Supreme Court of WA|2015-11-09|Before: Beech J

1 The plaintiffs apply for orders that the defendants give them access to and vacate certain farming properties. For the reasons that follow, I would make orders to the effect sought by the plaintiffs.

2 The following facts are established by the affidavits filed by the plaintiffs, and not contradicted by Mr Duffy's affidavits.

4 The first defendants were partners in a farming partnership known as Gingin Flats Grazing Company (Gingin Flats). Mr Duffy is and was a director of the secondnamed first defendant (LJD).

5 The second plaintiff (the Bank) provided finance facilities (the Facilities) known as a term loan facility and a trading limit facility to the first defendants in 2011. The debts of the first defendants to the Bank under the Facilities are secured by a number of securities. These securities include registered mortgages granted by Mr Duffy over Home Farmmain, charges granted by LJD over all of its property and a guarantee granted by the second defendant, Mrs Duffy.

6 From June 2012 to December 2014, by its solicitors, the Bank issued a number of notices of default and demand to the first defendants. The notices demanded repayment of the sums due and owing under the Facilities.

7 The notice of demand issued to the first defendants on about 18 December 2014 demanded payment of the sum of $2,242,946.61.

8 The first defendants did not comply with the Bank's demands. Following that noncompliance, the Bank, by its solicitors, issued notices of default and demand to Mrs Duffy as guarantor.

9 The first plaintiffs (the Receivers) have been appointed by the Bank under the mortgages as receivers and managers of Home Farmmain.

10 Mr Duffy has refused to allow the Receivers access to Home Farmmain. The Receivers say that this is preventing them from being able to properly market the properties for sale, or to consider or pursue the possibility of leasing Home Farmmain. They apply for an order for possession of Home Farmmain.

11 Mr Duffy swore an affidavit dated 5 October 2015 in opposition to the plaintiffs' application. In his affidavit, Mr Duffy says that land owned by LJD, known as the Flats, has been sold by the Receivers and that none of the proceeds of that sale have been credited against the Facilities the subject of these proceedings.[1]

12 Mr Duffy also asserts that the sale of the Flats for $2.7 million was well below market value, referring to a valuation in 2008 valuing the main portion of the property at $5 million.[2]

13 In February 2014 and February 2015, letters were written on behalf of Mr Duffy to the Bank requesting that the proceeds of the sale of the Flats be applied to the Facilities.[3]

14 In his affidavit, Mr Duffy says that he does not believe that he is required to give vacant possession of Home Farmmain because he believes the Bank should apply the proceeds of the sale of the Flats to the Facilities in satisfaction of the monies that are being demanded.[4]

Shamrock Springs Pastoral and the Shamrock Facilities

15 In response, the Bank relies on Mr Patton's second affidavit.[5] This affidavit and its annexures are to the following effect:

(1) Shamrock Springs Pastoral (Shamrock) was a farming partnership between members of the Duffy family, including Mr Duffy.

(2) Shamrock entered into a range of loan facilities (the Shamrock Facilities) with the Bank.

(3) The Shamrock Facilities were secured by first registered mortgages over various property.

(4) LJD entered into a number of guarantees of Shamrock's debt to the Bank.

(5) LJD granted to the Bank mortgages over the Flats to secure LJD's obligations to the Bank.

(6) On 17 December 2013, the proceeds of the sale of the Flats were applied in partial satisfaction of the debt owing by Shamrock to the Bank.[6]

16 The plaintiffs apply by chamber summons for interlocutory orders that:

(1) Mr Duffy provide the Receivers, their agents and their employees with unrestricted access to Home Farmmain; and

(2) Mr and Mrs Duffy vacate Home Farmmain within 28 days.

17 I apply the principles I set out in Twinside Pty Ltd v Venetian Nominees Pty Ltd,[7] and Bedshed Franchising Pty Ltd v Battersby.[8]

18 The principles were explained by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill.[9] Their Honours stated that the relevant principles are those set out in Beecham Group Ltd v Bristol Laboratories Pty Ltd.[10] In Beecham, the two main inquiries were said to be whether the plaintiff had made out a prima facie case and whether the balance of convenience favoured the grant of the injunction. 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 enough that the plaintiff show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial. 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 orders the plaintiff seeks.

