Up until 22 March 2016, the plaintiff, Almona Pty Ltd (Almona), was the registered proprietor of land situated at Sunnyholt Road and Old Windsor Road, Parklea NSW (the Land). The Land was in a number of titles, but although that fact had certain conveyancing consequences, it may be ignored for the purposes of these reasons.
The Land was the site of an enterprise called the Parklea Markets (the Markets). Part of the Land was used as the residence of Almona's director, Mr Con Constantine (the Residence).
The Land was sold on 22 March 2016 by the second defendant, Secured Asset Portfolio III Ltd (SAP), as mortgagee in possession under a contract for sale made on 13 January 2016 (the Contract) with the first defendant, Parklea Corporation Pty Ltd (Parklea). The power of sale arose under a registered mortgage and a general security deed granted by Almona to SAP.
SAP was a member of a group of companies that the parties to these proceedings have referred to as PAG, or the PAG group. As I understand it, PAG is a reference to Pacific Alliance Asia Special Situations Fund LP (and its associated entities), which acted by its general partner Pacific Alliance Special Situations Management Ltd. The evidence shows that, relevantly to the issues in these proceedings, the centre of business for PAG was Hong Kong. PAG acted as a financier through special purpose vehicles incorporated in the British Virgin Islands and Cayman Islands. SAP was such a special purpose vehicle. In conformity with the approach adopted by the parties, I will simply refer to PAG when there is no need to identify the particular entity within the group and I am not specifically referring to SAP.
Parklea was also a special purpose vehicle, in its case primarily as a company associated with an Australian group of companies, who were primarily involved in real estate development, which has been called the Dyldam group and of which Dyldam Developments Pty Ltd was a related entity. Unless it is necessary to differentiate between them, I will refer to the Dyldam group and Dyldam Developments Pty Ltd simply as "Dyldam". A principal of Dyldam is Mr Remon (Sam) Fayad. Mr Chris Jarrett assisted Mr Fayad.
Following a default by Almona in respect of its obligations under its loan agreement with SAP, SAP appointed Mr Philip Carter and Mr Daniel Walley, of PPB Advisory, as receivers and managers of Almona on 17 April 2015 (the receivers).
The evidence shows that the persons who directed the day-to-day operations of PAG in respect of the transactions and conduct the subject of these proceedings were Mr James McMurdo and Mr Anshumann Woodhull. Mr Peter Law was the legal counsel of PAG at relevant times. The Court was also informed that PAG primarily came under the control of Mr Jon Robert Lewis, Mr Horst Geicke and Mr Christopher Gradel.
Mr Stuart Dixon-Smith, a partner of King & Wood Mallesons, was the primary solicitor acting for and advising PAG, SAP, and other relevant PAG entities, in respect of the transactions the subject of these proceedings.
A number of solicitors at Gilbert + Tobin acted for the receivers in respect of different aspects of the transactions.
Parklea, and other relevant entities in Dyldam, were represented by Madison Marcus, primarily by a solicitor named Mr Ramy Qutami.
The primary solicitor acting for Mr Constantine was Mr Norman Donato, an executive lawyer at Bartier Perry. Mr Donato also, from time to time, claimed to act on behalf of Almona, notwithstanding the appointment of the receivers, on the basis of what Mr Donato described as Almona's equity of redemption.
It will be convenient to defer mentioning the other lawyers who acted for the various parties until the context in which their involvement is considered.
It will be convenient, at this stage, also to note that a company called Wesco Capital Pty Ltd (Wesco), a company associated with a Mr Tony Merhi, is of significance to the dispute, in that Wesco initially made the highest offer to purchase the Land, but then reduced its offer to an amount less than the price offered by Dyldam. Dyldam, through Parklea, ultimately became the purchaser, but, at about the time of completion of the Contract, Wesco secured an interest in the unit trusts whose trustees owned the shares in Parklea. Those facts form part of the basis of Almona's complaint in this matter.
Sometime after the completion of the Contract on 22 March 2016, the receivers retired, after SAP had been paid the amount of the debt claimed by it, and the receivers' costs, out of the sale price. A balance was paid to Almona. Control of Almona reverted to Mr Constantine, who has caused Almona to commence these proceedings.
An unusual feature of the Contract was that it provided for alternative prices to be paid by Parklea. The price was $85,350,000 on the basis that Mr Constantine had vacated his possession of the Residence, and $81,100,000 if vacant possession was not given on completion. There is an issue as to whether Almona was informed of the alternative prices, given that the receivers were aware of the terms of the Contract. On the facts, it appears that Mr Constantine was not informed of the alternative prices, and he claims that Almona was not relevantly aware of that term. In any event, in his ignorance, Mr Constantine did not give vacant possession, the parties to the Contract varied its terms to specify only a price of $81,100,000, and the Contract was completed on that basis. According to Almona, it lost the opportunity to receive an additional $4,250,000 as a result of the sale of the Land.
Almona accepted that the Contract was entered into in the context of a marketing campaign run by the receivers, and that the process, on its face, appeared to be regular.
Specifically, Almona did not contend that the sale price agreed by SAP and Parklea was an undervalue, although the claim that Almona ultimately sought to make that SAP and Parklea had caused Wesco to reduce the price that it offered to pay throws doubt on that concession.
Parklea's obligation to pay the purchase price under the Contract was substantially financed through another related special purpose vehicle of PAG, incorporated in the British Virgin Islands, named Lord Business Holdings VI Ltd (Lord VI). Another PAG special purpose vehicle, Lord Business Holdings VIII Ltd (Lord VIII), was given the opportunity to acquire 80% of the shares in Parklea by means of a call option that I will explain in more detail below.
At the time of completion, the securities granted by Parklea to secure its obligations to Lord VI were issued to a professional, independent security trustee, who is the third defendant in these proceedings, PT Ltd (PT), which is apparently a subsidiary of Permanent Ltd. PT did not have notice of any of the facts and circumstances that give rise to Almona's claims in these proceedings.
Following completion, Parklea became the registered proprietor of the titles that constitute the Land, and the real property mortgages granted by Parklea to PT were also registered against the titles.
[2]
Outline of claim made by Almona
The principal objective of Almona in these proceedings was to obtain orders that had the effect of setting aside the transfer of the Land to Parklea, notwithstanding that Parklea had become the registered proprietor of the Land and, ordinarily, Parklea's title would be indefeasible.
In order to undermine the indefeasibility of Parklea's title to the Land, Almona was required to establish that Parklea became registered proprietor by its own fraud, or the fraud of SAP as vendor to which Parklea was a party.
As will be seen, Almona initially based its claim that SAP and Parklea had engaged in fraud by alleging that, in exercising its mortgagee's power of sale, SAP had breached its duty to act in good faith towards Almona. Almona alleged that SAP's conduct so deliberately sacrificed Almona's interest in the Land that it could properly be characterised as fraudulent.
Almona initially accepted that the sale process that led to the Contract being made between SAP and Parklea was a proper one, and Almona based its case of fraudulent conduct by SAP in which Parklea participated on the steps taken by SAP and Parklea in the performance and completion of the Contract. Almona made a number of complaints, but the primary one was that Almona had informed SAP that it had negotiated a potential agreement with a third party that may have enabled it to raise the funds necessary to repay the debt that it owed to SAP so that it could redeem the mortgage. Almona requested SAP to provide it with a payout figure, and to give Almona time for the due diligence process required to take place, so that Almona could enter into the funding agreement with the third party. Instead, Almona complained that SAP responded by making the Contract unconditional and, with the cooperation of Parklea, accelerated the completion of the Contract for the purpose of denying Almona the opportunity to redeem the mortgage.
Although Almona accepted that the contract price was in accordance with the market value of the Land, by reason of disclosures that occurred during the course of the proceedings, Almona later sought to widen its fraud claim against SAP and Parklea to claim that those companies had acted fraudulently by undertaking joint venture negotiations during the sale process that led to Lord VI funding the purchase of the Land by Parklea and Lord VIII obtaining the right to acquire 80% of the shares in Parklea by means of the call option. The joint venture negotiations were coincident with Wesco reducing its offer to acquire the Land by $13,000,000, so that the offer made by Dyldam that led to the Contract being made with Parklea was the highest offer. It has ultimately been discovered that Mr Merhi, through his Visy companies, acquired a 20% interest in Parklea at the time the Contract was completed.
Separately, Almona claimed that the completion by SAP and Parklea of the Contract for a price of $81,100,000, without giving Almona the opportunity to arrange for Mr Constantine to vacate the Residence, and so increase the price payable by $4,250,000, as well as the making of a variation to the Contract to remove any trace of the higher price, was fraudulent conduct by SAP and Parklea.
Even if Almona succeeded in establishing that the transfer to Parklea should be set aside and Parklea ordered to retransfer the Land to Almona, Almona faced the difficulty that PT was on no view party to any fraudulent conduct by SAP and Parklea. To get an effective remedy, it was necessary for Almona to challenge the indefeasibility of the mortgages granted by Parklea to PT. Almona sought to do that by making legal arguments as to why PT's title to the mortgages does not take priority over Almona's title to the Land.
Almona put its claim for relief on other grounds that are best considered below, and also sought an accounting from SAP as mortgagee, as well as an inquiry into the damages suffered by Almona. Consequently, this judgment will not determine all of the issues that arise in these proceedings.
It will be necessary in this matter for the Court to analyse the parties' pleadings and particulars in detail. That will be a more intelligible process if the material facts are set out first.
[3]
Background
As the evidence was almost exclusively documentary, it will be appropriate for the Court to consider, and in some cases to extract, the evidence that is material to the determination of the issues in these proceedings in some detail. I consider that this exercise will be best done in a generally chronological way.
As the parties each produced their own tender bundles, which were extensive and overlapping, the Court has relied substantially on the parties' identification in their final submissions of the relevant aspects of the documentary evidence.
[4]
Facility granted by SAP to Almona
PAG initially offered to make a facility available to Almona by a letter to Mr Constantine dated 8 March 2013. Almona applied the facility to repay a debt owed by it to Westpac Banking Corporation.
Almona entered into a Loan Notes Subscription Agreement (2013 LNSA) with SAP on 31 May 2013. Almona was identified as the Issuer in Schedule 1 of the 2013 LNSA. In that capacity, cl 2.1 permitted Almona to issue Loan Notes which were required to be subscribed for by the Financier. SAP entered into the 2013 LNSA as Original Financier, Agent, Security Trustee and Arranger. By cl 2.2, the aggregate principal amount of the Loan Notes that could be issued by Almona was the Facility Limit, which was defined in cl 1.1 as being $53,200,000.
Clause 7.1 required Almona to redeem each Loan Note in full on the Redemption Date, which was defined in cl 1.1 as being the Original Redemption Date as may be extended under cl 2.6. The Original Redemption Date was defined in cl 1.1 as meaning the date which was 12 months from the Effective Date. That date was 31 May 2013, so, absent an extension, the Loan Notes were required to be redeemed on 31 May 2014. Clause 2.6 provided for a mechanism for SAP to agree to extend the Redemption Date in certain circumstances.
Mr Constantine and Constantine Holdings Pty Ltd, in that company's own capacity and in its capacity as trustee of the Constantine Family Trust, signed the 2013 LNSA as guarantors.
Schedule 8 to the 2013 LNSA contained a number of Milestones which placed obligations on Almona designed to ensure the financial viability of the Land and the Markets that were operated on that land. There is evidence that Almona did not meet these obligations, but it is not necessary to analyse that evidence in detail.
On 31 May 2013, Almona granted a number of mortgages in favour of SAP, including a mortgage that was registered over the titles that constituted the Land (the Mortgage).
Clause 6.1(a) of the Mortgage gave SAP a power of sale of the Land if any Event of Default occurred. By means of cl 1.2(a) of the Mortgage and cll 1.1 and 16.1(a) of the 2013 LNSA, "Event of Default" included a failure to pay any amount due and payable under the 2013 LNSA.
Clause 7 of the Mortgage empowered SAP to appoint any persons as receivers and managers of Almona if any Event of Default occurred.
By cl 7.2, the receivers and managers were granted all of the powers conferred on the mortgagee by the Mortgage. Those powers were in common form, and were listed principally in cl 6.1. They were expressed in extremely wide terms, but were broadly directed to empowering the mortgagee to exercise all of the mortgagor's powers in respect of the Mortgaged Property and to operate its business in respect of that property.
In the common manner, cl 7.5 had the effect that any receivers and managers of Almona appointed by SAP would be the agents of Almona, and Almona would "be solely responsible for all acts and omissions" by each receiver and manager.
Also on 31 May 2013, Almona entered into a General Security Deed in favour of SAP, which also contained a term that entitled SAP to appoint receivers and managers of Almona upon default.
On 31 May 2013, Almona entered into a Call Option Deed with Ratio Development Ltd (RDL). The evidence established that RDL was an entity controlled by PAG. The deed entitled RDL to purchase the Land for $50,000,000 if, inter alia, the amount owing under the 2013 LNSA was not repaid in full on or before the Original Redemption Date, with the option being exercisable at any time from the date of default until the amount owing under the 2013 LNSA was zero: see cll 2.1, 3.1, 3.4 and the relevant definitions in cl 1.1.
[5]
Default by Almona and appointment of receivers
Between about 23 May and 30 May 2014, Almona sought an extension of the Redemption Date under cl 2.6 of the 2013 LNSA for a further period of nine months, but, on the latter date, that request was rejected by SAP, as the terms of the agreement permitted it to do.
The Redemption Date of 31 May 2014 passed without Almona redeeming the issued Loan Notes.
On 15 April 2015, a formal demand was served on Almona under the 2013 LNSA on behalf of SAP requiring Almona to pay the amount of $66,720,149.08 by midday on 17 April 2015, exclusive of any amounts in respect of costs and other liabilities or losses to which SAP was entitled.
Almona did not pay the amount claimed by SAP, or any other amount, by 17 April 2015.
As mentioned above, SAP appointed the receivers as receivers and managers of Almona, exercising its power under the Mortgage and the General Security Deed, on 17 April 2015.
[6]
Valuations of the Land
On 29 June 2015, the receivers, on their own behalves and on behalf of Almona, obtained a formal valuation of the Land from Preston Rowe Paterson. The net realisable value assigned to the existing Service Centre and all other components of the Land sold 'in one line' was $47,360,000, subject to certain listed conditions. Those conditions included assumptions that the Land could be subdivided into different components. The valuer assigned a second value to the Land of $67,500,000 for a sale 'in one line' on the assumption that a "Residential and Commercial Master Plan" could be achieved. That Master Plan was described at page 17 as involving an existing Service Centre being subdivided and sold separately, and that the balance of the Land, being 20.96 ha, would receive development approval in accordance with a plan proposed by Urbis within a period of three years. That plan contemplated the construction of total commercial gross floor area of 10,396 m², total residential gross floor area of 130,972 m², and 1,612 residential units. As appears from page 87 of the valuation report, the valuer derived the $67,500,000 valuation on the basis that the bulk of the Land would be acquired as a development site, and used the residual cash flow feasibility model to assess the value.
Thus, the higher valuation was determined on the basis of a positive assumption that development approval could be obtained for a particular concept development within three years of the sale of the Land.
The receivers obtained a second formal valuation of the Land from CBRE Valuations Pty Ltd on 18 July 2015. The values assigned to the property were $48,700,000 "as is - subject to continuing existing use", and $70,000,000 "alternative use based on a residential development scenario (per Urbis Town Planning Status Report)".
Mr Constantine, on behalf of Almona, also obtained a valuation report in respect of the Land. The valuation was prepared by Abbotts Valuers as at 1 June 2015. The valuation was prepared for Almona's "Internal Purposes". The valuation adopted as the Current Fair Market Value was $115,000,000. Unlike the two valuations obtained by the receivers, the valuer in this case did not have the benefit of a town planning report of the nature of the Urbis report provided by the receivers to their valuers (see par 4.1). The valuer was required to assume his own development plan using the Blacktown City Council online mapping service. The valuer assumed that 147,861 m² would be approved for medium density residential development, 45,370 m² "for an international hotel such as the Novotel Sydney Norwest Hotel at nearby Baulkham Hills", and 24,150 m² for commercial uses (see par 4.2). The total area assumed to be available for development was 217,381 m², compared to the 141,368 m² the subject of the Urbis town planning report. On the basis of a comparable sales analysis of en-globo development sites in neighbouring areas, the valuer adopted values of $350 psm, $1,000 psm and $750 psm for the three different uses respectively (see par 7.3). The value arrived at was sensitive to the assumption of a substantially greater area for development, and that an international hotel could be constructed on the Land. The latter assumption contributed $45,370,000 to the total value. In very broad terms, it is likely that the valuer would have adopted a comparable value to the other two valuations if he had adopted the same assumptions. While this valuation appears to have been professionally prepared, its utility would necessarily depend upon the validity of the assumptions made concerning the area available for redevelopment and the feasibility of the construction of an international hotel. The valuer did not attempt to justify his assumptions in this respect.
Although the Abbotts Valuers valuation was admitted into evidence, it was not admitted as proof of the value of the Land.
Almona did not suggest that it was unreasonable for the receivers or SAP to rely upon the two valuation reports obtained by the receivers. The receivers were not provided with the Abbotts Valuers report.
[7]
Failure of Almona's attempts to repay SAP
There was evidence concerning communications between the legal representatives of Almona and the receivers concerning the possibility that Almona would refinance the debt that it owed to SAP. It is common ground that Almona's efforts in this regard were unsuccessful. It is not necessary for the Court to note all of the correspondence. It is material to note that, on 3 August 2015, King & Wood Mallesons provided Mr Donato with a payout figure as at 31 July 2015 of $70,989,568.64, together with an explanation as to why certain additional components of the amount due could not be estimated in advance of the payout. SAP relied upon the evidence of Almona's regular failure to implement proposals to repay SAP, after SAP and the receivers had gone to some lengths to facilitate the payout, as evidence justifying their later scepticism that Almona's claims that it would soon repay its debt to SAP were reliable.
On 18 August 2015, Mr Donato advised Gilbert + Tobin on behalf of the receivers that the target date for the refinance was 31 August 2015.
Gilbert + Tobin, on 21 August 2015, provided to Mr Donato detailed figures concerning the receivers' estimated net cash position as at 31 August 2015.
In respect of the proposed refinancing, by 30 August 2015, Gilbert + Tobin had prepared a suite of deeds and discharges necessary to effect the discharge of relevant mortgages, the retirement of the receivers, and the release of securities.
Mr Donato advised the lawyers for the other parties on 31 August 2015 that the date for the refinancing had been deferred to 4 September 2015.
On 3 September 2015, a solicitor at King & Wood Mallesons requested confirmation by email from Mr Donato that the refinance would take place at 2 PM on 4 September 2015. The same solicitor sent a further email on 4 September 2015 to representatives of PAG and the receivers noting that, as at 12:39 PM on that date, she had not received a response from Mr Donato.
On 11 September 2015, Mr Donato advised the solicitor at King & Wood Mallesons that Almona's lender would be in a position to settle the refinance on 18 September 2015.
Mr Donato confirmed by email on 14 September 2015 that it had been confirmed that the documentation for the refinance had been agreed with the incoming lender's solicitor, and that Almona would be in a position to settle the refinance on 18 September 2015.
On 17 September 2015, Mr Dixon-Smith wrote to Mr Donato giving a payout figure as at 18 September 2015 of $75,615,868.71, and explaining the composition of that figure. A detailed set of settlement instructions was prepared to guide all parties in the settlement.
On 21 September 2015, Mr Dixon-Smith provided Mr Donato with a schedule setting out the receivers' calculation of their net cash position "as at Wednesday's scheduled settlement", which causes me to infer that the settlement scheduled for 18 September 2015 had been further deferred.
Mr Donato advised Mr Dixon-Smith by email on 23 September 2015: "I am troubled to have to information [sic] you that due to an issue which the lender first raised with our client at 9:40 PM last night, and which has not yet been resolved, settlement will not be occurring at 2:30 PM this afternoon".
Later on 23 September 2015, Mr Donato asked Mr Dixon-Smith "if you would provide us the discharge figures for next Wednesday, 30th September as soon as possible". Nothing came of the attempt by Almona to refinance the debt owed to SAP.
[8]
Service of s 57(2)(b) notices
In the meantime, on 7 August 2015, Mr Dixon-Smith, on behalf of SAP, served a notice on Mr Constantine under s 57(2)(b) of the Real Property Act 1900 (NSW) (Real Property Act). The amount of the debt claimed was $71,262,096.22 excluding certain descriptions of fees and costs. On 20 August 2015, Mr Dixon-Smith also served a s 57(2)(b) notice on Almona. It advised that, if the amount demanded was not satisfied within one month after service, SAP proposed to exercise its power of sale in respect of the Land.
[9]
Receivers' attempts to get Mr Constantine to sign a tenancy agreement
For a considerable time, Mr Constantine and his family had lived at the Residence under an informal arrangement with Almona. The Residence is a two-storey dwelling with multi-car parking, pool and gardens.
After the receivers were appointed, they made a number of attempts to persuade Mr Constantine to enter into a tenancy agreement with them on behalf of Almona. The receivers did not consent to Mr Constantine's continuing informal occupation of the Residence.
On 18 August 2015, the receivers, acting on behalf of Almona, offered to enter into a residential tenancy agreement with Mr Constantine in respect of the Residence.
The receivers made a further request in that respect in a letter dated 11 September 2015, in which they noted that Mr Constantine's occupation of the Land had not been ratified by the receivers. The letter included the following:
The Parklea Markets site has been offered for sale subject to the tenancies in the Markets and no residential tenancy. We strongly recommend you immediately sign and return to us the residential tenancy agreement /lease/licence provided to you by no later than 25 September 2015. If we do not receive the documents by this date we will commence proceedings to obtain vacant possession of the residence.
Mr Constantine did not comply with these requests. The receivers did not commence proceedings to obtain vacant possession of the Residence before the completion of the sale of the Land to Parklea.
[10]
Appointment of Colliers to sell the Land
In their 11 September 2015 letter, the receivers advised Mr Constantine that they had appointed Colliers International (Colliers) as sales agent for the Land.
[11]
Sale of security properties by receivers
On 21 September 2015, the receivers sold a property at Glenwood Park that Almona had mortgaged in favour of SAP for $2,000,000. The contract was completed on 23 November 2015. A further property located in Hunter Street, Newcastle West that was similarly mortgaged to SAP was sold by the receivers on 9 November 2015 for $11,001,000, with completion occurring on the same day.
[12]
Expressions of interest campaign
Colliers conducted an expressions of interest campaign on behalf of the receivers in two stages to obtain the best price from the market for the sale of the Land.
Colliers provided a detailed written proposal to the receivers in respect of the marketing and sale of the Land on 25 August 2015. Colliers recommended a dual marketing approach, seeking interest from the market for the sale of the whole property in one line, or the sale of the service centre and the balance of the property in one line. Colliers considered that the market value was in the order of $85,000,000 to $91,000,000. The target market recommended was investors seeking to capitalise on the current operations of the Markets complemented by the service centre, and residential developers seeking to land bank for the future with the benefit of short to medium term holding income. Colliers recommended offering the property on the basis of expressions of interest, leading to a competitive second-round tender for selected participants.
Colliers specifically nominated likely participants in the expressions of interest process. One of the local possibilities identified was Dyldam, which Colliers described in the following terms: "A large private residential developer active in Sydney's western suburbs. Has been active in acquiring residential sites in Parramatta, Baulkham Hills and Castle Hill. Dyldam has a strong appetite for planning risk while also holding an extensive investment portfolio. Furthermore, Dyldam recently signed a $200 million JV partner deal with a large capital partner from Shanghai". Colliers did not mention Wesco in the list of local prospects.
After its appointment, Colliers circulated a detailed information memorandum to potential purchasers of the Land, as well as a draft confidentiality deed for execution, and terms of access to the online data room.
Colliers provided weekly marketing reports to the receivers, commencing in early October 2015. The second report, dated 14 October 2015, recorded that Mr Chris Jarrett of Dyldam had received a copy of the information memorandum and requested a copy of the confidentiality deed, access waiver and online data room terms. The third report, dated 22 October 2015, advised that Mr Jarrett had organised a meeting to view the site, and that Dyldam was investigating planning options and the best method to manage the Markets. In their fourth report, dated 28 October 2015, Colliers advised that the meeting with Mr Jarrett had been productive and that planning opportunities had been discussed. Dyldam was: "Showing strong interest".
There was no reference in the Colliers reports, or anywhere else in the evidence, to Mr Merhi or anyone else on behalf of his companies having contacted Colliers, inspected the Land, or shown any interest in submitting an expression of interest.
There were 13 responses to the first round of the expressions of interest as at 30 October 2015.
The highest price stated was $92,000,000 by Wesco, whose contact was Mr Merhi. Wesco specified a deposit of 5%, with a due diligence period of 21 days and settlement within six months.
The second-highest amount offered was a price of $85,350,000 by Dyldam, whose contact was Mr Fayad. The deposit stipulated was 5%, with a due diligence period of 21 days and settlement within 12 weeks.
Toplace Pty Ltd (Toplace) offered a price of $84,250,000, with a 15% deposit, a due diligence period of four weeks, and a settlement period of six months after the exchange.
There were two other prices proposed at $80,000,000 or above, being $83,000,000 by Billbergia Pty Ltd (the group will be referred to as Billbergia Group) and $80,000,000 by Mulpha Australia Ltd. The next-highest price proposed was $70,000,000.
[13]
Mr Constantine's dealings with Mr Merhi
It emerged during the cross-examination of Mr Constantine, on the fifth day of the hearing, that, on 27 October 2015, Mr Constantine, Mr Merhi and a company called Australia International Investment Holdings Group Pty Ltd entered into a Deed of Agreement concerning the Land. The deed recited that Mr Constantine and Mr Merhi were contemplating a joint venture and/or a share sale and/or another transaction involving the assets of Almona. This was notwithstanding that the receivers were, at the time, in control of those assets. Clause 2 of the deed provided that, if an agreement was reached that involved Mr Merhi injecting money into Almona to allow it to discharge all securities it had granted to SAP, with each of Mr Constantine and Mr Merhi holding an interest in Almona or its assets, they would procure that Almona pay a commission of $5,000,000 to Australia International Investment Holdings Group Pty Ltd.
Mr Constantine admitted that he had signed the Deed of Agreement (and that his signature was witnessed by his wife). Mr Constantine's evidence on this issue was most unsatisfactory. He grudgingly admitted the existence of the deed, but seemed to deny that he had ever made an agreement as to some of its terms.
The principal significance of the Deed of Agreement is its existence and the fact that it was made some three days before the close of the first round of the expressions of interest campaign. Almona was entirely unforthcoming about the deed or the circumstances in which it was made in Almona's own case. The Court was told nothing about the deed other than its terms. Mr Constantine said that he had only met Mr Merhi on a single occasion when Mr Merhi visited Almona's office at the Land to seek some vaguely-worded information concerning Almona's circumstances.
In the context of Almona making a claim that SAP colluded with Dyldam and Mr Merhi to subvert the expressions of interest process, it is telling that there is no objective evidence of any representative of SAP dealing personally with Mr Merhi, or any representative, or knowing anything more about any company of his other than the submissions of expressions of interest by Wesco. The only positive evidence of any party dealing with Mr Merhi is that concerning Mr Constantine's entirely unexplained, and unauthorised, entry into the Deed of Agreement on behalf of Almona.
[14]
Events following first round of expressions of interest
Between the deadline for the submission of first-round expressions of interest and the final date on or around 16 December 2015, which was the close of the second round, various events occurred that are significant to Almona's claim.
The receivers gave Colliers an instruction, on 27 November 2015, that they should limit the second round of expressions of interest to four participants. On 27 November 2015, Colliers wrote to Dyldam to invite it to submit its best offer. Colliers made a similar invitation to "a select number of parties", being Wesco, Toplace and Billbergia Group as well as Dyldam, although those other invitations are not in evidence.
Colliers sent amended special conditions to the Contract to Dyldam on 8 December 2015.
One of the amendments to the special conditions was to special condition 55.1, which consisted of a disclosure by the vendor concerning the occupancy of the Residence. The effect of the amendment was to disclose that the house and gardens on the Land were occupied at the date of the Contract without any written agreement and may remain occupied after completion. The special condition, as amended, prevented the purchaser from requiring the vendor to take steps to achieve the vacation of the house and gardens before completion, and provided that the purchaser "releases the vendor in respect of the occupation of the house and gardens and, subject to this contract, any other part of the property".
Almona made a submission (see for example par 2(f) of Almona's reply submissions) that draft contracts for sale were being exchanged with Dyldam before the expressions of interest process closed on 16 December 2015. To the extent that this submission is true, it is because the receivers provided draft contracts to Dyldam. SAP did not have any direct role in this process. Although the evidence is not complete concerning the receivers' communications with the other three remaining participants, I would infer that the receivers treated them in the same way that they did Dyldam, at least to the extent that the other participants wished to be so treated. The evidence does not support any conclusion that SAP pre-empted the completion of the expressions of interest process by negotiating the terms of the Contract with Dyldam, before that process had been completed by the receivers.
[15]
Preliminary negotiations between SAP and Dyldam
On 10 December 2015, Mr Dixon-Smith travelled to Hong Kong in order to attend conferences with representatives of PAG. He returned on 11 December 2015.
King & Wood Mallesons' tax invoice described Mr Dixon-Smith's involvement, over 2.5 hours, in the following terms:
Parklea Joint Venture - Meeting with Dyldam in Hong Kong. Prepare and edit Parklea Profit Distribution Table [document reference stated]; compose email to James McMurdo and Anshumann Woodhull
On 11 December 2015, Mr Dixon-Smith sent an email to Messrs McMurdo and Woodhull of PAG, which attached a spreadsheet showing how Mr Dixon-Smith saw "the profit ratchet working". There was no oral evidence or other documentary evidence that explained in any detail the purpose of the email and spreadsheet. The spreadsheet, on its face, calculated the marginal profit for Dyldam and PAG for net profits of some apparent proposed venture from $50,000,000 to $700,000,000 in $5,000,000 (and then $25,000,000) increments.
Dyldam's marginal profit was nominated at 20% for zero net profit. For net profits between $50,000,000 and $700,000,000, Dyldam's marginal profit ranged from $10,000,000 (25%) to $254,625,000 (40%).
PAG's profit ranged from $40,000,000 for a net profit of $50,000,000 to $445,375,000 for a net profit of $700,000,000.
[16]
Incorporation of companies controlled by Mr Merhi
On 12 November 2015, Visy Group Holdings Pty Ltd and Visy Projects Pty Ltd were registered. The shareholders were Mr Merhi and Wesco Ventures Pty Ltd. Wesco Ventures Pty Ltd had itself been incorporated on 8 October 2015. I will explain the significance of the Visy companies below in connection with the completion of the Contract.
[17]
The second round of expressions of interest
On 14 December 2015, Mr Matthew Meynell of Colliers advised one of the receivers, Mr Philip Carter, that he would "be flying up tomorrow morning and flying out of Hong Kong on Wednesday evening. I am have [sic] a meeting at Dyldam's office today at 2:30 PM." I infer that the meeting was to take place in Sydney.
The second round of expressions of interest ended on 16 December 2015. Wesco's price offered was reduced to $79,000,000, with a 10% deposit, no requirement for due diligence, and a 90-day settlement period. Thus, Wesco's nominated price was reduced by $13,000,000 by comparison to the first round. The offer was made subject to vacant possession, which would presumably have made the offer less attractive given the required amendments to special condition 55.1 of the draft Contract.
Dyldam made two alternative offers of $85,350,000 and $81,100,000, each with a proposed deposit of 5%, no requirement for due diligence, and a four-week settlement period. The distinguishing feature of the two offers was that the larger price was subject to vacant possession, and the smaller price was subject to the following condition: "The offer is subject to the existing leases/occupancy arrangements".
Toplace, which had proposed a price of $84,250,000 in the first round of expressions of interest, did not submit an expression of interest in the second round.
The Billbergia Group, which had proposed a price of $83,000,000 in the first round, submitted alternative offers as part of the second round of the expressions of interest. The two prices were $80,000,000 and $60,000,000. The only difference between the two submissions was that the higher amount was offered subject to vacant possession, and the lower was "subject to the existing leases/occupancy arrangements".
Almona sought to make a claim that Wesco's $79,000,000 offer was a result of the alleged collusion between SAP, Dyldam and Mr Merhi on behalf of Wesco. It may be observed that, if there had been the collusion alleged, Wesco would have been much better served by not submitting any second round expression of interest, in the same way that Toplace did not do so. Making an offer $13,000,000 less than the original offer only served to invite suspicion.
In an email dated 17 December 2015, Brett Schofield of PPB Advisory sent a summary of the second round expressions of interest to Gilbert + Tobin, with the instruction that the receivers would be proceeding with the offer from Dyldam. The email included an instruction that the "contract will be signed as MIP", which the evidence establishes meant mortgagee in possession. There is a statement that "PAG requires exchange early next week".
[18]
Further negotiations between SAP and Dyldam
By an email exchange between the receivers and Colliers on 21 December 2015, Colliers explained that Dyldam had advised that the higher of the two offers would apply if Mr Constantine had vacated the Residence before the completion of the Contract, even though the licence holders at the Markets might continue to occupy their stalls.
Also on 21 December 2015, Mr Dixon-Smith gave an instruction to Gilbert + Tobin to issue a new draft sale contract to Dyldam, which included a new clause making the sale subject to the approval of the PAG investment committee.
On 22 December 2015, Gilbert + Tobin, who had instructions to act for SAP on the sale, and Madison Marcus, for the purchaser, commenced negotiating the detailed terms of the Contract.
[19]
Structure of the proposed joint venture
On 23 December 2015, Mr Dixon-Smith sent an email to Mr Qutami, with a copy to Mr McMurdo of PAG, concerning the proposed funding of Dyldam's acquisition of the Land. The email referred to discussions "in our recent meetings on this issue". The email included the statement:
For ease of reference I have prepared the below diagram which depicts the proposed "Diamond Entity Structure (based on a total funding of $90m, with $51m from the senior debt facility) discussed at those meetings".
A comment in the email suggested that meetings occurred in Hong Kong, as Mr Dixon-Smith referred to a discussion of the "diamond structure" during "our meetings in Hong Kong".
The so-called "Diamond Entity Structure" depicted in the email showed a proposal for how a company given the name Dyldam Parklea Developments Pty Ltd would be owned by two companies called Dyldam Parklea Holdings #1 Pty Ltd and Dyldam Parklea Holdings #2 Pty Ltd as to 20% and 80% respectively.
The diagram then showed the distribution of proposed ownership and funding as between Dyldam Developments Pty Ltd and PAG. It appears that Dyldam Developments Pty Ltd was to own 100% of the two Dyldam Parklea Holdings companies. It appears that Dyldam Developments Pty Ltd was to provide $2,000,000 in equity and $5,000,000 in mezzanine finance. The diagram is not entirely clear, but it may be intended to convey that PAG was to provide $24,000,000 in "Mezz equity". It is not clear from the email how the total funding of $90,000,000 was to be made up.
Mr Dixon-Smith noted that it was not feasible to have the entities referred to in the diagram incorporated in time for exchange of contracts to take place the following day. He suggested an arrangement whereby the contracting party would be Dyldam Developments Pty Ltd, and the contract would include a term that would permit the subsequent incorporation of Dyldam Parklea Developments Pty Ltd, in a manner that would avoid stamp duty being incurred twice.
Mr Qutami replied on 23 December 2015, by attaching a proposed corporate structure, which he had been instructed to set up the following day. The structure contemplated that Parklea Pty Ltd would be established as the proposed purchaser, with Mr Fayad as both director and secretary. 50% of the shares in that company would be held by each of Parklea Holdings 1 Pty Ltd and Parklea Holdings 2 Pty Ltd, which would be established as trustees for unit trusts, with the unit holdings to be determined.
Mr Dixon-Smith replied to Mr Qutami's email on 24 December 2015. Mr Dixon-Smith agreed to work with the entity names suggested by Mr Qutami.
Mr Dixon-Smith made two additional comments. First, he said:
1. The holdings of Parklea Holdings 1 and 2 in Parklea Corporation P/L should be 80/20 reflecting the agreed "base" share of the economic interests between the two entities, with any "earn up" by Dyldam Group earned through a performance based component of the Development Management Fee. Let's say Parklea Holdings 2 is the entity that PAG will primarily fund through, then it should hold 80%.
Mr Dixon-Smith's second comment was to the effect that the two trusts and shares in the two Parklea Holdings companies would be held 100% by Dyldam in order to avoid the effect of the thin capitalisation rules.
Mr Qutami advised on 24 December 2015 that the unit holders were unlikely to be Dyldam Developments Pty Ltd "but a wholly owned Dyldam group entity".
It is to be noted that in none of the emails or the diagrams of the proposed structures that had been circulated to this time was there any reference to any involvement of Wesco, or any entity associated with Mr Merhi. Both Mr Dixon-Smith and Mr Qutami made positive references to the units being "held 100% by Dyldam", or by "a wholly owned Dyldam group entity".
As there was no suggestion by Almona that Mr Qutami was involved in any collusion concerning the price to be offered for the Land, or entities associated with Mr Merhi acquiring an interest in the proposed joint venture, I would infer that, at the time Mr Qutami provided this information to Mr Dixon-Smith, Mr Qutami believed that the units in the proposed unit trusts would be wholly-owned by entities associated with Dyldam. It is most likely that, if Mr Qutami had known otherwise, he would have given that information to Mr Dixon-Smith.
[20]
Further negotiation of the terms of the Contract
On 24 December 2015, Madison Marcus advised Gilbert + Tobin that an entity called "Parklea Corporation Pty Ltd", which at that time was yet to be incorporated, would be the purchaser. They also advised that Dyldam was still obtaining advice with respect to the GST provisions in the Contract. Madison Marcus asked for information concerning the composition and operation of the PAG investment committee.
On 3 January 2016, Gilbert + Tobin advised Madison Marcus that SAP had agreed to a request made on 29 December 2015 for the insertion of a special condition that provided that payment of the deposit would be staged. Gilbert + Tobin declined to provide a response to the questions asked about the investment committee.
Parklea was incorporated on 4 January 2016. Mr Fayad became the sole director.
On 13 January 2016, Madison Marcus requested that the special condition dealing with the deposit be further amended so that the second instalment of the deposit became payable three days after notification of investment committee approval. On the same date, agreement was reached as to the day by which the approval of the investment committee would be required to be notified.
It does not appear from the evidence that Mr Dixon-Smith, acting for SAP, was involved in the negotiation of the detailed terms of the Contract. King & Wood Mallesons' tax invoice contains an entry that, on 23 December 2015, Mr Dixon-Smith prepared draft funding term sheets and reviewed the purchase structure for the proposed joint venture. No fee was claimed for Mr Dixon-Smith carrying out work in relation to the Contract.
[21]
Contract
On 13 January 2016, SAP, as mortgagee exercising a power of sale pursuant to a registered mortgage and general security deed, entered into a contract for the sale of the Land, as vendor, to Parklea, as purchaser.
The purchase price was defined by reference to special condition 61, and the deposit was $4,267,500.
Special condition 61 provided as follows:
61 Price and Vacation of Residence
(a) The parties agree that the price for the property will vary depending on whether that part of the property referred to in clause 55.1(a) (Residence) is being occupied as at completion, as follows:
(I) if the Residence is not occupied the price will be $85,350,000; and
(II) if the Residence is occupied the price will be $81,100,000.
(b) Without limiting clause 61(a), a document signed by a Con Constantine, which states that the Residence has been vacated is conclusive evidence that the Residence is not occupied.
I will refer to special condition 61 as the "Occupation Condition", as that is the term given to it by the parties.
Special condition 55.1 contained a disclosure by SAP, and the agreement of Parklea, that the house and gardens on the property were occupied at the date of the Contract without any written agreement and may remain occupied after completion. The special condition prohibited Parklea from requiring SAP to take steps to have the house and gardens, or any other part of the property, vacated before completion, or to take any other steps in respect of the validity of the Contract based upon the disclosed occupation of part of the property.
Special condition 36.1 provided that the completion date would be the latest of (a) 28 January 2016; (b) 14 days after approval from the Investment Committee had been obtained in accordance with clause 63; and (c) any extended completion date in accordance with clause 59.1.
Special condition 63 (Approval Condition) provided:
63 Sale is subject to the approval of the vendor's investment committee
(a) The vendor discloses that the vendor requires approval of the Investment Committee to sell the property under this contract.
(b) The parties agree that completion of this contract is conditional on the vendor notifying the purchaser that the Investment Committee has approved the sale of the property under this contract by no later than 14 March 2016.
(c) If the vendor has not notified the purchaser that the Investment Committee has approved the sale of the property under this contract by 14 March 2016, then either party may rescind this contract by notice in writing to be other, such notice given any time before the vendor notifies the purchaser that the Investment Committee has approved the sale of the property under this contract.
"Investment Committee" was defined in the Dictionary to the Contract as meaning "the investment committee established by the Pacific Alliance Group of companies ("PAG Group") responsible for approvals for significant transactions undertaken by PAG Group members and investment funds managed by PAG Group members".
It will be convenient to note that, on its face, special condition 63 did not take the form of a condition precedent to the existence of the Contract. It provided that completion of the Contract was conditional on notification being given of Investment Committee approval by the stipulated date. Absent that notification, either party could rescind the Contract, which otherwise would remain on foot.
I interpolate that there was no evidence that the Investment Committee approved SAP entering into the Contract. As will be seen, a time arrived shortly before the completion of the Contract when an assertion was made that Investment Committee approval had been given. Almona expressly agreed that the proceedings have been conducted on the basis that, in fact, Investment Committee approval was given in January 2016.
Clause 29 of the standard printed terms of the Contract provided that it applied only if a provision said that the Contract or completion was conditional on an event. In that case, clause 29.4 provided: "If anything is necessary to make the event happen, each party must do whatever is reasonably necessary to cause the event to happen".
Special condition 31.24 deleted clause 29 of the printed terms.
Special condition 59.1, as referred to in special condition 36.1(c), had the effect that, if any proceedings relating to the Contract were instituted against SAP or the receivers, or any order was made by a court, or a caveat was registered, or "for any reason the vendor is not able to perform a requirement of this contract in the specified time", SAP may give notice at any time prior to completion that completion will be delayed to enable the removal of the impediment to completion. In that event, special condition 59.2 required SAP to use reasonable endeavours to remove the impediment, in which case the completion date would be the date 14 days after SAP served notice that it was ready willing and able to complete the Contract. However, if completion did not occur within six months after the date of SAP's notice advising that completion would be delayed, either party could (if not in default) rescind the Contract.
Special condition 64 dealt with the payment of the deposit in the following terms (Deposit Clause):
64 Payment of Deposit
64.1 Deposit
The parties acknowledge and agree that the deposit is 10% of the price.
64.2 Payment of deposit
The deposit is payable as follows:
(a) $1,000,000 on the contract date;
(b) $3,267,500 within three (3) business days from receiving written confirmation from the vendor that approval from the Investment Committee has been obtained in accordance with clause 63; or; and [sic]
(c) the balance of 10% of the price on the earlier of:
(i) completion; and
(ii) the date the vendor is entitled to terminate this contract by reason of the purchaser's default and in default of payment, the vendor shall be entitled to recover such amount as a liquidated debt, and in addition, the vendor may exercise such other rights as may be available to the vendor either at law or in equity.
Finally, as regards the relevant terms of the Contract, the special condition governing the issue of liability for GST, special condition 50, contained an obligation on Parklea, by special condition 50.8, as soon as possible after the date of the Contract to apply, at its own expense, for a private ruling from the Commissioner for Taxation confirming the extent to which the sale of the Land was a Taxable Supply (GST Condition). One effect of the special condition was that any consideration payable in respect of a Taxable Supply was to be increased by the amount of any GST that was payable in respect of that Taxable Supply. Special condition 50.8(f)(i) had the effect that, if any private ruling was obtained after completion of the Contract, Parklea would be required to pay SAP the amount of any GST payable on demand.
It is to be noted that special condition 50 did not require Parklea to obtain the private ruling before completion of the Contract. It contained express provision for the payment of any GST assessed after completion.
[22]
Events leading to completion of the Contract
Parklea lodged a caveat against the title to the Land on 14 January 2016, claiming an "Equitable interest in the land pursuant to the Contract for Sale of Land dated 13 January 2016" between SAP and Parklea.
NSW Land & Property Information gave a notice of caveat to Almona on 18 January 2016, to which was attached a copy of the caveat lodged by Parklea.
On 18 January 2016, Madison Marcus asked Gilbert + Tobin whether the Residence had been vacated and whether the meeting of the Investment Committee had been scheduled.
On 21 January 2016, Amanda Hempel of Gilbert + Tobin asked Mr Dixon-Smith by email to: "Let us know if the Investment Committee meeting has been scheduled". She also asked: "Let us know how discussions with Con about vacant possession are progressing".
Ms Hempel sent reminders to Mr Dixon-Smith on 2 and 18 February 2016 as well as 2 March 2016. In the last-mentioned email, Ms Hempel reminded Mr Dixon-Smith that "the last date for advising the purchaser that investment committee approval has been obtained is 14 March 2016".
Madison Marcus wrote to Gilbert + Tobin on 25 January 2016 asking to be provided with the information necessary to enable Parklea to draft the application for a private ruling concerning GST required by special condition 50.8 of the Contract. Email correspondence ensued between Madison Marcus and Gilbert + Tobin whereby the former tried to get the latter to respond in respect of the draft application.
On 8 February 2016, the receivers advised Gilbert + Tobin that: "At this point in time, we have not commenced any process or conducted any discussions to obtain vacant possession".
[23]
Almona's communications concerning repayment of SAP
On 22 February 2016, Stephen Sharpe, a lawyer at Bartier Perry assisting Mr Donato, sent an email to a number of lawyers at Gilbert + Tobin, with a copy to Philip Carter and other representatives of the receivers. The substance of the email was:
I am assisting Norman Donato in relation to the above matter.
Our client has instructed us that he requested an indication of the payout figure recently just before Christmas, to which he did not receive a response. Following this, he made a similar request again after Christmas, and again received no response.
As you are aware, and naturally as one would assume, a person in our client's position is endeavouring to raise the funds to pay the balance of the debt. However his ability to do so is being hindered by the lack of information and certainty surrounding the current level of debt.
Would you please provide our client with the information he has requested and advise us when that information will be made available. If there is any reason why you have not or do not intend to comply with this request please provide us with your reasons.
On the same day, the primary addressee of Mr Sharpe's email, Jessica Arscott, sent an email to Mr Dixon-Smith in which she set out the terms of her proposed reply to Mr Sharpe's email. The proposed reply was in the following terms:
Thanks for your email.
Can you please advise of the date of the proposed refinance.
As previously noted in Stuart Dixon-Smith's letter of 17 September 2015 (reattached for your reference), the calculation of a payout figure is a complex process given that the properties are in receivership and subject to a MIP regime, with expenses being incurred constantly. In such circumstances, the payout figure will always be a moving target. As such, if your client wants a meaningful payout figure, it will need to advise us of the date on which the refinance is due to occur (something, which we note, we have not been advised of yet).
Mr Dixon-Smith responded to Ms Arscott on 22 February 2016 in the following terms:
A few things:
I have checked my emails (admittedly just by searching for Donato, Sharpe, and Bartier) and I didn't receive any request for an updated payout figure. My recollection is that he was requested to direct any requests to me, so if he didn't…
As we know, the property has been sold and (subject to the possible issue of the "subject to Investment Committee" condition precedent) [sic], the equity of redemption has now been wiped out and they can't repay the mortgage. I know there are issues around the fact that the sale hasn't (I think) yet been communicated to Con, but I'd be concerned about responding in any way that could be construed as suggesting that the mortgage is capable of being refinanced. This is tricky to deal with until PAG actually have that meeting with Con, but I think we should tread warily.
Not helpful, I know, but those are my thoughts.
Gilbert + Tobin informed Mr Sharpe of Bartier Perry on 23 February 2016 that King & Wood Mallesons would respond to the request for a payout figure.
[24]
Further negotiation of joint venture terms
King & Wood Mallesons' tax invoice contained the following entries in relation to work done by Mr Dixon-Smith in the period 29 February to 9 March 2016:
29-Feb-2016 Attending re Investment Committee approval to sale and advice to PAG re declaring contract to be unconditional. Emails and telephone calls with James McMurdo and Woody.
02-Mar-2016 Preparing release documentation in anticipation of settlement sometime in March. Catch up with James McMurdo and discuss travel to Hong Kong to attend discussions with PAG senior executives on finalisation of sale and arrangements to obtain vacant possession, including review of purchaser funding arrangements.
04-Mar-2016 Preparing for trip to Hong Kong. Review of status of sale contract, telephone calls with James McMurdo, Woody, Gilbert + Tobin and Phil Carter.
09-Mar-2016 Reviewing information from purchaser re funding arrangements to report to PAG. Consider providing notice of IC approval to trigger completion date. Prepare generally for meetings in Hong Kong. Discussions with James McMurdo and G + T.
The entry for 2 March 2016 suggests that Mr Dixon-Smith intended to discuss with the representatives of PAG the issue of obtaining vacant possession of the Land by the date of completion of the Contract, which was a condition for requiring Parklea to pay the higher purchase price.
On 8 March 2016, a solicitor at Gilbert + Tobin sent an email to a solicitor at Madison Marcus advising that he had been instructed that Parklea had agreed to revise the "sunset date" from 14 March 2016 to 29 April 2016.
Madison Marcus confirmed on 9 March 2016 that Parklea agreed to amend the sunset date to 29 April 2016.
[25]
Draft heads of agreement
On 10 March 2016, Mr Dixon-Smith sent an email to Mr Qutami and Mr Jarrett of Dyldam, with a copy to Mr McMurdo of SAP, to which he attached a draft heads of agreement outlining the funding arrangements proposed for the Land acquisition "reflecting discussions with PAG and the proposed structure previously discussed". The fact that a draft of the heads of agreement was circulated on 10 March 2016, some two months after the date of the Contract, suggests that Parklea may have entered into the Contract without a firm arrangement to pay the purchase price.
The draft heads of agreement described the parties as the Landowner, Intermediate Holding Trust, Holding Trust 1, Holding Trust 2, Development, Manager, Ultimate Holding Trust, PAG and Security Trustee.
Recital A stated that the Landowner had entered into a contract to acquire the Property (being in fact the Land).
Clause 1.1 contained a definition of "Project" as meaning, in effect, the acquisition, development and sale of the Land.
Clause 2.1 referred to the earlier negotiations between members of Dyldam and the PAG group "regarding the funding of the Project by members of the PAG Group".
Clause 2.2 then described the intention of the parties in the following terms:
2.2 Intentions of the parties
Following these discussions that parties [sic] have agreed to enter into the following transactions so as to allow Dyldam Group to carry out the Project:
(a) PAG will provide a credit wrap under the Senior Debt Wrap Facility Agreement, so as to enable the Landowner to enter into the Senior Debt Facility;
(b) PAG will provide a mezzanine debt facility under the Mezzanine Facility to Trust 2;
(c) PAG will provide a debt facility under the Dyldam Facility Agreement;
(d) members of the Dyldam Group will provide further funding to Trust 1;
which facilities will together fund the acquisition of the Land, acquisition costs and initial development costs, as further detailed in clause [ ], [sic]
(e) the Landowner will appoint the Development Manager as development manager for the Project under the Development Management Agreement;
(f) the Landowner intends to appoint members of the Dyldam Group to be the builder of stages of the Project;
(g) the Ultimate Holding Trust will grant the Call Option to PAG; and
(h) the parties to the Unitholder and Joint Venture Agreement will enter into the Unitholder and Joint Venture Agreement.
