Ageist Pty Ltd v More Than Skin Pty Ltd [2020] NSWSC 1176 | Case summary

Ageist Pty Ltd v More Than Skin Pty Ltd [2020] NSWSC 1176 | Case summary | Zoe

Judgment

The initial judgment in these proceedings, which was published on 21 August 2020, was inconclusive: Ageist Pty Ltd v More Than Skin Pty Ltd [2020] NSWSC 1117 (the principal judgment).
These reasons will assume knowledge of the principal judgment, and I will use the same terms as were defined therein.
Ageist is a second mortgagee over the Property, whose registered proprietor is Mr Murabito. In the exercise of its mortgagee's power of sale, Ageist entered into the Contract for the sale of the Property on 21 March 2020.
After the date of the Contract, Mr Murabito lodged the Murabito Caveat against the title to the Property, which had the effect of preventing the completion of the Contract.
The proceedings involved an application by Ageist for an order under s 74MA of the Real Property Act 1900 (NSW) for the withdrawal of the Murabito Caveat.
In circumstances more fully explained in the principal judgment, Ageist only allowed an 11 day advertisement program for the Property. The price achieved at the auction for the Property was $1,015,000. The evidence at the initial hearing established, at the interlocutory level, that the highest and best use of the Property was as retail premises. Ageist sought to justify the price under the Contract by relying on a professional valuation of the property based upon an instruction from Ageist to value the Property for residential purposes.
The valuation evidence at the initial hearing, on the basis of valuing the Property for retail purposes, gave a range of values from slightly more than the price under the Contract to $1,700,000. Therefore, the valuation evidence that was available suggested that the price under the Contract was below the reasonable range of values for the Property.
The Court may have nonetheless ordered the withdrawal of the Murabito Caveat on the basis that, if Mr Murabito established at the final hearing that Ageist had breached its mortgagee's duty of good faith, and the Property had been sold at a substantial undervalue, he would be entitled to compensation from Ageist in an action for an account.
That, however, was not a satisfactory resolution of the dispute, for reasons discussed in the principal judgment in detail, arising out of the circumstances in which the second mortgage had been assigned by the original second mortgagee to Ageist. If there was a reason for the assignment other than to deprive Mr Murabito of his rights under the National Consumer Credit Protection Act 2009 (Cth), none was suggested by Ageist. There was no apparent purpose in the assignment other than to achieve that result.
That factor may not of itself have been decisive, were it not for the fact that a by-product of the fancy footwork designed to sidestep the Credit Protection Act, as I called it, was that the Court could have no confidence that Ageist would, after the final hearing, have assets sufficient to enable it to properly account to Mr Murabito, if he established that Ageist had breached its duty of good faith to him. Ageist's net asset position depended entirely on the recoverability of the debt the subject of the second mortgage, and that was an entirely obscure matter given that there was no evidence that enabled the Court, even on an interlocutory basis, to assess the likely effect of the realisation of all of the four properties that secured the debt. The uncertainty was compounded by the fact that there was a first mortgage over all four properties. Furthermore, it may have been a simple matter for those in control of Ageist to organise its affairs so that it could not meet any order for the payment of money to Mr Murabito.
That led to a problem at the stage of the Court's consideration of the balance of convenience, as the conventional result may have been to order the withdrawal of the caveat, on the basis that Mr Murabito would be adequately protected by his entitlement to an account from Ageist, but there was inadequate reason for the Court to believe that the right to an account was valuable.
That was not the end of the matter, because Mr Murabito had not offered a valuable usual undertaking as to damages to the Court, and all of the evidence that was before the Court at that time suggested that he was financially unable to give an adequate undertaking. At [180] of the principal judgment, I observed that, as neither choice available to the Court would constitute a satisfactory resolution to the determination of the balance of convenience, I would publish the reasons and give Ageist and Mr Murabito a short period in which to consider their position, to determine whether they could offer to the Court a satisfactory undertaking as to damages to support the interlocutory order that they seek from the Court.
