ACP Properties (Townsville) Pty Ltd v 11 Oonoonba Road Pty Ltd [2021] QDC 10

DISTRICT COURT OF QUEENSLAND CITATION: ACP Properties (Townsville) Pty Ltd v 11 Oonoonba Road Pty Ltd [2021] QDC 10 PARTIES: ACP PROPERTIES (TOWNSVILLE) PTY LTD ACN 631 282 203 (first plaintiff) and ACP PROPERTIES (QLD) PTY LTD ACN 606 370 870 (second plaintiff) v 11 OONOONBA ROAD PTY LTD ACN 615 776 148 (first defendant) and TIMOTHY EDMONDS (second defendant) and STEPHEN GEORGE CAMPBELL (defendant by counterclaim) FILE NO/S: 2476/19 DIVISION: Civil PROCEEDING: Trial DELIVERED ON: 4 February 2021 DELIVERED AT: Brisbane HEARING DATES: 2, 3 and 4 November 2020 JUDGE: Barlow QC DCJ ORDER: 1 Judgment for the first plaintiff against each of the first defendant and the second defendant, in a sum to be determined. 2 Judgment for the second defendant against the defendant by counterclaim in a sum comprising one half of the amount of the above judgment against the second defendant. 3 Judgment for the second plaintiff against the first defendant, in a sum to be determined. 4 The parties provide to the court, by 18 February 2021, a draft form of orders reflecting this judgment and the reasons for it, plus costs. -- 1 of 28 -- ii 5 If the parties are unable to agree on the amounts of the judgments or on costs, they each provide to the court, by 25 February 2021, a draft judgment and submissions about the amounts of the judgments and costs, with any submissions in response to be provided by another date to be fixed. 6 All parties have liberty to apply on seven days’ notice. CATCHWORDS: MORTGAGES – ESTATE, RIGHTS AND LIABILITIES OF MORTGAGOR AND MORTGAGEE – DISCHARGE OR RECONVEYANCE – ASSIGNMENT OR TRANSFER TO THIRD PARTY – the second plaintiff and first defendant entered into an agreement to develop a property – the agreement provided that the second plaintiff would provide a loan to the first defendant secured by a mortgage over the first defendant’s interest in the property – further funding was provided by another lender by way of a finance facility secured by a mortgage to another lender, to be first in priority over the second plaintiff’s mortgage – the first plaintiff paid to discharge the debt owed under the finance facility and was assigned this debt – the first defendant defaulted on both loans –the second plaintiff exercised its power of sale and sold the property to the first plaintiff – whether sale meant that first plaintiff took equitable ownership subject to first mortgage – whether payment of finance facility debt by first plaintiff discharged that debt for all parties. MORTGAGES – MORTGAGEE’S REMEDIES – SALE UNDER POWER – PROCEEDS OF SALE – first defendant defaulted on loan from second plaintiff – second plaintiff exercised power of sale over first defendant’s interest in the property –s econd plaintiff’s mortgage was second in priority – first plaintiff, as mortgagee with first priority, acquiesced to proceeds of sale going towards discharging second plaintiff’s mortgage – whether the proceeds of sale should have been applied to discharge the first registered mortgage. MORTGAGES – MORTGAGE CONTRACT – AGREEMENTS FOR MORTGAGE – the second plaintiff and first defendant entered into an agreement to develop a property – the agreement provided that the second plaintiff would provide a loan to the first defendant secured by a mortgage over the first defendant’s interest in the property – further funding was provided by way of a finance facility secured by a mortgage to another lender, to be first in priority over the second plaintiff’s mortgage - agreement between second plaintiff and first defendant entitled second plaintiff to secure its interest via a mortgage on property –second plaintiff released its mortgage to allow for finance facility to be registered as first in priority – whether second plaintiff was -- 2 of 28 -- iii entitled to re-register its mortgage without further agreement of mortgagor. GUARANTEE AND INDEMNITY – DISCHARGE OF SURETY – ALTERATION OF OBLIGATION GENERALLY –the second defendant guaranteed the first defendant’s debt debt to the first plaintiff - the first plaintiff acquiesced to the second plaintiff using the proceeds of sale under power to discharge its own mortgage which was second in priority – whether this acquiescence constituted a breach of the terms of the second defendant’s guarantee – whether it discharged the second defendant from his obligations under the guarantee. COUNSEL: NH Ferrett QC for the plaintiffs and defendant by counterclaim L Copley for the defendants SOLICITORS: Archibald Brown Lawyers for the plaintiffs and defendant by counterclaim Mobbs & Marr Legal for the defendants TABLE OF CONTENTS Introduction ............................................................................................................... 1 The issues ................................................................................................................... 3 The assignment .......................................................................................................... 3 The extension or forbearance .................................................................................. 7 The re-registered ACPQ mortgage ......................................................................... 8 Whether payment to ACPQ discharged NAB guarantee .................................... 14 The amount of the ACPT debt ............................................................................... 17 Contribution ............................................................................................................ 19 Conclusions .............................................................................................................. 19 ANNEXURE ............................................................................................................... I -- 3 of 28 -- 1 Introduction [1] Each of the plaintiffs claims that one or both of the defendants owes it money, respectively under two loan agreements and a guarantee. The defendants dispute that they owe the sums claimed. The second defendant, if he is liable under the guarantee, seeks contribution from the defendant by counterclaim, as co-guarantor. [2] A number of legal issues arise, but there are not many disputes of fact. The following facts are not disputed except to the extent indicated. [3] The plaintiffs (ACPT and ACPQ respectively) are companies controlled by the defendant by counterclaim (Mr Campbell), who is a director of each. The first defendant (Oonoonba) is controlled by its director, the second defendant (Mr Edmonds). [4] On 23 December 2016, ACPQ and Oonoonba agreed in writing (the development agreement1) to purchase, as tenants in common in equal shares, and to develop a property in Townsville. On the same day, they executed and settled a contract to purchase that property, which was subsequently transferred to them. [5] There were terms of the development agreement that ACPQ would lend to Oonoonba sums totalling $1,647,500 (the ACPQ loan) to enable Oonoonba to pay one half of the purchase price and one half of the anticipated costs of completing works on the property. Oonoonba agreed to – and did – provide a mortgage of its interest in the property to ACPQ (the ACPQ mortgage2) to secure that loan, which was to be repaid on or before 23 December 2017. That mortgage was registered on the title on 3 April 2017. [6] Oonoonba was not able to repay the ACPQ loan on the due date. Oonoonba contends that ACPQ subsequently agreed to extend the repayment date to 23 December 2018. ACPQ denies that and contends that it agreed to forbear from acting on the default until 23 December 2018 at the latest, or earlier if it made an earlier demand. [7] In April 2018 the National Australia Bank (NAB) agreed (by a letter of offer – the NAB loan agreement) to provide a finance facility to ACPQ and Oonoonba, in the sum of $1,600,000 (the NAB loan), repayable by 30 April 2019. As security for the loan, NAB required a guarantee from each of Mr Campbell and Mr Edmonds (the NAB guarantee) and a registered mortgage over the property (the NAB mortgage). Those documents were provided to NAB, with the mortgage registered on 14 June 2018.3 [8] On 12 June 2018 ACPQ executed a release of the ACPQ mortgage. That release was registered on 20 June 2018.4 The effect of that registration was that the NAB mortgage became the sole mortgage registered on the title. 