AJG Capital Pty Ltd & Ors v AJG Properties & Ors

CATCHWORDS : EQUITY - Equitable remedies - orders for judicial sale out of court - discretionary factors considered.

LEGISLATION CITED : Conveyancing Act (1919)(NSW) s 111(2)(b)

CASES CITED : King Investment Solutions Pty Limited v Hussain (2005) 64 NSWLR 441 Matthews v Goodday (1861) 31 LJ Chancery 282

First Plaintiff- AJG Capital Pty Ltd Second Plaintiff- Minimbah Securities Pty Ltd PARTIES : First Defendant- AJG Properties Pty Ltd (in liq) (Receivers and Managers Appointed) Cross Claimant- National Australia Bank of Australia Limited First Cross Defendant- AJG Properties Pty Ltd (in liq) (Managers and Receivers Appointed)

SOLICITORS : Cross Claimant- Jennifer Barton, Minter Ellison

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2009/290230 AJG CAPITAL PTY LIMITED & ORSv AJG PROPERTIES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) & ORS

EX TEMPORE JUDGMENT 1 HIS HONOUR: This is an application for judicial sale out of court of two properties. Judicial sale in court where trustees for sale are appointed and proceeds of sale are paid into court and thereafter administered by the Court is a more common form of order for judicial sale. But there are some circumstances where sale out of court is appropriate. And, in my opinion, having seen the evidence in this case, I am of the view that this is one of them. 2 Two properties are the subject of these proceedings. One is in Raymond Terrace and the other one is in Pymble in New South Wales. 3 This Court has a policy of avoiding identity theft through the publication of its judgments. Accordingly, I will not specify in this judgment the title details of either of these properties. But if it is necessary for those title details to be ascertained by a person legitimately interested in obtaining such details, they are obtainable from the Court file. 4 The background to this proceeding is not particularly complex. It commenced in the following way. On 28 June 2008 the company AJG Properties Pty Limited granted a fixed and floating charge over all its property in favour of National Australia Bank. I will refer to this company throughout these reasons as Properties. On the same date Georgie Investments Pty Ltd granted a fixed and floating charge in relevantly identical terms over all its property in favour of the National Australia Bank. I will refer to this company throughout these reasons as Georgie. 5 By December 2008 both the Pymble and Raymond Terrace properties were in the names, respectively, of Properties and Georgie Investments, and were each mortgaged to the Commonwealth Bank of Australia as first mortgagee. Up to date property searches of both those properties tendered in the proceedings today show that only the Commonwealth Bank of Australia is notified in the second schedule as the first mortgagee of these properties. No other claimants to a charge over the properties appears in the second schedule to either property apart from the National Australia Bank itself. 6 Properties and Georgie defaulted upon the terms of their charges to the National Australia Bank. On 12 June 2009 receivers and managers were appointed under powers pursuant to those charges. On 11 August 2008, the National Australia Bank lodged caveats over both the Pymble and the Raymond Terrace properties claiming an interest as an equitable chargee under the charges. These proceedings were commenced shortly afterwards, not by the National Australia Bank or the Commonwealth Bank of Australia but by two other companies, which are part of the group of companies, which includes Properties and Georgie. These other companies are AJG Capital Pty Limited ("Capital") and Minimbah Securities Pty Limited ("Minimbah"), which commenced these proceedings as plaintiffs. Capital and Minimbah sought specific performance of certain alleged contracts for sale of the Pymble property and Raymond Terrace property and certain other properties. Success in the specific performance proceedings would have seen the transfer of the Raymond Terrace and the Pymble properties away from Properties and Georgie. The summons in the proceedings has not been heard. 7 On 9 December 2009 the National Australia Bank was joined as a fourth defendant to the proceedings. A few days later, the National Australia Bank filed the current cross-summons. That cross-summons now seeks - and has always sought a form of orders for the sale of the Pymble and Raymond Terrace properties out of court. 8 The National Australia Bank joined Properties and Georgie on the cross-claim as the first and second cross-defendants and joined the Commonwealth Bank as the third cross-defendant. 9 A number of other procedural events explain the recent course of the proceedings. The plaintiffs, Capital and Minimbah Securities, firstly, did not wish to push for the relief that they claimed. Rather they permitted orders to be made for the cross-summons to proceed separately from the summons; and secondly, upon orders being made for that cross-summons to be heard before me today, no apparent attempt was made to revive or advance the hearing of the summons to today. Third, leave to proceed was sought by the National Australia Bank against Properties and Georgie who had not only had receivers and managers appointed to them under the National Australia Bank's fixed and floating charge but they are also at this stage now in liquidation. 