ASIL Foundation (Lending) Pty Ltd v Blue Mountains Development Pty Ltd

Supreme Court of NSW|2022-04-13|Before: Black J

Solicitors: Kekatos Lawyers (Plaintiff/Cross-Defendant) Badame Lawyers (Defendant/First and Second Cross-Claimant) File Number(s): 2021/133085

Background, chronology and affidavit evidence

By Summons dated 12 May 2021, ASIL Foundation (Lending) Pty Ltd ("ASIL") sought, inter alia, a declaration that a mortgage dated 2 December 2019 ("Mortgage") between ASIL and the Defendant, Blue Mountains Developments Pty Ltd ("BMD"), in respect of certain land at Allawah ("Allawah Property") is valid and binding and orders for judicial sale of the property. By its Statement of Claim filed on 23 June 2021, ASIL sought judgment against BMD in the sum of $500,000, an order that BMD give ASIL possession of the Allawah Property and leave to issue a writ of possession for the Allawah land and orders for the judicial sale of that land. By its First Cross-Claim filed on 21 July 2021, Orana Group Holdings Pty Ltd ("Orana") and BMD seek a declaration that Orana validly terminated the contract ("Contract") for the purchase of certain land at Keiraville ("Keiraville Property"), relief in respect of a provision in the Contract that the deposit of $500,000 be forfeited to ASIL if it validly terminated the Contract, and a declaration that the Mortgage secures no indebtedness to ASIL and other relief.

