Plaintiffs v Defendants

Plaintiffs v Defendants - [2011] VSC 640 - VSC 2011 case summary — Zoe

[22]

14 Whether the Facility Agent had received an interest payment calculated at the (lower) Interest Rate on the due Interest Payment Date is ordinarily a question of simple fact determined by demonstrating actual receipt. Usually that receipt will be from a payment actually made by the lender but its receipt can occur (and usually does occur) by payment by a third party (such as a bank) on behalf of the party with the obligation to pay. The transfer of funds from a borrower to a lender will similarly often involve payments through a third party bank from funds of or borrowed by the bank's customer. The question to determine the rate of interest payable by the borrower for the period during which the lender and the borrower had reached an interim accommodation calls for an enquiry into whether the Facility Agent received payment. That does not necessarily depend upon the source from which any payment received may have come. The accommodation reached between the Borrower and Financier towards the end of October 2008 was that the Financier was to use the undrawn balance of the capitalised interest facility in payment of interest obligations arising under all three advances until the balance of the $14m had been exhausted. On 30 October 2008 the Financiers approved an accommodation which permitted the capitalised interest facility of $14m provided for in clause 4.3(c) to be applied, until exhausted, in discharge of the interest obligations under each of the three advances. In those circumstances the Facility Agent did receive the interest payment on the interest due payment dates for those interest payments due from October 2008 until the whole of the capitalised interest facility of $10m had been applied to the interest accruing and falling due at the Interest Rate (as distinct from the Higher Rate). Indeed, that was precisely the way in which the plaintiffs treated and calculated the interest falling due for payment from October 2008 until March 2010. It was not until April 2010 that the Capitalised Interest Facility was fully utilised in payment of the interest at the (lower) Interest Rate which had become due for payment by the Borrower at the Interest Rate (as distinct from the Higher Rate).

[25]

17 Messrs Goldberger and Wieland had limited the extent of their liability, relevantly, to the interest payable on the Facility in accordance with clause 4. The interest payable in accordance with clause 4 was that which clause 4 made payable by its terms. The accommodation in October 2008 between the Borrower and the Financier resulted in the interest payable under clause 4 having been received, and the obligation having been discharged, by application of the funds in the capitalised interest facility. Interest payable on the capitalised interest facility was also payable as interest in accordance with clause 4. The limitation of liability in clause 7.12 excluded some of the obligations imposed upon the Guarantors by the Facility Agreement does not exclude all of the terms of the guarantee and indemnity found in clause 7. Clause 7.3 (headed "Non-waiver") was not made subject to clause 7.12 and specifically provides that the Guarantee, undertaking and indemnity was not "abrogated, modified, prejudiced, affected or considered as wholly or partially discharged" by any of the events specified in clause 7.3 including the giving "of any time credit, indulgence or concession" by the Financiers to the Borrower. Messrs Goldberger and Wieland guaranteed and indemnified the payment of interest under each of the three tranches. The accommodation reached in October 2008 between the Borrower and the Financiers fell within the kind of circumstances provided for by clause 7.3 which the defendants, including Messrs Goldberger and Wieland, had agreed would not defeat the Guarantees they had given. Interest was received by the Financier at the lower rate in respect of the first two tranches up until part of April 2010 by application of the funds in the capitalised interest facility and from April 2010 the interest payable by the borrower under clause 4 was that payable in respect of the Tranche C Advance and the Advance of the Capitalised Interest Facility. It is that interest which the defendants, as Guarantors, are liable to pay.

[26]

18 The defendants contend that the Financiers were nonetheless in breach of the Facility Agreement by not converting the Capitalised Interest Facility as required by the Borrower. In that context an issue in dispute between the parties is whether the borrower validly elected to convert the capitalised interest facility into a principal sum within the meaning of clause 4.3(c) of the Facility Agreement. The defendants contended that the Borrower validly made such an election but that the plaintiffs breached the Facility Agreement by not making available the principal sum pursuant to the election. Clause 4.3(c) gave the Borrower an ability to convert the Capitalised Interest Facility into a principal sum available for drawdown. The Capitalised Interest Facility was to be used pursuant to clause 4.3 in payment of the interest due on the Tranche C Advance but the $14m available under the Facility could be converted into a principal sum at the election of the Borrower. That is consistent with the facts known to the parties at the time of entering into the Facility Agreement, namely, that the Borrower needed $60m to add to the $12m from its related resources to complete the construction of the tower for the $72m estimated to be needed. It is also consistent with the fact that the $14m which was made available through the Capitalised Interest Facility was more than needed to service the interest payable on the Tranche C Advance for the expected duration of the Facility Agreement. The Agreement had a termination date of 36 months from the Tranche A Drawdown Date. The Interest Rate on the Tranche C amount of $10m was 18% with, therefore, an expected interest amount payable on the $10m in the Facility of approximately $1.8m per year. Accordingly, only some of the amount of the Capitalised Interest Facility would be required over the expected term of the Facility Agreement to pay the interest accruing on the $10m Tranche C Advance, leaving a substantial amount available to be drawn upon as principal for use in the project.

