian Financial Services Licence number 293734 (Authorised Representative NO 358995) and also holds it’s own Australian Credit Licence (ACL 385666). AS such its operations are subject to the Financial Ombudsman Service of Australia.
Mr Bell was listed as a director of Harvard Capital at that time.
In late November or early December 2011, Mr Bell asked to borrow $35,000 from Mr Lincoln. He told Mr Lincoln that he wanted to pay some legal fees and purchase a larger stake in Harvard Capital from Mr Brian McNamara. He said that Mr Brian McNamara would lend money to Mr Lincoln from his own self-managed super fund, and that Mr Bell would prepare a request to Mr Brian McNamara for a loan including sufficient funds to purchase the Altona property as well as the money that Mr Bell sought to borrow from Mr Lincoln. Mr Lincoln was enticed into this arrangement on his version, by representations of Mr Bell, that there were significant plans afoot for Harvard Capital and other business ventures in the property market, which would generate considerable business for Mr Lincoln’s real estate agency, PVRE. Mr Bell also represented that he would repay the loan within three months.
In November 2011 Mr Lincoln had attempted to obtain a loan from ANZ who refused to grant him an overdraft offering only a $10,000 commercial credit card facility. He says that he and Mr Bell had discussed Mr Bell becoming a sub-agent and working through his real estate agency, and the percentages for commission sharing. This had been reduced to writing and signed around 7 November 2011.
Mr Lincoln never spoke directly to Mr Brian McNamara. Mr Bell prepared an email request for a loan, which was sent by Mr Lincoln to Mr Brian McNamara. This request sought a loan of $120,000 for a period of 12 months with interest capped at $18,000 and legal fees capped at $2000. Significantly, in the email of 5 December 2011 Mr Lincoln represented to Mr Brian McNamara that:
a)security would be given over the South Yarra property;
b)the South Yarra property was listed on the market for sale with Mr Bell as the selling agent;
c)it was anticipated that the property would sell in about six months;
d)Mr Lincoln wished to “Have the ability to put a deposit on another property”;
e)Mr Lincoln had agreed to pay Mr Bell “a $25,000 retainer in helping me sell a development in the city on weekends from now until June 2012.”; and
f)comparable sales supported valuation of the property of $780,000.
Whilst the loan amount in the original email was described as $120,000 the net amount sought in that email by Mr Lincoln was $125,000 ($100,000 for him and $25,000 for Mr Bell).
The offer that came back the following day by email from Mr Brian McNamara was an offer to lend a total of $150,000 to enable Mr Lincoln to pay legal fees estimated at $3,000, and prepay interest at $30,000 for the first 12 months of the loan. Whilst there were some submissions that the offer was in different terms to that requested, it appears to me that it substantially reflects the request, which was to enable Mr Lincoln to receive a net amount of $125,000. However, the interest rate was higher than Mr Lincoln had hoped.
The offer was returned on the letterhead of Shine West Corporation, which is operated by Mr Brian McNamara.
The letter of offer contained the clause:
11. In signing this letter of offer the borrower/s confirms that the intended use of the funds will be used wholly or predominantly for business purposes.
The offer also included a ‘standard’ interest rate of five per cent per month, and a ‘pre-paid’ interest rate of 1.67% per month. There were a number of conditions in the offer including market appraisal of the property being offered as security, confirmation of the outstanding debt on the first mortgage of that property, and in particular:
(c) Satisfactory evidence of an exit strategy, example sales authority.
On 6 December 2011 the proposed loan agreement was provided with a request for feedback before Mr Brian McNamara passed the draft agreement to his solicitors. Mr Lincoln provided brief feedback, which indicates that he read the documents saying:
Hi Brian,
Read through the attachment on screen, printer out and then re read the document cover to cover. On page 26 the security will be a charge over Prime Visions Real Estate and a registrable second mortgage over 9/100 Commercial Rd.
The security described on page 2 gives the lender the right to register the encumbrance now or in the future at your discretion as discussed yesterday.
Please proceed with the solicitor, feedback provided as requested, no changes necessary, and lets get this agreement formalised.
