Plaintiffs v Defendants

LOAN AGREEMENTS - Whether company a party to loan agreement - Whether validity of purportedly executed loan agreement proved - Whether amount due under loan agreement had been repaid - Application of Clayton's Case [1816] EngR 677; (1816) 1 Mer 529 considered.

UNCONSCIONABLE CONDUCT - Whether mortgagee's conduct in effecting the mortgagee's sale was unconscionable within the meaning of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) - Principles of statutory unconscionability considered - Assessment of damage under s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth).

MORTGAGES - Whether sale by mortgagee was in breach of its duty of good faith under s 77 of the Transfer of Land Act 1958 (Vic) and at common law - Whether mortgagor entitled to have sale set aside.

MORTGAGES - Whether mortgagor effectively tendered the amount due under the mortgage - Whether mortgagee's conduct showed tender would not be accepted - Whether proffering of cash dispensed with - Whether mortgagor ready, willing and able to tender - Presumption against wrongdoers in assessing past hypotheticals - Whether equity of redemption extinguished by mortgagee entering into contract of sale - Principles of tender considered - Consequences of refusal of tender on mortgagee's entitlement to continuing interest considered.

MORTGAGES - Whether proceeds of mortgagee's sale had been allocated in accordance with s 77 of the Transfer of Land Act 1958 (Vic).

SECURITIES - Secured credit facility included an 'all moneys' clause - Whether unsecured debts assigned to creditor became secured under the secured credit facility - Principles in the interpretation of 'all moneys' clauses considered.

GUARANTEES - Whether guarantor discharged by creditor's refusal to accept tenders.

RECEIVERS - Whether appointment was invalid - Whether it was necessary for opinion as to material adverse change to be formed prior to appointment - Whether trespass by receivers caused damage to the company - Whether the Court should grant relief to receivers under s 419 of the Corporations Act 2001 (Cth).

RECEIVERS - Duties of privately appointed receivers to subject company considered - Whether receivers breached fiduciary duties - Whether receivers liable to account for their fees received.

EQUITABLE INTERESTS - Priority between competing equitable interests - Whether earlier loan agreement had been superseded by subsequent security agreement - Principles of replacement contracts considered.

PRACTICE AND PROCEDURE - Whether default judgment should be set aside.

For the First, Fourth and Seventh to Tenth Defendants

Amcor Ltd v Barnes [2016] VSC 707

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549

Australia & New Zealand Banking Group Ltd v Pan Foods Company Importers & Distributors Pty Ltd [1999] 1 VR 29

Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 288 ALR 577

Australian Mid-Eastern Club Ltd v Yassim (1989) 1 ACSR 399

Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 3) (2020) 275 FCR 57

Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1

AVS Property Pty Ltd v McMaster [2010] FCAFC 81; (2010) 79 ACSR 89

Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150; (2008) 72 NSWLR 44

Balanced Securities Ltd v Dumayne Property Group Pty Ltd (2017) 53 VR 14

Bank of New South Wales v O'Connor [1889] UKLawRpAC 47; (1889) 14 App Cas 273

Bank of Queensland Ltd v Dutta [2010] NSWSC 574

Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1

Berry v CCL Secure Pty Ltd [2020] HCA 27; (2020) 381 ALR 427

Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (2019) 135 SASR 385

Bowesco Pty Ltd v Cronin [2008] WASC 296; (2008) 223 FLR 21

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266

Canberra Advance Bank Ltd v Benny (1992) 38 FCR 427

Carey v Korda [2012] WASCA 228; (2012) 45 WAR 181

Challenge Bank Ltd v Hodgekiss (1995) 7 BPR 14,399

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

Commissioner of Australian Federal Police v Kalimuthu (No 2) [2018] WASCA 192; (2018) 340 FLR 1

Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520

Commonwealth Bank of Australia v Stephens [2017] VSC 385

Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Coughlan v George [2003] NSWSC 512; (2003) 11 BPR 20,919

Çukurova Finance International Ltd v Alfa Telecom Turkey Ltd (Nos 3 to 5) [2016] AC 923

Curnow Consulting Pty Ltd v JPD Media and Design Pty Ltd [2017] NSWSC 1171

Dale v Nichols Constructions Pty Ltd [2003] QDC 453

Devaynes v Noble; Clayton's Case [1816] EngR 677; (1816) 1 Mer 529; 35 ER 767 (Chancery)

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544

Edmondson v Copland [1911] UKLawRpCh 58; [1911] 2 Ch 301

Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640

El-Saafin v Franek (No 2) [2018] VSC 683

El-Saafin v Franek (No 4) [2020] VSC 389

Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95

Foran v Wight [1989] HCA 51; (1989) 168 CLR 385

Forrest v Australian Securities Investments Commission [2012] HCA 39; (2012) 247 CLR 486

Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477

Fountain v Bank of America National Trust and Savings Association (1992) 5 BPR 11,817

Gardiner v Fitzgerald [1962] Qd R 29

Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82

Graham v Seal (1918) 88 LJ Ch 31

Gyles v Hall [1726] EngR 450; (1726) 2 P Wms 378

Haynes v St George Bank (2018) 130 SASR 551

Hillam v Iacullo [2015] NSWCA 196; (2015) 90 NSWLR 422

Hotel Terrigal Pty Ltd (in liq) v Latec Investments Ltd (No 3) [1969] 1 NSWR 687

Houghton v Immer (No 155) Pty Ltd [1997] NSWSC 608; (1997) 44 NSWLR 46

Hyde v Sullivan (1956) SR (NSW) 113

Iacullo v Hillam [2014] NSWSC 1021

Jones v Barkley (1781) 99 ER 434

Jonsson v Arkway Pty Ltd [2003] NSWSC 815; (2003) 58 NSWLR 451

Katsikalis v Deutsche Bank (Asia) AG [1988] 2 Qd R 641

Kennedy v de Trafford [1897] UKLawRpAC 13; [1896] 1 Ch 762

Kerford v Mondel (1859) 28 LJ Ex 303

Kinnaird v Trollope [1889] UKLawRpCh 88; (1889) 42 Ch D 610

Knowles v Victorian Mortgage Investments Ltd [2011] VSC 611

Kupang Resources Ltd v International Litigation Partners Pte Ltd [2015] WASCA 89

Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) [1965] HCA 17; (1965) 113 CLR 265

Lauvan Pty Ltd v Bega [2018] NSWSC 154; (2018) 330 FLR 1

Lauvan Pty Ltd v Bega (No 2) [2018] NSWSC 155

Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681

Linkenholt Pty Ltd v Quirk [2000] VSC 166

LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 2) (1990) 24 NSWLR 499

M Collins & Son Pty Ltd v Bankstown Municipal Council (1958) 3 LGRA 216

Marshall & Brougham Pty Ltd v Commissioner of Taxation (1986) 45 SASR 571

MBF Investments Pty Ltd v Nolan [2011] VSCA 114; (2011) 37 VR 116

McCartney v Orica Investments Pty Ltd [2011] NSWCA 337

McKean v Maloney [1988] 1 Qd R 628

McPherson v Summerville [1905] NSWStRp 54; (1905) 6 SR (NSW) 1

Mijac Investments Pty Ltd v Graham (No 2) [2009] FCA 773; (2009) 72 ACSR 684

Morris v Baron & Co [1918] AC 1

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104

Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388

Olympic Holdings Pty Ltd v Windslow Corporation Pty Ltd (in liq) [2008] WASCA 80; (2008) 36 WAR 342

Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199

Pan Foods Company Importers & Distributors Pty Ltd v Australia & New Zealand Banking Group Ltd [2000] HCA 20; (2000) 170 ALR 579

Park Avenue Nominees Pty Ltd v Boon [2001] NSWSC 700; (2001) ASC 155-052

Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235

PGA Group Pty Ltd v Idameneo (No 789) Ltd (formerly Symbion Health Ltd); Gunn v Idameneo (No 789) Ltd [2011] VSC 382

Pitcher Partners Consulting Pty Ltd v Neville's Bus Service Pty Ltd [2019] FCAFC 119; (2019) 271 FCR 392

PMT Partners Pty Ltd v Australian National Parks & Wildlife Service [1995] HCA 36; (1995) 184 CLR 301

Project Research Pty Ltd v Permanent Trustee of Aust Ltd (1990) 5 BPR 11,225

R v Registrar of Titles; Ex parte Watson [1952] VicLawRp 32; [1952] VLR 470

Rafiqi & Thomas v Wacal Investments Pty Ltd (1998) ASC 155-024

Re Bankrupt Estate of Murphy, Donnelly v Commonwealth Bank of Australia Ltd (1996) 140 ALR 46

Re Clark's Refrigerated Transport Pty Ltd (in liq) [1982] VicRp 100; [1982] VR 989

Reardon Smith Line Ltd v Hansen-Tangen [1976] 3 All ER 570

Rockett v Evans [2008] QSC 227

Rosing v Ben Shemesh [1960] VicRp 28; [1960] VR 173

Rowe v National Australia Bank Ltd (2019) 56 WAR 1

Royal Botanical Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45

Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191; (2006) 156 FCR 256

Scarfe v Morgan [1838] EngR 253; (1838) 150 ER 1430

Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93

Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596

Shakespeare Haney Securities Ltd v Crawford [2009] QCA 85; [2009] 2 Qd R 156

Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85

State Bank of New South Wales Ltd v Chia [2000] NSWSC 552; (2000) 50 NSWLR 587

Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418

Taylor v Third Szable Holdings Pty Ltd [2001] VCAT 1841; (2001) ASC 155-050

TCL Airconditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd, Re TCL Airconditioner (Zhongshan) Co Ltd (No 2) [2019] FCA 257; (2019) 369 ALR 192

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333

Ultimate Property Group Pty Ltd v Lord [2004] NSWSC 114; (2004) 60 NSWLR 646

Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505; (2008) 13 BPR 25,343

Vision Telecommunications Pty Ltd v Australia and New Zealand Banking Group Ltd [2001] WASC 139

World Medical Manufacturing Corporation v Phillips Ormonde & Fitzpatrick Lawyers (a firm) [2000] VSC 196

Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530

Zweck v Town of Gawler (2015) 124 SASR 319

The following abbreviations are used in these reasons:

AAGG Developments Pty Ltd, being the seventh defendant in proceeding S CI 2018 01685

Collectively, Mr Ian Glavas and Mr Matthew Kucianski, being the fifth and sixth defendants in proceeding S CI 2018 01685

65-67 Arden Street, North Melbourne, being the land described in Certificate of Title Volume 8614 Folio 340

Australian Securities and Investments Commission Act 2001 (Cth)

Deed of Assignment of Debt and Securities dated 18 April 2018

New Concept Homes Pty Ltd, being the tenth defendant in proceeding S CI 2018 01685

3 Ball Court, Bundoora, being the land described in Certificate of Title Volume 10885 Folio 322

Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)

Saafin Constructions Pty Ltd, being the third plaintiff in proceeding S CI 2018 01685

Consumer Credit (Victoria) Act 1995 (Vic)

Judgment in default of appearance entered on 15 May 2018 in County Court proceeding CI-18-01795

The construction of a four storey building containing 25 dwellings and two commercial tenancies at 65-67 Arden Street, North Melbourne, being the land described in Certificate of Title Volume 8614 Folio 340

Collectively, Mr Mohamed, Mr Hassan and Mr Wael El Saafin, being the first, second and fourth plaintiffs in proceeding S CI 2018 01685

Mortgages pursuant to cls 3.1 and 16.1 of the General Security Agreement dated 18 May 2017

Mortgage pursuant to cl 3.1 of the Deed of Release and Settlement dated 18 May 2017

2 Lynwood Crescent, Lower Plenty, being the land described in Certificate of Title Volume 8519 Folio 915

MAG Financial and Investment Ventures Pty Ltd, being the fourth defendant in proceeding S CI 2018 01685, the third defendant in proceeding S ECI 2018 02987, and the plaintiff in proceeding S ECI 2019 03648

Collectively, Mr Mark Franek, MAG Financial and Investment Ventures Pty Ltd, AAGG Developments Pty Ltd, Mr Amr Mekkya, Mr George Sacca, and New Concept Homes Pty Ltd, being the first, fourth and seventh to tenth defendants in proceeding S CI 2018 01685

Formerly, County Court proceeding CI-18-01795 and later, Supreme Court proceeding S ECI 2021 00968

1 Nairne Terrace, Greensborough, being the land described in Certificate of Title Volume 09671 Folio 924

Collectively, Mr Mohamed, Mr Hassan and Mr Wael El Saafin and Saafin Constructions Pty Ltd, being the first to fourth plaintiffs in proceeding S CI 2018 01685

Collectively, Mr Stephen Robert Dixon and Mr Ahmed Bise, being the second and third defendants proceeding

Loan of $1.9 million from Mr George Sacca to Mr Mohamed, Mr Hassan and Mr Wael El Saafin

Trustworthy Nominees Pty Ltd, being the plaintiff in proceeding S ECI 2018 02987

_________________________________

1 These four proceedings arise out of the partly completed development of a four storey building containing 25 dwellings and two commercial tenancies ('the Development') at 65-67 Arden Street, North Melbourne, being the land described in Certificate of Title Volume 8614 Folio 340 ('the Arden Street Property') by Saafin Constructions Pty Ltd ('the Company'), and the financial arrangements relating to the Development.

2 Proceeding S CI 2018 01685 ('the Derivative Proceeding') is a claim brought on behalf of the third plaintiff (the Company) by the Company's directors, being the first plaintiff ('Hassan')[1] and the second plaintiff ('Mohamed'), pursuant to leave granted by Lyons J on 28 July 2020.[2] The fourth plaintiff ('Wael'), a shareholder of the Company, was joined to the proceeding pursuant to the same order. Mohamed, Hassan and Wael (collectively, 'the El Saafin Brothers'),[3] together with the Company (hereafter referred to collectively as 'the Plaintiffs') seek relief principally relating to:

(a) the appointment of the second and third defendants ('the Receivers') as receivers of the Company;

(b) the sale of the Arden Street Property to the seventh defendant ('AAGG') by the fourth defendant ('MAG Financial') as assignee of a mortgage executed by the Company in favour of Balanced Securities Ltd ('Balanced Securities') on 28 October 2016 ('the Balanced Mortgage');

(c) debts and security interests claimed against the Company by:

(together with AAGG, hereafter referred to collectively as 'the MAG Parties').

3 By counterclaim, the Receivers seek relief principally by way of declarations relating to their rights to indemnity, remuneration and expenses claimed against the Company and Wael.

4 By counterclaim, MAG Financial, AAGG and the Builder seek relief principally by way of enforcement of debts and security interests claimed against:

(a) the El Saafin Brothers (the first to third defendants by counterclaim);

(b) the fourth defendant by counterclaim ('Lobna') and the fifth defendant by counterclaim ('Bayda'), being two further members of the El Saafin family; and

(c) the Company (the sixth defendant by counterclaim).

5 Proceeding S ECI 2019 03648 ('the MAG Proceeding') is a claim brought by MAG Financial for relief against Wael and Bayda by way of enforcement of an equitable charge over 1 Nairne Terrace, Greensborough, being the land described in Certificate of Title Volume 09671 Folio 924 ('the Nairne Terrace Property').

6 Proceeding S ECI 2018 02987 ('the Trustworthy Proceeding') is a claim brought by the plaintiff ('Trustworthy Nominees') for relief against Wael and Bayda by way of enforcement of a security interest over the Nairne Terrace Property, and a declaration of priority over the equitable interest claimed by MAG Financial.

7 By counterclaim, Wael and Bayda seek relief principally by way of declarations that MAG Financial's loan agreements are unenforceable and security interests are void insofar as they relate to the Nairne Terrace Property.

8 Proeeding S ECI 2021 00968 ('the Mekkya Proceeding') was a claim originally brought by Mr Mekkya in the County Court for relief against the Company by way of enforcement of an agreement between the parties. Judgment was entered in default of appearance in favour of Mr Mekkya on 18 May 2018. Relevantly, the Company seeks to have that default judgment set aside.

9 Generally, the above proceedings arise out of disputes between the Company, being the developer of the Arden Street Property, and its financiers. In summary, (adopting the abbreviations in the Glossary), I have decided as follows:

(a) The Second Franek Loan Agreement is unenforceable under s 39 of the Consumer Credit Act.

(b) The Franek GSA Mortgages and the Franek Settlement Deed Mortgage are void under s 40 of the Consumer Credit Act insofar as each relates to the Second Franek Loan Agreement.

(c) As a result of the findings in sub-paras (a) and (b) above, the appointment of the Receivers under the Franek GSA was invalid.

(d) The Company was not a party to the Sacca Loan Agreement.

(e) The Company did not enter into the Mekkya Loan Agreement; and even if it did, the Mekkya Debt was repaid in any event.

(f) The MAG Parties entered into an arrangement pursuant to which:

(i) entities related to Mr Sacca and Mr Mekkya paid for the assignment of the Balanced Facility Agreement, the Franek GSA and the Franek Settlement Deed to MAG Financial; and in consideration

(ii) MAG Financial transferred the Arden Street Property, under the assigned Balanced Mortgage, to AAGG, an entity related to Mr Sacca and Mr Mekkya, for illusory consideration.

(g) Principally, as a result of circumstances surrounding the arrangement, the sale of the Arden Street Property should be set aside because it was:

(i) in breach of MAG Financial's duty as mortgagee under s 77 of the Transfer of Land Act 1958 (Vic); and

(h) Prior to the transfer of the Arden Street Property, MAG Financial refused to accept proposed tenders of the amounts due under the Balanced Facility Agreement and the Second Franek Loan Agreement from the Company.

(i) As a result of the refusal of the proposed tenders:

(i) the Company's obligation to pay interest under the Balanced Facility Agreement is limited;

(ii) the El Saafin Brothers are discharged from liability as guarantors under the Balanced Facility Agreement; and

(iii) the Company is discharged from liability as guarantor under the Franek Settlement Deed.

(j) The equitable interest of Trustworthy Nominees in the Nairne Street Property has priority over the equitable interest of MAG Financial as assignee of the Second Franek Loan Agreement.

10 Facts material to particular issues are set out below, prior to consideration of those issues. The facts generally material to the surrounding circumstances are as follows.

11 On 13 July 2001, the Company was registered as a corporation with the Australian Securities and Investments Commission ('ASIC'). As at registration, the directors relevantly included Mohamed and Hassan, both of whom were also shareholders (each holding 17 shares), with Wael, the other shareholder, holding 16 shares.

12 On 21 August 2008, Wael and his wife Bayda, were registered as proprietors of the Nairne Terrace Property.

13 By Loan Agreement dated 13 December 2011 between Trustworthy Nominees as lender, the Company and Mr Fadl El Saafin as borrowers, and the El Saafin Brothers as guarantors, Trustworthy Nominees agreed to loan the Company and Mr Fadl El Saafin the sum of $250,000, secured (among other things) by a second mortgage over the Arden Street Property.

14 On 20 December 2011, the Company was registered as proprietor of the Arden Street Property.

15 On 17 December 2013, the City of Melbourne issued Planning Permit No TP-2012-176 to New Concept Design, a trading name of Mr Mekkya, for the construction of the Development.

16 By an alleged email of 19 March 2014 to New Concept Design (copied to Wael), Mr El-Hissi of NOH Legal attached an allegedly signed Investment Loan Agreement dated 1 March 2012 between the Company as developer, and Mr Mekkya as investor ('the Mekkya Loan Agreement'). The Mekkya Loan Agreement recorded that Mr Mekkya had agreed to loan the Company the sum of $750,000.[4]

17 By Investment Loan Agreement dated 8 August 2014 between the Company as developer, and Dr Hegazy as investor, Dr Hegazy agreed to loan the Company the sum of $406,000 for a period of 18 months, at which time the Company would transfer to Dr Hegazy apartment 201 of the Development as consideration.

18 By an undated Investment Loan Agreement executed in or about August 2014 between the Company as developer, and Dr Atalla as investor, Dr Atalla agreed to loan the Company the sum of $350,000 for a period of 18 months, at which time the Company would transfer to Dr Atalla apartment 202 of the Development as consideration.

19 By Loan Agreement dated 15 April 2015 between Wael and Bayda as borrowers, and Mr Franek as lender ('the First Franek Loan Agreement'), Mr Franek agreed to loan Wael and Bayda the sum of $100,000, secured by a charge over the Nairne Terrace Property.

20 By Loan Agreement dated 17 September 2015 between Trustworthy Nominees as lender, the Company as first borrower, and Wael, Bayda and Hassan as second, third and fourth borrowers ('the Trustworthy Loan Agreement'), the borrowers agreed to provide additional security for the previous loan (referred to in paragraph 13 above), which included a charge over the Nairne Terrace Property.

21 By building contract dated 19 October 2015 between the Company as proprietor, and the Builder as contractor ('the Building Contract'), the Builder agreed to construct 25 dwellings and two commercial units at the Arden Street Property between 1 December 2015 and 1 June 2017 for a price of $4.4 million. Mr Mekkya was the sole director and shareholder of the Builder.

22 On 28 October 2015, Trustworthy Nominees lodged a caveat over the Nairne Terrace Property on the basis of the Trustworthy Loan Agreement.

23 By Loan Agreement dated 15 January 2016 between Wael and Bayda as borrowers, and Mr Franek as lender ('the Second Franek Loan Agreement'), Mr Franek agreed to loan Wael and Bayda the sum of $311,000, secured by a charge over the Nairne Terrace Property.

24 On 20 April 2016, Mr Franek lodged a caveat over the Nairne Terrace Property on the basis of the Second Franek Loan Agreement.

25 By written acknowledgment signed 30 May 2016, the El Saafin Brothers declared that they had received an amount of $1.9 million as a loan from Mr Sacca and that 'we are liable to return it back to him within one year from the date of this statement with any cost related to it' ('the Sacca Loan Agreement').

