Solicitors:
Harper James Law Group (plaintiffs)
Benjamin & Khoury (defendant)
File Number(s): 2019/182253
[2]
Judgment
The plaintiffs, Naro Investments Pty Ltd, Margherita Demarti, Rocco Demarti and Natalie Demarti, were one-time clients of the defendant, Benjamin & Khoury Pty Ltd, which is an incorporated legal practice, or signed a costs agreement with the defendant.
The dispute that is now before the Court arises out of bills of costs delivered by the defendant to the plaintiffs in respect of legal services provided by the defendant by way of acting for a number of the plaintiffs in certain legal proceedings. It is not necessary to explore the underlying dispute in detail. As I understand it, the plaintiffs do not contest that the defendant carried out the work the subject of the bills of costs. The issue between the parties is whether the plaintiffs are obliged to pay to the defendant the full amount claimed.
On 5 December 2018, the parties entered into a deed described as "Deed of Agreement - Compromise of Costs" (the deed). It is not necessary for the purpose of these reasons to set out the history of the relationship between the parties, which is recorded in some detail in the recitals to the deed. It is sufficient to note that, by the recitals, the plaintiffs acknowledged that they had entered into costs agreements with the defendant that complied with the provisions of the Legal Profession Uniform Law (NSW) (the Uniform Law), the defendant claimed that it was entitled to be paid costs of $547,237.90, and the parties agreed that the plaintiffs would pay $492,000 in full settlement of the defendant's costs claim which amount was described as the "Settlement Sum".
The plaintiffs retained an apparently competent solicitor to advise them and to act for them in respect of the negotiation of the terms of the deed.
By clause 1 of the deed, the plaintiffs agreed to pay the defendant $492,000 on or before 1 July 2019.
By clauses 6, 7 and 8, the plaintiffs agreed to give the defendant certain rights over their interests in a number of properties. Clause 6 concerned a property at 18 Rocky Point Road, Kogarah owned by the first plaintiff. Clause 7 concerned a property at 14 Bate Street, Portland owned by the third and fourth plaintiffs. Clause 8 concerned the first plaintiff's undivided half-share with her husband in 20 Rocky Point Road, Kogarah.
The two Kogarah properties, while on separate lots, are contiguous and the relevant plaintiffs operate boarding houses erected on those lots.
By each of these clauses, the relevant plaintiffs agreed, first, to sell their interests in the properties on the market in order to pay the Settlement Sum to the defendant, secondly, to grant the defendant a second mortgage in the terms of an executed second mortgage annexed to the deed, and thirdly, they granted an irrevocable power of attorney to the defendant, effective from 2 July 2019, to sell the relevant property interests, notwithstanding the opposition of the grantors.
As I understand it, each of the properties is encumbered by a registered first mortgage to secure loans made by third-party lenders.
The defendant lodged caveats against the titles to the properties to protect its interests under the unregistered second mortgages, which was authorised by clauses 11 and 12 of the deed.
The plaintiffs did not pay to the defendant the Settlement Sum by 1 July 2019 or at all.
The plaintiffs commenced these proceedings by filing a summons in Court by leave on 12 June 2019. They sought various orders designed to establish that the deed, the powers of attorney, the mortgages and a promissory note given by the plaintiffs to the defendant before they entered into the deed were void.
On 17 July 2019, the plaintiffs filed a statement of claim in these proceedings, by which they sought a declaration that the deed is void, or an order setting it aside. They sought an order giving them leave pursuant to s 198(4) of the Uniform Law to file out of time an application to have the bills of costs rendered by the defendant assessed. I note that prayer 7 omits to specify that leave to have the costs assessed is sought. The plaintiffs also sought orders that certain promissory notes that they had given before they entered into the deed are void, but it is not necessary to refer to that claim in any detail.
The defendant filed its defence on 25 July 2019. For practical purposes, the defendant joined issue with the plaintiffs.
The Court was told at the most recent hearing that the defendant had agreed to consent to the plaintiffs having leave to file an amended statement of claim. The amended statement of claim is not on the Court's file. As I understand it, the parties did not suggest that the proposed amendments affected the application the subject of these reasons.
