Stacks Managed Investments Ltd v Tolteca Pty Ltd
[2015] QSC 234
•17 July 2015
SUPREME COURT OF QUEENSLAND
CITATION: Stacks Managed Investments Ltd v Tolteca Pty Ltd [2015]
QSC 234PARTIES: STACKS MANAGED INVESTMENTS LTD (applicant) v TOLTECA PTY LTD (respondent) FILE NO/S: 1001 of 2014 DIVISION: Trial PROCEEDING: Application DELIVERED ON: 17 July 2015 DELIVERED AT: Brisbane HEARING DATE: 17 July 2015 JUDGE: Bond J ORDER: Judgment delivered ex tempore on 17 July 2015: The order of the court is that: 1. the application be dismissed;
2. Tolteca pay Stacks’ costs of the application to be
assessed on the standard basis.
3. Tolteca pay the costs of the Receivers over and above any costs that were jointly incurred with Stacks of and incidental to the application.
CATCHWORDS:
EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – MANDATORY INTERLOCUTORY INJUNCTIONS – RELEVANT CONSIDERATIONS – BALANCE OF CONVENIENCE GENERALLY – whether serious question to be tried – prejudice to the respondent caused by granting the injunction – whether the effect of the injunction is to finally determine the parties’ legal rights
CONTRACTS – FINANCIAL SERVICES – prohibition of unconscionable conduct in supply of financial services – loan agreement – where the applicant defaulted under a loan agreement – claim for relief of obligations under that agreement – whether unconscionable for the respondent to
have provided loan in the circumstances Australian Securities and Investments Commission Act 2001 (Cth), ss 12CB, 12GD, 12GF, 12GM Active Leisure (Sports) Pty Ltd v Sportsman’s Australia Limited [1991] 1 Qd R 301, cited
American Cyanamid Co v Ethicon Ltd [1975] AC 396, citedAustralian Broadcasting Commission v O’Neill (2006) 227 CLR 57, cited
Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968)
118 CLR 618, citedBowen Central Coal Pty Ltd v Aquila Coal Pty Ltd & Anor [2011] QCA 334, cited
Bradto Proprietary Limited v State of Victoria [2006] VSCA
89, citedKellogg Brown & Root Pty Ltd v Australian Aerospace Ltd [2007] VSC 200, considered Live Earth Resource Management Pty Ltd v Live Earth LLC (2007) FCA 1034, cited considered
Samsung C & T Corporation v Laing O’Rourke Australia Construction Pty Ltd [2015] WASC 83, cited
Stacks Management Investments Ltd v Tolteca Pty Ltd [2015]
QSC 80, citedWalter Sofronoff, “Interlocutory Injunctions Having Final Effect” (1987) 61 ALJ 341 COUNSEL: N H Ferrett for the applicant D B O’Sullivan with D J Ananian-Cooper for the respondent SOLICITORS: Turner Freeman Lawyers for the applicant McCullough Robertson for the respondent
HIS HONOUR: The relationship between the parties before me is sufficiently articulated in my decision in Stacks Management Investments Ltd v Tolteca Pty Ltd [2015] QSC 80 at [4].
5 In proceeding 1001 of 2014 (the “Stacks proceeding”), Stacks sued Tolteca seeking
an order for recovering possession of land at 9847 Mt Lindsay Highway. Stacks had lent the moneys which Tolteca used for the joint venture land development transaction. Tolteca was in default and the land at 9847 Mt Lindsay Highway was security for that loan. Tolteca had counter-claimed for relief founded on
10 unconscionable conduct by Stacks in the giving of the loan in breach of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth).
To that summary needs only be added the observation that in exercise of power granted to it under the relevant security instrument, Stacks appointed receivers over
15 the property the recovery of which seeks and also some other property. I will refer to
the former property as “the subject property”.
The trial of issues which arise in the Stacks proceeding is to take place over four days next week.
20
The relevant events were as follows:
(a) On 16 May 2015, Tolteca purported to enter into an agreement to sell the subject property by private treaty. 25
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3. A discharge of the Mortgage will be provided following a tender to our client of all
money owing under the Mortgage, in accordance with our client’s ordinary rights as
mortgagee.
4. The money owing under the Mortgage includes principal, interest and costs incurred to
the date of settlement, together with our client’s subsequent costs incurred in the current
proceedings, and any other costs secured by the mortgage and not yet incurred at the date of
settlement.
