Atlantic 3-Financial (Aust) Pty Ltd v Outback Cuisine Pty Ltd [2000] QSC 491

ff}~ Ou· f S . ·R· ■ B (~ Queensland Government ta te . e po rt I ng urea u ~ DepartmentofJus~ceand Attorney-General Transcript of Proceedings Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau. SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION MULLINS J No 9937 of 2000 ATLANTIC 3-FINANCIAL (AUST) PTY LTD ACN 056 262 723 and OUTBACK CUISINE PTY LTD ACN 084 239 252 BRISBANE .. DATE 14/12/2000 JUDGMENT REVISED COPIES ISSUED State Reporting Bureau Date / CJ I 1;).I. o o Applicant Respondent I th Floor, The Law Courts, George Street, Brisbane, a. 4000 Telephone: (07) 3247 4360 Fax: (07) 3247 5532 1 -- 1 of 17 -- 14122006 Tl-2/TW12 M/T 8924/2000 (Mullins J) HER HONOUR: The applicant, which is the registered mortgagee of Lot 1 on CPR26302 in the County of Livingstone, Parish of Rockhampton, on which is built a small stock abattoir, applies for the removal of Caveat No 704159184. The caveat was lodged by the respondent which is the registered proprietor of the-land. The respondent purchased the land in November 1999 from Lloyd Griffin and Betty Williams for a total consideration of $532,344. The respondent obtained finance of $420,000 from the applicant to assist in the purchase. That sum was advanced pursuant to a deed of loan dated 9 November 1999. The balance purchase price of approximately $78,500 was secured by a second registered mortgage in favour of the vendors. Under the loan agreement, interest was to be calculated at 12 per cent per annum on daily balances and at 24 per cent per annum if default were made. The date of the advance under the loan agreement was 10 November 1999. The term of the loan was 12 months from that date. On the advance date interest on the balance owing was required, under the loan agreement, to be paid in advance to 30 November 1999. Thereafter, the interest on the balance owing from time to time was payable monthly in arrears commencing on 1 January 2000. On the due date for repayment 2 JUDGMENT 1 10 20 30 40 so 60 -- 2 of 17 -- 14122000. Tl-2/TW12 M/T 8924/2000 (Mullins J) of the loan, the balance of the principal and interest was payable. In relation to expenses incurred by the respondent, in connection with the meat export business, the respondent had borrowed around $31,000 in September 1999 from one Kevin Parker. The respondent als-o-borrowed funds on 6 December 1999 from Kevin Parker: one amount of around $45,000 and a further sum of $100,000 for the purchase of goats. According to Mr Paul Dowdle, the sole director and shareholder of the respondent, Mr Parker was interested in becoming involved in the joint venture for the export meat business which the respondent had, at that time, with Royal International Corporation Pty Ltd. According to the respondent a loan agreement was subsequently signed with Mr Parker on 2 March 2000 to consolidate advances which had been made by Mr Parker to the respondent. It appears that throughout March and April 2000, Mr Parker attempted to enter a joint venture with Royal International in relation to the subject abattoir. Mr Dowdle alleges that Mr Parker told him in March 2000 that Mr Parker would make the interest payments to the applicant and that Mr Parker paid the interest payment due in April 2000, but then did not make the payment in May 2000 without notifying the respondent. 3 JUDGMENT 1 10 20 30 40 50 60 -- 3 of 17 -- 14122doo· Tl-2/TW12 M/T 8924/2000 (Mullins J) Between December 1999 and 18 May 2000 no animals were slaughtered at the abattoir because the respondent had not obtained funds to finance the purchase of further goats. A meeting was organised on 18 May 2000 at the office of the solicitors for the applicant, which was attended by Mr Dowdle, Mr Fred Acker, <YE-the applicant, Mr Kevin Parker and for the latter part of the meeting, Mr Jackson Chen of Royal International. It is in dispute between the parties as to what happened at that meeting. It appears that the applicant had issued a notice of exercise of power of sale to the respondent on 17 November 1999. It was conceded, by Mr Timothy North, of senior counsel, on behalf of the applicant during the hearing of this application, that that notice was not valid. At this meeting on 18 May 2000, Mr Dowdle signed a consent to the applicant's selling the abattoir as mortgagee exercising power of sale to Mr Parker and/or nominee for the price of $450,000. The circumstances of the signing of that consent are in dispute. The respondent alleges that the authority was obtained as a result of the unconscionable conduct of the applicant and Mr Parker. 