- Alati v Kruger

Judgment 1By Interlocutory Process filed on 12 June 2012, the Defendants/Cross-Claimants ("Defendants") sought orders that terms of settlement dated 7 June 2012 ("Settlement Terms") and consequential orders made by the Court on 8 March 2012 ("8 March Orders") be set aside, or alternatively an order staying the operation of the 8 March Orders until further order of the Court. The Interlocutory Process also sought declaratory relief and other orders. 2When the matter was listed for hearing on 22 June 2012, the Defendants indicated that they were not in a position to proceed with the application for an order that the Settlement Terms and 8 March Orders be set aside, since those issues would need to be determined on a final basis and difficulties would arise as to the admissibility of parts of their affidavit evidence at a final hearing. The Defendants sought to proceed, on an interlocutory basis, with an order staying the operation of the "Escrow Orders" made on 8 March (as defined below) and several other orders. I have had regard to the interlocutory character of the hearing in assessing the evidence before me. Factual background 3I should first set out a short outline of the factual background to the application. The First Defendant/First Cross-Claimant, Webuildem Pty Limited ("Webuildem"), purchased a property at Hilly Street Mortlake in December 2007 on which it was intended to construct apartments and townhouses. Webuildem obtained loan offers or indicative offers from several banks and negotiated with Arab Bank Australia Limited ("Bank") in late February 2008 and early March 2008. 4The Bank initially lent $10 million to Webuildem under a letter of offer dated 12 March 2008, secured by mortgages over several properties. The amount lent was increased to $28 million by a further letter of offer dated 19 June 2008, again secured over several properties, which was subsequently varied on several occasions. The loans were continued under letters of offer dated 26 August 2010 and 2 March 2011 which provided for the facilities to expire on 14 August 2011. The facilities were not repaid on expiry and the Bank appointed receivers and managers ("Receivers") to several properties on 30 August 2011. 5These proceedings were commenced by Originating Process filed on 9 November 2011 by the Receivers. The proceedings were initially fixed for hearing on 6 December 2011 but that hearing was vacated following the service by the Defendants of a further Interlocutory Process and supporting evidence on that day. The proceedings were then fixed for hearing for 3 days on 7 March 2012. It appears from the affidavit of Mr Jacob Rebek (one of Webuidem's directors) dated 6 December 2011, which was filed in the proceedings and also read before me in this application, that Webuildem raised allegations as to, inter alia, the conduct of the Bank in the negotiations prior to the entry into the facility agreements; an allegation of duress in respect of its entry into those facility agreements; the issue of loan statements showing "nil balances" rather than actual loan balances by the Bank, apparently as a result of a computer error; overcharging of interest by the Bank; and the validity of the appointment of the Receivers. 6The proceedings were (subject to the matters raised by this application) settled on the first day of the hearing, 7 March 2012, by the entry into the Settlement Terms which were signed by, relevantly (1) Senior Counsel for the Defendants; (2) Webuildem by its directors, Mr Rebek, Mr George Maroun Rahme and Ms Martina Athitakis; (3) the Second Defendant, Maroun Investments Pty Limited ("Maroun") by Mr Rahme; (4) Mr Rahme in his personal capacity; and (5) by Mr Rahme for Mrs Nouha Rahme. The Settlement Terms provided for Webuildem, Maroun, Mr Rahme and Mrs Rahme to give access to the Bank to certain properties for valuation purposes and also recorded an agreement between the parties that, in summary: (a) The parties agreed to certain orders ("Escrow Orders") and the Bank could do all things necessary to have those orders entered if Webuildem's indebtedness to the Bank was not repaid by 12 June 2012; (b) The Bank would procure the retirement of the Receivers and the Receivers were to attend to giving all notifications of their retirement immediately after their retirement; (c) Certain releases were provided and there was an acknowledgement of the validity and enforceability of the facility agreements, mortgages and guarantees and indemnities; (d) A complaint to Financial Ombudsman Services Ltd was to be withdrawn; (e) The Defendants acknowledged that, if refinance was not effected by 5pm on 12 June 2012, the Bank was at liberty to enforce the Escrow Orders including by the appointment of receivers and managers; and (f) The proceedings would be dismissed if the Defendants refinanced their obligations as set out in the Settlement Terms or otherwise repaid their indebtedness to the Bank in full. On their face, the Settlement Terms appear to have conferred apparent benefits on the Defendants including securing the retirement of the Receivers and a period for refinancing of their existing facilities with the Bank. 7On 8 March 2012, Hammerschlag J made the 8 March Orders and noted the matters agreed between the parties in the Settlement Terms and also made the Escrow Orders as provided by the Settlement Terms. The Escrow Orders (which, as noted above, could be entered if Webuildem had not discharged its indebtedness to the Bank by 12 June 2012) provided for Webuildem, Maroun and Mr and Mrs Rahme to give possession of certain properties and to pay the Bank $23,721,717.20 (which was stated to include solicitors' costs to 7 March 2012 and Counsels' fees for the hearing on 9 November 2011) and interest at a daily rate on the amount outstanding and costs on a solicitor/client basis. 