CME PROPERTIES (AUSTRALIA) PTY LTD -v- PRIME CAPITAL SECURITIES PTY LTD [2016] WASC 231 (29 July 2016)

4 CME Properties is a wholly owned subsidiary of CME Group Berhad, a publicly listed company in Malaysia (CME). On 17 December 2014 Prime Capital as Lender entered into a loan agreement (Loan Agreement) with Ruark No 11 Pty Ltd (Ruark) as borrower, CME Properties as mortgagor and another person as guarantor. The loan was for $2.5 million (the Loan). On 17 December 2014 CME Properties as mortgagor and Prime Capital as mortgagee also entered into a mortgage securing the Loan. The securities under the mortgage were Lot 40 and Lot 11. The purpose of the Loan was to provide capital funds to commence the development of the mortgaged properties into a mixed used development involving residential and commercial lots and a hotel.

5 CME Properties defaulted under the mortgage. On 25 September 2015 Prime Capital gave a default and demand notice to CME Properties requiring CME Properties to remedy the default by paying the sum of $2.5 million and stating that if it did not do so Prime Capital may, amongst other things, exercise the power of sale in respect of the mortgaged properties.

6 After the notice of default was issued there were numerous discussions and communications between Prime Capital and CME Properties' solicitors concerning CME Properties and/or CME arranging finance to pay out the mortgage.

7 In about October 2015 Prime Capital engaged Colliers International, a commercial real estate company, to market and sell the properties. The highest offer received for the properties was $4 million from Trilink. Prime Capital as mortgagee exercising its power of sale, entered into a contract for sale of the properties by offer and acceptance (the Contract). The Contract was signed by Trilink on 8 March 2016 and by Prime Capital on 11 April 2016. The Contract was due to be settled on Monday, 18 July 2016. On 12 July 2016 Trilink sought to extend the settlement date to 1 August 2016. Prime Capital has agreed to the extension of settlement to 1 August 2016 on certain conditions.

8 On Friday, 15 July 2016 CME Properties commenced this action in which it claims an injunction restraining the sale of the mortgaged properties by Prime Capital to Trilink pursuant to the Contract on the grounds of the conduct of Prime Capital as controller of the properties pursuant to the terms of the mortgage and the breach by Prime Capital of its duties to CME Properties as mortgagor of the properties pursuant to s 420A of the Corporations Act and at common law and equity. On the same day CME Properties applied for an interim injunction restraining Prime Capital from selling the properties. CME Properties' application for an interim injunction was heard ex parte as a matter of urgency on 15 July. I granted an interim injunction restraining Prime Capital from selling the properties pursuant to the Contract and adjourned the application to 20 July. These are my reasons for dismissing the application for a continuation of the interim injunction.

9 The court has power under s 25 of the Supreme Court Act 1935 (WA) to grant an injunction in all cases in which it shall appear to the court to be just or convenient that such order should be made. In Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 at [65] Gummow and Hayne JJ said that on applications for interlocutory injunctions a court addresses itself to two main inquiries:

The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.

Their Honours explained that the phrase 'prima facie case' does not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. Further, how strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the order he seeks. For example, the significance of the value of free speech is a special consideration where injunctive relief is sought in a defamation case. The general rule that a mortgagor will ordinarily have to offer to pay off the amount owing is a special consideration in a case where a mortgagor seeks to restrain the sale by a mortgagee exercising its power of sale.

Injunction under Corporations Act s 1324

10 Counsel for CME Properties, Mr Shepherd, submitted that the court, in exercising its statutory jurisdiction under s 1324 of the Corporations Act, is not to be confined by the considerations which would be applicable if it were exercising its traditional equity jurisdiction and that neither the power conferred by s 1324 of the Corporations Act or s 25 of the Supreme Court Act are expressed to be fettered by the rules of equity that preceded their enactment. Mr Shepherd submitted that in these circumstances whether a plaintiff brings money into court in an application to restrain the exercise of the power of sale is a discretionary factor to be considered by the court in determining if an interim injunction is desirable but not a necessary precondition to the grant of an injunction. Mr Shepherd referred to Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39; (2011) 279 ALR 166 at [71] in support of that submission.

