Mariconte v Batiste

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4582/99 . JOHN MARICONTE & ANOR V DONNA BATISTE & ANOR

1 HIS HONOUR: This judgment relates to applications by the plaintiffs and by a receiver appointed by the Court, in each case seeking directions with respect to the sale of a property. The proceedings in which the applications are made have been contested with great vigour, and the commercial events to which they relate have developed swiftly. In these circumstances I intend to spend some time setting out the facts which are now in evidence before me. 2 The proceedings are a contest between the first plaintiff, Mr Mariconte, and the first defendant, Ms Batiste. The dispute relates to a property situated at 9 Watt Street Newcastle, on which there is a building known as the Newcastle Tattersalls Club. The registered proprietor of the property is the second defendant, Biscom Holdings Pty Ltd. The second plaintiff, Jomar Investments Pty Ltd, is the mortgagee of the property under two registered mortgages.

The acquisition and refurbishment of the Tattersalls Club 3 The property was acquired by Biscom in January 1998. At that time Mr Mariconte was the sole director, secretary and shareholder of Biscom. He incorporated a company called Chasen to act as the management company for the refurbishment of the Tattersalls Club, and he was the sole director, secretary and shareholder of that company. He was also the sole director and shareholder of Jomar. 4 Biscom was advanced $600,000 by the Provident Capital Group on behalf of a syndicate of lenders. Ms Batiste and Mr Mariconte were guarantors of the loans. Biscom used the money in the acquisition and refurbishment of the Tattersalls Club. Jomar is now the mortgagee in both mortgages, but it is not clear to me on the evidence how this occurred and specifically, whether the result was achieved by Mr Mariconte providing funds to purchase the mortgages from Provident Capital. 5 Mr Mariconte and Jomar paid $265,000 towards the cost to Biscom of the acquisition of the property. During the period from January 1998 until August 1999, Mr Mariconte, Jomar and Chasen spent money on the refurbishment of Tattersalls, the payment of interest on the loans, costs and charges associated with the loans and outgoings payable in relation to the property. Ms Batiste alleged in August 1999 that her personal account with St George Bank was in debit in the amount of $104,000 plus interest of $16,000 which she claimed to be attributable to funds she provided to Mr Mariconte for the refurbishment of Tattersalls, although those allegations were denied by Mr Mariconte. 6 The renovation of the building has not yet been completed, in circumstances which I shall describe. The money spent in renovating the building was, for the most part, specifically designed for the purposes of the Tattersalls Club of Newcastle. The Club vacated the premises and the evidence before me is that they still wish to resume occupation under a lease. Mr Mariconte is concerned that with the passage of time, the Club will lose members and the use of the building for the purposes of the Club will cease to be viable.

The commercial objectives of Mr Mariconte and Ms Batiste 7 Mr Mariconte has been paying all the outgoings on the property since August 1999, and says that they amount to about $1000 per week. His commercial objective appears to be to complete the renovations as soon as possible and re-install the Tattersalls Club as the tenant at an appropriate rental. During the hearing his counsel frequently reminded the Court that all delays in the resolution of the dispute were to the cost of his client. 8 Ms Batiste is the lessee of the property at 7 Watt Street Newcastle, the Great Northern Hotel. The evidence is that control of the Tattersalls Club building will enable her to provide fire egress for the upper floors of the Great Northern Hotel by means of a corridor between the buildings. This will enable her to make use of all floors of the hotel above the ground floor. It appears that the hotel is a successful business but it would become more profitable if such fire safety arrangements could be put in place.

The 'joint venture' proceedings 9 In 1999 Ms Batiste commenced proceedings in this Court (No 1992 of 1999) against Mr Mariconte, Biscom and Jomar. She alleged that in January 1998 Mr Mariconte had agreed to enter into a joint venture agreement with her in which Biscom would be the joint venture vehicle for the acquisition of the property. She claimed that under the agreement, she and Mr Mariconte would hold equal beneficial interests in Biscom and each of them would be entitled to become a director. 10 She asserted that Mr Mariconte executed a deed under which he agreed to hold one of his two shares in Biscom in trust for Ms Batiste, or alternatively to transfer a share to her, and to appoint her as a director. She complained that Mr Mariconte had breached the agreement. She also alleged that he had breached a fiduciary duty which he owed to her, and had caused the affairs of Biscom to be conducted oppressively or in a manner unfairly prejudicial to or unfairly discriminatory against her, or contrary to the interests of the members of Biscom as a whole. She also claimed that Mr Mariconte had breached his statutory duties as a director and officer of Biscom, and that Jomar's interest in the property was subject to a constructive trust.

