Wellard Land Holdings (WA) Pty Ltd v Barker Mortgages Pty Ltd

[2018] WASC 27

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   WELLARD LAND HOLDINGS (WA) PTY LTD -v- BARKER MORTGAGES PTY LTD [2018] WASC 27

CORAM:   CHANEY J

HEARD:   10 JANUARY 2018

DELIVERED          :   30 JANUARY 2018

FILE NO/S:   CIV 3173 of 2017

BETWEEN:   WELLARD LAND HOLDINGS (WA) PTY LTD

Plaintiff

AND

BARKER MORTGAGES PTY LTD
First Defendant

WALTHAMSTOW PTY LTD
Second Defendant

SOLUTION 2000 PTY LTD (In Liq)
Third Defendant

Catchwords:

Injunction - Interlocutory - Whether serious question to be tried - Second mortgagee taking possession of mortgaged property pursuant to order - Order subject to rights of first mortgagee - First mortgagee purporting to take possession prior to entry by second mortgagee - First mortgagee leasing mortgaged property to plaintiff - Whether plaintiff should be restored to occupation pending finalisation of proceedings - Balance of convenience

Legislation:

Nil

Result:

Interlocutory injunction granted

Category:    B

Representation:

Counsel:

Plaintiff:     Mr S K Shepherd

First Defendant              :     Mr L Rowley

Second Defendant         :     No appearance

Third Defendant            :     No appearance

Solicitors:

Plaintiff:     Holborn Lenhoff Massey

First Defendant              :     Jackson McDonald

Second Defendant         :     Taylor Smart

Third Defendant            :     No appearance

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

Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57

Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618

Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471

Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670; [1986] 3 All ER 772

Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49

Shepherd Homes Ltd v Sandham [1971] Ch 340; [1970] 3 All ER 402

Todd v Novotny [2001] WASC 171

Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110

1. CHANEY J:  The first defendant (Barker) holds a second mortgage (Barker mortgage) over a property situated at 201 Sevenoaks Street, Cannington (the Property).  The registered proprietor of the Property is the third defendant (Solution) which has, since 21 March 2017, been in liquidation.  The second defendant (Walthamstow) holds a first mortgage over the Property.  Solution has been in default under both the first and second mortgages for a long period of time.

2. In 2016, Barker commenced an action for possession of the Property against Solution and another company, Developments (WA) Pty Ltd (Developments) which was a joint borrower of the funds advanced by Barker (Possession Action).[1]  Developments also provided a second mortgage over another property which it owned to secure the debt to Barker.  Both Solution and Developments were companies under the control of either or both of Mr Joseph Tilli and Mr Pietro (Peter) Tilli.  Solution was the first defendant in the Possession Action and Developments was the second defendant. 

   [1] Barker Mortgages Pty Ltd v Solution 2000 Pty Ltd and Developments (WA) Pty Ltd, CIV 2193 of 2016.

3. In August 2016, Barker applied for summary judgment against Solution and Developments. The application was partially successful and on 28 October 2016, the master made orders on the application. One of the orders made by the master was that 'subject to the first mortgagee's rights' the second defendant deliver vacant possession of the Property to Barker within 60 days of service of the judgment on it. The reference to the second defendant was an error, and that error was subsequently amended pursuant to O 21 r 2 of the Rules of the Supreme Court 1971 (WA) on 19 May 2017 so that the reference to the second defendant was changed to the first defendant. Barker then sought to take steps to enforce the order for possession of the Property. It obtained a Property (Seizure and Delivery) Order on 22 November 2017. Notice of the sheriff's intention to formally take possession of the Property was then given. The notice bears the date 7 November 2017, but it is apparent that that is a typographical error, and the correct date should have been 7 December 2017. The notice advised that the sheriff would attend the Property on Wednesday 20 December 2017 at 9.00 am to formally take possession of the Property. The sheriff duly took possession of the Property on 20 December 2017.

