Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd

CA 2012/53585 Decision under appeal Citation: [2012] NSWLEC 6 Date of Decision: 2012-02-09 00:00:00 Before: Craig J File Number(s): 2011/40277 2011/40534

Judgment 1MEAGHER JA: The appellant/applicant (Metro) seeks an interlocutory injunction restraining the second respondent (CBA) from demanding payment under a bank guarantee issued in its favour by Suncorp-Metway Ltd (Suncorp) and dated 21 September 2005. 2The circumstances in which that application is made are complex. Nevertheless, I will describe them sufficiently to explain the issue in the appeal and deal with Metro's application. 3The CBA is the financier of the first respondent (CRIC) with respect to its involvement in the development of the Chatswood Transport Interchange Project. That development was undertaken by CRIC pursuant to rights granted to it by Rail Corporation New South Wales (RailCorp) and Transport Infrastructure Development Corporation (TIDC), the statutory successor of which is Transport Construction Authority (TCA). The development includes residential towers and a retail complex (which on completion was to be transferred to Metro). CRIC is in liquidation and owes the CBA in excess of $79 M. 4Under the Retail Development Agreement (cl 3.1) as amended by the Metro Settlement Deed (cl 3.3(d)), Metro is required to pay to CBA in excess of $65 M (referred to as the Development Fee) on a date described in those agreements as the Settlement Date. On the same date, as an interdependent obligation, CRIC is required by cl 3.10 of the Metro Settlement Deed to deliver to Metro, among other documents, the certificate of title for the retail complex (being Lot 105 in DP 1094273). 5Clause 3.10(b) of the Metro Settlement Deed states that the certificate of title must be "free and clear of any mortgage, charge or any lease, caveat or other encumbrance". 6Clause 4.3(a) and (b)(ii) of the Metro Settlement Deed provide: 4.3(a) On and from the Effective Date, CBA will refrain from demanding payment of any sum pursuant to the Bank Guarantee unless and until the Retail Purchaser fails to pay the Development Fee or any amounts due under the Principal Document on or before the Settlement Date and provided this failure did not arise either because CRI did not comply with its obligations under clause 3.10 of this document or because of the operation of clauses 3.12(b) or (f) of this document. (b) If the Retail Purchaser fails to pay the Development Fee or any other amounts due under the Principal Document on or before the Settlement Date and provided this failure did not arise either because CRI did not comply with its obligations under clause 3.10 of this document or because of the operation of clauses 3.12(b) or (f) of this document: ... (ii) CBA is irrevocably authorised by the Retail Purchaser, Chalice and GTN to present the Bank Guarantee and receive the proceeds of the Bank Guarantee, without any requirement of notice to the Retail Purchaser." The references to "Retail Purchaser" are to Metro and to "CRI" are to CRIC. 7Metro's appeal is from orders made by Craig J (the primary judge) in the Land and Environment Court on 9 February 2012 following a judgment delivered on 31 January 2012: [2012] NSWLEC 6. The proceedings in which those orders were made were commenced in this Court and transferred to that Court pursuant to s 149B of the Civil Procedure Act 2005 for determination with a proceeding commenced in that Court by CTI Joint Venture Company Pty Ltd (JVCo). In that proceeding, JVCo, as owner of Lot 107 in DP 1094273 upon which a residential tower is to be constructed, sought and obtained orders pursuant to s 124 of the Environmental Planning & Assessment Act 1979 to remedy breaches of that Act. Those orders required an adjustment to be made to the boundary between Lots 105 and 107 in DP 1094273 and the creation of certain easements of window cleaning, light and air and fire separation benefiting Lot 107 and burdening Lot 105. 8In the proceedings appealed from, each of Metro and CRIC sought a determination as to their respective rights under the Retail Development Agreement as amended by the Metro Settlement Deed in the event that JVCo obtained the relief it sought in the principal proceeding. In relation to that relief, the primary judge held that the alteration to the boundary between the 2 lots and the creation of the easements would not constitute an "encumbrance" within the meaning of cl 3.10(b) of the Metro Settlement Deed: see [5] above; [2012] NSWLEC 6 at [300], [301]. Accordingly, he ordered by Order 1 that Metro's claim be dismissed and by Order 2(b) that it be declared that CRIC would comply with its obligations under cl 3.10(b) of the Metro Settlement Deed by delivering a certificate of title for Lot 105 in DP 1094273 which was subject to notations, including as to boundary alterations and easements which gave effect to the orders made in the JVCo proceeding. The primary judge also by Order 2(a) declared the manner in which the Settlement Date should be determined. In the events which have happened since those orders were made, the Settlement Date is tomorrow, 23 March 2012. 9Metro's appeal is from Orders 1 and 2(b) made by the primary judge on 9 February 2012. The orders sought on appeal include that those orders be set aside, that it be declared that the relevant notations on the certificate of title constitute an "encumbrance" within the meaning of cl 3.10(b), that it be declared that Metro was not obliged to pay the Development Fee and that it be ordered that CBA deliver to Metro the Bank Guarantee. 