NAB Ltd v Sinnathamby; Centrepoint Development Corp P/L v Georgakis
[2000] QSC 303
•5 September 2000
SUPREME COURT OF QUEENSLAND
CITATION: NAB Ltd v Sinnathamby & Ors; Centrepoint Development Corp P/L & Anor v Georgakis & Ors [2000] QSC 303 PARTIES: NATIONAL AUSTRALIA BANK LIMITED ACN 004 044 937
(plaintiff)
v
SIVALINGHAM SINNATHAMBY
(first defendant)
CENTREPOINT PRIVATE HOSPITAL PTY LTD ACN 081 246 406
(second defendant)
ST WILLIAMS PTY LTD ACN 010 536 562 AS TRUSTEE FOR THE SINNATHAMBY GENERAL TRUST
(third defendant)
ST FRANCIS PTY LTD ACN 010 765 134 AS TRUSTEE FOR THE NAVEEN TRUST
(fourth defendant)FILE NO: S3889 of 2000
PARTIES: CENTREPOINT DEVELOPMENT CORPORATION PTY LTD ABN 87 081 246 380 (receivers and managers appointed)
(first respondent/first plaintiff)
CENTREPOINT PRIVATE HOSPITAL PTY LTD ABN 94 081 246 406 (receivers and managers appointed)
(second respondent/second plaintiff)
v
JOHN GEORGAKIS
(first applicant/first defendant)
MARTIN MADDEN
(second applicant/second defendant)
NATIONAL AUSTRALIA BANK LIMITED ABN 12 004 044 937
(third applicant/third defendant)FILE NO: S5209 of 2000 DELIVERED ON: 5 September 2000 DELIVERED AT: Brisbane HEARING DATE: 11 August 2000 JUDGE: Wilson J ORDER: Applications for summary judgment dismissed CATCHWORDS: PROCEDURE – QUEENSLAND – PRACTICE UNDER RULES OF COURT – SUMMARY JUDGMENT – BANKING AND FINANCE – LOAN FACILITIES – Applicant creditor seeking summary judgment against respondent guarantors – determination of whether default by principal debtor – construction of terms of loan agreement
Uniform Civil Procedure Rules rr 292, 385, 387
COUNSEL: J D McKenna for the applicant plaintiff in S3889/2000 and for the respondent defendants in S5209/2000
T D O J North SC and ME Eliades for the respondent defendants in S3889/2000 and for the applicant plaintiffs in S5209/2000SOLICITORS: Mallesons Stephen Jaques for the applicant plaintiff in S3889/2000 and for the respondent defendants in S5209/2000
Lynch & Company for the applicant plaintiff in S3889/2000 and for the respondent defendants in S5209/2000
These are two applications for summary judgment both filed on 17 July 2000. They came before me on 7 August 2000, when I adjourned them to 11 August 2000.
(a)In proceeding no S3889/00 the plaintiff (“the Bank”) seeks judgment in an amount of approximately $6.5 million against the defendants (“Sinnathamby and others”) who are guarantors of the indebtedness of Centrepoint Development Corporation Pty Ltd (“CDC”); and
(b)in proceeding S5209/00 the defendants (Georgakis, Madden and the Bank) seek judgment against the plaintiffs (CDC and Centrepoint Private Hospital Pty Ltd – “CPH”).
Preliminary Jurisdictional Point
In proceeding no S3889/00 the respondents (Sinnathamby and others) submitted that the application is incompetent. The Court’s jurisdiction to hear an application for summary judgment arises “at any time after the defendant serves a notice of intention to defend”: UCPR r 292(1). The respondents filed a notice of intention to defend on 9 June 2000. The application for summary judgment was filed on 17 July 2000 and served on 25 July 2000. At the hearing the applicant (the Bank) relied on an amended statement of claim which was filed and served on 25 July 2000.
The respondents submitted -
(i)that in the circumstances an application based on the amended statement of claim was incompetent; and
(ii)further, that the application should be set aside because it had been brought before the time in which they were permitted to file and serve an amended defence.
I do not consider that the amendment of the statement of claim took away the jurisdictional base for the summary judgment application. Under the UCPR r 387 the amendment took effect from the date of the original statement of claim. If the case as amended were substantially different from that originally pleaded, that would be a factor in the exercise of the Court’s discretion favouring the dismissal of the application. In the present case the principal amendments were the introduction of allegations of variation of the overdraft facility (paras 4AA, 4A and 4B) and breaches thereof and breaches of obligations under a mortgage debenture and bill of mortgage (paras 4C - 4E). In the event the respondents were able to meet these allegations.