The plaintiffs claimed in their statement of claim that the promissory notes and the deed were variously vitiated by breaches of fiduciary duties owed by the defendant to the plaintiffs, unconscionable conduct, undue influence, and that they are liable to be set aside under the Contracts Review Act 1980 (NSW). There is also a claim that the deed is a costs agreement under the Uniform Law and that the clause in the deed that prohibits the plaintiffs from seeking an assessment of the costs is void. The deed is also attacked by the plaintiffs on other grounds, including that the defendant was aware that the plaintiffs were under a special disadvantage, and on the basis of economic duress.
For the purposes of these reasons it is not necessary to consider the merits of the plaintiffs' claim. The defendant did not suggest that the claim did not pass the threshold for interlocutory relief, being that there was a serious question to be tried, or a prima facie case as that term is understood in the context of applications for interlocutory relief. The defendant did, however, submit strongly that the plaintiffs' claim was weak, particularly having regard to the fact that they entered into the deed with the benefit of competent and thorough legal advice.
The present application is concerned only with whether the defendant should be prohibited, until the final determination of the proceedings, from exercising the rights granted to it under the deed in relation to the three properties to register and enforce the second mortgages granted to the defendant, and to act on the irrevocable powers of attorney granted to it.
Initially, the plaintiffs were granted leave to file a notice of motion on 12 June 2019 in the Duty List. The relief sought by the plaintiffs was in two parts. The first concerned the caveats lodged by the defendant against the titles to the two Kogarah properties. By prayers 1 and 2, the relevant plaintiffs sought orders that the caveats "be withdrawn for the purpose of effecting a loan settlement with Interim Finance". Prayer 3 was an order that, by consent of the plaintiffs, the defendant has leave to lodge fresh caveats after the loan had been made by the entity described as Interim Finance and the new mortgages granted by the relevant plaintiffs had been registered.
Prayers 4 and 5 of the notice of motion respectively sought orders that the defendant be restrained from taking any actions in reliance upon the irrevocable powers of attorney granted by the deed, and be restrained from taking any steps to register or enforce the second mortgages.
The plaintiffs' notice of motion came before me on 20 June 2019 sitting in the Duty List. By order 4 made on that day, I noted the undertaking by the defendant given to the Court in terms of the restraints in pars 4 and 5 of the notice of motion up to and including Tuesday 2 July 2019 or further order.
My understanding at the time that I noted the undertaking was that the undertaking was given in the expectation that the settlement of the loan by Interim Finance was relatively imminent, or that, by some other means, the plaintiffs would be able to procure an amount of $517,000 to secure the defendant's claim under the deed.
When the matter came before Slattery J on 2 July 2019, his Honour noted the continuation of the undertakings given by the defendant on 20 June 2019, as well as, by orders 7 and 8, undertakings by the third and second plaintiffs respectively to sell, or to cause the first plaintiff to sell, their interests in 20 and 18 Rocky Point Road, Kogarah at fair market value by 30 August 2019, and upon settlement to direct a total of $517,000 to be paid into court.
The properties were not sold by 30 August 2019 and on that date Slattery J noted a further continuation of the defendant's undertaking, and further undertakings by the third and second plaintiff to sell the relevant properties by 11 September 2019 and to cause $517,000 to be paid into court.
Again, the relevant plaintiffs failed to cause the properties to be sold by 11 September 2019.
On 11 September 2019, the matter again came before me in the Duty List.
The plaintiffs relied on an affidavit affirmed by their solicitor on 10 September 2019. The affidavit explained the attempt made by the plaintiffs to refinance the two Kogarah properties. That attempt commenced on 2 July 2019, but was impeded because the plaintiffs' credit ratings were affected by defaults against their name placed by the defendant. In due course, with the cooperation of the defendant, and orders made by Registrar Walton on 15 August 2019, the defaults were removed from the plaintiffs' credit files. It was said that, as a consequence of the delay, there was no longer time for the plaintiffs to refinance through a major bank, and it became necessary to try to borrow from a private lender. The solicitor deposed to receiving instructions from the plaintiffs on 3 September 2019 that they did not wish to proceed with the loan due to the high interest that would be payable. The plaintiffs instructed the solicitor that, instead, they would sell the Kogarah properties in order to pay the $517,000 into court.