Before I consider the responses by the two parties, it will be relevant to note an aspect of the Contract that was referred to at [43] of the principal judgment. The Contract contained a special condition that had the effect that Ageist could not be compelled to complete, if a caveat was lodged against the title to the Property which prevented completion. Ageist was entitled to elect, by notice in writing given to the Purchasers, to extend the Completion Date from time to time to a date not more than six months from the date of the Contract, or to terminate the Contract. If Ageist terminated the Contract, it would be required to return the deposit, but would not otherwise be liable to pay compensation to the Purchasers.
There was no evidence as to what Ageist has done in relation to the implementation of the special condition, but there was no suggestion by Ageist that it had not availed itself of the rights contained in the special condition, and kept alive its right to extend the Completion Date and to terminate the Contract.
As the Contract was dated 21 March 2020, the six months period over which Ageist has a right to extend the Completion Date will expire on 21 September 2020. That date is significant, because, as will be seen, Mr Murabito has asked the Court for an order extending the Murabito Caveat, on the basis that the operation of the order would be conditional upon Mr Murabito being able to raise funds to enable him to create a security in the amount of $300,000 by no later than 11 September 2020 and, as a separate condition, within 14 days of Ageist providing Mr Murabito's solicitor written consent for a valuer to access the property, to provide evidence of a purchaser ready, willing and able to purchase the Property for $1,600,000.
The significance of these observations is that I take the view that the balance of convenience requires that, whether or not any condition to the Murabito Caveat being permitted to remain on the title to the Property has been satisfied must be known in sufficient time so that, if the conditions are not satisfied, Ageist will be able to complete the Contract by 21 September 2020. As the Purchasers under the Contract should be given no less than five days' notice of the requirement that they complete the Contract on 21 September 2020, then whether or not the conditions have been satisfied must be known by no later than Wednesday, 16 September 2020. As 21 September 2020 is a Monday, it must be acknowledged that the period I have allowed contains a weekend. Shortness of time makes this outcome unavoidable. It will be a matter for Ageist to give the Purchasers due warning.
I make these observations because, for the reasons that follow, I have decided that the balance of convenience justifies the Court in giving Mr Murabito one final chance to secure the sale of the Property for $1,600,000. The timetable must, however, be somewhat tighter than Mr Murabito contemplated, because it is necessary to accommodate his suggestion to the timetable for completion provided for in the Contract, if the conditions are not satisfied.
It will be convenient to explain my reasons by starting with the offers made by Ageist to provide to the Court a satisfactory undertaking as to damages.
First, Ageist itself offered to give to the Court the usual undertaking as to damages, if the Court ordered the removal of the Murabito Caveat.
Secondly, a director of Sydney Wyde, who is the mortgage manager for the loan made to the Borrower by PTAL, provided confidential evidence, which was to be disclosed only to the counsel and the solicitor for Mr Murabito, of Sydney Wyde's balance sheet, and informed the Court by affidavit that Sydney Wyde would indemnify Ageist in respect of any damages Ageist may ultimately be ordered to pay to Mr Murabito as a result of Mr Murabito's contention that the Property was sold at an undervalue.
The director said in his affidavit that he understood from reading the principal judgment that the amount of the damages may be as much as $685,000.
While I accept the criticism of this evidence made on behalf of Mr Murabito, in relation to the inadequacy of the substantiation of the balance sheet, I would be prepared to accept the evidence provided.
The undertaking to the Court offered by Sydney Wyde was to the following effect: Sydney Wyde undertakes to the Court that: 1 it indemnifies Ageist in respect of any judgment amount awarded against Ageist in favour of Mr Murabito arising out of the purported under sale of the Property; 2 it will quarantine the sum of $650,000 in its account [account details omitted] and that sum will not be released until the earlier of: i) the further order of the Court; ii) any agreement between the parties to the contrary; iii) a period of 6 months from the date of the undertaking.