4. On 22 December 2017, the plaintiff (Wellard) commenced these proceedings.  It did so in a somewhat confused procedural manner.  It filed an originating motion in which the substantive relief sought was an order for delivery up for possession of the Property by Barker to Wellard.  A document entitled 'Draft Writ of Summons' was also filed.  In that writ, Wellard sought a declaration that it is the lawful occupier of the Property pursuant to a lease dated 20 November 2017 between Walthamstow as first mortgagee and Wellard, and an order requiring Barker to deliver up possession of the Property.  Wellard also filed a notice of motion seeking an urgent hearing for an order that Barker deliver up possession of the Property by delivering the keys to an authorised representative of Wellard.

5. The matter first came before me on 27 December 2017, when, after some brief argument, the parties reached agreement as to the terms upon which Wellard would be permitted access to the Property pending a further hearing on 10 January 2018, so as to give Barker a proper opportunity to file documents and be heard.

6. When the matter came on for hearing on 10 January 2018, neither Walthamstow, which had entered an appearance, nor the liquidator of Solution, who had not entered an appearance, appeared.  Notwithstanding the apparent expectation of both Wellard and Barker that the question of entitlement to possession of the Property would be finally resolved on 10 January 2018, I declined to deal with the matter in the absence of two of the parties to the action or any indication from them as to whether or not they wished to be heard.  In those circumstances, I concluded that I would treat the hearing as an application by Wellard for an interlocutory injunction requiring possession of the Property to be given to it.  The matter proceeded on that basis, although Wellard had not formulated the terms of the interlocutory injunction that it sought.  At the conclusion of the hearing, I directed Wellard to file and serve a minute of proposed orders.  The substantive interim relief sought in that minute is as follows:

   (1)Until after judgment in this action, or further order:

   (a)the plaintiff may continue to occupy the premises at 201 Sevenoaks Street Cannington (the premises), in the state of Western Australia pursuant to the lease between the plaintiff and the third defendant dated 20 November 2017; and

   (b)the first defendant, whether by itself, its officers, servants, agents or otherwise, be restrained, and an injunction is hereby granted restraining it, from further seeking to enforce the orders of this Honourable Court dated 28 October 2016 in matter CIV 2193 of 2016 and as subsequently amended.

   ...

   (3)For the duration of this order, the plaintiff, whether by itself, its officers, servants, agents or otherwise:

   (a)shall not copy the keys to the premises; and

   (b)shall bring such keys to Court on any application to dissolve or vary this order.

The applicable principles

1. As Gummow and Hayne JJ explained in Australian Broadcasting Corporation v O'Neill,[2] the relevant principles applicable to an application for an interlocutory injunction are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd.[3]  The two main inquiries to be made are whether the plaintiff has made out a prima facie case (commonly referred to as a serious question to be tried) and whether the balance of convenience favours the grant of an injunction.  Their Honours explained that the expression 'prima facie case' does not require that the plaintiff show it is more probable than not that the plaintiff will succeed at trial.  In order to establish a prima facie case for the purposes of an interlocutory injunction application, is not necessary for the plaintiff to demonstrate a greater than 50% chance of ultimate success.  Rather, the requisite strength of the probability of ultimate success depends upon the nature of the right the plaintiff asserts and the practical consequences likely to flow from the interlocutory order sought. 

   [2] Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 [65] ‑ [71] (Gleeson CJ and Crennan J agreeing).

   [3] Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618.

2. As the apparent strength of an applicant's case diminishes, the balance of convenience moves against the making of an interlocutory order.[4]

   [4] Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49, 54 ‑ 55; Todd v Novotny [2001] WASC 171; Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110.

3. The present application is, in some sense, an application for a mandatory injunction in that it seeks to undo the taking of possession by Barker.  In some cases, it has been said that the granting of a mandatory interlocutory injunction may have the consequence of creating a greater risk of injustice if it is granted rather than withheld at the interlocutory stage.  In those cases, the court should feel 'a high degree of assurance' that the plaintiff would be able to establish its rights at trial.[5]  Ultimately, however the decision to grant an interlocutory injunction involves balancing the injustice which might be suffered if the injunction is granted and the plaintiff later fails at trial, against the injustice which might be suffered by the plaintiff if the injunction is not granted and the plaintiff later succeeds at trial.

   [5] Shepherd Homes Ltd v Sandham [1971] Ch 340; [1970] 3 All ER 402, 351; Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670; [1986] 3 All ER 772, [680] ‑ [681], 781; Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471, 483.

