Monaco Solicitors Pty Ltd v Prolend Solutions No 50 Pty Ltd
[2025] QSC 199
•20 August 2025
SUPREME COURT OF QUEENSLAND
CITATION:
Monaco Solicitors Pty Ltd v Prolend Solutions No 50 Pty Ltd & Anor [2025] QSC 199
PARTIES:
MONACO SOLICITORS PTY LTD ACN 103 138 469
(applicant)
v
PROLEND SOLUTIONS NO 50 PTY LTD ACN 650 480 014(first respondent)
AUSHOME DEVELOPMENTS PTY LTD ACN 641 727 157
(second respondent)
FILE NO/S:
BS 10102 of 2023
DIVISION:
Trial Division
PROCEEDING:
Originating application
DELIVERED ON:
20 August 2025
DELIVERED AT:
Brisbane
HEARING DATE:
18 – 19 April 2024
JUDGE:
Bradley J
ORDER:
BY CONSENT, THE ORDER OF THE COURT IS THAT:
1. Within 21 days, the parties are to confer about the way any outstanding issues should be resolved, including interlocutory orders in the proceeding, and costs.
2. Within 21 days:
(a) The parties are to file agreed draft orders for the Court’s consideration; or
(b) Each party is to file the draft orders it proposes for the Court’s consideration.
CATCHWORDS:
MORTGAGES – MORTGAGE CONTRACT – COVENANTS – PAYMENT OF PRINCIPAL AND INTEREST – DUE DATE – where the second respondent was in default under each mortgage to the first respondent and the applicant as at 16 February 2022 – where both mortgagees issued a notice of default in April 2022 – where the first respondent exercised its power to ‘step in’ under the building contract as per the Side Deed between the first and second respondent and the builder – where the first respondent assumed responsibility for progressing the development of the land – where the first respondent made payments to the builder and others in order to complete the development – where the land was subsequently sub-divided and the first respondent commenced selling off individual lots, exercising its rights under the mortgage – where, by consent, the Court restrained the first respondent from certain dealings with the enforcement proceeds – where the first respondent sought to recover costs associated with the completion of the development as part of the First Priority Amount under the Deed of Priority on the basis they constituted costs or expenses arising from or in connection with an event of default or were reasonably considered necessary to maintain, perfect or enhance its security over the land – whether the costs associated with completing the development were interest costs, fees, charges, duties or expenses or any other amount that could be debited to the account of the second respondent under the terms of the loan contract
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – FORMATION OF CONTRACTUAL RELATIONS – AGREEMENTS CONTEMPLATING EXECUTION OF FORMAL DOCUMENT – WHETHER CONCLUDED CONTRACT – where the applicant and the first respondent agreed to lend money to the second respondent secured by a registered mortgage over land – where the first respondent was the first mortgagee on title – where the applicant was the second mortgagee on title – where the parties entered into a Deed of Priority – where the Deed of Priority identifies the respective entitlements of the parties and the order of priority those entitlements are to be distributed – where the applicant sought to execute an Amended Deed of Priority – where the applicant formally contended the Amended Deed of Priority was not binding on the parties in material filed in the Court on 25 September 2023 and 19 March 2024 – where the first respondent signed the Amended Deed of Priority on 27 March 2024 and delivered it on 9 April 2024 – whether an Amended Deed of Priority is binding on the parties
CONTRACTS – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – where the applicant seeks a declaration by the Court as to the total amount payable to the first respondent in priority to the applicant on the proper construction of written agreements – where the first respondent seeks an account to ascertain the amount payable to the first respondent and to the applicant in priority to each other, and some related directions – where the first respondent contends that to the extent costs incurred in association with progressing and completing the development of the land were not captured by the definition of the First Priority Amount in the Deed of Priority, those costs are enforcement expenses and are to take priority over any subsequent mortgages – whether the costs incurred by the first respondent in completing the development of the land fall within the definition of the First Priority Amount such that they can be recovered in priority to the amount the applicant is entitled to under the Deed of Priority
Property Law Act 1974 (Qld), s 82
Fraser v Moxham [2006] NSWSC 346, distinguished
Hopkinson v Rolt (1861) 9 HL Cas 514; 11 ER 829, considered
Naas (Lady) v Westminster Bank [1940] AC 366, considered
Segboer v AJ Richardson Properties Pty Ltd (2012) 16 BPR 31,235; [2012] NSWCA 253, cited
Taouk v Ho [2019] NSWCA 156, consideredCOUNSEL:
C J Jennings KC with S Spottiswood for the applicant
A W Smith with R Kipps for the first respondent
No appearance for the second respondentSOLICITORS:
Astills Lawyers for the applicant
Summer Lawyers (Australia) for the first respondent
No appearance for the second respondent
On 4 June 2021, the applicant (Monaco) and the first respondent (Prolend) agreed to lend money to the second respondent (Aushome), in each case secured by a registered mortgage over about four hectares of land at Gardiner Road, Holmview.
