Say-Dee Pty Ltd v Farah Constructions Pty Ltd & Ors [2006] NSWCA 329 | Case summary

1 THE COURT: After considering submissions with respect to the orders it should make as a consequence of its findings in its substantive judgment delivered in this matter on 15 September 2005 [2005] NSWCA 309, on 21 December 2005 the Court made various declarations and orders including, so far as is presently relevant, the following: (4) DECLARE that the second to sixth respondents hold their respective interests in the properties known as Nos 13 and 15 Deane Street, Burwood (the Adjoining Properties) upon constructive trust for the Partnership. (7) ORDER that Brian Silvia and John Melluish, both of Ferrier Hodgson, Chartered Accountants, of Sydney (the Receivers) be appointed as receivers to the properties being Nos 11, 13 and 15 Deane Street, Burwood (collectively "the Properties") and that legal title to the Properties be vested in them. (8) ORDER that the Receivers have the following powers: (a) to sell the Properties as one lot or in one line unless otherwise advised that they should be sold individually or as two lots in order to maximise the gross sale price of the Properties as a whole (d) to employ real estate agents to effect the sale of the Properties and to pay them commission and to outlay all necessary legal fees and disbursements and such other outgoings considered by them to be an essential condition precedent to selling the Properties at auction for the best price obtainable and to fix an appropriate reserve price for the purpose of that sale and, in the event of the Properties not being sold at auction, to sell the same by private treaty. Each of the appellant and the respondents shall have the right to bid at any such auction or to purchase the Properties by private treaty; (e) to engage consultants and to make such applications and to enter into such negotiations with Burwood Municipal Council and such other parties as the Receivers may be advised for the purpose of making and obtaining such development consents and other approvals in relation to the Properties or any of them as are necessary to achieve the maximum price for the Properties on their sale; (f) to appoint solicitors on behalf of the parties to conduct any negotiations in respect of any such applications and draw and settle any documentation in relation thereto and to act on the sale of the Properties. (16) LIBERTY to apply to any party in the first instance to Tobias JA in connection with working out of these orders on 48 hours written notice. 2 By Notice of Motion filed on 9 August 2006 the appellant sought orders amending Orders 8(a) and (e) so that they would read as follows: (a) to sell the Properties as one lot or in one line unless otherwise advised that they should be sold individually or as two lots in order to maximise the gross sale price of the Properties as a whole and in so doing to decide when to sell in order to achieve the optimum realisation of the investment in the Properties. (e)(i) to engage town planning and property valuation experts for the purposes of obtaining advice to weigh the advantages that may accrue to the investment in the Properties by a rezoning of the Properties in a way that Burwood Council has demonstrated by its resolution of 23 May 2006. (e)(ii) to engage consultants and to make such applications and to enter into such negotiations with Burwood Municipal Council and such other parties as the Receivers may be advised for the purposes of assisting the process of the rezoning of the Properties in a way that Burwood Council has demonstrated by its resolution of 23 May 2006 by making such submissions as they are advised may be appropriate, and to obtain development consents and other approvals in relation to the Properties or any of them as are conducive to maximising the value of the investment in the properties so as in due course to achieve the maximum price for the Properties on their sale. (e)(iii) to await for such period as they think appropriate, the outcome of the rezoning of the Properties in a way that Burwood Council has demonstrated by its resolution of 23 May 2006. 3 In early May 2006 both oral and written communications took place between the solicitor for the appellant on the one hand and Mr John Bush on behalf of the Receivers on the other, relating to the sale of the Properties. These discussions related, apparently, to the potential for redevelopment of the Properties and the effect that that might have on their value for sale purposes. 4 The discussions arose because a consultant valuer engaged by the appellant had been in contact with Burwood Council (the Council) to discuss the redevelopment potential of the Properties and had been advised that they had been identified as being appropriate for future medium to high density development, although when any necessary rezoning to achieve that potential would be finalised was then uncertain. 5 At about the same time as the commencement of these discussions, the Receivers had retained Laing & Simmons, real estate agents, to advise them with respect to the proposed auction of the Properties which was to take place on 1 June 2006. For reasons not presently relevant, at the request of the appellant's solicitor, the Receivers agreed to postpone the auction for two months, namely, to 1 August 2006. 6 At its meeting held on 23 May 2006 the Council relevantly resolved