Serious question to be tried

1. Wellard is also a company associated with Mr Joseph Tilli and Mr Peter Tilli. Wellard's application was supported by two affidavits of Mr Joseph Tilli. Mr Tilli said that on 17 November 2017, Walthamstow formally entered into possession of the Property pursuant to its first mortgage. He produced two documents lodged with the Australian Securities and Investments Commission (ASIC) by Walthamstow, being a form 505 and a form 504. Both forms are notices which are required by s 427(2) of the Corporations Act 2001 (Cth) to be lodged by a person who enters into possession or takes control of property of a corporation. Those notices related to the Property and were each dated 17 November 2017. By letter of the same date, the solicitors for Walthamstow wrote to the solicitors for Barker referring to the fact that Walthamstow holds a first registered mortgage over the Property and confirming that their client had entered into possession of the Property. Copies of the forms lodged with ASIC were enclosed with that letter. The letter requested that Barker discontinue any further action on its claim for possession of the Property.

2. Mr Tilli also produced a lease dated 20 November 2017.  The lessor is described as Solution 'by its attorney Walthamstow Pty Ltd (ACN 008 814 453) as mortgagee in possession pursuant to clauses 7.17(e) and 10.2(a) of Mortgage M342501 for the registered proprietor of the Leased Premises'.  Wellard is the lessee, and Joseph and Pietro Tilli are the guarantors.  The lease is for a term of five years commencing on 20 November 2017.

3. Mr Tilli also produced a copy of the mortgage to Walthamstow (first mortgage).  Clause 10.2 of the first mortgage deals with the mortgagee's rights upon the power of sale becoming exercisable.  Clause 10.2(a) contains a power of the mortgagee 'in the name as attorney of the mortgagor or otherwise to lease' the Property upon such terms and conditions as the mortgagee may think fit.  Clause 7.17 provides for the appointment of Walthamstow by Solution as 'the true and lawful attorney for' Solution to execute or perform a number of transactions, including to lease the secured lands for any term not exceeding 21 years in possession at any rent.

4. In short, Wellard's case is that, because Walthamstow's mortgage was registered prior in time to Barker's mortgage, Walthamstow's rights to take possession of the land exist in priority to Barker's right to possession, a matter expressly provided for in the master's order for possession of the Property.  In addition, Wellard says that Walthamstow's priority of its mortgage over the Property was confirmed in a deed of priority executed by Barker and Walthamstow on 18 May 2017 (Priority Deed).  Accordingly, Wellard contends that, knowing that Walthamstow had exercised its right to possession, Barker had no right to take possession.  Wellard contends that it enjoys the right of exclusive occupation of the Property pursuant to the lease granted by Walthamstow in the exercise of its priority under the first mortgage, being a right derived from Walthamstow's entitlement to possession.

5. In answer to the application, Barker relied upon an affidavit of Ms Belinda Sarah Giles, a solicitor in the employment of Barker's solicitors, and an affidavit of Mr Andrew Luckhurst‑Smith, a director of Barker.  Ms Giles' affidavit was, in substance, merely to produce documents that were also annexed to Mr Luckhurst‑Smith's later affidavit.  Mr Luckhurst‑Smith deposed to the fact that the balance owing to Barker under the loan agreement with Solution and Development is currently $2,018,690.57.  He recounted the history of the action for possession of the Property and the difficulties encountered in relation to enforcement of the order for possession.  He produced corporate records of 14 companies of which either Mr Joseph Tilli, Mr Peter Tilli or both are directors, secretaries or shareholders, five of which (including Solution) are in liquidation and five of which (including Developments) are subject to external administration.  One of the other companies in liquidation was a company called Primestyle Pty Ltd (Primestyle).  Primestyle commenced proceedings (Primestyle application) in June 2017 prior to its liquidation for orders suspending enforcement of Barker's possession orders on the basis that it had a lease of the Property granted to it by Solution prior to its liquidation.  The Primestyle application was dismissed on 11 August 2017. 