Aushome had engaged a builder under a building contract to perform works to develop the land with a view to registering a survey plan subdividing the land into about 70 lots. Aushome had granted a related residential building company an option to purchase the proposed lots after they were created.
Although Aushome is a party to the proceeding, it took no active role at the trial. The matters in issue concerned only the competing claims of Monaco and Prolend to priority in respect of the money which either had recovered or was to receive in exercising its rights under its mortgage (the enforcement proceeds).
Monaco sought a declaration as to the total amount payable to Prolend in priority to Monaco on the proper construction of written agreements. Monaco also sought an injunction restraining Prolend from certain dealings with the enforcement proceeds. Finally, Prolend sought an order for an account to ascertain the amount payable to Prolend and to Monaco in priority to each other, and some related directions.
For the following reasons, given the parties’ respective contentions and the state of the evidence, the Court will allow the parties a period to agree upon or each propose the method by which any remaining issues ought to be resolved.
The Prolend loan
On 4 June 2021, Prolend agreed to lend Aushome up to $8,230,877 for eight months, with interest payable monthly at either 9.99 per cent or, in the event of default, 18 per cent per annum (the Prolend loan).
The terms of the Prolend loan required Aushome to prepay significant sums, by deductions from the principal before it was advanced. These included: $198,358 as interest, $258,007 in various fees; $5,500 to Prolend’s solicitors as a loan documentation fee; $181,079 as “brokerage” to an “introducer”; and $400,000 withheld from the principal “for contingency costs”.
The Prolend loan also provided that Prolend was not responsible for the completion of the works, the supervision or quality of the works, or the suitability for purpose or conformance with any works document, with respect to the development of the land.
The terms of the Prolend loan included that, if Aushome did not achieve a refinance of the loan to repay Prolend within eight months, then Aushome agreed to sell the land by auction within five weeks and complete the sale not more than three months after the auction sale.
The Monaco loan
On 4 June 2021, Monaco agreed to lend $2.75 million to Aushome for six months, with interest of $687,500, the whole of which was prepaid – deducted from the principal before it was advanced (the Monaco loan).
The rate of interest on the nominal principal was about 50 per cent per annum. The terms of the Monaco loan required Aushome to pay brokerage and consultancy, placement, and introducer’s fees (totalling $181,500), which were also deducted from the principal before it was advanced, and all fees and costs incurred by Monaco from time to time. There was no discount for early repayment. The interest, fees and costs were payable even if the loan was cancelled or no amount was advanced.
The Builders Side Deed
On 8 June 2021, Prolend, Aushome and the builder executed a deed (the Builders Side Deed). By it, Aushome and the builder gave Prolend a right to “step-in” under the building contract. By issuing a ‘step in notice’ to Aushome and the builder, Prolend could take the place of Aushome under the building contract, assuming the rights and liabilities of Aushome.
The land, the mortgages, charges and the guarantees
Each of the loans was secured by a mortgage over the land, then a single lot. The mortgages were registered on 11 June 2021. Aushome also charged its assets, including the land, as security for the loans. Craig John McDermott, the sole director of Aushome, executed a personal guarantee of each loan.
Notwithstanding the mortgages and the personal guarantee, the terms of each loan indicate the lender regarded it as a risky advance.[1]
[1]In June 2021, the interest rate on unsecured overnight loans between banks in Australia (the risk-free benchmark rate) was 0.10%. It had been at that rate since late 2020.
The Deed of Priority
The Prolend mortgage was registered a moment before the Monaco mortgage, giving it priority. The same day, Prolend (as First Mortgagee), Monaco (as Second Mortgagee) and Aushome (as Mortgagor) executed a deed (the Deed of Priority).