The Settlement Deed 11 By a deed made on 12 August 1999 ('the Settlement Deed') Mr Mariconte, Ms Batiste, Biscom, Jomar and Chasen made an agreement intended to resolve at least some of the issues that had led to the 'joint venture' proceedings. Under the Settlement Deed Mr Mariconte transferred one of his shares in Biscom to Ms Batiste, who became a director of that company. That situation continues to the present time. 12 The Settlement Deed also provided that an agent for sale of the property would be appointed, with irrevocable authority to sell it at a public auction at which both Ms Batiste and Mr Mariconte would be free to bid. It was agreed that no work or other activity would occur on the property pending sale of the land, other than necessary repairs, and that telephone and fax lines and the gas supply would be disconnected. Arrangements were made for the security of the premises. It was agreed that the 'joint venture' proceedings would be dismissed, and mutual releases were given. 13 Clause 10 of the Settlement Deed dealt with the destination of the proceeds of sale of the property, setting out an order of priority for payment. It stated: 'The proceeds of the sale of the land shall be paid to the agent to be held on trust for Biscom and disbursed as follows and in the following order: (i) first, by payment of the agent's fees, expenses and commission, the conveyancing fees of the solicitors and the fees and disbursements of the referee appointed pursuant to clause 11; (ii) second, by discharge of the liability of Biscom to pay of [sic] the principal of $600,000 under the mortgages; (iii) third, by payment of the sum of $70,000 to Mariconte or at his direction (being the sum which Batiste agrees to allow and Mariconte, Jomar and Chasen agree to accept in settlement of the claims by Mariconte, Jomar and Chasen for interest payments made by them on the loans and interest on other payments referred to in this clause); (iv) fourth by payment to Mariconte or at his direction of the sum of $265,000; (v) fifth by: (a) payment to Batiste of the sum of $8000 (which sum Mariconte agrees to allow and Batiste agrees to accept in settlement of the interest component of the St George debt); (b) payment of that portion of the balance of $104,000 of the St George debt that has been expended on the refurbishment of Tattersalls as determined by the referee in accordance with the procedure in clause 11 below; (c) payment to Mariconte or at his direction of all payments of money made, or all debts incurred by him, Jomar, Biscom, or Chasen, for the purposes of the refurbishment of Tattersalls prior to 13 August 1998, with the exception of any amounts paid or owed to Ray Powell for the construction of a boat bow on a wall of Tattersalls, and subject to the verification of such payments and debts under the procedure in clause 11 below; provided, however, that if the proceeds of sale of the land are insufficient to enable the payments referred to in this sub-clause to be made in full, the available proceeds are to be paid to Batiste and Mariconte in the proportions that the amounts found to be payable bear to the sum of those amounts. (vi) sixth, by payment to Mariconte or at his direction of all costs, duties and charges associated with the loans and properly paid or incurred by Mariconte, Biscom, Jomar or Chasen, such amounts to be verified by the referee in accordance with the procedure in clause 11 below; (vi) [sic] seventh, by payment to Mariconte or at his direction of all sums paid or incurred by Mariconte, Biscom, Jomar or Chasen for outgoings on the land or Tattersalls, such amounts to be verified by the referee in accordance with the procedure in clause 11 below; (vii) eighth, the balance to be divided equally between Mariconte and Batiste.' 14 If one assumes costs payable under paragraph (i) of, say, $150,000, then paragraph (v) will not operate unless the purchase price is at least $1,085,000. That is to say, if the purchase price is below that figure, then all of the money after the payment of costs and the discharge of the mortgages, will go to the Mariconte interests. That would be the case if Mr Mariconte's current bid of $935,000 were accepted. 15 If the purchase price exceeds that figure, Ms Batiste stands to receive some of the surplus under paragraph (v). The exact amount is unclear. The evidence before me does not indicate how much the Mariconte interests have paid for the purposes of paragraph (v)(c). Nor does it indicate how much of the $104,000 referred to in paragraph (v)(b) was expended on the refurbishment of Tattersalls. I am therefore unable to conclude that, if Ms Batiste's current bid of $ 1,320,000 were accepted, the whole of the top layer (that is, the amount remaining after paragraphs (i) to (iv) have been satisfied) would be distributed under paragraph (v), or whether some of it would be distributed under paragraph (vi), or even under the second paragraph (vi) or paragraph (vii). I note that the two paragraphs numbered (vi) benefit the Mariconte interests rather than the Batiste interests, although the amount of those benefits is not in evidence.

The present proceedings 16 After the execution of the Settlement Deed, a dispute arose as to the identity of the accountant who would sell the property. Mr Graham Thomas, a chartered accountant from Newcastle, was purportedly appointed as the agent for sale, and he commenced work on the sale, planning for an auction on 8 December 1999. However, Ms Batiste challenged his appointment, and eventually Mr Thomas withdrew. Mr Mariconte therefore commenced the present proceedings in November 1999. As originally constituted, the proceedings sought a declaration that Mr Thomas had been duly and validly appointed under the terms of the Settlement Deed, and other consequential orders. 17 In their amended form, the proceedings have been brought by Mr Mariconte and Jomar against Ms Batiste and Biscom, seeking as final relief a declaration that the Settlement Deed regulates the application of the proceeds of the sale of the property, and a reference to the Master to inquire into and certify distribution of the proceeds of sale. In January this year the plaintiffs filed a statement of claim and Ms Batiste filed a defence on 3 March 2000. It appears from the pleadings that there is very little in issue between the parties. The plaintiffs claim that upon the sale of the property they will be entitled to a distribution of the proceeds in accordance with clause 10, and Ms Batiste says that she and the plaintiffs are entitled to distribution of the proceeds of sale in accordance with the terms of the deed, but that no declaration is required in relation to the deed.