1 Exhibit 1, p 284ff. 2 Exhibit 1, p 300ff. 3 All these documents (the NAB transaction documents) are in exhibit 1. The NAB loan agreement is at p 462ff, the NAB guarantee is at p 489ff, the NAB mortgage is at pp 521-522 and the terms of the mortgage are at p 158ff. 4 Exhibit 1, p 523. -- 4 of 28 -- 2 [9] On 23 August 2018, ACPQ lodged for registration a duplicate copy of the ACPQ mortgage, which was registered on that day (the re-registered ACPQ mortgage5). The parties dispute whether that was done with Oonoonba’s consent. [10] On 3 December 2018, ACPQ wrote to Oonoonba alleging that Oonoonba had breached the terms of the ACPQ loan, under both the development agreement and the re-registered ACPQ mortgage. ACPQ enclosed a notice of exercise of power of sale of the property. [11] ACPT was incorporated on 29 January 2019. On 9 May 2019, ACPQ and ACPT made a contract by which ACPQ, as owner of its share and as mortgagee exercising its power of sale over Oonoonba’s share, agreed to sell the property to ACPT.6 On that day, both parties signed a form of transfer of the property to ACPT.7 [12] On 15 May 2019, ACPT and NAB made an agreement (the assignment agreement8) whereby, in consideration of the payment by ACPT to NAB of the amount owed to NAB under the NAB loan agreement, the NAB mortgage and the NAB guarantee, NAB agreed to assign to ACPT all NAB’s rights under those documents. [13] Also on 15 May 2019, ACPT paid $555,077.96 to NAB, which closed its loan account for ACPQ and Oonoonba.9 A transfer of the NAB mortgage from NAB to ACPT was registered on the title on 22 May 2019.10 [14] On 24 May 2019, ACPT gave Oonoonba notice of the assignment.11 [15] On 31 May 2019, the contract for sale of the property by ACPQ to ACPT was completed, stamp duty on the transfer was paid and the transfer was registered.12 The net proceeds of sale were paid solely to ACPQ. Half of the proceeds were paid to it as its share, as co-owner, of the proceeds of sale. The balance was paid to it in reduction of the amount owed to it by Oonoonba under the ACPQ loan.13 None was paid to ACPT in reduction of the NAB loan, even though ACPT was then registered as first mortgagee and ACPQ was registered as the second mortgagee. ACPT and ACPQ contend that ACPT acquiesced in Oonoonba’s half share of the proceeds of sale being applied in that manner (thus giving ACPQ effective priority over ACPT notwithstanding the formal priorities under the registered mortgages). [16] On 14 June 2019, ACPT sent a demand to each of Oonoonba and Mr Edmonds.14 It demanded payment of $555,077.96, which it asserted was due under the NAB loan as at 15 May 2019. Its demand to Oonoonba was made under the NAB loan agreement and the NAB mortgage. Its demand to Mr Edmonds was made under the NAB guarantee. 5 Exhibit 1, p 588ff. 6 Exhibit 1, p 890ff. 7 Exhibit 1, p 934. 8 Exhibit 1, p 913ff. 9 Exhibit 1, pp 75, 77-78, 923, 924. 10 Exhibit 1, p 53. 11 Exhibit 1, p 925. 12 Exhibit 1, pp 929, 934. 13 Exhibit 1, p 930. 14 Exhibit 1, pp 1016-1017 and 1018-1019. -- 5 of 28 -- 3 [17] Apart from the application of the proceeds of sale toward the ACPQ loan, neither Oonoonba nor Mr Edmonds has repaid any of that loan or the NAB loan. The issues [18] By this proceeding, ACPT seeks to recover, from Oonoonba under the loan agreement and from Mr Edmonds under the NAB guarantee, the amount of the NAB loan. ACPQ seeks to recover from Oonoonba, under the ACPQ loan agreement, the unpaid balance of the ACPQ loan. [19] The defendants contend, principally, that Oonoonba and Mr Edmonds are not liable to ACPT under the NAB loan agreement and the NAB guarantee respectively because: a. upon ACPT and ACPQ signing the transfer of the property to ACPT, ACPT took equitable ownership of the fee simple in the property subject to the terms of the NAB mortgage and therefore its payment to NAB of the amount outstanding under the NAB loan discharged that debt; b. alternatively, the proceeds of the sale of the property to ACPT should have been applied by ACPQ first in payment of the debt owed to ACPT under the NAB loan, which would therefore have discharged their respective obligations under the NAB loan agreement, the NAB mortgage and the NAB guarantee, and ACPT’s acquiescence in ACPQ instead applying the funds to the ACPQ loan was contrary to the terms of the guarantee and resulted in the discharge of Mr Edmonds’ obligations under it. [20] The defendants do not really dispute that Oonoonba owes ACPQ an amount under the ACPQ loan, although they contend that the amount owed is more than ACPQ seeks, because it wrongly applied all the proceeds of sale to the ACPQ loan rather than first discharging the NAB loan and only applying the balance to the ACPQ loan. However, they contend that the re-registered ACPQ mortgage was not properly registered and had no effect, so ACPQ was not entitled to sell the property and to apply Oonoonba’s share of the proceeds of sale toward payment of its debt. Therefore, it holds those proceeds on trust for Oonoonba. The assignment [21] The first question to resolve, in my view, is whether the assignment of the NAB transaction documents by NAB to ACPT was effective. [22] The defendants’ submission about the effectiveness of the assignment depends on whether, before it paid out the NAB loan, ACPT was subject to the obligations under the NAB mortgage so that its payment of the loan in fact operated to discharge that debt, rather than as consideration for the assignment of the NAB transaction documents to ACPT. [23] The transfer was executed by ACPT and ACPQ on 9 May 2019: the same date as they signed the contract for the sale of the property by ACPQ to ACPT. Mr Copley, appearing for the defendants, submitted that, on its face, the transfer records that it was signed on 9 May, that the consideration was $2,730,000 and that “the Transferor -- 6 of 28 -- 4 … in the case of monetary consideration acknowledges receipt thereof.”15 It should be taken at face value. The consideration was paid and the transfer took effect on that day. The effect of the transfer was that, on and from that day, ACPT obtained an interest in the fee simple of the property subject to the NAB mortgage and it was therefore required to comply with the terms of that mortgage.16 Therefore, when it paid to NAB the amount of the debt secured by that mortgage, on 15 May 2019, that payment operated to discharge the debt. There was therefore no debt outstanding that NAB could or did in fact assign to ACPT and therefore neither Oonoonba nor Mr Edmonds has any liability to ACPT for that debt. [24] Mr Copley placed a great deal of emphasis on the terms of the transfer that it was executed on 9 May 2019 and that the transferor acknowledged receipt of the monetary consideration. That, he submitted, was evidence of the facts stated in the document. As the consideration had been paid then, the transfer was effective to transfer to ACPT an equitable interest in the property subject to the requirements of the NAB mortgage. [25] This submission really overlooks several facts and confuses legal principles. [26] First, although ACPT obtained an equitable interest in the property upon execution of the contract of sale on 9 May 2019, that did not impose on it as purchaser an obligation to comply with the terms of the mortgage. That obligation remained that of the registered owner, ACPQ, which would have to satisfy the mortgage in order to comply with its contractual obligation to deliver to ACPT the legal title free of encumbrances. [27] Secondly, ACPT paid the amount of the debt to the bank on 15 May 201917 and the assignment of the NAB transaction documents occurred on that date. Each was clearly in consideration for the other. [28] Thirdly, the contract of sale was not completed until 31 May 2019, when the consideration under that contract was dealt with by ACPT and ACPQ.18 [29] Therefore, despite the wording of the transfer, it was not effective - and it is clear that consideration under the contract was not paid - until 31 May 2019. It was only when the consideration was paid, the transfer came under the control of ACPT and it was entitled to lodge the transfer for registration, that ACPT was enabled and entitled to obtain a legal interest in the fee simple. This only occurred when the transfer was registered.19 By that registration, the NAB mortgage was automatically released by the unity of title between registered owner and mortgagee.20 15 Exhibit 1, p 934. 16 Mr Copley relied on the Land Title Act 1994, s 63, for this proposition. 17 Exhibit 1, p 75 is a bank statement for the account showing that it was paid out on that date. Pages 923 and 924 are correspondence between Mr Campbell and the bank confirming payment and receipt of the debt on that date. 18 Exhibit 1, pp 929 and 930 are respectively the settlement statements for the sale and for the application of the proceeds of sale, both dated 31 May 2019. Page 934 is the transfer, which shows that stamp duty on the transfer was paid on 31 May 2019 and the transfer was registered on that date. Mr Campbell confirmed that the contract settled on that date: T1-55:13-15. Mr Edmonds could not dispute that: T2- 27:39-45. 19 Land Title Act 1994, ss 181, 182. 