26 By Facility Agreement dated 28 October 2016 between Balanced Securities as lender, the Company as borrower, and the El Saafin Brothers and Lobna as guarantors ('the Balanced Facility Agreement'), Balanced Securities agreed to provide finance to the Company to assist with the refinance of, and the construction at the Arden Street Property, on the following terms:

(c) The facility expired on or about 28 April 2018, being 18 months after the earlier of:

(i) seven days after the despatch of mortgage documents to the borrower; or

(i) a first registered mortgage over the Arden Street Property;

(ii) a second registered mortgage over 3 Ball Court, Bundoora, being the land described in Certificate of Title Volume 10885 Folio 322 ('the Bundoora Property'); and

(iii) a general security deed granted by the Company and the El Saafin Brothers.

27 By the Balanced Mortgage executed on the same day as the Balanced Facility Agreement, the Company mortgaged the Arden Street Property to Balanced Securities to secure the Balanced Facility Agreement.

28 On 18 May 2017, Mr Franek, Wael, Bayda and the Company entered into two related agreements, being:

(a) a General Security Agreement dated 18 May 2017 ('the Franek GSA'); and

(b) a Deed of Release and Settlement dated 18 May 2017 ('the Franek Settlement Deed').

29 By the Franek GSA, Wael, Bayda and the Company agreed to grant certain securities to Mr Franek, as set out at paragraph 92 below, to secure obligations under the Franek Settlement Deed.

30 By the Franek Settlement Deed, Wael, Bayda and the Company agreed to terms including the following:

(a) The Company would execute a standard form LIV Contract of Sale of Real Estate and transfer to Mr Franek 'Commercial/Office Space marked 002' ('Commercial Unit 002') of the Development.

(b) Subject to Wael, Bayda and the Company complying with that obligation, Mr Franek would pay the sum of $50,000 on execution of the Franek Settlement Deed, and a further sum of $50,000 on completion of the transfer and registration on the title.

(c) Upon full compliance with the Franek Settlement Deed, Mr Franek, Wael, Bayda and the Company would mutually release and discharge to each other matters relating to the Second Franek Loan Agreement. The Franek Settlement Deed is described in greater detail at paragraphs 93 to 95 below.

31 On 14 June 2017, AMGS Properties Pty Ltd ('AMGS') was registered as a corporation with ASIC, with Mr Sacca and Mr Mekkya as the sole directors and shareholders, each holding 50 shares.

32 On 15 June 2017, Trade On International Pty Ltd ('Trade On') was registered as a corporation with ASIC, with Mr Sacca and Mr Mekkya as the sole directors and shareholders, each holding 50 shares.

33 By letter dated 29 December 2017 to Wael and Bayda, Mr El-Hissi stated that, in breach of the Franek Settlement Deed, Wael had failed to procure the Company to execute a contract of sale for Commercial Unit 002. On behalf of Mr Franek, Mr El-Hissi claimed $883,000 (being $311,000, plus interest of $26,000 per month for 22 months) as compensation for the breach, plus a refund of the $50,000 paid under the Franek Settlement Deed.

34 On 26 February 2018, Mr Mekkya lodged a caveat over the Arden Street Property claiming an interest under the Mekkya Loan Agreement.

35 In or about March 2018, there was a meeting at the Greenvale Shopping Centre that was attended by Mr Mekkya, Mr Sacca, Dr Hegazy and Dr Atalla in which there was a discussion about how the participants would be able to recover the amounts that they had invested in the Development.

36 By emailed letter dated 22 March 2018 to the Builder, the Company provided notice of various contractor's defaults and of its intention to terminate the Building Contract in the event that the defaults were not remedied within 14 days. The default notice was issued substantially on the basis of the Builder's alleged failure to complete the Development.

37 On 28 March 2018, a quantity surveyor certified that, as at 28 February 2018, the gross value of works performed was $1,057,084 and the gross cost to complete was $3,462,493. Accordingly, the Development was approximately 25% complete.

38 Between 29 January and 31 March 2018, there were a number of communications between Mr El-Hissi and the Receivers regarding their potential appointment as receivers and managers of the Company. The communications resulted in a meeting on 4 April 2018 between Mr El-Hissi, Mr Franek, the Receivers and their solicitor (Mr Koroneos of Capstone Koroneos Legal) regarding the potential appointment.

39 By email of 5 April 2018, Mr Nair of Hicks Oakley Chessell Williams (the Company's solicitor) served a termination notice on the Builder.

40 On 5 April 2018, Mr Franek signed a deed of appointment of the Receivers as joint and several receivers of the Company.

41 By email of 6 April 2018 at 4:36 pm to Mr El-Hissi, Mr Koroneos stated that his clients, the Receivers, would execute the appointment documents subject to the sum of $50,000 being paid into his trust account. At 5:53 pm, Mr Mekkya and Mr Sacca's company, Trade On, paid $50,000 into the trust account of Capstone Koroneos Legal.

42 On 6 April 2018, Sloss J adjourned an application by the Builder for an urgent interlocutory injunction against the Company, and relevantly noted the following agreement:

2. The Plaintiff agrees to allow the Defendant and its servants and agents to inspect the site at 65-67 Arden Street, North Melbourne (Site) on Wednesday, 11 April 2018 and Thursday, 12 April 2018, or at such other time reasonably notified to the Plaintiff's solicitors in advance.

3. Until 23 April 2018 or further order:

(a) neither party will carry out any work at the Site, other than any emergency repairs;

(b) the Defendant agrees not to interfere with the Plaintiff's works, plant, materials or equipment at the Site; and

(c) the Plaintiff shall maintain a supervisor at the Site between 7:30am and 4pm each day.

(hereafter referred to as the 'Standstill Agreement').

43 By email of 10 April 2018 to Mr Nair, Mr Koroneos attached various documents including an ASIC Form 504, which recorded that the Receivers were appointed on 9 April 2018 pursuant to the terms of the Franek GSA.

44 By emailed letter dated 17 April 2018 to Mr Nair, Mr El-Hissi set out the non-exhaustive list of the breaches relied upon by Mr Franek in appointing the Receivers, being:

(a) failure to provide an off-the-plan contract in accordance with the Franek GSA despite repeated requests from Mr Franek's solicitors;

(b) material adverse change, being the Supreme Court proceeding between the Builder and the Company;

(c) material adverse change in the Company's financial position, including the granting of security interests to Mr Mekkya and Mr Sacca; and

(d) failure to disclose the existence of the Balanced Securities loan.

45 By Deed of Assignment of Debt and Securities dated 18 April 2018 between Balanced Securities as assignor, and Mr Franek and/or nominee as assignee ('Balanced Assignment Deed'), Balanced Securities assigned its interests under the Balanced Facility Agreement and the Balanced Mortgage to Mr Franek for the sums of $300,000 payable on 18 April 2018 and $2,493,079.80 payable on 18 May 2018. The Balanced Assignment Deed recorded the amount owing by the Company to Balanced Securities under the Balanced Facility Agreement as at 18 May 2018 to be $2,998,649.30.

46 On 26 April 2018, MAG Financial was registered as a corporation with ASIC, with Mr Franek as the sole director and shareholder, holding 12 shares.

47 By facsimile transmission dated 26 April 2018 to the Company, Balanced Securities provided notice of its intention to assign its debt and securities under the Balanced Facility Agreement and the Balanced Mortgage to MAG Financial, with the proposed assignment expected to take place on 4 May 2018.

48 By writ filed 27 April 2018 in County Court proceeding CI-18-01786 ('the Sacca Proceeding'), Mr Sacca claimed repayment of $1.9 million pursuant to the Sacca Loan Agreement.

49 By writ filed 27 April 2018 in County Court proceeding CI-18-01795 ('the Mekkya Proceeding'), Mr Mekkya claimed repayment of $975,000 pursuant to the Mekkya Loan Agreement.

50 On 3 May 2018, Balanced Securities was paid $2,474,991.71 by a Commonwealth Bank of Australia bank cheque. This amount was funded by a transfer from the Commonwealth Bank of Australia bank account of AMGS.

51 By Deed of Assignment of Contracts and Securities dated 3 May 2018, Mr Franek assigned his rights under the Second Franek Loan Agreement, the Franek GSA and the Franek Settlement Deed to MAG Financial.

52 By Notice of Assignment of Mortgages and Security dated 4 May 2018 to the Company as borrower, and the El Saafin Brothers and Lobna as guarantors, MAG Financial provided notice of the assignment from Balanced Securities to MAG Financial pursuant to the Balanced Assignment Deed.

53 On 4 May 2018, Mr Franek instructed the Receivers to resign their appointment pursuant to the Franek GSA and, on behalf of MAG Financial, requested that they be appointed pursuant to the Balanced Facility Agreement.

54 On 7 May 2018, the Receivers resigned their appointment under the Franek GSA. On the same day, MAG Financial appointed the Receivers as joint and several receivers of the Company pursuant to the terms of the Balanced Facility Agreement.

55 By originating motion filed 8 May 2018 in what became the Derivative Proceeding, Hassan and Mohamed applied for an injunction restraining Mr Franek from appointing receivers and managers in respect of the Company and restraining the Receivers from acting as receivers of the Company.

56 By email of 8 May 2018 to Mr Nair, Mr Koroneos acknowledged receipt of the originating motion and stated that the Receivers had been appointed receivers and managers of the Company by:

(a) Mr Franek during the period of 9 April to 7 May 2018; and

(b) MAG Financial from 7 May 2018, as assignee of the Balanced Facility Agreement.

57 By five emails from 9 May to 25 June 2018 to Mr Koroneos and Mr El-Hissi, Mr Nair repeatedly requested the payout figure necessary to discharge the amount owing under, relevantly, the Balanced Facility Agreement and to terminate the appointment of the Receivers. These emails are set out at paragraphs 303 to 313 below.

58 On 15 May 2018, Mr Mekkya entered judgment in default of appearance ('the Default Judgment') in the Mekkya Proceeding against the Company in the sum of $982,848.22, being $975,000 plus interest of $4,808.22 and costs of $3,040 pursuant to the Mekkya Loan Agreement.

59 On or about 27 May 2018, there was a meeting between Dr Atalla, Mr Sacca, Mr Mekkya and Dr Hegazy at Tullamarine with respect to the repayment of their amounts invested in the Development.

60 By email of 29 May 2018 to Dr Atalla, Mr Mekkya attached a copy of the Default Judgment and stated that he was appointing a liquidator soon.

61 By Valuation Report dated 6 June 2018, Rann Property AdVal, on the instructions of MAG Financial, valued the Arden Street Property at $4.4 million.

62 On 8 June 2018, Hassan made a report to Victoria Police alleging that the Default Judgment was based on a 'forged contract', being the Mekkya Loan Agreement.

63 On 14 June 2018, the sum of $1,310,628.08 was paid out of the Commonwealth Bank of Australia bank account of Trade On with the transaction description 'Wdl Branch Fountain Gate'. On the same day bank cheques in the sums of:

(b) $159,998 payable to Mr El-Hissi's firm, NOH Legal, for Mr Franek's legal fees,

were issued out of the Fountain Gate branch of the Commonwealth Bank of Australia.

64 By letter of approval dated 19 June 2018 to the Company, Mr Keith Blackney stated that Black Arrow Mortgages was prepared to provide a loan advance of $4 million to the Company subject to the conditions set out therein.

65 By four deeds of assignment, each dated 20 June 2018, it was agreed that the following debts would be assigned to MAG Financial on payment of the assignment price which, in each case, was the full amount of the debt, being:

(a) debt owed by the Company to Mr Mekkya in the sum of $982,848.22 ('the Mekkya Debt') pursuant to the Default Judgment;

(b) debt owed to Mr Sacca in the sum of $1.9 million ('the Sacca Debt') pursuant to the Sacca Loan Agreement;

(c) debt owed by the Company to Mr Mekkya trading as New Concept Design in the sum of $174,907.59 ('the New Concept Design Debt') purportedly pursuant to attached invoices (but no invoices were attached to the tendered copy); and

(d) debt owed by the Company to the Builder in the sum of $521,349.22 ('the Builder Debt') pursuant to invoices issued under the Building Contract.

66 By four notices of assignment, each dated 25 June 2018, the Company was notified of each of the assignments to MAG Financial referred to in the preceding paragraph.

67 By correspondence of 25 and 26 June 2018 between Mr Nair and Mr Halse, Mr Halse provided the payout figure, being the sum of $8,250,990.83, together with a breakdown of such figure. Mr Nair contested the calculation of the payout figure, substantially on the basis that it incorrectly included amounts not owing. This correspondence is set out at paragraphs 314 to 316 below.

68 By five letters to the Company, the El Saafin Brothers and Lobna, each dated 26 June 2018, MAG Financial served default notices and demands pursuant to s 76 of the Transfer of Land Act 1958 (Vic) ('Transfer of Land Act'). MAG Financial demanded payment of $8,250,990.83, being the amount due as at 25 June 2018 under the Balanced Facility Agreement and the Balanced Mortgage (with MAG Financial being the assignee of the rights of Balanced Securities).

69 By emailed letter dated 27 June 2018 to Mr Halse and Mr Koroneos, Mr Nair stated that he was instructed to tender the amount of $3,265,742.82 in satisfaction of the Company's liabilities under the Balanced Facility Agreement in respect of which the Receivers had been appointed ('the June Tender'). By email of the same day to Mr Nair (copied to Mr Koroneos), Mr Halse replied and stated that the amount of the security was $8,250,990.83 and accordingly, the proposed June Tender would not discharge such security. This correspondence is set out at paragraphs 317 and 318 below.

70 On 27 June 2018, on the application of the plaintiffs in the Derivative Proceeding, Lyons J made interim orders restraining the Receivers and Mr Franek (including in his capacity as a director of MAG Financial) from taking steps to realise, sell or otherwise dispose of the 'Securities' (as defined in the Balanced Facility Agreement), and the guarantees granted under the Balanced Facility Agreement.

71 By letter of approval dated 28 June 2018 to the Company, Black Arrow Mortgages confirmed that it was prepared to provide finance in the sum of $5 million to '80% LVR only of valuation'.

72 On 3 July 2018, in the Derivative Proceeding, Kennedy J dissolved the interim orders of Lyons J on the Receivers giving an undertaking not to sell the 'Securities'.

73 On 5 July 2018, AAGG was registered as a corporation with ASIC, with Mr Mekkya as the sole director, and Mr Mekkya and Mr Sacca as the only shareholders, each holding six shares.

74 By Contract of Sale of Real Estate purportedly signed by Mr Mekkya on behalf of AAGG on 5 July 2018, and Mr Franek on behalf of MAG Financial on 9 July 2018, MAG Financial agreed to sell the Arden Street Property to AAGG for $4.5 million plus GST.

75 By emails of 9 July 2018 to Black Arrow Mortgages, Wael offered the Nairne Street Property, the Bundoora Property, 2 Lynwood Crescent, Lower Plenty, being the land described in Certificate of Title Volume 8519 Folio 915 ('the Lower Plenty Property') and the Arden Street Property as security in support of the application for a loan.

76 By letters dated 16 and 19 July 2018 to Mr Halse, Mr Nair stated that the Company was ready, willing and able to tender the amount of $4,406,742.82 in satisfaction of what he described as the 'Franek Debt' and 'the Balanced Securities Debt' ('the July Tender'). Mr Halse did not reply until 25 July 2018, after the settlement of the sale of the Arden Street Property (as set out below). This correspondence is set out at paragraphs 333 to 336 below.

77 On 17 July 2018, in the Derivative Proceeding, the Receivers undertook to the Court not to sell the Arden Street Property or the Lower Plenty Property.

78 By memorandum dated 18 July 2018 and provided to the Court in accordance with the orders of Kennedy J made 17 July 2018 in the Derivative Proceeding, counsel and the solicitor for Mr Franek and MAG Financial identified the precise basis on which the Receivers were entitled to sell the Arden Street Property and the Lower Plenty Property. The memorandum did not disclose that MAG Financial had entered into a contract on 9 July 2018 to sell the Arden Street Property to AAGG.

79 According to an adjustment statement, on 20 July 2018, the sale of the Arden Street Property was settled by the following documents:

(a) a transfer of land dated 22 June 2018 from MAG Financial as mortgagee, to AAGG as transferee, for consideration of $4.95 million ('the Transfer of Land'); and

(b) an adjustment statement which included the following settlement statement:

(a) by email of 23 July 2018 at 4:38 pm to Mr Koroneos, Mr Halse stated that his client had 'today' completed the sale of the Arden Street Property; and

(b) the settlement was not effected by a cheque to the vendor of $4,453,732.09, as referred to in the settlement statement, but purportedly by a mortgage dated 23 July 2018 from AAGG to MAG Financial over the Arden Street Property securing an 'Advance' of $4.5 million.

81 By email of 23 July 2018 at 6:31 pm to counsel and Mr Koroneos, Mr Bise stated that MAG Financial had allegedly sold the Arden Street Property 'behind the receivers' backs'.

82 By email of 24 July 2018 to Mr Nair, Mr Koroneos stated that the Receivers had no knowledge of, and were not involved in, the sale of the Arden Street Property.

83 On or about 27 July 2018, Mr Franek resigned as a director of MAG Financial and was replaced by Mr Mekkya. Mr Franek also transferred all of the shares in MAG Financial to Mr Mekkya.

84 By email of 3 August 2018 to Mr Nair, Mr Halse confirmed that the fifth and sixth defendants in the Derivative Proceeding ('the Administrators') had been appointed as joint and several administrators of the Company. Accordingly, on the basis of his contention that the legal proceeding could not proceed without the written consent of the Administrators or leave of the Court, he invited the Plaintiffs to discontinue the Derivative Proceeding.

85 By originating process filed 21 December 2018 in the Trustworthy Proceeding, Trustworthy Nominees relevantly sought the following orders:

(a) Wael and Bayda take all reasonable steps and execute all appropriate documents, including a mortgage between Wael and Bayda as mortgagors and Trustworthy Nominees as mortgagee over the Nairne Terrace Property.

(b) MAG Financial not proceed with the registration of mortgage AR674060A over the Nairne Terrace Property until after the registration of Trustworthy Nominee's mortgage.

86 By originating motion between parties filed 8 August 2019 in the MAG Proceeding, MAG Financial relevantly sought the following orders and declarations:

(a) A declaration that MAG Financial has an equitable charge over the Nairne Terrace Property.

(b) An order pursuant to s 81 of the Property Law Act 1958 (Vic), or in the Court's equitable jurisdiction, that the Court direct a sale of the Nairne Terrace Property.

(c) A declaration that MAG Financial is entitled to all monies owed to it by Wael and Bayda, together with its costs of an incidental to the proceeding and of the sale of the Nairne Terrace Property, from the proceeds of the sale of the Nairne Terrace Property, after satisfaction of the claims of the Westpac Banking Corporation pursuant to its registered mortgage AK741904L.

87 The issues for determination arise from the pleadings in each of the four proceedings and, at the conclusion of the evidence, the parties agreed to a list of issues, which is annexed to these reasons. On 3 July 2021 and 12 July 2021, the MAG Parties and the Plaintiffs each filed an addendum to their respective pleadings in the Derivative Proceeding for the purpose of including issues, which had been the subject of argument but not pleadings.

88 The issues for determination fall broadly within the following headings:

89 The material facts in relation to this issue are not in dispute. The relevant contracts are summarised as follows.

90 By the First Franek Loan Agreement dated 15 April 2015, Mr Franek agreed to lend $100,000 to Wael and Bayda for a term of three months, subject to interest of $12,000 per month payable in arrears, secured by a charge over the Nairne Terrace Property.

91 After the loan was not repaid, by the Second Franek Loan Agreement dated 15 January 2016, Mr Franek agreed to lend $311,000 to Wael and Bayda for a term of three months, subject to interest of $26,000 per month payable in arrears, secured by a charge over the Nairne Terrace Property.

92 After the loan was not repaid, and to secure obligations under the Franek Settlement Deed, by the Franek GSA dated 18 May 2017, Wael, Bayda and the Company as the grantors:

(a) acknowledged that, pursuant to the Second Franek Loan Agreement, Mr Franek had advanced to Wael, Bayda and the Company '(or either of them)' the loaned amount, being the aggregate of $311,000 plus interest accumulated since 16 February 2016 and Mr Franek's legal costs; and

(b) agreed to grant to Mr Franek as the secured party:

(i) a registered second mortgage over the Lower Plenty Property; and

(ii) a charge over all of their real and personal property.

93 By the Franek Settlement Deed dated 18 May 2017, between Mr Franek as the releasing party, Wael and Bayda as the released party, and the Company as the guarantor/released party, it was recited as follows:

1. [Mr Franek] as lender and Wael as borrower have entered into the Loan Agreement whereby [Mr Franek], at the request of Wael, agreed to lend and Wael agreed to borrow the Loaned Amount.

B. Pursuant to the Loan Agreement, amongst others, Wael agreed to:

i. pay the Interest on the Loaned Amount; and

1. repay the Loaned Amount together with Interest within three (3) months of the date of the Loan Agreement.

1. In breach of the Loan Agreement, Wael has failed, refused and/or neglected to repay the Loaned Amount together with Interest on the due date for repayment or at all.

1. At all material times Wael is and was a director and shareholder of [the Company].

1. In consideration of [Mr Franek] entering into this Deed, Wael and [the Company] have agreed to the Settlement.
2. In consideration of [Mr Franek], at the request of [the Company], agreeing to enter into this Deed, [the Company] has agreed to guarantee the due and punctual performance of Wael of the Terms and Conditions in accordance with this Deed and has otherwise to the Settlement.

94 In summary, the parties agreed to the following:

(a) Upon full compliance with the provisions of the Franek Settlement Deed, the parties would mutually release and discharge each other from all claims relating to the Second Franek Loan Agreement.

(b) Wael, Bayda and the Company would enter into a standard form LIV Contract of Sale of Real Estate and transfer to Mr Franek Commercial Unit 002 of the Development, and fit out the property in accordance with the fit-out specifications.