A defendant who has already pleaded and who is served with an amended statement of claim has eight days in which to plead to the amended pleading: UCPR r 385(2).That period expired before the first return date of the application. The sequence of events affords no reason to dismiss the application.
Objections to Evidence
Counsel for the Bank objected to various passages in the affidavit of Ratnam Wimalachandran filed on 10 August 2000 as expressing conclusions or opinions. These points were strictly well taken. I have determined the applications without regard to the passages in question. Had the objections not been taken, I would have attached little weight to them.
Background
The proceedings relate to the financing of the construction of the Centrepoint Private Hospital at Milton. The development was carried out through four companies, all controlled by Dr Sinnathamby through his position as director and ultimate shareholder. CDC was to acquire the land; it borrowed from the Bank for this purpose. CPH was to operate the hospital. St Williams Pty Ltd and St Francis Pty Ltd were the operators of an existing hospital on the site; together they hold all the shares in CDC and CPH. Dr Sinnathamby, CPH, St Williams Pty Ltd and St Francis Pty Ltd guaranteed CDC’s obligations to the Bank.
The Bank provided CDC with a bill facility of $6 million and an overdraft facility. Repayment was secured by a bill of mortgage given by CDC over the hospital land, a mortgage debenture by CDC, a mortgage debenture by CPH, and a deed of guarantee and indemnity by Dr Sinnathamby, CPH, St Williams Pty Ltd and St Francis Pty Ltd.
Construction of the new hospital has never reached the stage of practical completion, and CPH has never been licensed to operate a hospital on the site. Commencing in October 1999, St Williams Pty Ltd and St Francis Pty Ltd operated out of part of the old hospital buildings and part of the new. On 4 February 2000 the Bank served demands on CDC for $6 million under the bill facility and $0.48 million under the overdraft facility. On 10 February 2000 the Bank appointed receivers to CDC and CPH. Since then there has been no hospital operated on the site. On 15 March 2000 the Bank served demands on the guarantors for moneys owing by CDC under the bill facility and the overdraft facility.
In proceeding no S3889/00 the Bank claims principal and interest against the guarantors. In proceeding no S5209/00 CDC and CPH seek declarations that the appointments of Georgakis and Madden as receivers and managers of both companies are void and orders for the delivery of possession of the land and chattels.
The central issue in these applications is whether CDC’s obligation to repay amounts advanced by the Bank has been triggered.
Defaults relied on by the Bank
On the hearing of the applications, the Bank relied on four defaults -
(i) failure to provide requisite financial reports and statements;
(ii) breach of the overdraft limit;
(iii) unauthorised leasing of the security property;
(iv) failure to obtain an assignment of the operating licence of the hospital.
It added that, in any event, the overdraft facility had expired by the effluxion of time.
Letter of Offer 30 March 1999
By letter dated 30 March 1999 addressed to the directors of CDC, the Bank advised that it had approved a bill facility, an overdraft facility and a lease limit subject to terms and conditions contained in that letter and in attached documents - namely, overdraft facility approval and bill facility - letter of offer. The limit of the bill facility was $6 million; its purpose was to assist in the construction of the hospital; and its expiry date was 30 April 2004 or a maximum of 5 years from practical completion. The limit of the overdraft facility was $250,000; its purpose was to provide for the operating requirements of the hospital; its expiry date was 30 April 2000; and it would “only be made available following construction of the Hospital reaching the stage of practical completion”. Then there was a series of terms and conditions as follows:-
“Terms & Conditions
In addition to the terms and conditions appearing in the attached ‘Bill Facility Letter of Offer’ and the attached terms and conditions of the Overdraft facility the following will also apply:
Conditions Precedent
1. Satisfactory construction audit to be completed by Quantity Surveyor, Currie & Brown.
2.Written agreement to be held within 3 months of approval date that a Chief executive with appropriate financial skills be employed by Hospital management to oversee day to day operations of the Hospital.
3Written Agreement that Hospital Management will implement satisfactory systems to ensure timely provision of data to the Bank. Such systems are to be confirmed 'Year 2000' compliant by directors of the company. (Noting that it is the Banks recommendation for the company to use the services of a Brisbane based accounting firm, preferably experienced in the health care industry, to prepare financial reports).