By reference to the definitions in clause 1.1 and the Key Financial Parameters in clause 8, clause 3 contemplated the following Funding Arrangements for the Project.
Clause 3.1 contained an agreement by PAG to make available the Senior Debt Wrap Facility to the Borrower with a Facility Limit of $51,000,000 on terms to be set out in Annexure B (which required completion). The object of the Senior Debt Wrap Facility would be to provide credit support for the Senior Debt Facility Agreement.
By clause 3.2, the parties agreed to work collaboratively to procure and enter into the Senior Debt Facility, which was to be used for the funding of the acquisition of the Land and the carrying out of the Project. The Facility Limit of the Senior Debt Facility was to be $51,000,000, and the security was to be bank guarantees provided by PAG under the Senior Debt Wrap Facility.
Clause 3.3 contemplated that PAG would provide a Mezzanine Facility (whose Facility Limit was not yet specified in the heads of agreement) to Trust 2 to provide funding to Trust 2 to enable it to provide the necessary funding under a proposed Unitholder and Joint Venture Agreement for the acquisition of the Land.
By clause 3.4, PAG was required to make available the Dyldam Facility to Trust 1 (also with a Facility Limit to be agreed) to enable Trust 1 to provide the funding required under the Unitholder and Joint Venture Agreement for the acquisition of the Land.
Clause 3.5 contemplated that Dyldam would provide an unspecified amount to the Ultimate Holding Trust, as equity, to enable it to provide funding to Trust 1 for the acquisition of the Land.
Clause 4 of the draft heads of agreement provided for a Development Management Agreement, a Building Contract and a Builders Side Deed. By clause 4.1, the Development Management Agreement between the Landowner and the Development Manager would provide for the management of the development of the Project on the Land.
By clause 4.1(b)(ii), a Development Management Fee would be payable to the Development Manager in an amount set out in clause 8.5.
Clause 8.5 provided that the Development Management Fee would be: "base fee of $[60,000] per month plus a performance fee based on net profit generated by the Project as outlined in Annexure E".
Annexure E consisted of a schedule with three columns. It was stated to be a worked example only. The first column listed possible Net Profit of $0, and then $50,000,000 increasing in $5,000,000 increments to $150,000,000, and then in $25,000,000 increments to $700,000,000. The second column stipulated the Development Manager Performance Fee as a percentage from 0.0% to 20%. The third column set out the proposed Development Manager Performance Fee in dollar terms, starting at $2,750,000 for a net profit of $55,000,000 to $140,000,000 for a net profit of $700,000,000.
Clause 4.2 provided for the Landowner to appoint members of Dyldam to be the builder of stages of the Project and for the manner in which the terms of the Building Contract would be agreed.
Under clause 4.3, a Builder's Side Deed would be entered into between the Landowner, the Development Manager, the relevant builder and the Security Trustee to ensure compliance by the relevant parties with all of the contemplated agreements.
Clause 5 provided that the arrangements relating to unit holdings and shareholdings of the entities to carry out the Project would be as shown in the structure diagram in Annexure A.
Annexure A described the Property as being owned by the Ownership Trust. The Ownership Trust would borrow Senior Debt from the Senior Debt Financier. The Senior Debt would be secured by the Senior Debt Wrap provided by PAG.
The Ownership Trust would be owned by an Intermediate Holding Trust, which would in turn be owned as to 20% of the units by Holding Trust #1 and as to 80% of the units by Holding Trust #2.
PAG would provide limited recourse Mezzanine Debt to both Holding Trust #1 and Holding Trust #2.
One hundred percent of the units in the two Holding Trusts would be owned by the Ultimate Holding Trust.
Clause 5.2 provided for a call option in the following terms:
5.2 Call Option
In consideration of and reflecting the very high loan to value ratio of the facilities provided by PAG, the Ultimate Holding Trust will grant the Call Option to PAG.
"Call Option" was defined in clause 1.1 as meaning "the call option over all issued units in Trust 2 and all shares in the trustee of Trust 2 granted by Ultimate Holding Trust in favour of PAG and its nominee".
As Annexure A provided for Holding Trust #2 to be issued with 80% of the units in the Intermediate Holding Trust, the effect of the exercise of the call option by PAG would be to give it ownership of 80% of the units in the Ownership Trust.
Clause 8.6 provided that PAG or its nominee could exercise the call option at any time for $100,000, plus an additional amount described in sub-par (d).
Clause 7.2(a) provided for the heads of agreement to be legally binding, and the balance of clause 7 provided for the parties to agree and to enter into more detailed documentation consistent with the terms of the heads of agreement.
King & Wood Mallesons' tax invoice contained the following entry for work done by Mr Dixon-Smith:
11-Mar-2016 Meetings with PAG senior executives to discuss completion of sale of Parklea Markets, including comprehensive review of status of sale, including PAG's capacity to complete, purchaser funding arrangements, review of sale process to confirm PAG has complied with all duties of mortgagee exercising power of sale, status of receivership and vacant possession issues. Recommendation to issue notice of IC Approval so as to trigger completion date. Lengthy discussion plus provide signoff regarding moving to completion of contract.
Apparently, one subject of discussion between Mr Dixon-Smith and the representatives of PAG was the issue of providing vacant possession of the Land on completion of the Contract.
[26]
Variation of sunset date for notification of investment committee approval
An exchange of emails took place between Gilbert + Tobin and Mr Dixon-Smith on 11 March 2016, concerning the execution of the deed by which the sunset date would be varied. Gilbert + Tobin referred to "the fast approaching 14 March 2016 sunset date", and attached "the final Deed for your execution under the vendor's power of attorney". They also informed Mr Dixon-Smith that Mr Fayad had signed the deed. Mr Dixon-Smith replied by saying:
I'm up in Hong Kong with PAG today so I can't get an original to you today. But I will be seeing Madison Marcus who are up here too seeing PAG with Sam on another transaction, so I can hand a counterpart to them is [sic] that works.
The deed of variation was executed by 22 March 2016 (the First Deed of Variation), which had the principal effect of changing the date 14 March 2016 in cll 63(b) and 63(c) of the Contract to 29 April 2016. (The counterpart executed by Parklea is undated and the counterpart executed for SAP bears the date 22 March 2016).
[27]
Further communications concerning repayment to SAP
On 11 March 2016, Mr Constantine commenced discussions with a Mr Michael Hercus of Mackycorp Pty Ltd (Mackycorp). On the following Monday, 14 March 2016, Mr Constantine entered into a "heads of agreement" with Mackycorp (Heads of Agreement). The Heads of Agreement took the form of a letter written by Mr Hercus addressed to Mr Constantine in his capacity as managing director of Almona.
The Heads of Agreement noted that the purchaser would be an entity associated with Mackycorp and AMB Capital Partners. The property referred to was the Land.
"Purchase Price" was dealt with in the following terms:
Purchase Price: The Purchaser will acquire the Property for $65 million in exchange for the Freehold title of the Property subject to the following;
1. The funds will be entirely controlled and used to repay the existing senior debt facility provider, and any other secured creditors, currently in control of PPB Advisory as Manager and Receiver, appointed by the secured creditors.
2. The Vendor will continue to manage the Markets on an ongoing basis on behalf of the Purchaser for a total employment cost including salary of $1 million (Gross) per annum. The Vendor will enter into a standard employment/consulting contract with the Purchaser in order to set out obligations. It is the understood [sic] by the parties that the Purchaser intends to close the Markets for the purposes of redevelopment. It is at the Purchaser[']s election as to when the markets will be closed providing they give the Vendor no less than six (6) months' notice. The Vendor may not operate a market similar to Parklea Markets in Sydney whilst under the employment of the Purchaser or for five (5) years from the termination of employment.
3. The Vendor will retain the existing residence and associated soccer pitch (Vendors Residence). This includes the access road to the Vendors Residence. The Purchaser is responsible for the subdivision of this lot including associated costs to affect [sic] that subdivision. The Purchaser agrees to give the Vendor a licence over this land for $1 until title is produced and transferred back to the Vendor. The Vendor is responsible for any stamp duty applicable for this transfer.
4. The Vendor will Purchase the triangular shaped parcel fronting Sunnyholt Road for a consideration of $3 million (excluding GST) from the Purchaser subject to subdivision plus a twelve (12) month settlement. The Vendor will be responsible for any stamp duty applicable for this sale.
5. The Vendor agrees to novate the 1 June 2015 Abbotts Valuers Valuation to the Purchaser.
The Heads of Agreement required the parties to approach the receivers and SAP "to negotiate the payout sum which is understood to be no greater than $65 million dollars. Should the Parties be successful in achieving a payout figure of less than $65 million then the saving is to the Purchasers benefit only."
The Heads of Agreement was expressed to grant Mackycorp a legally binding exclusive dealing period while the legal documentation was prepared and executed. It was subject to other conditions in the following terms:
Other Relevant Terms and Conditions:
1. This offer is subject to the Parties entering into a Contract of Sale
2. This offer is subject to satisfactory Due Diligence by the Purchaser
3. This offer is subject to the Purchaser obtaining Board Approval
4. This offer is valid to 6 PM, Tuesday 15 March 2016 (the Purchaser will not be issuing its letter of comfort to the receivers until it receives a signed copy of these Heads of Agreement from the Vendor).
Features of the Heads of Agreement which are of particular significance are the recorded expectation that the payout sum in respect of Almona's debt to SAP was no greater than $65,000,000, and the fact that the agreement was subject to satisfactory due diligence and subject to contract.
The Heads of Agreement referred to AMB Capital Partners, which produced a document called "Parklea Markets - Investment Summary" dated 14 March 2016 (a 9 page document) under subpoena (Investment Summary). The Investment Summary contained an observation to the effect that Colliers had run a sales process at the end of 2015: "They are now in final stages of negotiation with a party, rumour is it's a lebonese [sic] developer with PAG as backers". The Investment Summary listed the next steps that were required to be taken, which included negotiation with the receivers "to stall sale process and commence due diligence". A tour of the site with the "investment board" was required. Current due diligence areas of focus that were listed included the preparation of legal documents, a review of historical financial performance and operations, asset management strategy, property planning review, and business operations.
On 14 March 2016 at 10:49 AM, Mr Donato sent an email in the following terms to Mr Dixon-Smith, and Mr Dominic Emmett at Gilbert + Tobin:
Our client has instructed us a number of times that he has attempted to ascertain the payout figure from you to finalise a transaction that he has been negotiating for the repayment of the facilities owed to SAPIII (Lender).
On 22 February 2016 we brought our client's attempts to the receivers' attention through Gilbert + Tobin, their lawyers. On 23rd February 2016 we were advised that the matter would be addressed by the Lender's lawyer, King Wood & Mallesons [sic].
On Friday, 11 March 2016 we attempted to contact both Stuart Dixon-Smith and Jessica Wallis to discuss the matter and obtain a response to our email.
Despite our attempts on Friday, we again attempted to contact both Stuart and Jessica this morning and were advised that the earliest that Stuart would be available would be after 11 AM this morning.
As mentioned the failure to advise our client [regarding] the level of the debt is frustrating our client's opportunity to finalise a transaction for the repayment of the facility. We have been given no reason for the lack of response or even its delay. Our client has advised us that he has reached an agreement which will allow him to repay the debt owed, subject to receiving notification of the level of the debt or the payout figure. Subject to receiving this information the repayment may occur on Friday, 18 March 2016.
The failure of both the receivers and the Lender to advise our client of the level of the debt despite his requests, including those that we have made on his behalf, amounts to a clog on the equity of redemption. It may also amount to a breach of statutory duties and unconscionable conduct.
Our client has instructed us to obtain an urgent undertaking from the Lender and the receivers that:
a. no further steps will be taken to sell Parklea Markets or any other property over which security has been granted to the Lender (Secured Property); and
b. no contract of sale will be entered [into] for the sale of any Secured Property,
until the later of (i) 5 PM on 18 March 2016; or (ii) 6 hours after the information requested in paragraph (c) is provided to our client (such date being a business day in Sydney); and
c. payout figures will be calculated promptly and provided to our client as soon as possible (but no later than 9 AM on Friday 18 March 2018 [sic]) including sufficient information to determine the assets and liability of any borrower/guarantor and any of their assets control [sic] by the receivers.
We are also instructed that our client has put to the receivers' representative this morning his request to know what is the current status and to have a meeting with the Lender and receivers to discuss the current status. Please let us know if you require any further information as we will obtain it and provide it to you from our clients. The party with whom we are instructed a deal has been reached with is Mackycorp Pty Limited.
In the event that we do not receive the undertaking requested on or before 1 PM today, we have been instructed to approach the court on an urgent basis, without further notice to your clients, to obtain appropriate equitable relief.
Should any transaction be entered into before our client's request is complied, with [sic] our client will be seeking appropriate equitable relief to set aside those transactions for the reasons stated above including requesting that our client's costs be recovered from each of your clients on a full indemnity basis.
We look forward to receiving your urgent response.
The statement in the fifth paragraph of this email to the effect that Mr Constantine "has reached an agreement which will allow him to repay the debt owed, subject to receiving notification of the level of the debt or the payout figure" cannot be sustained as accurate on the basis of the Heads of Agreement or the Investment Summary prepared by AMB Capital Partners.
Mr Dixon-Smith responded to Mr Donato's email on 14 March 2016 at 12:13 PM in the following terms:
I have forwarded your email to my client for instructions, but in the meantime will let you have a preliminary response to your email.
You client have [sic] previously requested payout numbers in similar circumstances over the past 6 months, assured, like this time, that a repayment is imminent. We and the receivers have diligently undertaken considerable work at significant expense to provide that payout [sic] and then nothing has eventuated. In one instance we and the receivers were fully prepared for a settlement which you not only did not turn up to, but failed to give us the courtesy of even contacting us to call off. Our client has expended significant sums calculating the payout figure to no avail and your client has not reimbursed it for those significant costs.
Little wonder that we not [sic] taken your latest requests seriously.
In anticipation of the instructions I have yet to receive, I would ask that you provide us with comprehensive written evidence of the refinancing arrangements so we can satisfy our client as to the bona fides of any request for a payout figure. I would also foreshadow that our client will not be in a position to participate in any refinancing payout this Friday should that be the actual time frame.
In relation to the undertakings sought below in your email, you are not entitled to request those undertakings and they will not be forthcoming.
I will respond further once I have had instructions from my client.
On 14 March 2016 at 5 PM, Mr Donato sent an email in the following terms to Mr Dixon-Smith:
As mentioned in our earlier email, our client has reached an agreement with Mackycorp Pty Ltd and we have been advised that standing behind it is AMB Capital Partners. We are informed that their lawyers, Norton Rose, will by noon tomorrow provide proof of the financial capability to close the transaction.
Any transaction entered into by your client or the receivers in disregard of our requests will be challenged on the basis stated in our earlier emails. Suffice to state that the record will show:
(a) the picture you are trying to paint of our client's previous requests is not accurate;
(b) the number of times that our requests for payout figures have been completely ignored; and
(c) at the time of those requests, our client had an honest expectation that he could obtain the finance to repay the debt subject to knowing the payout figure.
Your email cryptically states that "I would also foreshadow that our client will not be in a position to participate in any refinancing payout this Friday should that be the actual time frame". Please explain what this means. We trust that this is not another attempt to obfuscate the current status of your client's or the receivers' dealing with the Secured Property to frustrate our client's ability to repay the debt (ie another attempt to clog the equity of redemption).
With respect our client may seek whatever undertakings are reasonable to request to avoid the need to commence legal proceedings, particularly where its seeks [sic] to obtain the equitable relief we have identified. We believe that our undertakings in the context of the relief sought are reasonable and prudent, and clearly designed to avoid unnecessary costs and court time. If you have any specific concerns about any aspect of the undertakings that you consider to be unreasonable or a concern to your client, please advise us what your concerns are.
We look forward to your urgent response.
The statement in the first paragraph of this email that an agreement had been reached with Mackycorp was true, but misleading, as the Heads of Agreement were subject to satisfactory due diligence and the entry by the parties into a formal contract.
Mr Dixon-Smith forwarded the chain of emails commencing with Mr Donato's 10:49 AM 14 March 2016 email to Mr Woodhull and Mr McMurdo of PAG on 14 March 2016 at 8:15 PM.
[28]
Mr Dixon-Smith's action plan
After a number of other emails between Mr Dixon-Smith and representatives of PAG to determine when they could conveniently discuss the issue, at 11:18 AM on 15 March 2016, Mr Dixon-Smith sent the following email to Mr Woodhull and Mr McMurdo. It will be convenient to call this email the "action plan".
I have thought about our action plan this week following our discussion last night and wanted to just map out how I see us proceeding this week. This is a bit long, but this is a complex situation and I wanted to give you a comprehensive action plan to achieve our objectives and cover off a few risks I see. This advice is privileged so be careful who you share it with.
Settlement:
I propose that we settle the sale ASAP (target say Thursday) on the basis that the existing PAG fund holding the Almona debt provides vendor finance to the purchaser to enable an accelerated settlement. To this end I propose we have Gilbert + Tobin send the purchaser notice saying the Investment Committee approved the contract in January 2016 and giving notice requiring settlement in 14 days (as the contract provides). Sending this notice is very important, because it makes the contract unconditional and unquestionably shuts down any right that Almona has to refinance the facility. Notwithstanding this formal notice, we would separately agree to settle on Thursday based on amended terms discussed below.
Purchase Price and Vacant Possession:
If you recall the purchase price is (exclusive of GST) is [sic] $81,100,000 if the vendor cannot secure vacant possession by settlement and $85,350,000 million [sic] if vacant possession is obtained. I think it still wise to continue with this pricing notwithstanding early settlement and, by amendment and in return for the offer of vendor financing, have the purchaser agree to pay the greater price of $85,350,000 if the vendor can procure vacant possession by 17 April 2016, giving a month for Con to vacate after settlement.
Cash Flow and Vendor Finance:
At present (I think - I need to check) the purchaser has paid a deposit of 5% or $4,055,000 (unfortunately I don't have the exchanged contract, but there was last minute talk of the 5% being deferred until confirmation of Investment Committee approval and a smaller $1 million deposit being held in the meantime). In addition to this, about $4.5 M of stamp duty will need to be paid. It is highly desirable that we not only settle ASAP, but also get the purchaser registered. If possible it would be good if the purchaser could cash fund the stamp duty so this gets attended to and we can register on Thursday. If this can be done, then PAG as vendor would be providing vendor finance of 95% of the contract price, or $77,045,000 assuming that vacant possession is not achieved and the full 5% deposit is paid.
I propose the vendor finance be provided to the purchaser at the rate that is anticipated to have been payable under the proposed Senior Debt arrangements we discussed on Friday, namely BBSW plus the senior debt margin plus PAG's Credit Wrap Bank Guarantee fee. This interest is accountable to Almona as recoveries from the mortgagee sale, but interest at the default rate under the existing facility continues to run against the outstanding amount because no cash has been received by the vendor, so PAG gets the dual benefit of the higher rate, it books a sale and stops Almona from being able to repay the mortgage. I propose that the vendor finance be repayable on 29 April or such later date as PAG agrees, enough time to put in place the HASBC credit wrapped facility and the mezzanine pieces we discussed on Friday.
The key reason why I have structured the funding as a "vendor finance" arrangement in this manner is stamp duty and optics. I think it is important that the security back to PAG gets registered and for reasons discussed, as well as the lack of time for you to progress a new fund in PAG to cash fund the arrangements, means this really has to be genuine vendor funding from the mortgagee (although that is a very novel concept). However, there are two key advantages in this structure. Firstly, there is no suggestion in this that PAG is in any way permanently funding the acquisition, it appears like short term funding to assist the buyer and is beneficial to Almona in that it generates interest income on the sale. Secondly, one very important advantage [is] that genuine vendor funding is liable to nominal mortgage stamp duty. Any other structure where another PAG fund funds the purchaser will attract $308,000 in stamp duty.
If PAG can arrange cash funding from a new fund to cash out the old fund before 29 April, we can do this once that cash is available by a sub- participation or substitution in a way that would not be visible to Almona.
Proposed Contract Variation:
If you agree with the above, then I propose a short variation of contract be prepared by G + T and exchanged at settlement providing for the issues raised above, being:
early settlement;
the purchase price is provisionally agreed to be $81.1M (the non-vacant possession price, based on Con still being in possession);
to the extent that the full 5% deposit has not been paid, it is paid on settlement;
a right for the vendor to procure vacant possession by 17 April 2016 and, if so the price increases to $85.35M, with the increase being payable on the later of 29 April 2016 and 14 days after vacant possession is obtained;
vendor finance at the interest rate stated above, repayable on 29 April 2016 or such later date as PAG requires.
Dealing with Con/Almona/Norman Donato
I haven't replied to Norman's letter last night, I'll let the clock tick a bit. This afternoon I'll send a short reply saying my earlier email was entirely clear and I do not propose to elaborate, but saying I don't propose to take any action until I receive written confirmation from a financier's lawyer that funding has been committed, with copies of a binding term sheet, draft financing documents and a realistic timetable for financial close, at which stage I will respond to all parties. Hopefully that all takes until Thursday, at which stage I can write to confirm the sale of the property has completed.
Can you let me know if this is all OK and I'll get it happening.
There is no evidence of which I am aware that the action plan was sent to Madison Marcus or Dyldam.
The action plan demonstrated, among other things, that Mr Dixon-Smith and PAG had in mind the higher price that was payable if Mr Constantine vacated the Land. Mr Dixon-Smith advised that one of the terms of the proposed contract variation would be that the price payable on completion would be the lower price of $81.1 million, with provision for the price to increase to $85.35 million, if Mr Constantine gave vacant possession by 17 April 2016. It is probable that Mr Dixon-Smith made this suggestion as a consequence of his advice that completion of the Contract should be accelerated. Given that Mr Dixon-Smith also advised that PAG should procrastinate in responding to Mr Donato's enquiries concerning the refinancing of Almona's debt to SAP, so that PAG could achieve the completion of the Contract without interference by Almona, it was not feasible that PAG could give Mr Constantine the notice necessary to give him an opportunity to vacate the Land, and at the same time to hide from him and Almona the proposed early completion of the Contract. Thus, if Almona was to be given an opportunity to achieve the higher sale price, it would be necessary for the Contract to be amended to provide for the higher price to be payable, if Mr Constantine vacated the Land within a month after completion.
[29]
Continuation of communications concerning repayment to SAP
On 15 March 2016 at 1:22 PM, Mr Donato sent an email to Mr Dixon-Smith to which he attached two letters "for your urgent attention and response".
The first of the letters was from Mr Donato to Mr Dixon-Smith. It provided:
We refer to our recent correspondence in relation to the above matter. We have now obtained further instructions concerning our client's proposed refinance and enclose for your information a letter from our client's funder.
As requested, please urgently confirm, as requested by our client's funder, that your client will instruct the receivers not to enter into, or complete any agreement for the sale of any assets of Almona (including Parklea Markets) (Assets) over which security has been granted to secure Almona's obligations under the Facility during the Due Diligence Period (as defined in the funder's enclosed letter).
Please also provide all information we may request to complete this refinance by the end of the Due Diligence Period including an indication of the current amount of the debt owed by our client.
We note that under the security any additional costs incurred as a result of this request will form part of the secured money and be recoverable in accordance with the facility documents. To the extent that there is insufficient security to cover any such additional costs, our client is willing to pay such additional costs (including the additional costs of PPB Advisory).
If necessary, upon presentation of a written estimate of their indicative additional costs, our client is willing to immediately set aside an amount on account of such costs (to be held in escrow and released on presentation of an invoice in line with the estimate).
We look forward to your urgent response. Please advise us urgently whether you require any further information at this stage.
The second attachment was a letter addressed by the general manager of AMB Capital Partners to Mr Constantine dated 15 March 2016. It said:
We understand that PPB Advisory has been appointed as Receivers and Managers over Almona Pty Ltd (Almona) on 17 April 2015 by the secured creditor Secured Asset Portfolio III Limited (Lender). We understand the Lender advanced Almona in excess of $50 million (Facility), and that with capitalised interest and other charges, the amount owed by Almona is now in the vicinity of $65 million. Whilst you have asked for an update of the amount that is currently owed by Almona under the Facility, you have not been provided with a recent payout figure or indication of the current amount owing.
To this end, we make the following confirmations:
1. AMB Capital Partners, the investment business for the Angela Bennett family, is in a position to provide finance to or at your request for the purpose of refinancing the Facility in full, subject to completion of a three (3) week exclusive due diligence period to review the further information and finalise the necessary documentation (assuming that all reasonable information requested by us is provided by you and the receivers promptly) (Due Diligence Period).
2. AMB Capital Partners has undertaken preliminary due diligence, but requires necessary further information, including information from PPB Advisory (or Colliers) in order to complete due diligence and the transaction.
3. AMB Capital Partners has liquid funds available to complete this transaction at or above the amount stated above and can provide support if required.
We require written confirmation from PPB Advisory that during the Due Diligence Period (commencing on 17 March 2016) they will not enter into or complete any agreement for the sale of any assets of Almona (including Parklea Markets) (Assets) over which security has been granted to secure Almona's obligations under the Facility.
AMB Capital Partners authorises you to provide a copy of this letter to the Lender and PPB Advisory (receivers) to:
(a) obtain the confirmation requested above;
(b) obtain from them the amount outstanding under the Facility; and
(c) assist you in ensuring that no Assets are sold prior to the earlier of (i) end of the Due Diligence Period or (ii) the date that we advise you in writing that we have withdrawn from the proposed refinance.
We are prepared to advise PPB Advisory promptly if a decision is made to withdraw from the proposed refinancing.
On 15 March 2016 at 1:34 PM, Mr Dixon-Smith forwarded Mr Donato's email and its attachments to Mr Woodhull and Mr McMurdo at PAG and Mr Emmett at Gilbert + Tobin. Among others, the email was also forwarded to Mr Philip Carter, one of the receivers. Mr Dixon-Smith observed:
…Woody and James, as envisaged by you, those involved on the proposed refinancing do actually have the firepower to fund this if Con can make it stack up. The good news is they are asking for 3 weeks exclusive DD to get it done, so any refinancing can't be closed by the time it is anticipated that the buyer completes the contract.
I'll consider a draft reply and circulate for instructions later today.
Mr Donato sent another email to Mr Dixon-Smith and Mr Emmett, with copies to others including Mr Carter, at 6:43 PM on 15 March 2016. Mr Donato said:
We now have provided you evidence of the bona fides and capacity of our client to procure the repayment of the debt yet we have not received confirmation from you as to the current status and your intentions in relation to this transaction. Your client's actions in failing to promptly respond and any action taken which disregards our client's requests will cause our client damage and irreparable harm.
We have been instructed by our client that unless we receive, by 9:30 AM tomorrow morning, a response to our email today confirming that the receivers have or will:
(a) be instructed not to enter into, or complete any agreement for the sale of any assets of Almona (including Parklea Market) (Assets) over which security has been granted to secure Almona's obligations under the Facility during the Due Diligence Period (as defined in the funder's letter enclosed with our email earlier today) and that the receivers will not enter into such transaction or take such action; and
(b) provide all information we may request to complete this refinance by the end of the Due Diligence Period including an indication of the current amount of the debt owed by our client, and ultimately the payout figure,
to commence legal proceedings seeking appropriate declaratory relief including an injunction to stop any contract being entered into or completed for the sale of any Assets and an order that the information requested by our client and his financier for the purposes of the refinance be promptly provided.
Our client will rely on this email in relation to any application for costs. Please confirm that you have instructions to accept service on behalf of your respective clients should our client's request not be satisfied.
Then, on 16 March 2016, apparently at 7:06 PM, Mr Donato sent an email to Madison Marcus, which attached a letter in the following terms:
Mr Constantine is company director of Almona and a guarantor of the facilities owed by Almona to Secured Asset Portfolio III Limited (Lender). Mr Constantine has instructed us in this matter.
We understand that you have lodged a caveat, registered number [redacted] on behalf of Parklea Corporation Pty Limited ACN 610022056 on or about 14 January 2016. Under the caveat, you claim that your client has an interest in the Property pursuant to a contract of sale dated 13 January 2016. We have not been advised by you of a sale of the Property to your client. Further, despite various correspondence between us and the Lender's and the Receivers [sic] legal representatives, we have not been advised by them of any sale or interest that your client holds in the Property.
The purpose of this letter is to put you on notice that our client maintains a claim and equitable right to relief against forfeiture of the Property under a mortgage granted by Almona to the Lender. Our client has a concrete proposal to refinance the debt owed to the Lender and we are preparing an application to the Supreme Court seeking appropriate orders for such relief. For your information we attach a copy of a letter dated 15 March 2016 from AMB Capital Partners.
In the circumstances it is far from clear to us or our client, what your client's interest in the Property is or has been, given that we have not been advised by any relevant party that anything has happened in relation to the sale of the Property including that you have entered into a contract of sale with the Receivers.
Please provide us evidence of the interest that your client claims over the Property or please confirm that your client will immediately withdraw the caveat. Should this request not be complied with on an urgent basis, our client may apply to the Registrar-General to issue a notice pursuant to section 74J of the Real Property Act 1900 (NSW).
Our client will be seeking to set aside any contract entered into after this notice of our client's equity. Our client also reserves all its right [sic] to seek to set aside any contract for the purchase of the Property entered into prior to this notice.
We await your urgent response.
This email attached the letter dated 15 March 2016 written by AMB Capital Partners to Mr Constantine.
The evidence suggests that this email was not received by a relevant solicitor at Madison Marcus until it was forwarded to Mr Denis Hall by internal email at 8:46 AM on 17 March 2016.
As I understand the evidence, this was the first time that Madison Marcus on behalf of Dyldam and Parklea received any notice of the efforts being undertaken by Mr Constantine on behalf of Almona to repay SAP.
Also on 16 March 2016, Mr Donato sent a letter to Mr Dixon-Smith and Mr Emmett enclosing a copy of the letter of the same date addressed to Madison Marcus. Mr Donato observed: "…We do not believe that any contract has been entered into for the reasons stated in the letter, particularly because of our recent correspondence and your failure to alert us to it…"
Mr Donato asked to be advised urgently if the addressees were aware of any basis for the caveator's alleged interest in the property, and advised that Bartier Perry were preparing an application to the Supreme Court the following day seeking equitable relief.
[30]
Preparation for completion of Contract
On 16 March 2016, Ms Jessica Jordan, a solicitor assisting Mr Dixon-Smith, sent a first draft Loan Notes Subscription Agreement to Mr Qutami, with copies to Mr Dixon-Smith and representatives of PAG. The draft was sent subject to PAG's instructions. Ms Jordan advised that the ancillary transaction documents would follow during the next day or so.
On 17 March 2016 at 9:15 AM, Mr Dixon-Smith sent a reply email to Mr Nathan Weinberger, a solicitor at Gilbert + Tobin, saying:
I have been advised by Pacific Alliance that Investment Committee approval to the sale was in fact obtained in January and that the notice confirming this and setting the completion date should now be forewarned to the purchaser.
Could you please forward to the purchaser a notice under the contract today confirming IC approval was obtained in January and confirming the date for completion in accordance with the contract. We do not need a draft, you can go straight ahead and send it.
On Thursday 17 March 2016 at 3:56 PM, Mr Dixon-Smith sent Mr Donato a response to the email received the previous night at 7:19 PM. The substance of the email sent by Mr Dixon-Smith was in the following terms:
I refer to your email received last night at 7:19 PM.
Our client is not obliged to respond to your queries raised in your letter and our clients' instructions are that our client makes no comment in response.
Concerning your threatened legal proceedings, we reiterate the responses consistently made in our previous correspondence that your client does not have any basis to seek the relief you threaten in your letter, there is simply no basis upon which your client has an entitlement to the relief you seek to obtain (much of which is not specified in your letter in any event other than in the vague terms "equitable relief and various orders").
Our client has, together with the receiver, commenced the preparation of a statement of amounts owing to both our client and the receivers, which will be made available as soon as all of these amounts have been accurately accounted for and calculated. This information will be available next week some time but we cannot be certain as to when. The provision of this information is solely for the purpose of providing a statement of amounts owing and should not be taken to be anything more, including:
an acceptance that your client has any "equity of redemption" as you put it; or
that our client has endorsed, encouraged or facilitated any refinancing process, which is an initiative of your client at your client's risk; or
that the provision of this information in any way limits the exercise of our clients' rights under the loan documentation and securities they hold.
On 17 March 2016 at 9:17 PM, Mr Dixon-Smith sent a further draft of the Loan Notes Subscription Agreement to a solicitor at Madison Marcus, and advised that the call option would come out late that night and the securities likely early the next morning.
On 17 March 2016, Gilbert + Tobin wrote a letter to Madison Marcus, which contained a notification to Parklea that SAP had obtained the approval of the Investment Committee and: "accordingly the completion date under the Contract is Friday, 1 April 2016".
At 11:31 AM on 17 March 2016, Madison Marcus sent a copy of the Gilbert + Tobin letter to Dyldam advising that Gilbert + Tobin had advised that the Investment Committee had approved the sale and that completion was due to take place on 1 April 2015 (which must have been a typographical error), together with the comment: "We are working towards completion next Monday 21 March 2016".
Mr Hall, of Madison Marcus, sent an email at 5:05 PM on 17 March 2016 to Ms Hempel of Gilbert + Tobin. The email referred to "our recent telephone conversation", and confirmed being advised that the investment review committee had approved the sale and that it was contemplated that completion would take place on Monday 21 March 2016. The email then continued:
To reflect the discussions between the parties we require a Deed of Variation of Contract to be entered into which reflects the following:
a. Front page of Contract: reinstate "input taxed because the sale is of eligible residential premises (sections 40-65, 40-75(2) and 195-1)" and insert after this "refer to special condition 50";
b. Front page of the Contract: purchase price is to be amended to $81,100,000.00 and the balance of the purchase price is to be amended to $76,832,500.00;
c. Clause 35.3 - Delete and insert a provision whereby the Vendor agrees to maintain insurances for the benefit of the Purchaser for a reasonable time following settlement;
d. Clause 50.2(a) - the table: insertion in the column of component "Residential premises", insertion to the column of description of component "being the area with residential premises and reasonable curtilage referred to in special condition 51" and insertion to the column of proportion of purchase price (as advised by the Vendor's solicitor);
e. Insertion of an additional special condition which deals with residential premises being input taxed;
f. Clause 50.8(a): Deletion of the words "as soon as possible after the date" and substitute with "after the date of completion". Insert the words "as approved by the Vendor" after the words "ruling";
g. Clause 50.8(b), (c) and (d): Delete;
h. Clause 55.1" [sic] delete the words "house and garden" and replace with "residence and reasonable curtilage" wherever appearing. Delete the words "as at the date of this contract" and substitute with "as at the date of completion";
i. Clause 61 - Delete; and
j. Clause 64.2(b) - Delete.
Mr Hall, who appears to have been responsible for the conveyancing aspects of the transaction for Parklea, clearly referred first to a recent telephone conversation between himself and Ms Hempel, and then more generally to "the discussions between the parties".
There was no direct evidence of the content of the telephone conversation or the discussions between the parties more generally.
King & Wood Mallesons' tax invoice dated 31 March 2016 to PAG on the file related to "Parklea Markets (workout)" shows under the heading "Sale" that Mr Dixon-Smith discussed issues concerning the Contract with Gilbert + Tobin on a number of occasions between exchange on 13 January 2016 and completion on 22 March 2016. The tax invoice records telephone calls or discussions between Mr Dixon-Smith and Gilbert + Tobin on 4 and 9 March 2016. Mr Dixon-Smith attended meetings with senior executives of PAG in Hong Kong on 11 March 2016, and one of the matters discussed was "vacant possession issues". The entry for 14 March 2016 reads: "Report back to G+T on instructions from Hong Kong and anticipate sending notice of approval from IC and general update from Hong Kong meetings". Mr Dixon-Smith's "action plan", which included a suggestion that the Contract be amended to give Mr Constantine one month after completion to deliver up vacant possession, was written on 15 March 2016. There is no entry in the tax invoice that records Mr Dixon-Smith discussing this suggestion with PAG or Gilbert + Tobin. The tax invoice, under the heading "Releases", notes that Mr Dixon-Smith had a telephone call with one of the receivers, a representative of PAG and solicitors at Gilbert + Tobin on 17 March 2016, but it does not indicate that the issue of vacant possession was discussed. That issue does not appear to relate to releases. There is also an entry for 18 March 2016 which reads: "Call re with Gilbert + Tobin re Parklea sale, follow up including preparing for settlement on Monday". However, this call took place after the date of Mr Hall's 17 March 2016 email to Ms Hempel.
The dates on which the discussions referred to by Mr Hall took place were not identified. Consequently, it is not possible to ascertain from the evidence what the substance of the discussions were, who took part in them, and in particular who authorised any matters agreed to by SAP. It is, however, possible that Mr Dixon-Smith discussed SAP's response to Mr Hall's email with representatives of Gilbert + Tobin on 17 or 18 March 2016.
King & Wood Mallesons' tax invoice does not contain any entry that records Mr Dixon-Smith engaging in discussions directly with any solicitor at Madison Marcus.
On 17 March 2016 at 7:37 PM, Ms Hempel by email advised Mr Hall that Gilbert + Tobin would send a draft deed of variation through shortly and respond to Mr Hall's questions.
Ms Hempel sent an email to Mr Hall on 18 March 2016 at 10:43 AM, to which she attached "a draft Deed of Variation and replacement front pages (with requested changes to purchase price and GST) and special conditions in mark up". The email included the following:
…We have only recently sent it to our client and have not yet had any feedback so it is subject to their comments, in particular:
1. their conversations with the insurers to assess if the requested insurance position can be accommodated; and
2. instructions about the percentage or figure to be allocated to the residence and consequential changes to the other percentages/figures.
Please let us know if you have any comments in relation to the attached.
We are waiting for instructions about responses to your questions below.
Please advise when you anticipate providing the Transfer to arrange signature.
Ms Hempel's response suggests that her understanding was that either SAP had already accepted some of the amendments requested by Parklea, or that it was at least sufficiently likely that SAP would agree that it was worthwhile Gilbert + Tobin preparing the draft deed of variation in anticipation that instructions would be received from SAP that it would agree to execute the document.
In either event, there was no evidence concerning the circumstances in which SAP agreed to execute the deed of variation.
There was also no evidence of Gilbert + Tobin's timesheets or tax invoices, so it is unclear whether Gilbert + Tobin received instructions directly from SAP, or only through Mr Dixon-Smith.
The evidence does not establish in any positive way what Gilbert + Tobin or Madison Marcus were informed, or otherwise learnt, about what Mr Constantine or Almona had been told about the original Occupation Condition, or whether either knew that the price would be $4.25 million greater if Mr Constantine vacated the Residence prior to completion, or even what Mr Constantine's intentions precisely were. Both firms of solicitors must have been proceeding upon the assumption that Mr Constantine would not vacate the Residence. The proposed variation to special condition 55.1 changed the nature of the disclosure made by SAP to a disclosure that the Residence would be occupied as at the date of completion, while the special condition in its original form disclosed occupation at the date of the Contract.
[31]
Commencement of proceedings by Almona
Almona commenced proceedings in this Court against SAP and the receivers by summons filed on 18 March 2016. The summons sought an order that Almona be relieved from forfeiture of the Land, an order restraining the defendants from entering into a contract for the sale of that property or otherwise dealing with or disposing of the property, and an order that SAP forthwith inform Almona of the amount secured against the property, in order to facilitate a refinancing of Almona's facility with SAP.
Bartier Perry served Almona's summons and supporting documents on Mr Dixon-Smith, Mr Emmett and Ms Arscott at 5:11 PM on 18 March 2016, together with advice that Pembroke J had made certain orders that afternoon, and that the summons and notice of motion were returnable at 10 AM on Tuesday 22 March 2016 before Pembroke J.
[32]
Further preparation for completion of Contract
There is then evidence that considerable work was done and correspondence undertaken in relation to the preparation and settlement on an urgent basis of all of the transaction documents necessary to enable the relevant parties to complete the Contract and the financing of the purchase by PAG.
PAG instructed King & Wood Mallesons that the financier would be Lord VI, which had an address in the British Virgin Islands. An arrangement was made between PAG and King & Wood Mallesons for all of the signature pages of the documents to be sent to Hong Kong so that they could be pre-signed: "Bearing in mind of the timetable".
Following negotiations to agree the terms of PT acting as Security Trustee for the purpose of the proposed financing of the purchase of the Land, on Friday 18 March 2016 at 12:24 PM, Parklea forwarded its signed acceptance of PT's fee letter to PT.
On 18 March 2016 at 2:36 PM, Mr Donato sent an email to Mr Dixon-Smith and Mr Emmett attaching a further letter from AMB Capital Partners.
AMB Capital Partners' letter, dated 18 March 2016, was addressed to Mr Donato and signed by its general manager. The letter was in the following terms:
Further to our discussions concerning this matter, we understand that the receivers continue to refuse to confirm that during the due diligence period referred to in our letter of comfort dated 15 March 2016 they will not enter into or complete any agreement for the sale of any assets of Almona (including Parklea Markets) over which security has been granted to secure Almona's obligations to the lender.
AMB understands that your client has instructed you to seek an urgent injunction to prevent the receivers from selling the above mentioned assets so that we can finalise the transaction between AMB Capital Partners and your client. On the basis that your client is seeking such an application and as an indication of our commitment to the transaction, AMB will continue to undertake its due diligence.
Attached is a list of the further information that we require from the receivers for the purposes of our due diligence. Would you please request this information urgently from the receivers and request that they confirm they will co-operate with us to finalise our due diligence. We confirm that our lawyers, Norton Rose, have also contacted the receivers indicating our genuine desire to complete this transaction.
To the extent it may assist you in obtaining the information and co-operation of the receivers we confirm that:
(a) AMB Capital Partners has formed the view that based on our preliminary due diligence, at this stage we are willing to enter into the transaction subject to completion of satisfactory due diligence at our absolute discretion and receipt of information from the receivers;
(b) we have already committed significant resources (cost and time) to this point and will continue to do so on the premise that information will be made available by the receivers imminently.
Please note that AMB Capital Partners is not bound to enter into or complete any transaction with your client until we have entered into valid and binding definitive documents and we are satisfied with the results of our due diligence at our absolute discretion. Having said this we confirm that we have already and are willing to commit further resources to complete the proposed transaction, including our due diligence, within three weeks.
From no later than 7:30 PM on 18 March 2016, Mr Dixon-Smith copied PT, and its lawyer, Mr Alex Mufford of Henry Davis York, into the communications concerning the negotiation of the transaction documents.
At 8:22 PM on 18 March 2016, Mr Hall sent an email to Ms Hempel, which responded to her email of 10:43 AM of the same date, by making a number of comments on the documents that had been provided. It does not appear that the subject matter of the comments is directly material to the issues in this case.
By 18 March 2016, PT had prepared what it called a "Transaction Summary/Structure Diagram" and "Fee letter" in respect of the transaction.
The Transaction Summary contained the following description of the proposed transaction:
Parklea Corporation Pty Ltd (the "Customer") is a special purpose company owned by two trusts that are part of the Dyldam Group;
The Customer has exchanged contracts to acquire the Parklea Markets;
The sale is a [sic] mortgagee in possession and the sale price will be between $81-$85 million subject to certain requirements;
PAG (an independent alternative investment management group) will provide an $85m to $90m loan to the Customer (the "Loan") to fund the acquisition;
PAG will use a British Virgin Islands special purpose vehicle as the lender entity for the Loan;
Perpetual has been requested to provide security trustee services;
Security to be provided to the security trustee will include:
First ranking registered GSA over all the assets and undertakings of the Customer and two other entities related to the Customer;
A mortgage over the Parklea Markets;
A mortgage over units owned by related parties to the Customer at George Street, Parramatta; and
A mortgage over units owned by related parties of the Customer at Merrylands.
Settlement is expected to take place on Monday 21 March 2016;
Stuart Dixon-Smith (Partner, King & Wood Mallesons) will act for PAG, Madison Marcus law firm will act for the Customer and Alex Mufford will act for Perpetual;
The Customer is negotiating with HSBC to refinance the Loan in three months['] time and Perpetual will continue to act as the security trustee for HSBC as the incoming financier; and
The refinance with HSBC will be used to construct a mixed use development, which will include the construction of apartments and retail shops.
The Transaction Summary noted an Establishment Fee of $10,000, a Minimum Annual Fee of $35,000, and an (unexplained) Basis Points Fee of 1.
It should be noted that the Transaction Summary establishes that PT was given information that caused it to expect that the loan made by PAG's British Virgin Islands special purpose vehicle would be refinanced with HSBC in three months, and that PT would continue to act as the security trustee.
Email correspondence was exchanged between Gilbert + Tobin, acting for the vendor SAP, and Madison Marcus acting for the purchaser, Parklea, on 20 and 21 March 2016.
At 4:58 PM on 20 March 2016, Mr Hall sent an email to Ms Hempel of Gilbert + Tobin. He attached a draft settlement statement, and transfers for the two titles that constituted the Land. Mr Hall asked for confirmation that SAP was satisfied that the transfers were in proper registrable form, and for cheque directions.
Mr Hall also asked for SAP's instructions "on the Deed of Variation proposed on Friday, 18 March 2016".
Further, Mr Hall requested confirmation that SAP agreed to all adjustments occurring after completion. It appears that the parties to the Contract realised that, if the completion of the Contract was going to be accelerated, as contemplated, there would not be time to work out all of the adjustments required by the Contract before completion.
On Sunday 20 March 2016 at 8:01 PM, Ms Hempel sent an email to Mr Dixon-Smith and Mr Carter, with copies to other representatives of the receivers, and solicitors at Gilbert + Tobin. Ms Hempel suggested that the proposed deed of variation include a term governing when the post-settlement adjustments should take place. She also referred to the fact that the purchase price had been apportioned between the two lots that constituted the Land as to $3,025,030 and $78,074,970. The total is $81,100,000. It follows that a decision had been made by this time that the price that Parklea would be required to pay on completion was the price payable on the basis that SAP could not deliver vacant possession. There does not appear to be any positive evidence as to when this decision was made or who was party to it.
Nothing seems to have come of the suggestion made by Mr Dixon-Smith in the action plan that the Contract be varied to permit Parklea paying $81.1 million on completion, and then a further $4.25 million if Mr Constantine vacated the Land within a month.
On 20 March 2016, at 8:26 PM, Ms Hempel sent an email to Mr Hall, which stated that she had not received instructions, but had inserted her comments in red capitals in Mr Hall's 18 March 2016 email to her.
On Monday, 21 March 2016 at 5:36 AM, Mr Dixon-Smith sent an email in the following terms to Mr Peter Law of PAG:
Attached are word versions of the relevant documents, being:
[nine transaction documents are listed]
FYI, we have a replica set of documents (except Call Option and Heads of Agreement) with a shelf company I am director of acting as Security Trustee in case Perpetual aren't ready today just as a fall back. The intention would be to swap Perpetual in as Security Trustee once they are ready. Perpetual looks set to go, so I think this fallback is unlikely to be required.
These documents were all signed by the relevant companies at our offices yesterday and are held in escrow pending your signoff.
I'll now finish our signoff and opinion and send that separately.
On 21 March 2016, Mr Dixon-Smith, on behalf of King & Wood Mallesons, sent a letter to Mr David Creais at Bartier Perry. It appears from another email written by Mr Dixon-Smith at 10:15 AM on 21 March 2016, which was addressed to solicitors at Gilbert + Tobin, Mr Carter, one of the receivers, a partner at King & Wood Mallesons, representatives of the receivers, and representatives of PAG, that a draft of the letter had been discussed between those parties that morning. There does not appear to be any evidence that the letter was agreed by representatives of Parklea before it was sent. The letter stated:
We refer to your email received by us on Friday at 5:11 PM. Our client, Secured Asset Portfolio III Limited has instructed us to reply as follows:
We do not accept that you act on behalf of Almona Pty Ltd (Receivers and Managers Appointed). Messrs Carter and Walley are receivers and managers of that company and have, subject to limited exceptions, full power and authority in respect of the assets of that company and we are advised that they have not instructed you. We therefore do not acknowledge that you act for Almona Pty Ltd (Receivers and Managers Appointed) or are corresponding with us on behalf of that company. We understand that you act for Mr Constantine instead.
We are instructed to advise that, as at today, the amount owing by Almona Pty Ltd (Receivers and Managers Appointed) is $70,872,398.57 plus the amounts described in the next sentence. The amounts not included in this number, which our client is entitled to recover from the security property, are as yet unbilled costs associated with the sale referred to below and the costs of these proceedings. Our client also reserves the right to adjust this number for errors and omissions in calculating this amount owing.
We advise that our client exchanged a contract for sale of the property known as Parklea Markets on 13 January 2016 for a sale price of $81.1 million plus GST and adjustments. Your client has been on notice of this sale since the notice of the caveat lodged on 18 January 2016 was received by you.
Earlier last week before receiving your proceedings our client had scheduled completion for today. We put you on notice that, under strong protest from the purchaser, our client has deferred settlement until 3.00 PM tomorrow, subject only to any orders the Court makes tomorrow. The purchaser has advised that as at 5.00 PM Friday it had already drawn funds for today's settlement and reserves its rights against our client as vendor.
We note that your client's highly conditional proposed refinancing arrangement provides for only $65 million to be available to refinance our client. In this respect we point out that, without limiting the defences our client might choose to raise:
Almona Pty Ltd (Receivers and Managers Appointed) cannot redeem the title to Parklea Markets, on exchange of contracts on 13 January 2016 Almona Pty Ltd (Receivers and Managers Appointed)'s equity of redemption was lost; and
the amount proposed to be raised to refinance our client is insufficient to repay our client.
Accordingly the relief you seek is not available. We suggest the appropriate course of action is for these proceedings to be withdrawn.
On the evidence, the statement made by Mr Dixon-Smith that the sale price under the Contract made on 13 January 2016 was $81.1 million plus GST and adjustments was false. Specifically, the statement that: "our client exchanged a Contract of the property known as Parklea Markets on 13 January 2016 for a sale price of $81.1 million plus GST and adjustments" is necessarily false because it states that the price was $81.1 million plus GST and adjustments at the date of exchange of contracts. That was not the price, as the price was given by the Occupation Condition. By the terms of this letter, Mr Dixon-Smith continued to hide from Mr Constantine and Almona, to the extent that Mr Constantine may have had some residual control of that company, that Parklea would be required to pay an additional $4.25 million as the price under the Contract if Mr Constantine gave vacant possession on completion.
Also on 21 March 2016, Ms Hempel, at 2:43 PM, made the following statement in an email addressed to a solicitor at Bartier Perry:
We notify you that Secured Asset Portfolio III Limited, as mortgagee exercising [its] power of sale, intends to complete the sale of the above properties tomorrow, 22 March 2016 at 3.00 PM at a purchase price of $81,100,000 (subject to settlement adjustments and plus GST as applicable).
While this email did not disclose the existence of the Occupation Condition, it was strictly accurate as it advised of the true intention of SAP.
Clearly, a decision was made on 21 March 2016 that the Contract should not be completed on that day, but rather completion should take place on Tuesday 22 March 2016, assuming that Almona's application to this Court for interlocutory relief failed.
On the same day, PAG advised King & Wood Mallesons that the payout figure as at that date was AUD 70,872,398.57, and that that amount included the receivers' costs of AUD 868,500.
