Re Webuildem Pty Ltd

[2012] NSWSC 708

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Webuildem Pty Limited and In the matter of Maroun Investments Pty Limited [2012] NSWSC 708
Hearing dates:	22 June 2012
Decision date:	27 June 2012
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Interlocutory Process dismissed. Plaintiffs released from undertakings not to enter Escrow Orders. Parties to be heard as to whether orders should be stayed for short time to preserve Plaintiffs' opportunity to appeal. Parties to be heard as to costs.
Catchwords:	PRACTICE AND PROCEDURE - Orders - Interlocutory application to stay operation of orders made on 8 March 2012 and several other orders - Orders made after proceedings settled on first day of hearing - Whether orders should be stayed.
Legislation Cited:	- Civil Procedure Act 2005 (NSW) - ss 56, 56-59, 67, 135 - Corporations Act 2001 (Cth) s 427 - Supreme Court Rules 1970 (NSW) - Uniform Civil Procedure Rules 2005 (NSW) rr 36.15(1), 36.16(2)(b)
Cases Cited:	- Alati v Kruger (1955) 94 CLR 216 - Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 - Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39 - Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 - Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 - Donellan v Watson (1990) 21 NSWLR 335 - Fabare v Arenales (1992) 27 NSWLR 437 - Harvey v Phillips [1956] HCA 27; (1956) 95 CLR 235 - Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 - Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 - Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 - Joskovitz v Bonnick [1964] VR 654 - Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2012] NSWSC 382 - McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 - Mobile Innovations Ltd v Vodafone Pacific Ltd [2003] NSWSC 309 - Pacific Carriers Ltd v BNP Paribas [2004] 218 CLR 451 - Parist Holdings Pty Ltd v Perpetual Nominees Ltd [2006] NSWSC 599 - Police and Nurses Credit Society Ltd v Weber [2003] WASC 45 - Re Seduce Group Australia Pty Ltd [2011] NSWSC 290 - Senanayake v Cheng [1966] AC 63 - Singh v Ginelle Pty Ltd [2010] NSWCA 310 - Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 - Tresize v National Australia Bank Ltd (1994) 50 FCR 134 - Tringali v Stewardson Stubbs & Collett Pty Ltd [1966] 1 NSWR 354 - Venios v Machon (1986) 3 BCL 171 - Victorian Securities Corporation Ltd v Icehot Pty Ltd (recs and mgrs apptd) [2010] NSWSC 1413
Texts Cited:	- J D Heydon, Cross on Evidence, 8th Australian ed, LexisNexis Butterworths, 2010 - N C Seddon and M P Ellinghaus, Cheshire and Fifoot's Law of Contract, 9th Australian ed, LexisNexis Butterworths, 2008
Category:	Interlocutory applications
Parties:	Paul Gerard Weston and David Gregory Young (Plaintiffs/First and Second Cross-Defendants) Arab Bank Australia Limited (Third Cross-Defendant) Webuildem Pty Limited (First Defendant/First Cross-Claimant) Maroun Investments Pty Limited (Second Defendant/Second Cross-Claimant) George Maroun Rahme (Third Defendant/Third Cross-Claimant) Nouha Rahme (Fourth Defendant/Fourth Cross-Claimant)
Representation:	Counsel: A.P. Lo Surdo SC/B.K. Koch (Plaintiffs/Cross-Defendants) B. Coles QC/S. Milanovic (Defendants/Cross-Claimants) Solicitors: Henry Davis York (Plaintiffs/Cross-Defendants) Cadmus Lawyers (Defendants/Cross-Claimants)
File Number(s):	11/357909

Judgment

1. By Interlocutory Process filed on 12 June 2012, the Defendants/Cross-Claimants ("Defendants") sought orders that terms of settlement dated 7 June 2012 ("Settlement Terms") and consequential orders made by the Court on 8 March 2012 ("8 March Orders") be set aside, or alternatively an order staying the operation of the 8 March Orders until further order of the Court. The Interlocutory Process also sought declaratory relief and other orders.

1. When the matter was listed for hearing on 22 June 2012, the Defendants indicated that they were not in a position to proceed with the application for an order that the Settlement Terms and 8 March Orders be set aside, since those issues would need to be determined on a final basis and difficulties would arise as to the admissibility of parts of their affidavit evidence at a final hearing. The Defendants sought to proceed, on an interlocutory basis, with an order staying the operation of the "Escrow Orders" made on 8 March (as defined below) and several other orders. I have had regard to the interlocutory character of the hearing in assessing the evidence before me.

Factual background

1. I should first set out a short outline of the factual background to the application. The First Defendant/First Cross-Claimant, Webuildem Pty Limited ("Webuildem"), purchased a property at Hilly Street Mortlake in December 2007 on which it was intended to construct apartments and townhouses. Webuildem obtained loan offers or indicative offers from several banks and negotiated with Arab Bank Australia Limited ("Bank") in late February 2008 and early March 2008.

1. The Bank initially lent $10 million to Webuildem under a letter of offer dated 12 March 2008, secured by mortgages over several properties. The amount lent was increased to $28 million by a further letter of offer dated 19 June 2008, again secured over several properties, which was subsequently varied on several occasions. The loans were continued under letters of offer dated 26 August 2010 and 2 March 2011 which provided for the facilities to expire on 14 August 2011. The facilities were not repaid on expiry and the Bank appointed receivers and managers ("Receivers") to several properties on 30 August 2011.

