Skydane, P/L v Colliers Jardine (NSW) P/L
[1992] FCA 887
•30 Nov 1992
IN THE FEDERAL COURT O F AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No G 692 of 1992 ) GENERAL DIVISION
) )
BETWEEN: .-- SKYDANE PTY LIMITED
F~rst Apphcant DETATO PTY LIMITED
Second Appl~ant
AND: COLLIERS JARDINE (NSW PTYLIMITED
F m t Respondent
TRICONTINENTAL CORPORATION
LIMITED
Second Respondent
ROBERT STANLEY FURBY MARTIN RUSSELL BROWN
Third Respondents
SPHC OPERATIONS PTY LIMITED
m. Dav~es 1 Date: 30 November 1992 Place Sydney
NOTE: Settlement and entry of orders 1s dealt with in Order 36 of the Federal Court Rules.
MINUTES O F ORDERS
THE COURT ORDERS THAT:
Counsel for the partles should bnng in mthm 7 days minutes of the orders which they propose
IN THE FEDERAL COURT OF AUSTRALIA 1 NEW SOUTH WALES DISTRICT REGISTRY ) No G 692 of 1992
)GENERAL DMSION
1 1
BETWEEN: SKYDANE PTY LIMITED First Applicant
DETATO PTY LUlITED
Second Applicant
-. AND- COLLIERS JARDINE (NSW) PTY
LIMITED
First Respondent
T R I C O N T I N E N T A L
CORPORATION LIMITED
Second Respondent
ROBERT STANLEY FURBY MARTIN RUSSELL BROWN
Third Respondents
SPHC OPERATIONS PTY LIMITED
Fourth Respondent
( I 1 , 1 !,. I .
, \ . ) 'A,.,., l , * ' ' . , ,... - \ , ,/.L \ _ , Coram: , " davies J. . .
,Date: - 30 November 1992 U: Sydney
REASONS FOR JUDGMENT
This is an application for an interlocutory injunction restraining the sale of the
freehold of the Parkroyal Hotel at Darhg Harbour. Add~tionally, certain issues have been set aside for determination separately from the remaining issues in the proceedings.
The first applicant, Skydane Pty Limited ('5kydaneW), is the owner of the newly
completed Parkroyal Hotel. Detato Pty L h t e d ("Detato") is a wholly owned subsidiary of Skydane. Mr R. Conti Q.C. and Mr D.P. Robinson of counsel appear for Skydane and Detato.
Colliers Jardine (NSW) Pty Limited ("Colliers") is prominent Sydney real estate and buslness agent which IS handling the sale of the Parkroyal Hotel. Tricontinental Corporation Lirn~ted ('Tncontlnental") a a financler. Tncontinental financed the construction of the Parkroyal and certaln other ventures in which Detato was involved. Tncontlnental holds a charge over the assets of Skydane and a mortgage over the freehold of the Parkroyal. Robert Stanley Furby and Martin Russell Brown, recelvers
appointed by Tricontinental over the assets of Skydane, have instructed Colliers to sell
Tricontinental and the recelvers. the freehold of the Parkroyal. Mr B.W. Walker of counsel appears for Colliers, SPHC Operations Pty Llrnited ("SPHC') carrles on buslness as an hotel operator
and holds the lease of the Parkroyal. SPHC d ~ d not appear in this interlocutory proceeding. On 12 May 1989, Skydane granted to Tricontinental a mortgage under the &a!
Pro~e- Act 1900 (NSW) over the freehold of the Parkroyal Hotel. On the same day,
it granted to Tricontinental a fixed and floating charge over the present and future
undertaking and property of Skydane. The terms of the charge and of the mortgage
were in relevant respects similar. The mortgage provided, inter a1ia:- Clause 1.1:- "Secwed Money" mean "all moneys ... which now or in the future are omng (whether actually or
contmgently) or due for payment, by the Mortgagor to the Mortgagee ...".
Clause 6.1:-
"(a) The Mortgagor shall pay interest on that part of the Secured Moneys which IS for the time belng actually owng by the Mortgagor to the Mortgagee.
(B) lnterest shall be pald in accordance w t h any agreement requiring interest to be paid
on the Secured Moneys and in the absence of any agreement requlnng lnterest to be pald
on any part of the Secured Moneys.
(I) the applicable lntcrest rate will be that determrned from trme to trme by
the Mortgagee, and
(iu) interest wll.
(A) accrue from day to day. (B)
to be computed from and lncludlng the day when the moneys upon whlch lnterest is payable become omng to the Mortgagee by the Mortgagor untll but excluding the day of payment of those moneys, and
(C) be calculated on the actual number of days elapsed on the basls of a
lhree hundred and suty-five (365) day year.'
Clause 7.4(b):-
T h e Mortgagor shall glve to the Mortgagee
(B) of Default full m t t e n particulars of 11 and of the actton taken upon the happening of an Event of Default or a Potential Event or proposed to be taken by the Mortgagor to remedy it;'
Clause 9:-
'Each of the foUowng IS an event of default (whether or not caused by
anything oulside the control of the Mortgagor):the Mortgagor does not pay the Secured Money m accordance
(a) with this document; the Mortgagor falls to observe or perform any of lls other
(c) obhgauons under this document and if that default IS capable of rectlficauor
tt IS not rectltied anthm five (S) Busmess Days (or such
(1) other longer penod as the Mortgagee allows), of IS
occurrence;(U)
the Mortgagor does not dunng that period takeall action which m the opinlon of the Mortgagee IS necessary or desirable to expediuously remedy that default;
(h) default m relatlon to the Mortgagor under any other agreement an event occurs wh~ch 1s deemed to be or defined as an event of or instrument to whlch the Mortgagor IS a party or has sunilar consequences to a default by the Mortgagor under that agreement or instrument "
Clause IO.l(c):-
T h e Mortgagor may at any tlme after an Event of Default has occurred
do any or all of the lollomng (c) sell the Secured Property in any manner and upon any terms
and mndlt~ons and. mthout Ilmltat~on, any sale may be:
(i) by pnvate treaty, publlc auctlon, tender or otherwise, (il) together wlth the sale of any other property by any other person; (ui) upon terms whereby:
(A) the purchaser IS allowed tlme to pay the whole or any part of
the purchase price e~ther with or without interest and e~ther
w~th or anthout security, (B)
any r~ghts over the Secured Property are reserved or granted, (C) Australian Dollars or conslsu of someUung other than money; the consideration is expressed in a currency other that and (D) the purchase price. or other mnsideratlon is payable by mstalmenls,
and the Mortgagee may rescind or o t h e m e deal wth the contract for sale;
(h)(i) appolnt m writing any one or more persons to be a recelver or rtxetver and manager of the Secured Property.).