4 JUDGMENT 1 10 20 30 40 50 60 -- 4 of 17 -- 14122000 Tl-2/TW12 M/T 8924/2000 (Mullins J) The next day Mr Parker's company, Shannonville Pty Ltd, entered into possession of the abattoir and immediately commenced renovation works. Mr Parker has deposed to spending $341,739 on renovations and outstanding expenses relating to the abattoir. Slaughtering then commencedctt the abattoir on 3 July 2000. On 19 June 2000 the applicant, as mortgagee exercising power of sale, entered into a contract to sell the abattoir to Shannonville Pty Ltd for $450,000. It has curious provisions. Notwithstanding that Shannonville Pty Ltd was already in possession, clause 6 of the contract provides that the buyer shall not be entitled to possession before completion. Clauses 8 and 9 are as follows: 8. The buyer agrees to pay interest on the sum of $450,000 at 12% per annum from 1 April 2000 until settlement. 9. The seller will advance to the buyer the sum of $450,000 secured by a first mortgage in the following terms: Interest Rate: Term: 12% per annum 1 year (plus further year if no default) Collateral Security: Director's Guarantee 5 JUDGMENT 1 10 20 30 40 so 60 -- 5 of 17 -- 14122()00. Tl-2/TW12 M/T 8924/2000 (Mullins J) Herron Todd White: Covenants: Fee of $2,000 to be paid by buyer Incorporating the attached Covenants and Conditions This mortgage is to be prepared by the seller's solicitors at the buyer's costs. Even though both Mr Parker and Mr Acker have sworn affidavits in connection with this application, there is no evidence of any arrangements between the applicant and Mr 1 10 Parker or Shannonville Pty Ltd as to the position in 2 relation to the expenditure of $341,739 if the contract were not to be completed. The caveat was lodged on 6 July 2000. The grounds of the claim are: 30 To prevent improper exercise of a power of sale by the first registered mortgagee, Atlantic 3-Financial (Aust) Pty Ltd on the grounds that: (a) there is currently no default under the mortgage between the Caveator and Atlantic 3-Financial (Aust) Pty Ltd dated 1 December 1999 ("the 40 mortgage") in respect of which a notice of exercise of power of sale is outstanding; (b) by a contract of sale dated 19 June 2000, Atlantic 3-Financial (Aust) Pty Ltd purported to sell the land exercising a power of sale contained in the Mortgage, or alternatively under the Property Law Act 1974; (c) as at 19 June 2000, there was no default under the 50 Mortgage in respect of which there was an outstanding notice of exercise of power of sale; (d) as at 19 June 2000, Atlantic 3-Financial (Aust) Pty Ltd had no right to exercise a power of sale; and (e) accordingly, the purported sale by Atlantic 3- Financial (Aust) Pty Ltd is improper and would 6 JUDGMENT 60 -- 6 of 17 -- 14122000 Tl-2/TW12 M/T 8924/2000 (Mullins J) deprive the Caveator of its lawful registered interest in fee simple. Notice of exercise of power of sale was posted by the applicant to the respondent on 25 August 2000 in relation to outstanding interest under the mortgage of $33,100 which was calculated using the default rate as from May 2000. No interest has been paid since April 2000. The principal of the loan was due to be repaid on 10 November 2000 and has not been repaid. This application was filed on 14 November 2000. The respondent submits that there is a serious question to be tried as to whether the contract of sale, by the applicant to Shannonville Pty Ltd dated 19 June 2000, should be set aside because 1) the applicant had no power to sell the property because it had not complied with the requirements of section 84 of the Property Law Act 1974, or; 2) in purporting to exercise the power of sale, the applicant acted improperly or in bad faith. It is not necessary either to determine the question of whether the applicant had power to sell because it had not complied with section 84 of the Property Law Act 1974, or determine whether that question raises a triable issue because the second ground relied on by the respondent to support an existence of a triable issue in relation to the setting aside of the contract clearly does. 7 JUDGMENT 1 10 20 30 40 50 60 -- 7 of 17 -- 1412200G Tl-2/TW12 M/T 8924/2000 (Mullins J) The circumstances of: (a) the proposed purchaser from the mortgagee exercising power of sale going into possession of the abattoir before a valid notice of power of sale had been given and before the contract had been entered into; (b) the purchaser spending-significant sums to enable it to operate the business of the abattoir when the principal of the purchaser was himself a creditor of the applicant and had been endeavouring to negotiate an interest in a joint venture to conduct the abattoir prior to going into possession on 19 May 2000; and (c) the mortgagee contracting to finance the purchase by the purchaser and in the meantime the purchaser agreeing to pay interest on the purchase price at 12 per cent per annum from 1 April 2000 until settlement of the purchase; raises sufficient doubt about the propriety of the sale under the contract dated 19 June 2000 to amount to a serious question to be tried. On the question of balance of convenience, there has been delay by the applicant in seeking to have the caveat removed. The applicant is not obliged, under its contract, to complete the sale to Shannonville Pty Ltd while it is restricted or prohibited from giving title. 