8On 9 March 2012, the Receivers retired in respect of Webuildem and Maroun and lodged notifications of their retirements with the Australian Securities and Investments Commission ("ASIC") in accordance with s 427 of the Corporations Act 2001 (Cth). The Receivers also sent letters to tenants of the properties advising of their retirement. After the Defendants contended that they were entitled to have the Receivers send additional notices of their retirement, the Receivers and the Bank consented to further orders made by the Court dated 26 March 2012 in that regard. 9By email dated 6 June 2012 to the Bank's solicitors, the solicitors for the Defendants sought an extension of time to refinance the facilities from the Bank to 14 August 2012. That email stated that: "Reference is made to the above matter and the Court orders made on 8 March 2012 by His Honour Justice Hammerschlag in particular the notation made in them in relation to Webuildem Pty Ltd's payment of the loans facilities to the Arab Bank Australia Ltd by 5:00pm on 12 June 2012. As you are aware, our clients are in the process of refinancing the loans facilities and have been delayed by your clients' conduct in failing to comply with the Court Orders resulting in further orders being obtained on 26 March 2012 to ensure your clients' compliance, with our clients indicating to Court on 26 March 2012 that they reserve their rights to seeking an extension of time. Our clients are now seeking an extension of time to 5:00pm on 14 August 2012 with our clients reserving their rights in relation to the orders and notations made on 8 March 2012 and the matter in general. Please confirm by 12:00 noon tomorrow, 7 June 2012 that your client the Arab Bank Australia Ltd is agreeable to the extension having regard to your clients' conduct and the substantial amount of the loans involved to be refinanced including discrepancies in the payout figures that your client is seeking which need to be addressed and dealt with. To this end, we note that our clients reserve their rights to the amount claimed by your client since it appears from our clients' further investigation that your clients' payout figures are incorrect." 10The Bank did not respond to that request by the stipulated time. By email to the Court dated 7 June 2012, the Defendants' solicitor requested an urgent listing of the matter before the Court on 12 June 2012 (which was the next available listing day and also the date by which refinancing was to be effected under the Settlement Terms) to deal with "some issues relating to the [8 March] Orders" and: "in particular seeking an extension of time to the notation made in the Orders in relation to [Webuildem's] payment of the loans [sic] facilities to the [Bank] by 5:00pm on 12 June 2012." 11When the matter was listed before me on 12 June 2012, the Defendants filed an Interlocutory Process seeking the wider range of orders to which I referred above, which was listed for hearing before me on 22 June 2012. The stay application 12The primary relief now sought by the Defendants is an order that the Escrow Orders be stayed until further order of the Court. (There would be little utility in a stay of the 8 March Orders other than the Escrow Orders since they have already been implemented and merely note rather than give any independent effect to the Settlement Terms.) 13Section 67 of the Civil Procedure Act 2005 (NSW) provides that, subject to the rules of Court, the Court may at any time, by order, stay any proceedings before it either permanently or until a specified day. Section 135 of the Civil Procedure Act permits the Court to give directions as to enforcement, including an order prohibiting any person from taking any further action, either permanently or until a specified day, to enforce an order of the Court. The Court's power to grant a stay under s 135 of the Civil Procedure Act is exercisable where the interests of justice so demand; the person seeking a stay must satisfy the Court that the requirements of justice require one; and the Court has a wide discretion whether to grant a stay and whether terms should be imposed on the grant of such a stay: Joskovitz v Bonnick [1964] VR 654 at 656; Tringali v Stewardson Stubbs & Collett Pty Ltd [1966] 1 NSWR 354 at 360-361; Victorian Securities Corporation Ltd v Icehot Pty Ltd (recs and mgrs apptd) [2010] NSWSC 1413 at [9]. 