There was a thud agreement of 12 May 1989 between Skydane and Tricontinental
wh~ch was entitled "Performance Bond Agreement". In that agreemen& the "Obligor" was Skydane, the "Beneficiary" was Tricontinental and the "Debtor" was Detato.
Clause 4 of
the Performance Bond Agreement provided:-
"4.1 The Obligor hereby 11~evocably undertakes to pay to the Beneficiary wthout proof or wndltlons upon demand made in accordance w t h clause 4.2 an amount equal to any Relevant Amount. 4.2 The Benefinary may make as many demands under this document as 11 thlnks fit but any demand must be accompanied by a certtficate slgned by the Beneficiary which states that:
(a) 11 U glven pursuant to thls documenl; and @)
(I) moneys are due and owng by the Debtor to the
Benefic~ary under the Relevant Agreement; and
(11) the amount of the moneys whlch s due and owng
4.3 The Obl~gor shall make payment pursuant to thls clause 4 nolwithstandlng that:
(a) 11 has been requested by the Debtor not to make payment,
.
@) any clam by the Debtor that moneys are not due and owlng by the Debtor to the Beneficlary under the Relevant Agreement, or (c)
any dlspute between the Beneficiary and the Debtor lncludlng, wthout llmltatlon, any dlspute benveen the Beneficlary and the Debtor as to the amount of the moneys due and owng by the Debtor to the Benhinary under the Relevant Agreement."
The effect of this provision was that Tricontinental was authorised to make
demand upon Skydane for the payment of sums which it alleged Detato owed to it. Any demand was to be accompanied by a certificate by Tricontinental and was to set out the
matters specified in Clause 4.2. Skydane was obliged to make payment under Clause 4, notwithstanding any claim by Detato the moneys were not due and owing by it or the
existence of any dspute between Detato and Tnconbnental.
I need not set out the detalls of other agreements between the parties which
lncluded an Acceptance and Discount Facility Agreement between Detato and
Tricontinental, also dated 12 May 1989.
Up to the end of July 1991, interest due by Detato to Tricontinental under the
Facility Agreement was capital~sed. On 29 July 1991, Tricontinental gave notlce to
Detato that no further funds would be ava~lable for interest capitalisation and that
Trrcontinental expected Detato to meet lnterest obl~gations on 31 July 1991. The Interest was not paid on that date.
On 8 August 1991, Tr~contlnental served on Detato a notice of demand which
declared that all moneys owlng to Tr~contlnental by Detato under the Facility Agreement were immediately due and payable. Those sums were alleged to include additional sums which had been demanded by Tricontlnental from two associated companies, Trans
National Secuntles L ~ m ~ t e d and Mil~tary Road (174 Investments) Pty hmited. On 9 August 1991, Tricontinental sewed on Skydane a notice of demand which
read inter alia:-
"Reference is made to a Bill Acceptance and Discount Facility Agreement dated 12 May
1989 between Tricontinental Corporatlon Lirmted and Detato Pty Lunited.
Attached is a Notice of Demand which Tricontinental Corporation Llmlted served upon
Detato Pty Ltmited on the date specified fn paragraph 1 of the Schedule.Demand is now made upon you as Obligor under Performance Bond Agreement dated 12 May 1989 to pay to Tnmnlinental Corporat~on Lmited the moneys payable under the attached Demand m the amount and III the manner referred to thereln by the due date specified m paragraph 2 of the Schedule.
Attached is a certificate signed by Tncontinental Corporat~on Limited statrng that I ~ I S Demand is pven pursuant to the Performance Bond Agreement, that moneys are due and owng by Detato Pty L~mted to Tr~continental Corporatlon Limited under the Bill Acceptance and Dlscount Fachty Agreement and stating the amount of moneys whlch
IS due and owing.
Unless the amounts payable under the Demand are paid by 5.00 p.m. today, Tricont~nental Corporat~on Llmlted wll take such actlon agalnst you as it may be advised for the recovery thereof.
SCHEDULE
1. Date of service of Demand on Detato Pty L~mlted: 8 August 1991.
2 Due date 5 00 p.m 9 August 1991."
Accompanying that demand was a copy of the notice of demand which had been served
Skydane was also accompanied by a c1.4 certificate which read inter a1ia:-
$74,150,448.76. There is an lssue as to whether the notice of demand sewed upon by Tricontinental on Detato of 8 August 1991, whtch notice stated the amount due as
"Reference is made to a Performance Bond Agreement dated 12 May 1989 between Trlcont~nental Corporat~on L~mlted and Skydane Pty Llmlted. Pursuant to Clause 4.2 of that agreement we state that.
(a) this certificate IS given pursuant to the Performance Bond Agreement; (b)
moneys are due and owlng by Detato Pty Limited to Tncontinental Corporat~on L~mlted under the Bill Acceptance and Diwunt Facility Agreement dated 12 May 1989 between Tncontlnental Corporatlon Lirmted and Detato Pty Limited, and
(c) the amount of the moneys whlch IS due and owng b a74,150,448.76." Certificate
The first question with whch I will deal is Question 3 which reads:-
3 Whether the demand made by -the second respondent on the first applicant made in the document dated 9 August 1991 was defect~ve because it was not accornpanled by a certificate mthm the rneanlng of Clause 4.2 of the Performance Bond Agreement between the 6rst apphcant and the second respondent?"
