Perpetual Nominees Limited v Aus Constructions Pty Limited and Ors

Perpetual Nominees Limited v Aus Constructions Pty Limited and Ors - [2005] NSWSC 1199 - NSWSC 2005 case summary — Zoe

[20]

Facts Emerging From the Evidence 11 The proceedings arise out of loans advanced with respect to property at 16-18 George Street, Liverpool. The Second Defendant was the registered proprietor of the whole of the land in folio identifier 12/12339 and 13/3397 situated at 16-18 George Street, Liverpool in New South Wales. 12 By a number of agreements in writing entered into on 17 September 2003, the Plaintiff agreed to advance to the First Defendant certain sums of money. The Third and Fourth Defendants, Mr Debono and Mr Masri, were directors of the First Defendant. 13 The agreements entered into on 17 September 2003 contain a number of provisions. For present purposes, it is not necessary to set out extensively the terms of the relevant agreements. It should be noted, however, that the first loan agreement involved an agreement for the Plaintiff to advance to the First Defendant a sum of money not exceeding $10,078,000 by way of a loan to be advanced, and that the First Defendant would repay any sum advanced under that loan no later than 16 months from the advance date. 14 In addition to the first loan agreement, there was a guarantee entered into by agreement in writing on 17 September 2003 ("the first guarantee"). Under the first guarantee, the Second, Third and Fourth Defendants guaranteed and indemnified the Plaintiff for payment of money due and owing by the First Defendant under the first loan agreement. 15 On the same day, there was entered into a second loan agreement by which the Plaintiff agreed to advance to the First Defendant a sum not exceeding $2,028,400.00, with a second guarantee by which the Second, Third and Fourth Defendants guaranteed and indemnified the Plaintiff for payment of money due under the second loan agreement. 16 The evidence before me includes the relevant loan agreements and guarantees. I will refer to parts of them for the purpose of identifying the issues which I have to determine. For this purpose, I shall refer to the first loan agreement and the first guarantee, noting that as to the parts to which I will refer there is no material difference in the second loan agreement and the second guarantee. 17 Clause 7 of the first loan agreement provided as follows: " Events of default .

[33]

A certificate signed by an Authorised Officer of the Lender stating the amount of the Guaranteed Sums or of any amount due this Guarantee at a particular date is prima facie evidence as to its contents". 24 On 17 September 2003, the sum of $2,447,550 was advanced by the Plaintiff to the First Defendant under the first loan agreement. On the same day, the sum of $492,450 was advanced by the Plaintiff to the First Defendant under the second loan agreement. 25 On 2 February 2004, a caveat was lodged over the property by Global Capital Corporation Pty Ltd. On 6 February 2004, a caveat was lodged over the property by Bassen El Masri. 26 On 3 March 2004 the Plaintiff gave written notice to the Third and Fourth Defendants by service of a notice of demand for payment with respect to the two loan agreements. The amounts have not been paid then or since by the Third and Fourth Defendants. 27 On 6 May 2004, the Plaintiff commenced the present proceedings in the Common Law Division of this Court. The relief sought with respect to the four Defendants included, amongst other things, an order that the Plaintiff be given possession of the land and that judgment be entered against the Third and Fourth Defendants for the debts payable under the first and second guarantees. 28 The proceedings commenced by the filing of that Statement of Claim alleged a number of defaults. For present purposes, it is sufficient to refer to the defaults which are said to arise from the lodgement of the caveats. 29 The Statement of Claim alleged in paragraph 8(j) that the First Defendant would be immediately in default of the first loan agreement if a caveat or other encumbrance was registered against the land without the Plaintiff's consent. 30 In paragraphs 20 to 23 of the Statement of Claim, it was alleged that the caveats had been lodged on 2 and 6 February 2004 and that the Defendants were in default as a result of the lodgement of those caveats. Demand was made for repayment of the sum advanced pursuant to the first and second loan agreements. 31 On 11 June 2004, a Defence was filed in the proceedings on behalf of all four Defendants, including Mr Debono and Mr Masri. That Defence, in paragraph 6, provided as follows: "The defendants admit paragraph 8(g) of the plaintiff's Statement of Claim. The defendants further say that the two Caveats were registered on the property by caveators that did not have a caveatable or other interest in the property. The first Caveat registered was withdrawn immediately upon it being challenged. The second Caveat was registered by the finance broker of the plaintiff as a result of the plaintiff failing to pay from the advance the mortgage broker's fees. The defendants further say that the mortgage broker who registered the Caveat does not have and has never had a caveatable interest in the property to sustain the said Caveat." 32 In paragraphs 23 to 26 of the Defence, the Defendants responded to paragraphs 20 to 23 of the Statement of Claim. The Defendants denied that they were in breach of the loan agreement "because the first caveator did not have a caveatable interest in the land, and that Caveat was withdrawn as soon as the Defendants became aware of the lodgement" of the caveat. 33 The Defendants denied they were in breach of the loan agreement as "the second caveator did not have an interest in the land and his Caveat arose as a result of a breach of an arrangement between the second caveator and the plaintiff". Accordingly, the Defence did not put in issue the fact that caveats had been lodged or registered. 34 The Defence filed on behalf of the Defendants, including the Third and Fourth Defendants, raised as a purported defence to the claim the fact that the caveats had been lodged by persons who did not have a registrable interest or a caveatable interest. 35 The Plaintiff submits that there is no arguable defence to the Plaintiff's claim based upon such a premise. Although the Statement of Claim has been amended since that originally filed in 2004, no further Defence has been filed in the proceedings. Accordingly, it is appropriate to have regard to the Defence filed on 11 June 2004 for the purpose of the present decision.

