- Unreported Judgment
SUPREME COURT OF QUEENSLAND
Neo Lido Pty Ltd & Anor v Perpetual Nominees Limited & Ors  QSC 226
NEO LIDO PTY LTD ACN 095 065 928
ROBERT WILLIAM HUTSON
5109 of 2005
Supreme Court, Brisbane
24 August 2005
13-20 July 2005
It is declared that the appointment of the second and third respondents on 8 June 2005 as receivers and managers of the property of the applicants is valid and that, subject to the undertakings given to the court, they are entitled to exercise the powers conferred on them by virtue of the deeds of appointment dated 7 June 2005.
RECEIVERS AND MANAGERS – appointed out of court – whether valid appointment – whether estoppel operating to preclude appointment – whether appointment otherwise invalid – whether receivers should be restrained from acting
RECEIVERS AND MANAGERS – appointed out of court – duties owed – whether conflict of duty and interest – whether breach of duty of good faith
Corporations Act 2001 (Cth), s 418A
Advance Housing Pty Ltd (in liquidation) v Newcastle Classic Developments Pty Ltd as trustee for the Albans Unit Trust (1994) 14 ACSR 230
Downsview Nominees Ltd v First City Corp Ltd  AC 295
State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587
R N Traves, with C J Crawford, for the applicants
P L O’Shea SC, with C M Muir for the respondents
Nicol Robinson Halletts for the applicants
Mallesons Stephen Jaques for the respondents
- This matter turns on the entitlement of the first respondent, Perpetual Nominees Limited (“Perpetual”), to appoint the second and third respondents to act as receivers and managers of the applicants, pursuant to certain securities upon the applicants’ failure to repay moneys owing under two loans.
Perpetual and MFS
- MFS Investment Management Limited is the responsible entity for the MFS Premium Income Fund, in respect of which McLaughlins Financial Services Limited was the former responsible entity. Those entities, which are both subsidiaries of MFS Limited, a publicly listed company, are collectively referred to herein as MFS. As the responsible entity, MFS operates the Fund, with Perpetual, as custodian, acting as agent for MFS. The loans in question were entered into by Perpetual as agent for MFS.
The Neo Loan
- The first applicant, Neo Lido Pty Ltd (“Neo”) is the registered proprietor of property situated at 28 - 42 Annie Street, New Farm. In 2002, Neo entered into a loan facility with MFS for the sum of $4,351,000 (“the Neo Loan”) the terms of which are contained in a loan agreement dated 11 December 2002. The purpose of the loan was inter alia to assist with the construction of townhouses at Annie Street. Settlement of the loan facility took place on 29 November 2002. It was a term of the Neo Loan that the amount outstanding was due to be repaid on or prior to 27 November 2003.
- The Neo Loan was secured by registered charges over the assets and undertakings of Neo, a first registered mortgage over the Annie Street Property and a guarantee provided by Mr Richard Spencer and Ms Silvana Perovich, directors of Neo.
- Between 28 August 2003 and 20 November 2003, correspondence was sent by MFS to Neo confirming that the Neo Loan expired on 27 November 2003 and requesting that Neo inform MFS of whether it intended to refinance the facility or pay the full outstanding loan balance, failing which, legal proceedings would begin. On 20 November 2003, Neo’s solicitors wrote to MFS’s solicitors seeking an extension of the Neo Loan for six months to enable Neo to complete the works at Annie Street. By letter dated 16 December 2003, MFS agreed to grant an extension to 27 March 2004. On 29 January 2004, a formal deed of variation was entered into extending the Neo Loan until 27 March 2004.
- Between 27 February 2004 and 18 March 2004, correspondence was sent by MFS to Neo confirming that the Neo Loan expired on 27 March 2004 and that Neo was to make arrangements for the discharge of the Neo Loan. On 22 March 2004, Neo requested a further 4 month extension, stating that construction at Annie Street would be completed within 11 weeks. On 30 June 2004, a second deed of variation was entered into with Neo, extending the date for repayment of the Neo Loan to 31 August 2004.
- There was no further documented extension. Neo does not deny that it failed to repay the Neo Loan on or before 31 August 2004.
The Eco Loan
- In April 2002, Ecomonitors Pty Ltd (“Eco”) entered into a loan facility with MFS for the sum of $8,000,000 for the purpose of purchasing a property located at 85 Montague Road, West End (“the Eco Loan”). The loan facility was for a term of 9 months, settlement taking place on 5 April 2003. The terms of the loan are contained in the loan agreement dated 4 April 2002. It was a term of the Eco Loan that the amount outstanding was to be repaid on or before 3 January 2004.
- The Eco Loan was secured by registered charges over the assets and undertakings of the second applicant, Neolido Holdings Pty Ltd (“Holdings”), and by a guarantee provided by its directors, Mr Spencer and Ms Perovich.
- Between 5 September 2003 and 4 December 2003, MFS wrote to Eco confirming that, as the Eco Loan was due to expire on 3 January 2004, Eco should make arrangements for its repayment by the expiry date and that non repayment would result in legal proceedings being commenced. On 9 December 2003, Eco’s finance broker requested an extension of the Eco Loan. Negotiations between MFS and Neo followed. On 19 January 2004, MFS sent a new letter of offer to Eco which was accepted by Eco. On 30 June 2004, the deed of extension of the Eco Loan (dated 5 July 2004) was signed by Eco, extending the loan to 30 September 2004.
- Holdings does not deny that it failed to pay the Eco Loan on or before 30 September 2004.
The appointment of the receivers and managers
- On 8 June 2005, relying on the charges provided by Neo and Holdings, Perpetual appointed the second and third respondents as receivers and managers over the assets and undertakings of the applicants, with the express exclusion of a particular chose in action of the applicants, to which I will return later.
The issues in dispute
The case based on estoppel
- The principal basis upon which Perpetual’s entitlement to appoint the receivers is challenged rests on the claim that Perpetual is estopped from making the appointment as a result of representations made by MFS. (The other claims pleaded, such as the contract claim and the claim based on misleading and deceptive conduct, arise from the same facts as the estoppel case).
- In brief, in support of the estoppel and contract claims, the following is alleged:
- In relation to the Neo Loan it is alleged that MFS represented and agreed with Neo that it would not take action to strictly enforce its securities and that it would allow Neo to refinance and payout the MFS facility, or to continue to extend the loan to allow the Annie Street development to be completed and sales to be obtained. The applicants rely on representations and agreements said to have been made in February and October 2004.
- In respect of the Eco loan, it is alleged that on 30 June 2004 MFS represented and agreed to defer recovery action against Eco until development approval for Montague Road was obtained and the property marketed in an orderly way.
- It is also alleged that by reason of the previous course of dealing between the applicants and MFS, MFS represented that it would:
- not insist upon strict compliance with the terms of the loans;
- grant to the applicants a reasonable opportunity to discharge the loans if it decided to exercise its remedies under the security documents;
- stop short of exercising its strict rights under the security documents unless every reasonable opportunity had been given to the applicants to discharge the debts;
- not exercise its strict rights under the security documents until such time as final development approval was received and the applicant had a reasonable opportunity to sell the land.
- It is alleged that in reliance on the representations, the applicants did not take all steps they might otherwise have taken to refinance the loans.
- As a result of the conduct of MFS, it is said that Perpetual is estopped (or should be prevented) from appointing receivers and managers, either permanently or for a period. A range of relief is claimed, including relief under s 80 or s 87 of the Trade Practices Act 1974.