10In circumstances where CBA threatens to make demand under the Bank Guarantee if Metro does not pay the Development Fee on the Settlement Date, Metro submits that it is entitled to prevent the making of demand pending the determination of its appeal - both to preserve the status quo with respect to the Bank Guarantee and to preserve the utility of an aspect of its appeal. 11In order to obtain the interlocutory relief it seeks, Metro must show a sufficient likelihood of success on appeal to justify the preservation of the status quo and that the balance of convenience favours the grant of the injunction sought. That will ordinarily be the case where it is necessary to grant an injunction to prevent the appeal being rendered nugatory, especially where that may involve significant injury or prejudice to the applicant: Paringa Mining & Exploration Co PLC v North Flinders Mines Ltd (No 2) [1988] HCA 53; (1988) 165 CLR 452; Jesasu Pty Ltd v Minister for Mineral Resources (1987) 11 NSWLR 110; and Varma v Varma (No 2) [2011] NSWCA 13. 12As I have noted, Metro says that if an injunction is not granted the appeal will have no utility in respect of the order sought concerning the return of the Bank Guarantee. In relation to the damage which it may suffer if the Bank Guarantee facility is called Metro says, in reliance on evidence given by its general counsel (who has significant experience in relation to commercial property financing transactions) that the following sequence of events could realistically occur. Suncorp would seek to recover the amount paid under that facility from the relevant borrowing entities within the Precision Group of entities, of which Metro is a member, and if not from them, then from the guarantors of that facility which include Metro. Metro does not have independent cash resources and relies on the financial support of other entities in that group to permit it to pay its debts as and when they fall due. If the group is required to fund the amount paid it would be necessary to redirect funds presently committed to particular projects which is likely to cause disruption and delay to the progress of those projects thereby presenting risks of financial harm to entities within the Precision Group adversely affecting its overall financial position and therefore its ability to continue to provide financial support to Metro. Metro also says that it and the Precision Group would suffer reputational damage in the event that the Bank Guarantee is called because that would be regarded as a demand following a default and make it difficult for the group to obtain finance in the future at competitive commercial rates. Metro submits that this prejudice or injury which it may suffer is real, difficult to quantify and not readily curable by an award for damages in the event that it is successful on the appeal and the Guarantee has been called. 13Against that prejudice or injury is to be weighed the effect of an injunction until the determination of the appeal on the position of CBA. It is common ground that the Bank Guarantee has no expiry date and will not lapse and that if the appeal is determined adversely to Metro, CBA will remain able to make demand under it. For that reason, Metro submits that an injunction will only delay CBA's receipt of the $15 M in the event that it is held to have been entitled to call on the Guarantee. To address any prejudice which the CBA might suffer by reason that it is delayed in the receipt of that money, Metro, in addition to the usual undertaking as to damages, offers to provide security for CBA's loss of interest on the $15 M by paying such moneys in advance into an account controlled by the solicitors for CBA. CBA does not contest that it would be sufficiently protected against any prejudice which might result from delay in its receipt of the $15 M by Metro providing security on the terms proposed. 14CBA also accepts that notwithstanding the decision of the primary judge, Metro has an arguable point on appeal. Nor does CBA contest for the purposes of this application that if CRIC does not comply with its obligations under cl 3.10 of the Metro Settlement Deed, CBA would not be entitled to demand payment under the Bank Guarantee. On that basis it is not necessary to address in this application whether as a matter of construction the condition precedent in cl 4.3(b) may be satisfied by something less than an objective assessment of the position as between Metro and CRIC: Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd (No 3) [2008] FCAFC 136; (2008) 249 ALR 458; Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283; (2010) 5 BFRA 76. 