Spectra Residential Apartments Pty Ltd v Tmasl Finance Pty Ltd
[2020] VCC 1717
•30 October 2020
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-20-04011
| SPECTRA RESIDENTIAL APARTMENTS PTY LTD (ACN 142 532 232) (in its own capacity and as Trustee for the CID Unit Trust) | Plaintiff |
| v | |
| TMASL FINANCE PTY LTD (ACN 623 313 057) | First Defendant |
| KELVIN TAING | Second Defendant |
| REGISTRAR OF TITLES FOR VICTORIA | Third Defendant |
JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 October 2020 | |
DATE OF JUDGMENT: | 30 October 2020 | |
CASE MAY BE CITED AS: | Spectra Residential Apartments Pty Ltd v TMASL Finance Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2020] VCC 1717 | |
REASONS FOR JUDGMENT
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Subject:MORTGAGEE’S SALE
Catchwords: Transfer of Land Act 1958 s76; whether mortgage and security documents fixed period of time alternative to the one month period mentioned; whether mortgagee’s power of sale must exist as at date of mortgagee’s sale or at date of completion.
Legislation Cited: Transfer of Land Act 1958 (Vic)
Cases Cited:Boston Peak Pty Ltd v Houghton [1999] QSC 48; St George Bank Ltd v Perpetual Nominees Limited [2011] 1 Qd R 389; Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; HG & R Securities Pty Limited v Sayer [2009] NSWSC 427
Judgment: (1) Summons dismissed. (2) Costs reserved.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A R Kirby | Bancroft Lawyers Pty Ltd |
| For the First Defendant | Mr C Salpigtidis | Summer Lawyers Pty Ltd |
HIS HONOUR:
Background
1 Spectra Residential Apartments Pty Ltd (“Spectra”) is the registered proprietor of a property at 219-221 Thomas Street, Dandenong. On 15 February 2019, it granted a mortgage over that property to TMASL Finance Pty Ltd (“TMASL”) to secure a loan advance of $2,700,000, made to Spectra and Torquay Gateway Pty Ltd (“Torquay”). The loan was advanced by a company known as Moelis Australia Asset Management Pty Ltd (“Moelis”).
2 The parties entered into a mortgage, which included a Memorandum of Common Provisions Number AA4780, a loan agreement and a letter of offer for loan. (Affidavit of Martyn Craig Barnes sworn 2 September 2020).
3 The parties entered into an undated Deed of Variation, which provided for an extension of the loan repayment date, which was ultimately agreed to be 14 February 2020. (Ibid, paragraphs 6-7, Exhibits MCB7 and 8) The principal sum of that loan was not repaid on 14 February 2020 and has not since been repaid.
4 Spectra served a Notice of Default in purported pursuance of s76 of the Transfer of Land Act 1958 on 17 February 2020. In August 2020, Spectra entered into a contract to sell the land to a third party, purportedly in exercise of a statutory power of sale under the Transfer of Land Act. (Affidavit of Martyn Craig Barnes, paragraphs 8-10)
5 It should be noted that Mr Paul Nathan Reese, in an affidavit sworn 19 October 2020, deposes that the Notice of Default was mailed and emailed on 18 February 2020. It is not correct, as Mr Barnes deposes in paragraph 8 of his affidavit sworn on 2 September 2020, that he was served with the Notice of Default on 17 February 2020. (Paragraphs 5 and 6, Exhibit PNR2)
6 TMASL was acting as custodian to Moelis and as Trustee for the Moelis Australia Secured Loan Priority Fund and the Moelis Australia Secured Loan Series. (Affidavit of Yulia Gurdina, paragraph 6)
7 TMASL, in that capacity, appointed Sam Kaso as receiver and manager of the assets and undertaking of Spectra and also Torquay. (Paragraph 7, Exhibit YG1)
8 On 9 September 2020, Moelis sent a further Notice of Default and Demand to Mr Barnes of Spectra. (Affidavit of Paul Nathan Reese sworn 23 September 2020, paragraph 14, Exhibit PNR1/108-110)
9 On 7 September 2020, Spectra filed an Originating Motion joining TMASL as the first defendant, Kelvin Taing as the second defendant, and the Registrar of Titles as the third defendant. The Originating Motion sought a declaration that the Notice of Default dated 17 February 2020 was void or ineffective, that the Contract of Sale entered into with Mr Taing “on or about 13 August 2020” was “void or ineffective as against [Spectra]”, and an injunction restraining TMASL and Mr Taing from completing the Contract of Sale. The Notice of Motion also sought a declaration that the defendants were not entitled to have any transfer document between them registered under the Transfer of Land Act.