The appointment of the receiver 18 While the final relief may appear to be uncontroversial, controversy of the most intense kind has surrounded various interlocutory applications. The matter first came before me on 24 November 1999, when the plaintiffs applied for the appointment of a receiver on an interlocutory basis. There was a dispute as to the selection of the receiver and in particular, whether a receiver should be appointed who had no substantial connection with Newcastle. There was also a dispute as to whether the sale of property would take place on 8 December 1999 as planned. After the matter went into evidence, the parties agreed to the appointment of an official liquidator as receiver, and invited the Court to nominate three official liquidators selected at random from the Court's list, on the basis that none of those selected would be a person conducting business in Newcastle. I nominated three official liquidators as requested. 19 When the matter came before me on the following day, I was informed that the parties had agreed on the appointment of one of my nominees as receiver and I was invited to make orders. To overcome the problem that the orders would affect the property of Biscom, which at that time was owned by Ms Batiste and Mr Mariconte in equal shares but was not separately represented, it was arranged that a meeting of the board of directors of Biscom would be held, at which Ms Batiste's solicitor would be instructed on behalf of Biscom to appear solely for the purpose of consenting to the appointment of the receiver. That was duly done. 20 Biscom, though a party to the proceedings, has not been represented at any subsequent stage. As far as I can see, that is not a problem at the present time, having regard to the nature of the orders which I am now invited to make. 21 On 25 November 1999 I ordered by consent that John Duncan Green be appointed receiver without security of the property for the purpose of selling it, with the necessary powers to do so, and I directed him to report to the Court by 29 November 1999 with respect to the proposed auction on 8 December 1999. I decided that I had the power to make such an order on the ground that the dispute was analogous to a dispute between partners with respect to partnership property. 22 Mr Green duly reported to the Court, saying that despite the time constraints he had been able to take advice and form the view that to proceed with the sale on 8 December 1999 would not prevent a satisfactory price from being obtained.

Ms Batiste's cross-claim to restrain sale of the property 23 The matter returned to me on 3 December 1999, when counsel for Ms Batiste sought and obtained leave to file in court a cross-claim by her against Biscom, Jomar and Mr Mariconte and Mr Green. The relief sought in the cross-claim was an order that Mr Green be restrained from advertising or otherwise selling the property until 10 February 2000 or such later date as the Court may order. 24 It was strenuously contended on behalf of Ms Batiste that the Court should not allow the auction to take place on 8 December 1999, notwithstanding Mr Green's opinion. However, after noting some legal difficulties posed by the cross-claim, I decided to dismiss it with costs. My reasons for judgment were given on 6 December 1999. I stood the matter over for mention before the Registrar on 13 December 1999 for the purpose of making directions for the further disposition of the proceedings, on the basis that the auction would have taken place on 8 December 1999.

The auction on 8 December 1999 25 The auction accordingly took place on the advertised date. Before it was held, Mr Green wrote to Mr Mariconte and Ms Batiste's solicitor informing them that he would set the reserve price on 7 December 1999, but that he would not disclose to them. Mr Green set the reserve price after taking the advice of the real estate agent, who recommended the figure $750,000. 26 Apart from the bids of Mr Mariconte and Ms Batiste, the highest bid at the auction was no more than $880,000. Ms Batiste was the highest bidder, at $1,295,000. Mr Mariconte was the under-bidder, and there is some evidence that his bid was $1,290,000. Given the nature of the auction process, it is likely that his bid was not much less than the successful bid by Ms Batiste, whatever the precise figure may have been.

The dishonouring of the deposit cheque 27 Mr Mariconte wrote to Mr Green on 9 December 1999 seeking confirmation that the contracts had been exchanged and the deposit cheque for Ms Batiste had been banked and honoured. He requested that if it had not been honoured, the contract be rescinded. 28 In fact the contract was signed by Ms Batiste, but it made provision for her to nominate another as purchaser. She handed over her personal cheque for the 10 percent deposit of $129,500 at the auction. However the cheque was dishonoured on presentation, Mr Green receiving notification of that fact by facsimile from the real estate agent dated 16 December 1999. 29 Mr Green refused a request by Ms Batiste for an extension of time to pay the deposit, and said that he intended to enter into preliminary discussions with the under-bidder unless he received payment of the deposit by electronic funds transfer by 5pm on 16 December 1999. He said that if payment was not received, he intended to make use of provisions of the contract which entitled him to terminate it and to recover any diminution of sale price due to renegotiation, together with costs. 30 After further negotiations between them were unsuccessful, on 21 December 1999 Mr Green gave Ms Batiste a notice (the validity of which she contested) of his election to terminate the contract on the ground that the deposit cheque had not been honoured on presentation. On the previous day Mr Mariconte had sent a letter to Mr Green referring to the dishonouring of the deposit cheque and offering to purchase the property immediately for $935,000. There is a file note in evidence indicating that Mr Green had a telephone conversation with Mr Mariconte in which he told Mr Mariconte that he would like to see an increased offer, since '$300,000 is a big drop in 12 days'.