Kind Regards
Mark Lincoln
Director/Officer In Effective Control
Primer Visions Real Estate Pty. Ltd. ABN 3313492542
On 14 December 2011 Mr Lincoln instructed Mr Brian McNamara to pay $92,000 to a PVRE account, (providing the account number), and $25,000 to either Rebel Raider Proprietary Limited or Terms Capital Proprietary Limited, at Mr Bell’s election.
Ultimately the solicitors changed the formal version of the loan agreement, however nothing is suggested to turn on that at this point.
The money was duly dispersed, and on 22 December 2011 Mr Lincoln entered into a deed of loan with Mr Bell, under which Mr Bell charged all of his interest in his shareholdings in Rebel Raider Proprietary Limited to secure the $25,000 borrowed for Mr Lincoln.
As time passed, it transpired that Mr Bell did not make repayment of the monies advanced to him by Mr Lincoln. On 3 March 2012 he even made a veiled threat:
As explained to you time again, I am working on paying you 35,000 ASAP, as discussed this week. Please remember you may need flexibility on your loans one day.
Ultimately, Mr Lincoln obtained judgment against Mr Bell, though at this point has received no payments.
On 6 June 2012 Mr Brian McNamara emailed Mr Lincoln asking for:
An update on where you are with the sale or refinance of your property.
On the same day Mr Lincoln advised that he had three “clear strategies relating to repayment of the loan”, being selling South Yarra, selling developments or investment properties, or borrowing against his rent roll, which he claimed was worth over $150,000 at that point.
Mr Brian McNamara emailed again on 8 October 2012 seeking confirmation that the loan would be repaid on or before the repayment date of 16 December 2012, saying:
I am looking to acquire another business and need the funds.
On 9 October 2012 Mr Brian McNamara again emailed telling Mr Lincoln:
I suggest you will need to get serious and move your property, borrow against your rent roll, arrange an overdraft, bring in a partner, etcetera. Or perhaps a combination of the lot. The reason I made contact to give you this early reminder is to let you know that I need repayment by the due date, and am not in a position to extend the facility.
On 4 December 2012 a letter was prepared by the lawyers for Mr Brian McNamara seeking advice as a matter of urgency as to Mr Lincoln’s intentions.
On 20 December 2012, after the loan had fallen due, a lengthy letter was forwarded by Mr Lincoln’s solicitors to Mr Brian McNamara proposing a settlement (the terms of which were redacted in the copy annexed to the affidavit). Thereafter continued demands were made by the solicitors for the lenders, and ultimately a notice of default and notice of exercise of power of sale was issued under the Transfer of Land Act 1958 (VIC) and Property Law Act 1958 (VIC) on 29 July 2013.
Curiously, on 26 February 2014 Mr Lincoln attempted to transfer the property at South Yarra to his spouse, which (not surprisingly) was the subject of objection by the lenders through their solicitors. The lenders then issued a notice to quit on 11 March 2013 prior to the notice of default and exercise of power of sale on 26 July 2013. On 27 March 2014 notice was given to the tenants of the properties to pay the rent to the lenders.
In his affidavit Mr Lincoln says that he currently owes $487,000 on the Westpac Mortgage with respect to the South Yarra property which he values at approximately $700,000.
Mr Lincoln admits that he represented to the lender that the property value was approximately $800,000
The loan as made was between two trustees of the McNamara Superannuation Fund, Rhys McNamara and Joneen McNamara as trustees of the fund. It appears that all (Brian McNamara, Rhys and Joneen) were trustees for the family self-managed super fund. There is a strong prima facie case that the lenders, Mr Brian McNamara, Shine West and Harvard were all related entities.
The loan was also secured by a guarantee from Prime Visions Real Estate Pty Ltd together with a fixed floating charge over the company.
Whilst Mr Lincoln says that the monies that he received were applied to the loan to Mr Bell, and $82,000 towards the completion of the purchase at Altona North, this allegation is a bare one-line statement at para.112 of his affidavit. Documents evidencing the movement of the money which was paid into his company account by the lenders and from there towards the payment of the deposit were not annexed. For the purpose of the proceedings today, it is appropriate for me to proceed on the basis that there is an arguable case that the monies can be traced through Mr Lincoln’s company PVRE to the property.
