Thompson v National Australia Bank Ltd
[2013] VSC 400
•5 AUGUST 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2013 3476
| AMANDA JANE THOMPSON | Plaintiff |
| v | |
| NATIONAL AUSTRALIA BANK LTD (ABN 12 004 044 937) | Defendant |
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JUDGE: | ELLIOTT J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 2 AUGUST 2013 | |
DATE OF JUDGMENT: | 5 AUGUST 2013 | |
CASE MAY BE CITED AS: | THOMPSON v NATIONAL AUSTRALIA BANK LTD | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 400 | |
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INJUNCTIONS – interlocutory injunction – applicable legal principles – mortgagee in possession – alleged compromise to sell to specified third party – option to buy back from specified proposed purchaser – proposed purchaser now denies agreement to purchase – whether serious question to be tried – balance of convenience – whether damages an adequate remedy – application to join proposed purchaser as second defendant.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | A. Rodbard-Bean | Champions Lawyers |
| For the Defendant | A. Segal | Thompsons Lawyers |
HIS HONOUR:
A. Introduction
By summons filed 8 July 2013 the plaintiff, Amanda Thompson (“Thompson”), made application for interlocutory relief against the defendant (“NAB”). Thompson sought to prevent NAB from selling or disposing of a property located at 607 Toorak Road, Toorak in the State of Victoria (“the Property”). NAB is the mortgagee pursuant a mortgage of the Property (“the Mortgage”).
The matter came before me on 9 July 2013 in the Practice Court. On that occasion, upon Thompson giving the usual undertaking, orders were made by consent restraining NAB from selling the Property until 4.00 pm on 24 July 2013.
The matter came before me again on 24 July 2013.[1] On that day I ordered that the matter be set down for trial on 5 August 2013 on an estimate of 1 day. With the consent of the parties, I extended the interlocutory injunction until 4.00 pm on 5 August 2013.
[1]An application was made and the matter came before me on 17 July 2013. No orders were made on that day other than reserving costs. It is not necessary to go into the detail.
For reasons that will become apparent, the trial was not able to proceed on 5 August 2013. In the circumstances, the parties have now contested the issue of whether the interlocutory injunction ought to extend beyond 4.00 pm today.
For the reasons that follow, the injunction should not be extended.
B. Relevant principles
The principles relating to injunctive relief may be summarised as follows:[2]
[2]See, for example, Perfection Fresh Australia Ltd v Melbourne Market Authority [2013] VSC 287, [43].
(1)The granting of injunctive relief is discretionary and the court must be satisfied that:
(a)There is a serious question to be tried in the sense that the plaintiff must show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending trial.
(b)If there is no injunction but the plaintiff’s claim is ultimately vindicated, the plaintiff will have suffered irreparable harm for which damages will not be an adequate remedy.
(c)The balance of convenience must favour the grant of the injunction.
(2)There is also a direct relationship between the issue of whether or not there is a serious question to be tried and the balance of convenience. In short, if the plaintiff’s case is weak in relation to whether or not there is a serious question to be tried, the balance of convenience must strongly favour the plaintiff before injunctive relief is appropriate.[3]
(3)Finally, the court should always bear in mind that it should take whatever 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 its, her or his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[4]
[3]Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, 82 [84].
[4]Ibid, 73 [35].
C. Background
Thompson is a joint mortgagor of the Property with her husband, Warren Thompson (“Warren”). Evidence before the court suggests that Thompson gave security to NAB in order to support Warren in various business activities prior to Warren’s bankruptcy.[5] It is not necessary to go into the detail in relation to those matters. Subject to the matters now in dispute, there is no issue that, as between Thompson and NAB, NAB is entitled to enforce its rights as mortgagee in relation to the Property.
[5]Warren is an undischarged bankrupt.
In 2012, Thompson and Warren defaulted under the Mortgage. A notice of default was issued to, amongst others, Thompson and Warren in relation to guarantees they had given to NAB. The amount then claimed was $8,229,329.72. That amount has never been paid. Since that time, interest has been accruing, so that as at 18 July 2013 NAB claims that the sum of $9,846,941.45 is now payable. NAB is applying a default interest rate of 16.57% per annum in relation to the majority of that amount.
Thompson had no ability to pay NAB in relation to the moneys claimed from mid 2012 onwards. She remained in possession of the Property notwithstanding the default. Attempts were made by Thompson in 2012 to sell the Property, but these came to nought. Importantly, there was no suggestion that, at the time these attempts were made, there was any desire of Thompson to maintain some ability to repurchase the Property in the future.