Also on 21 March 2016, Madison Marcus sent a letter to Gilbert + Tobin, which confirmed that Parklea was ready willing and able to complete the Contract on 21 March 2016. The letter referred to the costs that would be incurred as a result of any delay in completion, but said that Parklea was prepared to complete the Contract at 3 PM on Tuesday, 22 March 2016 without seeking any compensation. Compensation would be sought if completion took place at a later time.
Bartier Perry responded to King & Wood Mallesons' 21 March 2016 letter on 22 March 2016. In response to the assertion that Bartier Perry were not properly instructed, the writer asserted that Almona had standing to bring the proceeding, as it was seeking relief against forfeiture and to enforce the equity of redemption, which was asserted as being a right held by it which was exercisable by the company despite the appointment of receivers.
The letter acknowledged that Almona had been aware of the caveat lodged on the title since on or about 18 January 2016, but asserted that Almona was not made aware of the details of the transaction.
The letter added:
…As it is now apparent that the contract for sale is proceeding, our client will not stand in the way of that transaction completing as arranged for 3pm today. However, our client requires that it be informed immediately upon settlement of the sale, that is by 5pm today. In the event that the transaction does not complete today our client reserves the right to pursue its application on the basis that the contract for sale is not proceeding and our client has sufficient funds to be relieved from forfeiture of the property the subject of the mortgage and loan.
The letter proposed that the matter be stood over.
Bartier Perry's letter enclosed a further letter written by the general manager of AMB Capital Partners to Mr Constantine, dated 21 March 2016. The letter referred to AMB's 15 March 2016 letter, and recorded the writer's understanding that the amount required by Almona to repay SAP was approximately $71,000,000 plus sale costs and costs of proceedings, and that the Contract was due to complete on 22 March 2016.
The letter then confirmed that, if the Contract did not complete, AMB Capital Partners was still in a position to provide funds to refinance the SAP facility, subject to completion of a three-week exclusive due diligence period.
A Security Trust Deed was executed by PT on 21 March 2016. The Deed created a trust called the "Parklea Market Security Trust".
In an email sent at 10:47 AM on 22 March 2016, Mr Dixon-Smith advised Mr Qutami of a desire to move settlement forward to commence at 1 PM, on the basis that "Constantine has effectively capitulated and consented to settlement happening today".
Mr Dixon-Smith advised that finance proceeds from "the Lord Business Holdings loan" had arrived safely the previous day, and King & Wood Mallesons would be drawing a bank cheque to Gilbert + Tobin's trust account for $79,100,000, which, together with Parklea's own one million-dollar contribution, would pay for the $80,100,000 balance due on settlement.
[33]
Settlement of Contract
Settlement of the Contract took place on 22 March 2016.
Gilbert + Tobin's Trust Account statement in respect of the matter recorded the receipt of the deposit of $1,000,000 and the purchase price of $79,100,000 at the time of settlement.
[34]
Real Property Act mortgages
On settlement, Parklea, as mortgagor, delivered to PT, as mortgagee, separate Real Property Act mortgages over the two titles that constituted the Land (the PT Mortgages).
The PT Mortgages were registered on 22 March 2016.
[35]
General Security Agreement
On 22 March 2016, Parklea also entered into a General Security Agreement with PT.
[36]
Loan Notes Subscription Agreement
Also on 22 March 2016, a Loan Notes Subscription Agreement was entered into between Parklea, Parklea Holdings 1 and 2, a number of companies associated with Dyldam, Mr Fayad, PT and Lord VI.
By clause 2, the Financier agreed to provide accommodation up to a maximum of the Facility Limit, which was defined in clause 1.1 and the Details as AUD 84,000,000. The term of the facility was to 30 June 2016, and the interest rate 17% per annum.
"Financier" was defined in clause 1.1 as meaning each person so described in the Details "and any person who is named as a "Substitute Financier" under a Subscription Agreement".
Clause 4 provided for the subscription and issue of Loan Notes, and clause 19 created a Register in respect of Loan Notes.
Part 7 of the Loan Notes Subscription Agreement contained provisions to enable the syndication of the loan. Under the syndication provisions in Part 7, the Security Trustee effectively acted as the trustee for Financiers in respect of their rights against Parklea. Clause 22 made provision for the giving of instructions by Financiers to the Agent, who was to be appointed by the Financiers, and in particular, cl 21.4 empowered the Agent to give directions to the Security Trustee in relation to the Transaction Documents.
Schedule 5 to the Loan Notes Subscription Agreement contained a Structure Chart for the transaction. The Structure Chart was dated 8 March 2016. It bore a King & Wood Mallesons' copyright note and a Madison Marcus logo.
The Structure Chart depicted that Parklea was controlled by Mr Sam Fayad as director and secretary. Eighty shares in Parklea were to be owned by Parklea Holdings 1 Pty Ltd and 20 shares by Parklea Holdings 2 Pty Ltd. Those companies were also to be owned and controlled by Mr Fayad. They were to be trustees for respectively the Parklea Holdings 1 Unit Trust and the Parklea Holdings 2 Unit Trust.
Each Trust was to be a unit trust in which 800 units (80%) were to be issued to the company which was the trustee for the Sam Fayad Family Trust No 2. Two hundred units in trust 1 were to be issued to Visy Group Holdings Pty Ltd as trustee for Visy Group Holdings Trust, and two hundred units in trust 2 were to be issued to Visy Projects Pty Ltd as trustee for Visy Projects Trust.
[37]
Parklea heads of agreement
On 22 March 2016, a "heads of agreement" was entered into between Parklea, Quatro 88 Pty Ltd (described as Development Manager), the two Parklea Holdings trustee companies, and Lord Business Holding VIII Ltd (Lord VIII), which was defined as "LBH".
It is to be noted that the "Lord Business Holding" company is described as being different to the company described as the Financier in the Loan Notes Subscription Agreement, as the number used was VIII rather than VI.
Clause 2.1 recorded that Parklea had entered into what was described as the "Land Acquisition Agreement" (in fact, the Contract) "based on discussions regarding the funding of the Project by members of the LBH Group". I take the LBH Group to be the same as PAG.
Clause 2.2 recorded the "Intentions of the parties". Clause 1.1 defined "Bridge Facility" as meaning the facility provided to Parklea to fund the acquisition of the Land (being the Land). Clause 2.2 referred to the agreement of LBH to also provide a credit wrap under the Senior Debt Wrap Facility Agreement, so as to enable Parklea to enter into the Senior Debt Facility. "Senior Debt Facility" was defined in cl 1.1 as being a facility "intended to be provided by HSBC Bank Australia Limited…or other senior lender acceptable to the parties". Clause 2.2 also referred to the intention of LBH to provide mezzanine debt facilities to the Holding Trusts (as defined), and for companies associated with Parklea to provide further funding to Holding Trust 2 (as defined), all of which was intended to facilitate the acquisition of the Land and initial development costs.
Clause 3.2 required the parties to work collaboratively to procure and enter into the Senior Debt Facility in a timely manner, which would lead to the prepayment of the Bridge Facility as soon as possible. The parties were required to use their best endeavours at all times to give effect to the clause.
Clause 3.3 required LBH to make available the Senior Debt Wrap Facility to secure the Senior Debt Facility.
The Key Financial Parameters in clause 8 fixed the Senior Debt Facility and the Senior Debt Wrap Facility at $50,000,000 each, and the Facility Limit under the two other facilities were to be $15,000,000 each.
Clause 8.5 entitled the Development Manager to a Development Management Fee of $60,000 per month plus a performance fee based on the net profit generated by the Project as outlined in Annexure B. Annexure B was in the same terms as the equivalent document annexed to the draft heads of agreement, which has been summarised above.
Clause 8.6 entitled LBH to acquire all issued shares and rights in Holding Trust 1 (as defined) under a call option.
On 22 March 2016, Parklea Holdings 1 Pty Ltd, as trustee for the Parklea Holdings 1 Trust, granted a call option to Lord VIII to acquire the 80 shares in Parklea owned by the Grantor (as defined) at any time upon payment of $100,000 plus any tax attributable to any profit earned by the Parklea Holdings 1 Trust (Call Option).
[38]
Second Deed of Variation
Finally, on 22 March 2016, SAP and Parklea entered into a second deed of variation in respect of the Contract (Second Deed of Variation).
The Second Deed of Variation provided a substitute for the first two pages of the Contract (being the two sides of the first full page of that contract).
One effect of the deed was to specify the price as being $81,100,000, and the deposit being $4,267,500. This was a reference to the lower of the two prices provided for in the original Contract, which was to apply if Mr Constantine did not vacate the portion of the Land that he occupied.
The second effect of the deed was to replace the special conditions to the Contract. Special condition 61, which in the original Contract provided for the two alternative purchase prices, was deleted, and the wording replaced with: "Not Used".
Thus, a significant effect of the deed was to remove all reference to the alternative prices, and, after the pages in the Contract had been physically replaced, to create the appearance that the price had always been $81,100,000.
Special condition 64, which provided for payment of deposit, was also amended by deleting what was then special condition 64.2(b), which had required that $3,267,500 of the deposit be paid within three business days of Parklea receiving written confirmation from SAP that the investment committee had approved the sale.
Finally, a new special condition 65 was added to provide for the deferral of adjustments and post-completion matters. In essence, the new special condition provided that, to the extent that the adjustments required under the Contract had not been calculated or paid or allowed on completion, the parties were required to implement the adjustments in a two-stage process. Within 14 days after completion, the outstanding adjustments were required to be calculated and made "to the extent the information is available". Then, outstanding adjustments not previously made were to be dealt with no later than one month after completion. Other provisions dealt with adjustments that may not have been able to be finalised within the contemplated period.
[39]
Subsequent events
The proceedings commenced by Almona were dismissed by consent on 24 March 2016.
Bartier Perry requested a copy of the Contract from King & Wood Mallesons and/or Gilbert + Tobin on 14 June 2016, 12 July 2016 and 4 October 2016. Gilbert + Tobin provided Mr Constantine with copies of the Contract, the First Deed of Variation and the Second Deed of Variation on 27 October 2016. That was the first time that Mr Constantine became aware of the terms of the Contract, including the Occupation Condition, and the variations made by the two deeds.
On 14 July 2017, a surplus from the sale of the Land of $3,000,498.37 was paid by the receivers into Bartier Perry's trust account. On the same date, SAP recalculated interest and deducted a further $5,451,829 from the proceeds of sale of the property.
The receivers retired on 1 November 2017.
Since the date the Contract was completed, Dyldam has prosecuted the possibility of developing the Land by preparing an application to have that property rezoned and to carry out capital improvements on the property. The amount of expenditure incurred in that regard is in excess of $1.2 million.
Parklea and Dyldam more generally have borrowed significant sums with the result that, as at 5 March 2019, the Land was security for loans of some $158 million.
[40]
Course of the proceedings
It is necessary in this case to pay particular attention to the pleadings and the manner in which the case was conducted by the parties, as the timetable accepted by the parties affected the manner in which evidence came to light, and, ultimately, the hearing was conducted on a basis that lawyers would generally describe as "highly tactical". In particular, Almona relied principally on documentary evidence, augmented by relatively brief testimony by Mr Constantine. The defendants relied solely on documentary evidence and called no witnesses. The parties' submissions focused particularly on the burden of proof, the burden of adducing evidence, and the circumstances that would justify the drawing of inferences.
Almona commenced these proceedings by filing its summons on 17 October 2018. The relief claimed by Almona included an order extending the operation of the caveat lodged by Almona against the titles to the Land, or alternatively leave to lodge a further caveat.
By order of Darke J made on 18 October 2018, Almona filed a notice of motion seeking an order that the operation of the caveat be extended until further order. The notice of motion was made returnable on 23 October 2018. On that date, Darke J made an interlocutory order extending the caveat, and case management orders, including that the matter proceed by way of pleadings, and also stood Almona's notice of motion over for hearing on 23 November 2018. By order made by Kunc J on 23 November 2018, the hearing of the notice of motion was stood over to 6 December 2018.
On 6 December 2018, when the proceedings came back before Kunc J for the purpose of determining whether the caveat lodged by Almona should be continued, instead of his Honour being required to deal with that application, the parties, as I understand it, accepted an invitation that there be put in place a short term interlocutory regime to protect Almona, with the matter being set down for an early final hearing. The proceedings were fixed for hearing before me for five days commencing on 4 March 2019. Other orders were made that do not require detailed consideration. A 'tight' timetable for the completion of the pleadings and the filing of evidence was put in place.
Almona filed a statement of claim on 30 October 2018 and an amended statement of claim on 6 December 2018. Almona was also given leave on 4 March 2019, the first day of the hearing, to file a further amended statement of claim (FASOC).
On 4 February 2019, SAP and PT filed notices of motion in which they sought orders striking out or summarily dismissing (in the case of PT) Almona's claims against them. The notices of motion were not given return dates.
The parties appeared before me at a pre-trial directions hearing on 6 February 2019. The Court did not have time to deal with the relief sought in the notices of motion. While Almona suggested that it would be necessary to vacate the hearing date, so that the notices of motion could be listed for the first day fixed for the hearing, that course was strongly resisted by Parklea, which had agreed to an extension of the caveat on the basis that there would be an early final hearing, and, if that were not to occur, the Court would have to revisit the issue of the interlocutory relief that was appropriate. The Court heard, in outline, submissions from SAP concerning the alleged deficiencies in the amended statement of claim. Circumstances required the Court to take the practical course of confirming the hearing date, but giving leave to SAP and PT to make their notices of motion returnable on the first day of the hearing. The Court made observations concerning the possible consequences of Almona seeking to further amend its statement of claim, as was foreshadowed. In order to diminish the risk that any inadequacy in the pleading or particularisation of Almona's claim would cause the hearing to miscarry, I required Almona to serve a statement of the precise facts and circumstances of its allegation of fraudulent conduct by any defendant within seven days, being 13 February 2019.
Three aspects of what occurred impromptu during the pre-trial directions hearing are particularly important.
First, while the Court did not accept Almona's suggestion that it should vacate the hearing date, it left the possibility open that it would not be feasible to commence the hearing. However, a vacation of the hearing date left Almona susceptible to a refusal by the Court to continue the extension of Almona's caveat. That result might have occurred following a reconsideration of the balance of convenience, as the existence of the caveat was preventing Parklea from dealing with parts of the Land during what the evidence might establish was a falling market. Almona could therefore not jeopardise the commencement of the hearing on the date fixed without significant risk.
Secondly, it is significant to note the content of what was said by the Court on that occasion concerning the document that Almona was required to serve on the defendants (see T 6/2/19 p14.30-.38):
That document should put as clearly, concisely, but fully, as [Almona] can, the precise facts and circumstances upon which it relies to establish its claim, as well as the reasons in brief why the facts and circumstances justify the conclusion that [Almona] says the Court should reach. We are now sufficiently near to the hearing that I regard such a document as being little more than a proper written outline of the case that is to be made against the defendants; and it is proper, given that fraud is alleged and knowledge of or participation in fraud, that the defendants know exactly where they stand.
That expedient was adopted by the Court as it was not feasible to deal with SAP's and PT's strikeout and summary dismissal applications before the commencement of the hearing. The need to deal with those applications would likely have triggered the vacation of the hearing, with consequent difficulty in managing the proceedings in a way that was just to both Almona and Parklea. If the expedient succeeded, it would resolve the dispute as to the adequacy of the amended statement of claim. However, the Court did not give Almona leave to further amend its statement of claim, so that, by the document Almona was ordered to deliver, it was required to give a full and proper statement of its existing pleaded claim.
Thirdly, Almona foreshadowed an application to further amend its statement of claim primarily to introduce a claim based upon statutory unconscionability by the defendants.
In the period leading up to the hearing and during the hearing Almona sought to augment its case by serving notices to produce on the defendants and subpoenas on third parties. There was considerable dispute about production, particularly as to whether the defendants had validly claimed that documents, and redacted parts of other documents, were the subject of proper claims of client legal privilege. The parties appeared before me, sitting as duty judge, in running hearings on 25, 26, 27 and 28 February 2019. The Court was involved in the resolution of some of these disputes, as the defendants resisted responding to some notices to produce on the basis that they were improperly formulated. Over time, the parties resolved some of their disputes by agreement. The Court was, to a considerable extent, a spectator to these events. A consequence was that the parties, particularly Almona, added to its tender bundles during the course of the first five days of the hearing, and even afterwards.
On 28 February 2019, I gave leave to SAP to file in court a notice of motion seeking an order setting aside a notice to produce dated 21 February 2019 served by Almona on SAP. It is sufficient to record that the notice to produce required production of extensive categories of documents.
On 28 February 2019, I also gave leave to Almona to file in court a notice of motion that sought orders which, among other things, would require verified production of the documents sought in Almona's 21 February 2019 notice to produce.
The Court found it necessary to stand the two notices of motion over to 4 March 2019, the first day of the hearing, to deal with them as best as could then be done. The disputes between the parties concerning production of documents were dealt with by the Court on a running basis throughout the hearing. The parties were eventually able to resolve many of their disputes by agreement.
Almona did not serve its statement of particulars in compliance with the direction made by me on 6 February 2019 until about 19 February 2019. The document was filed on 20 February 2019. Almona then served a statement of further particulars dated 1 March 2019. Almona served a second statement of further particulars on the evening of 6 March 2019, which was the third day of the hearing. Throughout this judgment, I will refer to these documents respectively as the statement of particulars, the statement of further particulars, and the second statement of further particulars.
As the hearing was not completed in the allotted time, the Court found it necessary to make directions for the service of written submissions, and set the matter down for the parties' oral submissions on 29 and 30 August 2019.
In the meantime, on 17 May 2019, Kunc J decided a dispute between the parties concerning the validity of claims for client legal privilege: see Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 579. His Honour decided in respect of one document, being the 15 March 2016 document described above as the "action plan", that it was not protected by client legal privilege.
As I have noted elsewhere, an unfortunate consequence of the way in which the proceedings were conducted was that the parties prepared and tendered their own substantial, overlapping but inconsistent tender bundles, and, as I have said, augmented those tender bundles on the run during the hearing. That has substantially increased the burden imposed upon the Court of identifying all of the relevant evidence and making the necessary findings of fact. It has also required the Court to exercise particular care, as in various ways the evidentiary basis of Almona's case changed during the course of the hearing.
[41]
Pleadings and particulars
I turn now to the course of the pleadings and an analysis of the pleaded claim made by Almona, and, where necessary, the defences pleaded by the defendants.
That exercise is of particular importance in this case because Almona claims that SAP procured the registration of Parklea as the proprietor of the Land, and the registration of PT as mortgagee, by fraud. Almona also alleges that SAP engaged in serious breaches of its duty of good faith in the exercise of its mortgagee's power of sale, and misleading or deceptive and unconscionable conduct. Almona also ran a case that Parklea colluded with SAP and was party to the alleged fraud and the other breaches and contraventions alleged against SAP.
SAP submitted, in par 40 of its final written submissions, that each of the allegations made by Almona in its closing submissions which go beyond the allegations made in the FASOC and the statement of particulars should be rejected by the Court as being outside the scope of Almona's case. Thus, it is SAP's position that Almona was not entitled to maintain a case based upon the allegations in the statement of further particulars dated 1 March 2019 and the second statement of further particulars dated 6 March 2019.
[42]
Legal Principles
The general principles that govern the requirement for the provision of pleadings and particulars by the parties are not controversial. As the High Court said in Dare v Pulham (1982) 148 CLR 658 at 664; [1982] HCA 70 (footnotes omitted):
Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it (Gould and Birbeck and Bacon v. Mount Oxide Mines Ltd. (In liq.)[)]; they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial (Miller v. Cameron); and they give a defendant an understanding of a plaintiff's claim in aid of the defendant's right to make a payment into court. Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings (Gould and Birbeck and Bacon; Sri Mahant Govind Rao v. Sita Ram Kesho). But where there is no departure during the trial from the pleaded cause of action, a disconformity between the evidence and particulars earlier furnished will not disentitle a party to a verdict based upon the evidence. Particulars may be amended after the evidence in a trial has closed (Mummery v. Irvings Pty. Ltd.), though a failure to amend particulars to accord precisely with the facts which have emerged in the course of evidence does not necessarily preclude a plaintiff from seeking a verdict on the cause of action alleged in reliance upon the facts actually established by the evidence (Leotta v. Public Transport Commission (N.S.W.)).
While the need for the provision of proper pleadings and particulars is thus established, the object is to furnish the other party with a "sufficiently clear" statement of the first party's case to enable it to be fairly met; and, provided the case that is presented by the first party is within the cause of action pleaded, that party may be entitled to succeed even where the evidence is not entirely within the particulars.
The need for sufficiently clear and precise pleadings and particulars is especially acute where fraud or dishonesty is alleged. I repeat the following observations concerning the importance of proper pleadings in fraud claims, and the need for the Court to be careful to avoid the procedural unfairness that can arise where a plaintiff's fraud claim evolves over the course of the proceedings, or even the hearing. In Griffiths as trustee for the Griffiths HWL Practice Trust v Martinez as trustee for the Martinez HWL Practice Trust as representative of the partners trading as HWL Ebsworth Lawyers [2019] NSWSC 664 (Griffiths v Martinez), I said:
345 In my view, the level of dishonesty that was finally alleged…was hardly less serious than fraud as described by Leeming JA, with whom Beazley P and Sackville AJA agreed, in Nadinic v Drinkwater (2017) 94 NSWLR 518; [2017] NSWCA 114 (Nadinic) at [45] as "fraud (in the strong sense of deliberate falsehood or reckless indifference to the truth)". In respect of such an allegation, Leeming JA said the following:
Fraud and the civil process
[45] Seventhly, an allegation of fraud (in the strong sense of deliberate falsehood or reckless indifference to the truth) is required to be pleaded specifically and particularised. The words immediately following Denning LJ's generalisation "Fraud unravels everything" in Lazarus Estates Ltd v Beasley [1956] 1 QB 702 at 712 are "The court is careful not to find fraud unless it is distinctly pleaded and proved". Those words were replaced by ellipses in the passages from Denning LJ's judgment quoted by the primary judge in the first judgment at [31] and, again, in the second judgment at [5]. But their importance is considerable.
[46] In Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 573; [1995] HCA 68 the High Court observed that it has "frequently been said that fraud must be pleaded distinctly and with particularity". More recently, in Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; [2012] HCA 39 at [25]-[26], French CJ, Gummow, Hayne and Kiefel JJ said:
"[25] This is no pleader's quibble. It is a point that reflects fundamental requirements for the fair trial of allegations of contravention of law. It is for the party making those allegations (in this case ASIC) to identify the case which it seeks to make and to do that clearly and distinctly. The statement of claim in these matters did not do that.
[26] Contrary to ASIC's submissions in this Court, a case of fraud cannot properly be seen as a 'fallback' claim to be made against the possibility that the party accused of engaging in misleading or deceptive conduct by publishing notices in relation to a financial product may seek to characterise them as statements of opinion, not fact. It is fundamental, and long established, that if a case of fraud is to be mounted, it should be pleaded specifically and with particularity. A pleading of fraud will necessarily focus attention upon what it was that the person making the statement intended to convey by its making. And the pleading must make plain that it is alleged that the person who made the statement knew it to be false or was careless as to its truth or falsity. If an alternative case of misleading or deceptive conduct is to be advanced, it is necessary to identify that claim as separate from the allegation of fraud." (Emphasis added, footnotes omitted)
[47] Eighthly, a finding of fraud is a serious one attracting the strictures in s 140 of the Evidence Act 1995 (NSW). It is trite that s 140 provides for no new principle: see Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37 at [205]. As Gleeson JA there said, by reference to earlier authority, the requirement in s 140(2) that there should be clear and cogent proof of serious allegations reflects the principles stated in Briginshaw v Briginshaw. Dixon J's observations in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361 and 362; [1938] HCA 34 that proof to reasonable satisfaction "should not be produced by inexact proofs, indefinite testimony, or indirect inferences" have been applied on very many occasions.
[48] Ninthly, the seriousness of a finding of dishonesty or reckless indifference to the truth will ordinarily mean that it may not be made without an opportunity being given to deal with the criticism: Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [67]; Bale v Mills (2011) 81 NSWLR 498; [2011] NSWCA 226 at [66]-[67].
[49] Tenthly, a consequence of the three preceding points was stated by Beazley P in Sgro v Australian Associated Motor Insurers Ltd (2015) 91 NSWLR 325; [2015] NSWCA 262 at [54]:
"[54] The seriousness of a finding of fraud, including statutory fraud, does not permit of other than a specific finding that the fraud, or the contravening conduct, has in fact occurred."
346 The observations made by Leeming JA provide general guidance as to how this Court must decide the dishonesty claim now made…But they are also of great significance to the manner in which the Court should treat the forensic reality of the case. The proposition that ordinarily a finding of dishonesty "may not be made without an opportunity being given to deal with the criticism" should colour the way the Court treats evidence given by the party accused before the full nature of the allegation of dishonesty is made clear.
347 A further consideration established by Nadinic flows from Leeming JA's reference to the observation of Beazley P in Sgro v Australian Associated Motor Insurers Ltd (2015) 91 NSWLR 325; [2015] NSWCA 262 (Sgro) at [54]. It is that a consequence of the seriousness of a finding of fraud is that the only finding permitted is a specific one that that fraud has occurred. That means that the Court must have regard in specific terms to the way that the allegation of fraud or dishonesty has been pleaded.
348 Furthermore, as Leeming JA observed at [47], the Court should only find that the allegation has been proved if the evidence squarely supports that finding. In making that finding, the Court must be satisfied that there is "clear and cogent proof" of the allegation. To use the words of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361 and 362; [1938] HCA 34, that the necessary level of the Court's satisfaction that the allegation has been proved "should not be produced by inexact proofs, indefinite testimony, or indirect inferences".
In Griffiths v Martinez, it was necessary to give specific attention to the consequences of allegations of dishonesty being introduced into the case after the party against whom the allegations were made had committed himself to evidence and been cross-examined, without knowledge that a number of claims of dishonesty would later be alleged against him. I considered that the strictures concerning the need for fraud and dishonesty claims to be clearly and specifically pleaded also had relevance to the forensic considerations involved in determining how the subject of the allegations could be expected to respond to them, when the allegations were first raised after that person had prepared his case in ignorance of what was coming.
[43]
Relief sought in FASOC
At the commencement of the hearing, the relief claimed by Almona was as stated in the prayers for relief in its FASOC, which, as I have said, was formally filed with the leave of the Court on the first day of the hearing.
Almona was given leave to file the FASOC without objection by the defendants. Senior counsel for Parklea said that his client did not object, and the other parties acquiesced by their silence.
This acquiescence may be significant to the stance taken by SAP in its final submissions, concerning the case that is available to Almona on its pleadings and particulars. As will be seen, Almona relied, in its particulars of breach of duty and fraud in the FASOC, on the statement of further particulars dated 1 March 2019, as well as the particulars given in the 20 February 2019 document. Thus, SAP did not oppose Almona being given leave to prosecute its case on the basis of the statement of further particulars.
In essence, by a new prayer A, Almona sought a declaration that (a) SAP had breached its duties as mortgagee in the exercise of its power of sale, (c) the registration of Parklea as registered proprietor was procured by the fraud of SAP, and, at (e) and (g), that SAP engaged in misleading or deceptive and unconscionable conduct in contravention of relevant statutes.
Prayer A(b), (d), (f) and (h) also sought a declaration that Parklea was "an accessory" to SAP's breaches of its duties as mortgagee and in the fraud alleged to have been committed by SAP, and "a person involved" in SAP's statutory contraventions.
Finally, prayer A(i) was a claim that Parklea holds the Land on trust for Almona.
The effect of prayer A was therefore to allege that Parklea has ancillary liability for all of the wrongful conduct alleged against SAP.
By its new prayer B, Almona sought an order that the Contract be set aside.
By prayers 1 and 2 (which followed prayers A and B), Almona sought an extension of its caveat and an order protecting the interest claimed by Almona in the Land, pending its registration as the proprietor of that property.
Prayer 3 sought an order for the taking of an account in relation to SAP's conduct as mortgagee, and in relation to the determination of the amount payable by Parklea to PT, as well as the costs of the receivers, and the amount of any damages or equitable compensation payable to Almona by Parklea or SAP.
I interpolate that, in par 152 of its final written submissions, Parklea stated that it would address the question of whether SAP's conduct in exercising its power of sale amounted to fraud, and then said: "[Parklea] does not propose to address the question of whether SAP is otherwise in breach of its equitable duties as mortgagee, as that question does not go to any of the claims made or developed or relief sought with respect to [Parklea]". Contrary to that understanding, it appears from prayer 3(g) that Almona seeks an inquiry as to the amount of damages or equitable compensation payable by Parklea to Almona as a result of its ancillary liability for all of the breaches of duty alleged against SAP.
Prayer 3A was a claim for an order that SAP and Parklea pay to PT or Almona the difference between the amount found to be payable by Almona to SAP and the amount found to be payable by Parklea to PT.
By prayer 4, and consequential relief sought by prayer 5, Almona sought orders that, upon payment of the sums payable to PT, PT execute transfers and discharges of mortgage so as to give effect to Almona being re-registered as registered proprietor of the Land.
Prayer 6 was a claim for an order effecting re-registration of Almona pursuant to s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), or in the alternative s 237 of the Competition and Consumer Act 2010 (Cth), Schedule 2 (Australian Consumer Law, or ACL).
Almona sought by prayer 6A an order restraining PT from exercising its power of sale under its mortgage without giving notice to Almona.
Prayer 7 was a claim for damages in respect of the alleged statutory contraventions.
It should be noted at this point that, in par 321 of its closing submissions dated 28 June 2019, Almona refined the formulation of the orders that it seeks in these proceedings: "[s]hould the court find that the registration of Parklea as the proprietor of the Land was procured by a fraud (within the meaning of s 42 RPA) as Almona contends…" The hearing was fought by the defendants in response to the prayers for relief in the FASOC. It will be appropriate to defer the consideration of the draft orders sought by Almona so that they will be dealt with, to the extent necessary, at the end of these reasons if it is found that Almona is entitled to any relief.
Almona also noted in par 322 that, if it failed to establish that the registered title to the Land should be transferred back to it, the draft orders would have to be amended accordingly.
[44]
Claim against SAP
I will now turn to an analysis of the manner in which Almona pleaded the facts that it alleges against the defendants. A particular focus of this analysis will be the relevance of the course of the pleadings to the tactical positions taken by the parties.
It will be convenient for this exercise to deal first with Almona's claim against SAP for breach of its mortgagee's duty of good faith and then fraud, as that is the order in which the claims are pleaded by Almona. I will then deal with the equivalent allegations against Parklea.
As it appears that the allegations of the statutory contraventions are not as important to the tactical issues as are the breach of the duty of good faith and fraud issues, and as the statutory claims raise some separate issues, it will be convenient to defer reference to the manner in which those claims have been pleaded until they are dealt with later in these reasons.
It is also not necessary at this point to analyse the pleading of the claim against PT, as it raises quite separate considerations.
[45]
Allegations made in FASOC
In pars 1 to 60 of the pleadings and particulars to the FASOC, Almona alleged relevant background facts that do not call for detailed analysis, other than to the extent that follows.
Almona pleaded the content of the duty imposed upon SAP in exercising its power of sale in par 31 as being that SAP "owed to the plaintiff a duty to exercise the power of sale in good faith and not wilfully or recklessly disregard or sacrifice the interests of the plaintiff".
In various paragraphs, Almona alleged particular conduct on the part of SAP, which Almona ultimately alleged formed the basis of its breach of mortgagee's duty and fraud claims. The references to the "Proposed Transaction" in the extracts from the FASOC are to the Heads of Agreement, made between Mr Constantine and AMB Capital Partners and Mackycorp on 15 March 2016: see par 40 of the FASOC. These allegations were (omitting particulars):
37. By a deed said to be dated 11 March 2016, without notice to [Almona], the Contract was varied by Deed of Variation (First Deed of Variation) to vary the Approval Condition so as to extend the date by which Investment Committee approval could be notified from 14 March 2016 to 29 April 2016.
…
46. On 17 March 2016, with knowledge of the availability or potential availability of the Proposed Transaction, and with knowledge that the Proposed Transaction was or may be more advantageous to [Almona] than the proposed sale to [Parklea], or that other arrangements with AMB for the discharge of the Mortgage Debt more advantageous to [Almona] than the proposed sale to [Parklea] may be available, [SAP] notified [Parklea] that it had obtained the Investment Committee's approval of the Contract as required by the Approval Condition, with a date for completion on 1 April 2016.
47. On 17 March 2016, [King & Wood Mallesons], on behalf of [SAP], advised [Almona] that SAP and receivers had commenced the preparation of a statement of amounts due by [Almona] to [SAP] and that the information would be available the following week but [King & Wood Mallesons] remained silent as to the terms and conditions of the Contract, the Investment Committee approval, any anticipated date for completion and the Occupation Condition.
…
50. On or about 18 March 2016, with knowledge of the Proposed Transaction and/or that other arrangements with AMB for the discharge of the Mortgage Debt more advantageous to [Almona] than the proposed sale to [Parklea] may be available, and with knowledge of the proceedings referred to in paragraph 48, [Parklea] and [SAP] agreed to bring forward the completion date of the Contract to 21 March 2016.
51. On 21 March 2016 at 2:43 PM [Gilbert + Tobin] on behalf of and as agent for [SAP] advised [Bartier Perry] that the purchase price under the Contract was $81,100,000 (subject to settlement adjustments and plus GST as applicable) and that completion of the Contract would occur on 22 March 2016 at 3 PM.
52. On 21 March 2016, [King & Wood Mallesons] advised [Bartier Perry] that:
(a) the amount owing by [Almona] to [SAP] was $70,872,398.57;
(b) a Contract had been exchanged on 13 January 2016 in respect of the [Land] and the sale price was $81.1 million plus GST and adjustments;
(c) any equity of redemption of [Almona] was extinguished on 13 January 2016;
(d) settlement had been set for 21 March 2016 but would be postponed to 3 PM on 22 March 2016;
(e) [Parklea] had already drawn funds to effect settlement on 21 March 2016.
…
54. On 22 March 2016, [Parklea] and [SAP] executed a further Deed of Variation of the Contract of Sale (Second Variation) by which the front pages and special conditions of the Contract were replaced such that:
(a) the purchase price was amended by deleting the provision for $85,350,000 in the event of satisfaction of the Occupation Condition; and
(b) the obligation to satisfy the GST Condition prior to completion was modified to permit an application to be made after completion.
55. [Almona] was not provided with a copy of the Contract or Deed of Variation or Second Variation at any time prior to 27 October 2016, nor was [Almona] informed of the Occupation Condition and that [Almona] could have obtained a higher sale price if Mr Constantine moved out of the Residence.
55A. [Almona] had prior to 22 March 2016 requested information about the sale including but not limited to the details of the sale.
55B. [SAP] refused and/or failed to give such information to [Almona] up to 21 March 2016. The only information concerning the sale was given on 21 March 2016 in which the representatives for [SAP] advised that [SAP] had exchanged a contract of sale of the [Land] on 13 January 2016 for a sale price of $81.1 million plus GST and adjustments…
Almona pleaded reliance on the representations alleged against SAP in pars 56 and 59A, constituted by Almona having consented to the adjournment of its initial proceedings in this Court to enable settlement of the Contract, and Almona having failed to arrange for Mr Constantine to vacate the Residence, which it was alleged he would have done to ensure that the price under the Contract was $85.35 million.
Almona then made an allegation of breach by SAP of its mortgagee's duty of good faith in par 61, and, in par 62, that SAP's "said breaches were fraudulent within the meaning of section 42 of the Real Property Act (1900) NSW".
Almona alleged that the specific conduct identified in par 61 constituted a breach by SAP of the duty referred to in par 31.
The particular conduct alleged by Almona in par 61 to be a breach of SAP's duty of good faith was set out in 10 separate sub-paragraphs which I paraphrase as follows.
First, (a) SAP "failed to provide reasonable assistance to [Almona] to obtain a sale on the terms most advantageous to [Almona]" by failing to "respond reasonably" to requests for information as to discharge amounts, and failing to advise Almona "of the proposed sale and the terms of that sale".
This claim was in two parts. The first raised the question of the level of cooperation required of the mortgagee, in acting in good faith, to facilitate Almona being able to pay out the mortgage debt, in the circumstances that obtained when Almona made each of the requests.
The second part raised the question of the extent to which the mortgagee's obligation to act in good faith required the mortgagee to advise the mortgagor of the terms of any contract entered into in the exercise of the mortgagee's power of sale.
In sub-par 61(b), Almona alleged that SAP failed to take steps to facilitate a prompt settlement of the Contract prior to becoming aware of the Proposed Transaction. This appears to be a claim that SAP's duty to act in good faith required it to complete the Contract as expeditiously as it could, rather than to allow Almona's debt to remain outstanding for any period longer than was reasonably necessary, whilst the debt was incurring interest at the penalty rate.
Almona then complained, in sub-par (c), that, when SAP did become aware of the Proposed Transaction, it took steps to obtain, and to notify Parklea of, the approval of the Investment Committee, so that the Contract would become unconditional, and thereby "frustrate [Almona]'s attempt to obtain a sale on the terms most advantageous to it".
As Almona only alleged in par 40 of the FASOC that it entered into the Heads of Agreement with Mackycorp on 15 March 2016, and as Almona conceded that the Investment Committee had given its approval in January 2016, the claim that SAP took steps to obtain Investment Committee approval after it became aware of the Proposed Transaction was misconceived. The balance of the allegation had the effect that SAP was not entitled, in good faith, to notify Parklea of the approval, and therefore make the Contract unconditional, when it became aware of the possibility that the Proposed Transaction would be put into effect.
Sub-paragraph (d) was an allegation that SAP failed to take any or any reasonable steps to investigate the Proposed Transaction, or any other potential arrangements.
The premise of this claim was that acting in good faith required the mortgagee to investigate any proposal made by the mortgagor that might lead to the repayment of the mortgage loan, rather than that the mortgagor was required to present to the mortgagee a complete arrangement to pay out the loan. It also assumed that, in order to act in good faith, the mortgagee must investigate whether some arrangement that may be able to be made by the mortgagor to pay out the mortgage loan would be more advantageous to the mortgagor than the completion of an existing contract entered into by the mortgagee in the exercise of its power of sale.
The breach alleged by Almona in sub-par (e) was that SAP had failed to disclose to it PAG's interest in the Contract, in so far as it involved the proposal that the payment of the purchase price by Parklea would be financed by another entity controlled by PAG.
This claim assumed that a mortgagee acting in good faith must disclose to the mortgagor, if it be the case, that the mortgagee is providing finance to the purchaser. It should be noted that this claim was not based on the fact that, under the Call Option, a company controlled by PAG would be given an option to acquire 80% of the units in the trusts that would own the shares in Parklea.
In sub-par (f), Almona complained that it was a breach of SAP's duty of good faith to accelerate completion of the Contract, and waive the GST Condition, "in order to frustrate the plaintiff's attempt to obtain a sale on the terms most advantageous to it".
This claim first assumed that the mortgagee's duty to act in good faith affects the decisions that it may make concerning the timing of the completion of a contract of sale, after it has entered into that contract in the exercise of its power of sale, in order to facilitate the interests of the mortgagor. Those interests in this case were based on the attempts by the mortgagor to sell the security property to a different purchaser, notwithstanding the existence of the Contract.
Sub-paragraph (g) was a claim that SAP's solicitors misrepresented to Almona the terms of the Contract and, in particular, the time at which the Contract became unconditional and the purchase price.
Sub-paragraph (h) was an allegation that SAP failed to inform Almona that, under the terms of the Contract, an additional $4.25 million could be realised if Mr Constantine vacated the Residence.
The previous two claims proceeded on the basis that it is a breach of the relevant duty of good faith for a mortgagee to misrepresent the terms of the contract in some material way, or to fail positively to inform the mortgagor of a benefit that the mortgagor can secure under the contract by acting in some manner within the control of the mortgagor.
In sub-par (i), Almona complained that it was a breach of the duty of good faith for SAP to amend the Contract by deleting the Occupation Condition through the substitution of alternative pages, in order to "conceal" the existence of the Occupation Condition and the availability of a higher price, and the existence of the GST Condition "and its impact on the second defendant's obligation to complete the Contract".
This was a claim that it was a breach of the duty of good faith for SAP to purposefully replace pages of the Contract in order to conceal the previous existence of terms that would be favourable to the mortgagor if known by the mortgagor.
Finally, Almona alleged in sub-par (j) that, consequently upon the matters alleged in sub-par (i), SAP "preferred the interests of" Parklea, by waiving the GST Condition and by completing the sale without informing Almona of the Occupation Condition, and giving Almona a reasonable opportunity to realise the additional $4.25 million that would be payable in the event that Mr Constantine vacated the Residence.
[46]
Fraud claim in FASOC
Almona's allegation of fraud against SAP was made in par 62 of the FASOC, which is in the following terms:
The second defendant's said breaches were fraudulent within the meaning of section 42 of the Real Property Act (1900) NSW.
Thus, the conduct alleged against SAP as being fraudulent was the same conduct as was alleged in par 61 as constituting breaches of SAP's duty as mortgagee to exercise its power of sale in good faith.
The quality of the alleged breaches that was claimed by Almona to make the breaches fraudulent is to be found in the particulars to par 62.
Those particulars were in two parts. In par (a) of the particulars, Almona alleged that SAP "sought to deliberately frustrate the plaintiff's attempts to sell the Land under the terms of the Proposed Transaction or to complete any alternative available arrangement with AMB" by engaging in specific conduct identified in the particulars.
That means, to the extent that it may be found that, for conduct of the mortgagee to be fraudulent it must involve relevant dishonesty, Almona's claim was that it was dishonest for SAP to breach its duty of good faith in the various ways alleged in par 61, in order to deliberately frustrate the attempt by its mortgagor to achieve a sale of the security property in a manner that was inconsistent, in the circumstances that obtained, with the completion by the mortgagee of its existing contract made in the exercise of its power of sale. Almona did not allege any different form of dishonesty in par (a) of its particulars of fraud.
The deliberate conduct by SAP alleged in par (a) of the particulars was:
…declining to provide payout figures, accelerating the satisfaction of the Approval Condition, bringing forward the completion date, concealing the Occupation Condition and waiving the GST Condition. Further, it did so in circumstances where associated entities would benefit from the Contract through the provision by the third defendant of loan finance to the first defendant and where the first defendant would benefit, at the plaintiff's expense, from the plaintiff's ignorance of the Occupation Condition.
The reference to the third defendant, PT, as providing the loan finance to Parklea involves a misconception of fact. The finance was to be provided by Lord VI directly to Parklea.
Again, this aspect of Almona's particulars relies upon a PAG company financing the purchase, and not another PAG company acquiring an interest in the Land through the Call Option.
Paragraph (b) of the particulars to par 62 referred to pars 1 to 36 of the statement of particulars filed 20 February 2019 and the statement of further particulars dated 1 March 2019.
[47]
Statement of particulars
The statement of particulars filed 20 February 2019 covered, with some overlap but frequently formulated in different terms, the allegations concerning Almona's attempt to pay out the mortgage loan and the steps taken by SAP in entering into and completing the Contract that were alleged in the FASOC. It is not necessary to analyse in detail the first 25 paragraphs of the statement of particulars. What is necessary is to identify the particulars given by Almona concerning the alleged breaches by SAP of its duty to act in good faith that give those breaches the quality of fraudulent conduct.
In my view, the particulars that purport to identify the quality of fraudulent conduct are contained in pars 26, 30 and 34, as well as par 35, which I will mention separately below. The first three of those paragraphs are in the following terms (emphasis added):
26. By reason of the conduct referred to in paragraphs 22 to 25, [SAP] sacrificed the interests of [Almona] by depriving [Almona] of the opportunity to retain its interest in the Land through the proposed refinance.
…
30. These representations were made by [SAP] to conceal the Occupation Condition and in an attempt to dissuade [Almona] from continuing its proceedings to protect its interest in the Land, which proceedings had been adjourned to 22 March 2016.
…
34. The conduct in paragraphs 28 to 33 had the object and effect of sacrificing the interests of [Almona] in obtaining an additional $4,250,000 by way of surplus purchase price.
Paragraph 35 of the statement of particulars referred to the Second Deed of Variation, and was in the following terms (emphasis added):
35…[Parklea] and [SAP] entered into the Second Variation in circumstances where there was no legal or commercial requirement to do so. The reason for doing so was to facilitate the concealment from [Almona] (should the Contract be obtained by [Almona]) of the existence of the Occupation Condition that would otherwise have allowed an extra $4.25 million to be paid to [Almona] as surplus.
This analysis of Almona's statement of particulars leads to the conclusion that, in the manner set out above, SAP's alleged conduct in breach of its duty to act in good faith was fraudulent because it was deliberate and involved a sacrifice of the interests of Almona, or the intentional concealment of terms in the Contract in its original form.
[48]
Statement of further particulars
The principal effect of Almona's statement of further particulars dated 1 March 2019 is to be found in pars 5 to 7, which in substance gave particulars of the right of Lord VIII under the transaction documents executed at the time of completion of the Contract on 22 March 2016, primarily the Call Option, to acquire 80% of the units in the trusts that owned the shares in Parklea.
By means of these particulars, Almona extended its claim based upon the interest that PAG would acquire beyond the financing of the purchase of the Land by Parklea, to the right of PAG to acquire an 80% interest in the equity of any development of the Land through the right of a company controlled by PAG under the Call Option.
[49]
Second statement of further particulars
The Court was told by senior counsel for Almona on the morning of 7 March 2016 that Almona had served its second statement of further particulars dated 6 March 2019 on the defendants the previous evening.
None of the defendants objected to Almona being given leave to file its second statement of further particulars, although counsel for SAP said at T 7/3/19 p 160.49, that SAP would not object:
As long as it's understood these are particulars of the allegations which are currently pleaded, then there's no objection.
Almona alleged, in par 1, that principally by reason of the transaction documents entered into on 22 March 2016, at the time of completion of the Contract, various entities associated with Dyldam, PAG and Mr Merhi "are involved in a joint venture to develop and purchase the Land through their interests in the first defendant or its shareholders". Almona then said, in par 2, that the interests referred to in par 1 were not apparent to third parties who did not have access to the transaction documents.
Almona referred, in par 3, to having first obtained access to the Parklea heads of agreement and the Call Option on the evening of Thursday, 28 February 2019. The second statement of further particulars then set out the following claims:
4. The sale by [SAP] to [Parklea] was not an arm's length transaction.
5. Mr Tony Merhi had through another company controlled by him, Wesco Capital Pty Ltd (Wesco) been the highest first round bidder in the expression of interest process for the sale of the Land conducted by the Receivers of [Almona].
6. At or about the time of the closing of the second round of expressions of interest, Wesco reduced its offer from $92,000,000 to $79,000,000 thereby placing [Parklea] in the position that it was the highest bidder in the second round expression of interest process.
7. At or about that time, arrangements of the nature that came to be reflected in the LNSA, HOA and COD were discussed or negotiated by representatives of the PAG, Dyldam and companies associated with Mr Merhi.
Given these allegations, the effect of SAP's lack of objection to the filing of the second statement of further particulars, provided they were taken to be "particulars of the allegations which are currently pleaded" is not, with respect, entirely clear. The FASOC does not contain specific allegations of fact in accordance with pars 4 to 7 of the second statement of further particulars. It seems that Almona wished to rely upon these alleged facts as particulars of the claims of breach of mortgagee's duty in par 61 and fraud in par 62, without Almona separately alleging the underlying facts.
It would have been more in keeping with SAP's stance in its closing submissions for SAP to have objected to the filing of the second statement of further particulars, on the ground that the allegations in pars 4 to 7 could not properly be treated as particulars of the allegations of breach of mortgagee's duty and fraud, and that they needed to be specifically pleaded as facts, which might have required Almona to apply on the fourth day of the hearing for leave to further amend its FASOC.
[50]
Effect of second statement of further particulars
As matters stand, there is scope for dispute and misunderstanding as to the effect of the filing of the second statement of further particulars, and the qualification given by SAP to its non-objection to the filing of that document.
In the light of the principles established by the authorities as to the need for strict pleading of fraud or dishonesty claims, Almona ought to have applied for leave to further amend its statement of claim, as the second statement of further particulars introduced new allegations intended to support claims of breach of duty and dishonest conduct involving PAG, Dyldam and Mr Mehri's companies, and the facts given as particulars had not been pleaded in the FASOC. That pleading contained no allegations concerning the expression of interest campaign, or the expressions of interest submitted by Wesco.
Paragraph 7 of the second statement of further particulars contained an allegation that arrangements of the nature effected by the transaction documents entered into on 22 March 2016, on the completion of the Contract, were discussed or negotiated between various representatives at the time of the expression of interest campaign. Crucially, although par 7 contained this allegation, and pars 5 and 6 alleged the reduction in Wesco's expression of interest, there was no allegation that the reduction in the offer in the second expression of interest resulted from the discussion or negotiation alleged in par 7. The way the second statement of further particulars was drawn, there was no allegation that the reduction in the price offered was the result of collusion between the parties identified in par 7.
The Court would not be justified in implying such a serious allegation as collusion, particularly when the allegation would be implied into a document first put before the Court on the fourth day of a five-day hearing.
A further deficiency in the second statement of further particulars is that, if the matters alleged in par 7 had been pleaded as facts, Almona would have been required to give particulars. Even if Almona was not, because of its lack of personal knowledge of the alleged discussions and negotiations, required to give the 'usual particulars', it would probably have been required to provide precise particulars of the basic facts that justified the making of inferences that the discussions and negotiations had occurred as alleged. That may have been an exercise that Almona could have undertaken in respect of the activities of PAG and Dyldam, but it is not at all clear how it could have been achieved in respect of the companies associated with Mr Merhi.
The approach adopted by Almona, in making the allegations in a statement of particulars, is more problematic because its failure to give particulars of the participation of Mr Merhi's companies is compounded by the failure to allege any collusion in respect of the reduction in Wesco's offer.
As a matter of strict pleading, the allegation of fraud in par 62 of the FASOC was expressed in terms that SAP's "said breaches [i.e. as alleged in par 61] were fraudulent". The allegations made in the second statement of further particulars did not introduce the facts alleged into the "said breaches".
I have concluded that Almona should not be permitted to introduce this new claim of fraud involving collusion between SAP, Dyldam and Mr Merhi's companies.
Almona may have responded by claiming that it continued with the hearing in the belief that it had successfully introduced an entitlement to rely upon the facts alleged in the second statement of further particulars. However, as I have explained, SAP made it clear that it only did not object to the filing of that document on the basis that the document contained "particulars of the allegations which are currently pleaded". Almona did not face the need to apply for leave to further amend its statement of claim, which would have entailed a real risk at that stage of the proceedings that the application would be refused. Alternatively, if leave were granted, the probable need for an adjournment would have placed in jeopardy the continuation of the interlocutory regime that was favourable to Almona.
[51]
Almona's outline of submissions
Before the commencement of the hearing, Almona served an outline of submissions dated 25 February 2019.
Almona listed the conduct on SAP's part that it alleged constituted a breach of the duty of good faith and fraud in par 96. Some of those allegations appeared to go beyond the conduct alleged in the FASOC and the particulars given to pars 61 and 62. It is not a simple matter to relate the submissions made in par 96 to the allegations in the FASOC.