Conflict of interest
- The applicants also seek a declaration that the appointment is invalid or alternatively claim that the receivers should be restrained from acting, because of a conflict of interest. The conflict of interest is said to arise because the receivers, who are partners of KordaMentha, have been appointed in circumstances where other partners of that firm are defendants in the proceedings brought by the applicants. A claim that the appointment raises an unacceptable risk of the receiver’s duty of good faith being breached is also made.
- By way of counterclaim, the respondents seek declarations and orders that:
- the appointment of the second and third respondents is valid and that they are entitled to exercise their powers jointly and severally under the charges provided by Neo and Holdings;
- there are no impediments to the exercise of the powers conferred upon Perpetual pursuant to those charges;
- alternatively, upon the second and third respondents being removed or dismissed as receivers of the applicants, Perpetual be at liberty to appoint any other receiver and manager to the property of the applicants.
The February 2004 meeting
The pleaded case
- On 21 June 2005, the applicants amended their Amended Statement of Claim to allege that in early September 2004, MFS represented and agreed with Neo that it would not take action to strictly enforce its security and would allow Neo to either refinance and payout the MFS facility, or continue to extend the loan to allow the development to achieve completion and obtain sales (para 17). This was said to have taken place between Neo’s officers and Mr Stride and Mr Bender of MFS. The “arrangement” was said to have been acknowledged by Mr Phillips from MFS in February 2004, at which time it was alleged he also agreed to extend the loan to enable the development to achieve completion (para 18).
- On the first day of the trial, the applicants further amended the Statement of Claim by deleting the allegations in para 17 and relying only on the allegation in para 18, that in February 2004, an agreement was reached between Mr Phillips (on behalf of MFS) and Mr Spencer and Ms Perovich (on behalf of Neo) that MFS would extend the Neo Loan to enable the development to achieve completion.
- From February 2002, Mr Phillips, was the General Manager of Structured Lending and Finance for MFS. He was in charge of overseeing the approval process for loans and the ongoing management of those loans. He reported to the then CEO of MFS, Mr Michael King. Mr Phillips’ evidence as to the alleged meeting in February 2004 was simply that it did not occur. Furthermore, he maintained that he did not on any occasion tell Mr Spencer or Ms Perovich that MFS would continue to extend the Neo Loan to allow the development to be completed. His evidence was that in any event he did not have the authority to make such a statement and that any loan extension required approval by MFS’ credit committee.
- Mr Spencer and Ms Perovich on the other hand both maintained that a meeting with Mr Phillips took place in February 2004 at the MFS offices at Southport. Ms Perovich accepted that at the time they had been dealing with Narelle McBain as the person in charge of the file. In para 2 of her second affidavit, Ms Perovich deposed to the substance and effect of what was said at the February 2004 meeting about the Neo Loan as follows:
“Spencer:In these sorts of situations, it’s important that the lender stand by the developer and ensure that the progress draws are paid to ensure that the builder doesn’t walk off site. With a volatile market and a fixed price contract we’re both in a difficult position.”
Phillips:You’re right. As long as you keep up to date with the payments, extension fees and interest, everything will be alright.”
- Ms Perovich’s oral evidence was that Mr Phillips also said “there wouldn’t be any problems in relation to Annie Street” and that “we should finish it and that they would allow us to finish it”. Her evidence was that Mr Phillips had said that Mr King was “very commercial” and “not the sort of person who would stop development half way through”. When asked whether she regarded Mr Phillips as saying that MFS would not enforce its securities and that MFS would always extend the loan, Ms Perovich responded, “Well, I’m not sure that it was sort of like that”, but that “it was an understanding that the lender had a half sensible attitude to the length of time that it would take to finish something and sell something”. Ms Perovich agreed that there was never a formal agreement that the loan would be extended to permit completion of the project, stating instead that it was “an expectation that one would be allowed to finish”. She also conceded that there was “never any promise” made by Mr Phillips that MFS would extend the loan to enable development to achieve completion. She stated that the position was rather that “there would be an understanding that the construction could be completed and the townhouses sold down”. However, she also accepted that Mr Phillips “made it clear” that it was the committee who made the decisions and stated that she in fact knew it was Mr King.
- Mr Spencer’s affidavit evidence (para 40 - 43) was that he and Ms Perovich met Mr Phillips and that Mr Phillips said that “he fully understood the situation and that MFS would continue to extend the loan to enable the project to achieve completion”. However, when cross examined, Mr Spencer conceded that he understood that the statement was qualified with reference to the process having to go through Mr King or the investment committee and that Mr Phillips may have expressly said that he did not have the authority to bind MFS.
- There is no file note or record of the alleged February 2004 meeting, nor any correspondence alluding to the alleged agreement. Indeed, the contemporaneous written communications are inconsistent with the evidence of Mr Spencer and Ms Perovich.
- On 27 February 2004, MFS sent one of a number of reminders to Neo confirming that the Neo Loan was due for discharge on 27 March 2004. As the respondents submitted, this letter cuts across the applicants’ claims as to a representation or agreement having been made at a February 2004 meeting. When Mr Spencer was cross examined as to why, given the alleged representations and agreement made in February 2004, he had not contacted Mr Phillips in respect of the 27 February 2004 letter, Mr Spencer’s evidence was evasive and contradictory: “we may have, I don't recall”; “I think we spoke to the broker on that occasion but don't recall what we did”. He also suggested that it was probably something that Ms Perovich handled, and that the letter was taken “as a mixed message that had to be managed either through the broker or MFS”. There was, however, no written communication to MFS by either the applicants or their brokers setting out the applicants’ version of the alleged February 2004 meeting in any correspondence to MFS.
- Nor did the applicants respond to a further reminder letter from MFS dated 17 March 2004, or to an email of 18 March 2004 from MFS to Ms Perovich, which stated:
“We have had no response from you in relation to the … loan discharging on 27 March 2004 despite numerous maturity letters … Your silence on this matter indicates that you are not in a position to discharge the … facilities. We advise that in the event of default non payment of the full amount of the loan, plus any interest and costs not paid by the maturity date in accordance with the loan documentation will result in your file being forwarded to our Lawyers instructing them to enforce our rights…”
- I accept the respondents’ submissions that Ms Perovich did not offer any persuasive response as to why, after receiving these demands, she did not take up with MFS her understanding that the loan would be extended until completion of the development.
- Not only is the applicants’ case inconsistent with the correspondence from MFS, but it is inconsistent with Mr Spencer’s own letter to MFS written on 22 March 2004 soon after the alleged meeting. In that letter he requested a 4 month extension of the loan, “to coincide with the new program” for construction at Annie Street, anticipated to take 11 weeks. He made no mention of the alleged agreement, rather he stated that the extension was sought because “Neolido would prefer not to outlay the expense of refinancing this project ...”.
The findings of fact
- I accept the respondents’ submissions that the evidence of Mr Phillips as to the alleged February 2004 meeting ought to be accepted over that of Mr Spencer and Ms Perovich, particularly when his evidence is considered in light of the changes to the applicants’ pleadings and the contrast in their manner of presentation. I consider that there is cause to question the credibility of Mr Spencer and Ms Perovich. They both engaged in reconstruction when giving evidence, were evasive and often non responsive to cross-examination and gave evidence which was unsupported by, and indeed inconsistent with, the documentary evidence.
- I do not accept that a meeting took place in February 2004 as alleged. Nor do I accept that any representation was made by Mr Phillips as alleged on that occasion or that any agreement was reached as alleged in February 2004.