10 I am satisfied on the evidence before me that adequate notice has been given of the hearing today of these proceedings. I have evidence before me of two forms of such notice: one of service of notice of this hearing and of service of notice of the cross-summons upon the cross-defendants. But in addition to that, there was tendered this morning a letter from Messrs Baker & Mackenzie of 5 August 2010, the solicitors acting for the receivers and managers appointed to Properties and Georgie, in which they indicate an awareness of the cross-summons, the fact that an outline of submissions in support of it had been served in anticipation of the hearing today, and confirmed their view that their clients neither consented nor objected to the orders being sought by the cross-claimant on the cross-summons. Their only exception to this position was in relation to any orders, which may require payment of costs by the receivers and managers of the companies personally. But such costs are not being sought. 11 The other letter received is from Mr Adrian Holmes, a solicitor acting for the mortgagors, who has also been notified of this hearing and has indicated in that email that he is aware that the application is being heard today and that his clients do not propose to appear. 12 The evidence in support of application can be dealt with in respect of each of the two properties conveniently. 13 AJG Properties is the owner of three commercial strata units in Pymble located in a single building in Pymble. Notices to occupier have been served at each of these strata units. The evidence is that there was no one in occupation at the time. 14 The evidence includes evidence of the charges on the basis of which relief is sought. 15 The National Australia Bank has an all moneys charge. In this all moneys charge dated 28 June 2008 I am sufficiently satisfied, that, the width of definition of "Mortgaged Property" under Clause 1 of that charge, the definition of "Secured Amounts" under Clause 2.3 of that charge, the definition of "Floating Charge" under Clause 4.2 and the charge's default clauses are sufficient to give rise to the National Australia Bank's rights sought on this application as an equitable chargee. There is in the charge in the usual form, a capacity for the issuing of a Dobbs certificate. 16 Notice of default has been served pursuant to section 111(2)(b) of the Conveyancing Act (1919) (NSW) in the proceedings. 17 In respect of the Pymble property, as with respect to the Raymond Terrace property, the confidential exhibits to the affidavit of Mr James Charles Beaton show what is the expected valuation upon sale. That confidential evidence has now been supplemented by - as a result of discussions in the course of the hearing with Counsel - by an affidavit of the valuer himself, Mr Carritt, to the same effect. That affidavit indicates an expected sale value of the Pymble commercial property. I have ordered that this value be kept confidential to ensure the best financial outcome on the marketing and sale of the property. 18 The critical factor with respect to the sale of that property and the sale of the Raymond Terrace property which prompts the conclusion that judicial sale out of Court is appropriate is a comparison of that expected realisation value upon sale with the amount which is currently owing to the first mortgagee, the Commonwealth Bank of Australia. 19 The Commonwealth Bank of Australia's pay out figure as of today, the loan balance in respect of Properties, is a figure of $573,243.64. Although I do not disclose in this judgment the expected valuation for sale purposes of the Pymble property, nevertheless it is sufficient to say that for present purposes that after sale expenses are deducted very little may remain by way of return to the cross-claimant after paying out the first mortgagee upon the sale of the Pymble property. It is the marginal nature of that return in respect of that property that is a compelling feature of this case strongly prompting the conclusion that sale out of court is appropriate. 20 The structure with respect to the Raymond Terrace property and Georgie is the same. Georgie is the registered proprietor of the Raymond Terrace property. A notice to occupier was served at the Raymond Terrace property. There was a person in occupation at the Raymond Terrace property, a matter to which I will return later. Structure of the charge, the Dobbs certificate and other information in respect of the Raymond Terrace property is identical to, in relevant respects, to that with respect to the Pymble property. The same provisions of the National Australia Bank fixed and floating charge are relevant with respect to the claim against Georgie. Nnotice has been served under Conveyancing Act s111(2)(b). I am satisfied that there has been default and that the cross claimant has rights as an equitable chargee upon Georgie's default.