It appears that the following submissions were new or altered the effect of the existing claims as pleaded. Almona submitted in par 96(b) that the terms of the Contract were expressly for the benefit of SAP, not for Almona. The Approval Condition meant that SAP had the benefit of an option as to whether the contract would become unconditional, during which time interest and penalty interest accrued at approximately 21.5% per annum. In par 96(c), Almona submitted that it was a breach for SAP to include the Deposit Clause coupled with the Approval Condition, as that enabled Parklea to purchase a property worth in excess of $80,000,000 by way of a one million-dollar deposit, in circumstances where Parklea was a company with a paid up capital of only $100, and its performance of the Contract was not guaranteed by any person. Almona submitted in par 96(g) and (h) that the Contract was still conditional when it advised SAP of the Proposed Transaction, but, on 17 March 2016, when it was open to SAP to allow the Contract to remain unconditional in the period that AMB Capital Partners sought to undertake due diligence without risk to itself, SAP made the Contract unconditional by notifying Parklea of Investment Committee approval. Finally, in par 96(j) Almona submitted that, on 21 March 2016, SAP made false representations to it that completion had been scheduled earlier the previous week for 21 March 2016, when it knew that SAP's finance had not been finally secured prior to the weekend of 19 and 20 March 2016; and further represented that Parklea had drawn down funds for settlement as at 5 PM Friday 18 March 2016, when no such drawdown had occurred. It is not clear what case Almona sought to make based upon the representations referred to in sub-par (j).
[52]
Almona's closing submissions
SAP made the submission in par 35 of its final submissions that Almona sought, in its own closing submissions, to rely upon three claims that were not raised in the FASOC or any of the three iterations of Almona's fraud particulars.
[53]
Almona's collusion claim
The first submission made by SAP was that: "Almona now alleges that the alleged fraud goes back to the point in time of entering into the Sale Contract by alleging that there was collusion involving SAP/PAG that resulted in the Wesco bid being lowered in the second round of the EOI, thereby guaranteeing that Dyldam/Parklea Corp was selected as the highest bidder".
Almona first introduced a claim alleging facts relevant to the arrangements between Dyldam, PAG and Mr Merhi in its second statement of further particulars dated 6 March 2019, relevant parts of which are extracted above.
Relevantly, Almona alleged in par 1 of the second statement of further particulars that the identified parties were involved in a joint venture to develop and purchase the Land: "[b]y reason of commercial arrangements documented either in whole or in part [in named transaction documents] dated 22 March 2016…" In par 4, Almona alleged that the sale by SAP to Parklea "was not an arm's length transaction". The relevant conduct took place in the period of the expression of interest campaign in late 2015, leading up to the exchange of the Contract on 13 January 2016. However, the allegation concerning the joint venture is as to the conduct of SAP and Parklea, and does not allege any involvement by Mr Merhi or any of his companies. Paragraphs 5 and 6 alleged conduct engaged in by Mr Merhi and his companies. The critical allegation is found in par 7, which is to the effect that, at about the time that Wesco lodged its second-round expression of interest, "arrangements of the nature that came to be reflected in the [transaction documents entered into on 22 March 2016] were discussed or negotiated by representatives of the PAG, Dyldam and companies associated with Mr Merhi".
As noted above, the second statement of further particulars does not contain a claim that the events alleged in pars 5 and 6 were caused by collusion between the parties to the discussions and negotiations alleged in par 7.
The absence of a specific allegation of collusion to reduce the price offered by Wesco in its second expression of interest may have been intentional. It would have been a very problematic matter for Almona's legal representatives to make such a serious allegation of dishonesty based only upon suspicion and innuendo. It would not be permissible for Almona to omit the specific allegation of collusion and then to attempt to mount a case that the collusion took place, particularly on the basis that SAP and Parklea did not call witnesses to dispel the suspicion and innuendo.
SAP identified the following parts of Almona's closing submissions that made this claim: pars 11(b), 53 to 61, 159(a) to (d), and 175 to 179.
A careful review of all of these submissions shows that indeed Almona did go beyond the allegations made in the second statement of further particulars, and submitted that the reduction in the price offered by Wesco was the result of collusion between PAG, Dyldam and Mr Merhi, following the discussions and negotiations referred to in par 7 of the second statement of further particulars.
This conclusion most clearly follows from Almona's submission in par 159(d) that, the "factual inferences the court should draw from the uncontradicted evidence" include that:
From at least 11 December 2015, the expression of interest process was co-ordinated by SAP/PAG, Dyldam, and Mr Merhi to result in Dyldam having the highest offer so that the planned 'joint venture' could come to fruition without appearing irregular. That is the only logical inference that can be drawn from the meetings in Hong Kong on 11 December 2015 and Wesco Capital's second round offer being reduced by $13m…
Further, in par 11(b) Almona submitted that Wesco "dropped its tender price so that it was no longer the highest bidder, and instead joined the joint venture". Almona submitted in par 53 that the fact of the meeting by Mr Dixon-Smith in Hong Kong with representatives of PAG, and Mr Merhi's Visy companies being incorporated the next day, "cannot be put down to coincidence because…Visy ultimately intended to, and did, take an interest in the Land". Almona submitted in par 54 that a reference by Mr Dixon-Smith in his timesheet to "funding arrangements for buyers" (where buyers was in the plural) requires an inference that Mr Dixon-Smith had in mind Dyldam and Wesco. A submission was made in par 61 that Wesco's reduction in the price that it offered was "a result that defies commercial logic". Finally, Almona submitted in par 179 that "the expression of interest process was manipulated by PAG…A price was simply fixed by PAG to make it appear as though the sale price was a genuine sale price achieved from a stranger to PAG".
I would also add a reference to par 6 of Almona's closing submissions in which it said:
Despite the outward appearances of regularity, a close analysis of the events which took place in the background reveal that the sale process was orchestrated by PAG/SAP (with Parklea/Dyldam's assistance) to ensure the sale to Parklea so that its related entity, Lord, would take the majority interest in the Land pursuant to a joint venture in place between them since at least 11 December 2015.
I consider that this submission goes beyond the particulars in the second statement of further particulars. The assertion that "the sale process was orchestrated by PAG/SAP" can only be an allegation that PAG colluded with Mr Merhi to cause him to reduce his offer price in Wesco's second expression of interest to a price less than that offered by Dyldam. There is no allegation of that form of collusion in the document (even putting aside the question of whether it would have been proper to make such an allegation on the fourth day of the hearing by the provision of further particulars).
For these reasons, SAP's submission that Almona put a claim in final submissions that the reduction in the price offered by Wesco in its second expression of interest was a result of collusion with PAG and Dyldam, when collusion was not specifically alleged in the second statement of further particulars, is valid.
[54]
Almona's GST claim
The second claim that SAP in par 35 submitted was first raised in Almona's closing submissions was a claim that "SAP has not explained why, post-contractually, it considered itself liable to pay GST on the sale of the Land", which was allegedly a sacrifice of Almona's interests.
In par 32(d) of the FASOC, Almona alleged that the Contract contained what it called the "GST Condition". That condition, it was alleged, obliged Parklea to apply as soon as possible after the date of the Contract, at its own expense, for a private ruling from the Commissioner of Taxation in order to confirm the extent to which the sale of the Land was a Taxable Supply.
Almona then alleged, in par 54, that, on 22 March 2016, by means of the Second Deed of Variation: "the obligation to satisfy the GST Condition prior to completion was modified to permit an application to be made after completion".
Sub-paragraph (f) of the particulars of the breach of the duty of good faith in par 61 alleged that it was a breach for SAP to waive the GST Condition.
The particulars of fraud in par 62 allege at (a) that it was fraudulent for SAP to enter into the Second Deed of Variation to amend the Contract so as to waive the GST Condition.
The GST Condition was relevantly special condition 50.8, the relevant parts of which are set out above. It imposed upon Parklea an obligation to apply for a ruling, and the parties were required to cooperate for that purpose. Sub-paragraph (f) of the special condition provided for the possibility that the ruling may be issued after completion and confirm that the sale was a Taxable Supply. In that event, Parklea was required to pay to SAP on demand any amount of GST that was payable.
In the paragraphs of Almona's closing submissions identified by SAP in par 35(b), Almona submitted that SAP had released Parklea from its contractual obligation to apply for a private ruling and then to pay SAP whatever GST was applicable, and the amount of GST that was anticipated was $3,063,147: see par 190. Almona submitted at par 193 that SAP itself decided to incur the GST liability, which then formed part of the costs of the receivership, and was not available to Almona.
Although special condition 50.9(a), given effect by the Second Deed of Variation, required Parklea to apply for the private ruling after completion, rather than before completion, special condition 50.9(e) preserved the obligation on Parklea to pay any GST that was incurred on demand by SAP.
The claim made by Almona that SAP breached its duty to act in good faith by releasing Parklea from the obligation to pay the GST, and by paying the GST itself, is not within the pleadings and is not available to Almona at this stage of the proceedings. That is because Almona pleaded that the GST Condition was varied to permit Parklea to apply for a private ruling after completion, but it did not allege that SAP paid the GST itself. That issue was not contested during the hearing.
It is not necessary for the Court in these circumstances to deal with the question of whether Almona will be entitled to raise this claim if these proceedings extend to an inquiry and account of the rights of the parties as between Almona and SAP.
[55]
Almona's contract adjustments claim
The final claim that SAP submits is not available to Almona on the pleadings arises out of the allegation, made in par 110 of Almona's closing submissions, to the effect that there is no evidence that the adjustments that were originally payable on completion of the Contract were actually paid by Parklea at a later time. While I agree that a claim to this effect does not arise on Almona's pleadings, it is not clear that the observation in par 110 was intended by Almona to found a separate claim.
[56]
Claim against Parklea
Almona's claim against Parklea in respect of its involvement in the alleged breaches of duty and fraudulent conduct by SAP was pleaded in par 63 of the FASOC, in the following terms:
Further, in the premises, [Parklea] was aware of and was party to [SAP's] breaches of duty alleged in paragraphs 61 and 62 and acquired its title to the Land through those breaches.
Thus, in respect of the breaches of duty and fraudulent conduct, Parklea's involvement was alleged in terms of awareness and participation in SAP's alleged breaches of duty and fraud.
Consequently, Parklea's liability was alleged to be ancillary to SAP's breaches. In part, therefore, Parklea's response to the claims made against it would be influenced by the same forensic considerations that would apply to SAP's defence.
The particulars given to the allegation against Parklea in par 63 were as follows:
[Parklea] was aware of the Proposed Transaction and of [Almona's] proposed action to restrain [SAP] from completing the Contract at the time that it participated in, and was party to:
(i) bringing forward the completion date and completing the Contract; and
(ii) waiving the GST Condition; and
(iii) amending the Contract so as to conceal the existence of the Occupation Condition and the GST Condition;
in circumstances where it was aware [of 14 matters then set out in pars (a) to (n)].
Proof by Almona of the claim made in these particulars would depend upon the time when Almona could establish that Parklea became aware of the Proposed Transaction in the context of the times when it committed itself to the conduct alleged in sub-pars (i) to (iii).
There was no allegation that Parklea was aware of, or had participated in, any negotiations with representatives of Mr Merhi's companies before the close of the second round of the expression of interest process.
Of all of the matters of which it was alleged Parklea was aware, the following are of particular significance and should be noted at this stage:
(h) [SAP] was not exposed to any liability in damages to [Parklea] in the event that [Almona] was granted relief against forfeiture thereby preventing [SAP] from completing the Contract;
…
(k) [Almona] was not aware of the terms of the Contract and, in particular, the Occupation Condition…
Almona gave the following alternative particular of the relevant allegation in par 63 of the FASOC:
In the alternative to subparagraph (j) above, [Parklea] was aware of the matters alleged in subparagraphs (a) to (i) and (k), which matters suggested that the purpose and/or effect of bringing forward the date of completion of the Contract was and would be to deprive [Almona] of relief against forfeiture and additional consideration of $4.25 million. [Parklea] refrained from making any enquiry as to the circumstances surrounding the accelerated completion date in order to avoid learning of that purpose and/or those likely consequences.
The particulars to par 63 added a reference to pars 40 to 48 of Almona's statement of particulars, as well as the statement of further particulars dated 1 March 2019.
The gravamen of the statement of particulars on this issue is in par 44, which provided:
44. [Parklea] knew or is presumed to have known ought to have known [sic] that the PAG Group including its nominees had an interest in completing a sale to the first defendant in preference to the plaintiff and that the PAG Group would benefit by interest and fees to be paid by Dyldam's nominee in connection with the financing for the purchase of the Land and the financing of one or more of the Parramatta properties.
Consequently, the particulars of Parklea's participation in the fraud alleged against SAP in Almona's FASOC introduced a claim first made on 20 February 2019 that PAG had an interest in the sale of the Land in its capacity as a financier, not as the acquirer of a proprietary interest by way of the Call Option granted to its associated company.
Almona alleged in par 48 of the statement of particulars (emphasis added).
48. In the circumstances of:
(a) [Parklea's] knowledge referred to in the paragraph [sic] 45 and 46 above; and
(b) the conduct of [Parklea] particularised herein
[Parklea] had actual or presumed knowledge that [SAP] was engaged in conduct directed to sacrificing the interests of [Almona] and depriving it of the opportunity to retain the Land.
Almona placed Parklea's liability on the basis of its alleged knowledge that SAP was engaged in conduct directed to sacrificing the interests of Almona.
Almona's reliance on its statement of further particulars dated 1 March 2019 introduced as against Parklea the case based upon PAG acquiring an interest in the Land by means of its associated company, Lord VIII's rights under the Call Option.
Finally, in the same manner as was discussed above in relation to Almona's claim against SAP, by means of Almona's second statement of further particulars dated 6 March 2019, Almona introduced a claim that Parklea, though not incorporated at the time, was involved by means of its association with Dyldam in the making of the relevant alleged arrangements before the completion of the second stage of the expression of interest process with PAG and representatives of companies associated with Mr Merhi.
[57]
The burden of proof and the drawing of inferences
An issue arose out of Almona's closing submissions concerning the burden of proof in this case and the nature of inferences that the Court should draw in favour of Almona's case.
The source of the issue was the fact that none of the defendants called testimonial evidence and all relied on the documentary evidence that was tendered to the Court.
Almona acknowledged that there is no absolute prohibition on a mortgagee selling to a purchaser in which the mortgagee has some direct or indirect interest: Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 (Tse Kwong Lam) at 1355. However, it submitted that, where the sale by a mortgagee results in a related entity or associate controlled by the same people taking an interest in the land, the critical question will be whether there was an independent bargain: Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195 (Bangadilly) at 227. The sale must be independent in the sense of proper and in good faith. Almona submitted that, in such cases, the onus rests on the person seeking to uphold the sale to establish that the bargain was a truly independent one: Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 (Latec) at 273; and Bangadilly at 228-229. In the context of a sale by a chargee of property secured by the charge to a company incorporated for that purpose by the sole director and shareholder of the chargee, Gordon J said in Mijac Investments Pty Ltd v Graham (No 2) [2009] FCA 773; (2009) 72 ACSR 684:
[22] If a mortgagee's equitable duty in relation to its power of sale (see [20] above) is breached, equitable relief might include orders setting aside the sale where there is no independent bargain between the mortgagee in possession and the purchaser of the property the subject of the mortgage: eg Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195 at 202-3 per Jacobs J and at 228 per Aickin J; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 at 273-275 and Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349.
[23] In each of Latec Investments 113 CLR 265 and Tse Kwong Lam [1983] 1 WLR 1349, the mortgagee sold to a related company and the mortgagor delayed for a long time before seeking relief in respect of that sale. Each is authority for the proposition that it is for the mortgagee to demonstrate that the sale was proper ie in good faith. If the mortgagee fails to do so, ordinarily the mortgagor would be entitled as of right to have the sale set aside. However "setting aside the sale" is not actually what occurs. In fact, the purchaser is treated as having bought the mortgage and the debt and the mortgagor retains its right of redemption of the mortgaged property against the purchaser.
It will be convenient to note the next paragraph of her Honour's judgment, although it is relevant in another context to this judgment:
[24] But not always. As the High Court said in Fysh v Page 96 CLR at 243, equitable relief may be denied where an applicant asks "the Court…to rip up a transaction years after it has been completed[,] the lapse of time itself [being] one of the elements bearing upon the equities that exist entitling the [applicant] to relief". In that case, the Court refused to set aside the sale of a farm 12 years later because it meant that the plaintiff would have got back a property worth twice or three times the amount paid. (On the question of laches see also Edmunds v Pickering (No 3) (1999) 75 SASR 407 at 574-78 (refusing to apply laches after a five year delay); Jad International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378 at 387-89 (refusing to apply laches to bar rescission of sale of a truck where the relevant period of delay was one year); and Reader v Fried [2001] VSC 495 at [26]-[29] (refusing to apply laches even after an eight year delay in bringing proceedings)).
Almona submitted that the burden of proof was imposed upon SAP, and that it had failed to fulfil that burden, largely because it did not call any of the persons involved in the transactions to explain away the inferences that Almona said ought to be drawn based upon the documentary evidence as to why the sale was not independent and proper and in good faith.
Almona also relied upon authorities concerning the fact-finding exercise in which the Court must engage, where there is a failure by a defendant to call evidence to explain inferences that may otherwise be drawn on the basis of the evidence that is before the Court.
Almona cited the following aspect of the judgment of Hodgson JA (with whom Beazley JA agreed) in Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168:
[15] In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so: cf 69 ALJ at 732-733, 736, 740. As stated by Lord Mansfield in Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970: "…[A]ll evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted". See also Azzopardi v The Queen (2000) 75 ALJR 931 at 935[10]; 179 ALR 349 at 353[10].
[16] The case of Jones v Dunkel (1959) 101 CLR 298 is a particular application of this principle. That case itself related to a situation where there was evidence supporting an inference against a party, and that party did not give or call evidence, which that party was plainly in a position to have given or called, in order to explain or contradict the material presented. In my opinion, a similar principle applies where a person bearing the onus of proof does not give or call evidence which that person is plainly in a position to give or call; and unless some explanation is given of this failure, the tribunal of fact is entitled to infer that this evidence would not have assisted that person's case: cf Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389.
Almona also cited passages from the judgment of Gleeson J in BCI Finances Pty Ltd (in liq) v Binetter (No 4) [2016] FCA 1351; (2016) 117 ACSR 18 (I have added a number of paragraphs to those referred to by Almona):
[122] Where a plaintiff has the onus of proving a matter, and "relevant facts are peculiarly in the knowledge of the defendant or where the defendant has the greater means to produce evidence relating to those facts", then if the plaintiff provides sufficient evidence from which the matter may be inferred, "the defendant then comes under an evidential burden, or an onus of adducing evidence": Krstic v Brindley [2006] NSWSC 1414 at [26].
[123] Where a fact is peculiarly within the knowledge of a party to litigation, slight evidence of that fact may suffice to prove the fact unless that evidence is explained away by the party with the knowledge of the fact: Hampton Court Ltd v Crooks [1957] HCA 28; (1957) 97 CLR 367 at 375; Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [121]; Parker v Paton (1941) 41 SR (NSW) 237 at 243; Ex parte Ferguson; Re Alexander (1944) 45 SR (NSW) 64 at 67, 70.
[124] A failure by respondents to deny or explain facts when it was in the respondents' exclusive power to do so allows increased strength or weight to be given to primary facts favourable to the applicants and allows inferences favourable to the applicants to be more confidently drawn: United Group Resources Pty Ltd v Calabro (No 5) [2011] FCA 1408; (2011) 198 FCR 514 at [75]-[76]. The silence of a party may serve to resolve a doubt or an ambiguity regarding the existence of a fact, especially where the facts are peculiarly within the knowledge of the silent party: Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 ; (1996) 9 ANZ Insurance Cases 61-385 at 142.
[125] All evidence "is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted": Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450 at [80], quoting Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970. This maxim also bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available. In Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572 at [14]-[15], Hodgson JA (with whom Beazley JA agreed) said:
[I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision…
In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so…
[126] In RHG Mortgage Ltd v Ianni [2015] NSWCA 56, McColl JA (with whom Sackville AJA agreed) said (at [76]):
The circumstances for drawing a Jones v Dunkel inference are found where the uncalled witness is "a person presumably able to put the true complexion on the facts relied on [by a party] as the ground" for any inference favourable to the plaintiff: Jones v Dunkel (at 308) per Kitto J; Australian Securities and Investments Commission (ASIC) v Hellicar [2012] HCA 17; (2012) 247 CLR 345 (at [168]) per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ.
[127] In the passage from Australian Securities and Investments Commission (ASIC) v Hellicar (2012) HCA 17; (2012) 247 CLR 345 to which McColl JA was referring, the High Court emphasised that a missing witness will only be significant where the evidence which such a person is expected to give would (not might) elucidate a particular matter in issue.
[128] As to the significance to be given to the failure to adduce the evidence, that is explained in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 itself where it was said (at 308) per Kitto J (and see also at 312 per Menzies J, and at 320-321 per Windeyer J) that:
[A]ny inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness.
[129] This aspect of the principle is summarised in Cross on Evidence, where it is stated (at [1215]) that:
[T]he rule [in Jones v Dunkel] only applies where a party is "'required to explain or contradict"' something. What a party is required to explain or contradict depends on the issues in the case as thrown up in the pleadings and by the course of evidence in the case. No inference can be drawn unless evidence is given of facts "'requiring an answer"'. (Citations omitted).
[130] Thus, there must be some existing basis in the evidence before the Court to support the inference which the party relying on the principle seeks to have drawn before the absence of evidence from the opponent takes on any significance.
[131] In Paul's Retail Pty Ltd v Sporte Leisure Pty Ltd [2012] FCAFC 51 ; (2012) 202 FCR 286, the Full Federal Court (Jacobson, Yates and Katzmann JJ) said (at [95]):
The purpose of the rule is to enable the tribunal of fact to more readily draw an inference "fairly to be drawn from the other evidence" if a witness able to contradict that inference has not been called: State Bank (NSW) v Brown (2001) 38 ACSR 715 at [17]-[18] per Spigelman CJ. Such an inference is drawn, if at all, once all the evidence in the case is in. Before that can happen, there must first be an available inference against the party on the evidence: Manly Council v Byrne [2004] NSWCA 123 per Campbell J, Beazley JA and Pearlman AJA agreeing at [54].
[132] In Dept of Health v Arumugam [1988] VR 319; (1988) 30 AILR 117 at 330, Fullagar J said:
If all that is proved, by inference or otherwise, in the absence of explanation, is less than all the elements of proof required for the complaint to succeed, neither a total absence of explanation nor a non-acceptance of an explanation can by itself provide an element of proof required. It can enable already available inferences to be drawn against dishonest explainers with greater certainty, but that is all.
Almona submitted at par 44 of its closing submissions that "it was certainly within the power of Parklea and SAP to call witnesses from within the PAG/SAP and Dyldam/Parklea camps who are able to explain or contradict the material in evidence (including the solicitors who acted for them on the sale of the Land)". Almona then nominated various available witnesses.
The submission was then made at par 45 that: "In the circumstances, the Court should infer that the evidence those people could give would not assist the defendants".
While the principles established by these authorities must be respected and applied, that must be done in the context of the particular proceedings to facilitate the just determination of the dispute.
On 6 December 2018, Kunc J ordered the defendants to serve their evidence in chief by 6 February 2019. As at that date, Almona's pleading was the amended statement of claim.
The defendants evidently elected not to serve evidence of a testimonial nature on Almona on the basis of the issues as they were then raised by the pleadings.
Kunc J ordered Almona to serve its written outline of submissions on 22 February 2019. The submissions, which were dated 25 February 2019, dealt with the issues raised by Almona's amended statement of claim and its statement of particulars filed 20 February 2019: see par 4.
Although the outline of submissions referred to the arrangement whereby PAG would finance Parklea's purchase of the Land through Lord VI (par 30), and the fact that negotiations to that end had been proceeding since about 1 November 2015 (par 31), Almona did not list the finance arrangement in par 96 as conduct relevant to the alleged fraud, and did not submit that the finance arrangement had the effect of shifting the burden of proof from Almona to SAP. Paragraph 96 contained a summary of the matters that Almona relied upon to support its fraud claim. Almona appeared to accept that a mortgagee does not obtain a burden of proof shifting interest in the security property by financing the purchaser. On a fair reading of the outline of submissions, Almona accepted that it had the burden of proof and the events that it relied upon were those that occurred in 2016. Paragraph 96 started with a reference to SAP's knowledge at the date of the exchange of the Contract.
It was in these circumstances that Almona served its further particulars on the defendants on 1 March 2019, which, as noted above, was the Friday before the commencement of the hearing on 4 March 2019. It was by these particulars that Almona introduced into the case the fact that PAG, through Lord VIII, had on 22 March 2016 acquired an interest in the Land through the Call Option.
That is an interest capable of causing the burden of proof to shift to SAP, but it was only alleged effectively at the beginning of the hearing. Before that time, SAP had no reason to understand that Almona would assert against it that it had the burden of proving that it acted in good faith in the exercise of its mortgagee's power of sale, and that it had not engaged in fraud.
Realistically, SAP was not in a practical position to change its forensic strategy and to attempt to call all of the witnesses nominated by Almona as being available to SAP.
As I have explained above, the parties voluntarily accepted an early final hearing, rather than to have Kunc J hear an interlocutory application on 6 December 2018. While there was no absolute restriction on any party applying to vacate the hearing during the week commencing 4 March 2019, there were practical impediments to the Court acceding to such an application, arising primarily out of the need to then reconsider the interlocutory position. Equally, the parties would have faced an impediment to amending their pleadings over the opposition of the other parties.
I understand Almona's position to be that it was unable to avoid the continuing evolution of its case, by reason of the difficulties it faced in obtaining documents on notices to produce from the parties and by issuing subpoenas to third parties. The Court is not in a position to make any proper findings concerning the reasons for, or assigning blame for, the circumstances in which Almona obtained access to documents and adjusted its case accordingly. The Court knows that Almona had three months from 6 December 2018 to obtain documents necessary for the presentation of its case, and that Almona did not file a notice of motion seeking the production of documents until 28 February 2019, two business days before the commencement of the hearing. The Court witnessed from a distance the rolling process of the service by Almona of a series of new notices to produce during the hearing, which were apparently more focused than the list of categories in the annexure to the 28 February 2019 notice of motion. The Court cannot draw any conclusion adverse to the defendants from its observations of the manner in which the defendants responded to the new notices to produce.
As I have observed above, the second statement of further particulars was not filed until the morning of 7 March 2019, the fourth day of a five-day hearing. As there was only one witness, Mr Constantine, the parties opened their cases at some length, while the battle about the production of documents continued on the side. By the morning of 7 March 2019, Almona had completed, and Parklea had substantially completed, their openings, in which they disclosed in detail the basis of their respective cases. Although counsel for SAP did not begin his opening until after the morning adjournment on 7 March 2019, he was in practical terms given no opportunity to change the basis of his case following the service of the second statement of further particulars.
To reiterate, it was only by the second statement of further particulars that Almona first raised against the defendants the claim that PAG, Dyldam and Mr Merhi had engaged in negotiations to establish a joint venture from the time before the second stage of the expression of interest campaign.
In considering the significance of the forensic decisions made by the defendants, it is necessary to bear in mind that Almona has always accepted that the price obtained by the receivers was a proper one, subject to the effect of the joint venture allegation, if proved. Furthermore, there had never been an allegation by Almona that the receivers or Colliers did not carry out a proper sale process, or that PAG or SAP interfered improperly in that process. The defendants were entitled to make their forensic judgments on the basis that the sale process was not impugned in any way, until the fourth day of the hearing.
The reliance by Almona on the circumstances in which the burden of proof changes and on the Blatch v Archer principle (Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970) ignores the significance of the changes in its case made by the first and the second statements of further particulars and the timing of those changes.
In making that observation, I acknowledge that Almona, in its outline of submissions dated 25 February 2019, at par 66, referred to the statement by Kitto J in Latec at 273, which includes reference to the onus lying on the purchaser where it is a subsidiary of the mortgagee. Senior counsel for Almona also referred to this aspect of Latec in his opening on the first day of the hearing at T 4/3/19 p 6.35. But at this point there was no issue about the propriety of the price in the Contract. The issue may have been incipient, but it was not formally introduced into the proceedings until 7 March 2019 when leave was given to Almona to file the second statement of further particulars.
I do not accept that the defendants could have, and should have, called a substantial number of witnesses cold on 7 and 8 March 2019, to give evidence contrary to all of the inferences that Almona now suggests in its closing submissions should be drawn against the defendants. Nor would it be procedurally fair to the defendants, having served their tender bundles and made their opening submissions, and in Parklea's case, having opened its case, to seek some new and later hearing at which they could call all of the witnesses suggested by Almona. Fairness requires that the Court not ignore the reality of the forensic steps actually taken by the defendants, to which they had become committed. It is neither fair nor feasible to expect the defendants, having legitimately committed themselves to one case in response to the claims made against them, to have embarked on what would be likely to be entirely new cases that would depend upon the evidence of witnesses that in many cases may not yet have been interviewed.
It may still be necessary to make judgments as to where the burden of proof should lie on some issues, and there will probably be scope for the application of the Blatch v Archer principle. However, it will not be appropriate for the Court to undertake that task in the absolute way contended for by Almona, particularly in its reply submissions.
These considerations concerning the imposition of the burden of proof and the drawing of inferences do not obviate the requirement, imposed by s 140(2)(c) of the Evidence Act 1995 (NSW), that the Court is to take into account "the gravity of the matters alleged", or to abide by the admonition of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; [1938] HCA 34:
…But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences…
It is to be noted that on no view does any burden of proof fall on PT.
[58]
Legal principles concerning the mortgagee's duty of good faith
It will now be appropriate to consider the legal principles that are relevant to the establishment of the various breaches of duty alleged by Almona against SAP and Parklea.
As I have explained above, Almona pleaded that the conduct of SAP that it alleged constituted breaches of SAP's mortgagee's duty of good faith also constituted fraud on SAP's part. As further explained, the quality of SAP's conduct that was said to constitute fraud was its breaching its duty of good faith in order to deliberately frustrate the attempts by Almona to redeem the mortgage. The 20 February 2019 statement of particulars introduced the notion of SAP having sacrificed the interests of Almona and concealing the Occupation Condition. As explained, by its second statement of further particulars dated 6 March 2019, Almona introduced a claim of an agreement between PAG, SAP, Dyldam and Mr Merhi's companies, to enter into a joint venture beginning at a time before the end of the expression of interest campaign.
[59]
Nature of mortgagee's duty to act in good faith
I will now turn to a consideration of Almona's claim that, in entering into and performing the Contract, SAP breached the duty of good faith that it owed to Almona.
Almona made its submissions as to the nature and content of the mortgagee's duty in pars 165 to 173 of its closing submissions. Almona's primary submission was:
166. In Forsyth v Blundell (1973) 129 CLR 477 (Forsyth), Walsh J (at 492) stated that the obligation cast upon a mortgagee exercising the power of sale in good faith means "that he should act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor…While [the] mortgagee was entitled to have regard primarily to its own interests, it was not entitled, if those interests were not at risk, to act in a manner which sacrificed the interests of the mortgagor" (at 493-494).
At par 169, Almona referred to the observation made by McLelland CJ in Eq in Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1994) 8 BPR 15,581 at 15,583, in which he described the mortgagee's duty in these terms: "…What matters is the underlying equitable principle, which in the modern idiom usually finds expression in terms of unconscionability. The mortgagee is not answerable for what Isaacs J in Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; [1912] HCA 9 describes (at 700) as "mere negligence or carelessness in carrying out the sale". Any departure from reasonable standards must be so serious as to be properly characterised as unconscionable, in order to render the mortgagee accountable".
Similarly, Almona cited the observation of Young CJ in Eq (as his Honour then was) in Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646; [2004] NSWSC 114 at 652, where his Honour said:
The duty is a duty to act conscionably towards the mortgagor and persons under the mortgagor. The duty is not to be considered in some mechanical way, but the whole of the mortgagee's conduct with respect to the sale is to be considered. The mortgagee may, up to a point, act solely in its own interests, but it must also act conscionably towards the mortgagor and those claiming under the mortgagor.
In the present case, Almona did not submit that SAP was required to act reasonably in exercising its power of sale. That position accords with the weight of authority in this country, which establishes that the requirement imposed upon the mortgagee is one of the exercise of good faith rather than adherence to a standard of reasonableness: see C. Croft and R. Hay, Mortgagee's Power of Sale (3rd ed, 2012, LexisNexis Butterworths) at [7.32]-[7.35] (Croft & Hay). As Almona has accepted in this case that the price provided for in the Contract was the market value of the Land, the obligation imposed upon a mortgagee exercising a power of sale by s 111A of the Conveyancing Act 1919 (NSW) to take "reasonable care to ensure that the land is sold for…not less than its market value" does not apply.
Almona made a submission in par 172 that the mortgagee's duty to act in good faith has academically been recognised as fiduciary in nature, relying upon E.L.G. Tyler, The Hon. P. Young and C. Croft, Fisher & Lightwood's Law of Mortgage (3rd Australian ed, 2013, LexisNexis Butterworths) (Fisher & Lightwood) at p 539-540. The learned authors did refer to "the concept of a fiduciary duty", but only in relation to the obligation imposed upon the mortgagee to take bona fide steps and not to sacrifice the mortgagor's interest. Almona also relied upon the following observation of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 102; [1984] HCA 64 (footnotes omitted):
…And it is the general nature of that responsibility which distinguishes H.P.I. from the mortgagee who is bound to exercise his power of sale in good faith. In exercising that power the mortgagee is acting in his own interests, subject to the requirement of good faith (see Kennedy v. De Trafford) and possibly that of reasonable care: see Australia and New Zealand Banking Group Ltd. v. Bangadilly Pastoral Co. Pty. Ltd. Even so, the mortgagee's duty in exercising the power is sometimes described as analogous to a fiduciary duty: Sir Frederick Jordan, Chapters on Equity, 6th ed. (1947), p. 113.
His Honour, with respect, stated the correct principle when he said: "In exercising that power the mortgagee is acting in his own interests, subject to the requirement of good faith". In fact, Sir Frederick Jordan said at page 113 of Sir F.J. Jordan and F.C. Stephen, Chapters on Equity in New South Wales (6th ed, 1945, University of Sydney Law School) that: "A mortgagee does not, as such, stand in a fiduciary relation to the mortgagor…" (emphasis added).
As a general matter, Almona has put its case on the basis that SAP breached its duty of good faith wherever it "sacrificed" Almona's interests, measured against the yardstick of whether or not SAP's own interests were at risk: see closing submissions par 187. In taking that approach, Almona has adopted the statement of principle of Walsh J set out above as if it were a complete and definitive explanation of the mortgagee's duty to act in good faith.
While I accept the statement of principle made by Walsh J, I do not accept that his Honour intended to mean that any conduct on the part of a mortgagee that leads to damage to the interests of the mortgagor signifies a breach of the duty of good faith on the part of the mortgagee wherever the legitimate interests of the mortgagee do not require that conduct on its behalf.
The proper starting position is to examine what legal principle permits or requires of a mortgagee when exercising the power of sale. In that context, the Court may then examine the mortgagee's conduct and its consequences for the purpose of determining whether the interests of the mortgagor have been sacrificed.
As SAP correctly submitted at par 417 of its closing submissions, historically the focus of the mortgagee's duty to act in good faith has been expressed in terms of not sacrificing the mortgagor's interest in the market value of the security property: for example "Was then the failure to secure a proper price…were their efforts so obviously perfunctory as to warrant the conclusion that they cared for nothing beyond the repayment of their own claim?" and "…not caring whether its fair and proper value was obtained or not" (Pendlebury at 695 per Barton J and 702 per Isaacs J respectively); "…to obtain a fair price" (Latec at 273 per Kitto J ); "…recklessly, not caring whether the price obtained was in the circumstances a proper price or not" (Forsyth v Blundell (1973) 129 CLR 477; [1973] HCA 20 (Forsyth) at 506 per Mason J); and "…not entitled to sacrifice the interest of the mortgagor in the surplus of the proceeds of the sale" and "…by requiring the taking of reasonable steps to obtain its market value" (Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; [1981] HCA 70 at 494 per Gibbs CJ and 525 per Brennan J respectively).
Because the interest of the mortgagee is in selling the security property to recover the mortgage debt, the objective of the sale will be to realise the value of the property, so that the interest of the mortgagor that will generally be at risk is the receipt of the market value in excess of the mortgage debt. However, I doubt the correctness of the submission made by SAP at par 427 that the mortgagee's obligation to exercise its power of sale in good faith "is tied to the mortgagor's interest in obtaining a fair price". Where a mortgagor has a right to redeem the mortgage, the mortgagor is entitled to receive the title to the property unencumbered by the mortgage and to possession of the property. The mortgagor may have wider interests in the property than its value. The right to redeem protects all of those interests provided that the mortgagor takes proper steps to redeem. The principle that the mortgagee must exercise its power of sale bona fide is expressed in general terms and should not artificially be confined. Improbable though it may be, one could imagine a mortgagee interfering with the mortgagor's application for finance in order to redeem, which would be an act in breach of the duty of good faith not associated with obtaining a proper price from the sale of the property. That said, the primacy of the interest of the mortgagee in recovering the secured debt by the exercise of the power of sale has led to the establishment of principles that, in practical ways, limit the obligation on the mortgagee to have regard to interests of the mortgagor other than the value of the property.
The exercise by a mortgagee of its power of sale will not be proper if the purpose of the sale is not the recovery of the money secured by the mortgage: Pooley's Trustee v Whetham (1886) 33 Ch D 111 (CA); Barns v Queensland National Bank Ltd (1906) 3 CLR 925; [1906] HCA 26, at 943; Vasiliou v Westpac Banking Corporation (2007) 19 VR 229; [2007] VSCA 113.
If the purpose of the exercise of the power of sale is to recover the money secured, the sale will not be improper merely because the mortgagee has an additional collateral purpose and the Court will not enquire into the mortgagee's subjective motive: Nash v Eads (1880) 25 Sol Jo 95 per Sir George Jessel MR, and Belton v Bass, Ratcliffe and Gretton Ltd [1922] 2 Ch 449 at 465, 466 per Russell J. However, see Quennell v Maltby [1979] 1 All ER 568; 1 WLR 318, where the Court of Appeal of England and Wales rejected an application by a mortgagee for possession of the mortgaged premises against tenants who had a protected statutory tenancy. The Court held the mortgagee's purpose was improper because the application was not for the purpose of protecting the security, but for the purpose of gaining vacant possession so that the owner, who was the mortgagee's husband, could sell the property with vacant possession.
I will not repeat the observations made above, in the context of considering the burden of proving whether or not a mortgagee has failed to act in good faith, that the law precludes a mortgagee from selling to itself, but does not preclude sale to a purchaser in which the mortgagee has an interest, provided the mortgagee establishes that the contract, and in particular the price agreed, was an independent bargain. That is an issue in the present case, because of the option granted to Lord VIII under the Call Option. The significance of the issue is reduced by Almona's acceptance that the contract price was a proper one, subject to the claim Almona seeks to make concerning the joint venture negotiations in late 2015.
It is immaterial that the power of sale is exercised contrary to the wishes of the mortgagor: Farrar v Farrars Ltd (1888) 40 Ch D 395 at 398; Forsyth at 483, 484.
While there are statutory requirements for the giving of notice by the mortgagee of its intention to exercise its power of sale, such as, in this case, s 57(2)(b) of the Real Property Act, the mortgagee is not obliged to advise the mortgagor of its intention to exercise the power before it actually does so, or to communicate with the mortgagor or to respond to any proposals made by the mortgagor: Pendlebury at 695 per Barton J; Bangadilly at 229 per Aickin J; and Upton v Tasmanian Perpetual Trustees Ltd (2007) 158 FCR 118; [2007] FCAFC 57 at [33] per Kiefel and Besanko JJ, and at [137] per Graham J. In A Legudi & Sons (Vic) Pty Ltd v VL Finance Pty Ltd, unreported, Supreme Court of Victoria, 30 April 1997; BC9701590 (A Legudi v VL Finance) at 13, Hansen J held: "…Nor can it be said in the abstract that a failure to inform the mortgagor that the property may or will be sold privately constitutes a breach of the duty in s 77(1)", referring to the section of the Transfer of Land Act 1958 (Vic) that imposed upon a mortgagee exercising the power of sale created by the provision a duty to act "in good faith and having regard to the interests of the mortgagor".
As held by Cole J (as his Honour then was) in Westpac Banking Corporation Ltd v Kingsland (1991) 26 NSWLR 700 (Westpac v Kingsland) at 705-706, it is a matter for the mortgagee, who has a right to exercise a power of sale, to decide if and when it will sell. Hansen J in A Legudi v VL Finance at 13 followed Cole J and held that, whether the power of sale arose under the mortgage or under s 77(1), "a mortgagee in possession is not obliged to sell at any particular time". In Commonwealth Bank of Australia v Lee (1996) 22 ACSR 574 at 578, Wheeler J said: "…However, it is clear from the authorities to which I have referred that in the absence of any bad faith or duty arising from the particular terms of the contract or from a representation or the like, the bare relationship of creditor/debtor or creditor/guarantor gives rise to no duty to enforce a security promptly or at all". See also Pendlebury at 701.
The mortgagee is not obliged to act as if the mortgagor had a right of first refusal: State Bank of New South Wales v Chia (2000) 50 NSWLR 587; [2000] NSWSC 552 (State Bank v Chia) at [892] per Einstein J. Further, a mortgagee who is entitled to exercise a power of sale is not obliged to defer the exercise of the power until the mortgagor has had an opportunity to redeem the mortgage: Routestone Ltd v Minories Finance Ltd [1997] BCC 180; and see Fisher & Lightwood at [20.23]. At 187, Jacob J said:
Accordingly I reject on the facts the claim based on a claim that the bank and the receivers knew that redemption was round the corner and ought not to have made the sales concerned. The whole plea amounts to no more than a claim that the receivers and the bank should have paid heed to a series of vague Micawberesque promises.
Further, however the claim is simply bad in law. As Hoffman J said ((1986) BCC 99,102 at p. 99,104-99,105) in his judgment of 24 March:
'The security documents give the receivers an unrestricted right to sell at any time. Until actual redemption or at least until a valid tender of the redemption price, these powers continue to exist. The fact that the plaintiffs claim that they will shortly be able to redeem cannot give them a right in law to restrict the powers granted to the receivers.'
It cannot be wrong to exercise a power of sale which exists…No duty of care is owed by the mortgagee or receiver in relation to the actual decision to sell. Mr Crystal made it clear that in practice if a credible real offer of redemption had been made at any time then the sales might have been delayed. That would be a sensible thing to do but there would be no legal obligation so to do.
I therefore reject the claim based on alleged imminent redemption. I do not think it ever had any prospect of succeeding and ought not to have been advanced.
If the mortgagor believes that a decision by the mortgagee to delay in exercising its power of sale will cause loss to the mortgagor, the mortgagor's remedy is to take steps to redeem the mortgage by paying out the mortgage debt: see Westpac v Kingsland at 705 and A Legudi v VL Finance at 13.
Fisher & Lightwood at [20.31] and Croft & Hay at [8.3] accept that Charles J Holohan v Friends Provident and Century Life Office [1966] I.R. 1, a decision of the Supreme Court of Ireland, is authority for the proposition that the mortgagee's duty extends to gaining vacant possession of the mortgaged property, if that would lead to a higher price on sale. Some doubt must be cast on that authority by reason of the fact that it was based specifically on a conclusion that the duty imposed upon the mortgagee required it to act reasonably. This doubt may not be significant in the present case because, although SAP did not obtain vacant possession, it originally included in the contract the Occupation Condition, which did provide for a higher price if Mr Constantine vacated the Residence before completion.
Where a mortgage is given over Torrens system land, the mortgagor does not have a true equity of redemption. Under such a mortgage, there is no transfer of the title to the property to the mortgagee, who only becomes entitled to the charge that is created upon the registration of the mortgage in accordance with s 56 of the Real Property Act.
However, equity recognises and enforces a right in a mortgagor of Torrens system land to redeem the mortgage, if the mortgagee fails to deliver a discharge of mortgage upon tender by the mortgagor of the mortgage debt: see for example Quint v Robertson (1985) 3 NSWLR 398 at 402.
Where, as in the present case, the contractual date for repayment and redemption has passed, the mortgagor, as a general rule, is not entitled to redeem the mortgage except on six months' notice to the mortgagee, or alternatively the mortgagee is entitled to an additional six months' interest from the date of redemption: Smith v Smith (No 7) [1891] 3 Ch 550 (Smith v Smith) at 552; Friend v Mayer [1982] VR 941. However, at 552 in Smith v Smith: "If the mortgagee has himself demanded payment of the debt or has taken any steps to compel payment of it, no notice by the mortgagor, and no payment of interest in lieu of notice, is required". This exception applied in the present case, as, after the Redemption Date, SAP served a notice of demand and appointed the receivers for the purpose of recovering the mortgage debt.
Although, in these circumstances, Almona was not required to give SAP any particular period of notice of its intention to redeem the mortgage, it was still required to give reasonable notice to SAP of the date and time at which it intended to tender the amount of the mortgage debt: see W.D. Duncan and W.M. Dixon, The Law of Real Property Mortgages (2nd ed, 2013, The Federation Press) at [8.2]-[8.4]; and M. Bransgrove and M. Young, The Essential Guide to Mortgage Law in New South Wales (2nd ed, 2014, LexisNexis Butterworths) at [6.4]. It seems clear that the mortgagor must appoint a time at which it will be ready willing and able to tender the amount payable: see the reference to "tender" by Helsham J (as his Honour then was) in Branwood Park Pastoral Co Pty Ltd v Willing & Sons Pty Ltd [1976] 2 NSWLR 149 at 153. "If a mortgagee refuses an unconditional tender of all that is due under the mortgage, he does so at his peril; he may lose his rights to interest thereafter…and he may be liable for the costs of redemption proceedings, if the refusal is considered to be misconduct": Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 97,341 (Project Research v Permanent Trustee) at 4 per Hodgson J (as his Honour then was).
Hodgson J held further at 5: "that if a mortgagor is seeking to redeem and asks for a payout figure, the mortgagee should normally give such a figure". Failure to give a payout figure could be misconduct that might cause the mortgagee to be liable for the costs of any redemption proceedings that were brought by the mortgagor as a result of the mortgagee's failure.
The payout figure will normally be the principal and interest to the date of redemption, plus costs and expenses to the date of redemption, including the actual costs of discharging the mortgage: Project Research v Permanent Trustee at 5. Additionally, unless guilty of misconduct, the mortgagee is generally entitled to the costs of redemption proceedings, including the actual taking of accounts if that is necessary, out of the secured property: see 5.
The determination by the mortgagee of a payout figure may be a complex exercise, involving more than the mere computation of the outstanding principal and interest. The mortgagee may have to estimate the outstanding costs and costs likely to be incurred up to the proposed redemption date, including the legal and professional costs and expenses of receivers. The payout figure may change from day to day, or week to week, depending upon the precise time appointed for redemption. The mortgagee may have to reasonably forecast the costs of redemption proceedings and the taking of accounts. This may be an onerous task, as if the mortgagee wrongly states the amount necessary to be paid by the mortgagor to redeem the mortgage, or it wrongly rejects the amount tendered by the mortgagor, that may be misconduct that disentitles the mortgagee to future interest and costs.
As, in a case where the mortgagee declines to give a payout figure, the issue will be whether the mortgagee has failed to act in good faith, the propriety of the mortgagee's conduct will depend upon the facts of each case. I have not found, and have not been provided by any party with, any authority that deals with the position where the mortgagor imposes upon the mortgagee the burden of determining a complex payout figure on a series of occasions and then fails to tender the amount required to redeem the mortgage at the appointed times. Given what may be the onerous nature of the exercise as explained above, the mortgagor may not be entitled to demand a payout figure from the mortgagee as and when, and as many times, as the mortgagor wishes. What is contemplated is that the mortgagor must know what amount to tender at the time appointed for redemption. However, in most cases the mortgagor should be capable of estimating the likely payout figure with sufficient precision to permit the mortgagor to arrange finance for the redemption payment, subject to refinement in the period immediately before the time appointed for redemption, by the mortgagee providing a firm payout figure. Where the mortgagor is unable to estimate the payout figure with sufficient accuracy for the purpose of arranging finance, the mortgagor could request an approximate figure from the mortgagee, subject to a precise payout figure being given when there are reasonable grounds to believe that the redemption can be implemented.
An important issue in this case is the effect on a mortgagor's right to redeem of the mortgagee entering into a conditional contract for the sale of the land when the power of sale has properly been exercised.
As recorded by Croft & Hay at [11.1], in Waring (Lord) v London and Manchester Assuring Co Ltd [1935] Ch 310 at 317, 318, Crossman J said:
…In my judgment, s. 101 of [the Law of Property Act 1925], which gives to a mortgagee power to sell the mortgaged property, is perfectly clear, and means that the mortgagee has power to sell out and out, by private contract or by auction, and subsequently to complete by conveyance; and the power to sell is, I think, a power by selling to bind the mortgagor. If that were not so, the extraordinary result would follow that every purchaser from a mortgagee would, in effect, be getting a conditional contract liable at any time to be set aside by the mortgagor's coming in and paying the principal, interest, and costs. Such a result would make it impossible for a mortgagee, in the ordinary course of events, to sell unless he was in a position to promise that completion should take place immediately or on the day after the contract, and there would have to be a rush for completion in order to defeat a possible claim by the mortgagor.
It seems to me impossible seriously to suggest that the mortgagor's equity of redemption remains in force pending completion of the sale by conveyance. The only effect of the conveyance is to put the legal estate entirely in the purchaser: that follows from s. 104, sub-s. 1, of the Law of Property Act, 1925, which provides that a mortgagee shall have power to convey the legal estate; and the whole legal estate can be conveyed free from all estates, interests, and rights to which the mortgage has priority…The result in the present case is, in my judgment, that the sale effected by the contract, assuming, for the moment, that there is no objection to it on any other ground, binds the plaintiff, and that it is too late after the sale for him to tender the mortgage money and become entitled to have the property reconveyed to him.
Walsh J in Forsyth at 499 approved this statement of principle, although Mason J at 506, 511 left the question open. Walsh J said (footnotes omitted):
By executing the mortgages and defaulting in payments under them, Blundell did bring about a situation in which A.S.L. was empowered to sell the property. But if the mortgagee did not act bona fide in the exercise of the power of sale, and the purchaser, being unaware of this, assumed that the mortgagee was acting bona fide, that assumption was not one which any conduct of Blundell caused the purchaser to make.
If a contract of sale had been made which was not affected by any impropriety, it would not have been open to the mortgagor to claim that until the contract had been completed his right to redeem the mortgage continued notwithstanding the contract and was superior to the right of the purchaser. Although he retained his title to the land this was subject to the power of sale as defined in the Ordinance and as incorporated into the mortgage instruments. In my opinion, a contract of sale properly made in the course of the exercise of that power is binding upon the mortgagor, not because the mortgagee contracts as agent for the mortgagor, but because by entering into a mortgage to which the Ordinance applies the mortgagor makes his own rights subject to its provisions, including those which confer and regulate the power of sale, and, therefore, subject to any action which is properly taken in good faith by the mortgagee. On this question, I regard as applicable and as correct the decision in Waring (Lord) v London and Manchester Assurance Co Ltd, approved in Property & Bloodstock Ltd v Emerton, that a contract by the mortgagee to sell the property is binding, before completion, upon the mortgagor unless it be proved that the mortgagee exercised his power of sale in bad faith…
This part of his Honour's judgment was followed by McPherson J (as his Honour then was) in McKean v Maloney [1988] 1 Qd R 628 at 635, 636; and by Young J (as his Honour then was) in Chia v Rennie (1997) 8 BPR 15,601. In the latter case Young J said at 15,603: "…I appreciate that there is a difference with Torrens land, but it seems to me that the Waring case is as much applicable to Torrens land in Australia as it is to common law title land in England and that although the words "equity of redemption" are used in different senses in the different jurisdictions the net effect is the same".