1. These proceedings were commenced by Originating Process filed on 9 November 2011 by the Receivers. The proceedings were initially fixed for hearing on 6 December 2011 but that hearing was vacated following the service by the Defendants of a further Interlocutory Process and supporting evidence on that day. The proceedings were then fixed for hearing for 3 days on 7 March 2012. It appears from the affidavit of Mr Jacob Rebek (one of Webuidem's directors) dated 6 December 2011, which was filed in the proceedings and also read before me in this application, that Webuildem raised allegations as to, inter alia, the conduct of the Bank in the negotiations prior to the entry into the facility agreements; an allegation of duress in respect of its entry into those facility agreements; the issue of loan statements showing "nil balances" rather than actual loan balances by the Bank, apparently as a result of a computer error; overcharging of interest by the Bank; and the validity of the appointment of the Receivers.

1. The proceedings were (subject to the matters raised by this application) settled on the first day of the hearing, 7 March 2012, by the entry into the Settlement Terms which were signed by, relevantly (1) Senior Counsel for the Defendants; (2) Webuildem by its directors, Mr Rebek, Mr George Maroun Rahme and Ms Martina Athitakis; (3) the Second Defendant, Maroun Investments Pty Limited ("Maroun") by Mr Rahme; (4) Mr Rahme in his personal capacity; and (5) by Mr Rahme for Mrs Nouha Rahme. The Settlement Terms provided for Webuildem, Maroun, Mr Rahme and Mrs Rahme to give access to the Bank to certain properties for valuation purposes and also recorded an agreement between the parties that, in summary:

(a) The parties agreed to certain orders ("Escrow Orders") and the Bank could do all things necessary to have those orders entered if Webuildem's indebtedness to the Bank was not repaid by 12 June 2012;

(b) The Bank would procure the retirement of the Receivers and the Receivers were to attend to giving all notifications of their retirement immediately after their retirement;

(c) Certain releases were provided and there was an acknowledgement of the validity and enforceability of the facility agreements, mortgages and guarantees and indemnities;

(d) A complaint to Financial Ombudsman Services Ltd was to be withdrawn;

(e) The Defendants acknowledged that, if refinance was not effected by 5pm on 12 June 2012, the Bank was at liberty to enforce the Escrow Orders including by the appointment of receivers and managers; and

(f) The proceedings would be dismissed if the Defendants refinanced their obligations as set out in the Settlement Terms or otherwise repaid their indebtedness to the Bank in full.

On their face, the Settlement Terms appear to have conferred apparent benefits on the Defendants including securing the retirement of the Receivers and a period for refinancing of their existing facilities with the Bank.

1. On 8 March 2012, Hammerschlag J made the 8 March Orders and noted the matters agreed between the parties in the Settlement Terms and also made the Escrow Orders as provided by the Settlement Terms. The Escrow Orders (which, as noted above, could be entered if Webuildem had not discharged its indebtedness to the Bank by 12 June 2012) provided for Webuildem, Maroun and Mr and Mrs Rahme to give possession of certain properties and to pay the Bank $23,721,717.20 (which was stated to include solicitors' costs to 7 March 2012 and Counsels' fees for the hearing on 9 November 2011) and interest at a daily rate on the amount outstanding and costs on a solicitor/client basis.

1. On 9 March 2012, the Receivers retired in respect of Webuildem and Maroun and lodged notifications of their retirements with the Australian Securities and Investments Commission ("ASIC") in accordance with s 427 of the Corporations Act 2001 (Cth). The Receivers also sent letters to tenants of the properties advising of their retirement. After the Defendants contended that they were entitled to have the Receivers send additional notices of their retirement, the Receivers and the Bank consented to further orders made by the Court dated 26 March 2012 in that regard.

1. By email dated 6 June 2012 to the Bank's solicitors, the solicitors for the Defendants sought an extension of time to refinance the facilities from the Bank to 14 August 2012. That email stated that:

"Reference is made to the above matter and the Court orders made on 8 March 2012 by His Honour Justice Hammerschlag in particular the notation made in them in relation to Webuildem Pty Ltd's payment of the loans facilities to the Arab Bank Australia Ltd by 5:00pm on 12 June 2012. As you are aware, our clients are in the process of refinancing the loans facilities and have been delayed by your clients' conduct in failing to comply with the Court Orders resulting in further orders being obtained on 26 March 2012 to ensure your clients' compliance, with our clients indicating to Court on 26 March 2012 that they reserve their rights to seeking an extension of time.

Our clients are now seeking an extension of time to 5:00pm on 14 August 2012 with our clients reserving their rights in relation to the orders and notations made on 8 March 2012 and the matter in general. Please confirm by 12:00 noon tomorrow, 7 June 2012 that your client the Arab Bank Australia Ltd is agreeable to the extension having regard to your clients' conduct and the substantial amount of the loans involved to be refinanced including discrepancies in the payout figures that your client is seeking which need to be addressed and dealt with. To this end, we note that our clients reserve their rights to the amount claimed by your client since it appears from our clients' further investigation that your clients' payout figures are incorrect."

1. The Bank did not respond to that request by the stipulated time. By email to the Court dated 7 June 2012, the Defendants' solicitor requested an urgent listing of the matter before the Court on 12 June 2012 (which was the next available listing day and also the date by which refinancing was to be effected under the Settlement Terms) to deal with "some issues relating to the [8 March] Orders" and:

"in particular seeking an extension of time to the notation made in the Orders in relation to [Webuildem's] payment of the loans [sic] facilities to the [Bank] by 5:00pm on 12 June 2012."

1. When the matter was listed before me on 12 June 2012, the Defendants filed an Interlocutory Process seeking the wider range of orders to which I referred above, which was listed for hearing before me on 22 June 2012.

The stay application

1. The primary relief now sought by the Defendants is an order that the Escrow Orders be stayed until further order of the Court. (There would be little utility in a stay of the 8 March Orders other than the Escrow Orders since they have already been implemented and merely note rather than give any independent effect to the Settlement Terms.)