19 The strength of the plaintiff's case and the balance of convenience are to be considered together.[11] As the apparent strength of the plaintiff's case diminishes, the balance of convenience moves against the making of an order.[12] The grant of an injunction involves balancing the injustice which might be suffered by the defendant if the injunction is granted and the plaintiff later fails at trial, against the injustice which might be suffered by the plaintiff if the injunction is not granted and the plaintiff later succeeds at trial.[13]

20 While the court takes into account the apparent strength of the plaintiff's case, the court does not undertake a preliminary trial or attempt a forecast of the ultimate result. Moreover, an application for an interlocutory injunction is not an occasion to determine contested questions of fact and conflicts in affidavit evidence.

21 The authorities favour the position that the question of adequacy of damages is not an independent requirement, but rather is best considered as part of the balance of convenience.[14]

22 The plaintiffs' application seeks interlocutory mandatory relief in that it seeks an order compelling the defendant to give up possession of Home Farmmain.

23 The principles relating to interlocutory mandatory injunctions were explained in Cash Converters Pty Ltd v Hila Pty Ltd[15] and Films Rover International.[16] In some cases, it is said that an interlocutory mandatory injunction should be granted only if the court has a high degree of assurance that the plaintiff will succeed at trial. However, ultimately the question is as to the balance of the risk of injustice. In considering that balance, the court must take into account the nature and consequences of the particular injunction sought.

24 In this application, the Bank seeks possession of the Home Farmmain. The nature and consequences of that relief require close attention to the apparent strength of the Bank's case. In order to obtain the relief that it seeks, the Bank must demonstrate a distinctly stronger probability of success than would be necessary to sustain an injunction of a less intrusive character that merely preserved an existing position.

25 I am satisfied by the affidavit material relied on by the Bank that it has established a strong prima facie case in respect of all the allegations in its statement of claim including:

(a) the grant by the Bank of the Facilities, secured by mortgages over Home Farmmain;

(b) the provision by the Bank of funding under the Facilities;

(g) Mr Duffy's refusal to give up possession of Home Farmmain to the Receivers.

26 In opposition to the Bank's application, Mr Duffy has sworn two affidavits. Nothing in his affidavits disputes any of these elements of the plaintiffs' case. I will now deal with the major elements of Mr Duffy's affidavits and submissions in turn.

Was the Bank entitled to apply the proceeds of the sale of the Flats in satisfaction of the debt owing by Shamrock to the Bank?

27 Mr Duffy says that the Bank was not entitled to apply the proceeds of the sale of the Flats in satisfaction of Shamrock's debt and was obliged to pay those proceeds in reduction of the debts the subject of the Facilities.[17]

28 The special conditions of the Facilities were as follows:

Monthly... (commencing August 2011) the borrower is to provide the Bank with an update on progress of the property sale.

If either of the properties currently marketed being the Flats ... and portion of Home Farm ... are not sold prior to 30 September 2011 then the borrower/guarantor commits to the sale of the Flats by auction by no later than 31 October 2011.

Proceeds from the sale of any farmlands held as security to be applied towards permanent debt reduction.

29 It appears that Mr Duffy says that the third special condition obliges the Bank to apply the proceeds of the sale of the Flats to reduction of the debt associated with the Facilities.[18]

30 There are three special conditions. The other two are plainly directed to creating obligations on the part of the borrower/guarantor, and not obligations on the part of the Bank. Moreover, the third special condition, relied on by Mr Duffy, is closely related in subject matter to the other two: all three deal with the intended imminent sale of the borrower/guarantor's farming property. These considerations seem to me to distinctly favour construing the third special condition as directed to, and creating an obligation upon, the borrower/guarantor only. The objectively intended effect of the condition seems to me to be to require the borrower/guarantor to apply all net proceeds of the sale of the properties referred to towards the reduction of debt owed to the Bank. The condition is not directed to, and does not create any obligation on the part of, the Bank.