10 A Summons issued in the proceeding sought the same relief. The Originating Motion and Summons came on for hearing before her Honour Judge Aileen Ryan on 25 September 2020. Her Honour adjourned the matter for further hearing on 19 October 2020, when it came on for hearing before me.
11 The plaintiff and first defendant were both represented by counsel. They were agreed that there were certain narrow questions of law requiring to be determined, and that such questions could be determined summarily. They presented submissions accordingly.
12 The demand or notice dated 17 February 2020 and, according to Mr Reese, served on 18 February 2020, (Exhibit MCB9 to Mr Barnes’ affidavit) was headed “Default Notice and notice pursuant to s76 of the Transfer of Land Act 1958 (Vic)”. It stated:
“You have defaulted under the mortgage referred to in the Schedule below by failing to repay the amount owing to the Mortgagee by the 14 February 2020.”
13 The amount said to be owing as at 17 February was $2,718,523.93. The notice concluded:
“If you fail to remedy the default within 31 days after service of this notice the mortgagee proposes to exercise its rights to power of sale in respect of the land”.
The Transfer of Land Act 1958
14 As will be seen, the dispute in this proceeding centres upon a purported exercise of a statutory mortgagee’s power of sale under the Transfer of Land Act. The relevant notice refers to s76(1) of the Transfer of Land Act. That section provides inter alia:
“If default is made in payment of the principal sum interest or annuity secured or any part thereof or in the performance or observance of any covenant express or implied in any such mortgage or charge and continues for one month or such other period as is therein expressly fixed, the mortgagee or annuitant may serve on the mortgagor or grantor of the annuity and such other persons as appear by the Register to be affected notice in writing to pay the money owing or to perform and observe the covenants (as the case may be).”
15 Section 77 of the Transfer of Land Act bestows a power of sale upon a registered mortgagee upon failure of a mortgagor to make payment in accordance with a notice to pay that money “within one month after the service of such notice or demand or such other period as is fixed …”.
16 In the present case, no issue is taken as to the operation of s77. Rather, the contention by Spectra is that the notice purportedly served under s76 was ineffective such that no power of sale arose. Spectra says that the service of the further notice in September of this year could not ex post facto clothe TMASL with a power of sale to justify completion of the sale of the relevant land to the second defendant.
Security documents
17 To put these matters in context, it is necessary first to consider some provisions in the relevant security documents. The mortgage is incorporated by reference in the Memorandum of Common Provisions Number AA4780. Clause 12.2 of that memorandum, headed “Modification”, provided:
“While any Event of Default is continuing additional legal powers are exercisable immediately, without any notice or expiration of time being necessary, and are excluded or varied only to the extent of any inconsistency with the express terms of this Mortgage or any other Security, to the fullest extent permitted by law.”
18 Clause 12.4 headed “Notice exclusion”:
“Any requirement for notice or lapse of time or compliance with any procedure under any legislation, including section 57 of the Real Property Act 1900 (NSW) or section 111 of the Conveyancing Act 1919 of New South Wales or any equivalent statutory provision in force in any State or Territory of Australia, prior to enforcement of any power under this Mortgage or any other Security by the Mortgagee is dispensed with and excluded, to the fullest extent permitted by law.”