In October 2012, Warren was introduced to Raphael Geminder (“Geminder”). At the time Warren was aware that Geminder was looking for a property to rent in Toorak. As a result of this meeting, Geminder and others inspected the Property and expressed an interest in renting the Property for a period of 2 years or more. The reason Geminder gave for desiring to rent the Property was because he was engaged in substantial construction works on Geminder’s family home in Kooyong. He expected those works would take at least 2 years.
Without going into the details of the negotiations, agreement was reached between Thompson and Geminder for a lease to be entered into, effective from 14 January 2013 for a period of 2 years, with 2 further options of 6 months each (“the Lease”). The rent agreed was $8,000 per week, equating to $34,366 per calendar month. A bond was also provided for that amount.
The Lease expressly provided that the agreement was entered into subject to Thompson obtaining the consent of NAB.
There is an issue between the parties as to when NAB consented to the Lease. I do not need to decide this for the purposes of determining this application. Suffice to say, Geminder is occupying the Property as a tenant and NAB has, more recently, become the direct recipient of the rent payable pursuant to the Lease.
Thompson’s case is that a further agreement was entered into between Thompson and Geminder. Negotiations in relation to this further agreement were conducted between Geminder and Warren, on behalf of Thompson. In substance, the agreement Thompson alleges is that Geminder agreed to purchase the Property, ultimately for $8.5 million, on the basis that Geminder would also agree to granting Thompson an option to buy back the Property at the expiry of the Lease.
As the negotiations were being advanced between Thompson and Geminder, Thompson entered into negotiations with NAB in order to try and find a compromise in relation to the moneys being demanded by NAB.
There is a substantial amount of correspondence between the solicitors for Thompson and the solicitors for NAB in relation to the negotiations. It is not necessary to go into any great detail about many of these communications for the purposes of this interlocutory application. However, there are 4 letters I need to refer to presently.
On 20 February 2013, Thompson’s solicitors forwarded a letter to NAB’s solicitors marked without prejudice.[6] That letter stated that Thompson proposed an amount of $8.5 million would be paid to NAB in full settlement of NAB’s claims against Thompson and/or Warren, “such amount to be paid within 28 days of acceptance and contemporaneously with the settlement of a sale of the [Property] to Geminder Holdings Pty Ltd” (“Geminder Holdings”). The letter also referred to previous discussions between solicitors and said that if agreement could be reached as to terms, then it was proposed that agreement would also be reached for NAB to enter into the contract of sale as mortgagee in possession.
[6]Much of the correspondence tendered was marked without prejudice, but as an agreement is now being asserted no claim for privilege was made.
The letter dated 20 February 2013 was the subject of a response on 28 February 2013. In that letter NAB’s solicitors indicated they were willing to accept an offer of $8.5 million in full and final settlement of a proceeding then on foot “strictly on the following terms”. The letter then set out a number of terms the detail of which it is not necessary to go into, save to say that 1 of them included that the terms of settlement would “be documented” by way of a deed of settlement.
By letter on 1 March 2013, Thompson’s solicitors referred to the letter of 28 February 2013. In this letter a number of the suggested terms from NAB were rejected. It also set out a response to some of the other terms that had been suggested by NAB. It concluded with the following words:
We would be grateful if you would provide us with a copy of the proposed Deed of Settlement for our review provided it is in accordance with the principles outlined above.
We look forward to hearing further from you.
On 15 April 2013 solicitors for NAB stated that NAB was “prepared to accept [Thompson’s] proposal as set out in your letters of 20 February 2013 and 1 March 2013”. The letter continued:
We are in the process of preparing the Deed of Settlement and we will forward same to you for your client’s execution shortly.
All of our client’s rights and entitlements pursuant to the facilities and securities remain fully reserved.
Thompson’s case against NAB is that the correspondence I have set out above constitutes a legally binding agreement by reason that it comes within the 1st or 2nd class of the 3 classes of contract referred to in Masters v Cameron.[7] In contrast, the NAB contends that the correspondence reflects the 3rd class referred to in Masters v Cameron. Relevantly, the High Court referred to the 3 classes as follows:[8]
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
[7](1954) 91 CLR 353.
[8]At 360.4.
At the time the matter first came before me in the Practice Court, the evidence led by Thompson suggested that Geminder Holdings still wanted to acquire the Property for $8.5 million. Although Geminder Holdings was not a party to the proceeding, it was represented in court by a solicitor. Geminder Holdings has been in attendance at each of the hearings of this proceeding to date.[9] There was no suggestion initially from NAB that what was being stated by Thompson in relation to Geminder Holdings’ position was other than correct.
[9]Geminder Holdings has not sought to be heard in relation to the substantive issues between the parties.
However, more recently, the court was informed that Geminder Holdings now no longer intends to purchase the Property. The court has been informed that Geminder Holdings’ present position is that it does not wish to acquire the Property at $8.5 million or any other sum.