21 Again I turn to the valuation question, which is Mr Beaton's initial evidence now supplemented by evidence from Mr Carritt. Although the figure for the Raymond Terrace property cannot be published, because I have made orders that it not be published, nevertheless, the pay out figure to the first mortgagee in respect of that first mortgage is $99,700.93. 22 Pursuant to the Dobbs certificate provisions in the charges there have been tendered before me figures as to the total amount outstanding to the cross-claimant both from Properties and from Georgie. The total amount outstanding from Properties at the present time is $12,289,106.70; the total amount outstanding by Georgie to the cross-claimant is $11,441,022.11. 23 All that needs to be said with respect to the possible return on sale from the Raymond Terrace property is that it can be expected that after comparison of the valuation, the difference between the valuation on sale of the Raymond Terrace property and the amount payable to the first mortgagee will produce some return, but it will only possibly of the order of some hundreds of thousands of dollars which would not be anywhere near sufficient to meet the liabilities now outstanding to the National Australia Bank. 24 It is with this background that the Court is asked to grant the relief sought in the short minutes of order, which have been provided to the Court by Mr Muddle of Senior Counsel today. 25 Based upon its rights as a chargee, the cross-claimant seeks sale out of court. The jurisdiction to order sale in these circumstances is undoubted. The principal remedies of an equitable chargee are judicial sale: Matthews v Goodday (1861) 31 LJ Chancery 282. Upon default an equitable chargee is entitled as of right to an order for sale but there are discretionary aspects to the exercise of the jurisdiction to order judicial sale: King Investment Solutions Ltd v Hussain [2005] NSWSC 1076, [80]. [81], [119], and [134] 26 In this case, notice having been given, no one appears to oppose the order. There seems to be every reason why it should be made. 27 There are really only two issues that need further consideration in fashioning the appropriate remedies. One is to balance the arguments that might weigh in favour of the appointment of a trustee for sale as against a sale out of court, and secondly, the question of whether some further short opportunity should be given to allow redemption to take place, which is one of the discretionary issues commonly considered when this remedy is granted: : King Investment Solutions Ltd v Hussain [2005] NSWSC 1076, [111] and [119]. 28 As to the first of these two issues, Mr Muddle's argument on behalf of the National Australia Bank is persuasive. It essentially consists of these ingredients: There is very little left after the payment out of moneys to the Commonwealth Bank of Australia, the first mortgagee of the two properties; that in those circumstances, the return to the cross-claim will be diminished by the interposition of another layer of costs associated with the appointment of a trustee for sale. 29 I have no direct evidence before me today about costs of such an appointment but it is not uncommon for the appointment to be made from the ranks of official liquidators or senior solicitors or accountants. The time involved in supervising and administering the process of sale in this case by such a person would not be inexpensive. And without direct evidence, nevertheless, the addition of such costs is a factor to be taken into account against the appointment of a trustee for sale. 30 Mr Muddle points out that given the massive shortfall between the amount currently owing to the cross-claimant and the amount likely to be realised after payment out of the Commonwealth Bank of Australia from the combination of both of these properties, that the cross-claimant must be highly motivated to get the best price. I agree that this is likely, and indeed the application itself crafted the way it is, provides some evidence that this motivation exists. 31 This is not a case where there are any personal issues or issues of faction or bias that make the appointment of the cross-claimant as the person to conduct the sale out of court as inappropriate. Indeed, as Mr Muddle's submissions point out institutions such as the cross-claimant are well experienced in such sales. 32 I am fortified in this conclusion by the fact that notwithstanding the fact that notice of these proceedings has been given for a long time to affected parties, no one has sought to appear today to oppose the making of the orders. 33 Accordingly, I propose to make the orders sought for sale out of court structured in the way suggested in the short minutes. That leaves just the question of whether an opportunity to redeem should be given. 34 Mr Muddle points out that no one has sought, prior to today's hearing or at today's hearing, such an opportunity. And objectively it must be said, given the disparity between available funds and the apparent default to the cross-claimant, that such an opportunity would seem to be one unlikely to be very productive. Nevertheless, it is a discretionary issue as to whether immediate sale should be ordered or to allow some further time for redemption to take place: see Campbell J's judgment in King Investment Solutions Pty Limited v Hussain (2005) 64 NSWLR 441, in particular [118] and [119]. 35 As there was a person in occupation of the Raymond Terrace property, the appropriate course does seem to me to make orders that if writs of possession are to issue that they lie in court for a period of time to allow notice to that person to be given. It seems to me, also, that for that same period of time a right to redeem could be given, or a period of time allowed, to permit redemption to occur. I am inclined to allow approximately one month for that to happen. The form of order below will accommodate this:- 1. Order that the agreement contained in the debenture charge given by the first cross defendant to the cross claimant dated 28 June 2002 (AJG Properties Charge) be specifically performed by the first cross defendant giving to the cross claimant possession of the land contained within Folio Identifiers 11/SP73824, 12/SP73824 and 13/SP73824 being the property known as Lots 11, 12 and 13/1178 Pacific Highway, Pymble, New South Wales (Pymble Properties). 2. By way of enforcement of Order 1 above, Judgment for the cross claimant for possession of the Pymble Properties and leave to issue a Writ of Possession for the Pymble Properties forthwith but such writ shall not issue until Friday, 10 September 2010.