[34]

The Equity Division Proceedings 36 In separate proceedings brought by the Plaintiff in the Equity Division of this Court, the Plaintiff sought orders for the winding up of the First and Second Defendant companies and for the appointment of a liquidator. 37 The Third and Fourth Defendants were not parties to the proceedings in the Equity Division. They were, however, as Austin J noted, the controllers of the two companies: Perpetual Nominees v Masri Apartments [2004] NSWSC 551 at paragraph 2. It appears that affidavits were filed in the proceedings that were heard by Austin J, including affidavits of Mr Masri, the Fourth Defendant in these proceedings. 38 In the course of the judgment dealing with that application, Austin J considered the lodgement of caveats issue which is central to the present case. His Honour said in paragraph 54: "In its statement of claim in the Possession List proceeding, Perpetual contends that caveats were lodged against the Liverpool land on 2 and 6 February 2004, in breach of the loan agreements, and that Masri Apartments has failed to do everything it could to remove the caveats, in breach of the mortgages. In their defence, the defendants admit that two caveats were lodged against the property. They say that the caveators did not have caveatable interests. They say that the first caveat was withdrawn immediately upon it being challenged. They say that the second caveat was lodged by Perpetual's finance broker as a result of Perpetual failing to pay the broker's fees from the loan, and the broker had no caveatable interest." 39 His Honour observed, in paragraph 56, that the Defendants were able to contend that there was a genuine dispute as to whether the amounts claimed in the two statutory demands were due and payable. His Honour considered, for the purposes of that application, whether there was a genuine dispute arising with respect to the alleged default arising from the registration of the caveats. In that respect, His Honour concluded at paragraph 59: "But Perpetual relies on two other events of default. The lodgement of each of the two caveats, without the lender's consent, was itself an event of default under clause 7.18 of the loan agreements, entitling the lender to require the borrower and the guarantor to pay all advances and interest. It seems to me plain beyond argument, from the language of clause 7, that it is the very lodgement or 'registration' of the caveat that gives rise to the default, regardless of whether the caveat might be open to removal or other challenge. That construction is hardly surprising, since a commercial lender is likely to be more concerned about the fact that there is a caveat on the title to the secured property than that the caveat might at some future time, perhaps after litigation, be removed. To the extent that Perpetual relies upon lodgement of the caveats as a default entitling it to require payment of all advances and interest, I cannot see that there is any substantial basis for disputing its claim." 40 At paragraph 61, Austin J said: "My conclusion is that the amount claimed by Perpetual in the two statutory demands is an amount which can not be disputed on any substantial ground, having regard to the effect of lodgement of the two caveats under the terms of the loan agreements".