The June 2004 meeting
The pleaded case
- In para 36A of their Further Amended Statement of Claim, the applicants allege that in late June 2004, MFS (through Mr Phillips) agreed and represented that, in return for a fee of $200,000, it would defer recovery action in relation to the Eco Loan until the development approval for Montague Road was obtained and the property marketed in an orderly way. It is also alleged that the fee was paid in reliance on a representation by Mr Phillips that it would allow Holdings sufficient time to obtain the development approval with respect to the land before taking action to recover the loan funds (para 39). A claim is now made that Holdings ought to be given a reasonable time to sell, which would appear to relate to the agreement that the property would be marketed in an orderly way.
Mr Phillips’ evidence
- It is of assistance to refer to some of the evidence leading up to the June 2004 meeting referred to in Mr Phillips’ affidavit. On 18 June 2004, Mr Spencer emailed Mr Phillips confirming that progress has been achieved on development approval being sought for Montague Road, mention was also made of joint venture negotiations and of an offer of mezzanine refinance. On 21 June 2004, Mr Spencer told Mr Phillips that the finance restructuring would be resolved by 30 June 2004. On 23 June 2004, Mr Phillips received an email from Mr Spencer that he was finalising outstanding issues with the development approval “this week” and that they expected “to finalise JV arrangements next week and make arrangements for takeout of MFS by the end of July”. Mr Phillips provided the payout figures to Mr Spencer.
- Mr Phillips also deposed to being asked prior to 30 June 2004 by either Mr Spencer or Ms Perovich as to what amount would be required to allow Neo and Eco to have some “breathing space”. He said that he responded to the effect that, since the Eco Loan had been in default for 6 months and the Neo Loan for 3 months, any fee would have to be substantial. He stated that on 22 June 2004, he telephoned Mr Spencer advising that “he should come to me with an offer of $200,000 - $250,000 for fees to allow MFS to hold off proceedings until the end of July 2004”.
- Mr Phillips denied saying that payment of the $200,000 would allow Eco to have an extension until the development approval was obtained. His evidence was that the extension of the Eco loan was quite limited in scope. His evidence was that “the extension of the loan we granted them was slightly longer than what was requested … on the basis that it was better to give them a slightly longer timeframe.” This accorded with Ms Perovich’s evidence that, at the 30 June 2004 meeting, after discussing how long the development approval might take, the maturity date was changed to 30 September 2004 to be on the “safe side”, on the basis that that was how long was required to get the approval.
- There was some conflict between Mr Phillips’ oral and affidavit evidence as to whether the $200,000 was paid as an extension fee for the deed of extension executed on 30 June 2004 or not. But Mr Phillips was clear in his evidence that the payment was not made to permit a broader extension of the loan until the development approval was obtained, nor in return for MFS’ forbearing from enforcing its security until the approval was obtained.
Evidence of Ms Perovich and Mr Spencer
- The principal affidavit evidence relied upon in support of the applicants’ case as to the June 2004 meeting concerning the Eco Loan was contained in paras 17-19 of Ms Perovich’s first affidavit which states:
“17.In late June 2004, I spoke to Mark Phillips of MFS by telephone. In this conversation, Mr Phillips told me words to the effect that MFS would allow the Second Applicant sufficient time to obtain the development approval with respect to the land before taking action to recover the loan funds. In return however, Mark Phillips told me Eco would have to pay a fee of $350,000.00 to MFS by 30 June to prevent MFS taking any recovery action or to ‘let the dark side take over’ in his words.
- I negotiated a lower fee by protesting that the payment was not going towards reducing interest and was not an establishment fee for a formal extension. I told Mr Phillips in words to the effect Eco would need to the end of October to obtain a DA and refinance or sell the land, and we would pay a fee only if MFS agreed to defer recovery action until the DA was obtained, and the property marketed in an orderly way.
- Mark Phillips agreed that MFS would accept that proposal, but a fee of $200,000.00 was to be paid within two days. Subsequently, Eco paid the said fee to Michael King’s ‘MFS Business Solutions’ on 29 June 2004. … However, the Deed of Extension only extended the repayment date to 30 September 2005”
- Ms Perovich also gave oral evidence that the $200,000 was paid as consideration for MFS’ forbearance in relation to taking recovery action, on the basis that there would be no recovery action until the development approval was obtained and the property sold. However, Ms Perovich’s evidence under cross-examination was:
“Q. So there was no separate arrangement in an open-ended sort of way that there would be no recovery action until the DA was obtained, no matter how long the DA took to obtain?
A. No, I don’t think that was the case at all. I think that the, you know, everyone wanted the DA would come out and the best person, or the best party to get the DA out was the developer, that was ourselves. That action, I mean, we continued to push for the DA after this deed expired after MFS tried to sell the property up in November. We continued to add value to it.
Q. It is the case, wasn’t it, that when you got this due date extended to 30 September 2004 you were happy that that covered the contingencies in relation to the DA. That’s the case, isn’t it?
A. At the time, yes.”
- Mr Spencer gave similar evidence when cross examined:
“Q..… I suggest to you that Mr Phillips never said to you that in return for paying the fee of $200,000.00, MFS would allow Ecomonitors sufficient time to obtain development approval before it took action to recover the loan funds.
A.Well that was – that was said and understood in words to that effect, but on the understanding that it was coming in – on the understanding it was coming in … within a relatively short time.
Q. So did you understand that to mean that if the development approval in fact didn’t come in within a short time, MFS would be able to take recovery action?
A. Yes, but it would be a new and unanticipated situation where they either would take action, or reconsider the new circumstances.”
- Mr Spencer also gave evidence that contradicted the allegation in para 6(c) of his second affidavit that Eco was induced to pay the fee of $200,000 relying on Mr Phillips representation that MFS would allow Eco sufficient time to obtain development approval before taking action to recover the loan funds. His evidence was:
“A. … what passed between Phillips and myself was the discussion of the prospect of the DA coming out and our prospects generally and the view that because of that the situation was retrievable and that … provided we paid [the $200,000] fee, the matter could continue for the extended period. … The extended period discussed, I think was two to three months, and the deed we signed in due course was for three months.
- And that’s what you expected to pay the fee of $200,000 for, to get an extension of two to three months; is that correct?
A.Well, that is correct. But it was in the context of we felt it was worth paying, because we were very confident that the DA would be available within that timeframe.
Q.So there was no need for you to get MFS to defer recovery action until the DA was obtained. You were confident you could get the DA very quickly; that’s correct, isn’t it?
A.Yeah, we were confident that the DA would come through, and Phillips for MFS had that material and believed the same.”
- When cross examined Mr Spencer conceded that there was no express agreement that MFS would not take any recovery action until the development approval was obtained. His evidence was to the effect that he expected to pay the fee of $200,000 for an extension of 2 to 3 months, and that the deed was altered at the 30 June 2004 meeting to provide for a maturity date of 30 September 2004, rather than 30 August 2004, to accommodate delays in obtaining the approval.
- I am unable to conclude, on the evidence which I accept, that the $200,000 fee was paid on the basis of a representation or agreement that MFS would defer recovery action in relation to the Eco Loan until the development approval for Montague Road was obtained and the property marketed in an orderly way. I find that the only representation made by Mr Phillips in June 2004 and the only agreement reached then was that the Eco and Neo Loans would be extended for a limited period in accordance with the deeds executed on 30 June 2004.
- The evidence that I accept, suggests that, as at June 2004, the applicants wanted an extension of the Eco Loan so as to obtain the development approval that was anticipated by July 2004. Indeed, given Mr Spencer’s and Ms Perovich’s confidence that the development approval would be obtained quickly, there would have been no basis for any open ended extension to defer recovery because of the development approval. The extension until 30 September 2004 was considered by the applicants to be a sufficient extension to meet delays in obtaining the development approval. As Mr Spencer conceded, if the development approval was not in fact obtained within the short period of the extension covered by the deed of variation, he understood that MFS would be able to take recovery action.