20 And by operation of s 63(2) of the Land Title Act. -- 7 of 28 -- 5 [30] This is consistent with common conveyancing practice, where the documents for settlement, including an executed transfer, are often prepared and executed before settlement and are held in escrow by the solicitors for one of the parties pending completion. The transfer has no effect until it is exchanged for payment of the consideration. [31] Section 63 of the Land Title Act does not assist the defendants. Subsection (1) provides that if a lot, or an interest in a lot, subject to a registered mortgage is transferred, the transferee is liable to comply with the terms of the mortgage. However, an interest in a lot is transferred only on registration of an instrument of transfer: s 62(1). It is therefore only upon registration of the transfer that the transferee becomes liable to comply with a mortgage over the lot. [32] Therefore, it was not until 31 May 2019, when the transfer of the property from ACPQ to ACPT was registered, that ACPT would ordinarily become liable under the mortgage. But of course, it did not become liable because, upon becoming the registered owner, the mortgage was automatically released.21 [33] The result is that, at 15 May 2019, when the assignment agreement was completed, ACPT was under no obligation to NAB under the NAB mortgage. ACPT’s payment to NAB of the amount then due under the NAB loan was in consideration for the assignment of the NAB transaction documents and not in discharge of the NAB loan. [34] Therefore, upon completion of the assignment on that day, ACPT became entitled to the benefits of the NAB loan agreement and the NAB guarantee. Thereafter, upon registration of the transfer of the NAB mortgage to ACPT on 22 May 2019,22 ACPT became the mortgagee under the NAB mortgage and all the rights, powers, privileges and liabilities of NAB in relation to the property vested in ACPT, including the right to sue on the terms of the mortgage and to recover a debt or enforce a liability under the mortgage.23 [35] Mr Copley submitted, in the alternative, that the assignment was invalid because no notice of the proposed assignment had been given to Oonoonba, as required by clause 14 of the general conditions forming part of the NAB loan agreement.24 [36] That clause provided as follows: 14. Changes we may make We may need to make changes to your Facilities from time to time. Some changes are automatic, some we can make without your consent and some require your agreement. We promise to act reasonably when we make any changes and will give you at least 30 days’ notice of any change (except for automatic changes – see below for details). If we reasonably consider a change will be materially adverse to you and the same change is not being made to similar facilities of our other small business customers, we will give you at least 90 days’ prior written notice of the change. We may: 21 Subsection 63(2), Land Title Act. There is no evidence that ACPT requested the registrar, under s63(3), not to act under section 63(2). The search of the title in exhibit 1 shows that the NAB mortgage was cancelled by the transfer of the property to ACPT: exhibit 1, p 53, item 7. 22 Exhibit 1, p 53, item 3. 23 Land Title Act, s 62(1), s 62(4). 24 Clause 14 appears at exhibit 1, p 484. -- 8 of 28 -- 6  introduce a new fee, charge or premium;  change the amount of a fee, charge or premium, how it is calculated or when it is charged;  change a rate (other than a fixed rate) or the Default Interest Rate, including by changing or replacing the relevant indicator rate or a component used in determining a rate, and by changing, adding or removing a margin (including by making a margin positive or negative);  change your repayment obligations, including the amount of any repayment, or your repayment type; and  make necessary changes due to a change in law, as required by the Code of Banking Practice or our prudential obligations as a bank. How we will notify you of changes We may either write to you or put an advertisement in national and local media for certain changes. For example, where there is a new government charge or a change in an existing government charge, and this has not otherwise been publicised. If a variable rate for your Facility changes, we will also write to you or advertise no later than the date the change takes effect. Automatic changes Automatic changes for a Facility (such as a change to repayment amounts following a change in variable rates) will be notified as set out in the relevant Bank Document. All other changes will need your agreement Any other changes to a Bank Document will need your written agreement. What you can do if you don’t like a change If you don’t agree with a change we make or are proposing to make, you may terminate the Facilities by notifying us in writing and repaying us each Facility Amount Owing. Economic Costs may be payable (see clause 15). [37] The clause certainly does not expressly state that NAB must give the borrower prior notice of the proposed assignment of “your Facilities”,25 the loan agreement or any other transaction documents, nor that those documents cannot be assigned without the borrower’s agreement. [38] I agree with Mr Ferrett QC, for the plaintiffs, that an assignment of the NAB transaction documents does not fit within the categories of changes to the Facilities referred to in clause 14. Nor does it comprise a change to the “Facilities.” In any event, as Mr Ferrett also noted: a. clause 26 of the NAB guarantee expressly provided that NAB could assign its rights under the guarantee;26 b. clause 17 of the general terms of the NAB loan agreement expressly provided that NAB could assign or otherwise deal with its rights under the Bank 25 “Facility means any bank product we agree to provide to you under your Business Letter of Offer”: clause 18 of the general conditions. “Bank Documents means your Business Letter of Offer, the documents listed at the start of that letter including these Business Lending General Terms, …, any Security and any other document, agreement or arrangement you have with us from time to time.” Exhibit 1, p 486. 26 Exhibit 1, p 503. -- 9 of 28 -- 7 Documents in any way it considered appropriate.27 The “Bank Documents” referred to in clause 17 included the NAB mortgage. [39] Similarly, clause 19.1 of the terms and conditions of the NAB mortgage provided that NAB may assign or otherwise deal with its rights under that mortgage or another arrangement in any way NAB considered appropriate.28 [40] Therefore, there was no requirement that NAB or anyone else give prior notice to Oonoonba or Mr Edmonds of the proposed assignment to ACPT. The absence of such notice did not result in the assignment being ineffective. [41] As I have recorded earlier, notice of the assignment was provided to Oonoonba and Mr Edmonds on 24 May 2019.29 In accordance with s 199 of the Property Law Act 1974, the assignment of the debt to ACPT took effect upon that notice being given. [42] The assignment to ACPT of the benefits under the NAB transaction documents, including the debt, was therefore effective before ACPT became the owner of the property. From 24 May 2019,30 Oonoonba and ACPQ owed ACPT the debt outstanding under the NAB loan agreement, ACPT was (until it became the registered owner) the first mortgagee of the property and Mr Edmonds and Mr Campbell owed their obligations under the NAB guarantee to ACPT. The extension or forbearance [43] As I have recorded earlier, the ACPQ loan was repayable by Oonoonba on 23 December 2017, but Oonoonba was unable to repay it then. [44] On 11 May 2018, Mr Edmonds sent an email to Mr Campbell, confirming that Oonoonba was unable to pay interest on the loan and requesting that interest be capitalised.31 Mr Campbell responded on 5 June 2018,32 in which he relevantly said: I propose the following The breach to remain on foot. Interest will continue to be capitalised on the original loan $1.35m approx. plus your one half of the further funds advanced $250k plus interest accrued at time of breach $TBD = Total due as at breach to be compounded at 4.68% (NAB prevailing rate) and then at compounding rate of 9.36% when new facilities went into place … This extension will be for a maximum period of 12 months from the original breach or earlier should it be advised. [45] Mr Edmonds responded on 11 June 2018, confirming that “this is agreed”.33 [46] The defendants submit that this agreement meant that the ACPQ loan was extended to 23 December 2018. Therefore ACPQ was not entitled to demand payment of the loan, as it did, on 3 December 2018. The plaintiffs contend that the agreement was simply a forbearance by ACPQ to sue for recovery of the loan for a maximum period 27 Exhibit 1, p 485. 28 Exhibit 1, p 171. 29 Exhibit 1, p 925. 30 The date of notice of the assignment. 31 Exhibit 1, pp 551-553. 32 Exhibit 1, p 551. 