Scientific Management Associates (Australia) Pty Ltd v Macarthur Seniors Living Pty Ltd

[2022] NSWSC 1626

Supreme Court

New South Wales

Medium Neutral Citation:

Scientific Management Associates (Australia) Pty Ltd v Macarthur Seniors Living Pty Ltd [2022] NSWSC 1626

Hearing dates:

28 November 2022

Decision date:

28 November 2022

Jurisdiction:

Equity

Before:

Peden J

Decision:

By consent, the Court orders that:

(1) Caveat AS216078 be extended until the defendants have paid to the plaintiff all money owing under the Loan.

(2) First defendant has liberty to apply in relation to the Caveat, should any refinance be sought.

The Court otherwise orders that:

(1) Judgment for $1,442,161.88 against the defendants.

(2) Interest at the rate of 6% from 15 May 2018 until payment of the judgment sum.

(3) Defendants to pay plaintiff’s costs of the proceedings on an indemnity basis.

Catchwords:

CONTRACT — Construction of loan agreement — Where vendor provided vendor finance — Where the precise loaned sum was disputed by the parties — Whether there was an event of default upon the appointment of receivers and managers enlivening termination of the loan and requiring payment — Where there was event of default

Cases Cited:

Westpac Banking Corporation v Diagne [2014] NSWSC 822

Category:

Principal judgment

Parties:

Scientific Management Associates (Australia) Pty Ltd (Plaintiff)
Macarthur Seniors Living Pty Ltd (First Defendant)
Karen Vee Walker (Second Defendant)

Representation:

Counsel:
C D Freeman (Plaintiff)
P J Beazley, solicitor (Defendants)

Solicitors:
Deutsch Miller (Plaintiff)
Beazley Lawyers (Defendants)

File Number(s):

2021/00348195

Publication restriction:

Nil

Judgment

1. In mid-2018, the plaintiff, Scientific Management Associates (Australia) Pty Ltd (SMAA), sold a property at Pymble, New South Wales, as contained in Certificate of Title Folio Identifier 4/SP79806 (Property), to the first defendant, Macarthur Seniors Living Pty Ltd (MSL). The price stipulated in the executed contract for the sale of land was $2,700,000.

2. MSL was not going to have sufficient funds to complete the purchase, and SMAA agreed to loan MSL money by way of vendor finance pursuant to an executed Loan Agreement (Loan). The second defendant, Karen Walker, a director of MSL, guaranteed MSL’s obligations pursuant to a deed of guarantee (Guarantee).

3. Currently, SMAA has a caveat on the title of the Property. SMAA has brought these proceedings to:

1. require repayment of the money it said it “advanced” or loaned to MSL in the sum of $1,442,161.88, plus interest and costs;

2. extend the operation of its caveat until that money is paid; and

3. enforce Ms Walker’s guarantee for the same sum.

4. The defendants have consented to the caveat remaining on title, so long as it does not prejudice MSL’s right to seek to re-finance at some stage.

5. Therefore, the parties agreed that the issues to be determined are:

1. What was the amount advanced or loaned under the Loan?

2. Was the appointment of Receivers and Managers to MSL on 14 April 2021 an event of default under the Loan?

3. If yes to Issue 2, can SMAA rely on that default to issue a notice on 21 December 2021 requiring the loaned sum and all interest and costs to be repaid?

4. If yes to Issue 3, what is the amount that is due and payable by MSL to SMAA?

5. If yes to Issue 4, is Ms Walker liable as guarantor under the Guarantee, and if so, in what amount?

Factual background

6. In March 2018, the sale of the Property was discussed between Keith Snell, now deceased and the former director of SMAA, and his solicitor. The price was to be $2,500,000, with $1,200,000 of that being provided by way of vendor finance.

7. On 3 April 2018, a draft contract for sale with a sale price of $2,500,000 was forwarded to the defendants’ solicitor.

8. In April 2018, it can be inferred that Mr Snell instructed his solicitor to change the purchase price to $2,700,000 and, on 23 April 2018, an amended contract was sent to the defendants’ solicitors. MSL signed that contract and returned it on 30 April 2018.

9. The parties discussed settlement occurring on about 4 May 2018. SMAA’s mortgagee required a payout of about $1,200,000.

10. On 7 May 2018, SMAA’s solicitor sent a draft loan agreement, guarantee and executed transfer to the defendants’ solicitor. The instruction was that the Loan and Guarantee would need to be executed and provided at settlement. There is no evidence of when the Loan and Guarantee were executed, but it is accepted they were, and they bind the defendants.

