The first defendant, Bass Finance No 37 Pty Ltd (Bass) provided certain loan facilities to the plaintiffs under a Senior Facility Agreement entered into on 22 December 2020. Those facilities are secured by:
1. General Security Agreement executed by the first plaintiff, Hoho Property Pty Ltd (Hoho Property);
2. General Security Agreement executed by the second plaintiff, Hoho Top Foods Pty Ltd (Hoho Foods);
3. Deed of Guarantee and Indemnity executed by Ms Thu Duong Ly (also known as Ms Cathy Ly) and Mr Trung Hieu Ho (also known as Mr Henry Ho), who are the third and fourth plaintiffs (respectively);
4. registered mortgage over certain land at Liverpool, New South Wales, owned by Hoho Property (the Liverpool property);
5. registered mortgage over certain land at Cabramatta, New South Wales, owned by Ms Ly and Mr Ho (the Cabramatta property).
I will refer to those documents as the finance documents where it is not necessary to distinguish between them.
The second defendant in these proceedings acted as the finance broker for Hoho Property, Ms Ly and Mr Ho in procuring and arranging the loan facilities provided by Bass.
The day after execution of the finance documents, the plaintiffs drew down $2,350,000 under one of the loan facilities and paid $2,291,300 of those funds to repay an existing loan to a third party.
On 29 April 2021, Bass issued a notice of default and demand to the plaintiffs under the finance documents.
The plaintiffs commenced the present proceedings on 25 May 2021.
The principal relief claimed by the plaintiffs are declarations that the finance documents (and the notice of default and demand issued on 29 April 2021) are void or, alternatively, orders setting aside the finance documents, on the grounds of alleged duress, alleged unconscionable conduct and/or pursuant to the Contracts Review Act 1980 (NSW). The final relief claimed is expressed to be subject to the condition that the plaintiffs repay to Bass the amount of $2,291,300 plus interest on that amount calculated at rates to be determined by the Court. The condition gives effect to the cardinal maxim that those who seek equity must do equity.
On 27 May 2021, Bass exercised its rights under the Senior Facility Agreement to appoint Messrs Blakeley and Hansell as its agents as mortgagee in possession of the Liverpool property.
On 31 May 2021, the plaintiffs filed a notice of motion in these proceedings seeking orders restraining Bass from taking any steps to enforce any rights against the plaintiffs under the finance documents and from issuing any further default notice founded on the finance documents, until these proceedings have been heard and determined.
On 7 June 2021, Bass gave undertaking to the Court that it would not take (by itself, its employees or its agents, including Messrs Blakeley and Hansell) any steps to enforce its rights under the finance documents until 4pm on 15 September 2021. The undertaking was given upon the plaintiffs' usual undertaking as to damages and the plaintiffs' undertaking to prosecute these proceedings with due diligence.
The Court noted the parties' undertakings referred to immediately above and made further orders by consent on 7 June 2021 that established a regime whereby Hoho Property was to sell the Liverpool property and pay into Court any proceeds of sale in excess of $2,356,300 (after deducting specified selling costs and any GST payable on the sale). The amount of $2,356,300 is to be paid to Bass under the consent orders, and reflects the amount specified in the condition attached to the final relief claimed by the plaintiffs, plus interest that has accrued subsequently to the calculation of the amount specified in that condition. The consent orders provided that Bass must provide its consent to the sale price and terms of any sale negotiated by Hoho Property under this regime, with such consent not to be unreasonably withheld.
The Liverpool property is a residential development site with a development approval granted in 2017. Hoho Property has made some off-the-plan pre‑sales of units within the intended development. Shortly before the finance documents were entered into in December 2020, a valuation obtained by Bass estimated the market value of the Liverpool property as approximately $2,600,000 on an "as is" basis. There was no evidence of the current market value of the property, although the outcome of the recent auction referred to below and offers received for the property subsequently may provide some indication.
After the consent orders were made on 7 June 2021, the plaintiffs marketed the Liverpool property for sale through an agent. The marketing campaign included a public auction that was held on 5 August 2021. The plaintiffs and Bass had agreed on a reserve price of $2.6 million, but the property was passed in at the highest bid of $2.25 million.
Through their solicitors and selling agents, the plaintiffs continued to negotiate with potential purchasers of the property after the auction.