11 There are authorities which apply s 1324 of the Corporations Act by using well accepted equitable principles and other authorities which say that the court's jurisdiction under s 1324 is not confined by those equitable principles. In Australian Securities and Investments Commission v MauerSwisse Securities Ltd [2002] NSWSC 741; (2002) 42 ACSR 606 Palmer J said that in exercising its statutory jurisdiction under s 1324 the court is not to be confined by the considerations which would be applicable if it were exercising its traditional equity jurisdiction. However, Palmer J said that although traditional equity principles such as whether there is a serious question to be tried and where the balance of convenience lies will not circumscribe the court's consideration in an application for an interim injunction under s 1324(4), the interests of justice will always require that those questions be examined carefully when restrictions are sought to be imposed before the case has been properly examined by the court. Further, his Honour said that the balance of convenience will be viewed differently according to whether the applicant under s 1324(4) is ASIC or a private litigant.

12 In Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc [2009] QSC 58; (2009) 71 ACSR 1, 63 Martin J summarised the principles stated by Palmer J in ASIC v MauerSwisse Securities Ltd and at [248] said that he did not agree with the analysis of Palmer J in so far as it applies to interim or interlocutory injunctions and that on an application which does not seek final relief, the ordinary principles relating to whether there is a serious question to be tried and the balance of convenience should be applied.

13 Although traditional equitable principles do not circumscribe the court's consideration of an application for an interim injunction under the s 1324(4) of the Corporations Act, the court will always examine carefully whether there is a serious question to be tried and where the balance of convenience lies and will not grant an injunction where it would not have done so if it were exercising its traditional equity jurisdiction unless there are matters relating to the statutory obligation sought to be enforced or the public interest which require the grant of the injunction. In this case, the plaintiff is a private litigant. There is no public interest involved other than the public interest in the law being enforced. The principles to be applied on this application for an interim injunction are those identified by the High Court in Australian Broadcasting Corporation v O'Neill to which I have referred.

The rule requiring payment or payment into court of amount owing

14 In Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161 Walsh J stated:

A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgaged debt, if this not be in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into court.

...

In my opinion, the authorities which I have been able to examine establish that for the purposes of the application of the general rule to which I have referred, nothing short of actual payment is regarded as sufficient to extinguish a mortgage debt. If the debt has not been actually paid, the court will not, at any rate as a general rule, interfere to deprive the mortgagee of the benefit of his security, except upon terms that an equivalent safeguard is provided to him, by means of the plaintiff bringing in an amount sufficient to meet what is claimed by the mortgagee to be due (164 165).

Barwick CJ confirmed the general rule on appeal when he observed at page 169 that the case was within:

the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument. Failing payment into court of the amount sworn by the mortgagee as due and owing under the mortgage, no restraint should be placed by order upon the exercise of the respondent mortgagee's rights under the mortgage.

15 There are a number of exceptions to the general rule. However, CME Properties does not claim that any of the exceptions apply in this case. CME Properties submits that where a party applies for an interim injunction under s 25 of the Supreme Court Act or s 1324 of the Corporations Act the general rule does not apply and whether a plaintiff brings money into court is only a discretionary factor to be considered by the court. I do not agree. The general rule applies where a plaintiff seeks an injunction to restrain the mortgagee exercising its power of sale where the application is made under s 25 of the Supreme Court Act or s 1324(4) of the Corporations Act.

16 Mr Shepherd submitted that Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd is authority for the proposition that the general rule is only a factor to be taken into account by the court in the exercise of its discretion whether to grant an interim injunction. In that case the mortgagor had defaulted and the mortgagee exercised its power of sale by selling the property. The mortgagor alleged that the sale was at an under value and lodged a caveat to restrain completion of the sale. The mortgagee sought an order to have the caveat removed. The trial judge held that, assuming that the mortgagor had a caveatable interest, the caveat should be removed. The trial judge followed the approach that, even though a caveator establishes a caveatable interest, the caveator must still establish that the balance of convenience supports continuing the caveat. The trial judge found that the balance of convenience did not support continuing the caveat. The trial judge found that, even if the mortgagor could demonstrate that the sale was at an under value, there would still be a very substantial shortfall in the amount owing under the mortgage and there seemed no prospect that the mortgagor, or any guarantor, could ever meet the shortfall. The trial judge noted that the mortgagor/caveator was not in a position to bring into court the amount outstanding. One of the grounds of appeal before the Court of Appeal was that the trial judge should not have taken into account the fact that the sale proceeds would be insufficient to repay the mortgage in full. The Court of Appeal disagreed. Campbell JA, with whom Tobias and Macfarlan JJA agreed, then considered the general rule in Inglis. His Honour referred to the meaning of Walsh J's description of it as a 'general rule'. Did this mean 'general' in the sense of universally applying, or 'general' in the sense of 'usual'? His Honour also referred to exceptions to the rule and some appellate comments that the rule required reconsideration. However, Campbell JA said that the primary judge's mention of inability to bring the money into court was as part of a list of factors that he regarded as going to the balance of convenience and not as a necessary precondition for the grant of an injunction restraining completion of the contracts.