(c) Subject to Wael, Bayda and the Company complying with the obligation in sub-para (b) above, Mr Franek would:

(i) pay the sum of $50,000 on execution of the Franek Settlement Deed;

(ii) pay a further sum of $50,000 on completion of the transfer of Commercial Unit 002 and registration on the title; and

(iii) release Wael and Bayda from liability under the Second Franek Loan Agreement.

(d) In the event that Wael, Bayda or the Company defaulted in taking any step necessary to effect the settlement, Mr Franek had the right to issue legal proceedings and obtain judgment for the loaned amount of $311,000 plus interest of $26,000 per month commencing from 16 February 2016.

95 The Franek Settlement Deed contains the following further relevant clauses:

4.1.1 In the event Wael and/or [the Company] fail to take any steps necessary to effect the Settlement (or any part thereof) in accordance with this Deed, then [Mr Franek] shall have the right to immediately issue legal proceedings in any Court of competent jurisdiction and produce this Deed as to Wael's and [the Company's] consent (at [Mr Franek's] option):

(a) obtain judgment for the Loaned Amount together with the Interest (accrued and calculated as at the date of issuing the proceeding); or

(b) a judgment for damages to be assessed; or

(c) an order for specific performance to enforce the Settlement against Wael and/or [the Company], and

5.1 Upon full compliance with the provisions set forth in this Deed, the parties hereby mutually release and forever discharge each other, their heirs, executors, administrators, assigns, servants and agents from all Claims, suits, actions, expenses of any description whatsoever and demands whatsoever or howsoever arising from or touching upon the subject matter of the Loan Agreement which the party may have or may have had but for this Deed against any other party in respect of any expenses or loss of any kind suffered or incurred by them or any of them otherwise for or by reason of, arising out of or in any way connected with any of the facts and circumstances giving rise to the Loan Agreement including but not limited to all Claims for damages, costs charges and expenses which may hereinafter arise out of or in respect of the alleged cause or causes of action the subject of, and/or in any way connected to, the Loan Agreement

96 Sections 39 and 40 of the Consumer Credit (Victoria) Act 1995 (Vic) ('the Consumer Credit Act') provide as follows:

39 Contract unenforceable if rate exceeds 48 per cent

(1) A credit contract (and any mortgage given to a credit provider in relation to that contract) is unenforceable where the annual percentage rate in respect of the contract exceeds 48.

(2) Nothing in this section affects or limits the powers of the Court under section 70 of the Consumer Credit (Victoria) Code or of a court under section 76 of the National Credit Code if the Court or court is satisfied that the annual percentage rate in respect of a credit contract although not exceeding, in the case of a credit contract in relation to which there is a mortgage, 30, and in the case of any other contract, 48, is excessive or that the transaction is unjust within the meaning of that section 70 or section 76, as the case requires, or is such that a court of equity would give relief.

(3) A credit provider must not enter into a credit contract where the annual percentage rate in respect of the contract exceeds 48.

Penalty applying to this subsection: 10 penalty units.

40 Mortgage void if rate under credit contract exceeds 30 per cent

A mortgage relating to a credit contract in respect of which the annual percentage rate exceeds 30 is void in so far as it relates to that contract.

97 Pursuant to s 38AA of the Consumer Credit Act, the words 'credit contract' and 'credit provider' in the above sections have the same meanings as in the National Credit Code contained in sch 1 to the National Consumer Credit Protection Act 2009 (Cth) ('the Code').

98 Section 4 of the Code provides that a credit contract is 'a contract under which credit is or may be provided, being the provision of credit to which this Code applies'.

99 Section 5 of the Code provides as follows:

(1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into:

(a) the debtor is a natural person or a strata corporation; and

(b) the credit is provided or intended to be provided wholly or predominantly:

(i) for personal, domestic or household purposes; or

(ii) to purchase, renovate or improve residential property for investment purposes; or

(iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and

(c) a charge is or may be made for providing the credit; and

(d) the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.

...

(3) For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose.

(4) For the purposes of this section, the predominant purpose for which credit is provided is:

(a) the purpose for which more than half of the credit is intended to be used; or

(b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used.

(1) This Code applies to a mortgage if:

(a) it secures obligations under a credit contract or a related guarantee; and

(b) the mortgagor is a natural person or a strata corporation.

(2) If any such mortgage also secures other obligations, this Code applies to the mortgage to the extent only that it secures obligations under the credit contract or related guarantee.

(3) The regulations may exclude, from the application of all or any provisions of this Code, a mortgage of a class specified in the regulations.

101 With respect to presumptions under the Code, s 13 provides as follows:

(1) In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.

(2) It is presumed for the purposes of this Code that credit is not provided or intended to be provided under a contract wholly or predominantly for any or all of the following purposes (a Code purpose):

(a) for personal, domestic or household purposes;

(b) to purchase, renovate or improve residential property for investment purposes;

(c) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes;

if the debtor declares, before entering the contract, that the credit is to be applied wholly or predominantly for a purpose that is not a Code purpose, unless the contrary is established.

(3) However, the declaration is ineffective if, when the declaration was made, the credit provider or a person (the prescribed person) of a kind prescribed by the regulations:

(a) knew, or had reason to believe; or

(b) would have known, or had reason to believe, if the credit provider or prescribed person had made reasonable inquiries about the purpose for which the credit was provided, or intended to be provided, under the contract;

that the credit was in fact to be applied wholly or predominantly for a Code purpose.

Is the Second Franek Loan Agreement a 'credit contract', as defined in the National Credit Code?

(a) the borrowers, being Wael and Bayda, are natural persons, satisfying the requirement of sub-s 5(1)(a) of the Code;

(b) a charge was made for the credit, satisfying the requirement of sub-s 5(1)(c) of the Code;

(c) the interest rates under the First Franek Loan Agreement and the Second Franek Loan Agreement exceeded 48%, as proscribed by s 39 of the Consumer Credit Act; and

(d) the credit advanced under the First Franek Loan Agreement and the Second Franek Loan Agreement was intended to be used, and was in fact used, principally for the Development.

103 Accordingly, it is necessary to decide the following:

(a) whether the credit was provided to purchase, renovate or improve residential property for investment purposes, or to refinance credit that had been provided predominantly for such purposes, as required by sub-s 5(1)(b) of the Code ('the Residential Loan Purpose'); and

(b) whether Mr Franek provided the credit:

(i) in the course of a business of providing credit; or

(ii) as part of or incidentally to any other business,

104 The MAG Parties submitted that the Second Franek Loan Agreement is not a credit contract within the meaning of the Code, for the following reasons:

(a) The credit was not provided to Wael and Bayda as borrowers predominantly for the Residential Loan Purpose. The relevant purchase, renovation and improvements were made by the Company, rather than Wael and Bayda. The most that could be said was that Wael and Bayda on-lent the money to the Company.

(b) Mr Franek did not provide the credit in the course of a business of providing credit. Counsel relied upon the following:

(i) Whilst Mr Franek operated a finance broking business, that business did not have a licence to loan money.

(ii) Mr Franek's evidence was that these loans were made in his personal capacity to Wael and Bayda.

(iii) Mr Franek had personally provided loans to people on maybe 10 to 12 occasions prior to the making of the First Franek Loan Agreement, which could not constitute a 'business'.

(c) Mr Franek did not provide the credit incidentally to his other business, being his mortgage broking business '212 Degrees', which was a distinct legal entity.

105 The Plaintiffs submitted that the Second Franek Loan Agreement is a credit contract within the meaning of the Code, for the following reasons:

(a) The credit was provided for the Residential Loan Purpose, being the Development. Mr Franek's evidence was that the sole purpose of the loan related to the Development.

(b) The loan was provided in the course of Mr Franek's business of providing credit, or incidentally to his other business as a finance broker, for the following reasons:

(i) As at April 2015, Mr Franek was operating a brokerage business in which he provided corporate-style debt or construction debt to builders and developers.

(ii) He had advanced loans in his personal capacity 'maybe 10 or 12 times' before the First Franek Loan Agreement.

(c) Mr Franek accepted that he would be liable to pay tax on interest received under the Second Franek Loan Agreement.

Was the credit provided for the Residential Loan Purpose?

106 Courts have expressed divergent views about whether, in determining the purpose for which credit was 'provided or intended to be provided', the Court should have regard to the purposes of the creditor or debtor, subjectively or objectively assessed, or by a combination.[5]

107 In Commonwealth Bank of Australia v Stephens, Sloss J observed that the initial approach focused on the relevant purpose being determined by reference to the intention of the credit provider.[6]

108 In Knowles v Victorian Mortgage Investments Ltd,[7] Croft J adopted the approach of Davies J in Bank of Queensland Ltd v Dutta,[8] that the relevant intention was that of the borrower.[9] Croft J stated:

If the credit provider does not obtain a signed declaration in the required form from the borrower then the credit provider is not afforded the protection of the presumption provided under s 11(2) of the CCC, and thereby invites the difficulty of proving that the loan was not intended to be used wholly or predominantly for personal, domestic or household purposes.[10]

109 In the following cases, intermediate courts of appeal have favoured an approach that the relevant purpose should be assessed objectively, having regard to the substance of the transaction and the surrounding circumstances.

110 In Bahadori v Permanent Mortgages Pty Ltd, in assessing whether the credit provider had rebutted the presumption that the Code applied to the credit contract, Tobias JA (with whom Giles and Campbell JJA agreed) applied the objective approach (on the basis that it was the most favourable to the credit provider), stating:

I accept for the purposes of this exercise that the test most favourable to [the credit provider] is an objective one based upon what a reasonable person would, in all the circumstances, consider to be the purpose for which the loans were intended to be provided. Such a person would be entitled to take into account all the objective circumstances which would otherwise fall for consideration under s 11(3).[11]

111 In Shakespeare Haney Securities Ltd v Crawford, Muir JA stated that the provisions gave rise to difficulties of construction which it was not necessary to resolve on the appeal.[12] However, he considered that the 'preferable' approach was objective, and stated:

An approach to the construction of s 6(1)(b) which considers the substance of the subject transaction and requires an objective assessment would, in my view, be preferable to one which looks to the actual intention of either the borrower or the lender. Plainly, 'the purpose' for which credit is provided or intended to be provided has nothing to do with the lender's general commercial purposes: the reference is to the use to which the credit is to be put. In the great majority of transactions there would be no difficulty in determining the relevant purpose by reference to the terms of the application for credit and of the approval. If the borrower requests credit for a stated purpose and the lender approves the request and makes the loan, there should be no difficulty in concluding that the purpose for which the loan was made was the purpose for which it was requested.

The focus of s 6(1)(b) is on the provision of credit rather than on the obtaining of credit. That is inconsistent with a construction which looks to the debtor's state of mind. Also, one would think that if the legislature had in mind that, in determining the purpose for which credit was provided, the debtor's intention was the governing consideration, s 6(1)(b) would have been worded along these lines:

"The debtor intended to apply the credit wholly or predominantly for personal, domestic or household purposes".[13]

112 In Haynes v St George Bank, Kourakis CJ specifically held that the test for assessing the relevant purpose of the provision of credit was objective.[14] He concluded that the intention of a debtor was not determinative and that the Court must consider 'the substance of the transaction in the context of its performance'.[15]

113 I would adopt the objective test, as held by Kourakis CJ, although in this case I do not consider that the result would be affected by adopting the other suggested tests. To apply the words of Muir JA, as set out at paragraph 111 above, to the circumstances of the case before me, because 'the borrower request[ed] credit for a stated purpose and the lender approv[ed] the request and [made] the loan, there should be no difficulty in concluding that the purpose for which the loan was made was the purpose for which it was requested'.[16]

114 Accordingly, I find that the parties' intention was for the credit under the First Franek Loan Agreement to be applied for the Residential Loan Purpose (being the Development), and for the Second Franek Loan Agreement to refinance the credit for the same purpose.

Was the credit provided for the purpose of Wael and Bayda on-lending it to the Company?

115 Despite that general intention, the residual question for determination is, in relation to s 5(1) of the Code, whether the parties' intention was for the credit to be provided for the purpose of Wael and Bayda on-lending it to the Company (i.e. not for the Residential Loan Purpose)?

116 In determining the purpose of the provision of credit, 'it is important to consider the substance of the transaction' and 'it is appropriate to consider what the money was used for'.[17] All parties to the Second Franek Loan Agreement intended that most of the money would be used for the Development and most of the money was in fact applied for that purpose.

117 Although there was no evidence on this question, it might be assumed that the loan monies applied to the Development would be shown, for accounting purposes, as loaned by Wael and Bayda to the Company. However, there is an air of unreality about finding that the purpose of the loan was limited to on-lending to the Company, particularly in circumstances where the parties' accepted intention was that the money should be applied to the Development, and it was so applied.

118 The substance of the transaction, which was known to all parties, was predominately to provide credit for the Development. To find that this ultimate purpose was diverted by the fact that the credit was channeled through the natural persons behind the related corporation would not be consistent with the broad and liberal interpretation of the Code as a piece of beneficial legislation.[18]

119 The approach of identifying the parties' intention by reference to the ultimate purpose of loan money, despite such loan money being directed through related parties, is consistent with the authorities that have touched on this issue.

120 In Linkenholt Pty Ltd v Quirk, Gillard J considered the application of the Code in the following circumstances:

(a) The defendant, a natural person, was the guarantor of an original loan taken out by a related company for business purposes.

(b) After the related company was wound up, the defendant entered into a credit agreement with the creditor to satisfy his obligations as guarantor.

(c) The defendant argued that the later loan was regulated by the Code because the defendant and the related company were 'completely different entities', and a loan to the defendant to enable him to discharge a personal guarantee was not a loan to any business or a loan for business purposes.[19]

121 Gillard J rejected the defendant's argument and stated that, in determining the purpose of the loan, 'the court must consider the substance and reality of the transaction'.[20] He found that the Code did not apply because, although the credit was provided to the natural person under the later loan, that did not change the nature and character of the original loan to the related company, which had applied the credit funds for business purposes.[21]

122 In Jonsson v Arkway Pty Ltd, Shaw J found that the term 'personal' purpose should not be given a narrow construction limiting it to the debtor's personal, domestic or household purposes. He found that a more expansive or liberal reading of the text should be adopted so that the Code covered credit provided to finance a home for the benefit of the borrower's parents, despite the loan money being channeled through a trust.[22]

123 This is not a case where the loan money was provided to natural persons to do with as they choose; and they simply chose to on-lend it to a company. I do not consider the fact that the relevant residential property was owned by the Company affects the fact that the credit advanced under the Second Franek Loan Agreement was to refinance a loan applied for the Residential Loan Purpose. Accordingly, in my opinion, the requirement under sub-s 5(1)(b) of the Code was satisfied.

Did Mr Franek provide the credit in the course of a business of providing credit?

124 Mr Franek gave the following evidence with respect to his business as a finance broker and his loan to Wael and Bayda:

(a) Since 2008, he had operated a finance brokerage business under the name of '212 Degrees'. In relation to his business, Mr Franek stated:

We specialise in structuring and securing business lending for commercial clients in various industries under an Australian Credit License issued by the Australian Securities and Investments Commission for the purposes of the brokerage business.

(b) Prior to April 2015, he had 'loaned money to Wael a number of times'. He stated that those loans were 'all advanced on the same basis, that is, structured to be short term loans with higher rate of interest given the risk associated with the loan'.

(c) The First Franek Loan Agreement and the Second Franek Loan Agreement were both made in his 'personal capacity'.

(d) In the five years prior to the First Franek Loan Agreement, he had made loans in his 'personal capacity' to clients. As to the frequency, he said that 'it probably would have only been maybe 10 or 12 times'.

125 The expression 'in the course of a business carried on' should be given a similar meaning to the commonly used expression 'carrying on a business'.[23] In the context of the statutory provisions, for conduct to be in the course of business or in carrying on a business, the conduct must form part of a 'commercial enterprise, systematically and regularly, with a view to profit, and implicit in this idea are the features of continuity and system'.[24] Halsbury's Laws of Australia states that an activity that constitutes a business will normally display one or more of the following characteristics:

(1) System and organisation Businesses are commercial enterprises and as such are usually run in a systematic and organised fashion, although the level of organisation and system expected may vary depending on the taxpayer's abilities and the nature of the enterprise. The fact that an enterprise is run in an inefficient manner by a taxpayer with poor business acumen will not preclude the activity from being a business. On the other hand, where an enterprise is entirely a vehicle for the pursuit of pleasure, the mere fact that it is systemic or organised will not transform it into a business.

(2) Scale of activity If an organisation and a system are in place, the scale of the enterprise may be a less important factor. However, the smaller the enterprise, the more important system and organisation becomes, because the smaller the scale of the enterprise, the stronger the inference will be that the activity is for pleasure rather than a commercial pursuit.

(3) Commercial character In a business, it would ordinarily be expected that the transactions the enterprise undertakes would be at arm's length, that is, the enterprise is willing to trade on the open market on the usual terms or conditions operative in that market. A business may be carried on through an agent.

(4) Regularity and frequency Another characteristic of a business is that its transactions would normally be frequent and regular over a reasonable period. The lack of sustained activity may lead to a conclusion that no business is being conducted. Irregular activity may be less significant if there is the willingness to enter into transactions but the market for the service or product fluctuates.

(5) Profit The desire to make a profit in an enterprise generally forms an important element of a business. It is not necessary to show that there is the likelihood of profit in the short to medium term, but there should be at least the likelihood of the enterprise making a profit in the long run. However, the existence of a profit motive alone will not make a venture a business, for example, where the enterprise is primarily a vehicle for pleasure or speculation. The fact that the taxpayer is compelled to undertake the activity does not mean that there is not a profit motive.

(6) Other characteristics Other factors which have been important in determining a business include the type and quantity of goods traded and the vehicle used to conduct the activity. The fact that the activity is illegal, is conducted part-time or is conducted on the taxpayer's behalf will not prevent a business being found. Conversely, the fact that the activity is the sole source of a taxpayer's 'income' does not make it a business activity.[25]

126 In my opinion, Mr Franek has not displaced the presumption under s 13(1) of the Code that the Code applied to the credit contract and, more particularly, that the credit was provided in the course of a business of providing credit, for the following reasons:

(a) Mr Franek's evidence as to the number of loans made up to April 2015 was an estimate and he made no attempt to verify the precise number of loans. Further, he gave no evidence about the quantum of the loans or the income derived from these loans over the years (noting that Mr Franek earned over $1 million of interest on his loans to Wael and Bayda). His evidence as to loans made after April 2015 was similarly unsatisfactory for a party seeking to displace a presumption, being that he made no further loans 'to my best recollection'. However, on the basis of his concession, his lending practice has extended over at least five years while he has operated a finance brokerage business through his related company. The direct provision of credit to clients of his brokerage business is closely related with the procuring of credit through his brokerage business from third parties.

(b) The loan was made in the context of Mr Franek having provided or proposing to provide Wael with finance brokerage services for a facility of approximately $6.5 million in June 2014 for the purposes of the Development.

(c) The First Franek Loan Agreement and the Second Franek Loan Agreement were each made at extremely high interest rates. In the circumstances, I do not accept his evidence that these loans were in the nature of a personal favour, or otherwise than of a commercial character.

Mr Franek's failure to give detailed evidence about the characteristics of his lending activity over the years (in particular, the loan amounts and profitability) means that I am unable to infer that his lending activities were done outside the course of a business of providing credit. This is especially so given the close association with Mr Franek's related brokerage business.

127 I accept the analysis in Dale v Nichols Constructions Pty Ltd that, in determining whether lending occurs in the course of a business, the Court will apply a broad and liberal interpretation appropriate for the Code as a piece of beneficial legislation.[26] In that case, McGill DCJ distinguished the approach of courts to the interpretation of similar expressions in the context of the Moneylenders Acts,[27] which 'are coloured by the penal and sometimes Draconian consequences imposed on those who carry on the business of money lending in contravention of the licensing or other provisions of a statute'.[28]

Did Mr Franek provide the credit as part of or incidentally to any other business?

128 If I am wrong in concluding that the credit was provided in the course of a business of providing credit, in my opinion, for the reasons set out at paragraph 126 above, it was provided incidentally to Mr Franek's brokerage business.

129 The word 'incidental' is not defined in the Code. Its ordinary English meaning, as defined in the Macquarie Dictionary and adopted in the Federal Court, is 'happening or likely to happen in fortuitous or subordinate conjunction with something else'.[29] In Lauvan Pty Ltd v Bega (No 2), Gleeson JA said:

The words 'incidentally to' in s 5(1)(d) may be taken to be an expression of wide import but there must be some connection between another business of the credit provider and the particular loan that provides the credit which, in turn, involves questions of degree.[30]

130 In particular, the conclusion that the Second Franek Loan Agreement was 'connected with' and in 'subordinate conjunction with' Mr Franek's brokerage business arises from the fact that, during the course of the Development, Mr Franek:

(a) as the owner and operator of the brokerage business, was dealing with Wael with respect to the provision of loans for the Development; and

(b) made the loan pursuant to the Second Franek Loan Agreement to Wael predominately for the purpose of the Development.

131 I have arrived at the conclusion that the credit was provided at least incidentally to Mr Franek's business even without the presumption in s 13(1) of the Code, or the liberal interpretation suggested by the authorities. These considerations simply further confirm my conclusion.

132 Accordingly, I find that the Second Franek Loan Agreement is a credit contract, as defined in the National Credit Code. Further, as the annual percentage interest rate exceeds 48, pursuant to s 39 of the Consumer Credit Act, it is unenforceable.

Are the Franek GSA Mortgages void pursuant to s 40 of the Consumer Credit Act?

133 The Franek GSA provided for Wael, Bayda and the Company to grant the following securities under the following clauses:

In consideration of the Secured Party [being Mr Franek]

• lending the Loaned Amount to the Grantor [being Wael and Bayda and the Company]; and

• entering into the Deed of Release & Settlement,

the Grantor as beneficial owner of the Secured Assets, grants the Security in favour of the Secured Party over the Secured Assets and the Collateral Security and charge in favour of the Secured Party all its present and after acquired personal property as a continuing security for the due and punctual performance by the Granter of its obligations under this Deed.