(e) that the draft Town Centre Local Environmental Plan and draft Development Control Plan [together with other documents presently not relevant] be simultaneously placed on an extended six week public exhibition period in accordance with the provisions of the Act and the relevant regulation. 7 According to an affidavit Mr C H King, a consultant town planner retained by the appellant, the proposed draft LEP is to be based on the Burwood Town Centre Master plan adopted by the Council in March 2004. He opined that under the proposed draft LEP the Properties were identified for development up to a height of 15 storeys compared to their present zoning under which the maximum height achievable was approximately five storeys. He further opined that it would be reasonable to assume that if the proposed draft LEP was gazetted so as to rezone the Properties in the manner indicated, then the potential for their redevelopment given their location immediately opposite Burwood Railway Station, would significantly increase over their current potential with a concomitant increase in their overall value. 8 The unknown factor, however, was when the proposed draft LEP might be gazetted. As at July 2006 it had not been prepared although there was in existence a draft Burwood Town Centre LEP dated 3 March 2006 but which was incomplete. It would seem that this draft LEP was draft LEP No 68 for the Burwood Town Centre to which Mr King refers in his affidavit as formalising the principles of the Masterplan by the introduction of appropriate zonings. 9 According to Mr King's affidavit, he was advised by an officer of Planning NSW that Council's s54 submission was received in the week commencing 3 July 2006 and that it was likely that the proposed draft LEP would be certified for public exhibition pursuant to s65 of the Act by the end of August 2006 and placed on public exhibition in September. Other evidence was to the effect that the proposed draft LEP was unlikely to be exhibited before the end of the year and that it could be up to 12 months before it was gazetted. However, based on information supplied by Mr King, application was made by the appellant's solicitor to the Receivers to postpone the auction listed for 1 August 2006. 10 As the respondents were not prepared to consent to the Receivers postponing the auction, the Receivers indicated that, in the absence of agreement between the parties, they would have no option but to progress with the auction unless restrained by an order of the Court. 11 Accordingly, on 31 July 2006 the appellant sought an order from the duty judge, Nicholas J, that the Receivers and the respondents be restrained from putting the Properties to auction on 1 August 2006 until further order. His Honour made those orders. The parties then agreed that the most appropriate avenue going forward would be for this Court to hear a motion by the appellant made pursuant to Order 16 of this Court's orders of 21 December 2005 in order to clarify whether or not the Receivers had the power to postpone the sale of the Properties so as to take advantage of the rezoning anticipated by the Council's resolution of 23 May 2006. 12 The matter was relisted before Tobias JA on 8 August 2006. He made directions by agreement for the filing of the Notice of Motion (that is now before the Court) together with any evidence in support thereof and for the parties to provide written submissions with respect to the orders sought in the motion. The parties were advised that the Court would deal with the motion on the papers. Although the Receivers appeared before his Honour on that occasion, it was made clear that they were not parties to the motion as no relief was being sought against them although a direction was made permitting the Receivers to file an affidavit in order to inform the Court as to the state of the receivership. 13 In this respect, three affidavits have been filed on behalf of the Receivers being those of James Brennan sworn 8 September 2006, Costa Andrew Nicodemou sworn 8 September 2006 and Brian Silvia sworn 11 September 2006. 14 Mr Brennan, a sales representative of Laing & Simmons, had been engaged by the Receivers to market the Properties and to arrange the auctions of 6 June 2006 and 1 August 2006. His evidence was that marketing costs of $7,906 were incurred in marketing the Properties leading up to the planned June auction and $10,517 incurred in respect of the August auction. He further deposed that prior to the August auction he had received enquiries from approximately 94 people expressing interest in the Properties - of which he estimated 80% were property developers of properties in the Burwood/Strathfield area - and who would have been familiar with the Council's planning proposals with respect to the area within which the Properties are located. 