Following an analysis of the Court of Appeal decision in Property and Bloodstock Ltd v Emerton [1968] Ch 94 (Property v Emerton), Croft & Hay at [11.2] suggested the following principles that govern the survival of the mortgagor's right to redeem, including in cases where the mortgagee has exercised its power of sale by entering into a conditional contract:
…First, the entry by a mortgagee into an unconditional contract for the sale of the mortgaged property in exercise of the statutory power bars the mortgagor's right of redemption so long as the contract subsists. Second, when a contract is subject to a condition precedent no relationship of vendor and purchaser is created until the condition is fulfilled and until then the mortgagor's right of redemption is exercisable…An unconditional contract does not extinguish the right of redemption but suspends it or makes it not exercisable until the contract is completed for until then the contract may go off…It follows that the right is only extinguished on completion of the contract by the delivery of a valid conveyance or transfer to the purchaser.
Although, it is submitted, the general proposition for which Property and Bloodstock Ltd v Emerton [1968] Ch 94 at 94 stands is clear it may be difficult to characterise conditions in contracts as either precedent or subsequent. The correct characterisation is most important as only after this step has been taken can it be said whether or not the mortgagor has the right to redeem at any particular time. As the courts have not found this an easy task it may be difficult in some circumstances to know whether a mortgagor's claim to redeem is valid…
Croft & Hay do not expressly deal with the case of what happens where the contract is subject to a condition subsequent, although it is implied in the second paragraph of the extract that the right to redeem is suspended where the contract is subject to a condition subsequent, and if the contract becomes unconditional and is completed the right to redeem will be lost.
In Property v Emerton, the judgments of Danckwerts LJ at 117, 118 (although expressed somewhat obliquely) and of Sellers LJ at 125 appear to support the conclusion that the right of redemption is suspended when the mortgagee enters into a contract subject to a condition subsequent, and that the state of suspension continues so that the right of redemption will be lost if the contract is completed, whether or not the condition subsequent has strictly been satisfied.
As a conditional contract for the sale of land may give the purchaser express or implied rights in relation to whether or not the condition is satisfied, it is necessary to consider the principles that govern those rights. There may be occasions when the existence of the mortgagor's right to redeem is only suspended by the existence of the contract, but the contract imposes on the mortgagee an obligation to facilitate the satisfaction of the condition, and the performance of that obligation will cause the contract to become unconditional.
There is a line of authority that establishes that, where a contract is made conditional, in the sense that it gives the parties a right to rescind if a particular event does or does not occur, the parties are under an implied obligation to do what is necessary to satisfy the condition, and if they do not do so they are precluded from exercising the contractual right to rescind: see in particular Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35 (Suttor v Gundowda) at 441 per Latham CJ, Williams and Fullagar JJ.
In Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; [1982] HCA 29, completion of the contract of sale was conditional upon the purchaser completing the sale of their current property. The High Court held that there was an implied promise that the purchaser would do all that was reasonably possible to find a buyer for the current property and to complete the sale. At 553, Mason J, who dissented in the result, said:
…It would be absurd to suggest that the parties contemplated that the purchasers could refrain from making any effort to sell. That would be to give the purchasers what in substance amounted to an option to withdraw. I am therefore inclined to read the clause as imposing an implied obligation on the purchasers to make all reasonable efforts to sell the Lilli Pilli property.
Similarly, Brennan J stated at 566 (footnotes omitted):
…Of course, the purchasers had the carriage of the sale of their Lilli Pilli property, and the stipulation imported an obligation upon them to do all that was reasonable on their part in order that a sale of that property might be completed (Butts v. O'Dwyer; McWilliam v. McWilliams Wines Pty. Ltd.). But that was the extent of their promissory obligation under the stipulation. Their obligation was not to complete a sale of their Lilli Pilli property but to do all that was reasonably to be done to that end.
See also Gibbs CJ at 541 and Wilson J at 559.
The effect of these authorities is that courts have been averse to construing contracts that are subject to conditions subsequent, and where it is within the power of the parties to satisfy the condition by their own actions, in a manner that gives the parties an option as to whether or not they will take the reasonable steps necessary to satisfy the condition. To so construe the contract would have the effect of making it optional at the election of the parties. Consequently, in appropriate cases, the Court will imply an obligation upon a party whose actions may satisfy the condition, or upon both parties if their actions are relevant to the satisfaction of the condition, to take reasonable steps to do so.
In the present case, it is possible that SAP did not have an implied obligation to take reasonable steps to cause the Investment Committee to approve the Contract. It may be that the Investment Committee's discretion was at large, as it may have been reasonable for that committee to make a commercial judgment in the interests of the PAG group as a whole. It may be that SAP was under the limited implied obligation that it was required to take reasonable steps to bring the issue before the Investment Committee. However, those questions do not matter because the Investment Committee did approve the Contract. Thereafter, there may have been matters, that were not identified in these proceedings, which SAP could reasonably have taken into account in delaying notification of Investment Committee approval until after the deadline. An inability to raise the funds necessary to finance the purchase by Parklea may have been one of them. However, there was no evidence that any such impediment occurred, although it may have been relevant to the timing of notification of the approval. The point is that SAP formed the opinion that completion of the Contract could take place, and accordingly it notified Parklea of the approval. In the absence of any reasonable cause for not notifying approval to Parklea, SAP was under an implied obligation to do so.
However, the issue is not only whether in fact SAP was under an implied obligation to notify Parklea of the Investment Committee approval before the extended deadline. Whether or not that obligation existed, the legal principles that applied had the result that there was a real risk that an obligation to notify Parklea of the approval had arisen. The proper exercise of SAP's duty to act bona fide was consistent with SAP electing to avoid that risk by giving the notification, when it had no commercial reason not to do so.
[60]
Significance of the contract price being a proper one
The fact that Almona has accepted that the price was a proper price has consequences for the determination of whether SAP complied with its duty to act in good faith. On the one hand, Almona accepts that the price represented the market value of the Land, but on the other hand, it submitted in par 189 of its closing submissions that the conduct of SAP, described in par 188 as having sacrificed or disregarded Almona's interests, "was done by SAP with the object in view of destroying Almona's interest to obtain the development potential of the Land for PAG…". As explained in R.T.M. Whipple, Property Valuation and Analysis (2nd ed, 2006, Thomson Lawbook Co) at p 139: "Any valuation must be based on the assumption that the land being valued will be devoted to its highest and best use."
As the Preston Rowe Paterson valuation of 29 June 2015 and the CBRE Valuations Pty Ltd valuation of 18 July 2015 show, the market value of the Land was assessed on the basis that the amount that a willing purchaser would pay would make a proper allowance for the potential of the property to be used as a development site.
The written proposal made by Colliers to the receivers on 25 August 2015 also referred to the likelihood that the Land would be attractive to residential developers. The point of these observations is that, as a matter of valuation principle, the prospect of being able to make a significant profit from the development of the Land should already be reflected in the price offered by Dyldam for the purchase of the property. On the assumption that the expression of interest campaign was genuine, the consequence was that Dyldam, through Parklea, has already paid a proper price for the benefit of the development opportunity. It is not sound to regard that opportunity as something separate and additional to the payment of the market value.
These considerations do not mean that it is proper to ignore the effect of the possibility that the interests obtained by Lord VI and Lord VIII in the project for the development of the Land would generate a profit to PAG as a motivating factor in SAP's exercise of its mortgagee's power of sale. However, a balanced approach to the significance of PAG obtaining an interest in the project requires that it be remembered that the possibility of reward and the risks involved should have already been factored into the expressions of interest made by each of the participants in the campaign. Consequently, the fact that the sale process was conducted independently by the receivers and Colliers is a crucial factor in the determination of whether the outcome of the sale process was the result of a proper exercise of SAP's power of sale.
[61]
Almona's breach of mortgagee's duty of good faith claim
As the parties have tended to do, I will speak in terms of Almona's right to redeem the mortgage, even though, as the Land is under the Torrens system, strictly Almona did not have an equity of redemption. Almona had an interest in being able to exercise its equity of redemption. That right extended to Almona being entitled upon redemption to the unencumbered title to and possession of the Land. As I have stated above, the mortgagor's right of redemption is not limited to the protection of the market value of the property.
In the context of analysing Almona's pleaded claim, I have considered above the allegations made by Almona in the FASOC and the three additional statements of particulars. The three statements of additional particulars do not relate specifically to the allegations in the FASOC, but are largely separate documents that both overlap and extend the allegations in the FASOC. The defendants consented to Almona relying upon the further particulars, although in SAP's case subject to the qualification set out above.
The effect has been that, in respect of the additional allegations that have been permitted, it is a challenging exercise to distil with precision all of the separate breaches of duty that are alleged by Almona. The difficulty is enhanced by the fact that Almona did not deal specifically with all of the breaches in its closing submissions in a manner that precisely reflected the manner in which the allegations had been made.
For the purpose of determining Almona's claims, I have attempted in what follows to collect and classify the various alleged breaches in an order that will facilitate the principled determination of each claim.
[62]
Breaches relating to entry into the Contract
Almona alleged in par 1 of its statement of particulars filed 20 February 2019 that SAP entered into the Contract on 13 January 2016 without notifying Almona in advance of such entry, when it knew of the request by Almona for a payout figure to effect a refinance and had not provided Almona with the payout figure prior to entering into the Contract.
It follows from the discussion above of the authorities that illuminate the proper exercise of a mortgagee's power of sale that the duty of good faith did not oblige SAP to inform Almona in advance that it was proposing to enter into the Contract. Almona was served with SAP's s 57(2)(b) notice under the Real Property Act on 20 August 2015, and by that notice Almona was given one month to pay the amount claimed. From that time, Almona knew that SAP might enter into a contract to sell the Land at any time, following non-compliance with the notice by Almona. Almona's remedy was to redeem the mortgage by arranging appropriate finance, and then, armed with the ability to redeem, to seek a payout figure from Almona and redeem accordingly. SAP was not obliged to defer the exercise of its power of sale because it knew that Almona wished to redeem. There was no evidence that Almona was unable to arrange finance for redemption because it was so uncertain of the amount of the redemption payment that it could not estimate the amount of finance that it needed to arrange. There was no evidence that Almona, in reality, had a reliable offer for finance that could have been refined immediately before redemption by SAP providing a payout figure.
In any event, I am not satisfied that the evidence establishes that, in the period immediately leading up to the making of the Contract on 13 January 2016, there was an outstanding request by Almona for a current payout figure from SAP that Almona required for the purpose of implementing a genuine redemption of the mortgage. I have related above the history during 2015 of Almona seeking, and on occasion being given, payout figures, and then not effecting the proposed redemption. I am not aware of any genuine, current redemption proposal as at the date of the Contract.
[63]
Breaches related to terms of the Contract
Almona then complained about the terms of the Contract as entered into by SAP, in so far as it contained the Approval Condition (statement of particulars pars 3, 4, 16 and 18) and the Deposit Clause (statement of particulars par 6).
As SAP was entitled to prefer its own interests in exercising the power of sale over the interests of Almona, provided it acted in good faith, SAP was in principle entitled to include in the Contract whatever terms it saw fit, after proper negotiations with Parklea.
The evident purpose of the Approval Condition was to permit the officers of PAG, who in fact managed the exercise of the power of sale by SAP, to negotiate and cause SAP to enter into the Contract, with particular terms as to price, but in the context that PAG had provisionally agreed with Dyldam to provide almost 100% finance through an associated company, and also as to proposed terms that would give PAG a proprietary interest in 80% of the Land and the joint venture project.
I will deal below with Almona's claim that the finance and joint venture arrangements constituted a breach of SAP's duty as mortgagee. If it is found that there was a breach, then that will determine that aspect of Almona's claim. The present complaint must be dealt with on the assumption that it was not a breach of duty for SAP to make the finance and joint venture arrangement.
Although the evidence of how PAG operated was not comprehensive, there was sufficient evidence to establish that PAG was in the business of managing substantial funds, much of which would be invested by third parties. PAG had a complex structure and operated through associated companies incorporated in the British Virgin Islands and the Cayman Islands. As a matter of commercial experience, it is well-known that substantial commercial investment enterprises will often have within their management structure an appropriately constituted investment committee, whose function it is to examine and supervise the appropriateness and propriety of investment proposals initiated by management. There is nothing that is in principle improper about the management of PAG causing SAP to include in the Contract a term that made the contract conditional upon approval being given by the Investment Committee.
While this reasoning would justify the inclusion in special condition 63 of par (a), which was a disclosure that SAP required approval of the Investment Committee, it would not necessarily justify the inclusion of pars (b) and (c), which had the effect that the Contract was conditional upon SAP notifying Parklea that approval had been given by the Investment Committee by no later than 14 March 2016, absent which either party could rescind the Contract.
In practical terms, pars (b) and (c) initially had the effect that PAG had up to 14 March 2016 for its Investment Committee to decide whether or not to approve the Contract, and if approval was given earlier, SAP could delay making the Contract unconditional up to 14 March 2016.
Almona's complaint was that the effect of these provisions was that, even if the Investment Committee gave early approval, SAP had the facility to delay completion so that it could gain the benefit of its continuing entitlement to receive interest at the penalty rate of 21.5% per annum.
However, it my view, it does not follow that the inclusion of these provisions in the Approval Condition showed a lack of good faith on SAP's part. 14 March 2016 was only two months after the date the Contract was entered into. That was not an excessive period. Although the evidence was not elaborate, there was some evidence that PAG had to take steps to make available the money necessary to finance the purchase by Parklea. As the amount was almost $80,000,000, it is not unreasonable that SAP included in the Contract an ability to delay making the Contract unconditional, even after Investment Committee approval may have been given, as it was reasonable for PAG to have time to satisfy itself that it had satisfactory arrangements to finance the purchase.
Almona has not, in my view, established that the extension of the deadline for notifying Investment Committee approval from 14 March 2016 to 29 April 2016, by means of the First Deed of Variation, lacked good faith. There is no evidence that supports the suggestion that SAP extended the deadline in order to prolong the time that SAP would be entitled to receive interest at the penalty rate. It may perhaps remain open for Almona to raise this issue during the taking of accounts, but it was not sufficiently made an issue in the proceedings to date by Almona's pleadings and particulars to permit the Court to make any finding adverse to SAP.
Almona complained that the Deposit Clause had the effect of enabling Parklea to enter into a contract to buy a property worth more than $80,000,000 on a deposit of only $1,000,000, in circumstances where Parklea's paid-up capital was only $100 and its obligation to pay the purchase price was not guaranteed.
However, the evidence satisfies me that the Deposit Clause was in fact agreed between the parties to the Contract in the course of genuine negotiations as to the appropriate terms. The deferral of the obligation to pay the $3,267,500 component of the purchase price, until three days after receipt of confirmation of Investment Committee approval, was reasonable given that Parklea faced the risk that its payment of the deposit may have been futile because of the conditional nature of the contract. As a general matter, a requirement that Parklea pay a full 10% deposit on exchange of contracts may have been unreasonable given that the Contract was conditional.
Finally, in any event, I note that the whole of the purchase price was paid on completion, so that the inclusion of the Deposit Clause has not caused Almona any loss.
As the proposal was, from the beginning, that PAG would provide finance for almost all of the purchase price, there was little commercial risk that the Deposit Clause would cause loss to Almona because of the failure of Parklea to pay the deposit.
[64]
Breaches related to performance of the Contract
The next type of complaint made by Almona concerned the manner in which SAP performed and completed the Contract. First, Almona complained that SAP proceeded too slowly before it learned of the Proposed Transaction: FASOC par 61(b). Secondly, SAP accelerated completion, including by obtaining and notifying Parklea of Investment Committee approval, after it learned of the Proposed Transaction: FASOC par 61(c) and statement of particulars pars 22 to 26. Thirdly, SAP waived the Occupation Condition and the GST Condition and varied the Contract to give effect to the waivers: FASOC par 61(f), (i) and (j), and statement of particulars pars 28 to 35. Almona complained that the conduct of the second and third types was undertaken to frustrate Almona's attempt to redeem the mortgage and obtain an outcome more advantageous to it than the completion of the Contract.
In my view, Almona should not complain in the one breath that SAP proceeded too slowly and then too quickly, as if it had initially proceeded more quickly completion might have occurred before SAP was informed of the Proposed Transaction.
In any event, there is no evidence that would justify a finding that SAP was dilatory in the steps that it took to complete the Contract before it learned of the Proposed Transaction. As I have observed above, it appears that PAG had to raise almost $80,000,000. Special condition 36.1 relevantly provided that completion was to take place 14 days after the approval of the Investment Committee was given. It is not known when in January approval took place. It may be that completion should have occurred no later than 14 February 2016. It in fact occurred slightly more than one month later. Nothing in the evidence satisfies me that, given the magnitude of the transaction, a delay of this amount of time shows a lack of good faith on SAP's part.
Almona's complaint based upon the steps taken by SAP to make the Contract unconditional by notifying Parklea of Investment Committee approval and then accelerating the actual date of completion raises more complex issues.
The first question that must be addressed is whether, and if so for what period, Almona's right to redeem was suspended by reason of the existence of the Contract. If Almona's right was suspended, and if SAP was obliged or even entitled to perform the Contract, then any acceleration of the date for completion will be immaterial.
Special condition 63(b) provided that "completion of this contract is conditional on" notification of Investment Committee approval (emphasis added). The Contract was not conditional; only its completion was. Sub-paragraph (b) therefore appears to be a condition subsequent. That conclusion is reinforced by the effect of sub-par (c), which gave both parties a right to rescind if notice of approval had not been given by 14 March 2016. If neither party chose to rescind, the Contract would continue in effect.
Special condition 63 is in practical effect a double-barrelled condition. It refers only to the giving of notice of approval as the condition, and it is that condition which appears to be a condition subsequent. However, there is really a prior condition that the Investment Committee gives approval to the Contract. If that approval is not given, then the notice of approval cannot be given. The Court is spared the need to decide whether the need for Investment Committee approval made the Contract subject to a condition precedent. The reason is that the Investment Committee approval was in fact given in January 2016, and that occurred before SAP was given notice of the possibility of the Proposed Transaction. Thus, even if the need for Investment Committee approval was a condition precedent, that condition had been satisfied and the only remaining condition was a condition subsequent. The question of whether the need for Investment Committee approval was a separate condition, and if so a condition precedent, would have been a difficult one to answer. Further, on the proper construction of the Contract, it may well have been that the Investment Committee had an unfettered discretion whether to approve the Contract or not.
If the relevant principles distilled by Croft & Hay that I have discussed above are correct in law, as I believe them to be, then Almona's right to redeem was suspended on 13 January 2016 and lost on 22 March 2016 with the completion of the Contract. It is not strictly material that the condition subsequent was satisfied or that the satisfaction occurred at the election of SAP.
If the conclusion in the preceding paragraph is wrong, it is my view that, while the Contract was subject to a condition subsequent, Almona's right to redeem was suspended, and if completion took place because SAP acted reasonably to make the contract unconditional, particularly if acting under an implied duty to act reasonably under the Contract, then Almona's right to redeem was lost on completion. Put another way, I reject Almona's argument that, while the Contract remained subject to a condition subsequent, SAP remained free, without risk of liability to Parklea, to avoid the contract by relying upon the failure of the condition when, acting reasonably, SAP could have caused the condition to be satisfied.
In my view, the underlying proposition that the statutory power granted to the mortgagee by s 58 of the Real Property Act, to contract to sell the mortgaged land has the effect that the mortgagor's right to redeem is suspended while the contract is on foot, must extend to the consequences of the mortgagee complying with any express or implied obligation in the contract to act reasonably to ensure that any condition subsequent is satisfied before the mortgagee can exercise a contractual right to rescind.
Special condition 63 had the effect of making the Contract voidable rather than void, in the sense discussed by the High Court in Suttor v Gundowda. In my view, SAP was, at least from the time that the Investment Committee approval had been given, not entitled to give a rescission notice under sub-par (c) unless it had complied with an implied obligation to take reasonable steps to inform Parklea before the deadline that the approval had been given. SAP did not in this respect have a unilateral right, at its whim, to bring the Contract to an end. I find that SAP acted reasonably in giving the notice. There may have been circumstances in which SAP could reasonably have chosen not to give the notice. That may possibly have been so if PAG had not been able to raise the funds to finance the purchase by Parklea. That may be a difficult question, which was not examined in the proceedings. It would depend upon an analysis of why special condition 63 was included in the Contract in the form in which it was.
In any event, not only was SAP not obliged to omit the giving of notice of the approval, and then give notice rescinding the Contract, just for the purpose of keeping Almona's right to redeem alive, but its choice in giving the notice did not involve any lack of good faith on its part.
My reason for the conclusion in the preceding paragraph is that, even if, as a matter of law, SAP was free to elect not to give notice of the approval before the deadline, it was not in all of the circumstances of the present case obliged not to give the notice. SAP had a right, in its own interests as mortgagee, having exercised the power of sale, to prefer the completion of the contract that it had. It was not obliged to avoid that contract in order to give Almona an opportunity to achieve a position where it might have been able to redeem the mortgage. SAP's duty to act in good faith did not require it to wait for Almona in all the circumstances of this case.
I find that, at no stage before completion of the Contract, was Almona, on the evidence, ready willing and able to redeem the mortgage by tendering the amount necessary to discharge the mortgage. Almona had no more than prospects of achieving that outcome. Even if SAP had been contractually free to choose, its duty of good faith did not require it to terminate the Contract and permit Almona to redeem, unless Almona was in fact and in appearance ready willing and able to do that.
To reiterate, SAP's entry into the Contract was, in my view, a proper exercise of its mortgagee's power of sale and undertaken in good faith. The price payable by Parklea was agreed by an independent, arm's length expression of interest campaign conducted by the receivers and Colliers. The adequacy of the price has not been challenged, although it will be necessary to deal with the fraud allegations below. The terms of the Contract were proper, although negotiated between SAP and Parklea, and the existence of the Contract suspended Almona's equity of redemption. The Investment Committee approved the Contract before SAP learned of the Proposed Transaction. From the time of approval, completion of the Contract was subject to a condition subsequent. The better view is that SAP was not entitled to rescind the Contract because of a failure to notify Parklea that Investment Committee approval had been given, unless the failure to give the notification could be justified as reasonable. The fact that Almona had notified SAP of its hope to implement the Proposed Transaction was not an occurrence that made it reasonable for SAP not to notify Parklea that approval of the Investment Committee had been given. In any event, having entered into the Contract, it was consistent with SAP's obligation to act in good faith for it to prefer to complete the contract that it had, and it was not required to withdraw from the Contract, even if it had a right to do so, because it had learned of the Proposed Transaction. In any event, it cannot be said that SAP had a clear right to withdraw from the Contract, and SAP was entitled to avoid the risk of liability to Parklea from an attempt to withdraw from the Contract.
On balance, the persons who stood behind AMB Capital Partners had the financial strength to fund the redemption of Almona's mortgage, and that fact was understood by SAP. The fact that Almona had a history of failing to implement arrangements to redeem the mortgage did not mean that the Proposed Transaction would not have been implemented, even if a greater payout figure was required than the $65,000,000 originally contemplated by the proposal. However, at all times the Proposed Transaction was conditional and the information that Almona provided to SAP was not sufficient to require SAP reasonably to accept that in due course the Proposed Transaction would be implemented. As it appeared to SAP, the highest that Almona's proposal could be put was that, in due time, after the provision of further information to AMB Capital Partners and the completion of the three-week due diligence process, Almona and AMB Capital Partners might reach an agreement that would provide Almona with the funds necessary to redeem the mortgage.
On the information provided to SAP the prospect that the mortgage would be redeemed was open-ended, with SAP being given no objective basis for making a confident assessment that the redemption would occur.
Almona did not call in these proceedings any evidence from any of the persons who acted for, or stood behind, AMB Capital Partners that would enable this Court to make a finding on the balance of probabilities that redemption of Almona's mortgage would have taken place if SAP had withdrawn from the Contract for whatever time proved to be necessary to enable negotiations between Almona and AMB Capital Partners concerning the Proposed Transaction to reach fruition. Even if the Court were satisfied that SAP had acted in breach of its duty of good faith by failing to withdraw from the Contract, it has not been proved that the breach caused any loss to Almona, as the Court cannot infer from the evidence of the existence of the Proposed Transaction that more likely than not it would in due course have been agreed and permitted the redemption of Almona's mortgage.
If, as I have found, Almona's advice to SAP that it wished to pursue the implementation of the Proposed Transaction did not give SAP a legitimate ground to withdraw from the Contract, and, further, if I am right that SAP was entitled to choose to complete the Contract even if it had a right to withdraw, instead of accepting the indefinite prospect that Almona would be able to redeem the mortgage by reason of the implementation of the Proposed Transaction, the decision of SAP and Parklea to accelerate the completion of the Contract was strictly immaterial. Almona has, as explained above, complained about SAP's delay in completing the Contract, because of the continuing accrual of penalty interest, so that, once SAP had decided to complete the Contract, it was on at least one measure in Almona's interest that completion take place as soon as possible.
In any event, the proper complexion to be put on the decision of SAP and Parklea to accelerate the completion of the Contract must be judged in the light of whether or not SAP was already obliged to complete the Contract, or could elect to do so acting in good faith, even if not so obliged.
There is no doubt that SAP decided to accelerate the completion of the Contract. Gilbert + Tobin's 17 March 2016 letter to Madison Marcus, which gave notice of the Investment Committee's approval of the Contract, specified 1 April 2016 as the proposed date for completion. The evidence is clear that Mr Donato first advised Mr Dixon-Smith and Mr Emmett of the Proposed Transaction on 14 March 2016, and threatened legal proceedings if Almona's demands were not complied with. From that time on, Almona made continuingly more pressing demands for SAP to comply with Almona's aspiration to implement the Proposed Transaction.
These events led Mr Dixon-Smith to give the advice to PAG that is contained in the 15 March 2016 "action plan".
The course of action recommended to PAG on behalf of SAP by Mr Dixon-Smith may possibly have lacked good faith if implemented in circumstances where SAP had no existing obligation to sell the Land to a third party, and if SAP believed that Almona would soon be able to redeem the mortgage as a result of the implementation of the Proposed Transaction. The validity of that possibility would depend upon the particular facts. The established principle that it is consistent with the requirement that a mortgagee exercise its power of sale in good faith that, provided the mortgagee acts to obtain a proper price through an independently-negotiated bargain, the mortgagee may sell to a third party rather than to give the mortgagor in effect a right of first refusal, means that, even in that case, a refusal of the mortgagee to wait until the mortgagor could actually redeem would not involve a failure to act in good faith. For the reasons that I have explained above, I consider that those circumstances are far removed from the present case.
I find that the decision of SAP and Parklea to accelerate the completion of the Contract was made in order to crystallise the consequences of the course of action taken by SAP in entering into the Contract, and in order to complete the transaction in a manner that would avoid SAP and Parklea becoming embroiled in the litigation threatened by Almona. Given what I have found to be the legal position, good faith did not require SAP or Parklea to delay completion of the Contract in the circumstances, including in the face of a risk that Almona might obtain interlocutory orders that prevented the timely and efficient completion of the Contract and subjected SAP and Parklea to the risks and costs of litigation.
It would be a mistake, in my view, for the Court to read into Mr Dixon-Smith's action plan sinister intentions. The action plan was expressed in unguarded terms in circumstances where Mr Dixon-Smith would have assumed he was speaking confidentially to his clients. It contained candid advice to PAG as to how to advance the private interests of SAP. Those interests did not accord with the interests of Almona, but their pursuit did not constitute a failure to act in good faith.
[65]
Breaches related to variation of the Contract
I will deal with the significance of the variation of the Contract to reduce the price to $81.1 million, and to remove any sign that there had ever been an alternative price of $85.35 million, dependent upon Mr Constantine vacating the Residence, below when I consider the consequences of the failure of SAP to inform Almona or Mr Constantine in a timely way of the terms of the Occupation Condition.
As to the waiver of the GST Condition, I do not understand how that conduct on SAP's part could have been a breach of its duty to act in good faith in the exercise of its mortgagee's power of sale. I have explained above why it is not available to Almona in these proceedings to pursue a claim that SAP released Parklea from its obligation to pay any amount of GST that may have been payable. The effect of the Second Deed of Variation, in so far as it amended the GST Condition, was to require Parklea to get a private ruling after completion rather than before. Parklea was still required to pay any amount of GST that was found to be payable after completion. The evidence does not establish any facts capable of supporting an argument that it was an act not in good faith for SAP not to require Parklea to obtain the private ruling before completion, or that the amendment to the GST Condition was likely to impose a loss on Almona.
[66]
Breaches by failing to investigate the Proposed Transaction
Almona next complained that SAP acted in breach of its duty of good faith because it failed to take any or any reasonable steps to investigate the Proposed Transaction or other potential arrangements with AMB Capital Partners for the discharge of the mortgage debt, and whether any such available arrangement represented a transaction on terms more advantageous to Almona than the completion of the Contract: FASOC par 61(d) and statement of particulars pars 19 to 21.
The answer to this claim is that the performance by SAP of its duty to act in good faith in the exercise of its power of sale imposed no obligation upon SAP at all to positively investigate any transaction proposed by Almona that might have led to the position where Almona was ready willing and able to redeem the mortgage. In the present case, for the reasons that I have given above, Almona's right to redeem the mortgage was suspended from the date of the Contract and then lost at the time of completion. Even if that were not the case, it was Almona's responsibility to arrange to be able to repay the mortgage debt. SAP was entitled to prefer in its own interests to complete the existing Contract with Parklea. If Almona wished to stop time running, assuming that it had the right to do so, it had to appoint a time for redemption and to arrange the finance that was necessary. If it were the case that the composition of the mortgage debt was so complex that Almona could not estimate the payout figure with sufficient accuracy to facilitate it arranging finance, Almona could have asked SAP to provide it with an approximate payout figure, and it may have been that it was SAP's duty to provide that figure. Almona could then have obliged SAP to provide a precise payout figure close to the appointed date for redemption, in circumstances where Almona could demonstrate that the request for the payout figure was not a futile imposition on SAP. SAP was not required to investigate any proposal put up by Almona, because SAP was not obliged to wait simply for Almona's benefit in the circumstances of this case.
[67]
Breaches by providing finance to Parklea
Almona complained that SAP failed to disclose to it SAP's interest in the sale in that the sale was to be financed by a company associated with PAG: FASOC par 61(e) and statement of particulars pars 11 and 15. I assume from the terms of the statement of further particulars that Almona intended to add to this complaint a claim that SAP should have disclosed Lord VIII's intended 80% interest in the Land and the development project through the Call Option.
As has been considered above in connection with the burden of proof, there is no absolute prohibition on a mortgagee selling the security property to a company in which the mortgagee has an interest, provided, in respect of the price obtained, the transaction is a proper and independent one. The circumstances may have the effect that the interest obtained by the mortgagee switches the burden of proof and imposes it upon the mortgagee or the entity through which the mortgagee obtains its interest.
It has not been necessary for SAP or Parklea in this case to prove that the contract price for the Land was struck by a proper and independent process or that the price represented the market value. All of the evidence concerning the participation by the receivers and Colliers, and the implementation of the expression of interest campaign, supports a finding that the process was proper and independent. As I have recorded, the case was conducted on the basis, as initially conceded by Almona, that the contract price was a proper one. Although Almona's belated introduction of a fraud claim against SAP and Parklea based upon the joint venture negotiations in late 2015 may imply that the sale was at an undervalue, Almona did not lead evidence to establish such a claim.
Once it is established that the price in the Contract is a proper one, and that the interest acquired by PAG through Lord VI and Lord VIII has not led to any diminution in the amount received by Almona following the sale of the Land, no obligation of good faith was imposed upon SAP to provide any information to Almona concerning that interest.
[68]
Misrepresentation of terms of Contract
Finally, Almona complained that SAP had misrepresented the terms of the Contract to Almona; in particular the time at which the Contract became unconditional and the purchase price, and withheld from Almona the fact that the purchase price would be increased by $4.25 million if Mr Constantine vacated the Residence before completion: FASOC par 61(g), (h) and (j) and closing submissions pars 190 to 194. Allied to this claim is the complaint that SAP was party to the Second Deed of Variation, which deleted the Occupation Condition with intent that the effect of that term would be concealed from Almona: FASOC par 61(i).
I do not see how SAP's duty to act in good faith required it to inform Almona of when it took the step that made the Contract unconditional, or how it mattered what SAP informed Almona concerning the conditionality of the Contract. A mortgagee is not generally required to disclose the terms of the contract of sale to the mortgagor. After SAP had made the Contract unconditional, knowledge of that fact would not have availed Almona.
I am satisfied, however, and regard the conclusion to be self-evident, that a mortgagee in SAP's position, who had negotiated a price governed by the Occupation Condition, would have appreciated that the mortgagor had an opportunity to gain an extra $4.25 million if Mr Constantine vacated the Residence, and, given the amount involved already exceeded the mortgage debt, it was entirely a matter for the choice of Almona, rather than SAP, to decide whether or not to secure the additional $4.25 million in price. It was therefore incumbent upon SAP to inform Almona of the effect of the Occupation Condition in good time to enable Almona to secure the higher price, or alternatively, for SAP to vary the Contract in the way recommended by Mr Dixon-Smith in the action plan, which would have given Almona a reasonable opportunity to gain the higher price after completion. The failure by SAP to inform Almona of the terms of the Occupation Condition, or to implement an equivalent arrangement, was in my view a breach of SAP's duty as mortgagee to act in good faith in the exercise of its power of sale.
In the present case SAP, through the receivers, adopted a satisfactory process for obtaining the best price available in the market, and it succeeded. Once it succeeded, it established that the actual price payable was $85.35 million subject only to the condition that Mr Constantine vacate the Residence before completion. Although SAP's duty not to sacrifice Almona's interests may not have obliged it to obtain a price of $85.35 million subject to the Occupation Condition, once it had actually achieved that price all that it needed to do was to inform Almona of the Occupation Condition in order to realise the full price. SAP had no proper interest at all as mortgagee in concealing the Occupation Condition from Almona. From the vantage point of the terms of the Contract that governed the price, the failure to inform Almona of the Occupation Condition did sacrifice Almona's interests.
That finding means that it is not necessary in this part of the judgment to consider the significance of the Second Deed of Variation. I will return to that issue in the context of Almona's fraud claim.
[69]
Almona's fraud case against SAP
It will now be appropriate to examine the submissions made by Almona concerning the nature and consequences of the existence of fraud under the Real Property Act.
In pars 62 to 64 of its outline of submissions delivered before the commencement of the hearing, Almona accepted that fraud for the purpose of the relevant sections of the Real Property Act required proof of personal dishonesty or moral turpitude or wilful blindness to the truth.
Almona then commenced with the following submission in its closing submissions:
160. In general terms, the indefeasibility provisions in the RPA (ss 42, 45, and 118) provide that the title of the registered proprietor is indefeasible except in the case of fraud. People who commit fraud or take with knowledge of fraud receive no protection. However, ss 45 and 118 of the RPA provide some measure of protection against actions brought for possession or recovery of land for those without knowledge of, or participation in, the fraud if they are purchasers or mortgagees bona fide for valuable consideration.
As it appears to me, the submission made by Almona at par 161 is fundamental to the way in which Almona has propounded its claim. Almona submitted:
161. Fraud can come in many guises. Fraudulent exercise of a power of sale is one example. A power of sale will be exercised fraudulently if it is not exercised in good faith, or it is exercised so as to sacrifice the interests of the mortgagor. Other aspects of conduct associated with the conduct of the parties involved in that exercise may deserve the description of fraud. (Emphasis added)
A similar proposition was put by Almona in its concluding submission on the principles governing fraud under the Real Property Act, which was given in the context of an examination of SAP's duty in the exercise of the power of sale. At par 173, Almona submitted:
173. Hence, the exercise of a mortgagee's power of sale in breach of duty to act in good faith (according to abovementioned variable standard) or by sacrificing the interests of the mortgagor renders the sale liable to be set aside as fraud under s 42 RPA where the purchaser has knowledge of that breach of duty or sacrifice.
In my view, in formulating the relationship between constraints on a mortgagee's ability to exercise its power of sale and the concept of fraud under the Real Property Act in the manner done by Almona at pars 161 and 173, Almona has spliced together the principle governing when the exercise by a mortgagee of its power of sale may be set aside for breach of duty, and the principle governing when a transaction is considered to involve fraud for the purpose of relevant provisions of the Real Property Act, and has conflated those related but conceptually distinct principles in an impermissible way.
It is sufficient to note the following authoritative statement of principle by Leeming JA, with whom Basten JA and Sackville AJA agreed in Anderson v Anderson (2017) 94 NSWLR 591; [2017] NSWCA 131:
[33] There was no dispute that, in order to establish fraud within the meaning of s 42 of the Real Property Act, it was necessary to establish fraud in the sense of moral turpitude which was brought home to the registered proprietor. "'Fraud' in s 42(1) means 'actual fraud, moral turpitude'": Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [192]. Moreover, such fraud by persons from whom a registered proprietor claims "does not affect [the registered proprietor] unless knowledge of it is brought home to him or his agents": Assets Company Ltd v Mere Roihi [1905] AC 176 at 210; Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425; [2015] HCA 2 at [32].
The notion of actual fraud and moral turpitude must be taken to involve an element of dishonesty.
Although in its closing submissions Almona began its justification of the submission that it made by considering the decision of the High Court in Latec, it will be more convenient to start with an examination of the later decision of the High Court in Forsyth, which Almona dealt with after its consideration of Latec.
In Forsyth, the trial judge had found that the mortgagee had breached its duty to the mortgagor in respect of the manner in which it exercised its power of sale. There was no finding of fraud. There was no finding that the purchaser had notice of the circumstances that constituted the breach of duty by the mortgagee at the time it entered into the Contract. However, the mortgagor instituted proceedings to set aside the contract and prevent its completion before completion. The purchaser did not become the registered proprietor of the property, so there was no question of indefeasibility.
The first issue on the appeal to the High Court was whether the trial judge correctly found that the mortgagee breached its duty to the mortgagor in the manner in which it entered into the contract of sale. The majority, Walsh and Mason JJ, upheld the trial judge. Menzies J held that the trial judge ought not to have found that there was a breach of mortgagee's duty.
It is not necessary to analyse the reasoning of the High Court on this issue in detail. All of the justices noted that there was no question of negligence, so that it was not necessary for the Court to consider the controversy as to whether a negligent exercise of a power of sale by a mortgagee could, by itself, be a breach of duty to the mortgagor.
The property in question had been on the market for some time without offers being received. The mortgagee took steps to auction the property. A third party, without making a firm offer, informed one representative of the mortgagee that it was likely to offer $150,000 at the auction, but in any event, if necessary, it would pay out the mortgage debt. The purchaser, who dealt with a different representative of the mortgagee, made a firm offer to purchase the property for $120,000, provided the offer was accepted immediately. The purchaser intimated that it might not participate in the auction if its offer was not accepted. The mortgagee accepted the purchaser's offer. The mortgagor therefore lost the chance that, if the property had been put to auction, the mortgagee would have achieved a price in the order of $30,000 more than the purchase price.
The appeal turned on the Justices' analysis of the evidence that was before the trial judge. Menzies J, in outline, found that the trial judge ought to have considered that it was proper and reasonable for the mortgagee to accept the firm offer of $120,000, as the circumstances were that no other firm offer had been received, and the mortgagee may have lost the benefit of that offer if it had waited to see the outcome of the auction, particularly given that the third-party had not made a firm offer.
The principal majority judgment was given by Walsh J. His Honour upheld the trial judge on the facts. By a separate process of reasoning, Mason J did the same. It seems, without investigating their Honours' reasoning in unnecessary detail, that they took the view that the mortgagee should have treated the third party's proposals with much more seriousness than it did.
Walsh J, at 493, referred to the conflicting views concerning the proper exercise of the mortgagee's power of sale, and then stated the content of the narrow view, being that the mortgagee was only required to act in good faith in the following terms:
In the authorities there are to be found conflicting views on the question whether the obligation cast upon the mortgagee is simply that he should act "in good faith" (which means, in my opinion, in the language used in most of the authorities, that he should act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor) or is an obligation which is broken also if there is negligence in carrying out the sale…
This is a statement of the mortgagee's duty when exercising a power of sale, not of what constitutes fraud.
It is necessary to consider the reasons of Walsh J concerning the relationship between fraud and breach of a mortgagee's duty of good faith in the exercise of the power of sale. Walsh J said at 496-497 (footnotes omitted):
…There may be an improper exercise of a power of sale (that is one which constitutes a breach of the duty owed to the mortgagor) where although there is not any actual fraud (in the ordinary sense of that term) or any collusion between the mortgagee and the purchaser, there is improper conduct which goes beyond mere negligence in carrying out the sale. There may be impropriety of various kinds. What has sometimes been described as a fraud on the power and sometimes as a wilful or reckless disregard of the interests of the mortgagor and sometimes as a sacrificing of the interests of the mortgagor does not necessarily involve, in my opinion, the commission of actual fraud. It has been said that the word "recklessly" as used by Lord Herschell in Kennedy v de Trafford and in other judgments, was used in a sense analogous to that in which it was used in Derry v Peek: see Pendlebury v Colonial Mutual Life Assurance Society Ltd. Whether or not that view is accepted, I think it is in accordance with authority and that it should be affirmed that there may be conduct which amounts to a reckless sacrificing of the interests of a mortgagor, although it is not shown that there is an actual intention to defraud him or that there is corruption or collusion with the purchaser. It is concerning conduct of that kind that inquiry must be made in this case whether or not it warranted the granting of an injunction.
In this part of his judgment, Walsh J has, by his Honour's reference to Derry v Peek (1889) 14 App Cas 337, distinguished the situation where recklessness may constitute fraud, where a representation is made with reckless indifference as to its truth, and reckless conduct by a mortgagee as to the interests of the mortgagor, which may constitute a breach of the duty of good faith, but not fraud.
Later, at 497-498, his Honour said (footnotes omitted):
In my opinion, if the mortgagee does not exercise the power of sale "in good faith" (in the sense explained above) and the purchaser has knowledge of the facts which show the lack of good faith, the purchaser cannot obtain a right superior to the right of the mortgagor. Even when a contract made in such circumstances is carried to completion, in many cases the transaction may be set aside, or, alternatively, the conveyance or transfer treated as operating only as a transfer of the mortgage and of the debt secured by it, and not as a transfer of the mortgagor's interest: see Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liquidation). But if the person who agrees to purchase has no notice of any impropriety at the date of contract and continues to have no notice at the time when it is completed, he will obtain a title which cannot be challenged by the mortgagor. (It is here assumed that all statutory and contractual conditions essential to the exercise of the power of sale have been fulfilled.)
If the purchaser is without notice of the relevant facts at the date of the contract, but the mortgagor takes action to challenge its propriety before completion and proves that on the part of the mortgagee it was improper, the question is whether the purchaser has a right which prevails over the right which the mortgagor would have, as between himself and the mortgagee, to restrain the completion of the contract. That is the question in this case.
Walsh J said that there may be an improper exercise of the power of sale although there may be no actual fraud or any collusion between the mortgagee and the purchaser. Specifically his Honour said: "There may be impropriety of various kinds. What has sometimes been described as a fraud on the power and sometimes as a wilful or reckless disregard of the interests of the mortgagor and sometimes as a sacrificing of the interests of the mortgagor does not necessarily involve, in my opinion, the commission of actual fraud". That, in my understanding, is the guiding principle. There may be a wilful or reckless disregard of the interests of the mortgagor, or a sacrificing of the interests of the mortgagor, in circumstances that do not constitute actual fraud.
The part of the decision in Latec, to which Walsh J referred, is as follows, at 273 (footnotes omitted):
…The learned trial judge concluded that there was a lack of that kind of good faith which in the eyes of a court of equity is essential to the validity of a mortgagee's sale on the principles discussed in such cases as Kennedy v. De Trafford; Barns v. Queensland National Bank Ltd. and Pendlebury v. Colonial Mutual Life Assurance Society Ltd.; and he also concluded that the collaboration of the mortgagee and the purchaser through their common directors amounted to fraud in the sense of ss. 42 and 43 of the Real Property Act, 1900 (N.S.W.), so that the mortgagor's claim to have the sale set aside is not defeated by the indefeasibility which those sections accord to a registered title. I have already said enough to show that in the first of these conclusions I agree. As to the second, we were invited to hold that nothing is fraud in the sense which is relevant under the Real Property Act unless it includes a fraudulent misrepresentation…
Kitto J, in this extract from Latec, specifically observed that the trial judge found that there was a lack of good faith on the part of the mortgagee, and also that the collaboration of the mortgagee and the purchaser amounted to fraud, in the sense of ss 42 and 43 of the Real Property Act. It was the additional finding of fraud in Latec that supported the right of the mortgagor to have the sale set aside notwithstanding that the ordinary consequence of registration would be indefeasibility of the purchaser's title.
Following the extract from his judgment set out above, Kitto J continued immediately to say, at 273-274 (footnotes omitted):
…The whole course of authority on this branch of the law is to the contrary. Moral turpitude there must be; but a designed cheating of a registered proprietor out of his rights by means of a collusive and colourable sale by a mortgagee company to a subsidiary is as clearly a fraud, as clearly a defrauding of the mortgagor, as a cheating by any other means: cf. Waimiha Sawmilling Co. v. Waione Timber Co. Ltd…
Almona's submissions, at pars 161 and 173 of its closing submissions, to the effect that breach of the mortgagee's duty to act in good faith or by sacrificing the interests of the mortgagor renders the sale liable to be set aside as fraud under s 42 of the Real Property Act, where the purchaser has knowledge of that breach of duty or sacrifice, is not in accordance with principle.
It may be that there will not always be a bright line between conduct of the mortgagee that constitutes fraud on the power of sale, as the term "fraud" is used in its equitable sense, involving a lack of good faith, and fraud sufficient to destroy the indefeasibility of a registered title. The former may involve honest conduct by the mortgagee, but which nonetheless involves "calculated indifference" to the position of the mortgagor, or conduct that is "reckless", or which sacrifices the interests of the mortgagor. For the mortgagee's conduct to be fraudulent, in the strict sense, there must be "moral turpitude", or "cheating", or "collusive" conduct between the mortgagee and the purchaser. There must be a "conscious misuse of power". There must, in one guise or another, be dishonesty.
[70]
Has Almona established fraud?
I will take the tenor of Almona's fraud case against SAP and Parklea from the summary of that case in the introduction to Almona's closing submissions in reply, in pars 2 to 4, which I paraphrase as follows.
While the expression of interest process was initially superficially regular, "any regularity of the sale [process] disappeared. A parallel, and at times overlapping, process commenced involving vendor finance and a joint venture between PAG/SAP and Dyldam/Parklea to exploit the development potential of the Land. Mr Merhi's other companies (Visy Holdings and Visy Projects) also became involved in the joint venture".
The joint venture between PAG and Dyldam in which net profits in the order of hundreds of millions of dollars were envisaged was in train from at least 11 December 2015.
Mr Merhi's two companies that ultimately took an interest in the Land were registered the following day.
Wesco then reduced its second-round offer for the Land on 16 December 2015 by $13 million, thereby placing Dyldam as the highest offeror.
Draft contracts for sale were being exchanged with Dyldam before the expression of interest process closed on 16 December 2016.
The contract entered into on 13 January 2016 contained a number of unusual features, including the Approval Condition, and that Parklea was permitted to purchase the Land for a $1 million deposit.
The sale process and the parallel process were kept secret from Almona and Mr Constantine.
The sale process proceeded "languidly", with penalty interest exceeding 20%, until PAG and Dyldam became aware of a real likelihood of Almona being able to refinance and redeem its mortgage.
The moment SAP believed Mr Constantine was dealing with a financier that had the capacity to finance the redemption of Almona's mortgage, an action plan was formulated to dramatically accelerate settlement. "SAP/PAG and Dyldam/Parklea went to extraordinary lengths to make the Contract unconditional and accelerate completion of the sale from which they both anticipated benefiting greatly". They did so shortly after 11 March 2016, on which date they extended the period in which the Contract could remain conditional to 29 April 2016.
Mr Dixon-Smith's action plan "had the objective of shutting down any possibility of Mr Constantine causing the debt to be paid before completion of the sale to Parklea. It required the participation of PAG/SAP and Dyldam/Parklea in the Action Plan".
SAP was not required to complete the sale or accelerate it, as it was not at risk. "SAP could simply have withheld notifying Parklea of Investment Committee approval (as it had been doing). It could do so with utter safety up until at least 29 April 2016".
When faced with legal proceedings instigated by Mr Constantine to restrain the sale, SAP "had an unconditional contract that it could rely upon and a settlement that was imminent". Parklea was complicit in the action plan.
The joint venture between Dyldam and PAG to redevelop the Land had the effect that PAG, through Lord VIII, had the right to obtain an 80% interest in the Land, and Mr Merhi's companies had also taken an interest.
SAP and Parklea "went to astonishing lengths to sacrifice the interests that Almona had in the Land…The motivation for SAP doing so could only have been the desire to see the PAG group benefit far beyond repayment of Almona's debt to it."
Almona then submitted that: "In the absence of any witnesses being called by the defendants to explain the events that unfolded, no other sensible or rational finding can be made".
Further, Almona submitted "that at its core the fraud [perpetrated] occurred in the circumstances set out above. It is a pattern of conduct which is relied upon. It must be assessed holistically. Each aspect of conduct does not need to be parsed and analysed as if it were the only conduct. It must be assessed in the context of the conduct as a whole."
Almona's fraud claim distills into one that alleges that SAP and Parklea "went to astonishing lengths to sacrifice the interests that Almona had in the Land". Ultimately, in my view, Almona did not separately explain why the two defendants' conduct was dishonest, if sacrificing Almona's interests was not equivalent to dishonesty.
As I have explained above, during the course of the preparation of this case up until the first day of the hearing, the claim that SAP and Dyldam faced did not include allegations that a PAG company would acquire an interest in Parklea. Almona had not alleged that the sale price under the Contract was not at market value, and there was no challenge to the regularity of the sale process.
Almona's claim, in substance, commenced with the making of the Contract and the events that followed up to its completion. Those events, it is true, included a claim that SAP had misrepresented and not disclosed the Occupation Condition.
In these circumstances, all of the defendants elected to fight the case on the documents.
It follows from the findings that I have made in relation to Almona's breach of mortgagee's duty claim that I have not accepted the essential core of the underlying narrative to Almona's fraud claim.
Instead, SAP had to deal with the fact that Almona had defaulted on the Redemption Date, being 31 May 2014, and that it continued to be in default until the Contract was entered into on 13 January 2016. SAP, over many months, went to considerable lengths to advise and assist Almona. On 20 August 2015, when SAP served the s 57(2)(b) notice on Almona, the outstanding debt was $71,262,096.22. Almona did not redeem the mortgage in the notice period. Almona made a number of apparent attempts to refinance its debt and redeem the mortgage. Those attempts came to nothing, and SAP could reasonably have considered Almona's efforts to be futile. SAP provided a payout figure of $75,615,868.71 on 17 September 2015. On one occasion Almona arranged an appointment for settlement of the redemption of the mortgage and then failed to attend without giving notice to SAP.
