(2005) 12 BPR 23,193
Harvey v McWatters (1948) 49 SR (NSW) 173
Starceavich v Swart & Associates Pty Ltd [2006] NSWSC 960
Source
Original judgment source is linked above.
Catchwords
(2005) 12 BPR 23,193
Harvey v McWatters (1948) 49 SR (NSW) 173
Starceavich v Swart & Associates Pty Ltd [2006] NSWSC 960
Judgment (2 paragraphs)
[1]
Ex Tempore Judgment
HIS HONOUR: This morning I was approached by the plaintiff for urgent orders to restrain an auction of a property at Clovelly Road, Coogee then said to take place at about 10am. Subsequent communication suggested that the auction may take place at 10.30am.
Mr McDonald of counsel appeared before me urgently this morning from approximately 9.48am with a form of summons and Short Minutes of Order and affidavits of Danny Mikhail and Jayden Mikhail both dated today. There is an exhibit to the affidavit of Danny Mikhail. The defendant is the lender mortgagee of moneys to the plaintiff.
On 2 August 2022 a Deed of Forbearance (Deed) was entered into. The Deed is in the exhibit. The forbearance purpose was to allow the borrower further time to pay what is described as the secured moneys. The relevant breach is described as failure to pay the secured moneys when due. The amount said to be owing as at 15 July 2022 is $12.177 million approximately.
The lender support conditions are set out on page 2 and 3 of the Deed, the "provisions" of the Deed contain a clause 4 headed "Lender may terminate lender support":
"4 Lender may terminate lender support
If a Termination Event occurs the Lender may terminate the Lender Support Period by giving 7 day's written notice to the Borrower and the Guarantor. The written notice must provide details of the Termination Event, details on how to remedy it and allow 7 days for the Borrower and/or Guarantor to remedy it."
It is said that on 13 October 2022 there was correspondence between Danny Mikhail (general manager of plaintiff) and Tim Stoyles relevantly on the part of the mortgagee which gave rise to an arrangement to vary the Deed. An email was sent on 13 October 2022 at 7.20am in the following terms:
"Hi Danny,
In regard to your query:-
1. The exact amount required to bring the loan back into order; - The amount as at 31/10/2022 will be $593,258.66
2. That if the amount is paid to you prior to the auction on 10 November 2022:
1. The loan will no longer be in default and will expire at the end of the original term - i.e. late April 2023; - Yes this is correct
2. The interest rate will revert to the normal reduced rate of 7.95%; and- Yes this is correct
3. The sale of the property, including marketing will be cancelled.- Yes this is correct
We have also discussed a 12-month extension of the loan beyond April 2023. Please provide your terms in writing so that I can discuss them with the investors.
The discussion I had with George Koovousis, which he put to me and I said would be agreeable was:
The tenancy remain in place at all times, but you renegotiate the terms / usage of the property with the tenant, which we will have to consent to.
The total arears paid in full ($593,258.66) - a debt reduction of $1.90M is made reducing the principal to $10.0M. The normal rate of 7.95%p.a. would apply to the expiry and then we would give a further 6 month extension past the expiry date at a revised normal rate of 8.95%p.a.
All interest from the date of repayment of the arrears and the principal reduction to the proposed new loan term to October 2023 would have to be paid in advance and the rent also paid into our account to be held in trust if the loan is not repaid in October 2023, to be offset against future interest whilst the property is refinanced or sold. This will be credited back to you when this is done.
The interest from Nov 22 to April 2023 (6 months) at 7.95%p.a. on $10.0M = $397,500 + May-Oct 23 (6 months) at 8.95%p.a. on $10.0M = $447,500
Amount to be paid
Capital $1,900,000
Arrears $ 593,000
Interest prepay $ 845,000
Total $3,338,000
Kind Regards
Tim Stoyles
Managing Director"
It is not entirely clear from the evidence what happened between that time and 25 October 2022. Nonetheless, on 25 October 2022 at 8.20am it seems that Danny Mikhail sent a further email to Mr Stoyles making reference to a number of investors who had asked if the arrears payment is made and a debt reduction is made, whether the mortgagee would give consideration to extending the facility. The email stated:
"Good Morning Tim
Trust you are well
I have a couple investors that have asked if the payment of $593,258.66 is made as per below and a further debt reduction of $1.9 m made reducing the principal to $10m (extending the loan to April 24)
Would you consider the following
Extending the facility
- 12 months to April 2024 with a option to
- extend a further 12 months to April 2025
- With a further 12 month option to April 2026
Thanks Tim"
The response of Mr Stoyles on 25 October 2022 at 8.33am indicated that he would need to get investor approval for any extension. The email indicated the auction campaign seemed to be going well so (at that stage) all he could commit to is that if there was payment of the full arrears, the loan would no longer be in default and then the auction would be withdrawn. The response was as follows:
"Hi Danny,
I need to get investor approval for any extension.