By the Deed of Priority, the parties agreed:
“2. The Priority
2.1 Regulation of Priorities
The priorities as between the Mortgagees both at law and in equity will, for all purposes (including how the Enforcement Proceeds are to be distributed) be determined in accordance with clause 2.2.
2.2 Priority of distribution of Enforcement Proceeds
(a)As between the First Mortgagee, the First Mortgagee has priority over the Second Mortgagee until the First Mortgagee has received the First Priority Amount.
(b)Without limiting (a), the parties agree that the order of priority of distribution of Enforcement Proceeds shall be as follows:
(i)first to the First Mortgagee in payment of all moneys secured by the First Mortgagee’s Mortgage up to a total of the amount of the First Priority Amount;
(ii)second to the Second Mortgagee in payment of all moneys secured by the Second Mortgagee’s Mortgage up to a total of the amount of the Second Priority Amount;
(iii)third to the First Mortgagee in payment of all moneys secured by the First Mortgagee’s Mortgage in excess of the First Priority Amount; and
(iv)fourth to the Second Mortgagee in payment of all moneys secured by the Second Mortgagee’s Mortgage in excess of the Second Priority Amount;
and to the extent necessary at law to give effect to the above priorities the Second Mortgagee postpones the priority and operation of the Second Mortgagee’s Mortgage in favour of the First Mortgagee.
2.3 Things that do not affect the Priority
The priorities established by clause 2.2 are not affected by any of the following things:
(a)the date any money is lent or becomes secured by a Mortgagee;
(b)the lending of additional money which the First Mortgagee is obliged so to do and which is secured by the Mortgage; or
(c)any rule of law or equity.
…
4.Effect of this document on other rights
4.1 Mortgagees to notify each other
Neither Mortgagee is obliged to give notice to the other of:
(a)the lending of any money which is secured by the Mortgage; however each Mortgagee must notify the other of:
(i)any change in the amount of money or nature of the obligations secured by the Mortgage; or
(ii)the occurrence of any event of default under its Mortgage.
…
4.4 Effect on other documents
Except to the extent expressly set out in this document, this document does not affect rights of either Mortgagee:
(a)under the Mortgage;
(b)to take any action it is entitled to take at any time under the Mortgage or under any other document or arrangement, and in whatever order it decides; or
(c)under any other arrangement at any time between the Mortgagor and either Mortgagee.
4.5 Effect on Mortgagor
This document is solely for the benefit of the Mortgagees and has no effect on the rights or obligations of the Mortgagor under the Mortgages or any other document or agreement.
4.6 Right of mortgagee to notify debts
(a)Each Mortgagee shall be at liberty to give to the other Mortgagee information relating to the Mortgagor, the state of accounts of the Mortgagor with the Mortgagee, the Mortgage, the property and the operation of this document.
(b)Either Mortgagee is entitled (but need not) inform the other Mortgagee of the amount of money which the Mortgagor owes to the Mortgagee and which is secured by the Mortgage.
…
7.14 Entire agreement
This document embodies the entire agreement between the parties and supersedes all previous agreements, understandings, negotiations, warranties and representations on the subject matter of this document.
…
7.21 Counterparts
This document may be executed in two or more counterparts, each of which together shall be deemed an original, but all of which together shall constitute one and the same instrument. In the event that any signature is delivered by e-mail delivery of a ‘.pdf’ format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such ‘.pdf’ signature page were an original thereof.”
By cl 1.1 of the Deed of Priority, the parties agreed that certain words were to have the meanings set out in that clause, unless the context required otherwise. These included the following definitions:
“First Priority Amount means the amount specified in the Schedule plus interest, costs, fees, charges, duties and expenses (including legal expenses) and any other amount which may be debited to the account under the terms of the First Mortgagee’s Mortgage.”
“Second Priority Amount means the amount specified in the Schedule plus interest, costs, fees, charges, duties and expenses (including legal expenses) including any amount paid to the First Mortgagee under the terms of this Deed and any other amount which may be debited to the account under the terms of the Second Mortgagee’s Mortgage.”
In the Schedule to the Deed of Priority, the parties identified the following matters.