ASIL's claim under the Mortgage

ASIL's essential claim, as pleaded in paragraphs 3-4 of its Statement of Claim, is that BMD's offer was that, if ASIL entered into the Contract, BMD would pay ASIL the sum of $500,000 as a debt due and payable and that payment would be secured by the Mortgage which would become enforceable on 31 March 2020 should the $500,000 not have been paid by that date. That claim treats the amount of $500,000 as an obligation entered into by BMD, independent of any question whether the Contract was performed and the land ultimately sold by ASIL to Orana. ASIL also pleads a term of the Mortgage that BMD would pay it interest at 2.5% per month, compounding monthly on or before 31 March 2020.
BMD responds to this aspect of the claim, in paragraph 3 of its Defence, by setting out the chronology to which I have referred above, and pleading that it never received any money from ASIL nor the $500,000 which BMD acknowledged as having been received in cl 1 of the Mortgage; the Mortgage was granted to secure the payment of the $500,000 deposit payable under the Contract; the Contract never completed and was validly terminated by Orana; in those circumstances, there is no debt owing by Orana or BMD to ASIL; and the mortgage secures nothing where no such debt is owing. BMD also pleads the circumstances in which the Contract was terminated, where ASIL had not served a current land tax certificate for the Keiraville Property as required by s 52A(2)(b) of the Conveyancing Act 1919 (NSW) and reg 6(1)(a)(ii) and cl 3(2) of Sch 2 of the Conveyancing (Sale of Land) Regulation 2017 (NSW). Nothing turns on that matter, where ASIL does not now rely on any obligation arising out of the Contract to support its claim under the Mortgage.
Mr Allen, who appeared for ASIL, put ASIL's case at the hearing on a narrow basis. First, Mr Allen contended that there was nothing in the terms of the Mortgage which made payment under the Mortgage conditional upon completion of the Contract and the parties did not address the risk that completion would not occur by the terms of the Mortgage. Mr Macauley contested that submission and addressed the question whether ASIL or Orana had validly terminated the Contract, which I will address below. Mr Macauley also submits that ASIL's assertion that BMD offered to pay $500,000 as consideration for ASIL's entry into the contract with Orana, rather than as the mortgage securing the deposit payable under the Contract, is unsupported by evidence, and that it is also contrary to the terms of the HoA to which I have referred above.
I do not accept ACIL's claim that an unconditional obligation to pay that amount arose under the Mortgage. I approach the question of construction of the Contract and the Mortgage by well-established principles of contractual construction, although Counsel did not address them in any detail. In Australian Broadcasting Commission v Australasian Performing Right Assn Ltd (1973) 129 CLR 99 at 109, Gibbs J (as his Honour then was) observed that: "It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust."
I also have regard to the High Court's observations as to the objective approach to construction in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; 211 ALR 342; [2004] HCA 52 at [40], Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640; 306 ALR 25; [2014] HCA 7 at [35] and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; 325 ALR 188; [2015] HCA 37 at [46]-[52], [59] and I proceed on the basis that construction should commence with the language used by the parties, although the Court may also have regard to objective surrounding circumstances. In Price (as executor of the estate of Price (dec'd)) v Spoor (as trustee) (2021) 391 ALR 532; [2021] HCA 20 at [27], [42], the High Court again observed that an objective approach is applied in determining the rights and liabilities of a party to a commercial contract, by reference to its text, context and purpose, and "[t]he meaning to be given to its terms is determined by reference to what a reasonable business person would have understood those terms to mean."
It seems to me that the Mortgage was executed in the context of the Contract and the HoA and secured the payment of the $500,000 deposit payable to Orana under the Contract and the HoA, and the obligation of BMD to pay the "Principal Sum" to ASIL on the final maturity date, 31 March 2020, was therefore subject to ASIL having an entitlement to that sum under the contractual arrangements arising from the Contract and the HoA. That amount is not now payable, as ASIL contends, because there is no suggestion the Contract completed as between Orana and ASIL, nor was ASIL entitled to terminate the Contract for breach by Orana on 25 March 2020 where it had not delivered a land tax certificate and the time for completion of the Contract by Orana had not arisen. To put that proposition another way, the term "Principal Sum" here means, as a matter of construction, not $500,000 unconditionally, but $500,000 being any amount payable by way of a deposit under the Contract and HoA, and no such amount is now payable.
I should also address the question of the termination of the Contract, which was pleaded although it did not ultimately form part of ASIL's case as put by Mr Allen. By paragraph 21 of its Defence, ASIL pleads that, by 9 March 2020, Orana had intimated that it would not complete the Contract on or before 24 March 2020. As Mr Macauley points out, that does not advance ASIL's position where Orana was not obliged to do so, absent the provision of a land tax certificate. Mr Macauley points to the manner in which s 52A(2) of the Conveyancing Act, reg 6 and cl 3 of Sch 2 of the Conveyancing (Sale of Land) Regulation 2017 operated to require ASIL to deliver a land tax certificate, so that Orana was not required to complete the Contract as at 24 March 2020. The fact that ASIL did not serve a current land tax certificate for the purposes of those provisions was admitted in the Defence, and Mr Allen did not make any submission that these provisions did not apply or that Orana was obliged to complete the Contract on that date.
ASIL then pleads that Orana's position relieved ASIL from the requirement of serving a current land tax certificate but there is no basis for that contention. ASIL also pleads that, on 24 March 2020, Orana intimated that it would not complete the Contract at all, or alternatively that it would not settle before 28 April 2020, and that settlement on that date was dependent upon various matters. That has not been established by the evidence and, in any event, Orana was not obliged to complete the Contract at that point where a current land tax certificate had not been served.
Orana and BMD submit that Orana validly terminated the Contract on 18 May 2021. The steps in that submission are that, for the reasons noted above, ASIL was not entitled to serve a notice to complete as at 3 March 2020 or to require Orana to complete the Contract on 24 March 2020, where ASIL had not served a land tax certificate and was not then ready, willing and able to proceed to completion; ASIL's notice of termination which followed from Orana's non-compliance with the notice to complete was not properly founded; ASIL thereafter took no further step to perform the Contract; and Orana was entitled to accept ASIL's repudiation of the Contract and terminate it on 18 May 2021. Mr Allen responds that Orana's offer on 30 March 2020 to attend to settle the Contract amounted to an affirmation of the Contract. I do not accept that submission, and it seems to me that offer is properly characterised as an offer to keep the Contract open, conditional upon ASIL's performance of it, which left it open to Orana to terminate the Contract for repudiation on 18 May 2021, after ASIL subsequently neither provided a land tax certificate nor proceeded to settlement: Holland v Wiltshire (1954) 90 CLR 409 at 415-416; K and K Real Estate Pty Ltd v Adellos Pty Ltd [2010] NSWCA 302 at [134]-[140]; Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190 at [90]. I accept that Orana validly terminated the Contract by the 18 May letter from its solicitors.
For completeness, ASIL's Defence had also raised a question as to whether Orana could accept a wrongful termination of the Contract by ASIL and terminate the Contract if it was not ready and willing to perform the Contract. That question is a complex one: Lavigne v Kumar [2020] NSWSWC 1120; Hong v Gui [2022] NSWSC 431. I need not address that question where Mr Allen put no submission in respect of it and relied only on the terms of the Mortgage as I have noted above.
Mr Macauley also submits that, where ASIL had repudiated the Contract and Orana accepted that repudiation: "… Orana was relieved of any obligation to pay any monies to ASIL under the Contract and was entitled to the return of any deposit paid. This, therefore, means that [BMD] does not owe any money to ASIL, nor is the Allawah Property charged to secure anything. This is because no monies are owing or payable under the Contract, noting that the Mortgage was executed to secure the $500,000 payable under the Contract." Mr Macauley points out that there is no need to consider any effect of registration of a mortgage, where the Mortgage was not registered. I accept these submissions, consistent with the construction of the Mortgage that I have accepted above.
For completeness, it is also not necessary to determine whether ASIL was entitled to interest for the period from 31 March 2020, being the date on which the deposit was payable by way of deposit under the Contract to 18 May 2021, being the date of Orana's termination of the Contract, notwithstanding that termination has brought Orana's obligation to pay the deposit and ASIL's entitlement to recovery of the principal sum claimed under the Mortgage against BMD to an end. ASIL did not put a claim for interest on that basis.

