Mbfi Resorts P/L v Commonwealth Bank of Aust No. DCCIV-99-672 Judgment No. D118

MBFI RESORTS PTY LTD & WIRRINA RESORT PTY LTD
-v-
COMMONWEALTH BANK OF AUSTRALIA & OLIFENT
[1999] SADC D118

Judge Anderson
Civil

On 27 May 1999 order granting an interlocutory injunction was granted by Kitchen DCJ in this matter. A subsequent appeal to the Supreme Court was dismissed. The judgment of the Chief Justice gives a brief factual background. It is presently not necessary to do other than adopt that background. The proceedings are subject to an order made pursuant to s69(a) of the Evidence Act 1929 on 11 May 1999.
The full order of Kitchen DCJ was in these terms:
“1.... That until further order the defendants be restrained and an injunction is hereby granted restraining them whether by themselves, their servants, agents or workmen or otherwise from in any way publishing any of the matters related to or the subject of the appointment or purported appointment of the second defendant as receiver and manager of the property of the plaintiffs or acting in any way in respect of their assets.
2...... That insofar as the second defendant has taken possession or entered into possession of the plaintiffs’ property or business purporting to act under the Deeds referred to in paragraph 3 hereof the second defendant do and is hereby directed to:
2.1... vacate the businesses and premises of the plaintiffs situated at Level 6, 185 Victoria Square, Adelaide and Wirrina Cove in the State of South Australia into which he has entered; and
2.2... deliver up to the plaintiffs the sum of $1,538.65 which he took into his possession on 11 May 1999.
3.That until further order the second defendant be restrained and an injunction is hereby granted restraining him from exercising any of his or his purported rights and powers set forth in:
3.1... the Deed of Appointment made the 11th day of May 1999 between the first defendant and the second defendant in relation to the first plaintiff; and
3.2... the Deed of Appointment made the 11th day of May 1999 between the first defendant and the second defendant in relation to the second plaintiff.
4...... That pursuant to Section 419A(7) of the Corporations Law the second defendant is excused from any or any purported liability under Section 419A(2) of the Corporations Law for rent or other amounts payable by the plaintiffs or either of them under any agreement pursuant to which the plaintiffs or either of them continue to use or occupy or be in possession of property of which someone else is the owner or lessor.
5...... That insofar as any of them have applications, each of the time periods referred to in Sections 421(1)(b), 421A(1), 421A(2), 421A(3), 427(1), 427(1A), 427(1B), 427(2), 429(2) and 432(1) of the Corporations Law be extended until further order.
5A.... That during the continuance of this order the plaintiffs are to pay the sum of $80,000.00 to the first defendant on the last business day of each month commencing on the 31st day of May 1999, such amounts to be appropriated by the first defendant towards interest accrued and payable by the plaintiffs to the first defendant in respect of financial accommodation obtained from the first defendant.
6...... That the sum of $400,000.00 together with any interest accrued thereon be paid out of Court to the first defendant.
7...... That leave to the first defendant to appeal against the order of the 21st day of May 1999 be refused.
8...... That the first defendant’s application for the plaintiff to provide additional security be refused.
9...... That further consideration of and incidental to the application be adjourned until Monday, the 31st day of May 1999 at 4.35pm.”
By application of 12 August 1999, the first Defendant sought “that the orders with injunction made by Judge Kitchen in this action be discharged”. The application was opposed by the Plaintiffs. Mr Howard of counsel appeared for the applicant and Mr Gray QC with Mr Rochow appeared for the Plaintiffs.
Mr Howard accepted that, in the light of the order of Kitchen DCJ, this application might only be brought if reliant upon matters shown to have arisen since the order of 27 May 1999: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170.
To support the existence of such new circumstances, Mr Howard relied upon the affidavit of Phillip Russell Mills sworn on 26 August 1999 and filed in support of the application.
It has not been contested that the contractual relationship between the parties which arose upon execution of what I might call the “security documents”, namely the equitable mortgages and the facility agreement, has in any way been depleted by the May 1999 order. Indeed, each party has sought to use the continuation of that relationship to support its present position.