(a)The First Priority Amount was $8,230,877; and
(b)The Second Priority Amount was $2,750,000.
On about 16 June 2021 Monaco and Prolend advanced funds to Aushome under their respective loan agreements.
Amended Deed of Priority
On 13 October 2021, the Monaco’s solicitor signed an instrument (the Amended Deed) on behalf of Monaco as its duly appointed attorney. The instrument was in the same form and contained the same operative terms as the Deed of Priority (set out in [16] and [17] above), save that the First Priority Amount in the Schedule was $8,430,877, which was $200,000 more than the First Priority Amount in the Deed of Priority. The first page of the Amended Deed provided for a date to be inserted. Monaco’s attorney did not insert a date. The execution page of the Amended Deed provided for Prolend’s solicitors to sign as attorney on behalf of Prolend.
At 2.04 pm the same day, Monaco’s attorney emailed a .pdf file of the Amended Deed he had signed to Prolend’s solicitors, describing it as “our client’s signed counterpart.” This form of signature and delivery was authorised by cl 7.21 of the Amended Deed.
The same day, Monaco’s solicitor emailed a .pdf file of the signed Amended Deed to Mr McDermott of Aushome “for your signing and return at your earliest (electronically is fine).” On 16 October 2021, Mr McDermott signed the Amended Deed as sole director and company secretary and the person authorised to sign for Aushome in accordance with s 127 of the Corporations Act 2001 (Cth). In addition to signing the execution page, Mr McDermott initialled each page of the Amended Deed. Like Monaco’s attorney, he did not insert a date on the first page.
On 25 September 2023, Monaco filed its points of claim. By then 23 months had passed since Monaco emailed the .pdf copy of the signed Amended Deed to Prolend’s solicitors. Monaco contended that the Amended Deed was not binding on the parties because Prolend had not executed it.
Almost six months later, on 19 March 2024, Monaco filed its outline of submissions. By then, two and a half years had passed since Monaco emailed the .pdf copy to Prolend’s solicitors. Monaco contended that the Amended Deed was not binding on the parties because it had not been delivered as a deed.
On 27 March 2024, the sole director and secretary of Prolend signed the Amended Deed on behalf of Prolend in accordance with s 127 of the Corporations Act as the person authorised to sign for Prolend. The director signed a copy of the Amended Deed that bore the signature of Monaco’s attorney dated 13 October 2021 and that of Mr McDermott for Aushome dated 16 October 2021.
On 9 April 2024, Prolend’s solicitors emailed a .pdf file of the Amended Deed, signed on behalf of Prolend, to Monaco’s solicitors, describing it in the covering email as a “duly executed Deed of Priority.” Prolend’s solicitors advised that the “original” would be sent by post.
Whether Monaco is bound by the Amended Deed
The parties were in dispute about whether the Amended Deed was binding lon Monaco.
A party who executes and delivers an instrument as a deed binds themselves to its terms with immediate effect from delivery. The delivery of a deed is not the physical (or electronic) provision of the instrument. Delivery is the intention to be bound immediately by the terms of an instrument.[2] A party may deliver an instrument intending it to become binding on satisfaction of a particular condition. This is delivery as an escrow. Another alternative is that a party provide an instrument to another intending to be able to recall the instrument at any time if a condition is not yet satisfied. This is not delivery of the instrument at all. The instrument is neither a deed nor an escrow.
[2]Segboer v AJ Richardson Properties Pty Ltd [2012] NSWCA 253 at [58] (Sackville AJA; Allsop P and Campbell JA agreeing).
As Gleeson JA explained in Taouk v Ho:
“Whether a deed has been delivered unconditionally, delivered in escrow, or not delivered at all depends upon the executing party’s intention. This question is to be determined on the basis of the words used by and the conduct of the promisor, taking into account the circumstances attending the execution of the deed”.[3]
[3][2019] NSWCA 156 at [47] (Emmett AJA agreeing).
Upon Monaco becoming bound by the Amended Deed, Prolend would become entitled to recover the higher First Priority Amount, before Monaco could recover the unchanged Second Priority Amount. This was significant. As the prior mortgagee Prolend could only make further advances, not required by the Prolend mortgage, that would rank in priority to a Monaco as a subsequent mortgage if an arrangement has been made to that effect with Monaco.[4] Without an arrangement like that in the Amended Deed, the rule in Hopkinson v Rolt[5] would apply to deny Prolend priority over Monaco in respect of the further advances made with notice of the subsequent Monaco mortgage.