8 JUDGMENT 1 10 20 30 40 50 60 -- 8 of 17 -- 1412200G Tl-2/TW12 M/T 8924/2000 (Mullins J) If the respondent is serious about the claim, which is the subject of the caveat, then it must prosecute an action against the applicant and any other relevant parties as soon as possible. Calculating the outstanding interest at 12 per cent per annum and without compoundi~ it, the amount presently owed is approximately $33,100. Mr Lennon of Queens Counsel who appears with Mr Lumb of counsel for the respondent, indicated that the respondent was prepared to pay that amount on account of interest and to continue paying $4,200 per month on account of interest until the action it proposes to commence against the applicant is resolved. The continuance of a caveat has the effect of an injunction, Heritage Properties (No 3) Pty Ltd v Coles Supermarkets Australia Pty Ltd (1993) Queensland Conveyancing Reports 54,448 at 59,424-59,425. It is therefore relevant to the balance of convenience whether the usual undertaking as to damages as defined in rule 264(5) of the UCPR is offered. That undertaking is offered by the respondent, Mr Dowdle, and another company controlled by Mr Dowdle, Lynlock Pty Ltd, which operates an abattoir at Bourke. 9 JUDGMENT 1 10 20 30 40 50 60 -- 9 of 17 -- 14122000. Tl-2/TW12 M/T 8924/2000 (Mullins J) As the respondent's only major asset is the abattoir which is the subject of this application, it is essential that its undertaking be supported by the personal undertaking of Mr Dowdle and the related company which appears to be conducting business. Although the applicant reli-ed on the fact that Lynlock Pty Ltd has recently granted a floating charge over all its undertaking, that does not necessarily mean that there is no value in the undertaking offered by Lynlock Pty Ltd. The applicant submitted that as a condition of relief the usual requirement that the mortgagor pay the amount of the debt into Court be imposed. That is opposed by the respondent on the basis that it has been prevented by the events which commenced on 18 May 2000 from operating the abattoir and from obtaining alternative finance to repay the loan. Having regard to the sale price, under the contract dated 19 June 2000, if a significant sum on account of outstanding interest is paid by the respondent to the applicant and the respondent continues to pay $4,200 each month on account of interest until its action against the applicant is resolved, the applicant is protected for the balance owed to it, by the value of the abattoir. The applicant submits the damages are an adequate remedy. The respondent submits that it is being deprived of the 10 JUDGMENT 1 10 20 30 40 50 60 -- 10 of 17 -- 14122000 Tl-2/TW12 M/T 8924/2000 (Mullins J) abattoir and the chance of operating the business and if the contract were completed with resulting third party interests then arising, the result is that the assessment of damages would be complex. I do not consider that the assessment of damages would be so complicated to make it impo--S-Sible. Having regard to the nature of the serious question to be tried, however, I consider little weight should be given to the issue of the adequacy of damages as a remedy. Provided provision is made for the conditions and undertakings I have foreshadowed in these reasons the balance of convenience favours the maintenance of the caveat. Subject to hearing submissions on the wording of the undertakings and orders, the orders I propose are: Upon conditions: 1. That the respondent within seven days of today commence a proceeding against the applicant and whichever other parties the respondent seeks to proceed against in respect of the contract dated 19 June 2000 pursuant to which the applicant seeks to sell the abattoir situated at lot 1 on CPR26302 in the County of Livingstone, Parish of Rockhampton to Shannonville Pty Ltd. 2. That the respondent within seven days pay to the applicant the sum of $33,100 on account of interest uutstanding in respect of the loan made to the 11 JUDGMENT 1 10 20 30 40 50 60 -- 11 of 17 -- 14122000 T3/HMB21 M/T 8924/2000 (Mullins