33 Exhibit 1, p 550. -- 10 of 28 -- 8 (in its discretion) up to 23 December 2018. Mr Ferrett QC relied in particular on the words, “The breach to remain on foot” and the last sentence quoted above. [47] I agree with Mr Ferrett’s submission. By the time this exchange occurred, ACPQ had been in default in failing to pay the ACPQ loan since 23 December 2017. Also, it had not paid any interest on the loan principal, although it was only required to pay interest “on repayment of the loan.”34 As the agreement required that the loan be repaid on 23 December 2017, that was also the date on which interest on the loan up till then had been payable. Since then, additional interest was payable on all overdue amounts at the rate of 2% per annum.35 [48] By his email, Mr Campbell clearly did not agree that the loan period was retrospectively extended for 12 months. That is belied by the words “The breach to remain on foot.” An extension of time for repayment would cure the pre-existing breach of the obligation to repay the loan on the original due date. Instead, it seems clear that Mr Campbell (for ACPQ) was prepared to forebear from seeking to recover the outstanding debt for a maximum of 12 months from the original due date, in return for Oonoonba agreeing to pay interest at higher rates than provided for in the development agreement. [49] It was therefore open to ACPQ to call for payment of the outstanding loan at any time although, given that the period of the forbearance was entirely within its discretion, it may not have given sufficient consideration to entitle it to charge the additional interest. However, the defendants have not raised any issue about the correct calculation of interest due to ACPQ so it is unnecessary for me to determine that question. The re-registered ACPQ mortgage [50] The next question to resolve is whether the re-registered ACPQ mortgage was properly registered as, if it was not, ACPQ was not entitled to sell Oonoonba’s interest in the property in its capacity as mortgagee in possession, nor perhaps to apply the proceeds of sale directly in reduction of its debt (rather than paying Oonoonba’s share to it and then seeking recovery of the outstanding sum). [51] Although the NAB loan agreement did not, on its face, require that the NAB mortgage be registered as the first mortgage on the property, Mr Edmonds gave evidence that that was a requirement as expressed to him by the manager36 and all parties appear to have accepted that NAB would not have made the loan without a commitment from the borrowers that its mortgage would be registered as first mortgage on the title. [52] Of course, at the time of the NAB loan, the ACPQ mortgage was the only mortgage registered on the title. As I have already recorded, on 12 June 2018 ACPQ executed a release of the ACPQ mortgage and that release was registered on 20 June 2018.37 I do not understand any party to dispute that that was done in order for the bank’s mortgage to become registered first on the title. 34 Development agreement clause 5.4: exhibit 1, p 288. 35 Development agreement clause 9.2: exhibit 1, p 289. 36 T2-10:17-22. 37 Exhibit 1, p 523. -- 11 of 28 -- 9 [53] The release of mortgage expressly stated that, “The mortgagee releases the mortgage as a charge on the land described in item 2.” The effect of registration of that release was that the mortgage was discharged and the property was released from it to the extent shown in the release.38 Therefore, the mortgage was released as a charge on the property, but it was only released to that extent. The personal covenants and terms of the mortgage, other than the term creating a charge, were not released by registration of the instrument of release.39 [54] Therefore, the effect of the release of the ACPQ mortgage was not that Oonoonba’s obligation to repay the debt secured by it was discharged, nor that the mortgage itself was discharged or wholly released, but only that it was no longer a charge on Oonoonba’s interest in property and that debt was, in effect, unsecured (subject to ACPQ’s other rights under the terms of the mortgage, which included the right to take possession of the property but no longer included the right to sell Oonoonba’s interest). [55] Importantly, Mr Campbell agreed that, at the time he executed the release as director of ACPQ, there was no agreement, between himself or ACPQ and Mr Edmonds or Oonoonba, that it be re-registered. Rather, in the coming months there were negotiations to have a second mortgage to ACPQ executed and registered over the property.40 [56] On 12 June 2018, ACPQ’s corporate counsel, Anne Reynolds, wrote an email to Jessica Douglas of Connolly Suthers, who were the solicitors for both ACPQ and Oonoonba at the time.41 Ms Reynolds relevantly said: Stephen Campbell has asked me to contact you regarding the Release of Mortgage. We understand the release is required by the NAB as they require a first registered mortgage for the new facilities. However as Tim Edmonds is in default we would like to keep the mortgage in place as a second registered mortgage. Could you please advise on the best way of doing this. For example is it possible to do this without the Release such as some other type of Mortgagee Consent document giving the NAB priority or do we need to Release and then lodge a second mortgage. If it is the second option will we need a mortgagee consent from NAB. [57] Ms Douglas responded on 21 June 2018,42 attaching a form of mortgage and relevantly saying: There was been considerable change in the manner in which mortgages are to be completed and registered over the title to the land since completion of the last mortgage in late 2016. The Form 20 Schedule is similar to the previous mortgage terms utilized and agreed upon in 2016. … You will see that that the sum secured is no longer $1,647,500 and refers to all money owing by the Mortgagor to the Mortgagee from time to time pursuant to the terms of the Property Agreement. 38 Land Title Act, s 81(3). 39 As well as s 81(3), which limits the release to the extent stated, see Industrial Acceptance Corporation Ltd v Tarulli [1974] WAR 125; Associated Securities Ltd v Perry [1978] Qd R 13; cf Groongal Pastoral Co Ltd (in liq) v Falkiner (1924) 35 CLR 157. 40 T1-57:39-46. 41 Exhibit 1, pp 524-525. 42 Exhibit 1, p 524. -- 12 of 28 -- 10 We understand that NAB have approved the registration of a new mortgage second in priority to their NAB mortgage. … Can you please let us know if you require any amendments to the terms of the attached documents. Once the terms are finalized we can issue final versions of the documents for signing by the parties. The new mortgage documents can then be registered at Titles Office. [58] Mr Campbell then sought and received confirmation from the NAB manager that ACPQ could register a second mortgage subject to NAB’s priority for the limits then in place. Ms Reynolds then asked Ms Douglas to ensure that a second mortgage document complied with NAB’s requirement.43 [59] Following that exchange, ACPQ, mainly by Ms Reynolds, liaised with Connolly Suthers and gave instructions for the preparation of a formal deed of forbearance and a fresh mortgage.44 A final form of such a deed was not prepared and it does not appear that any draft was sent to or discussed with Mr Edmonds. [60] On 22 August 2018, Mr Edmonds and Mr Campbell exchanged emails about selling the property.45 In the course of that exchange, Mr Edmonds raised the question of ongoing expenses associated with the property. Mr Campbell, among other things, said, For further monies I am told by Brendan46 that you have refused to register my mortgage interest after it was agreed that NAB would take priority and I would be replaced as second registered mortgage. If that is not in place then on basis of your on going breach no further funds are agreed. I suggest if further funds required then security be reinstated as was agreed. [61] Mr Edmonds replied, “Please advise what you propose in regard to Pa fire,”47 to which Mr Campbell responded, “Is your problem now as you have refused to register the mortgage. As far as I am concerned you have been paid the money.” [62] Mr Campbell gave evidence that, on 23 August 2018, he had a telephone conversation with Mr Edmonds. He said that his telephone records show that the conversation started at about 8.42am. Mr Campbell appeared to me to have a good recollection of the conversation. It is important to set out his evidence about it in full.48 I basically said we’re over it. Well, the conversation started with, “We’re over it. We’ll be looking to appoint a liquidator, and you don’t even have the decency to secure our original position”. And he’s gone, “I’ll give you whatever you want, whatever you guys want. I’ve always told you, you know”, as you can see through emails, “Yes, Steve, yes, Steve”, all right”. So, “I’ll give you whatever you want”. I said, “Well, before this conversation goes any further I want my position that we had under the first deed to be reinstated, I hold a copy of an original copy of that mortgage, and I want to register it”. “You can do that. What else do you want”. So I had the phone – I’m on the phone - - - 43 Exhibit 1, pp 542-543. 44 Exhibit 1, pp 554-584. 45 Exhibit 1, pp 585-587. 46 That is, Brendan Gaeta, a solicitor at Connolly Suthers. 47 PA Fire was a consultant that had provided services regarding the property and had invoiced Oonoonba for those services: T2-19:5-12. 48 T1-46:35 to T1-47:6. -- 13 of 28 -- 11 Sorry, just taking it though there. You say you had the original deed still from the mortgage. What did he say in response to you?---Yes. All right. Sorry, continue, please?