17 It is not necessary to give any further consideration to the general rule in Inglis. If the payment of the amount outstanding or bringing the money into court is not a necessary precondition for the grant of an injunction restraining completion of a sale entered into by a mortgagee in exercise of its power of sale, it is at least a significant and important consideration on the question of the balance of convenience.

Legal principles relevant to exercise of mortgagee's power of sale

18 The duties and requirements of a mortgagee exercising a power of sale were recently considered by the Victorian Court of Appeal in Boz One Pty Ltd v McLellan [2015] VSCA 68; (2015) ACSR 325. In a joint judgment of Whelan, Santamaria and Kyrou JJA the court made the following observations. A power of sale is given to the mortgagee entirely for its own benefit, the purpose of the power being to enable the mortgagee to realise the property to satisfy its claim and to return whatever balance may remain to the mortgagor. Under the general law, a mortgagee exercising its power of sale has a duty to exercise the power of sale in good faith and for the purpose for which it was conferred, such that a mortgagee could not recklessly or wilfully sacrifice the interests of the mortgagor. Section 420A of the Corporations Act imposes a more rigorous statutory duty which is intended to provide corporate mortgagors with additional protection. The relevant question for the purposes of s 420A is whether the controller has failed to do what a reasonable and prudent person would do, or has done what a reasonable and prudent person would refrain from doing in the circumstances. The onus of establishing a breach of s 420A rests with the complainant. The two limbs of s 420A(1) are exhaustive and mutually exclusive. Section 420A(1)(a) applies 'if, when [the property] is sold, it has a market value', otherwise s 420A(1)(b) will apply. The introduction of a category of property that is sold without a market value has presented conceptual difficulties in respect of which limb courts are to apply. Competing approaches have been identified.

19 In my opinion it is not necessary to consider the different approaches that have been adopted to determining which limb of s 420A(1) should apply. The mortgaged properties have no unique or particular characteristics which cause the property not to have a market value. In Boz One the court said that the reasoning of Isaacs J in Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418 in analysing market value has been repeatedly cited with approval in the context of the definition of market value in s 420A(1)(a) of the Corporations Act. The court observed:

The sale price of a property may be the best evidence of the market value of the property if the court is satisfied that the mortgagee has taken proper steps in advertising and selling the property. If the process of advertising, marketing and sale of the property is shown to be unsatisfactory or inadequate, valuation evidence may be important to establish whether the price realised was an under value [165].

The Court of Appeal said that in deciding whether there has been a breach of s 420A:

A court assesses the process that a controller has undertaken in selling the property. The inquiry is whether, in the course of that process, the controller has taken all reasonable care to sell the property for not less than its market value. However, it is not necessary for the court to decide what actually was the market value of the property in order to find that s 420A(1) has been breached - or that the court needs to decide is that the process that was followed was not one where all reasonable care was taken to sell the property for its market value, whatever that market value might be.

Accordingly, a breach of s 420A(1)(a) is not established merely because a [controller] fails to realise the property for its market value. However, if it is proved that the price obtained at sale was substantially below the market value of the property, this may be evidence that proper steps were not taken [167] [168].

20 In Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676 Isaacs J held that a mortgagee is not bound to wait for its money merely because the mortgagor stands to profit from the delay. That principle applies to s 420A. The section does not impose a requirement that the property be sold at any particular time or that the sale be postponed until a more favourable price might be obtained.

21 In Boz One the Victorian Court of Appeal said at [174] that although it may be prudent for a receiver to obtain independent valuations of the property and advice as to the appropriate method of sale, that is not a rule of law and a controller is not bound to adopt any particular mode of sale, although the court added that a controller ought to take reasonable steps to ascertain the value of the property before selling it.

22 It is not necessary to give further consideration to the equitable or common law duty of a mortgagee exercising a power of sale. CME Properties relied principally on s 420A of the Corporations Act and did not suggest that there was a prima facie case that Prime Capital had breached its equitable or common law duties if there was not a prima facie case that it was in breach of s 420A of the Corporations Act.