This issue was not raised in proceedings in the Supreme Court of New South Wales
heard by Cohen J. in November 1991. In those proceedings, one of the issues was
whether the receivers had been validly appointed. A declaration was sought that there had not been any default by Skydane. No question was raised before &hen J. as to the
absence of a certificate. An affidavit by the sol~citor for Skydane said:-
"15. On the 9th August 1991 Skydane recelved from TCL a Not~ce of Demand demanding payment by Skydane of all monies owing under a Performance Bond Agreement between Skydane and TCL dated 12th May 1989 ("the Performance Bond Agreement") whereunder Skydane agreed to pay to TCL any monles whlch Detato falled to pay to TCL under the B111 Fac~l~ty Agreement The amount demanded horn Skydane
was S74.150.448.76 and such amount was requlred to be pa~d on or before 5 M) pm on the 9th August 1991."
It will be noted that the sum of $74,150,448.76 was stated not in the demand but m both the copy notice of demand wh~ch had been served upon Detato and in the certificate. Nevertheless, I th~nk that no ~nference can be drawn from the paragraph that the certificate had or had not been served. Cohen J. found, inter alia, that Skydane had been
in default and that Tricontinental had been entitled to appoint the receivers.
It was not until recently that the present solicitors for Skydane raised the question as to whether the certificate had been served. They did so because the documents in the file of the former solicitors, Esplins, included the notice of demmd followed by a copy
of the notice of demand served upon Detato but no certificate.
--
In this hearing, evidence was given by MS Deborah Hopkins, the head of Tricontinental's Sydney office. MS Hopkins gave evidence that, on 9 August 1991, she personally put the letter of demand, a copy of the notice of demand to Detato and the
certificate in a large envelope, which she took and left at Skydane's office. MS Hopkins could not remember the colour of the envelope or other details but she appeared to be an honest witness and was not shaken in her evidence that she served the three documents.
Mr F.J. Carmichael, a d~rector who was, or was acting in the capacity of, managlng
d~rector of Skydane, gave evldence that the certrficate was not with the other two documents when they were brought to him in Skydane's boardroom shortly after they had
been delivered by MS Hopluns to Skydane's premises. But that evidence was principally based on the reconstruction that Mr Carmichael was familiar with architects' and building certificates and, in his view, he would have noted a certificate if it had been served.
I do not accept Mr Carm~chael's evidence on this point. The notice of demand
refers in clear terms to an attached certificate. If Mr Carmichael had read the documents with any care, he would have noted the reference to the accompanying
certificate and the fact that no certificate accompanied the demand. If Mr Carmichael
- 10-
dld not read the documents with any care, then it is improbable that he would now
remember what documents he received. The word "certificate" is clearly stated in the
notice of demand.It seems to me to be unlikely that the two solicitors in Espllns who were concerned with the affairs of Skydane, Mr D.P.R. Esplin, who was a director of Skydane and Mr Stephen Rush, who acted as its solicitor, would not have read the documents when they were received from MI Camchael on or about 9 August 1991 and would not have noticed that the certificate was absent. No evidence has been given in thls
proceed~ng by either Mr Esplin or Mr Rush on this issue. In the circumstances, it seems to me that the probabilities favour MS Hopkins'
ewdence. I accept her as a wltness of the truth. 1 find that the certificate accompanied
the notlce of demand.
Accordingly, Quest~on 3 will be answered "No". Question 2 asks:- "2. Whether the applicants are precluded from rasing the contention that Ihe demand made by the second respondent on the first applicant made in the document dated 9 August 1991 was defective because it was not accompanied by a certificate mthin the meaning of clause 4.2 of the Performance Bond Agreement between the first applicant and the second respondent, by reason of the conduct of the applicants in and the dension of the Supreme Coun of New South Wales in proceedings No. 4625 of 1991 in the Equ~ly Dlvlsion of the
Supreme Court of New South Wales?"
In my opinion, Skydane is so estopped. The issue whether a certificate accompanied the demand was one which was necessarily involved m the questions determined by Cohen J., namely, that Skydane had been in default and that the recewers
had been validly appointed. This was because the events of default relied on for the
purposes of c1.10 of the mortgage werc the monetary defaults of Trans National
Securities Ltd, of Military Road (174) Pty Ltd and of Detato for which Skydane was alleged to be liable under the Performance Bond Agreement. Skydane would not have been so liable unless notice of demand had been served on it and the notice had been
accompanied by a certificate as required by c1.4 of the Performance Bond Agreement.
In my opinion, the principle of issue estoppel applies. See v.
Curran (1939) 62 C.L.R. 465 at 532. The judgment of Cohen J. of 12 December 1991 concluded in Tricontinental's favour the issue that there was default on the part of Skydane which entitled Trlcontinental to exercise the powers conferred upon it by c1.10
of the mortgage. As no relevant change In circumstance is relied upon, the findlng applles equally to the exercise of the power of sale at the present time as it did to the
Hendersoq (1843) 3 Hare 100; Port of Melbourne Authoritv v. Anshun Ptv Ltd (1981) power to appoint receivers in 1991. Mr Walker relled upon the extended principle enunciated in Henderson v. 147 C.L.R. 589; Chamberlain v. Commissioner of Taxation (1991) 28 F.C.R. 21. I agree with Mr Walker that the present contention should have been htigated before Cohen J., if at all. However, it seems to me that the issue of default activating the c1.10 powers was determined by Cohen J. in favour of Tricontinental. Therefore, it is not necessary to
have recourse to the extended principle.