[4]Property Law Act 1974 (Qld), s 82.
[5](1861) 9 HL Cas 514; 11 ER 829.
The Amended Deed would have no different effect on Aushome compared to the existing Deed of Priority. In the circumstances, in absence of other evidence of Monaco’s intention, the obvious inference is that by emailing a .pdf file of the signed Amended Deed to Prolend’s solicitors as Monaco’s counterpart, Monaco intended to bind itself with immediate effect. So, Monaco may be said to have delivered the Amended Deed to Prolend on 13 October 2021.
In the covering email, Monaco’s attorney stated, “We look forward to receipt of your clients’ [counterpart] by return.” It follows that when Monaco emailed the .pdf file to Prolend, Monaco intended that Prolend would promptly return a signed counterpart Amended Deed. The execution page of the Amended emailed as a .pdf file provided for Prolend’s solicitors, the recipients of the email, to execute the Amended Deed as attorney for their client. If they had standing instructions, Prolend’s solicitors could have executed the Amended Deed and sent a return email before the end of the day. If they needed to obtain or confirm instructions, it might have taken longer. If the solicitors were no longer the attorney or if Prolend wished to execute the instrument itself, then it would have to be sent to Prolend for execution or held for an officer of Prolend to attend and execute.
As noted, Monaco did not date the counterpart Amended Deed on the first page, where the date was to be inserted. By cl 7.14, the document would supersede “all previous” dealings on its subject matter. The insertion of a date would make clear whether any such agreement or other thing was “previous” to the Amended Deed. I infer that, when Monaco emailed the .pdf file to Prolend, it intended Prolend to insert the date of the Amended Deed. In this way, I infer, Monaco authorised Prolend to insert the date. This does not affect whether Monaco delivered the instrument or whether it did so as a deed or an escrow.
Counsel for Monaco submitted, from the communications the parties exchanged about execution of the Amended Deed, the Court should infer that on 13 October 2021 Monaco delivered the signed Amended Deed on condition that Prolend sign and deliver the deed within a reasonable time, failing which the deed would not come into effect. The authority for this submission was a view expressed by Justice Young in Fraser v Moxham.[6] In Fraser, his Honour described the “rules” governing such situations as “a trifle obscure” and relied on the decision of the House of Lords in Naas (Lady) v Westminster Bank.[7] On analysis, and with due respect to the then Chief Judge in Equity, Justice Young, the speeches in Naas do not support the formulation for which Monaco contends. The better view is that such a hybrid type of delivery – which is as an escrow but subject to defeasance – is not possible. The view in Fraser is not consistent with the cases cited at [27] and [29] above.
[6][2006] NSWSC 346 at [8].
[7][1940] AC 366.
These circumstances do not support an inference that Monaco did not intend to deliver the counterpart Amended Deed at all on 13 October 2021. There was no plan for a future event that would constitute delivery, such as an exchange of executed instruments. There was no reason for Monaco to email the .pdf file to Prolend other than to prompt or facilitate Prolend executing it, or another counterpart, and so indicate to Monaco its intention to be bound.
The words used in the Amended Deed, Monaco’s conduct in signing and emailing the instrument to Prolend, and the other circumstances attending the signing and emailing, lead to the conclusion that when Monaco’s attorney emailed the signed Amended Deed to Prolend’s solicitors on 13 October 2021, Monaco intended to be immediately bound by the Amended Deed.
Alternatively, it is possible on 13 October 2021 Monaco intended to be bound by the Amended Deed once Prolend executed and delivered the instrument as a deed in accordance with its terms. If that was the intention, then Monaco delivered it as an escrow on 13 October 2021 and could not later recall the instrument. Monaco would become bound by the Amended Deed when Prolend satisfied the escrow condition. That happened on 9 April 2024.
In either alternative, by the time of the trial, Monaco was bound by the Amended Deed, which had superseded the Deed of Priority.
What happened?
Aushome did not repay the Monaco loan within the six-month term, i.e. by 16 December 2021. Aushome did not refinance or repay the Prolend loan within eight months, i.e. by 16 February 2022. Aushome did not sell the land at auction, and so, it did not complete any sale. So, from at least 16 February 2022, Aushome was in default under each mortgage.