The applicant argues that the National Consumer Credit Code applies to this loan, and that as a result any steps to sell the property would be in breach of the Act for a number of reasons, the simplest being that no notice has been given pursuant to s.88 of the Act. If the loan agreement is regulated by the Consumer Credit Act, it appears that the present sale would be in breach of s.88.
On this point the applicant says:
170. I believe that the McNamara Loan is a loan to which the provisions of the Consumer Credit Code apply. The reason for my belief is that both Jason and Brian knew that the portion of the McNamara Loan made to me was to be used to purchase residential property as set out in the mail which Jason drew and which I sent to Brian on 5 December 2011.
171. I believed and understood at the time that me dealings with Jason and Brian were through Harvard and that I could trust Jason and Brian given my understanding of their experience in credit, loans and financial products. I believe that the Purported Lenders, Jason, Brian, Harvard and Shinewest have all provided credit services, credit assistance and/or credit referral services to me and that all of the activities were governed by code.
172. I have never received any credit disclosure notices. I have never signed a Business Purpose Declaration under the Code. I have never received any documents or notices issued pursuant to the Consumer Credit Code and believe that there are significant questions of non-compliance with the Consumer Credit Code. I understand that the Purported Lenders, Brian and CEE Law each deny that the loan was governed by the Credit Code.
173. I do not believe that Jason, Brian, Harvard or Shinewest ever made any assessment of my capacity to repay the McNamara Loan and were happy to lend money simply on the basis that there was equity in the Relevant Property. I now do not believe that the McNamara Loan was ever suitable for me and that I had no realistic prospects of repaying it without having to sell a property. I naively relied on Jason’s experience and expertise and on Jason’s and Brian’s involvement, plans and expectations for Harvard Capital and their associated businesses to believe that I would generate enough income from their referrals that there would be no issue in repaying the loan.
174. I believe that I have been tricked into agreeing to loan $35,000.00 to fund Jason’s business ventures with Brian and Harvard on an unsecured basis, whilst being liable against the Relevant Property and PVRE’s assets.
175. At a time when:
a. Brian knew of Jason’s failure to repay the $35,000.00 to me;
b. Brian know of Jason’s execution of Terms of Settlement in the Magistrates Court proceedings given their common solicitors, CEE Law;
c. Brian knew of Jason’s default in the Terms of Settlement;
d. Brian knew that I could not repay the McNamara Loan without having the loan to Jason repaid.
e. I believe that Brian has made drastic changes to the share structure of Thames Capital to reduce Jason’s interest in Thames (held through Rebel Raider) from 31% of Thames shares down to 0.09%.
176. I believe that Brian is in reality the true lender and that he removed himself as a trustee of the McNamara Superannuation Fund to distance himself from the transaction and any obligations that might be imposed upon him given Harvard Capital’s credit license and the other licenses.
177. I believe that Jason’s mail to me in March 2012 (exhibit “MCL-29”) demonstrates that Jason could influence Brian given his explicit warning that I might need some flexibility in repayment of the McNamara Loan at some future time.
178. I believe that I have been taken advantage of and that the terms of the McNamara Loan are unconscionable. I do not believe that I should have ever been approved for the loan and it should never have been made. I believe that Jason and Brian did not identify the conflict of interest which arises given the advance of funds from me to Jason as a condition of the McNamara Loan.
179. If the auction to be conducted by the Purported Lenders proceeds on Saturday 5 July 2014, I will suffer significant loss. Not only with the fact that the property is being advertised as a mortgagee sale adversely affect the price, I will lose the benefit of my investment of money into the property over the years in the event that I am successful in setting aside the McNamara Mortgage, or resolving the matter without the Relevant Property being sold.
180. I believe that there is sufficient equity in the Relevant Property to discharge the first mortgage and to pay the amount claimed by the Purported Lenders and that the balance of convenience is in my favour. I note that I am personally the borrower for the McNamara Loan and that I jointly own the Altona Property with my wife, Belinda.