Mr Conti submitted that the principle of estoppel did not apply to the default in the payment of $74,150,448.76 referred to
a notice gven by Tricontinental to Skydane
on 27 July 1992 under s.57 of the Real Pro~ertv Act 1900 (NSW), for the reason that that notice was given after Cohen J.'s judgment However, the issue as to Skydane's default in respect of the $74,150,448.76 was determined in Tricontmental's favour by Cohen J.'s judgment.
Accordmgly, Question 2 will be answered "Yes".
The s.57 notice:
Section S7 of the Real Propertv Act prov~des Inter alia:
'(2) A registered mortgagee, chargee or covenant chargee may, subject to t h ~ s Act, exerclse the powers conferred by section 58 11 -
in the case of a mortgage or charge, default has been made in the observance of
(a)
any covenant. agreement or condlt~on expressed or lmplled in the mortgage or charge or in the payment, In accordance w~th the terms of the mortgage or charge. of the prlnc~pal. Interest, annulty, rent-charge or other money the payment of whlch IS secured by the mortgage or charge or of any part of that
pnnc~pal. Interest, annulty, rent-charge or other money; @) where -
(i) the default relates to that payment; or (11) ~n the case of a mortgage, the default does not relate to that payment and notlce or lapse of llme has not been d~spensed with under sectlon 58A
a written notice that complies with subsection (3) has been served on the mortgagor, charger or covenant charger in the manner authorised by section 170
of the Conveyancing Act 1919;"
The s.57 notice, which was dated 27 July 1992, read inter a1ia:-
"3. You have made default in payment in accordance mth the terms of the Mortgage by reason of failure to pay the amouni of $74,150,448.76 m respect of pnncipal and Interest due and payable on 9 August 1991 under a performance bond agreement dated 12 May 1989 between TCL and you Smce that date interest has wntmued to accrue and the total amount currently payable is S88,459,525.74. 4 You are required to pay to TCL the total of the folloanng amounts:
(a) the payment in respect of which
default h- been made as speafied m paragraph 3:
(b) TCL's costs and expenses of
prepanng and semng thls notlce: 4W.00
Total 588,459,925.74"
The certificate whlch had been glven under the Performance Bond Agreement was the certificate for the sum of $74,150,448.76 That was the only sum owing under the Performance Bond Agreement. Trlcontlnental would have been m a position to give a
further certificate requlrlng the sum of $88,459,525.74 to be paid but it had not done so.
However, the mortgage itself contalned a provision for interest in clause 6.1. That
provision was not m the same terms as the provisions in Detato's Facility Agreement.
Nevertheless, it was a provrslon whlch provided for the payment of interest on moneys
due by Skydane. It would have encompassed the moneys which became due under the
Performance Bond Agreement by reason of the semce of the notice of demand and of
the certificate.
In Clare Morris Ltd v. Hunter BNZ Finance Ltd (unreported, 22 April 1988)
WaddeU C.J. in Eq. said "strict compliance with the sub-section is necessary". HisHonour cited Bevham Investments Ptv Limited v. Beleot Ptv Limited (1982) 149 C.L.R. 494 at 501 and Medise~ces International Ptv Limited v. Stocks & Realtv (Security
Finance) Ptv Limited (1982) 1 N.S.W.LR516 at 521. The judgments in those two cases do not use the adjective "strict". They emphasise the object to be achieved. Thus, in the Mediservices case at 521, Wootten J. said, "It is clear that this legislation was intended to be remedial and to glve mortgagors protection against having the mortgaged property sold by reason of some default on their part, until they had had notice of and an opportunity to remedy that default." In Bevham Investments at 501, Gibbs C.J., Mason, Murphy and Wilson JJ. referred to "the general policy underlying the statutory provisions,
that of protecting the mortgagor by ensunng that he 1s glven adequate notice so as to
enable him to remedy a default".
That was also the approach taken by Samuels, Priestley and Clarke J . k in
Websdale v. S & J D Investments Ptv Limited (1990) 24 N.S.W.L.R. 573. Clarke J.A.,
delivering the pnncipal judgment, said at 578-9:- "The section requires the mortgagee to bring to the attention of the mortgagor the particular default and to require him to make it good It does not in t e r n require the
mortgagee, in a case in wh~ch 11 is claimed that the mortgagor is in default in the payment of interest o r pnncipal, to specify the particular amount outstanding What it requires is that the mortgagee idenufy the particular default or defaults. In these circumstances it IS difficult to see why. provlded the default is correctly identified, the specificat~on of a greater o r lesser amount than actually due should affect the validity of the notice.'
In the present case, I am of the opinlon that the notice sufficiently identified the
defaults. That is to say, it made it clear to Skydane what were the defaults required to
be remedied. The reference to the "$74,150,448.76 in respect of principal and interest
due and payable on 9 August, 1991 under a Performance Bond Agreement dated 12 May
1989" was a sufficient description of the sum which Skydane was required to pay by
reason of the notice of demand and certificate served on 9 August 1991. That sum was made up of principal and interest due by Retato and its associated companies, which by reason of the provisions of the Performance Bond Agreement, Skydane became llable to pay.
The description of the interest accruing after 9 August 1991 was not a precise
description and did not refer in specific terms to either the Performance Bond
Agreement or the mortgage. But, there is no reason to think that Skydane could have
been in doubt as to the default it was called upon to remedy. That default was non-
payment of interest. The default had not arlsen under the terms of the Performance
Bond Agreement itself for there had been no notlce of demand and certificate delivered
m respect of the Interest clalmed. There was, however, llabihty on the part of Skydane
to pay lnterest and that l~abillty arose under clause 6.1 of the mortgage.
I should note, however, as this rssue was not set aside for separate determination,
that the issue is an arguable one.