This was in the context that the receivers had received independent valuations of the Land of $67,500,000 and $70,000,000 in mid-2015. Given that the payout figure notified by SAP to Almona on 3 August 2015 was $70,989,568.64, SAP was entitled to believe that it was at some risk of not recovering the whole of the outstanding debt owed by Almona from the exercise of its power of sale over the Land. Achieving the higher valuations given by the valuers depended upon the purchaser accepting the development potential of the Land. Otherwise, the valuations had been $47,360,000 and $48,700,000 on an 'as is' basis. Consequently, the fact that SAP had mortgages over other properties, which sold for a total of $13,001,000 in November 2015, may not have given SAP complete protection in respect of the recovery of the outstanding debt.
SAP appointed the receivers, and the receivers commenced a sale process using expressions of interest with the advice and assistance of Colliers. That process culminated in Dyldam making the highest offer on the basis of what became the Occupation Condition.
SAP and initially Dyldam and then Parklea negotiated the terms of the Contract, and entered into the Contract on 13 January 2016. The Contract contained the Occupation Condition and the Approval Condition as well as other terms negotiated by the parties.
While it may have been that the Contract initially was conditional, subject to the possibility that the Investment Committee would decline to approve the Contract, at an unknown date in January 2016 that approval was given, so the Contract thereafter was subject only to the condition subsequent that SAP notify Parklea of the fact of approval by the agreed deadline. As I have found above, SAP was subject to an implied obligation under the Contract that it was not entitled to rescind the Contract upon failure of the condition subsequent unless it had acted reasonably to satisfy that condition. Given that implied obligation, there was nothing unreasonable or suspicious in SAP and Parklea negotiating to extend the deadline.
As SAP was entitled to act in accordance with its own interests, it was in any event entitled to complete the Contract with Parklea, rather than to jeopardise that contract, or risk contractual liability to Parklea, particularly since SAP was only notified by Almona of the Proposed Transaction on 14 March 2016. The Proposed Transaction was contingent on the outcome of the required three-week due diligence process, and there was a risk that the Proposed Transaction would not be confirmed.
In any event, while the Contract subsisted, Parklea had a right to require it to be completed, subject only to the condition subsequent not being satisfied, notwithstanding that SAP had acted reasonably in an attempt to satisfy it. Almona's right to redeem the mortgage was suspended, and would be lost except in the event that the condition subsequent to the Contract could not reasonably be satisfied.
In these circumstances, it is clear that SAP and Parklea accelerated completion of the Contract to avoid being caught up in legal proceedings threatened by Almona.
In the light of this narrative, which I have found was in substance the real one, there is no basis for any finding by the Court that SAP acted fraudulently or dishonestly, or that Parklea was a party to that fraud or dishonesty, except possibly in respect of the two matters that I will identify shortly.
Nor, in my view, is there any basis for Almona's submission that the objective facts gave rise to a forensic imperative that SAP and Parklea call evidence from witnesses to avert the Court drawing inferences that either defendant had acted dishonestly.
[71]
Alleged fraud based on joint venture
The first of the further possible grounds that require consideration by the Court as to whether SAP and Dyldam acted fraudulently arises out of the circumstances in which PAG and Dyldam negotiated and finally entered into their joint venture concerning the Land, and the possible involvement of Mr Merhi's companies in that joint venture.
It is clear in my view that if, notwithstanding the apparent regularity of the sale process conducted by the receivers and Colliers, PAG and Dyldam had colluded with Mr Merhi and Wesco for the purpose of causing Wesco to reduce its bid of $92,000,000 to $79,000,000, in order to achieve the artificial result that Dyldam's expression of interest was the highest made, so that the Land could be secured for the benefit of the joint venture, that would have constituted dishonest and reprehensible behaviour on the part of PAG and Dyldam, and for that matter Mr Merhi and Wesco as well.
However, as I have explained above, Almona did not introduce any aspect of this claim into the proceedings until the evening of 6 March 2019, which was the fourth day of the hearing, and - crucially - did not in any event allege collusion between PAG, Dyldam and Wesco. At most, Almona alleged the fact of the joint venture negotiations between PAG and Dyldam, the fact that Wesco reduced its expression of interest, the fact that the Visy companies were incorporated during the course of the joint venture negotiations, and the fact that the Visy companies ultimately acquired a minority interest in Parklea at the time of completion of the Contract. Almona alleged a coincidence of these events, but not explicitly collusion to achieve them.
I have already explained why SAP and Parklea were not realistically able to respond to the allegations that were introduced into the proceedings formally on 7 March 2019, by making a wholesale change in their forensic approaches to the proceedings, even if they had chosen to do so. I have also explained above why I have concluded that Almona is precluded on the pleadings from now pursuing its "collusion" claim against SAP and Parklea.
On 1 March 2019, Almona introduced the allegation that PAG, through Lord VIII, had acquired an interest in Parklea by reason of the Call Option. On 6 March 2019, Almona also introduced the allegation that Mr Merhi, through the Visy companies, had acquired an interest in Parklea.
I am not satisfied that the evidence, in any event, required the Court to reach a conclusion that there was a sufficient basis for the Court to draw inferences of fraud or dishonesty against SAP and Parklea unless those inferences were dispelled by explanations given by witnesses called by those defendants.
In addition to the matters that I have set out above, in explaining what I am satisfied was the real narrative of the events the subject of these proceedings, I consider the following matters to be of significance.
The expression of interest process was in the hands of the receivers and Colliers, and there is no suggestion that SAP or Dyldam interfered in the independence of the receivers or Colliers in carrying out the process, in a manner that may have undermined its legitimacy.
Almona accepted that the price obtained was consistent with the market value, and that acceptance is borne out by the independent valuations that were provided to the receivers.
There is no suggestion in the evidence that the receivers or Colliers reacted to the significant reduction in Wesco's expression of interest in any way consistent with their having a belief that the reduction was anything other than a genuine reassessment of a commercial offer price.
There was no evidence tendered by Almona of any association between PAG and Dyldam and Mr Merhi and Wesco before the end of the expression of interest process.
There was positive evidence of communications between Mr Constantine and Mr Merhi before the beginning of the expression of interest process. Almona was not forthcoming with evidence of these communications, with the result that the Court has no basis to assess the significance of those communications. There is, however, a higher possibility that Mr Merhi's involvement in the expression of interest process was associated with Almona than that it was associated with the defendants.
Compared to the valuations and the bids by the other participants in the expression of interest process, Wesco's original bid of $92,000,000 was an outlier, so there is nothing objectively exceptional in the appearance that Mr Merhi reconsidered Wesco's initial bid.
There is at least some basis for the Court to conclude that Wesco's initial bid was not a serious one, as Mr Merhi did not apparently engage with Colliers before Wesco submitted its first expression of interest. That may be compared with the seriousness with which the representatives of Dyldam approached the process.
There is no suggestion that PAG or Dyldam attempted to enter into any collusive arrangement with the other participants who had made high first-round expressions of interest, Billbergia Group, Toplace and Mulpha.
As I have explained above, the statements made by Mr Qutami on behalf of Dyldam to Mr Dixon-Smith on 24 December 2015 concerning the structure of the joint venture participants is consistent with Dyldam being the only other joint venture party at that stage, and that Mr Qutami was unaware of any possible involvement of the Visy companies.
I reject the argument put by Almona, in par 54 of its closing submissions, that the reference by Mr Dixon-Smith in his 13 November 2015 timesheet to "Review of funding arrangements for buyers seeking funding" (in the plural) is a proper foundation for a finding of dishonesty, on the basis that Mr Dixon-Smith should be taken to have referred to the Dyldam and Visy companies.
In conclusion, before the first round of the expression of interest campaign occurred on 30 October 2015, Mr Constantine engaged in discussions with Mr Merhi that led to the Deed of Agreement involving Australia International Investment Holdings Group Pty Ltd. Mr Constantine and Mr Merhi were contemplating a joint venture or some other arrangement involving the assets of Almona. Although Almona has always been aware of Mr Constantine's involvement with Mr Merhi, it has sought to make a case of fraud against SAP and Parklea, through Dyldam, because of their alleged involvement in an ill-defined relationship with Mr Merhi and Wesco, without being candid about Almona's own relationship with Mr Merhi. That relationship ought to have facilitated Almona calling evidence from Mr Merhi or obtaining documents from him and his companies, if necessary by subpoena, to provide some basis for alleging an illicit arrangement between SAP, Dyldam and Mr Merhi and his companies. There was no such evidence that would tip the balance in favour of a burden being imposed upon SAP and Parklea to dispel an inference that SAP and Dyldam had engaged in joint venture negotiations with Mr Merhi during the expression of interest campaign.
Instead, Dyldam engaged in the expression of interest campaign and submitted an expression of interest on 30 October 2015, before the relevant negotiations between PAG and Dyldam commenced. The evidence was sparse, but there was a basis for the Court to understand that there was some history of dealings between PAG and Dyldam. There was no evidence that PAG or Dyldam tried to influence the second round expressions of interest by any of the other participants. There was no assurance that Dyldam's second round expression of interest would be accepted. Had it not been for the independent expression of interest campaign carried out by the receivers and Colliers, and if, instead, the contract price had been agreed between PAG and Dyldam, the exercise of the power of sale by SAP would probably have not been sustainable. However, there is no basis in the evidence for the Court to find that the receivers did not obtain the best market price available.
Almona accepted that conclusion, save for the allegation made late in the hearing based upon the fact that the joint venture negotiations had taken place between PAG and Dyldam, and that Wesco reduced its second round bid by $13,000,000, after the Visy companies that ultimately acquired interests in Parklea had been incorporated. In my view, given the seriousness of a finding of fraud, these coincidences were not, in the circumstances in which the allegation was raised, sufficient to impose an onus on SAP and Parklea to dispel an inference that PAG and Dyldam had caused Wesco to reduce its bid. In any event, collusion is different to coincidence, and I do not consider that Almona even belatedly alleged collusion.
This conclusion does not ignore the fact that Wesco reduced its expression of interest by $13,000,000 and that it has ultimately been discovered that Mr Merhi, through his Visy companies, acquired a 20% interest in Parklea at the time the Contract was completed. The acquisition of the 20% interest must have followed an agreement between representatives of Dyldam and Mr Merhi. However, the case that Almona pleaded was that SAP had acted fraudulently and Parklea was aware of and was a party to that fraud. As there is simply no evidence that any representative of PAG was involved in the reduction of Wesco's expression of interest, or knew or even had reason to suspect that Dyldam had agreed to share its interest with Mr Merhi, it would not be proper for the Court to speculate and to treat a ground for suspicion as a proper basis for a finding of fraud by PAG on behalf of SAP, even in the absence of an explanation by SAP.
[72]
Failure to disclose Occupation Condition and Second Deed of Variation
The second basis upon which the evidence and Almona's pleadings raise a proper claim that SAP's conduct may have involved fraud or dishonesty is the circumstances in which SAP, having agreed a price for the sale of the Land that was $4.25 million higher if Mr Constantine gave vacant possession of the Residence before the Contract was completed, did not act in the way necessary to achieve the higher price, negotiated a variation of the Contract to specify only the lower price, and positively represented to Almona's solicitor that the price was $81.1 million at the date of the Contract.
In my view, the evidence establishes that SAP's conduct in this regard was relevantly dishonest.
First, the statement made by Mr Dixon-Smith on behalf of SAP in his 21 March 2016 letter to Mr Creais of Bartier Perry that "our client exchanged a contract for sale of the property known as Parklea Markets on 13 January 2016 for a sale price of $81.1 million plus GST and adjustments" was plainly and objectively false. "The sense in which a representation would be understood by a reasonable person in the position of the representee is prima facie the sense relevant to the question whether the representation is false": Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68 (Krakowski) at 576-577 per Brennan, Deane, Gaudron and McHugh JJ. The representation so clearly stated that the contract price was $81.1 million on 13 January 2016 that it cannot be construed as a representation concerning only the price that it was intended that Parklea would be required to pay on completion. Although "the sense in which the representor intended the representation to be understood is relevant to the question whether the representation was made fraudulently" (Krakowski at 577), Mr Dixon-Smith did not give any evidence that he intended the representation to have a different meaning than the sense in which it would be understood by a reasonable person. It is obvious that Mr Dixon-Smith was personally aware of the Occupation Condition in the Contract. As the representation was made by Mr Dixon-Smith knowing it to be false, or being recklessly indifferent as to its truth, the representation was fraudulent according to the statement of the elements of the tort of deceit in Derry v Peek (1889) 14 App Cas 337 at 374.
However, the statement made by Ms Hempel of Gilbert + Tobin in her email to Bartier Perry on 21 March 2016 was not fraudulent in the same manner, as it was a true statement of what was then intended by the parties to the Contract for Parklea to pay on completion. By omission, the email obscured critical information that Almona was entitled to know, but nonetheless the representation was not on its proper construction false. $81.1 million was at that time the amount that Parklea intended to pay on completion, subject to adjustments and GST.
Secondly, I consider that it was dishonest of SAP not to inform Almona of the terms of the Occupation Condition in sufficient time to permit Mr Constantine to vacate the Residence before completion, so that Almona could gain the benefit of the additional $4.25 million in purchase price.
This second basis for SAP's dishonesty must be judged in the context that SAP, as a mortgagee exercising a power of sale, had a duty to Almona as mortgagor to act in good faith to obtain the highest purchase price that was available from a sale process that was consistent with the somewhat limited content of the duty imposed upon the mortgagee. SAP had properly exercised its power of sale and achieved a price that was governed by the Occupation Condition. The source of that condition was the final expression of interest made by Dyldam.
Further, PAG, through its associated company Lord VI, had agreed to finance almost all of the purchase price payable by Parklea. In fact, of the purchase price of $81.1 million, at completion Lord VI advanced $79.1 million. There was no evidence given by the defendants as to how the additional $4.25 million would have been financed, if Mr Constantine had vacated the Residence before completion. In the absence of evidence as to how that would have been done, I would infer that Lord VI would have been required to finance all, or at least a substantial part of, the additional purchase price. In any event, the omission to inform Almona of the Occupation Condition relieved PAG, and through it SAP, of the need to worry about how the additional $4.25 million could be found. In this way, PAG and SAP received a personal financial advantage from their failure to inform Almona of the terms of the Occupation Condition. Although the exercise price payable by Lord VIII under the Call Option does not appear to have been linked to the sale price of the Land under the Contract, it was also indirectly beneficial to PAG that the price was lower as that would improve the prospects that the joint venture would be viable.
Also relevant to the context in which the question of dishonesty must be determined, is the decision of PAG, and thus SAP, to accelerate the completion of the Contract. That, by itself, was not a breach of mortgagee's duty by SAP. Mr Dixon-Smith initially apparently appreciated that proper conduct might require that the Contract be varied, so that it could be completed on the basis that Mr Constantine would have a month after completion in which to give vacant possession of the Residence, in which case Parklea would be required to pay the additional purchase price of $4.25 million. Mr Dixon-Smith gave advice to PAG to that effect in his 15 March 2016 action plan. As mentioned above, the evidence does not disclose whether Mr Dixon-Smith, or anyone else on behalf of SAP, suggested this variation of the contract to Parklea. Nor does the evidence explain what happened in the meetings or telephone conversations between the parties to the Contract that led to them deciding to vary the Contract by omitting the Occupation Condition and creating the appearance that the price had always been $81.1 million. In the absence of any explanation to the contrary, it is proper for the Court to infer that, by some unknown process, SAP and Parklea addressed the consequences of the Occupation Condition, the fact that Almona and Mr Constantine had not apparently acted in a manner that would gain the higher price, the apparent ignorance of Almona of the terms of the Occupation Condition, and the potential jeopardy to the highly accelerated completion of the contract if Almona was informed of the Occupation Condition at the last moment. Although the precise terms of the agreement between SAP and Parklea are not disclosed by the evidence, I am satisfied that they must have mutually decided that it was in their collective interests to formally reduce the price to $81.1 million, and to deprive Almona of the opportunity to gain the additional $4.25 million.
On balance, I am satisfied that the conduct of SAP and Parklea in entering into the Second Deed of Variation, containing as it did terms that deleted the Occupation Condition, and thereby creating the appearance that the purchase price had always been $81.1 million, was conduct that assists the Court in drawing the conclusion that this aspect of SAP's conduct was dishonest. The replacement of the front page of the contract with a new page that suggested the price had always been $81.1 million, and the insertion of a page in the new special conditions that suggested that special condition 61 was "Not Used", were clearly capable of concealing the fact of the reduction in the purchase price. Neither SAP nor Parklea gave any evidence that could constitute an innocent explanation for this conduct. It may be imagined, for example, that the variation to specify a single purchase price might simplify the process of establishing the correct amount of stamp duty, but it is not clear that the variation would provide any real advantage in this regard, as it should have been a simple matter to explain to what was then called the Office of State Revenue that the condition for the payment of the higher price had not been satisfied. As the parties to the Contract had the opportunity to give an innocent explanation, but did not do so, the Court should not find an innocent explanation based on speculation.
Nor should the Court accept the argument that this aspect of the Second Deed of Variation should be found to be innocent, because the parties to the Contract were always at risk that the terms of both the original contract and the Second Deed of Variation could readily be discovered by a notice to produce in proceedings instituted by Almona, or from the fact that, on 27 October 2016, both the Contract and the Second Deed of Variation were in fact given to Almona at the same time. These matters are factors that could, if evidence had been given of innocent reasons for the parties' actions, have assisted a finding of innocence, but I do not consider that they are adequate for that purpose in the absence of a proper explanation from the parties.
Finally, it is to be noted that, in SAP's amended defence filed on 6 March 2019, it pleaded in par 55B(b), in answer to Almona's allegation that it had not provided information concerning the sale except for the statement that the contract price was $81.1 million on 13 January 2016, that SAP had no obligation to provide any further information to Almona about the Contract and that the terms of the Contract were confidential. SAP did not appear to rely upon this confidentiality defence in respect of the positively false statement in the 21 March 2016 letter. SAP could hardly rely upon the confidentiality of the terms of the Contract to protect it from the consequences of a positively false statement made on behalf of SAP as to one of the terms of the contract. Although it may be accepted that, as a general matter, the terms of the Contract may have been confidential as between SAP and Parklea, I do not accept that the confidentiality extended to preventing SAP from informing Almona of the existence of the Occupation Condition. Once SAP had performed its duty to exercise its power of sale in good faith, including by entering into a contract that imposed a higher price depending upon Almona as mortgagor acting in a particular way, SAP's duty to act in good faith obliged it to inform Almona of the term of the contract that governed the price in all the circumstances of this case.
In conclusion, where the beneficiary of SAP's duty to act in good faith could gain an additional $4.25 million from the simple act of Mr Constantine vacating the Residence, and where that $4.25 million represented part of the actual value of Almona's property, the failure of SAP to inform Almona of the Occupation Condition in a timely manner was dishonest.
[73]
Was Parklea a party to SAP's dishonesty?
As the Court has found that SAP's conduct in respect of Mr Dixon-Smith's representation, and in concealing the Occupation Condition generally, was dishonest in the two ways discussed above, it is necessary to address the question of whether Parklea participated in SAP's dishonest conduct in a manner that would justify sheeting home responsibility for that conduct to Parklea.
First, I find that the evidence does not establish that Parklea participated in the conduct of SAP represented by Mr Dixon-Smith's representation in his 21 March 2016 letter to Bartier Perry that the purchase price was $81.1 million as at 13 January 2016.
The evidence that is available requires a finding that Parklea did not participate in, or know of, the making of the representation by Mr Dixon-Smith. An analysis of all of the email communications leading up to completion of the Contract, with particular attention being paid to the persons who were sent copies of each email, justifies a finding that Parklea had no means of knowing that SAP had made a positive representation to Almona that the price had been $81.1 million from the inception.
The question, therefore, is whether Parklea's participation in the failure of SAP to inform Almona of the terms of the Occupation Condition, and the making of the Second Deed of Variation, are sufficient to justify the Court finding Parklea to be liable for SAP's dishonest conduct.
The positions taken by SAP and Parklea concerning the legal principle to be applied in answering this question are not easy to discern. That is primarily because Almona's submissions focused on its case that the whole process of SAP's exercise of its mortgagee's power of sale, even if starting from the making of the Contract, leading up to the acceleration of completion, constituted fraud, because it involved the intentional sacrifice of Almona's rights as mortgagor. In its written outline of submissions served before the commencement of the hearing, Almona, in pars 74 and 75, seemed to suggest that Parklea's liability depended upon the application of the second limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244 (Barnes v Addy). Almona relied upon the decision of the High Court in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8, which, Almona submitted, establishes that "any of the first four of the five categories [of knowledge identified in Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Developpement SA [1983] BCLC 325] suffices to demonstrate knowledge for the purpose of accessory reliability in Australia". See now Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 (Farah Constructions) at [174]-[178].
However, the second limb of the rule in Barnes v Addy deals with 'knowing assistance' in a breach of trust, while the first limb deals with 'knowing receipt': see Farah Constructions at [112]. In the present case, Parklea received the Land on completion of the Contract, as a result of the exercise by SAP of its mortgagee's power of sale. That would suggest, if the rule in Barnes v Addy applies, it would be the first limb, which has the effect that, as stated by the High Court in Farah Constructions at [112]: "…Persons who receive trust property become chargeable if it is established that they received it with notice of the trust."
It appears from Almona's closing submissions, at pars 199 to 204, that Almona has treated its case as being one of knowing receipt. Parklea responded by making detailed submissions in support of the argument that: "…there are no relevant parallels with the facts in Latec". I agree with that submission, but have not found a comparison between the facts of this case and the facts in Latec to be a satisfactory basis for determining Parklea's liability. It is necessary for the Court to determine that issue as a matter of general principle. As I understand the two parties' submissions, they accept that the title of a purchaser to whom property is transferred by a mortgagee fraudulently exercising a power of sale may be set aside at the suit of the mortgagor, if the purchaser had notice, in the sense required by the first limb of the rule in Barnes v Addy, of the fraud.
The issue now under consideration does not involve a fraudulent transfer of the title to the mortgaged property, but the transfer for a price of $81.1 million, when the mortgagee has fraudulently failed to disclose to the mortgagor that the purchaser would be required to pay $85.35 million, if the mortgagor caused its principal to give vacant possession of the property.
Parklea's position was different to that occupied by SAP. Parklea, as a purchaser under a Contract made by a mortgagee in exercise of its power of sale, did not owe any duty of good faith personally to Almona. However, Parklea must be taken to have known that the vendor, SAP, owed such a duty to Almona. Parklea was at all times represented by competent lawyers. Parklea knew that, by the terms of Dyldam's second expression of interest, and the fact that the Contract included the Occupation Condition, Almona's property was worth $85.35 million to Almona, subject only to Mr Constantine giving vacant possession of the Residence before completion. In that way, Parklea knew that, under the terms of the Contract, Almona had a proprietary right that was worth an additional $4.25 million to it, subject only to the satisfaction of the condition. Parklea had a self-interest in reducing the purchase price to $81.1 million, as that would save it $4.25 million, subject only to the inconvenience of taking the steps necessary to eject Mr Constantine. It may be that Parklea had genuinely valued the cost of having to eject Mr Constantine at $4.25 million. However, in my view, an honest approach to the application of the Occupation Condition would require that Almona be given the choice of whether to realise the additional $4.25 million in the price. Payment of the price of $81.1 million would be of advantage to Parklea provided its cost of ejecting Mr Constantine was less than $4.25 million. When the decision was made by SAP to accelerate the completion of the Contract, it must have been obvious, as soon as SAP raised the issue of the Occupation Condition, that it was probable that Mr Constantine would not vacate the Residence before completion.
As neither SAP nor Parklea gave evidence concerning the genesis of the Second Deed of Variation, in so far as it related to the Occupation Condition, or how the agreement was reached on that issue, the Court is not able to make precise findings on this subject. SAP may have suggested Mr Dixon-Smith's solution of varying the Contract to give Almona a month for Mr Constantine to vacate the Residence. If that happened, Parklea must have declined to agree with that variation. Alternatively, SAP may simply not have raised the fact that the acceleration of the date for completion would not in practical terms give Mr Constantine time to vacate the Residence. It is proper to infer, if this were the case, that the parties to the Contract must have addressed the practical difficulties involved in effecting an accelerated completion, if Almona were advised of the terms of the Occupation Condition. In the absence of evidence from Parklea, I would not infer that it had grounds for understanding, and did understand, that Almona had been told of the Occupation Condition, and had decided not to avail itself of the benefit of the higher price. The evidence does not establish when the discussions by which the agreement was made that led to the deletion of the Occupation Condition occurred. Mr Hall's email to Ms Hempel sent at 5:05 PM on 17 March 2016, which is set out above, simply referred to "the discussions between the parties", which led Parklea to require the Second Deed of Variation. All in all, the inference is justified that Parklea was aware that Almona did not know of the terms of the Occupation Condition when it agreed to vary the Contract. Parklea must have been as aware as SAP of the capacity of the replacement of the first page of the Contract, and the deletion of the Occupation Condition in a way that would disguise the fact that it had ever existed, to mislead Almona.
In these circumstances, I find that Parklea's agreement to enter into the Second Deed of Variation containing the terms that it did as to the price payable under the Contract was dishonest. It involved conduct that knowingly deprived Almona of $4.25 million of the value of the Land, which was set by Parklea's own conduct in agreeing to that price. Parklea stood to gain $4.25 million, even though that gain must be offset by the inconvenience of obtaining vacant possession from Mr Constantine.
[74]
Effect of the failure to inform Almona of the Occupation Condition
It is now necessary to determine the consequences of the failure of SAP to inform Almona of the terms of the Occupation Condition in time to permit Mr Constantine to vacate the Residence before completion, and its further conduct in entering into the Second Deed of Variation which deleted the Occupation Condition.
Mr Constantine gave evidence that he was not aware of the Occupation Condition at any time until 27 October 2016, when the original Contract and the Second Deed of Variation were provided to Almona.
He also gave evidence that, had he known of the Occupation Condition, he would have given vacant possession of the Residence.
Nothing was put to Mr Constantine in cross-examination by any party that contradicted this evidence from Mr Constantine.
There was no evidence of any conduct by Mr Constantine or Almona that suggested that Mr Constantine was aware of the Occupation Condition.
Although Mr Constantine's evidence in cross-examination was very unsatisfactory in relation to his dealings with Mr Merhi during the course of the expression of interest campaign, I accept Mr Constantine's evidence that, had he been aware of the Occupation Condition, he would have vacated the Residence so that Almona would have received the additional $4.25 million. It is highly probable that Mr Constantine would have vacated the Residence in order for Almona to receive the additional $4.25 million, provided that he was given sufficient notice of the terms of the Occupation Condition and the anticipated date of completion.
Vacation of the Residence by Mr Constantine would not have prevented him from causing Almona to institute court proceedings to establish Almona's right to pay out SAP and to regain possession of the Land.
Mr Constantine's conduct in accepting advice that he should cause Almona to withdraw its interlocutory application in this Court for orders preventing the completion of the sale of the Land is consistent with Mr Constantine being able to appreciate that it would not have been in Almona's interests for him to let his desire to keep the Land interfere with his ability to gain an additional $4.25 million for Almona by vacating the property. Further, it is likely that Mr Constantine would have given vacant possession, because once he was advised that he could not prevent completion occurring, it would have followed that, in due course, Parklea would inevitably get an order ejecting him from the Residence.
Consequently, I find that SAP's conduct caused Almona to suffer a loss on 22 March 2016 of $4.25 million. That loss represented a reduction in the value of Almona's proprietary interest in the Land that was set by the outcome of the expression of interest campaign and the terms of the Contract in so far as it included the Occupation Condition.
On the other hand, the execution of the Second Deed of Variation did not have any separate effect, as it was executed as at completion of the Contract. Although it did conceal that the Occupation Condition was included in the Contract at the date it was made, Almona did not become aware of that fact until 27 October 2016, when it learned of the true effect of the Second Deed of Variation, because it was given the original Contract at the same time.
I do not find, however, that SAP's conduct in not informing Almona of the existence of the Occupation Condition caused the transfer of the title to the Land to Parklea. The transfer of the title would have happened on the completion of the Contract, which was not itself infected by any dishonest conduct on the part of SAP. Had Almona learned of the existence of the Occupation Condition before completion and the making of the Second Deed of Variation, it is at least probable that, on an application to the Court, proof by Almona that Mr Constantine would vacate the Residence with reasonable expedition would have led to relief in the nature of the deferral of the time for completion, to permit Mr Constantine to vacate the Residence, and an order prohibiting the variation of the Contract by the deletion of the Occupation Condition. I find that, if SAP had disclosed to Almona the Occupation Condition, the result would have been that the transfer would have taken place anyway, but the price payable on completion would have been increased by $4.25 million.
The parties do not appear to have dealt in their submissions with the relief that would be appropriate, if the Court found only that SAP and Parklea had acted dishonestly in respect of the failure to inform Almona of the Occupation Condition. As noted above, Almona provided a complete set of final orders that would be applicable if the Court found that the whole of the transfer of the Land to Parklea was infected by fraud. As I understand it, Almona reserved the right to apply for alternative relief if the Court found in its favour on some other basis.
There may be scope for dispute concerning Almona's entitlement, at this stage of the proceedings, to ask for an alternative form of proprietary relief in relation to the Land than the proprietary relief sought at the hearing. It may be arguable that, as the proper exercise by SAP of its power of sale generated a price for the Land of $85.35 million, subject to the Occupation Condition, the failure of SAP to give Almona the opportunity to arrange for Mr Constantine to vacate the Residence had the effect that Almona's property worth $85.35 million was transferred to Parklea for $81.1 million, meaning that Almona was deprived of the fruits of its property to the extent of $4.25 million. It may be arguable that Almona is entitled to a charge over the Land to secure payment to it of either $4.25 million, or for an amount that bears the same proportion of the present market value of the Land as the ratio 4.25:85.35.
These are questions that must be deferred until the Court is required to address the orders that should be made, including as to the future conduct of these proceedings for the purpose of dealing with the claims for relief made by Almona that were not dealt with at the hearing.
[75]
Was the receivers' knowledge the knowledge of Almona?
SAP sought to meet Almona's claim concerning the failure to disclose the existence of the Occupation Condition by an argument that, in law, there was no failure to disclose at all because, at all material times, the receivers were aware of the original terms of the Contract, including the existence of the Occupation Condition, and the receivers were the agents of Almona. Thus, SAP sought to argue that there was in reality no failure to disclose because Almona was always aware of the existence of the Occupation Condition.
SAP went so far as to submit that, if Almona had grounds for complaint, that complaint should be directed at the receivers who, having knowledge of the terms of the Occupation Condition, failed to inform Mr Constantine, as the director of Almona, of that fact. SAP submitted that, as Almona had not sought relief against the receivers in these proceedings, the Court was not able to grant any remedy to Almona, even if it made the findings that I have made above concerning the existence of dishonest conduct on the part of SAP.
[76]
Was the receivers' knowledge issue available on the pleadings?
Almona met SAP's defence based upon the argument that Almona had knowledge of the existence of the Occupation Condition through the receivers with the submission that the defence was not available to SAP because SAP had formally admitted in its defence to Almona's pleading that SAP had failed to inform it of the existence of the Occupation Condition.
Almona included the following allegations in its FASOC:
55. The plaintiff was not provided with a copy of the Contract or Deed of Variation or Second Variation at any time prior to 27 October 2016, nor was the plaintiff informed of the Occupation Condition and that the plaintiff could have obtained a higher sale price if Mr Constantine moved out of the Residence.
55A. The plaintiff had prior to 22 March 2016 requested information about the sale including but not limited to the details of the sale.
[Particulars omitted]
55B. The second defendant refused and/or failed to give such information to the plaintiff up to 21 March 2016. The only information concerning the sale was given on 21 March 2016 in which the representatives for the second defendant advised that the second defendant had exchanged a contract of sale of the Land on 13 January 2016 for a sale price of $81.1 million plus GST and adjustments.
[Particulars omitted]
SAP responded to these paragraphs in its defence to the FASOC in the following way:
55. In answer to paragraph 55 of the FASOC, the Second Defendant:
a. admits that it did not provide the Plaintiff with a copy of the Contract or Deed of Variation prior to 27 October 2016; and
b. otherwise does not admit paragraph 55.
55A. The Second Defendant admits paragraph 55A of the FASOC.
55B. In answer to paragraph 55B of the FASOC, the Second Defendant:
a. admits that no information about the terms of the Contract was provided to the Plaintiff by the Second Defendant before 21 March 2016;
b. says that the Second Defendant had no obligation to provide any further information to the Plaintiff about the Contract, the terms of which were confidential; and
c. otherwise, does not admit paragraph 55B.
I consider that, particularly by reference to its responses in pars 55, 55A and 55B, SAP admitted that it did not provide information concerning the existence or terms of the Occupation Condition to Almona before 27 October 2016.
Furthermore, it was incumbent upon SAP, if it wished to run a case that it had given the requisite information to Almona, by reason of that information having been provided to the receivers as Almona's agent, to make that allegation specifically in its defence. No such allegation was made.
Consequently, I find that the defence that Almona was at all material times aware of the existence and terms of the Occupation Condition, because those matters were known to the receivers as agents of Almona, is not available on the pleadings.
It must be noted, however, that Parklea's response to pars 55 to 55B of the FASOC was relevantly that it did not know and could not admit the matters alleged. The equivalent response by PT was that it did not admit the allegations.
Consequently, in so far as Almona seeks to sheet home liability to Parklea and PT in respect of any failure by SAP to inform it of the existence and terms of the Occupation Condition, it may be necessary for Almona to establish that Almona did not have knowledge of those matters through the receivers.
It is not necessary for the Court to decide whether Parklea ought to have raised the issue of the receivers' knowledge in their defences, if it wished to avail itself of the argument put by SAP because, for the reasons that follow, I would hold, in any event, that the knowledge of the receivers was not the knowledge of Almona for this purpose. I should note that neither Parklea nor PT sought specifically to rely upon this argument.
[77]
Was the receivers' knowledge the knowledge of Almona?
It is also appropriate that I deal with the merits of the argument in so far as SAP seeks to rely upon it, against the possibility that I am wrong in my conclusion that the argument is not available to SAP on the pleadings.
Although the appointment of a receiver of a company will supplant the authority of its directors to act on its behalf in respect of the powers that the company has agreed by the terms of the instrument under which the receiver is appointed, which may be exclusively exercised by the receiver to the exclusion of the directors, the appointment does not otherwise suspend the right of the directors to exercise the powers of their office. The receiver has power to bind the company and is usually, as in the present case, made solely the agent of the company by the instrument which gives the mortgagee the power to appoint the receiver. The receiver's mind is not the mind of the company, as may be the case for a liquidator in the course of the company's winding up. Information given to the receiver is not necessarily received by the company. The information is received by the receiver as an agent, and the question whether the company knows what the receiver knows will depend upon the principles that govern when the knowledge of an agent is to be imputed to the principal.
Where, during a transaction in which an agent is acting for its principal, the agent acquires knowledge of any fact material to the transaction in circumstances where it is the agent's duty to communicate its knowledge to the principal, the agent's knowledge is imputed to the principal: see Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 70 ACSR 1 at [6186]-[6194]; Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40 at 658-659; Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 24-26, 31-32; Brockway v Pando (2000) 22 WAR 405; [2000] WASCA 192 at [62]; and Smits v Roach (2004) 60 NSWLR 711; [2004] NSWCA 233 at [40]-[43].
In Gomba Holdings UK Ltd v Minories Finance Ltd [1988] 1 WLR 1231; [1989] 1 All ER 261, the Court of Appeal of England and Wales was concerned with the question of when a receiver of a company is obliged to provide documents brought into existence during the course of the receivership to the company after the receiver has retired. Fox LJ, with whom Stocker and Butler-Sloss LJJ agreed, said at 1233-1234:
...The basis of the claim to ownership is that the receivers were, during the receiverships, the agents of the companies and were paid by the companies. It is said that, as between principal and agent, all documents concerning the principal's affairs which have been prepared or received by the agent belong to the principal and have to be delivered up on the termination of the agency.
In general terms that is a correct statement of principle but it cannot be applied mechanically to the somewhat complex position of a receivership. The agency of a receiver is not an ordinary agency. It is primarily a device to protect the mortgagee or debenture holder. Thus, the receiver acts as agent for the mortgagor in that he has power to affect the mortgagor's position by acts which, though done for the benefit of the debenture holder, are treated as if they were the acts of the mortgagor. The relationship set up by the debenture and the appointment of the receiver, however, is not simply between the mortgagor and the receiver. It is tripartite and involves the mortgagor, the receiver and the debenture holder. The receiver is appointed by the debenture holder, upon the happening of specified events, and becomes the mortgagor's agent whether the mortgagor likes it or not. And, as a matter of contract between the mortgagor and the debenture holder, the mortgagor will have to pay the receiver's fees. Further, the mortgagor cannot dismiss the receiver since that power is reserved to the debenture holder as another of the contractual terms of the loan. It is to be noted also that the mortgagor cannot instruct the receiver how to act in the conduct of the receivership.
All this is far removed from the ordinary principal and agent situation so far as the mortgagor and the receiver are concerned. Whilst the receiver is the agent of the mortgagor he is the appointee of the debenture holder and, in practical terms, has a close association with him. Moreover he owes fiduciary duties to the debenture holder who has a right, as against the receiver, to be put in possession of all the information concerning the receivership available to the receiver: see In re Magadi Soda Co. Ltd. (1925) 41 T.L.R. 297. The result is that the receiver, in the course of the receivership, performs duties on behalf of the debenture holder as well as the mortgagor. And these duties may relate closely to the affairs of the entity which is the subject of the receivership. It is, therefore, not satisfactory to approach the problem of the ownership of documents which come into existence in the course of the receivership on the basis that ownership depends upon whether the documents relate to the affairs of (in this case) the companies. I agree with Hoffmann J. that the ownership of the documents in the tripartite situation of a receivership depends on whether the documents were brought into being in discharge of the receivers' duties to the mortgagor or the debenture holder or neither. The fact that a document relates to the mortgagor's affairs cannot be determinative. All sorts of documents may relate to the mortgagor's affairs but to which the mortgagor cannot possibly have any proprietary claim.
It is said that the judge's approach is unworkable because the receivers owed a duty both to M.F.L. and the companies. No doubt they did owe duties to both, but they were quite separate duties. The existence of the two duties does not entitle the court to ignore the fact that the ownership of documents created pursuant to one cannot determine the ownership of documents created pursuant to the other. It is also said that the receivers have a duty to maintain the records of the companies. But that does not help one to decide what are the records of the companies, i.e. whether a document belongs to the companies or someone else. The receivers in the present case plainly had a duty to manage the affairs of the companies. All documents which were created or received in pursuance of that duty must be the property of the companies. That would include, for example, the ordinary correspondence sent and received by the companies in the conduct of their affairs. On the other hand (and this is the second group) the receivers had to advise and inform the debenture holders regarding the conduct of the receivership. Documents created for that purpose, while they can certainly be said to relate to the affairs of the companies, cannot be the property of the companies. They were not brought into being for the purpose of the companies' business or affairs and the fact that they were created by or on behalf of persons who are, technically, the agents of the companies cannot be sufficient to create ownership in the companies. Thirdly, there are documents prepared by, or on behalf of, the receivers not in pursuance of any duty to prepare them but simply to enable the receivers to prepare such documents or perform such duties as they were required to prepare or perform for the purposes of their professional duties to the debenture holders or the companies. Such papers are, I think, the property of the receivers. Thus, in Chantrey Martin v. Martin [1953] 2 Q.B. 286 it was held by the Court of Appeal that working accounts and the papers which are brought into existence by chartered accountants in the preparation of a final audit of a client's books are the property of the accountants.
In my view, in principle, what was said about the obligation of the receiver to provide documents to the company should apply with equal force to information learned by the receiver during the course of the receivership.
The relationship between a receiver, the mortgagor and the mortgagee was the subject of a detailed analysis by Einstein J in State Bank v Chia, as adopted by Croft J in Bank of Western Australia Ltd v Abdul [2012] VSC 222. It will be sufficient to note the following part of Croft J's judgment in the latter case. Because of the length of the extract, I have omitted those parts that are relevant to the circumstances in which the mortgagee will become personally liable for the acts of the receiver by reason of directions given by the mortgagee to the receiver:
[35] This question arises in the context of the general position that a receiver appointed out of court is almost invariably appointed on the basis that he or she is the agent of the mortgagor, the secured debtor. This does not mean that the receiver so appointed owes no duties to the mortgagor, the secured debtor. Einstein J considered the general position of a receiver as agent of the mortgagor, the secured debtor, and the duties owed by the receiver in that context in State Bank of New South Wales Ltd v Chia, as follows:
"[868] The purpose of the appointment of a receiver out of court is somewhat different; they are not appointed for the benefit of the company but for the purpose of realising the security held by the appointer: see Re B Johnson & Co (Builders) Ltd [1955] 1 Ch 634 at 644 per Evershed MR, Ostrander v Niagra Helicopters Ltd (1973) 20 DLR (3d) 161 at 167 per Stark J (Ontario High Court). The appointment of such a receiver is performed by the mortgagee, however, it is invariably the case, and is here the case, that the instrument under which the receiver is appointed provides that the receiver is the agent of the mortgagor. It has been said that the agency is 'a very special' and 'limited' one: see W R D Stevenson, 'Receivers' (1973) 44 ALJ 438 at 444. The purpose and effect of rendering the receiver the agent of the mortgagor is to relieve the mortgagee from the liabilities which the law casts upon a mortgagee going into possession and to place upon the mortgagor the liability for the acts and defaults of the receiver: Gaskell v Gosling [1896] 1 QB 669 at 692-693, per Rigby LJ (dissenting), approved on appeal: Gosling v Gaskell [1897] AC 575 at 589, 590, 595; Visbord v Commissioner of Taxation (Cth) (1943) 68 CLR 354 at 368, per Latham CJ.
[869] To make the receiver the agent of the mortgagor is, of course, something of a contrivance. As Starke J said in Visbord v Federal Commission of Taxation (supra at 376) '[w]e must not lose sight of the substance of the appointment. It was made for the benefit of the mortgagee and to protect the mortgagee from liability as mortgagee in possession or as principal.' Yet it is a contrivance which has the effect of removing a receiver appointed out of court from those classes of persons who may be said to be fiduciaries. As Professor Finn explained in his work [Fiduciary Obligations (1977, p 12)], there are no reasons for the imposition of fiduciary obligations where, although one party agrees to act for or on behalf of another, the other party is able to control what powers are exercised for or on his or her behalf or able to control the manner of its exercise. Because the receiver is made the agent of the mortgagee, 'the receiver-mortgagor relationship becomes one founded upon agreement and escapes the imposition of general fiduciary obligations' [see p13]. Accordingly, it is said in [Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (3rd edition, para 2845)] that the receiver appointed out of court is the only genuinely non-fiduciary agency: see also Ostrander v Niagara Helicopters Ltd (supra, at 167).
[870] To say that a receiver appointed out of court is not, generally, a fiduciary, is not to say that they are in no circumstances a fiduciary nor to say they owe no duties in the conduct of their receivership. Outside of those imposed by Statute, the general law imposes at least three duties upon a receiver. In the first place, the receiver has a duty to the mortgagee to collect and realise the assets of the company for the purpose of discharging the security: Re B Johnson & Co (Builders) Ltd (supra, at 645 per Evershed MR), Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 at 831 per Needham J. In the second place, the receiver holds in trust for the mortgagor, any proceeds from the sale of the company's assets after the satisfaction of the claims of the mortgagee and subsequent creditors: Visbord v Federal Commissioner for Taxation (supra, at 384 per Williams J), Expo International Pty Ltd v Chant, (supra, at 830). In the third place, and most relevantly for these proceedings, the receiver, as the donee of a power, must exercise the powers and duties granted to him or her in good faith and for a proper purpose."
[36] Whether or not the appointment of the receiver as the agent of the mortgagor, the secured debtor, might have been regarded as something in the nature of a "contrivance", it is a longstanding and accepted common practice which, in my view, is not now open to question, short of legislative intervention. This is, in the present circumstances, reflected in the charges under which the receivers and managers were appointed each of which provided, in the usual way, that the receivers and managers were the agents of the various Abdul Companies. The deeds of appointment contain provisions to similar effect.
…
[40] The relationship between the receiver and the mortgagee, the second creditor, was also explained in detail by Einstein J in State Bank of New South Wales Ltd v Chia, where the authorities and academic writing on the subject was reviewed and considered:
"[881] The first point to make is that a mortgagee has no power to direct the receiver in the performance of the receiver's task: Medforth v Blake (supra, at 94-95 per Scott V-C); Knight v Lawrence [1993] BCLC 215 at 223 per Browne-Wilkinson V-C. But there is no doubt that the law allows, and even requires, interaction between a receiver and his or her appointors. The receiver occupies a fiduciary relationship with his or her appointors, one aspect of which is the duty of the receiver to keep his or her appointors informed about the progress of the receivership: Re Magadi Soda Co, Ltd (1925) 41 TLR 297 at 302 per Eve J; Gomba Holdings UK Ltd v Minories Finance Ltd [1988] 1 WLR 1231 at 1233 per Fox LJ…
…
[884] After quoting part of this passage [Blanchard and Gedye, The Law of Company Receiverships in Australia and New Zealand (2nd Edition, 1984 at 52)] go on to say that: '…in agency law generally, an agent can have two principals and it should not be thought that a receiver could never be the agent of the debenture holder in relation to particular matters whilst generally being the agent of the company.' The matter was also the subject of discussion by the Ontario Court of Appeal in Peat Marwick Ltd v Consumers' Gas Co (1980) 113 DLR (3d) 754 at 762 where Houlden JA considered that, notwithstanding the language of a debenture which clearly made the receiver the agent of the mortgagor, in performing acts such as exercising the power of sale, the receiver acts as agent for the mortgagee while, in performing acts such as occupying the premises and carrying on the business, the receiver acts as agent for the mortgagor. Conversely, in Robinson Printing Co, Ltd v Chic, Ltd [1905] 2 Ch 123 at 132, Warrington J, in considering a debenture that did not constitute the receiver the agent of the mortgagor, said that although such a receiver was generally the agent of the mortgagee, 'he is also for some purposes the agent of the company, and certainly to such an extent as may be necessary to enable him to exercise the powers conferred upon him by the debenture'.
…
[41] It is clear from Chia and the authorities to which reference was made that a receiver has a duty to keep the mortgagee, the secured creditor, informed as to the progress of the receivership. This process of keeping the mortgagee, the secured creditor, informed is not to be confused with direction, interference and instruction necessary to displace the agency relationship with the mortgagor, the secured debtor. Communication between the receiver and the mortgagee, the secured creditor, is entirely proper and will not lead to displacement of the agency relationship unless it goes beyond mere consultation or the communication of preferences by the mortgagee, the secured creditor…
Relevantly to the present case, these authorities establish that the agency of a receiver who is appointed by a mortgagee exercising a power in that regard contained in the mortgage is special. Although the mortgage contains a term that the receiver is the agent of the mortgagor, that authorises the receiver to bind the mortgagor in relation to the steps taken by the receiver in the exercise of the receiver's powers granted by the mortgage. It does not mean that the receiver is solely the agent of the mortgagor, or is the agent of the mortgagor for all purposes. The receiver is not generally a fiduciary of the mortgagor, although the receiver may be so in relation to any surplus held after repayment of the mortgage debt. The receiver is a fiduciary of the mortgagee. The receiver has a duty to inform the mortgagee of the progress of the receivership. The receiver is not generally required to inform the mortgagor of information acquired in the course of the receivership.
In the present case, the receivers did not create or enter into the Contract, although it is more probable than not that they were aware of its terms, including the Occupation Condition.
To reiterate, the Contract was entered into by SAP as mortgagee in possession and was not entered into by the receivers. SAP made the decision to act as mortgagee in possession by no later than 17 December 2015, and Gilbert + Tobin started to negotiate the detailed terms of the Contract on 22 December 2015. Although Gilbert + Tobin had formerly acted on behalf of the receivers, lawyers within the firm were instructed to act for SAP in respect of the Contract.
The receivers had no material role at all in the sale of the Land after the completion of the expression of interest process. They were not performing any duty owed to Almona in respect of which they obtained knowledge of the terms of the Contract. For that matter, they were not performing any duties that they owed to SAP. To the extent that they received knowledge of the terms of the Contract, they did so, as far as the evidence discloses, for their information only.
The receivers were not under any duty to inform Almona about the terms of the Contract, and they did not do so. Knowledge of the terms of the Contract was not imputed to Almona because of the receivers' knowledge of those terms.
[78]
Misleading or deceptive conduct claim
Almona made a separate claim against SAP for misleading or deceptive conduct in breach of s 18 of the ACL and s 12DA of the ASIC Act. Almona claimed that Parklea was a person involved in the contraventions by SAP within the meaning of both of those Acts.
Almona based this claim on two aspects of SAP's alleged conduct. First, in par 66 of the FASOC, it alleged that it was misleading or deceptive for SAP to have failed to disclose to Almona the existence of the Occupation Condition and concealing the existence of the condition through the Second Deed of Variation.
In par 69 of the FASOC, Almona made the following claim:
Further and in the alternative, [SAP], itself or by its agent [King & Wood Mallesons] represented to [Almona] on 21 March 2016:
a. that the sale price under the terms of the Contract was $81.1 million; and
b. that the exercise of the power of sale by [SAP] on 13 January 2016 had served to extinguish [Almona's] equity of redemption; and
c. settlement had been deferred from 21 March until 22 March 2016 under strong protest from [Parklea].
The parties' submissions did not deal with this aspect of Almona's case in the breadth and depth in which they dealt with the breach of mortgagee's duty and fraud cases. That may have been because, to some extent, the alleged statutory contraventions and the relief that may be available overlapped with the real property law claims. There are, of course, potentially significant differences between the claims and the available remedies. There are also potentially significant legal issues raised by Almona's statutory claims. The parties appear to have addressed the aspects of those claims that appeared to them to be most significant.
I propose to deal with this aspect of Almona's case in the same manner as have the parties, and will not address any issues that the parties have not raised in their submissions.
I should note that, in its defence, SAP, being the party primarily liable for any contravention that Almona may be able to establish, admitted the allegations in par 64 of the FASOC in which Almona pleaded the foundations for the application of the ACL and the ASIC Act. SAP also admitted that it made the representations alleged by Almona in par 69. SAP otherwise did not admit, or denied, the various allegations, and in particular, by its response to pars 65 and 66, SAP denied that it made the first representation alleged by Almona.
Parklea and PT in effect did not admit any of the allegations relevant to Almona's misleading or deceptive conduct claim.
[79]
Failure to disclose Occupation Condition
As to the first of Almona's claims, being the failure to disclose and the alleged concealment of the Occupation Condition, Almona pleaded in par 65 of the FASOC:
65. In light of the duty alleged in paragraph 31, a reasonable person in the position of [Almona] and of [SAP] would expect that [SAP] would take steps to ensure that [Almona] was aware of the opportunity to receive an additional $4.25 million on settlement of the Contract through compliance with the Occupation Condition.
In its closing submissions, Almona supported this aspect of its misleading or deceptive conduct claim by the following submission:
309. Viewed objectively, a mortgagee exercising a power of sale with a duty to act in good faith and not wilfully or recklessly disregard or sacrifice the interests of Almona, would take steps to ensure Almona was aware of the opportunity to receive an additional $4,250,000 on settlement of the Contract by ensuring Mr Constantine vacated the Residence.