- If an open ended arrangement in respect of the Montague Road property had been agreed to or the subject representations, then one would not have expected the applicants at the June 2004 meeting to have been concerned to alter the extension date of the Eco Loan to 30 September 2004 only. That limited alteration of the extension date is inconsistent with the applicants’ case. In any event, the oral evidence given by Ms Perovich and Mr Spencer cuts across the applicants’ case as pleaded and supports the respondents’ case that the $200,000 was paid to secure a limited breathing space only as evidenced by the deeds executed on 30 June 2004.
- I also observe that the allegations made by the applicants were not raised by their solicitors in the extensive correspondence following the June 2004 meeting. On the contrary, when on 31 December 2004, Mr Tiplady of Nyst Lawyers (then acting for the applicants), wrote to MFS, he stated his “instructions” as being that, in mid June 2004, MFS “indicated that, in the event that the $200,000 fee was paid, MFS would refrain from taking any default action for a further period of three months (until 30 September 2004) to permit Ecomonitors/Neolido to refinance the Property, enter into a joint venture with respect to the property or sell the property”.
- I find that no representation was made, nor any agreement reached in June 2004, that in return for a fee of $200,000, MFS would defer recovery action in relation to the Eco Loan until the development approval for Montague Road was obtained and the property marketed in an orderly way. I find that the only extensions agreed upon in June 2004 were those evidenced by the deeds of variation executed on 30 June 2004.
The 19 October 2004 meeting
The case alleged
- The applicants allege in para 18A of their Further Amended Statement of Claim that at a meeting with Mr Bender and Mr Stride on 19 October 2004, MFS represented and agreed, in relation to the Neo Loan, that it would not strictly enforce its security and would allow Neo to either refinance and pay out the MFS facility or continue to extend the Neo Loan to allow the Annie Street project to achieve completion and obtain sales.
- Although the allegations as to 19 October 2004 meeting primarily concern the Neo Loan, the applicants also allege that MFS, through Mr Bender, agreed that Eco continue with its efforts to obtain the development approval on Montague Road and that if it was not obtained by January 2005, that property be put on the market for sale (para 43).
Background to the 19 October 2004 meeting
- As mentioned, as at 31 August 2004, Neo had not repaid to MFS the moneys owing under the Neo Loan nor, as at 30 September 2004, had Eco repaid to MFS the moneys owing under the Eco Loan.
- However, on 27 September 2004, Ms Perovich sent a facsimile to MFS, stating that the Eco Loan would “be taken out by the CBA” and that completion of the Annie Street project was expected by mid October 2004. By email dated 7 October 2004, MFS sought the CBA term sheet and a comfort letter, stating that the CBA was proceeding with the facility and advising the date of settlement. MFS also inquired as to whether the handover of Annie Street was still expected to take place in mid October 2004. Ms Perovich, responded by email on 11 October 2004 stating that she had the term sheet from the CBA, that the Annie Street construction would be completed in “two weeks”, at which stage Annie Street would be marketed. Ms Perovich also stated that funds to pay out outstanding interest had been delayed, but it was “likely to occur” at least by the next week. On 15 October 2004, Ms Perovich advised Mr Bender that Eco had obtained a term sheet from the CBA and that Eco was looking to refinance the Eco Loan through the CBA.
- In the email sent by MFS on 7 October 2004, MFS also stated that, as all facilities were past their maturity dates and in default, it was in the process of enforcing its rights and taking default recovery action in respect of the loans and reserved its rights. In this regard, on 11 October 2004, Mr Bender of MFS forwarded to Eco a letter enclosing a notice of termination of the Eco Loan and advising that MFS would be instructing its solicitors to take steps to enforce its rights. He also forwarded letters to Eco, Mr Spencer and Ms Perovich, enclosing notices of demand on guarantors. On 13 October 2004, a notice of exercise of power of sale was forwarded to Eco. On 14 October 2004, MFS forwarded to Neo and the Neo guarantors, Ms Perovich and Mr Spencer, a notice of termination of the Neo Loan and demands pursuant to the Neo Loan and Neo Guarantee.
- That is the background to the meeting on 19 October 2004, between Mr Bender and Mr Stride and Mr Spencer and Ms Perovich. After being shown the development at Annie Street, Mr Stride and Mr Spencer went back to the applicants’ business premises at South Brisbane. There is a sharp conflict in the evidence as to what was said at this meeting.
The evidence of Mr Spencer and Ms Perovich
- The version given by Mr Spencer and Ms Perovich as to what was said at the meeting, contained in their supplementary affidavits, is in identical terms. It transpired that the reason for this was, as they conceded under cross-examination, that prior to compiling their affidavits they had collaborated in compiling a record of what was said at the meeting to be provided to their solicitors. The affidavit draws on that record.
- Their affidavit version, which is critical to the applicants’ case concerning the October 2004 meeting, is as follows:
“Spencer:Let me give you an update on Montague Road. We’ve signed an MOU with Bovis Lend Lease to do the project management and construction. We think they will bring a number of things to the table and make construction finance easier. Regarding the DA, that stuck with Council and our consultants are working to push it through. We’ve been to see Hinchliffe.
Perovich:We’ve seen the lot of them.
Spencer:And we’ll push for refusal and appeal to the P&E Court if we have to. That’s how we got Ferry Road through so we’re prepared to do it if we have to.
Bender:You’d need to get the DA for that site to get the full value for it.
Perovich:That’s what has to happen.
Bender:We are keen to recover our money but we also know we’re not the best ones to do it. The mortgagee never gets as much as an owner no matter what the status of the property is. It’s just the way it is. We would prefer that you control that process because you are the best ones to get our money back. Every time a mortgagee tries to sell a property, it never works out for them. They never get full market value. The market just knows.
Spencer:I couldn’t agree more.
Perovich:I’m pleased that you have a sensible view.
Stride:Well, I think you should pursue your refinancing prospects.
Spencer:Yes, we’re certainly doing that but in the case of Montague Road, it’s difficult with the attitude of the Brisbane City Council.
Stride:You should look to selling Montague Road and Ferry Road.
Perovich:We can have them available for sale as well as looking for refinance. We would prefer to build out Ferry Road because we have done a lot of work on that in relation to the Affordable Housing but with Montague Road, we’re going to have to get that DA before anyone becomes seriously interested, whether sale or refinance. We have prospects borrowing from the Commonwealth Bank and Babcock & Brown for Montague Road but, in all likelihood, they don’t be resolved until we get a break-through on the DA. And, we expect Suncorp to proceed with construction finance for Ferry Road shortly.
Spencer:We have prepared a proposal for a $50 million facility to refinance our residential portfolio. I can show you a draft copy of the proposal. While that doesn’t involve Montague Road, it does involve Annie Street and it will have a positive effect on our prospects for Montague Road as it will affect the Group overall.
Perovich:In addition, we have our Neolido prospectus which is raising funds which will assist us overall.
Stride:Well, you know we could take enforcement action. But obviously it would be best if you could refinance or achieve a sale yourself so that you get full value. This is best for all of us.
Bender:Obviously, in the case of Annie Street which is close to completion, the best result would be to sell that down yourselves and that should be able to happen and we can allow that to happen.
Stride:I think what we should do is for you to get sales proposals for both Montague Road and Ferry Road and look to selling them in January if you are unable to refinance or get a joint venture in the meantime.
Perovich:Well, we should be able to work with that because we would expect to have the DA through from Council before then.