The solicitor gave evidence in pars 19 to 21 of her affidavit about a contract said to have been exchanged for the sale of the Kogarah properties. Annexure I to the affidavit was what were claimed to be the first pages of the two copies of the contract of sale. The details have been written by hand. The subject properties are described as 18 and 20 Rocky Point Road Kogarah. The purchaser is stated to be Wafa Elmol. The price is $3,700,000, with a deposit of $370,000. The date for completion is 26 weeks after the contract date. The contract date is 6 September 2019.
The vendor's solicitor is described as Metro Conveyancing. That is a different firm to the firm of the solicitor acting for the plaintiffs in these proceedings, who is the person who affirmed the affidavit.
Each of the first pages appears to have a signature, one in the place provided for signing by the vendor and one in the place for signing by the purchaser.
The solicitor's affidavit annexed a copy of a letter dated 9 September 2019 from a solicitor who stated that she acted for the purchaser. The letter contained the following statements:
We confirm that we are holding the exchanged contract which was exchanged under Auction conditions on 6 September 2019. Settlement is due on or before 6 March 2020. Notwithstanding this completion date, the purchaser will endeavour to settle as soon as their funds to settle become available.
The deposit will be covered by way of Bank Guarantee which the purchaser is in the process of arranging. This bank guarantee will be available this week and the agent confirmed that the timeframe was satisfactory. We will advise as soon as the Bank Guarantee is in place.
By letter to the defendant dated 10 September 2019, the plaintiffs' solicitor advised that the plaintiffs had decided not to proceed with the loan, and that contracts were exchanged on 6 September 2019 with a six-month settlement period.
On 11 September 2019, I stood the proceedings over to 2 PM on Tuesday, 17 September 2019 in the Duty List before me, on the basis that the Court and the defendant had been advised by the plaintiffs that it was expected that the bank guarantee for the deposit would be provided to the plaintiffs by Friday of that week, or no later than Monday of the following week. I also made the following orders:
4. Orders the plaintiffs to provide the defendant with written evidence of the exchange of contracts of the properties referred to in orders 5 and 6 made by Slattery J on 30 August 2019 together with evidence of the provision of the deposit as soon as reasonably possible after exchange has taken place.
5. Notes the defendant's undertakings given on 12 June 2019 [in fact, on 20 June 2019] will continue until 4 PM on Tuesday, 17 September 2019.
6. Notes the undertakings by the first and second plaintiffs given to the Court by their counsel that they will in conjunction with the second plaintiff's husband use their best endeavours to enter into a binding contract for the sale of the properties referred to in orders 5 and 6 made by Slattery J on 30 August 2019 in the terms of the draft contract annexed to the affidavits served by the plaintiffs today.
On 17 September 2019, the Court received conflicting evidence from the solicitors for the parties concerning the circumstances of the alleged sale of the Kogarah properties.
The representative of the defendant with day-to-day carriage of this matter swore an affidavit on 11 September 2019 in which he gave evidence of what he said was costs and time wasted due to delay caused by the plaintiffs, including costs of $23,063 plus GST incurred by the defendant in trying to assist the plaintiffs to improve their credit ratings and obtain the finance that the plaintiffs subsequently rejected. The solicitor expressed a personal opinion that the plaintiffs were applying a modus operandi of protracted delay, and set out a chronology of events to substantiate that opinion.
The solicitor also expressed concern as to the legitimacy of the purported sale of the properties due to telephone conversations that he had had with the purchaser's solicitor and the real estate agent retained for the sale. In outline, the solicitor deposed that he was informed by the purchaser's solicitor that, as at 11 September 2019, the solicitor had not received the bank guarantee, and that she had been instructed that the property was purchased at an auction.
The solicitor then said that he called the relevant agent, who stated to him that the properties had not been sold, no contracts had been exchanged, and the properties were being sold by way of private treaty and not by auction. An auction had been attempted on 2 May this year but it was unsuccessful.