The Second Demand. Cert~ficate and s.57 Notice On 23 October 1992, a further notice of demand and certificate were served by Tricontinental on Skydane updatlng the amount due to $89,983,724.31. On 29 October 1992, a further s.57 notice was served requiring payment of "74,150,448.76 in respect of principal and interest due and payable on 9 August 1991 under a Performance Bond
Agreement dated 12 May 1989" and interest and expenses accrued of $16,050,358.85. Again, no question as to the validity of this notice has been set aside for separate
determination. I should say, however, that I am unable to understand why the second
demand and certificate served on 23 Octob-er 1992 were not referred to in the s.57 notice
of 29 October 1992. If the notice of demand and certificate of 23 October 1992 supplanted those of 9 August 1991, then the default required to be remedied would seem not to have been correctly identified. And if the second s.57 notice has supplanted the first and is invalid, then the receivers are not now entitled to exercise their power of sale.
Libertv to a!J~ly
I shall reserve liberty to the applicant to apply for an interlocutory injunction
restraining the sale should the receivers threaten to sell without having served a further
s.57 notice which satisfies the statutory requirements.
I assume that a further s.57 notlce will be served. If so, the receivers should
identify clearly the Item or each Item of default relied upon both to the monetary sum
and the source of the l~abil~ty. I note that the s.57 notice of 29 October 1992 referred not only to the sum specified in the certificate of 9 August 1991 but also to interest accrued and to expenses accrued. If Interest andlor expenses are claimed as the subject of default, the receiver should Identify clearly the source of the obligation. If a total sum is claimed which includes an amount m respect of which the source of the liability is not
expressly or impliedly identified or in respect of which there is no source of hability, the
notice will arguably be inval~d.The remarks I shall hereafter make mth respect to "Case of an injunction",
"Security for costs", 'The usual rule" and "Conditions" are not to be read as applying to
this issue.
I regard the issue as to the s.57 notice as being in a different category from that of the remainder of this case.
Non-Monetarv Defaults
Question 4 reads:-
"4. Whether the second and third respondents are entitled to exercise the power of
sale granted by the mongage regtstered No. Y 392953 and the charge No. 38448 wthout there hawng been any notlce pursuant to Section S7 of the Real Propeny Act 1900 (New South Wales), because the G-st applicant is in default under the s a ~ d mortgage and the s a ~ d charge in that it has failed to comply wth clause 7.4(b) of the s a d mortgage and clause 8 4 0 ) of the said charge w t h respect to the matters set out in the document marked as Ex 6 in proceedmp
No. 4625 of 1991 m the Equlty Dlws~on of the Supreme Court of New South Wales?
Section 57(2)(b) of the Real Prooertv Act provides that a notice is not requlred
when "(ii) in the case of a mortgage, the default does not relate to that payment and
the mortgage dispenses wth notlce under s.58A in respect of non-monetary defaults. notice or lapse of tlme has been dispensed with under s.58A1'. It is common ground that The non-monetary defaults relied upon were those referred to in Clause 7.4(b) of the mortgage which required Skydane to glve to Tncontinental "(b) upon the happening of an Event of Default or a Potential Event of Default, full and written particulars of it and of the action taken or proposed to be taken by the Mortgagor to remedy it".
It is common ground that events or potential events of default in respect of which
Skydane was bound to give notice to Tricontinental included defaults in the payment of
principal and interest by Military Road (174) Investments Pty Limited, by Trans National Securities Limited and by Detato. The amounts mvolved in these events or potential
events of default ultimately became the subject of the notlce of demand and of the
certificate given by Tricontinental to Skydane in August 1991.The questlon is whether the failure by Skydane to give notice to Tricontinental of each of the defaults of the subsidiary and associated companies was an obhgation in respect of which, under s.57 of the Real Prooertv Act, notlce had to be given or one in respect of which notice could be dispensed with.
The distinction between monetary and non-monetary defaults was considered in
Bevham Investments, in wh~ch Glbbs C.J., Mason, Murphy and Wilson JJ. said at 501-2:-
"The alternative vlew of s 57(2)(a). and the one which we prefer. IS that the draftsman drew a dlstinct~on between pecuniary obligauons, whose payment s secured by the mortgage (the second llmb), and other obligations (the first llmb). Notlce s required to
be glven of any default in relation to a pecunlary obl~gauon so that the mortgagor may
dscharge the obl~gation in the time allowed. but notice may by agreement be d~spensed w t h in the case of default in the performance of other obl~gations, whlch are neaessanly of a dlHerent character To draw a dstlncuon between pecuniary defaults, of which notlce must be glven, and non- pecunlary defaults, notice of whlch may be d~spensed with, makes good practical sense and affords greater protection to the mortgagor, thus conforming to the general object of the statutory pronsions.'
In my oplnlon, s.57 does not permlt a mortgagee to avoid the requirement of
gvlng notice m respect of a default which is of a pecuniary nature by including in the
mortgage a provision that the mortgagor shall give notice of the default to the mortgagee.
Failure to comply with such a provision will be construed as one where "the default
relates to that payment". Section 57 requires that the notice of default be given by the mortgagee and given so that the mortgagor may remedy it in time. It would subvert the operation of s.57 to read it as not requiring notice in respect of what is, m substance, a pecuniary default simply because the mortgage contmed a provision requiring the
mortgagor to give notice to the mortgagee of the default and to state in the notice the
steps being taken to remedy it.The poslt~on may be complicated by the fact that the original defaults were not those of Skydane but of Trans Natlonal Securities Ltd, Military Road (174) Investments Pty Llmlted and Detato. Nevertheless, just as in Bevham Investments, Gibbs C.J., Mason, Murphy and Wllson JJ. treated the prowslons as to pecuniary default as encompassing obligations to pay to elther the mortgagor or other persons, for example, rates and land tax, so I read the prowsions as encompassing moneys payable in the first instance by other persons but for the payment of whch the mortgagor ultimately
becomes directly responsible.