Both in its pleading and its submissions, Almona claimed that SAP's failure to advise it of the Occupation Condition was misleading or deceptive because, objectively, a reasonable person in the position of both Almona and SAP would expect that SAP would disclose the Occupation Condition because of SAP's duty to exercise its power of sale in good faith.
For the reasons that follow, I do not accept Almona's submission that it had an expectation that it would be informed of the existence of the Occupation Condition.
I have found above that SAP's failure to advise Almona of the existence of the Occupation Condition in a manner that would enable Almona to obtain the higher price was a breach of SAP's duty to act in good faith.
As I have explained above, when considering the effect of the authorities on the exercise by a mortgagee of its power of sale, the mortgagee generally has no obligation to inform the mortgagor that it proposes to sell the property or to provide the mortgagor with the contract or inform the mortgagor of its terms. The reason why I found there was a breach of duty in this particular case is that once SAP, acting through the receivers, had achieved the market value of the Land with two alternative prices, where action on Almona's part was necessary to achieve the higher price, the obligation not to sacrifice Almona's interests required SAP to disclose that one aspect of the Contract to Almona. Otherwise, SAP remained free to preserve the confidentiality of the Contract.
Consequently, the present is a somewhat special case. As a general matter, a mortgagee is entitled to maintain the confidentiality of the contract, and that would ordinarily be understood by the mortgagor. Not only would the mortgagor generally not have a positive expectation that the terms of the contract would be disclosed to it, but the mortgagor would have a positive expectation that they would not.
The reality of that proposition appears to be reflected in the communications between lawyers at Bartier Perry and the various representatives of SAP and Parklea. While many demands were made on behalf of Almona, there were no demands to be told the price or any other terms of the contract. In essence, on their face, the communications that were made on behalf of Almona sought to achieve the redemption of the mortgage.
That suggests that, as a matter of fact, in a positive way Almona had no expectation that it would be told anything by SAP about the price or any other terms of the Contract.
However, I do not think that the success of Almona's misleading or deceptive conduct claim depends on it succeeding in establishing that it had an expectation that it would be informed of the Occupation Condition.
This aspect of Almona's misleading or deceptive conduct claim effectively alleges that SAP's silence in respect of the Occupation Condition was misleading or deceptive.
Almona's claim is unusual because, on the special facts of this case, the law imposed upon SAP a duty to inform Almona of the Occupation Condition, but the obligation to do so was not a general duty known to Almona.
In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31, French CJ and Kiefel J said at [15]-[20] (footnotes omitted):
15 For conduct to be misleading or deceptive it is not necessary that it convey express or implied representations. It suffices that it leads or is likely to lead into error. BMW's case as pleaded, when its confusing overlaps are disentangled, was based upon conduct conveying representations either by the materials supplied to it by Miller or by the non-disclosure of which it complained.
16 The circumstances in which silence or non-disclosure of information can be misleading or deceptive are various. The understanding of the place of silence or non-disclosure in the characterisation of conduct as misleading or deceptive was affected, in early decisions on s 52, by the view that the section was concerned with misrepresentations that would have been actionable under the general law. That view was linked to the proposition, expressed in Taco Co of Australia Inc v Taco Bell Pty Ltd, that conduct could not be misleading or deceptive for the purposes of s 52 unless it conveyed a misrepresentation. It was also linked to the proposition that at general law "mere silence, with regard to a material fact, which there is no legal obligation to divulge, will not avoid a contract, although it operate as an injury to the party from whom it is concealed". In the early development of the law about misleading or deceptive conduct, there were rather cautiously expressed views about the role of silence, albeit the importance of the statutory words was acknowledged.
17 The 1992 decision of the Full Court of the Federal Court in Demagogue Pty Ltd v Ramensky represented what has been described accurately as "an emphatic acknowledgment … of the unique nature of the statutory prohibition". The Full Court upheld the decision of the primary judge that a vendor of land had created a clear but erroneous impression in the purchasers that there was nothing unusual concerning access to the land and, in particular, had been silent as to the necessity of a grant of a licence by a statutory authority to enable such access.
18 Gummow J, who wrote the leading judgment and with whom Black CJ and Cooper J agreed, said:
"it should be no inhibition to giving effect to what, on its proper construction, is provided for in the legislation, that the result may be to achieve consequences and administer remedies which differ from those otherwise obtaining under the general law."
Silence, as Black CJ said in his concurring judgment, was to be assessed as a circumstance like any other:
"the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive."
Gummow J referred to the limitation that "unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist".
19 The language of reasonable expectation is not statutory. It indicates an approach which can be taken to the characterisation, for the purposes of s 52, of conduct consisting of, or including, non-disclosure of information. That approach may differ in its application according to whether the conduct is said to be misleading or deceptive to members of the public, or whether it arises between entities in commercial negotiation. An example in the former category is non-disclosure of material facts in a prospectus.
20 In commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context. Silence may be a circumstance to be considered. The knowledge of the person to whom the conduct is directed may be relevant. Also relevant, as in the present case, may be the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business. The judgment which looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure as misleading or deceptive is objective. It is a practical approach to the application of the prohibition in s 52.
Depending upon all of the circumstances of the case, silence may be misleading or deceptive even in situations where there is no duty to disclose, but, as was said by Hill J in Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 at 114, and by Lockhart J in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 489-490, in many circumstances it will be difficult to conceive of how mere silence could be misleading or deceptive, where there is either no duty to disclose, or no expectation on the part of the person to whom the disclosure could be made that disclosure would happen.
I consider that the failure of SAP to disclose the Occupation Condition to Almona in this case was misleading or deceptive, because its general duty to exercise its power of sale in good faith imposed a positive duty on SAP to inform Almona. In some cases, silence may be misleading or deceptive because the other party has an expectation that relevant information will be disclosed, and acts in a manner contrary to the facts because of the silence. However, an expectation of disclosure is not essential, as the ultimate question is whether the conduct is misleading or deceptive, and silence where there is a duty to inform is likely in fact to mislead or deceive the party entitled to disclosure. It is possible to be misled or deceived by simple ignorance, when disclosure of information would have caused the party to act differently. Consequently, Almona was misled as to the true nature of the price under the Contract and deceived into inaction, when arranging for Mr Constantine to vacate the Residence would have increased the sale price by $4.25 million to Almona's benefit. The existence of the positive duty, which arose from the particular circumstances, made SAP's silence misleading or deceptive, notwithstanding that Almona had no positive expectation of being told the terms of the Contract.
Almona is entitled to succeed in its claim that the failure by SAP to disclose the Occupation Condition to it was misleading or deceptive conduct.
[80]
Entry into Second Deed of Variation
SAP's entry into the Second Deed of Variation was also conduct that, of its nature, was capable of concealing the prior existence of the Occupation Condition, and therefore misleading or deceiving Almona. However, that could only happen if Almona received a copy of the Contract after it had physically been varied in the manner required by the Second Deed of Variation. Almona had no right to be given a copy of the Contract, and it was not given a copy until 27 October 2016, when it was given at the same time a copy of the Second Deed of Variation. Consequently, the making of the Second Deed of Variation did not in fact mislead or deceive Almona.
As the Second Deed of Variation was not entered into until the time of completion of the Contract, it was not capable of misleading or deceiving Almona in any way in respect of its attempts to redeem the mortgage before completion of the Contract, including in respect of the proceedings commenced by Almona.
I conclude that the aspect of Almona's misleading or deceptive conduct case based upon the making of the Second Deed of Variation and the consequent alteration of the Contract fails.
[81]
Mr Dixon-Smith's 21 March 2016 letter
As to the second aspect of Almona's misleading or deceptive conduct claim, the claim is based upon Mr Dixon-Smith's 21 March 2016 letter to Bartier Perry and SAP has admitted that the letter made the representations alleged, as I have noted above.
Although SAP was not obliged, as mortgagee, to inform Almona, prior to the completion of the Contract, what the price was, SAP through Mr Dixon-Smith chose to do so. As the statement that SAP "exchanged a Contract for sale of the property known as Parklea Markets on 13 January 2016 for a sale price of $81.1 million plus GST and adjustments" was false, it was also in this case misleading or deceptive. Notwithstanding that Almona did not have an expectation that it would be told the price in the Contract, I am satisfied that it did expect that if it was told the price, that information would be accurate.
As I have explained above in the context of Almona's breach of mortgagee's duty claim, I am satisfied that, if SAP had disclosed to Almona the true effect of the Occupation Condition in sufficient time, Mr Constantine would have given vacant possession of the Residence before completion.
Consequently, it was misleading or deceptive for Mr Dixon-Smith to inform Almona, on behalf of SAP, that the sale price in the Contract as at 13 January 2016 was $81.1 million plus GST and adjustments.
Mr Dixon-Smith's letter was not misleading or deceptive in so far as it claimed that the exercise of the power of sale by SAP on 13 January 2016 had extinguished Almona's equity of redemption, being more correctly its right to redeem the Torrens system mortgage. That follows from the fact that I have found that the representation was correct in law. That conclusion is not altered by the circumstance that it may have been that strictly the equity of redemption was at that time suspended rather than extinguished. The suspension would lead to extinction of the equity of redemption as a result of actions that SAP was, on my view, obliged to undertake; but in any event was entitled to take and intended to do so. It would in that circumstance be quibbling to distinguish between suspension and extinguishment of the right to redeem.
In any event, the statement made by Mr Dixon-Smith was a statement as to his opinion as a lawyer as to the legal effect of certain facts. It was not alleged by Almona that Mr Dixon-Smith's statement of opinion was not genuinely held, or that it was an opinion that he could not reasonably form on the basis of the facts known to him and his understanding of the law.
I also reject Almona's claim that the statement by Mr Dixon-Smith that settlement had been deferred from 21 March until 22 March 2016 under strong protest from the purchaser was misleading or deceptive. I have referred above to Madison Marcus' 21 March 2016 letter to Gilbert + Tobin which was, in my view, a protest against the proposed delay in completion from 21 March 2016 to 22 March 2016. It may be that notice of the terms of that letter was received by Mr Dixon-Smith before he sent the 21 March 2016 letter in which the representations were made. It may also be that Mr Dixon-Smith learned of Parklea's position from some other source.
I am not satisfied in the circumstances that Almona has demonstrated that the statement was misleading or deceptive. In any event, the evidence is not sufficient to establish that Almona adjusted its conduct in any way based upon Mr Dixon-Smith's statement.
[82]
Accessorial liability of Parklea
Almona alleged in par 70A of the FASOC that Parklea "was a person involved in the contravention of the ACL and/or ASICA" by reason of certain allegations and particulars given. Almona simply submitted in par 314 of its closing submissions that "Parklea was involved in SAP's contraventions…" The Court therefore has to divine what Almona's case is before deciding it.
Almona first relied on the matters alleged in par 63 of the FASOC. Relevantly, Almona alleged in particulars (k) and (l) that Parklea knew that Almona was not aware of the Occupation Condition, and in particular Parklea was aware that bringing forward the completion date was likely to deprive Almona of additional consideration of $4.25 million. Almona's reliance on pars 40 to 48 of the statement of particulars repeats, by means of the cross-referencing in par 47 to par 33 the allegation that Parklea knew that SAP had not notified Almona of the Occupation Condition or requested that Mr Constantine vacate the Residence.
It may be that the findings that the Court has made that Parklea participated in SAP's dishonest conduct by completing the Contract at a price of $81.1 million with knowledge that SAP had not informed Almona of the Occupation Condition would also support a finding that Parklea was knowingly concerned in SAP's misleading or deceptive conduct in failing to disclose the condition. If that is true, a finding of ancillary liability against Parklea for SAP's misleading or deceptive conduct in failing to disclose the Occupation Condition to Almona is unlikely to afford Almona any additional relief to that which flows from Parklea's participation in SAP's dishonest conduct.
As Gleeson JA (with whom Macfarlan and Emmett JJA agreed) said in Pollock v Hicks [2015] NSWCA 122 at [61]-[67], in relation to the provisions governing accessorial liability under the Trade Practices Act 1974 (Cth):
[61] Section 82 of the TPA provides that a person who suffers loss or damage because of conduct of another person that was done in contravention of a provision of Pts IV, IVA, IVB or V or s 51AC, may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
[62] Section 75B of the TPA relevantly provides that a reference to a person "involved in the contravention" of a provision of, Pt IVA of the Act (which includes s 51AC) is to be read as a reference to a person who:
(a) has aided, abetted, counselled or procured the contravention; or
(b) has induced, whether by threats or promises or otherwise, the contravention; or
(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention.
[63] The effect of s 75B of the TPA is to extend remedial provisions of that Act, such as s 82, to persons who, though not themselves corporations but individuals, assist a corporation in contravening a provision of the TPA and in that way participate in the contravention: Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1 at [435] (McPherson A-JA; Ormiston A-JA agreeing).
[64] In the present case, Mr Hicks relied upon paras (a), (b) and (c) of s 75B of the TPA.
[65] The effect of s 75B of the TPA was considered by the High Court in Yorke v Lucas [1985] HCA 65 ; 158 CLR 661, where it was held (Mason ACJ, Wilson, Deane and Dawson JJ) that, for paras (a) or (c) of s 75B to apply, the individual said to have participated in the contravention must be an intentional participant, and this requires knowledge of the essential matters or elements which constitute the contravention, regardless of whether or not the individual knows that those matters amount to a contravention. The High Court also held (obiter) (at 670) that both paras (b) and (d) of s 75B also require intent based upon knowledge. At 667-668, the High Court said that in the case of involvement in a contravention constituted by misrepresentations, the element of intention would require knowledge of the falsity.
[66] Subsequent authority establishes that in the case of a representation as to a future matter, it is necessary to demonstrate that the accessory had knowledge that there were no reasonable grounds for the statement. While s 51A assists proof in relation to a representation by a corporation with respect to a future matter by deeming lack of reasonable grounds unless the corporation adduces evidence to the contrary, the benefit of that provision does not apply in a claim against those said to be involved in the contravention: Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175 ; 160 FCR 1 at [15].
[67] Counsel for Mr Hicks accepted that the requirement of knowledge in s 75B, means actual knowledge not constructive knowledge. Wilful blindness will however suffice as actual knowledge: Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 at [135].
Accessorial liability for statutory misleading or deceptive conduct requires an element of conduct, being an involvement in the contravention by the primary contravener, together with a mental element, which involves intentional participation with knowledge of the requisite kind. Where, as in the present case, the primary contravention involves a failure to act, by not disclosing information that leads to another party being misled or deceived, it is not a straightforward matter to discern the nature of the conduct necessary to make another party liable on an ancillary basis. The primary conduct contravenes the prohibition against misleading or deceptive conduct because, even though it involves an omission, the context imposes a duty to disclose because of an expectation in the party misled or deceived, or, if I am right, there is a legal duty to disclose. It is one thing to treat the omission of the primary contravener as being conduct, but it is a contestable proposition that another party is knowingly concerned in the primary contravention when that party does nothing in respect of the disclosure or nondisclosure of the relevant information. This is not a fanciful concern as Parklea was a party to the Contract, which was in principle confidential as between SAP and Parklea, and there is a real question concerning Parklea's right, as purchaser, to disclose any term of the Contract to Almona without the consent of SAP.
While I acknowledge that the evidence in this case may justify a finding of ancillary liability against Parklea for its involvement in the completion of the Contract for a price of $81.1 million, in the circumstances of this case, without the Occupation Condition being disclosed to Almona, as the parties did not address the issue in detail, and as it has not been suggested that a conclusive finding by the Court on this issue will make a material difference to the relief to which Almona is entitled, I do not express a definite conclusion on this aspect of Almona's case.
Finally, as there is no reason to believe that Parklea had any knowledge of the terms of Mr Dixon-Smith's 21 March 2016 letter, it was not a person involved in the making of the representations in the letter, and, in any event, mere knowledge of the terms of the letter would not have made Parklea a person involved.
[83]
Unconscionable conduct claim
Almona's claim against SAP and Parklea, based upon the alleged unconscionable conduct of SAP, started with the proposition, pleaded in par 73A of the FASOC, that: "As a mortgagee exercising its power of sale [SAP] was in a position of advantage compared with [Almona]."
The allegations of fact relied upon by Almona in par 74 of the FASOC to support the claim were stated to be the matters pleaded in pars 61 and 62 of the FASOC and pars 1 to 36 of the statement of particulars. As explained above, those paragraphs of the FASOC contained all of the allegations of breach of mortgagee's duty against SAP. The paragraphs of the statement of particulars relied upon include all of the allegations against SAP in respect of its exercise of the power of sale up to the point of completion of the Contract.
The conduct of SAP about which Almona complained in the FASOC commenced on 13 January 2016 with the making of the Contract. The same is true for the statement of particulars. Almona relied upon the statement of further particulars dated 1 March 2019 in the particulars to pars 61 and 62, but not in par 74. The manner in which Almona puts its unconscionable conduct claim has not been clearly defined. I note that, while Almona did not include the particulars served on 1 March 2019 as particulars of its unconscionable conduct claim, or specifically seek to make the particulars served on 6 March 2019 particulars of that claim, in par 306 of its closing submissions it stated that it relied on the same conduct as for its fraud claim, and in par 307(d) it referred to SAP and Parklea knowing that Almona was unaware that PAG would have ultimate control of the Land through the Parklea heads of agreement.
In summary, Almona's pleaded claim was that SAP failed to respond reasonably to requests for a payout figure, failed to advise Almona of the terms of the Contract, failed to settle the Contract promptly before becoming aware of the Proposed Transaction, satisfied the Approval Condition in order to frustrate Almona, failed to take reasonable steps to investigate the Proposed Transaction or other potential arrangements with AMB, failed to disclose to Almona that Parklea would be financed by another PAG entity, accelerated settlement by waiving the GST Condition to frustrate Almona, misrepresented to Almona the time when the Contract became unconditional and the purchase price, failed to advise Almona that the price would be $4.25 million more if Mr Constantine vacated the Residence, amended the Contract by deleting the Occupation Condition through the substitution of alternative pages in order to conceal the existence of the Occupation Condition and the GST Condition, and preferred the interests of Parklea by waiving the GST Condition and completing the Contract without informing Almona of the Occupation Condition.
Unlike Almona's misleading or deceptive conduct case, which was limited to the issues relating to the Occupation Condition, Almona's unconscionable conduct claim as pleaded was based upon substantially all of the conduct of SAP identified in the FASOC and statement of particulars involved in the exercise of the power of sale from the date of the Contract.
Almona pleaded in par 74 of the FASOC:
74. By reason of the matters in paragraphs 61 and 62 and the Statement of Particulars paragraphs 1 to 36:
a [SAP] as mortgagee exercising its power of sale was in [a] superior bargaining position to that of [Almona];
b [Almona] was unable to understand the Contract and the terms set out in paragraph 32 by reason of the fact that [SAP] refused to provide them;
c [SAP] used unfair tactics and undue pressure against [Almona];
d [SAP's] conduct set out in paragraphs 61 [sic] was conduct it engaged in [in] its commercial relationship with [Almona] after they entered into their mortgage.
Paragraph 32 of the FASOC, referred to in par 74(b), alleged the terms of the special conditions of the Contract including the Occupation Condition.
At the outset, it should be observed that it is not clear how the allegation that SAP was in a superior bargaining position made in par 74(a) of the FASOC could be correct, as there was no bargaining between SAP and Almona. Equally, it is not clear how it is said that SAP used undue pressure against Almona, as Almona's complaint really is that SAP substantially ignored Almona and its interests what Almona wanted to do. The pleaded case that may be relevant to the facts is the claim that SAP used unfair tactics.
Almona's closing submissions do not contain a detailed explanation of why the facts alleged by Almona establish a claim that SAP engaged in statutory unconscionable conduct. At par 290, Almona submitted that to be unconscionable "the conduct must be contrary to good conscience which is a factual question in each case, based on the conduct itself involved". Relying upon the decision of the Court of Appeal in Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; (2018) 356 ALR 440 at [187] and [195], Almona submitted that unconscionable conduct included "undue pressure and unfair tactics, taking advantage of vulnerability…or misleading conduct" and that "the use of terms such as "moral obloquy" may be of assistance".
There may still be some uncertainty about the relationship between statutory unconscionability and the meaning of the same term in equity: Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 368 ALR 1 (Kobelt). Of the majority in Kobelt, Kiefel CJ and Bell J referred at [19] to the "absence of unconscientious advantage" (emphasis in original), at [60] to "acted with a degree of good faith and not dishonestly", and at [79] that the respondent's conduct had not "exploited or otherwise [taken] advantage of the customer's lack of education and financial acumen". Keane J at [116] framed the issue as whether "the respondent actually took advantage of that increased vulnerability, or even acted with predatory intent with a view to doing so". In dissent, Nettle and Gordon JJ referred at [167] to the "vulnerability" of the customers and from [172] to the respondent having "taken advantage" of that vulnerability. They also referred at [231] to the "predatory and exploitative nature of [the respondent's] conduct", and at [235] to "[v]ulnerability or special disadvantage". Compare the statement by Edelman J at [311]-[313] that "…the statutory concept of unconscionability in s 12CB(1) of the ASIC Act is broader than the concept in equity".
Gageler J provided a more elaborate view of his understanding of the meaning of statutory unconscionability, in the following passages (footnotes omitted):
[91] In Paciocco v Australia & New Zealand Banking Group Ltd, I referred to unconscionable conduct within the meaning of s 12CB as requiring "a 'high level of moral obloquy' on the part of the person said to have acted unconscionably". "Moral obloquy" is arcane terminology. Without unpacking what a high level of moral obloquy means in a contemporary context, using that arcane terminology does nothing to elucidate the normative standard embedded in the section. The terminology also has the potential to be misleading to the extent that it might be taken to suggest a requirement for conscious wrongdoing. My adoption of it has been criticised judicially and academically. The criticism is justified. I regret having mentioned it.
[92] What I meant to convey by the reference was that conduct proscribed by the section as unconscionable is conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience. To that view of the statutory standard I adhere.
[93] The judgment required of a court exercising jurisdiction in a matter arising under s 12CB is a heavy one. For a court to pronounce conduct unconscionable is for the court to denounce that conduct as offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society. Those values are not entirely confined to, or entirely removed from, the values which historically informed courts administering equity in the development of the unwritten law of unconscionable conduct. They include respect for the dignity and autonomy and equality of individuals. They include respect for the cultural diversity of communities.
Keane J also gave a more elaborate explanation of the meaning of statutory unconscionability as follows (footnotes omitted):
[117] Insofar as the trial judge found that the respondent was at all relevant times aware of, and pursued, his own interests, it must be borne in mind that the purpose of s 12CB of the ASIC Act is to regulate commerce. The pursuit by those engaged in commerce of their own advantage is an omnipresent feature of legitimate commerce. A trader does not, generally speaking, stand in a fiduciary relationship with his or her customers, and good conscience does not require a trader to act in the interests of others. To say that the respondent was pursuing his own commercial interests with a view to profit is to state the obvious, but also to say very little as to whether he engaged in unconscionable conduct. In particular, it does not assist in discerning whether the conduct in question exhibits those features which distinguish unconscionable conduct from the legitimate pursuit of self-interest.
[118] The use of the word "unconscionable" in s 12CB - rather than terms such as "unjust", "unfair" or "unreasonable" which are familiar in consumer protection legislation - reflects a deliberate legislative choice to proscribe a particular type of conduct. In its ordinary meaning, the term "unconscionable" requires an element of exploitation. The term imports the "high level of moral obloquy" associated with the victimisation of the vulnerable. As five members of this Court observed recently in Thorne v Kennedy, a finding of unconscionable conduct requires the unconscientious taking advantage of a special disadvantage, which has "been variously described as requiring 'victimisation', 'unconscientious conduct', or 'exploitation'". And in Kakavas v Crown Melbourne Ltd, this Court unanimously confirmed that "[h]eedlessness of, or indifference to, the best interests of the other party is not sufficient" to establish the "predatory state of mind" that must be shown.
[119] The legislative choice of "unconscionability" as the key statutory concept, rather than less morally freighted terms such as "unjust", "unfair" or "unreasonable", confirms that the moral obloquy involved in the exploitation or victimisation that is characteristic of unconscionable conduct is also required for a finding of unconscionability under s 12CB. Section 12CB(4)(a) of the ASIC Act does not require a contrary conclusion. The direction in s 12CB(4)(a) means that the application of s 12CB(1) is not limited to conduct that has been held to be "unconscionable" under the general law, but it does not operate to give the term "unconscionable" a meaning different from its ordinary meaning. Adherence to the ordinary meaning of the term "unconscionable" is appropriate for two reasons rooted in the nature of the judicial function. First, the courts must give effect to what Parliament has enacted. Here, it must be acknowledged that the Parliament has deliberately chosen to use this expression as the focus of attention, and not a more open-textured or morally neutral expression that would be less certain in its scope. And secondly, the appellant did not propound a meaning for "unconscionable" different from its ordinary meaning; and so the respondent had no occasion or opportunity to meet such a contention.
[120] In addition, the circumstance that s 12CB is to be applied by way of a multi-factorial judgment informed by the considerations listed in s 12CC does not suggest that the evaluative judgment ultimately to be made as to unconscionability is morally neutral. The approach contemplated by s 12CC to the determination of "unconscionability" for the purposes of s 12CB is consistent with the settled approach of a court of equity, which takes a "more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case". The ultimate issue under the statute is whether the conduct in question is rightly to be characterised as unconscionable. In determining that issue, s 12CB calls for a judgment as to whether the impugned conduct exhibits the level of moral obloquy associated with predatory conduct.
[121] Next, it is necessary to observe that subs (4)(b) of s 12CB does not mean that it is not an essential characteristic of unconscionable conduct within the meaning of the statute that it involve a calculated taking advantage of a weakness or vulnerability on the part of victims of the conduct in order to obtain for the stronger party a benefit not otherwise obtainable. Under the general law, the absence of such a calculated taking advantage means that the conduct in question cannot be said to be exploitative. Subsection (4)(b), in dispensing with the need for proof of disadvantage to any particular individual, allows a system of conduct or pattern of behaviour to be found to be unconscionable within the meaning of the statute even though the extent of the disadvantage cannot be quantified in the case of any individual. Understood in this way, subs (4)(b) is consistent with the requirement implicit in the notion of unconscionability that the impugned conduct effect a disadvantage upon its victims.
This case involved the enforcement by SAP of the rights freely granted to it by Almona in the mortgage in return for a substantial advance made by SAP to Almona. SAP had a contractual right to exercise the power of sale in the mortgage to recover the outstanding debt. The manner in which SAP was entitled to exercise the power of sale was constrained by general law principles that required it to act in good faith. That is an obligation that has been explicated in the authorities discussed above. In particular, SAP was entitled to act in its own interests, save that it was not permitted to sacrifice the interests of Almona, where "sacrifice" has a particular connotation developed in the authorities. While it is probably not correct to equate unconscionability with a lack of good faith, in the sense that no conduct which is treated as involving the exercise of a power of sale in good faith could involve statutory unconscionability, it will be proper for the Court to start from the position that the liability of a mortgagor to suffer the consequences of a mortgagee exercising its power of sale in good faith is not usually a relevant vulnerability, even though the interests of the mortgagor may be damaged by the exercise of the power of sale. In the usual case, there will be no questionable taking advantage where the mortgagee's conduct involved the lawful exercise of a right freely granted by the mortgagor for value. In the terms used by Gageler J, the lawful exercise by a mortgagee of a power of sale should not be "so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience". Consequently, the Court should be studious to resist arguments of the type put by Almona in this case whereby an attempt is made to create an impression of unconscionability by framing the mortgagee's conduct in emotive terms from the mortgagor's perspective, as if the advent of statutory unconscionability imposed upon mortgagees a normative standard that obliges them to abandon their own lawful rights and to exercise their powers in the interests of the mortgagor rather than their own.
In so far as the assertion of unconscionable conduct against SAP was confined to the consequences of the making of the Contract, which itself is not challenged, once the Contract was made, SAP was both obliged and entitled to perform it. As the Investment Committee approved the transaction before SAP became aware of the Proposed Transaction, SAP could not avoid completion of the Contract unless it was entitled unilaterally to conceal the approval from Parklea until the deadline for notification expired. The view I have taken is that SAP had no right on the facts of this case to avail itself arbitrarily of the Approval Condition. Even if it did have that right, it was not unconscionable of SAP to choose to complete the Contract into which Parklea had entered in good faith. SAP did not act unconscionably in preferring to complete the contract that it had, rather than to jeopardise the benefit of that contract and risk liability to Parklea, just to give Almona the opportunity to redeem the mortgage by the fulfilment of a commercial proposal that was patently dubious of success, in the circumstances of prior failures to refinance by Almona. It was not unconscionable for SAP to accelerate the completion of the Contract in order to avoid the risk of SAP and Parklea becoming enmeshed in litigation threatened by Almona.
The discussion of Almona's unconscionable conduct claim that is set out above focuses on the way that Almona pleaded that claim, and consequently is confined to the manner in which SAP performed and completed the Contract. I have not responded to the apparent attempt by Almona in its closing submissions to expand its unconscionable conduct claim beyond the boundaries of its pleading to include aspects of its fraud claim that emerge from the statement of further particulars and the second statement of further particulars, but which had not been developed in any detail in Almona's closing submissions.
Save for the conduct that I discuss immediately below, I find that SAP did not act unconscionably in the statutory sense in the manner in which it exercised its power of sale. Consequently, it must be found that Parklea was not a person involved in any statutory contravention.
However, in one respect, Almona was truly vulnerable to SAP in that, once the Contract containing the Occupation Condition was made, the ability of Almona to receive an amount of $4.25 million was totally dependent upon SAP informing Almona of the terms of the Occupation Condition in good time to enable Mr Constantine to give vacant possession of the Residence before completion of the Contract. This may not have been regarded as a relevant vulnerability in equity, but I am satisfied that good conscience required that SAP, as a mortgagee required to exercise its power of sale in good faith, inform Almona of the terms of the Occupation Condition. The failure of SAP to inform Almona of the Occupation Condition, in circumstances where it deprived Almona of the benefit of the increment in the purchase price, to the benefit of PAG and Parklea, was unconscionable under the statutes. That conclusion is informed by the lack of good faith that the conduct displayed and the ease with which SAP could have secured the benefit for Almona. As, from the time when the Contract was made, Almona's equity in the Land was transformed into an entitlement to the balance of the price, SAP's conduct involved a wilful deprivation of a crystallised right in violation of values that I consider prevail in respect of commercial conduct in this country.
I am satisfied that, in failing to inform Almona of the Occupation Condition, SAP engaged in unconscionable conduct in contravention of the statutes, and, for reasons equivalent to my finding above that Parklea participated in the fraud in that respect, Parklea was a person involved in that contravention.
As stated above, I have found it unnecessary to decide whether Parklea was a person involved in SAP's misleading or deceptive conduct, in failing to inform Almona of the Occupation Condition. The position is different in respect of Almona's unconscionability claim, because Parklea accepted the benefit of the lower purchase price in circumstances where, I would conclude on the evidence, it must have known that Almona had not been informed of the Occupation Condition. That was, in my view, primary unconscionable conduct by Parklea, and it was not necessary for Almona to establish that Parklea was liable on an ancillary basis in respect of this aspect of its claim.
[84]
Issue estoppel and Anshun estoppel
In par 78 to its defence to the FASOC, SAP pleaded a defence based upon issue estoppel and the estoppel recognised by the High Court in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45 (Anshun). The combined effect of these estoppels was said to be that Almona is precluded from maintaining a claim against SAP based upon the allegations in par 61 of the FASOC.
Paragraph 61 of the FASOC alleged all of the facts that constituted the breach by SAP of its duty as mortgagee to act in good faith in the exercise of its power of sale. As the allegations of fraudulent conduct in par 62 were made by reference to the conduct alleged to be breaches of SAP's duty as mortgagee, the effect of par 78 of the defence was to claim that Almona is entirely estopped from maintaining its case against SAP. That appears to be so in so far as Almona's misleading or deceptive and unconscionable conduct cases also arise out of the conduct pleaded in par 61.
SAP's estoppel defence is based on the fact that Almona and SAP were parties to the original proceedings commenced by Almona on 18 March 2016, which were dismissed by the Court on 24 March 2016 with the consent of Almona.
SAP's submissions in support of its estoppel defence are primarily found in pars 617 to 629 of its closing submissions. As appears from those submissions, SAP's estoppel defence depends upon the submission that the dismissal of the original proceedings had the effect that an issue estoppel binds Almona in relation to certain issues that SAP claims were determined by the original proceedings, and that it is bound by an Anshun estoppel in relation to other issues that SAP submits ought reasonably have been made the subject of claims by Almona in the original proceedings.
As I understand it, par 627 of SAP's submissions has the somewhat novel effect that the Court should, in determining what claims Almona ought reasonably to have introduced into the original proceedings, have regard to a notice to produce dated 22 March 2016, which Almona served on SAP, which Almona did not call upon, but, had it called upon the notice to produce, it would have learned of the terms of the Contract, and so, presumably, of the Occupation Condition.
It will be convenient to repeat the essential circumstances in which Almona commenced the original proceedings and then consented to their dismissal. Almona commenced the proceedings by summons filed on 18 March 2016, seeking an order that it be relieved from forfeiture of the Land, an order against SAP restraining it from entering into the Contract or disposing of the Land, and an order that SAP inform Almona of the amount secured against the Land, so that Almona could refinance and redeem the mortgage.
Following receipt of Mr Dixon-Smith's 21 March 2016 letter to Bartier Perry, and Ms Hempel's email to the same firm of the same date, which both advised, among other things, that it was proposed to complete the Contract on 22 March 2016, Bartier Perry on 22 March 2016 advised that, as the Contract was proceeding, Almona would not stand in the way of completion taking place at 3 PM that day as proposed.
The Duty Judge was advised that Almona would not prosecute its interlocutory application, and on that basis the Registrar made an order by consent dismissing the original proceedings on 24 March 2016.
There was no real curial contest between the parties at all. The thrust of Almona's claim for relief was to obtain an injunction to delay the completion of the Contract so that SAP could be required to provide Almona with a payout figure, so that Almona could raise the funds necessary to redeem the mortgage and recover the Land.
There was no definition of the issues in the proceedings, save as could be divined from the affidavits in support of the summons.
In par 619 of its closing submissions, SAP acknowledged that "the crux of the case advanced by Almona in the First Proceedings was that Almona was in a position to refinance the LNSA by virtue of the AMB Proposal and that SAP had failed to provide payout figures, thereby hindering the refinancing".
As appears from pars 627 and 331 to 333 of SAP's closing submissions, SAP's submission was that, if Almona had called upon the notice to produce, the Contract in its original form would have been produced, and that production would not have been impeded by the terms of the proposed Second Deed of Variation, which was not executed until after the notice to produce was due to be answered.
The legal principles that govern the imposition of an issue estoppel have fully been stated, for the purposes of the present case, by Bathurst CJ, with whom Beazley P and Emmett JA agreed, in Ekes v Commonwealth Bank of Australia [2014] NSWCA 336; (2014) 313 ALR 665 as follows:
[110] The principles which determine whether an issue estoppel arises are well established although their application can cause difficulty. For an issue estoppel to arise it is necessary that it be established that the same question arises, that the judicial decision said to create the estoppel was final and that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies: Carl Zeiss Stiftung v Rayner & Keeler Ltd [1967] 1 AC 853 at 935 and Kuligowski v Metrobus [2004] HCA 34 ; (2004) 220 CLR 363 at [21].
[111] It was accepted correctly by the parties that a consent judgment could give rise to an issue estoppel: Chamberlain v DCT [1988] HCA 21; (1988) 164 CLR 502 (Chamberlain) (although that was a case of res judicata or cause of action estoppel), Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231 (Habib) at [186] and Makhoul v Barnes (1995) 60 FCR 572 at 582.
[112] An issue estoppel will only arise in respect of those matters which a primary decree, order or judgment necessarily established as the legal foundation for the decision and nothing but that which is legally indispensable to the conclusion is thus finally closed or precluded: Blair at 531-532. In the case of a judgment by consent this may be productive of some difficulty: Chamberlain at 508 and Isaacs v Ocean Accident and Guarantee Corp Ltd and Winslett (1958) SR (NSW) 69 (Isaacs) at 75. As was pointed out in the latter case, a court will examine all evidence that is available and admissible and with the aid of such material ascertain any and what adjudication of matters in dispute was expressly or necessarily involved in the actual decision assented to.
[113] In the present proceedings the appellant contended that this was a case where the only estoppel which arose from the consent judgment was the actual order itself, relying on what was said by Santow J in Minero Pty Ltd v Redero Pty Ltd (Unreported, Supreme Court of New South Wales, 29 July 1998).
[114] In Handley, Spencer Bower and Handley Res Judicata (4th ed 2009, LexisNexis) (Spencer Bower and Handley Res Judicata), the learned author points out at 2.16 that the extent to which a consent judgment gives rise to an issue estoppel has not been finally decided. However, it seems clear that in determining that issue the court can consider the objective background leading to the judgment to determine what was decided: Isaacs and Re South American and Mexican Company; Ex parte Bank of England [1895] 1 Ch 37 at 50.
[115] The appellant submitted that the reason for the Dismissal was the inability of the company to meet an order for security of costs or the security for the undertakings given by the respondent and the receivers and managers. To the extent this submission suggests that regard should be had to the subjective motivation of those controlling the company in consenting to the judgment, it is incorrect. The test, in my opinion, is objective: Spencer Bower and Handley Res Judicata at 2.17. However, regard can be had to the background leading up to the order.
[116] In the present case the company had sought interlocutory relief restraining the receivers and managers appointed by the respondent from performing their function. Undertakings were given conditional upon compliance with any order for security. The company was unable or unwilling to comply with the conditions or to provide additional security for costs. In those circumstances, it agreed to the release of the undertakings and the Dismissal.
[117] In that context as Brightman LJ put it in Khan v Golechha International Ltd [1980] 1 WLR 1482 the issue raised in the proceedings was put to rest. A final hearing had been set down for 13 and 14 April 2010. The company, by declining to provide the security and consenting to the Dismissal, effectively abandoned any claims based on the extension of the loan repayment date. In the circumstances, the company would be estopped from raising against the respondent any claim based on an extension of that date.
The dismissal of the original proceedings was final and, as the Chief Justice observed at [111], consent judgment may give rise to an issue estoppel. As the Chief Justice also noted at [112], difficulties may arise in the case of a judgment by consent in determining the issues that give rise to estoppels. The Court considering whether an issue estoppel arises must examine the evidence and determine "what adjudication of matters in dispute was expressly or necessarily involved in the actual decision assented to".
The test is an objective one (see [115]), but the Court is entitled to consider "the objective background leading to the judgment" (see [114]).
It was significant in that case, as the Chief Justice observed at [117], that the proceedings had been set down for final hearing, after a statement of claim had been filed that raised relevant issues. The Chief Justice held that the effect of the proceedings being dismissed by consent was, as observed at [117], that the plaintiff "effectively abandoned any claims based on the extension of the loan repayment date".
The issue in the case was not whether the original plaintiff became subject to an issue estoppel as a result of the dismissal of its claim by consent. The original plaintiff was a debtor, and the later proceedings arose on a claim by the creditor against the appellant, who was a guarantor. The initial question considered by the Court of Appeal was whether the original plaintiff debtor would have been estopped from raising the issue which the guarantor defendant in the proceedings before the Court of Appeal had wished to raise. It was held that the original plaintiff would have been estopped.
However, the Chief Justice then considered whether it was reasonably arguable that the appellant was not bound by the issue estoppel because a guarantor is not bound by estoppels that bind the debtor, as a guarantor is not a privy of the debtor. That is a question that need not be considered in this judgment.
The Chief Justice also laid down the following propositions concerning the circumstances in which an Anshun estoppel may be imposed:
[129] The species of estoppel known as Anshun estoppel derives from the dictum of Wigram VC in Henderson v Henderson (1843) 67 ER 313 at 319 approved in Anshun at 598. The principle was in the following terms:
… where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which [sic] might have been brought forward as part of the subject in contest, but with was [sic] not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.
[130] In Anshun, Gibbs CJ, Mason and Aickin JJ expressed the operation of the principle as follows at 602:
In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings, e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few.
[131] Their Honours also stated in Anshun at 603 that a factor of importance to take into account was that the prosecution of the second action may give rise to conflicting judgments. This has been emphasised in many of the subsequent cases, particularly in cases where estoppel is sought to be raised against the person not a party to the earlier proceedings: Habib at [83], Redowood at [48]-[49], Solak v Registrar of Titles [2011] VSCA 279; (2011) 33 VR 40 (Solak) at [70] and Gibbs v Kinna [1998] VSCA 52; [1999] 2 VR 19 at [25].
For present purposes, it is sufficient to observe that the principle in Anshun extends the estoppel to matters that may have been brought forward as part of an earlier case, as being relevant to the subject matter of that action, where it is unreasonable for the party sought to be made subject to the estoppel to have failed to do so. Plainly, what is unreasonable may depend upon all of the circumstances, and it will often be difficult to decide whether the estoppel should be imposed.
Given the conclusions that I have reached on Almona's case against SAP, SAP's estoppel defence only requires determination in relation to Almona's claims that the statement concerning the terms of the Contract in Mr Dixon-Smith's 21 March 2016 letter, the failure to disclose the Occupation Condition, and the terms of the Second Deed of Variation concerning the Occupation Condition, and the implementation of that deed, constituted breaches of SAP's duty as mortgagee, fraudulent conduct, misleading or deceptive conduct and unconscionable conduct.
Almona did not discover the Occupation Condition or the effect of the Second Deed of Variation until 27 October 2016, when the two versions of the Contract were provided to it on behalf of the receivers. There is no way that the issues in these proceedings that have arisen out of Mr Dixon-Smith's letter, the Occupation Condition, or the terms and implementation of the Second Deed of Variation were issues that were determined when the original proceedings were dismissed. Nor could an Anshun estoppel arise, as Almona cannot reasonably be expected to have introduced those issues into proceedings that were determined before the basis of the claims was discovered by Almona.
I reject the apparent submission by SAP that it was unreasonable for Almona not to have introduced these claims into the original proceedings because, although the basis for the claims was not known, it may have been discovered had Almona called upon a notice to produce that was served on SAP in aid of the original proceedings.
Where a plaintiff, who has commenced proceedings by summons for the immediate purpose of obtaining interlocutory relief, makes a decision, on whatever basis, that it should abandon its claim, the reasonableness of its failure to introduce new matters into its claim cannot properly be judged on the basis that it would have learned matters relevant to its claim had it called on a notice to produce, which its decision not to proceed has caused it to abandon.
It is an extraordinary suggestion that a party, who decides to abandon a claim, should be the subject of an Anshun estoppel in relation to matters relevant to its claim, of which it has never learned, because the immediate irrelevance of the notice to produce has led the party not to call upon it.
It is possible that the dismissal of the original proceedings with Almona's consent has given rise to matters that would be the subject of issue estoppels. I do not consider any such issues to have been identified by SAP with sufficient precision. I doubt that any such issues would prevent Almona from maintaining any of the claims that it has made in these proceedings. It is sufficient, however, to conclude that Almona is not estopped from pursuing the claims upon which it has succeeded.
As a general matter, great caution should be observed in identifying issue estoppels that arise out of uncontested interlocutory applications that are abandoned before hearing. If matters the subject of issue or Anshun estoppels were too readily found, where interlocutory applications have been abandoned without a contest, the act of abandonment, even in appropriate cases, would be fraught with risk to plaintiffs, because they would face the possibility of being subsequently precluded from maintaining claims, of which they were in fact ignorant, but which could have been discovered if they had not only pursued their interlocutory claims, but discovered additional matters through calling on notices to produce that have ceased to be necessary.
[85]
Parklea's defence of laches
Parklea raised a defence of laches against Almona in par 78 of its defence to the FASOC.
In the particulars given to par 78, Parklea asserted that, on 22 March 2016, Almona "of its own volition, in full possession of all necessary facts and with the benefit of representation by experienced solicitors and counsel, decided not to pursue an injunction to restrain completion of the Contract".
It follows from what I have found above in relation to SAP's estoppel claim that Almona was not in possession of all necessary facts as at 22 March 2016, so I do not accept this aspect of Parklea's defence.
However, Parklea also relies upon the fact that, on 27 October 2016, Almona was provided with full copies of the original and amended forms of the Contract, and Almona took no steps to assert or protect its alleged rights or interests in the Land until 10 August 2018. As Almona's summons was filed on 17 October 2018, I will assume that the 10 August 2018 date refers to some demand made by Almona before commencing the proceedings.
Parklea asserted that, since 22 March 2016, by virtue of and in reliance on its status as registered proprietor of the Land, Parklea has expended significant sums with respect to both capital expenditure on the Land and pursuing an application to rezone the Land.
Although SAP did not specifically plead a laches defence, it submitted in pars 638 and 639 of its closing submissions that the Court should, in the exercise of its discretion to grant equitable relief, decline to make any orders that set aside the transfer of the Land to Parklea, and the registration of that transfer, because of the consequences of Almona's delay in commencing these proceedings.
SAP relied primarily on the fact that the Land has different characteristics to that when it was sold, because it has been the subject of rezoning work at significant expense to Parklea.
Further, as at 5 March 2019, the redemption figure was $158,702,877.20, including principal and interest of $158,560,424. The balance represented trustee fees of $47,344.53 and trustee's legal fees of $95,108.67.
Finally, SAP submitted that the Court should decline to set aside the transfer of the Land in circumstances where Almona has adduced no evidence of its ability to do equity, that is, by being ready, willing and able to repay the original amount outstanding under the mortgage granted to SAP, let alone the amount presently owing to PT.
In the light of the findings that I have made on liability, it is not necessary for the Court to decide the hypothetical question of whether, had the Court made different findings on Almona's fraud claim, the delay by Almona in commencing these proceedings, and the consequences of that delay, would provide a proper foundation for the Court to exercise its discretion to decline to make an order setting aside the transfer.
While, in these reasons, I have attempted where practicable to determine all of the questions that were the subject of full argument between the parties, even in cases where it may be that the need to determine the questions does not arise because of my findings on logically antecedent questions, I have concluded that it would be inappropriate for the Court to embark upon an exhaustive examination of the laches defence.
That is not only because of the speculative nature of the question, given the absence of any finding of fraud that would justify the setting aside of the transfer, but also I do not consider that the parties have adequately addressed the issues that arise in relation to the application of the defence, including as to the relevant facts and the arguments that may arise based upon those facts.
Almona pointed to the fact that the receivers did not retire until 1 November 2017. I do not accept that the continuation of the appointment of the receivers after 22 March 2016 prevented Almona from commencing these proceedings. It did not prevent Almona from commencing the original proceedings.
It is reasonable that Almona did not commence these proceedings until after 27 October 2016, but Almona has not provided any explanation of its further delay until 10 August 2018. It may be that Almona did not have the financial resources to commence the proceedings, and it is possible that Almona's financial situation was caused in part by the conduct of SAP and Parklea of which it complains in these proceedings. However, Almona's evidence did not address that issue.
The evidence establishes that Parklea has spent in excess of $1.2 million in pursuing the development of the Land. While the evidence concerning the individual components of the expenditure was not detailed, a review of the individual items of expenditure establishes to my satisfaction that the expenditure related to steps commonly required in the rezoning and development of land.
There was no evidence as to the present value of the Land or the extent to which the money expended by Parklea may have increased that value.
While $1.2 million is a substantial sum, it is not great relative to the price provided for in the Contract, and it may be that, if the Court would otherwise have made an order setting aside the transfer of the Land, justice could have been done to Parklea by making the order subject to a condition that Almona reimburse Parklea for its expenditure.
That may not have been an adequate way to compensate Parklea, if the expenditure has significantly increased the value of the Land, but as I have said, there is no evidence on that subject.
While there is evidence that the amount secured by the PT Mortgages was $158,702,877.20 as at 5 March 2019, the makeup of that debt was not explained. The amount borrowed by Parklea to finance the completion of the Contract may have been increased by new borrowings made by Parklea on the understanding that it was the unchallenged registered proprietor of the Land. Alternatively, it is possible that a substantial part of the increase is the result of the Land becoming collateral for entirely separate borrowings made by members of Dyldam as a result of cross-collateral clauses in security documents that are not before the Court. The reality is that the Court cannot judge whether Parklea has been disadvantaged by undertaking additional borrowings based upon its belief that it was the registered proprietor of the Land.
It is true that Almona has not provided any evidence of its capacity to redeem the original mortgage that was granted to SAP, if the Court makes orders that restore the status quo before the transfer of the Land to Parklea.
On one view, it would be a pointless imposition on the defendants for the consequences of the completion of the Contract to be unwound, if the effect was to reinstate Almona's status as a defaulting mortgagor, so that the whole process of exercising SAP's mortgagee's power of sale would have to be repeated.
It is possible that Almona could counter that argument by saying that, notwithstanding its incapacity to redeem the original mortgage, if it is entitled to an order setting aside the transfer of the Land, Almona should enjoy the benefit of any increase in the value of the Land between 22 March 2016 and the date of judgment. However, there is no evidence of any such increase in value.
Understandably, perhaps, the parties did not focus on this aspect of the dispute in their preparation of the evidence or their conduct of the hearing. If it happens in the future that the validity of Parklea's laches defence becomes relevant to the determination of Almona's claim, it will then be necessary to address the question as to whether it is appropriate for the Court to permit the parties to lead additional evidence on the issue, and if not, how it should be decided having regard to matters such as which parties bore the burden of proof.
[86]
Almona's claim against PT
If the Court had found that Almona was entitled to be reinstated as the registered proprietor of the Land, because Parklea was a party to fraud committed by SAP that caused Parklea to become registered proprietor, subject only to a charge in favour of Parklea to secure the debt that Almona had owed to SAP at the time of the transfer, it would have been necessary for the Court to determine the question of whether PT's title to the two mortgages that it has registered against the Land are indefeasible as against Almona. Given that PT's mortgages are said to secure a debt of the magnitude of about $158 million, it is likely that it would not avail Almona to be reinstated as the registered proprietor of the Land, if PT's mortgages would nonetheless have priority over Almona's interest in the Land as registered proprietor.
However, as I have not found that any fraud has been proved that caused Parklea to become the registered proprietor of the Land, the issue of whether PT's mortgages are indefeasible in any event does not strictly arise.
As I have explained above, Parklea was a participant in the fraud committed on Almona by SAP by completing the Contract without informing Almona in good time of the existence of the Occupation Condition, which had the result that Parklea was only required to pay $81.1 million for property that would have had a value of $85.35 million if Mr Constantine had given vacant possession of the Residence. As explained, it is arguable that this particular fraud, while not being a cause of the entire transfer, may properly be regarded as a cause of the Land valued at $85.35 million being transferred to Parklea for $81,100,000. That may, in theory, justify the Court in reaching the legal conclusion that, as against Parklea, Almona has a charge over the Land either in the amount of $4.25 million, or for an amount that bears the same proportion of the present market value of the Land as the ratio 4.25:85.35.
However, even if that result is arguable, it will not avail Almona if the mortgages registered in the name of PT remain indefeasible, and if the 'equity' left in respect of the value of the Land is not sufficient to redeem the charge in favour of Almona.
To that extent, there is some purpose in the Court dealing with the issue of whether or not the mortgages registered in favour of PT would nonetheless be indefeasible.