5. The payout figure for our client’s mortgage will therefore include an estimate of our
client’s future costs secured by the mortgage.
45 (I interpolate that the security upon which Stacks relied conferred on it the legal right to insist on full payment before it was obliged to grant a discharge to Tolteca.)
(d) On Sunday 21 June 2015, Tolteca conducted an auction of the subject property, 50 at which time the property was passed in at $1.1 million, but following which a contract was privately negotiated for a contract price of $1.2 million. The contract was subject to obtaining the consent of the receivers which had been appointed by Stacks.
(e) On Tuesday 23 June 2015, Stacks wrote to Tolteca noting that it had been advised that an auction had been held on 21 June 2015 and that a sale had occurred, requesting a complete copy of any contract of sale and asking for
5
Tolteca’s authority for the proposition that it was empowered to sell property to
which receivers had been appointed.
| 10 | (f) | On 23 June 2015, Tolteca wrote to Stacks indicating that they accepted that |
| Tolteca was not in a position to sell the property other than with the receivers’ | ||
| consent and for that reason had only sold the property conditional on the | ||
| receivers’ consent being provided and inquiring of Stacks whether Stacks | ||
| would urgently seek instructions as to whether Stacks would direct the | ||
| 15 | receivers to consent to the sale. Obviously the proceeds would be paid into Court or held in a trust account pending resolution of the current litigation. | |
| (g) | On 25 June 2015, Stacks wrote to Tolteca re-iterating that it would provide discharges of its securities and retire the receivers if the entire proceeds of sale | |
| 20 | were paid to Stacks at settlement on account of its debt currently owing under the mortgage and further costs to be incurred by Stacks in the litigation as secured under the terms of the mortgage. | |
| (h) | On 7 July 2015 and again on 10 July 2015, Tolteca repeated its proposal that | |
| 25 | the proceeds of sale be paid into Court. |
Stacks’ position before me is that it objects to the proposal that the sale proceed,
other than in circumstances in which its entire debt was paid to it. The sale is
scheduled for completion on 7 August 2015.
30
Against that background, Tolteca seeks orders, the effect of which would be to require Stacks to take such steps as would be necessary to allow the sale to proceed. Stacks submitted to me that the appropriate orders would be:
| 35 | (a) | an order compelling Stacks to terminate the appointment of the receivers, as receivers of the subject property; |
| (b) | an order compelling Stacks to discharge the mortgage; and | |
| 40 | (c) | an order compelling Tolteca to pay the proceeds of sale into Court. |
As I’ve mentioned, Stacks and the receivers opposed the making of any such orders.
It became clear during the hearing that no relief was being pursued against the receivers.
45
On the evidence before me, the amount available after sale of the subject property would not be sufficient to accord to Stacks the full measure of its legal rights under the security. The evidence was that the payout figure under the mortgage as at 15
July was $1,248,840.47, but that if – and Stacks contended that this should occur –
the payout took into account the estimated legal fees which Stacks was entitled to regard as part of the secured amount, the payout figure would amount to $1,306,009. Stacks insists on its legal rights under the security that it cannot be obliged to discharge its mortgage for anything less than full payment.
5
For its part, Tolteca says that it is seeking a remedy in the trial next week that the security on which Stacks relies should be set aside. In other words, that it has an argument that Stacks should not be afforded the legal rights which it seeks to exercise by reference to its security.
10
It seems to me that the appropriate analytical framework to be applied is that which is applicable to an interlocutory mandatory injunction having final affect. I think that is so because the granting of the injunction would effectively finally resolve against Stacks the question of whether it had the right to refuse to discharge the mortgage
15 except upon final payment and effectively to stymie the sale.
The law in Australia has long regarded it to be necessary to make two main inquiries:
(a) whether the applicant has shown that it has a prima facie case; and 20
(b) whether the applicant has shown that the balance of convenience favours the granting of the relief claimed. As to the requirement that a prima facie case be established, in Live Earth Resource
Management Pty Ltd v Live Earth LLC (2007) FCA 1034 at [11] - [13], Stone J explained and summarised the position as follows:
[11] In Australian Broadcasting Commission v O’Neill (2006) 227 CLR 57, the High Court has
recently affirmed that in Australia, the principles relevant to the grant of an interlocutory
injunction are those laid down in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 662-3 where the Court said that in dealing with applications for interlocutory injunctions it addresses itself to two main inquiries:
The first is whether the plaintiff has made out a prima facie case, in the sense that if the
evidence remains as it is there is a probability that at the trial of the action the plaintiff will
be entitled to relief… The second inquiry is… whether the inconvenience or injury which the
plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed
by the injury which the defendant would suffer if an injunction were granted.