23 CME Properties have not established a prima face case that Prime Capital did not take all reasonable care to sell the properties for not less than their market value. The only evidence of the process undertaken by Prime Capital to sell the property is the affidavit evidence of Paul Scanlon, the sole director of Prime Capital. The evidence is as follows. Prime Capital obtained three valuations of the combined lots as follows:

1. JPM Valuers and Property Consultants, 16 December 2014, $4,025,000;
2. CBRE Valuations Pty Ltd, 24 December 2014, $4,750,000;

1. Jones Lang Lasalle Advisory Services Pty Ltd, 2 December 2014, $5,000,000.

24 In about October 2015 Prime Capital engaged Colliers International (Colliers) to market and sell the Property. Colliers undertook a marketing campaign which included newspaper advertisements, on site signage and internet advertising as well as direct approaches. The initial marketing commenced on 16 November 2015 with an expressions of interest campaign seeking tenders by 21 December 2015. At the end of this initial tender campaign there were no acceptable offers for the property. Prime Capital and Colliers continued with efforts to market and sell the property, including ongoing advertising and marketing. The only formal offer received, aside from that of Trilink, was from Belmartin Pty Ltd in an amount of $2,500,000 with a potential negotiation to increase that to $3,000,000. The highest offer received for the property was $4,000,000 from Trilink and a contract was entered into with it.

25 Counsel for CME Properties submitted that there was no evidence of the detail and extent of the advertising campaign and in particular of the newspaper advertisements. Mr Scanlon annexed to his affidavit an email from Tim Scott of Colliers and the Colliers marketing and sales report. In his email Mr Scott says that Colliers ran a comprehensive public marketing campaign for the properties including newspaper advertisements, on site signage and internet advertising as well as direct approaches. Mr Scott says:

Given the location of the properties and the current economic climate, the commercial real estate market in Mandurah has softened significantly since the GFC, with WA feeling the pinch of the end of the mining boom, and an increasing tendency for retirees to migrate to South East Asia instead of intrastate. As such we only received a limited number of inquiries from the market, outweighed by the number of people we directly approached, including but not limited to developers, caravan park owners and adjoining owners.

Given the extensive timeframe that the property has been marketed (December through to July) we consider the offer from Trilink likely to be the highest offer the market will provide.

The marketing and sales report includes details of the internet advertising which ran from 30 November 2015 to 8 April 2016. There is a record of persons who contacted Colliers or who were contacted by Colliers as part of the campaign.

26 CME Properties did not suggest that Colliers is not a competent and suitable selling agent. There is nothing to contradict Mr Scott's statement that Colliers ran a comprehensive public marketing campaign. It was not suggested by CME Properties that the properties should have been sold by public auction. There is no evidence that the method of sale pursued by Colliers was not appropriate or that any other method of sale was likely to obtain a better price.

27 CME Properties placed weight on a valuation of the properties obtained by CME Properties from K A Norquay of Valuations WA Pty Ltd. Mr Norquay estimates the value of the properties to be $7,100,000 on 6 July 2016.

28 The valuations obtained by Prime Capital were obtained about 18 months before Mr Norquay's valuation. However, there is no suggestion that the properties have increased in value in that period. In his valuation comments Mr Norquay refers to slow market conditions and declining demand in most sections of the real estate market. Mr Norquay observes that the Mandurah residential real estate market has seen a decrease in the medium house price of 8.1% over the year to the end of March 2016.

29 Mr Shepherd submitted that Prime Capital should have obtained an up to date valuation of the properties before proceeding to market them. It is not always necessary for a mortgagee to obtain an up to date valuation before exercising the power of sale: Stockl v Rigura Pty Ltd [2014] NSWCA 73 [49] [53]. In this case when Prime Capital instructed Colliers to sell the properties it was in possession of three valuations which were less than 12 months old. There is no evidence to suggest that the value of the properties had significantly increased, or increased at all, in that period. In the circumstances it was not unreasonable for Prime Capital to proceed without obtaining a new valuation.

30 Proof that a sale is for less than market value may lead to an inference that the mortgagee has not taken all reasonable care to sell the property for not less than market value. However, the evidence does not establish that the sale to Trilink is for less than market value. The sale price of $4,000,000 is not significantly below the valuation of JPM Valuers and Property Consultants of 16 December 2014. In Stone v Farrow Mortgage Services Pty Ltd (in liq) [1999] NSWCA 435; (1999) 12 BPR 22,175 Hodgson CJ in Eq said:

A price actually obtained after proper steps have been taken is strong evidence of the true value of the property. On the other hand, if it is proved that the price obtained is substantially below the true value, that may be some evidence that proper steps were not taken [4].