4.All statutory requirements must be complied with to result in the issuing of a formal operating license by Queensland Health.
5.Within 12 months of practical completion an accreditation System to be in place to allow negotiations and completion of a contractual agreement with Health Funds.
6.Overdraft Facility of $250,000 will not be provided until practical completion of the hospital and final confirmation from the Quantity Surveyor.
7.Written confirmation from solicitors representing Centrepoint Development Corporation Pty Ltd detailing present dispute between BM Culley Pty Ltd and Centrepoint Development Corporation Pty Ltd and the timeframe for resolution.
Conditions Subsequent
Continued availability of the above facilities are subject to the following covenants/reporting requirements. Please note, for the purposes of the covenants below "Group" refers to, Centrepoint Development Corp Pty Ltd and Centrepoint Hospital Pty Ltd.
1.All progress payments will be made on a cost to complete basis, as certified by Banks chosen Quantity Surveyor, Currie & Brown. Sufficient funds must be retained in the facility to complete the project at all times. Any cost over runs are to be met by the Company. Bank must also be provided evidence of acceptable building, and public risk insurance with the Banks' interest noted.
2.Whilst any monies remain outstanding to the Bank, the Group will not allow to be created or permit to subsist any charge or encumbrance over its assets or any part thereof without the prior written consent of the Bank.
3.Six months from practical completion a report from David Nelson & Partners at the cost of the borrower under instruction from the Bank confirming appointment of a suitable Chief Executive Officer, satisfactory implementation of all systems as per conditions precedent, and confirmation of the going, concern valuation.
All reports are to certified true and correct by two directors or director and secretary as appropriate.
Please also note that the cost of external consultants (valuers, quantity surveyors etc) is to be borne by the applicant.
Financial Conditions
· For the initial twelve months of the facility within 21 days of the end of the month, a report from the Group for that month signed by the Directors of the Group detailing actual performance against budget and to include occupancy levels of hospital accommodation, Theatre usage, Profit & Loss and Balance Sheet. Any variance in excess of 5% to be commented on. At the end of the first twelve months and given satisfactory operation the above is to be reviewed and amended as deemed necessary by the Bank.
· Within (4) Four months of the close of each financial year the Company will furnish or cause to be furnished to the Bank:
(i) a copy of the annual report of the Company.(ii) a copy, signed by the Company's Auditor, of the duly audited Balance Sheet and Profit and Loss Account of the Company for the last completed financial year.
Negative Pledge
Whilst any monies remain owing or payable by the Group (the word ‘Group’ meaning all or anyone of the borrowing or guarantor entitles or individual)s to the bank, or any liabilities of the Group to the Bank shall subsist, the Group may not:
· Create or permit to subsist any charge or encumbrance over its' assets or any part thereof without the prior written consent of the Bank. This consent will not be unreasonably withheld.
· Borrow monies in any form from any other party without the consent of the Bank. This condition is to be reviewed after 12 months after which it may continue at the Banks discretion.”
Relevant securities were given on 22 April 1999, and CDC commenced to draw down on the bill facility. The proceeds were deposited to CDC’s account no 084-004 46 710-6490 with the Bank.
Overdraft granted in May 1999
According to Mr Wimalachandran, a director of CPH, St Williams Pty Ltd and St Francis, in early May 1999 there was a meeting attended by Mr Craig Hammond on behalf of the Bank, Dr Sinnathamby and himself at which CDC and CPH requested "another Overdraft Facility" to assist them in paying pre-commissioning costs and other start-up costs "that would be incurred by CDC prior to the commencement of trading of the hospital business by CPH". The Bank agreed to provide an overdraft of $125,000 to assist with pre-commissioning costs, but there was no discussion of the terms and conditions of the overdraft.
On 5 May 1999 the Bank wrote to the directors of CDC in the following terms:-
“RE: ACCOUNT NUMBER 084- 004 46-710-6490
I refer to our discussions in regards to your requirements to meet start up costs and to the overdraft approval advice dated 30 March, 1999.
I am pleased to advise that we have today quoted an overdraft limit on the above account of $125,000. The balance of the approved limit will be made available following construction of the Hospital reaching the stage of practical completion. All other terms and conditions outlined in your approval advice dated 30 March, 1999.
…”
Mr Wimalachandran says that in the second week of May 1999 CDC received a cheque book from the Bank for the account styled “Centrepoint Development Corporation Pty Ltd Business Cheque Account” being account No 46-710-6490 at the Bank’s branch at 308 Queen Street, Brisbane.
