Siewert v Aquatic Air Pty Ltd

Judgment 1THE COURT: By summons filed on 25 October 2014, Dieter and Lieselotte Siewert (together, the Siewerts) have applied for leave to appeal from orders made in the Equity Division on 31 July 2014 by Brereton J. The orders relate to an interlocutory regime concerning ownership of an apartment situated in Mosman (the Property). 2The Property is presently owned by the respondent, Aquatic Air Pty Ltd (Aquatic). The dispute between the Siewerts and Aquatic arises out of arrangements relating to a share sale agreement made between the Siewerts as vendors and AT Air Group Pty Ltd (AT Air) as purchaser in July 2011 (the Share Sale Agreement). The Share Sale Agreement required the payment by AT Air of the purchase price by instalments. As at November 2011, AT Air was in default in the payment of instalments of the purchase price in accordance with the Share Sale Agreement. 3On 25 November 2011, the Siewerts and AT Air entered into a security agreement (the Security Agreement), to which Aquatic, Wingaway Air Pty Ltd (Wingaway) and Heron Airlines Travel Pty Ltd (Heron) were also parties. The Security Agreement recorded that AT Air had agreed to mortgage its shares in Wingaway and Heron to the Siewerts as security for payment of the balance of the purchase price. In addition, Wingaway and Heron agreed to guarantee the obligations of AT Air with respect to the payment of the purchase price. 4At the time of the Security Agreement, Aquatic was the owner of the Property as the sole trustee of the Aquatic Trust. By the Security Agreement, Aquatic granted an irrevocable power of attorney to the Siewerts with respect to the Property and the Siewerts agreed to use all reasonable endeavours to sell the Property for a purchase price of $2,500,000. Aquatic agreed that the proceeds of sale would be disbursed, first, in satisfaction of any costs payable by the Siewerts concerning the sale; secondly, to National Australia Bank Ltd (NAB) in order to discharge a mortgage registered in its favour over the Property; and finally, as to the balance, to the Siewerts on account of the remainder of the purchase price payable by AT Air to the Siewerts under the Share Sale Agreement. 5By the Security Agreement, the balance of the purchase price payable by the purchaser to the Siewerts was reduced from $1,990,000 to $1,290,000. Further, the Siewerts agreed to pay for outgoings incurred in relation to the Property for rates, taxes and charges, strata levies and the minimum monthly repayments payable to NAB under its mortgage of the Property. In addition, Aquatic agreed not to breach any term of the mortgage of the Property to NAB and to provide to the Siewerts any notice it received from NAB in relation to the mortgage immediately after receiving such notice. 6At the same time as the Security Agreement was entered into, Aquatic and the Siewerts entered into a call option deed (the Call Option Deed) in respect of the Property as consideration for the Siewerts' entering into the Security Agreement. Upon exercise of the option in accordance with the Call Option Deed, Aquatic and the Siewerts were deemed to have entered into a contract for the sale of the Property for a purchase price of $2,500,000. However, under cl 5.2 of the Call Option Deed, Aquatic agreed that the Siewerts could purchase the Property for any price they determined, provided that the purchase price was not less than the amount required to discharge NAB's mortgage over the Property. Aquatic authorised the Siewerts to amend the purchase price in the form of contract attached to the Call Option Deed, so long as the amendment was made in accordance with the Call Option Deed. 7Under cl 6.1 of the Call Option Deed, Aquatic charged its interest in the Property in favour of the Siewerts to secure its obligations under the Call Option Deed and agreed that the Siewerts could lodge a caveat to note their interest in the Property arising from that charge. Aquatic also agreed that it would not seek to have any caveat lodged by the Siewerts removed. 8On 21 February 2012, the Siewerts exercised the option granted by the Call Option Deed. The Siewerts and Aquatic then entered into a contract for the sale of the Property for a purchase price of $1,800,000. 9Subsequently, Aquatic and AT Air together with other parties (the plaintiffs), commenced proceedings in the Equity Division against the Siewerts, Heron, Wingaway and AT Air (the Substantive Proceedings). It is not clear how AT Air is both a plaintiff and a defendant. In the Substantive Proceedings, the plaintiffs seek to impugn the Security Agreement and the Call Option Deed on the basis that they were induced to enter into the arrangements by alleged misrepresentations said to have been made by or on behalf of the Siewerts, Heron, Wingaway and AT Air. On 25 June 2012, following interlocutory proceedings between the parties, a consensual interlocutory regime was established by orders of that date. The effect of the orders was as follows: (1)The caveat in respect of the Property lodged by the Siewerts was extended until further order. (2)The Siewerts were restrained from exercising any rights consequent upon service of their notice of exercise of the option and from transferring, encumbering or creating any interest in the Property. (3)Aquatic undertook to pay all outgoings and not to default on any liability that would cause a breach of any agreement in relation to the Property, including the mortgage to NAB. (4)Aquatic undertook not to transfer or deal with the Property and not to encumber or draw on any present encumbrance or security in relation to the Property in any way. (5)Aquatic undertook to remain in possession of the Property and to keep it in good maintenance and repair. 