Had the process of advertising, marketing and sale of the property been shown to be unsatisfactory or inadequate, a question might have arisen whether the price achieved by the process was other than the true market price or value of the property. In that circumstance valuation evidence might have been important to establish whether, in truth, the price realised was an undervalue, but that is not this case [76].

31 In this case, the evidence is that a comprehensive marketing campaign was undertaken by a competent selling agent. The best price obtained was in line with, or somewhat less than, the amount of valuations obtained by the mortgagee 12 months earlier when the market was as strong or stronger than when Colliers undertook to sell the properties. In the circumstances Mr Norquay's valuation gives rise to no inference that Prime Capital did not take all reasonable care to sell the property for not less than its market value.

32 The balance of convenience and the usual discretionary considerations applicable to the grant of interlocutory injunctions are against the grant of the injunctions sought by CME Properties. First, this is a case in which Prime Capital's power of sale is properly exercisable. CME Properties does not suggest otherwise. Yet CME Properties has not sought to do equity by bringing money into court or seeking to redeem the mortgage as a condition of an interlocutory injunction restraining completion of the Contract on the basis of an alleged improper exercise of a presently enforceable power of sale: see Inglis v Commonwealth Trading Bank of Australia.

33 Secondly, from shortly after the notice of default was issued there have been numerous discussions and exchanges in which CME Properties and/or CME have proposed arranging finance to pay out the outstanding amount. None of the proposed refinances have proceeded. Prime Capital has been kept out of its money for a considerable period.

34 Thirdly, CME Properties has been aware of the present contract for sale for some time. On 16 November 2015 Prime Capital informed CME Properties' solicitor that Colliers would start a mortgagee sale process for the properties. On 6 April 2016 CME Properties' solicitor wrote to Prime Capital stating that their client is concerned that Prime Capital has not taken all reasonable care to sell the properties for not less than the market value. At the first hearing of this matter on 15 July I raised with counsel for CME Properties the issue of when CME Properties became aware of the sale to Trilink. CME Properties chose not to put on any evidence of when it first became aware of the sale despite the fact that it had an opportunity to do so and put on further affidavit evidence after the first hearing. In the circumstances I infer that by no later than 6 April 2016 CME Properties knew of matters which caused it to be concerned that Prime Capital was not taking all reasonable care to sell the properties for not less than their market value and became aware of the sale to Trilink sometime before its letter of 12 July 2016 in which it referred to the sale. CME Properties took no steps to challenge the exercise of the power of sale until the last business day prior to the scheduled date for completion of the sale. Equity requires those seeking to invoke its remedies to act promptly. Similarly, a party seeking an injunction under s 1324(4) of the Corporations Act should act without delay. The institution by CME Properties of proceedings seeking an injunction restraining the completion of the Contract a business day before it was due to settle places Prime Capital in a difficult position. The Contract contains a provision that if the seller is prevented from complying with the provisions of the Contract as a consequence of any order against the seller by any court on or before settlement the seller, at its sole discretion and without being obliged to compensate the buyer, may delay settlement for any period not exceeding 90 days. However, there is no guarantee the sale will not be lost. Furthermore, there is no guarantee that time can be found in the court lists for the case to be heard on a final basis and judgment delivered in that period, even if it can be prepared for hearing pursuant to an expedited timetable. There is no guarantee that even if a decision by the court is given shortly, the case will not go on appeal. In brief, there is a risk that if the injunction is granted the sale to Trilink will be lost and a risk Trilink will be entitled to rescind or sue for damages. Prime Capital's predicament could have been avoided if CME Properties had moved quickly to commence its proceedings.

35 Fourthly, if the injunction is refused and the Contract proceeds to completion, CME Properties will not be left without a remedy should Prime Capital have exercised the power of sale improperly. Where it is shown that the mortgagee failed to act in good faith and the property was sold for less than its value, it will be assumed in the accounting as between the mortgagor and the mortgagee that the property was sold for the amount that the property would have realised if the sale had been properly conducted: Pendlebury v Colonial Mutual Life Assurance Society Ltd (676). Alternatively, CME Properties may be able to recover the difference in value from Prime Capital as damages or equitable compensation. CME Properties says that damages would not be an adequate remedy because a sale at under value will damage the reputation of CME Properties and its parent company, CME, and damage suffered by CME will lead to damage to CME Properties. There is no evidence of likely damage to the reputation of CME Properties or CME beyond bald assertions made by Chee Fatt Wong, a director of CME Properties.

36 I am not satisfied that there is prima facie case or a serious question to be tried. I am not satisfied that the balance of convenience favours CME Properties. If I am wrong in either of those conclusions, damages would be an adequate remedy.