The applicant maintains that any further breach of the terms of the “security documents” by the Plaintiffs allows it to exercise its rights pursuant thereto. It is said that Mr Mills’ affidavit establishes such a further breach and as such the first Defendant is entitled to exercise its rights which must commence with the discharge of the existing interlocutory injunction.
It is alleged that a failure by the Plaintiffs to comply with a request said to be made pursuant to nominated clauses of each of the security documents amounts to such a breach of the contractual relationship between the parties so as to ground this application.
By letter of 3 August 1999 the first Defendant sought certain financial information from the Plaintiffs for the stated purpose of the preparation of a current valuation. It had long been the first Defendant’s position that the current security held was insufficient. It had sought to have the existing security increased by application to Kitchen DCJ but failed. It said that the request of 3 August 1999 was a precursor to obtaining a new and current valuation in order that it might re‑assess its security and make any further application in that regard, as Kitchen DCJ had invited.
The request for the provision of the information was rejected in a somewhat off‑handed manner by the solicitor for the Plaintiffs. Notwithstanding that the May hearing had been told on oath by the Plaintiffs’ managing director that re‑financing would be in place by 31 July 1999, that had not occurred by that time, or to date. The Plaintiffs’ solicitors made some reference to re‑financing in their response to the first Defendant’s solicitor to the letter of 3 August 1999. They did not indicate when such re‑financing may occur, apart from in “the near future” and raised the suggestion of the first Defendant having a collateral purpose for the request vis‑a‑vis a further application of the present type. Quite outside of any contractual obligation it required the first Defendant to demonstrate “a genuine and urgent need for conducting a valuation at this time” before co‑operation would be forthcoming.
A formal reply of 11 August 1999 from the first Defendant’s solicitor clearly identified the objective of obtaining a valuation to re‑assess security and foreshadowed a further application in that regard should it be deemed inadequate. Reference was made to all formal documentation between the parties said to support the request for financial information.
That letter also indicated that in view of existing orders the first Defendant saw itself as constrained from providing a by then requested banker’s reference relating to the Plaintiffs to a third party. This request obviously, by inference, related to re‑financing.
On 12 August 1999 the Plaintiffs’ solicitors advised the first Defendant’s solicitor that in view of the litigation in existence between the parties it did not agree that the first Defendant’s request for information was supported by any contractual relationship between the parties. Issue was also taken as to the first Defendant’s obligations relating to the provision of a banker’s reference.
There followed a formal notice of breach, dated 18 August 1999, allowing seven days to remedy, which was resisted by facsimile of 24 August 1999. The application hence was issued on 26 August 1999.
Mr Howard submitted that the failure by the Plaintiffs to comply with the request of 3 August 1999 was a breach of the contractual relationship and that breach had not been remedied after notice of it was given. Therefore, he submitted, something subsequent to the order of Kitchen DCJ has occurred entitling the first Defendant to rely upon its continuing rights pursuant to the security documents.
Mr Gray QC cross examined Mr Mills upon his affidavit of 26 August 1999. Following that he submitted that reliance could not be placed upon that affidavit for the purpose sought by the applicant. He made this submission in the context of an agreement between the parties evidenced by an accepted offer from the first Defendant to vary some of the terms and conditions of the accommodation. Mr Gray QC submitted that clause 3, appearing at page 4 of the letter of 8 January 1998, which is in these terms:
“MbfI will provide up to date valuations addressed to the Bank for mortgage purposes, with the Bank reserving its right to request an updated valuation from time to time.”

