Temwood Holdings Pty Ltd v Oliver - [2002] WASC 220

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: TEMWOOD HOLDINGS PTY LTD -v- OLIVER & ORS [2002] WASC 220

CORAM: McLURE J

HEARD: 28 AUGUST 2002

DELIVERED : 16 SEPTEMBER 2002

FILE NO/S: CIV 2008 of 1997
CIV 2173 of 1997
CIV 2244 of 1997
CIV 1248 of 2000
Consolidated by Order dated 29 March 2000

BETWEEN: TEMWOOD HOLDINGS PTY LTD
Plaintiff
AND
OSCAR NEIL BLACKBURNE OLIVER
First Defendant
ASEAN AUSTRALIAN ASSETS PTY LTD
Second Defendant
SLY AND WEIGALL (A FIRM)
Third Defendant
HAMMOND KING TOUYZ
Third Party
(BY ORIGINAL ACTION)
ASEAN AUSTRALIAN ASSETS PTY LTD
First Plaintiff
OSCAR NEIL BLACKBURNE OLIVER
Second Plaintiff
AND
TEMWOOD HOLDINGS PTY LTD
Defendant
(BY COUNTERCLAIM)

Catchwords:

Injunctions - Application for a mandatory injunction to discharge mortgage - Provision of a bank guarantee as substitute security - Whether adequate substitute - Whether costs of the action secured - Turns on own facts

Legislation:

Fair Trading Act 1987 (WA)

Town Planning and Development Act 1928 (WA), s 20A

Trade Practices Act 1974 (Cth)

Result:

Application dismissed

Category: B

Representation:

Original Action

Counsel:

Plaintiff:     Mr C B Edmonds SC & Mr J C Giles
First Defendant             :     Mr M J McPhee
Second Defendant         :     Mr M J McPhee
Third Defendant           :     No appearance
Third Party                   :     No appearance

Solicitors:

Plaintiff:     Solomon Brothers
First Defendant             :     Michell Sillar McPhee
Second Defendant         :     Michell Sillar McPhee
Third Defendant           :     No appearance
Third Party                   :     No appearance

Counterclaim

Counsel:

First Plaintiff                :     Mr M J McPhee
Second Plaintiff            :     Mr M J McPhee
Defendant:     Mr C B Edmonds SC & Mr J C Giles

Solicitors:

First Plaintiff                :     Michell Sillar McPhee
Second Plaintiff            :     Michell Sillar McPhee
Defendant:     Solomon Brothers

Case(s) referred to in judgment(s):

Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198
Temwood Holdings Pty Ltd v Asean Australian Assets Pty Ltd & Ors [2000] WASC 84
Temwood Holdings Pty Ltd v Oliver & Ors [2001] WASC 131

Case(s) also cited:

Connolly v Ryan (1922) 30 CLR 498
Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371
Fidelitas Shipping Company Ltd v V/O Exportchleb [1966] 1 QB 630
Gerlach v Clifton Bricks Pty Ltd (2002) 188 ALR 353
Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177
Leppington Pastoral Company Pty Ltd v Commonwealth of Australia (1997) 76 FCR 318
Lonrho plc v Fayed (No 2) [1992] 1 WLR 1
Ramsay v National Australia Bank Ltd [1989] VR 59
Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292
Re Martin & Budgen; Ex parte Amtron Australia Pty Ltd (1996) 62 FCR 438
Sharyn Development Co Pty Ltd (in liq) v Official Receiver in Bankruptcy (1980) 5 ACLR 1
Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407
Thompson Land Ltd v Lend Lease Shopping Centre Development Pty Ltd [2000] VSC 108

McLURE J:

Introduction

This is the plaintiff's application for a mandatory injunction requiring the second defendant to deliver to the plaintiff's solicitors a registrable discharge of registered mortgage F453301 ("the Mortgage") discharging the whole of the land the subject of the Mortgage from the whole of the money secured by the Mortgage. It is proposed that the second defendant's obligation to deliver up a registrable discharge of Mortgage be subject to the plaintiff simultaneously delivering to the second defendant or its solicitors a bank guarantee in the terms of that annexed to the plaintiff's application.
Clauses 1 and 2 of the guarantee materially provides:
"1.… the Bank guarantees to pay you forthwith, upon receipt of written demand made as specified in clause 2 below, the amount of any judgment, including interest and costs, but limited to $A1,000,000.00 … in total which may be adjudged due to you by the Bank's customer, Temwood Holdings Pty Ltd ('the Customer') in [these Proceedings] …
2.Demand under this guarantee must be made to the Bank in writing … and be accompanied by a statutory declaration of a certificated legal practitioner representing you in the Proceedings, to which must be annexed an office copy of a judgment in your favour in the Proceedings, including a judgment in your favour in any appeal from a judgment given in the Proceedings ('the Judgment'), and accompanied by this guarantee declaring:‑
(a)the amount due and owing to you under the Judgment on the date of demand; and
(b)that, on the date of demand:‑
(i)the execution of the Judgment has not been stayed, nor is any application to stay the execution of the Judgment pending and not finally resolved; and
(ii)the Judgment has not been varied or reversed on appeal."
The guarantee also provides that the bank would pay the second defendant pursuant to a demand made in accordance with cl 2 despite any direction or instruction to the contrary by or on behalf of the plaintiff and the bank would not be under any obligation to enquire as to the correctness or validity of the demand made. Further, it is noted that the guarantee is given as substituted security for the moneys (if any) secured by the Mortgage.
In this application, the parties are in dispute as to the scope of, and the amount of the money secured by, the Mortgage.