With one exception, the offers received since the auction have been in the range of $2.1 million to $2.3 million, with deposits of between 5 per cent and 10 per cent. One offer has been made on the basis of a six week settlement period, whereas other offers have been expressed to be for longer settlement periods of three or four months (or, in one instance, 12 months). Many of the offers refer to due diligence. The plaintiffs did not submit any of these offers to Bass for its consent under the 7 June 2021 orders. It was clear from submissions made by senior counsel for Bass that the plaintiffs are not willing to pursue any sale at a price less than the $2,356,300 amount that would be payable to Bass in accordance with the consent orders and the condition incorporated in the plaintiffs' claims for final relief.
The exception is an offer received from OZI Homes Pty Ltd on 23 September 2021 at a price of $2,520,000 and on terms that I will refer to below. The plaintiffs wish to accept that offer and Bass has withheld its consent to the sale of the Liverpool property on the terms of that offer.
It is in those circumstances that the plaintiffs now press for the interim injunctive relief claimed in their notice of motion filed on 31 May 2021. The plaintiffs also ask the Court to find that Bass has unreasonably withheld its consent to a sale of the Liverpool property on the terms of the OZI Homes offer. As I understood the submissions, that finding is sought so that the plaintiffs can rely on the 7 June 2021 orders to sell the Liverpool property to OZI Homes without taking further steps to obtain the consent of Bass.
Bass extended its undertaking referred to at [10] above until the determination of the plaintiffs' notice of motion. It opposes the interim relief sought, save that it does not wish to be heard against a direction or interim injunction that would restrain it from enforcing its rights under the finance documents in respect of assets other than the Liverpool property without 7 days' prior notice to the plaintiffs. That is because Bass has no present intention of exercising its rights in respect of those other assets, although its intentions may change in the future.
It was common ground between the plaintiffs and Bass that, if no order is made restraining Bass from exercising its rights under the finance documents in respect of the Liverpool property, then order 4 of the consent orders made on 7 June 2021 (being the order that established the regime under which the plaintiffs were to sell the Liverpool property) should be discharged or set aside. Bass informed the Court that it would consent to an order being made substantially in the terms of orders 5 and 6 of the 7 June 2021 orders, requiring Bass to pay into Court any sale proceeds of the Liverpool property (after selling costs) in excess of $2,356,300.
The second defendant appeared on the hearing of the application but did not make any submissions.
I return to the terms of the OZI Homes offer.
The material terms of the offer, as revised through negotiations between the plaintiffs and the agent representing OZI Homes, may be summarised as follows:
1. purchase price: $2,520,000 (including GST);
2. immediate exchange of contracts;
3. deposit of $10,000 payable on exchange of contracts;
4. 25 business day cooling off period for the purchaser, with the $10,000 payment referred to above being non-refundable if the purchaser does not proceed with the contract after the expiry of the cooling off period;
5. deposit of 10 per cent payable on expiry of the cooling off period (if the contract proceeds);
6. completion during the period 20-24 December 2021;
7. the selling agents engaged by the plaintiffs are to be terminated, effective immediately, and the Liverpool property is to be removed from all advertisements; and
8. the vendor is to provide all development approval and construction certificate documents to OZI Homes for "due diligence" and sign an authority in favour of OZI Homes to make changes to the plans.
The reasons why Bass has withheld its consent for Hoho Property to enter into a contract on those terms, as recorded in correspondence between the parties and the affidavit of Mr Goh, a director of Bass, and as emerged from submissions made by senior counsel for Bass, may be summarised as follows:
1. The practical effect of the cooling off period stipulated in the offer, and which OZI Homes has refused to delete or reduce, is to give OZI Homes a five week call option to purchase the Liverpool property. The terms of the offer stipulate that the property must be withdrawn from the market immediately on exchange of contracts. OZI Homes would be free to walk away from the purchase for any reason at all at the end of the cooling off period, leaving the vendor with nothing more than the $10,000 fee paid on exchange of contracts and the need to re-start a marketing campaign that had been withdrawn five weeks' earlier.
2. There is no reason why the "due diligence" that is the stated purpose of the cooling off period could not be conducted by OZI Homes prior to entering into a binding contract to purchase the Liverpool property (during which period the vendors would be free to market and sell the property to other prospective purchasers), save that OZI Homes is reluctant to spend time and money undertaking the due diligence if it is not assured of being able to acquire the property should it wish to do so at the conclusion of the due diligence.
