Oakland Property Holdings Pty Ltd v BNY Trust (Australia) Registry Limited as Trustee for the Allfinance Funding Trust No. 1
[2012] NSWSC 335
•29 March 2012
Supreme Court
New South Wales
Case Title: Oakland Property Holdings Pty Ltd v BNY Trust (Australia) Registry Limited as Trustee for the Allfinance Funding Trust No. 1 Medium Neutral Citation: [2012] NSWSC 335 Hearing Date(s): 22 and 28 March 2012 Decision Date: 29 March 2012 Jurisdiction: Equity Division - Duty List Before: White J
Decision: Refer to para [105] of judgment.
Catchwords: REAL PROPERTY - whether defendant is entitled to a charge over property presently owned by the plaintiff - construction of a deed of charge - no entitlement to charge - removal of caveats over property owned by plaintiff
PRACTICE AND PROCEDURE - interlocutory issues - injunction to restrain completion of sale of property at discounted price - claim under s 37A of Conveyancing Act 1919 (NSW) - no serious question to be tried that completion of sale of property would be transaction made with intent to defraud creditors - if serious question to be tried balance of convenience would not justify grant of injunction - substantial losses if completion of sale restrained
Legislation Cited: Conveyancing Act 1919 (NSW)
Cases Cited: Texts Cited: Category: Interlocutory applications Parties: Oakland Property Holdings Pty Ltd (Plaintiff/1st Cross-Defendant)
Ray Shine Pty Ltd (2nd Cross-Defendant)
BNY Trust (Australia) Registry Limited as Trustee for the Allfinance Funding Trust No. 1 (1st Defendant/Cross-Claimant)
Kenneth Michael Whittingham (2nd Defendant)Representation - Counsel: Counsel:
J E Thomson (Plaintiff)
J O Beck (2nd Cross-Defendant)
A J McInerney (1st Defendant)- Solicitors: Solicitors:
William Chan & Co (Plaintiff)
Gadens Lawyers (1st Defendant)File number(s): 2012/89270
Publication Restriction:
JUDGMENT
HIS HONOUR: This application raises two issues. First, whether on the proper construction of a deed of charge dated 4 April 2007, the defendant, BNY Trust (Australia) Registry Limited as trustee for the Allfinance Funding Trust No. 1 ("BNY"), is entitled to a charge over real property presently owned by the plaintiff, Oakland Property Holdings Pty Ltd ("Oakland"). If the answer to that question is no, caveats that BNY has lodged in respect of five properties owned by Oakland should be removed.
Secondly, if BNY is not entitled to a charge over those properties, whether completion of a contract for the sale of a property owned by Oakland in Help Street, Chatswood should be restrained if, as is proposed, the sale is completed at a price which represents a discount of $5.3 million to the price provided for in a contract for sale dated 17 January 2012.
I have concluded that the answer to both questions is no. That is to say, BNY is not entitled to the charge it asserts and completion of the contract should not be restrained.
Oakland is the registered proprietor of the land in Help Street, Chatswood and is registered proprietor of a property in Rodborough Road, Frenchs Forest. On 17 January 2012, it entered into a contract to sell the Chatswood property to Ray Shine Investments Pty Ltd ("Ray Shine Investments") for $23 million. Ray Shine Investments is the cross-defendant.
Under the contract dated 17 January 2012 settlement was due after 180 days.
On 2 March 2012, Oakland entered into a contract to sell the Frenchs Forest property to Kennards Self Storage Pty Ltd for $3.465 million, with completion to be within 21 days.
BNY is the trustee of a trust known as the Allfinance Funding Trust No 1. It was appointed as trustee on 22 November 2009. The former trustee, Allco Managed Investments Limited ("Allco"), had provided a loan facility of $6.44 million to Oakland.
The loan was initially for $5.4 million. The contract of loan for that amount was entered into on 14 March 2007. The purpose of the loan was to fund Oakland's acquisition of a property at 35 Chandos Street, St Leonards. In connection with that facility, Oakland granted a mortgage over the St Leonards property and at or about the same time, it granted a fixed and floating charge in favour of Allco. BNY succeeded to Allco's rights under that security. The St Leonards property was purchased with a view to Oakland's carrying out a strata title redevelopment into residential apartments. Oakland defaulted on payment of the debt.
On 28 January 2011, BNY appointed receivers to Oakland.
In October 2011, the receivers sold the Chandos Street, St Leonards property for $5.15 million. Oakland asserts that the sale was at a gross undervalue, but that contention has not been determined. BNY asserts that Oakland owes a debt which, as at 9 January 2012, stood at $2,174,921.17. Interest continues to accrue.
As well as the Chatswood and Frenchs Forest properties, Oakland is the registered proprietor of three other properties in Lane Cove and Macquarie Park.
On or about 14 March 2012, BNY lodged a caveat in respect of the five properties of which Oakland is the registered proprietor. It claimed an interest in the properties that it described in the caveat as "equitable charge-agreement to mortgage". The interest is claimed to arise by virtue of the fixed and floating charge of 4 April 2007.