ASIL's claim for estoppel by convention

Mr Allen alternatively contended that the statement of receipt of the amount of $500,000 in the Mortgage is a joint statement by the parties as to the conventional basis of the transaction and ASIL would suffer prejudice if BMD was to depart from the convention. Mr Macauley contests this submission and submits that the acknowledgement of receipt of the Principal Sum under cl 1 of the Mortgage is prima facie evidence of the debt, but does not establish the fact that money was advanced where the contrary is pleaded and established: Saravonovska v Saravonovski (No 6) [2016] NSWSC 964 at [252], affirmed in Saravinovski v Saravinovska [2017] NSWCA 85.
The High Court explained the basis of estoppel by convention in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1985) 160 CLR 226 at 244-245 as follows: "Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. The existence of an estoppel based on a convention between the parties has often been recognized … there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship …" [citations omitted]
In Shanemist Pty Ltd v Denmac Nominees Pty Ltd [2003] QSC 373 at [22]ff, Chesterman J in turn referred to the form of estoppel by deed as a sub-class of estoppel by convention, but observed that the estoppel "depends upon an unambiguous statement in the deed, referring to Greer v Kettle [1938] AC 156 at 171.
I do not accept ACIL's claim put on this basis, since it does not seem to me that the Mortgage contains any representation that the Principal Sum was received, that is capable of giving rise to such an estoppel, where the first words of cl 1 have the evidentiary effect that will ordinarily be given such words in a Mortgage, as described in paragraph 24 above, and no more than that effect. It does not seem to me that there is here any element of departure from that representation by BMD, in contesting the receipt of that sum. If there is such a departure, it does not give rise to any detriment to ASIL, and in particular it does not give rise to any detriment by way of any loss of a bargain, where I have held that the bargain did not involve any unconditional obligation of BMD to pay the relevant amount even if the Contract was neither performed nor properly terminated by ASIL.

Orana's and BMD's claim that the deposit of $500,000 is a penalty and for unconscionability

By paragraphs 25-28 of their Cross-Claim, BMD and Orana plead that, even if ASIL validly terminated the Contract, the $500,000 deposit payable under the Contract represented approximately 32.25% of the purchase price and was far in excess of the customary 10% deposit payable under a contract for the sale of land in New South Wales; the deposit was a penalty; neither Orana nor BMD is liable to ASIL to pay that amount; and the mortgage secures nothing. Mr Allen responds to this claim by contending that the requirement to pay $500,000 under the Mortgage is not contingent upon any breach of contract by BMD and is an absolute obligation. I have not accepted that submission above, and it does not in any event address the claim in the Cross-Claim, which was that the provision relating to the deposit under the Contract, as between ASIL and Orana, was a penalty.
It is not necessary to address this claim, where ASIL does not seek to establish that it validly terminated the Contract; ASIL does not claim to recover the deposit against Orana under the Contract, as distinct from against BMD on the basis of an unconditional obligation under the Mortgage; neither Orana nor ASIL has paid or, given the absence of a claim by ASIL against Orana and the finding that I have reached in respect of the claim by ASIL against BMD, will be required to pay that amount; and Orana did not put any submissions as to the amount of $20,000 which it did pay.
For completeness, Orana and BMD also put an alternative claim that the stipulation and enforcement of a term under the Contract that a deposit of $500,000 be forfeited to ASIL is unconscionable and contrary to s 21 of the Australian Consumer Law. It is not necessary to decide that claim, for the same reason that it is not necessary to decide the claim put by Orana and BMD that the relevant contractual provisions are a penalty.