In April 2022, each of Prolend and Monaco sent a notice of default to Aushome. Prolend also sent a notice of demand to Aushome and Mr McDermott. Monaco also sent Aushome a notice of exercise of power of sale.
The evidence before the Court recorded varying amounts for advances made by Prolend to Aushome under the Prolend loan and discussions between the parties about further advances and changes in the Priority Amounts before June 2022. None of those individual figures or matters is determinative of any issue in the proceeding.
Prolend “steps-in”
The agreed period for Aushome to complete a sale of the land, under the Prolend loan, expired by about 16 June 2022, with no sale in prospect. Aushome was still in default. The works to develop the land were still incomplete.
By then, Prolend had advanced $5,335,714.99[8] to Aushome under the Prolend loan and was owed $6,808,065.19, including interest, fees, and costs, by Aushome.[9] Interest was accruing on the balance of the Prolend loan at 18 per cent per annum.
[8]This is the sum of the advances by Prolend to Aushome between 21 July 2021 and 16 June 2022 according to the evidence of Zehan Mesbah Amin, the solicitor for the Prolend.
[9]According to the evidence of Peter Gray Flanders, the loan manager responsible for the Prolend loan. It is assumed this includes the $642,944 in interest, fees and brokerage prepaid in June 2021 and other interest, fees, and costs due by 16 June 2022.
On about that date, Prolend took possession of the land and appointed a manager to oversee completion of the works necessary for development of the land. Prolend also gave Aushome and the builder a step-in notice under the Builders Side Deed. By doing so, Prolend assumed liability to the builder under the building contract, in place of Aushome. Prolend took upon itself any risk arising from cost overruns or delays in the completion of the works from that date under the building contract. It moved from being a financier of Aushome’s development, to becoming the developer of the land in the shoes of Aushome.
Prolend then began making payments directly to the builder (and to others) on its own behalf with a view to completing the development of the land. The amounts Prolend paid to the builder and its sub-contractors were amounts to which the builder was entitled from Prolend under the building contract after Prolend stepped-in. Prolend accepted that these payments were not drawdowns by Aushome under the Prolend Loan. They were not payments made by Prolend on Aushome’s behalf. Once Prolend stepped-in, Aushome was no longer responsible to pay the builder and was no longer the person paying the builder.
On 19 May 2023, Prolend paid $1,925,161.60 to the local government for infrastructure charges. The local government required the payment before it would seal the survey plan for the subdivision of the land.
Between 16 June 2022 and 8 June 2023, Prolend paid a total of approximately $6,304,726.95[10] or $6,307,861.84[11] to the builder under the building contract and to others, including the local government, to complete the development.
[10]This is the sum of the payments made by Prolend to the builder and others on or after 30 June 2022 according to the evidence of Mr Flanders.
[11]This is the sum of the payments made by Prolend to the builder and others on or after 30 June 2022 according to the evidence of Mr Amin.
On 22 June 2023, the survey plan for the subdivision of the land registered. Prolend commenced selling 69 lots created upon registration of the survey plan.
On 23 September 2023, upon Monaco giving the usual undertaking as to damages, by consent the Court restrained Prolend from certain dealings with the proceeds of the sale of the lots until further order or written agreement between Monaco and Prolend.
Consideration of Prolend’s claim
At the trial, Prolend claimed to be entitled to recover the $6,304,726.95 (or $6,307,861.84) it paid to the builder and others after 16 June 2022, as well as interest on those funds and associated costs, as part of the First Priority Amount under the Deed of Priority. It also claimed to be entitled to recover interest at 18 per cent per annum on these sums, and default fees.
As noted, these payments were not advances to Aushome under the Prolend loan. They were not costs or expenses arising from or in connection with an event of default, such as Aushome’s failure to refinance and repay the secured money in accordance with the Prolend loan. Nor were they costs or expenses of Prolend exercising its rights under the Prolend Mortgage. The payments were beyond the scope of costs and expenses as defined in the Prolend loan.