Case for an iniunct~on
(i) In August 1992, Coll~ers distributed a document entitled "Investment Report -
Parkroyal at Darhng Harbour". This document was widely distributed to attract the attention of persons both in Australia and overseas who might be interested in acquiring the freehold of the Parkroyal. The statement of claim alleges that statements in the report made it misleading and deceptive or likely to mislead or deceive and that there
was a breach of s.52 of the Trade Practices Act 1974 (Cth). Mr Conti sought an injunction until the trial of these proceedings so that potential purchasers would not be harmed by the alleged misstatements. Mr Conti submitted that there should be a cooling
off period in the sale of the hotel of at least 3 months so that the effect of the
misstatements could dissipate. - I do not propose to discuss the allegations indlvldually, as they may be dealt with
at the trial. There is an arguable case that misleadlng statements have been made. In
my oplnion, however, there is not an arguable case for the grant of an injunction.
Clearly, any misstatement must be corrected by Colliers before it does harm, or
Colliers and the receivers wll otherwise be called upon to compensate any purchaser who
suffers damage thereby and also to account to Skydane for any loss which Skydane suffers thereby. A mortgagee has been called upon to account for loss resulting from an honest error by an auctioneer in the particulars of sale, Tomlin v. (1889) 43 Ch.D.
191. But any misstatement can readlly be rectified without court intervention. potential purchaser would wish to lnqulre fully lnto the hotel and to conduct what has been
to correct the report.
described as a "due diligence exercise." There will be adequate opportunity for Colliers
In any event, the only appropriate order in respect of this matter would be an order for monetary compensation or an order requiring a breach of s.52 to be rectified. An injunction restraining the sale would not be appropriate.
(ii) The statement of claim alleges that the description of the lease in the
report was misleading and deceptive as the lease was executed by only one of the receivers, Robert Stanley Furby, and was thereby invalid. However, this claim was not separately developed by Mr a n t i and I therefore need not discuss it. There is no claim
to have the lease declared void. - (iii) The statement of claim alleges that the receivers have acted "recklessly,
negligently and in breach of their duty" in that they failed to take steps to ensure that arrangements with prospective tenants of the retail area of the Parluoyal were preserved and that the retail area became and remalned tenanted. It was also claimed that they wrongly entered into the lease with SPHC Operations Pty Limited on 6 February 1992 wh~ch lease was substantially less favourable to Skydane than an existing blndlng agreement between the parties and less favourable to Skydane than would be the case had the Hotel and carpark been available for sale with vacant possession. Again, th~s
clam was not separately rel~ed upon by Mr Conti. The matters rased are, in themselves, matters for an accounb not for the grant of an injunction restraining sale.
(iv) The statement of cla~m alleges:-
"22C in wnnectlon wlth the~r Intended exerclse of a power of sale. the thud respondents have:
(b)
conducted themselves m ways lndlcallve of the existence on the11 part of producing only sufficient proceeds of sale to sat~sfy the Interests of the first respondent, and of conduct olhenwse on theu part of sacrifimg the
Interests of the first appl~cant as mortgagor.'
Several circumstances are relied upon. First, there are the matters which I have
just mentioned which Mr Conti submitted reflect an attitude on the part of the receivers
to disregard the interests of Skydane. However, they are all complex matters. I could not, without further investigation, draw from them any inference adverse to the receivers.
...
Then there is evidence that at a conference held in April 1992, Mr Furby said to
duectors of Skydane:-
"As to the pnce well as far as I'm mncerned 1 lose total Interest once the figure goes past
$82 mlll~on which IS my present unsecured debt."
For the purposes of this interlocutory proceeding, I accept that that statement was made.
The statement was a foolish one and lnconslstent with Mr Furby's duty as a receiver. But the statement was made many months ago and, absent information as to h ~ s then understanding of the value of the Parkroyal, it carries little weight. I would not
draw from a the conclus~on that the receivers are not presently attempting to obtaln a proper price for the Parkroyal or have no regard for the interests of Skydane. Mr South
of Colliers has given evldence that he has no ~nstructions along the lines of the April . statement. A third matter relied upon is that the receivers do not appear to have obtained any formal valuation Erom a registered valuer, though they have an agent or agents' opin~ons. Mr Conti tendered a valuation made by Mr Cowell of Hooker Corporate
(NSW) Ltd. Mr Cowell has valued the Parkroyal at $104m. Skydane fears that the hotel
may be sold for less than that. Mr Conti submitted that it was the duty of the receiver to obtain such a valuation and that the receivers would be in breach of duty if they did
not obtain it or if they sold the hotel at less than its true value.
Mr Conti also criticised the approach taken by Colliers in that they are seeking
expressions of interest in the property witha view to negotiating a sale. Colliers are notputtlng the hotel up for auctlon or for formal tender. Mr Conti submitted that the
approach adopted may result in a private sale without the receivers having any gulde as
to what is the proper value of the hotel.Mr Conti relied upon the remarks of Griffith C.J. in Pendlebury v. Colonlal Mutual Life Assurance Societv Ltd (1912) 13 C.L.R. 676 where his Honour said at 683:-
"In my oplnron, the object of a sale by auctlon 1s to secure a fair price for the property
offered by means of competit~on between probable purchasers. .... It 1s not dlsputed that if a mortgagee sells by pr~vate contract he is bound to take reasonable means to ascertain the value before sellrng, and the same rule apphes, m my oplmon, to a sale by auctron."
But his Honour's remarks must be read in the context of hls Honour's statement of the
prlnclples to be appl~ed Kennedv v. De Trafford (1896) 1 Ch. 762 at 772 and of Ld Herschell on appeal at I18971 and of h ~ s citatlon wlth approval of remarks of Lindley LT in
AC 180 at 185. There is no prlnc~ple of law that a mortgagee must, before selling, obtain a valuation from a registered valuer or, having obtained one, must not sell below that
value. The authorities are to the contrary.Mr Conti pointed to a statement in the Investment Report that, 'There is no reserve price and prospectwe purchasers are encouraged to lodge offers considered appropriate!' Mr Conti submitted that this statement indicated that the receivers intended to sell without regard to the value of the Parkroyal. I do not draw this
conclusion. As the sale is by way of private treaty, not auction or tender, it is unnecessary for the receivers to fix a reserve. I read the statement as no more than a ploy to encourage investors and others to-take an Interest in the property.