Bender:It would certainly be preferable if you were able to sell Montague Road yourselves rather than us as mortgagee exercising power of sale because that just kills the marketing. So let’s look at each of these.
Perovich:Well, Ferry Road will be refinanced with construction finance. Annie Street will completed and sold down, probably taking until March to May to pay out the loan assuming the building finishes next month.
Spencer:Montague Road – we’ll get the DA and then refinance or sell. If it has to go to the P&E Court, it’ll take longer but the same result – DA. It can’t be refused on town planning grounds.
Bender:Well, that all looks OK. We’ll put it down on paper for you to respond.” (emphasis in accordance with the applicants’ written submissions)
- Counsel for the applicants also placed reliance on the following exchanges in respect of what Ms Perovich understood was required of the applicants in relation to the Neo Loan after the October 2004 meeting:
“Q.So you weren’t looking for any open ended commitment from MFS in relation to Annie Street were you?
A.I was looking for support for completion.
Q.But you didn’t ask me to say “You promise that we won’t do anything until we complete and market this development”. You weren’t looking for that were you?
A.No, the understanding amongst the parties was that it would be finished and it would be sold down.
Q.MFS by Mr Stride and Mr Bender weren’t giving any open ended commitment that they would do nothing until you had completed and marketed the development did they?
A.They did, actually, they did. There was – they did because, in fact, we discussed the fact that the project would be completed and then would be sold down. Now, there was no inference there that it would be completed, and it would be sold down, that there would be a defined time line. There wasn’t a line in the sand drawn beyond which date it would be, you know, it would be death at ten paces, or anything like that. It was an open ended agreement because both parties considered it to be something that would be complete and sold down. So neither party, neither party discussed a finite date.”
- Mr Spencer also confirmed in his affidavit that at the 19 October 2004 meeting, MFS represented and agreed that MFS would not take action to strictly enforce its security and would allow Neo to either refinance and pay out MFS or would continue to extend the loan to allow the development to achieve completion and sales. When cross examined as to whether there was a time limit on the promise, Mr Spencer said that there was “an implied time limit because [Annie Street] was close to completion”. His evidence was that “the general position stated” was that “this is a good product, it would be very sensible to complete and sell down” and that was “an expression of what they concluded and saw on the day”. Mr Spencer stated that during the discussions “there were reservations and an indication that the matter would have to be put … to us formally”, but “the overriding view expressed in respect of Annie Street was: “well, let’s complete it and sell it down. It looks like a good product, and it’s close to finish”.
- When asked whether there could also have been a qualification, such as the one he had agreed had been given in February 2004, that the matter would have to go to the credit committee, Mr Spencer said that there could have been a reference to that in passing. He conceded that he was told, “We’ll put it to you formally and go back through our processes”. He also did not dispute that Mr Stride or Mr Bender stated that the discussions were without prejudice to MFS’ rights.
- Ms Perovich’s evidence was that it was acknowledged by both sides that it was best for the developer to complete the project rather than the lender to take over and finish, but also conceded that MFS always reserved its rights.
- As to the allegations in para 43 of the further amended pleading concerning the Eco Loan, particular reliance was placed by the applicants’ counsel on Mr Spencer’s evidence as to what he understood was required of the applicants in relation to the Montague Road project after the October 2004 meeting:
“Q.There was no agreement on the part of MFS to wait for the DA to be obtained before the property was sold?
A.That’s not quite right. We understood at the meeting in October that MFS accepted that our view of the world at the time was an expectation to have the DA through by January at which time the property could be put on the market if it hadn’t already been joint ventured or refinanced or sold.”
Mr Bender’s evidence
- In October 2004, Mr Bender managed the recovery process for MFS in relation to the Neo Loan and the Eco Loan. He became involved with Mr Spencer and Ms Perovich in October 2004 after reviewing the files in relation to the Neo Loan and causing notices of termination and demand to be issued.
- His evidence was that the meeting on 19 October 2004 was arranged at Mr Stride’s suggestion. He deposed to the purpose of the meeting being to discuss the defaults under the Neo and Eco Loans and to see whether a solution could be arrived at whereby either MFS provided an extension on conditions, or Eco and Neo sold Annie Street and Montague Road or refinanced the debts due and owing to MFS with another financier.
- Mr Bender acknowledged that he told Mr Spencer and Ms Perovich that the preferable course for all involved would be for Neo to pay out MFS. However, he denied that he told Mr Spencer or Ms Perovich, that MFS would allow Neo to continue to extend the loan to allow the development at Annie Street to achieve completion and obtain sales. Mr Bender also denied making any representation to either Ms Perovich or Mr Spencer that MFS would “not take action to strictly enforce its securities” and maintained that he in fact said the opposite, telling them that MFS could enforce them at any time and that any discussions about refinancing or selling the Eco and/or Neo properties were without prejudice to MFS’ rights to enforce its securities.
- As to the Montague Road property, Mr Bender agreed that he said that it would be preferable if Eco sold the property rather than MFS selling as mortgagee. He said that the discussions concerning the sale of the Montague Road property were in terms of it being put on the market before Christmas, with a view to a settlement in January 2005. His evidence was that there was no discussion that to the effect that the development approval was to be obtained before the sale of the Montague Road property or that MFS would hold off on recovery action until it was obtained. He maintained that he did not say that MFS would not exercise its power of sale.
Mr Stride’s evidence
- Mr Stride, who was the manager of the Business Legal Division of the MFS Group, also gave evidence concerning the October 2004 meeting. His evidence was that he indicated to Mr Spencer and Ms Perovich that he and Mr Bender were present to gather evidence and to consider MFS’ options as to how to proceed. He said that one of the options was that MFS exercise its power of sale, institute proceedings and appoint receivers and managers. There was a discussion about the option of a mortgagee sale or a sale by the applicants and their ability to obtain a higher price.
- As to the Annie Street property, Mr Stride’s evidence was that neither he nor Mr Bender advised either Mr Spencer or Ms Perovich that MFS would not take action to strictly enforce its security, or that it would continue to extend the loan to allow the development at Annie Street to achieve completion and obtain sales. Mr Stride recalled a discussion to the effect that the Annie Street property was close to completion. He said there was reference to a “proposal” that MFS might make, involving the applicants “possibly staying in control of Annie Street and completing a selldown”, but under conditions as to reporting and the manner of the sales.
- As to the Montague Road property, there was mention that it was preferable for MFS not to appear to be in control of selling the property and there was a discussion of the applicants putting a sales report together for MFS to consider. The discussions were to the effect that the Montague Road property be put on the market before December 2004, with settlement to occur by the end of January 2005 and that this was to happen regardless of the position with the development approval. The discussions were stated to be without prejudice to MFS’ rights.
- Mr Stride’s evidence was that he also indicated that, in any event, the applicants should also pursue refinancing opportunities in respect of both loans. He denied that he was told that the development approval was required in order to refinance the Eco Loan. His evidence was that he was told that there were good prospects of refinancing that loan and that an indicative offer for refinance had been received from the CBA, a copy of which was to be provided to MFS.
- Mr Stride deposed to telling Mr Spencer and Ms Perovich that to allow MFS to consider its position, updated asset and liability statements, marketing details and up to date valuations for Eco and Neo were required, and that Mr Bender and he were concerned with the level of debt Eco and Neo had with other lenders. His evidence was that he said he would go away and report to the other members of the MFS default committee and once the requested information was provided MFS would consider its position further.
- While he did not take a file note of the meeting, Mr Stride reviewed and authorised an email which Mr Bender sent to Ms Perovich on 20 October 2004 setting out what was discussed at the 19 October 2004 meeting.