By affidavit made on 16 September 2019, the plaintiffs' solicitor said that, on 6 September 2019, the husband of the second plaintiff (who is the other joint owner of the property owned by the second plaintiff) provided to her the original exchanged contract of sale signed by both parties. On 9 September 2019, the solicitor was provided by the purchaser's solicitor with the letter, some of which has been extracted in par 31 above. She also annexed a copy of a letter from Metro Conveyancers dated 13 September 2019 that stated that it acted for relevant plaintiffs, and held the contract for the sale of both properties that was exchanged on 6 September 2019. The letter stated that the cooling off period had expired. The affidavit annexed a further letter from the purchaser's solicitor dated 16 September 2019, which stated in part:
Further to our letter dated 9 September 2019 we are instructed to advise that the bank guarantee will be available once formal loan approval has been obtained for the purchase of the above property.
The loan application was finalised on 12 September 2019 and is currently being assessed. As the purchase price is over one million dollars and as a result of the Royal Commission, lending conditions have tightened. This impacts our client as it is expected that loan approval will take around two weeks to issue, as a valuation of the property is required. Once formal loan approval has been obtained the Bank Guarantee can be applied for and obtained.
The cooling off period has expired and contracts are now binding on both the vendor and purchaser…
The first observation that can be made about this letter is that it evidences slippage in relation to the expectation conveyed to the Court on 11 September 2019 that the bank guarantee for the deposit would be received by the plaintiffs no later than Monday, 16 September 2019.
Secondly, it shows that the purchaser was not certain to be able to provide the deposit by means of the bank guarantee. The purchaser's ability to do that depended upon loan approval being given by the lender.
Thirdly, the terms of the letter cast doubt on the capacity of the purchaser to complete the purchase. It is not clear why the ability of the purchaser to provide the bank guarantee for the deposit was contingent on the approval of the loan application. At the least it would be strange if the purchaser needed both finance approval for the deposit and for the balance of the purchase price. That would involve finance of 100% of the price. There is clearly some uncertainty about the capacity of the purchaser to complete the contract.
Finally, it must be noted that clause 2.2 of the standard conditions in the contract provides that the purchaser must pay the deposit on the making of the contract, and that this time is essential. The effect of clause 2.5 is that, if the deposit is not paid on time, the vendor can terminate. By special condition 52, the purchaser acknowledges and warrants that credit is not required to complete the contract and that credit has already been approved on terms acceptable to the purchaser. The purchaser is not entitled to rescind the contract due to an inability to obtain any credit required to complete the purchase.
Accordingly, the terms of the contract are highly imprudent from the perspective of the purchaser. That circumstance casts some doubt on the genuineness of the contract.
The plaintiffs' solicitor then, in response to the defendant's solicitor's affidavit, said that, when she spoke to the real estate agent on 11 September 2019, and read out to him what he was alleged to have said to the defendant's solicitor, the agent said: "No, I definitely did not say that". By email dated 13 September 2019, the agent said that the defendant's solicitor had identified himself as a prospective buyer making a general enquiry, and that the agent had responded that there were currently offers received in excess of $3.5 million with terms agreed but sale contracts had not yet been exchanged. The defendant's solicitor called later in the day and identified himself as a lawyer. The agent advised that he had no involvement in exchanging contracts, but that the vendors had informed him at 12 PM on Wednesday, 11 September 2019 that the contracts were exchanged between solicitors on 6 September 2019.
The plaintiffs' solicitor also responded to the defendant's concern that the plaintiffs will further encumber the Kogarah properties without the defendant's consent, by saying that the plaintiffs do not have a line of credit from their lenders, and they cannot draw down funds on the loan because of the defendant's caveats against both Kogarah properties. The plaintiffs have not taken any steps to lapse the caveats.
The solicitor said that the total owed by the plaintiffs secured on the Kogarah properties is $1,963,103.88, comprising $1,053,103.88 owed to Suncorp Banking Corporation, and $910,000 owing to Guardian Financial Services.
The solicitor said that, if the contract of sale is completed, there will be a surplus of $1,736,896.12.
In an affidavit made on 17 September 2019, the defendant's solicitor responded to the plaintiffs' solicitor's affidavit of 16 September 2019. Among other things, he denied that he represented himself to the agent as a prospective buyer. He said that he asked the agent to make an affidavit as to the timeline of events, and the agent agreed, but that ultimately, for reasons that need not be related, the agent did not provide the affidavit.