31 That construction of the third special condition is consistent with cl 4.9 of the Bank's facility terms. That clause provides:

The bank may appropriate any payment it receives in any way it sees fit towards satisfaction of monies owing by the borrower and/or the guarantor. Any law, to the extent permissible, and any direction from the borrower and/or a guarantor, as to appropriation does not apply.

32 Mr Duffy denies that the Bank's facility terms were incorporated into the Facilities.[19] This contradicts the plaintiffs' evidence that the facility terms were the Bank's standard terms and formed part of the Facilities.[20] The schedule to the letter of offer for the Facilities says, expressly, that 'the attached facility terms' form part of the terms of the offer. Mr Duffy has not given evidence that any alternative terms were incorporated; he simply asserts that the facility terms were not incorporated. This application is not an occasion to resolve conflicts in affidavit evidence. For the purposes of this application, Mr Duffy's bare denial of the applicability of the facility terms does not detract from the fact that there is evidence that they were incorporated into the Facilities.

33 Clause 13.5 of the common provisions of the mortgages over the Flats was to the same effect as cl 4.9 of the facility terms.

34 The properties known as the Flats comprised of property known as the FlatsMain and property known as the FlatsRoad. The letters of offer to Shamrock attached to Mr Duffy's second affidavit demonstrate that the FlatsMain has been required by the Bank and made available as security for the Shamrock Facilities since June 2007 and that the FlatsRoad was required by the Bank and made available as security since January 2009. The special conditions of the letter of offer of 27 July 2011 in respect of the Facilities are to be construed in the context that, as all parties knew, the Flats had been, and were continuing to be, security for LJD's obligations as guarantor of the Shamrock Facilities.

35 Further, a letter of offer for the Shamrock Facilities, also dated 27 July 2011, contained special conditions in precisely the same terms.

36 The special condition relied on by Mr Duffy is to be construed in its context, including:

(a) the known position regarding LJD's existing and ongoing guarantees of the Shamrock Facilities, secured by mortgages over the Flats;

(b) the presence of special conditions in identical terms in the Shamrock letters of offer; and

37 In my view, that context strongly reinforces the construction of the special condition set out at [30] above.

38 For these reasons, I consider that the Bank has a very strong argument that it was entitled to apply the proceeds of the sale of the Flats in (partial) satisfaction of Shamrock's debt.

Complaints about the making of the Shamrock Facilities and LJD's guarantees regarding Shamrock

39 In his submissions,[21] Mr Duffy asserts that the Bank lent to Shamrock based on inflated valuations of the Flats, and that consequently the loan to Shamrock was 'excessive'. He says that he 'challenge[s] the validity of the valuations'.

40 Further, Mr Duffy says that the initial loan from the Bank to Shamrock was based on (unspecified) incorrect information in a 2007 loan application.[22] He says the Bank's subsequent offers of additional facilities were 'commission driven in a Ponzistyle scheme', implying that it was not appropriate for the Bank to offer to increase Shamrock's existing facilities in 2010 in circumstances where the Bank considered Shamrock's business to be unviable.[23]

41 In relation to LJD's guarantee of the initial loan to Shamrock, Mr Duffy asserts that the Bank failed to verify and disclose information in Shamrock's 2007 loan application to LJD.[24] Further, he says that the Bank should have advised LJD that the loan would not be approved without a guarantor.[25] Mr Duffy also points to uninitialled handwritten additions to the schedule to one of LJD's other guarantees for Shamrock, saying that as a result of the additions the document is invalid.[26]

42 Mr Duffy says that the Shamrock Facilities and LJD's guarantees are 'unreliable' and no money should be applied to them until their validity is established.[27]

43 These complaints must be viewed in light of the following circumstances:

(1) Settlement of the sale of the Flats by the Bank occurred in December 2013.

(2) For a number of months prior to that, Mr Duffy and thereby LJD were aware that the Bank was in the process of selling the Flats.