The sums Prolend paid to the builder and others were not sums that Prolend could have reasonably considered necessary to maintain, perfect, or enhance its security over the land. The payments did not maintain, perfect, or enhance the Prolend mortgage, which was its security. In the circumstances summarised in [71] below, the payments were not sums that Prolend cold debit to the account under the terms of the Prolend mortgage.
It follows that the sums Prolend paid to the builder and others were not interest, costs, fees, charges, duties or expenses or any other amount that could be debited to the account of Aushome under the terms of the Prolend loan. Those amounts do not form part of the First Priority Amount as defined in the Amended Deed.
The effect of the Amended Deed
The parties made the Amended Deed in the context of their commercial relationship as a means of regulating their respective rights under the Prolend loan, the Monaco loan, the Prolend mortgage and the Monaco mortgage. The existence and terms of those bilateral commercial instruments were part of the context for the Amended Deed.
Although the parties made the Amended Deed after Prolend, Aushome and the builder had executed the Builders Side Deed, by the Amended Deed they did not regulate any rights under the Builders Side Deed. The Side Deed does not assist in construing the Amended Deed.
In the Schedule of the Amended Deed, the figure for the First Priority Amount was $200,000 more than the principal to be advanced by Prolend under the Prolend loan, the sum Aushome acknowledged to have been advanced by Prolend under the Prolend Mortgage, and the principal amount in the Schedule to the Prolend Mortgage. In the Schedule, the Second Priority Amount was the same as the principal to be advanced by Monaco under the Monaco Loan and secured by the Monaco mortgage.
The terms of the Monaco loan were to the effect that Monaco would provide the principal of $2,750,000 with immediate effect, with all the borrowed interest and other amounts prepaid, once the conditions precedent were met. The terms of the Prolend loan were to the effect that Prolend would advance funds, save for those withheld as prepayments, through drawdowns by Aushome over the term of the loan. Each loan was for less than a year. The similar treatment of each lender’s Priority Amount indicates a common assumption that, by the time the mechanisms under the Amended Deed would operate, the full amount of each loan would have been advanced to Aushome, including the additional $200,000 by Prolend.
The definitions of each Priority Amount confirm this common assumption because, to the fixed amount in the Schedule, the parties added interest, costs, fees, charges, duties and expenses (including legal expenses) and any other amount able to be debited to the account under the terms of the relevant mortgage. It follows that the fixed figure in the Schedule was the commonly assumed amount of principal owed to the respective lender.
Prolend did not advance to Aushome the whole of the principal under the Prolend loan. Prolend advanced a lesser sum of $5,335,714.98 before 16 June 2022, when it acted to take over the development of the land.
There would be some simplicity in the parties assigning a fixed Priority Amount to each lender. It would avoid the need to prove to the other lender the principal amount advanced. The simplification would not be complete. The other amounts debited to the borrower’s account would remain to be proved. If one, or both, of the lenders did not advance to Aushome the total amount they had commonly anticipated, the fixed Priority Amount in the Schedule would seem to allow a lender to recover the difference between the sum advanced and the fixed Priority Amount as a kind of bonus. In more conventional lending arrangements, such a fiction might be thought uncommercial. Given the sums the lenders were entitled to prepay themselves for interest, fees, charges, and costs under their respective loan agreements, such a bonus is not beyond their mutual contemplation. Particularly in circumstances where each loan itself attracted a significant risk premium.
The submissions put for Monaco, and the draft declaration it sought, seem to accept this construction, namely that Prolend can recover the First Priority Amount in the Schedule even though it did not advance that total amount to Aushome.
Accepting that each lender can recover, in the relevant priority, the Priority Amount in the Schedule, whether it advanced the total amount or not, does not mean that the lender can recover interest calculated on an amount it did not advance under the relevant loan and that is not secured by the relevant mortgage.
It follows that, under the Amended Deed, Prolend is entitled to recover as the First Priority Amount $8,430,877, plus interest on the $5,335,714.98 it had advanced to Aushome before 16 June 2022, associated costs, fees, charges, duties, expenses, and any other amount that could be debited to the account of Aushome under the terms of the Prolend loan, less the $400,000 it withheld from Aushome in June 2021 for contingency costs.
After Prolend is paid the First Priority Amount so comprised, Monaco is entitled to recover from any remaining enforcement proceeds, as the Second Priority Amount, the $2,750,000 it advanced to Aushome, plus interest on that principal, associated costs, fees, charges, duties, expenses and any other amount that could be debited to the account of Aushome under the terms of the Monaco loan.