[32]

22 On 14 October 2008 Mr Vella emailed Mr Cowan and Mr Porz, with copies sent to Mr Davis and Ms Melanie Hunter (amongst others), an update on the new mandate. On that occasion Mr Vella reported that the appropriate individuals of the Lending Committee had spoken "and agreed parameters of the next mandate". He informed the Borrowers that the next step was for the Chief Investment Officer at GIC to sign off at Board level and that once that was done the parties needed to document the agreement. He expected that by 30 October there would be a "formal" extension of the mandate and "formal" approval from the Lending Committee to convert the interest cap to the loan principal. That email went on to acknowledge an understanding that the Borrowers next drawdown was due "at the same stage" and asked whether there was "any capacity to delay the payment drawdown or for Austexx to make the payment and then have the loan funds reimburse Austexx". The email ended with an apologetic explanation that although the "situation" (which I assume to mean the need of the funds by conversion) had been contemplated "at the time", the situation was "difficult" and that he was then trying to manage expectations "with the longest lead time" that he could for all parties "so that all the alternatives" could be considered. The response from Mr Cowan was that the drawdown was actually due on 28 October and that at most they could delay drawing down by one day. That correspondence is sufficient to have communicated in writing the Borrower's election to convert the Capitalised Interest Facility if it had not already been notified in writing by the previous emails to which I referred in the previous paragraph. The email from Mr Cowan of 14 October 2008 went on to underline the importance of the funds being available by stating that if the drawdown was delayed by two days the lenders and the builders "would be in a panic which would be a disaster". At that stage Mr Cowan asserted that they "could not fund the payment on a short term basis for many reasons".

[73]

42 Counsel for Messrs Goldberger and Wieland submitted that any appropriation was not proved to have been made by the Financiers because, as was contended, there was no evidence of that fact. The basis for that submission was that the evidence of appropriation was found in the records of Quadrant Real Estate Advisors ("Quadrant") being the Facility Agent at the time of trial whilst the Facility Agent under the agreement was Mirvac. Counsel for Messrs Goldberger and Wieland contended that no explanation had been given about how Mirvac "disappeared from the picture". I am unable to accept the submission. Mr Amundsen gave evidence that Quadrant was the Facility Agent under the Facility Agreement at present. He, of course, had also been a director at Mirvac at the time when it had been the Facility Agent under the Facility Agreement. He was asked no questions in cross-examination to cause any doubt that Quadrant was the Facility Agent and had accurately recorded and dealt with the loan facility and any payments in accordance with instructions. These business records are sufficient to reveal the appropriations made by the Financiers. That conclusion is strengthened by the oral testimony of Mr Amundsen who was a representative of the Facility Agent when it was Mirvac and also when it was Quadrant. The continuity of the natural person dealing with the account lends support to the force of the facts recorded in the documents. The submission to the contrary made by Messrs Goldberger and Wieland was also in stark contrast with the facts as known to the Borrower. On 29 October 2010 the Borrower executed a Deed of Release which evidenced an appropriation. That deed also referred to Quadrant as a party. It had been preceded by correspondence from the Borrower, signed by Mr Porz, to Quadrant notifying the Facility Agent of an intention to prepay some of the principal outstanding under the Facility Agreement. The letter was dated 8 October 2010 and was marked to the attention of Mr Amundsen. On 29 October 2010 Mr Porz wrote to Mirvac Capital Investments Pty Ltd and Ausmezz referring to the $32.6m as being applied in reduction of the Advances. In email correspondence with the Borrower in respect of the other payments the appropriations to principal were notified and on 1 November 2010 Mr Cowan acknowledged the appropriations notified on behalf of the Financiers that day in reduction of principal of the $32.6m to which I have previously referred as making "sense".

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Judgment (110 paragraphs)

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Legislation Cited (10)

Cases Cited (22)