1. Section 67 of the Civil Procedure Act 2005 (NSW) provides that, subject to the rules of Court, the Court may at any time, by order, stay any proceedings before it either permanently or until a specified day. Section 135 of the Civil Procedure Act permits the Court to give directions as to enforcement, including an order prohibiting any person from taking any further action, either permanently or until a specified day, to enforce an order of the Court. The Court's power to grant a stay under s 135 of the Civil Procedure Act is exercisable where the interests of justice so demand; the person seeking a stay must satisfy the Court that the requirements of justice require one; and the Court has a wide discretion whether to grant a stay and whether terms should be imposed on the grant of such a stay: Joskovitz v Bonnick [1964] VR 654 at 656; Tringali v Stewardson Stubbs & Collett Pty Ltd [1966] 1 NSWR 354 at 360-361; Victorian Securities Corporation Ltd v Icehot Pty Ltd (recs and mgrs apptd) [2010] NSWSC 1413 at [9].

1. The Plaintiffs initially contended that the Court had no jurisdiction to grant a stay because the Escrow Orders had not yet been entered, so there was no "judgment or order" the enforcement of which was capable of being stayed for the purposes of s 135 of the Civil Procedure Act and no basis upon which the Court would stay the enforcement of orders which had not yet been entered and in relation to which the Bank had not yet taken any enforcement action. The Plaintiffs ultimately accepted that there was no practical utility in this approach, where it was their intent to seek to enter the Escrow Orders and it was consistent with the just, quick and cheap resolution of the dispute between the parties to determine whether such orders should be stayed and that matter had been fully argued before me.

1. The Defendants relied on several matters to support the suggested stay. There was a degree of uncertainty as to which of the grounds raised by the Defendants in their written submissions were ultimately pressed, by reason of the change in their approach at the hearing to which I referred above. I have therefore sought to address the range of matters raised by the Defendants, given the uncertainty as to which of them were ultimately pressed.

Delay in refinancing

1. The Defendants contend that, as a result of the Plaintiffs not providing all notifications of the retirement of the Receivers by 9 March 2012, as required by the 8 March Orders, further Court orders were obtained on 26 March 2012 to ensure compliance by the Bank and the Receivers.

1. The 8 March Orders provided that the Receivers:

"are to attend to the giving of all notifications of their retirement immediately after their retirement."

This order did not specify the person to whom the notifications were required to be given. Possible interpretations of that order include that notifications should be given to ASIC as required by s 427 of the Corporations Act; to ASIC and tenants of the properties, which was the course taken by the Receivers; or to ASIC, tenants of the properties and anyone else with whom the Receivers had dealt in the course of the receivership. Although it is not necessary or appropriate for me to determine this question is this application, it is not certainly not self-evident, as the Defendants seem to have assumed in submissions before me, that the course taken by the Receivers had breached the 8 March Orders.

1. Further orders were made by consent on 26 March 2012 which included a requirement that the Plaintiffs provide a list of all authorities, government and non-government agencies and institutions and third parties that were notified of their appointment from 30 August 2012 to 9 March 2012 and, if they had not yet done so, provide written notification to all such agencies, institutions and third parties of their retirement by the same date. It appears those orders were complied with, at least in substance, although the Defendants vigorously asserted that the Receivers had breached them when they were a day late in providing copies of those notifications to the Defendants' solicitors.

1. The Defendants contend that they were prejudiced by the alleged breach of the 8 March Orders which they contend delayed the application for refinance of the Bank's loan facilities the Defendants. Such prejudice, if established, could well be a significant factor supporting a stay of the Escrow Orders, at least for the period (of 19 days, possibly less the 14 days taken to determine this application) by which a delay in such notifications delayed the refinancing of the facilities. However, the evidence led before me that the Receivers' delay in providing additional notifications as to their retirement had an impact upon the refinancing was conclusory in form and did not explain how such an impact arose. For example, Mr Rebek's evidence was:

"I note that the breach of the Court Orders made on 8 March 2012 by the First, Second and Third Cross Defendants resulted in delaying the application for the refinance of the Arab [B]ank Australia Ltd's loans facilities by the First, Second, Third and Fourth Cross Claimants" (Rebek 12.6.2012 [7])

Similarly, Ms Athitakis' evidence, also in conclusory form, was that:

"The Court orders made on 8 March 2012 were not complied with by the Arab Bank Australia Ltd and their alleged receivers and managers, necessitating further Court orders to be made on 26 March 2012 to ensure their compliance which delayed the First, Second, Third and Fourth Defendants/Cross Claimants from progressing their refinance applications due to lack of notices being given by the Arab Bank Australia Ltd and their alleged receivers and managers as stipulated by the Court Orders made on 8 March 2012" (Athitakis 15.6.2012 [20]).

1. I do not consider that the evidence before me established a serious question to be tried as to whether any such breach (if it were established) brought about a material delay in applications being made to, or processed by, lenders. The Defendants did not lead evidence of when such applications were made or of their consideration by lenders. The finance proposals and indicative letters of offers made by lenders which were in evidence before me were not issued until, at the earliest, 7 May 2012 (some 6 weeks after the Receivers gave further notices of retirement following the orders made on 26 March 2012) and the majority of those proposals and indicative letters of offer were issued in late May and early June 2012. The Defendants' submissions also indicated that they "require additional time of about 10 weeks to complete the refinance" of the Bank's loan facilities, and that requirement is much longer than the suggested delay in the notification given by the Receivers.