Increase in value of the land from Prolend expenditure
For Prolend, it was contended that the funds Prolend expended paying the builder, the local government, and others to progress the development of the land and obtain registration of the survey plan increased the value of the land held as security for the two mortgages.
To the extent the sums Prolend paid to the builder and others increased the value of the land to the benefit of Monaco, as a matter of equity Prolend would be entitled to recover those payments, up to the increase in value of the land. The extent of enhancement of the value of the land is assessed by reference to the value of the land before the advances were made and any positive change resulting from the payments.
Prolend relied on a report by Carey O’Dowd of JPM Valuers dated 19 January 2024. Mr O’Dowd expressed his opinion that the market value of the land was $7,465,000 (excluding GST) on 16 June 2022. He derived this value by estimating the value of each of 69 proposed lots in the development “as if complete” on the valuation date to obtain a total value of $15,190,909, excluding GST. He deducted from that total value a quantity surveyor’s estimate of the cost to a developer to complete the works ($3,301,681), his estimate of the cost to sell the 69 proposed lots ($919,050), his estimate of legal fees and transfer duty for the sales ($462,830), his estimate of interest on funds borrowed to purchase the land and complete the development, which he assumed to be at 8 per cent per annum over 12 months ($771,083), and his estimate of the margin or profit after interest that a developer would require to assume the risk of completing the development ($2,396,892); and he made some lesser adjustments for input tax credits and GST rebates.
If Mr O’Dowd’s opinion on the $7,465,000 market value of the land on 16 June 2022 is accepted, then, depending upon the selling costs for the single lot, a sale of the land “as is” would have yielded sufficient to repay the whole of the Prolend loan and left about $656,935[12] to repay part of the Monaco loan.
[12]$7,465,000 - $6,808,065 = $656,935.
If Mr O’Dowd’s opinions on the $15,190,909 value of the 69 lots “as if complete”, the $919,050 selling costs, and the $462,830 estimate of legal fees and duty are accepted, then if all 69 lots could have been sold on completion in June 2023, the net sale proceeds would be about $13,809,029. After repayment of Prolend’s additional expenditure of $6,304,726.95 (or $6,307,861.84) to complete the development, about $7,504,302.05 (or $7,501,167.16) would remain to partially repay the outstanding Prolend loan of about $8,033,516.42[13] . There would be nothing left to repay any part of the Monaco loan.
[13]$6,808,065 owed as at 16 June 2022 plus $1,225,451.23 in interest at 18% per annum for 12 months = $$8,033,516.42.
This is not surprising. Prolend had expended $6,304,726.95 (or $6,307,861.84) to complete the development, which is about $3,003,045.95 (or $3,006,180.84) more Mr O’Dowd’s estimate of the same cost.
No benefit accrued from Prolend’s expenditure in completing the development. The funds Prolend expended to complete the development of the land greatly exceeded the increase in the value of the land held as security for the two mortgages. They did not improve the security held by Monaco. They did the reverse.
Relief
Monaco, as the moving party, sought a declaration, an injunction, an account, and associated directions. The form of the declaration sought altered during the trial. The evidence adduced by the parties was inadequate to resolve many specific issues. It was not possible for the Court to declare the amount Prolend or Monaco can recover from the enforcement proceeds under the Amended Deed. The parties did not adduce any evidence of the amounts that could be debited to the account of Aushome under the terms of either the Prolend loan or the Monaco loan for interest, associated costs, fees, charges, duties, expenses, or any other amount. It remains unclear whether those matters could be resolved expeditiously if the Court were to order an account.
In the circumstances, the Court will allow the parties 28 days to agree on the way any outstanding issues should be resolved and to propose orders for the Court’s consideration.
One thing is clear. Monaco has substantially succeeded in its case on the proper construction of the Amended Deed, the proper characterisation of Prolend’s conduct in stepping-in under the Builders Side Deed, and the rights of Prolend under the Amended Deed and in equity in respect of the sums Prolend paid to the builder and others to complete the development. Absent presently unknown considerations, Prolend ought to pay Monaco’s costs of the proceeding. That is a matter about which the parties should be able to agree on or propose orders within the 28-day period.
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