Arkway Pty Ltd v Hirning [1999] QSC 256

~ I State Reporting sCQQ/r25"b Bureau . 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 DERRINGTON J No 1524 of 1999 - ARKWAY PTY LTD (A.C.N. 010 719 856) and GEOFFREY JOHN HIRNING BRISBANE .. DATE 19/07/99 JUDGMENT III 1"1",,1'. Tile I.:I1V Courts. Ct'tI"ge Sln:ct. Brisll:lnc. <), -lOOt) REVISED C0PfE5 ISSUED State Reporting Bureau Date 3c /"} / C; 9 Applicant/Plaintiff Respondent/Defendant Telephonc: (07) .12-17 -lJ(,O F:1~: (07) 32-17 5532 -- 1 of 8 -- 190799 T11/JJD24 M/T 4732/99 (Derrington J) HIS HONOUR: This is an application for the committal of the respondent ("the mortgagor"), an investment adviser, for contempt for his breach of an undertaking given to this Court on 7 June 1999 .. At those proceedings the present respondent ("the mortgagor") had sought an injunction to restrain the 10 mortgagee from proceeding to exercise their rights as mortgagee to obtain possession of the very valuable land and house which he owned and was occupying. The debt was not in dispute, nor that a substantial amount of 20 () , / interest was owing. He came to Court armed with a bank cheque to cover the interest arrears, and asked for restraint of them (j for 21 days in order to permit him to obtain alternate finance to payout the then respondent's mortgage. He exhibited a letter from a company purporting to be a financier offering 30 him finance on the same terms as the mortgagee had provided, which seemed somewhat generous in the light of his serious default under the present mortgage, and of the presence of a caveat pursuant to a Mareva injunction over the land. 40 The then respondent, the present applicant, strongly opposed the application upon the basis that the mortgagor's conduct was typical of prolonged past conduct, in that he had done much the same thing on a number of previous occasions. Notwithstanding my strong doubts as to the honesty and so reliability of the mortgagor's evidence on that occasion and his proposals, I granted an injunction restraining the mortgagee from exercising its rights upon two conditions: first, the immediate payment of the bank cheque for arrears of 60 2 JUDGMENT -- 2 of 8 -- 190799 T11/JJD24 M/T 4732/99 (Derrington J) interest, and secondly, upon the mortgagor's undertaking to repay the debt within 21 days, which he assured the Court could be done. He was warned that before the Court accepted his undertaking, he should understand that an undertaking was a very serious 10 matter, the breach of which could lead to serious punishment of him. He indicated that he was prepared to give it, notwithstanding that. However, he failed to comply with the repayment of the debt. 20 He now claims that the reason was that he met an insuperable ~\ obstacle in the form of a refusal by the caveator over the , ) title to the land to agree to the substitution of a new mortgagee in favour of the new financier or, alternatively, to 30 the assignment of the present mortgage to that party. The caveator is suing the mortgagor for fraud and has obtained the Mareva order carrying the right to secure, among other things, the mortgagor's assets, and in particular, the subject 40 land, by the lodgment of a caveat. In his affidavit supporting his application for the injunction that was granted in his favour, he swore that he believed that the caveator would agree to the change, but he gave no reasons for his belief. 50 One would hardly expect that party to have been particularly anxious to assist him and that is how it turned out when at a very late hour the mortgagor applied to the caveator for 60 3 JUDGMENT -- 3 of 8 -- 190799 T11/JJD24 M/T 4732/99 (Derrington J) permission to substitute the securities. Of course this assumes that he was in fact ever going to obtain the re-finance, and having regard to what I have seen and heard in this matter, my having a serious doubt about even that proposition is not surprising. As it finally emerged during cross-examination of the mortgagor to-day, the offer of finance has come from a group· of companies associated in some way with a Mr Huxley, who appears to have a most benign attitude towards the applicant to say the least, if offers for which he is responsible are genuine. Whether the letter indicating a willingness at that time to provide suitable finance would ever have been consummated is another thing; it may have been provided as some show of colour of suggested finance to support the mortgagor's application for the injunction, and it might not have yielded anything in the long run· if finally put to the test. It would have been consistent with the mortgagor's prior experiences if the means that he used to delay the mortgagee's remedies had met some unfortunate factor that prevented their fulfilment. The same Mr Huxley, whom the respondent's solicitor is said not to his knowledge to have had anything other than a business relationship with the applicant, but who in fact appears to be something more than that, has now offered to purchase the house and to allow the mortgagor and his family to reoccupy it on some suitable terms as to rental, the details of which were not revealed. 