Webuildem Pty Limited v Lord & Ors

Background Facts 5Some background is required to analyse the issues behind this motion. This is not the first time these parties have been before this Court. Webuildem first acquired the Mortlake properties in December 2007. Webuildem and its principals executed letters of offer and mortgages in favour of the Arab Bank in June 2008 to secure a commercial loan, construction loan and interest capitalisation facilities for the development of the Mortlake properties. 6Between June 2008 and April 2010 Webuildem substantially completed construction work on the Mortlake properties, subject to certain variations. Whether due to the global financial crisis or for other reasons by about mid 2010 the parties associated with Webuildem were encountering financial difficulties. At that time they were seeking to refinance their obligations to the Arab Bank. But a final occupation certificate issued for the Mortlake properties by November 2012. 7The Arab Bank alleged default on its facilities in mid 2011. The facilities had been varied and extended a number of times throughout 2010 and 2011. The evidence supports the inference that the facilities had become due and payable to the Arab Bank on or about 14 August 2011. But they were not paid on or before that date. And the facilities went into default shortly thereafter, on 30 August 2011. The Arab Bank appointed Mr Paul Weston and Mr David Young as receivers and managers of the Mortlake properties.

The Litigation Between the Parties 8Between November 2011 and this month, December 2013, the parties before the court were engaged in four pieces of litigation, apart from the current proceedings. The detail of that litigation is not of particular importance for the current application, which must be decided on its own evidence and on its own merits. But the nature of that litigation is nevertheless relevant background. 9The four pieces of litigation are varied. In the first piece of litigation, brought in November 2011, the receivers commenced proceedings seeking declarations as to the validity of their appointment as receivers and managers of the Mortlake properties and other assets securing the Arab Bank facilities. Webuildem joined the Arab Bank in that proceeding and sought relief alleging that the bank had overcharged it interest and made misrepresentations about amount of interest outstanding from time to time and about other matters. 10These first proceedings were managed in the Commercial List of this Court. At the hearing in March 2012 they involved extensive negotiations and then Hammerschlag J making final consent orders on 8 March. The orders made on 8 March 2012, put in place a moratorium for about three months to allow Webuildem to try and refinance its obligations to the Arab Bank. The arrangement agreed was that the Arab Bank would be at liberty to enter orders for possession of all the Mortlake properties and to have a money judgment in the sum of $23,721,717.20, if the refinancing did not occur by 12 June 2012. 11The second set of proceedings arose out of the 8 March settlement of the November 2011 proceedings. On 12 June 2012 Webuildem filed an interlocutory process seeking to set aside the settlement entered on 8 March 2012 and to stay the entry of orders for the money judgment and the judgment for possession, which would follow from the 8 March 2012 orders. Webuildem alleged that it had a demonstrable ability to refinance the facility with the Arab Bank in June 2012 and that the settlement agreement had been procured by the Arab Bank's misrepresentations to it. 12The June 2012 proceedings came on for hearing late that same month before Black J, who dismissed the interlocutory process leaving the 8 March 2012 orders on foot: Re Webuildem Pty Limited [2012] NSWSC 708. Webuildem's application for leave to appeal to the Court of Appeal from Black J's decision was dismissed. 13Webuildem commenced a third set of proceedings in July 2012 in the Federal Court of Australia. In these proceedings it sought a declaration that the 8 March 2012 settlement agreement could not be raised in defence of the plaintiff's claim and sought relief similar to that which had been pursued in the earlier proceedings before Black J. In January this year Foster J dismissed the July 2012 proceedings as an abuse of process, as they were seeking to re-litigate matters already decided by Black J. 14In May this year, the plaintiff commenced the last of the four prior proceedings: an application for orders to set aside the settlement agreement on 7 March 2012, based on allegedly false or misleading statements made by the Arab Bank. Those proceedings have not been resolved. And they represent a challenge to the bank's present exercise of its powers of sale as a mortgagee under its securities. 15Webuildem's claim for interlocutory relief was strongly contested and was the subject both of oral evidence and cross-examination. 16The two baskets of issues the Court must consider are: (1) whether there is a serious question to be tried; and (2) whether the balance of convenience favours the granting of an interlocutory injunction. As to the first of those issues, I have reached the view that the plaintiff has established a prima facie case. The real issue here lies in the second question: that is, whether or not the balance of convenience favours the grant of interlocutory relief. Now with a little more background I will consider each of these two questions.