The Grantor [Wael and Bayda] and the Guarantor [the Company], for valuable consideration, hereby grant the Security and mortgages, charges and grants as security interest over the Secured Assets to the Secured Party [Mr Franek] for payment of the Secured Money, and the performance of the obligations imposed on the Grantor under this Deed.

(hereafter referred to collectively as 'the Franek GSA Mortgages').

134 The Franek GSA contains the following relevant definitions and provisions:

(a) 'Secured Assets' is defined to include all real and personal property of the Grantor.

(b) Pursuant to cl 2.1, the parties 'acknowledge and agree that the Secured Party has advanced to the Grantor (or either of them) the Loaned Amount pursuant to the Loan Agreement'.

(c) 'Secured Money' is defined to include the 'Loaned Amount'.

The aggregate of:

(1) $311,000 (Principal); and

(2) the Interest accumulated since 16 February 2016 to the date of this Deed in accordance with the Loan Agreement;

(3) Secured Party's Legal Costs.

(e) 'Loan Agreement' is defined by reference to its definition in the Franek Settlement Deed, which is 'the document titled "Loan Agreement" and dated 15 January 2016 between Mark [Franek] as lender and Wael as borrower', being the Second Franek Loan Agreement.

135 The MAG Parties submitted that the Franek GSA Mortgages are not mortgages within the meaning of s 40 of the Consumer Credit Act, for the following reasons:

(a) The Franek GSA was granted by the Company in consideration of Mr Franek entering into the Franek Settlement Deed. The Franek Settlement Deed superseded the Second Franek Loan Agreement; and therefore the Franek GSA Mortgages were not security given to Mr Franek in relation to the Second Franek Loan Agreement.

(b) The Franek GSA was given by a corporation (the Company), rather than an individual, and therefore it should not be caught by the Consumer Credit Act as a matter of policy, for the following reasons:

(i) The Consumer Credit Act adopts the definition of 'credit contract' in the Code and contains no express definition for the term 'mortgage'.

(ii) Section 7 of the Code provides that it does not apply to mortgages given by a corporation (other than a strata corporation).

(iii) Accordingly, for the Consumer Credit Act and the Code to operate uniformly, the Consumer Credit Act should not apply to mortgages entered into by a corporation.

136 The MAG Parties further submitted that if the Franek GSA is not enforceable insofar as it relates to the Second Franek Loan Agreement, while cl 10.1 (relating to the charging of interest) may not be enforceable, cl 44.5 provides that each provision of the Franek GSA is severable, and accordingly any such finding would not otherwise affect the operation of the Franek GSA.

137 The Plaintiffs submitted that the Franek GSA Mortgages are void pursuant to s 40 of the Consumer Credit Act, for the following reasons:

(a) The MAG Parties' submission that the Franek GSA Mortgages were not security given to Mr Franek in relation to the Second Franek Loan Agreement cannot be sustained, for the following reasons:

(i) clause 3.1 of the Franek GSA states that the security granted was in consideration of Mr Franek 'lending the Loaned Amount [being the amount loaned under the Second Franek Loan Agreement] to the Grantor'; and

(ii) section 40 of the Consumer Credit Act applies if the mortgage relates to the credit contract and does not require the mortgage to be given as security for such a contract.

(b) The MAG Parties' submission that, as a matter of policy, the Franek GSA Mortgages do not fall within s 40 of the Consumer Credit Act on the ground that they were given by a corporation, cannot be sustained because the Consumer Credit Act does not define 'mortgage' by reference to s 7 of the Code. By contrast, the Consumer Credit Act incorporates the Code's definition of a 'credit contract' in s 38AA.

138 In my opinion, the Franek GSA Mortgages are mortgages within the meaning of s 40 of the Consumer Credit Act that relate to the Second Franek Loan Agreement, because:

(a) the Franek Settlement Deed did not supplant the Second Franek Loan Agreement; and

(b) the meaning of mortgage in s 40 of the Consumer Credit Act should not be limited by the meaning of mortgage in the Code.

The Franek Settlement Deed did not supplant the Second Franek Loan Agreement

139 To fall within the ambit of s 40, the Franek GSA Mortgages must relate to a relevant credit contract, in this case, the Second Franek Loan Agreement. The words 'relating to' (or in relation to) are of broad compass but require a direct or indirect connection or relationship between the two subject matters. The closeness of the relationship is ascertained, in any piece of legislation, 'by reference to the nature and purpose of the provision in question and the context in which it appears'.[31]

140 The mortgage pursuant to cl 3.1 of the Franek GSA states that the security granted was in consideration of Mr Franek 'lending the Loaned Amount [being the amount loaned under the Second Franek Loan Agreement] to the Grantor'.

141 The mortgage pursuant to cl 16.1 of the Franek GSA expressly secured, and related to, the 'Secured Money', which by a series of definitions included the amounts due under the Second Franek Loan Agreement.[32]

142 However, the MAG Parties submitted that the Franek GSA Mortgages secure only the Franek Settlement Deed, which had superseded the Second Franek Loan Agreement.

143 I reject this contention. The Franek Settlement Deed was not intended to supersede and replace the Second Franek Loan Agreement. Applying the principles referred to in paragraphs 495 to 502 below, the two agreements do not deal with the same subject matter in inconsistent ways such that it would be impossible for both to be performed. On the contrary, the Franek Settlement Deed discloses no such objective intention, which is demonstrated by the following:

(a) The Franek Settlement Deed, particularly the recitals and cls 4 and 5, demonstrate that the parties' intention was that Wael and Bayda would remain liable under the Second Franek Loan Agreement; but that such liability could be discharged on performance by Wael, Bayda and the Company of their obligations under the Franek Settlement Deed and, in particular, the 'Settlement' (as defined).

(b) Clause 10.1.1 of the Franek Settlement Deed specifically provides that it did not merge with any other agreement 'including, without limitation, the [Second Franek Loan Agreement]'. Similarly, cl 10.1.2 confirmed that the Franek Settlement Deed did not affect any security to which Mr Franek was entitled 'by reason of the [Second Franek Loan Agreement]'.

(c) The Franek GSA, which was executed on the same day as the Franek Settlement Deed, similarly provided in the 'Special Conditions' contained in item 17 of the Schedule that:

(i) on compliance with the Franek Settlement Deed, Wael and Bayda would be released from any liability under the Second Franek Loan Agreement; but

(ii) on any default under the Franek Settlement Deed, Wael and Bayda were liable to 'repay the Loaned Amount (calculated in accordance with the [Second Franek Loan Agreement] ...'.

(d) MAG Financial does not plead any allegation of, and the Franek GSA does not impose, any independent liability on Wael, Bayda or the Company to pay the amount due under the Second Franek Loan Agreement.

I accept the Plaintiffs' submission that this is not a case where 'the first contract is got rid of ... because, the second dealing with the same subject-matter as the first but in a different way, it is impossible that the two should be both performed'.[33]

The meaning of mortgage in s 40 of the Consumer Credit Act should not be limited by the meaning of mortgage in the Code

144 The nature and purpose of s 40 of the Consumer Credit Act is to void a mortgage that imposes an interest rate exceeding 30% per annum insofar as it relates to a credit contract. The provision is of a remedial nature and should be construed as liberally as its terms and context permit.[34]

145 The term 'mortgage' is not defined in the Consumer Credit Act. I reject the MAG Parties' submission that its definition should carry the same limitation as expressed in s 7 of the Code. The fact that the Victorian legislature adopted the definition of 'credit contract' in the Code, but did not do so for the term 'mortgage', is consistent with a legislative intention not to adopt the definition in the Code.

146 Further, the Code does not define the word 'mortgage'. Rather s 7 limits the mortgages to which the Code applies. Even if it could be said that s 7 constituted a definition, the meaning to be attributed to a word in a statute is so dependent on context that there may be little benefit in considering the meaning of a word in one statute from its definition in another statute.[35] The purpose of defining a term is frequently to give it something other than its natural and ordinary meaning.

147 The limited interpretation of the term 'mortgage' suggested by the MAG Parties is also not supported by reference to the history of the provision. The voiding of a mortgage relating to a regulated contract, in respect of which the annual percentage rate exceeded 30%, was introduced by s 150B of the Credit Act 1984 (Vic). Section 5 of that Act relevantly included the following definitions:

[A]n instrument or transaction by or under which a security interest is reserved, created or otherwise arises.

[A]n interest or power -

(a) reserved in or over an interest in goods or other property; or

(b) created or otherwise arising in or over an interest in goods or other property under a mortgage, charge, lien, pledge, trust or power -

by way of security for the payment of a debt or other pecuniary obligation or the performance of any other obligation but does not include an interest or a power reserved, created or otherwise arising under a lease of goods or under a hire-purchase agreement within the meaning of the Hire-Purchase Act 1959.

148 The Consumer Credit Act, as originally enacted in 1995, adopted the Consumer Credit Code set out in the appendix to the Consumer Credit (Queensland) Act 1994 (Qld) as the law of Victoria. However, the Consumer Credit Act retained, in s 40, the provision voiding mortgages relating to credit contracts in respect of which the annual percentage rate exceeded 30%. As the Attorney-General explained in the Second Reading Speech introducing the Bill:

In the matter of maximum interest rates, the bill contains provisions to the same effect as sections 150A and 150B of the Credit Act 1984, thus continuing the existing maxima of 48 per cent and 30 per cent for unsecured and secured loans, respectively.[36]

However, the definition of 'mortgage' in the Credit Act 1984 (Vic) was not included in the Consumer Credit Act; and the retention of the provisions 'to the same effect' was indicative of an intention to retain the provisions as a stand-alone restraint on excessive interest rates, independently of the Consumer Credit Code set out in the appendix to the Consumer Credit (Queensland) Act 1994 (Qld).

149 The Consumer Credit Act was substantially repealed by the Credit (Commonwealth Powers) Act 2010 (Vic), which adopted the Code. However, ss 39 and 40 of the Consumer Credit Act were retained; and the intention for the cap on interest rates provisions to operate independently of the Code was explained by the Minister for Consumer Affairs who stated in the Second Reading Speech:

Pending the outcome of the commonwealth review into interest rate caps, Victoria will retain sections 39 and 40 of the Consumer Credit (Victoria) Act, which cap the rate of interest for unsecured consumer credit contracts at 48 per cent and consumer credit-related mortgages at 30 per cent.[37]

150 In the circumstances, the history of the legislation provides no support for limiting the definition of mortgage to a mortgage granted by an individual.

151 As the interest rates under the Franek GSA Mortgages exceed 30%, the Franek GSA Mortgages are void pursuant to s 40 of the Consumer Credit Act insofar as they relate to the Second Franek Loan Agreement.

Is the Franek Settlement Deed Mortgage void pursuant to s 40 of the Consumer Credit Act?

152 Clause 3.1 of the Franek Settlement Deed ('the Franek Settlement Deed Mortgage') provides as follows:

[Wael, Bayda and the Company] hereby agree to charge his/her/its property, both real and personal, and including any future property as security in favour of Mark for the performance of any obligations and any amounts owing to Mark by Wael and authorise Mark to register a caveat in respect of this charge over any such property.

153 For the same reasons that apply to the Franek GSA Mortgages, the Franek Settlement Deed Mortgage is void pursuant to s 40 of the Consumer Credit Act insofar as it relates to the Second Franek Loan Agreement.

Are Wael and Bayda indebted to MAG Financial as assignee of the Franek GSA for the amount due under the Second Franek Loan Agreement?

154 The MAG Parties submitted that Wael and Bayda are jointly and severally indebted to MAG Financial for the amount due under the Second Franek Loan Agreement, for the following reasons:

(a) The Franek GSA defines 'Secured Money' as including the amount due under the Second Franek Loan Agreement.

(b) Mr Franek's rights under the Second Franek Loan Agreement were validly assigned to MAG Financial.

(c) The Secured Money had become due and payable under cl 21.1 of the Franek GSA.

(d) Pursuant to cl 1.2.2 of the Franek GSA, an obligation of two or more parties to the Franek GSA shall bind them jointly and severally.

155 I reject the submissions of the MAG Parties for the following reasons:

(a) As set out at paragraph 143 above, the Franek GSA does not impose any independent liability on Wael and Bayda to pay the amount due under the Second Franek Loan Agreement; and it does not purport to supplant the Second Franek Loan Agreement.[38]

(b) Accordingly, as I have found that the Second Franek Loan Agreement is unenforceable, the security with respect to it, under the Franek GSA, is similarly unenforceable.

Is the Company indebted as guarantor under the Franek Settlement Deed to MAG Financial for the amount due under the Second Franek Loan Agreement?

156 The MAG Parties submitted that the Company is liable to pay the amount due under the Second Franek Loan Agreement pursuant to the guarantee contained in the Franek Settlement Deed.

157 The Plaintiffs contended that the terms of the Franek Settlement Deed provide an alternative arrangement for:

(a) the repayment of the 'Loaned Amount' (as defined); and if not repaid

(b) the enforcement of the obligation to repay the 'Loaned Amount'.

The Plaintiffs further submitted that the Franek Settlement Deed does not impose upon Wael or the Company a fresh obligation to repay the 'Loaned Amount'.

Relevant provisions of the Franek Settlement Deed

158 The relevant provisions of the Franek Settlement Deed are as follows.

(a) Clause 1.1.13 provides that 'Loan Agreement' means 'the document titled "Loan Agreement" and dated 15 January 2016 between Mark as lender and Wael as borrower a copy of which appears as Annexure A to this Deed [being the Second Franek Loan Agreement]'.

(b) Clause 1.1.14 provides that 'Loaned Amount' means 'the amount specified in Item 13 [which provides for an amount of $311,000]'.

Wael and/or [the Company] hereby agree to charge his/her/its property, both real and personal, and including any future property as security in favour of [Mr Franek] for the performance of any obligations and any amounts owing to [Mr Franek] by Wael and authorise [Mr Franek] to register a caveat in respect of this charge over any such property.

In the event Wael and/or [the Company] fail to take any steps necessary to effect the Settlement (or any part thereof) in accordance with this Deed, then [Mr Franek] shall have the right to immediately issue legal proceedings in any Court of competent jurisdiction and produce this Deed as to Wael's and [the Company's] consent (at [Mr Franek's] option):

(a) obtain judgment for the Loaned Amount together with the Interest (accrued and calculated as at the date of issuing the proceeding); or

(b) a judgment for damages to be assessed; or

(c) an order for specific performance to enforce the Settlement against Wael and/or [the Company], and

plus costs incurred by that [Mr Franek] to the date of default assessed on an indemnity basis, plus any costs of commencing the action and obtaining judgment (to be fixed by the Court), plus any statutory interest which has accrued from the date of this Deed to the date of the judgment.

[The Company] unconditionally guarantees to [Mr Franek] the due and punctual performance by Wael of all obligations pursuant to or in connection with this Deed and the due and punctual observance and performance of Wael of all its other liabilities, obligations and agreements (whether monetary or non-monetary, present or future, actual or contingent) to [Mr Franek] pursuant to or in connection with this Deed.

163 I do not consider that the Company is liable to pay the amount due under the Second Franek Loan Agreement by reason of the provisions of the Franek Settlement Deed, for the following reasons:

(a) On its terms, the guarantee of the Company contained in cl 6.1 does not extend to the amount due under the Second Franek Loan Agreement because:

(i) the guarantee only extends to Wael's obligations 'pursuant to or in connection with this Deed'; and

(ii) the Franek Settlement Deed does not purport to impose a liability on the Company to pay the amount due under the Second Franek Loan Agreement.[39]

Clause 4.1.1 is a facilitative provision which only operates so as to permit a party to enter judgment for an existing outstanding liability, relevantly in this case, the amount due by Wael and Bayda under the Second Franek Loan Agreement.[40]

(b) For the reasons set out at paragraphs 370 to 371 below, any guarantee of the Company of the amount due under the Second Franek Loan Agreement is discharged by reason of MAG Financial's refusal of the July Tender of the amount due under the Second Franek Loan Agreement.

164 The material facts in relation to this issue are as follows:

(a) By written acknowledgment signed 30 May 2016, the El Saafin Brothers declared that they had received an amount of $1.9 million as a loan from Mr Sacca and that 'we are liable to return it back to him within one year from the date of this statement with any cost related to it' ('the Sacca Loan Agreement').

(b) By writ filed 27 April 2018 in the Sacca Proceeding, Mr Sacca claimed repayment of $1.9 million pursuant to the Sacca Loan Agreement.

(a) Mr Sacca agreed to lend, and did lend, to (at least) the El Saafin Brothers the sum of $1.9 million ('the Sacca Debt').

(b) The loan was intended to be, and was applied for the purpose of repaying the then first mortgagee of the Arden Street Property, Banner Capital Management Ltd ('Banner Capital').

166 Accordingly, the issues for determination are as follows:

(a) is the Company a party to the Sacca Loan Agreement and therefore liable for the Sacca Debt; and if so

(b) is the Sacca Debt subrogated to the secured rights of Banner Capital.

167 The Plaintiffs submitted that the Company is not a party to the Sacca Loan Agreement, for the following reasons:

(a) On Mr Sacca's own evidence, in the conversations between Wael and Mr Sacca that gave rise to the Sacca Loan Agreement, there was no reference to the Company being a party to the Sacca Loan Agreement.

(b) The written acknowledgment of the Sacca Loan Agreement signed on 30 May 2016 makes no reference to the Company.

(c) Any alleged obligation on the Company to repay the Sacca Debt would be a guarantee, which could not be relied upon by reason of s 126 of the Instruments Act 1958 (Vic) because there was no written evidence recording such an obligation.

(d) The post-contractual conduct is consistent with the Company not being a party to the Sacca Loan Agreement. In particular, on 27 April 2018, Mr Sacca commenced the Sacca Proceeding against the El Saafin Brothers seeking to recover the Sacca Debt. The Company was not a defendant to that proceeding and the statement of claim did not allege that the Company was a party to the Sacca Loan Agreement. Further, by his affidavit sworn 11 June 2018 in support of an application for summary judgment in the Sacca Proceeding, Mr Sacca deposed that '[n]either of the defendants have repaid the sum of $1,900,000'. There was no reference to the Company.

168 The Plaintiffs further submitted that the Sacca Debt is not subrogated to the secured rights of Banner Capital by the operation of law, for the following reasons:

(a) The evidence points against an intention that the Sacca Loan Agreement would be secured. According to Mr Sacca's witness statement, all that Wael said was that Mr Sacca 'would have the title until the refinance happened'. An oral agreement to provide the title does not give rise to a security interest. In any event, Wael denied this allegation on the basis that he could not provide the title to Mr Sacca because he needed it to fund the construction. Rather, Mr Sacca's evidence demonstrated that he advanced the $1.9 million in his 'capacity as an established and respected member of the Arab community in Melbourne to assist Wael', notwithstanding that this was contrary to his bank manager's advice, because he was a successful businessman and tried to help people if he could.

(b) The original security in favour of Banner Capital was not 'kept alive' for Mr Sacca. The Company was Banner Capital's debtor; but the El Saafin Brothers were the debtors of Mr Sacca. Therefore, there was no coincidence between the original mortgagor (being the Company) and the subsequent alleged mortgagors (being the El Saafin Brothers).

(c) MAG Financial, as the assignee of the Sacca Loan Agreement, could not be subrogated to the secured rights of Banner Capital because of the third party rights arising when Balanced Securities took a new first mortgage over the Arden Street Property to secure the construction finance.

169 The MAG Parties submitted that the Company is a party to the Sacca Loan Agreement, and is therefore liable for the Sacca Debt, for the following reasons:

(a) Wael accepted in cross-examination that Mr Sacca had advanced the loan to the Company.

(b) A handwritten summary of the financial position of the Company prepared in August 2017 included a loan 'George Sacca 2.2M'.

(c) By his liquidator's report to the Court dated 2 August 2019, Mr Caspaney found that the sum of $1.9 million was due and payable by the Company at the time of the settlement of the Arden Street Property.

(d) Mr Sacca's evidence was that he paid $1.9 million on the understanding that he 'would have the title until the refinance happened'.

(e) On 30 May 2016, at the time of signing the acknowledgment of the loan:

(ii) Hassan had resigned as the Company secretary on 27 May 2016, only a few days prior; and

(iii) Wael had resigned as a director on 3 May 2016.

(f) Mr Sacca lent the funds for the purpose of paying out the Company's first mortgagee, Banner Capital.

170 The MAG Parties further submitted that the Sacca Debt is subrogated to the secured rights of Banner Capital, for the following reasons:

(a) Where a lender makes an unsecured loan to pay out a secured creditor, there is a rebuttable presumption at equity that the security is kept alive for the lender's benefit.

(b) The $1.9 million loan from Mr Sacca was used to pay out Banner Capital. The Company and the El Saafin Brothers failed to provide the promised security to Mr Sacca.

171 The determination of whether a particular term was part of an oral agreement made some years ago is often difficult.[41] As Spigelman CJ explained in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd:

[T]he subject matter and the concomitant terms of the [oral] contract must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provide a definitive form of words. The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the parties agree?[42]

172 As the parties' submissions demonstrate, there are certain objective circumstances pointing to competing conclusions about whether the Company is or is not a borrower under the Sacca Loan Agreement.

173 Although it is common ground that the funds would be used for the purpose of repaying (wholly or partly) the mortgage over the Arden Street Property, I am unable to conclude that the intention of the parties, objectively assessed, was that the Company would be a borrower under the Sacca Loan Agreement, for the following reasons:

(a) The Sacca Loan Agreement was based on conversations between Wael and Mr Sacca in April and May 2016. Neither Wael nor Mr Sacca gave evidence that in those conversations it was agreed that the Company would be a borrower.

(b) The written acknowledgment of 30 May 2016 only referred to the El Saafin Brothers.