Events following the 19 October 2004 meeting
- Mr Bender deposed to having a telephone discussion with Ms Perovich on 20 October 2004, in respect of which he made a file note. He told her that he had undertaken searches of properties that may be able to be provided as extra security to MFS, to allow MFS to consider extending the Neo and Eco Loans, and take security over other properties owned by the Group. He asked her why mortgages to other financiers were registered on the Annie Street property when MFS’ consent as first mortgagee had not been sought. He stressed the need for MFS to receive an updated asset and liability statement detailing each of the loans obtained from other financiers to allow MFS to consider the position in respect to the Neo and Eco Loans. He also said that MFS needed submissions relating to the sale of the properties at Montague Road and at Ferry Road (owned by a subsiduary), to allow these to be sold as soon as possible to repay the moneys owing to MFS. He said that they could refinance MFS at any time, however, until that happened, the properties at Montague Road, Annie Street (and Ferry Road) would have to be put on the market. (The diary note also records that he said, “we did not want to put the properties to market because that would look like a ‘distress sale’ and have all the buzzards circling”). He said that he would put an option to Ms Perovich that might see them managed out of their cash flow situation, but that MFS needed to consider all the circumstances and receive all the information required from Neo and Eco before this could be considered.
- Also on 20 October 2004, Mr Bender sent Ms Perovich the following email, which he copied to Mr Stride, entitled “All loans”:
“Following on from our conversation today I will set out some matters that you need to consider and action ASAP.
We are looking at putting a proposal to you that will attempt to alleviate the current issues on all the loans.
As part of this process we will need at least the following information from you as a matter of urgency.
1. Current Assets and Liabilities. This should detail each loan for each company, and the amount owed and when it is due, whether it is default, if interest is capitalised or is it being services by you and how much the interest payments are. Please advise when we may expect this.
2. Marketing submissions for the sale of Ferry Road and Montague Road properties. In this regard we suggest that you contact the agents set out below. For obvious reasons we suggest that you obtain these submissions without any hint or our involvement. We will need these submissions by Friday next week at the latest.
The process that we are now looking at undertaking is without prejudice to our rights under our security documents on all loans and we reserve our rights generally.
We will not be bound by any agreement that is not in writing and signed Michael King in his capacity as director of the relevant lending entities.” (emphasis added)
- In addition, on 20 October 2004, Mr Bender caused a notice of exercise of power of sale and a creditor’s statutory demand to be served on Neo. The covering letter enclosing the notice of power of sale expressly reserved MFS’ right to make other or further demands under the facility.
- On 22 October 2004, Mr Bender sent by facsimile to Neo a request for updated asset and liability reports and property appraisals and marketing proposals for the Montague Road and Ferry Road properties. The letter also stated:
“Subject to our receipt and perusal of that information and excluding any efforts you are making to re-finance the properties, we believe that the most appropriate course of action is as follows:
- New Farm – This loan should be extended for six (6) months with interest capitalised at the lower rate. This will allow time to complete and market the properties;
- 3 Montague Road – This loan is to be extended for six (6) months with interest accruing at the higher rate.
Both Ferry Road and Montague Road should be placed on the market with a view to achieving settlement by the end of January.
- Additional Security – We note that related entities hold other land interests. We will need to take a mortgage on each of those properties and charges over the relevant entities to secure monies owing. All securities will be cross-collateralised.
- Proceeds of Sale of New Farm – All proceeds of the sale of New Farm are to be paid to us to reduce the overall indebtedness.
This is not an offer. Any proposal we make to you is subject to approval by the Investment Approval Committee and the issue and acceptance of a letter of offer and execution of all appropriate loan documents.” (emphasis added)
- On 27 October 2004, Mr Bender spoke by phone with Ms Perovich who said that she had received Mr Bender’s letter of 22 October 2004 and would shortly attend to all requirements and respond. On 1 November 2004, Mr Bender again requested the information MFS had sought. By way of answer, Ms Perovich sent a facsimile to Mr Bender on 2 November 2004. Also on that day, Mr Bender responded to Ms Perovich by email headed “All Loans” stating:
“1.You had previously agreed to get marketing submissions to us by Friday of last week. You did not do that and apparently have not even started the process.
- You agreed to get us updated Assets and Liabilities by Monday of last week. You did not do that.
- In the middle of discussions with you we discover there are previously undisclosed mortgages and court actions and loan applications.
Your letter is unacceptable to us.
We will be calling exercising all of its rights as at 5pm tomorrow including gathering marketing submissions.”
- On 9 November 2004, Mr Bender forwarded an email to Ms Perovich, informing Ms Perovich that, despite being given ample opportunity, the applicants had not provided information that had been requested by MFS and that MFS was accordingly “taking matters into [its] own hands”. In response, Ms Perovich emailed Mr Bender that Eco was working on a proposal to “fund MFS out of the project” and requested payout figures for the Neo and Eco Loans. On 10 November 2004, Mr Bender replied stating that MFS would supply the current loan payout figures, however, that MFS was still intending to proceed with its sales campaign for Montague Road.
Findings as to the 19 October 2004 meeting
- As to the conflicting evidence concerning what occurred at the October 2004 meeting, I prefer the evidence of Mr Stride and Mr Bender over that of Mr Spencer and Ms Perovich. Both Mr Bender and Mr Stride impressed me as trustworthy witnesses. Mr Stride in particular appeared to have the most reliable recollection of the meeting. Both Mr Bender and Mr Stride when taken through the version of the October 2004 conversation recorded in Mr Spencer’s and Ms Perovich’s affidavits showed no reticence in making concessions as to matters which they accepted had in fact been discussed.
- In addition, Mr Bender’s and Mr Stride’s evidence as to the meeting is supported by the email of 20 October and the letter of 22 October 2004. That correspondence is inconsistent with the applicants’ evidence. It does not sit with the applicants’ case that there had been representations or an agreement at the October 2004 meeting in relation to the Neo Loan, to the effect that MFS would not strictly enforce its security until the Annie Street project was completed and Neo had had an opportunity to obtain sales or refinance the Neo Loan. Rather, it supports Mr Stride’s evidence that MFS was gathering information so as to put a proposal to the applicants and was waiting upon information from them in order to do so and that MFS had reserved its rights.
- I am satisfied that it was clear to Mr Spencer and Ms Perovich that the purpose of the discussions at the meeting was to gather information with a view to MFS considering its options. I find that no representation was made in respect of the Neo Loan as alleged by the applicants. I accept that there were discussions as to options open to MFS in respect of the Neo Loan, including that construction at the Annie Street property be completed and that it be sold by Neo, but the discussions were no more that as to possible options and no representations or agreement was made as alleged.
- As to the Eco Loan, the Holdings assertions are inconsistent with the 22 October 2004 letter, which was not contradicted by Holdings. Furthermore, I accept the respondents’ submissions that, since the alleged representation in relation to the Eco Loan was merely that Holdings could have until January 2005 to sell the property, the effect of such a representation is now spent.
The case based on an alleged course of dealing
The pleaded case
- It is also alleged (para 56A) that there was a course of dealing between the applicants and their subsidiary, Neo Tel No 1 Pty Ltd (the owner of the Ferry Road property) on the one hand and Perpetual (through MFS) on the other, whereby Perpetual adopted a consistent practice in respect of defaulting loans of:
- lending money for shorter periods than necessary to complete developments;
- granting extensions of those loans at a substantial fee;
- charging interest rates which were significantly higher than usual market rates;
- desisting from exercising its strict rights under security documents.