---I was on the phone. I walked into Anne’s office. I had the phone by my side. I said, “Original deed”. He could have heard it. I didn’t have it up. I didn’t put it on my mute, “Please go register it”, right. And I got back to my conversation. Anne and I had discussed that as part of the conversation with my father the night before. And you know, she went and registered it. It’s on the record. [63] The duplicate copy of the ACPQ mortgage was registered on 23 August 2018 at 9.36am.49 [64] It was put to Mr Campbell, in cross-examination,50 that he had invented this conversation. He had not deposed to it in an affidavit in support of an application for summary judgment that the plaintiffs had made earlier in the proceeding. Also, the conversation and the alleged agreement to re-register the ACPQ mortgage were not pleaded in the plaintiffs’ reply to the defendants’ allegation, in their defence, that the registration of the re-registered ACPQ mortgage was unlawful and was done without the defendants’ knowledge or consent. Mr Campbell did not really respond to the assertion concerning the pleading but, as for the summary judgment affidavit, he said that he was advised to keep the affidavit simple, so he did not refer to everything that he might have. He also referred to some emails from Mr Edmonds to Mr Gaeta at Connolly Suthers later that morning, in which Mr Edmonds asked for the mortgage document and deed and the documents that Mr Campbell had done up to be sent to him. Mr Campbell said he considered the emails to be admissions that Mr Edmonds knew he had agreed to give ACPQ a second mortgage. [65] It is correct that the plaintiff’s pleadings do not refer to any agreement by Mr Edmonds that ACPQ could re-register the ACPQ mortgage. The relevant pleadings are: a. In paragraph 4(c) of the defence, the defendants relevantly pleaded that: xi. on or about 20 June 2018, the Second Plaintiff registered a release of mortgage to discharge the Initial Mortgage. … xii. on or about 23 August 2018, the Second Plaintiff unlawfully registered a second mortgage against the Property without the knowledge or consent of the First or Second Defendant (the “Second Mortgage”); b. In paragraph 5 of their reply, the plaintiffs pleaded in response to those allegations: As to subpar 4(c) of the Defence, the Plaintiffs: … (n) deny the allegation in sub-paragraph (xi) because, although ACPQ registered such a document, it was not with the intention, or pursuant to any common intention of ACPQ and Oonoonba to discharge the Initial Mortgage, the parties having agreed that ACPQ would be entitled to a second-ranking mortgage on the same terms as the Initial Mortgage (which agreement was later repudiated by Oonoonba); 49 Exhibit 1, p 588. 50 T1-63:13-37 and T1-64:17 to T1-65:40. -- 14 of 28 -- 12 (o) deny the allegation in sub-paragraph (xii) because, although the Second Mortgage was registered, the registration was not unlawful because of the matters set out in sub-paragraph (n) immediately above. [66] It seems clear that, in paragraph 5(o) of their reply, the plaintiffs were not relying on any agreement made on 23 August 2018 that they could re-register the original mortgage, but on a prior agreement that the ACPQ mortgage would, after its release to enable the NAB mortgage to have priority, be replaced by a mortgage in the same terms, to be registered as the second mortgage on the title. However, there was no evidence of any earlier agreement to that effect.51 [67] In Mr Edmonds’ evidence, he agreed that he had a conversation with Mr Campbell in the morning of 23 August 2018. The following exchange with Mr Copley occurred in his evidence in chief:52 And what was – can you recall that conversation?---Look, it was mainly around his father and – and – and their exposure. He – I can recall, yeah, he was fairly anxious to protect his – his dad’s interests, and my recollection was that if something went wrong with the property or with me, that – that would expose him. He wasn’t poor. He had a lot of money, but it’s still a significant amount of money. And was anything else discussed?---No. Sorry. Yes. He – he wanted a second mortgage to cover his father’s – or his – their position. This was said to you in that conversation, was it?---That he wanted a second mortgage? Yeah. Yeah, he did want one, yeah. So he asked for one - - -?---Yep. - - - asked for a second mortgage?---Yep. And what was your response?---I said I’d consider it. Did you say anything else?---No. And how was that – was that the end of that conversation?---Pretty much, yeah. [68] In cross-examination,53 Mr Edmonds denied that Mr Campbell had referred to having a duplicate copy of the ACPQ mortgage and that Mr Edmonds agreed that it could be re-registered, although he said that he was prepared to consider granting a second mortgage to secure Oonoonba’s obligations under a new agreement reflecting the terms of what I have found to be a forbearance agreement. [69] It is clear that Mr Edmonds and Mr Campbell had a conversation early on 23 August 2018 in which the topic of a second mortgage was discussed. By that time, the ACPQ mortgage had been released as a charge on the property and the parties had exchanged the emails to which I have referred above, about the forbearance agreement. [70] It is curious that the plaintiffs did not call Ms Reynolds to give evidence about the circumstances in which she re-registered the ACPQ mortgage that morning. They did not give any explanation for not doing so, but the defendants did not invite me to draw any inference that her evidence would not have been helpful to the plaintiffs’ 51 As I noted above (at [55]), Mr Campbell gave evidence that there was no such agreement at the time the release was given. 52 T2-19:40 to T2-20:12. 53 T2-78:4-30; T2-85:1 to T2-87:23. -- 15 of 28 -- 13 case and therefore I do not draw any such inference. I must decide the dispute as to what was said on the basis of the evidence before me, both oral and written. [71] After the conversation, a number of emails were exchanged between Mr Edmonds and Mr Campbell on the one hand and between Mr Edmonds and Mr Gaeta on the other.54 They bear on the question of the preparation of a second mortgage in favour of ACPQ, but they do not really assist me in determining whether re-registration of the ACPQ mortgage was discussed. Clearly the parties were, at that stage, contemplating Oonoonba granting a second mortgage to ACPQ to secure the former’s obligations under the forbearance agreement, but that does not directly affect whether they had discussed re-registration, whether as an interim measure or otherwise. [72] I do not consider that Mr Campbell’s failure to refer to this conversation in his affidavit in support of the application for summary judgment indicates that his evidence about it was a recent invention. It is notorious that such affidavits are drawn by lawyers, setting out only evidence that they consider supports summary judgment. As Mr Campbell said in his evidence, his lawyers advised that the evidence should be kept simple. It is often the case that applications for summary judgment rely on documents rather than potentially contentious evidence of conversations. I accept Mr Campbell’s explanation. [73] I consider that both Mr Campbell and Mr Edmonds were truthful witnesses and relayed their best recollections of the discussion that morning. Mr Edmonds does not recall any mention of the duplicate copy of the ACPQ mortgage, let alone agreeing that it could be registered, but I think it unlikely to have been of importance to him at the time, as he was aware that ACPQ had only released it in order to enable NAB to have a first registered mortgage to secure its loan and that the release was not intended to leave ACPQ unsecured for the loan due to it under the original arrangements between it and Oonoonba. He was focused on how to pay debts relating to the property and he was prepared to agree to Mr Campbell’s requirements so that Oonoonba could receive funds needed to pay outstanding invoices concerning the property. On the other hand, it was important to Mr Campbell that ACPQ urgently return to a position of having some security for its original debt while he negotiated a more formal forbearance agreement and a replacement mortgage to secure Oonoonba’s obligations under that agreement. I accept Mr Campbell’s evidence of what was said during the conversation, including that Mr Edmonds agreed to Mr Campbell’s request that the ACPQ mortgage be re- registered that morning. [74] But even if that were not the case, I consider that ACPQ was entitled to re-register the mortgage after the NAB mortgage had been registered. Under the development agreement, Oonoonba expressly agreed (in clause 5.5) that, to secure payment of the loan and interest under that agreement, it would give ACPQ a mortgage in the terms of the ACPQ mortgage, which could be registered as a first mortgage on the property. That originally occurred, but ACPQ lodged a release of that mortgage (as a charge on the property) in order that the NAB mortgage could appear first as an encumbrance on the title. As that was the limited reason for the release (even if there was no express agreement to that effect), ACPQ’s execution and lodgement of the release did not, in my view, release Oonoonba from its obligation under the 54 They are set out, in chronological order, in the appendix to these reasons. -- 16 of 28 -- 14 development agreement to give security to ACPQ. The only alteration to that obligation was that ACPQ was prepared to accept that its mortgage, in those terms, would be registered second on the title. [75] Therefore, in my view, ACPQ was entitled, under the development agreement, to re-register the ACPQ mortgage after the NAB mortgage was registered, in order to resume its position as a mortgagee, albeit then second to NAB. For either reason, its re-registration of the ACPQ mortgage was lawful and valid. Whether payment to ACPQ discharged NAB guarantee [76] The defendants admit that ACPQ sold Oonoonba’s interest in the property to ACPT in the exercise of its power of sale as