181. My family and I are suffering significant emotional and financial stress as a result of the McNamara Loan and the steps being taken to now enforce it. I have two (2) young children and the stress of this matter is affecting our family relationship.
182. I believe that there is a serious question to be tried and that the Court should order that the auction not proceed until this proceeding is determined. I also believe that the Purported Lenders should not be allowed to further enforce the loan, the mortgage or the guarantee until this dispute is determined.
183. I also seek an order whereby the rent paid by the tenant of the Relevant Property is paid to the first mortgagee to avoid the property being sold by an un-remedied default in the first mortgage.
184. I humbly ask the Court to grant me and PVRE the relief set out in the Application.
How the applicant could establish damages in excess of the penalties which could be imposed to offset against interest (other than with respect to the $35,000 paid to Mr Bell) is not apparent on the material before me. Even if he doesn’t have to repay interest or the $35,000 lent to Mr Bell, this would leave him with a debt of $82,000 payable to the lenders as trustees of the superannuation fund.
Application of National Credit Code
The first issue to determine is whether or not there is an arguable case that the loan is regulated by the National Credit Code. Section 5 provides:
5 [Provision of credit to which this Code applies] (1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into:
(a) the debtor is a natural person or a strata corporation; and
(b) the credit is provided or intended to be provided wholly or predominantly:
(i) for personal, domestic or household purposes; or
(ii) to purchase, renovate or improve residential property for investment purposes; or
(iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
(c) a charge is or may be made for providing the credit; and
(d) the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.
(2) If this Code applies to the provision of credit (and to the credit contract and related matters):
(a) this Code applies in relation to all transactions or acts under the contract whether or not they take place in this jurisdiction; and
(b) this Code continues to apply even though the credit provider ceases to carry on a business in this jurisdiction.
(3) For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose.
(4) For the purposes of this section, the predominant purpose for which credit is provided is:
(a) the purpose for which more than half of the credit is intended to be used; or
(b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used. At issue in this case is whether or not section 5(1)(b) and section 5(1)(d) are satisfied.
Credit is conclusively presumed to be for purposes not covered by the Code if a declaration in a form set out in r.10 of the Regulations is entered into (see s.11 of the Consumer Credit Code). In this case such a declaration was not signed, and the form of the declaration given omits a key part of the warning contained in the form set out in the Regulations, namely:
By signing this declaration, you may lose your protection under the Consumer Credit Code.
In the scheme of the legislation, this appears to me to be an integral part of the declaration: that is a warning of potential loss of protection. A failure to provide any form of warning of this nature appears to me to be sufficient to show that there has not been substantial compliance with the regulation. This is in accord with the view of Croft J in Knowles v Victorian Mortgage Investments Limited and the Registrar of Titles [2011] VSC 611. Whether a warning in different words to that set out in the regulation would be in substantial compliance is not a matter that I need to determine here.
Considerable difficulty surrounds the interpretation of s.5 when determining the purpose for which the borrowed monies are provided, as is discussed in Knowles’ case by Croft J, particularly having regard to the distinction between views expressed in the Victorian Supreme Court, and the Queensland Court of Appeal in Shakespeare Haney Securities Limited v Crawford [2009] QCA 85.
Importantly, s.5(3) says that for the purposes of the section, “investment by the debtor is not a personal, domestic or household purpose”.
The lenders were never told that the monies were for a purpose within s.5(1)(b). The debtor directed that the loan monies be paid to his corporation PVRE. The applicant represented that the funds will be used “wholly or predominantly for business purposes” (affidavit of Mark Lincoln, 24).
It appears to me that there is a strong argument that the loan monies were for the purpose of investment, in his corporation, and that any monies he received with respect to the Altona property were borrowings from or distributions by his company. The company books have not been produced. There is no explanation for the reason why he would direct that the money be placed in the company’s account other than if the loan was monies utilised by the company.
For the purposes of the interlocutory injunction proceedings having regard to Knowles’ case. I am satisfied that the applicant has an arguable case, although it seems on the material currently before me, quite a weak case, that can only be based upon the actual final use of the funds traced through the company.