On 17 September 2019, it became necessary for the Court to stand the proceedings over part-heard to 20 September 2019.
On that date, the plaintiffs were given leave to file an amended notice of motion. Prayers 1 to 3 of the original notice of motion were deleted, because there was no longer utility to the plaintiffs in seeking orders for the temporary withdrawal of the caveats, because the plaintiffs had abandoned their plan to refinance the properties to raise the $517,000 that they had agreed to pay into court.
The plaintiffs amended prayers 5 and 6 to add to the restraints sought a provision that the restraints continue "until the final determination of the proceedings or until such further time as is determined by this Honourable Court".
The plaintiffs added an additional prayer 6 as follows:
6. Order that the Defendant otherwise be restrained from taking any step or action pursuant to the Deed until the final determination of the proceedings or until such further time as is determined by this Honourable Court.
The primary argument in favour of the Court granting the interlocutory injunctions sought by the plaintiffs is that the contract should be treated as valid, which will have the result that, on completion, which must take place within 26 weeks of 6 September 2019, the plaintiffs will have a surplus of $1,736,896.12 out of which to pay the $517,000 that they have agreed to pay into court.
The plaintiffs say that, even if the fact of the contract is ignored, they have shown a sufficiently arguable case, and the value of the properties at $2,000,000 for 18 Rocky Point Road and $2,500,000 for 20 Rocky Point Road Kogarah is sufficient to protect the defendant until the final disposition of these proceedings.
The plaintiffs supported their claims as to the values of the properties with brief property reports made by a firm apparently called Pricefinder. The reports appear to have been made as a result of some form of internet enquiry. The reports are not formal valuations, and do not provide conventional reasons for the values adopted. It is not clear how the reports are to be interpreted. I have not been able to find clear statements in the reports of the values asserted by the plaintiffs.
The fact that the plaintiffs claim to have entered into a contract to sell the Kogarah properties for $3,700,000 significantly undermines the claim that they are worth $4,500,000.
The plaintiffs also relied upon a letter from the agent dated 9 May 2019 that reported that at an auction held on 2 May 2019, at which the reserve price was $4,400,000, after 10 bids the properties were passed in at $4,025,000.
I should record that it emerged during submissions that the deed also referred to the property owned by the third and fourth plaintiffs at 14 Bate Street Portland. The evidence discloses nothing about that property, including as to its value and the amount that may be secured on any mortgage over the property. It has been necessary to ignore that property for the purposes of these reasons.
As mentioned above, the defendant did not challenge the plaintiffs' claim that they had established a serious question to be tried, although relying on the fact that the plaintiffs had received comprehensive legal advice before entering into the deed, the defendants submitted that the plaintiffs' prospects of success in the proceedings were not strong.
Although, in broad terms, the defendant acknowledged that the plaintiffs had substantial apparent equity in the Kogarah properties, it submitted that the balance of convenience did not support the granting of the interlocutory injunctions sought by the plaintiffs to continue until the final determination of these proceedings. The proceedings have not, according to the defendant, been conducted with great expedition, and if the possibility of appeals is considered, the defendant may be required to wait a considerable period before it receives the amount that it is owed by the plaintiffs.
The defendant relied upon an affidavit of a representative of the defendant who deposed to the fact that the defendant is not a large firm, and that the delay in the receipt of the substantial amount of the fees that it charged the plaintiffs for work actually done has put the defendant in a difficult financial position, because of the working capital of which it has been deprived. Although this evidence was not substantiated by specific financial evidence, I am prepared to accept the likelihood that the non-payment of the money agreed by the plaintiffs to be paid under the deed will cause the defendant real difficulty.
Apart from the challenge made by the defendant to the genuineness of the contract of sale, the defendant submitted that it should not be required to take the risk of the debts owed by the plaintiffs secured on the Kogarah properties substantially increasing, or the value of the properties substantially decreasing, in the long period that may elapse before these proceedings are finally determined.