mortgagee, the net sale price after adjustments was $2,733,729.07 and Oonoonba’s share of the sale proceeds was $1,366,639.53.55 [77] ACPT contends that, as it was not paid any of the debt due under the NAB loan from the proceeds of sale (even though it had priority over ACPQ), it is still owed the full amount of the NAB loan and it is entitled to recover it from Oonoonba under the NAB loan agreement and from Mr Edmonds under the NAB guarantee. [78] Mr Edmonds contends that ACPQ, as mortgagee, should have applied Oonoonba’s share of the proceeds of sale first in discharge of the NAB loan (that is, the debt owed by Oonoonba to ACPT), applying only the balance in reduction of the ACPQ loan. The apparent agreement between ACPQ and ACPT that the proceeds instead be applied to the ACPQ loan (or ACPT’s acquiescence to that course) was in detrimental disregard of Mr Edmonds’ interests under the NAB guarantee and consequently resulted in the discharge of that guarantee. Therefore, Mr Edmonds is not liable to ACPT under his guarantee of the NAB loan. [79] Alternatively, Mr Edmonds contends that, under the NAB guarantee, he is entitled to contribution from Mr Campbell amounting to 50% of Mr Edmonds’ liability to ACPT. [80] As to the first proposition, ACPT pleads that the application of the sale proceeds to ACPQ’s debt was not unlawful (as alleged in the defence) because ACPT as the assignee of NAB’s rights acquiesced in that payment and it was not bound to insist on repayment of the NAB loan in priority to the debt owed to ACPQ.56 [81] In support of the first proposition, Mr Copley submitted that, in permitting the proceeds of sale to be paid solely to ACPQ, ACPT breached clause 20.1 of the mortgage memorandum of common provisions attaching to the NAB mortgage57 and also breached s 88 of the Property Law Act. [82] Mr Copley did not expand on the proposition relying on clause 20.1, but the submission seems to me to have no substance. That clause relevantly provided that, subject to any overriding law, money received by NAB under the mortgage must be applied, first, in payment of all costs of NAB; secondly, in payment in order of their priority of any security interest which had priority to the NAB mortgage; and thirdly, 55 Statement of claim paragraphs 7-9, defence paragraphs 7-9. 56 Reply, paragraph 21(f). 57 The memorandum is at exhibit 1, p 158ff. -- 17 of 28 -- 15 towards payment of any other parts of the amount owing, in such order as NAB chooses. [83] That clause has no application on the facts of this case, because ACPT did not receive any money under its mortgage: the property was sold and the proceeds of sale were paid to ACPQ. Furthermore, clause 19.1 provided that NAB may assign or otherwise deal with its rights under the mortgage in any way it considered appropriate. In this case, ACPT clearly considered it appropriate to allow ACPQ to take the proceeds of sale in priority to ACPT – presumably because Mr Campbell knew that ACPT could look to Mr Edmonds, as well as Oonoonba, to recover the amount owed, while ACPQ could not. [84] Mr Ferrett QC also submitted that there was no obligation on ACPT to resort to its security before taking other steps to recover the debt due under the NAB loan, including by seeking to recover from Mr Edmonds under the guarantee. To the contrary, clause 11 of the general terms of the NAB loan agreement gave the lender a discretion to take any or all of the steps set out, including suing the borrower for the amount owing and enforcing any security. It was not obliged to do one in priority to another, or at all. Further, under the NAB guarantee, ACPT was not obliged to realise its security before seeking to recover the principal debt from Mr Edmonds. I agree with that submission. [85] Section 88(1) of the Property Law Act relevantly provides that the money arising from sale and received by a mortgagee (that is, a mortgagee who has exercised its power of sale) shall be held by the mortgagee in trust to be applied by the mortgagee: (a) in payment of the costs of sale and other expenses properly incurred by the mortgagee; (b) “in discharge of the mortgage money, interest and costs, and other money (if any) due under the mortgage;” (c), in payment of any subsequent mortgages or encumbrances; and (d) the residue (if any) shall be paid to the person entitled to receive or to give receipts for the proceeds of sale (normally, the mortgagor). [86] Mr Copley submitted that the application of the proceeds of sale to the debt secured by the second mortgage in this case was in breach of the statutory trust created by this subsection. Therefore, ACPQ should account to Oonoonba for the amount that should have been used in payment of the NAB loan, or should pay it as damages for the loss caused to Oonoonba by the breach. [87] Mr Copley relied on a decision of the Supreme Court, in which the Court held that the provision is intended to provide the machinery for giving effect to priorities legally established and that the reference to “the mortgage” in paragraph 88(1)(b) is to the mortgage first in priority. The reference in (c) to “subsequent mortgages” clearly assumes that the mortgage referred to in (b) is that with the dominant priority. The priorities referred to are not those prima facie established by order of registration, but the true priorities, however, they are lawfully achieved.58 [88] In this case, Mr Copley submitted, the true priorities were those established by the order of registration of the two mortgages concerned and therefore ACPQ was required first to pay out the debt secured by the NAB mortgage. It breached its trust by not doing so. 58 Australia and New Zealand Banking Group Ltd v Evans [1992] 2 Qd R 230, 233 (de Jersey J). -- 18 of 28 -- 16 [89] Mr Ferrett submitted that ANZ v Evans does not mandate that the beneficiary of the statutory trust accept the benefit of the trust, nor does it prevent two mortgagees agreeing to vary their legally established priorities. Mr Copley responded that, in this case, ACPT merely acquiesced in ACPQ taking all the proceeds of sale; there was no formal agreement between the mortgagees to vary their priorities; therefore, the priorities pursuant to which ACPQ was obliged to pay, and for which it held the funds in trust, were those established by the priorities of the mortgages as registered. [90] Section 88 is a statutory mechanism for establishing the manner in which a mortgagee, in possession of proceeds of sale of property under the mortgage, must deal with those proceeds. It serves to protect the interests of other persons with an interest in the proceeds. However, it does not mandate that each of those persons must accept that person’s priority of payment under the section. Priorities are established by agreement but may also be waived by any person having a priority, including by acquiescing to the postponement of the person’s priority in favour of someone lower on the ladder. Of course, that is always subject to the agreements under which the person’s entitlement to the proceeds is established: in the case of ACPT, the NAB transaction documents. [91] There is also a well-recognised principle (although I did not understand Mr Copley to be relying on it) that: If a creditor holds a security for the enforcement of the principal obligation and the creditor destroys, releases or abandons the security, the guarantor will be released in equity to the extent that the value of the security has been impaired. Examples include a release of a mortgage, …, allowing the security to fall into the hands of a third party …59 [92] However, that principle is subject to the terms of the guarantee. In this case, clause 14.2 of the NAB guarantee relevantly provided: Your obligations under this Guarantee are not affected by anything that might otherwise affect them under the law relating to sureties, including: … (c) the fact that, in relation to any amounts which the customer owes NAB or any security interest (whether given by the customer, you or a co-guarantor), guarantee or indemnity for them, NAB: … (ii) gives up, releases, varies or exchanges, or fails to obtain, perfect, register or realise, or deals in any other way with the security interest, guarantee or indemnity. [93] A clause in a guarantee to this or similar effect has been upheld on many occasions as enabling a lender to do many things that may affect the value of a security, including allowing another lender to rank ahead of the first lender’s priority and thereby to increase, or not to decrease, the guarantor’s liability, without affecting the guarantor’s obligations or discharging the guarantee.60 [94] Subject to the issue that I shall address next, the NAB transaction documents did not oblige ACPT to enforce its rights under its securities. It was entitled to cede its priority to another creditor if it considered it appropriate to do so. It was not obliged 59 O’Donovan, The Modern Contract of Guarantee (Thomson Reuters Westlaw), [8.740]. 