Boston Peak Pty Ltd & Anor v Houghton & Ors [1999] QSC 48

, >IN THE SUPREME COURT OF QUEENSLAND Writ No. 10720 of 1998 BETWEEN: Before Mr Justice Ambrose P kP/L v F.E. Houghton & Ors] [Boston ea AND: AND: AND: AND: AND: AND: AND: AND: AND: AND: AND: EAKPTY LTD (ACN050404754) BOSTONP GREGORY JOHN HUXLEY FAYE ELAINE HOUGHTON HARRY MACKENZIE-BEGG HELMUT GOTTFRIED SCHMIDT ALAN GEORGE REARDON IAN DAVID McINTOSH BARBARA MARIE McINTOSH RODNEY CECIL BOULT WILLIAM JOHNPOOTS SOFIAPOOTS DUDLEY NORMAN McKAY .I FirstPlaintiff SecondPlaintiff First Defendant Second Defendant Third Defendant Fourth Defendant Fifth Defendant Sixth Defendant Seventh Defendant Eighth Defendant Ninth Defendant Tenth Defendant [1999] QSC 48 -- 1 of 14 -- AND: AND: AND: AND: AND: AND: AND: AND: AND: AND: AND: AND: Tenth Defendant ENID JUNE McKAY Eleventh Defendant JOHN CAMPBELL Twelfth Defendant BRIAN FOX Thirteenth Defendant GRAHAM HENRY LEES Fourteenth Defendant JOAN LYNETTE LEES Fifteenth Defendant JULIE ANN STEPHENS Sixteenth Defendant IAN WILLIAM LA VENDER Seventeenth Defendant PATRICIA MAY LA VENDER Eighteenth Defendant JOHN McNABB Nineteenth Defendant GLENDA DELL McNABB Twentieth Defendant MURRINDINDI MANAGEMENT PTY LTD (ACN 080924214) Twenty-first Defendant BOYCE GARRICK, LA WYERS (A FIRM) Twenty-second Defendant REASONS FOR JUDGMENT - B.W. AMBROSE Delivered the 16th day of March 1999 CATCHWORDS: MORTGAGES - RIGHTS AND LIABILITIES OF PARTIES - LEGAL PRACTITIONERS - SOLICITOR AATD CLIENT - whether the defendants should be restrained from exercising their power of sale as mortgagees - whether defendants should be restrained from advertising sale of land as mortgagees - whether the defendant solicitors should be restrained from acting as solicitors for the other defendants - whether plaintiff had complied with mortgage -- 2 of 14 -- Counsel: Solicitors: Hearing Date: 13 obligations - whether any evidence mortgagees' sale would be made at an under value - whether mortgagees may attempt to procure a purchaser in anticipation of mortgagor's continuing default - whether relationship of solicitor and client resulted from defendant solicitors acting as finance brokers to another company directed by the second plaintiff Property Law Act 1974 (Qld) Farrar v Farrars, Limited (1888) 40 Ch D 395 Inglis & Anor v Commonwealth Trading Bank ofAustralia (1972) 126 CLR 161 Mr M.P. Amerena for the defendants Mr M. Foley ofFoleys solicitors for the plaintiffs Boyce Garrick for the defendants 15 December 1998 -- 3 of 14 -- IN THE SUPREME COURT OF QUEENSLAND Writ No. 10720 of 1998 BETWEEN: Before Mr Justice Ambrose P k PIL v GJ Huxley & Ors] [Boston ea AND: AND: AND: AND: AND: AND: AND: AND: AND: AND: AND: EAK PTY LTD (ACN050404754) BOSTONP GREGORY JOHN HUXLEY FAYE ELAINE HOUGHTON HARRY MACKENZIE-BEGG HELMUT GOTTFRIED SCHMIDT ALAN GEORGE REARDON IAN DAVID McINTOSH BARBARA MARIE McINTOSH RODNEY CECIL BOULT WILLIAM JOHN POOTS SOFIAPOOTS DUDLEY NORMAN McKAY First Plaintiff Second Plaintiff First Defendant Second Defendant Third Defendant Fourth Defendant Fifth Defendant Sixth Defendant Seventh Defendant Eighth Defendant Ninth Defendant Tenth Defendant -- 4 of 14 -- AND: AND: AND: AND: AND: AND: AND: AND: AND: AND: AND: AND: ENID JUNE McKAY Eleventh Defendant JOHN CAMPBELL Twelfth Defendant BRIAN FOX Thirteenth Defendant GRAHAM HENRY LEES Fourteenth Defendant JOAN LYNETTE LEES Fifteenth Defendant JULIE ANN STEPHENS Sixteenth Defendant IAN WILLIAM LA VENDER Seventeenth Defendant PATRICIA MAY LAVENDER Eighteenth Defendant JOHN McNABB Nineteenth Defendant GLENDA DELL McNABB Twentieth Defendant MURRINDINDI MANAGEMENT PTY LTD (ACN 080924214) Twenty-first Defendant BOYCE GARRICK, LAWYERS (A FIRM) Twenty-second Defendant REASONS FOR JUDGMENT - B.W. AMBROSE Delivered the 16th day of March 1999 By writ of summons issued 19 November 1998 the first plaintiff as mortgagor claims against the first 21 defendants as mortgagees a declaration that a purported exercise of power of sale conferred by a registered Bill of Mortgage over certain land is invalid and an injunction restraining the mortgagees from purporting to proceed with the sale or the exercise of the power -- 5 of 14 -- 2 3 4 5 6 7 8 2 of sale under that mortgage. An injunction is also sought restraining the mortgagees from advertising any sale of the land. Further reliefis claimed