(3) Neither Mr Duffy nor LJD commenced any proceedings to restrain the sale, or to impugn in any way the validity of the Shamrock Facilities or the associated guarantees by LJD.

(4) The Bank has applied the proceeds of the sale of the Flats in partial discharge of the debt under the Shamrock Facilities.

(5) No complaint in relation to the sale or the application of the proceeds is made, even now, by LJD.

44 In those circumstances, the delay in asserting any of Mr Duffy's complaints, and the events that have occurred in the meantime, would stand as a formidable obstacle to the making of any order to set aside the Shamrock Facilities or the guarantees by LJD. The circumstances would militate strongly against the exercise of any statutory or equitable discretion to set aside the relevant instruments if any of Mr Duffy's complaints were made good. Instead, a court would be much more likely to award damages or grant other monetary relief. The grant of the relief sought by the Bank in this application would not detract from or affect any claim by Mr Duffy for monetary relief based on any of his complaints about the Shamrock Facilities or LJD's guarantees.

45 In the circumstances just outlined, it is not necessary or appropriate to engage in a detailed analysis of the merits of each of Mr Duffy's complaints. The following observations may be made. First, Mr Duffy's complaints are broadly assertive in character. Secondly, as a general observation, on the material presently available, none of the complaints appear to be obviously strong.

46 For these reasons, I do not think that Mr Duffy's complaints about the circumstances of the execution of the Shamrock Facilities and LJD's guarantees weigh to any substantial degree against the grant of the relief sought by the plaintiffs.

47 In his first affidavit, Mr Duffy asserts that the sale of the Flats for $2.7 million was well below market value. He refers to the valuation commissioned by the Bank of the FlatsMain in 2008, valuing the property at $5 million.[28] In his submissions, he says there was a further valuation of the FlatsRoad for $1 million, and that the sale of the Flats for $2.7 million was 'reckless'.[29]

48 In my view, these assertions do not weigh in any significant way against the grant of relief sought by the plaintiffs.

49 First, any complaint about the sale of the Flats would be a matter to be pursued by LJD, as owner of that property, rather than by Mr Duffy. LJD has not entered an appearance in this action, or taken any part in it.

50 Secondly, what Mr Duffy says is assertion; it is not supported by admissible evidence of any primary facts, with the exception of his reference to a valuation that was completed more than five years earlier than when the sale occurred. There is evidence that at the time of the sale, in the second half of 2013, the Bank had available to it a valuation of the Flats valuing the property at $2.7 million.[30]

51 Thirdly, and in any event, a complaint about the sale price of the Flats does not impugn the plaintiffs' legal right, under the mortgage instruments, to possession of Home Farmmain. A complaint about the sale of a property at an undervalue does not impeach the title of the mortgagee to the property.[31] All the more so, a complaint about the sale of one property at an undervalue does not impeach the title of the mortgagee to other property owned by a different party. Any complaint as to the Bank's conduct of the sale of the Flats could, if established, give rise to a monetary claim by LJD against the Bank. It does not provide any reason to decline to permit the Bank and the Receivers to exercise their legal rights in relation to Home Farmmain.

52 None of the other matters raised in Mr Duffy's affidavits give rise to any arguable defence to the plaintiffs' claim to possession of Home Farmmain, or weigh to any significant degree against the grant of the relief sought by the plaintiffs.

53 Consideration of the balance of convenience on this application involves balancing the injustice which the plaintiffs would suffer if they could not obtain access to and possession of Home Farmmain and subsequently succeeded at trial against the injustice which Mr Duffy and the defendants might suffer if they were forced to vacate Home Farmmain and subsequently succeeded at trial in defending the plaintiffs' claims.

54 In my view, the following considerations sustain the grant of the injunctions sought by the plaintiffs.

55 First, the plaintiffs have established a strong prima facie case that they are, and will ultimately be held to be, entitled to possession of Home Farmmain. From my consideration of the relevant documents, there is no basis apparent to me for impugning the rights claimed by the plaintiffs.