11. Under the Loan, SMAA agreed to provide a defined “advance” of $1,200,000, but clause 3.3 provided:

Any further payments made or on behalf of the Lender to or for the Borrower shall be subject to this Agreement if the Lender so notifies the Borrower.

Ms Walker, as “guarantor”, was a party to the Loan.

12. Ms Walker also executed the Guarantee at the same time as the Loan. Pursuant to clauses 3.1, 3.2 and 3.3 of the Guarantee, Ms Walker promised:

3.1 In consideration for the Creditor advancing amounts or otherwise providing goods or services pursuant to the terms of the Principal Agreement [Loan] at the Guarantor’s request, the Guarantor, agrees to guarantee the Debtor’s due and punctual performance of its obligations pursuant to this Deed.

3.2 If the Debtor [MSL] fails to perform and observe the terms of the Principal Agreement the Guarantor agrees to perform the Debtor’s obligations pursuant to the Principal Agreement on demand, as directed by the Creditor [SMAA].

3.3 The Guarantor agrees to the Principal Agreement, and any facilities or arrangements thereof, being varied, extended or replaced without notice or consent from the Guarantor.

13. On 8 May 2018, the defendants’ solicitor sent a draft settlement sheet for a settlement on 9 May 2018, with a total of $2,700,287.51 due on settlement. A letter sent later that day from the defendants’ solicitor concerning a settlement on 10 May 2018 stated:

We note the loan agreement between our clients for $1.2 million.

The amount of $1,502,161.88 is payable by my client on settlement.

Please advise cheque directions.

The response provided the breakdown of cheques totalling $1,502,161.88.

14. The settlement did not occur on 10 May 2018. It was rebooked for 15 May 2018.

15. On 10 May 2018, Mr Snell told his solicitor that MSL would be “providing $1,200,000 plus another $60,000” on settlement. When asked about the shortfall in what had previously been expected, it is recorded that he instructed that, “I’ll get the loan documents all sorted out and signed after settlement. We just need to get the settlement done ASAP”.

16. On 14 May 2018, the defendants’ solicitors emailed SMAA’s solicitor, “I am instructed the cheque to your client is substantially less than that”, presumably consistently with Mr Snell’s 10 May information. New instructions were provided for cheques that totalled $1,260,000. MSL provided cheques in accordance with those instructions on settlement.

17. On 23 May 2018, the transfer was registered. It was the parties’ common position that stamp duty was paid on the sale price of $2,700,000.

18. On 24 July 2020, Mr Snell passed away.

19. On 21 December 2021, SMAA’s lawyers wrote to MSL’s lawyers giving a notice under clause 3.3 of the Loan that SMAA considered the money provided at the settlement above the $1,200,000 to make up the purchase price was taken to be part of the “advance” and therefore governed by the Loan. Further, it was said that Ms Walker was liable for MSL’s obligations to pay.

What was the amount of the “Advance” under the Loan?

20. SMAA’s case is that it provided vendor finance for $1,432,161.88, being the difference between the cheques in the sum of $1,260,000 provided by MSL and the purchase price of $2,700,000 (and adjustments taking the sum to $2,702,161.88).

21. MSL’s pleaded response was: “The defendants admits [sic] it paid the Plaintiff the sum of $1,260,000 on completion of the contract and entered into vendor finance for $1,200,000, but otherwise does not admit [that MSL received further funds]”.

22. Mr Gregory Walker’s evidence was that MSL “obtained vendor finance for the balance of the purchase price” and referenced the Loan agreement. He does not specify what he considered the “purchase price” and how much the “balance” was. However, as it is common ground that the purchase price on the stamped Contract was $2,700,000, MSL’s own evidence appears to be that there was an acceptance that the “balance” was the sum claimed by SMAA.

23. However, MSL submitted that the only amount “advanced” under the Loan and therefore payable was $1,200,000 because:

The effect of the instructions [by Mr Snell] to the solicitor for the vendor to accept a reduced amount on settlement was a variation of the contract as to the purchase price.

24. In opening, I raised with Mr Beazley that MSL had not pleaded variation, rectification or misrepresentation in relation to the Contract for sale or the Loan, and therefore those documents needed to be objectively construed on the basis that the language used was what was agreed rather than some other words.

25. MSL then made an oral application to amend the defence by adding the words “At all material times the parties intended the purchase price to be $2.5 million”. That application was opposed.