60 For example, Drummond v National Australia Bank Ltd (1997) 7 BPR 14,985 [97611]. See also O’Donovan (above), [8.850]. -- 19 of 28 -- 17 to insist on payment of the debt owed to it before ACPQ applied the funds to its own debt. ACPT was entitled to – and did – acquiesce in ACPQ’s application of the proceeds of sale to the reduction of Oonoonba’s debt to it. The guarantee’s terms confirm that Mr Edmonds’ liability for the debt was not affected by ACPT’s acquiescence to that course. [95] Mr Copley also submitted that, by agreeing not to be paid out in priority to ACPQ, ACPT varied its agreement with Oonoonba under the NAB loan agreement and that variation was contrary to the interests of Mr Edmonds under the NAB guarantee, with the result that he was discharged from his obligations under the guarantee.61 [96] Again, while I accept the principle, I do not accept that it applies in this case. For the reasons already discussed about the discretions open to ACPT under the NAB loan agreement and the NAB mortgage, its decision not to insist that it be paid was not a variation of those agreements. ACPT was simply exercising a discretion for which those agreements and the NAB guarantee provided. [97] Consequently, the NAB guarantee is enforceable against Mr Edmonds and ACPT is entitled to judgment against him and Oonoonba for the amount of the debt due under the NAB loan. The amount of the ACPT debt [98] The amount of that debt, as claimed by ACPT, is disputed by the defendants. In their counterclaim, they contend that drawdowns under the NAB loan totalling $175,000 that occurred after 7 August 2018 were not made with their knowledge or consent. Nor were those drawdowns used for the purpose approved in the NAB loan agreement, namely the purchase of non-residential buildings. Therefore, they contend, they are not liable for that amount, nor interest on it. [99] The account statements for what, I understand, was in effect the NAB loan account, show that, between 5 November 2018 and 13 March 2019, five large withdrawals totalling $175,000 were made and those funds were deposited to a business account operated by ACPQ.62 [100] Mr Campbell gave evidence to the effect that, throughout the period of the NAB loan, with Mr Edmonds’ consent Mr Campbell had control of the loan account.63 [101] The purpose of the NAB loan was stated in the agreement to be “Purchase of Non- Residential Buildings.”64 That description may have come about because the facility may originally have been intended to assist Oonoonba to repay some or all of the ACPQ loan that itself was to enable the purchase of the property. What is not disputed is that the parties never used the funds for the stated purpose. Rather, they were used toward the expenses of renovation and refurbishment of the property to improve its attractiveness for potential tenants and its value, in accordance with the development agreement. 61 Relying on such cases as Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 559. 62 Exhibit 1, p 73 shows the withdrawals and pp 66 to 69 show the deposits. 63 T1-50:30-46. 64 Exhibit 1, p 464. -- 20 of 28 -- 18 [102] The plaintiffs accepted that Mr Edmonds was not advised of the drawdowns after 7 August 2018. The defendants contended that they were not properly authorised or for the permitted purpose under the NAB loan agreement. ACPT contended that the drawdowns were for works necessary to bring the property up to a fit standard to be sold. [103] Mr Copley cross-examined Mr Campbell at some length65 about the purposes of some of the amounts paid from ACPQ’s business account, apparently utilising the funds deposited to that account from the loan account, by reference to invoices and account statements that came to form exhibits 2 and 5 and a document in exhibit 1 referred to as a dilapidation report.66 Mr Campbell explained that some were for expenses of repairs to, or removal of rubbish from, the building on the property, while others were legal expenses relating to the sale or to the enforcement of the mortgage. One of the expenses was for accounting advice that appears, from Mr Campbell’s description, to arise from the structure of the arrangements between ACPQ and Oonoonba under the development agreement (which I would not consider to be appropriately drawn down under the loan agreement).67 However, another item about which he was asked was a credit received from the Australian Taxation Office in the sum of $6,647, which appears to have been a refund based on a business activity statement for ACPQ. It was suggested (and Mr Campbell appeared to accept) that it was a payment to the ATO, but both the bank statement and the BAS show that it was a refund from the ATO. It seems to be irrelevant to the issue of the drawdowns, other than showing that the account received credits from sources other than the drawdowns from the NAB loan account that ACPT seeks to recover. [104] In his re-examination, Mr Campbell said that most of the work reflected in those exhibits was “to ensure we weren’t in breach of our NAB requirements, and also to ensure that the tenants were satisfied, or any repairs and maintenances as – in regards to flood events. It was really just those three areas. We didn’t approve [sic]68 the property at all.” [105] The amounts drawn down against the loan account and the amounts paid from the business account are demonstrated by the account statements. The evidence sought to be elicited by Mr Copley, together with the documents tendered, does not satisfy me that the amounts drawn down (other than for the accounting advice referred to above) were not properly drawn to cover expenses concerning the property or the enforcement of the mortgage. In either case, they would be appropriately drawn against the loan account. [106] Therefore, apart from the amount of $3,685 and interest on that sum, I am not persuaded that the overall amount sought by ACPT is not owed under the NAB loan. I will leave it to the parties to determine the correct amount having regard to this finding. [107] The defendants do not appear to challenge the amount claimed by ACPQ, other than by reference to the amount that they seek to attribute to the debt to ACPT. Again, 65 Starting at T1-75:34. 66 Exhibit 1, p 675ff. 67 T1-78: the amount was $3,685. 68 The transcript appears to be in error here: read “improve”. -- 21 of 28 -- 19 though, I will leave it to the parties to calculate the correct amount owed, including interest up to date. Contribution [108] Mr Campbell does not cavil with the fact that he is required to contribute to Mr Edmonds’ liability under the NAB guarantee. Conclusions [109] Overall, therefore, I find that: a. ACPQ was entitled, with ACPT’s acquiescence, to apply Oonoonba’s share of the net proceeds of sale in reduction of the ACPQ loan; b. Oonoonba is liable to ACPQ for the remaining amount outstanding under the ACPQ loan; c. Oonoonba is liable to ACPT for the unpaid amount of the NAB loan; d. Mr Edmonds is liable to ACPT, under the NAB guarantee, for the unpaid amount of the NAB loan; and e. Mr Campbell is liable to Mr Edmonds to contribute one half of the debt owed to ACPT under the NAB loan. [110] Mr Campbell may contribute his proportion of the debt either directly to ACPT or by indemnifying Mr Edmonds for that sum. Given that Mr Campbell controls the plaintiffs, one might expect that contribution to be reflected in a reduction of the judgment amount in fact sought by ACPT against Mr Edmonds. [111] I shall invite the parties to prepare a form of judgment that reflects these reasons and any agreement they may reach on costs. I shall give the parties liberty to apply, in order to resolve any issues about the amount of each judgment. Of course, that liberty does not extend to seeking to re-argue any of the issues that I have determined. -- 22 of 28 -- ANNEXURE Emails exchanged on 23 and 24 August 201869 1 p 610 23 August 2018 10:37 AM From: Tim Edmonds To: Brendan Gaeta (Connolly Suthers) Subject: Re mortgage doc and deed can you please send70 2 p 609 23 August 2018 10:46 AM From: Brendan Gaeta To: Tim Edmonds Subject: RE: Re mortgage doc and deed can you please send Tim Attached is the Agreement to Purchase and Develop Property dated 23 December 2016. I do not hold a cop of the signed mortgage, but will have Brad / Jessica locate this and email it to you. 3 p 605 23 August 2018 10:48 AM From: Tim Edmonds To: Brendan Gaeta Subject: Re: Re mortgage doc and deed can you please send71 Was there a second mortgage done up ? 4 p 603 23 August 2018 10:49AM From: Tim Edmonds To: Brendan Gaeta Subject: Re: Re mortgage doc and deed can you please send72 what about doc steve had done up 5 p 605 23 August 2018 10:56 AM From: Brendan Gaeta To: Tim Edmonds Subject: RE: Re mortgage doc and deed can you please send Tim, 69 Errors as per originals. 70 This email said nothing in its body. 71 In response to email #2. 72 In response to email #2. -- 23 of 28 -- II As you know, we received instructions from A.C.P. Properties Pty Ltd in relation to preparation of a new mortgage and to document a default. It became clear that this was not a simple matter of documenting an agreement concluded between the parties in relation to a default and under the securities but rather, was a dispute between the parties. We are no longer acting in this matter. I am not permitted under Queensland Law Society Rules to divulge aspects of our file with A.C.P. Properties Pty Ltd or to forward you a copy of any documents prepared on behalf of A.C.P. Properties Pty Ltd. 6 p 608 23 August 2018 11:39 AM From: Brendan Gaeta To: Tim Edmonds73 Tim Attached is the signed mortgage 7 p 608 23 August 2018 11:54 AM From: Tim Edmonds To: Brendan Gaeta Subject: Re: Re mortgage doc and deed can you please send thanks if i was to provide a second mortgage to steve would it be similar to this? would it require a quantum on it ? ie 1600000 million i think it is fair he has one just need to understand the implications does it need to be accompanied by a deed as per the origiinal one ? 