As I explained during the further hearing that took place on 28 August 2020, what Sydney Wyde offered is an undertaking to the Court to provide a personal indemnity to Ageist. It is not the usual undertaking to the Court as to damages. That substantially reduces the worth of the undertaking, because, if Ageist becomes insolvent, the ability of Mr Murabito to recover compensation from Ageist in an action for account may be watered down, because Mr Murabito may only be able to recover a dividend in the winding up of Ageist as one of a number of unsecured creditors.
Ageist responded to this observation by informing the Court that Sydney Wyde would give the undertaking to the Court that is contained in par 2 set out above concerning the retention of the $650,000.
When this third undertaking is considered, in conjunction with the undertaking offered by Ageist and the undertaking in par 1 offered by Sydney Wyde, the undertakings would collectively provide an adequate security for the primary undertaking to be given by Ageist, were it not for two considerations. The first is that Sydney Wyde does not offer to hold the $650,000 as security for the performance by Ageist of its undertaking to the Court. The second, and more serious consideration, is that the duration of the period that Sydney Wyde would retain the $650,000 is limited to six months, come what may.
This undertaking only has value to the extent that the Court could be comfortably satisfied that an action in account could be commenced by Mr Murabito and heard and determined by the Court within six months from the date of completion of the Contract.
Unfortunately, the Court can have no confidence that the proceedings could be heard and determined within a six months period. That is so even if Mr Murabito commenced and prosecuted his claim with all reasonable expedition. Not only can the Court not guarantee a hearing date within that period, but it is likely that the issues raised will require that the trial judge have some time to consider his or her judgment.
I add that I would not accept an undertaking as to damages that was subject to an arbitrary termination date, if the result was to create an artificial imposition on the Expedition List Judge.
Consequently, the Court cannot be satisfied with the cumulative adequacy of the three undertakings to the Court that have been offered by Ageist and Sydney Wyde.
I will turn to the position concerning the undertaking to the Court that has now been offered by Mr Murabito. After the hearing on 28 August 2020, Mr Murabito provided to the Court revised short minutes of order.
Mr Murabito supported his proposed short minutes of order by the affidavits of three witnesses, one of whom was himself, made on the 28 August 2020 date of the hearing. The affidavits were relatively cursory, and some only became available during the course of the hearing.
Two of the affidavits were directed at attempting to prove that Mr Murabito could raise $490,000 within a short time, $300,000 of which he could use to create a security for the usual undertaking as to damages to the Court that he offered to give.
The third affidavit was by a person who said that he had made an offer to purchase the Property for $1,600,000. I will call this person the New Purchaser. A screenshot of a bank statement was annexed that showed that the New Purchaser had just enough cash to pay the 10% deposit.
I do not propose to discuss the three affidavits in detail in these reasons. The evidence does not remotely establish that there is a substantial likelihood that Mr Murabito will be able to establish the $300,000 security, or that the New Purchaser will be able to make the necessary arrangements within a matter of a few weeks to prove that he will be able to purchase the Property for $1,600,000.
Ultimately, Mr Murabito's counsel was obliged to put the submission that if there was any chance that the Property could be sold for a price of $1,600,000, Mr Murabito should be given that opportunity. If he failed to satisfy the two conditions, then that would be the end of the matter. The Murabito Caveat would then have to be withdrawn.