Accordingly, Thompson has made an application to the court, which is presently before me, to join Geminder Holdings as the second defendant in order to seek to enforce the agreement to purchase, with an option to buy back. I will defer my ruling on that application until after Thompson has had time to consider this judgment.
D. Serious question to be tried?
For Thompson to be successful it is necessary for her to establish a binding agreement as against NAB and also a binding agreement as against Geminder Holdings.
Without descending to any further detail, I am willing to assume for the purposes of this application that there is a serious question to be tried in relation to whether a binding contract was created both in the case against the NAB and also in the case against Geminder Holdings. In relation to the agreement alleged against NAB, the language in the letter sent on 15 April 2013 suggests NAB intended the agreement reached would fall within class 3, as referred to in Masters v Cameron. However, it is arguable when that letter is read with the earlier letters, the agreement comes within the 2nd class. This is a matter for trial.
There is a further issue that needs to be addressed on whether there is a serious question to be tried. Even if Thompson were successful in establishing a binding contract with NAB, Thompson must also prove that she has been ready, willing and able to perform that contract, or cause it to be performed.[10]
[10]Foran v Wight (1989) 168 CLR 385, 408.5 (Mason CJ), 427.6 (Brennan J) and 451.8 (Dawson J).
As may be seen from the letter dated 20 February 2013, it was contemplated Thompson would ensure $8.5m was paid to NAB within 28 days of NAB accepting Thompson’s offer. Although there is further correspondence which demonstrates the parties extended the 28 day period, which commenced on 15 April 2013, the period has elapsed in any event and no moneys have been paid to NAB. NAB submits that this means Thompson’s case must fail. I do not accept this submission.
Both Thompson and NAB agreed there would be a deed of settlement and a contract of sale to a third party, Geminder Holdings. NAB proffered a deed of settlement for Thompson’s consideration within the 28 day period, however NAB refused to provide Thompson with the proposed contract of sale.
The refusal by NAB was in the context where it forwarded a deed to Thompson for execution which, amongst other things, required Thompson to acknowledge that if Geminder Holdings did not proceed with the contract of sale then Thompson would be liable for all moneys claimed by NAB under the Mortgage.
Not surprisingly, Thompson’s solicitor wanted to see the contract of sale before Thompson committed to signing away all her rights. NAB refused the solicitor’s requests stating it was inappropriate for Thompson to demand that NAB incur the costs of preparing the contract of sale and the section 32 statement before the deed of settlement was signed. When I asked counsel for NAB what further reason NAB may have had for declining to provide the contract of sale, he was unable to give any (other than a suggestion that NAB was under no obligation to provide it).
In the circumstances, there is a serious question to be tried as to whether Thompson was required to sign the deed of settlement and allow the matter to proceed when NAB refused to show Thompson a document that was pivotal to the overall transaction, and also critical to whether or not Thompson and Warren would be relieved of any further obligations under the Mortgage. It is clearly arguable that such conduct amounted to a breach of an implied term that NAB was required to do all that was reasonably necessary to be done to give effect to the agreement alleged.[11] There must also be an argument that Thompson’s obligations were concurrent and dependent upon NAB performing its obligations,[12] and that she was not required to sign the deed of settlement in circumstances where NAB refused to allow her to have any ability to assess whether the proposed contract of sale would comply with the alleged agreement and allow Geminder Holdings to proceed to acquire the Property.
[11]See Secured Income Real Estate (Australia) Ltd. v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607.4.
[12]Cf Foran v Wight (1989) 168 CLR 385, 396.5 (Mason CJ), 417.4 (Brennan J), 433.4 (Deane J), 450.8 (Dawson J) and 455.7 (Gaudron J).
In stating these conclusions, I am mindful that the parties could not reach agreement in relation to some of the other terms of the deed put forward by NAB. However, what ought or ought not to have been the subject of the deed (assuming a binding agreement had been entered into) are matters for trial.
E. The balance of convenience
As noted above, in addressing the balance of convenience, it must be considered in light of the strength of the serious question to be tried. Given the numerous matters that need to be proved by Thompson for her to be successful, and that the court has not had any evidence put before it from Geminder Holdings, I cannot form the view that Thompson’s prospects of success are of such strength as to reduce the weight to be given to the considerations applicable under the balance of convenience.
In an affidavit filed on behalf of NAB, the court was informed that there is an interested purchaser of the Property who is willing to acquire the Property from NAB as mortgagee in possession. The evidence states that the alternate proposed purchaser is willing to pay $8,550,000; that is, $50,000 more than the amount for which Geminder Holdings had previously been willing to purchase the Property.