Order that the Pymble Properties be sold by the cross claimant by public auction, if the reserve price is achieved, or if not, then by private treaty at the best price obtainable being not less than 90% of the reserve price. For this purpose the reserve price shall, subject to any further order, be a price equal to the valuation disclosed in Confidential Exhibit JCB-1.

Order that the cross claimant be appointed to transfer the Pymble Properties to the purchaser(s) thereof to effectuate the sale.

Order that after the payment of all expenses in respect of the sale, the sale proceeds of the Pymble Properties be applied so as to pay to the third cross defendant the amount secured by the third cross defendant's mortgage being mortgage registered number AE362316 and any other encumbrances of the land in Order of their priority in accordance with their terms pursuant to the Real Property Act then to the cross claimant in satisfaction of the AJG Properties Charge with any residue to be paid to the cross defendant.

Order that the agreement contained in the debenture charge given by the second cross defendant to the cross claimant dated 28 June 2002 (Georgie Investments Charge) is specifically performed by the second cross defendant giving to the cross claimant possession of the land contained within Folio Identifier 782/746828 being the property known as 23 Hunter Street, Raymond Terrace, New South Wales (Raymond Terrace Property).

By way of enforcement of Order 6 above, Judgment for the cross claimant for possession of the Raymond Terrace Property and leave to issue a Writ of Possession for the Raymond Terrace Property forthwith but such writ shall not issue until Friday, 10 September 2010.

Order that the Raymond Terrace Property be sold by the cross claimant by public auction, if the reserve price is achieved, or if not, then by private treaty at the best price obtainable being not less than 90% of the reserve price. For this purpose the reserve price shall, subject to any further order, be a price equal to the valuation disclosed in Confidential Exhibit JCB-1.

Order that the cross claimant be appointed to transfer the Raymond Terrace Property to the purchaser(s) thereof to effectuate sale.

Order that after the payment of all expenses in respect of the sale, the sale proceeds of the Raymond Terrace Property be applied so as to pay to the third cross defendant the amount secured by the third cross defendant's mortgage being mortgage registered number 8904864 and any other encumbrances of the land in Order of their priority in accordance with their terms pursuant to the Real Property Act then to the cross claimant in satisfaction of the Georgie Investments Charge with any residue to be paid to the cross defendant. 11. Order that the cross claimant's costs of the proceedings be paid out of the proceeds of the sale of the Pymble Properties and Raymond Terrace Property.

12. If Properties or Georgie pays the amounts due respectively to the cross claimant before 10 September 2010 these orders shall be permanently stayed. 13. Direct the cross claimant to give notice of these orders to any occupant of the Raymond Terrace Property within three days. 14. Liberty to the parties to apply with respect to any matter that may arise with respect to the sale of the Raymond Terrace Property or the Pymble Properties or the distribution of the sale proceeds. **********

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.