1. I should note that a letter dated 11 June 2012 from a finance broker, DYA Finance, was in evidence (although the Defendants did not place particular weight on it in submissions) which stated that:

"We note that you have approached us in March 2012 but due to notices relating to the receivership termination not being complied with as we understand by the Arab Bank Australia Ltd and their retired receivers, we were unable to approach or progress your application for finance at the time since it appeared that the receivers had failed to provide adequate notices of their retirement ... as in the absence of those notices an application for finance would have shown from the government bodies and authorities records and searches such as Veda that prospective lenders may search or seek information from that you still have receivers appointed and that would have made such application unfavourable." (Ex D2 p41)

I have had regard to that statement in reaching the conclusion to which I have referred above. However, that statement appears to assume a non-compliance by the Receivers which, as I have noted, is not self-evident; it does not recognise that the statutory notices of retirement by the Receivers and the notices to tenants were in fact given following the 8 March Orders; and it provides no explanation of what had occurred after 26 March 2012 when further notifications of retirement were given by the Receivers.

Stay on the basis of ability to refinance

1. The Defendants contend that the Court may grant relief where a plaintiff claims that it can redeem a mortgage within a fairly short time by carrying out a refinancing proposal which is reasonable on its face or where the plaintiff has a demonstrable capacity to secure or at least refinance the mortgage debt. Conversely, the Plaintiffs contend that any stay should only be ordered on a basis requiring the Defendants pay into Court or otherwise secure the debt secured by the mortgages and that the Defendants did not come within any of the exceptions to the "usual practice" recognised in Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39 at [58], [66].

1. On the one hand, in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 169, Barwick CJ (with whom Menzies and Gibbs JJ agreed) referred to a general rule that a mortgagee should not be restrained from exercising its rights under the mortgage, failing payment into Court of the amount sworn by the mortgagee to be due and owing under the mortgage. On the other hand, as the Defendants point out, there are cases where a mortgagee has not been required to pay money into Court where a mortgagee claims he can redeem the mortgage within a fairly short time by carrying out a refinancing proposal that is reasonable on its face, or has a demonstrable capacity to secure or refinance the mortgage debt: Parist Holdings Pty Ltd v Perpetual Nominees Ltd [2006] NSWSC 599 at [16]-[21]. The correctness of that approach was left open in Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd above at [58].

1. Even if the approach adopted in Parist Holdings Pty Ltd v Perpetual Nominees Ltd were applicable in these circumstances, I am not satisfied that either element referred to in that case is satisfied. I do not consider that the 10 weeks which Webuildem contends it requires to complete a refinancing of the Bank's loan facilities could be characterised as a "fairly short time", particularly where the existing facilities offered by the Bank terminated in August 2011 and that 10 weeks is in addition to the time already permitted for a refinancing under the Settlement Terms.

1. I also do not consider that it has been shown that the Defendants have a demonstrable capacity to secure or refinance the relevant debt. It appears to have been seeking to refinance the loans made by the Bank over a long period. In an affidavit of Mr Rebek affirmed 6 December 2011, which was read by the Defendants in the proceedings, Mr Rebek indicated that Webuildem and the guarantors were "currently obtaining loan offers from other lenders to refinance" from the Bank and exhibited an indicative offer dated 1 December 2011 from a finance arranger. (I refer to a further indicative offer from the same arranger dated 30 May 2012 below). Mr Rebek also then gave evidence that:

"It is also anticipated that an offer from other lenders including Norwest Commercial and National Australia Bank Ltd will be obtained within the next two weeks."

1. The various finance proposals and indicative letters of offer which were in evidence before me were highly conditional in character; for varying amounts, some of which were significantly less than the amount due to the bank under the Settlement Terms; and typically subject to valuations of the properties, and no evidence was led before me that those valuations were likely to meet the lenders' requirements. For example:

• A letter dated 7 May 2012 from Bendigo Bank refers to a facility of $6.175m and states that the terms and conditions are "indicative only" and "should not be construed as an offer of finance, nor should the contents be deemed binding on the Bank". There is no evidence as to any subsequent progress with this application.

• A letter dated 30 May 2012 from Global Capital Commercial refers to a loan amount of $23.19m (but not to exceed 60-65% of the market value of the secured properties as assessed by a panel valuer) and indicates that Global Capital Commercial would be pleased to "consider this proposal" subject to terms and conditions which include a valuation report being prepared and indicative approval conditions including an acceptable valuation; a statement from the accountant confirming that the loan facility would be within the borrowers' ability to service and would not cause undue hardship; evidence of serviceability and a clear exit strategy; and as required by the lender. That document makes clear that it is not a binding agreement for a loan and that Global Capital Commercial reserves the right to decline to proceed with the matter.

• A letter dated 4 June 2011 from Bank of Queensland Limited refers to a facility of $4 million and is described as an "indicative letter only"; notes that any offer to provide finance is subject to a detailed assessment and formal credit approval of the proposal by the bank; and sets out a series of likely approval conditions. A second letter dated 7 June 2012 from Bank of Queensland refers to a second facility of $8.4 million and is subject to the same matters.

• A letter dated 6 June 2012 from First Class Mortgages refers to a facility of $25 million and is subject to conditions including acceptable valuations with the loan to value ratio not to exceed 60% and guarantees by various entities.

• A letter dated 11 June 2012 from DYA Finance confirms receipt of an application for finance for $26.5 million "sought by you" and notes that valuations will need to be confirmed by prospective lenders' valuers and notes that:

"your applications are mainly to purchase the 18 apartments and townhouses at Mortlake rather than refinancing the Webuildem's loans from the Arab Bank Australia Ltd, as we understand that this course of action may be considered more favourable by prospective lenders however, as discussed you have the issue of stamp duty implication that you have to deal with and pay for too."

That letter also refers to loan proposals from five lenders for amounts between $1.5 million and $10 million for a total of $26.5 million but does not make clear whether all of those proposals could be taken up together, where they may need to be secured over the same properties.