By the summons filed on 20 March 2012, Oakland sought relief that included:
"1. Declaration that the true construction of the Fixed and Floating Charge between the plaintiff as Chargor and Allco Managed Investments Limited as trustee for The Allfinance Funding Trust No 1 ('the Charge'), the property charged to secure payment of the Secured Money as therein defined, comprises the Secured Assets (as defined by reference to Item 6 of the Schedule to the Charge) and the Chargee's right to lodge caveats for which provision is made in clause 3(f) of the Charge is confined to the property comprising or derived from the Secured Assets, being property specific to 35 Chandos Street St Leonards.
...
3. Order under section 74MA of the Real Property Act that caveat dated 13 March 2012 and lodged by the first defendant over land owned by the plaintiff being titles listed in the Schedule hereto be withdrawn forthwith or within such other time as the court may specify."
BNY filed a cross-summons on 21 March 2012. The relief it claims included:
"1. A declaration that on the proper construction of the Facility Agreement, Loan Terms and Conditions, the Fixed and Floating Charge and the Mortgage between Oakland Property Holdings Pty Ltd ACN 090 604 872 (Oakland) and BNY Trust (Australia) Registry Limited ACN 000 334 636 as trustee for the AllFinance Funding Trust No. 1 (Chargee), the property charged to secure payment by Oakland of money owed to the Chargee included the following properties.
(a) 10 Help Street, Chatswood NSW (folio identifier 1/1090525) (Chatswood Property).
(b) 9A Rodborough Road, Frenchs Forest NSW (folio identifier 21/1140941) (Frenchs Forest Property).
(c) 15 Orion Road, West Lane Cove NSW (folio identifier 2/740703 (Lane [Cove] Property).
(d) 111 Wicks Road, Macquarie Park NSW (folio identifier 10/104609) (Wicks Road Property).
(e) 37-39 Epping Road, Macquarie Park NSW (folio identifier 1/1060926) (Epping Road Property)."
The parties agreed that the question of the proper construction of the charge, to determine what property was secured by it, should be determined on a final basis. It was common ground that, if it were determined that the property secured by the charge did not include the five properties at Chatswood, Frenchs Forest, Lane Cove and Macquarie Park, the caveats should be removed. In that event, BNY sought an interlocutory injunction to restrain Oakland from completing the sale of the Chatswood property.
The reason for this is that notwithstanding that the contract of 17 January 2012 provides for the sale of that property for $23 million, Oakland has entered into two deeds called "Deed of Early Settlement" with the purchaser. Those deeds are undated. There is a dispute as to when the first was made.
The first such deed provides for a $4 million discount from the purchase price if the sale is completed within four months. The second deed is said to have been entered into on or about 1 March 2012. It provides for a $5.3 million discount if the purchaser settles by 31 March 2012. Other final relief sought by BNY in its cross-summons includes a declaration that the deeds of early settlement are an alienation of property by Oakland with the intent to defraud creditors within the meaning of s 37A of the Conveyancing Act 1919 (NSW). BNY seeks an order setting aside the deeds. It seeks an interim injunction to restrain Oakland from selling the Chatswood property for $17.7 million or $19 million until its claim for final relief is determined.
The Chatswood and the Frenchs Forest properties are mortgaged to Perpetual Nominees Limited as custodian for Colonial First State Investments Limited. The secured debt owed to Perpetual is in excess of $19.1 million. It has threatened to appoint receivers or to exercise its power of sale.
Oakland arranged for the simultaneous settlement of the Chatswood and Frenchs Forest properties on 23 March 2012. I understand that settlement has been postponed to 30 March 2012, following the institution of these proceedings last week. Oakland proposes to discharge the debt owed to Perpetual from the proceeds of sale.
Property secured by the charge
The first issue is what property was secured by the fixed and floating charge of 4 April 2007. Oakland and Allco entered into a contract of loan on or about 14 March 2007. The terms of the contract are set out in a letter of offer dated 6 March 2007. The term dealing with security for the loan was:
"Security: Settlement is conditional upon the following security being provided in a form that is acceptable to the Lender. The Lender may wholly or partly waive any one or more of these requirements in its absolute discretion.
1. First Registered Mortgage by Oakland Property Holdings Pty Ltd ACN 090 604 872 over 35 Chandos Street, St Leonards NSW
2. Unlimited guarantee by Vincent Pang
3. First Ranking Fixed Charge over the assets and undertakings of Oakland Property Holdings Pty Ltd ACN 090 604 872 specific to its interests in the Property.
4. Such other security as the Lender considers appropriate to properly secure its interests in the Property.
Note that all securities are cross-collateralised (ie the Lender may enforce any one or more of the security items to recover the amount owing under this Facility)."
The "Property" was defined to mean the property at 35 Chandos Street, St Leonards. Oakland says that the security that it was agreed it would provide was a mortgage over the St Leonards property only, a charge over its assets and undertaking that was specific to that property, and such other security as the lender considered appropriate to properly secure the lender's interests in the St Leonards property. I agree with that submission. The submission follows the terms of the letter of offer.