Background

The plaintiff is the owner of land at Singleton Beach in Western Australia known as Bayshore Gardens Estate ("land"). By a deed dated 18 September 1991 the plaintiff appointed the second defendant to act as its consultant with respect to the development of the land ("first management agreement"). Pursuant to the first management agreement, the plaintiff provided to the second defendant the Mortgage which is registered.
The plaintiff claims in the action, inter alia that the first defendant in his capacity as a director of the plaintiff, breached his fiduciary duties by causing the plaintiff to enter into the allegedly improvident first management agreement to its detriment and to the advantage of the second defendant, a company of which the first defendant was at all material times a director and shareholder. The second defendant is alleged to have dishonestly, or knowingly, participated in and been a party to the first defendant's breaches of fiduciary and other duties. The plaintiff claims an injunction requiring the second defendant to discharge the Mortgage forthwith alternatively, a declaration that the second defendant holds on constructive trust the benefit of the provisions of the first management agreement and the Mortgage.
It is accepted by the relevant parties that the first management agreement has been terminated. The plaintiff says the second defendant repudiated it and the plaintiff accepted the repudiation. The second defendant says the plaintiff repudiated it and the second defendant accepted the repudiation.
The second defendant by counterclaim claims two amounts said to be secured by the Mortgage. The first is an amount of $192,500 which was the subject of an invoice first rendered by the second defendant to the plaintiff in June 1994 and again in August 1999. The second is a fee said to be payable by the plaintiff to the second defendant pursuant to the first management agreement for its termination. The amounts claimed together with interest thereon is now said by the first defendant in an affidavit sworn in opposition to this application to be in excess of $800,000.
It is unnecessary to provide further detail of the claims and counterclaims in the action. That information can be obtained from Steytler J's reasons in Temwood Holdings Pty Ltd v Asean Australian Assets Pty Ltd & Ors [2000] WASC 84 ("the first injunction application").
The plaintiff has sought and obtained on two previous occasions a mandatory injunction for the discharge of the Mortgage in relation to part of the land the subject of the Mortgage. Pursuant to cl 21 of the Mortgage, the plaintiff could require the second defendant to provide a partial discharge if, inter alia, the plaintiff had paid all accounts rendered by the second defendant pursuant to the first management agreement. On both occasions, the second defendant remained more than adequately secured notwithstanding the partial discharge of the Mortgage. It was accepted by the parties in those applications that the amount in issue (for the purposes of cl 21 of the Mortgage it seems) was $657,325 and $700,000 respectively.
Steytler J made orders in the first injunction application for the provision of a registrable discharge of the Mortgage from what is described as the Retirement Village Land and the North‑east Sector Land. However, settlement of the sale of that land did not proceed and the obligations to provide registrable discharges were not activated. Further, in the case of the North-east Sector Land the Western Australian Planning Commission ("Commission") had imposed a condition of subdivision that other land described as the Foreshore Reserve Land, be vested in the Crown under s 20A of the Town Planning and Development Act ("TPDA") free of cost and without any payment of compensation by the Crown ("Foreshore condition"). The settlement of the sale of the North-east Sector Land could not take place until, inter alia, the Foreshore Reserve Land had been ceded to the Crown. The plaintiff challenged the validity of the Foreshore condition in an appeal to the Town Planning Appeal Tribunal ("Tribunal"). It was unsuccessful in that appeal. The plaintiff then appealed to a single Judge of this Court from the Tribunal decision. I heard the appeal and dismissed it. My decision was overturned by the Full Court. In lieu of the Foreshore condition the Full Court made orders by consent imposing a condition requiring public access easements in favour of the City of Rockingham over parts of the Mortgaged land. The Commission has applied for special leave to appeal to the High Court from the Full Court's decision.
Pursuant to the condition imposed by the Full Court, the plaintiff negotiated the terms of two easements with the City of Rockingham. The plaintiff's solicitors wrote to the defendants' solicitors in July 2002 seeking the second defendant's consent to the easements. The second defendant has persisted in its failure to endorse its consent on the easements.
In the second injunction application, which came before me, the defendants applied to discharge the injunctions granted by Steytler J and the plaintiff applied for further mandatory injunction in relation to, inter alia, the Foreshore Reserve Land. I varied the orders made by Steytler J concerning the Retirement Village Land and the North‑east Sector Land by, inter alia, inserting a sunset clause so that the obligations in relation to that land would expire approximately 12 months from the date of the making of the order. As the sale or settlement of the sale of the land did not occur within the specified period, the injunctions lapsed.