I will now set out the final version of the short minutes of order that Mr Murabito asked the Court to make. They are (with certain details anonymised): 1. Until further order, the Court orders that the Plaintiff is restrained from completing the contract for the sale of the [Property], dated 21 March 2020, between the Plaintiff and [the Purchasers] ("Contract"): (a) on the basis of the undertakings set out in paragraph 2 below; (b) subject to the conditions set out in paragraph 3 below. 2. The Court notes the undertaking to the Court of the Second Defendant (provided through his solicitor): (c) to file a cross claim seeking substantive relief against the Plaintiff expeditiously, and then prosecute the cross claim with all reasonable expedition. (d) to consent to Ageist selling the Property by public auction on the following terms: i. The marketing campaign be no shorter the 4 weeks; ii. The sale process be conducted by: iii. an agent agreed between the Plaintiff and Second Defendant; or, in absence of agreement, by an agent nominated by the President of the Real Estate Institute (NSW) (on the joint request of the Second Defendant and Plaintiff); iv. A solicitor agreed between the Plaintiff and Second Defendant; or, in absence of agreement, by a solicitor nominated by the President of the Law Society of NSW (on the joint request of the Second Defendant and Plaintiff); v. Subject to agreement to the contrary, the reserve price to be the same reserve price set for the auction conducted by the Plaintiff on 21 March 2020: ie, $950,000; vi. There be no restriction on what party can attend (and bid at) the auction (e) to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not that person is a party), affected by [the Murabito Caveat] remaining on the title of the [Property], from the date of this affidavit, if the Court subsequently determines that there was no reasonable basis for the lodgement of caveat ("Undertaking as to Damages"); (f) With respect to the foreshadowed repayment of the Second Defendant's $490,000 loan to [redacted] (referred to in the Second Defendant's affidavit sworn 28 August 2020): i. from the amount repaid, pay $300,000 to a controlled money account in the name of M J Woods & Co Solicitors, to be held on trust for me to provide security in relation to the Undertaking as to Damages ("Security Sum"); ii. until further order of the Court, not give any direction to M J Woods & Co Solicitors (directly or through any agent) to disburse, encumber, or otherwise deal with the Security Sum,; iii. direct M J Woods & Co Solicitors to disburse the Security Sum to pay any compensation found to be due, pursuant to the Undertaking as to Damages. (g) to notify the Plaintiff's solicitor of: (sic) 3. The interlocutory relief referred to in paragraph 1 above, is subject to the conditions subsequent that: (a) the Security Sum is paid by no later than 11 September 2020 (b) within 14 days of the Plaintiff providing to the Second Defendant's solicitor written consent for a valuer appointed by [the New Purchaser] (or his lender) to access to the Property on 1 day's notice for the purpose of valuation, [the New Purchaser] to provide to the Plaintiff's solicitor written confirmation: i. of Mr [the New Purchaser's] solicitor, with respect to the conveyance of the Property ("Solicitor"); ii. that the sum of $160,000 is in the trust account of the Solicitor; iii. of unconditional loan approval for $1.54 million, relating to the acquisition of the Property; iv. of willingness to exchange contracts for the sale and acquisition of the Property (on the basis of a 10% deposit) for the price of $1.6 million, on otherwise identical terms to the Contract (or such other terms as the Plaintiff and [the New Purchaser] reasonably agree), at the offices of Summer Lawyers at 13 Lackey Street Summer Hill, on 6 hours' written notice by the Plaintiff to [the New Purchaser's] solicitor (subject to the notice being issued, and the proposed time for exchange being, during business hours ("Notice"); v. of [the New Purchaser's] readiness, willingness, and ability to complete the acquisition of the Property 14 days after exchange of contracts; (h) [the New Purchaser] exchanging contracts (and paying the 10% deposit), at the time and place specified by the Notice; (i) [the New Purchaser] completing the acquisition of the Property, in conformity with a notice issued by the Plaintiff, subject to: i. the time for settlement specified in the notice, being a time on or after the date 14 days after exchange; ii. the notice providing at least 2 days notice of the time of settlement; iii. the conditions for settlement being otherwise reasonable; iv. the settlement not being frustrated by circumstances for which the vendor is responsible; v. the Plaintiff providing directions for payment no later than 3 days before settlement.
I make the following comments on the orders contained in the draft short minutes of order.
Order 1 reflects the observation at [183] of the principal judgment. Any continuing interlocutory relief granted to Mr Murabito should be restricted to an interlocutory injunction restraining Ageist from completing the Contract. There is no ground for the maintenance of the Murabito Caveat in-so-far as it may affect the actions of the first mortgagee. Consequently, in addition to order 1, there must be an order requiring Mr Murabito to withdraw the Murabito Caveat forthwith.