The defendant submitted, correctly, that there was no evidence before the Court concerning the financial strength of the plaintiffs, or their ability to service their debts as and when they fall due. In particular, there was no evidence concerning the financial circumstances of the first plaintiff, which, as a corporation, may be susceptible of being wound up.
Further, the defendant submitted, the Court had no basis for being certain that the caveats would protect the defendant from the amounts that are owed by the plaintiffs to the existing first mortgagees substantially increasing, by means of additional loans, or the consequences of defaults. In the latter case, interest may accumulate at default rates. There may be forced sales by the first mortgagees.
According to the defendant, the nature of the improvements erected on the Kogarah properties also gives rise to serious risks. The boarding houses may be susceptible to damage, including by fire, and there is no evidence that the insurance of the properties is adequate.
In deciding whether to grant interlocutory relief in this case, and if so, what relief is appropriate, the Court must start with the position that it is accepted by the defendant that the plaintiffs have established a serious case to be tried. The Court should not express any provisional views as to the likely outcome of the proceedings.
However, it remains relevant that the parties were in dispute, and they settled their dispute on the terms of the deed, which involved some amount of compromise between the parties. As I have said, the plaintiffs were represented by a solicitor in that transaction.
Although the plaintiffs sue to set aside the deed, it remains the case that the defendant must have incurred costs in negotiating and documenting the compromise, and in return was given a legitimate expectation that it would receive a substantial proportion of the money which it originally claimed for the provision of legal services that were in fact provided, by a specified date agreed to by the plaintiffs. The deed gave the plaintiffs more than six months to pay the agreed amount to the defendant.
The consideration of the balance of convenience should not be limited to the fact of the making of the deed, and the challenge to the validity of the deed, made by the plaintiffs in these proceedings. On 20 June 2019, 2 July 2019, and 30 August 2019, the defendant has made and continued undertakings not to enforce its rights under the deed, in return for various expectations created by the plaintiffs that the plaintiffs would act in a way that would realise an amount of $517,000 to be paid into court to protect the defendant. Quite apart from the legitimate expectation in the defendant so created, the proceedings have been delayed, and the defendant has been put to the cost of dealing with this aspect of the proceedings in court, and also in assisting the plaintiffs to be able to refinance their loans secured on the properties.
Thus, the Court must take into account the repeated promises made by the plaintiffs, by one means or another, to raise the money necessary to enable them to pay the $517,000 into court.
In my view, the balance of convenience does not in these circumstances justify the Court in granting the interlocutory relief sought by the plaintiffs, which would have the effect of completely stultifying the defendant's rights under the deed until the final determination of these proceedings.
If any interlocutory relief is given, it should be consistent with the amount of $517,000 being able to be paid into court at the earliest practicable time, in accordance with the expectations already created by the plaintiffs' conduct of these proceedings.
The rights under the deed that the defendant wishes to enforce consist of the registration of the second mortgages and the exercise of its irrevocable powers of attorney to sell the Kogarah properties. The Court knows nothing of the defendant's aspirations in relation to the Portland property.
As to the defendant's entitlement to register its second mortgages, the plaintiffs tendered no evidence of any injury or inconvenience that they would suffer if that were to happen. In particular, they did not tender the first mortgages, and there is no evidence that any attempt by the defendant to register the second mortgages would trigger any damaging conduct by the first mortgagees.
At present, the defendant, as an unregistered second mortgagee over the Torrens Title properties at Kogarah, is in the position of an equitable chargee, without any comprehensive rights to realise its security without obtaining orders from the Court. The defendant has a right under the deed to improve its position by registering its mortgages if it is able to do so. I assume that the defendant may require the consent of the first mortgagees, and the provision of the certificate of title to the Registrar-General to facilitate the registration of the second mortgages. That consent may or may not be forthcoming, if it is sought by the defendant. However, again, nothing has been put forward by the plaintiffs that would cause the balance of convenience to justify the prevention of the defendant seeking to register its second mortgages.
If the defendant is able to secure registration of its second mortgages, the question of whether it should be restrained from exercising its security rights under those mortgages raises different considerations. They are essentially the same considerations as to whether the defendant should be restrained from exercising its authority to sell the Kogarah properties under the irrevocable powers of attorney.