Legal Principles – Mandatory Injunction

I respectfully agree with and adopt the statement of legal principles in pars 21‑23 of Steytler J's reasons in the first injunction application.

Serious Question

In par 11 of my reasons for decision in the second injunction application (Temwood Holdings Pty Ltd v Oliver & Ors [2001] WASC 131), I concluded that there was no evidence of changed circumstances which impacted on Steytler J's conclusion at pars 24‑28 of his reasons (with which I agreed) that the parties' claims in the action raised serious questions to be tried and the strength of the claims were not such, on the evidence as it stood, as to materially affect the balance of convenience.
An additional matter now relied on by the second defendant arises from an amendment to insert par 146A in the defence and the plaintiff's reply to that paragraph. The defendants plead in par 146A that the plaintiff did not rescind the first management agreement and has not claimed an order for rescission in which case it is said, as a matter of law, there can be no constructive trust in the terms sought by the plaintiff. The defendants rely on the Full Court decision in Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198 to the effect that a contract made in consequence of a breach of fiduciary duty is voidable and must be avoided to obtain equitable proprietary relief by way of a constructive trust.
The plaintiff's claim for a constructive trust is in the alternative to a claim for specific performance of what is pleaded as an "Agreement to Vary". In particular, the plaintiff pleads that prior to execution of the first management agreement, the plaintiff and the second defendant agreed that the plaintiff would thereafter be entitled to have the first management agreement varied if the plaintiff had any objections to any of its provisions. Thus, the claim for a constructive trust is for the purpose of giving effect to the Agreement to Vary. Further, it is common cause that the first management agreement has been terminated. It is at least arguable that this case is distinguishable on its facts from the Hancock Family case.
I am satisfied that the plaintiff's claim for a constructive trust does give rise to a serious question to be tried. In any event, the claim for a constructive trust is only one basis for the relief claimed by the plaintiff in relation to the Mortgage. That relief includes a claim for the discharge of the Mortgage in equity and pursuant to the Trade Practices Act 1974 and Fair Trading Act 1987.
I am of the opinion that the amendment to the pleadings is not a material change in circumstances which warrants or justifies a departure from Steytler J's conclusions in the first injunction application in relation to a serious question to be tried, with which I remain in agreement.
However, an issue has arisen in this application which has not previously been considered. It is whether the second defendant's costs associated with this litigation are secured by the Mortgage. Although the issue does not arise on the current pleadings, it is material to the disposal of this application. I will deal with it in the context of the balance of convenience.