15CBA submits that an interlocutory injunction should be refused for the following reasons. First, it says that the position, as declared by the primary judge, will bind the parties "as at 23 March 2012" so that if Metro does not pay the Development Fee on that day CBA will be entitled to call on the Bank Guarantee and should not be restrained from doing so. This argument does not take account of the fact that if the appeal is successful, the position as at 23 March 2012 will not have been as declared by the primary judge and, in that event, CBA would not have been entitled to call on the Bank Guarantee. The injunctive relief would preserve the utility of the appeal in relation to the order sought for return of the Bank Guarantee. Secondly, CBA says that the "status quo" is the position as declared by the primary judge. I do not agree. The relevant status quo is that no demand has been made under the Bank Guarantee in circumstances where CBA threatens to make such a demand and an issue in the appeal is whether CBA is entitled to do so. 16Thirdly, CBA says that Metro should not be permitted to allow "settlement" of the transaction between it and CRIC to proceed and then seek to restrain one of the consequences of that settlement occurring. That argument does not accurately or sufficiently describe Metro's position. It does not by its appeal seek to challenge the correctness of the declaration of the primary judge as to when the Settlement Date should be. Nor does it seek to restrain a consequence of the settlement proceeding. By the relief it seeks on appeal it maintains that its obligation to pay the Development Fee will not have arisen and that in the circumstances it is entitled to an order for delivery up of the Bank Guarantee. In my view, there is no inconsistency in the position taken by Metro in relation to the issues raised and relief sought in the appeal and the injunctive relief which it seeks. Fourthly, CBA says that CRIC, TCA and RailCorp have filed notices of intention to appeal from the orders made by the primary judge in the principal proceeding. It submits that if an appeal is filed and subsequently allowed the outcome may be that Lot 105 is freed of any "encumbrance". However, it would not have the benefit of that outcome (in terms of its affect on CRIC's ability to comply with its obligations under cl 3.10) if the "settlement" between CRIC and Metro proceeds on the Settlement Date (ie 23 March 2012). That is said to be the position because on that date the certificate of title would bear notations and amendments to give effect to the primary judge's orders. CBA and CRIC would only be deprived of such an argument in the event that there is an appeal in the principal proceeding which is successful and in the event that the appeal in this proceeding is successful. In those circumstances, they would be deprived of that argument irrespective of whether an interlocutory injunction is granted or the Bank Guarantee is called. CBA does not suggest that this argument can be taken into account when assessing Metro's prospects on appeal of obtaining the order that the Bank Guarantee be delivered up. Nor is it, in my view, a matter which constitutes prejudice to CBA which is sufficient to deny Metro the benefit of interlocutory relief. 17Finally, CBA says that Metro's evidence of prejudice in the event that an injunction is not granted is weak and unconvincing and that it does not establish, if the Guarantee is called, that Suncorp will require repayment or that there would be an event of default under any facility. In my view, notwithstanding that the evidence relied upon by Metro is in fairly general terms, it sufficiently establishes that there are real risks of financial and, to the lesser extent, reputational detriment, to Metro both directly and indirectly because of its financial dependence on the welfare of the Precision Group. In circumstances where Metro is prepared to provide security for interest on the payment delayed, the balance of convenience as between the parties clearly favours the grant of an injunction in the terms sought so as to preserve the utility of the appeal in relation to the relief sought for delivery up of the Bank Guarantee. 18I should note that I do not propose to make any order for the expedition of the hearing of the appeal. CBA has not submitted that such an order should be made as a condition of the grant of interlocutory relief. As I understand its position, it would prefer that if there is an appeal in the principal proceeding, that appeal should be heard with this appeal. For that reason, it is not at this stage appropriate to consider whether any order should be made for expedition of the hearing of the appeal. 19The orders which I make are as follows: (1)Upon the applicant by its counsel giving the usual undertaking as to damages and subject to the applicant complying with Order 2 below, ORDER until further order that the second respondent be restrained from notifying Suncorp-Metway Ltd that it desires payment to be made of the whole or any part or parts of the sum of money guaranteed by Bank Guarantee No 6009 issued by Suncorp-Metway Ltd and dated 21 September 2005. (2)ORDER that the applicant provide security in respect of Order 1 as follows: (a)The applicant pay to a deposit account nominated in writing by the second respondent, a Sum (calculated by the formula set out below) by the following dates: (i)On or before 23 March 2012; and (ii)On or before the 23rd day of the month immediately before the commencement of the quarter commencing on 1 July 2012 and thereafter on or before the 23rd day of the month immediately before the commencement of each following quarter, but only in the event that final judgment in this appeal proceeding has not been delivered as at that date. (b)The Sum equals [$15,000,000 x (BBSY + 3.5%)] ÷ 4 (c)The moneys held in the deposit account nominated in writing by the second respondent to be held in a controlled moneys account on the basis of Freehills' standard controlled moneys account terms of business. Freehills will pay the balance of the controlled moneys in accordance with the terms of any order of the Court or as otherwise agreed in writing by the parties. (3)ORDER that the costs of this application be costs in the appeal.