(c) In the Sacca Proceeding, including in his affidavit in support of an application for summary judgment, Mr Sacca did not allege that the Company was a borrower under the Sacca Loan Agreement.

(d) I do not consider that the fact that the loan funds were to be applied for the purposes of repaying a mortgage over land owned by the Company leads irresistibly to the conclusion that the Company was a borrower. The evidence is that the loan was based on a personal relationship between Mr Sacca and the El Saafin Brothers. The fact that Mr Sacca would want the El Saafin Brothers personally obligated to repay the debt as borrowers is not inherently unlikely.

(e) I am not persuaded that Wael promised Mr Sacca that he would be provided with the title to the Arden Street Property, for the following reasons:

(i) There was no contemporaneous evidence supporting Mr Sacca's allegation. In particular, there was no reference to such a term in the 30 May 2016 written acknowledgment, or in Mr Sacca's pleadings or affidavit filed in the Sacca Proceeding.

(ii) Mr Sacca's evidence in the witness box about the substance of the conversations with Wael which constituted the Sacca Loan Agreement was nearly incoherent, and I do not believe that he has retained any independent recollection of the substance of those conversations.

(iii) I accept Wael's evidence that it is inherently unlikely that he would have agreed to provide the title in circumstances where the Company required the title to obtain finance for the completion of the Development.

174 Wael's alleged acceptance in cross-examination that the Company was a borrower, referred to in the MAG Parties' submissions, was ambiguous and I do not consider that he intended to make any such admission. Later in cross-examination, Wael specifically denied that the Company was a borrower.

175 Accordingly, I find that the Company is not a party to the Sacca Loan Agreement, and therefore is not liable for the Sacca Debt.

176 The MAG Parties did not contend that the Sacca Debt could be:

(a) subrogated to the secured rights of Banner Capital; or otherwise

if the Company was not a borrower under the Sacca Loan Agreement.

177 Accordingly, I find that the Sacca Debt is not subrogated to the secured rights of Banner Capital.

178 By the Mekkya Loan Agreement dated 1 March 2012, between the Company as developer, and Mr Mekkya as investor, it was recorded as follows:

(a) The Company had borrowed the sum of $750,000 from Mr Mekkya 'to enable the finance of the Development on the Site', being the Arden Street Property.

(b) The term of the loan was 36 months or the date of completion of the Development (but no later than 48 months from the date of the Mekkya Loan Agreement).

179 Mr Mekkya alleges that the Company owes him $750,000 pursuant to the Mekkya Loan Agreement, which is comprised of the following:

(a) 'Capital Sum' of $450,000 on account of financial support provided by Mr Mekkya; and

(b) the sum of $300,000 for architectural, design, planning and management services provided by Mr Mekkya to the Company in relation to the Development.

180 The Plaintiffs deny that the Company is liable to Mr Mekkya under the Mekkya Loan Agreement on the following bases:

(a) the Company did not enter into the Mekkya Loan Agreement; or alternatively

Did the Company enter into the Mekkya Loan Agreement?

181 In summary, Mr Mekkya's evidence about the agreements underlying the Mekkya Loan Agreement was as follows:

(a) After the Company became the registered proprietor of the Arden Street Property on 20 December 2011, Wael (on behalf of the Company) and Mr Mekkya orally agreed that:

(i) Mr Mekkya would redesign the Development to increase the number of units; and

(ii) the Company would transfer to Mr Mekkya the largest apartment in the Development.

This agreement is not the subject of the current dispute.

(b) From early 2012, Wael (on behalf of the Company) orally requested that Mr Mekkya 'provide financial support to [the Company] from time to time, and [he] did so'.

This agreement was alleged to be the genesis of the $450,000 'Capital Sum' component of the Mekkya Loan Agreement.

(c) 'During the period 2012 to 2017 and from time to time, Wael El-Saafin requested [Mr Mekkya] to provide services to [the Company] in the nature of project management services in connection with various construction projects that [the Company] had ongoing from time to time'.

This agreement was alleged to be the genesis of the $300,000 services component of the Mekkya Loan Agreement.

182 In summary, Mr Mekkya's evidence about the preparation and execution of the Mekkya Loan Agreement was as follows:

(a) In March 2014, Mr Mekkya engaged Mr El-Hissi to draft an investment loan document to record the amounts owing by the Company with respect to the financial support and services provided by Mr Mekkya as at that date. His evidence was that he instructed Mr El-Hissi to draft the Mekkya Loan Agreement after the following discussion with Wael:

I told Wael El Saafin that the balance owing to me from Saafin Constructions Pty Ltd in respect of the financial support provided to date by me was about $350,000 to $400,000. Wael El Saafin told me to 'call it $450,000' on the basis that I would continue to provide financial support to Saafin Constructions Pty Ltd on an ongoing basis. Wael El Saafin and I also agreed on a figure of $300,000 in regard to the project management services that I had provided to Saafin Constructions Pty Ltd up until that point.

(b) Mr El-Hissi prepared the Mekkya Loan Agreement, which purports to be dated '1 day of March 2012'. Mr Mekkya thought the backdating was Mr El-Hissi's idea, but he was not sure.

(c) On about 19 March 2014, Mr Mekkya signed the Mekkya Loan Agreement and his signature was witnessed by Mr El-Hissi.

(d) The circumstances surrounding the signing of the Mekkya Loan Agreement were as follows:

(i) the Mekkya Loan Agreement was signed in Mr Mekkya's office or the Company's office, which were in the same building;

(ii) Mr El-Hissi and Mr Mekkya went from Mr Mekkya's office to the Company's office where it was signed by Wael and Hassan; and

(iii) Mr Mekkya was 90% sure that Mr El-Hissi was there, and he thought Mr El-Hissi would be able to confirm that the Mekkya Loan Agreement was signed in his presence.

(e) The execution clause attached to the original Mekkya Loan Agreement in the possession of the MAG Parties' solicitor is shown in the following photograph:

(hereafter referred to as 'the first execution clause').

(a) A summary sheet recording his hours of services, which he gave evidence was updated by him each time a transaction occurred from 19 September 2011 to 30 October 2016.

(b) A loan statement showing amounts paid to or on behalf of the Company and amounts received from the Company between 20 February 2012 and 27 November 2017. The document shows the outstanding debt as at 19 March 2014 as $404,751.45 and the outstanding debt as at 27 November 2017 as $868,538.11.

Evidence of communications between the parties

184 The evidence of communications between the parties after the alleged execution of the Mekkya Loan Agreement was as follows:

(a) By an alleged email of 19 March 2014 to New Concept Design (copied to Wael), Mr El-Hissi stated:

Dear Amr,

Signed agreement attached as requested.

If you otherwise require anything further, please do not hesitate to contact me.

Attached to the email, which was tendered in its native form, was the Mekkya Loan Agreement with the following execution clause where the purported signatures of Wael and Hassan had a different appearance in that they appear as if partially re-written over the top of an original:

(hereafter referred to as 'the second execution clause').

(b) By heads of agreement dated 19 February 2018 signed by Hassan on behalf of the Company, and Mr Mekkya on behalf of 'New Concept Pty Ltd',[43] it was agreed that an independent accountant would 'work out ... who owes money to the other and how much'.

(c) On 26 February 2018, Mr Mekkya lodged a caveat over the Arden Street Property claiming an interest under the Mekkya Loan Agreement.

(d) By emailed letter dated 9 March 2018 to Mr Mekkya's solicitors (Indovino's Lawyers), with respect to the caveat lodged by Mr Mekkya over the Arden Street Property, Mr Nair stated:

[W]e have also been notified by our client that your client has lodged a caveat on the property without consent of our client. On our instructions, there is no valid basis for the lodgment of that caveat. Our client demands that this caveat be withdrawn immediately or we will be forced to take necessary actions to have it removed and produce this letter on the question of cost.

(e) By emailed letter dated 13 March 2018 to Mr Nair, Indovino's Lawyers stated that the caveat lodged by Mr Mekkya over the Arden Street Property was lodged pursuant to cl 7.4.1 of the Mekkya Loan Agreement.

(f) By emailed letter dated 15 March 2018, Mr Nair replied and stated that the Company denied the existence of any loan agreement between it and Mr Mekkya and requested evidence of the transfer of $450,000 to the Company.

(g) On 27 April 2018, Mr Mekkya filed the Mekkya Proceeding alleging that the Company owed him the sum of $975,000 under the Mekkya Loan Agreement.

185 I am not satisfied that Mr Mekkya and the Company reached an agreement in the terms of the Mekkya Loan Agreement, or that Hassan and Wael signed the document which constitutes the Mekkya Loan Agreement, for the following reasons:

(a) The agreement underlying the Mekkya Loan Agreement is said to be based on an oral agreement made in 2012 for the provision of finance and services. Mr Mekkya's evidence in support of the relevant conversation or conversations was generalised and brief in the extreme.

(b) There was no document evidencing a claim for repayment of finance or services provided prior to the date on which Mr Mekkya alleged the Mekkya Loan Agreement was executed. In fact, except for the email allegedly sent on the day of signing, no document was produced referencing the Mekkya Loan Agreement prior to Mr El-Hissi lodging the caveat over the Arden Street Property on behalf of Mr Mekkya on 26 February 2018.

(c) Mr Mekkya's evidence about the circumstances which led to the preparation of the Mekkya Loan Agreement in 2014 was also general and brief. Mr Mekkya's evidence is to the effect that, in March 2014, without reference to any supporting documentation, Wael:

(i) said 'call it $450,000' for finance provided, in response to Mr Mekkya saying to him that 'financial support provided to date by [him] was about $350,000 to $400,000'; and

(d) The evidence of Mr Mekkya about the circumstances which led to the signing of the Mekkya Loan Agreement in 2014 was uncertain and unconvincing. The evidence was first given in cross-examination. He gave no evidence about the relevant circumstances in his witness statement or in his examination in chief. Counsel for the MAG Parties did not open as to the circumstances and nor were they put to Wael or Hassan in cross-examination.

(e) There was no explanation for the failure to call Mr El-Hissi who, according to the evidence of Mr Mekkya:

(i) prepared the document backdated to 1 March 2012;

(iii) was present when the document was signed by Wael and Hassan; and

(iv) copied Wael to the alleged email of 19 March 2014 which attached the Mekkya Loan Agreement.

(f) Although under the Mekkya Loan Agreement, the Company was obliged to pay Mr Mekkya the sum of $975,000 on 1 March 2016, there is no evidence of any demand for payment of this or any other sum under the Mekkya Loan Agreement prior to the filing of the Mekkya Proceeding on 27 April 2018.

186 I hesitate to conclude that Wael and Hassan did not sign the final page in circumstances which would bind them to the Mekkya Loan Agreement. However, I am not so satisfied because of the following:

(a) The circumstances referred to in the previous paragraph.

(b) The absence of satisfactory evidence explaining how the final page was signed by Wael and Hassan, in particular, the failure to call Mr El-Hissi.

(c) Wael and Hassan gave clear and persuasive evidence and insisted that they had never entered into the Mekkya Loan Agreement.

(d) Mr Mekkya, on the other hand, gave evidence that was inherently improbable in material respects and he was generally not a convincing witness. His credibility was also affected by the fact that, as I find below, he was a central participant in the Arrangement (as defined in paragraph 426 below), a scheme involving documentation relating to the assignment of debts and the transfer of the Arden Street Property, which did not reflect the reality of the transactions. Further, his witness statement failed to disclose the true nature of the Arrangement and the transactions.

187 Counsel for the MAG Parties was critical of Wael and Hassan's refusal to admit that the signatures on the final page of the document were respectively theirs, until they made that concession in the witness box.

188 I do not consider such criticism to be reasonable. There is no dispute that the copy of the Mekkya Loan Agreement that Wael and Hassan were shown prior to the commencement of this trial contained the second execution clause. These signatures were substantially different from their signatures in the first execution clause. They both readily identified their respective signatures when shown the copy of the final page with the first execution clause.

189 Accordingly, I am not satisfied, on the balance of probabilities, that the Company entered into the Mekkya Loan Agreement.

190 In case I am wrong in my conclusion as to the validity of the Mekkya Loan Agreement, I propose to deal with the Plaintiffs' further argument that, even if the agreement was otherwise valid, Mr Mekkya's own records establish that the Mekkya Debt, being the sum of $982,848.22, has been repaid.

191 There was considerable evidence about the financial dealings between the Company and Mr Mekkya. Issues between them led to the heads of agreement on 19 February 2018 that an independent accountant would 'work out ... who owes money to the other and how much'.

192 Although the enforceability of the Mekkya Loan Agreement was an issue in this trial, it is common ground that the question of what amount was owing to one party or the other (including their respective related entities) on the running account between the parties, was not to be determined in this trial and no issue of estoppel was to arise with respect to that question. In fact, by paragraph 9 of my order made 10 December 2020, all issues with respect to claims against the Company by Mr Mekkya and his related entities (referred to in paragraphs 17 to 23C of MAG Financial, AAGG and the Builders' counterclaim filed 14 December 2020) were referred to a special referee for determination.

193 The Plaintiffs submitted that any amount due under the Mekkya Loan Agreement (the existence of which was denied) had been repaid, and relied on the following:

(a) The Mekkya Loan Agreement records a principal sum of $750,000 outstanding as at 1 March 2012 and a liability for the Company to repay that sum, together with $225,000, no later than 1 March 2016.

(b) Mr Mekkya's 'draft reconciliation' of the running account records that he received payments from and on behalf of the Company totalling $1,010,075 between 8 November 2012 and 9 July 2016, as follows:

194 The MAG Parties submitted that the evidence established that the amount due under the Mekkya Loan Agreement had not been repaid, and relied on the following:

(a) The Company's liquidator, Mr Caspaney, verified the amount due by the Company pursuant to Mr Mekkya's claim as being $1,004,016.76.

(b) The El Saafin Brothers' notes from 2017 acknowledged that Mr Mekkya was owed a significant sum of money.

(c) Wael's evidence conceded a debt, and Hassan gave inconsistent evidence on the issue.

(d) Mr Mekkya's evidence was supported by contemporaneous records, including the draft reconciliation.

195 On Mr Mekkya's own evidence, his instructions to Mr El-Hissi were to draw the alleged Mekkya Loan Agreement based on the payments made, and the services provided by him, to the Company as at that date (being March 2014), which were respectively reflected in the draft reconciliation and the various time sheets for work performed for the Company.

196 On the face of the Mekkya Loan Agreement, the amount owing of $750,000 as at 1 March 2012, together with the interest charge of $225,000, should be presumed to have been repaid by the amount of $1,010,075 paid by the Company up to 9 July 2016. This is an application of the principle in Clayton's Case,[44] by which payments are presumed to be appropriated to debts in the order in which the debts were incurred.

197 Even if I accept Mr Mekkya's parol evidence that an amount of $750,000 was outstanding as at 1 March 2014, the amount of any debt should be reduced by the $932,000 paid in the period from 26 May 2014 to 9 July 2016.

(a) the fact that Mr Caspaney, in his liquidator's report, concluded that the Company owed a substantial debt to Mr Mekkya is neither admissible nor relevant to the question of whether the amount owed pursuant to the Mekkya Loan Agreement had been discharged by payments made by the Company up to July 2016; and

(b) although Mr Mekkya's draft reconciliation records that further debts continued to be incurred by the Company to him in the period up to July 2016, and that amounts may well be due from the Company to Mr Mekkya, that issue is the subject of the reference to a special referee. As I noted above, the question of the current state of the running account between the Company and Mr Mekkya is not an issue in this trial.

199 Accordingly, if the Mekkya Loan Agreement was a valid agreement, I am satisfied that the Company has repaid the Mekkya Debt, being the amount due under the Mekkya Loan Agreement.

Should the Default Judgment relating to the Mekkya Debt be set aside?

200 The material facts in relation to this issue are as follows.

201 On 27 April 2018, Mr Mekkya filed the Mekkya Proceeding alleging that the Company owed him the sum of $975,000 pursuant to the Mekkya Loan Agreement.

202 On 27 April 2018, according to an affidavit sworn 14 May 2018 by a legal assistant employed by NOH Legal, the deponent served the writ and statement of claim in the Mekkya Proceeding by posting it to the Company at its registered address, being: 'c/- Taxline Group, 334 - 347 Sydney Road, Coburg'.

203 On 15 May 2018, Mr Mekkya entered judgment in default of appearance ('the Default Judgment') in the Mekkya Proceeding against the Company in the sum of $982,848.22, being $975,000 plus interest of $4,808.22 and costs of $3,040.

204 On 28 May 2018, Mr Nair was informed by the Company directors that they had been notified that the Default Judgment had been entered against the Company.

205 On 8 June 2018, Hassan submitted a report to Victoria Police alleging that Wael and Hassan's signatures on the Mekkya Loan Agreement had been forged. The allegation of forgery was based on a copy of the document which contained the second execution clause. As referred to above, when Wael was shown the first execution clause in the witness box, he admitted that it was his signature. However, he insisted that, although the last page included his signature, he did not sign the document.

206 By summons filed 5 July 2018, the Company applied for the Default Judgment to be set aside on the basis that it did not receive the writ and that it had a prima facie defence to the claim. The application was supported by an affidavit sworn 4 July 2018, in which Mr Nair deposed that the Company had not been served with the writ at its registered office and that the Receivers had not been aware of the Mekkya Proceeding.

207 By email of 6 August 2018 to Mr Kucianski, Mr Halse noted that the application to set aside the Default Judgment was listed on 10 August 2018. With respect to the underlying debt, he explained as follows:

The consideration under the loan and investment agreement was two fold:

1. cash advances totaling $450k

2. services to the value of $300k in regards to Arden Street

I am instructed that the sum of $450k has been advanced by way of various payments made by my client at the request of the Company. My client has a detailed spreadsheet which he will provide by replying to this email. Secondly, there can be no question the services have been provided as the 65-67 Arden Street development progressed to construction.

Please advise your position in respect of this matter. It is my view that the Summons cannot proceed and my client is prepared to provide any further necessary information to substantiate the claim. I note that the signature on the agreement is identical to other signatures of the Saafins on other documents. For instance, see attached Franek General Security Agreement.

208 The application was listed for hearing on 15 August 2018. However, by letter dated 7 August 2018 to Mr Mekkya, the Administrators advised that they had been appointed as administrators of the Company on 3 August 2018 and accordingly, the Mekkya Proceeding was stayed pursuant to s 440D of the Corporations Act 2001 (Cth) ('Corporations Act').

209 On 3 December 2018, Judicial Registrar Burchell ordered that the proceeding be dismissed with no adjudication on the merits, after recording in 'Other Matters' as follows:

1. The Plaintiff's Counsel advised the Court by correspondence dated 30 November 2018 that the Defendant was placed into Liquidation on 12 November 2018.

2. The defendant's legal representative informed the Court that the application under section 237 of the Corporations Act 2001 was refused by Justice Lyons in a ruling made on 9 November 2018. On 13 September 2018, the defendant requested that orders be made that the proceeding be dismissed with no adjudication on the merits and no order as to costs.

210 On 31 March 2021, following the consent of the parties, it was determined that the Mekkya Proceeding should be transferred to the Supreme Court of Victoria for the purpose of this Court dealing with the application to set aside the Default Judgment.

211 The Plaintiffs submitted that the Default Judgment should be set aside, for the following reasons:

(a) The Company has a prima facie defence on the merits, as previously submitted, because the Company did not enter into the Mekkya Loan Agreement and the alleged Mekkya Debt due under the Mekkya Loan Agreement has been repaid.

(b) The reason for the default in filing an appearance was explained by the fact that the Company was not served with the writ.

(c) The Company promptly filed the application to set aside the Default Judgment, and any delay in the disposition of that application should be attributed to Mr Mekkya's decision to appoint, and the MAG Parties' dealings with, the Administrators which resulted in them consenting to abandon the application.

(d) Mr Mekkya has not identified any relevant prejudice which he would suffer if the application were granted.

212 The MAG Parties submitted that the Default Judgment should not be set aside, for the following reasons:

(a) The affidavit filed in support of the application to set aside the Default Judgment alleges that the Mekkya Loan Agreement was fraudulent on the basis that the purported signatures of the directors were not their true signatures. In this regard, the MAG Parties repeated their submissions with respect to the validity of the Mekkya Loan Agreement and further submitted that Wael agreed in cross-examination that it was his signature on the document.

(b) Although Mr Nair deposes that the writ was not served on the Company, this is directly contradicted by the affidavit of service.

(i) the five weeks between when Mr Nair was informed about the Default Judgment on 28 May 2018 and the date of the filing of the application to set aside the Default Judgment on 5 July 2018; and

(ii) the Company's failure to take any steps to press the application until late in this trial.

(d) If the Court was to set aside the Default Judgment, the determination of the Derivative Proceeding may be delayed.

213 The circumstances relevant to the exercise of the Court's discretion to set aside a judgment entered in default include the following:

(a) Whether the defendant has a defence on the merits.

(b) The reason for the default of the defendant which resulted in the judgment.

(c) Whether the application to set aside the judgment was made promptly after the judgment came to the knowledge of the defendant.

(d) If the judgment is set aside, whether the plaintiff would be prejudiced in any respect which could not be adequately compensated by a suitable award of costs and the giving of security.[45]

(b) Mr Nair, the deponent of the affidavit filed in support of the application to set aside the Default Judgment.

Accordingly, I proceed on the basis that the judgment was regularly entered; but the writ never came to the attention of the Company's directors.

215 In my opinion, the Default Judgment should be set aside for the following reasons:

(a) As the defence has been fully canvassed at this trial, I have concluded that:

(i) the MAG Parties are unable to establish the validity of the Mekkya Loan Agreement to the requisite standard; and

(ii) even if the Mekkya Debt referred to in the Mekkya Loan Agreement had been so advanced, it has been entirely or at least substantially repaid.

Accordingly, in the unusual circumstances of this case, I am satisfied that Mr Mekkya's claim under the Mekkya Loan Agreement should fail. This is a powerful reason in support of my decision to set aside the Default Judgment.

