Raymond & Anor v. Sudholz Pty Ltd

[2007] QSC 186

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

[2007] QSC 186

FRYBERG J

No 5736 of 2007

STEPHEN LEWIS RAYMOND and WILLIAM EDWARD RAYMOND	Applicants
and
SUDHOLZ PTY LTD (ACN 009 989 968)	Respondent

BRISBANE

..DATE 17/07/2007

JUDGMENT

HIS HONOUR:  This is an application for an interlocutory injunction to restrain the auction of land by a second mortgagee.  The second mortgagee in question is the earthworks contractor who contracted to undertake subdivisional works for the applicants.  That contract was made in July 2005.  Between that time and March 2006 the works underwent some turmoil.  It is not necessary now to discuss the rights and wrongs of what occurred.  The contractor was not paid when he claims he should have been paid and certainly does not seem to have been paid at the times specified in the contract but the owner contends that, in breach of the contract, the contractor, among other things, used plastic pipes instead of concrete pipes with the result that large losses were incurred.  Whatever the rights and wrongs of all of that the fact was that by March 2006 the position had been reached where the applicants financing had been exhausted, or was close to exhaustion, in terms of, if not payment out, at least in terms of committal toward the project.

A series of meetings occurred at that time and the applicants argue that, at that time, an agreement was made between them, the respondent and the financier for the financier to continue to finance the development, for the respondent to continue to do the necessary work and for the respondent to carry the cost of the work over and above the amount to be provided by the financier.  The agreement included the proposition that there was to be a deed of variation and that the respondent was to be given security in the form of a second registered mortgage.

I interpolate at this point that, in the course of the argument, the respondent suggested that the agreement was void for uncertainty but for the purposes of the interlocutory application I would not accept that argument.  It seems to me that it is clearly enough possible to imply a term as to the time of repayment in the agreement that the respondent would be paid out of the proceeds of sale as and when the allotments were sold.  It may be that there would also be implied a clause that this should occur within a reasonable time. 

The matter then passed into the hands of solicitors.  Perhaps predictably at that point things took a turn for the worse.  The solicitors for the respondent produced draft documentation which, in my view, is clearly arguably not in accordance with the terms of the agreement which was reached.  It provided for continued progress payments to be made to the respondent notwithstanding that the agreement clearly was for the respondent to carry the financing over and above the amount to be provided by the financier.  It is true that continued payments were to be made while the financier was still providing finance - and indeed this occurred - but it would not have been impossible for documentation to have been drafted which so provided.  The documentation which was drafted by the respondent's solicitors did not so provide.

The applicants' solicitors protested at the form of documentation.  That protest fell on deaf ears.  The respondent's solicitors responded - no doubt on instructions - that they would not agree to any changes to the documentation which they have forwarded to the solicitors for the applicants, a stance which had the effect of making it impossible for the agreement to be performed.  It seems to me that on the face of things the position so adopted was arguably in breach of contract.  The applicants were put in the position that the refusal by them to sign the documentation would have disastrous economic consequences to them.  They attempted to find alternative finance but were unsuccessful.  Had the works ceased in mid-project, as was likely to happen, they would have become in default to their principal financier and the land no doubt was at risk of being sold for a fraction of what it could be sold for had the works proceeded to completion.

They protested about the attitude of the respondent but, on the evidence in the affidavit material before me, nonetheless signed the documentation.  They did so, they say, under duress and only because of the threat made to them in breach of the agreement which had been reached in March.  Of course, whether all of that will be the view taken at trial is another matter.  It is sufficient for present purposes that there be a good arguable case shown and, in my view, that has been shown.  Counsel for the respondent rightly conceded that in proceedings such as the present he could not traverse the affidavit evidence presented on behalf of the applicants.
It is unnecessary to decide whether in fact what the respondents were doing when they wrote the letter enclosing the documentation was proposing, in effect, a variation of the agreement or whether that is to be construed as conduct failing to fulfil the terms of the agreement but intended to do so.  On either basis, it is conduct which was in breach of the agreement and which operated on the applicants economically to force them to sign the documentation.  It is that documentation upon which the respondent now relies in order to exercise a power of sale and to sell the land. 

Mr Wilson referred me to a passage which I think is helpful from the judgment of the Supreme Court of the Australian Capital Territory in Anazera Pty Ltd v. Hunt (2002) ACTCA 10 where, at paragraph 31, the Court referred to the stringent nature of the test for duress in the context of economic duress. It said:

"It is not necessary that the will of the party who is subjected to the pressure be overborne but the pressure must have the effect of producing compulsion or absence of real choice."

It seems to me that it is arguable on the evidence before me that that was the situation in the present case.  It follows, in my view, that the applicants have established a good arguable case for the proposition that the mortgage is not valid. 

As to the question of the balance of convenience, the matter is troubling.  The applicants say that given time there is a glimmer of hope that this development can be refinanced.  I do not share that sanguine belief.  I rather suspect that good money is likely to be thrown after bad.  However, it is not my place to make commercial judgments for the applicants.  The evidence seems to show that the respondent, which is proposing to conduct the sale next Thursday, is unlikely to get anything from the proceeds of sale.  It will all go to the first mortgagee.  That will no doubt stop interest running on the first mortgage and may leave other security available to the respondent of slightly more value than otherwise it would be is a delay occurs until the trial.  However, arrangements can, I think, be made for a speedy trial and the applicants have provided the usual undertakings with the backing of a considerable amount of security and on balance, it seems to me, that the amount is probably enough to cover any likely damage to the respondent by the delay.

In my judgment there should be an injunction granted in the terms sought. 

The action has been started by application.  That was wrong, it plainly should have been started by claim and statement of claim.  I will ask the parties to bring in a draft order tomorrow providing for the injunction and providing directions that the application be treated as a claim providing for abbreviated times for pleadings and disclosure of documents and for any other matters that may be seen as worthwhile by the legal representatives.  Costs should be reserved.

Before I close I would urge that the parties give serious consideration to resolving this matter promptly in a
non-litigious way.  A commercial solution will be of more advantage to both sides than a litigated one.  No doubt the parties will consult their legal advisors in that regard.  It does not seem to me appropriate at the moment to make a mediation order.

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