The auction campaign seems to be going well so at this stage all I can commit to is that if you pay the full arrears your loan is no longer in default then the auction will be withdrawn.
The loan then continues until the maturity date in April 2023 if the usual monthly payment is made each month. At that time you can put to me a request to extend the loan and make a debt reduction which I will take to the syndicate for their approval.
I am sure the investors would consider the debt reduction for an extension at a new rate favourably
Kind Regards
Tim"
On 3 November 2022 at 11.02am Stephanie Jin, on the part of the defendant, a special counsel with Summer Lawyers, sent an email to Patrick Yazbeck, the solicitor for the plaintiff as follows:
"Dear Patrick
We have been forwarded a copy of the below correspondence exchanged between our respective clients.
There have now been several breaches of the deed of forbearance and the full amount owing, including principal, interest, fees and costs is now immediately due for payment.
For the avoidance of doubt, pursuant to clause 4 of the deed of forbearance, the Lender provides notice to the Borrower and Guarantor that a Termination Event has occurred due to the Borrower and Guarantor's failure to comply with the Lender Support Conditions, namely the failure to list and sell the Coogee Property by the stipulated times. Should the Termination Event not be remedied by the payment of the Secured Money in full within 7 days the Lender's Support will be terminated.
Kind regards"
The email asserted that there had been breaches of the Deed and that the full amount owing, which I understand to be at least a sum of $12 million or more, was due for payment. The email made reference to clause 4 of the Deed, asserted a termination event had occurred, being the failure to list and sell the Coogee property by the stipulated time and indicated that should the termination event not be remedied by the payment of the secured money in full within seven days, the lender's support would be terminated.
Following Mr McDonald appearing before me this morning, I requested an email be sent to Ms Jin to have some input from the defendant in relation to the matter. Ms Jin engaged Mr Martin of counsel. Mr Martin has appeared before me by audio-visual link. He has had an opportunity to place submissions before the Court in relation to the matter.
An affidavit of Ms Jin sworn during today's hearing has been provided to me.
Without being critical, I note that apart from referring to the possibility of phone conversations, neither party is really able to assist me as to what, if any, correspondence took place between 25 October 2022 and 3 November which prompted the email of Ms Jin.
Mr Yazbeck responded to Ms Jin's email at 1.05pm on 3 November:
"Dear Stephanie,
We refer to your email below and to the email from Tim Stoyles to our client on 13 October 2022 at 7:20am, also below.
Our client denies any failure to list and sell the Coogee Property by the stipulated time or the occurrence of any other Termination Event. As far as our client is concerned the property has been listed for sale and an auction is scheduled for 10 November 2022. See the listing here - [link to advertisement]
Further, there is a further agreement in place. As extracted from your client's email of 13 October 2022:
" 1. The exact amount required to bring the loan back into order; - The amount as at 31/10/2022 will be $593,258.66
2. That if the amount is paid to you prior to the auction on 10 November 2022:
1. The loan will no longer be in default and will expire at the end of the original term - i.e. late April 2023; - Yes this is correct
2. The interest rate will revert to the normal reduced rate of 7.95%; and- Yes this is correct 3. The sale of the property, including marketing will be cancelled.- Yes this is correct"
Your client agreed to the terms if the amount is paid before the auction. The auction is in 7 days and as such our client is not in breach and is entitled to rely on that agreement.
Please confirm your client withdraws the below purported termination notice.