The 'deposit' proceedings 31 On 21 December 1999 Ms Batiste commenced proceedings against Mr Green in this Court (No 5129 of 1999), seeking a declaration that the contract made as a result of the auction remained on foot. She also sought a declaration either that the terms of the contract had been varied to permit late payment of the deposit, or that Mr Green was estopped from insisting upon strict compliance with the terms of the contract regarding payment of the deposit. An abridgment of the time for service was ordered by Simos J on that day, and the matter returned to him on 23 December 1999. 32 The basis of those proceedings was an allegation by Ms Batiste that at the auction on 8 December 1999 she had a conversation with the estate agent in the presence of the receiver's representative and her solicitor. She told the estate agent that a trust cheque was being deposited into her account and that she would have funds in her account to meet the deposit cheque only if the trust cheque was cleared in time. She alleged that the estate agent's representative said to her, in the presence of the others, that the cheque should clear in time but that he would call her if it did not. She says that she had made arrangements with Mr David Hall, a director of the Newcastle Breakers Soccer Club, that the Club would purchase the property and provide her with funds to enable her to pay the deposit. 33 By a letter dated 10 December 1999, a firm of accountants called Turnbull & Turnbull wrote to the estate agent saying that the Newcastle Breakers Soccer Club was to be the nominee under the contract for sale of the property, and advising that the firm had been provided with the relevant funds. The letter said that upon those funds being cleared through the firm's trust account, the firm had instructions to remit the deposit direct to the estate agent. 34 Ms Batiste alleged that she was shocked by Turnbull & Turnbull's letter because Mr Hall had told her that the deposit money would be placed directly into her account to cover her cheque. 35 On 22 December 1999 Rodney Shields & Co, solicitors, wrote to Mr Green saying they acted on behalf of an unnamed client, who had instructed them to offer to purchase of the property for $1,300,000. 36 At the hearing in Proceedings No 129 of 1999 on 23 December 1999, the Court was informed of the new offer. An order was made restraining Mr Green from selling the property until 5pm on 31 December 1999 . The Court noted an undertaking by Ms Batiste that if she did not pay the deposit in cleared funds by that time, then she acknowledged that the contract was terminated for all purposes, although Mr Green would retain his right to claim damages under the contract. The Court ordered Ms Batiste to pay Mr Green's costs of those proceedings. 37 In fact Ms Batiste did not pay the deposit by 31 December 1999 or at all. Mr Green says that consequently, the contract has been validly terminated and he is entitled to recover damages from Ms Batiste. Ms Batiste says that she did not endeavour to pay the deposit at that time because she understood that there was a purchaser willing to pay at least $1,300,000. In January 2000 there was further correspondence between Mr Green and Rodney Shields & Co, the outcome of which was that, although a draft contract for sale in the name of Mr Joseph Lenthen was submitted, the mooted offer to purchase did not materialise.

New negotiations for purchase of the property 38 On 13 January 2000, when Ms Batiste's solicitor had discovered that the sale at $1,300,000 had fallen through and that the receiver was entertaining Mr Mariconte's offer to buy for $935,000, he wrote to Mr Green asking for time to obtain Ms Batiste's instructions to submit a higher offer than Mr Mariconte's. Mr Green replied, initially by letter dated 14 January 2000, that any further offer by her must provide for payment by bank cheque of the deposit and also half of the difference between her new price and the initial contract price. Additionally, late in January 2000 Mr Green's solicitors made a demand upon Ms Batiste for payment of his costs in Proceedings No 5129 of 1999 in the sum of $11, 869.20. Ms Batiste subsequently contended that this amount was excessive. 39 By a letter dated 27 January 2000 Ms Batiste's solicitor made a new offer for purchase to Mr Green. The new purchase price was to be $1.1 million, with a 5 percent deposit. Settlement was to take place within six to eight weeks. The letter told Mr Green that the deposit and balance of the purchase price were being provided by Provident Capital, and invited him to telephone Mr Michael O'Sullivan, a director of that company, for confirmation. 40 The letter did not accede to Mr Green's stipulation that 50% of the difference between the new price and the auction price be paid. Indeed, by a letter dated 31 January 2000 Ms Batiste's solicitor argued that it would be unreasonable and improper for Mr Green to impose such a condition, or to require payment of his costs as a condition of sale, since to do so would be inconsistent with his duty as receiver to obtain the best possible price for the property. The letter of 31 January 2000 concluded by asserting, in effect, that if Mr Green proceeded to sell the property to Mr Mariconte he would be in breach of his duty and damages may result to Ms Batiste. 41 Meanwhile Mr Green's negotiations with Mr Mariconte proceeded. By letter dated 3 February 2000 Mr Mariconte's solicitor proposed immediate exchange of contracts, still at the purchase price of $935,000, with a 5 percent deposit and the addition of a special condition. The new special condition would make the contract conditional upon a direction being obtained from this Court requiring the vendor at completion to pay the proceeds of sale in the manner set out in clause 10 of the Settlement Deed, with a right of rescission if the Court's direction was not obtained. 42 On 9 February 2000 Mr Mariconte's solicitor wrote to Mr Green informing him that Mr Mariconte would object to any contract being exchanged with Ms Batiste or her corporate entities in view of her past failure to perform a binding contract. The letter said that Mr Mariconte would hold Mr Green liable for any resulting loss to him as mortgagee or as a shareholder in Biscom. In a letter of 6 March 2000 Mr Mariconte's solicitor stated that Mr Mariconte reserved his right to seek damages from Mr Green in respect of unnecessary delay. 43 During February there was further correspondence between Mr Green and Ms Batiste's solicitor, in which the solicitor claimed that Provident Capital had approved a loan for 100 percent of Ms Batiste's proposed purchase price of $1.1 million, and that Provident Capital would prepare documentation within five to ten days of a contract being submitted. Not surprisingly, Mr Green requested documentary evidence that Provident Capital had approved such a loan. 44 On 29 February 2000 Mr O'Sullivan, as managing director of Provident Capital, wrote to Mr Green confirming that his company was prepared to advance the full purchase price of $1.1 million 'subject to our standard underwriting and legal requirements'. The letter pointed out that Provident Capital was familiar with the property because it had previously managed a first mortgage over the property, and was currently holding a first mortgage over the lease of the Great Northern Hotel. The letter also confirmed that contractual arrangements between the vendor and borrower would be finalised within seven to ten days of Mr Green's acceptance of Ms Batiste's offer, the settlement to take place 'on a standard six-week (plus two) contract'.