[87]
The claim pleaded by Almona
In prayer 3 of the FASOC, Almona sought an order that there be an inquiry into and an account taken of, among other things, the amount of the mortgage debt owed by Almona to SAP as at 22 March 2016, and the amount payable by Parklea to PT as at a date to be determined by the Court. In prayer 3A, Almona sought an order that Parklea and SAP pay to PT, or alternatively to Almona, the difference between the amount determined to be payable by Parklea to PT and the amount determined to be payable by Almona to SAP as at 22 March 2016. Then, by prayer 4, Almona sought an order that, upon payment by Almona to PT of the amount that is owed to SAP, as well as payment by Parklea and SAP of the additional amount owed by Parklea to PT, the Land vest in Almona absolutely, together with consequential orders to secure that result.
These prayers proceeded upon the misconception that Parklea was required to pay PT, rather than Lord VI, as is the case, but that detail does not matter for present purposes. The effect of prayers 3 and 4 would be, if the orders sought were made, that between them Almona, Parklea and SAP would have to pay the whole of the amount secured by PT's mortgages, before PT was obliged to retransfer the Land to Almona unencumbered by the PT Mortgages.
Then, by prayer 5, Almona sought an order pursuant to s 138 of the Real Property Act that, upon lodgement of the order and upon payment of the prescribed fees, the Registrar-General record Almona in the Register as the registered proprietor of the Land with the mortgages of the Land registered to PT discharged.
Section 138 empowers the Court, in proceedings for the recovery of any estate or interest from the person registered as proprietor of the land, to make an order to amend a folio of the Register, if the Court is of the opinion that the circumstances of the case require any such order to be made.
If this prayer is considered in isolation, it could be interpreted as a claim for an order that the Registrar-General record Almona as the registered proprietor of the Land with PT's mortgages discharged, and without the full amount of the debt secured by those mortgages being repaid. That, in my view, is not the natural way to read prayer 5 in its context. Rather, given that s 138(1) empowers the Court to "make ancillary orders of the kind set out in subsection (3), if the court is of the opinion that the circumstances of the case require any such order to be made" (emphasis added), s 138 is not a stand-alone power in the Court to order the Registrar-General to do the various things listed in subsection (3), if the Court thinks that the circumstances of the case require that any such order be made. Rather, the power to make ancillary orders enables the Court to ensure that the Register properly reflects the entitlements of persons in respect of the land in a manner that is consistent with those parties' rights as determined by the Court applying relevant legal principles. See the examples given in B. Edgeworth, Butt's Land Law (7th ed, 2017, Thomson Reuters) at [12.1380] of the circumstances in which it is appropriate for the Court to make orders under the section.
In short, the proper manner to understand prayer 5 is that it sought an ancillary order to ensure that the Register reflected the correct legal position after the orders sought in prayer 4 had been implemented.
If that had been the relief sought by Almona at the hearing against PT, PT would not have been required to discharge its mortgages in favour of Almona unless the full debt owed to Lord VI and secured by the mortgages was first repaid. Also, Lord VI might not have an interest in being joined to and defending the proceedings, because the mortgages would not be discharged until the debt was repaid. It is possible that Lord VI has other interests that would require it to be joined as a party, but it is not necessary for the Court to speculate on that issue.
It appears, however, from Almona's final submissions that, to the surprise of PT, Almona ultimately claimed that it was entitled to an order against PT that the mortgages be discharged, without Almona and Parklea between them paying to Lord VI the full amount of the debt secured by the mortgages. Almona appears to accept that it must repay the amount that it owed to SAP, at or about the date of settlement of the Contract, and that Parklea would have a charge over Almona's title to the Land to secure that payment. It may be that it would follow from the final way that Almona put this aspect of its case that PT's mortgages would attach to that charge. However, it is put in Almona's submissions that it is entitled to a discharge of PT's mortgages and a retransfer of the title to the Land from Parklea, without Almona being concerned about how Lord VI might be repaid the balance of the money owed to it over and above the amount that Almona would be required to pay to Parklea.
The claim that Almona finally made as to its entitlement to a retransfer of the Land unencumbered by the PT Mortgages was not a claim made in the FASOC.
However, as Almona observed in its submissions in reply to PT's submissions, Almona filed in court on 6 March 2019, the third day of the hearing, a reply to the whole of PT's defence that alleged that PT:
a) is a security trustee who holds its interest in the Land on trust for the financier of [Parklea] in respect of the purchase of the Land, namely [Lord VI];
b) provided no valuable consideration for the interest in the Land held by it as registered proprietor of that interest;
c) was not a mortgagee bona fide for valuable consideration within the meaning of section 45 of the Real Property Act 1900 (NSW) (RPA);
d) was not a transferee bona fide for valuable consideration within the meaning of section 118(1)(d)(ii) of the RPA;
e) was a person deriving (otherwise than as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the Land through fraud within the meaning of section 118(1)(d)(ii) of the RPA; and
f) therefore does not hold its estate or interest in the Land free from the interest claimed by the plaintiff.
The change in Almona's approach may have the result of undermining Almona's claim in respect of the discharge of PT's mortgages, by reason of the fact that Lord VI is a necessary party to any case that makes that claim. I will return to this issue.
In respect of its claim against PT, Almona pleaded in par 58A of the FASOC that, upon completion of the Contract, PT became the registered mortgagee under the PT Mortgages as security trustee for Lord VI. Almona pleaded certain relationships between Lord VI and PAG companies. Almona alleged in par 58B that Lord VI, SAP, and the other associated companies referred to "were under the effective practical control of PAG". Then, in par 58C, Almona alleged that PT, as Security Trustee, took instructions and directions in relation to the PT Mortgages from PAG or alternatively from one or more of Lord VI or the other associated companies.
Almona gave as particulars of the allegations in its FASOC a reference to Annexure A to its original statement of particulars and the statement of further particulars dated 1 March 2019.
Annexure A is a somewhat mesmerising spider's web diagram of a significant number of companies and entities with interconnecting lines representing various means of control, including by directorships, shareholdings and loan arrangements.
I have discussed the effect of the statement of further particulars above. The particulars appear to refer primarily to the interest granted to Lord VIII under the Call Option in the shareholding in Parklea.
[88]
Relevant Transaction Documents
It will be convenient at this point to analyse the terms of the relevant documents in so far as they relate to the indefeasibility of the PT Mortgages.
[89]
Fee agreement between PT and Parklea
On 15 March 2016, PT and Parklea entered into an agreement by means of Parklea's representative accepting an offer made on behalf of PT by letter of that date. Parklea was described as the Customer and PT as the Security Trustee. The letter set out the terms of the agreement as to PT's fees in Annexure 1. The services to be provided by PT were described in Annexure 2 in the following terms:
Review and execution of all finance documents to which it is a party
Holds the security for the benefit of the beneficiaries
Deals with the security for the benefit of the beneficiaries
Undertaking the responsibilities of the Security Trustee as set out in the finance document
Thus, by this agreement, PT agreed to hold the PT Mortgages for the benefit of the beneficiaries of those mortgages, and to undertake the responsibilities of the Security Trustee as set out in the finance document, which was the Loan Notes Subscription Agreement.
[90]
Security Trust Deed
PT executed a deed poll called the Security Trust Deed on 21 March 2016. The combined effect of the definition of Trust Fund in clause 1.2 and the declaration of trust in clause 2.1 was that, upon the grant of the PT Mortgages to PT, it held those mortgages on trust for "the Financier and the persons who are Financiers" at any time. The Trust Fund specifically included "any Encumbrance which is given in [PT's] favour after the date of this deed in its capacity as trustee of the Trust and any property which represents the proceeds of sale of any such property or proceeds of enforcement of any Encumbrance".
[91]
Loan Notes Subscription Agreement
The parties to the Loan Notes Subscription Agreement entered into on 22 March 2016 included the Parklea companies, companies associated with Dyldam, Mr Fayad, PT as Security Trustee and Lord VI as Financier.
The Facility Limit was $84,000,000. By means of the definition of "Commitment" in clause 1.1, Lord VI committed itself in respect of the whole of the Facility Limit.
The "Finance Documents" were defined to include the agreement, any fee letter issued by the Security Trustee, and each Security, which was defined to include the PT Mortgages, and other categories of document.
"Financier" was defined in a manner that included initially only Lord VI and later "and any person who is named as a "Substitute Financier" under a Substitution Agreement".
By clause 2.1, Lord VI, as the Financier, in effect agreed to provide the whole of the Facility Limit as financial accommodation requested by Parklea by subscribing for Loan Notes to be issued by Parklea.
Clause 3.4 established a condition to the first issue of Loan Notes in the following terms:
3.4 Conditions to first issue
[Parklea] agrees not to request a subscription for Loan Notes until the Agent has received every item listed in Schedule 1 ("Conditions Precedent") in form and substance satisfactory to the Agent.
Item 9 of Schedule 1 (Conditions Precedent) provided:
9 All items constituting the Security fully signed and stamped (or arrangements satisfactory to the Financier that stamp duty will be paid), in the form and substance approved by the Financier.
By this means, it was a condition precedent to the provision of financial accommodation in the form of the acquisition of Loan Notes that Parklea first provide to the Agent, who at this time was Lord VI, documents including the PT Mortgages in a form and substance approved by Lord VI.
The provision of the PT Mortgages to Lord VI was by this means part of the consideration provided by Parklea in return for Lord VI's agreement to advance $84,000,000 to Parklea.
By clause 21.1, Lord VI, as the initial Financier, appointed PT as the Security Trustee to act as security trustee in connection with the Transaction Documents.
Clause 21.2 had the effect that Lord VI irrevocably authorised PT to enter into the Transaction Documents, to take action on the Financier's behalf in accordance with the agreement, and to exercise the Security Trustee's rights as set out in the Transaction Documents. It is necessary to pay close attention to the terms of clause 21.2, as Almona ultimately submitted in par 42 of its submissions in reply, in response to PT's argument that Almona was not entitled to the relief first raised in its Reply because of its omission to join Lord VI as a party, that Lord VI "irrevocably authorised PT to exercise its rights under the [Loan Notes Subscription Agreement] and General Security Agreement", and in par 43 of those submissions:
It is entirely within PT's power [to] take steps to protect the interests of [Lord VI] which it complains are at risk by reason of its reliance on s 42 and/or s 45 of the RPA. There is nothing stopping PT doing so, and on one view of clause 21.2 of the [Loan Notes Subscription Agreement], PT is obliged to do so.
As I understand these submissions, they amounted to an argument that the present case is distinguishable from that the subject of the decision of the High Court in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 (John Alexander's Clubs), because PT was authorised by Lord VI, under the terms of the Loan Notes Subscription Agreement, to defend on behalf of Lord VI Almona's present claim for a discharge of the PT Mortgages without repayment in full of the debt owed to Lord VI on the basis that title to the mortgages is not indefeasible. I will return to a consideration of the validity of that submission below, and the only issue that arises in the present context is the validity of the premise that Lord VI gave PT the authority to act on its behalf that has been asserted.
Clause 21.2 identified the extent of PT's authority as Security Trustee by specifying a number of actions including, relevantly:
(b) take action on the Financier's behalf in accordance with this agreement; and
(c) exercise their respective rights expressly set out in the Transaction Documents and rights, powers and discretions reasonably incidental to them carrying out their respective obligations expressly set out in the Transaction Documents.
The Financiers acknowledge that the Security Trustee and Agent have no obligations except those expressly set out in the Transaction Documents.
Clause 21.4 empowered the Agent to direct the Security Trustee to act in certain matters as therein set out. Clauses 22.2 and 22.3 contained provisions governing when the Security Trustee was required to exercise its powers under the Transaction Documents in accordance with the direction of either all Financiers or the majority of Financiers respectively.
Almona did not, in its submissions, explain in any detail why any Transaction Document authorised, or indeed compelled, PT to defend the PT Mortgages in the name of Lord VI, in a manner that excluded Lord VI's right to defend its own interests. PT was authorised to take action on Lord VI's behalf "in accordance with this agreement". That authority requires that the action be identified in the agreement. PT was also authorised to exercise its "rights expressly set out in the Transaction Documents" as well as incidental rights and powers.
In my view, on the proper construction of the Loan Notes Subscription Agreement, the authority given to PT to act on Lord VI's behalf in accordance with the agreement did not authorise PT to take proceedings in Lord VI's name to protect Lord VI's beneficial interest in the PT Mortgages. As PT was not given that right, it could only protect Lord VI's interests indirectly by defending its own title to the PT Mortgages.
PT has power to defend Almona's claim against PT because that right is inherent in its status as mortgagee, and probably also because it is reasonably incidental to its acceptance of the role of Security Trustee under the Loan Notes Subscription Agreement. However, nothing in the Transaction Documents derogates from Lord VI's right to defend its own interests.
Part 6 of the Loan Notes Subscription Agreement dealt with the creation of the Register of Loan Notes that had been issued. Part 7 contained syndication provisions. It is only necessary to note that, in respect of all of the Loan Notes issued by Parklea in the first instance to Lord VI, that company could transfer Loan Notes as it wished to other parties who would then become Financiers. The interests of all Financiers would be recorded in the Register. The agreement contained terms governing how PT, as the Security Trustee, would deal with and protect the interests of all of the Financiers.
[92]
PT Mortgages
The PT Mortgages were themselves in materially the same terms.
In clause 1.2, "Beneficiary" was defined to include the Mortgagee, being PT, "(for its own account or for the account of the Financier), and each Financier".
"Secured Money" was defined in a way that covered all money owed by the Mortgagor to the Beneficiary.
Clause 2 of the PT Mortgages was in the following terms:
2 Mortgagor must pay the Secured Money
The Mortgagor agrees to pay the Secured Money in accordance with the terms of the Finance documents. However, if an Event of Default is continuing, the Mortgagee may declare at any time by notice to the Mortgagor that the Secured Money is either payable on demand or immediately due for payment.
The Schedule, which was incorporated into the terms of the PT Mortgage, included the following term:
2 Consideration
The Mortgagor acknowledges giving this mortgage and incurring obligations and giving rights under this mortgage for valuable consideration.
[93]
Effect of the Transaction Documents
The effect of the Loan Notes Subscription Agreement, when read with the PT Mortgages, was that Lord VI, as the initial Financier, agreed to advance $84,000,000 to Parklea by way of subscription for the relevant number of Loan Notes. It was not obliged to do so until Parklea provided the PT Mortgages to Lord VI. That company was able subsequently to assign the Loan Notes to other parties as it wished, who would then become Financiers. Parklea was required to repay the Financiers in accordance with the provisions of the agreement. All Financiers were beneficiaries under the PT Mortgages. The financial accommodation was not provided through PT. The PT Mortgages required Parklea to repay the financial accommodation directly to the Financiers. The security granted to PT by the PT Mortgages was to secure repayment to the Financiers. PT held the PT Mortgages on trust for the Financiers, who appointed PT as their agent for that purpose. PT was in various ways required to act on the instructions of the Financiers.
[94]
Purpose in appointing PT as Security Trustee
Before I turn to the identification of the issues raised by Almona and PT, I will address the submission made by Almona at par 216 of its closing submissions. Almona submitted that the Court can infer, in the absence of an explanation from the defendants, that putting PT in the role of mortgagee enabled PAG to conceal the fact that it was itself providing a finance facility to Parklea, to ensure PAG achieved its objective to accelerate settlement and deprive Almona of the Land, and consequently the execution of the Security Trust Deed was a necessary step in the furtherance of the fraud on Almona.
I reject that submission. There is no allegation to that effect in the FASOC, so it would not be proper for the Court to make that finding in any event.
The logic on which the submission was made is also unsound. The financial accommodation provided by Lord VI to Parklea was not provided through PT as lender. The PT Mortgages secured Parklea's obligation to pay all monies advanced to Parklea by the Beneficiary, which was Lord VI. The fact that PT was made the mortgagee as Security Trustee concealed absolutely nothing, as, on the face of the PT Mortgages, the definition of Beneficiary led to each Financier, which then lead to the reference to the Loan Notes Subscription Agreement referred to in clause 1.1, which in turn would lead to Lord VI as the Financier. If, at that stage, the connection between Lord VI and PAG was not apparent, that had nothing to do with the appointment of PT as Security Trustee.
It is not clear how the appointment of PT in the role of mortgagee had any connection with the acceleration of the settlement of the Contract.
In fact, the structure of the transaction whereby Lord VI made financial accommodation available to Parklea secured in part by the PT Mortgages granted to PT is not an unusual or suspicious structure for the parties to have used. The purpose is for the financial accommodation to be provided by the initial Financier, by the subscription for as many Loan Notes as there are dollars in the Facility Limit, on terms that enable the Financier to transfer the Loan Notes at will to other parties who thereby become Financiers. This arrangement effectively unitises the financial accommodation. The security is held by a single Security Trustee, because that is the only way of efficiently enforcing the security, and also of avoiding subsidiary problems that would arise from the transfer of units of the securities, such as registration and stamp duty problems.
[95]
Claim that title to PT Mortgages is defeasible
In essence, Almona put three submissions in support of its claim that PT did not have an indefeasible title to the PT Mortgages.
First, Almona submitted that, once the Court finds that there was fraud in the exercise of the power of sale, it will then be required to determine whether PT is protected from Almona's suit by s 118 and/or s 45 of the Real Property Act.
I will start by setting out the basic indefeasibility provision in s 42 of the Real Property Act:
42 Estate of registered proprietor paramount
(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except…
The exceptions are not presently material. Section 45 then provides:
45 Bona fide purchasers and mortgagees protected in relation to fraudulent and other transactions
(1) Except to the extent to which this Act otherwise expressly provides, nothing in this Act is to be construed so as to deprive any purchaser or mortgagee bona fide for valuable consideration of any estate or interest in land under the provisions of this Act in respect of which the person is the registered proprietor.
(2) Despite any other provision of this Act, proceedings for the recovery of damages, or for the possession or recovery of land, do not lie against a purchaser or mortgagee bona fide for valuable consideration of land under the provisions of this Act merely because the vendor or mortgagor of the land:
(a) may have been registered as proprietor through fraud or error, or by means of a void or voidable instrument, or
(b) may have procured the registration of the relevant transfer or mortgage to the purchaser or mortgagee through fraud or error, or by means of a void or voidable instrument, or
(c) may have derived his or her right to registration as proprietor from or through a person who has been registered as proprietor through fraud or error, or by means of a void or voidable instrument.
(3) Subsection (2) applies whether the fraud or error consists of a misdescription of the land or its boundaries or otherwise.
Finally, s 118 relevantly provides:
118 Registered proprietor protected except in certain cases
(1) Proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except as follows:
…
(d) proceedings brought by a person deprived of land by fraud against:
(i) a person who has been registered as proprietor of the land through fraud, or
(ii) a person deriving (otherwise than as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud…
The High Court has, in Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425; [2015] HCA 2 (Cassegrain) authoritatively established the relationship between s 42 and s 118 of the Real Property Act, in the joint judgment of French CJ, Hayne, Bell and Gageler JJ as follows (footnotes omitted):
58 It will be recalled that the primary judge held that, although Felicity derived her title as sole registered proprietor through Claude, and not as a transferee of his interest for valuable consideration, s 118(1)(d) did not apply because Claude was not registered as proprietor of the land through fraud. It will further be recalled that the primary judge treated s 118(1)(d)(ii) as dealing only with "the process by which registration as proprietor" is achieved, a subject said to be narrower and more specific than the fraud exception to s 42(1).
59 All members of the Court of Appeal rightly rejected this interpretation of s 118(1)(d)(ii). Neither s 118 generally nor s 118(1)(d)(ii) in particular should be read as directed only to fraud in the process of registration. Exactly what would fall within fraud "in the process" of registration may be open to debate. But it is not a debate that need be had, because s 118 should be construed in a way which is consonant with the operation of s 42(1). In particular, s 118 must not be read in a way which would preclude action to recover the land in a case where the fraud exception to s 42(1) applies. Hence, the reference in s 118(1)(d)(i) to proceedings brought by a person deprived of land by fraud against a person who has been registered as proprietor of the land through fraud must be read as embracing every kind of fraud which falls within the relevant exception to s 42(1). If actual fraud is brought home to the registered proprietor, s 118(1)(d)(i) is engaged and the general bar to proceedings for the possession or recovery of land against that registered proprietor is lifted.
60 Conversely, but equally importantly, if the fraud exception to s 42(1) does not apply to the person who is registered as proprietor, the general bar to proceedings for the possession or recovery of land against the registered proprietor will apply and the exception provided by s 118(1)(d)(i) will not be engaged. That is, the exception for which s 118(1)(d)(i) provides does not diminish the protection given by s 42(1). It does not enlarge the rights which a person deprived of land by fraud has against the registered proprietor.
61 By contrast, the exception provided by s 118(1)(d)(ii) does enlarge the rights which a person deprived of land by fraud has against a registered proprietor. Unless the registered proprietor is a transferee bona fide for valuable consideration, a person deprived of land by fraud may bring proceedings for the possession or recovery of the land against a person deriving from or through a person registered as proprietor of the land through fraud. But as with s 118(1)(d)(i), the expression "registered as proprietor of the land through fraud" must be read in a manner consonant with s 42(1).
62 Hence, in the present case, Claude, but not Felicity, was registered as proprietor of (an interest in) the land (as joint tenant) through fraud. By the second transfer, Felicity derived from or through Claude an interest as tenant in common as to half. Felicity derived that interest from or through a person registered as proprietor of (an interest in) the land (as joint tenant) through fraud. Felicity was not a transferee of the interest for valuable consideration. Section 118(1)(d)(ii) is thus engaged. Proceedings brought by GC&Co (as a person deprived of the land by fraud) for the recovery of that interest in the land (as tenant in common as to half) lie against Felicity.
Thus, the title of a registered proprietor who acquires registration by fraud, or to whom the fraud is brought home, is not protected by s 42 of the Real Property Act. If a registered proprietor is not so tainted by fraud, its title is protected by s 42 even if the registered proprietor is a volunteer. If, however, a registered proprietor has acquired its title from or through a person who has acquired its title by fraud (and so would not have been protected by s 42), in proceedings for the possession or recovery of the land, the title of that person will not, by reason of s 118 of the Real Property Act, be indefeasible, unless the person was a transferee bona fide and for valuable consideration.
This application of the relevant provisions is consistent with earlier authority of the Court of Appeal in this State, which held that s 42 conferred indefeasibility of title on volunteers who did not acquire their registered title through their own fraud or by the fraud of another that is brought home to them: Bogdanovic v Koteff (1988) 12 NSWLR 472 at 478-480; Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453 at [81], [82] and [123]; and Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 (Sze Tu v Lowe) at [241].
As to the application of s 118, Almona submitted that, even though PT itself was innocent and thus acquired title to the PT Mortgages bona fide, as Parklea was a person who has been registered as proprietor of the Land through fraud, and PT has derived its interest in the PT Mortgages through Parklea "otherwise than as a transferee…for valuable consideration", PT does not have the protection afforded by s 118.
Similarly, Almona submitted that s 45 of the Real Property Act does not avail PT, as it was not a "mortgagee bona fide for valuable consideration".
As appears from par 248 of Almona's closing submissions, Almona's argument was based upon a particular feature of the transaction, whereby the financial accommodation was not made available to Parklea by PT, but was made available directly by Lord VI. PT did not itself advance any money to Parklea, as consideration for the grant of the PT Mortgages by Parklea to PT. Presumably, Almona relied upon the principle of contract that, for a promise made by a promisor to be enforceable by the promisee, consideration must move from the promisee: see generally J.D. Heydon, Heydon On Contract (2019, Thomson Reuters Australia) (Heydon) at [5.320], [5.330]. Almona's argument was that the feature of the transaction whereby the mortgages were granted to PT, but the advance was made by Lord VI, had the consequence that PT did not provide consideration for the PT Mortgages.
PT submitted that s 118 of the Real Property Act did not apply to it, because the present action is not a proceeding for the possession or recovery of land within the chapeau to s 118(1), as PT is defending its mortgages and does not care who has possession of the Land. It may be that the claim is not one for possession in so far as Almona seeks a discharge of the PT Mortgages. It is not so clear that the claim is not one for the recovery of land. PT also submitted that the action is not one of recovery at all, as the PT Mortgages were created at the time of completion of the Contract and cannot as such be recovered. It is the fee simple interest that Almona is seeking to recover. PT relied upon the use of the definite article in both (i) and (ii) of s 118(1)(d) in the expression "the land" to support the argument that the provision was not intended to apply to the grant of a mortgage. Finally, PT submitted that the reference in s 118(1)(d)(ii) to "a transferee" is not apt to apply to a mortgagee.
Were it necessary to decide the validity of these arguments, I would prefer the view, based upon my understanding of what the majority in the High Court meant by the statement of principle in Cassegrain set out above, that s 118(1)(d)(ii) of the Real Property Act will defeat the indefeasibility of the registered proprietor of any form of interest in the land, who acquires that interest from a registered proprietor whose own indefeasibility was vitiated by fraud, unless the holder of that interest acquired it bona fide for valuable consideration. In my view, it would be proper to give a liberal interpretation to the expression "Proceedings for the…recovery of land", so that it applied to a proceeding to establish that the plaintiff was entitled to a retransfer of the title to the land free of an encumbrance registered in the name of the defendant. The reference to both purchasers and mortgagees in s 45 of the Real Property Act provides some comfort for the view that, wherever the registered interest was derived from or through a person registered as proprietor of the land through fraud, indefeasibility of title will depend upon whether the interest was acquired bona fide for valuable consideration.
It is sufficient for the present to note that Almona's argument depends on the proposition that PT did not acquire the PT Mortgages for value. If it is necessary to do so, I would reject that argument for the following reasons.
It is to be noted at the start that, if the transaction had been structured differently, and the financial accommodation provided through a bank account in the name of PT, and on the basis that formally PT was the lender, it is clear that PT would have provided valuable consideration and have the benefit of indefeasibility.
The question for examination is whether that protection is lost because of the bifurcation in roles between the lender and the holder of the security.
In Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460; [1967] HCA 3, Barwick CJ and Taylor, Windeyer and Owen JJ held in obiter that, in a contract between A of the one part and B and C jointly of the other part, C can enforce a promise made to B and C jointly if only B provided consideration to A to support A's promise. At 493, Windeyer J said (footnotes omitted):
Still, it was said, no consideration moved from her. But that, I consider, mistakes the nature of a contract made with two or more persons jointly. The promise is made to them collectively. It must, of course, be supported by consideration, but that does not mean by considerations furnished by them separately. It means a consideration given on behalf of them all, and therefore moving from all of them. In such a case the promise of the promisor is not gratuitous; and, as between him and the joint promisees, it matters not how they were able to provide the price of his promise to them. That is the position as I see it. It accords with the very old decision in Rookwood's Case and with general principle.
On this view, that Coulls and Mrs. Coulls were joint promisees, an action against the construction company would, during their joint lives, have had to be brought in the names of both. If one had refused to be joined as a plaintiff, he or she could, after an offer of indemnity against costs, have been made a defendant: Whitehead v. Hughes; Cullen v. Knowles; Rodriguez v. Speyer Brothers. After the death of either of two joint promisees an action on a contract can be brought by the survivor alone: see Halsbury's Laws of England , 3rd ed., vol. 8, p. 67. Therefore Mrs. Coulls, on the basis that she is a surviving joint promisee, could now bring an action on the contract; and in respect of moneys becoming due and payable under it since the death of her husband recover them for herself alone.
His Honour then, at 493, turned to consider the question of whether C can personally enforce a promise made by A to B in a contract between those parties, where B provides consideration for A's promise in favour of B and C jointly. He concluded at 495: "…For us the rule prevails that a plaintiff who sues on a promise must shew a consideration for it provided by him…" and observed at 499: "…Whether we like them or not, the rules relating to consideration seem to me a stubborn part of our law…"
Windeyer J did not consider the case where A, B and C are all parties to the contract and only B provides consideration to A to support promises made by A to B and C severally. Heydon considers this question briefly at [5.340], and appears to accept Treitel's view that C cannot enforce the several promise made to C if C has not personally provided consideration to A.
In the present case, both Lord VI and PT were parties to the Loan Notes Subscription Agreement with Parklea. Analysis of the question of which parties provided consideration for which promises is impeded by the fact that Parklea did not make a promise in the agreement to provide the PT Mortgages. As noted above, the delivery of those mortgages to Lord VI was a condition precedent to Lord VI's obligation to acquire the Loan Notes. However, as the intention of the parties was that PT would be the mortgagee and hold the PT Mortgages on trust for the benefit of Lord VI, it is not possible to identify any relevant promise made by Parklea jointly to Lord VI and PT, for which Lord VI's promise to provide financial accommodation to Parklea was consideration.
It therefore appears to be necessary to identify consideration provided by PT to Parklea for the grant of the PT Mortgages. There may be scope to argue that, on the proper interpretation of ss 45 and 118 of the Real Property Act, PT did derive its title to the PT Mortgages for valuable consideration, as it was a trustee of the mortgages where the consideration for the grant was provided by the beneficiary of the trust. It may be that the point upon which Almona relies simply does not arise on the proper interpretation of the sections. It does seem to be a blinkered interpretation which is blind to the reality that in equity the party with the benefit of the mortgages has provided valuable consideration, and to consider the title of PT divorced from that reality. However, that is an issue not raised by PT and I would not have based my judgment on an interpretation of the sections that allowed the value to be provided by a party other than the holder of the title.
Almona relied upon a number of cases of high authority that seem to establish that, where property is transferred to a transferee without payment of any price as the consideration for the transfer, but the transfer is a settlement of the property on the transferee to be held on a particular trust, the obligations accepted by the transferee to perform the trust do not constitute consideration for the transfer. As Walsh J said on behalf of the Full Court in Tooheys Ltd v Commissioner of Stamp Duties (1960) 60 SR (NSW) 539 at 548: "…An acceptance of a trust and an agreement to hold the trust property upon the terms of the trust and to administer it accordingly, do not constitute the giving of consideration by the trustees for the property so accepted. If it were so, every trust would have to be regarded as created for full consideration". See also Corin v Patton (1990) 169 CLR 540; [1990] HCA 12 per Deane J at 577 and Benson v Cook (2001) 114 FCR 542; [2001] FCA 1684 per Hely J at [137]-[140] in dissent.
In my view, care must be taken in assessing the relevance of these authorities in the present context. It is true that PT did not directly make any financial accommodation in favour of Parklea. Equally, Parklea did not settle the PT Mortgages on PT. PT held the mortgages on trust by reason of the Security Trust Deed and the terms of the Loan Notes Security Agreement. In both form and substance, Parklea granted the PT Mortgages to PT at the direction of Lord VI, which unquestionably provided consideration to Parklea by means of its agreement to provide financial accommodation. Lord VI determined that PT would hold the mortgages on trust for Lord VI and possible substituted financiers. Moreover, the delivery to Lord VI of the PT Mortgages was a condition to Lord VI being obliged to acquire Loan Notes, so the delivery of those mortgages constituted an executed part of the consideration provided by Parklea for the financial accommodation, the other part being Parklea's personal covenant to repay the debt. Lord VI was not the agent of PT for the purpose of giving consideration to Parklea for the grant of the PT Mortgages to PT. Nor was Lord VI the holder of any relevant interest on trust for PT. The agency and trust relationship was the other way round.
It is well-established that extrinsic evidence is admissible to show that there was consideration for an agreement and the true nature of that consideration: see Heydon at [9.200].
The evidence makes it clear, and the references to the Transaction Documents in the various agreements confirms, that all of the parties to the Transaction Documents, which included the fee agreement between PT and Parklea, entered into the various agreements on the basis that they were intended to operate in an interlocking way as part of a single transaction.
By means of its fee agreement with Parklea, PT agreed to hold the PT Mortgages on trust for the identified beneficiaries, and to deal with the mortgages for their benefit. PT also agreed to undertake the potentially onerous responsibilities of the Security Trustee set out in the Loan Notes Subscription Agreement. The obligations that PT assumed were not the obligations of a trustee created by the fee agreement. They were obligations accepted by PT at the request of Parklea, as a party who could only achieve the benefit of the financial accommodation if PT agreed with it to accept those obligations.
It is trite law that consideration may take the form of a benefit bestowed by the promisee on the promisor. The effect of PT assuming the obligations to Parklea created by the fee agreement was that it enabled Parklea to satisfy the pre-condition in the Loan Notes Subscription Agreement to the obligation upon Lord VI to subscribe for any Loan Notes issued by Parklea. PT conferred that benefit on Parklea partially in return for the grant of the PT Mortgages to PT, as that step was necessary to enable PT to perform the duties necessary to enable it to earn its fees. In my view, PT did provide valuable consideration to Parklea for the grant of the PT Mortgages, notwithstanding that it was Lord VI who ultimately became bound to provide the financial accommodation to Parklea. That consideration took the form, first, of the obligations assumed by PT under the fee agreement, which were commercial and not trustee obligations as between PT and Parklea. Secondly, in accepting the grant of the PT Mortgages, and the obligations that arose out of its role of Security Trustee, PT enabled Parklea to satisfy the essential pre-condition to its receipt of the financial accommodation from Lord VI.
The joint decision of Gleeson CJ, Gummow, Hayne and Heydon JJ in Cook v Benson (2003) 214 CLR 370; [2003] HCA 36, particularly at [35]-[37], demonstrates how, when a payment is made to or property settled on a transferee, on an arm's length basis, to be held on the terms of a trust under which the trustee agrees to perform services for and provide benefits to the transferor, valuable consideration can be provided for the transfer even though the transferee does not pay a price, as such, for the transfer. In that case, a person who later became bankrupt had rolled over his superannuation entitlement into new superannuation funds. Their Honours described the effect of the transactions as follows:
20 In the case of each of the "roll-over" transactions, the substance of what occurred was as follows. The first respondent applied for membership of a superannuation fund. The fund was administered by a trustee. The general scheme was that the trustee would receive the amount contributed by the first respondent and apply it in taking out a policy on the life of the first respondent and in making other forms of investment. The first respondent was entitled to death and retirement benefits in accordance with the terms of the deed governing the fund. The detail of the manner in which the value of the first respondent's entitlements varied from time to time is not a matter of relevance to the present appeal. Each of the three payments in question was made for the acquisition of the rights secured by the respective deeds of trust. Those rights were enforceable by the first respondent against the respective trustees.
Their Honours held:
35 Hely J, whose reasoning in this respect was supported by the appellant, denied the provision of valuable consideration by treating the case as analogous to a transfer of property to a trustee who agrees to hold it upon the terms of the trust and administer it accordingly. It may be accepted that, if the first respondent had simply paid $80,000 to a person to hold on trust for him, the trustee would not be a purchaser for valuable consideration…However, that is not what occurred in the present case. The trustees of the superannuation funds did not undertake to accept funds, hold them on trust for the first respondent, and administer them on his behalf. The rights and benefits to which contributors to the funds were entitled, although they might vary with the success or otherwise of the investment policies of the fund managers, were governed by the rules of the superannuation scheme. As Kiefel J pointed out, in at least one case those rights included a "capital guarantee".
36 …On the other hand, in the present case the first respondent made contributions in return for the undertaking by the trustees of the funds of obligations to pay death, retirement or other related benefits, to him or his nominees, in accordance with the rules of the respective funds. He obtained consideration in money's worth in return for the payments.
In the present case, PT did not receive the PT Mortgages to hold them on any trust in favour of Parklea. It did so in the exercise of the trust in favour of Lord VI, and it agreed to provide services to Parklea, and its agreement to provide services to Lord VI conferred a benefit on Parklea as it fulfilled the condition precedent for Parklea's entitlement to oblige Lord VI to provide the promised financial accommodation.
As the making of an order by the Court against PT that it discharge the PT Mortgages without the repayment to Lord VI of all monies secured by the mortgages would clearly damage Lord VI's interests, as the beneficial owner of the PT Mortgages, Lord VI was a necessary party to these proceedings. As Lord VI was not joined as a party, the Court could not make the order sought by Almona against PT in any event: John Alexander's Clubs at [132], [138]. Lord VI was the beneficial owner of the PT Mortgages and its interest in those mortgages would be destroyed if the Court made the order sought by Almona.
As I have explained above, I do not consider that the terms of the Loan Notes Subscription Agreement, or any other Transaction Document, have the effect of authorising PT to prosecute these proceedings in the name of and on behalf of Lord VI to protect its beneficial interest in the PT Mortgages, and not in any event to the exclusion of Lord VI. If PT's defence of Almona's claim were to fail, because the structure of the transaction did not involve the financial accommodation being provided to Parklea through PT, it is plain that Lord VI did provide valuable consideration for the PT Mortgages that it directed be granted to PT to be held on trust for Lord VI. If the Court were to accede to Almona's argument, Lord VI would be deprived of its beneficial interest in the registered security the provision of which was a pre-condition to its having provided the financial accommodation to Parklea.
As the High Court made clear in John Alexander's Clubs at [138]-[140], it is incumbent upon the party who makes the claim that will affect the interest of a party to join that party, and it is not the party with the interest who is burdened with the need to apply to be joined.
[96]
Claim that PT Mortgages only secure PT's fees and other entitlements
Almona's second argument assumed that the Court was satisfied that PT was a mortgagee bona fide for valuable consideration, with the result that the PT Mortgages are indefeasible. Almona then submitted that, as the Loan Notes Subscription Agreement does not contain any personal covenant binding Parklea to pay any monies to PT, the PT Mortgages do not secure any monies owing between mortgagor and mortgagee, save for the fees payable to PT by Parklea. Almona then submitted that: "[w]hether the PT Mortgages have the effect of securing a particular debt will depend upon the existence of a debt owed by Parklea to PT (not Lord)…" (closing submissions par 275).
This aspect of Almona's claim appears to be based on the notion that a mortgage can only secure a debt owed by the mortgagor to the mortgagee, so that if a creditor makes an advance to the mortgagor on the basis of a mortgage granted by the mortgagor to a third party as trustee mortgagee, where the mortgage is expressed to secure repayment of the advance to the creditor, the mortgage secures nothing.
Almona did not identify any authority to support the proposition that a mortgage cannot be held on trust by a third party mortgagee for the benefit of the creditor, to secure repayment of the advance made by the creditor. The decisions of PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 and Small v Tomassetti [2001] NSWSC 1112, upon which Almona relied, establish that the indefeasibility of a registered mortgage protects only the estate in the land subject to the covenants, conditions and contingencies specified in the mortgage. Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81; [2007] HCA 53 establishes that, where a borrower agrees in a loan agreement to repay an advance, and separately grants a mortgage to the creditor which contains a personal covenant to repay the advance, the assignment of the mortgage by the creditor or the discharge of the mortgage has no effect on the entitlement of the creditor to sue on the promise in the loan agreement. To similar effect, as submitted by Almona, Groongal Pastoral Co Ltd (in liq) v Falkiner (1924) 35 CLR 157; [1924] HCA 54 may be authority for the proposition that, as a mortgage is a form of security conferring powers against land, it can be discharged without affecting a personal covenant to pay. These authorities say nothing about the question of whether a mortgage can be granted to a trustee mortgagee to secure, by creating a security interest in the land mortgaged, a covenant contained in the mortgage (as well as in the loan agreement) to repay the advance to the creditor who is the beneficiary of the trust in the mortgage. There is no reason of which I am aware why a mortgage cannot validly create an interest in land to secure a promise to the mortgagee contained in the mortgage to repay an advance to a third party creditor in these circumstances.
A subsidiary aspect of this second argument by Almona appears to be that the estate in land which is created by the registration of a mortgage "is a charge which secures a particular sum" (closing submissions par 276). As PT has not proven the actual amount that is owed to Lord VI, which is an amount that cannot be derived from an inspection of the PT Mortgages, and has not otherwise been proved, Almona submitted that it has not been established that the PT Mortgages secure any amount, save perhaps for outstanding fees due to PT.
It is a misconception that a mortgagee must positively prove the amount outstanding that is secured by a registered mortgage in order to resist an application by the mortgagor for an order that the mortgagee discharge the mortgage. A mortgage, once granted and registered, creates an estate in the land the subject of the mortgage. The mortgagee is entitled to the continuing benefit of the mortgage and its registration until the mortgagor takes proper steps to redeem the mortgage. Those steps will involve the tender by the mortgagor of the amounts secured, and at that stage the need to resolve a difference as to the amount secured may arise. Depending upon the terms of the mortgage and the circumstances, at this point the mortgagee may be required to prove the amount that is outstanding. The mortgagee does not have to prove that a particular amount is outstanding in order to resist a bare application by the mortgagor for an order that the mortgagee discharge the mortgage, without any proof by the mortgagor of the tender of the amount claimed by the mortgagor to be outstanding.
[97]
Claim that PT's title is subject to a personal equity
The final argument made by Almona was that PT is obliged to discharge the PT Mortgages because of a personal equity that it came to owe to Almona, of the nature considered in Frazer v Walker [1967] 1 AC 569 at 585, that arose when PT, as an innocent volunteer, learned that it had been granted the PT Mortgages as a result of fraudulent conduct by SAP and Parklea. This argument was based on a passage in the judgment of Allsop P (as his Honour then was) in Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252 (Heperu) at [154], where his Honour said that the equitable obligation arises from the later discovery of the fraud and is based upon "the touching of the conscience of the volunteer recipient to deal with the property of another conformably with the interests of the owner, now discovered".
The first counter to this argument is my finding above that PT was not relevantly a volunteer. Secondly, even if I am wrong and PT was technically a volunteer, it would not be against its conscience to refuse, as the trustee of the PT Mortgages for Lord VI, to discharge those mortgages without repayment in full of the amount owed to Lord VI, which on any view was not a volunteer, and made the advance to Parklea on condition that the PT Mortgages were granted. Finally, the volunteer in Heperu did not receive, as a result of the impugned transaction, the grant of an interest in land that acquired indefeasibility by registration.
I adhere to the view that I expressed in Meshumar v Otmy (2018) 97 NSWLR 615; [2018] NSWSC 125 from [463] and particularly at [473] concerning the circumstances in which the registered proprietor of an estate or interest in land may lose the right to indefeasibility as a result of the existence of a personal equity in a rival claimant to the land, which I believe is consistent with Sze Tu v Lowe. At [473], I said:
…It is fundamental to the preservation of the entrenched doctrine of indefeasibility of title by registration of dealings that notice of some existing, unregistered claimed interest does not lead to a finding that a refusal to recognise the prior claim is unconscionable, unless there is a proper basis for that finding that does not undermine the effective operation of the doctrine. That basis may in particular circumstances exist where the prior claim was enforceable in a manner that allowed the claimant to prevent the opponent becoming registered proprietor. The unconscionability comes from resiling from some agreement or undertaking after registration where the registered proprietor would have been prevented from achieving apparent indefeasibility of title but for the making of the agreement or the giving of the undertaking.
It is not necessary to explore that question further in this judgment. No relevant personal equity arose against PT on the facts of this case.
Although I have not found it necessary to deal with all of the arguments put by PT against Almona's claim, I am satisfied that, even if I am wrong in my conclusions about Almona's fraud case, and even if Almona has some proprietary claim over the Land as a result of the failure to disclose the Occupancy Condition to Almona, PT is entitled to indefeasibility in respect of the PT Mortgages.
There is nothing incongruous in the conclusion that PT's title to the PT Mortgages may be indefeasible, even if Parklea had become registered proprietor of the Land by fraud, before granting the PT Mortgages to PT. Although it did not occur, Lord VI may have transferred some or all of its Loan Notes to substitute Financiers. To the extent that Lord VI has retained the Loan Notes, if fraud had been proved, there may have been remedies available in equity against Lord VI to compel it to deal with its equitable interest in the PT Mortgages, and its right to give instructions to PT, in a manner that would provide some remedy to Almona. The availability of any such relief would likely depend upon issues of knowledge and control as between SAP, PAG and Lord VI. These are not issues that arise for consideration in these proceedings.
[98]
Result
In the result, Almona has substantially succeeded against both SAP and Parklea on the issues that arose out of the inclusion of the Occupation Condition in the original Contract and the circumstances that led to the Contract being completed for a price that was $4.25 million less than the price that would have been paid had the Occupation Condition been disclosed to Almona.
Almona has failed in its claim against SAP and Parklea to relief setting aside the transfer of the Land on the ground that it was obtained by the fraudulent conduct of SAP and Parklea.
I have found that, in any event, PT's title to the PT Mortgages obtained by their registration is indefeasible.
It will be necessary for the parties to consider the issue of the relief that should be given to Almona in respect of the part of its claim that has succeeded.
It will also be necessary for the parties to consider the case management orders that will be appropriate for the determination by the Court of the issues that arise from the FASOC that are outstanding.
As will be apparent from these reasons, the issues that have been required to be dealt with in this matter are complex. There is some scope for misunderstanding as to the issues that were required to be dealt with in this judgment as a result of the hearing, and the issues that are to be deferred to a further hearing. If any party takes the view that I have omitted to deal with some issue required to be determined by this judgment at this stage of the proceedings, they are invited to inform the other parties and my associate.
Finally, the Court will have to deal with the question of costs, whether that be now or when all issues in the proceedings have finally been determined.
The parties should confer and determine what short minutes of order will be appropriate to give effect to these reasons and to deal with the further conduct of these proceedings. The parties may communicate with my associate to arrange a suitable time for a directions hearing, if that is thought convenient for the purpose of charting the future direction of these proceedings.
[99]
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.
Decision last updated: 20 December 2019
EQUITY - Defences - Laches and acquiescence -
Consideration of laches defence, but held inappropriate at this stage in the circumstances to exhaustively examine
Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth)
Competition and Consumer Act 2010 (Cth), Schedule 2
Conveyancing Act 1919 (NSW)
Evidence Act 1995 (NSW)
Real Property Act 1900 (NSW)
Trade Practices Act 1974 (Cth)
Cases Cited: A Legudi & Sons (Vic) Pty Ltd v VL Finance Pty Ltd, unreported, Supreme Court of Victoria, 30 April 1997; BC9701590
Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 579
Anderson v Anderson (2017) 94 NSWLR 591; [2017] NSWCA 131
Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195
Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 368 ALR 1
Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Developpement SA [1983] BCLC 325
Bank of Western Australia Ltd v Abdul [2012] VSC 222
Barnes v Addy (1874) LR 9 Ch App 244
Barns v Queensland National Bank Ltd (1906) 3 CLR 925; [1906] HCA 26
BCI Finances Pty Ltd (in liq) v Binetter (No 4) [2016] FCA 1351; (2016) 117 ACSR 18
Beach Petroleum NL v Johnson (1993) 43 FCR 1
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 70 ACSR 1
Belton v Bass, Ratcliffe and Gretton Ltd [1922] 2 Ch 449
Benson v Cook (2001) 114 FCR 542; [2001] FCA 1684
Blatch v Archer (1774) 1 Cowp 63; 98 ER 969
Bogdanovic v Koteff (1988) 12 NSWLR 472
Branwood Park Pastoral Co Pty Ltd v Willing & Sons Pty Ltd [1976] 2 NSWLR 149
Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; [1938] HCA 34
Brockway v Pando (2000) 22 WAR 405; [2000] WASCA 192
Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425; [2015] HCA 2
Charles J Holohan v Friends Provident and Century Life Office [1966] I.R. 1
Chia v Rennie (1997) 8 BPR 15,601
Cityland and Property (Holdings) Ltd v Dabrah [1968] 1 Ch 166
Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; [1981] HCA 70
Commonwealth Bank of Australia v Lee (1996) 22 ACSR 574
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8
Cook v Benson (2003) 214 CLR 370; [2003] HCA 36
Corin v Patton (1990) 169 CLR 540; [1990] HCA 12
Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460; [1967] HCA 3
Dare v Pulham (1982) 148 CLR 658; [1982] HCA 70
Derry v Peek (1889) 14 App Cas 337
Ekes v Commonwealth Bank of Australia [2014] NSWCA 336; (2014) 313 ALR 665
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22
Farrar v Farrars Ltd (1888) 40 Ch D 395
Forsyth v Blundell (1973) 129 CLR 477; [1973] HCA 20
Frazer v Walker [1967] 1 AC 569
Friend v Mayer [1982] VR 941
Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453
Gomba Holdings UK Ltd v Minories Finance Ltd [1988] 1 WLR 1231; [1989] 1 All ER 261
Griffiths as trustee for the Griffiths HWL Practice Trust v Martinez as trustee for the Martinez HWL Practice Trust as representative of the partners trading as HWL Ebsworth Lawyers [2019] NSWSC 664
Groongal Pastoral Co Ltd (in liq) v Falkiner (1924) 35 CLR 157; [1924] HCA 54
Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1994) 8 BPR 15,581
Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; (2018) 356 ALR 440
John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68
Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265
McKean v Maloney [1988] 1 Qd R 628
Meshumar v Otmy (2018) 97 NSWLR 615; [2018] NSWSC 125
Mijac Investments Pty Ltd v Graham (No 2) [2009] FCA 773; (2009) 72 ACSR 684
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31
Nash v Eads (1880) 25 Sol Jo 95
Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; [1912] HCA 9
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; [1982] HCA 29
Pollock v Hicks [2015] NSWCA 122
Pooley's Trustee v Whetham (1886) 33 Ch D 111 (CA)
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45
Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 97,341
Property and Bloodstock Ltd v Emerton [1968] Ch 94
PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643
Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81; [2007] HCA 53
Quennell v Maltby [1979] 1 All ER 568; 1 WLR 318
Quint v Robertson (1985) 3 NSWLR 398
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477
Routestone Ltd v Minories Finance Ltd [1997] BCC 180
Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40
Small v Tomassetti [2001] NSWSC 1112
Smith v Smith (No 7) [1891] 3 Ch 550
Smits v Roach (2004) 60 NSWLR 711; [2004] NSWCA 233
State Bank of New South Wales v Chia (2000) 50 NSWLR 587; [2000] NSWSC 552
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35
Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462
Tooheys Ltd v Commissioner of Stamp Duties (1960) 60 SR (NSW) 539
Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349
Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646; [2004] NSWSC 114
Upton v Tasmanian Perpetual Trustees Ltd (2007) 158 FCR 118; [2007] FCAFC 57
Vasiliou v Westpac Banking Corporation (2007) 19 VR 229; [2007] VSCA 113
Waring (Lord) v London and Manchester Assuring Co Ltd [1935] Ch 310
Westpac Banking Corporation Ltd v Kingsland (1991) 26 NSWLR 700
Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 9
Texts Cited: C. Croft and R. Hay, Mortgagee's Power of Sale (3rd ed, 2012, LexisNexis Butterworths)
E.L.G. Tyler, The Hon. P. Young and C. Croft, Fisher & Lightwood's Law of Mortgage (3rd Australian ed, 2013, LexisNexis Butterworths)
M. Bransgrove and M. Young, The Essential Guide to Mortgage Law in New South Wales (2nd ed, 2014, LexisNexis Butterworths)
R.T.M. Whipple, Property Valuation and Analysis (2nd ed, 2006, Thomson Lawbook Co)
Sir F.J. Jordan and F.C. Stephen, Chapters on Equity in New South Wales (6th ed, 1945, University of Sydney Law School)
W.D. Duncan and W.M. Dixon, The Law of Real Property Mortgages (2nd ed, 2013, The Federation Press)
Category: Principal judgment
Parties: Almona Pty Ltd (plaintiff)
Parklea Corporation Pty Ltd (first defendant)
Secured Asset Portfolio III Limited (second defendant)
PT Limited (third defendant)
Representation: Counsel:
DL Williams SC/E Bishop/E Walker (plaintiff)
K Andronos SC/S Keizer (first defendant)
E Hyde/T Epstein; NC Hutley SC (29-30 August 2019) (second defendant)
M Izzo SC/J Burnett (third defendant)