pursuant to s 52 of the Trade Practices Act. As against the 22nd defendant Boyce Garrick Lawyers, the plaintiffs claim an injunction restraining them from further acting as solicitors for the first 21 defendants being the mortgagees. Unsurprisingly the mortgagee defendants have been anxious to have the matter determined but for reasons which it is unnecessary to analyze there have been a number of adjournments of the plaintiffs' applications. Ultimately on 15 December 1998 pursuant to some special arrangement, the matter was listed for hearing in Chambers. Much material was read and leave was given to file further material touching on the issues subsequent to the conclusion of legal argument. A considerable amount of additional material and submissions were delivered during vacation. When all the material and submissions had ultimately been delivered, they constituted an enormous quantity of material to be digested. In my view, much of that material had very little indeed to do with the critical issues in the case. I do not propose to analyze all the material, much of which seems to me to be argumentative and irrelevant. 9 I will state briefly what seem to me to be the essential issues. The second plaintiff who 10 directly controls the first plaintiff company approached the 22nd defendant, a firm of solicitors in Queensland, with a view to it procuring for him, or at least for one of his development companies, finance for the renovations/reconstruction of an obsolescent shopping centre at Kingston near Brisbane. It seems from the material, that the arrangement was, or may have been that the solicitors -- 6 of 14 -- 11 12 14 15 16 3 would procure financial advances from various persons with funds to invest. Those funds would then be amalgamated - presumably under the supervision of the solicitors - and then advanced to the first plaintiff company. The agreement seems to have been that the solicitors would not charge any finance brokerage fee but that the first plaintiff would make a donation - presumably through the solicitors - to some charitable institution - hopefully one involved in servicing the needs of persons with moneys to invest. The benefit that would come to the solicitors it seems, was that . they would act as the solicitors for the various person who might be persuaded to advance funds to the first plaintiffwhich were to be secured by mortgage over the first plaintiff's property. The solicitors would presumably obtain fees for the performance of the legal work involved in the preparation of mortgages etc. on behalf of the lenders. Pursuant to this arrangement it seems that the solicitors did have a number of persons - the first 21 defendants - agree to advance money to the first plaintiff which was secured by mortgage over its shopping centre. The sum advanced was $1.6 M. Under the terms of the mortgage given on 27 November 1997, the moneys were to be repaid in full by 5 December 1998. On 27 November 1997 the second plaintiff guaranteed the first plaintiff's performance of its obligations under the mortgage. Monthly payments of interest only were required under cl3.3.3 of the mortgage. The rate of interest was specified in c1 3.3.4 and varied according to whether moneys were overdue. The first plaintiff failed to comply with the terms of the mortgage. Various notices of demand to meet the payments of interest due were made and some were not complied with in a timely manner. There was a great deal of material and much argument adduced as to the effect of the lateness of the payments and acceptance of some moneys paid etc. It seems to me -- 7 of 14 -- 17 4 unnecessary to analyze this material. The plain fact is that there were four notices exercising power of sale given pursuant to s 84 of the Property Law Act on 7 August, 8 September, 15 October and 10 November 1998. Each notice specified the cumulative default at the stage it was given and no default seems to have been rectified as required by the notice within the specified time. Eventually, on 12 November 1998, the sum of$75,127.67 was tendered to meet the default in obligation to pay specified in the last notice given on 10 November 1998, which was $96,896. 