3. Bass is concerned that OZI Homes may not have the financial capacity to complete the purchase (assuming that it wishes to proceed with the purchase at the end of the cooling off period). The plaintiffs have declined to make inquiries of OZI Homes about its financial capacity to complete the purchase (assuming that OZI Homes proceeds with the purchase after the cooling off period), and the information provided by the plaintiffs to Bass has been limited to the following:
1. OZI Homes is a special purpose vehicle that was registered on 16 April 2021 with paid up share capital of $100,000;
2. it is ready to sign contracts immediately, is prepared to pay $10,000 on exchange of contracts and has already provided a cheque for that sum to its agent; and
3. the agent for OZI Homes has informed the plaintiffs' solicitors that they have no concerns about the financial capacity of OZI Homes to complete the purchase.
It is uncontroversial that the price stipulated in the OZI Homes offer is somewhat higher than that offered by any other potential purchasers of the Liverpool property to date. However, I accept the submission made by senior counsel for Bass that it is not, in truth, an offer to purchase the Liverpool property for that price. It is, in effect, a call option that facilitates OZI Homes undertaking due diligence in relation to the Liverpool property and the development at the vendor's risk rather than at its own risk over a period of five weeks in consideration for a fee of only $10,000. The downside for the vendor (and for Bass) if OZI Homes does not proceed with the contract on the expiry of the cooling off period is significant, as they will have ceased marketing the property during that five week period and will have lost the opportunity to negotiate a sale with other potential purchasers.
In my opinion, in withholding its consent for the plaintiffs to enter into a contract with OZI Homes on the terms of the offer for those reasons and on account of its concerns about OZI Homes' ability to complete any contract for sale (arising from the structure of the proposed transaction and the lack of information about its financial capacity), Bass has not acted unreasonably. Looking at the circumstances objectively, Bass' stated reasons for withholding consent reflect its intention to achieve a sale of the Liverpool property on terms that reflect its market value and that will raise funds to be applied to the amount owing under the finance documents. As senior counsel for the plaintiffs acknowledged, that objective is consistent with the plaintiffs' interest in raising funds to repay the amount that they acknowledge must be paid to Bass before they can establish any entitlement to the equitable relief sought in these proceedings. A sale of the Liverpool property is the only means by which the plaintiffs can raise the funds to make that payment to Bass. There was no evidence of the value of the Cabramatta property (which is the family home of Ms Ly, Mr Ho and their children) or the business assets of Hoho Foods. As I understood the submissions, the plaintiffs are anxious to avoid any sale of the family home or the business assets. The OZI Homes offer presents the mere possibility of a sale, with the downside of withdrawing the Liverpool property from the market and taking the risk that the purchaser will walk away from the transaction at the end of the cooling off period.
It follows that the orders made on 7 June 2021 do not permit the plaintiffs to enter into a contract with OZI Homes on the terms set out above without Bass' consent.
I now turn to the question whether an order should be made restraining Bass from exercising its rights under the finance documents in respect of the Liverpool property.
For the purpose of this application, Bass accepted that the plaintiffs have an arguable case for orders declaring void or setting aside the finance documents, but only on the condition that the plaintiffs repay the funds advanced by Bass that were used by the plaintiffs to discharge the earlier loan. As I have already mentioned, that condition is incorporated in the terms of the final relief sought in the plaintiffs' Summons.
Senior counsel for Bass submitted that, unless and until the plaintiffs do equity by making that payment, the legal rights of Bass under the finance documents are not subject to or impugned by any equity of the plaintiffs arising from their claims in these proceedings. It was submitted that the Court therefore lacks power to grant the interim injunction sought because there is presently no basis for interfering with Bass' legal rights, taking the plaintiffs' case at its highest.
The plaintiffs have accepted the requirement to do equity by seeking final relief only subject to the repayment condition stipulated in their Summons: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5th ed, 2015) at paragraphs 3-050 to 3-070. The plaintiffs presently have an arguable claim to such conditional relief and the Court has power to grant interim injunctive relief to preserve the status quo pending final determination of the plaintiffs' claims if the balance of convenience favours such interim relief: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63, especially at [8]-[13], [18] (Gleeson CJ), [91] (Gummow and Hayne JJ, Gaudron JJ agreeing). However, unless and until the repayment is made to Bass, the status quo is that the equity claimed by the plaintiffs would not preclude Bass from exercising its legal rights. Accordingly, the interim injunction sought by the plaintiffs would not protect any status quo that presently exists. That is the point made by Bass' submission referred to above, if I have understood it correctly, and I accept that submission.