19 The memorandum defined the phrase “Letter of Offer” in Clause 1.1 as meaning:
“The document entitled ‘Letter of Offer and Guarantee and Indemnity’ dated on or about the date of this Mortgage, between, among others, the Mortgagor and the Mortgagee.”
20 Clause 1.2 under the heading “Letter of Offer Definitions”, stated:
“Defined terms and expressions used in the Letter of Offer, whether capitalised or otherwise, have the same meanings when used in this Mortgage, unless otherwise defined in this Mortgage.”
21 The terms and conditions of the Letter of Offer and Guarantee and Indemnity dated 13 February 2019 on the letterhead of Moelis Australia, as trustee for the two trusts for which TMASL act, appear to fall within the definition of “Letter of Offer” in the Memorandum of Common Provisions to the Mortgage. The terms and conditions to this Letter of Offer define the phrase “Event of Default” in Clause 10. This is a very lengthy definition indeed. The relevant paragraph is (c) as follows:
“(Non-payment) An Obligor fails to pay or repay any monies payable by it under any Finance Document within two days (2) of the due date and in the manner required.”
22 Clause 11.2 of the Letter of Offer provided:
“11.2 Statutory notices
Any restriction, requirement for notice or lapse of time stipulated or required by any statute or other law is excluded or negated so far as is lawful. The Lender need not give notice to any Obligor before exercising a right, power, or remedy under any Finance Document unless notice is required by a statutory provision which cannot be excluded. Where a statutory provision stipulates that a notice must be given, then if no period of notice is prescribed, one day is fixed as the requisite period.”
23 Clause 9.5 of the Memorandum of Common Provisions states:
“The Mortgagee may at any time while an Event of Default is continuing in its discretion exercise any express power, together with full discretion, conferred on a Receiver under this Mortgage, whether or not a Receiver has been previously appointed, and terminate possession taken of the Mortgaged Property by the Mortgagee.”
24 Clause 9.2 states that “Receivership powers” extend in paragraph (n) to “sale of assets”.
Contentions on behalf of Spectra
25 Mr Kirby of counsel appeared on behalf of Spectra and sought the various items of relief set out in the Originating Motion and Summons. He noted that Spectra had not been in default of its obligation to repay the principal sum under the loan for the period of one month, referred to in s76 of the Transfer of Land Act. Nor, he said, had any alternative period of time been fixed in substitution for that one month period as s76(1) provided authority for the parties to do.
26 Clause 12.4 of the Memorandum of Common Provisions did not fix any alternative period of time for the purposes of s76(1). Rather, it operated to dispense with and exclude “any temporal requirements without reference to s76 of the TLA” outlined in paragraph 8. He said the provisions of sections such as s76 should be construed strictly. He said the notice period under s76 could not be dispensed with. He referred to Fisher and Lightwood’s Law of Mortgage, 3rd Australian edition 2014 [4.37].
27 As to Clause 11.2 of the Letter of Offer, he said that it was “doubtful that this provision is incorporated into the Mortgage or otherwise overrides clause 12.4 of the MCP”. In any event, it purported “generically to exclude a prescribed notice period”, not fix an alternative one. (Outline, paragraph 10)
28 He said, in any event, Clause 10(c) of the Letter of Offer provided that there was no default until two days after the due date. Therefore, Spectra had “until midnight Sunday 16 February 2020 to pay”. If Clause 11.2 of the Letter of Offer did apply, one day’s grace period would have to be applied. (Outline, paragraph 11)
29 He said the notice served on 17 February “without waiting for that one day period” was invalid. The sale made in August 2020 was made without good title. (Ibid, paragraphs 12-13)
30 According to Mr Kirby, service of a further Notice of Default on 9 September 2020, only after the purported sale under the mortgagee’s power, could not be effective to authorise the prior sale. He denied any contention on the part of TMASL that it was sufficient to show that a power of sale had arisen as at the date of completion of the contract. (Ibid, paragraphs 14-16) He referred to Boston Peak Pty Ltd v Houghton [1999] QSC 48, BC 990 0902, Ambrose J, Supreme Court of Queensland, 16 March 1999 and St George Bank Ltd v Perpetual Nominees Limited [2011] 1 Qd R 389, 400-01 [60]-[61]. He said that I should conclude that the Contract of Sale was not expressed to be conditional upon a power of sale arising after it was entered into and before completion. (Ibid, paragraphs 18 and 19)
31 Finally, he denied that Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161, had any application as it was “relevant only to an application for an interlocutory injunction and also has no application where, as here, it is said that the statutory notice and power of sale are ineffective”. (Outline, paragraph 21)