The letter of offer also provided that the terms contained in a lending booklet formed part of the agreement as if they had been set out in full. The terms contained in the booklet appear to be standard terms of loan used by Allco at the time. They included the following:
"6. TRUSTEE PROVISIONS
6.1 Borrower liable as trustee of the Trust and in its own right
The Borrower has entered the Letter of Offer on its own behalf and as trustee of the Trust. In addition to the Borrower's own assets, all the assets both present and future of the Trust will be available to satisfy the Borrower's obligations under the Letter of Offer. This clause does not affect the Borrower's liability in its own capacity.
...
7.11 Other securities
The Letter of Offer will not merge with, discharge, extinguish, postpone, or prejudice any other security or right held by the Lender and no other security or right will affect the Letter of Offer. The release of any security or other right will not affect the Lender's rights under any security or right other than the security or right released and will not affect the Lender's rights to recover any money due from the Borrower or anyone else."
The letter of offer also contained an acknowledgment by Oakland that:
"I/We also acknowledge that all the securities and guarantees I/we have given or may give to the Lender, including but not limited to those described in this Facility Agreement, stand as security for all money due to the Lender on any account including under the Facility described in this Facility Agreement."
The facility was amended on 1 November 2007 when the loan was increased. The letter of offer in relation to that amount contains terms which are, in all material respects, the same as those contained in the original contract.
The fixed and floating charge was entered into on or about 4 April 2007. It was entered into at the same time as Oakland granted a mortgage that was duly registered over the Chandos Street, St Leonards property. Recital A of the charge states:
"A. The Chargor has agreed to charge to the Chargee all the Secured Assets to secure financial accommodation now or in the future to be provided to or at the request of the Chargor."
Clause 2 provides:
"2. CHARGE
2.1 Charge
The Chargor hereby charges the Secured Assets to the Chargee for payment of the Secured Money. The Chargor does this as beneficial owner except for those Secured Assets which the Chargor owns as trustee of a trust, in which case the Chargor does this as sole trustee of the relevant trust.
2.2 Fixed Charge
This charge constitutes a fixed and specific charge over the Secured Assets comprising any of the following.
(a) Real estate of any kind.
(b) Any contracts relating to real estate including without limitation leases, licences, purchase and sale contracts, building contracts, development and building consents, plans, drawings and specifications.
(c) Insurance policies wholly or partly in respect of the Secured Assets.
(d) Money which becomes payable as compensation, purchase money, or otherwise in respect of the Secured Assets.
(e) Uncalled and called but unpaid capital or premiums.
(f) Goodwill.
(g) Book debts and records, rights, securities, and guarantees of any nature in relation to book and other debts.
(h) Plant, equipment, and machinery other than stock in trade.
(i) Books of account, vouchers, and other documents relating to the Chargor's business transactions.
(j) Computer software and computer records.
(k) Stocks, shares, debentures, bonds, and other securities.
(l) Bond and store warranties.
(m) Trade agencies, franchise rights and all other intellectual property.
(n) Documents of title lodged with the Chargee for any purpose and the property represented by each document.
(o) All of its property (if any) specified in Item 2.
...
2.4 Floating Charge
(a) As to all of the Chargor's other Secured Assets, this charge constitutes a floating charge which in no way hinders or prevents the Chargor from selling, leasing, paying dividends, or otherwise disposing of or dealing with that property in the ordinary course of its business.
..."
"Secured Assets" are defined in clause 13.1. Unless the context otherwise requires, the expression "Secured Assets", means the assets referred to in item 6 of the schedule. Items 2 and 6 of the schedule provide,
"Item 2
Property specifically
charged:
(a) All plans and specifications, development approvals, building approvals and other approvals or consents relating in whole or in part to 35 Chandos Street, St Leonards (the 'Property')
(b) Any building contract as amended varied or supplemented from time to time and any other contract or arrangement whether verbal written or created in any way for the doing of any work on the Property.
(c) All leases, agreements for lease, agreements for sale or options in respect of the whole or any part of the Property and any other contract for sale or dealing with that Property including any amendment or variation to any agreement for sale or option.
(d) All deposits paid in respect of any agreement for sale referred to in sub-paragraph (c) including any deposit bonds and bank guarantees.
(e) Any Joint Venture Agreement relating to the Property.
...
Item 6
Secured Assets: All assets and undertaking of the Chargor whether held in its own capacity or as trustee of any trust specific to the property at 35 Chandos Street, St Leonards (Property) and the development thereof including leases and agreements for lease, contracts, agreements, licences, options and any interest in the Property and building materials and equipment, permits, architectural drawings, plans and specifications, sale contracts, insurances, joint venture agreement and all other documents, rights approvals and assets used for or in conjunction with the development at the Property whether owned at the date of entering into this Charge or acquired at a later date."
BNY places particular reliance on clause 3(f). It provides:
"3. CHARGOR'S COVENANTS
During the continuance of this security (and where appropriate from time to time) the Chargor must comply with the following provisions.
...
(f) Real Estate
(i) If and when requested by the Chargee, execute and cause to be stamped and registered specific mortgages in favour of the Chargee in respect of any or all of the Chargor's real estate of any tenure. Each such mortgage will contain such terms and conditions as the Chargee reasonably requires.
(ii) Irrespective of any requests under sub-clause (a), the Chargor consents to the Chargee lodging caveats in respect of any of the Chargor's real estate to notify the existence of this charge."