8 p 611 23 August 2018 2:52 PM From: Tim Edmonds To: Stephen Campbell Steve I appreciated this morning’s conversation I understand your initial motivation to be involved in the project “To help me as a friend “ and your perspective on the issues you have brought to my attention . I am disappointed that I allowed this to get to a stage it has . It was never my intent I would not intentionally do anything to disadvantage you or the J/V . I have every intent of providing you a second mortgage to protect your interests. 73 No subject but appears to be part of the email chain with subject “Re mortgage doc and deed can you please send”. -- 24 of 28 -- III I have contacted Brendon by email to request docs he was working on I have been advised by email “As you instructed him only you can instruct him to forward me the docs”. Can you do that. I regard to the 2nd mortgage Do we need to confirm it is not a breach of our first mortgage with NAB to have a seconfd mortgage .I assume we just need theri permission. Is it appropriate to get a priority deed from NAB for our existing facility? In regard to quantum your exposure is say $3.5mill my interest is 30 % not sure how this is documented outside of our emails and is reflected on the mortgage or even if it needs to be .or do we amend the initial agreement . In regard to my breach I assumed that the rearrangement of equity and interest rate remedied this situation. “I didn’t read your email fully “I would like to think you can consider this as a remedy and provide me with clarification around what we discussed in regard to holding costs being accrued until the income from the property is sufficient or sold . Otherwise it is an ongoing issue with a breach . Anyways ,if you can have Brendan forward the docs I will go over them with the intention of signing the mortgage Moving forward I appreciate it if you and your father are down with this. I will work in any capacity to get the property to a salable position as fast as practical.in particular around certification , finalizing a lease on old oyster bar and tiding up the Simply Tops lease and getting that in order ,keeping you completely in the loop. I am concerned in regard to a number of issues you bought up around the accounts. I discussed it with elley this morning who has handled this along with Harry , both of us would like the opportunity to review what you have ,Elley is surprised and believes there should be an explanation. If you can send that through asap I want her to get onto it today with an explanation ,if it is possible. Cc me in to the email to Brendan please so I know to follow him up 9 p 613 24 August 2018 10:44 AM From: Brad Skinner (Connolly Suthers) To: Tim Edmonds Cc: Brendan Gaeta Subject: 150998 DESIRE HIRE NQ PTY LTD:A.C.P. Properties (Qld) Pty Ltd as trustee and 11 Ooonoonba Road Pty Ltd as trustee purchased from MCG 33 Palmer Street Pty Ltd 33-35 Palmer Street (Transit Centre) Tim, -- 25 of 28 -- IV I have attached the original mortgage as requested. This is of no use to you as the description of the debt in Item 5 has no doubt changed and the registrable form for a mortgage has changed since this mortgage was registered. [I] have no problem sending you this document as we prepared it on your behalf some time ago. However, we cannot prepare a new mortgage for you in the current format because we prepared one on instructions from A.C.P. before things went pair shape. AS you know we have advised ACP and you that we would prefer not to have any further involvement in this dispute. You will need to have Belco or Brendan Marr prepare a mortgage in the current registrable form for you. 10 p 631- 632 24 August 2018 4:43 PM From: Steven Campbell To: Tim Edmonds Hi Tim See some quick comments below.74 Sorry thought Anne was in today but not the case so will send you detail over weekend or if will likely spoil weekend let me know and will send Monday? Steve I appreciated this morning’s conversation I understand your initial motivation to be involved in the project “To help me as a friend “ and your perspective on the issues you have brought to my attention . I am disappointed that I allowed this to get to a stage it has . It was never my intent I would not intentionally do anything to disadvantage you or the J/V . I have every intent of providing you a second mortgage to protect your interests. I have contacted Brendon by email to request docs he was working on I have been advised by email “As you instructed him only you can instruct him to forward me the docs”. Can you do that. I will only sort 2nd mortgage out first. I regard to the 2nd mortgage Do we need to confirm it is not a breach of our first mortgage with NAB to have a seconfd mortgage .I assume we just need theri permission. 74 Those parts in red are Mr Campbell’s responses. -- 26 of 28 -- V Is it appropriate to get a priority deed from NAB for our existing facility? I have asked NAB for consent when we released the first one to give them priority and they are all good. In regard to quantum your exposure is say $3.5mill my interest is 30 % not sure how this is documented outside of our emails and is reflected on the mortgage or even if it needs to be .or do we amend the initial agreement . I think the simplest way is we do not change the equity portion. Once the second mortgage is registered we simply fix the deed to say you receive 30% of the profit upon sale. In regard to my breach I assumed that the rearrangement of equity and interest rate remedied this situation. “I didn’t read your email fully “I would like to think you can consider this as a remedy and provide me with clarification around what we discussed in regard to holding costs being accrued until the income from he property is sufficient or sold . Otherwise it is an ongoing issue with a breach . As regard the original loaned amount; it continues to be capitalised. One of the issues I have is that we agreed at the start as evidenced in the Deed that holding costs were 50:50. Holding is not defined as to include the interest on my loan as this is paid at the end. The critical issue (and I thought both understood) is/was to get the site to a cash neutral position. Anyways ,if you can have Brendan forward the docs I will go over them with the intention of signing the mortgage Moving forward I appreciate it if you and your father are down with this. I will work in any capacity to get the property to a salable position as fast as practical.in particular around certification , finalizing a lease on old oyster bar and tiding up the Simply Tops lease and getting that in order ,keeping you completely in the loop. Let’s get the detail sorted as per above and get on the same page. I believe much of this arose due to non compliance with what we had agreed under the Deed. For various reasons as we have discussed. I think learning are both ways so let’s explore where at, sort and where can go. I have view we are all on the train and not yet at the end. We both have differing strengths which are or at least should be complementary. Perhaps more eye balling is needed from my end to ensure comfort and assistance is more timely in order to prevent this situation. I am concerned in regard to a number of issues you bought up around the accounts. I discussed it with elley this morning who has handled this along with Harry , both of us would like the opportunity to review what you have ,Elley is surprised and believes there should be an explanation. Again with Anne and will do. If you can send that through asap I want her to get onto it today with an explanation ,if it is possible. Cc me in to the email to Brendan please so I know to follow him up -- 27 of 28 -- VI 11 p 634- 635 27 August 2018 4:04 PM From: Steve Campbell To: Tim Edmonds Subject: 2nd Registered Mortgage Hi Tim I spoke with Anne and she said Brendan did not prepare one as they were focusing on the Deed the he suggested. I have attached the details around the funds advanced from my side under the loan prior to the NAB facility coming into place on the 4th May 2018. I suggest you request Brendan to prepare the mortgage referencing the amount due as at today which is accruing at a compound rate of 9.36%. 12 p 634 27 August 2018 4:19 PM From: Tim Edmonds To: Steve Campbell Subject: Fwd: 2nd Registered Mortgage call to discuss 13 p 638 27 August 2018 4:44 PM From Tim Edmonds To: Steve Campbell Subject: Fwd: 2nd Registered Mortgage [in response to Email #11] Steve, Just went over the numbers This does not reflect the variation in equaity . The calcultion and debt are based on 50% equity position . I appreciate the Nab docs will not as well somthing that can be adjusted easily enough . [Steve Campbell’s reply is illegible and counsel did not direct HH’s attention to a clearer copy] -- 28 of 28 --