Contentions on behalf of TMASL
32 Mr Salpigtidis, counsel for the first defendant, TMASL, opposed the grant of the relief sought in the Summons.
33 He referred to the various provisions in the Memorandum of Common Provisions and the Letter of Offer and Guarantee and Indemnity. He referred to the two-day period of grace incorporated in the relevant part of the definition of Event of Default which he said answered the description as being “such other period as is therein expressly fixed” as provided for in s76 of the Transfer of Land Act.
34 He said in any event, for the avoidance of doubt, the further default notice dated 9 September 2020 had been served at a time when not merely one month but many months had elapsed following the failure of Spectra to repay the principal sum on the due date. He relied on the judgment of Ward J, as her Honour then was in HG & R Securities Pty Limited v Sayer [2009] NSWSC 427, especially at [38]–[40]. It was sufficient, he said, in accordance with her Honour’s analysis, for TMASL to have an available mortgagee’s power of sale when the date for completion of its contract of sale arrived. The contract would not be invalidated were it found that no such power of sale existed when the contract was initially executed.
35 Further, according to Mr Salpigtidis, TMASL could rely on contractual and non-statutory powers of sale. Clause 9.3 of the Memorandum of Common Provisions, he said, bestowed the powers granted by the mortgage to a receiver appointed under its terms upon the mortgagee as well. He said that Clause 9.2(n) gave a receiver, and therefore the mortgagee, a power of sale. As a result, in considering whether to grant the injunction sought by Spectra, I should conclude that there was no serious question to be tried, and in any event damages would be an adequate remedy. He said that the balance of convenience did not favour the grant of an injunction, and in any event the principle of Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 pointed against the grant of an injunction unless Spectra paid into court the amount owing under the mortgage, which, as at 14 September 2020, exclusive of legal and receivers’ costs and expenses and costs of this proceeding, totalled $2,793,761.60.
Conclusions
36 I agree with the contention of Mr Kirby that the provision of Clause 12.4 could not be regarded as fixing an alternative period to the one-month lapse after default provided for in s76(1) of the Transfer of Land Act. Likewise, I would reject the contention by Mr Salpigtidis that the two days’ grace provided for in the definition Event of Default could be regarded as fixing an alternative period of time for the purposes of s76(1). The period of time provided therein of one month is the time after which, following default, a mortgagee is authorised under the statute to serve a statutory notice to pay under the mortgage. The two-day period in the definition of Event of Default is a period after which the mortgagee is entitled to take a range of enforcement actions but not specifically serve a statutory notice to pay.