made specific mention for the provision of current valuations. The consequence, he said, was that any general provision elsewhere in the contractual relationship between the parties must be disregarded in light of this quite specific new term.

This submission overlooked what is contained under the heading “Security” at page 3 of the letter. Under that heading the following is written:
“Security is to be in a form and substance satisfactory to the Bank and is to comprise (but not be limited to) all existing security arrangements and conditions together with a variation to the existing standard Bank Facility Agreement dated 25 March 1996, as amended, to incorporate the provisions of this letter.”
In my opinion, nothing in the variation of January 1998 is able to be interpreted as effectively negating the clauses contained in the security documents which entitle the lender to instigate and maintain control of steps which it wishes to take from time to time to protect its security.
Of course, as Mr Gray QC said, this request of 3 August 1999 and the explanation which followed were made in the context of existing litigation between the parties. That fact does not in some way disentitle the first Defendant from relying upon its security documentation to ensure that the value of its loan is protected. To allow clause 3 of the letter of 8 January 1998 to have the effect contended for would mean that the first Defendant was in the hands of the Plaintiffs not only for any further valuation, but also as to the provider of such a valuation. Nothing supports the view that in January 1998 the first Defendant gave up its rights to instigate steps to ensure the protection of its security.
In the context of this application where, early in the proceedings the Plaintiffs knew that the first Defendant had a view about the adequacy of its security there can be no substantive suggestion that the events show that the first Defendant has acted unreasonably whilst pursuing an improper collateral purpose. There is nothing in the correspondence between the parties to support such a position and, in my opinion, it was not in any way advanced by the cross examination of Mr Mills.
I am not persuaded that instead of bringing this application the first Defendant should have either issued some other and fresh proceedings or sought some other form of relief by way of amendment to the pleadings. What was sought was to have the issue disposed of promptly and this application was, in my opinion, an entirely appropriate vehicle.
This is made the more so by uncertainty caused to the first Defendant by the final words of paragraph 1 of the order of 27 May 1999: “or acting in any way in respect of their assets”. Any order sought by the first Defendant must overcome their breadth either by removing them or by otherwise varying the order.
The criticism of the Plaintiffs’ position as to repayment is not made out. There is no evidence of repayment or of an attempt to repay. There is evidence of an attempt to re‑finance which, if successful, presumably would lead to repayment, but as at this time that has not occurred.
Similarly, criticism of the first Defendant grounded upon the cross examination of Mr Mills for adopting a position not to respond to the request for a banker’s reference should not be directed at him. Plainly, it was a decision made by others and was out of his hands, whatever his personal experience may be. In light of the terms of the original order it is not a position which, in my view, has been shown to have been either wrong or deliberately taken for an ulterior purpose.
Were the matter to rest here I would grant the application. However, there is more to be considered. I turn firstly to the precise terms of the request of 3 August 1999 in light of the criticism of it by Mr Gray QC. Then there is the plea seeking relief against forfeiture contained in the Statement of Claim at paragraph 26. This is a plea which must, of necessity, be dealt with at trial after evidence has been given and where the bounds of any relief are driven by perceptions, then arising, of injustice and/or of unconscionable conduct. Whether this should carry the day in itself I need not decide having regard to my conclusion as to the initial matter raised in this paragraph.
I return to a consideration of the 3 August 1999 letter. It is in these terms (formalities omitted):
“Subject: Advances to Mbfi Resorts Pty Ltd
To enable the Bank to arrange completion of an up to date valuation of the resort, please provide the following information in relation to Mbfi Resorts Pty Ltd and Wirrina Resort Pty Ltd by 17 August 1999:
·...... Monthly Management Accounts from 1 July 1998 to 30 June 1999.
· Balance sheet and Profit & Loss for year ending 30 June 1999 (if available)
The Bank requests the above information pursuant to clauses 10.1 a & k in the Facility Agreement dated 16 October 1995 and clauses 7.1 (J)&(K) of the Registered Equitable Mortgages dated 30 October 1996 (Wirrina Resort Pty Ltd) and 29 June 1995 (Mbfi Resorts Pty Ltd).
Please confirm by 10 August 1999 that you will fully co‑operate with this request and that you will allow full access to the resort to the Banks appointed valuer when he calls.”
Clause 10.1 of the Facility Agreement sets out a series of General Undertakings accepted by the Plaintiffs. Sub‑clause (a)(ii) is relied upon by the first Defendant. It is in these terms:
“(management reports): within 15 days at the end of each quarter, management reports of the Borrower’s activities which report is to include:
·...... sales, actual to budget, in tabular form for both the quarter in question and the year to date.
· net profit, actual to budget, in tabular form showing both the quarter in question and year to date;
·...... details of any major events and/or occurrences;
· information as to any major or foreseen events and/or occurrences which may effect cash flow;
·...... year to date balance sheet;”

Sub-clause (k) thereof is in these terms:
“(inspection): it will permit and ensure that its Subsidiaries permit the Bank or its agent to inspect any of its or their property and to examine its or any of their minute books, books of account and other records reasonably requested by the Bank or its agent and to make copies or take extracts and to discuss its or any of their affairs, finances and Accounts with its or any of their officers and auditor during normal business hours and at such other reasonable times and as often as the Bank or its agent may reasonably request;”(emphasis added).
Whilst the latter provision allows for an inspection of property upon reasonable request, there is nothing in the letter which seeks to so request. The last sentence of the letter is vague and uncertain. It neither identifies the first Defendant’s appointed valuer nor when he may call. In the context of the state of the relationship between the parties when that letter was written, I am unable to accept that such a request as to inspection was reasonable.
Sub‑clause (a)(ii) is not a basis of the first Defendant’s request for “monthly management reports”. Again, having regard to the state of relations between the parties, any request which sought to rely upon the continuing rights of a party must be made strictly within the obligations cast by the security documents.
The provisions of clause 7.1(j & k) of the registered equitable mortgages are also relied upon. Again, these appear as positive covenants given by the mortgagor. Sub sub‑clause (j) requires the existence of an “authorised officer of the mortgagee”. The letter of 3 August 1999 does not so appoint, as I have noted. There is nothing in that clause which requires the Plaintiffs to provide to the first Defendant other than by way of on site inspection of documents (as it were). Nothing requires the delivery to the first Defendant of the precise type of information sought in the letter of 3 August 1999.
Sub sub-clause (k) speaks of the provision of end of year audited balance sheet and trading and profit and loss accounts. There is nothing to suggest that these were available on 3 August 1999. That sub sub-clause also requires the Plaintiffs “where otherwise required by the mortgagee deliver to the mortgagee full and accurate returns in writing”. In my opinion, in the context of the dispute between the parties, the request for monthly management accounts within 14 days of 3 August 1999 is not something which is within the realm of an obligation to produce audited accounts.
Thus, in my opinion, this application should be refused on the basis that it is based upon a request which is vague and uncertain when compared with the clauses from the security documents identified as underpinning it. In my view, those clauses do not do as the first Defendant asserts and consequently no recent breach of the contractual relationship between the parties has been established.
I shall hear counsel as to costs.

[1999] SADC 118

10 September 1999