6. Mr Luckhurst‑Smith also produced a report of the liquidators of Primestyle.  That report made reference to information provided by Mr Joseph Tilli that Primestyle had executed an agreement on 1 April 2017 with another Tilli company, York Holdings Land (WA) Pty Ltd (York Holdings) under which York Holdings was to receive possession of all of Primestyle's plant and equipment, stock, debtors, work in progress and registered business name in consideration for York Holdings assuming all liabilities of Primestyle except for certain contingent liabilities.  The exceptions included disputed or litigated trade creditor claims, including a debt to the Australian Taxation Office.  In addition, York Holdings assumed at face value the net debt owed to related parties by Primestyle in its capacity as trustee of the Primestyle trust.  In its submissions, Barker observed that in affidavits sworn by Mr Joseph Tilli in relation to the Primestyle application in mid‑June 2017, no mention was made of the sale agreement between Primestyle and Solution, notwithstanding Mr Tilli's assertion to the liquidator of Primestyle that Primestyle had divested itself of all business assets over two months before the affidavits were sworn.  Barker submitted that that anomaly raised questions as to Mr Tilli's credibility and that his affidavit evidence should be treated with caution.

7. Mr Luckhurst‑Smith annexed to his affidavit correspondence between Barker's solicitors and Walthamstow's solicitors, including a letter dated 19 December 2017 in which Walthamstow's solicitors continued to assert their client's entitlement to possession of the Property and indicated that Walthamstow did not consent to Barker continuing to pursue vacant possession of the Property.

8. Mr Luckhurst‑Smith deposed that Barker had not consented to any lease of the Property to Wellard.  He made reference to the Priority Deed.  As noted earlier, the Priority Deed confirmed that the first mortgage took priority over the Barker mortgage.  A company related to Barker, Angas Securities Ltd (Angas), which holds a third mortgage over the Property, was also a party to the Priority Deed.  It also contained an undertaking by Walthamstow in the following terms:

   Walthamstow undertakes not to commence or continue any Enforcement Action for a period of 4 months from the date of this Deed.  Walthamstow will consider its position with respect to an extension of this period after 4 months after discussion with Angas and Barker and review any Enforcement Action taken by Angas or Barker during this time.

9. Mr Luckhurst‑Smith said that there had been 'no engagement between' Walthamstow and Barker 'as contemplated in the deed of priority'.  He continued:  'I dispute that the second defendant is enforcing its mortgage.  Rather, it has merely purported to contrive to permit Tilli to remain in the Property'.

10. Mr Luckhurst‑Smith dealt with the question of prejudice, saying that if Barker is prohibited from executing the Property (Seizure and Delivery) Order, it would suffer prejudice and would effectively be left unsecured with respect to the debts owed to it.  He said that he was anxious to have vacant possession so as to remove any possibility of interference by the Tilli's with the marketing for sale.

11. Mr Luckhurst‑Smith produced a copy of the Barker mortgage.  The Barker mortgage includes cl 3.3(b)(ii)(B) which contains a covenant by Solution not to 'rent out the Property or agree to a surrender or variation of any rental agreement' without Barker's written consent.  Clause 12.3 provides that a consent or approval is not effective unless it is in writing.

12. Barker contends that Wellard's claims do not give rise to any serious question to be tried.  There are several bases for that contention.

13. First, Barker contends that, against the history of attempts by Barker to obtain possession of the Property, the plaintiff's application should be dismissed as an abuse of process, the application being 'simply another one of the Tilli Companies taking whatever steps it can to stifle Barker's attempt to obtain vacant possession of the Property in accordance with its rights under the possession orders'.  That is a conclusion which could not, in my view, be reached on the basis of the materials before the court on this interlocutory application, in the absence of a properly particularised claim to that effect and without the opportunity being given for the plaintiff to put on evidence, and if necessary be cross‑examined, in relation to that issue.  In those circumstances, it is not necessary to examine the particular aspects of the evidence said by Barker to demonstrate either an abuse of process or a lack of credibility in the assertions made by Mr Tilli in his affidavit.  It is sufficient to say that there is a serious question to be tried on the issue raised by Barker as to whether or not the application is an abuse of process.