Proceeding on the assumption that a sale to the alternate purchaser were to proceed, it would mean, with 1 exception that I will come to, there could be no prejudice to Thompson if the court were not to grant the injunction and the sale to the alternate purchaser were to proceed. In other words, if Thompson were ultimately successful at trial on the basis that NAB had agreed to settle for the sum of $8.5 million in accordance with the 2 letters dated 28 February 2013 and 1 March 2013, then Thompson and Warren will be free from any obligations under the Mortgage.[13]
[13]The written submissions filed on behalf of NAB expressly acknowledged that if the injunction was allowed to lapse, this would not prevent Thompson from pursuing her claim that the parties agreed to compromise for $8.5 million.
The exception I have referred to concerns the alleged option agreement. Counsel for Thompson correctly conceded that the issue of prejudice in relation to the balance of convenience was confined to this matter. In those circumstances, I consider the question of the balance of convenience to be a relatively straightforward one.
The prejudice to NAB if an injunction were granted includes the following:
(1)Failure to realise a sale of the Property, notwithstanding the Mortgage has been in default since at least May 2012.
(2)Failure to receive interest pursuant to the Mortgage, albeit that NAB is receiving rent in the sum of $34,366 per calendar month.[14]
(3)There is a real risk to which NAB is exposed in relation to the possible decline in the value of the Property. Clearly, the Property is a prestige property and there is a significant risk of the value of the Property decreasing if an injunction were granted until the trial and determination of the proceeding (including any possible appeals). The authorities make clear that, unless there is some issue as to the validity of the Mortgage or the ability of the mortgagee to exercise the power of sale, the risk of movement in value of the property ought to be a risk borne by the mortgagor rather than the mortgagee.[15] There has been nothing proffered by Thompson to protect NAB from this risk, other than the undertaking as to damages.
(4)Although Thompson has already given the usual undertaking as to damages, and remains willing to continue to give that undertaking, there is a high probability that the undertaking will be worthless if NAB ever sought to rely upon it to claim damages in the future.
(5)NAB has a purchaser that is ready and willing (and apparently able) to acquire the Property. I accept that there must be a real risk that, if the sale to the alternate purchaser is not allowed to proceed in the near future, that prospective purchaser may not be either able or willing to acquire the Property in the event that Thompson were unsuccessful at trial.
[14]There is no evidence as to what the commercial rate of interest on the amounts owing would be. For the purposes of weighing the balance of convenience, I discount considerably the sum of approximately $130,000, put to me as the interest payable per month, given that it is calculated on very high default rates of interest. That said, it seems clear that the amount of rent does not cover the interest that would be payable at a commercial rate in any event.
[15]See, for example, AED Oil Ltd v Puffin FPSO Ltd (No 5) [2011] VSC 60, [53] (Judd J).
In contrast, the prejudice to Thompson if the injunction is not granted and she is ultimately successful is relatively minor. Thompson no longer lives at the Property. NAB is already in possession as mortgagee. The only prejudice to Thompson will be the loss of opportunity to exercise an option (assuming it exists) to acquire the Property at the end of the Lease. In circumstances where there is no evidence before the court that Thompson would have any capacity to do so, this prejudice appears to be more apparent than real. Indeed, the evidence before the court suggests that both Warren and Thompson are in a perilous financial position. However, even assuming the ability was there to exercise the option some time in 2015, I consider the prejudice to be insignificant. This is particularly so given that Thompson was willing to sell the Property unconditionally in 2012.[16]
[16]Cf Johnson v Cressy [2009] VSCA 123, [50]; Palmer v Permanent Custodians Ltd [2009] VSCA 164, [67].
Further, in my view damages would be an adequate remedy in the event that Thompson succeeded against NAB and the court were also to hold that the option agreement did exist.
In reaching the conclusion I have in relation to the balance of convenience, I have also considered the general rule applicable to mortgagors seeking to restrain a mortgagee from exercising its power of sale.[17] The agreement alleged by Thompson goes to the very issue of whether NAB, as mortgagee, has a right to exercise its power of sale under the Mortgage, or whether NAB is confined to only exercising that power in accordance with the agreement alleged. In those circumstances, if I had formed a different view on the balance of convenience, it may not have been appropriate to require Thompson to pay the whole of the outstanding debt into court. However, I do not need to form a final view on this. Of course, if such a requirement had not been imposed, the court would have been required to mould an order appropriate to the particular circumstances of this case.[18] It is also not necessary for me to consider this alternative, in light of the conclusion I have reached.
[17]See Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161, 164.4-165.4.
[18]Glandore Pty Ltd v Elders Finance and Investment Co Ltd (1984) 4 FCR 130, 135.8 (Morling J).
F. Conclusion
Accordingly, for the reasons stated above, the injunction will be allowed to lapse at 4.00 pm today.
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