Mr Green's application for judicial advice 45 By early March 2000 Mr Green was in an unenviable position. He had an offer from Mr Mariconte at $935,000, comfortably above the highest 'external' bid at the auction but substantially lower than the successful bid at the auction, and also substantially lower than Mr Mariconte's own bid. Mr Mariconte wanted a special condition allowing him to set off the balance of purchase money due on settlement against the moneys which would be due to him through the application of the settlement proceeds under clause 10 of the Settlement Deed. Additionally, he initially offered only a 5 percent deposit, though it appeared likely, by early March, that he would pay a deposit of 10 percent. 46 He had to weigh that offer against the much higher offer by Ms Batiste, of $1.1 million. But Ms Batiste's offer was problematic. She had previously defaulted under the auction contract, and Mr Green claimed to be entitled to damages measured by the difference between the auction price ($1.295 million) and the subsequent sale price, together with his costs. Therefore by entering into a contract with Ms Batiste at the lower price of $1.1 million he would be crystallising a right of recovery against her. 47 Further, he knew that Ms Batiste wished to borrow the whole of the purchase money, and although he had some evidence of the financier's willingness to lend, that willingness was expressed to be 'subject to... standard underwriting and legal requirements'. Therefore there was a cloud over Ms Batiste's ability to complete, and if she failed to do so, the delay would cause loss to Mr Mariconte. Additionally, she was offering only a 5 percent deposit. 48 It must have appeared to him likely, on the basis of the correspondence which I have reviewed, that if he sold to Ms Batiste he would be sued by Mr Mariconte, and if he sold to Mr Mariconte he would be sued by Ms Batiste. In those circumstances he took the only sensible course of action, by applying to the Court for directions. 49 His application, by notice of motion dated 10 March 2000, seeks a direction that he would, or would not, be justified in selling the property to Ms Batiste on the terms and conditions submitted by her, and a direction that he would, or would not, be justified in selling the property to Mr Mariconte on the terms and conditions submitted by him. 50 Mr Green's application came before me on 14 March 2000.

Ms Batiste's application to prevent the sale 51 At the hearing, counsel for Ms Batiste informed the Court that his client had filed an application returnable on 17 March 2000, seeking an injunction to restrain Mr Green from selling the property, and an order requiring Mr Green to notify Ms Batiste of any offer which he was considering. In the alternative, the application sought an order that Mr Green be removed as receiver, or an order that the Court give further directions for a new auction, or an order that Mr Green be required to consider and respond to Ms Batiste's offer at $1.1 million. Counsel invited the Court to deal with that application immediately. 52 However, after hearing argument on the receiver's application, I adjourned both the receiver's application and Ms Batiste's application. When the manner returned to me for further hearing on 5 April 2000, Ms Batiste's application was dismissed by consent with no order as to costs.

The hearing on 14 March 2000 53 At the hearing on 14 March 2000 counsel for the receiver presented his client's dilemma, and urged the Court to assist him. Counsel for Ms Batiste submitted forcefully that hers was the best offer and the receiver had a duty to accept it. He referred to the collateral conditions which the receiver had purported to impose, regarding payment of 50% of the difference between the auction price and the new price, and payment of the receiver's costs. At that point counsel for the receiver indicated that the receiver was no longer insisting upon those conditions. 54 After hearing submissions I decided that the appropriate course was to adjourn the hearing for a short time in order to permit Ms Batiste to clarify the nature of Provident Capital's offer of finance. I confessed having lapsed into the vernacular, suggesting that it was time for Ms Batiste 'to put up or shut up'.