[12] In O’Neill Gummow and Hayne JJ (with whom Gleeson CJ and Brennan J, in their
separate joint judgment agreed) quoted this comment and, at 478, added the following
explanation:By using the phrase “prima facie case”, their Honours did not mean that the plaintiff must
show that it is more probable than not that at the trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial.
[13] Their Honours also referred to the additional comment in Beecham to the effect that the
strength of the prima facie case required depends on the nature of the nature of the rights asserted by the applicant for relief and the practical consequences likely to flow from the order the applicant seeks. This latter comment illustrates that the two inquiries referred to by the Court in Beecham are interlinked so that the weight of considerations in regard to one may well affect the other.
I observe parenthetically that I will return to the significance of the strength of the
5 case that Tolteca must demonstrate before me.
As to the balance of convenience, the considerations which the Court brings to bear in the assessment of the balance of convenience are many and varied. The position was recently and authoritatively re-stated in Bowen Central Coal Pty Ltd v Aquila
Coal Pty Ltd & Anor [2011] QCA 334, where Fraser JA, with whom White JA and Margaret Wilson AJA agreed:
(a) approved (at [36]) the seminal description of the object of an interlocutory injunction in cases of this kind made by Lord Diplock, (with whose reasons 15 Viscount Dilhorne and Lords Cross, Salmon and Edmund–Davies agreed) in
American Cyanamid Co v Ethicon Ltd [1975] AC 396 (at 406):
The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages
recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the
uncertainty were resolved in the defendant's favour at the trial.
(b) gave qualified approval (at [38] – [39]) to Lord Diplock’s further statement (at 408) of the manner in which a Court should consider whether the balance of
convenience favoured the grant or refusal of the relief:
30
As to that, the governing principle is that the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the
loss he would have sustained as a result of the defendant’s continuing to do what
was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no
interlocutory injunction should normally be granted, however strong the plaintiff’s
claim appeared to be at that stage. If, on the other hand, damages would not provide
an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to
be enjoined, he would be adequately compensated under the plaintiff’s undertaking
as to damages for the loss he would have sustained by being prevented from doing
so between the time of the application and the time of the trial. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction.
It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of balance of convenience arises. It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to
suggest the relative weight to be attached to them. These will vary from case to case.
(I interpolate that the qualification was that Fraser JA noted that it had been
held in Active Leisure (Sports) Pty Ltd v Sportsman’s Australia Limited
[1991] 1 Qd R 301 that the adequacy of an award of damages and the
10 availability or sufficiency of an undertaking on the part of the plaintiff must
be considered “as part of the totality of determining the balance of
convenience and not as a step anterior thereto”.)
(c) concluded (at [38]) that the statement by Gummow and Hayne JJ in Australian
Broadcasting Corporation v O’Neill, that the balance of convenience inquiry
involved an inquiry into whether the inconvenience for injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted was consistent with that of Lord Diplock and was not intended to
20 suggest a different manner of proceeding.
It remains to make two further observations as to the law.
First, the progression of the two main inquiries is not a mechanical exercise. In
25 considering whether or not to grant an interlocutory injunction pending a final hearing, the Court must weigh up all the relevant factors in order to take the course which appears to carry the lower risk of injustice. This was emphasised by Hansen J in Kellogg Brown & Root Pty Ltd v Australian Aerospace Ltd [2007] VSC 200 at
[45] – [48], where his Honour referred with approval to observations made in the
30 Victorian Court of Appeal in the decision of Bradto Pty Limited v State of Victoria [2006] VSCA 89 at [35] that:
… whether the relief sought is prohibitory or mandatory, the court should take whichever
course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’ in
the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.
Hansen J went on to say further that it was also well established that in considering where the lower risk of injustice lies, all relevant factors were to be considered
40 overall. That meant that matters pertaining to the strength of the case to be tried and the balance of convenience were to be weighed in the balance and that was because the several elements related to each other.