14The Plaintiffs initially contended that the Court had no jurisdiction to grant a stay because the Escrow Orders had not yet been entered, so there was no "judgment or order" the enforcement of which was capable of being stayed for the purposes of s 135 of the Civil Procedure Act and no basis upon which the Court would stay the enforcement of orders which had not yet been entered and in relation to which the Bank had not yet taken any enforcement action. The Plaintiffs ultimately accepted that there was no practical utility in this approach, where it was their intent to seek to enter the Escrow Orders and it was consistent with the just, quick and cheap resolution of the dispute between the parties to determine whether such orders should be stayed and that matter had been fully argued before me. 15The Defendants relied on several matters to support the suggested stay. There was a degree of uncertainty as to which of the grounds raised by the Defendants in their written submissions were ultimately pressed, by reason of the change in their approach at the hearing to which I referred above. I have therefore sought to address the range of matters raised by the Defendants, given the uncertainty as to which of them were ultimately pressed. Delay in refinancing 16The Defendants contend that, as a result of the Plaintiffs not providing all notifications of the retirement of the Receivers by 9 March 2012, as required by the 8 March Orders, further Court orders were obtained on 26 March 2012 to ensure compliance by the Bank and the Receivers. 17The 8 March Orders provided that the Receivers: "are to attend to the giving of all notifications of their retirement immediately after their retirement." This order did not specify the person to whom the notifications were required to be given. Possible interpretations of that order include that notifications should be given to ASIC as required by s 427 of the Corporations Act; to ASIC and tenants of the properties, which was the course taken by the Receivers; or to ASIC, tenants of the properties and anyone else with whom the Receivers had dealt in the course of the receivership. Although it is not necessary or appropriate for me to determine this question is this application, it is not certainly not self-evident, as the Defendants seem to have assumed in submissions before me, that the course taken by the Receivers had breached the 8 March Orders. 18Further orders were made by consent on 26 March 2012 which included a requirement that the Plaintiffs provide a list of all authorities, government and non-government agencies and institutions and third parties that were notified of their appointment from 30 August 2012 to 9 March 2012 and, if they had not yet done so, provide written notification to all such agencies, institutions and third parties of their retirement by the same date. It appears those orders were complied with, at least in substance, although the Defendants vigorously asserted that the Receivers had breached them when they were a day late in providing copies of those notifications to the Defendants' solicitors. 19The Defendants contend that they were prejudiced by the alleged breach of the 8 March Orders which they contend delayed the application for refinance of the Bank's loan facilities the Defendants. Such prejudice, if established, could well be a significant factor supporting a stay of the Escrow Orders, at least for the period (of 19 days, possibly less the 14 days taken to determine this application) by which a delay in such notifications delayed the refinancing of the facilities. However, the evidence led before me that the Receivers' delay in providing additional notifications as to their retirement had an impact upon the refinancing was conclusory in form and did not explain how such an impact arose. For example, Mr Rebek's evidence was: "I note that the breach of the Court Orders made on 8 March 2012 by the First, Second and Third Cross Defendants resulted in delaying the application for the refinance of the Arab [B]ank Australia Ltd's loans facilities by the First, Second, Third and Fourth Cross Claimants" (Rebek 12.6.2012 [7]) Similarly, Ms Athitakis' evidence, also in conclusory form, was that: "The Court orders made on 8 March 2012 were not complied with by the Arab Bank Australia Ltd and their alleged receivers and managers, necessitating further Court orders to be made on 26 March 2012 to ensure their compliance which delayed the First, Second, Third and Fourth Defendants/Cross Claimants from progressing their refinance applications due to lack of notices being given by the Arab Bank Australia Ltd and their alleged receivers and managers as stipulated by the Court Orders made on 8 March 2012" (Athitakis 15.6.2012 [20]). 20I do not consider that the evidence before me established a serious question to be tried as to whether any such breach (if it were established) brought about a material delay in applications being made to, or processed by, lenders. The Defendants did not lead evidence of when such applications were made or of their consideration by lenders. The finance proposals and indicative letters of offers made by lenders which were in evidence before me were not issued until, at the earliest, 7 May 2012 (some 6 weeks after the Receivers gave further notices of retirement following the orders made on 26 March 2012) and the majority of those proposals and indicative letters of offer were issued in late May and early June 2012. The Defendants' submissions also indicated that they "require additional time of about 10 weeks to complete the refinance" of the Bank's loan facilities, and that requirement is much longer than the suggested delay in the notification given by the Receivers. 