Atlantic 3 Financial (Australia) Pty Ltd v Mackay Leagues Club Ltd [1998] QSC 273

IN THE SUPREME COURT OF QUEENSLAND No. 8404 of 1998 Brisbane Before Williams J BETWEEN: ATLANTIC 3 - FINANCIAL (AUSTRALIA) PTY LTD (ACN 056 262 723) Plaintiff AND: MACKAY LEAGUES CLUB LIMITED (ACN 069 648 175) Defendant IN THE SUPREME COURT OF QUEENSLAND MACKAY DISTRICT REGISTRY No. 4 of 1998 IN THE MATTER of THE CORPORATIONS LAW - and - IN THE MATTER of MACKAY LEAGUES CLUB LIMITED (ACN 069 648 175) JUDGMENT - WILLIAMS J Judgment delivered 7 December 1998 1 Two applications were heard together. The first was a summons in 8404 of 1998 brought by the plaintiff, Atlantic 3 Financial (Australia) Pty Ltd, seeking to recover from the -- 1 of 13 -- 2 defendant, Mackay Leagues Club Limited, possession of certain land which can for present purposes be described as the Prince of Wales Hotel in Mackay. The second application was brought in 4 of 1998 by Mackay Leagues Club Limited seeking to have a statutory demand served on it by Atlantic 3-Financial (Australia) Pty Ltd set aside. For convenience I will use the terms Atlantic and Club when referring to the parties. 2 Atlantic is the assignee of a mortgage 701244183 in terms of which the Club is the mortgagor and the principal sum secured is $1.45M. The mortgage was entered into on 27 March 1996 and the principal sum secured (with accretions) was by its terms repayable within five calendar years, that is by 27 March 2001. Clause 3 of the mortgage makes it clear that it secures "all amounts owing to the Mortgagee on any account whatsoever". Clause (iv) on the first page sets the rate of interest payable for each of the five years of the advance. Clause (v) then provides: "Interest shall be calculated as provided in clause (iv) and on daily balances. Such interest shall be payable in arrears." Clause (vi) provides that the principal shall be paid within five calendar years from the date of the advance; it goes on: "During that term, the Mortgagor will pay to the Mortgagee payments of interest only ...". After the transfer to Atlantic interest was paid monthly, or at least there appears to have been an acknowledgement by the Club that from February 1997 interest was payable at regular monthly intervals (see para.6 of affidavit of K Anderson filed 12 October 1998). Whether or not the clauses quoted above provide for that, or for payment at some other time (for example, daily), might well be a debatable point, but it is not necessary to resolve that issue for present purposes. I further note that exhibits "KA8" and "KA9" indicate that in July 1998 the parties agreed that daily payments should be made by the Club to Atlantic. Clause 6 of the mortgage obliged the Club to pay, inter alia, all rates, charges and outgoings assessed on the mortgaged property. 3 Clause 10 is of importance for present purposes; it provides: -- 2 of 13 -- 3 "In case of default in payment of any subscriptions fines dues interest loan payments or other monies hereby secured or in the performance or observance of any covenants conditions or agreements herein contained referred to or implied on the part of the Mortgagor to be performed or observed such default shall constitute a breach of the covenants hereof and notwithstanding the waiver of any previous default the amount then payable under the Mortgage to obtain a discharge of the Mortgage shall at the option of the Mortgagee immediately thereupon or at any time thereafter become due and payable and maybe recoverable at any time after such default together with interest as charged on the sum hereby secured up to the time of recovery of the sum or sums from time to time due and owing." 4 Before considering the applications currently before the court it is necessary to refer briefly to an earlier application made by Atlantic. 5 The writ in its initial form was issued on 11 September 1998. The statement of claim thereon alleged that the Club was in default of paying $42,171.32 rates to the Mackay City Council which became due on 30 June 1998. It also alleged that the Club was in further default in that the sum of $13,458.33 for interest was not paid when due on 1 September 1998. In consequence of those defaults it sought to recover possession of the property. Atlantic’s application for summary judgment on that writ came before Muir J on 13 October 1998. The Club filed material in response to the application. Summary judgment was refused for reasons which were given. In its material the Club alleged that it had come to an agreement with the Mackay City Council as regards the payment of rates, and that in consequence there was no default with respect thereto. In his reasons the judge said that "the material before me ... appears to show some complicity on the part of the applicant in the arrangement reached with the Council in respect of rates". In consequence he was not satisfied that there was a breach proved in that regard such as would justify giving summary judgment. Further, the Club’s case with respect to interest was that it was to be paid "monthly in advance" and therefore "no actual default could have occurred until 1 October 1998" with respect to the $13,458.33 referred to in the statement of claim. Further, the Club alleged some agreement to vary -- 3 of 13 -- 4 interest rates. Muir J perceived that there were issues of fact to be resolved in relation to interest; he said in his reasons: "Having regard ... to the difficulty facing the mortgagee on the interest question, it seems to me to be undesirable in this case to summarily determine the matter without the respondent having a proper opportunity to fully litigate the points which it has raised and intends to raise". 6 Clearly Muir J considered that the evidence relating to the two specified defaults in the writ as it then stood were not clear enough to justify giving summary judgment for possession. 7 Atlantic then turned its mind to other defaults by the Club. It could have then proceeded by causing a fresh writ to issue referring to defaults other than those specified in the original writ. If that had been done the earlier proceedings before Muir J could not have prevented the court from hearing an application for summary judgment with respect to the new writ. 8 But, relying on O.32 r.1(6) of the Rules of the Supreme Court, and the decision in Cudgen R Z Limited v Currumbin Minerals Pty Ltd (1984) 1 Qd R 552, Atlantic adopted the procedure of amending the original writ to include additional matters. The allegation of default in paying $13,458.33 by way of interest on 1 September 1998 was deleted and that paragraph was amended to allege default in paying interest from 1 January 1998 to 1 October 1998 in specific sums totalling $131,505.94. New paragraphs were added including the following: "6. A further advance of principal under the Mortgage of $100,000 was due to be repaid by the Defendant to the Plaintiff on 1 April 1998 which sum remains unpaid in default of the said Mortgage. 7. By Notice in writing dated 14 October 1998 posted to the Defendant on the same date pursuant to Provisions of the said -- 4 of 13 -- 5 Mortgage, the Plaintiff gave, to the Defendant, notice of default in payment of the principal and required payment of the principal. " 9 The amended writ alleged that as at 15 October 1998 the total amount owing under the mortgage as at 15 October 1998 was $1,754,610.38 of which $1,595,000 was principal and $159,610,000.38 by way of interest. 10 Atlantic then applied by way of its summons now before this court for summary judgment. The first submission made by counsel for the Club was that this court should not permit Atlantic to make a second application for summary judgment. It was said that this second application was oppressive as the Club had already incurred substantial costs in defending the original application. Reference was made to O.18 r.1(5) which provides: "When an application has been dismissed on the ground of formal defects in the proceedings or in the evidence a fresh application may be made on amended proceedings" and to the decision of Thomas J in FCA Finance Pty Ltd v Sparton Holdings Pty Ltd (1989) 1 Qd R 280. In particular reference was made to the following passage at 282: "It seems clear enough that where a plaintiff has failed to obtain summary judgment simply because of technical omission or error there would be little difficulty in persuading ... a judge to entertain a further application, subject of course to proper protection of the defendant from oppression. However, it seems to me that, generally speaking, where a plaintiff who has the necessary evidence on a matter of substance fails to present its true case, then it is very difficult to see why a second attempt to obtain judgment in a summary way ought to be permitted. Generally speaking, as a matter of discretion second or subsequent applications for summary judgment should not be entertained in such circumstances. To do so would afford an undesirable example of the proverbial second bite at a cherry." 11 That passage must be read in the light of his Honour’s earlier observation that: "Judges try to dispose of matters summarily if they can, and this helps to dispose of matters on the list in an expeditious way". That is echoed in the statement by the same judge (with the concurrence of Derrington and Moynihan JJ) in Queensland Truss & Frame Pty Ltd v -- 5 of 13 -- 6 Grenadier Constructions No.2 Pty Ltd (1992) 2 Qd R 428 at 431: "The real object of the rule is to provide a fast track to a plaintiff in a case where there is no proper justification for a trial, and to clear the court lists of matters that would unnecessarily occupy the time of the court and the parties if they proceeded through the defended list. It is difficult to think that the courts should unduly limit their own discretion to hear such applications". 12 The breach of covenant on which the present application is principally based is different from the breaches relied on in the earlier application. The issues raised now are so different to those before the court on the earlier occasion that this court should entertain the application. Whilst there is some substance in the Club’s contention that some legal costs have been incurred unnecessarily because of the two applications, it is still the fact that determination summarily can save the costs of a trial doomed to be lost by the respondent. In the circumstances I am satisfied that there is a proper basis for this court proceeding with the hearing of the application for summary judgment. 13 Atlantic delivered an affidavit by Gerilyn Polanski at a late stage to the Club. Counsel for the Club justifiably claimed that there had been insufficient time to consider the possible ramifications of matters stated therein, and in consequence I do not rely on anything contained in that affidavit in dealing with the applications. 14 The allegation relating to default in payment of council rates still appears in the statement of claim endorsed on the amended writ, but it was not pressed by counsel for Atlantic. Given the way it was dealt with by Muir J I disregard it entirely for purposes of the present applications. 15 Further, given the clauses from the mortgage quoted above dealing with interest and the conflicting evidence in the affidavit material relating to the calculation and payment of interest I am of the view that the position is not so clear as to enable this court to grant -- 6 of 13 -- 7 summary judgment based thereon. 16 That leaves for consideration the principal allegation that the Club was in default in that it did not pay $100,000 to Atlantic on 1 April 1998. It is necessary to turn now to the evidence relating thereto. 17 Amongst the Club’s material is its Amended Defence and Counterclaim delivered 19 October 1998. It will be remembered that in paragraph 6 of the statement of claim endorsed on the amended writ it was alleged that the Club was in default in not paying $100,000 on 1 April 1998. That allegation was addressed in paragraph 7 of the Amended Defence as follows: "As to paragraph 6 of the statement of claim the defendant says that on its proper construction the mortgagee is disentitled to possession of the mortgaged premises until such time as the mortgagee has served a notice of default on the defendant pursuant to s.84 of the Property Law Act 1974 and such default is continued thereafter for a period of at least 30 days." 18 It will be noted that there is there no specific denial of the failure to pay $100,000 when due on 1 April 1998; nor is issue taken with the allegation payment was due on that date. 19 Kevin Andersen, a director of the Club, swore an affidavit on 9 October 1998 which was relied on before Muir J and again on the hearing of this application. In paragraphs 6, 7 and 8 thereof he dealt with this issue. He swears that on information provided "by my co- officers" there were discussions between the parties in about February 1997 because of "a slower than expected turnaround in profitability" of the Club. One of the directors involved in those and following discussions was a Mr Kelly. Andersen goes on to depose that as "a consequence of that meeting I am informed by Mr Kelly and verily believe that the plaintiff agreed to advance a further $100,000 on the following terms ...". The conditions set out in that paragraph are not relevant for present purposes, except the condition that the Club had -- 7 of 13 -- 8 to find a tenant for part of the premises before the loan became payable. He goes on in paragraph 7 to say that the money was advanced on 13 November 1997, though he alleges delay on the part of Atlantic in making the loan occasioned the Club additional losses. Then comes paragraph 8 which is of some significance: "Because of the high cost of performing the business plan and obtaining the tenant as required by the plaintiff, the defendant was unable to deal with all of its historic creditors. In February 1998 the plaintiff arranged for experts chosen by it to investigate the affairs of the defendant to determine whether it would continue to support the defendant during its critical establishment phase. As a consequence of this investigation Mr Acker on behalf of the plaintiff agreed to advance a further sum of between $40,000 and $50,000 which would be secured by a bill of sale. Annexed hereto and marked "KA5" is a letter received from Darvall & Darvall, solicitors, confirming the advance. It is at this point that Mr Acker of the plaintiff indicated that the plaintiff would desire to become involved in actively assisting the managing of the defendant in dealing with its creditors. The further monies were not paid in a lump sum but paid as and when the plaintiff determined." 20 The letter there referred to was a letter from the solicitors for Atlantic dated 28 April 1998. It is in these terms: "Refer to your letter of 15 August and our subsequent discussions. We confirm that our client agrees with the following:- 1. To make a further advance, of an amount yet to be determined, sufficient to appease creditors and expected to be between $40,000 and $50,000. 2. The interest rate payable under the mortgage, including the further advance, is to be provided in the mortgage but, so long as interest is paid as and when due, and, for so long as our client should so determine, interest above the rate of 10% per annum should be capitalised. 3. Our client is prepared to assist you in negotiating the re- financing of the loan but on the basis that this can only be expected to be successful if there is a significant improvement in the financial performance of the Club and/or additional security is offered. -- 8 of 13 -- 9 4. Our client would be pleased to consider any proposals you may have concerning the further development of the site. 5. In consideration of the above, the Bill of Sale is to be amended to include the description of the "goods" secured by the Bill of Sale all other assets of your business including goodwill, debtors and stock in trade. A Deed of Amendment of a Bill of Sale is enclosed for execution and return. We are instructed that upon receipt of this document duly executed, our client will proceed to make further advances." 21 It will be remembered that that letter was placed in evidence by a director of the Club. There is nothing in the material to suggest that the Club in any way disputed the accuracy of that letter in recording the agreement reached between the parties in about April 1998. 22 I return to some documentation relating to the further advance of $100,000 in April 1997. The first is a letter of 2 April 1997 from the Club to Atlantic in these terms: "Re: Further Advance of $100,000. I confirm that the Club is pleased to accept your offer of the abovementioned further advance and pay interest at 12%. However, could you please arrange for the money to be placed in your solicitor’s trust account and authorise him to invest the money at the best rate that he can obtain. This interest will be offset against the 12% per annum payable by the Club. We are expecting a lease agreement (subject to licencing approval) to be signed in the very near future and I shall keep you informed in that regard." 23 On 11 November 1997 the solicitors for the Club wrote to the solicitors for Atlantic enclosing various documents including reference to the leasing of part of the mortgaged premises. That letter went on: "Can you now arrange for your account together with your client’s fees to be deducted from the advance monies ($100,000) and interest and deposit the balance direct to our client’s account". That was attended to promptly by Messrs Darvall & Darvall; their letter of 13 November 1997 indicated that they had deposited the sum of $92,441.91 to the credit of the Club’s account. The Club also executed on 11 November 1997 a document headed "Statement of Particulars of Proposed Loan". It referred to a loan of -- 9 of 13 -- 10 $100,000 with interest at 12% per annum. The security for the loan was said to be "Mortgage Number 701244183" together with a description of the lands. Importantly for present purposes the document also contained the following: "Payment of interest: Payable in advance from 2 April 1997 for a term expiring on 1 April 1998." 24 That correspondence does not support Andersen’s allegation that there was some delay on the part of Atlantic in making the advance. The Club asked that the amount of the loan be held by Atlantic’s solicitor until the leasing arrangements had been completed. Once that was done the money was paid over as evidenced by that correspondence. 25 I turn now to the affidavit of W L Marler, a partner in Darvall & Darvall, sworn and filed 19 November 1998. In paragraphs 10 to 16 inclusive thereof he deals with the advance of $100,000. It was through those paragraphs that the correspondence just referred to was placed in evidence. It confirms that on or about 2 April 1997 the payment was made into the Trust Account of Darvall & Darvall until paid to the Club on 13 November 1997. The interest which accrued, namely $1,343.91 was paid to the Club. He also confirms, which is not disputed, that the advance of $100,000 was not repaid when due on 1 April 1998. 26 On 14 October 1998 a letter in the following terms was sent by Darvall & Darvall to the Club: "We hereby give notice that our client requires immediate possession of the Mackay Leagues Club premises situated at 1 Sydney Street, Mackay in the State of Queensland pursuant to your default under Mortgage No. 701244183 in that the sum of $100,000 was not paid by you to Atlantic 3-Financial (Aust) Pty Ltd on 1 April 1998 and that interest payments have not been paid pursuant to the Mortgage." 27 Also by notice bearing that date Atlantic gave the Club notice pursuant to s.84 of Property Law Act 1974. The default particularised in that Notice was the failure to pay the -- 10 of 13 -- 11 amount of $100,000 on 1 April 1998. The notice went on to state that "unless within the period of thirty (30) days of service upon you of this Notice the said default is remedied, the Mortgagee may proceed to sell the land and exercise all or any of the other powers it conferred by the Mortgage and by the Property Law Act 1974". 28 At the hearing on 26 November 1998 a further affidavit by K Andersen was filed and read by leave. The affidavit is short and is set out in full: "1. In or about March or April 1998 I had several discussions with Fred Acker. In those discussions, the Club agreed to borrow a further $40,000 to $50,000 from the defendant. This was agreed on the express basis that the $100,000 (the subject of this current application) was repayable when the capital payment under the mortgage became repayable (in 2001). 