(b) Although I accept that the writ was posted by ordinary mail to the registered office of the Company, I am satisfied that, for whatever reason, the writ did not come to the attention of the Company directors. This conclusion is supported by the fact that, in my opinion, it is likely that if it had come to their attention, they would have filed an appearance because:

(i) the Company, by its solicitors, had denied any entry into the Mekkya Loan Agreement prior to the filing of proceedings; and

(ii) the El Saafin Brothers filed appearances in the Sacca Proceeding, which was filed by Mr Sacca on the same day by the same solicitors.[46]

(c) In the circumstances of this case, in which the directors were disputing the appointment of the Receivers and attempting to raise funds to repay secured creditors, I do not consider that the delay of five weeks in the filing of the summons is sufficient to justify a refusal of the application to set aside the Default Judgment. Similarly, any delay by the Company in arranging for the transfer of the application to this Court is explicable by the fact that:

(i) the application was put on hold through the intervention of the Administrators appointed by MAG Financial; and

(ii) the Company directors' application for derivative leave to bring this proceeding included the issue of the validity of the Mekkya Loan Agreement.

(d) The execution of the Mekkya Loan Agreement has been an issue in the Derivative Proceeding from at least the time the application for derivative leave was granted by Lyons J on 28 July 2020. Accordingly, I do not consider that setting aside the Default Judgment will cause any relevant prejudice to the MAG Parties.

216 In the Derivative Proceeding, the Plaintiffs press the following claims against the Receivers:

(a) their appointment as receivers on 9 April 2018 under the Franek GSA was invalid;

(b) their conduct in taking possession of, and denying the Plaintiffs access to, the Arden Street Property constituted trespass until their appointment under the Balanced Facility Agreement; and

(c) they breached their fiduciary duties by failing to accept the June Tender and the July Tender, or alternatively, failing to resign.

Validity of the appointment of the Receivers on 9 April 2018 under the Franek GSA

217 By email of 10 April 2018 to Mr Nair, Mr Koroneos attached various documents including an ASIC Form 504 which recorded that the Receivers were appointed on 9 April 2018 pursuant to the terms of the Franek GSA. On 7 May 2018, the Receivers resigned their appointment under the Franek GSA.

218 On 7 May 2018, MAG Financial appointed the Receivers as joint and several receivers of the Company pursuant to the terms of the Balanced Facility Agreement. The validity of this appointment is not in dispute.

219 In relation to the entitlement to appoint receivers, the Franek GSA contains the following relevant provisions:

(a) Clause 16.10.4 provides that, at any time after an Event of Default, Mr Franek may appoint a receiver of the 'whole or any part of the Secured Assets'.

(b) Clause 1.1.15 defines an 'Event of Default' as 'any of the matters set out in Clause 21 of this Deed'.

(c) Clause 21.1 provides that 'Secured Monies' are immediately due and payable on the happening of certain specified events.

220 In summary, the Receivers and the MAG Parties contended that the appointment of the Receivers was valid on one or more Events of Default under cl 21 of the Franek GSA.

221 The Plaintiffs submitted that the appointment of the Receivers was invalid because the Second Franek Loan Agreement was unenforceable, and there was no other debt existing at the time of the Receivers' appointment which might have been secured by the Franek GSA. Accordingly, there was no basis to appoint the Receivers to enforce a debt that did not exist.

222 The Receivers and the MAG Parties did not submit that there was any other basis on which the appointment of the Receivers could be valid if the Second Franek Loan Agreement was unenforceable and if the Franek GSA Mortgages and the Deed of Settlement Mortgage were void insofar as they related to the Second Franek Loan Agreement.

223 As I have found that the Second Franek Loan Agreement was unenforceable and that the Franek GSA Mortgages and the Deed of Settlement Mortgage were void insofar as they related to the Second Franek Loan Agreement, I therefore conclude that the appointment of the Receivers under the Franek GSA was invalid.

224 In case I am wrong in these findings, I propose to consider each of the three bases relied upon by the MAG Parties and the Receivers in appointing the Receivers on 9 April 2018 under the Franek GSA.

Was the appointment of the Receivers on 9 April 2018 valid on the basis of a failure by the Company to execute a contract of sale in default of the Franek Settlement Deed?

225 The material facts and communications in relation to this issue are as follows.

226 By cl 2.2 of the Franek Settlement Deed, the Company and/or Wael agreed that, on the date of the execution of the Franek Settlement Deed (being 18 May 2017) they would enter into a standard form LIV Contract of Sale of Real Estate prepared by the Company's lawyers (on terms satisfactory to Mr Franek, in his sole discretion, but acting reasonably) which would contain a special condition with respect to stamp duty (which is not presently relevant to this issue).

227 This obligation was said to be for the purposes of effecting the 'Settlement', which was defined to mean, in substance, that the Company, Wael and Bayda would transfer to Mr Franek Commercial Unit 002 on or before 18 November 2018, in accordance with item 9 of the Schedule to the Franek Settlement Deed.

228 By email of 14 June 2017 to Wael, Mr Franek stated:

We were expecting the contract of sale/section 32 and the duplicate mortgage by 26/05.

As per my email sent today, it's imperative that the contract of sale/section 32 be completed and signed off by no later than 30 June 2017 due to the change in stamp duty for investors buying off the plan.

229 By email of 27 June 2017 to Mr Franek, Wael forwarded an email of the same date from the Company's solicitors (Viclaw Lawyers), which attached a contract of sale with special conditions. The contract of sale was unsigned and did not include the particulars of sale.

230 By email of 30 June 2017 to Viclaw Lawyers, Mr El-Hissi replied and attached a substitute set of special conditions which, relevantly, deleted a number of the special conditions proposed by Viclaw Lawyers. Mr El-Hissi stated:

We have been provided with the Contract of Sale and Section 32.

We are instructed as follows:

1. The attached Special Conditions are to replace the Special Conditions in your version of the Contract;

2. Special Condition 28 must be completed;

3. Particulars of Sale are to be completed;

4. Inclusion List to reflect the fitout agreed between our clients (Wael can advise you of this as he has the Deed of Settlement and Release which specifies the agreed fitout).

We note that our clients are keen to execute the documents tomorrow prior to the stamp duty changes taking formal effect.

If you otherwise require anything further, please do not hesitate to contact me.

The deletions to the special conditions proposed by Mr El-Hissi are referred to in paragraph 237 below.

231 By email of 3 July 2017 to Mr El-Hissi, Viclaw Lawyers stated that they had been unable to contact Wael to seek his instructions but hoped to reply by the next day.

232 By email of 11 August 2017 to Mr Franek, Wael forwarded an earlier email from Viclaw Lawyers, which had provided an updated contract of sale to the real estate agent.

233 By email of 17 August 2017 at 5:59 pm to Viclaw Lawyers, Mr El-Hissi stated:

We refer to our previous email correspondence.

The attached Special Conditions are to be used in our client's contract.

Please forward the COS with the attached SCs as a matter of urgency.

234 By email of 17 August 2017 at 11:42 pm to Wael, Mr Franek stated:

The COS/Sect32 was incorrect.

[Mr El-Hissi] emailed [Viclaw Lawyers] in May of this year with clear instructions as to what was required for our contract. She simply had to insert the attached special conditions which refers to our agreement.

It's a very, very simple 5 minute job for her and yet after what has been 4 months, it's not right.

Can you please follow up with [Viclaw Lawyers] to make sure she follows the instructions. Use the special conditions attached in place of hers. Simple.

We really need to get this covered off before the end of next week. I'm sure you want it done and dusted as much as I do.

235 By email of 29 August 2017 to Wael, Mr Franek stated:

Please see below. I haven't heard back from you at all and neither Mr El-Hissi or I have had any response from Victoria of VicLaw Lawyers.

I tried to call you today but no return call.

The special conditions were supplied to Victoria. All she had to do is simply insert them in place of hers. Could it be more simple?

236 By emailed letter dated 29 December 2017 to Wael, with respect to the relevant alleged breach, Mr El-Hissi stated:

We refer to the Deed of Release and Settlement dated 18 May 2017 between our client and, amongst others, you [Deed].

In accordance with the Deed you were required to procure Saafin Constructions Pty Ltd to execute a standard LIV Contract of Sale of Real Estate for Commercial/Office Space marked 002 at 65-67 Arden Street, North Melbourne.

In breach of the Deed you have failed, refused and/or neglected to execute the said Contract.

In the circumstances, our client is holding you in breach of the Deed. Pursuant to clause 4 of the Deed our client is entitled to issue legal proceedings in any Court of competent jurisdiction and produce a copy of the Deed as evidence of the consent of you and Saafin Constructions Pty Ltd to, at our client's option:

(a) Judgment for the sum of $311,000 together with interest of $26,000 per month from 16 February 2016 to the date of judgment. As at the date of this letter the total sum due to our client is $883,000 (being $311,000 plus interest of 22 months at $26,000 per month);

(b) Judgment for damages to be assessed; or

(c) An order for specific performance.

...

Our client hereby demands payment of the sum of $933,000 within 14 days from the date of this letter. We are instructed that our client will enforce his rights under the Deed and the General Security Agreement in the event that the payment is not made by the deadline specified herein.

We note that under the General Security Agreement our client is able to appoint a receiver over Saafn [sic] Constructions Pty Ltd. This step, if taken, will cause significant prejudice to Saafin Constructions ability to complete the project at 65-67 Arden Street, North Melbourne. We urge you to take the matters specified herein seriously and satisfy your obligations to our client.

Mr Franek's evidence was that there was no response to this correspondence.

237 The special conditions proposed by Viclaw Lawyers in their email of 27 June 2017, which the MAG Parties required to be deleted by Mr El-Hissi's email of 30 June 2017, were as follows:

3.2 Limitation of Purchaser's Rights

(a) The Purchaser may not make any requisition or objection, claim compensation or refuse or delay payment of the Price for any:

(i) misdescription or alleged misdescription of the Land or inaccuracy in its area or measurements; or

(ii) failure to comply with a law applicable to land or a requirement of any Relevant Authority; or

(iii) minor variations (being variations which will not materially affect the Property) between the Property or the Land as inspected by the Purchaser and the corresponding lot as shown on the Plan of Subdivision as registered; or

(iv) other amendments or variations on the Plan of Subdivision which do not affect the Property; or

(v) works affecting the natural surface level of the Property or any land abutting it or any variations or alterations to those works.

(b) The Purchaser may not call upon the Vendor to amend title, rectify any failure to comply with a law applicable to land or a requirement of any Relevant Authority to bear the cost of doing so.

The Purchaser acknowledges that prior to the registration of the Plan of Subdivision the Vendor may subdivide or consolidate any and all of the lots on the Plan of Subdivision (other than the lots hereby sold except to consolidate them) and make such consequential adjustments to lot entitlement and lot liability provided that the total lot entitlement and total lot liability shall not be altered and the Purchaser agrees to make no requisition nor claim any compensation in relation thereto.

8.2 Investment of the deposit

(a) In compliance with General Condition 11.1, if the Deposit is paid by cheque, the Vendor and the Purchaser authorise the Vendor's Estate Agent to invest the Deposit (or that part of it) in an interest bearing trust account with the vendor's Estate Agent's Bank, provided that both parties provide their tax file number, until the earliest to occur of:

(i) settlement;

(ii) release of the Deposit to the Vendor under the provisions of section 27 of the Sale of Land Act 1962; or

(iii) termination or rescission of the Contract.

(b) Any interest earned on the money invested under special condition 8.2 (less all proper bank and government charges, fees, and taxes) will be paid to the Vendor.

17. GUARANTEE

17.1 Entitlement to Guarantee

If the Purchaser is or includes a company, which is not listed on the Australian Stock Exchange, the Purchaser must deliver to the Vendor together with this Contract the Guarantee executed by all of the directors of the Purchaser.

17.2 Completion of Guarantee

The Purchaser must complete the Guarantee by:

(a) inserting its name, Australian Company Number or Australian Registered Business Number and the address of its registered office in Item 1 of the Schedule to the Guarantee; and

(b) inserting the full names and addresses of the directors of the Purchaser in Item 2 of the Schedule to the Guarantee, and

(c) procuring the execution and dating of the Guarantee by the directors in the manner set out in the Guarantee.

18 INDEMNITY

Without limiting Special Condition 16, the Purchaser indemnifies the Vendor for all cost, liability, loss or damage incurred or suffered by the Vendor caused or contributed to by the Purchaser's failure to comply with this Contract including, without limitation, liability incurred under another contract of sale.

238 The MAG Parties rely on the Event of Default in sub-cl 21.1.2 of the Franek GSA which provides that Secured Monies are immediately due and payable: 'If [Wael, Bayda or the Company] defaults under or fails duly to observe and perform ... any Transaction Document ...'. Pursuant to cl 1.1.44 and item 18 of the Schedule to the Franek GSA, the Franek Settlement Deed is a 'Transaction Document'.

239 The MAG Parties contended that the Company, Wael and Bayda had defaulted under cl 2.2 of the Franek Settlement Deed by failing to execute the contract of sale as required by Mr Franek. In particular, it was submitted that the deletions of each of the following the special conditions proposed by Mr Franek's solicitor were reasonable, for the following reasons:

(a) Special Condition cl 3.2 limited the purchaser's rights in the event that the property was misdescribed.

(b) Special Condition cl 5.1(e) entitled the vendor to vary or amend the plan of subdivision prior to registration.

(c) Special Condition cl 8.2 related to the vendor's right to invest the deposit, which was irrelevant in circumstances where no deposit was paid or payable.

(d) Special Condition cl 17 was an irrelevant clause relating to the provision of a guarantee by an unlisted corporate purchaser, where Mr Franek was an individual.

(e) Special Condition cl 18 was an indemnity for loss arising from the purchaser's failure to comply with the contract in circumstances in which no further consideration was payable by Mr Franek.

240 The MAG Parties submitted that none of the special conditions provided by Viclaw Lawyers on 27 June 2017, including those which Mr Franek sought to amend, are found in the standard form LIV Contract of Sale of Real Estate.

241 In relation to this basis for their appointment, the Receivers adopted the MAG Parties' submissions.

(a) There had been no failure on the Company's part to execute the necessary contract of sale which had been provided by Viclaw Lawyers on 27 June 2017.

(b) The special conditions provided by Mr El-Hissi on 30 June 2017 went considerably beyond the stamp duty amendment contemplated in the Franek Settlement Deed.

(c) Any failure to complete the contract arose from Mr Franek's efforts to re-write the agreement reached in the Franek Settlement Deed.

243 In the circumstances, I am satisfied that the Company failed to enter into a standard form LIV Contract of Sale of Real Estate on terms satisfactory to Mr Franek, in his sole discretion but acting reasonably, for the reasons submitted by the MAG Parties.

244 The deletion of the special conditions, as proposed by Mr Franek's solicitor, do not appear to be unreasonable in any way, and there was no evidence or submission as to why it could be said that Mr Franek had acted unreasonably in doing so. This conclusion is reinforced by the fact that, at no time following the proffering of the amended contract of sale on 30 June 2017, did Viclaw Lawyers suggest that the special conditions required by Mr Franek's solicitor were unreasonable or propose any amendments to such terms.

245 Accordingly, if the Second Franek Loan Agreement had been valid and enforceable, the MAG Parties would have established an Event of Default under the Franek GSA giving rise to an entitlement to appoint the Receivers.

Was the appointment of the Receivers on 9 April 2018 valid on the basis of a misrepresentation as to the value of Commercial Unit 002?

246 The material facts and communications in relation to this issue are as follows.

247 By the Franek Settlement Deed dated 18 May 2017, in substance it was agreed that:

(a) Wael and the Company would transfer to Mr Franek Commercial Unit 002 and fit out the property in accordance with the fit-out specifications set out in item 11 of the Schedule; and

(b) as consideration, Mr Franek would release and discharge the Second Franek Loan Agreement and pay a further sum of $50,000 at the direction of Wael or the Company.

248 By email of 23 April 2017 to Mr Franek, Wael attached the 'Project List' for the Arden Street Property, which provided details of each of the apartments in the Development including the total area and price of each apartment ('the 2017 Project List'). Relevantly, it recorded the price of Commercial Unit 002 as $610,000.

249 By email of 19 April 2018 to Mr El-Hissi and Mr Franek, Mr Nair confirmed that an attached price list was 'the most up to date price list' ('the 2018 Price List'). Relevantly, it recorded the price of Commercial Unit 002 as $382,200.

250 The MAG Parties rely on the Event of Default in sub-cl 21.1.12 of the Franek GSA which provides that Secured Monies are immediately due and payable if:

[T]he Grantor or another person has given incorrect, misleading or untrue information in connection with this Deed, the Secured Assets or a Collateral Security.

(a) the representation in the 2017 Project List that the market value of Commercial Unit 002 was $610,000, which Mr Franek deposed was confirmed to him orally between 23 and 27 April 2017, was a misrepresentation;

(b) the falsity of the representation was demonstrated by the fact that it was inconsistent with the 2018 Price List, which showed the price of Commercial Unit 002 as $382,200; and

(c) the giving of this incorrect, misleading or untrue information was an Event of Default under cl 21.1.12 of the Franek GSA.

252 The MAG Parties further submitted that, if the Court accepted the explanation of Wael (as set out at paragraph 254 below), the $610,000 market value was still grossly overstated as it contemplated a fit-out cost of $228,000 for a single retail space.

253 In relation to this basis for their appointment, the Receivers adopted the MAG Parties' submissions.

254 The Plaintiffs submitted that the difference in price was readily explained by Wael's evidence that the $610,000 price in the 2017 Project List incorporated the fit-out cost of Commercial Unit 002, while the $382,200 price in the 2018 Price List was without fit-out.

255 The estimate of market value in the 2017 Project List is a representation as to opinion and not a representation as to fact. A statement of an opinion will commonly convey 'no more than that the opinion expressed is held and perhaps that there is basis for the opinion'.[47]

256 Accordingly, for the MAG Parties to prove that the price of $610,000 for Commercial Unit 002 was 'incorrect, misleading or untrue information', it would be necessary to establish that the opinion was not honestly held or that there was no basis for the opinion.

257 It was not alleged, and I am not satisfied, that Wael did not honestly hold or had no reasonable basis for putting forward the opinion as to the price for Commercial Unit 002 in the 2017 Project List. In particular, I note the following:

(i) the value of Commercial Unit 002 at or about April 2017; or

(ii) how the 2017 Project List was compiled or how the prices were estimated.

(b) Objectively, there would have been good reason for the value of Commercial Unit 002 that was communicated to Mr Franek to have been estimated on the basis of it being fitted out because Mr Franek was entitled to the unit fitted out, in accordance with item 11 of the Franek Settlement Deed.

(c) It was not put to Wael that he had no such opinion or that the opinion had no reasonable basis.

(d) I do not accept the MAG Parties' submission that I should infer that the cost of fitting out Commercial Unit 002 could not have been in the order of $228,000. No evidence was led on that question and I have no basis for drawing such an inference.

258 In reaching this conclusion, I had regard to the apparently inconsistent evidence of Wael in further examination as to whether the price of $610,000 was with or without fit-out. Wael's evidence was:

(a) first, to the effect that the price of $610,000 in the 2017 Price List was including fit-out; and

(b) later, to the effect that the price of $610,000 was a figure negotiated with Mr Franek without fit-out because 'he wants to finish it off because that needs a permit for what sort of business he going to make, in the finishing - he can employ another builder to finish it'.

259 Apart from the internal inconsistency, the state of the evidence about the negotiations between Wael and Mr Franek in April 2017 is unsatisfactory because:

(a) the later evidence of Wael was that the figure of $610,000 was negotiated with Mr Franek as the cost price and makes no reference to the fact that it was referred to as the 'Price' in the 2017 Project List; and

(b) Mr Franek's evidence was that he was told by Wael that Commercial Unit 002 had a market value of $610,000.

260 Wael was not cross-examined on this issue, and I am not satisfied that either Mr Franek or Wael had any independent recollection of a conversation in April 2017.

261 Accordingly, even if the Second Franek Loan Agreement had been valid and enforceable, the appointment of the Receivers on the basis of a misrepresentation as to the value of Commercial Unit 002 would not have been valid.

Was the appointment of the Receivers on 9 April 2018 valid on the basis of the termination of the Building Contract as a material adverse change under the Franek GSA?

262 The material facts and communications in relation to this issue are as follows.

263 By the Franek Settlement Deed, Wael and the Company were required to transfer to Mr Franek Commercial Unit 002 by 18 November 2018.

264 By letter dated 22 March 2018 to the Builder, the Company served a 'Notice of Contractor's Default', providing notice of the Company's intention to terminate the Building Contract unless the Builder provided clear evidence that it had remedied the contractor's defaults identified in the notice.

265 By report dated 28 March 2018, Napier & Blakeley assessed the works at the Development as at 28 February 2018, and stated its forecast completion date as 4 December 2018, one month later than its previous forecast completion date, and seven months later than the original date for practical completion of 4 May 2018.

266 By email of 5 April 2018, Mr Nair served a termination notice on the Builder.

267 On 6 April 2018, the Builder and the Company entered into the Standstill Agreement (reflected in the order of Sloss J set out at paragraph 42 above) under which neither party would carry out any works at the Development until 23 April 2018 or until further order of the Court.

268 By email of 9 April 2018 at 9:24 pm to Mr Nair, Mr Koroneos advised that he acted for the Receivers, and with respect to a minute of proposed order which had been provided to the Receivers, stated:

I note that in paragraph 2 of 'Other Matters' in the Minute, the plaintiff agreed to allow the Company and its servants and agents to inspect the Site (as defined therein). I hereby put the parties on notice that my clients object to any party on behalf of the Company inspecting the Site without my clients' prior written approval. My clients will take steps to arrange an inspection of the Site this week.