- It is alleged that MFS’ conduct in respect of the Neo and Eco Loans was consistent with that course of dealing. It is also alleged that by reason of the previous course of dealings between the applicants and Perpetual, Perpetual is to be taken to have represented that it would:
- not insist upon strict compliance with the terms of the loans;
- grant the applicants a reasonable opportunity to discharge the loans if it decided to exercise its remedies under the security documents;
- stop short of exercising its strict rights under the security documents unless every reasonable opportunity had been given to the applicants to discharge the debts;
- not exercise its strict rights under the security documents until such time as final development approval was received and a reasonable opportunity had to sell the land.
Findings as to the alleged course of dealing
- The applicants have not made out any case that MFS adopted a practice of lending money for shorter periods than necessary to complete developments. The evidence indicated that loans were made for the terms sought by the loan applications.
- Nor do I accept the proposition that MFS represented by a course of conduct that it would not insist upon strict compliance with the terms of the loans or that it would stop short of exercising its strict rights under the security documents, unless every reasonable opportunity had been given to the applicants to discharge the loans. Indeed, the findings I have made in respect of the June and October 2004 representations are to the contrary. So is MFS’ conduct in exercising its power of sale over Montague Road and the Ferry Road properties.
- Indeed, there is abundant documentary evidence showing that MFS repeatedly reserved its rights under its securities apart from the documentation already referred to and that the applicants could not have laboured under any misapprehension in that regard. This includes:
- the file note of conversation of 20 October 2004 between Mr Bender and Ms Perovich;
- the email of 20 October 2004 from Mr Bender to Ms Perovich;
- the email of 2 November 2004 from Mr Bender to Ms Perovich;
- the email of 9 November 2004 from Mr Bender to Ms Perovich;
- the email of 10 November 2004 from Mr Bender to Ms Perovich;
- the email 13 December 2004 from Mr Bender to Ms Perovich and Mr Spencer;
- the letter of 31 December 2004 from Nyst Lawyers to MFS;
- the letter of 12 January 2005 from MFS to Nyst Lawyers;
- the letter of 18 January 2005 from MFS to Nyst Lawyers;
- the letter of 3 February 2005 from MFS to Nyst Lawyers.
- I find that there was no course of dealing so as to give rise to the representations alleged by the applicants.
The estoppel case
- I do not consider that the applicants have made out a case of estoppel. As already stated, I do not accept that representations were made by MFS as claimed by the applicants. That is sufficient to dispose of the case based on estoppel, but for completeness, I add that I also do not accept that the applicants acted under the assumptions pleaded, or that MFS induced the applicants to adopt such assumptions.
- It was contended by the applicants that, had MFS told them at an earlier time that it intended to take a strict approach to the enforcement of its security, the applicants would have made arrangements in respect of refinancing or taken further steps to obtain refinance. However, I do not accept that the applicants acted to their detriment by failing to pursue refinancing more vigorously than they might otherwise have done and that they lost any opportunity to refinance.
- Mr Spencer asserted that the applicants would have sought finance from other sources and that, in reliance on MFS’ conduct, he “made no special efforts to secure alternative finance and discharge the indebtedness to MFS”. Had he been given “appropriate notice”, he claimed he would have done so. I cannot accept Mr Spencer’s evidence as truthful.
- Indeed, Mr Spencer’s assertion is contradicted by the documentary evidence, which reveals that extensive and determined efforts to refinance were pursued by the applicants and that those efforts were ongoing, as is apparent from:
- the letter of 27 September 2004 from Neo to MFS – “the [Montague Road] loan will be taken out by the CBA”;
- the emails of 7 October 2004 and 11 October 2004 from Ms Perovich to Ms Howard of MFS – “we have a term sheet from the CBA”;
- the letter of 21 December letter 2004 from MFS to Nyst Lawyers;
- the letter of 31 December 2004 to MFS – “our client is presently in the process of seeking to refinance the [Montague Road] property (and others) with third parties. It was envisaged that offers may have been received prior to Christmas, yet this did not eventuate. Our client now believes it will be in a position to relay further information regarding refinancing by early January 2005 … Our client sees refinancing … by a third party as the most efficient and effective means of finalising its relationship with MFS.”;
- the letter of 17 January 2005 from the applicants’ then solicitors Nyst Lawyers to MFS – “our client is in the process of refinancing [Montague Road] and anticipates receiving an indicative offer by the middle of this week”;
- the letter of 1 February 2005 from Nyst Lawyers to MFS – “our client is in the process of seeking to refinance [Montague Road] with an indicative letter of offer having been received”;
- the letter of 8 March 2005 from Nicol Robinson Halletts to MFS – “our client has made a preliminary approach to Banksia Finance” [re Montague Road];
- the letter of 11 April 2005 from Nicol Robinson Halletts to MFS – “We are instructed that our client has been actively pursuing refinance of the Montague Road project as part of a portfolio including the Annie Street project … through Barclay Chatsworth Finance Pty Ltd.”;
- the letter of 11 April 2005 from Mr Spencer to the applicant’s solicitor Mr Townley – outlining efforts to refinance with Banksia, Barclay Chatsworth Finance, Abacus Financa and Montague Devereux;
- the email of 21 April 2005 between Mr Bender and Mr Townley.
- Mr Spencer’s evidence is also contradicted by the evidence of Ms Perovich:
“Q.Do you say that these negotiations you were having with MFS led you to make less effort to refinance than you might otherwise have taken?
A.No, that’s not true. The efforts that we made were substantial and continued, but there was always the backdrop of when the DA the risk of the DA …”
- It seems that a major reason for the applicants’ difficulty in pursuing refinance for the Montague Road site concerned difficulties with the development approval. However, the applicants’ efforts in pursuing refinance continued even after the development approval was obtained as evidenced by the offers for refinance made as recently as 20 July 2005 as evidenced by exhibits 10 and 11.
- A further difficulty with the estoppel case is that I do not accept that it has been shown that MFS stood by knowing or intending that the applicants not pursue refinancing as vigorously as possible as a result of its conduct. On the contrary, Mr Spencer’s evidence was that he wanted MFS to believe that: “We were attempting to get finance against a difficult situation with the property that was looking like being resumed by the local authority. We were just doing our best and looking at the situation overall.”
- The applicants have failed in every aspect of the estoppel claim.
- The applicants have pleaded a case in contract at paragraphs 18, 18A and 36B of the Further Amended Statement of Claim. The conversations said to give rise to the contracts are those relied upon in respect of the estoppel case; that is, those alleged to have occurred in February 2004, June 2004 and October 2004. The case based in contract must fail given the findings made above. I also accept the respondents’ submissions that, save for the alleged June 2004 agreement, there is no consideration to support any contract.
- The claim alleging misleading and deceptive conduct also rests on the allegations made in respect of the estoppel case and also fails. A case based on unconscionability was not pressed, and, on the evidence I accept, would not have been made out.
The conflict of interest allegations
- The conflict of interest allegations arise against the background of proceedings No 9052 of 2004 commenced by the applicants on 15 October 2004 (“the 3 Point Finance Proceedings”). They concerned a loan agreement entered into between the applicants as borrowers and 3 Point Finance Pty Ltd (“3 Point Finance”) as lender and which provided that the loan be repaid on 20 September 2004. The loan was secured by mortgage debentures provided by the applicants. On 27 September 2004, pursuant to the mortgage debentures, 3 Point Finance, appointed Mr McIntosh and Mr Park as receivers. Their appointment was later terminated. The basis for the appointment of Mr McIntosh and Mr Park (“the former receivers”) was the default in the payment of the loan on 20 September 2004.