Mr Conti also relied upon the fact that Mr Cowell has valued the hotel at $104m
whereas the indications are that the receivers may sell for less than that sum.
I need not enter upon a discussion as to the duties of a mortgagee or a recelver
or upon the debated distinction between reasonable care and good faith or upon the
effect of s.232 of the Cor~orat~ons Law. For present purposes, the duty is suffic~ently descnbed by the words of Lindley L.J. in Farrars v. Farrars Ltd (1888) 40 Ch. D. 395
where h ~ s Lordshlp said at 411:- "But every mortgage confers upon the mortgagee the r~ght o realize his securlly and to find a purchaser d he can, and tf ln the exerclse of h ~ s power he acu b o n a p e and takes reasonable precauuons to obtaln a proper price. the mortgagor has no redress, even although more m~ght have been obta~ned for the property if the sale had been postponed:
Cholmondeley v Clmron 2 Jac & W.l, 182. Warner v lacob 20 Ch.D. 220.'
See Pendleburv v. Colonial Mutual Life Assurance Soc~etv Ltd cited above; Fors-yth v. Blundell (1973) 129 C.LR. 477; Australia & New Zealand Banhne Groun Ltd v.
Ban~adillv Pastoral Co Ptv Ltd (1978) 139 C.L.R. 195. On the issue of lack of bona fides, the evidence is not sufficiently strong to
constitute an arguable case for an injunction. Skydane suspects and alleges lack of bona fides but the evidence at this stage is tenuous.
Bad faith is a senous allegation. A court will not interfere with a sale by receivers at a time of the receivers' choosing unless there
be reasonably clear evidence of a threatened breach of duty.On the issue of reasonable presenlations to obtain a proper pnce, there 1s no evidence that Colliers is not an appropriate agent for the sale of the property or that it does not have persons within its organisation who are well qualified to advise the
receivers on the value of the property or that the procedures undertaken by Colliers in the sale are not appropriate. Mr Cowell, who has given evidence as to his valuation, did not state any of these thlngs. It is true that Mr A.K South, who appears to be the officer of Colliers who has the management of the sale, is not himself a qualified valuer or, for that matter, a qualified real estate agent. HIS expertlse is in accountancy. But there is no evldence that the sale IS not in good hands.
There 1s no arguable case that Colllers are not seeking to obtain the best prlce
presently available, that they do not have the expertlse to do so, or that other steps
a proper price. should be taken which have not been taken. Although uninstructed by expert evidence, it appears to me that the procedures undertaken for the sale are appropriate to achieve (v) The last matter clalrned in the statement of claim is that the interest provlsions in the B111 Acceptance and Dlscount Facility provide for a penalty and that the
interest which Tricont~nental clalms is therefore too high. This is a matter for subsequent
argument and, if Skydane 1s correct, any adjustment must be taken into account between the parties. But the matter is not relied upon as a ground on which an injunction should now issue.
It follows in my view that, absent an offer to redeem and the payment into court
of the amount due or claimed, which would change the nature of the proceedmgs, a case
for the grant of an injunction has not been made out.
Secuntv for costs
It was submitted by Mr Walker that these proceedings may not be continued by the dlrectors in the name of Skydane unless the directors provide security for the costs involved. Mr Walker relied upon observations of Davidson C.J., Richardson and
McMullln JJ. in Paramount Acceptance Co Ltd v. Souster (1981) 2 NZLR 38 at 43.
In my view, however, the proceedlngs are properly brought in the name of the
company by the directors actlng under their residual powers. I adopt the approach takenby Street J. in Hawkesburv Develooment Co Ltd v. Landmark Finance Ptv Ltd [l9691 2
NSWR 782 at 790-1. The company 1s the appropriate applicant and, as the company
seeks to challenge the conduct of the receivership, it is necessary that the proceedings be instituted in the name of the company by the dlrectors who retain residual powers. The subject of these proceedlngs is not an asset of the company in the control of the receivers. The proceedlngs must be brought by persons other than the receivers. m
Internat~onal Ptv Ltd v. Chant [l9791 2 NSWLR 820. However, the next question is whether the company should be required to provide
security for the respondents' costs. Such security would have to be provided otherwise
than out of the assets of the company, which are in the control of the receivers.The issue is a discretionary one. There is no hard and fast rule to be applied and all the circumstances must be taken into account. But m the ordinary course, when it is shown that the applicant or plaintiff company is insolvent, then an order for security for the costs may be ordered against the applicant. See s.1335 Corporations Law. The order 1s made so that persons on both sides of the record have something to lose by continuing
the litigation and so that the issue of costs does not become a weapon of oppression whlch only one party can use agalnst the other. There are well known exceptions, such as where it is alleged that it was the conduct of the respondent which brought about the
insolvency or where the malung of the order for secunty for costs would bring to an end litigation which it 1s in the public interest or otherwise just to continue. A wide vanety of circumstances may intluence the declslon.
impecunious in the sense that there IS a rlsk that the value of its assets may be less than The present case does not lnvolve unusual elements. The borrower, Skydane, is that of its liabilities. It has not been shown, however, that the making of an order for costs will bnng to an end the proceedings or that they are proceedings which it is in the publlc interest or just to continue. In my opinlon, m litigation such as the present, it is fair to all parties and in the Interests of justice that there be persons on both sides of the record who have something to lose should an order as to costs unfavourable to their interests be made.
