Liquidity Financial Services Pty Ltd v Prime Capital Securities Pty Ltd - [2012] NSWSC 1185 - NSWSC 2012 case summary — Zoe

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Liquidity Financial Services Pty Ltd v Prime Capital Securities Pty Ltd

[2012] NSWSC 1185

Supreme Court of NSW|2012-09-24|Before: Stevenson J

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Source facts

Court

Supreme Court of NSW

Decision date

2012-09-24

Before

Stevenson J

Source

Original judgment source is linked above.

Judgment (24 paragraphs)

[1]

Introduction 1These proceedings concern a Loan Agreement made on 21 October 2011 between: - (a)the defendant, Prime Capital Securities Pty Ltd ("Prime") as lender; (b)the first plaintiff, Liquidity Financial Services Pty Ltd ("Liquidity") as borrower; and (c)the second and third plaintiffs, Mr David Kenny and Mrs Patricia Kenny, as guarantors. 2Mr and Mrs Kenny are directors of Liquidity, and husband and wife. 3Mr and Mrs Kenny are the registered proprietors of a property at Knockrow ("the Property"). Erected on the Property is a residence known as "Le Paradis" which overlooks Byron Bay and Lennox Head. 4Since on or about 12 December 2008, ING Bank (Australia) Limited ("ING") has held a first registered mortgage over the Property.

[2]

The Loan Agreement 5The "Limit" of the Loan Agreement was $500,000. 6The interest under the loan was, assuming prompt payment, 2.5 per cent per month (30 per cent per annum). 7In the event of default the interest rate was 5 per cent per month (60 per cent per annum). 8Clause 2 of the Loan Agreement provided: - "Subject to the terms of this agreement, the Lender agrees to make available to the Borrower a cash advance facility as follows: (a)an Initial Advance at $100,000; and (b)subject to no Event of Default occurring, the balance of the Limit at the request of the Borrower (such request to be made within 2 months of the date of the Initial Advance)." 9Clause 3.2 of the Loan Agreement provided: - "The Lender may in its absolute discretion decide not to make any Advance and may do so notwithstanding, any other clause in this agreement...or any verbal or written communication between the parties to the contrary". 10Clause 4.1 of the Loan Agreement provided that Liquidity was obliged to pay all advances on the "Termination Date", which term is defined to mean 12 months from the time of the Initial Advance (that is 10 November 2011) at the latest. 11By clause 7.1(f) of the Loan Agreement, Liquidity warranted that: - "The facility is used for business purposes and for no other purpose." 12Clause 7.5(b)(i) of the Loan Agreement obliged Liquidity to provide Prime:- "Promptly...with all information regarding the business and affairs of the Borrower or any Guarantor as the Lender from time to time requires". 13The Loan Agreement provided that an event of default occurred if, amongst other things: - (a)there was a default by Liquidity in the performance of any term, agreement or condition contained in or implied in the Loan Agreement; (b)any indebtedness or obligation of Liquidity to any person including Prime was not met when due; (c)Liquidity or any person "on behalf of" Liquidity breached any undertaking at any time given to Prime; (d)any representation or warranty became untrue, false or misleading; (e)any of the funds advanced were used for a purpose other than that for which it was provided; (f)Liquidity failed to respond to Prime's satisfaction to any request for information made by it (clause 8(a), (b), (j), (p), (w) and (x).

[7]

Loan application 25On 5 October 2011, Mr and Mrs Kenny signed an "Application Form for Business and Investment Finance". 26In that document: - (a)Mr Kenny stated that his "forward annual income" from Liquidity was $380,000; (b)Mrs Kenny described her "forward annual income" from Liquidity as $360,000; (c)Mr and Mrs Kenny answered the question "why have you utilised Short Term Funding in preference to long term funding?" as follows: - "Most expedient & cost efficient given future earnings and investments". (d)Mr and Mrs Kenny declared that: - "The credit to be provided...by the credit provider will be applied wholly or predominantly for business or investment purposes." (e)Mr and Mrs Kenny stated that the "loan purpose" was:- "Equity/share investments in a company in which we hold an interest." (f)Mr and Mrs Kenny also stated that the proposed loan amount was $500,000, the funding was required "ASAP" and that the "loan purpose" was: - "Equity/shareholder investments". 27Mr Paul Scanlon, the director of Prime, sought further particulars of the proposed use of the funds. 28On 19 October 2011, Mr Kenny, on MAID letterhead, wrote to his finance broker, Auswide Finance Pty Ltd ("Auswide") as follows: - "Please accept this letter as confirmation of our intention that the $500k loan being provided by Auswide Finance will be drawn down progressively and injected into [MAID] commensurate with our 25% shareholding of the company. These funds will be utilised to meet ongoing costs associated with significant tenders that are being undertaken by MAID for the design, supplier and installation of large scale mining accommodation and associated infrastructure projects to top tier engineering and construction companies in Australia." 29That letter was provided to Mr Scanlon at Prime on or about 19 October 2011. There was no suggestion in the evidence that the letter was not provided by Auswide to Prime otherwise than with Mr Kenny's authority. 30A few days earlier, on 10 October 2011, Mr and Mrs Kenny signed a letter addressed to Auswide headed "Application for short term mortgage finance" in which they stated that the "Loan Purpose" was: - "To fund the 25% Share buy into [MAID]". 31Mr Scanlon said in cross-examination that he was "very confident" that he had not seen that document. Its terms, so far as concerns the proposed "Loan Purpose" were, however, consistent with the letter of 19 October 2011 to which I have referred.