Other covenants contained in clause 3 included a covenant by Oakland to pay the secured money (clause 3(a)); to pay rates, taxes, charges, outgoings and assessments in respect of the Secured Assets (clause 3(b)); not to sell, part with possession, or encumber, or otherwise deal with the Secured Assets without the Chargee's prior written consent (clause 3(c)); to maintain the Secured Assets (clause 3(d)); and to use the Secured Assets in a proper and efficient manner (clause 3(k)).
Clause 3(m) contained a covenant that the Chargor would do anything the Chargee required further or more effectively to secure the Chargee's rights over the Secured Assets, or under the document.
Clause 10.12 of the charge provides:
"10.12 Other Securities
This document will not merge with, discharge, extinguish, postpone, or prejudice any other security or right held by the Chargee and no other security or right will affect this document."
As I have said, the mortgage was given at or about the same time as the charge. Clause 2.1 of the mortgage provided that:
"The mortgagor hereby charges the Secured Assets to the Mortgagee to secure payment of the Secured Money".
"Secured Assets" was defined as follows:
"(a) the Mortgaged Land;
(b) any contract or agreement in relation to the Mortgaged Land including any agreement or option for sale, leasing, or use of the Mortgaged Land and any contract in relation to Works on the Mortgaged Land;
(c) all income derived from the Mortgaged Land;
(d) the Mortgagor's right to receive any money in respect of the Mortgaged Land; and
(e) any business conducted by the Mortgagor on the Mortgaged Land."
The mortgage contained usual powers of sale and power to appoint a receiver.
Critical to the construction of clause 2.1 of the charge and to the construction of the recital to the charge is the meaning of the expression "Secured Assets". That, in turn, depends on item 6 of the schedule.
Item 6 is ambiguous. The words "specific to the Property at 35 Chandos Street, St Leonards (property) and the development thereof" might qualify all that goes before those words, that is to say, the assets and undertaking of the chargor, whether held in its own capacity, or as trustee of any trust. An alternative construction is that the words qualify only the word "trust". On the latter construction, all of the assets and undertaking of Oakland held in its own capacity would be subject to the charge, but property held by it as trustee would not be subject to the charge unless the trust was specific to the Chandos Street property.
The use of commas demonstrates the possible alternative meanings, namely, either "all assets and undertaking of the Chargor, whether held in its own capacity or as trustee of any trust, specific to the ... Property, and the development thereof et cetera", or "all assets and undertaking of the Chargor, whether held in its own capacity, or as trustee of any trust specific to the ... Property and the development thereof, et cetera".
There is no evidence that Oakland was borrowing as trustee of a trust, or that it held the Chandos Street property, or was to acquire the Chandos Street property, as trustee of a trust. There is, therefore, no reason to confine the words in item 6 "specific to the property et cetera" as qualifying only the word "trust". Nor does a comparison between item 6 and item 2 indicate that item 6 should be construed as applying to all assets and undertaking of the chargor whether specific to the Chandos Street property or not. Item 2 is confined to matters specific to the Chandos Street property, but the property itself, that is to say, the real estate, is not property specifically charged by item 2. In other words, if item 6 is confined to Oakland's interest specific to the Chandos Street property, there is still work for item 2 and clause 2.1(o) to do.
The prior agreement contained in the letter of offer dated 6 March 2007 forms part of the objective matrix of facts which can be used to interpret the charge. There is no clause in the charge stating that the charge superseded the prior agreement.
The letter of offer shows that it was the parties' intention that the secured property should be limited to "the assets and undertaking of [Oakland] specific to its interests in the Property".
Item 4 in the description of "Security" in the letter of offer does not advance matters for BNY. Item 4 does not refer to such further security as the lender might consider appropriate to secure repayment of the debt. Rather, it refers only to other security the lender might think appropriate to secure the lender's interests in the Chandos Street property. That item, as so expressed, also indicates that the charge was not to extend beyond the lender's interest in that property.
It was submitted for BNY that the letter of offer could not be used in this way to aid in the construction of the charge. I do not agree. Neither the borrower's acknowledgment, nor clause 6.1 nor 7.11 of the standard terms of loan, precludes such use of the letter of offer. The acknowledgment in the letter of offer is that the security given, or to be given is security for all moneys due on any account. That acknowledgment does not affect a determination of the extent of the secured assets, as distinct from affecting an assessment of what liabilities are secured by the secured assets, whatever they might be. Clause 6.1 of the standard terms deals with the situation where the borrower is a trustee. That is not this position as far as the evidence reveals. The reference in clause 6.1 to the borrower's own assets says nothing about the extent to which the borrower's own assets are security for the loan.
The argument based on clause 7.11 of the standard terms was that the letter of offer would not prejudice any other security, or right held by the lender and that is to be read with clause 10.12 of the charge that:
"No other ... right will affect this document".
Use of the letter of offer to assist in determining the meaning of the charge is not to prejudice the security, or the charge, or the chargee's right. Rather, such use assists in determining what those rights are. Nor does the letter of offer confer on Oakland a "right" that is sought to be used to effect the charge. It is true that the description of security in the letter of offer delineates the rights agreed to be granted to the lender, but the delineation of the rights agreed to be granted to the lender is not itself a right which affects the document of charge.