15 Mr Brennan indicated that he had informed interested purchasers that the Properties were currently zoned for commercial purposes with a maximum floor space ratio of 2:1 with a height restriction of 8 metres but that there was a draft LEP proposed which might include an increase in the floor space ratio to 4.5:1 with a height restriction of 8 storeys. This is somewhat different from the 15 storeys deposed to by Mr King. Mr Brennan expressed the opinion that it would have been beneficial in all the circumstances for the proposed 1 August auction to have taken place as prospective purchasers will be deterred by a history of uncertainty caused by several cancelled auctions. In any event, given the uncertainty as to when the proposed draft LEP might be gazetted, he was unable to predict what the market conditions might be over the next 12 months if it took that long for the gazettal to occur. 16 Mr Nicodemou is an employee of the Receivers. He noted that in July 2006 he had a discussion with a Ms Cooper, a registered valuer, who had indicated that the proposed draft LEP was only in its early stages of preparation, that there were a number of uncertainties regarding it and that it might be amended when exhibited as a consequence of submissions made by the public. Accordingly, she considered that it would be difficult to value the Properties in terms of the proposed draft LEP until its provisions were finalised. 17 Mr Silvia is one of the Receivers and deposed that prior to 5 May 2006, he had determined that it was not commercially feasible to sell the Properties with a development consent as he did not consider that a development application could be obtained for the Properties in excess of the current planning restrictions (being a floor space ratio of 2:1 and a height restriction of 8 metres). He therefore concluded that the development consent for a building so restricted would not materially increase the overall value of the Properties. 18 Mr Silvia further deposed that he was of the opinion that the auction should have proceeded on 1 August 2006 despite the appellant's request that it be postponed for a second time for reasons which he considered as still applicable to the continued postponement of the auction and which related to the continued accrual of interest on the mortgage over No 11 Deane Street (which had been assigned by the National Australia Bank to the appellant) and on the St George Bank mortgages over Nos 13 and 15 Deane Street pursuant to which in excess of $900,000 was owed and where those mortgages were in arrears entitling the Bank to charge penalty interest. He was also concerned that the Bank would exercise its power of sale over those properties and seek to sell them separately. 19 Mr Silvia referred to an offer made by the appellant to either discharge the St George Bank debt or to pay any arrears and maintain repayments owing under those mortgages. Nevertheless, he expressed concern in relation to that proposal particularly as the Bank had advised that it was not prepared to accept the appellant's offer and preferred that the Properties be auctioned. He further referred to the opinion of the valuer retained by the Receivers that the proposed draft LEP would not have a material impact on the valuation of the Properties due to the uncertainty surrounding its contents and the timing of its gazettal and that the value of the Properties was therefore unlikely to change for at least 6 months. Further, the respondents were opposed to any delay in the sale of the Properties. 20 Finally, an analysis of the income and expenditure for the Properties for the period 21 December 2005 to 31 July 2006 indicated a negative net cash position of $179,266 which, in Mr Silvia's opinion, would continue to worsen as a result of the Receivers and solicitors fees likely to outstrip the income from the properties of $1,584 per week. 21 The appellant engaged Mr John La Mela to value the Properties, which he did as at 14 August 2006 in the sum of $2.7 million based on their current zoning but also taking into account the Council's resolution of 23 May 2006. However, he also carried out a hypothetical valuation of the Properties upon the assumption that the floor space ratio under the Town Centre Masterplan would increase from 2:1 to 4.7:1 with a building height of five to six storeys (rather than the 15 storey proposed maximum height referred to by Mr King) depending on design. On this basis he valued the properties at $7.43 million. 22 In its written submissions the appellant submitted that given the differential in the value of the Properties between their current value as determined by Mr La Mela at $2.7 million and their hypothetical market value based on the proposed rezoning of $7.43 million, it was in the best interests of the partnership that the Receivers be empowered to postpone the sale of the Properties until after the rezoning had been effected. Only in that way could the partnership maximise its investment as found by the Court in its substantive judgment. 