Second, in the circumstances of this case, given that the effect of granting the
45 injunction would be to alter the status quo and effectively finally to determine
Stacks’ legal rights against Stacks and in advance of next week’s trial, I would be minded to require a high degree of assurance as to Tolteca’s case that Stacks should
not be afforded its legal rights to insist on full payment in the amount sought before
agreeing to discharge its mortgage.In this regard I note that in the recent decision of Samsung C & T Corporation v Laing O’Rourke Australia Construction Pty Ltd [2015] WASC 83, Edelman J 5 observed, at [68], that the fact that:
…the grant of a mandatory injunction has the effect of determining an issue without a full
hearing is a relevant, and sometimes very significant, consideration which can militate against
the award of a mandatory injunction.
10
His Honour cited observations by Gummow and Hayne JJ in Australian
Broadcasting Corporation v O’Neill at [72] and the article by Mr Sofronoff, entitled
“Interlocutory Injunctions Having Final Effect” (1987) 61 ALJ 341 at 349.
15 In his article, Mr Sofronoff observed in the last few paragraphs of his articulation of the relevant principle as follows:
(7) Where, however the realities of the case are such that the grant or withholding of relief will have the practical effect of putting an end to the action by granting a successful party all he
seeks, or because the harm caused to the losing party will be complete and for which money cannot constitute any worthwhile recompense, then it is necessary to consider the likelihood that the plaintiff will succeed.
(8) In such a case, generally an injunction ought not be granted if the consequence is to deny a
defendant an effective right to a trial, if the defendant has put forward a fully arguable case
raising a triable issue and if the plaintiff’s case is not overwhelming.
Proposition (7) is not entirely apposite in the circumstances of this case. However, because, as I have indicated, the effect of granting the injunction sought by Tolteca
30 would be finally to determine an aspect of Stacks’ legal rights against it, it does seem
to me that I ought regard it as important for Tolteca to demonstrate to me the
appropriate high degree of assurance as to the strength of its case.I turn to consider the two major inquiries.
35
First, the prima facie case inquiry.
Tolteca’s argument relied on its pleaded case at next week’s trial where its
counterclaim seeks the following relief:
40
(a) an order pursuant to s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) (“the Act”) setting aside the mortgage;
(b) in the alternative to (a), pursuant to s 12GD of the Act, an injunction
45 permanently restraining the plaintiff from enforcing the mortgage;
(c) an order pursuant to s 12GM of the Act setting aside the loan agreement; and (d) further or alternatively, damages pursuant to s 12GF of the Act in such matters 50 would otherwise be necessary to pay out the loan.
The basis for the relief is that by granting the loan and accepting the mortgage in circumstances pleaded earlier in the counterclaim, Stacks had engaged in unconscionable conduct in contravention of s 12CB of the Act.
5 The relevant circumstances alleged to ground the conclusion that the conduct was unconscionable were set out in paragraphs 20 to 21 of the counterclaim, the text of which forms annexure A to these reasons for judgment.
I observe that much of what is pleaded in those paragraphs is in issue in the trial and
10 this appears by reference to paragraphs 24 to 30 of the reply and answer, the text of which forms annexure B to these reasons for judgment.
Stacks points out that there is no evidence other than the pleading supporting the case
today. It submits that a person in Tolteca’s position seeking a remedy of the nature
15 which it seeks could have come before this Court with evidence supporting the alleged case, but has not. I observe that given there is a trial next week, one would have expected that the evidence would have been easily available. Faced with this argument, Tolteca pointed to paragraph 2(g) of the reply which admitted an
allegation concerning Stacks’ policy in determining whether or not to lend on the
20 strength of mortgage over real property, the admission being:
Our compliance plan identifies the need to consider a borrower’s income in approving a loan.
Given our low LVR requirements, we do not usually given extensive consideration to a
borrower’s income on the basis that there is sufficient equity in the mortgaged property to
secure the loan.
Tolteca also drew my attention to observations by Basten JA in Perpetual Trustee Co
Ltd v Khoshaba [2006] NSWCA 41 at [128].
30 Having regard to all those matters, I am not minded to regard the case of Tolteca as anything other than an arguable case that some degree or other of unconscionable conduct might be established at trial.