Accordingly, I read recital A in clause 2.1 of the charge as granting a charge only over the assets and undertaking of Oakland specific to the St Leonards property. That property has been sold and there is no longer security over it.
I reach that construction having regard to the parties' intention as objectively manifested in the letter of offer. It is also the preferable meaning of item 6 when read without regard to the letter of offer, but against the background that Oakland did not hold and was not to hold the Chandos Street property as trustee.
The next question is whether clause 3(f) of the charge is an agreement by Oakland to grant mortgages over other real estate. That is to say, over real estate other than the Chandos Street property.
Counsel for Oakland submitted that clause 3(f) is a covenant for further assurance and applies only to the Chandos Street property, including the titles into which that property might be subdivided. The potential subdivision of the property, which was the purpose for which Oakland acquired it, explains, so it was submitted, the use of the plural and the reference to real estate of any tenure in clause 3(f). That is to say, on the subdivision coming into effect, the effect of clause 3(f) would be that the chargee could require Oakland to grant specific mortgages, or to lodge caveats over the new titles. When clause 3(f) is read in the context provided by recital A, that the chargor has agreed to charge all the "Secured Assets", I agree with that submission.
The submission is also supported by the opening words of clause 3. Those words are:
"During the continuance of this security (and where appropriate from time to time) the Chargor must comply with the following provisions."
The expression "this security" in the opening words of clause 3 cannot mean the security provided by the chargor's covenant in clause 3(f) because the clause would otherwise be circular. If the covenant in clause 3(f) relates to the grant of mortgages, or the lodgment of caveats in respect of the same property as is the subject of the charge in clause 2, then no such problem arises with the construction of clause 3.
If, as BNY contends, clause 3(f) is not so limited, but is an agreement for the grant of mortgages over any real estate of Oakland, the difficulty is that the security referred to in the opening words no longer exists.
The obligation of Oakland to grant mortgages under clause 3(f)(i), or to give consent to the lodgment of caveats under clause 3(f)(ii) exists only "during the continuance of this security (and where appropriate from time to time)". In my view, the expression "this security" in the opening words refers to the security provided by clause 2. The words in brackets "(and where appropriate from time to time)" do not expand the period denoted by the phrase "during the continuance of this security". The words in brackets reflect the fact that the chargor may be required to comply with the covenants in clause 3 more than once (that is, from time to time where appropriate) during the continuance of the security. The opening words cannot be read as if they said "during the continuance of this security or, if appropriate, at other times".
The security provided by clause 2 came to an end on the sale of the Chandos Street property. Accordingly, even if clause 3(f) were to be read more widely than the context would indicate, as permitting the chargee to request the execution of a mortgage over land other than the Chandos Street property, or the titles into which it might be subdivided, it does not avail BNY after the charge provided for by clause 2 was extinguished.
For these reasons I conclude that BNY is not entitled to a charge over the other property of Oakland.
There will be a declaration accordingly and the caveat must be removed.
Interlocutory injunction to restrain completion of sale of Chatswood property
I turn to the claim for an interlocutory injunction to restrain completion of the sale of the Chatswood property at the proposed discounted price.
In his affidavit of 20 March 2012, Mr Wai Wah Cheung deposed that:
"37 To facilitate an earlier settlement with a view to repay Perpetual's debt, Oakland entered into a Deed of Early Settlement with Ray Shine and offering a discount of $4,000,000.00 should Ray Shine may settle [sic] before 17 May 2012. Forming a part of the Exhibit marked 'WWC-1' is a copy of this Deed of Early Settlement.
38 On or about 1 March 2012, Oakland entered into another Deed of Early Settlement with Rayshine and offered a discount of $5,300,000.00 should Ray Shine may settle [sic] before 31 March 2012. Forming a part of the Exhibit marked 'WWC-1' is a copy of the second Deed of Early Settlement."
Mr Cheung did not say when the first of the deeds of early settlement was entered into. Disclosure of the existence of the deeds of early settlement gave rise to an understandable suspicion by BNY that Oakland's agreement to discount the price by as much as $5.3 million would be for the purpose of and with the intention of defeating the claims of creditors. There was nothing apparent on the face of the deeds that would explain such a substantial discount. The discount of $5.3 million could not be explained simply by the bringing forward of the settlement date from mid-July to the end of March 2012.
The hearing of this matter commenced on Thursday, 22 March 2012. Counsel for BNY called for the production of documents relevant to its claim in the cross-summons that the deeds of early settlement were made with the intent of defrauding creditors. The proceedings had only just been commenced. The notices were not complied with on the day. The matter was stood over to 28 March 2012 for further hearing. In the meantime, Oakland adduced further evidence to provide background to the entry into the deeds of early settlement.
In a further affidavit of 27 March 2012, Mr Cheung deposed, and produced documentary evidence to support his evidence, that the Chatswood property had been the subject of a genuine marketing campaign in the latter part of 2011. The real estate agent, Mr Bolt of Hartigan Bolt, reported to a director of Oakland, a Mr Vincent Pang, on the results of the marketing campaign on 19 December 2011. He referred to a number of general enquiries and said that he was continuing to chase up those enquiries and other potential buyers. He referred to three other groups that had expressed more particular interest and noted that the most serious and substantial interest was that shown by a Mr Lee of Hong Kong and Maroubra, who had submitted a written offer of $18.4 million, subject to five months settlement.
