Voran Holdings Pty Ltd v Perth International Motor Sports Pty Ltd
[2009] WASC 329
•13 NOVEMBER 2009
VORAN HOLDINGS PTY LTD -v- PERTH INTERNATIONAL MOTOR SPORTS PTY LTD [2009] WASC 329
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2009] WASC 329 | |
| 13/11/2009 | |||
| Case No: | CIV:2747/2009 | 14 OCTOBER 2009 | |
| Coram: | MARTIN CJ | 14/10/09 | |
| 6 | Judgment Part: | 1 of 1 | |
| Result: | Application refused | ||
| B | |||
| PDF Version |
| Parties: | VORAN HOLDINGS PTY LTD PERTH INTERNATIONAL MOTOR SPORTS PTY LTD (ACN 009 396 669) WA DEVELOPMENTS CO PTY LTD (ACN 107 368 641) REGISTRAR OF TITLES |
Catchwords: | Practice and procedure Application to extend operation of plaintiff's caveat Plaintiff has an interest as chargee of the first defendant's interest in the land Land registered in the name of the first defendant and another entity related to the second defendant Second defendant elects to exercise power of sale against first defendant but not against the entity related to the second defendant Whether the second defendant is under a duty of good faith to exercise its powers as mortgagee to sell the property as a whole to obtain a better return than to sell only that portion owned by the first defendant to satisfy the mortgage debt |
Legislation: | Transfer of Land Act 1893 (WA), s 138C |
Case References: | Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
PERTH INTERNATIONAL MOTOR SPORTS PTY LTD (ACN 009 396 669)
First Defendant
WA DEVELOPMENTS CO PTY LTD (ACN 107 368 641)
Second Defendant
REGISTRAR OF TITLES
Third Defendant
Catchwords:
Practice and procedure - Application to extend operation of plaintiff's caveat - Plaintiff has an interest as chargee of the first defendant's interest in the land - Land registered in the name of the first defendant and another entity related to
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the second defendant - Second defendant elects to exercise power of sale against first defendant but not against the entity related to the second defendant - Whether the second defendant is under a duty of good faith to exercise its powers as mortgagee to sell the property as a whole to obtain a better return than to sell only that portion owned by the first defendant to satisfy the mortgage debt
Legislation:
Transfer of Land Act 1893 (WA), s 138C
Result:
Application refused
Category: B
Representation:
Counsel:
Plaintiff : Mr D J Mcevoy
First Defendant : No appearance
Second Defendant : Mr P R Shanahan
Third Defendant : No appearance
Solicitors:
Plaintiff : Tolson & Co
First Defendant : No appearance
Second Defendant : Clayton Utz
Third Defendant : No appearance
Case(s) referred to in judgment(s):
Nil
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- MARTIN CJ: (This judgment was delivered extemporaneously on 14 October 2009 and has been edited from the transcript.)
1 This is an application by Voran Holdings Pty Ltd, the plaintiff, for an order pursuant to s 138C of the Transfer of Land Act 1893 (WA) extending the operation of a caveat which it has lodged over land situated in Boyanup - Picton Road, Picton East in Western Australia. That land is registered in the name of the first defendant, which is Perth International Motor Sports Pty Ltd, as to 121/333rd undivided shares and in the name of Motorsports Industrial Properties (Bunbury) Pty Ltd as to the remaining 212/333rd undivided shares in the land.
2 The circumstances in which the issue arises are that the plaintiff has lodged a caveat to protect its interest as chargee of the first defendant's interest in the land in order to secure a debt owed by the first defendant to the plaintiff in the amount of approximately $86,000.
3 The second defendant is WA Developments Co Pty Ltd. The second defendant's interest in these proceedings arises in a number of ways but most particularly through its acquisition of a first registered mortgage over the land in question in order to secure a substantial debt. That mortgage was granted to another entity but was later assigned to the second defendant. That mortgage was granted prior to the grant of the charge in favour of the plaintiff and therefore takes priority over that charge. The mortgage secures a debt owed by both the registered proprietors of the land. The mortgage is in default and the second defendant proposes to exercise the power of sale conferred by the mortgage and by the statutory provisions of the Transfer of Land Act. However, it proposes to only proceed against the interest in the land held by the first defendant and not in respect of the balance of the interest in the land held by Motorsports Industrial Properties (Bunbury) Pty Ltd.
4 Although there is no direct evidence as to the reasons for that, it is a fair inference that the reason for that course being followed is that Motorsports Industrial Properties (Bunbury) Pty Ltd is essentially a subsidiary of WA Developments Co Pty Ltd and therefore the second defendant has little interest in enforcing the debt owed from that entity. Its interest is primarily in enforcing the debt owed by the first defendant and it has taken steps in that regard.