That is one reason to decline the interim injunction sought by the plaintiffs in relation to Bass' rights under the finance documents in respect of the Liverpool property.
Even if I am wrong in my characterisation of the present status quo, the balance of convenience does not favour the granting of an interim injunction in this case for the following reasons.
As I have said above, a sale of the Liverpool property is the only means by which the plaintiffs can raise the funds to make the payment required to satisfy the condition incorporated in the terms of the final relief claimed by the plaintiffs. Thus, a sale of the Liverpool property per se, with the proceeds being applied towards satisfying that condition, will not occasion any prejudice to the plaintiffs.
It was clear from the submissions made on behalf of the plaintiffs that they are not willing to contemplate a sale of the Liverpool property at a price less than the $2,356,300 amount that would be immediately payable to Bass in accordance with the 7 June 2021 orders. There is no criticism of the efforts made by the plaintiffs to sell the Liverpool property to date. However, those efforts have failed to secure an offer in excess of that amount, with the exception of the OZI Homes offer. As I have already said, the OZI Homes offer is in substance merely an offer to enter into a call option for a price of $10,000. There is no evidence to suggest that, if Bass were to be restrained from exercising its rights, the plaintiffs would be likely to achieve an offer to purchase the Liverpool property at a price above the desired amount of $2,356,300, notwithstanding their inability to do so to date.
There is no evidence of the current market value of the Liverpool property. However, the terms of all of the offers received to date, with the sole exception of the OZI Homes offer, cast some doubt on whether the property continues to have a market value of approximately $2,600,000 (as in December 2020) or even the plaintiffs' desired price of at least $2,356,300. It was clear from the submissions made on their behalf that the plaintiffs' desire to achieve that price is driven not by any objective assessment of current market value, but by their understandable wish to avoid needing to realise any of their other assets in order to make the payment to Bass that is required to satisfy the condition of their claims for final relief in these proceedings.
As senior counsel for the plaintiffs acknowledged, there is no evidence to suggest that Bass (or its agents or receivers) would do anything other than work towards achieving a sale of the Liverpool property at market value. If it failed to take reasonable care to sell the property for market value, contrary to the duty in s 420A of the Corporations Act 2001 (Cth), Hoho Property would have a claim for damages and Ms Ly and Mr Ho, as guarantors, would have a claim for equitable set off reducing their liability to the extent that the proceeds of sale had been diminished by a breach of the duty of care. Assuming (without deciding) that an exclusion of liability clause in the mortgage might have a bearing on the prospects of success of such claims, this is not a factor that weighs in favour of restraining Bass from exercising its legal rights in circumstances where there is no evidence of any real risk of breach of the duty of care and the plaintiffs' submissions did not go so far as to contend that liability for any breach of s 420A would be, or would arguably be, excluded by that clause.
I note that the plaintiffs questioned whether Bass would be likely to achieve offers for the Liverpool property at more favourable prices than those elicited by the plaintiffs to date, on the basis that Bass has not utilised any relevant experience or contacts it may have to elicit such an offer to date. However, that is hardly surprising in circumstances where the plaintiffs have had the conduct of the sale pursuant to the 7 June 2021 orders. I do not regard it as any indication that Bass would be unable to achieve a sale at market value.
The plaintiffs also complained that a sale by Bass would involve incurring the costs of the receivers of approximately $25,000. I accept that the plaintiffs regard that as a material cost and it is understandable that they would prefer to avoid it. However, it is a relatively small cost in the scheme of the price range at which the Liverpool property may be sold based on the highest bid at the auction and subsequent offers. I do not regard that cost as tipping the balance of convenience in favour of restraining Bass from exercising its legal rights in respect of the Liverpool property.
Having regard to the need for the Liverpool property to be sold in order for the plaintiffs to have any prospect of fulfilling the condition to the grant of the final relief they claim in these proceedings, the lack of evidence that the current market value of the property is at or above the plaintiffs' desired price for the property, the fact that the plaintiffs are presently determined not to sell the property for less than their desired price and the duty of care that would apply to any sale by receivers appointed by Bass, I do not consider that the balance of convenience favours the grant of the interim injunction sought by the plaintiffs insofar as it concerns Bass' rights in respect of the Liverpool property.