18 On 1 September 1998 relying upon Cl. 7.2 of the mortgage the whole of the moneys then 19 20 due under the mortgage were called up. On 9 September 1998 a demand was made on the second plaintiff as a guarantor of the first plaintiff for payment of $1,642,604.30 then secured by the mortgage. Action is presently pending between the first 21 defendants and the second plaintiff (and another) upon that guarantee. Not only did the sum of money proffered fail to meet the sum specified in the last notice exercising power of sale, it also fell well short of the total indebtedness which at that time had increased to $128,667.75. As a further deficiency in the tender it was not made unconditionally. It was made only under protest asserting that it was not really due. It required that the mortgagee's "cease forthwith" steps that they had taken to sell the property and required an undertaking to be given by the 22nd defendant as solicitors for the mortgagees to refrain from taking any steps preparatory to effecting a mortgagee sale. This requirement was made even though the sum of $75,127.67 proffered was in fact more than $50,000 less than the indebtedness at that time which stood at $128,667.75. It is clear from Farrar v Farrars, Limited (1888) 40 Ch D 395 at 412 that a mortgagee may take steps to exercise its power of sale by entering into a contract prior to the mortgagee obtaining the right to sell provided the contract is conditional upon the power of sale -- 8 of 14 -- 21 22 23 5 being exercisable at the end of the requisite default period. Not surprisingly, the first 21 defendants declined to accept the tender on the conditions upon which it was made. The whole of the principal advanced - $1,610,000 - became repayable after the one year term of the mortgage expired on 5 December 1998. No part of those moneys has been proffered and the whole of the moneys lent by the mortgagees remains owing. Unsurprisingly having regard to the history of the mortgagor's defaults, efforts were made on behalf of the mortgagees to search for a purchaser of the mortgaged property. Although no contract - even a conditional one - has yet been entered into, an offer of $2rnillion has been made. It would seem clear that the offer is an unconditional one and is consistent with valuation evidence as to its market value. At least it would be consistent with the valuation figures advanced by a valuer retained by the mortgagor in March 1997 at $2.7 5million which was updated by the same valuer on 9 October 1997 reducing it to $2. 3million. A further valuation in November 1997 put a value on the property of $2.05rnillion with a forced sale value of $1. 742million. Another valuation prepared on 1 May 1997 gave the property a value of $3 million. However that was conditional upon the site "being removed from the Contaminated Sites Register and being refurbished" and being subdivided to overcome problems of contamination. It is clear indeed from an affidavit from the valuer who provided this conditional valuation of $3 million on the property that it had little bearing upon the purchase price which might be obtained on a mortgagee sale. 24 While there is some dispute as to the precise amount of money which is currently owed by the first plaintiff to the first 21 defendants as mortgagees, it is clear beyond argument that there is a very significant sum owing - indeed the mortgagor has failed very substantially to meet its obligations under the mortgage to make timely payments of interest and has failed entirely to repay the capital advanced which should have been repaid on 5 December 1998. -- 9 of 14 -- 25 26 . 27 28 29 30 6 The principles upon which a mortgagor in default may restrain a mortgagee from exercising its power of sale by injunction are to be found of course in Inglis & Anor v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 per Walsh J at 164-5 and per Barwick CJ, Menzies and Gibbs JJ at 168-9. In my view, the evidence falls far short of even suggesting that the mortgagees propose to sell at a price which will render them liable to the mortgagor for sale at an under value. It is clear that the mortgagor has no intention of bringing into court or securing the money which ' primafacie on the material in my view is currently owing by the mortgagor to the mortgagees- and indeed which has been owing for many months. I can find no serious question to be tried between the plaintiffs and the first 21 defendants despite the arguments addressed on questions of