Kind Regards"
There was further correspondence on 4 November in which Mr Yazbeck emailed Ms Jin at 11.14am as follows:
"Dear Stephanie,
On 3 November 2022, in your email purporting to be a termination notice, you state that the Termination Event that has occurred was the "failure to list and sell the Coogee Property by the stipulated times."
Less than 24 hours later, your email below states "The auction campaign is now very well advanced and after 4 weeks there are several potential buyers who have requested contracts in preparation for bidding at next weeks' auction."
I am perplexed as to how your client's position changed so dramatically within 24 hours. Clearly, the alleged breach does not arise and the notice is invalid. Your client cannot rely upon that notice.
The proposal referred to in my email below is not subject to any condition.
The agreement is between our respective clients, the language is plain and clear and it does not refer to your client requiring approval from 'investors'. The 'investors', whoever they are, are not a party to the Deed of Forbearance.
Moving forward, our client intends on proceeding based on the agreement to pay $593,258.66 prior to the auction. Your client's invalid notice is directly inhibiting our client's ability to raise the necessary funds. Our client is required to disclose the notice to investors, partners and other potential financiers, even though it is invalid and cannot legally be relied upon.
Your client must withdraw the notice immediately. We are instructed that subject to the notice being withdrawn today and confirmation that your client will honour the agreement referred to in our email of 3 November 2022, our client will obtain the $593,258.66 and ensure that it is paid prior to auction.
If the notice is not withdrawn by 4pm today, our client will take legal action to protect its interests, including seeking urgent declaratory orders that your client's notice is invalid, specific performance of the agreement and an injunction stopping the auction from proceeding.
We will rely on this and previous correspondence as to the question of costs.
Kind Regards"
Mr Yazbeck argued a position in relation to what he described as the purported termination notice. Ms Jin responded on 4 November at 11.31am indicating that her client's position had not changed. Mr Yazbeck, on 9 November, sent an email to Ms Jin putting the plaintiff on notice of certain matters stating:
"Dear Stephanie,
We refer to your email of 4 November 2022 noting that your client's position has not changed.
Our client's position is also unchanged and we consider the notice invalid and unable to be relied upon.
We put your client on notice that:
1. The notice has or will cause our client loss and damage. Our client was in the process of finalising arrangements to pay the $593,258.66 which, in accordance with the agreement made between Danny Mikhail and Tim Stoyles on behalf of our respective clients, would have resulted in the auction being cancelled and the loan being pulled out of default. Our client was required to notify the investors/financiers of the notice and it caused them to withdraw their offers.
2. Your client's refusal to honour the agreement referred to in our email of 3 November 2022 has or will cause our client loss and damage. Our client was required to notify the investors/financiers which also caused them to withdraw their offers.
Unless your client withdraws the invalid notice and confirms that they will honour the agreement (with a further 28 days to arrange funding), in writing by 1pm today, we are instructed to make an urgent application to the Supreme Court of NSW for injunctive relief and specific performance, among other things.
If your client attempts to take any action adverse to our client's interests, it will be met with further applications for injunctive and other relief.
We look forward to your urgent response.
Kind Regards"
It is not clear to me what, if any, communications there were between 4 and 9 November.
On 9 November at 12.59pm Ms Jin responded by email to Mr Yazbeck in the following terms.
"Dear Patrick
Our client rejects the validity of your clients' claims but will withdrawn [sic] the termination notice issued on 3 November 2022 in order for the payment of $593,258.66 to be made into our trust account (see attached account details) before 10am tomorrow morning. Should payment not be received by 10am tomorrow, the auction will proceed with a reserve determined by our client.
Our client's rights are reserved.
Kind regards"
The email rejected the claims of the invalidity of the notice, but asserted that unless a payment of $593,258.66 was made to the Summer Lawyer's Trust Account before 10am in the morning, the auction would proceed with a reserve determined by the defendant.
There was further correspondence between Mr Yazbeck and Ms Jin yesterday afternoon. At 3.26pm Mr Yazbeck wrote:
"WITHOUT PREJUDICE SAVE AS TO COSTS
Dear Stephanie,
We note your client's withdrawal of the 3 November 2022 notice below.