Thus, there will be no injunction operating to restrain Bass from enforcing its rights in respect of the Liverpool property when its undertaking given to the Court on 7 June 2021 expires on entry of the orders set out at the conclusion of these reasons. As I have already noted, both parties accepted that order 4 made on 7 June 2021 should be set aside with effect from that time. Orders 5 and 6 are expressed in terms referable to a sale by the plaintiffs under order 4 and will have no application on the setting aside of order 4. However, orders in substantially the same terms as orders 5 and 6 will be made to apply to any sale by of the Liverpool property by Bass, consistently with Bass' position recorded at [19] above.
Senior counsel for the plaintiffs urged the Court to make orders limiting Bass' ability to sell the Liverpool property in the exercise of its rights under the finance documents to a sale at a price of at least the $2,520,000 price stipulated in the OZI Homes offer or, alternatively, a price of at least the $2,356,300 referred to in the 7 June 2021 orders. Alternatively, it was submitted that the orders to be made should require Bass give notice to the plaintiffs of the terms of any sale prior to exchange of contracts, so that the plaintiffs can apply to the Court to restrain the sale if they consider that there is a basis to do so. I decline to make orders to that effect. There is no evidence that the proposed price restrictions are consistent with the current market value of the Liverpool property. There would be no basis to restrain any proposed sale by Bass in the absence of a serious question to be tried as to whether the sale was in breach of its duty of care. Even then, it is difficult to see how the plaintiffs would be prejudiced in a manner that could not be compensated by an award of damages if the alleged breach were subsequently established. In any event, a hypothetical risk of a breach of duty is no reason for the Court to impose a supervisory regime on a mortgagee's exercise of its legal rights.
As I have stated earlier in these reasons, Bass has no present intention of exercising its rights under the finance documents in respect of assets other than the Liverpool property and senior counsel for Bass proffered that he did not wish to be against a direction that would require Bass to give 7 days' notice to the plaintiffs before exercising any such rights. I am content to make a direction in those terms. That will afford the plaintiffs an opportunity to apply for an interim injunction restraining the exercise of those rights if there is a proper basis to do so in the circumstances existing at that time (including whether payment has been made to satisfy the condition in the plaintiffs' claims for final relief).
The plaintiffs' application for interim injunctive relief has not succeeded. I am not aware of any reason why costs should not follow the event. No party indicated that they would wish to be heard in relation to the question of costs. I will therefore make an order that the plaintiffs pay the defendants costs of the notice of motion filed on 31 May 2021.
For those reasons, I make the following notations and orders:
1. Dismiss the plaintiffs' claims for interim relief in prayers 3 and 4 of their notice of motion filed on 31 May 2021.
2. Note that the undertaking given to the Court by the first defendant on 7 June 2021 expires on entry of order 1 above.
3. Set aside orders 4, 5 and 6 of the orders made on 7 June 2021 with effect from entry of order 1 above.
4. Order that the proceeds of any sale by the first defendant (or by its agents, including any receivers appointed under the finance documents) of the Liverpool property in exercise of the first defendant's rights under the said finance documents shall be paid into Court after payment of the following amounts out of those proceeds:
1. reasonable fees for a solicitor for the conveyance of the Liverpool property;
2. the selling agent's reasonable fees;
3. any other sales costs or adjustments or any GST; and
4. the amount of $2,356,300, which is to be retained by the first defendant and applied to the principal debt owing under the finance documents, and then to interest on that principal debt.
1. Note that the parties' agreement recorded in order 6 made on 7 June 2021 applies to any proceeds paid into Court in accordance with order 4 above, so that those proceeds are to be held subject to any claimed proprietary interests subject to determination or resolution in these proceedings as if the Liverpool property had not been sold and registered mortgage AQ692083 and caveat AQ993610 remained on the title to the Liverpool property.
2. Direct the first defendant to provide 7 days' notice in writing to the solicitors on the record for the plaintiffs in these proceedings prior to taking any steps to exercise its rights under the finance documents (other than rights in respect of or in relation to the Liverpool property).
3. Order that the plaintiffs pay the defendants' costs of the notice of motion filed on 31 May 2021.
4. Note that, in these orders:
1. finance documents means the documents identified in paragraph 1 of the Summons filed in these proceedings; and
2. Liverpool property means the real properties known as 15-17 Frangipane Avenue, Liverpool, New South Wales (folio identifier 8/217917 and 9/217917).
1. Direct that these orders be entered forthwith.
[2]
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Decision last updated: 12 October 2021