26. I refused the application because:

1. It was brought on the first day of a hearing that was set down in early October 2022 with an estimate of 2 hours.

2. There was no evidence (whether subjective or objective) to support the amendment and certainly no evidence of a common position of the parties. The only witness for MSL, Mr Gregory Walker, did not give any evidence in his affidavit about the common position or intention of the parties prior to the formation of the agreements. Therefore, even if Mr Beazley had cross-examined SMAA’s witnesses about the late Mr Snell’s subjective understanding of the common intention, it could not be used in the process of construction. As noted above, no application was made to bring a cross-claim seeking rectification.

3. There was no evidence explaining the delay in bringing the application to amend the defence.

4. I consider it would be prejudicial to the plaintiff.

Therefore, the Court must construe the documents objectively.

27. Even if variation had been pleaded, I would not accept there had been a variation. It is clear that the parties signed the Contract for sale with an amended price, but there was no later document that evidenced that the price was reduced.

28. The parties’ common position was that stamp duty was paid on a purchase price of $2,700,000. That is inconsistent with MSL’s case that the purchase price was amended downwards. On MSL’s case it would need to be submitted that the price was amended to $2,460,000, being the total of the separate sums of $1,260,000 in the cheques and $1,200,000 by way of advance. However, there is also no evidence that such a sum was ever in the objective contemplation of the parties and no submission to that effect was made.

29. Further, Mr Snell’s instruction, recorded in the file note by his solicitor, was not that the purchase price was being varied down, but that MSL would provide less at settlement and the Loan could be amended in the future to reflect that situation. That is inconsistent with an intention to reduce the purchase price; had that been the case, the Loan would not need to have been altered.

30. I do not accept MSL’s submission that the fact that the Loan was not amended is a critical flaw in SMAA’s case. Instead, I consider that, properly construed, the Loan already provided for a situation where further funds were advanced by SMAA above the defined “advance”; no amendment was required in the circumstances of SMAA making a “further payment… for the Borrower”.

31. I consider that SMAA “loaned” to MSL the “advance” of $1,200,000 together with the difference between the purchase price of $2,700,000 and the amount tendered at settlement, being $1,442,161.88.

32. I do not consider that the difference between the “Advance” and what was provided by way of vendor finance fails to satisfy clause 3.3 of the Loan because notice pursuant to that clause was not provided until 21 December 2021. In circumstances where the difference was not required at the time of settlement, but was in effect provided by SMAA, a loan or claim for money had and received could have been raised. Instead, SMAA chose to issue a notice under clause 3.3 with the effect that the further “payments” became “subject to” the Loan.

Was the appointment of Receivers and Managers to MSL on 14 April 2021 an event of default under the Loan?

33. Clause 7.1 of the Loan provides that MSL must repay the whole of the Loan by the “repayment date” being “5 years from the date of this agreement or earlier termination in accordance with this agreement”.

34. SMAA submitted that the Loan was repayable from 14 April 2021, when receivers and managers were appointed to MSL, and appointment amounted to an “event of default” within the meaning of clause 8.2(d), which in turn triggered the right in clause 8.1. Clause 8.1 provides:

If any of the events described in [clause 8.2] occurs, the Loan, together with all interest accrued on the Loan and not then paid and all other amounts payable under this Agreement and unpaid shall, at the option of the Lender, become due and payable, notwithstanding any delay in exercising or previous waiver of the right to exercise, that option by the Lender. In addition if the Lender exercises that option, the Security will become immediately enforceable.

35. Clause 8.2 relevantly provides:

Each of the following is an Event of Default:

(a) Payment Default…; or

(b) Other Default: If the borrower fails to perform or observe any of the covenants or provisions of this Agreement on the part of the Borrower to be performed or observed (other than a failure of the type contemplated by the above subclause Payment Default and (if capable of remedy) such default continues for more than thirty (30) Business Days (or such longer period as the Lender in it absolute discretion permits) after notice from the Lender requiring the Borrower to remedy the default, unless the non-performance or non-observance has been waived or excused by the Lender in writing; or

(c) Winding up…; or

(d) Receiver, etc: if a receiver or a receiver and manager or provisional liquidator of the assets or undertaking or any part of the assets or undertaking of the Borrower or any Related Body Corporate or any Guarantor is appointed.

(e) Execution …; or

(f) Insolvency Schemes…; or

(g) Administrator or inspector…

36. MSL submitted that, as a matter of construction, clause 8.2(d) was subject to clause 8.2(b) because it was a type of “other default”, and the appointment of a receiver was capable of being remedied within 30 days of a notice. Further, MSL submitted that, while receivers and managers were appointed on 14 April 2021, on 21 May 2021, they lodged a Form 507 and, on 26 May 2021, they were discharged.