10Until December 2013, in conformity with the undertaking referred to above, Aquatic appears to have paid all outgoings and not defaulted on any liability of the type described in the undertakings. However, on 14 April 2014, NAB served on Aquatic a notice of default in respect of a payment of $55,157 said to be due and owing under NAB's mortgage and requiring that default to be remedied within 31 days. The default was not remedied. As a consequence, the total amount secured by the mortgage to NAB, said to amount to $1,855,157, was claimed by NAB to be immediately due and payable. 11The evidence before Brereton J did not make it clear when NAB's notice of default was received by Aquatic. His Honour found that, by the end of June, the relevant officer of Aquatic was aware of the alleged default and some steps were taken to contact NAB to endeavour to make arrangements in respect of the default. However, it was not put to Brereton J that the failure to take steps before that time was a deliberate or contumelious failure to comply with the undertaking given on 25 June 2012. 12It appears that the default under NAB's mortgage arose from the debiting to the relevant loan account on 9 December 2013 of the sum of $44,605.42 for monies paid by NAB to the Office of State Revenue in respect of land tax assessed on the Property. It appeared to Brereton J that the relevant officer of Aquatic was unaware of that debit until the service of the notices of default. His Honour concluded that the default was in that way inadvertent. 13On 25 July 2014, NAB commenced proceedings in the Common Law Division claiming possession of the Property. His Honour considered that it was reasonably clear that NAB had a firm intention of proceeding to recover possession of, and to sell, the Property. 14By notice of motion filed on 18 July 2014, the Siewerts sought to have discharged the injunction ordered on 25 June 2012 restraining them from exercising any rights consequent upon the exercise of the option and restraining them from transferring, encumbering or creating any interest in the Property. By notice of motion filed on 28 July 2014, Aquatic sought orders that all of the interlocutory regime of 25 June 2012 be vacated, save for the injunction restraining the Siewerts from dealing with the Property. Aquatic also sought directions that it list the Property for sale with an agent with a view to an auction by the end of October and that the payment of the net proceeds, after discharge of the NAB mortgage, be held in trust by their solicitors pending the outcome of the Substantive Proceedings. 15Brereton J proceeded on the basis that it was inherent in the consent orders of 25 June 2012 that the Siewerts accepted that the plaintiffs had a sufficiently arguable case for final relief in the Substantive Proceedings to justify interlocutory relief. Nothing was raised before Brereton J to suggest that that aspect required reconsideration. The question that came before his Honour in relation to the two motions was the balance of convenience at that time, which his Honour considered was affected by the intervention of NAB and the threat of a sale of the Property by it as mortgagee. 16Brereton J considered that both parties were faced with a situation in which, unless one of them was able to bring about a sale before NAB did, the Property would be sold at a mortgagee sale. His Honour considered that it was in the interests of both parties that the equity in the Property be optimised and preserved and that a mortgagee sale by NAB would be to the detriment of all parties. However, the Siewerts offered no real proposal, notwithstanding repeated questioning by his Honour, as to how the equity in the Property might be optimised and preserved. They simply asserted that they wished to be in a position to consider what they would do and whether they would exercise their rights. Brereton J did not consider that dissolving the injunction to permit the Siewerts to exercise their rights would achieve any superior result to a sale by NAB as mortgagee, since the Siewerts had not advanced any proposal for sale and had no presently expressed intention of doing so. 17On the other hand, Brereton J found, Aquatic wished to endeavour to sell the Property in the interim, other than pursuant to a mortgagee sale. His Honour considered that there was some prospect that that course of action would enhance the return for the benefit of both parties and would avoid incurring the costs that would otherwise be payable to NAB as mortgagee. His Honour said that any such sale by Aquatic would have to be on terms that the net proceeds after discharge of the mortgage and the costs of sale would be paid into Court or into a trust account operated by the solicitors for both parties, pending the outcome of the Substantive Proceedings. His Honour therefore concluded that the balance of convenience favoured the establishment of a regime under which Aquatic was able to sell the Property upon such terms. For that reason, his Honour was not minded to discharge the injunction restraining the Siewerts from exercising their rights or selling the Property. On the other hand, his Honour did not see any reason why Aquatic should be relieved of its undertaking to pay outgoings pending any sale, so long as it wished to maintain that injunction on the Siewerts. 18Aquatic's ability to sell the Property was impeded by the effect of the caveat lodged by the Siewerts. Accordingly, his Honour considered that it was appropriate to order the removal of the caveat upon completion of any sale by NAB or by Aquatic, on condition that the net proceeds be dealt with in the manner mentioned above. 