37 In my view, however, TMASL is entitled to rely upon the statutory power of sale arising out of the service of the second notice to pay in September, albeit that that notice was served and expired after TMASL entered into the sale contract with the second defendant. In HG & R Securities Pty Limited v Sayer [2009] NSWSC 427, the plaintiff, HG & R Securities Pty Limited, sought damages for breach of a contract for the sale of land which it entered into as mortgagee. One of the matters relied on in resistance to HG & R’s claim was a contention that it “had no title to the property as at the date it terminated the Contract” [6]. The issue before the Court there did not relate to the service of a notice to pay, but rather, to the effectiveness of a transfer of debt and mortgage by Balanced Securities to HG & R. The defendant said that notice of transfer of mortgage was not given until after the relevant sale contract was entered into and after a notice to complete had been served under its terms. Her Honour noted the contentions on behalf of the defendant as follows:
“[38] If I understand her submission correctly, Ms Obrart contends that the statutory requirements for the valid exercise of a power of sale must have been complied with before entry into the relevant contract for sale of land by the mortgagee (T 36), but it may be that she was referring instead to the time at which the notice to complete was issued. Reliance was placed on Carr v Finance Corporation of Australia (1982) 150 CLR 139 which held that a power of sale arising under contractual documents (or a statutory power of sale for that matter) cannot be exercised prior to compliance with s 57(2)(b). What Carr makes clear, however, is that the significance of a failure by the mortgagee to comply with the statutory notice requirements is that the mortgagee cannot exercise its power of sale, but the existence of a contractual power of sale is not itself dependent on such compliance.”
[39] It is not disputed by Mr Young that until default in compliance by the mortgagor with the requirements of a valid s 57(2)(b) notice, H G & R Securities, as mortgagee in possession, could not proceed to sell the mortgaged property.
[40] However, it is clear that the vendor need not have good title when the contract of sale is made (Bell v Scott (1922) 30 CLR 387 at 392), provided that by the time for completion the vendor can confer good title on the purchaser, the principal obligation of the vendor being to convey an indefeasible title to the land on completion (Brickles v Snell [1916] 2 AC 599, as cited by Finkelstein J in Valoutin). Although in Valoutin his Honour went on to consider the circumstances in which a right of repudiation might be exercisable by a purchaser who discovers, prior to completion, that the vendor is neither able itself to convey nor to compel a conveyance by another to the purchaser (and whether, having exercised such a right of rescission, the purchaser might still be liable for damages if the vendor by the time for completion could make title), this issue does not arise here since no assertion as to lack of title was made by Mr Sayer prior to the date specified for completion (and to the extent that he treated the contract as subsisting over the period up to 23 March 2007, he may well have lost any right to repudiate – Halkett v Earl of Dudley [1907] 1 Ch 590; Bell v Scott).”
38 Having considered and rejected an array of alternative defences, her Honour granted judgment to HG & R.
39 Her Honour’s approach may be seen as inconsistent with the approach adopted by Ambrose J of the Supreme Court of Queensland in Boston Peak Pty Ltd v Houghton [1999] QSC 48, BC9900902, and the approach of Margaret Wilson J, also of the Supreme Court of Queensland, in St George Bank Ltd v Perpetual Nominees Limited [2011] 1 Qd R 389. In Boston Peak a mortgagor sought, as does the plaintiff in this proceeding, declaratory and injunctive relief against a mortgagee’s exercise of a power of sale. The applications were unsuccessful, and the declarations and injunctions were not granted. Part of the plaintiff’s claim depended upon “there being a triable issue as to whether the mortgagee’s [sic] have a right on the facts to exercise their power of sale.” (Boston Peak Pty Ltd v Houghton [1999] QSC 48, BC9900902 at [28]). This part of the plaintiff’s claim was rejected upon the authority of a decision of the English Court of Appeal in Farrar v Farrars Ltd (1888) 40 Ch D 395. That case, his Honour said, was:
“authority for the proposition that steps may be taken by a mortgagee to procure a purchaser in anticipation of the continuation of a mortgagor's default provided no sale is in fact effected prior to the expiration of the time limited by notices etc given under the s84 of the Property Law Act s84.” ([28], Boston Peak Pty Ltd v Houghton [1999] QSC 48)
40 This would be the equivalent of the one-month time period provided for in s77 of the Victorian Transfer of Land Act. The application was to restrain advertising the property for a mortgagee sale. No contract, it would appear, had been entered into. The implication of what was said in paragraph [28] is that it would be impermissible for a mortgagee to enter into a sale contract as mortgagee before the mortgagee’s power of sale in fact arose. This was not, however, a matter which arose for decision in Boston Peak.