In that offer dated 11 December 2011, Mr Lee of Ray Shine Investments refers to the asking price for the Chatswood property as being $23 million. A little later, Mr Lee made a further proposal of $17.25 million as the purchase price, but with a period of four weeks for due diligence and then a ten-week settlement time. This was in lieu of the five months' settlement time that had been earlier proposed.
Evidence was given by Mr Lee and Mr Pang by affidavit. They were cross-examined, albeit, by telephone link to China and, in the case of Mr Lee, with the assistance of an interpreter. The effect of their evidence was that Mr Lee is at arm's length from Mr Pang (who is the principal of Oakland), and has not had dealings with him prior to this transaction. The correspondence obtained through the real estate agent is consistent with that.
Further negotiations with Mr Lee appear to have taken place through the agent but, also, directly through Mr Pang. On 21 December 2011, Mr Pang advised Mr Bolt, the real estate agent, in relation to the proposal from Ray Shine Investments of 19 December 2011, that:
"Although the price is slightly lower but if they can exchange and settle fast, we will take it.
As my bank has indicated they will appoint a receiver on 16th January 2012 unless there is a sales. Thus we have no choice but to take the best offer on the table.
Please proceed with the sales as soon as possible".
There is no evidence of any higher offer having been obtained by the real estate agent, or the vendor. It is, to say the least, curious that a contract was not prepared that reflected the terms of the proposals being negotiated with Mr Lee. Instead of preparing a contract that conformed with the terms of either offer, two documents were prepared in December 2011. One was the contract for sale for the price of $23 million. The other was the first deed of early settlement providing a $4 million discount if settlement took place within four months.
Contrary to the impression given by the sale contract, in substance, the negotiated agreement as at January 2012 was for the sale of the property at a price of $19 million, not $23 million; although, the price would be $23 million if settlement did not take place within four months.
The affidavits read for Oakland and for the cross-defendant, Ray Shine Investments, did not identify when the deed of early settlement was entered into. It is clear that a draft of the deed was prepared in December 2011 because it was sent to Gadens Lawyers, who were acting for Perpetual. Under cover of a letter dated 30 December 2011, Perpetual's consent was sought to the proposed contract. That consent was not given.
The evidence of Mr Cheung and Mr Pang for Oakland and of Mr Lee for Ray Shine Investments was not always clear. Partly, this could have been the result of difficulties in translation, or perhaps even of taking evidence by telephone link. But the effect of their evidence when considered as a whole is that the first deed of early settlement was entered into at or about the same time as contracts were exchanged. The question this raises is why there were two contractual documents and not one.
Mr Pang said that the reason was that if Ray Shine Investments did not get the finance to complete the purchase so that the sale to it fell through, he could use the contract for $23 million to push up the price to be sought from other bidders. Whatever might be said about the morality of that thought, it is a plausible reason for the existence of a separate deed of early settlement.
The price was discounted by a further $1.3 million by the second deed of early settlement, if settlement is effected by 31 March 2012, or the purchaser had given the requisite notice and was in a position to proceed by this date. There were two reasons for the further discount. The first was to bring the settlement further forward. The second, although this is not reflected in the deed, was to release the vendor from obligations it has under Special Condition 50.1 of the contract of 17 January 2012.
Under Special Condition 50.1, the vendor agreed to complete work to renovate and make good any vacant or vacated suite on the property to a reasonable condition suitable to be let out. That work was to be done at the vendor's costs.
By a letter dated 1 March 2012, Mr Lee wrote:
"Further to our conversation to move forward the settlement date from 17th May 2012 to around mid March 2012. The early settlement is required to facilitate in line settlement with your other property. Your [sic] have raised the issues of you do not have enough time to finish the building work on level 5 and ground level work before settlement.
I have inspected both levels and checked all the DA conditions, documents and quantity surveyor reports. I have estimated it will cost $300,000 + GST for level 5 and $700,000 + GST for ground level.
Thus we are happy to settle the property within 3 weeks and we will take care of the make good works on level 5 and ground level for additional $1.3m discount."
There was evidence that the estimated cost of the works was in the order of $918,000. The release of the vendor's obligation to do those works plus the acceleration of settlement provide, on the face of it, good reason for the further variation reflected in the second deed of early settlement. The commerciality of the agreement must be assessed against the background that Perpetual continues the threatened appointment of a receiver, or exercise of its powers of sale as mortgagee.
Mr Cheung in his second affidavit produced valuations for the Help Street, Chatswood property. As at 28 June 2010 and 3 February 2011, the valuations were in amounts of $19.65 million and $21.5 million respectively, exclusive of GST. The revised sale price, if the purchase is completed early, is at a discount to those valuations, but the discount is not of such a magnitude as to support an inference that Oakland is engaging in the transactions with the intent to defeat, or delay, or hinder creditors.
There are other curious aspects of the transaction. They concerned arrangements between the purchaser, Ray Shine Investments, and the financier, the National Australia Bank.