19Brereton J therefore ordered that the Siewerts withdraw their caveat upon completion of the sale of the Property by NAB or by Aquatic, provided that, upon handing over the withdrawal of the caveat, the net proceeds of sale, after payment of the amounts required to discharge the mortgage to NAB and of the expenses of the sale, be paid into Court or into a controlled monies account in the name of the solicitors for the parties jointly, in order to abide the outcome of the Substantive Proceedings. His Honour also relieved Aquatic from the undertaking not to transfer or deal with the Property but only to the extent that it be at liberty to list the Property for sale and sell it by public auction. Aquatic was also released from other undertakings to the extent that the undertakings would prevent it from surrendering possession of the Property to a party entitled to possession under a judgment or order for possession. 20By their summons of 25 August 2014, the Siewerts seek leave to appeal from the whole of Brereton J's decision of 31 July 2014. On the day of filing their summons, the Siewerts filed a notice of motion seeking a stay of the orders of 31 July 2014 pending the hearing of the summons. For reasons given on 27 August 2014, Brereton J declined to stay the orders. However, his Honour ordered that, for the purposes of any sale in conformity with those orders, the reserve price be such price as is fixed by the selling agent, provided that the price be not less than $2,400,000 or a price agreed to by the Siewerts, or a price fixed by the Court. 21The essence of the complaint that the Siewerts wish to make, if leave to appeal is granted, is that the discretion exercised by Brereton J miscarried in circumstances where the trigger for the intervention by his Honour was a default by Aquatic in the performance of the undertakings that it had given to the Court on 25 June 2012. The Siewerts do not contend that his Honour did not have a discretion. Rather, they say that his Honour erred, having regard to the default and contempt on the part of Aquatic, in permitting Aquatic to seek to discharge the injunction while in contempt. 22They say, alternatively, that his Honour failed to have sufficient regard to the weight of Aquatic's breach of the orders of 25 June 2012 and its responsibility for the circumstances that had arisen, whereby NAB had become entitled to exercise its power of sale by reason of the default. In addition, they wish to contend that his Honour failed to consider sufficiently the comparative injury that would be suffered by the Siewerts if their proprietary interest in the Property were to be removed before any judicial decision as to their rights had been fully determined. They wish to contend that his Honour failed to consider properly their potential right and freedom to deal with the Property, either by way of sale or discharge of the NAB mortgage, and whether that right and freedom could be restored if Aquatic's claim in the Substantive Proceedings failed. 23They also wish to contend that his Honour erred in taking into account an irrelevant consideration, namely, whether the Siewerts had a present intention to sell the Property. They also wish to contend that his Honour erred in allowing the conduct of the sale to be by Aquatic as defaulting party, thereby rewarding it by giving it the advantage of its own breach of the orders of 25 June 2012. Finally, they wish to contend that his Honour failed to provide their counsel with the opportunity to obtain instructions in relation to their attitude to discharging the NAB mortgage in circumstances where Aquatic sought to be heard on a motion of which no notice had been given. 24In his reasons of 27 August 2014, Brereton J had regard to the fact that Aquatic's proposed sale of the Property had been listed for 16 September 2014. The NAB had indicated that it would withhold action until 24 September 2014. It now appears that there was no sale on 16 September 2014. A further sale in October was also abandoned because of lack of interest. Thus, Aquatic has not been able to achieve a sale as contemplated by Brereton J. On the other hand, equity in the Property continues to be eroded by interest being incurred and not paid. The Property is currently occupied under licence but apparently not at a commercial rate. 25The Siewerts have failed to point to any error of principle on the part of Brereton J. A tentative suggestion that his Honour failed to find that the default by Aquatic was deliberate cannot be relied upon in circumstances where his Honour was not asked to make such a finding. The orders made by Brereton J represent a discretionary interlocutory decision. It would be more appropriate to grant leave to appeal from such decisions only where there is an issue of principle involved, a question of general public importance or an injustice that is reasonably clear, in the sense of going beyond what is merely arguable (see, eg, Young v Hones (No 2) [2014] NSWCA 338 at [14]-[15]). The Siewerts have not shown an error of legal principle or a material error of fact on the part of Brereton J. They have not established that his Honour took into account an irrelevant consideration or failed to take into account or give sufficient weight to a relevant matter. It cannot be suggested that his Honour arrived at a result so unreasonable or unjust as to suggest that there has been any such error, even in the absence of error on the face of the reasoning. 26In addition, circumstances have changed. His Honour made orders in circumstances where it was expected that Aquatic would be able to bring about an early sale of the Property. Aquatic has not succeeded in its endeavour to achieve an early sale. It would be open to the Siewerts to make a further application to Brereton J to reconsider the position in circumstances where the expected result has not been achieved. 27No basis has been established for the grant of leave. No injustice will be suffered by the Siewerts. For that reason, the Court refused leave to appeal on 28 October 2014. There is no reason why costs should not follow the event. Accordingly, the Siewerts should pay Aquatic's costs of the application for leave to appeal.