It is utterly unreasonable for your client to require payment by 10am tomorrow in circumstances where your client, by its conduct, caused our client to lose two potential investors/financiers who were willing to provide the funds, but withdrew as a result of your client's notice and refusal to honour the agreement.
We are instructed to notify the agent that the auction will not proceed tomorrow. However, in order to avoid unnecessary delay and move forward amicably, we are instructed to propose the following:
1. The auction will proceed tomorrow on the following conditions:
a. The auctioneer will not accept any initial bid less than $12.5 million; and
b. The reserve price will be $13.8 million.
2. If the property does not sell at auction then the parties agree that if our client pays the $593,258.66 plus any further interest shortfall (circa $60k after rental income) within 1 month:
a. The loan will no longer be in default and will expire at the end of the original term - i.e. late April 2023;
b. The interest rate will revert to the normal rate of 7.95% per annum.
This offer is open until 5pm today.
Further, any action adverse to our client's interests will be met with urgent applications to the Supreme Court of NSW.
We will rely on this and previous correspondence as to the question of costs.
Kind Regards"
Ms Jin replied at 4.51pm as follows:
"Dear Patrick
To suggest that the lender has caused your clients to lose investors is fanciful. It appears your clients are struggling to obtain the $593,258.66 despite having about a month to source the funds with full knowledge of the pending auction date.
Your clients' proposed opening bid and reserve are not consistent with the sales agent's recommendations and market feedback over the 5 week campaign.
In the absence of $593,258.66 being paid into our trust account by 10am tomorrow morning, the auction will proceed at a reserve that accurately reflects the market value as indicated throughout the campaign.
Any postponement or delay in the auction is likely to be detrimental for both our respective clients.
We are yet to be provided with any material to satisfy Inglis and reserve the right to rely on this and previous correspondence in relation to any question as to costs.
The lender's rights are reserved.
Kind regards"
Mr Yazbeck replied at 5.24pm stating:
"Dear Stephanie,
1. We repeat our statements with respect to your client's invalid notice and refusal to honour the agreement as the basis for investors withdrawing.
2. Our client's views with respect to the agent's conduct of the sale have been made clear previously. The price guide stated by the agent to multiple prospective purchasers was significantly less (circa $11-12m) than the value of the property (circa $14.6m). We are instructed that Tim Stoyles instructed the agent to cease quoting the low price guide. Based on the current market valuation, the opening bid and reserve price are reasonable. In any event, it is not for your client or the agent to nominate the minimum opening bid or reserve price. We simply sought your client's consent as required by the Deed of Forbearance.
Further, your client advanced the loan to our client 14 months ago on the basis of a $17.8m valuation obtained by your client. On 8 March 2022, the sales agent provided our client an appraisal of $16,860,000 to $17,000,000+. To suggest that $13.8m is not reasonable in those circumstances is unfounded.
3. Inglis does not apply here; your client is not a mortgagee in possession. Your client has no standing to proceed with the sale or auction and the agent has been notified that they must not proceed without written instructions from our client or our office.
We are instructed to notify the agent that the auction will not proceed tomorrow.
Kind Regards"
Mr McDonald argues that the email of Ms Jin on 3 November 2022 was essentially invalid. He says that the asserted breach in the email, being the failure to list and sell the Coogee property by the stipulated times, is not a failure and that the stipulated time for the sale of the Coogee property in context must have been today, 10 November. He asserts that the effect of Ms Jin's email was that in a context where the plaintiff was seeking funding from a number of people, the plaintiff was obliged to disclose to some of the potential funders that a breach notice had issued.
The affidavit of Danny Mikhail sets out that he called a number of people being Rahni Inaty, Tony Antonios and Benjamin Lin, and had a conversation with them. Details of the conversations are set out in Mr Mikhail's affidavit as follows.
"38. I immediately called Rami lnaty, Tony Antonios and Benjamin Lin and said words to the effect: "The Lender just issued us a breach notice. It is not valid but I have to Jet you know. They are saying we breached by not listing the property for sale even though they know the auction campaign is up and running. It doesn't make sense. It also appears that they are not willing to honour our agreement about the $600k."
39. In response to that disclosure, Rami lnaty said to me words to the effect: "This is a problem, Danny. I need to speak to Hadi. He is overseas so it wont be until tonight or tomorrow night. I will come back to you, but I do not think we can proceed in those circumstances."