23 It was emphasised that the appellant was not seeking the Court's determination on whether the sale of the Properties should be postponed but only the clarification of the Receivers' power to do so if so advised. In this respect, the Receivers had not sought independent advice from a town planner or valuer (apart from Mr Brennan) and his advice, so it was submitted, was limited as to the impact the Council's resolution of 23 May 2006 given the length of time it would take for that resolution to ultimately result in the gazettal of the proposed draft LEP. 24 The appellant further submitted that it feared that the first respondent, and in particular the second respondent, Mr Elias, were experienced developers in the area who would seek to purchase the Properties at auction now in order to reap the benefit of the anticipated rezoning for themselves at a later time and so disadvantage the appellant. In this respect it appears that Mr Elias had indicated that the first respondent intended to bid at any auction. 25 In an affidavit sworn 2 August 2006, Mr Elias deposed that he had been operating in the property development industry in the surrounding area for approximately 20 years and was therefore familiar with property prices. In his view the market price of the Properties was less as at August 2006 than at the date of trial in August 2004 and the price of real estate such as the Properties was continuing to decline and had done so since 1 January 2005 by approximately 15-20%, which would continue particularly if predicted interest rate rises occurred. 26 Mr Elias then deposed that the Farah Group of Companies (the Group) was the subject of severe financing, business and credit restrictions as a result of the negative impact of demands and litigation from the National Australia Bank with respect to the arrears of the mortgage on No 11 Deane Street (which has now been assigned to the appellant). It was asserted that the Group was unable to raise credit for its "scheduled construction projects" and was unable to commence works until the sale of the Properties had been completed and the loans to National Australia Bank and St George Bank repaid. 27 It was further asserted that the Group had several joint venture agreements on foot which would be jeopardised if finance continued to be an issue with the St George Bank while the sale of the Properties is delayed. Mr Elias deposed that the Group's loans were under a 90 day credit alert at that bank and that as at August 2006 the total borrowing from the Bank was $3.9 million to fund the purchase of Nos 13 and 15 Deane Street. This figure is somewhat at odds with that of Mr Silvia who deposed that the Bank was owed "in excess of $900,000" with respect to its mortgages over Nos 13 and 15 Deane Street. 28 The appellant submitted that the issue raised on the Notice of Motion was fairly limited, namely, whether the Receivers, in the light of the proposed rezoning of the Properties, ought to have the power to postpone any sale thereof for such a period as they thought fit so as to maximise the price achievable on their sale. 29 Even if any such rezoning was likely to take a further 12 months, it was submitted that the potential increase in the value of the Properties as a result of the gazettal of the proposed draft LEP would justify the Receivers exercising the power to postpone the sale in order to take advantage of that increase. It was thus submitted that in light of the valuation evidence, even 12 months was not a significant period of delay given the length of time that the Properties have been held by the parties. 30 Of course, as the appellant acknowledges, it is not asking the Court to decide the question of whether or not the sale of the Properties should be postponed, but merely to clarify that the Receivers have the power to decide to await future town planning developments if so advised. At present the Receivers are, so it is alleged, under the impression that they are obliged to sell the Properties with all due expedition and that they do not have the power to postpone their sale in order to see how the rezoning issue is likely to develop. 31 In response to Mr Elias' affidavit evidence, it was submitted that his assertions are bereft of specificity in respect of any alleged hardship. The annexures to his affidavit disclose, so it was submitted, a property empire worth $30 million. Accordingly, it was submitted that it is impossible for the Court to place much weight on the bald assertion that the Group was unable to raise credit for its scheduled construction projects, especially as no financing details of those projects were identified. 32 It was further submitted that any default under the St George Bank mortgage was an irrelevant consideration given that the appellant has undertaken to make up the payment of arrears or even to pay out the mortgage. 