Further difficulty for the applicant is presented by the effects of s.5(1)(d).
In this case the evidence indicates that superannuation fund monies for this fund had only been lent twice, once to this applicant and once to another person [O]. It is said in affidavit material that the superannuation fund does not engage in the business of money-lending. There is no evidence that the trustees engaged in money lending other than these 2 transactions.
In Edgelow v McElwee [1918] 1 KB 205 at 206 the Court said:
Nor does a man become a moneylender merely because he may upon one or several isoltated occasions lend money to a stranger. There must be a business of moneylending and the word ‘business’ imports the notion of system, repetition and continuity…’
Edgelow has been cited with approval in the High Court of Australia in Hungier v Grace (1972) 127 CLR at 216 and 222. More recently, it was cited in Lend Lease Real Estate Investments Limited v Charter Hall Retail Management Ltd (2011) NSWSC 1624 at 41.
The nature of the business operated by Harvard Capital does not appear to be that of money-lending, nor was Harvard Capital the lender.
It does not appear that in this case the lenders (the superannuation fund trustees) were providing credit in the course of the lenders business as required by section 5(1)(d).
Mr Lincoln also argued the loan was unconscionable although, as counsel for the respondent pointed out:
a)there was no inequality of bargaining position;
b)there was nothing unclear about the terms of the transaction;
c)there were no pressures brought to bear on the applicant;
d)the applicant had no disability;
e)the applicant was a man of some skills in the area, in that he was a licensed real estate agent;
f)the applicant was in a position to exercise his own commercial judgment; and
g)the applicant was specifically aware of the retention by the lender of the 12 months interest.
A further relevant factor is the representations by Mr Lincoln that he would be able to repay the loan by selling property, reliance upon business cash flow, or refinance, but more specifically, the terms of the arrangement that specifically identified an “exit strategy” for him, which involved selling the property, and representations as to the appointment of Mr Bell as an agent to effect that sale.
On the representations made by Mr Lincoln, the “exit strategy” was rational and realistic. It is difficult to see the case of unconscionability as a strong one at least with respect to the first year of the loan where interest was similar to credit card rates. The nature of the relationships between Mr Bell, Harvard Capital, Shine West and the superannuation trustees (or at least Mr Brian McNamara), whilst at first blush complex, do not seem on their face to lead to a finding of unconscionability. The ‘standard’ interest rate, however, is very high and may be a penalty: see Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30.
Balance of Convenience
The principles for determining whether or not to grant an injunction on an interim basis are set out in Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618 as reiterated in Australian Broadcasting Corporation v O’Neill [2006] HCA 46; 80 ALJR 1672; 229 ALR 457 at [65 – 72]:
65. The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd [69]. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued [70]:
“The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … The second inquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.”
By using the phrase “prima facie case”, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument [71]. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal [72]:
“How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.”
66. For example, special considerations apply where injunctive relief is sought to interfere with the decision of the executive branch of government to prosecute offences [73]. Again, in Castlemaine Tooheys Ltd v South Australia [74], Mason ACJ, in the original jurisdiction of this Court, said that “[i]n the absence of compelling grounds” it is the duty of the judicial branch to defer to the enactment of the legislature until that enactment is adjudged ultra vires, and dismissed applications for interlocutory injunctions to restrain enforcement of the law under challenge.
67. Various views have been expressed and assumptions made [75] respecting the relationship between the judgment of this Court in Beecham and the speech of Lord Diplock in the subsequent decision, American Cyanamid Co v Ethicon Ltd [76]. It should be noted that both were cases of patent infringement and the outcome on each appeal was the grant of an interlocutory injunction to restrain infringement. Each of the judgments appealed from had placed too high the bar for the obtaining of interlocutory injunctive relief.
68. Lord Diplock was at pains to dispel the notion, which apparently had persuaded the Court of Appeal to refuse interlocutory relief, that to establish a prima face case of infringement it was necessary for the plaintiff to demonstrate more than a 50 per cent chance of ultimate success. Thus Lord Diplock remarked [77]:
“The purpose sought to be achieved by giving to the court discretion to grant such injunctions would be stultified if the discretion were clogged by a technical rule forbidding its exercise if upon that incomplete untested evidence the court evaluated the chances of the plaintiff’s ultimate success in the action at 50 per cent or less, but permitting its exercise if the court evaluated his chances at more than 50 per cent.”