The hearing on 24 March 2000 55 At the hearing counsel for Ms Batiste handed up a letter from Provident Capital which confirmed that the company was prepared to advance the 5 percent deposit to Ms Batiste and to fund the balance of the purchase price of $1,100,000 on a six-week settlement contract. The letter did not contain any conditions or qualifications. Counsel informed the Court that Ms Batiste was in a position to exchange contracts on that day, with a bank cheque for the 5 percent deposit.

Mr Mariconte's application 56 Counsel for Mr Mariconte filed in Court, after obtaining leave, a notice of motion seeking a direction to Mr Green that he was entitled to enter into a contract for the sale of the property to Mr Mariconte for $935,000. 57 When I appointed the receiver on 25 November 1999, I gave him the power 'to get in and receive the proceeds of the sale of the property pending further orders for directions of the Court'. The notice of motion sought an order varying my earlier order by adding a proviso to the effect that the receiver would be entitled to settle the contract for the sale of the property to Mr Mariconte on the basis of a set-off of money due to Mr Mariconte under the Settlement Deed against the purchase price, so that the money obtained by the receiver would be the balance of the money due under the contract for sale less the amount due to Mr Mariconte under the Settlement Deed. The present judgment deals with this application as well as the receiver's application.

58 During the course of the hearing on 24 March 2000, counsel for Mr Mariconte sought to introduce new evidence of two kinds. The first evidence was in the form of an affidavit of service of a bankruptcy notice in Federal Court proceedings. I decided to admit this evidence. The evidence shows a demand based upon a District Court judgment entered on 9 June 1999. The amount claimed was $74,453.56. The bankruptcy notice was served on 23 March 2000, so that an act of bankruptcy will be committed by Ms Batiste if it is not satisfied on or about 14 April 2000.

59 Counsel for Mr Mariconte also sought to adduce evidence that certain criminal proceedings were currently taking place against Ms Batiste, and he claimed from the bar table that committal proceedings had already taken place. I decided to reject this evidence, and I gave reasons for my decision. Further bidding

60 Counsel for Mr Mariconte informed the Court that he had instructions to make an offer to purchase the property for $1.105 million without the set-off clause which he had previously requested. But counsel explained that his client was concerned that any delay between settlement of the sale and the distribution of funds under clause 10 of the Settlement Deed would be costly for Mr Mariconte, who would have to finance the gross settlement price by some form of bridging finance. Therefore counsel for Mr Mariconte also made an oral application for a declaration that the proceeds of sale of the property were to be distributed in accordance with the terms of clause 10 of the Settlement Deed. I rejected that application and gave reasons for my decision.

61 Subsequently there was much discussion as to whether, Ms Batiste's financial ability to pay having been placed squarely in issue, the Court should in fairness admit evidence with respect to Mr Mariconte's financial position. Ultimately that issue was abandoned by Ms Batiste's counsel. I had made it plain, however, that in my view Ms Batiste's capacity to fund the purchase had become an issue because of her default under the auction contract, and as there was no comparable evidence raising doubt about Mr Mariconte's financial circumstances, I would not regard it as relevant to deal with that matter in order to provide the advice which the receiver sought.

62 The announcement by Mr Mariconte's counsel of an increased bid posed a problem for the Court. I was concerned that the hearing might be used to conduct a further auction for the property. I therefore suggested, and counsel for Mr Green agreed, that it would be appropriate for me to order another adjournment for the purpose of permitting the receiver to take final bids from Ms Batiste and Mr Mariconte. Counsel for the receiver stated that his client would consider written offers received by 12 noon on Thursday 30 March 2000, and would expect the offers to provide for a 10 percent deposit (accompanied by a bank cheque for that amount) with settlement in five weeks, time being of the essence. The hearing on 3 and 5 April 2000

63 When the matter returned to me on 3 April 2000, the receiver tendered letters from the solicitors for Ms Batiste and Mr Mariconte. The former offered $1.32 million, with a 5 percent deposit, enclosing a bank cheque for $55,000 and saying that the balance of the deposit in the sum of $11,000 would be paid by bank cheque upon exchange of contracts. The letter stipulated that the time for completion would be 42 days and that the purchaser would be Ms Batiste or her nominee. The letter added that Ms Batiste would ensure that the bankruptcy notice would be either withdrawn or satisfied within the 21 day time limit.

64 Mr Mariconte's offer was for $935,000, enclosing bank cheques for the 10 percent deposit and agreeing to a 35 day settlement time, time being of the essence. The offer did not require the set-off clause which had previously been discussed, but counsel for Mr Mariconte indicated his desire to proceed with his application for a variation of my orders to permit settlement on the basis of a set-off.

65 Counsel for Mr Mariconte called on a subpoena to the proper officer of Provident Capital to produce a file relating to Ms Batiste, and subsequently the managing director of the company, Mr O'Sullivan, gave oral evidence. After discussion, I adjourned the proceedings to enable Ms Batiste to produce further affidavit evidence from Mr O'Sullivan.