33 Finally, it was submitted that the Court had the power to vary the orders as proposed given the terms of Order 16. The variation of the Receivers' powers do not seek to canvass any issue already litigated and determined, but merely to clarify the scope of the existing orders. Alternatively, it was submitted that the Court has power to vary those orders pursuant to Pt.36 r.36.16(3) of the Uniform Civil Procedure Rules 2005. That rule empowers this Court to vary an order if a notice of motion for variation is filed before entry of the order. The power may be exercised except insofar as the order determines any claim for relief or any question arising on any claim for relief. 34 It is common ground that the notice of motion was filed on 9 August 2006 before entry of the orders sought to be varied. However, the respondents submit that the Court has no power to vary the order pursuant to the Notice of Motion under Pt.36 r.36.16(3) as the order sought to be changed determined the appellant's claim for relief. The Court does not agree. What is proposed, or at least the variation to which the Court is prepared to accede, would not determine any claim for relief but would merely vary the form of the relief already granted. 35 In any event, notwithstanding the respondents' submissions to the contrary, in our opinion the Court has the power to order the variations pursuant to Order 16 as the Notice of Motion falls within the liberty to apply "in connection with the working out of" the orders setting out the Receiver's powers. The variations sought make more specific provision for the implementation of those powers or otherwise modifies their operation to take account of the change of circumstance constituted by Council's resolution of 23 May 2006: see Phillips v Walsh (1990) 10 NSWLR 206 at 210. 36 The respondents nevertheless submitted that the Court should not accede to the orders sought by the appellant as they were calculated to lead to further uncertainty and disputation and, therefore, further delay. They submitted that the appellant was asking the Court to order the first respondent to become a speculator and that it was attempting to use the Court for its own collateral purposes. 37 The Court agrees with the respondents' submission that the variations to the orders as proposed in the Notice of Motion are infelicitously expressed and that they contain ambiguous expression such as "the optimum realisation of the investment in the Properties" which is at odds with the requirement in the original orders that the sale of the Properties by the Receivers maximise their gross sale price. 38 There are other aspects of the proposed variations which are of concern such as the particularity with respect to which the Receivers would be empowered to engage experts for the purpose of weighing the advantages that may accrue to the investment in the Properties by a rezoning in the manner envisaged by the Council's resolution of 23 May 2006. Further, there is substance in the criticism that the proposed Order (e)(iii), although not explicitly imposing an obligation on the Receivers, nonetheless contains a not too subtle hint that they should await the outcome of the rezoning of the Properties before they are sold. 39 There is no evidence before the Court that the proposed draft LEP has as yet been placed on public exhibition, or when that is likely to occur. The evidence only deals with the position as it was as at August 6. It may be that by now information would be available from Planning NSW as to when a s65 certificate might be issued to permit the public exhibition of the proposed draft LEP, but it would be pure guesswork as to when, after that exhibition, the proposed draft LEP would be gazetted and, if so, in what form and with what amendments in light of the submissions that might be received particularly if there was a public hearing which would further delay matters. 40 These are all considerations that, no doubt, the Receivers will take into account when determining whether or not, upon advice, to further postpone the sale of the Properties. Nothing the Court says should be taken by the Receivers as indicating a view one way or the other on that issue. It is entirely a matter for the Receivers. All the Court is prepared to do is to clarify the Receivers' powers to provide that they may postpone the sale of the Properties for such a period as they may be advised if by doing so it is reasonably likely that in the town planning and market conditions likely to prevail in the reasonably foreseeable future, a greater sale price for the Properties is likely to be realistically achieved. 