56 Secondly, the matters raised by Mr Duffy do not give rise to any defence of substance to the plaintiffs' claim for possession, and do not weigh heavily against the grant of the injunctions sought.

57 Thirdly, without the grant of the injunctions, Mr Duffy will not give up possession of Home Farmmain. The Receivers need to obtain access to these properties, and be in a position to give vacant possession of them, in order to perform their duties as Receivers.

58 Fourthly, the Bank is being deprived of its apparent proprietary rights as mortgagee.[32]

59 Fifthly, the plaintiffs have provided an undertaking as to damages.

60 Although these proceedings have been on foot for many months, there has been no delay by the Bank. This application and the proceedings generally have been adjourned by consent pending the resolution of the defendants' complaints to the Financial Ombudsman service (FOS). Part of the terms of reference of the FOS prevent a financial service provider (such as the Bank) from pursuing legal proceedings while the FOS is dealing with a dispute.

61 For these reasons, I would make orders to the effect sought by the plaintiffs.

[1] Affidavit of Bernard James Duffy sworn 5 October 2015 [22] [36].

[2] Affidavit of Bernard James Duffy [33] [34].

[3] Affidavit of Bernard James Duffy [101], [103].

[4] Affidavit of Bernard James Duffy [131] [132].

[5] Second affidavit of Brian Norman Patton sworn 16 October 2015.

[6] See also annexure ELB1 to the affidavit of Estelle Blewett sworn 2 November 2015.

[7] Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] [11].

[8] Bedshed Franchising Pty Ltd v Battersby [2015] WASC 224 [65] [72].

[9] Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 [65] [71].

[10] Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618, 622 623.

[11] WarnerLambert Company LLC v Apotex Pty Ltd [2014] FCAFC 59 [70].

[12] Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49, 55 (Young CJ); Todd v Novotny [2001] WASC 171 [9] (Parker J).

[13] Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670; Madaffari v Labenai Nominees Pty Ltd [2002] WASC 67 [14] (Pullin J).

[14] National Australia Bank Ltd v Joyce [2012] WASC 224 [39] [40], [81] (Edelman J); Samsung C&T Corporation v Laing O'Rourke Australia Construction Pty Ltd [2015] WASC 83 [66] (Edelman J).

[15] Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471, 483 484 (Kennedy J).

[16] Films Rover International (679 682) (Hoffmann J).

[17] Second affidavit of Bernard James Duffy dated 26 October 2015 [85] [86], firstnamed first defendant's submissions dated 29 October 2015 [10].

[18] Second affidavit of Bernard James Duffy [86].

[19] Second affidavit of Bernard James Duffy [78] [80].

[20] Affidavit of Brian Norman Patton sworn 26 February 2015 [10]; second affidavit of Brian Norman Patton sworn 16 October 2015 [15].

[21] Firstnamed first defendant's submissions [11] [17], [19].

[22] Second affidavit of Bernard James Duffy[40].

[23] Firstnamed first defendant's submissions [44] [48], [65] [76].

[24] Second affidavit of Bernard James Duffy [42], [92].

[25] Second affidavit of Bernard James Duffy [43].

[26] Second affidavit of Bernard James Duffy [93] [94].

[27] Second affidavit of Bernard James Duffy [88] [89].

[28] Affidavit of Bernard James Duffy [33] [34].

[29] Firstnamed first defendant's submissions [15], [18].

[30] Third affidavit of Brian Norman Patton attachment BNP 24.

[31] National Australia Bank v Sayed [No 3] [2015] NSWSC 1473 [16] (Davies J).

[32] National Australia Bank v Joyce [90].

FRANCIS -v- DUFFY [2015] WASC 426 (9 November 2015)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (116 paragraphs)

Shamrock Springs Pastoral and the Shamrock Facilities

Was the Bank entitled to apply the proceeds of the sale of the Flats in satisfaction of the debt owing by Shamrock to the Bank?

Complaints about the making of the Shamrock Facilities and LJD's guarantees regarding Shamrock

Cases Cited (3)