1. I am not satisfied on the evidence that either a refinancing could be completed within a reasonably short time or that the Defendants have a demonstrable capacity to refinance the debt owed to the Bank so as to support a stay on the approach adopted in Parist Holdings. There is no suggestion in this case that there would be any utility in staying the orders on terms which required the payment of the monies into Court or that the Defendants would have any capacity to comply with such a condition. The evidence as to the time which they require for a refinancing is to the contrary. The Defendants did not suggest before me that they sought a stay subject to such a condition.

Quantification of interest by the Bank

1. A third basis put for the stay, raised in written submissions, was that the Bank had misrepresented the pay-out figure for the loans when the Settlement Terms were agreed by overcharging interest on those loans. I do not understand the Defendants to have relied on this matter in oral submissions, but I should record my findings as to this matter in case I am wrong in that understanding.

1. For reasons which I explained in an ex tempore judgment in the course of the hearing, I did not permit the Defendants to rely on an expert report which calculated the amount of interest which would have been payable on a "prompt payment basis", in circumstances where their reliance on that report would have prejudiced the Bank by placing it in the position of either being unable to lead evidence in response to that report or requiring an adjournment which would delay the determination of the application and leave it unable to appoint a receiver over the properties for a longer period. I do not think it is necessary or appropriate for me to determine, in this application, whether the Defendants could have established the allegation of misrepresentation or reliance in order to make good a misrepresentation case at a final hearing.

1. In my view, the more fundamental difficulty with the stay application, so far as it is directed to preserving a right to set aside the Escrow Orders for misrepresentation, is that rescission for misrepresentation generally requires that "restitutio in integrum is substantially possible" and that "rescission is timely and just and fair": Senanayake v Cheng [1966] AC 63 at 83; Alati v Kruger (1955) 94 CLR 216; Land Enviro Corp Pty Ltd v HTT Huntley Pty Ltd [2012] NSWSC 382 at [212]-[214]; N C Seddon and M P Ellinghaus, Cheshire and Fifoot's Law of Contract, 9th Australian ed, LexisNexis Buterworths, 2008 at [11.53]. In Land Enviro Corp, Stevenson J noted at [214] that:

"Where the parties cannot be returned, substantially, to their pre-contractual position, restitutio in integrum is not possible and a purported rescission will be invalid, notwithstanding what would otherwise have been the representee's right to rescind."

1. The Defendants made no offer to restore the Bank to, and it is difficult to see how the Bank could be restored to, the position it would have been in had it not removed the Receivers more than three months ago and been able to proceed to sell the secured properties in that period and had not allowed the further period for refinancing permitted to the Defendants under the Settlement Terms. I also do not consider that the Defendants have any realistic prospect of establishing that rescission is timely, just or fair where it was not sought until after the Defendants had obtained the full benefit and the Bank had suffered any detriment arising from the extension of time for refinancing permitted under the Settlement Terms and the 8 March Orders.

1. I therefore do not consider that a seriously arguable case for rescission could be established, even if the alleged misrepresentation and reliance by the Defendants could be established. I do not consider that it is in the interests of justice to order a stay of the Escrow Orders so as to preserve the claim for rescission. Any claim for damages for misrepresentation available to the Defendants will not be prejudiced by the entry of the Escrow Orders.

Duress

1. A fourth basis for the stay application was that the Settlement Terms and 8 March Orders were obtained under duress, when the Defendants were "directed" to sign the Settlement Terms by their then Senior Counsel, contrary to the advice of their solicitor who had refused to sign the Settlement Terms.

1. The Defendants' contention that the Settlement Terms were the product of duress depends upon allegations as to the conduct of Senior Counsel who represented them at the hearing on 7 March 2012. The test to be applied to determine whether a basis for relief in equity for duress is established was expressed by McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 45-46, where his Honour observed that the proper approach is to ask:

"whether pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed."

1. The affidavits filed by the Defendants set out several conversations which, if they were accepted at a final hearing, would indicate that Senior Counsel retained by the Defendants at the hearing on 7 March had initiated settlement discussions between Counsel without instructions; was largely or wholly not successful on obtaining concessions beyond the retirement of the Receivers and the extension of the time for refinancing from the Bank; and strongly urged the Defendants to accept the settlement which the Bank was prepared to offer on 7 March rather than deferring a decision whether to do so. Those affidavits also include more generalised evidence in this regard. For example:

• Mr Rebek's evidence in his affidavit affirmed 12 June 2012 was that the Defendants had been "directed" to sign the Settlement Terms by their Senior Counsel and that he had "directed us sign those terms of settlement under duress and contrary to our instructing solicitor's [sic] advice" and that the Defendants' solicitor had advised the Defendants against signing the Settlement Terms (Rebek 12.6.2012 [14]). Mr Rebek also gave evidence of his belief that the Settlement Terms were unfavourable to the Defendants. Mr Rebek also gave evidence of Senior Counsel's "conduct in directing us to sign the terms of settlement and prejudicially committing our camp to unfavourable and prejudicial terms" (Rebek 12.6.12 [25]). Mr Rebek's evidence was also that he "was directed" by Senior Counsel in his personal capacity as was Ms Athitakis in her personal capacity to sign the Settlement Terms although they were not parties to the Court proceedings (Rebek 12.6.12 [27]). (I note that Mr Rebek and Ms Athitakis in fact appear to have signed the Settlement Terms in their capacity as directors of Webuildem).

• Ms Athitakis also gives evidence, in her affidavit affirmed on 15 June 2012, that Senior Counsel "directed everyone to sign" the Settlement Terms and that, although she was not party to the proceedings in her personal capacity, Senior Counsel "directed her to sign it in her personal capacity" (Athitakis 15.6.2012 [10]). (As I have noted above in respect of Mr Rebek's similar evidence, it appears that Ms Athitakis signed the Settlement Terms in her capacity as a director of Webuildem). Ms Athitakis also gives evidence of Mr George Maroun Rahme signing the Settlement Terms on behalf of Mrs Nouha Rahme "as directed" by Senior Counsel (Athitakis [15.6.12 [10]).