(1) Prima Facie Case 17The plaintiff's claim in short is that in the exercise of its power of sale as mortgagee of the Mortlake properties the Arab Bank is contravening the duty that lies upon it by Corporations Act, s 420A. The nature of that duty was much debated before me but the legal availability of relief under Corporations Act, s 420A at a final hearing in respect of these securities was not in issue. There is no doubt that relief by way of equitable compensation, equitable damages or statutory damages under s 1324(1) and (10) of the Corporations Act 2001 may be granted for contravention of s 420A: GE Capital v Davis (2002) 11 BPR 20,529 at [2053]; Fortson Pty Ltd v Commonwealth Bank of Australia (2008) 100 SASR 162 at [11]; Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646 at [94]. 18The defendants disputed that any relief beyond such compensatory or pecuniary relief is available based upon Corporations Act, s 420A. I am prepared to assume against the defendants for the purposes of this application, but without deciding the question, that Corporations Act, s 420A may well found injunctive relief restraining a mortgagee's exercise of a power of sale. The question is whether such an injunction should be granted on an interlocutory basis. 19The way the defendants put their case was really not to deny that there was a serious question to be tried but on that issue to contend that the plaintiff's case was a weak prima facie case at best. Therefore when it came to the second issue of the balance convenience, the weakness of that prima facie case was a reason why the defendants submitted an injunction should not be granted. In a sense that seemed to me to involve a tactical concession on the first issue, and one which in my view was quite appropriate in the circumstances: that there was a serious question to be tried. 20But as so much time was devoted to this issue in the course of argument, I will observe that I do not regard the plaintiff's case as a weak one, as the defendants submit. This is a case where considerable effort seems to have been put by Webuildem into identifying ways in which the marketing of the Mortlake properties has not been adequate. 21Webuildem has an arguable point. It is of course difficult to do justice in an urgent interlocutory hearing where a judgment is required, as this one is, before an auction tonight. But in short Webuildem's criticisms of the marketing of this property fall into a number of categories, many of which are reasonably arguable. 22The first category of argument is the short period for which the property has been marketed being an insufficient period for the marketing of originally some eighteen units in this area at this time of the year. Next, Ms Athitakis, who swore evidence on behalf of the plaintiff, deposed to the lack of external signage in respect of the marketing of these properties. She has also deposed at some length to the very poor presentation of the properties and the fact that they seem to have fallen into a state of disrepair due to general neglect. She is critical of the fact that a building company Cabalock, associated with the parties who control Webuildem, which was an original builder of the Mortlake properties, has not been permitted to undertake building works to better present to them for sale. She is critical of the fact that very little notice of the forthcoming sale of these properties was given and that they seem to have been marketed by a decision apparently made somewhat at the last moment and about the same time as the company Webuildem indicated it wished to refinance. 23The defendants dispute these contentions. The defendants have advanced evidence collected through a number of sources, not the least of which is the actual marketing reports presented by those in charge of the marketing of the Mortlake properties, Ray White Real Estate, that the properties have been quite adequately marketed in the circumstances. Those reports certainly show to the layman's eye a professional approach: to the general media marketing of the Mortlake properties, to the obtaining of interest, to the marketing of the properties on the buyer internet and by other media, and to engaging with the interest actually shown by prospective purchasers. 24It seems to me that all that perhaps can be said from a survey of this material is that if there were an action for damages Webuildem brought against the Arab Bank in respect of the marketing of these properties, that there could be anticipated to be a robust contest at trial on both sides about how the properties have been marketed and not a contest, the outcome of which could readily be predicted on either side. 25There are other sub issues in relation to marketing the properties: the plaintiff is critical about the period of time that the properties have been marketed. The normal time to market properties such as these, which are close to the water in the Mortlake district, would be a period of some four to five weeks according to Mr Edmonds, an expert called for the plaintiff. 26The defendants point out that there has in fact been marketing of the properties for about 26-days which is not much short of that recommended period. The defendants also point to the fact that considerable interest has in fact been generated by the marketing campaign that has actually taken place. There was a strong contest between the parties about whether marketing during what is the commencement of private school holidays was a good idea or not. But I regard the views that have been expressed on both sides as on these issues as maintainable but inconclusive. And I do not need to determine them. 27The parties also argued about the effect of clause 49 of the contract, which in certain circumstances would require the vendor to expend moneys to improve the properties at the request of purchasers. Clause 49 is certainly to some extent an acknowledgment by the mortgagee/vendor that the properties are not now being presented at their best and will need further expenditure. On the other hand the defendants point out that clause 49 represents a real commitment of expenditure on its part to ensure the properties are improved to the satisfaction of purchasers, an offer which will assist in the marketing process. I do not have to decide this issue either but it too would represent a strong contest on both sides at trial. 28Finally the defendants' expert Mr Edmonds was challenged, to some effect if I may say so, about the fact that his report was one, which provided expressions of opinion in which he was requested to substantially agree with the plaintiff's case. Although I have to say I found Mr Edmonds, in the short exposure the Court had to him through an interlocutory hearing, to be a witness of obvious credit. 29The short result of this summary is that the plaintiff does not have a weak prima facie case and that that is not a matter to be weighed against the plaintiff when it comes to considering the question of balance of convenience.