66 When the hearing resumed on 5 April 2000 an affidavit by Mr O'Sullivan was read, and counsel for Mr Mariconte reported that he had obtained access to additional documents of Provident Capital from Mr O'Sullivan, who had been cooperative. Mr O'Sullivan's evidence

67 Mr O'Sullivan's oral and affidavit evidence is important. It demonstrates, first, that Provident Capital has substantial liquid funds available to it which would be more than ample to permit it to fund the acquisition. Mr O'Sullivan said that his company is not a mortgage broker but takes a principal position in mortgages, raising the funds to do so through issuing debt securities pursuant to a prospectus. The prospectus, and parts of the company's trust deed, are in evidence.

68 Secondly, the evidence shows that Provident Capital has undertaken a substantial investigation and assessment of the value of the Great Northern Hotel, of which the lessee is a company wholly-owned by Ms Batiste. It is plain that the company's decision to provide 100 percent of the funding for the purchase of the property is based on the security already available through the financing of the Great Northern Hotel. Given this evidence, the proposition that a financier would be prepared to provide 100 percent of the purchase price for a property, ceases to generate the doubt which the proposition would raise when considered in isolation.

69 Thirdly, Mr O'Sullivan's evidence tends to explain away another of the receiver's concerns, namely the concern with respect to the five percent deposit. If there were no explanation, it would be proper for the receiver to be sceptical of a proposal which limited the deposit to five percent, given that the normal deposit in real estate transactions is 10 percent. But in the present case, the whole of the purchase price is to be provided by a company which requires, according to Mr O'Sullivan's evidence, first mortgage security for the loan. It follows that the company is not in a position to advance any of the deposit money, because of the absence of such security at that stage. Mr O'Sullivan gave evidence that in these circumstances, he would personally lend Ms Batiste a deposit of five percent. While a deposit of five percent obviously provides less protection for the vendor than a deposit of 10 percent, the amount is not insubstantial in the present case.

70 Fourthly, Mr O'Sullivan made it clear that he was in a position, as the director and substantial shareholder of Provident Capital, to make binding decisions on behalf of the company. He admitted in evidence that circumstances could arise prior to settlement which would cause him to withdraw his company's offer of finance. He indicated, however, that in view of his knowledge of Ms Batiste and her business at the Great Northern Hotel, he thought it unlikely that any such event would occur. He was specifically directed to the bankruptcy notice and the criminal proceedings, neither of which appeared to dissuade him from making the finance available.

71 Fifthly, Mr O'Sullivan's evidence was that the company would lend $1.1 million, not $1.32 million. He said that he had not been asked to provide the latter amount, and if he were asked to do so, he would have to review the file. There is thus a gap of $220,000 between the funding which is available to Ms Batiste, and the purchase price which she now offers, which is unaccounted for.

72 Mr O'Sullivan produced a letter of valuation by Colliers Jardine, which valued the property at $ 2,169,100 in a renovated state, and at $ 1.6 million after deducting the cost of completing the renovation. The valuation was on the basis that the property would continue to be used as a club or like use. The valuer noted the 'marriage value' which would add to the value of the property if it were acquired by the owner of the Great Northern Hotel. The valuer also included an 'assessment of value' of the redevelopment potential of the building as residential apartments, the valuation figure being $1.61 million.

73 Counsel for Mr Mariconte invited the Court to infer from the evidence, which includes material from Provident Capital's file, that the loan proposed by Provident Capital would give rise to a breach of the prudential ratios in its trust deed. In my opinion that inference cannot be drawn on the evidence. In particular, I accept the evidence of Mr O'Sullivan to the effect that, barring unforeseen developments, the company will be able to make the loan of $1.1 million. For the Court to infer that the loan would contravene the prudential ratios under which his company must operate would be for it to substitute its opinion for his. But the evidence upon which the inference is said to be based is incomplete. For example, I cannot assume that there is no further valuation of the Great Northern Hotel or that a further valuation is not in the course of being prepared. Counsel for Mr Mariconte was given the opportunity to make an application to recall Mr O'Sullivan to the witness box to answer questions about this matter, and he declined to do so. Conclusions

74 Case law on the position of a court-appointed receiver gives only limited guidance as to the circumstances in which it is appropriate for the Court to give directions with respect to the execution of the receiver's responsibilities. There is, of course, a great deal of case law with respect to judicial advice to a trustee. Some of it is no doubt applicable to the position of a receiver. For example, in Re I00F Australian Trustees Limited [1999] SASC 461 Debelle J drew attention to the distinction between ruling as to the propriety of the trustee's contemplated exercise of discretion, and ruling as to the wisdom of such exercise. That distinction must be borne in mind, in my opinion, in the present circumstances.

75 The position of a court-appointed receiver was explored by Young J in Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd (Supreme Court of New South Wales, 30 April 1998, unreported). His Honour referred to English authority to the effect that receivers are like officers of the Court, and he cited with approval some observations in Davis v Gray (1872) 83 US 203, 217-8 which described a receiver as 'virtually a representative of the Court, and of all the parties in interest in the litigation wherein he is appointed'. That being so, in my opinion the Court's power to make an interlocutory order for the appointment of a receiver under the Supreme Court Act, 1970 (NSW) must carry with it the implied power to give directions with respect to the discharge of the functions for which the appointment is made - at any rate, where (as here) such directions are necessary in a practical sense to enable the receiver to carry out those functions without exposing himself to a real risk of litigation. The power to do so is reinforced by section 23 of the Supreme Court Act.