4 JUDGMENT 10 o 30 o 40 o 50 60 -- 4 of 8 -- 190799 T11/JJD24 M/T 4732/99 (Derrington J) Mr Huxley apparently made the offer at about 3 o'clock on Friday afternoon last, that is, the last business day before the hearing of these contempt proceedings~ He is in Sydney, but the mortgagor's solicitors spoke to him by telephone and he authorised that solicitor to act for him, to purchase a shelf company, and to use it as the vehicle for the proposed contract, Mr Huxley's son to be its director. The solicitor was authorised to execute the contract on the company's behalf. The signed contract was intended to be an offer to purchase to be made to the mortgagee by that asset-bereft company. So far no sum has been produced to support that contract. In particular, the deposit of $50,000 mentioned in ( it has not been paid into the solicitor's trust account in anticipation of the possible acceptance of the offer. There is a cloud of suspicion hanging over the relationship between Mr Huxley and the mortgagor, and the question arises as to whether Mr Huxley is providing a sham proposal in order to assist him to ward off the effects of his own breach of his undertaking. This may also reflect some light on the quality of the offer of refinance from companies associated with Huxley. There is no doubt that the undertaking has been breached. The mortgagor has not done what he undertook to do. His explanation or excuse is that at the time of giving the undertaking, he believed that the caveator would agree to the substitution of the mortgages or the assignment of the mortgage. 5 JUDGMENT 10 20 30 40 50 60 -- 5 of 8 -- --------~~--- --- ---~ 190799 T12-13/BP17 M/T 4732/99 (Derrington J) As it has been remarked, he said that much in his affidavit at the time of the hearing at which he gave his undertaking as to his belief. However, as it turns out he had made no inquiry at all from the caveator, and if that had been revealed to .the Court at that time, it would certainly have needed resolution before the injunction which he sought would have been granted. He now seeks to hide behind the proposition that he had an honest belief to that effect at that time and that he has been frustrated by the impossibility of doing what he intended to do because of the caveator's refusal to cooperate. The validity and sincerity of his claim might be tested by what he did in relation to that matter. It was not until the very last day for the payment of the mortgage debt in response to his undertaking that he even sought the caveator's approval to the arrangement. When that was not forthcoming, he did nothing further to try to advance the promised result. Though he says that the proposal would not affect the value of the Mareva injunction he did not apply for an order to have it varied to permit the proposed arrangement, nor did he approach the Court to be relieved from the terms of his undertaking. He did not even approach the mortgagee's solicitors to offer any explanation for his failure, or to try to work out some means of compliance or voluntary surrender of the property. Of course, if a joint approach to the caveator had been successful, it would have tested the validity of the offer of 6 JUDGMENT 10 o 30 o 40 o 50 60 -- 6 of 8 -- 190799 T12-13/BP17 M/T 4732/99 (Derrington J) refinance. As to that, he led no evidence showing that on that last day and before the caveator's refusal, he had completed all the arrangements and documentation for the refinance. Again on the eve of this hearing, that is, last Friday 10 afternoon, he obtained the contract with Mr Huxley's new company, executed on its behalf by their joint. solicitor. He has produced it here in an attempt to show bona fides in answer to this charge. This last-minute production of a 20 scheme that has great possibilities of non-consummation is redolent of the circumstances in which the undertaking was C-) given. His attitude and behaviour are typical of what he has shown 30 during the progress of this matter over a considerable period of time, and during which he has held the mortgagee out of possession of the property, a house of very considerable value in which he has been living. There are strong indications that his conduct has been deceptive and calculated. 40 The mortgagee has recently obtained possession and so it is not necessary to make any compensatory order. Interest has been accruing but it may possibly be recovered from the sale price of the property and may be disregarded for present so purposes. The mortgagee is not seeking the security of any order in that respect. That means that if the contempt is found, the only punishment will be of a punitive kind. 50 7 JUDGMENT -- 7 of 8 -- 190799 T12-13/BP17 M/T 4732/99 (Derrington J) In the light of what has been said, it is quite plain that the undertaking was given by the mortgagor without serious regard to his prospects of carrying it out. It is also quite plain that he failed completely to take proper steps to perform his obligations under it. He neither took early urgent steps to obtain the caveator's consent, which would have been the appropriate thing for any conscientious person giving such an undertaking to do, nor did he take any reasonable steps to remedy the situation when that was not forthcoming, even though the time for performance had nearly expired due to his own default. His breach has been, at the best for him, in reckless disregard of his obligations; and I am content to rely upon that, rather than to find fraud, notwithstanding the presence of a very serious suspicion of that. The respondent is convicted of contempt. HIS HONOUR: The sentence therefore is a fine of $5000 in default three months imprisonment. HIS HONOUR: Two months to pay. HIS HONOUR: The respondent is to pay the applicant's costs to be taxed. 8 JUDGMENT 10 20c=) o 30 o 40 o so 60 -- 8 of 8 --