Balance of Convenience

The central issue is whether the refusal of the plaintiff's application would give rise to disproportionate prejudice or hardship to the plaintiff, as against the prejudice or hardship that its grant would cause the second defendant. In particular, the question is whether the second defendant will remain more than adequately secured if the interlocutory relief is granted.
In large measure, the answer to that question depends upon what the Mortgage actually secures. The plaintiff says the Mortgage only secures moneys payable by the plaintiff to the second defendant pursuant to the first management agreement. In particular, it says the second defendant's costs of the action are not secured by the Mortgage. The second defendant says its costs of the action are secured by the Mortgage.
The Mortgage provides that for the purpose of securing payment of the "Secured Moneys", the plaintiff mortgaged to the second defendant the legal and beneficial estate and interest of the plaintiff in the Mortgaged Property (cl 1.2). Mortgaged Property is defined to include the land. The Secured Moneys are defined to mean "all moneys payable by the [plaintiff] to the [second defendant] pursuant to the [first management agreement]".
The plaintiff says the definition of the Secured Moneys excludes, inter alia, costs. However, the definition must be read in the context of the Mortgage as a whole and in particular cl 11.1(1) and (2) and cl 17.
Clause 11 relates to the application of moneys received as a result of the exercise by the second defendant of its rights and powers under the Mortgage. It materially provides:
"11.1Moneys received as a result of the exercise by the Mortgagee of its rights and powers under this Mortgage shall, after satisfaction of any claims taking priority over this Mortgage, be applied as follows:
(1)first, in or towards discharge of that part of the Secured Moneys being costs, charges and expenses and any other amounts incurred in or incidental to the exercise or attempted exercise or enforcement by the Mortgagee or a Receiver of any rights or powers under this Mortgage;
(2)secondly, in or towards discharge of that part of the Secured Moneys being the Receiver's remuneration."
Clause 11 suggests that the moneys secured by the Mortgage may not be confined to moneys due and payable under the first management agreement.
Clause 17 of the Mortgage concerns the second defendant's right of indemnity and is in the following terms:
"17.The Mortgagee and every substitute acting as attorney appointed under this Mortgage shall be indemnified out of the Mortgaged Property:
(1)for all liabilities and expenses incurred in the exercise or attempted exercise of any rights or powers under this Mortgage;
(2)against all actions, proceedings, costs, claims and demands in respect of any matter or thing done or omitted in any way relating to the Mortgaged Property."
The plaintiff submits that on its proper construction, cl 17 only applies once the mortgagee has taken steps to exercise its default based powers under the Mortgage. It is not so confined in terms and is not obviously mandated by commercial considerations. Further, it is arguable that some, if not all, of the matters in issue between the plaintiff and the second defendant in the action come within the scope of cl 17.1(2) of the Mortgage and that costs on an indemnity basis are arguably secured because the second defendant is to be indemnified "out of the Mortgaged Property".
However, in my view it is inappropriate and unnecessary to make a determination in this interlocutory application as to the proper construction of the Mortgage and whether the defendant's costs are secured. It is sufficient if the second defendant has an arguable case to that effect. In my view it has.
The question then is whether the bank guarantee affords a substitute security as good as the Mortgage. In a letter dated 1 August 2002 the defendants' solicitors informed the plaintiff's solicitors that the amount payable to the second defendant under the first management agreement was now $800,000 and that the total costs incurred to the end of the trial were estimated as exceeding $750,000. The defendants were prepared to accept a bank guarantee in the sum of $1.6 million together with a consent order to the effect that pending the outcome of any trial the plaintiff would not deal with the net proceeds from the settlement of the sale of any part of the Mortgaged Property up to a limit of $1.2 million. The second defendant did not provide evidence to substantiate its assertion as to the costs estimate. I note the plaintiff has provided security for the costs of this action although I was not provided with details of the security or the extent to which the second defendant is protected for all of its costs.
However, if the second defendant's costs associated with this action are secured, there is a difficulty in safely selecting a ceiling or maximum amount which is or may be appropriate in the circumstances. As Steytler J observed in his reasons in the first injunction application, this is bitterly contested litigation. Appeals may be expected. Further, the guarantee is limited to costs awarded by the Court in its judgment rather than indemnity costs under the Mortgage.
The plaintiff addresses matters going to the balance of convenience in its favour in an affidavit sworn by Mr Bruce Chin on 1 August 2002. The second defendant has failed to indorse its consent to the easements. Further, it appears from Mr Chin's affidavit that the plaintiff is now or will shortly be in a position to proceed to settlement of the sale of the Retirement Village Land and of 22 residential lots which have been sold for a total consideration of $1,183,000. The plaintiff will be financially prejudiced if the settlements are delayed because of the second defendant's refusal to provide a partial discharge of the Mortgage in relation to these sales. The plaintiff also refers to the potential prejudice to third parties who have entered into contracts to purchase the 22 residential lots.

Thus, the prejudice arises because of the plaintiff's inability to settle the sales of part only of the Mortgaged land and the second defendant's refusal to consent to the easements. I accept that the Mortgage was given by way of security and should not be used as leverage for collateral purposes or motives. However, to seek a discharge of the Mortgage from all of the land without providing adequate substitute security for all amounts (present and future) which are arguably secured, is disproportionately prejudicial to the second defendant. I am not satisfied on the evidence presented to me that the guarantee, even if increased in amount to $1.6 million, would be adequate substitute security in quantum or scope to protect the second defendant. Different considerations would apply if an application was confined to a partial discharge of Mortgage in relation to those properties sold for full value where settlement is being delayed by the existence of the Mortgage.
A further issue arose during argument as to whether, if the plaintiff was insolvent at any material time, the defendant's position pursuant to the guarantee would be prejudiced. My preliminary view is that the defendant would not be prejudiced. However, in the circumstances it is unnecessary to consider the plaintiff's solvency and its impact, if any, on the guarantee.
For these reasons I propose to dismiss the plaintiff's application.