[14]

23 February 2012 Mr Scanlon to Mr Kenny "Please find attached copies of various documents signed by you and Patricia. We draw your attention to clause 7.5(b)(iv) of the Loan Agreement under which we may request information. We also draw your attention [to] clause 8(x) which confirms that failure to respond to information requests is an Event of Default. Your facility was requested for business purposes and we are simply seeking to clarify this. For clarity we are not seeking to unnecessarily delay your business activities, and stand ready to provide the further drawdown once the relevant bank statements are satisfactorily provided." 37On 28 February 2012 Mr Scanlon put the matter on a more formal basis and wrote to Liquidity as follows: - "We refer to your signed Loan Agreement and security documentation received by us. Pursuant to those documents you have an obligation to provide us with any information we request regarding the business and affairs of the Borrower and Guarantors. We note to date you have refused to supply us with certain bank statement information. We hereby request that you provide us with the following information by close of business 1 March 2012: Bank statements for all ING Loans, for the period including 10 November 2011 to today's date; Bank statements for Liquidity Financial Services Pty Ltd account [xxxxx xxxxxxxx], for the period including 10 November 2011 to today's date; Bank statements for any related party accounts which have transfers to or from the above accounts during the same period. Please note failure to respond to our satisfaction with any request for information in the timeframe outlined in that request, is any event of default under the facility. We hereby reserve all rights arising out of these matters. Failure to act at this time or any time in the future, shall not be deemed to be a waiver of any of our rights under the Facility Agreement or any security held by us, all such rights continue to be expressly reserved." 38Ultimately Mr Kenny provided Mr Scanlon with copies of Mr and Mrs Kenny's joint bank account statements with the National Australia Bank Limited ("NAB").

[21]

Entitlement to specific performance 65It is common ground that, usually, a contract to lend money cannot be specifically enforced: Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4th ed (2002) at [20-050]. The reason for that is that, usually, damages will be an adequate remedy: e.g. Wight v Haberdan Pty Ltd [1984] 2 NSWLR 280 at [289] per Kearney J and Georges v Wieland [2009] NSWSC 733 at [37] per Brereton J. 66Liquidity submits that, nonetheless, an order for specific performance should be made because of the difficulty and expense of proving what damage it has suffered as a result of the further $250,000 not being advanced by Prime. 67However in this case, an antecedent issue arises, namely that the plaintiffs have not demonstrated that they have any legal right that has been infringed. 68Clause 2 of the Loan Agreement (see [8] above) obliged Prime to make the initial advance of $100,000. This was done on 11 November 2011. Prime was only obliged to advance further funds if there was not an event of default, and if the balance of the limit was requested by the borrower within two months of the date of the initial advance, that is by 11 January 2012. 69There have been events of default. Liquidity did not request the balance of the advance now sought by 11 January 2012. 70In any event, clause 3.2 of the Loan Agreement (see [9] above) provided that Prime might, in its absolute discretion, decide to make no advance notwithstanding verbal or written communication between the parties. 71Further, as a matter of discretion, the Court can refuse to make a decree for specific performance if the applicant for relief is in breach of its obligations under the contract: Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 All ER 737 at 742 per Lord Radcliffe. That is this case. 72Further, a decree for specific performance will not normally be granted unless the applicant can show that he, she or it is ready, willing and able to perform the contract. 73The plaintiffs have failed to show that they are able to perform the Loan Agreement. Indeed they are currently in breach of their obligations to make interest payments under it. 74For all of those reasons, specific performance is not available to the plaintiffs in these proceedings.