• Mr George Rahme's affidavit affirmed 15 June 2012 also refers to Senior Counsel having "directed us to sign the document" (Rahme 15.6.2012 [13]) and refers to Senior Counsel having "directed us to sign" the Settlement Terms and to his having signed the Settlement Terms "as directed by Senior Counsel" (Rahme 15.6.2012 [14]).

1. It is not necessary for me to reach a final view as to whether duress could be established, as between the Defendants and their former Senior Counsel, for the purposes of this application for reasons which I will note below. However, that question would have to be determined in the context that experienced legal advisers will from time to time be less optimistic than their clients as to the prospects of a case and may need to communicate that view strongly in order to be heard at all. I see considerable force in the observation of Sweeney and Heerey JJ in the Full Court of the Federal Court in Tresize v National Australia Bank Ltd (1994) 50 FCR 134 that:

"It is a hard fact of the adversary system that often an offer is made which objectively might be a reasonable assessment of the prospects of success of a plaintiff's claim but is bitterly disappointing to the plaintiff. It is also not uncommon for a plaintiff's legal representatives to advise the plaintiff in very strong terms that an offer should be accepted. That advice may be distasteful and upsetting to the plaintiff and in a sense may amount to pressure. The defendant making the offer may expect it to be likely that such "pressure" will take place. If, as in the present case, the offer is a tiny fraction of what the claim seeks, the defendant's legal advisers may sometimes expect that competent advisers for the plaintiff may take the same pessimistic view and advise their client accordingly, and in strong terms. But all that in itself is in no way improper and affords no basis for setting aside a settlement."

1. The affidavit evidence led in the Defendants' case also indicates that the Defendants' solicitor, Mr Elias, had advised the Defendants against entering the Settlement Terms which, they contend, Senior Counsel had "directed" them to enter. Ms Athitakis' evidence in her affidavit affirmed 15 June 2012 is that Mr Elias advised Senior Counsel in her presence that "there is no benefits to our clients in such a proposed settlement" and that signature of the Settlement Terms would be "contrary to my advice". Mr Rahme also gives evidence of advice by Mr Elias to the Defendants not to sign the Settlement Terms. The fact that the Defendants had executed the Settlement Terms contrary to advice from their solicitor is, in my view, at least equally consistent with a rational decision to enter the Settlement Terms having regard to the prevailing commercial circumstances, as with a claim for duress.

1. The Defendants did not call Senior Counsel to give evidence nor did they consent to the Plaintiffs' request for permission to speak to Senior Counsel or to waive legal professional privilege so that the Plaintiffs could do so. The Defendants also did not lead evidence from their solicitor, who was present in Court throughout the hearing and has carriage of the conduct of the application, although he was present on the occasions on which Senior Counsel is said to have "directed" the Defendants to execute the Settlement Terms.

1. I have considered whether a Jones v Dunkel ([1959] HCA 8; (1959) 101 CLR 298) inference should be drawn that the evidence of the Defendants' former Senior Counsel and their solicitor would not assist the Defendants as to any relevant matter. In Fabre v Arenales (1992) 27 NSWLR 437 at 449-450, Mahoney JA (with whom Priestley and Sheller JJA concurred) observed that the significance to be attributed to the fact that a witness did not give evidence depended upon whether it was to be inferred that the reason the witness was not called was because the party expected to call him feared to do so, and that such an inference would not be available or would be of little significance if the reason why the witness was not called had no relevant relationship with the fact in issue and was, for example, because the witness had a reason for refusing to assist and the party who might call him was aware of this. J D Heydon, Cross on Evidence, 8th Australian ed, LexisNexis's Butterworths 2010 observes that the rule has no application if the failure is explained by a reasonable explanation for not compelling the witness's attendance by subpoena.

1. On balance, I do not think it would be appropriate to draw a Jones v Dunkel inference from the fact that the Defendants' former Senior Counsel and their solicitor were not called in this application. Plainly, there would be some practical difficulty for the Defendants in calling their former Senior Counsel given the nature of the allegations they put against him (although this was not a reason not to consent to the Plaintiffs doing so) and there would also have been practical difficulties in calling their solicitor where he has carriage of the matter. At least in an interlocutory application, I accept that these matters may provide sufficient reason not to draw a Jones v Dunkel inference. In any event, it is not necessary for me to draw such an inference in order to decide this application, for reasons that I set out below.

1. The subsequent conduct of the Defendants, in relying on the Settlement Terms and on the 8 March Orders and demanding that the Bank give the notifications as to retirement of the Receivers that the Defendants contended should be given by reason of the Settlement Terms and those orders, would also create a significant difficulty for the allegation that the Defendants had entered the relevant arrangements under duress. For example, the Defendants' solicitor variously wrote to the Bank's solicitors stating that:

"Your clients were required to provide all notifications pursuant to the Court Orders made on 26 March 2012, by 27 March 2012. We did not receive them and therefore your clients are in breach of the Court Orders. Our clients reserve their rights." (Email dated 28 March 2012)

"We confirm that your clients have failed to perform a list of all the rents collected by them by 5:00pm on 27 March 2012 as per Court orders made on 26 March 2012. Therefore, your clients are in clear breach of Court Order No. 5. Our clients reserve their rights in relation to the continuous and unexplained breaches of the Court orders made by your clients. Your clients are reminded of their obligations to comply with Court orders as failure to do so amounts to contempt of Court." (Email dated 28 March 2012)

"[y]our clients breached the Court orders. Our clients reserve their rights in the matter including but not limited to making any applications to Court in the future seeking appropriate relief as a result of the continuous breaches by your clients of the orders made on 8 and 26 March 2012." (Email dated 29 March 2012)

There is also no suggestion in the email dated 6 June 2012 from the Defendants' solicitor (seeking an extension for the time for refinancing of the facilities) that the 8 March Orders were based on Settlement Terms entered under duress; to the contrary, the 8 March Orders are treated in that email as binding and complaint is again made as to the suggested failure to comply with them in respect of notice of the Receivers' retirement.