69. In Beecham, the primary judge, McTiernan J, had refused interlocutory relief on the footing that, while he could not dismiss the possibility that the defendant might not fail at trial, the plaintiff had not made out a strong enough case on the question of infringement [78]. Hence the statement by Kitto J in the course of argument in the Full Court that it was not necessary for the plaintiff to show that it was more probable than not that the plaintiff would succeed at trial.
70. When Beecham and American Cyanamid are read with an understanding of the issues for determining and an appreciation of the similarity in outcome, much of the assumed disparity in principle between them loses its force. There is no objection to the use of the phrase “serious question” if it is understood as conveying the notion that the seriousness of the question, like the strength of the probability referred to in Beecham, depends upon the consideration emphasised in Beecham.
71. However, a difference between this Court in Beecham and the House of Lords in American Cyanamid lies in the apparent statement by Lord Diplock that, provided the court is satisfied that the plaintiff’s claim is not frivolous or vexatious, then there will be a serious question to be tried and this will be sufficient. The critical statement by his Lordship is “[t]he court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried”[79]. That was followed by a proposition which appears to reverse matters of onus[80]:
“So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought.” (emphasis added)
Those statements do not accord with the doctrine in this Court as established by Beecham and should not be followed. They obscure the governing consideration that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.
72. The second of these matters, the reference to practical consequences, is illustrated by the particular considerations which arise where the grant or refusal of an interlocutory injunction in effect would dispose of the action finally in favour of whichever party succeeded on that application[81]. The first consideration mentioned in Beecham, the nature of the rights asserted by the plaintiff, redirects attention to the present appeal.
In this case the dispute has been on foot for over 18 months. There have been a number of events which made it abundantly clear to the applicant that the first respondents intended to enforce their security with respect to the property. Evidence was tendered by way of a valuation report that the property is worth approximately $580,000, noting that the first mortgage is around $480,000. After the expenses of sale, it is unlikely that the lender will recover even the entirety of the capital loaned to Mr Lincoln and paid to his company ($82,000). There are real prospects of the debt to the Lenders being far greater than the equity in the property, and any losses therefore growing as the lender is held out of the money.
The auction has been advertised and is set for tomorrow. No doubt a number of people have attended inspections and undertaken preparations to bid at the auction.
The property is not the residence of the applicant, but an investment property. It is not suggested that there is anything unique with respect to the property, from the applicant’s perspective.
It is difficult to see that a useful purpose would be served by delaying the sale of the property. Any damages that flow are adequately assessed in monetary terms. The balance sheets for the superannuation fund show assets significantly in excess of any realistically contemplated damages in this case (by an order of magnitude).
It is also significant that the application for an injunction is brought the day before the auction when a number of steps have been taken and there has been no doubt that the respondents are proceeding to enforce their security: see generally Pearl Beach Property Administration Pty Ltd v Wisewoulds Nominees Ltd [2014] VSC 113 at [26].
No monies have been offered to be paid into court by the applicant, whose present case rests on the basis that he would hope to obtain sufficient finance to pay out any sums found to be owing to the respondents by way of a second mortgage over the property. This could only be successful if he is ultimately only to repay a limited amount of the capital advance (the $82,000), and a bank would advance to 100% of the value of the property. Given the history of the applicant’s need for finance and difficulties obtaining it in the past, it does not appear to me to be realistic that the applicant could refinance for such a sum.
Viewing the matter as a whole, I am not persuaded that in the unusual circumstances of this case, particularly:
a)the weaknesses of the applicant’s case;
b)the very late application in the face of an auction advertised and set to proceed tomorrow; and
c)the apparent sufficiency of monetary damages
that the balance of convenience favours an injunction to restrain the sale of the investment property. In the circumstances, I therefore decline to grant an interim or interlocutory injunction.
I certify that the preceding sixty-five (65) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller
Associate:
Date: 12 August 2014
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