J) respondent by the applicant pursuant to the deed of loan dated 9 November 1999 (to which I will refer as the loan) and upon the undertaking by the respondent to pay on the first day of each month commencing with 1 January 2001 the sum of $4,200 to the applicant on account of interest due under the loan until repayment of the loan, the hearing of the proceeding to be commenced by the applicant against the respondent pursuant to these orders or earlier order, whichever is the earlier, and upon the usual undertaking as to damages by the respondent Paul Anthony Dowdle and Lynlock Pty Ltd ACN 092 739 047 in respect of the continuance of caveat number 704159184 it is ordered that the application be dismissed. Now, Mr Lumb, do you have instructions to give the undertakings in the terms that I have read out? MR LUMB: Yes, save, your Honour, that the undertaking I understand as given yesterday by Mr Lennan was that the moneys and interest be paid into Court----- HER HONOUR: Well, no, I won't accept that. There is no reason for it not to be paid to the applicant. MR LUMB: In that case my instructions don't cover this particular order, your Honour. I don't envisage there'd any problem getting the undertaking but my instructions simply don't cover that specifically. be HER HONOUR: Well before I make the orders I want it on the record that those undertakings are given. MR LUMB: I appreciate that, your Honour. HER HONOUR: And the way I envisage the order operating, it's a condition - the order won't take effect unless the action is commenced within seven days of today and the $33,100 is paid within seven days of today. If those two things occur within seven days then the order takes effect and then the undertakings continue to apply. 12 JUDGMENT 1 10 20 30 40 50 60 -- 12 of 17 -- 14122000- T3/HMB21 M/T 8924/2000 (Mullins J) MR LUMB: Your Honour, I do have instructions in respect of the commencement proceedings and with respect----- HER HONOUR: Well no, I don't need instructions - you to convey instructions in relation to those. They are conditions. MR LUMB: Yes, thank you, your Honour. HER HONOUR: And I will have to----- MR LUMB: If I could just take instructions on the undertaking with respect to-the payment of interest. HER HONOUR: All right. Do you have any difficulty with the - oh, Mr North, I'm sorry, I----- MR NORTH: Yes, a bit like a tagged team, your Honour. HER HONOUR: Yes. MR NORTH: And your Honour, in respect of the commencement of proceedings could the order also require that they be served upon my instructing solicitors within the seven days? That way we can be sure the proceedings have been commenced. HER HONOUR: Yes. So I'll add in that first condition that the respondent within seven days commence and serve on the solicitors for the applicant. MR NORTH: Your Honour, in relation to the order for the condition that the arrears of interest be paid within seven days, your Honour, the concern that my instructing solicitors have is that if that was not complied with within seven days----- HER HONOUR: I'm going to make an order that there be liberty to apply because the effect of the order is that if those conditions aren't - I've endeavoured to frame it so if those conditions aren't complied with, well then it's not operative. 1 10 20 30 40 MR NORTH: Your Honour, the difficulty with seeking relief before - seven days is the day before the last day which this Court will be sitting until - effectively until the first week of January or thereabouts. It will be difficult to bring on the liberty to apply in that period and to, for example, seek an order that the caveat be removed. 50 HER HONOUR: Well that's just the problem with your side having commenced the application so late. MR NORTH: Well, your Honour, the application was originally returnable almost two weeks ago and the respondent sought and obtained an order for an adjournment of the application for more than seven days until yesterday and so we're only jammed up against Christmas as a result of the respondent's request so an indulgence is given by the Court. 13 JUDGMENT 60 -- 13 of 17 -- 14122006 T3/HMB21 M/T 8924/2000 (Mullins J) HER HONOUR: But Mr North, the caveat was lodged on 6 July and the application wasn't made until 14 November. MR NORTH: Your Honour, given that principle and interest due and payable and the principle should've been paid more than a month ago, we submit that it would be reasonable for your Honour to require the payment of the arrears of interest within 48 hours or by close of business on Monday to give those who instruct me enough time to move the Court next week. But that seven days because of the potential inconvenience should be shortened. Subject to that - alternatively there's the possibility of some proportion of it being paid within a certcr:i..n·shorter time frame so that we could see that it was being done. MR LUMB: Your Honour, I have - can give an undertaking on behalf of the respondent in the terms identified by your Honour in order number 3. HER HONOUR: So your instructions are that the respondent gives that undertaking? MR LUMB: That is correct, yes, your Honour. 