1. In any event, it seems to me that there is a fundamental difficulty with the Defendants' claim that the Settlement Terms and Escrow Orders should be set aside for duress, which has the result that no serious case to be tried is established. An agreement compromising litigation formed by counsel for a party within his actual and apparent authority would not be set aside by the Court where the other party had no actual knowledge of facts indicating undue influence on the part of counsel or of facts that should have put that other party on inquiry: Tresize v National Australia Bank Ltd above at 145-147. In the present case, there is no evidence that the Plaintiffs knew or believed that the Defendants had entered the agreements under duress or were put on inquiry as to that matter. The evidence of the Bank's representatives is that they were not aware of that matter. Nothing about the Settlement Terms suggested that the Defendants' decision to enter them could only be the product of duress exerted by Senior Counsel, where they delivered apparent benefits to the Defendants in removing the Receivers and allowing additional time for refinancing.

1. I should add that Mr Coles QC, who appears for the Defendants, contends that it is not surprising that the Defendants do not have evidence that the Plaintiffs were aware of these matters where the Defendants have not yet had discovery as to these issues in final proceedings. However, this contention has the difficulty that, where the Defendants do not presently have evidence which would allow them to allege that the Bank was aware of, or on notice of, any inappropriate pressure applied by the Defendants' former Senior Counsel to the Defendants, they are not likely to be permitted discovery as to an allegation they have not advanced. More widely, the Court should not accept a proposition that, whenever a party contends that its legal advisers "pressured" it to enter a settlement, and notwithstanding that party does not then have any basis to suggest that the other party was on notice of that matter, that settlement should be stayed until further order because such evidence might turn up on discovery in future proceedings to set aside the settlement. That approach would, in my view, be wholly inconsistent with the public interest in the settlement of litigation and with the overriding objective of the just, quick and cheap resolution of the matters in dispute identified in s 56 of the Civil Procedure Act.

1. Accordingly, the Defendants have not established a serious question to be tried that the Settlement Terms or Escrow Orders are liable to be set aside for duress and it would not be in the interests of justice to order a stay of the Escrow Orders on that basis.

Claim that the Settlement Terms were not authorised by Maroun and Mrs Rahme

1. A fifth basis for the stay application was that Maroun and Mrs Nouha Rahme did not authorise entry into the Settlement Terms, notwithstanding that Senior Counsel for the Defendants signed the Settlement Terms and Mr George Rahme also signed the Settlement Terms on behalf of Maroun and purportedly for his wife, Mrs Nouha Rahme. The Defendants led evidence that Mr Rahme did not telephone Mrs Rahme before signing the Settlement Terms on her behalf and the board of Maroun (which is comprised of Mr Rahme and Mrs Rahme) has not passed a resolution to approve the Maroun's entry into the Settlement Terms.

1. The Defendants contended that the Settlement Terms should be construed on the basis that the objective intention of the parties was that the Settlement Terms would only be binding on any party if they were validly executed by all the parties. I consider that this is a proper matter in which to determine that question of construction, in order to determine whether a seriously arguable case to support the stay is established, consistent with the Court's approach to applications for interlocutory injunctions which raise questions of law: Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 at 549. The Courts have adopted a similar approach in applications for orders for withdrawal of a caveat which are in the nature of applications for interlocutory injunctions, where the Court will ordinarily determine any questions of law arising between the parties provided that the factual matrix for the determination is present and there has been sufficient time for the parties to make proper submissions as to the question (Venios v Machon (1986) 3 BCL 171 at 175; Police and Nurses Credit Society Ltd v Weber [2003] WASC 45 at [54]) and in respect of statutory demands (Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 at [384]; Re Seduce Group Australia Pty Ltd [2011] NSWSC 290 at [27]ff).

1. The Settlement Terms must be read in a way that will result in a sensible and business-like meaning: Australasian Broadcasting Commission v Australian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109. Attention must be given to the language used by the parties and the commercial circumstances which the document addresses and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at 589 [22]. In Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22] the High Court noted that:

"The construction of commercial contracts is to be determined by what a reasonable person in the position of [the contracting party] would have understood them to mean (Gissing v Gissing [1971] AC 886 at 906; Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441 at 502; ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540). That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to the parties, and the purpose and object of the transaction (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; [1998] 1 All ER 98.) In Codelfa Construction Pty Ltd v State Rail Authority of NSW ((1982) 149 CLR 337 at 350. See further Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436 at 445 [39]; 186 ALR 289 at 301) ..."

1. I do not accept the Defendants' construction of the Settlement Terms. In my view, on their proper construction, the Settlement Terms bound the parties when the legal representatives for the parties signed them having appropriate authority to do so, irrespective of the execution of the Settlement Terms by any other party. The reasons why the Settlement Terms should be construed in that manner include that:

• The solicitors for the Plaintiffs and Senior Counsel for the Defendants in fact signed them and the only reason for them to have done so was to bind their respective clients to them in the manner recognised by the authorities to which I refer below. If they were not signing the Settlement Terms for that purpose, then there would be no reason for them to sign the Settlement Terms at all.