5 At the time these proceedings were commenced the plaintiff was not aware of the steps that had been taken by the second defendant in relation to the sale and the interest of the first defendant in the land. However, as
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- a result of the commencement of these proceedings an affidavit has been tendered from an officer of the second defendant who deposes to the steps that have been taken in that regard.
6 Despite apprehensions enunciated by an officer of the plaintiff at the time these proceedings were commenced, it seems clear from the affidavit filed on behalf of the second defendant that steps have been taken to actively and vigorously market the first defendant's interest in the property. Valuations have been obtained from two apparently independent valuers and the second defendant proposes to enter into a transaction for the sale of the first defendant's interest in the land at a price which is equivalent to the higher of the two valuations that have been received in respect of that interest.
7 The plaintiff, however, draws attention to the fact that the sale that is proposed is to an entity in which those who have a significant shareholding interest in the second defendant are also shareholders and so the transaction, it is said, is not at arm's length. That, of course, is not of itself a sufficient reason for concluding that the transaction is not being undertaken in good faith.
8 In the light of the valuation evidence and the evidence that has been adduced in respect of marketing, the plaintiff's case essentially comes down to the proposition that there is an arguable case to the effect that the second defendant is not exercising its power of sale as mortgagee in good faith because it is not exercising the power which it has to sell the property as a whole, which would result in a better return than the sale of only an approximately one-third undivided share in the property.
9 The proposition that the sale of only a one-third undivided share in the property would likely achieve less in the market than the sale of the whole, pro rata, is substantiated by the fact that despite the marketing campaign that has been conducted, the only expression of interest in the acquisition of the share in the property that has been received is from a company which is associated with the mortgagee. I infer from that, and I think it is reasonable to infer, that the acquisition of a minority interest in a property is not a particularly attractive proposition in the market place.
10 Nevertheless, that minority interest in the property is the only interest which the debtor, who is the first defendant against whom the second defendant proposes to proceed, has. The second defendant has elected, as I have mentioned, to proceed only against the interest of the first defendant in the land. That interest is limited to the approximate one-third
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- undivided interest to which I have referred, so the plaintiff's case comes down to the proposition that that election is itself a manifestation of a lack of good faith because it is not maximising the return from the one-third undivided share in the property and on the evidence produced by the second defendant will likely result in there being no surplus from the proceeds of sale available after the second defendant's debt is satisfied which can be applied to satisfy the charge which has been granted in favour of the plaintiff.
11 At the commencement of the proceedings I raised with counsel for the plaintiff the question of whether in fact the maintenance of the caveat would inhibit the second defendant's capacity to sell the property as it seemed to me that there was an argument that the caveat would not of itself have constrained that power of sale. However, counsel for the plaintiff has conceded that by reason of the practice of the Registrar of Titles there would be a practical impediment to the exercise of the power of sale if the caveat remained in place. Counsel further conceded that therefore the plaintiff should only succeed in obtaining the order sought if it could satisfy me that there was an arguable case to the effect that the proposed sale was a breach of the duty of good faith which would result in a possible loss to the plaintiff.
12 On the basis of that concession I turn now to address that critical issue. No authority has been cited by either of the parties to these proceedings that bears directly upon this issue; rather, the plaintiff's case is based upon the proposition that the general duty of good faith embraces an obligation to exercise all the powers that might be available to the secured creditor, including the power to proceed against another debtor.
13 That proposition, with respect, seems to me to go significantly further than any of the general principles or authorities of which I am aware. The obligation of the secured creditor of the first defendant when exercising the security granted by the first defendant is to act in good faith in relation to the realisation of that security. That security is in respect of the approximate one-third undivided interest in the land and provided the power of sale in respect of that interest is exercised in good faith, it does not seem to me to be to the point that the secured creditor has other rights against other parties which it has elected not to exercise.
14 As I pointed out during the course of argument if and when the power of sale is exercised, with the result that the first defendant pays a greater proportion of the debt jointly due from it and the other debtor, Motor Sports Industrial Properties (Bunbury) Pty Ltd, that may give rise
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- to rights as between the first defendant and the other debtor. However, that does not seem to me to impose an obligation, expressed in terms of good faith or in any other sense, imposed upon the second defendant to proceed against a debtor against whom it has no wish to proceed.
15 So it seems to me that the fact that the second defendant has exercised what I consider to be its right to choose amongst the debtors against whom it will proceed, does not indicate lack of good faith in the exercise of the security which has been granted over the first defendant's interest in the land. It follows that, in my opinion, there is no seriously arguable proposition to the effect that the proposed exercise of the power of sale by the second defendant represents a breach of a duty of good faith owed either to the first defendant or to the plaintiff as a subsequent encumbrancer of the land held by the first defendant. For these reasons the proper course is to refuse the application.
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