On 14 February 2012, the National Australia Bank advised the directors of Ray Shine Investments that it had approved a facility for $16,000,000. One of the conditions of its approval was that:
"Within 14 days of acceptance of the Bank[']s Letter of Offer, the company is to deposit an amount of $7,000,000 (less any deposit amount) into a NAB account evidencing the company's ability to complete the transaction."
I infer that the National Australia Bank, at that time, was of the view that the amount required to complete the transaction would be $23 million, and not $19 million. Moreover, on 8 March 2012, that is to say, a week after the signature to the second deed of early settlement, the solicitors for Ray Shine Investments, Excelsior Lawyers, sent to the solicitors for Oakland a form of transfer signed on behalf of the transferee. The consideration stated in the transfer was $23 million. However, this may be explained by other correspondence passing between the solicitors for Oakland and for Ray Shine Investments, dated 21 March 2012. It appears that Excelsior Lawyers were unaware of the deed of early settlement. Excelsior Lawyers said that they had not seen the documents and denied any knowledge of them. Nonetheless, the principal of their client, Mr Lee, knew of the documents. He had signed them.
It appears that the deeds of early settlement were prepared by Mr Pang using a precedent he had from an earlier transaction and that the terms of the deeds of early settlement were negotiated, and the deeds signed, by the parties dealing with each other directly, and not through their solicitors.
BNY called on Ray Shine Investments to produce documents showing compliance with the conditions precedent to the letter of offer of 16 February 2011. No documents were produced, although Mr Lee said in the course of cross-examination that an amount of $7 million had been deposited into an account with the Bank of China, as I understand it, being an account in China.
These curious aspects of dealings between Ray Shine Investments and the bank do not go directly or, I think, indirectly, to substantiate a claim that Oakland proposed to deal with the property with an intent to defraud creditors. Whether or not the National Australia Bank is fully appraised of the position is not to the point. Even if there were an intended fraud on it, and I am not suggesting for a moment that the evidence suggests that that is the position, that would not be an attempt by Oakland to defraud its creditors.
The deeds of early settlement, at least, when considered in isolation, prompt a query as to whether there might be any side agreement between Ray Shine Investments and those associated with Oakland.
It was submitted for BNY that that suspicion is heightened by the fact that, according to Mr Lee, some $7 million has been put on deposit in an account with the Bank of China. It is said that it might be inferred that this money might be used to make a secret payment that would have the effect of depleting Oakland's assets.
Mr Lee and Mr Pang both denied that there was any side agreement. There is no evidence which would justify an inference that there was such an agreement. I do not consider that Mr Lee's evidence in relation to the payment of moneys to the Bank of China provides a basis for inferring that there might be an under-the-table payment.
On the evidence available on this application, there is not a serious question to be tried that the sale of the Help Street, Chatswood property, even for $17.7 million, would be a transaction made with the intent to defraud creditors that could be liable to be set aside under s 37A of the Conveyancing Act. If I am wrong on this conclusion, nonetheless, the balance of convenience would not justify a grant of the injunction.
Oakland could suffer substantial losses, at least, some of which would be difficult to quantify if it is restrained from completing the sale of the Chatswood property. Perpetual's debt is to be discharged from the proceeds of sale of both the Chatswood and Frenchs Forest properties. Without the proceeds of sale from the Chatswood property, the mortgage cannot be discharged. Oakland would continue to incur interest on the facility. I think it can be inferred that interest would be being incurred at default interest rates. There would be a risk that a receiver might be appointed to the assets and undertaking of Oakland by Perpetual.
The appointment of a receiver could cause losses that would not be possible to quantify. It seems that Perpetual is only willing to discharge any of its mortgages on the basis that the whole of the mortgage debt is discharged. Hence, a simultaneous settlement of the Frenchs Forest and Chatswood properties has been arranged. There is a real risk that if the sale of the Chatswood property were not completed Oakland would not be able to complete the sale of the Frenchs Forest property. That could render it liable in damages to the purchaser of the Frenchs Forest property. There is evidence that those damages could be substantial. The sale price for the Frenchs Forest property is substantially less than a valuation obtained on 28 June 2010.
If the sale of the Chatswood property were restrained, Oakland could also suffer a loss through the loss of the sale of the Chatswood property. Although it does not appear that Ray Shine Investments could rescind merely on the basis that Oakland was not able to settle, or did not settle on 31 March 2012, it has, at least, an arguable right to rescind the contract on the basis that the mortgagee's consent to the sale was not obtained. There may be a question as to whether or not Ray Shine Investments has waived that right, or has elected not to exercise it, or is estopped from relying on the right. But there is, at least, a potential risk of loss of the sale.
If the property had to be resold, there would be the costs of a fresh campaign, even if the sale of the property was not taken out of Oakland's hands. It would not be known what price might be obtained.
Damages could be very difficult to quantity. BNY offers the usual undertaking as to damages, but I do not know to what extent it has assets available to support the undertaking.
For all of these reasons, if I had found that there was a serious question to be tried in relation to the claim under s 37A of the Conveyancing Act, I would, nonetheless, not have granted the injunction.