waiver, conditional tender etc. In my view the second injunction sought restraining advertisement of the mortgagee's sale depends upon there being a triable issue as to whether the mortgagee's have a right on the facts to exercise their power of sale. Further more, Farrar v Farrars, Limited (supra) is authority for the proposition that steps may be taken by a mortgagee to procure a purchaser in anticipation of the continuation of a mortgagor's default provided no sale is in fact effected prior to the expiration of the time limited by notices etc given under the s 84 of the Property Law Act s 84. In the circumstances in spite of the offer of a secured undertaking as to damages which would in any event be required before the injunction sought would be granted, in my judgment the application of the principle affirmed in Inglis v Commonwealth Trading Bank of Australia (supra) persuades me on balance of convenience to refuse the first two injunctions sought by the plaintiffs against the first 21 defendants. With reference to the injunction sought against the 22nd defendant - the solicitors for the -- 10 of 14 -- 31 7 mortgagees - in my view it has not been demonstrated that as a consequence of any legal representation provided by the 22nd defendant to the first or second plaintiffs, there may be a conflict of interest by reason of confidential information which has come into its hands from the first or second plaintiff. I will state only briefly the factual ground upon which the plaintiffs base their claim for an injunction against its mortgagees' solicitors. It seems that the second plaintiff had a number of companies under his control dealing with different property development/ rejuvenations. A second property at Mackay in North Queensland had been acquired by Kohuna Beach Resort Holdings Pty Ltd ("Kohuna"). The second plaintiff was also the sole controller of that company which apparently had also had difficulty in obtaining finance. Its prospects for successfully renovating/rejuvenating its property appear to have been perceived as less promising than those of the first plaintiff in renovating its property. In any event Kohuna after experiencing difficulty in obtaining finance requested that the 22nd defendant see if it could act as its finance broker to obtain finance for it to be secured by mortgage over its property - presumably on similar arrangements and/or understanding upon which the finance was obtained for the first plaintiffs property. To facilitate the obtaining of finance, Kohuna provided material relevant to securing to the lenders repayment of any moneys that might be advanced. Presumably this related to the potential of its property for renovation and the capacity of guarantors etc (perhaps including the second plaintiff) to ensure that repayment of any money lent would be adequately secured. I assume that the money sought by Kohuna to rejuvenate its investment property was sought on the same basis as that for which the first plaintiff sought it from the current mortgagees - that is an advance of a particular sum, with repayment after a specified period with in the meantime the making of interest only payments. -- 11 of 14 -- 33 34 35 36 37 38 8 In any event in spite of efforts by the 22nd defendant made from July to October 1998, it was not able to procure or broker such finance. It is the case for the plaintiffs that the relationship resulting from provision to the 22nd defendant as finance broker information as to financial capacity of persons connected with Kohuna to facilitate the obtaining of finance from persons for that company involved a solicitor and client relationship. That seems to be the starting point for the claim that those solicitors should be enjoined from continuing to act for the mortgagees in respect of their attempts to have the mortgaged property of the first plaintiff sold to recover the moneys to which they are entitled under that mortgage. What is clear is that the plaintiffs in this action have at all material times been represented by a solicitor independent of the 22nd defendant. As far as I can discern the solicitors for the mortgagees have only ever acted as solicitors for those mortgagees. The injunction sought against the 22nd defendant is not an interlocutory injunction (as the other two injunctions may properly be categorized). In