21I should note that a letter dated 11 June 2012 from a finance broker, DYA Finance, was in evidence (although the Defendants did not place particular weight on it in submissions) which stated that: "We note that you have approached us in March 2012 but due to notices relating to the receivership termination not being complied with as we understand by the Arab Bank Australia Ltd and their retired receivers, we were unable to approach or progress your application for finance at the time since it appeared that the receivers had failed to provide adequate notices of their retirement ... as in the absence of those notices an application for finance would have shown from the government bodies and authorities records and searches such as Veda that prospective lenders may search or seek information from that you still have receivers appointed and that would have made such application unfavourable." (Ex D2 p41) I have had regard to that statement in reaching the conclusion to which I have referred above. However, that statement appears to assume a non-compliance by the Receivers which, as I have noted, is not self-evident; it does not recognise that the statutory notices of retirement by the Receivers and the notices to tenants were in fact given following the 8 March Orders; and it provides no explanation of what had occurred after 26 March 2012 when further notifications of retirement were given by the Receivers. Stay on the basis of ability to refinance 22The Defendants contend that the Court may grant relief where a plaintiff claims that it can redeem a mortgage within a fairly short time by carrying out a refinancing proposal which is reasonable on its face or where the plaintiff has a demonstrable capacity to secure or at least refinance the mortgage debt. Conversely, the Plaintiffs contend that any stay should only be ordered on a basis requiring the Defendants pay into Court or otherwise secure the debt secured by the mortgages and that the Defendants did not come within any of the exceptions to the "usual practice" recognised in Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39 at [58], [66]. 23On the one hand, in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 169, Barwick CJ (with whom Menzies and Gibbs JJ agreed) referred to a general rule that a mortgagee should not be restrained from exercising its rights under the mortgage, failing payment into Court of the amount sworn by the mortgagee to be due and owing under the mortgage. On the other hand, as the Defendants point out, there are cases where a mortgagee has not been required to pay money into Court where a mortgagee claims he can redeem the mortgage within a fairly short time by carrying out a refinancing proposal that is reasonable on its face, or has a demonstrable capacity to secure or refinance the mortgage debt: Parist Holdings Pty Ltd v Perpetual Nominees Ltd [2006] NSWSC 599 at [16]-[21]. The correctness of that approach was left open in Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd above at [58]. 24Even if the approach adopted in Parist Holdings Pty Ltd v Perpetual Nominees Ltd were applicable in these circumstances, I am not satisfied that either element referred to in that case is satisfied. I do not consider that the 10 weeks which Webuildem contends it requires to complete a refinancing of the Bank's loan facilities could be characterised as a "fairly short time", particularly where the existing facilities offered by the Bank terminated in August 2011 and that 10 weeks is in addition to the time already permitted for a refinancing under the Settlement Terms. 25I also do not consider that it has been shown that the Defendants have a demonstrable capacity to secure or refinance the relevant debt. It appears to have been seeking to refinance the loans made by the Bank over a long period. In an affidavit of Mr Rebek affirmed 6 December 2011, which was read by the Defendants in the proceedings, Mr Rebek indicated that Webuildem and the guarantors were "currently obtaining loan offers from other lenders to refinance" from the Bank and exhibited an indicative offer dated 1 December 2011 from a finance arranger. (I refer to a further indicative offer from the same arranger dated 30 May 2012 below). Mr Rebek also then gave evidence that: "It is also anticipated that an offer from other lenders including Norwest Commercial and National Australia Bank Ltd will be obtained within the next two weeks." 26The various finance proposals and indicative letters of offer which were in evidence before me were highly conditional in character; for varying amounts, some of which were significantly less than the amount due to the bank under the Settlement Terms; and typically subject to valuations of the properties, and no evidence was led before me that those valuations were likely to meet the lenders' requirements. For example:

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