I should add as a further discretionary reason as to why the injunction would not have been granted in any event, that the plaintiff offers an undertaking, without admissions, not to alienate, dispose of, remove, or otherwise deal with any of its assets in New South Wales until the determination of these proceedings, or further order, otherwise than in the ordinary course of business, or for the purpose of making payments to creditors, not related to the directors, including by selling properties mortgaged to other lenders to facilitate repayment of secured loans.
I understand that that undertaking is offered, and I will accept that undertaking which is given by the plaintiff through its counsel to the Court.
For these reasons and subject to anything counsel may have to say as to the precise form of the orders to be made, I propose the following orders.
First, a declaration in terms of paragraph 1 of the cross-summons, except expressed in the negative. That is to say, a declaration that, on the proper construction of the charge, the property charged to secure payment by Oakland of money owed to the Chargee does not include the listed properties. I think that is preferable to the form of the declaration sought in paragraph 1 of the summons, but I will hear counsel on that.
Otherwise, the other orders I propose are an order as per paragraph 3 of the summons, with an order that the caveats be removed forthwith and an order that the claims in paragraphs 1, 4, 5 and 6 of the cross-summons be dismissed.
[Counsel addressed.]
On the question of costs, the plaintiff is entitled to an order that the defendant pay the costs of the claim for final relief that I have determined.
So far as the costs of the claim for interlocutory relief is concerned, those costs will be the plaintiff's and the cross-defendant's costs in the proceedings.
The plaintiff and cross-defendant seek an order under r 42.7 of the Uniform Civil Procedure Rules 2005 that the costs can be assessed forthwith and will be payable forthwith after agreement or assessment. Unless such an order is made, the costs that I have ordered will not become payable until the conclusion of the proceedings.
There are currently on foot proceedings brought by the defendant as plaintiff in the Commercial List. It is proposed that these proceedings be joined up with the Commercial List proceedings.
The plaintiff in these proceedings makes a claim in relation to the exercise by the receivers of the defendant's power of sale in respect of the Chandos Street property, amongst other matters. As matters presently stand, the defendant may wish to pursue its claim for relief under s 37A, albeit, I think that that claim, if it is pursued, will require an amendment, at least, if the sale of the Chatswood property is completed.
Having regard to what is, at least, a possibility, that the defendant will pursue a claim under s 37A of the Conveyancing Act for final relief, it cannot be said that the interlocutory proceeding that I have determined relates to matters distinct from the substantive issues in the proceedings.
I do not have reason to think that there will be a long delay in the resolution of the claims for final relief, as it can be expected that all of the claims between the parties will be dealt with as one, and probably in the Commercial List.
I am minded to make a contrary order under r 42.7. The only basis for making a contrary order under r 42.7 would be in respect of the claims for final relief that I have determined, but I think that the costs of a costs assessor in trying to dissect what costs were referable to the claim for final relief, as distinct from the costs of the claim for interlocutory relief, could be substantial. If, as the plaintiff undoubtedly contends should be the position, it succeeds at a final hearing, and if the cross-defendant also succeeds, then it would be cheaper and easier for all the costs to be assessed at once, rather than to embark on a costs assessment of a discrete part of the costs.
I decline to make a contrary order under r 42.7. The proceedings have not been concluded. The costs will not become payable until they are.
I note the undertaking of the plaintiff given without admissions by its counsel to the court not to alienate, dispose of, remove, or otherwise deal with any of its assets in New South Wales until the determination of these proceedings, or further order, otherwise than in the ordinary course of business, or for the purpose of making payments to creditors, not related to the directors, including by selling properties mortgaged to other lenders to facilitate repayment of secured loans.
I make the following declaration and orders:
1. Declare that on the proper construction of the facility agreement, the fixed and floating charge dated 4 April 2007 and the mortgage dated 4 April 2007 made between the plaintiff and Allco Managed Investments Limited ACN 58 101 402 635 the property charged to secure payment by the plaintiff of money owed to the chargee under the charge and mortgage does not include:
a) 10 Help Street, Chatswood NSW (folio identifier 1/1090525) (Chatswood Property)
b) 9A Rodborough Road, Frenchs Forest NSW (folio identifier 21/1140941) (Frenchs Forest Property)
c) 15 Orion Road, West Lane Cove NSW (folio identifier 2/740703) (Lane Cove Property)
d) 111 Wicks Road, Macquarie Park NSW (folio identifier 10/104609) (Wicks Road Property)
e) 37-39 Epping Road, Macquarie Park NSW (folio identifier 1/1060926) (Epping Road Property)
2. Order that the defendant forthwith withdraw caveat AG868206 lodged in respect of the above properties.
3. Order that the claims in paragraphs 1, 4, and 5 of the cross-summons be dismissed and that the claim in paragraph 6 of the cross-summons be otherwise dismissed.
4. Order that the costs of the interlocutory application be the plaintiff's and 1st and 2nd cross-defendant's costs in the cross-summons and order that the defendant pay the plaintiff's costs of the claim for final relief determined by me.
5. Stand over to 13 April 2012 before the Commercial List Judge to be heard with proceeding 2012/57381.
6. Orders may be entered forthwith.
The exhibits can be returned. They should be retained by the solicitors for the parties until further order, and otherwise dealt with in accordance with the Practice Note.
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