Orana's claim under s 55(2A) of the Conveyancing Act 1919 (NSW)

Finally, on the premise that Orana did not validly terminate the Contract, it seeks relief under s 55(2A) of the Conveyancing Act 1919 (NSW). That section provides that, in any proceeding for the return of a deposit, the Court may, if it thinks fit, order the repayment of the deposit with or without interest thereon. Mr Macauley points to authority that that section can extend to the position where a deposit has not been paid, to mitigate an obligation to pay that deposit after a contract has been validly terminated: Botany Bay Apartments Pty Ltd v Badolato [2019] NSWSC 296 at [137]-[141].
Mr Macauley submits, by reference to authority, that this section establishes a jurisdiction to order repayment of a reasonable deposit that was previously unknown to courts of equity, and that no limitation should be imposed on the section to prevent a purchaser from recovering a deposit, even where a vendor properly terminated a contract by reason of the purchaser's repudiation, and the section operates to provide relief to a purchaser against an "unjust and inequitable consequences of forfeiture of a deposit": Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 at 272; Sydney Developments Pty Ltd v Perry Properties Pty Ltd (2016) 18 BPR 35,905 at [38], [50]ff. I bear in mind that relevant factors in exercising this jurisdiction include the nature of the deposit, the terms of the contract that provided for its forfeiture and the circumstances in which the deposit was forfeited and, although the jurisdiction under the section is wide, "it is not unbounded and the Court must consider the context of a deposit, and should not adopt an approach which weakens the proper function of a deposit, as an earnest for performance": Havyn Pty Ltd v Webster (2005) 12 BPR 22,837 at [138]; Kannane v Demian Developments Pty Ltd (2005) 12 BPR 23,305 at [59].
Mr Macauley submits that the Court should grant relief to Orana under s 55(2A) of the Conveyancing Act having regard to the excessive size of the deposit, which was a multiple of the amount that would ordinarily be required for such a deposit; the absence of any identified reason for a deposit of that size; the fact that a deposit of that size would not ordinarily protect any legitimate commercial interest of ASIL. It seems to me that those factors all support that order, but are reinforced by the fact that, here, it would be unjust and inequitable to permit ASIL to recover the deposit, where it never provided a land tax certificate or, so far as the evidence goes, put Orana in a position that it could have completed the Contract without giving up the statutory right to the protection of that certificate. Had I not reached the view that the Contract was validly terminated by Orana, I would have made an order under s 55(2A) of the Conveyancing Act in the relevant circumstances. Mr Macauley points out that the effect of that order would also be that the Mortgage would secure nothing. I accept that proposition, again putting aside any alternative claim by ASIL to interest between the date of the Contract, when the deposit was payable, and the termination of the Contract. As I noted above, ASIL did not advance a claim on that basis.

Orders

Accordingly, the proceedings brought by ASIL should be dismissed with costs.
Orana and BMD also submit that the Court should make the declarations sought in its Statement of Cross-Claim filed on 21 July 2021 and award the relief there claimed. For the reasons set out above, I am satisfied that the declaration sought in paragraph 1 should be made. I am not satisfied that the declaration in paragraph 2 should be made, including because I have found that Orana's entitlement to repudiate the Contract arose from of ASIL's not completing the Contract after 30 March 2020. It is not appropriate to make the third declaration, where it has not been necessary to determine the question of penalty in respect of the deposit in order to resolve the proceedings. It is not appropriate to make the fourth declaration, where the parties did not make adequate submissions as to the question of interest and the dismissal of the Originating Process resolves ASIL's claim against BMD, and ASIL's failure to bring a claim against Orana in these proceedings likely prevents the bringing of such a claim in the future. It is not necessary to make the fifth declaration, where the dismissal of ASIL's claim adequately resolves the matter. It is also not appropriate to make an order under s 236 of the Australian Consumer Law, where it has not been necessary to determine the claim for unconscionability and the basis of a claim by Orana for damages was not established. It is also not necessary to determine any questions arising under ss 237 and 243 of the Australian Consumer Law.
I direct the parties to bring in agreed orders to give effect to this judgment and as to costs within 7 days or, if there is no agreement, their respective short minutes of order and short submissions as to the differences between them.

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: 06 May 2022

Conveyancing (Sale of Land) Regulation 2017(NSW)

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