37. I do not accept MSL’s construction for the following reasons.

38. Clause 8.2(d) cannot be subject to clause 8.2(b) because there is no promise in the Loan by MSL that no receiver will be appointed. The same is true for the matters in clause 8.2(c)-(g). Therefore, the appointment did not amount to a breach of any covenant in the agreement. Further, the chapeau of clause 8.2 expressly provides that each of the subparagraphs in clause 8.2 are events of default, and therefore not dependent upon each other.

39. The natural and ordinary meaning of clause 8.2(d) is that any appointment of a receiver is sufficient to trigger the right in clause 8.1. The reasons for the appointment are not necessary. It need not be a permanent appointment. The commercial sense behind such a construction is to provide the lender with broad rights to terminate and call in the debt. This is consistent with clause 8.2(g), for example, which provides for a broad-reaching event of default, including where there are events impacting on related entities or guarantors, which practically may have no impact on the Borrower’s ability to comply with the Loan terms.

40. Alternatively, MSL submitted that the natural and ordinary meaning of clause 8.2(d) using the present tense “is appointed” required an existing appointment at the time the clause 8.1 right was exercised, because of “the present tense”. I do not accept that construction. I do not consider the parties intended to limit SMAA’s rights in that way. Other subclauses in 8.2 refer to specific times for rectification of issues, but clause 8.2(d) notably does not. Therefore, the focus is merely on the appointment, rather than how long the appointment lasts.

41. Finally, it was submitted that the receiver and manager “should never have been appointed” but there was no evidence to make good that submission; no evidence was provided around the appointment.

42. I consider that, if a receiver and administrator had been appointed, then the right in clause 8.1 was triggered and it was at SMAA’s option whether to exercise that right or not.

43. On 21 December 2021, after first becoming aware of the appointment of the receivers and managers, SMAA exercised the clause 8.2 right and sought to call in the Loan together with the interest and all other amounts payable. On 1 March 2022, SMAA’s lawyers demanded payment of $1,766,944.64. I do not accept MSL’s submission that the notice was too late. This is particularly so in circumstances where clause 8.1 expressly allows SMAA to exercise the right even if there had been “delay … or previous waiver”. I also note that no waiver of the right or delay was pleaded against SMAA.

44. Clause 5 of the Loan requires MSL to pay interest at a rate of 6%, payable at the time the Loan sum is due. MSL made no submission against interest being payable on the amount found by the Court as due and payable and from the demand made in December 2021, should the Court find clause 8.2(d) was activated.

45. Clause 6 of the Loan requires MSL to provide SMAA with an indemnity against:

… all costs, losses, charges, expenses, liabilities, damages, fees and disbursements (including all reasonable legal costs on a solicitor and own client basis) paid or incurred by the Lender of or incidental to:

[…]

(b) any breach of, or default under, this Agreement or the Security by the Borrower or any Guarantor (including the fees of al professional consultants properly incurred by the Lender in consequence of or in connection with, any such breach of default);

(c) the exercise or attempted exercise of any right, power, privilege, authority or remedy of the Lender under or by virtue of this Agreement or the Security…

46. SMAA accepted that the Court retains a discretion to award costs, despite such a clause: see eg Westpac Banking Corporation v Diagne [2014] NSWSC 822 at [82] (Ball J). However, no submission was made by MSL in relation to costs. I am prepared to make an indemnity costs order.

47. Therefore, the amount due and payable under the Loan is:

1. $1,442,161.88, being the difference between the purchase price and amount provided by MSL at settlement; plus

2. interest from 15 May 2018 at 6% per annum; plus

3. indemnity costs of SMAA of enforcement and in these proceedings.

Is Ms Walker liable as guarantor?

48. Clause 8.1 of the Loan provides that on default the “Security” becomes “immediately enforceable”. The “Security” was defined as the Guarantee by Ms Walker. However, Ms Walker was not a party to the Loan.

49. However, clause 2.1 of the Guarantee required Ms Walker to guarantee the payment obligations of MSL.

50. Ms Walker did not raise any defence or make any submissions against her liability, should MSL be found liable.

51. I find Ms Walker is liable in the same amount as MSL.

Orders

52. The appropriate orders are as follows.

53. By consent, the Court orders that:

1. Caveat AS216078 be extended until the defendants have paid to the plaintiff all money owing under the Loan.

2. First defendant has liberty to apply in relation to the Caveat, should any refinance be sought.

54. The Court otherwise orders that:

1. Judgment for $1,442,161.88 against the defendants.

2. Interest at the rate of 6% from 15 May 2018 until payment of the judgment sum.

3. Defendants to pay plaintiff’s costs of the proceedings on an indemnity basis.

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Decision last updated: 28 November 2022