Moreover, it has been said that, in cases such as the present, the directors should not be allowed to imperil the security by bringing an action in the absence of an indemnity for costs. See Newhart Develo~ments Ltd v. Co-o~erative Commercial Bank
- Ltd (1978) 1 Q.B. 814; Paramount Accevtance Co Ltd v. Souster, cited above and Tudor Grange Holdines Ltd v. Citibank N . k (1992) Ch. 53. I am reluctant to follow those cases insofar as they may suggest that, in a case such as the present, proceedings cannot be brought in the absence of an indemnity from the directors. In my view, the directors
are entitled to bring such an action and the question of an indemnity or other security is a discretionary measure. But I accept the principle of pohcy that the Court will not
llghtly permit the directors to prejudice property under the control of the receivers. The amount in which security 1s sought is $43,734 and there was no challenge as to that. In my opinion, secunty to that extent should be provided within 30 days. Counsel should agree upon the manner of the security, whether by way of personal
~ndemnity or by bank charge or the like.
The Usual Rule
The next issue 1s whether, as a condlt~on of obtaining injunctive relief, Skydane
should be required to pay into Court the sum claimed to be due by Skydane to
Tricontinental.
The nature of the usual rule to this effect was discussed by the High Court in
v. The Commonwealth Tradine Bank of Australia [l9721 126 C.L.R. 161. See also
m v. McWatters (1948) 49 SR (NSW) 173; Blundell v. Associated Securities Ltd (1971) 19 FCR 17. The rule has been thought to have general application even in those
cases where ss.52 and 87 of the Trade Practices Act are relied upon. See e.g. Town &
Countrv S ~ o r t Resorts fHoldines) - Ptv Ltd v. Partnership Pacific Ltd (1988) 20 F.C.R. 540.
-
The rule Initially had a technical basis as junsdlction was founded on the equity of redemption, but that basis gradually became less important and the matter came to be looked upon as one in which there was a need to raise an equlty to justify equitable relief. Slnce the fus~on of law and equity and since powers to grant relief have received a statutory base, as in s.23 of the Federal Court of Australia Act (1976) (Cth), the discretion has become heer. As Dlxon J. C.J. sa~d m Mavfair Tradine CO Ptv Ltd v.
Drever (1958) 101 C.L.R. 428 at 454:
"In the case of injunctions the vlew has been adopted too that the effect of the Jullrcanrre Acr IS to enable the court Wherc there e a legal right' ... 'w~thout being hampered by its old rules' to 'grant an ~njunct~on where 11 IS just or convenient so to do for the purpose of protecting or asserting the legal rights of the parties': per Conon LJ. in Nonh London Rallwoy CO v Great Nonhern Rarlwoy CO (1883) 1 1 Q.B.D. 30, at p.39, see too per
Lvrdley M.R In Cummm v. Perlam (1899) 1 Ch 16 at p.20 But no general desert~on of the lrue pnnclples of qu l ty has been considered allowable in granting mnjunctlons."
Where the jurlsdictlon has a purely statutory base, e.g., ss.52, 80 and 87 of the Practices Act, the principles of equlty may have less mfluence.
Nevertheless, the usual rule is still that stated by Coote: A Treatise on the Law
of Mort~aee 5th Ed. at 275, as follows:- "It has been sald, that if the power of sale IS sought to be exermed for exorbitant purposes, wthout a due regard to the interests of the parties concerned, the Coun will interfere, under oenaln circumstances, to prevent an arbitrary exercise of that power; but not mthout the actual deposit of the sum to which the mongagee IS entitled."
That rule still applies in the sense that, in the absence of a payment into court of the
amount claimed or found to be due, a court will generally not interfere with the exercise by a mortgagee or receiver of a power such as the power of sale but will allow any
breach of duty to be rectified by a pecuniary remedy.
-.
This principle has a basis in policy. See, e.g., Walsh J. in v.
Commonwealth Tradine Bank of Australia at 165:-
T h e benefit of hanng a secunty for a debt would be greatly dlmlnlshed lf the fact that a debtor has raised clalms for damages against the mortgagee were allowed to prevent any enforcement of the securlty until after the l~tlgat~on f those clauns had been completed."
The need for certainty in commercial transactions has been emphasised on many
In the present case, the usual rule should be appl~ed. I have dealt with the attack
upon the power of sale. There is no other challenge going to the substance of the mortgage documents or to the amount due. 1 see no circumstance in the case which would justify departing from the usual rule.
For that reason, I would, in the present case require Skydane to pay into court the
sum claimed by Tricontinental as a condition of the grant of interlocutory injunctive
relief.Conditions
-31 -
Finally, I should mention that Mr Conti submitted that the only condition which should be imposed as a condition of injunctive relief would be an unsecured undertaking given by Skydane to pay any damages that might be suffered as a result of the grant of
the injunction. Mr Conti submitted in particular that although the monthly interest is claimed by Tricontinental amounted to $Urn per month, whereas the rents recelved by the receivers are only $618,358 per month, nevertheless, the interest claimed involved a penalty and was, moreover, unreasonably high, being well above ordinary interest rates.
Mr Conti submtted that if an interest rate of 7.95% per annum was taken as a guide, the
monthly rents received by the receivers would meet that interest.
I think no purpose would be served by my going through the interest provisions
so as to elaborate upon thls submssion. If the matter were of importance, I would proceed on the foot~ng that the interest specified in the agreements was payable and was
substantially more than the rental which is recelved £rom the lessee. In these
circumstances, if an undertalung as to damages was required, I would impose a condlt~on
that the undertaking be supported by security.
Counsel should br~ng in withln 7 days short m~nutes of the orders which they
propose, both to give effect to these reasons and for the future conduct of the
proceedings.
I cenlfy that this and the 30 preceding pages are a true copy of the reasons for judgment here~n of the Honourable Mr Jusuce Davles
Date: 3Cf%ovember 1992
Counsel for the applicant: Mr R. Conti Q.C with Mr D. Roblnson
Sollc~tors for the apphcant: Freehi. Hohgdale & Page Counsel for the lst, Znd,
3rd & 4th respondenw Mr B.W. Walker - Sollcrtors for the lst, 2nd,
3rd & 4th respondents: M e n M e n & Hemsley Sollcltor for the 4th respondent: Baker & McKeme Date of hearing: 16,17,19 & 20 November 1992 Date of judgmenv 30 November 1992
0
1
0