I note that the first bank statement on that account, so styled, was issued on 14 May 1999. The first transaction recorded on it was on 23 April 1999 being a debit of approximately $2.4 million; subsequent transactions related to the bill facility and fees on the security documentation. All transactions on the bill facility and the overdraft went through that account.
On the hearing of the summary judgment applications, counsel for Sinnathamby and others submitted that there are triable issues whether the overdraft that was granted was under the original letter of 30 March 1999, or a variation of that, or whether it was a stand-alone or separate facility, whether the original overdraft facility was granted to CDC or to CPH, and, if it were granted to CDC and if there were a variation of it, what , if any, of the conditions (and in particular that relating to financial reporting) applied to the overdraft before practical completion or operation of the hospital by CPH.
Was the overdraft provided in May 1999 that referred to in the letter of 30 March 1999, or a variation of it, or was it a separate facility? The bank’s letter of 5 May 1999 proceeded on the assumption that there had been a variation of the terms of the original agreement. However, that is at odds with the evidence of Mr Wimalachandran. The actions of CDC in drawing on the account using the cheque book and receiving bank statements on a regular basis are equally consistent with its being the original facility or a separate one. The issue is one which must be resolved at trial.
It was common ground that if the overdraft granted in May 1999 was outside the agreement of 30 May 1999, it would be payable on demand. I do not accept the submission of Counsel for the Bank that the pleadings are wide enough to allow recovery on an overdraft not covered by the terms of the original letter.
Counsel for the Bank submitted that the moment a facility was provided, the financial reporting conditions in the letter of 30 March 1999 were activated. There was no dispute that the bill facility was provided in April 1999. He submitted that the second condition (that relating to annual reports) was plainly not linked to whether the hospital was actually functioning. He submitted that insofar as the first condition required reporting on actual performance against budget including occupancy levels of hospital accommodation and theatre usage, it should be construed as meaning “if any”.
Counsel for Sinnathamby and others submitted that the overdraft facility referred to in the letter of 30 March was one intended to be granted to the operator of the hospital (CPH), and that that letter could not be properly construed in the absence of evidence of the surrounding circumstances. He submitted that there needs to be a trial to aid the process of construction and to determine the true nature of the agreement. He pointed to a number of respects in which the letter of 30 March 1999 inaccurately recorded the agreement of the parties or was ambiguous -
(i)insofar as the letter gives the appearance that the overdraft facility of $250,000 for the operating requirements of the hospital was offered to CDC (which was the entity that was to construct the hospital) rather than to CPH (which was to operate it), it simply inaccurately recorded the intentions of the parties;
(ii)notwithstanding that the letter described the “conditions precedent” as applying both to the bill facility and the overdraft facility, the conditions themselves make sense only if the letter is construed so as to apply them only as conditions affecting the overdraft facility. For example, condition precedent no 1 (that relating to completion of a satisfactory construction audit) could hardly be intended to apply before the drawdown of any of the $6 million construction finance;
(iii)the wording of the financial conditions suggested that they were applicable only to the overdraft facility.
If it were the only point in issue, I would not be persuaded by the arguments of counsel for Sinnathamby and others that there is a triable issue as to whether the overdraft facility in the letter of 30 March 1999 was intended to be provided to CDC or to CPH. On a fair reading of the pleadings in the two proceedings, it has always been his clients’ case that the original agreement was to provide an overdraft facility to CDC.
There are certainly difficulties in ascertaining the true intention of the parties with respect to financial reporting. The first condition refers to “the facility” (singular). There are some indications that it relates to the bill facility. It seems to contemplate some ongoing facility in that it refers to “the initial twelve months” and to review and possible amendment “at the end of the first twelve months”. It will be recalled that the bill facility was to expire on 30 April 2004 or a maximum of five years from practical completion, while the overdraft facility was not to be made available until practical completion and was to expire on 30 April 2000. The requirement for reporting by “the Directors of the Group” is ambiguous; that expression was earlier defined as “Centrepoint Development Corp Pty Ltd and Centrepoint Hospital Pty Ltd”. The latter may be in error for CPH, but this is not clear. The references to occupancy levels of hospital accommodation, theatre usage, and profit and loss are also ambiguous: it may have been the intention of the parties that at least the first reporting condition not be activated until the new hospital was in operation; some support for this is found in the last sentence which refers to review “at the end of the first twelve months and given satisfactory operation”. On the other hand, as counsel for the Bank submitted, it may have been intended that these matters by reported on “if any”.