41 For that purpose paragraph (e) of Order 8 should be varied to empower the Receivers to engage town planning and property valuation experts. It will be a matter entirely for the Receivers as to whether they postpone the sale and, if they do, whether they are only prepared to do so on conditions that may touch on and concern the current financial obligations relating to the Properties and their retention. The conditions, if any, upon which the Receivers might be prepared to postpone the sale will be entirely a matter for them. 42 Accordingly, the Court would reject the respondents' submissions that in substance the variation that the Court is prepared to endorse would involve the respondents speculating on the prospective planning changes affecting the Properties. The variations in question do not require the respondents to speculate upon anything. They only empower the Receivers to take into consideration matters which have occurred since the orders were made December 2005 and which may or may not in all the circumstances, given their obligations with respect to the sale of the Properties, determine the appropriate time, be it sooner or later, that they should be sold. 43 The Court would therefore reject the respondents' submission that by acceding to a variation of the Receivers' powers the Court is allowing itself to be used by the appellant as a tool to achieve its collateral financial objectives. What we are making clear is that the Receivers are not bound to sell the Properties, as the respondents submitted, "with all reasonable expedition" although they may. They are being provided with the power to postpone any such sale if, upon receipt of appropriate expert advice, they consider that it is appropriate to do so. 44 If, as the appellant submitted in reply, the Receivers understood that they had no discretion as to when the sell the Properties in order to maximise their gross sale price and that they were bound to do so as soon as was reasonable, then we think it appropriate that their powers should be clarified to provide them with that discretion. 45 Furthermore, we would accept the appellant's submission in reply that the appointment of the Receivers was intended to involve them beyond acting merely in a caretaker capacity with a view to the immediate sale of the Properties. On the contrary, the Court intended by Order 8 to empower them to ensure a commercial judgment given the expressed objective of maximising the gross sale price of the Properties as a whole. 46 Lest there be any doubt about the matter, Order 8 did not, and should not be construed to, require the Receivers to sell the Properties "with all due expedition" as suggested by the appellant (see [29]) above. Clearly, they were required to sell the Properties within a reasonable period but what would constitute such a period would depend on the circumstances prevailing from time to time. Order 8(a) requires the Receivers to maximise the gross sale price of the Properties as a whole and order 8(e) empowers them, amongst other things, to seek development consents from the Council necessary to achieve that price. Any exercise of that power would take time. 47 Nevertheless, given the desire of the respondents for the Receivers to auction the Properties as soon as possible and noting that they have not sought a stay of this Court's orders notwithstanding the imminent hearing of the respondents' appeal to the High Court, it is appropriate that to the extent that clarification of the Receivers' power to postpone the sale of the Properties is necessary to avoid further disputes between the parties on that issue, this Court should accede in a modified form to the appellant's motion. 48 On 19 September 2006 the High Court of Australia granted the respondents special leave to appeal. That appeal has been fixed for hearing on 12 December next. If the High Court upholds the appeal and sets aside the orders of this Court, then the appellant's notice of motion becomes redundant and the orders of the primary judge to appoint trustees for sale of No 11 Deane Street pursuant to s66G of the Conveyancing Act 1919 would, no doubt, be reinstated. In those circumstances, Nos 13 and 15 Deane would belong unconditionally to the respondents. 49 There are permutations and combinations of orders that the High Court might make particularly with respect to the three strata units in No 15 Deane Street which are owned by the fourth, fifth and sixth respondents. If the Properties are sold before the High Court delivers judgment on the appeal or otherwise indicates the orders it proposes to make with respect thereto, then difficulties may well arise which are capable of being avoided if the Receivers postpone any sale at least until the High Court has determined the fate of the respondents' appeal. 50 The foregoing observations are not intended to suggest that the Receivers take any particular course but merely to alert them to the issues which may arise depending upon the outcome of the appeal to the High Court and to provide them with the power, if so advised, to postpone the sale of the Properties for a further period to await the outcome of the respondents' appeal. 51 Accordingly, the Court makes the following orders:

Say-Dee Pty Ltd v Farah Constructions Pty Ltd & Ors

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Judgment (20 paragraphs)

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