76 Where a receiver is appointed under statutory provisions, the function of the Court on an application for directions is analogous to its function with respect to a provisional liquidator: Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115; Law Society of New South Wales v Milios (1999) 33 ACSR 396. In performing that function, it is appropriate for the Court to give directions in order to provide guidance to the receiver, not only on matters of law but also on the propriety or reasonableness of the contemplated exercise of discretion.

77 In the present case, Mr Green has indicated to the Court a preference for the offer of Mr Mariconte. As I understand his position, he takes this view because of some defects which he perceives in the offer of Ms Batiste. But in my opinion, particularly in view of the evidence of Mr O'Sullivan, Ms Batiste's offer does not contain defects of the kind which should prevent him from entertaining it, given that it is so much higher than Mr Mariconte's offer.

78 First, there is the issue regarding the 5% deposit, not all of which has yet been received. But in my opinion there is an explanation for the fact that the deposit is only 5%, and the offer is for the remaining $11,000 to be paid on exchange of contracts by bank cheque. In those circumstances, my view is that it would not be reasonable for the receiver to hold it against Ms Batiste that her offer is for only a 5% deposit.

79 Secondly, there is the issue regarding the shortfall of $220,000 in funding arrangements. My view is that it would be reasonable for the receiver to require some further assurance that the shortfall will be made up, but not reasonable for him to dismiss Ms Batiste's offer out of hand simply because of that shortfall. If, for example, he were to require her to explain how the shortfall would be funded within a short time, such as one or two days, he could resolve that issue one way or another.

80 Thirdly, there is the question of the bankruptcy notice. The receiver takes the entirely reasonable position that he could not complete the transaction with Ms Batiste once he has notice that she has committed an act of bankruptcy. But Ms Batiste says that she will arrange to have the bankruptcy notice satisfied or withdrawn. In those circumstances it would be satisfactory, in my opinion, for the receiver to defer the exchange of contracts until the expiration of the 21 day time period set by service of the bankruptcy notice, given that the notice will expire on about 14 April 2000. If the bankruptcy notice is not satisfied or withdrawn so that an act of bankruptcy occurs, it would be reasonable for the receiver not to exchange with Ms Batiste, or with a company owned and controlled by her. If the bankruptcy notice is satisfied or withdrawn, then he will be able to proceed immediately.

81 Fourthly, as regards the difference in the settlement time between 35 and 42 days, my view is that it would not be reasonable for the receiver to decline to deal with Ms Batiste for that reason alone.

82 Fifthly, as to the firmness of Provident Capital's offer of finance, my view is that in light of Mr O'Sullivan's evidence, it would not be reasonable for the receiver to decline to deal with Ms Batiste on the ground that the availability of finance is uncertain - nor the ground that she proposes to fund 100 percent of the purchase price.

83 Mr Mariconte's offer must be weighed against the much higher offer of Ms Batiste. It must also be borne in mind that Mr Mariconte has twice offered a substantially higher amount than he now offers - first, at the auction, and secondly at the hearing on 24 March 2000. Additionally, there is evidence before the Court that the value of the property is $1.6 million. And it is relevant that acceptance of Mr Mariconte's offer will leave the receiver with the prospect of further litigation against Ms Bastiste for damages for breach of the auction contract, a prospect which might be avoided if Ms Batiste's offer is preferred. 84 I cannot see how it would be reasonable for the receiver to sell to Mr Mariconte at $935,000 in light of all the circumstances. I am inclined to think that a further auction process may be necessary if Ms Batiste's bid fails, though it is not appropriate for me to make a decision on that question in the present circumstances.

85 It is not appropriate for the Court to supplant the receiver as decision-maker. The Court's direction is sought so as provide him with a degree of protection from litigation. In the present circumstances the Court's opinion is that it would be reasonable for Mr Green to enter into a contract for the sale of the property to Ms Batiste at $1.32 million on the terms of her offer, provided that he is satisfied with respect to the withdrawal or discharge of the bankruptcy notice prior to its expiry and her ability to fund the shortfall of $220,000. In the circumstances it would not be reasonable for Mr Green to sell to Mr Mariconte on the terms of his offer.

86 Mr Mariconte seeks to achieve a set-off of money payable on settlement of the purchase against moneys payable under the Settlement Deed. I cannot see any proper basis for the Court to alter its orders so as to achieve a set-off if the law does not entitle Mr Mariconte to a set-off in any event. For the Court to do so in advance of settlement of the purchase would be to make a decision without knowing all the facts which might at that stage be relevant. Those facts include the identity of the purchaser (if it is not Mr Mariconte himself) and the amount of the receiver's costs and disbursements at that time.

87 I propose to give directions to Mr Green in accordance with these reasons for judgment. It follows from what I have said that the plaintiffs' application must fail. I shall give directions that Mr Green prepare short minutes of orders to reflect these conclusions, and I shall stand the matter over to hear argument as to costs. * * * * * * * * * *

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