Paragraph 2(c) (strangely, there is no (a) or (b)) is a note of an undertaking to the Court by Mr Murabito that he will file a cross claim seeking substantive relief against Ageist expeditiously, and then prosecute the cross claim with all reasonable expedition. In principle, the Court must require an undertaking generally in those terms, or there should be an order to that effect. I am not sure that the undertaking offered is sufficiently precise as to time or is appropriately comprehensive.
So far, I am not aware of Ageist responding specifically to the drafting of par 2(c). It should do so, preferably by negotiation with Mr Murabito.
It is not entirely clear how the undertaking in par 2(d) is intended to work. If the result of the orders is that either Ageist completes the Contract, or the New Purchaser purchases the Property, then Ageist will have no occasion to act in accordance with par 2(d). That said, the undertaking in par 2(d) may be of some value to Ageist, if for some reason the Purchasers do not complete the Contract, and the New Purchaser does not satisfy par 3(b), (h) and (i). Once again, the identification of the sub-paragraphs of par 3 is inexplicable.
Paragraph 2(e) provides for the usual undertaking as to damages to the Court on the basis that a person may be affected by the Murabito Caveat remaining on the title to the Property. However, the Murabito Caveat will be withdrawn, and will be replaced by the interlocutory injunction in par 1. Paragraph 2(e) must be redrawn so that the usual undertaking as to damages responds to the order made in par 1.
Paragraph 2(f) and par 3(a) could be simplified. It does not matter where the money comes from. There need only be a condition that, if the relevant security in the sum of $300,000 is not provided by the due date, par 1 containing the interlocutory injunction restraining the completion of the Contract will be vacated.
Paragraphs 3(b), (h) and (i) set out the conditions that must be satisfied in relation to the purchase of the Property by the New Purchaser.
The wording must be adjusted so that everything that must be done can be done by 16 September 2020. The orders must provide for all necessary matters to be completed by 16 September 2020. They must provide for the New Purchaser's valuer to be given immediate access to the Property.
It is not clear to me why the new contract should be between Ageist and the New Purchaser. Unless it consents, Ageist should not be responsible for dealing with the New Purchaser. The paragraph could be redrafted to make Mr Murabito the vendor, with suitable variations, including that Mr Murabito give an irrevocable direction to the New Purchaser to pay the price to Sydney Wyde on completion at the office of the solicitors for Sydney Wyde. Other variations may be necessary.
I consider that, if there is any real chance that the Property may be sold for $1,600,000, the balance of convenience favours the Court making orders that permit that possibility to come to fruition. Provided the outcome is known by 16 September 2020, and the ability of Ageist to complete the Contract on 21 September 2020 is preserved, the Court should not waste the possibility that the sale of the Property will generate an additional $585,000. That is so even if, objectively, the likelihood of a sale at $1,600,000 as contemplated by Mr Murabito's proposed short minutes of order is remote.
The balance of convenience favours this course, even though Ageist and Sydney Wyde, and thus PTAL, appear to be willing to take the risks involved in completing the Contract at a price below the range of values suggested by the evidence, following an 11 day sales campaign. Equity will act to preserve value where that can be done.
Finally, Ageist and Sydney Wyde will get the benefit that the draft short minutes of order propounded by Mr Murabito will have the effect that the interlocutory injunction made by par 1 will be vacated if the conditions are not satisfied. If Ageist completes the Contract, Mr Murabito will be free to pursue an action in account against Ageist, but neither Ageist nor Sydney Wyde would have had to give to the Court the undertakings that they have offered.
Unfortunately, there is still a need to revise the draft short minutes of order to give effect to these reasons. That will create difficulties because of limitations on my present availability. I will expect the parties' lawyers to approach the task sensibly and cooperatively.
In the meantime, all parties must act in the expectation, given the short time frame, that orders will be made that have the general effect that I have indicated above.
The short minutes of order must deal with [186] of the principal judgment.
For the moment, costs should be reserved.
The parties should respond to these reasons by providing agreed short minutes of order to my Associate by email within two days.

Ageist Pty Ltd v More Than Skin Pty Ltd

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Judgment (3 paragraphs)

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