- The applicants in the 3 Point Finance Proceedings, which are brought, inter alia, against 3 Point Finance and the former receivers, challenge the validity of the appointment of the former receivers and seek damages against one of them for their involvement in alleged breaches of the Trade Practices Act 1974 by others. I note that in the 3 Point Finance Proceedings a claim for damages is only made against one of the former receivers, although it was said that the pleading is to be amended to claim substantial damages against both the former receivers.
- On 28 October 2004, it was ordered that 3 Point Finance be restrained from enforcing its rights under the debentures until trial or earlier order.
- The appointment of the current receivers and managers on 8 June 2005 as receivers and managers of the assets and undertakings of the applicants, expressly excludes any chose in action that the applicants may have against 3 Point Finance and the former receivers.
- The applicants submitted that their complaints relating to the conflict of interest argument went to the validity of the appointment, and thus sought relief under s 418A of the Corporations Act 2001. Alternatively, the applicants seek an order restraining the receivers and managers from exercising their powers, as an exercise of the inherent jurisdiction of the court. As mentioned, the applicants allege that by reason of the relationship of the current receivers as partners in the firm KordaMentha, they have a conflict of interest in carrying out their duties as receivers, whilst proceedings against the former receivers remain on foot.
- The respondents countered that the applicants’ contentions were premised on the principles relating to the appointment of a liquidator, as opposed to a receiver and manager (see Advance Housing Pty Ltd (in liquidation) v Newcastle Classic Developments Pty Ltd as trustee for the Albans Unit Trust (1994) 14 ACSR 230). The function of a liquidator and a receiver appointed out of court, it was submitted, differed in that a liquidator must collect all the assets of the company, whereas the receiver is appointed over specific assets to recover the mortgage debt, and has no general responsibility for the affairs of the company. Furthermore, it was pointed out that while the liquidator displaces the directors, and assumes control of the company, the receiver does not displace the director’s control of the company, but only takes control of particular assets. The respondents thus submitted that there was no basis for the applicants’ contentions, because the receivers in the present case owed no fiduciary duty to the company, so that there was no significance in any conflict between any duty to the company and any interest of the receivers.
- In accordance with the general practice, the charges provided by Neo and Holdings stipulated that the receiver is to be the agent of the company. Such an agency has been described as perhaps the only genuinely non-fiduciary agency (see State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587 at ).
- However, the respondents acknowledged that there are a number of duties which a receiver clearly does owe. A receiver is under a duty to the mortgagee to collect and realise the assets of the company for the purpose of discharging the security, is under a duty to hold in trust for the mortgagor any proceeds from the sale of the company's assets after the satisfaction of the claims of the mortgagee and subsequent creditors and is under a duty, as the donee of a power, to exercise the powers and duties granted in good faith and for a proper purpose (State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587 at 626; Downsview Nominees Ltd v First city Corp Ltd  AC 295 at 312; Meagher Gummow & Lehane’s Equity Doctrines & Remedies 4th ed [28-255]).
- In submissions at the conclusion of the trial, counsel for the applicants conceded that the receivers did not owe any fiduciary obligation to the company and moved away from an objection to the appointment as one giving rise to a conflict of duty and interest. Rather, counsel seized on the receivers’ duty to act in good faith and to use their powers for the sole purpose of securing repayments of the moneys owing to the debenture holder. Counsel thus framed the objection to the appointment of the current receivers primarily on the basis that their appointment raised an unacceptable risk of or the “potential” for a breach of the obligation of good faith.
- In support of those submissions, it was said that the current receivers, as partners of the former receivers, would be liable for any damages that might be awarded against them in the 3 Point Finance Proceedings. Accordingly, it is said that the current receivers have been appointed in circumstances where it would be in their interests if the applicants were unsuccessful in their action against the former receivers. The applicants raised the concern that in the course of the receivership, the current receivers may come across documents, including confidential documents, in relation to the 3 Point Finance Proceedings which would cause them embarrassment because of their potential liability for any damages awarded against the former receivers. It was submitted that the concern was not confined to confidential documents, because it was said that the receivers would have access to wide ranging documents that went beyond that which would ordinarily be disclosed in the 3 Point Finance Proceedings and that the former receivers, through their partners, the current receivers, might thus gain a “forensic advantage”.
- The respondents submitted that steps had been taken to address any perception of unfairness. They pointed to the fact that the receivers have not been appointed to the chose in action the subject of the 3 Point Proceedings and that they are therefore not in a position where they are obliged or able to take any action in relation to those proceedings. The respondents also pointed out that it was not suggested to the third respondent, Mr Hutson, who gave evidence on behalf of the respondents, that he would in fact communicate any information concerning the 3 Point Finance Proceedings to the former receivers or their representatives. Significantly, the respondents also pointed to the substantial undertakings that the current receivers are prepared to give to the court to address any possible perception of unfairness. Those undertakings are as follows:
- The receivers consent to the solicitor for the applicants examining the books and records of the applicants prior to the receivers taking possession thereof and removing those documents (excluding financial records) that relate to Supreme Court proceedings 9052 of 2004, upon the undertaking of the solicitor for the applicants:
- to produce those documents to an independent solicitor to confirm that such documents relate to Supreme Court proceedings 9052 of 2004; and
- to deliver to the receivers any documents which that independent solicitor does not confirm to be a document which relates to Supreme Court proceedings 9052 of 2004.
- the receivers and their agents and employees will provide any documents that they locate that relate to the action to the solicitors for the applicants;
- the receivers will not disclose to the former receivers or their legal advisers any information that they may obtain that relates to the applicants; and
- the receivers will not discuss with the former receivers and their legal advisors the conduct of the receivership of the applicants.
- Mr Hutson identified advantages in the receivers remaining as receivers and managers and the detriment that would be suffered by their removal.
- It was submitted by the respondents that Mr Spencer offered no “coherent evidence” as to the inability of the receivers to perform their role in good faith and for a proper purpose. The respondents referred to Mr Spencer’s evidence that he did not want to have anything to do with the current receivers, because they are partners of Mr Park, whose conduct and character he doubts. Mr Spencer also said that he was not comfortable accepting the undertaking of the receivers, even if such undertaking included an undertaking not to disclose to the former receivers and their legal advisors, any information that they may obtain that relates to the applicants, and not just the 3 Point Finance Proceedings.
While the current receivers are potentially liable in respect of any judgment given against the former receivers, their appointment expressly excludes the chose in action the subject of the 3 Point Finance Proceedings and they are not in a position where they are able to take any action in relation to those proceedings.
I do not consider that there are any grounds for the removal of the current receivers or for restraining them from acting on the basis of any alleged conflict of duty and interest. Nor is there any ground for doing so based on the allegations going to the issue of the duty of good faith. There is no suggestion of any actual breach of that duty. Given the fulsome undertakings offered, it is difficult to see that there is any unacceptable risk of a breach of the duty of good faith. I accept the respondents’ submissions that there is no reason to doubt the undertakings offered on behalf of the receivers and that they adequately address any issues of unfairness.
I consider that the receivers and managers were validly appointed and that there is no basis for their removal or for restraining them from acting.
- The applicants’ claim is dismissed. I make an order declaring that the receivers and managers were validly appointed by Perpetual on 8 June 2005 and that, subject to the undertakings given to the court, they are entitled to exercise the powers conferred on them by virtue of the deeds of appointment dated 7 June 2005.
- I shall hear submissions as to the formal orders that ought to be made and as to costs.
- Published Case Name:
Neo Lido Pty Ltd & Anor v Perpetual Nominees Limited & Ors
- Shortened Case Name:
Neo Lido Pty Ltd v Perpetual Nominees Limited
 QSC 226
24 Aug 2005
No Litigation History