1 10 20 HER HONOUR: All right. And what I'm proposing to do is to alter the first condition so that the - not only do the proceedings have to be commenced, they have to be served on the solicitors for the applicant within seven days of today. 30 MR LUMB: Yes, your Honour. HER HONOUR: Now do you want to be heard on the submission by Mr North that the payment of the $33,100 should be made within less than seven days to enable the applicant to bring back proceedings to the Court? MR LUMB: Your Honour, I'd submit that seven days is appropriate given the size of the payment to be made and that your Honour has already pointed out the delay in bringing the application. HIS HONOUR: In relation to the form of orders, Mr David North of senior counsel on behalf of the applicant submits 40 that seven days is too long to allow the respondent to pay SO the sum of $33,100 to the applicant when the total amount of the loan and all interest was due on 10 November 2000. The applicant is concerned that if there is default in making that payment that there will be little opportunity to bring the matter back to the Court before the Christmas closure. 14 JUDGMENT 60 -- 14 of 17 -- 14122000. T4/RB28 M/T 8924/2000 (Mullins J) The timing of this application is in some respects due to the fact that it was not commenced until 14 November 2000 more than four months after the caveat was lodged. In the circumstances I do not consider that seven days is an unduly long period to allow the respondent to find the sum of $33,100, considering that it is out of possession of the only asset which it has for-generating funds. On the question of costs, this is tantamount to an interlocutory injunction application. Although I am satisfied on an interlocutory basis that the caveat should remain, the merits of the matter remain to be resolved in the proceeding to be commenced by the respondent. If the proceeding is commenced by the respondent I consider that the appropriate costs order is that the costs of this application be reserved to that proceeding. If no proceeding is commenced then I consider the appropriate order is that the costs should be reserved to enable the applicant to return to this Court and make an application for costs. I note that Mr Lumb of counsel has indicated that he has instructions from the respondent to give the undertaking on behalf of the respondent that it will pay on the first day of each month, commencing with 1 January 2001, the sum of $4,200 to the applicant on account of interest under the loan on the terms that I outlined when foreshadowing the order~ 15 JUDGMENT 1 10 20 30 40 50 60 -- 15 of 17 -- 14122doo· T4/RB28 M/T 8924/2000 (Mullins J) I therefore will make orders in the terms that I foreshadowed except that in respect of the condition relating to the commencement of the proceeding after the words "that the respondent within seven days of today commence", I will add the words "and serve on the solicitors for the applicant", and as a result of the conditions and undertakings that I have al-ready recited, I order that the application be dismissed. I give liberty to apply. If the respondent commences the proceeding against the respondent required under condition 1 of the order the costs of this application are reserved to that proceeding. If the respondent does not commence the proceeding against the applicant required under condition 1 of these orders, then the costs of this application are reserved. The reason that I have given the liberty to apply is that if there is failure by the respondent to comply with either one of the two conditions upon which my dismissal order is conditional, then the applicant needs liberty to apply to seek relief in relation to the caveat. HER HONOUR: In relation to costs if the respondent complies with the two conditions set out in these orders, then the costs of the application are reserved to the proceeding to 16 JUDGMENT 1 10 20 30 40 50 60 -- 16 of 17 -- 14122000. T4/RB28 M/T 8924/2000 (Mullins J) be commenced by the respondent against the applicant pursuant to the first of those conditions. If the respondent fails to comply with the two conditions which are set out in these orders then the costs of this application are reserved. 17 JUDGMENT 1 10 20 30 40 50 60 -- 17 of 17 --