41 In St George Bank Ltd v Perpetual Nominees Limited, the mortgagee sought a declaration that it could give good title to a purchaser with whom it had contracted a mortgagee’s sale. The relevant contract was entered into on 23 November 2009 and amended 23 December 2009, rendering it subject to the mortgagee’s power of sale becoming exercisable. The demand under s84 of the Queensland statute, the equivalent of s76 of the Victorian Transfer of Land Act, was served on 9 December 2009; that is, after the contract was initially entered into. Her Honour made the declaration sought by the mortgagee. Her Honour remarked:
“[60] Counsel for St George submitted that is clear that a mortgagee may take steps to exercise its power of sale by entering into a contract prior to obtaining the right to sell, provided the contract is conditional upon the power of sale being exercisable at the end of the requisite default period.[1] Counsel for the respondents accepted that principle, but submitted that contracts which were not subject to such a condition when they were made could not subsequently be varied in a way which would satisfy s 84.
[61] As I observed in the course of this oral submissions, I do not consider that there is any relevant distinction between a contract originally subject to such a condition and one that is varied so that it becomes subject to such a condition, so long as the variation takes place sufficiently in advance of the completion of the contract. Here the date for completion was fixed by reference to the fulfilment of a number of conditions, and it has not been suggested that the variation on 23 December 2009 was not sufficiently in advance of the date for completion to allow the 30 day period under the notice of exercise of power of sale to run.” [2011] 1 Qd R 389, 400-01
[1]Farrar v Farrars Ltd (1888) 40 Ch D 395 at 412–413; Boston Peak Pty Ltd v Houghton [1999] QSC 48 at [20]
42 Her Honour footnoted a reference to Farrar v Farrars Ltd and also to Boston Peak. These two Queensland authorities proceed upon the assumption that Farrar v Farrars Ltd stands for the proposition that a mortgagee’s sale contracted before the power of sale arises will be valid only if it is conditional upon the power of sale’s arising. It will be recalled that Ward J (as she then was) in HG & R Securities Pty Limited v Sayer concluded it was sufficient if the power of sale had arisen by the time that the vendor mortgagee was required to make title at completion.
43 Farrar v Farrars Ltd dealt principally with an argument that the relevant mortgagee’s sale was invalid because it was made to a company formed by the individual mortgagees for the purpose of purchasing the property. There was also a contention that the power of sale was exercised prematurely: that is, before the right to exercise it had arisen ((1888) 40 Ch D 395, 409). As to this latter point, Lindley LJ, speaking for the Court including himself and Cotton and Bowen LJJ, said:
“When the sale was completed the power had become exercisable, for although the six months’ notice had not expired the interest was more than three months in arrear.” ((1888) 40 Ch D 395, 414)
44 The six months’ notice referred to by his Lordship had been given 6 October 1885, with the contract’s being entered into 9 March 1886: that is, before the six-month period had elapsed. The trial judge, Chitty J, whose judgment was upheld by the Court of Appeal, dealt with the argument based on the alleged premature nature of the mortgagee’s contract of sale as follows:
“It was suggested rather than argued for the Plaintiffs that, inasmuch as the six months’ notice required by the terms of the power of sale had not, as to a part of the property, elapsed at the date of the contract of the 9th of March, 1886, the sale is invalid, at all events as to that part of the property; but there is nothing in this suggestion. The contract was not carried into execution until the conveyance was executed, and the six months had then expired and no circumstances had arisen in the meantime to affect the value of the quarries.”
45 The decision in Farrar v Farrars Ltd therefore is consistent with the approach taken by Ward J in the HG & R Securities case. The different approach adopted by Ambrose J in Boston Peak and Margaret Wilson J in the St George Bank case was in neither case essential to the outcome of the proceeding, and should therefore be regarded as obiter. In the St George Bank case, this view was assumed rather than determined by her Honour.
Disposition
46 The plaintiff’s application for relief should therefore be dismissed. I will reserve the question of costs.
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