The principal consideration is the possible existence of the contract of sale between the plaintiffs and Wafa Elmol. It is not clear whether the defendant encouraged the plaintiffs to enter into that contract, given that the defendant was allowed to think that it was assisting the plaintiffs to raise finance on security over the properties to allow the $517,000 to be paid into court. It is at least true, however, that the defendant has not sought to restrain the plaintiffs from entering into the contract.
Moreover, clauses 6a and 8a of the deed obliged the relevant plaintiffs to sell the Kogarah properties to enable the Settlement Sum to be paid to the defendant by 1 July 2019. Order 6 made by the Court on 11 September 2019 recorded undertakings by certain of the plaintiffs to sell the Kogarah properties.
In these circumstances, both the defendant and the Court should proceed upon the basis that the plaintiffs were entitled to enter into the contract of sale, if it is valid and enforceable.
Although the defendant has suggested that the contract is spurious, the defendant has not lead any evidence or made any submissions to the effect that there is anything improper about the terms of the contract of sale, including the 26 week completion period.
As the defendant is now aware of the contract of sale, assuming it to be genuine, the balance of convenience favours the Court in granting interlocutory relief that restrains the defendant from exercising its powers under its second mortgages, or its authority under the powers of attorney, to enter into any contract for the sale of the Kogarah properties which conflicts with the existing contract of sale.
I should record that the defendant did not suggest that it would use its various powers to achieve such a result. The defendant's position is more based on its disbelief that the contract of sale is genuine.
The issue distills to the question of whether or not, first, the contract for sale is genuine, and secondly, even if it is, whether it will become unconditional and ultimately whether it will be completed.
For the reasons I have set out above, there is a cloud hanging over the genuineness of the contract of sale. However, on the evidence before the Court, it would not be proper at this interlocutory stage of the proceedings for the Court to state even a provisional view about the genuineness of the contract. It is either genuine, or not, and the truth will be revealed by events that should happen in the near future.
The fact is that, at the present, the plaintiffs appear to have a right to terminate the contract, because the deposit was not provided at the date it was entered into. That statement assumes that the plaintiffs, or their agent, have not created any legally binding state of affairs that obliges the plaintiffs to accept the tender of the deposit by bank guarantee at some date after the exchange of contracts. In practical terms, the purchaser's solicitor informed the plaintiffs' solicitor on 16 September 2019 that approval for the loan should be granted in around two weeks after 12 September 2019; i.e. 26 September 2019, after which time the bank guarantee can be applied for and obtained. Even if the Court allowed four weeks rather than two, the position should be known by 10 October 2019.
As the nature of any interlocutory orders that the Court should make, as a result of its consideration of the balance of convenience, depends upon whether or not the purchaser effectively provides the deposit to the plaintiffs, the Court may not know what the real position is until, say, 10 October 2019.
In making that observation, I have not ignored the appearance that the purchaser is bound by the contract, whether or not the purchaser can secure finance for the deposit or the balance of the purchase price. It will not avail the defendant if the plaintiffs are entitled to enforce the contract against the purchaser, whether or not the deposit is provided and finance can be obtained, because there is no evidence that the purchaser can pay the purchase price from the purchaser's independent resources. On the contrary, the evidence of the making of the application for finance, including apparently in respect of the deposit, suggests otherwise.
This brings the Court to the consideration that the balance of convenience does not justify the Court in restraining the exercise by the defendant of its rights under the deed, if the purchaser does not provide the deposit and also if the plaintiffs then choose not to exercise their right to terminate the contract of sale. The plaintiffs should not have the indulgence of keeping the contract of sale on foot, notwithstanding that the deposit is not provided, on the basis that the plaintiffs 'hope for the best', in that the purchaser will somehow come up with the money to enable the completion of the contract.
If the purchaser does not provide the deposit by, say, 10 October 2019, the plaintiffs should be required to exercise their right to terminate the contract of sale, as a condition of the grant of any interlocutory relief by the Court at this time.