40. In response to that disclosure, Benjamin Lin said to me words to the effect: "We cannot proceed in these circumstances. We do not want to get caught up in this".
41. In response to that disclosure, Tony Antonios said to me words to the effect: "We cannot risk $600k if the property isn't going to be pulled from auction and the Joan remains in default. Sorry, but we can't do it if the lender isn't on board and honours your agreement.""
Mr Martin, who has only had a very brief opportunity this morning to be instructed and consider the matter says that irrespective of the variation arrangement, the arrears of $593,000 was in any event required to be paid by this morning.
During discussions with Mr McDonald, it became clear that amount would not be able to be paid prior to the auction and indeed the inherent likelihood is also that it would not be able to be paid for at least another three to four weeks.
Ordinarily, to restrain a mortgagee sale there is a requirement for moneys to be paid into Court. The principles are addressed in a number of decisions including a decision of E & P Developers Pty Ltd v DJ Capital Solutions Ltd [2005] NSWSC 1110; (2005) 12 BPR 23,193 by Brereton J, as his Honour then was, and a decision of White J, as his Honour then was, in Starceavich v Swart & Associates Pty Ltd [2006] NSWSC 960; (2006) 12 BPR 23,639. Both decisions refer to the judgment of Sugarman J in Harvey v McWatters (1948) 49 SR (NSW) 173.
In an "ordinary case" if a mortgagor is to restrain a mortgagee's power of sale, the mortgagor must pay into Court the amount sworn to by the mortgagee as the amount owing or a lesser amount if it appears from the terms of the mortgage instrument that a lesser amount is due.
There is some discussion in the decisions of White J and Brereton J about what is an ordinary case and what is a case out of the ordinary. There appears to be no hard and fast rule that the entirety of the amount due must be paid. However, ordinarily it is a very powerful consideration that the amount that is said to be in arrears be paid.
I did wonder whether there was an issue regarding service of a notice under s 57(2)(b) Real Property Act 1900 (NSW). However, Mr McDonald indicated to me earlier in the hearing that such a notice had been issued.
It seems to me that conceptually there is some dispute over the interpretation of what arrangements there were between the parties.
It is regrettable for such large sums of money, being the sum of $12 million or more, that is said to be the extent of the facility and the sum of almost $600,000, being the amount of default, that the parties appear to have left it to e-mail correspondence to formalise their arrangements with one another.
There is certainly one of view of the e-mail of Ms Jin sent on 3 November 2022 at 11.02am that it was not a termination in and of itself but a form of notice of what might happen if moneys were not paid by this morning.
The plaintiff had an opportunity up to 25 October 2022 to arrange for payment of moneys.
It seems uncontested that at least by that time no such arrangements had been effected.
I am not strongly persuaded by the argument that the defendant has engaged in any misleading conduct as alleged or asserted by Mr McDonald.
I can accept for the moment that relief might be given if, rather than requiring payment of the full amount of the secured moneys, being the figure of $12 million, at least two conditions were imposed, first, an undertaking as to damages in relation to the proposed injunctive relief and secondly, a payment to the defendant of the $593,000 amount.
Mr McDonald has indicated to me that there is no prospect that such moneys would be paid prior to the auction.
During the course of the debate this morning in Court, I was informed by Mr Martin that the auction would be deferred until 11.30am and I had the opportunity of engaging Mr Martin and Mr McDonald in debate about the above matters.
By 11.30am I was informed, through Mr McDonald, that the auction had in fact started to commence.
I have found the matter troubling to deal with. It is regrettable that in circumstances where the e-mail that is the subject of dispute was sent on 3 November, and even as late as last night there was correspondence between the parties about the matter, it was not until just before Court would ordinarily start this morning that I was approached to deal with the matter.
Nonetheless, it seems to me in attempting to fairly balance the interests between the parties, and having regard to the balance of convenience, that at the very least it is appropriate if any injunctive relief is to be granted, to require that payment of the arrears be made and an undertaking as to damages be given.
In light of the indication that no such payment is be able to be made, I decline to give the relief sought by the plaintiff.
[2]
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: 16 November 2022