(2) Balance of Convenience 30I now turn to the balance of convenience. The present proceedings are brought by a mortgagor seeking to restrain a mortgagee exercising a power of sale. Both parties recognised the applicability in determining the balance of convenience of the High Court's decision in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 ("Inglis"). The general rule set out in Inglis has long been recognised and applied: that in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage, and in particular the exercise of a power of sale, that an injunction will not be granted unless the amount of the mortgage debt, if it is not in dispute, is paid into Court. 31There are, however, recognised exceptions to this general rule, one of which is whether the power of sale has arisen at all: Harvey v McWatters (1948) 49 SR (NSW) 173. Another is whether the validity of the mortgage itself is in issue: Allfox Building Pty Ltd v Bank of Melbourne Ltd (1992) NSW ConvR 55-634. 32Yet another recognised exception is whether the amount claimed by the mortgagee is obviously wrong: Clarke v Japan Machines (Aust) Pty Limited (No 2) [1984] 1 Qd R 421. Finally, first instance decisions have recognised other exceptions, perhaps the most prominent of which is that where a plaintiff claims he can redeem the mortgage within a fairly short time by carrying out a refinancing proposal that is reasonable on its face and has a demonstrable capacity to secure the refinance of the mortgage debt: Parist Holdings Ltd v Perpetual Nominees Ltd [2006] NSWSC 599 at 16-21 and Bayblu Holdings Pty Ltd v Capital Finance Australia [2011] NSWCA 39. 33The plaintiff, Webuildem attempts to bring itself within a number of these exceptions. In the May 2013 proceedings Webuildem is challenging the Arab Bank's right to exercise any power of sale. It claims also that the amount claimed by the Bank is wrong or that series of misrepresentations have been made to the plaintiff about how much is actually due. It is not possible for me to work out in this proceeding whether those allegations are correct. But it is clear that they are made and that there are different amounts due claimed over a long period of time, that are difficult to reconcile. Whether the amounts claimed are right or they are wrong though is not something that I can presently determine. Finally the plaintiff relies upon the exception that a refinancing proposal is available. Webuildem has at least an arguable case that it falls within some of these exceptions to the general rule in Inglis. 34But Arab Bank faces a considerable potential shortfall on the proposed auction tonight. The evidence establishes through Mr Edmond's very helpful report and a report of Jones Lang La Salle that as at March this year that if the eighteen properties were marketed individually, they could probably realise about $14.85 million and in one line would probably realise about $10.5 million. Historically, it appears that assuming a more prolonged marketing campaign, much greater figures may perhaps be obtainable on sale from these properties. A valuation in May 2012 to which Mr Edmonds refers indicates that individually they could on sale realise $26.1 million, or in one line $20.8 million. 35But against this potential sales revenue the Arab Bank now says as at 20 November 2013 that the amount outstanding to it from Webuildem is the sum of $22.36 million. If the more recent March 2013 Jones Lang La Salle valuation is the more accurate one, there is still going to be a substantial shortfall in the sale of these properties, if the Arab Bank's figure of $22.369 million is correct. 36But that figure is challenged as well. The relationship between that figure and the debt originally financed indicates there must be a great deal of default interest being charged to Webuildem, if the figures given by Webuildem in evidence are correct. Webuildem says that from the time it obtained the mortgage facilities up to the date of these proceedings the Arab Bank has received a sum of $18,123,710 on a principal loan of $26,192,285. Although Webuildem has paid the Arab Bank about $18 million, Arab Bank now says that the amount outstanding to it as at November 2013 is still $22 million. This would mean that the total amount payable by Webuildem to the Arab Bank on the facility over time would be the sum of $40,493,253. Perhaps the accumulation of default interest accounts for this steep increase in the amount repayable to the bank. It is certainly a surprisingly large amount, but I cannot determine its correctness in these proceedings. 