• There would be no reason to think that the corporate entities which were party to the Settlement Terms (including the Bank) would have undertaken formal processes to authorise execution of the final version of the Settlement Terms before it occurred, when those terms had only been agreed in the course of negotiations that day, and the parties cannot have objectively intended that the Settlement Terms would not be effective if a corporate party failed to obtain such authority at some future date, after they had already been acted upon by the making of the 8 March Orders and the Escrow Orders.

• On the other hand, there was reason for the individual parties to execute the Settlement Terms, notwithstanding that the signatures of the legal representatives were sufficient to give legal effect to the Settlement Terms, since an individual party's execution of those Settlement Terms would provide a further basis for their enforcement against that party, in addition to that arising from the legal representatives' actual and implied authority.

1. The Defendants did not, in terms, contest the authority of their former Senior Counsel to sign the Settlement Terms on behalf of Maroun and Mrs Rahme, and they contended that issue did not arise. It is necessary for me to determine that issue given that I have found that, as a matter of construction, the Settlement Terms would be binding on the parties if signed by their respective legal representatives with appropriate authority. A legal representative conducting litigation ordinarily has implied and ostensible authority to bind his client to a compromise of the proceedings and an instruction from the client which restricts his or her ability to do so will only affect another party who is on notice of the restriction: Harvey v Phillips [1956] HCA 27; (1956) 95 CLR 235; Donellan v Watson (1990) 21 NSWLR 335 at 342. There is no suggestion on the evidence that the Plaintiffs were on notice of any restriction as to the implied and ostensible authority of the Defendants' Senior Counsel and they are not bound by such a restriction absent notice of it.

1. I therefore do not accept the contention that the Settlement Terms are not binding on Maroun or Mrs Rahme and that contention does not support a stay of the Escrow Orders. Given the findings which I have reached above, it is not necessary to decide the further question whether, if the execution of the Settlement Terms by Senior Counsel was not binding on Maroun and Mrs Rahme, that would have had the result that the Settlement Terms were not binding on the other parties to them as a matter of their objective construction.

Other matters

1. The Defendants' written submissions also relied on Uniform Civil Procedure Rules 2005 (NSW) r 36.15(1) which allows the Court to set aside an order, on sufficient cause being shown, if the order was made irregularly, illegally or against good faith, and on r 36.16(2)(b) which allows the Court to set aside an order made in the absence of a party. Where an order is made by consent but in a party's absence, the same principles are to be applied in determining whether the order should be set aside under the latter rule as would be applied if a consent order had been made in a party's presence: Singh v Ginelle Pty Ltd [2010] NSWCA 310 at [39]. I do not understand these rules to have any relevant application, where the Defendants' application to set aside the Settlement Terms was not pressed on a final basis.

1. The Bank sought to tender a certificate of debt ("Certificate") under clause 31 of the memorandum referred to in relevant mortgages which stated that the amount payable by Webuildem to the Bank was $23,428,337.71 (MFI1). That clause provides that:

We may give you a certificate about a matter or about an amount payable in connection with this mortgage. The certificate is sufficient evidence of the matter or amount, unless it is proved to be incorrect.

1. The Defendants objected to the tender of the Certificate, without prior notice to them, on the basis that it would be unfairly prejudicial to them. In Mobile Innovations Ltd v Vodafone Pacific Ltd [2003] NSWSC 309, Einstein J provided a comprehensive summary of the issues in respect of the late service of affidavits. His Honour's decision was given after the introduction of the requirement for the just, quick and cheap resolution of the real issues requirement in the Supreme Court Rules 1970 (NSW) although prior to the introduction of ss 56-59 of the Civil Procedure Act. His Honour pointed to the need for "fundamental forensic fairness" and that parties should be permitted to reach forensic decisions in an informed fashion. I respectfully adopt his Honour's observations.

1. On balance, I would not permit the tender of the Certificate where the Plaintiffs' intention to rely on it had not previously been communicated to the Defendants. It seems to me that there would be unfairness to the Defendants in permitting the Plaintiffs to rely on the Certificate as sufficient evidence of the amount due, where the Defendants were not previously informed of their intention to do so, so as to allow the Defendants a reasonable opportunity to consider whether they had led all necessary evidence to seek to prove that the Certificate was incorrect. I do not think this difficulty is sufficiently mitigated by the fact that, as the Plaintiffs point out, the amount in the Certificate is the same as that in the other evidence on which the Plaintiffs rely. In any event, I would not have found that the presumption under the Certificate arose in this case, since there was no evidence that it had been given to Webuildem as clause 31 required prior to being tendered in the proceedings.

1. The Interlocutory Process also sought orders that the correct pay-out figure to which the Bank may be entitled be determined by the Court; the amount of interest payable under the Bank's mortgage be heard and determined by the Court and that the Defendants file and serve such Statement of Claim as may be necessary. In my view, any such orders would preferably be made in any separate proceedings that may be commenced by the Defendants seeking to set aside the Settlement Terms on a final basis. The approach that such relief should be sought as final relief in separate proceedings, rather than by an interlocutory process in the original proceedings, is consistent with the authorities: Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 at 701, where Handley JA noted the practical wisdom of that approach as allowing a proper pleading of the matters to be established; Singh v Ginelle Pty Ltd above per Campbell JA at [63]-[64].

Orders and costs

1. Subject to hearing the Defendants as to whether a short stay is sought to preserve their opportunity to bring an appeal against my judgment, I will order that the Interlocutory Process be dismissed, and release the Plaintiffs from the undertakings given not to enter the Escrow Orders (to the extent that such a release may be necessary).

1. In the ordinary course, costs should follow the event and the Defendants should pay the Plaintiffs' costs of and incidental to the Interlocutory Process. However, I will hear the parties as to costs.

**********

Decision last updated: 27 June 2012