269 The MAG Parties rely on the Events of Default in sub-cls 21.1.22 and 21.1.23 of the Franek GSA which provide that Secured Monies are immediately due and payable if:

21.1.22 the Grantor does or fails to do anything, or permits anything to be done, with the result that, in the Secured Party's reasonable opinion:

1. The value to the Secured Party of the security conferred on it by this Deed is materially and adversely affected; or

b. Any of the Secured Assets is in jeopardy;

21.1.23 there is a material, adverse change in the assets, financial position or business of the Grantor which, in the Secured Party's reasonable opinion, might affect the ability of the Grantor or the Guarantor to comply with its obligations under this Deed, Security, Transaction Document or a Collateral Security; ...

270 The MAG Parties submitted that the termination of the Building Contract by the Company on 5 April 2018 was a relevant material adverse change under cl 21.1.23, because:

(a) the construction of the Development was only 22% complete; and therefore

(b) the termination was likely to affect the ability of the Company to transfer the fully completed Commercial Unit 002 to Mr Franek by 18 November 2018, as required by the Franek Settlement Deed.

271 The Receivers submitted that the termination of the Building Contract on 5 April 2018, the Standstill Agreement and the delay in completing the construction of the Development constituted a material adverse change in the assets and business of the Company which might have affected its ability to comply with its obligations under the Franek Settlement Deed.

272 The Plaintiffs submitted that the dispute between the Company and the Builder did not constitute a material adverse change, for the following reasons:

(a) Clause 21.1.22 of the Franek GSA was directed to the value of the security being materially and adversely affected by the grantor's actions.

(b) The MAG Parties have not explained how delays in completing the Development impaired Mr Franek's security.

(c) There is no evidence that Mr Franek reasonably considered that the delays to the Development were causing an adverse effect to his security.

(d) Such a belief could not be reasonably held because the termination of the Builder's engagement was taken to secure the efficient completion of the Development.

(e) The Development had not 'ground to a halt'. The project's quantity surveyor, Napier & Blakeley, assessed the progress of works as follows:

(i) as at 12 December 2017, 19.1% progressed from 15.8% at the time of the previous report;

(ii) as at 2 February 2018, 21.9% progressed from 18.2%; and

(iii) as at 28 March 2018, 25.2% progressed from 21.9%.

(f) If work did grind to a halt, then that was a result of the Builder's dilatory process, which was part of the plan devised between Mr Franek and Mr Mekkya.

273 Under sub-cls 21.1.22 and 21.1.23 of the Franek GSA, it is a necessary element of an Event of Default that the secured party forms a relevant opinion being:

(a) for cl 21.1.22, that the value to the secured party of the security is materially or adversely affected, or that any of the secured assets are in jeopardy; and

(b) for cl 21.1.23, that there has been a material, adverse change in the assets, financial position or business of the grantor which might affect the ability of the grantor or the guarantor to comply with its obligations.

274 Mr Franek gave no evidence that he formed the requisite opinion. In the absence of such an opinion, the entitlement to appoint receivers pursuant to either sub-clause is not enlivened. The absence of evidence that Mr Franek (as the representative of MAG Financial) had formed the relevant opinion at the time of the Receivers' appointment, is an 'insurmountable hurdle' confronting MAG Financial in its attempt to support the Receivers' appointment on this basis.[48]

275 In fact, it is not clear on the evidence that Mr Franek was even aware of the termination of the Builder at the time of the appointment of the Receivers. It may be inferred that Mr Franek became aware of the termination no later than 9:24 pm on 9 April 2018, when the Receivers' solicitor sent the email referring to the minute of the proposed order before Sloss J. However, the evidence is silent on whether he was aware of the termination at any point before he signed the deed of appointment of the Receivers on 5 April 2018 or the Receivers accepted the appointment on 9 April 2018.

276 In Vision Telecommunications Pty Ltd v Australia and New Zealand Banking Group Ltd, Pidgeon AUJ came to the conclusion that an event of default which required the formation of an opinion by the lender, could be relied upon if the material circumstances existed at the time of the appointment; but the relevant opinion was formed later.[49]

277 His Honour stated that this decision was consistent with the approach of Kenny JA in Australia & New Zealand Banking Group Ltd v Pan Foods Company Importers & Distributors Pty Ltd.[50] With respect, her Honour's finding in that case was that the bank was entitled to rely upon the event of default based on its relevant opinion, despite not relying upon it in its notice of demand, because the evidence established that the bank had formed the opinion of a material adverse change prior to the giving of the notice. In fact, her Honour said:

It was, of course, for the appellants to establish, first, the existence of these events or circumstances and, secondly, that the bank, through an appropriate officer, had directed its mind to the events or circumstances and had formed the requisite opinion prior to the giving of notice under cl. 11.1(b).[51]

278 Her Honour's conclusion was that it did not matter whether the bank relied upon the particular cause to justify the delivery of the notice providing 'the facts which justified the taking of that step [were] shown to have existed at the time the step was taken, though the bank did not know of the justification at that time'.[52]

279 Even if the Second Franek Loan Agreement had been valid and enforceable, the MAG Parties have failed to prove that Mr Franek formed the requisite opinion prior to the appointment of the Receivers. Accordingly, the appointment of the Receivers on the basis of the termination of the Building Contract as a material adverse change would not have been valid.

280 If the formation of the requisite opinion had been proved, I would have found that such opinion had a reasonable basis, for the following reasons:

(a) Whether the adverse change is 'material', as required by cl 21.1.23 of the Franek GSA, must be determined by reference to the context. An adverse change in the assets, financial position or business of the Company is material if, in the reasonable opinion of Mr Franek, the adverse change significantly affected or had a substantial effect on the Company's assets, financial position or business.[53]

(b) The termination of the Builder, the cessation of works and the entry into the Standstill Agreement might each significantly affect the value of a site under construction, particularly in circumstances where the date for practical completion of the Development was forecast to be delayed by seven months shortly prior to the cessation of works.

Did the appointment of the Receivers deprive the Company of the use and enjoyment of the Arden Street Property and cause the Company to lose the interest expenses incurred?

281 As set out above, the Plaintiffs claim that the Receivers' conduct in taking possession of, and denying the Plaintiffs access to, the Arden Street Property constituted trespass. The Plaintiffs' primary argument was that by restricting access to the site from the date of their initial appointment on 9 April 2018 until their resignation on 7 May 2018, the Receivers prevented the Plaintiffs from continuing work on the Development and that this delay caused the Company to incur further interest expenses on its loans.

282 The material facts in relation to this issue are as follows.

283 On or about 9 April 2018, the Receivers were appointed pursuant to the terms of the Franek GSA.

284 By email of 9 April 2018 to Mr Nair, Mr Koroneos advised that he acted for the Receivers and with respect to a minute of proposed order which had been provided to the Receivers stated:

I note that in paragraph 2 of 'Other Matters' in the Minute, the plaintiff agreed to allow the Company and its servants and agents to inspect the Site (as defined therein). I hereby put the parties on notice that my clients object to any party on behalf of the Company inspecting the Site without my clients' prior written approval. My clients will take steps to arrange an inspection of the Site this week.

285 By email of 10 April 2018 at 7:56 am to Mr Nair, Mr Koroneos stated:

I refer to my email below and confirm that my clients do not authorise any inspection of the Site without their prior written approval. Please do not enter the Site. A representative of my clients will be in contact with you this morning.

I will also contact you later this morning to discuss.

286 By email of 10 April 2018 at 9:52 am to Mr Nair, Mr Koroneos restated the refusal to allow an inspection of the site.

287 By email of 11 April 2018 to Wael (copied to Mr Hodges), Napier & Blakeley stated that the site had been 'locked up this morning' and they would 'need to put our inspection down to an abortive visit'.

288 By a report dated 20 April 2018, the BSS Group recorded that they had inspected the works on 16 and 19 April 2018.

289 On 7 May 2018, the Receivers resigned their appointment under the Franek GSA and, on the same day, they were reappointed pursuant to the terms of the Balanced Facility Agreement.

(a) The taking of possession of the Arden Street Property by the Receivers constituted a trespass until they resigned their first appointment on 7 May 2018.

(b) The fact that the Receivers granted representatives of the Company access to the Arden Street Property on request does not displace the trespass because, in the meantime, the Receivers interfered with the Company's possession of the Arden Street Property.

(c) The Plaintiffs are entitled to a declaration that the Receivers were trespassers between 9 April 2018 and 7 May 2018, without proof of loss.

(d) As a result of the trespass, the Company sustained loss and damage, being the additional interest expenses the Company incurred under the Balanced Facility Agreement and the Second Franek Loan Agreement from the expiration of the Standstill Agreement on 23 April 2018 until the Receivers' resignation on 7 May 2018.

(e) The evidence of Hassan was that the Company would have taken steps to see that it was in a position to resume construction work on the Arden Street Property as soon as possible. The Receivers denied the Company the ability to take those steps.

(a) At the time of the appointment of the Receivers on 9 April 2018, the Company had just terminated the Building Contract and had not engaged a new builder to continue construction works.

(b) The Receivers facilitated inspections of the Arden Street Property.

(c) On 6 April 2018, Sloss J had noted the Standstill Agreement as effective until 23 April 2018 or further order. Accordingly, the Company was unable to use and enjoy the Arden Street Property for the first 10 days of the Receivers' appointment in any event.

(d) There was no evidence to establish that the additional interest expenses would not have been incurred but for the Receivers' trespass because, in circumstances where the Receivers were reappointed under the Balanced Facility Agreement on 7 May 2018, there is no evidentiary basis for finding that construction work could have resumed prior to that date.

(a) The Plaintiffs have not tendered any evidence regarding:

(i) the steps that the Company would have taken to see that construction work resumed at the Arden Street Property;

(ii) the steps that the Company would have taken pursuant to the Franek GSA;

(iii) the extended period required to complete the Development; and/or

(iv) the dates by which the Company would have been able to complete the Development, to settle the sales of the units, and to repay the money owing pursuant to the Balanced Facility Agreement and/or the Second Franek Loan Agreement.

(b) The alleged trespass did not cause the pleaded interest expenses to be incurred. Rather, the interest expenses were incurred at the date the Company entered into the Balanced Facility Agreement and the Second Franek Loan Agreement, which was prior to the alleged trespass.

293 The MAG Parties and the Receivers did not dispute the proposition that the Receivers asserted control over the Arden Street Property after their appointment on 9 April 2018 until their resignation on 7 May 2018.

294 However, the Company's liability for interest under the Balanced Facility Agreement and the Second Franek Loan Agreement would have continued during that period, regardless of the appointment of the Receivers. There is no evidence that the progression of the Development was hampered by the receivership and it is most unlikely that it would have been in the following circumstances:

(a) The Building Contract had been terminated and there was no evidence of the availability of any alternative builder.

(b) The Development was subject to the Standstill Agreement from 6 April 2018 to 23 April 2018, and so no work could proceed on the Development during that time in any event.

(c) Any attempts to progress the Development would have come to an end in any event by the appointment of the Receivers under the Balanced Facility Agreement on 7 May 2018.

295 In the circumstances, I find that the Plaintiffs have made out their claim for trespass. However, for the reasons outlined above, they have proved no resulting loss or damage and accordingly, are entitled to nominal damages only.

Should the Court exercise its discretion pursuant to s 419 of the Corporations Act?

296 Section 419 of the Corporations Act gives the Court a discretion to relieve receivers who have been wrongfully appointed of liability for their conduct, including wrongful possession, in certain circumstances. Section 419 provides as follows:

(1) A receiver, or any other authorised person, who, whether as agent for the corporation concerned or not, enters into possession or assumes control of any property of a corporation for the purpose of enforcing any security interest is, notwithstanding any agreement to the contrary, but without prejudice to the person's rights against the corporation or any other person, liable for debts incurred by the person in the course of the receivership, possession or control for services rendered, goods purchased or property hired, leased (including a lease of goods that gives rise to a PPSA security interest in the goods), used or occupied.

(2) Subsection (1) does not constitute the person entitled to the security interest a mortgagee in possession.

(3) Where:

(a) a person (in this subsection called the controller) enters into possession or assumes control of property of a corporation; and

(b) the controller purports to have been properly appointed as a receiver in respect of that property under a power contained in an instrument, but has not been properly so appointed; and

(c) civil proceedings in an Australian court arise out of an act alleged to have been done by the controller;

the court may, if it is satisfied that the controller believed on reasonable grounds that the controller had been properly so appointed, order that:

(d) the controller be relieved in whole or in part of a liability that the controller has incurred but would not have incurred if the controller had been properly so appointed; and

(e) a person who purported to appoint the controller as receiver be liable in respect of an act, matter or thing in so far as the controller has been relieved under paragraph (d) of liability in respect of that act, matter or thing.

297 The Receivers submitted that the Court should afford relief under s 419 of the Corporations Act on the basis that the Receivers believed, on reasonable grounds, to have been properly appointed, for the following reasons:

(a) They undertook appropriate checks to determine whether they had been validly appointed. In particular, they relied on the evidence of Mr Dixon that, at a meeting on 4 April 2018, Mr Franek and his solicitor advised them of:

(i) the general background to the loan and security documents in favour of Mr Franek;

(ii) the various defaults under the loan and security documents by the Company;

(iii) the ongoing dispute between the Company and the Builder engaged to construct the apartment complex on the Arden Street Property;

(iv) the lack of progress of the Development at the Arden Street Property; and

(v) the financial position of the Company and other debts owed by the Company to secured creditors.

(b) Both witnesses gave evidence that 'they believed their appointment was valid based on, amongst other things, what was told to them at the pre-appointment conference at the RACV Club, the existence and terms of the Franek GSA and the termination of the Building Contract which amount to a material adverse change'.

(c) They were not alerted to anything which might have put them on notice that their appointment was invalid.

298 The Plaintiffs submitted that the Receivers should not be excused from liability, for the following reasons:

(a) The Receivers have the onus of proving that they believed, on reasonable grounds, that they had been properly appointed.

(b) The Receivers' evidence merely recounts topics, in general terms, about which Mr Franek and Mr El-Hissi advised them at the meeting on 4 April 2018. No specific information or documents are identified.

(c) Although the Receivers say that they received legal advice, they gave no evidence as to its content.

(d) The extent of the evidence of the Receivers' due diligence is summarised by Mr Bise during cross-examination as follows:

Well, we had our - I will just go over the background. We had the meeting where we were taken through the history. We took those facts in and we then sought legal advice around that question. And on the basis of that we were then comfortable to take the appointment.

(e) Despite Mr Nair repeatedly requesting that the Receivers identify the basis for their appointment, they identified no such basis. In fact, no basis was identified by anyone until the emailed letter dated 17 April 2018 from Mr El-Hissi setting out a 'not exhaustive' list of the breaches relied on by Mr Franek.

(f) The resignation of the Receivers and their reappointment under a different facility was not consistent with Mr Franek having confidence in the validity of the Receivers' original appointment, and there is no evidence of the Receivers seeking any explanation for their resignation and reappointment.

(g) Correspondence to the Receivers' solicitor about the time they were appointed should have put them on notice that their appointment was for an ulterior purpose. In particular:

(i) the Receivers were aware that the El Saafin Brothers were seeking to refinance, which was prompting Mr Franek to urgently appoint the Receivers; and

(ii) the initial payment of $50,000 on account of the Receivers' fees was paid by Trade On, rather than by their appointor.

299 I am not satisfied that the Receivers' belief that they had been properly appointed was on reasonable grounds, for the following reasons:

(a) I accept the Plaintiffs' submission that the evidence of the Receivers merely referred to topics covered at the meeting on 4 April 2018. There was no evidence of the documents with which they were provided. Similarly, there was no evidence of the substance of any legal advice relating to the validity of the proposed appointment. I am unable to assess the reasoning that underpinned their asserted beliefs that Mr Franek was entitled to appoint them as receivers.

(b) I am not satisfied that they identified any proper basis for their appointment. The Receivers' evidence referred to the basis of the Receivers' appointment being the termination of the Building Contract as a material adverse event; but the relevant meeting took place on 4 April 2018, the day before the termination of the Building Contract. Further, there was no evidence about whether the Receivers received advice about the preconditions for an appointment based on material adverse change or, in particular, the formation of the relevant opinion by Mr Franek prior to their appointment.

(c) The doubts about whether they identified a proper basis for their appointment are enhanced by the following:

(i) The Receivers do not have any contemporaneous notes recording their instructions, their advice, the basis of their appointment or any event of default justifying their appointment.

(ii) Neither they nor their solicitor responded to Mr Nair's requests for the identification of the basis of their appointment, and ultimately the response was given by MAG Financial's solicitors, seven days after the first request. This failure is consistent with the Receivers not having formed an independent view as to the basis of their appointment.

(d) The Receivers did not explain whether they read the Second Franek Loan Agreement, which formed the basis of the exercise of security rights in respect of which they were appointed.

(e) If they did read the document, there was no attempt to explain whether they were concerned about the fact that the interest rate substantially exceeded the maximum rate prescribed by the Consumer Credit Act, or whether they sought legal advice about the applicability of the Consumer Credit Act. The Consumer Credit Act is a piece of legislation with which one would expect receivers to be very familiar.

300 In the circumstances, I do not propose to relieve the Receivers of liability pursuant to s 419 of the Corporations Act.

301 The Receivers accept that, if their appointment as Receivers under the Franek GSA was invalid, as I have found it was, they are not entitled to indemnity under cl 18.2.1 or remuneration under cl 22.5 of the Franek GSA.

By the June Tender, did the Company effectively tender the repayment of the amount due under the Balanced Facility Agreement?

302 The material facts in relation to this issue are as follows.

303 By email of 9 May 2018 to Mr Koroneos, Mr Nair requested the payout figure, stating:

As a matter of urgency could you please provide the pay out figure required to terminate the appointment of your clients.

304 By email of 10 May 2018 at approximately 2:00 pm to Mr Koroneos and Mr El-Hissi, Mr Nair repeated his request, stating:

As a matter of urgency, could you please provide the pay out figure required to finalise the debt leading to the termination of Appointment of Receivers.

Our client intents [sic] to finalise this debt at the earliest as soon as its made available.

Our client reserves all its rights and remedies.

305 By email of 10 May 2018 at 2:04 pm to Mr Nair and Mr Koroneos, Mr El-Hissi responded and stated:

The payout will be provided shortly. You should be aware that MAG has also taken an assignment of the Franek Security and therefore the payout will include all amounts due to MAG.

306 By email of 16 May 2018 at 2:24 pm to Mr Koroneos, Mr Nair again requested a payout figure, stating:

We refer to the above matter and repeat our request for Payout figures as set out in our email dated 14 May 2018.

We have repeated [sic] requested such payout figures by emails on 5 different occasions.

As stated in our pervious [sic] email, our clients are within their rights to seek the payout figure for settling the debt, as they have done. This figure has not been forthcoming from your clients even though we were advised by Mr Omar El-Hissi in his email dated 10 May 2018 at 2.04pm that it would be provided shortly.

307 By email of 16 May 2018 at 6:58 pm to Mr Nair, Mr Koroneos stated:

I am not able to provide the requested payout. The payout will need to be provided by my clients' appointor (the Appointor).

In the meantime, can you please demonstrate that your clients are in a position to discharge the debt in full. Indicatively, based on the information available to my clients and subject to the actual payouts being provided by the Appointor, the assigned debt due under the:

1. Balanced Securities facility will be greater than $3M by reason of the enforcement costs incurred to date; and

2. Franek facility is now more than $1.45M.

There is no utility in providing a detailed breakdown of the payout figure if your clients cannot demonstrate that they are in a position to discharge the debt in full. Please forward any documents in support of how and when your clients will be in a position to discharge the assigned debt due to the Appointor.

308 By email of 8 June 2018 to Mr El-Hissi and Mr Franek, Mr Bise stated:

Please be informed that the Company's directors have submitted a request for a payout figure. Can you please provide me with a figure as soon as practicable.

309 By email of 9 June 2018 to Mr Dixon (copied to Mr Koroneos and Mr Franek), Mr El-Hissi requested the Receivers' costs and disbursements to date '[i]n order to calculate the payout figure'.

310 By letter of approval dated 19 June 2018 to the Company, Mr Keith Blackney stated that Black Arrow Mortgages was prepared to provide a loan advance of $4 million to the Company, subject to the conditions set out therein ('the Black Arrow Letter').

311 By email of 22 June 2018 at 9:39 am to Mr Koroneos, with respect to the failure to provide a payout figure, Mr Nair stated:

We refer to our numerous email correspondence with your office, Mr El-Hissi and telephone conversations with your client, Mr Ahmed Bise, with regards to the payout figure and its breakdown.

As stated in our pervious [sic] emails, our clients are within their rights to seek the payout figure for settling the debt, as they have done. This figure has not been forthcoming from your office or your appointed receivers, even though we were advised by Mr Omar EI-Hissi in his email dated 10 May 2018 at 2.04pm that it would be provided shortly.

Our client has procured the funds necessary to settle the debt. We hereby request that you provide us immediately with the figures and its breakdown and prepare for settlement.

We wish to settle this debt in the coming week.

We also request that your client cease and desist from any activities that will incur expenses to the company.

If we don't receive a response in this matter by 10:00am Monday being 25 June 2018 then we will be left with no choice but to seek orders to that effect from the Supreme Court.

312 By email of 22 June 2018 at approximately 10:00 am to Mr Nair, Mr Koroneos replied and stated that the payout was to be provided by his clients' appointor.

313 By email of 25 June 2018 at 10:16 am to Mr Franek (copied to Mr Koroneos and the Receivers), Mr Nair again requested the payout figure in substantially the same terms as his email of 22 June 2018 to Mr Koroneos. This time, he requested a response by 12:00 am on Tuesday, 26 June 2018.

314 By email of 25 June 2018 at 11:01 am to Mr Nair, Mr Halse requested that his client, Mr Franek, not be contacted directly. With respect to the payout figure, he stated:

I am instructed that the present payout figure due to my client is $8,250,990.83 (includes interest until 30.06.2018 but excludes any costs incurred since 21.06.2018).