37The Court must nevertheless decide whether or not the balance of convenience favours the grant of an injunction. In my view despite the arguable nature of the plaintiff's case, a number of balance of convenience factors weigh against the grant of an injunction here. 38The first factor weighing against the grant of an injunction, is the size of the difference between the amount claimed by the Arab Bank and the amount that would be realised by these sales. The revenue figures just given relate to the sale of eighteen units. The bank as a result of or simultaneously with the commencement of these proceedings indicated that it would now only sell ten of the eighteen units. As the bank has decided to market only this lesser number, what will now be realised at auction may only be less than two thirds of the amount of $14.85 or $10.5 million previously mentioned. This is still well short of the money owing, at least on the face of it, to the bank. Thus there is a substantial risk of loss to the bank associated with any further delay to this sale. 39Secondly, despite this matter being the subject of debate in final submissions and despite it being flagged as an issue, Webuildem has not indicated that it is proposing to pay any further money into Court to secure its obligation to the Arab Bank as part of its application to restrain the exercise of the power of sale. One of the things expressly contemplated by Sugerman J's judgment in Harvey v McWatters is that in cases where the power of sale is contested or the amount in issue is contested (as this one is) the making of even partial payment into Court may go some considerable way towards shifting a Court towards granting an injunction on balance of convenience grounds. 40As to the amount of the mortgage claimed, it may perhaps be argued that one of the other exceptions applies: that the amount of what the mortgagee claimed is obviously wrong. All that can be said on the evidence before me is that the amount the mortgagee claims is in strong contest. But the amount must almost certainly be wrong before this exception applies. I am therefore minded on discretionary grounds on the balance of convenience to weigh Webuildem's failure to pay any funds into Court as a powerful factor against the grant of an injunction. 41The third factor, which in my view weighs against the grant of an injunction is the fact that the Arab Bank is a substantial financial institution which will be amenable to and will be able to satisfy any claim for damages which Webuildem may be minded to bring. It was not in contest before me that Arab Bank is a financial institution with a banking licence in Australia. No case was made that there was any risk that it would not be good for any damages that might be awarded against it or that a set off would not be available against any other liability it establishes against the plaintiff. 42Fourthly, it seems to me that Webuildem can still maintain an action for equitable compensation, equitable damages or statutory damages and that those damages would be an adequate remedy. Of course the plaintiff says that seeking to prove what moneys might have been recoverable had these properties been better marketed would be difficult. That may be so. But such a case has already been quite well mounted. It seems to me that evidence such as that of Mr Edmonds shows that such a case is maintainable on the evidence in a way that is quite able to be comprehended and dealt with by a Court at a future trial. 43Finally, relies upon a conditional offer of finance, annexure B to Mr Hussein Rifai's affidavit, the original of which offer was tendered in evidence after Mr Rifai gave oral evidence. Mr Rifai is the Executive Chairman of Perpetuity Capital Pty Limited ("Perpetuity") and who has been involved in the private equity finance and investment industry for twenty-five years including nine years as a principal with Ernst & Young. He gave evidence to the effect that in November Perpetuity entered into an agreement with Webuildem for Perpetuity to be appointed as a finance broker and that Perpetuity had been able, as a result of its enquiries, to obtain a letter of offer of finance from Lewis Jardine Partners to lend Webuildem up to $21 million at a loan to valuation ratio of no greater than 70 percent, subject to valuation of the Mortlake properties. A signed copy of that was produced to the Court. 44However, I am not sufficiently impressed by the probability of this loan proceeding that it weighs in my view as a strong factor in the plaintiff's favour. It is clear, particularly from clauses 4 and 5 of the letter of offer of finance that the terms seem to be perhaps more indicative than binding. It is still necessary for valuations to be obtained and for them to reach the acceptable loan to valuation ratio. And it is not clear that the valuation of the eighteen units would reach a valuation of $30 million such that on a loan to valuation ratio of 70 percent the $21 million would be advanced to refinance what the Arab Bank claims is still an outstanding obligation of $22 million. 45For all these reasons I decline to grant the injunction sought and will dismiss Webuildem's motion.

Order 46His Honour makes the following orders and directions:- (1)Notice of motion of 3 December 2013 is dismissed. (2)List these proceedings before the Registrar in Equity at 9am on 18 December 2013. (3)Costs reserved. (4)Liberty to apply.

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