14. The second contention made by Barker is that the application fundamentally turns on Walthamstow's entry into possession of the Property.  It argues that if Walthamstow did not enter into possession, there could be no question of Wellard having a right to possession superior to that of Barker pursuant to the Barker mortgage.  It is submitted that the evidence does not support a conclusion that Walthamstow has exercised its rights in taking possession of the Property.  There is, however, evidence of that fact.  Walthamstow appears to be an independent third party secured creditor.  It filed notices with ASIC that it had taken control of the Property.  It is recorded on the ASIC search of Solution as a controller of Solution's property in accordance with the notices filed.  Its solicitors asserted to Barker's solicitors that it had taken possession, and asserted that its possession of the Property precluded Barker from enforcing its order for possession which was expressly subject to Walthamstow's rights.  It granted a lease of the Property pursuant to the powers conferred by the first mortgage.  All of those matters support Wellard's contention that Walthamstow in fact and law took possession of the Property in November 2017.  There is no evidence, beyond possibly some arguable inference to be drawn from the history of Barker's attempts to enforce the possession order, that supports Mr Luckhurst‑Smith's assertion that Walthamstow has somehow contrived to permit the Tillis to remain in possession.

1. Barker argues that Walthamstow's exercise of the power under the mortgage to lease the Property as attorney for Solution does not involve any taking of possession.  Rather, it contends, the lease is a lease by Solution through its attorney, and is thus a conferral by Solution of a right to possession which contravenes cl 3.3(B)(ii)(b) of the Barker mortgage.  These arguments were put forward in a context where neither Walthamstow nor the liquidator of Solution were heard.  Clearly, the argument has the capacity to impact on the rights and interests of Walthamstow, and the argument may well be affected by Solution's liquidation.  Without hearing from Walthamstow and the liquidator of Solution, it would be premature to reach any concluded view on the merits of Barker's arguments relating to consent.  In my view, there is a serious question to be tried in relation to that contention.

2. It is, of course, the plaintiff which must establish a serious question to be tried.  Although Barker submitted that 'Barker does not accept that the lease is effective', there is a documentary trail supporting the contention that Walthamstow took possession and granted a lease to Wellard.  There is a serious question to be tried as to the efficacy of those documents and Wellard's entitlement to retain possession.

Balance of convenience

1. It is apparent that companies associated with the Tillis have occupied the Property for an extended period of time.  There does not appear to be any dispute that Wellard was occupying the Property and conducting its business from the Property at the time that the Sheriff took possession on

   
   

   Barker's behalf.  Since that time, Wellard has been given access to the Property by reason of interim orders made pending the outcome of this application.

2. It is contended by Barker that the Property comprises an office building, and that there would be minimal prejudice to Wellard in finding alternative office accommodation to continue its business if it is put out of occupation.  Against that, the prejudice to Barker is that enforcement of Barker's security would be further delayed.  It is to overstate the position to say, as Mr Luckhurst‑Smith does, that the grant of an interlocutory injunction in Wellard's favour would effectively leave Barker unsecured.  That may be the practical effect if Wellard is ultimately successful.  An interlocutory order for possession merely delays Barker's enforcement of its security while the action is finally resolved.

3. In my view, the balance of convenience lies with Wellard being able to continue to occupy the Property pending the resolution of these proceedings.  If Wellard is required to vacate the Property pending resolution of the proceedings, it would be required to find alternative premises to conduct its business.  There is no evidence as to the availability of alternative premises, nor as to the terms upon which any available premises might be obtained.  If Wellard were ultimately successful in establishing a right to occupation pursuant to the lease, the effect of whatever alternative arrangements may have been made on the enjoyment of that right is unknown.  The extent of disruption to Wellard's business by a requirement to vacate the Property is not the subject of evidence, but it can be inferred that there would be at least some level of disruption.

4. As against that, Barker's prejudice is its inability to proceed to realise its security.  It is unlikely that, properly advised, Barker would proceed with the sale of the Property whilst these proceedings remain on foot.  The likely practical prejudice to Barker is some delay in putting in place appropriate marketing for sale.

5. In my view, the balance lies in favour of maintaining Wellard's continued occupation of the Property until such time as these proceedings are resolved.

6. It is clear that these proceedings should be dealt with on an expeditious basis so as to reduce the prejudice to Barker.  In the meantime, however, it is in my view appropriate that orders be made in terms of Wellard's minute of proposed orders dated 15 January 2018.