315 By email of 25 June 2018 at 11:18 am to Mr Halse, Mr Nair requested a breakdown of the $8,250,990.83 'when the principal sum owed by our client does not exceed $2.2 Million'.

316 By emailed letter dated 26 June 2018 to Mr Nair, Mr Halse provided the following breakdown of the payout figure of $8,250,990.83:

1. $3,265,742.82 being principal, interest and lender's internal cost pursuant to the monies originally advanced pursuant to the Facility Agreement dated 28 October 2016 (includes interest to 30 June 2018). Interest is calculated at a rate of 18.95% per annum and compounded daily.

2. $4,720,105.03 being the principal and interest pursuant to the General Security Agreement dated 18 May 2017, which was also assigned to MAG on 3 May 2018

1. $361,000 being principal (includes $50,000 advanced under the Deed of Release and Settlement);
2. $780,000 interest for 30 months at $26,000 per month up to 14 July 2018;

   1. $3,579,105.03 owed by Saafin Constructions Pty Ltd to MAG as assignee of the debts owed by Saafin Constructions Pty Ltd to George Sacca, Amr Mekkya and New Concept Homes Pty Ltd, notice of which was provided to you yesterday.

3. $265,142.98 being enforcement costs and disbursements incurred up to and including 21 June 2018.

In particular, Mr Halse relied on cl 15.7 of the Balanced Facility Agreement and cl 28 of the Franek GSA in support of the inclusion of debts other than that under the Balanced Facility Agreement.

317 By emailed letter dated 27 June 2018 to Mr Halse and Mr Koroneos, Mr Nair challenged the amount claimed as repayable under the Balanced Facility Agreement. He stated that he was instructed to tender the amount of $3,265,742.82 in satisfaction of the Company's liabilities under the Balanced Facility Agreement in respect of which the Receivers had been appointed ('the June Tender'). He requested that he be notified by 12:00 noon on 27 June 2018 whether MAG Financial would accept this tender 'so the necessary arrangements to effect payment may be made'. He further stated:

The alternative financing arrangements our clients have implemented require that payment of the amount to discharge the Company's liabilities under the Facility Agreement is made contemporaneously with our clients being provided with the documentation necessary to remove the first registered mortgage over 65-67 Arden Street, North Melbourne.

318 By email of 27 June 2018 to Mr Nair (copied to Mr Koroneos), Mr Halse stated that the 'part payment of the sum of $3,265,742.82' would not discharge the liability to his client under the registered mortgage over the Arden Street Property. He further stated:

In case there was confusion, it is my client's position that the amount which is secured by the Facility Agreement and the registered mortgage is the figure of $8,250,990.83 (yesterday). The definition of Secured Moneys in the Facility Agreement, and the all monies clauses in the registered mortgage encompass not merely the liabilities of Saafin Constructions in respect of the monies originally advanced under the Facility Agreement, but also the other monies comprised in the payout figure. My email did not suggest that the 'amount payable in respect of the Facility Agreement was $3,265,742.82'. Accordingly while your client can certainly make a part payment of the sum of $3,265,742.82 to my client, such payment will not discharge your client's liability to my client under, amongst others, the registered mortgage over the property at 65-67 Arden Street, North Melbourne. My client is entitled to rely on amongst others, the all moneys clause in the registered mortgage to support its position.

319 By letter of approval dated 28 June 2018 to the Company, Mr Keith Blackney stated that Black Arrow Mortgages was prepared to provide a loan advance of $5 million to the Company, subject to the conditions set out therein.

320 The MAG Parties submitted that the June Tender was not a valid tender, for the following reasons:

(a) It did not involve the proffering of cash or its equivalent in the full amount demanded.

(b) The payment was not proffered unconditionally because it was a requirement of the tender that a discharge of the Balanced Mortgage be provided contemporaneously with the payment.

(c) The Plaintiffs were unable to establish that they were ready, willing and able to proffer the demanded amount as at 26 or 27 June 2018.

321 The MAG Parties further submitted that the Court should not accept that the Company was able to tender payment of $3,265,742.82 on the basis of the Black Arrow Letter, for the following reasons:

(b) The Black Arrow Letter was described as an 'indicative Letter of Offer' and was subject to the following conditions:

(i) $223,000 in fees were to be deducted at settlement;

(ii) interest of $60,000 per month was payable in advance;

(iii) any rates, mortgages or caveats were to be paid out of the loan advance;

(vi) settlement to occur within 21 to 25 working days.

(c) The Black Arrow Letter was subject to the removal of all caveats which, at that time, were as follows:

(i) caveat registered by Mr Franek on 6 October 2017 numbered AQ322523K;

(ii) caveat registered by Mr Mekkya on 26 February 2018 numbered AQ766930S;

(iii) caveat registered by Mr Al-Zubeidi on 17 April 2018 numbered AQ930392G; and

(iv) caveat registered by Property Capital Pty Ltd on 25 May 2018 numbered AR062124N.

(d) The additional properties over which Black Arrow Mortgages was intending to take security had second mortgages and caveats on them.

(e) The amount proposed to be lent under the Black Arrow Letter was not sufficient to satisfy all caveats and second mortgages and, in particular:

(i) the amount due under the Franek GSA of $1,140,000; and

(ii) the Mekkya Debt of $982,848.22, together with interest from the date of judgment being 15 May 2018,

in addition to the amount the Company was purporting to tender to MAG Financial.

322 The Plaintiffs submitted that the June Tender was a valid tender for the following reasons:

(a) The requirement to tender the amount under the Balanced Facility Agreement was dispensed with because MAG Financial would have refused it, if it had been made.

(b) The fact that it was a requirement of the tender that MAG Financial provide a discharge of the Balanced Mortgage does not invalidate the tender.

(c) The Plaintiffs' evidence demonstrates that sufficient funds were available to the Company to satisfy the tender of amounts owing under the Balanced Mortgage and/or the Second Franek Loan Agreement (if it was enforceable), for the following reasons:

(i) Mr Keith Blackney of Black Arrow Mortgages, an experienced mortgage broker, had issued letters of offer dated 28 June 2018, 25 July 2018, 5 October 2018, 20 June 2019, 10 March 2020 and 22 April 2020 proposing loans starting from $5 million in June 2018 to $9 million in March 2020.

(1) the funds could have been applied to remove any existing caveats and mortgages and further funds could have been made available if further security was provided; and

(2) he remained prepared to advance up to $9 million secured by a first registered mortgage over the Arden Street Property.

323 The Receivers submitted that the June Tender was not a valid tender for the following reasons:

(a) The Plaintiffs did not pay any amount owing under the Balanced Facility Agreement, nor deposit any portion of the debt into Court.

(b) The requirement for cash or its equivalent was not dispensed with because:

(i) a demand for a sum greater than the amount due is not a basis for such a disposition; and

(ii) there was no evidence that MAG Financial would have refused the tender.

324 A valid tender requires the proffering of cash or its equivalent in the full amount demanded on an unconditional basis.[54]

325 A tender by a mortgagor, which is made on condition that the mortgagee provide a discharge of the mortgage, does not invalidate the tender.[55] To hold otherwise would be commercial nonsense because the refinance of a property can often only be achieved if the new financier is able to take security over the secured property on settlement. For a tender to be invalidated, it must be 'made on terms that would adversely affect the rights of the person to whom the tender is made'.[56]

326 The requirement that the debtor actually proffer the amount properly due in cash or its equivalent will be dispensed with if the debtor proves that:

(a) the creditor conducted themselves so as to show that the tender of the amount properly due would not be accepted;[57] and

(b) the debtor was ready, willing and able to perform the tender.[58]

327 This dispensation arises from the principle that the law will not require a party to perform a futile action. As Brennan J explained in Foran v Wight:

Where the respective obligations of parties to a contract are mutually dependent and concurrent, the primary rule is that neither party who fails to perform his obligation when the time for performance arrives can rescind for the other party's failure at that time to perform his obligation. Each party's obligation is conditional on performance by the other; neither can complain of non-performance by the other when the condition governing the other's obligation goes unfulfilled. But if one party intimates to the other that it is useless for the other to fulfil his obligation and the other acts on the intimation, the party to whom the intimation is given is dispensed from a nugatory tender of performance.[59]

328 By its failure to provide payout figures from 9 May to 25 June 2018; and its excessive demand for $8,250,990.83 for the discharge of the Balanced Mortgage, MAG Financial demonstrated that it was not prepared to accept a valid tender of the amount due under the Balanced Mortgage of $3,265,742.82. Further, the Plaintiffs' proposal that MAG Financial provide the discharge of mortgage documentation contemporaneously with the payment of the amount due under the Balanced Mortgage did not excuse MAG Financial from refusing the proposed tender.

329 In my opinion, on the balance of probabilities, I am satisfied that the Plaintiffs were able to borrow the necessary funds for the purpose of refinancing the Balanced Mortgage, for the following reasons:

(a) I accept the evidence of Mr Blackney that he would have been able to broker the refinancing of the Balanced Mortgage. Mr Blackney is an experienced mortgage broker and has been prepared to broker loans for the Plaintiffs as required from June 2018 to April 2020. In particular, by letter dated 28 June 2018, Mr Blackney confirmed the approval of a loan of $5 million at an interest rate of 15% per annum. The terms of the loan offer did contain common conditions, but I accept his evidence that it was likely that these conditions would have been satisfied if MAG Financial had said it was prepared to accept the amount properly due under the Balanced Mortgage.

(b) The conduct of the Plaintiffs from the appointment of the Receivers in April 2018 until disclosure of the settlement of the sale of the Arden Street Property in July 2018, was consistent with a mortgagor which was ready, willing and able to refinance the amount due under the Balanced Mortgage.

(c) The refusal by MAG Financial to provide payout figures, the eventual claim for a grossly excessive payout figure and the subterfuge to circumvent the Plaintiffs' refinancing are consistent with MAG Financial knowing, or at least being very concerned that, if given the opportunity, the Plaintiffs would have refinanced the secured debt.

(d) Any evidentiary difficulty in determining the hypothetical question of whether the Plaintiffs would have been able to raise the necessary finance is a product of MAG Financial's unconscionable conduct in:

(ii) providing a grossly excessive payout figure; and

(iii) engaging in subterfuge to prevent the Plaintiffs from repaying the amount properly due under the Balanced Mortgage.

In these circumstances, the Court adopts a robust approach 'relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party whose actions have made an accurate determination so problematic'.[60] The presumption against the wrongdoer is more commonly applied in the law of tort, but it is also available in the assessment of equitable remedies.[61] The presumption against the wrongdoer 'goes beyond where the wrong has positively made it difficult for the victim to prove its damages, and extends to where the wrong has thrust the victim into a difficult task of proving a past hypothetical'.[62]

330 Further, to the extent that the caveats lodged by Mr Franek and Mr Mekkya might be relevant to this question, I have already decided that neither party had a valid claim to support a caveat on the Arden Street Property. Accordingly, I do not consider that the Court should presume that these caveats would have had to have been paid out for the refinancing because to do so would be to permit 'the blameable party ... to take advantage of his own wrong'.[63] Further, any refusal by the MAG Parties to discharge these caveats would have rendered them liable for damages consequent on such refusal pursuant to s 118 of the Transfer of Land Act.

331 Accordingly, I find that by the June Tender, the Company effectively tendered the repayment of the amount due under the Balanced Facility Agreement.

By the July Tender, did the Company effectively tender the repayment of the amounts due under the Balanced Facility Agreement and the Second Franek Loan Agreement?

332 The material facts in relation to this issue are as follows.

333 By letter dated 16 July 2018 to Mr Halse, Mr Nair stated that the Company was ready, willing and able to tender the amount of $4,406,742.82 in satisfaction of what he described as the 'Franek Debt' and 'the Balanced Securities Debt' ('the July Tender'). He stated:

[T]he Company is ready, willing and able to tender payment of $4,406,742.82 ('the settlement sum') to MAG payable in respect of the Franek Debt and the Balanced Securities Debt (without prejudice to the Company's rights). In exchange for the Settlement sum, MAG will take all necessary steps, and provide the Company with the documentation necessary, to cancel the Second and Third Defendants' appointment as receivers in respect of the Company and to discharge the registered mortgages over the Property and 2 Lynwood Crescent, Lower Plenty.

The Company proposes Settlement at 3.00pm on 19 July 2018 where the settlement sum will be handed over to MAG.

334 By emailed letter dated 19 July 2018 to Mr Halse and Mr Koroneos, Mr Nair referred to the calculation of the amounts due under the Franek GSA and the Balanced Facility Agreement and stated:

The Company is ready, willing and able to settle the Franek Debt and the Balanced Securities Debt ... which are said to be owed under the Facility Agreement and the General Security Agreement, and the associated costs.

We therefore advise that the Company proposes to tender to MAG payment of the Franek Debt, the Balanced Securities Debt and the associated costs at 3.00pm on 25 July 2018.

Please could the Defendants make the necessary arrangements and advise of a location for settlement, together with the pay-out figures that will be required to settle these debts and all costs up to and including 25 July 2018. If your clients' decline to provide the information sought as to further costs then our clients will tender the amount as asserted in Mr Franek's affidavit.

We would expect MAG to attend settlement with the necessary documents to discharge the first registered mortgage over 65-67 Arden Street, North Melbourne and to provide them in return for the moneys tendered.

We note, for completeness, that, in tendering any such payment, the Company will be doing so under protest and without prejudice to its rights to dispute or tax the quantum of interest and costs.

We also note that, should MAG refused [sic] to accept this tender, then our clients propose to put this letter into evidence in the Proceeding.

335 On or about 23 July 2018, MAG Financial and AAGG completed the sale of the Arden Street Property.

336 By letter dated 25 July 2018 to Mr Nair, Mr Halse rejected the proposed July Tender and stated that the transfer of the Arden Street Property, pursuant to MAG Financial's exercise of its power of sale, had now been registered.

337 The Plaintiffs submitted that the July Tender was effective for the same reasons that the June Tender had been effective.

338 The MAG Parties submitted that the July Tender was ineffective for the same reasons that the June Tender had been ineffective. The MAG Parties further submitted that any tender would have been ineffective because a valid contract of sale had been entered into with AAGG in relation to the Arden Street Property, and therefore the Company's right of redemption was lost.

339 The Receivers submitted that the July Tender was ineffective for the same reasons that the June Tender had been ineffective. The Receivers further submitted that, once a binding contract is entered into by a mortgagee exercising a power of sale, the mortgagor is bound by that contract and is no longer able to exercise the equity of redemption.

340 In my opinion, the July Tender was effective for the same reasons as I have found that the June Tender was effective; and I reject the submissions of the MAG Parties and the Receivers for the same reasons that I rejected their submissions with respect to the June Tender.

341 With respect to the contention that, by the time of the July Tender, the Company's right to redeem the mortgages had been extinguished, I note the relevant principles as follows:

(a) On the mortgagee entering into a valid contract of sale with respect to the secured property, the mortgagor's right to redeem the mortgage is extinguished.[64]

(b) If the mortgagee does not act bona fide in the exercise of the power of sale and the purchaser had knowledge of such impropriety at the date of the contract, the mortgagor does not lose its equity of redemption by the entry into the contract.[65]

(c) Further, if the purchaser was not aware that the mortgagee had acted in bad faith, the mortgagor would not necessarily lose its right of redemption but the matter would be 'determined in accordance with the general principles by which disputes as to priority between competing claims are resolved, there is no principle which operates to postpone the right of the mortgagor to that of the purchaser'.[66]

342 As found in paragraph 432 below, MAG Financial's conduct in entering into the contract of sale for the Arden Street Property was in bad faith and AAGG colluded in such conduct. Accordingly, I consider that, by the July Tender, the Company effectively tendered the repayment of the amounts due under the Balanced Facility Agreement and the Second Franek Loan Agreement.

Does interest stop accruing on the Balanced Mortgage from the date of tender?

343 The Plaintiffs submitted that, by reason of the exceptional circumstances in this case, interest stopped accruing from the date of the June Tender, which the MAG Parties should have accepted. However, in oral submissions, counsel for the Plaintiffs conceded that the Company would be required to account for the interest that would have been payable on the amount borrowed from Black Arrow Mortgages to refinance the amount due under the Balanced Facility Agreement.

344 The Plaintiffs further submitted that the consequences of the MAG Parties' failure to accept the Company's offers to tender are that interest stopped accruing on the amount due under the Balanced Facility Agreement and the Second Franek Loan Agreement (if enforceable) from the dates that MAG Financial should have accepted the Company's tender, for the following reasons:

(a) the modern principle is that a requirement that a mortgagor set aside the tendered sum is no longer absolute;

(b) a mortgagee may lose its rights to interest after a refusal, if that refusal is considered to be misconduct; and

(c) if interest were to accrue, then MAG Financial would profit from its intervening efforts to stifle the Company's claims.

345 The MAG Parties submitted that on the authority of McPherson v Summerville,[67] interest would continue to accrue where the tender had not been accepted by the mortgagee unless the mortgagor set aside the sum tendered.

346 In Conroy v Mason, Molesworth J found that the mortgagee had refused a valid tender.[68] With respect to the payment of interest, he said: 'When a mortgage is overdue there must be some way of paying it, and stopping interest'.[69] Molesworth J found that, as the money had always been ready to be paid, no interest was payable to the mortgagee from the date of the tender, except to the extent that the money held by the mortgagor for the tender had earned interest.[70]

347 In Bank of New South Wales v O'Connor, Lord Macnaghten, delivering the opinion of the Privy Council, stated:

[A] proper tender will stop the running of interest if the mortgagor keeps the money ready to pay over to the mortgagee. But there is no authority for saying that refusal to accept a proper tender is a breach of contract, for which an action at law will lie.[71]

348 In McPherson v Summerville, Simpson CJ in Eq explained that '[a]s a general rule interest can only be stopped from running on a mortgage debt by a tender of the amount due and by putting aside the money, if the mortgagee refuses the tender, so as to be ready to hand it to him at any time'.[72]

349 In Edmondson v Copland, with respect to the liability for interest after refusal of a valid tender, Joyce J said:

On the whole I think that, in order to avoid payment of interest after tender improperly refused, the mortgagor must either pay the money into Court, if there be any proceedings in which that could be done, or keep the money ready, and either make no profit, or, if he make profit, - e.g., if he get interest by placing the money on deposit - he must account for such profit to the mortgagee.[73]

350 Similarly, in Gardiner v Fitzgerald, Gibbs J stated:

It is perhaps unnecessary to add that if the plaintiffs had made a good tender, interest would not have stopped running unless the sum tendered had been set aside and kept ready for payment at any time.[74]

351 In Project Research Pty Ltd v Permanent Trustee of Aust Ltd, Hodgson J stated that the refusal of a tender on the basis of a claim for an amount in excess of the amount due under the mortgage would constitute misconduct, which could cause the mortgagee to lose its right to an order for costs.[75]

352 In Challenge Bank Ltd v Hodgekiss, Young J stated that 'it is only if the mortgagor shows that it has available the money to pay off the mortgage, which it has held without receiving interest, that it may be entitled to stop paying the interest under the mortgage'.[76]

353 In Kitson v Goodge, Hodgson J held that there was no 'fixed rule that interest continues to be payable at the mortgage rate if the sum tendered is not set aside for payment at any time'.[77] His Honour found that, after the unreasonable refusal of a tender, the mortgagor was liable to pay the lower rate of interest that would have been payable under its proposed refinancing arrangement.[78]

354 In Coughlan v George, Hamilton J found that the requirements of a valid tender were dispensed with because the creditor, by demanding an amount in excess of that which was properly due under the mortgage,[79] 'so conducted himself as to show that a tender of the amount properly due would not be accepted'.[80] He stated that the 'general rule' that the money must be put aside after a refused tender did not apply because the tender had been dispensed with.[81]

355 In Çukurova Finance International Ltd v Alfa Telecom Turkey Ltd (Nos 3 to 5), the Privy Council stated:

The conclusion ... is that equity can and should respond by a special order as to interest or costs in exceptional situations where the mortgagee has by words or conduct rejected, made impossible or delayed repayment of the mortgage debt, and that such a situation may exist where there is a tender or offer of repayment, particularly one backed by moneys actually paid into court or an account.[82]

The Board also questioned the statement in Bank of New South Wales v O'Connor, referred to in paragraph 347 above and queried whether, in modern conditions, the wrongful rejection of a tender should still not constitute a breach of a loan agreement.[83]

356 In Amcor Ltd v Barnes, after a detailed review of the authorities, Sloss J found that the wrongful refusal to accept the tender stopped interest accruing because the debtor could have obtained the funds to repay the debt without interest becoming payable.[84] Her Honour stated that the circumstances of the case resonated with the observations in Çukurova, that questioned the statement of principle in Bank of New South Wales v O'Connor, that a wrongful rejection of a tender was not a breach of the loan agreement.[85] With respect, I agree with her Honour. The issue was not argued before me, but in my opinion, in this case, the five criteria identified in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council,[86] would be comfortably satisfied with respect to an implied term that the creditor would accept a tender of the amount owing by the debtor after it became due.

357 On the basis of the above authorities, I consider the current state of the law is that if a creditor refuses a valid tender, it will not be entitled to interest from the date of the refusal except to the extent that:

(a) the debtor has saved interest it would have been liable to pay under its refinancing arrangements; or

(b) the debtor has earned interest on the money set aside for its repayment.

358 In the circumstances, the refusal of the Plaintiffs' offers to tender disentitled the MAG Parties to interest under the Balanced Mortgage except to the extent that the Company would have been obliged to pay interest under its refinancing facility.

359 Accordingly, in my opinion the Company remains liable to pay to the MAG Parties the amount of interest which it would have paid under its refinancing facility until that amount would have been repaid from the proceeds of the sale of units in the Development.

360 In my opinion, a fair estimate of the amount of interest that the Company would have paid to the substitute financier prior to repayment after 14 months is $585,000, calculated as follows: