Eastmoree Pty Ltd, Re [1998] QSC 16

IN THE SUPREME COURT OF QUEENSLAND Application No. 1349 of 1998 IN THE MATTER of the Corporations Law - and - IN THE MATTER of EASTMOREE PTY LTD ACN 061 224 637 REASONS FOR JUDGMENT - MUIR J. Judgment delivered 6 March 1998 CATCHWORDS: APPLICATION FOR APPOINTMENT OF MORTGAGE - s.99 Property Law Act 1974 (Qld) - injunction to restrain exercise of mortgagee’s power of sale. Counsel: D. Smith for the applicant. J.C. Bell Q.C. for the respondent. Solicitors: Carter Green & Co for the applicant. Burns Jameson for the respondent. Hearing Date: 17 February 1998 -- 1 of 10 -- -- 2 of 10 -- IN THE SUPREME COURT OF QUEENSLAND Application No. 1349 of 1998 IN THE MATTER of the Corporations Law - and - IN THE MATTER of EASTMOREE PTY LTD ACN 061 224 637 REASONS FOR JUDGMENT - MUIR J. Judgment delivered 6 March 1998 By application 1349 of 1998 Airad Pty Ltd ("Airad") made application, as contributory, for the winding up of Eastmoree Pty Ltd ("Eastmoree") under the provisions of s.462 of the Corporations Law. The respondents to that application were Eastmoree and Clareview Investments Pty Ltd (Clareview"). An application for the appointment of a provisional liquidator to Eastmoree was filed by Airad on 13 February 1998. Wayne Allan Stevens and Jacquelyn Edith Stevens commenced action number 1356 of 1998 against Metrostar Pty Ltd ("Metrostar") by writ issued on 13 February 1998. That writ sought an injunction restraining Metrostar from exercising power of sale as mortgagee of land at Watland Street, Springwood ("lot 18") and also an injunction restraining Metrostar from advertising that land for sale. By an amended notice of motion Mr and Mrs Stevens, in the writ action, seek:- (a) an injunction restraining Metrostar from exercising its power of sale as mortgagee in respect of lot 18; (b) an injunction restraining Metrostar from advertising any mortgagee’s sale; -- 3 of 10 -- 2 (c) an order that Metrostar sell an adjoining parcel of land (“lot 17") pursuant to s.99(2) and/or (3) of the Property Law Act 1974; (d) alternatively, an order vesting lot 17 upon such a person as the Court considers appropriate to enable that person to effect the sale of the property, pursuant to the provisions of s.99(7) of the Property Law Act.” Relevant Facts Mr and Mrs Stevens are directors and shareholders of Airad. Airad and Clareview are the sole shareholders of Eastmoree. The directors of Eastmoree are Mr Stevens and Baptist Romano. Mr Romano is Mr Stevens’ brother-in-law. He is a director and controller of Clearview. In 1993 Messrs Stevens and Romano decided to use Eastmoree as a joint venture vehicle to acquire lot 17 and operate a business of landlord to be conducted in respect of the land. At the time, there was a tenanted building on lot 17. The purchase moneys were obtained by Eastmoree by way of loan from QIDC which took a mortgage over lot 17 (“the QIDC mortgage”) and a first registered charge over Eastmoree’s assets. Other collateral securities were provided to QIDC by Messrs Stevens and Romano, their respective wives and companies controlled by them respectively. Those collated securities included a mortgage given by Mr and Mrs Stevens over lot 18. Initially, rent from two tenants met the interest on the QIDC loan and provided a surplus which was used to reduce the capital of the loan. The lease of one of the tenants expired not long after lot 17 was acquired. The area vacated, according to Mr Stevens, was taken over by Mr Romano who executed no lease and paid no rent. The remaining tenant left the premises on 23 December 1994 after its lease expired. Mr Romano commenced meeting the periodic payments required to be made to QIDC and he and Mr Stevens made other contributions to the maintenance and upkeep of the building on the land. From about February 1996 Mr Romano ceased making payments to QIDC. Mr Stevens swears that Mr Romano said that he was not prepared to make -- 4 of 10 -- 3 any more of those payments and that he then commenced making payments, paying $36,355 in all. Mr Stevens and Mr Romano had a falling out in about March 1997. The loan from QIDC fell into arrears and QIDC appointed receivers and managers in respect of lot 17 on about 25 November 1997. On 4 February 1998 Metrostar, a company controlled by Mr Romano, paid out the sum of $378,980 owing by Eastmoree to QIDC and, in return, according to Mr Stevens, took an assignment of the QIDC debt. Affidavits filed on behalf of the Romano interests show that QIDC also assigned to Metrostar QIDC’s rights and interests under the mortgages of lots 17 and 18 and under the charge over all Eastmoree’s assets. The transaction was financed by Westpac Banking Corporation which took by way of security an assignment by Metrostar of all its right title and interest in the charge by Eastmoree in favour of QIDC. There is a substantial dispute between the accounts of relevant events given by Mr Stevens on the one hand and Mr Romano on the other. For example, Mr Romano asserts that there was agreement between himself and Mr Stevens as to the use by them or their respective entities of part of the subject building. Mr Romano says that in fact Mr Stevens and his related entities used part of the subject premises, that Mr Stevens has not made the contributions to QIDC that he asserts, that the reason he stopped making payments was that Mr Stevens failed to contribute his fair share of the moneys and that the refinancing of the QIDC facility took place with a view to minimising losses being suffered by Eastmoree and the guarantors of its obligations. Mr Haworth, Eastmoree’s accountant, deposed to his advising of the desirability of paying out QIDC because:- (a) Eastmoree was being charged penalty rates of interest by QIDC; (b) of the cost of receivership, the legal costs associated with the receivers and the -- 5 of 10 -- 4 undesirability of adverse publicity resulting from the appointment of receivers. Mr Haworth also swears to most of the moneys claimed to be paid by Mr Stevens having been drawn from a car importation business which Mr Romano alleges was conducted in partnership between himself and Mr Stevens. Application for Appointment of Provisional Liquidator The substance of the argument by Airad and the Stevens appears to be that Mr Romano has gained an unfair advantage through obtaining the assignments from QIDC. It is alleged that he is obliged to pay rent to Eastmoree but is failing to do so. He is thus a debtor of the company but has effective control over its assets through his stratagem of taking the assignments. It is also alleged that in acting as he did Mr Romano and, through him, Metrostar acted in breach of fiduciary obligations owed to Eastmoree and perhaps to Airad. In response, Clearview and Metrostar submit:- (a) Eastmoree has no assets apart from the land. As Metrostar has entered into possession of the land there are no assets for any provisional liquidator to protect; (b) although there is a deadlock in Eastmoree the expense of a provisional liquidator is unjustified in circumstances in which there is a winding-up petition afoot. I cannot see that a great deal will be accomplished by the appointment of a provisional liquidator and accept the submissions on behalf of Metrostar and Clearview that the best course for the parties to follow is for the winding-up application to proceed with as much expedition as possible. Metrostar is a secured creditor of Eastmoree and is owed a considerable sum of money which Eastmoree is unable to pay. If Mr Romano and any of the companies controlled by him are to be called to account for the conduct of which Mr Stevens complains, that can be done in an appropriately framed action. The interposition of a provisional liquidator in litigation is likely to confuse and complicate rather than simplify or resolve any of the existing problems. Nor does -- 6 of 10 -- 5 it seem to me that these are assets which are in urgent need of preservation. I have an application before me by Mr and Mrs Stevens for an order that lot 17 be sold. It is also the case that the applicants for appointment of a provisional liquidator have not made out a case for interlocutory relief on an urgent basis. I have said, the principal focus ought be on achieving an expedited and, dare I say it, simplified speedy resolution to the winding-up application and writ action. Accordingly I refuse the application. Orders Under Section 99 of the Property Law Act (in respect of lot 17) and an Injunction Restraining the Exercise by Metrostar of its Power of Sale as Mortgagee in respect of Airad and Mr and Mrs Stevens assert:- (a) Eastmoree has a power or right of redemption under the mortgage over lot 17; (b) Mr Stevens, as guarantor of the obligations of Eastmoree, has a right of redemption of the mortgage over lot 17 as he is under a liability for the mortgage debt; (c) Section 99 of the Property Law Act entitles a person entitled to redeem mortgaged property to a order for sale instead of redemption in the circumstances there specified; (d) Mr and Mrs Stevens, as guarantors of the obligations of Eastmoree, are entitled to have Eastmoree exonerate them from their liability for its obligations by making payment of the mortgage debt; (e) The Court should give relief to prevent Mr and Mrs Stevens from being required to pay Eastmoree’s debts. It is pointed out on behalf of Metrostar that Westpac, although having a charge over all of the assets of Eastmoree, is not a party to the action and there is no notice that it is even aware of the application. It is submitted that this, in itself, is sufficient to deter a court from making any -- 7 of 10 -- 6 order for the sale of Lot 17. I accept the validity of that submission. It also seems to me that the general basis of the claims by Mr and Mrs Stevens is more theoretical than real. I find no reason, having regard to the facts, to consider the full scope of s.99 of the Property Law Act. The reality is that neither the Stevens nor Eastmoree nor anyone else has offered to discharge the mortgage debt in respect of lot 17 or adduced evidence to the effect that they intend to do so. In an interlocutory application such as this it is hardly appropriate for the Court to give a form of final relief, particularly in circumstances in which that relief will impinge on the right of third parties not before the Court. Mr and Mrs Stevens face a further difficulty in that the writ does not mention lot 17. The relief sought in the writ seeks to restrain Metrostar from exercising a power of sale over lot 18. As guarantors they have not offered to repay the debt due so as to be subrogated to the rights of Eastmoree. There is also something incongruous in the seeking of an order that lot 17 be sold whilst, at the same time, attempting to restrain its sale by the mortgagee. There is no evidence before me to suggest that the sale of the land is not a desirable course in the interests of all parties. The mortgage debt is continuing to accrue. If lot 17 is sold, the proceeds of sale can go towards discharging the mortgage debt. That that will not prevent the Stevens pursuing any remedies they may have. If there is a concern that moneys may be dissipated then evidence can be adduced to that effect and an appropriate application made. As to the application to restrain the sale of lot 18, Metrostar submits, with some force, that it is undisputed that:- (a) there is a valid registered mortgage over lot 18; (b) there has been default under the mortgage; (c) the mortgagee, subject to compliance with s.84 of the Property Law Act, is entitled to exercise power of sale; -- 8 of 10 -- 7 (d) there is no evidence that Metrostar’s interests to sell the land for a proper purpose; (e) the mortgagors make no offer to pay the outstanding debt, or any other moneys into court. It is also submitted that the mortgagors are adequately protected by their right to claim damages. I am not satisfied that this is the type of case covered by the passage from Inglis v. Commonwealth Trading Bank of Australasia (1972) 126 CLR 161 at 164-5 on which Metrostar relies. That passage states the general rule that an injunction will not be granted restraining a mortgager from exercising power of sale unless the amount of a mortgage debt is paid into court. But the general rule does not necessarily apply where the matter in dispute is whether the power of sale is exercisable at all; see, eg, Harvey v. McWatters (1948) 49 SR NSW 173 at 174-5; Glandore Pty Ltd v. Elders Finance & Investments Co Ltd 57 ALR 186 at 189-90 and Henry Roach (Petroleum) Pty Ltd v. Credit House (Vic) Pty Ltd (1976) VR 309 at 319-320. It is possible to envisage circumstances in which, in a properly constituted action or actions, orders might be made which have the result that the Stevens, as guarantors, are discharged from their obligations as guarantors in whole or in part. However, I am not prepared to grant such an injunction until the claims of the Stevens’ interests are more clearly articulated and until I am I have more knowledge of the likely course of the two proceedings on foot. I am also influenced by, what I understand to be a concession by Metrostar, that no s.84 notice has been given in respect of the lot 18 mortgage. I propose to adjourn the application in so far as it relates to the application for an injunction and give liberty to apply to bring the application back before me should the need arise. Because of the lack of confidence of the Stevens and Romano’s interests in each other -- 9 of 10 -- 8 I am prepared to make an order which will give a measure of protection to the Stevens’ interests. Subject to argument as to the precise form of orders to be made, I propose to order that in the event of the respondent Metrostar Pty Ltd giving notice of default to Eastmoree Pty Ltd in respect of registered mortgage, Metrostar Pty Ltd shall promptly advise the applicant’s solicitors in writing from time to time of:- (i) any intention formed by the respondent from time to time as to the selling or listing for sale of lot 17 and the details of any listing or listings for sale of lot 17; (ii) any advertisement or advertisements placed or made by or on behalf of the respondent concerning the proposed sale of lot 17; (iii) the general substance of any negotiations entered into by the respondent for the sale of lot 17. I will hear further argument as to costs and the form of appropriate orders to give effect to these reasons. -- 10 of 10 --