2. Acker (a director of the plaintiff) both suggested this course of action and indeed accepted it as an express condition of the Club’s agreement to pay interest on the further sum to be advanced. This was clearly resolved in the real discussion referred to above." 3. The defendant accepted an obligation to pay interest rates higher than it would otherwise have agreed to pay had Acker not accepted that the $100,000 was not itself repayable until the end of the mortgage. The Club would not have resolved in agreement with Acker for the plaintiff had it not been for Acker’s acceptance in the discussion that the $100,000 would not be repayable until much later. 4. I recall having a further discussion (in early June 1998) with Acker and confirm that he again reiterated his position and understanding in respect to the understanding of the $100,000." 29 That affidavit is the one and only occasion on which there is any reference in the material to it being agreed that repayment of the $100,000 would be extended to 2001. If the allegation be true then one would have expected it to be included in Andersen’s affidavit sworn 9 October 1998 when he was dealing with the agreement reached with Acker. Indeed -- 11 of 13 -- 12 Andersen does not make it clear in that first affidavit that he personally was involved in the negotiations with Acker. As already noted, he exhibited Atlantic’s letter of 28 April 1998 on the basis that it set out the terms of that agreement, and there is no mention therein of the extension now contended for. Further, that allegation is not made in the defence and counterclaim dealing with the alleged default in paying the sum of $100,000 on 1 April 1998. The belated assertion that there was an oral agreement extending time for payment of the $100,000 is contrary to all other evidence, including contemporary documentation. There is nothing in writing, particularly no contemporaneous document, confirming any such oral agreement. The allegation is so contrary to all the other evidence and material that it should be rejected outright, particularly as it was made at the eleventh hour. 30 It follows that I am satisfied that the Club is in default of paying the $100,000 as at 1 April 1998, and that in the circumstances constitutes a default pursuant to the mortgage. Clause 11 of the mortgage provides: "The powers of sale entry possession distress ejectment and all other powers conferred by the Property Law Act 1974-1985 or by any amendment thereof or by any other statute or by these presence may (subject to s.84 of the Property Law Act 1974) be exercised by the Mortgagee immediately or at any time after default in payment of the monies hereby secured or any part thereof or in performance or observance of any covenant expressed or implied and notwithstanding any omission to exercise or waiver of the right to exercise any such power on any former occasion; notice of time under the said Act to payment monies then due and owing is hereby secured shall be reduced to twentyfour (24) hours previously to the exercise of any such powers." 31 The only point taken by the Club in its defence is that no notice pursuant to s.84 of the Property Law Act was given. It will be recalled that such a notice was given on 14 October 1998, but the 30 days had not expired when this application was brought. But that is not to the point. Section 84 only deals with the exercise by a mortgagee of power of sale. All the mortgagee here is seeking is possession of the land. In my view there has been default in -- 12 of 13 -- 13 terms of cl.11 of the mortgage such as entitles the mortgagee, Atlantic, to immediate possession. 32 By its defence and counterclaim the Club has raised a number of matters which might reduce the total of $1,754,610.38 claimed by Atlantic. Given the pleading the Club could not hope to reduce what was payable to Atlantic by a substantial percentage. The other issues raised do not in the circumstances impact on the fact that $100,000 secured by the mortgage is now due and payable and has not been paid. 33 I am satisfied that the Club has not raised a triable issue with respect to the $100,000 and that in the circumstances summary judgment as requested should be granted. 34 The statutory demand dated 15 October 1998 is based on non payment of the $100,000. For the reasons given in relation to the application for summary judgment the Club has not established a "genuine dispute" with respect thereto and the application to set aside that statutory demand should in consequence be dismissed. 35 On the summons brought by Atlantic filed 20 October 1998 there will be the following orders: 1. That the plaintiff recover from the defendant possession of the land more fully described in paragraph 1 of the summons being situated at Prince of Wales Hotel, 1 Sydney Street, Mackay in the State of Queensland, with the appurtenances. 2. Order that the defendant pay the plaintiff’s costs of and incidental to this application. 36 On the application brought by the Club in No.4 of 1998 the order will be: Application dismissed with costs -- 13 of 13 --