The issue of the proper construction of the financial reporting conditions is one which ought to be determined at trial. I take the force of the submission of counsel for the Bank that, insofar as Sinnathamby and others rely on the need to call evidence of surrounding circumstances to assist in that process, they ought to have at least outlined the nature of the evidence they wish to call and that they cannot rely on subsequent conduct of the parties for this purpose. However, he fairly conceded that the construction issue relating to those conditions was his strongest point on the summary judgment applications. In my view the arguments against his interpretation, even in the absence of background evidence, are sufficiently strong to warrant sending the matter to trial.
In the circumstances, it is not necessary for me to go on and consider whether there was a waiver of the financial reporting requirements, or whether the Bank is estopped from relying on other parties’ non-compliance with them.
The Bank contends that the limit was extended to $333,686-67 on 27 October 1999, and that as at 1 January 2000 CDC had exceeded the limit, as the amount owing was then $462,904-22. CDC’s case is that the overdraft was granted for the purpose of pre-commissioning costs, and that at all material times it remained within the overdraft limit of $125,000. Mr Wimalachandran says -
“23.None of the Defendants have received any advice written or oral from any officer of the Plaintiff on 27 October 1999 which suggested that the limit of $125,000-00 had been extended. CDC did not consent to any such extension and I had no conversation or communication with any officer of the Plaintiff whereby CDC consented to any increase on the overdraft limit of $125,000-00 to $333,686-67.
24.Rather this figure of $333,686-67 represents the balance of the account number 46-710-6490 as at 27 October 1999 which consists of the $125,000-00 overdraft and the balance of capital transactions advanced from the Bill Facility, together with the capitalisation of facility fees and interest payable on the overdraft.”
This cannot be resolved in isolation from the other questions relating to the overdraft made available in May 1999.
The securities were given on 22 April 1999. On a subsequent date which, for the purposes of these applications, the Bank accepts was the next day, CDC purported to lease the land to Dr Sinnathamby. The Bank alleges that this was in breach of CDC’s obligations under the bill of mortgage and the mortgage debenture over its assets. On the hearing of the summary judgment applications, CDC relied on construction points which I regard as rather shadowy, but it is not necessary for me to go into these in light of my finding that there are other triable issues.
Undertaking
In May 1999 CDC, St Williams Pty Ltd and St Francis Pty Ltd gave an undertaking -
“... to obtain and to execute necessary statutory transfer documentation to permit the transfer of formal operating license for hospital known as ‘Centrepoint Private Hospital’ currently held in the name of St Williams Pty Ltd ACN 010 536 562 as trustee for The Sinnathamby General Trust and St Francis Pty Ltd ACN 010 765 134 as trustee for the Naveen Trust, to Centrepoint Development Corporation Pty Ltd ACN 081 246 380. Transfer will be completed
immediately upon transfer of Title Deedsas soon as practicable after registration of the transfer of the Hospital land and buildings to Centrepoint Development Corporation Pty Ltd ACN 081 246 380.”
The Bank contends that this undertaking was given in variation of the fourth condition precedent contained in its letter of 30 March 1999 (amended statement of claim para 4AA) and that it was breached (amended statement of claim para 6(d)).
Curiously counsel for Sinnathamby and others asserted that the default relating to the undertaking had not been pleaded in proceeding no 3889/00. The numbering used (4AA, 6(d)) suggests a late addition, and I am left wondering which version of the amended pleading was in fact served.
According to the Bank’s pleading –
“ The agreement to vary the terms of the Overdraft Facility was oral. It was made by Dr Sinnathamby on behalf of CDC, the third defendant and the fourth defendant and Mr Hammond on behalf of the plaintiff. In or about April 1999/May 1999 CDC, the third defendant and the fourth defendant executed the undertaking.”
However, the affidavit relied on by the Bank, that of Jonothan Glenn Sennitt filed on 27 July 2000, goes no further than proving an agreement to provide such an undertaking; it does not establish that it was agreed that it should be by way of variation of the terms of the letter of 30 March 1999. Mr Wimalachandran admits no more than that this document was signed at the request of the Bank.
Although the undertaking was not complied with, the Bank has not established that this was an operative default.
Conclusion
Sinnathamby and others have persuaded me that there are issues which ought to go to trial. Accordingly, I dismiss the two applications for summary judgment.
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