[40]

50 Smart AJ heard the notice of motion and gave judgment on 2 November 2004. In the course of giving judgment, Smart AJ outlined (at paragraph 9 and following) the matters determined by Austin J, including the caveat issue. Smart AJ (at paragraph 14) adverted to the finding of Ipp JA that there was a reasonably arguable defence and a serious issue for an appellate court with respect to the alleged caveatable defence. 51 Smart AJ observed at paragraph 14: "That proposition may need further refinement or qualification but the general thrust is clear. In some cases it may be clear that there is no caveatable interest, or that a caveat is being lodged for an ulterior purpose and the matter can be disposed of quickly. In other instances it may be highly arguable whether there is a caveatable interest and take some extended litigation to resolve". 52 At paragraph 27 and following, Smart AJ considered whether there was a serious question to be tried. His Honour adverted to the caveat issue (at paragraph 30) and noted Austin J's conclusion and Ipp JA's finding on the stay application. 53 Smart AJ then considered a second argument - that even if there be an arguable defence arising from the caveatable interest contention, the decision of Austin J gave rise to an issue estoppel, so that in the Common Law Division proceedings, the present Plaintiff would be able to call in aid the doctrine of issue estoppel as a response to the Defendants relying upon, once again, the caveatable interest defence. 54 Having referred to a number of authorities with respect to issue estoppel, including the decision of the High Court of Australia in Blair v Curran (1939) 62 CLR 464, Smart AJ concluded at paragraphs 37 and 38: "To reach the conclusion that there was no genuine dispute on substantial grounds, Austin J necessarily had to decide, in the circumstances, that an event of default had occurred. He reached this conclusion on what he held to be the true construction of cl 7.18, cited earlier. Unless he had decided this Austin J could not have held that there had been an event of default. As Gummow J pointed out in Trawl Industries of Australia Pty Ltd (In Liq) v Effem Foods Pty Ltd (1992)108 ALR 335 at 347 it is very necessary to focus upon the substance of the proceedings.

[43]

Caveatable Interest Defence Not Arguable 59 I turn to consider the first basis upon which relief is sought. I have given consideration to the reasons for judgment of Austin J and I have examined the relevant agreements. With respect, I consider that the reasoning of Austin J (at paragraph 59) is clearly correct. His Honour relied upon the clear words of clause 7.18 of the loan agreements. 60 I agree with His Honour's conclusion that, from the language of that clause, the very lodgement or registration of the caveat gave rise to default regardless of whether the caveat might be open to removal or other challenge. Apart from the plain words of the clause, His Honour's reasoning, which calls in aid the practical reality of commercial lending, is in my view supportive of that construction. 61 A commercial lender is likely to be more concerned about the fact that a caveat has been placed on the title to the secured property. The reason for the lodgement and the strength or otherwise of the interest which is sought to be protected by the lodgement of the caveat, are matters which may well be entirely outside the knowledge of the commercial lender. Even if the commercial lender does have some knowledge, it would not seem to be consistent with the practical reality of commercial lending that there should be some implied term in the otherwise clear condition that default only occurs if the caveat is lodged to protect a reasonable or caveatable interest. Commercial contracts are to be construed so as to be given a sensible commercial operation: Peppers Hotel Management Pty Ltd v Hotel Capital Partners Limited [2004] NSWCA 114 at paragraph 68. 62 I do not consider that Ipp JA's conclusion leads to any different construction of the provision. I have had regard to the view of Ipp JA which, for good reason, was not expanded upon, but I am satisfied that the construction of the provision adopted by Austin J is correct. I reach the same conclusion by Austin J having considered the matter independently for the purpose of this hearing.

At a glance

Court

Decision date

Before

Source

Judgment (52 paragraphs)

Parties

Cases Cited (11)