effect it is an injunction to permanently restrain those solicitors from acting to represent the mortgagees in their efforts to recover moneys to which they are claiming to be entitled, which is secured on the first plaintiff s property. Essential to this argument seems to be the fact that the second plaintiff who is a director of the company Kohuna Beach Resort Holdings Pty Ltd is also a director of the first plaintiffin this action. The information forwarded by Kohuna Beach Resort Holdings Pty Ltd in its unsuccessful effort to have the 22nd defendant procure finance for it in its finance brokering operations has not been described and it is not immediately apparent what features of it would even arguably constrain the 22nd defendant continuing to act as solicitors for the mortgagees in an effort to exercise their power of sale. Even if proceeds of sale of the property were insufficient to cover -- 12 of 14 -- 39 9 the moneys due to the mortgagees secured by the mortgage, I find it difficult to see what conflict of interest there would be in the solicitor for the mortgagees then attempting to pursue the balance owed against the first plaintiff on the personal covenant on the second plaintiff on his guarantee. There may perhaps be arguments relevant to that question but they have not really been canvassed before me and having regard to the relief sought at the present stage by the mortgagees - simply the sale of the property pursuant to their power of sale - I am unpersuaded that there is any information confidential to either of the plaintiffs in this action that could have been provided by Kohuna Beach Resort Holdings Pty Ltd and/or the second plaintiff, Mr Huxley which could conceivably assist the mortgagees in effecting that sale to the disadvantage of either plaintiff in this action. One consequence of course of granting such an injunction would be to cause further expense at this stage to the mortgagees in procuring the legal services of another solicitor. Although it was not spelt out, I would assume that problems might be placed in the way of the 22nd defendant as current solicitors for the mortgagees providing to any firm of solicitors who took over from them, material collated with a view to selling the first plaintiff s mortgaged property for the best price attainable. In my view the predictable effect of the granting of this injunction sought would be to make even more difficult and expensive and to delay even further the successful exercise by the mortgagees of their power of sale. 41 Mr Callow a member of the firm which is the 22nd defendant in the action has sworn that he has at all times had the sole conduct of the files relating to the mortgage in issue and has not viewed any confidential information or personal information relating to the mortgagor or for that matter the second plaintiff which has been supplied at any time before or subsequent to the grant of the mortgage. To the extent that anything exists that could even remotely be classed as -- 13 of 14 -- 42 43 44 10 "confidential information" it seems unarguable on the material that this information came to him in his capacity as solicitor for the mortgagees and certainly not in his capacity as solicitor for either of the plaintiffs. I decline to grant any injunction restraining the 22nd defendant from continuing to act as solicitors for the mortgagees in their efforts to exercise their power of sale as mortgagees over the property of the first plaintiff. To date the first 21 defendants have, through their solicitors on the record (the same solicitors which the plaintiffs seek to enjoin from continuing to act for them) have undertaken not to take steps to sell the property or indeed to advertise it for sale. This undertaking of course was given upon the solicitor for the plaintiffs giving the usual undertaking as to damages should any arise by virtue of the undertaking given on behalf of the defendants. Whether any and what damage has been suffered by the defendants as the result of refraining from continuing to attempt to effect a sale or to further advertise the sale for the last couple of months is a matter which will depend no doubt upon the proceeds of any sale achieved by the first 21 defendants. I dismiss all three applications by the plaintiffs for interlocutory injunctions. -- 14 of 14 --