The Court must then consider the possibility that, even though the purchaser may be able to provide the deposit, it will not be able to finance the balance of the purchase price. The date for completion under the contract of sale is 26 weeks from 6 September 2019, which I calculate to be 6 March 2020. In principle, the defendant should not have to wait until 6 March 2020, if there is a real possibility that the purchaser will default in respect of completion. Such a default may give various rights to the plaintiffs, but that will be of little comfort to the defendant.
This possibility gives rise to a problem. The purchaser may provide the deposit to the plaintiffs before 10 October 2019, so that the contract of sale becomes unconditional in practical terms, but there may be substantial doubt about the purchaser's capacity to complete the contract. The plaintiffs do not appear to have any right under the contract to require the purchaser to demonstrate the purchaser's capacity to complete. Nor does the contract appear to give the plaintiffs a right to rescind the contract of sale, if the purchaser cannot demonstrate its capacity to complete.
These considerations have led me to decide that the proper way for the Court to determine this interlocutory application is as follows.
First, there is no justification for the Court to restrain the defendant from taking steps to register its second mortgages, if it is able to secure registration.
Secondly, the uncertainty concerning the genuineness and validity of the contract of sale mean that it is premature for the Court to decide the application for interlocutory relief, which would last until the determination of these proceedings, once and for all now.
Otherwise, the Court should restrain the defendant from exercising its rights under the unregistered second mortgages, and under the powers of attorney granted to it, until a date convenient to the parties shortly after 10 October 2019. Alternatively, when these reasons for judgment are handed down, the defendant may prefer to continue the undertakings to the Court that it has previously given until the next date.
As a condition to the granting or giving of the interlocutory relief dealt with in the preceding paragraph, the plaintiffs should be required to terminate the contract of sale, if the deposit is not provided by 10 October 2019.
The right should be preserved for the defendant until the next date to consider its position, if the contract of sale is made unconditional by the provision of the deposit, but there is a real possibility that the purchaser will not have the resources to complete the contract. If the plaintiffs are unable to obtain the agreement of the purchaser to provide proper evidence of the purchaser's capacity to complete by the next date, the defendant should be given leave to serve a subpoena on the purchaser to obtain evidence to answer that question. The difficulty that the defendant may face, if it wishes to exercise any of its rights under the deed, in circumstances where there is an existing valid contract of sale, but grounds for doubt as to the purchaser's ability to complete, will remain a live one. However, that is a question that should be dealt with by the parties and the Court on the basis of the evidence that is then available.
If the contract for sale is terminated by the next date, the balance of convenience, in my view, does not justify the Court in restraining the defendant from exercising its rights under the deed, provided that the exercise of those rights is constrained in a way that ensures that the properties are sold for the best price reasonably available. The fact that the plaintiffs have already entered into the contract of sale for the Kogarah properties demonstrates that there is nothing special in those properties that would warrant the Court restraining the defendant from exercising its rights under the deed. However, the exercise of those rights should not be unrestrained, in the sense of the defendant simply being left to exercise a power of sale, as in the ordinary case of a mortgagee exercising its security rights. The plaintiffs' case in these proceedings does challenge the existence of the security rights, so it would be warranted for the Court to impose restrictions that would, in a positive way, facilitate the defendant obtaining the best price reasonably possible for the properties.
The history of these proceedings justifies the Court in making orders that facilitate the amount of $517,000 being paid into court as soon as reasonably possible, allowing for the possible validity of the existing contract for sale.
An order should be made that, if the present contract for sale proceeds to completion, the plaintiffs cause the amount of $517,000 to be paid out of the purchase price into court.
Given the prima facie entitlement of the defendant to at least the amount agreed to be paid under the deed, I would leave open the question to a future hearing, as to whether any amount paid into court should be paid out to the defendant for its working capital purposes, provided that the defendant is able to secure its capacity to repay that amount, if required to do so by the Court as a result of the outcome of these proceedings. The Court does not know whether that approach would be attractive to the defendant, and it is a question to be left to another day.
I ask the parties to bring in short minutes of order to give effect to these reasons for judgment. An order should be made for the proceedings to be adjourned to the Duty List on a convenient date shortly after 10 October 2019. I will hear the parties on the question of the costs of the plaintiffs' notice of motion to date, although there may be good reason for reserving those costs because of the incomplete nature of the application.
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Decision last updated: 26 September 2019