Bearing in mind the absence of evidence addressing the matters in issue, I do not
35 think that I can presently reach the view that there is a high degree of assurance that Stacks should not be afforded its legal right to insist on full payment of the amount sought before agreeing to discharge its mortgage.
I turn to consider the second element of inquiry, namely balance of convenience.
40
Although a number of factors were suggested, it seemed to me that the prejudice which Stacks would suffer if the injunction was granted to Tolteca, but Tolteca failed
at trial, was essentially –
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I should observe that these two matters are related, but, it seems to me, distinct. In other words, I think there is a distinct value in the existence of legal rights which give a mortgagee the power to control the manner in which secured property is sold.
5 On the other hand, the prejudice which Tolteca would suffer if the injunction was refused and Stacks should fail at the trial, was essentially the possibility that the current sale would be lost, the contract never having become unconditional, and the subject property might not be sold for that price again. In other words, Tolteca might have lost some part of the value of the sale.
10
In relation to the question of value of the subject property, with one exception the parties were agreed that the evidence addressing value was adequately summarised in my previous judgment at [26](a) and [26](d). I quote:
| 15 | (a) | Stacks adduced evidence as to the value of the property at 9847 Mount Lindsay Highway. A market appraisal by a real estate agent valued the property at $920,000 to $970,000. An indicative assessment of market value from a valuer initially valued the property at $925,000 to $975,000. However, upon considering the evidence adduced by Tolteca and carrying out further investigations, the valuer |
| 20 | revised the figure upwards to $1.2 million to $1.3 million, subject to a discount of as much as 10 per cent for sale by a mortgagee in possession. | |
| … | ||
| (d) | For its part, Tolteca adduced evidence on information and belief concerning a | |
| 25 | different real estate agent’s opinion of the fair value of the property. That real estate | |
| agent thought that a figure of $1.4 million to $1.5 million would represent fair value | ||
| in the current market. … |
I mentioned that that concession was subject to an exception. That exception
30 concerned such inferences as could be gleaned from the fact of the proposed sale and the evidence concerning the manner in which the proposed sale was obtained. That evidence was contained in an affidavit by a real estate agent relied upon by Tolteca. The real estate agent:
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45 were a lot of persons present at the auction and the agent regarded it to be a great turn out, the highest offer made was $1.1 million and the property was passed in.
Following the auction, as I have already mentioned, a sale price was negotiated
50 privately with the bidder who made the offer at $1.1 million to an increased price of $1.2 million.
For its part, Stacks pointed to the fact that although Tolteca offered the usual undertaking as to damages, there was no evidence that Tolteca was actually a
5 company of substantial value because there was no evidence that it had any capacity to pay. Such evidence that there was, was contained in the pleading, which revealed that Tolteca could not pay what it was obliged to pay Stacks under the security.
By way of conclusion, I have to carry out a balancing exercise. Where then does the
10 lower risk of injustice lie in the all the circumstances of this case, bearing in mind the
law as I have identified it and the various contended prejudices that I’ve discussed
under the heading balance of convenience?
Bearing in mind the considerations to which I have adverted, it seemed to me that
15 there is no compelling case that granting the injunction would give rise to the lower risk of injustice. Given the fact that Tolteca, as applicant, bore the onus of proof, I consider that it has failed to persuade me that I should grant the relief it sought.
Accordingly, I dismiss the application.
20
…
HIS HONOUR: I order that the applicant, Tolteca, pay Stacks’ costs of the
application, to be assessed on the standard basis.
25
...
HIS HONOUR: From the outset the receivers were represented by the same counsel and the same solicitors as had been retained by Stacks. After I recorded the order
30 made in favour of Stacks for costs, counsel for Stacks and the receivers applied for an order that Tolteca pay the costs of the receivers of and incidental to this application. I agree that the receivers are entitled to their costs. I am concerned, however, that there be no double recovery.
35 In other words, to the extent that there were costs jointly incurred by both Stacks and the receivers the effect of the orders I make should be only that those costs be paid once by Tolteca.
MR O'SULLIVAN: The costs over and above, which are separate and attributable
40 only to the receivers should be recoverable, your Honour.
HIS HONOUR: Yes. So the order that I will make, accepting the observation which the transcript will record as just made by counsel for Stacks and the receivers, is that Tolteca pay the costs of the receivers over and above any costs that were
45 jointly incurred with Stacks of and incidental to the application.
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