FEDERAL COURT OF AUSTRALIA Glenariff Holdings Pty Ltd v Tah Land Pty Ltd [2005] FCA 132 EQUITY- interlocutory injunction – mortgagee in possession – injunction to restrain exercise of power – whether serious questions to be tried as to whether power exercisable – whether balance of convenience favours orders – whether orders proposed to be moulded sufficiently protect mortgagee's interest Trade Practices Act 1974 (Cth) s 51AC Allfox Building Pty Ltd v Bank of Melbourne Ltd (1992) NSW ConvR 55-634 cited Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 cited Australian Competition and Consumer Commission v 4WD Systems Pty Ltd (2003) 200 ALR 491 cited Australian Competition and Consumer Commission v Lux Pty Ltd [2004] FCA 926 cited Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 cited Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 cited Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR cited Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 cited Darter Pty Ltd v Malloy [1993] 2 Qd R 615 cited Foran v Wight (1989) 168 CLR 385 cited Harvey v McWatters (1948) 49 SR (NSW) 173 cited Hurley v McDonald's Australia Ltd (2000) ATPR 41-741 cited ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 cited Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 cited Macedonian Society of Western Australia (Inc) v St George Bank Ltd [2003] WASC 17 cited GLENARIFF HOLDINGS PTY LTD v TAH LAND PTY LTD WAD 32 of 2005 RD NICHOLSON J 23 FEBRUARY 2005 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 32 OF 2005 BETWEEN: GLENARIFF HOLDINGS PTY LTD ACN 108 129 362 APPLICANT AND: TAH LAND PTY LTD ACN 053 420 063 RESPONDENT JUDGE: RD NICHOLSON J DATE OF ORDER: 23 FEBRUARY 2005 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The applicant's application for interlocutory relief be refused. 2. The applicant pay the respondent's costs of the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 32 OF 2005 BETWEEN: GLENARIFF HOLDINGS PTY LTD ACN 108 129 362 APPLICANT AND: TAH LAND PTY LTD ACN 053 420 063 RESPONDENT JUDGE: RD NICHOLSON J DATE: 23 FEBRUARY 2005 PLACE: PERTH REASONS FOR JUDGMENT 1 The applicant seeks an interlocutory injunction restraining the respondent from taking any steps as mortgagee in possession to enforce any of the securities granted by the applicant to the respondent. It further seeks an injunction requiring the respondent to allow the applicant access to the land and property of which it is in possession. 2 The applicant does not offer to pay into court the amount demanded by the respondent as mortgagee in possession: Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 164 per Walsh J. The applicant contends it is not necessary for it to do so because this is a case where the terms as to payment may be moulded so as to require payment of so much only as will suffice to give adequate protection to the mortgagee: Harvey v McWatters (1948) 49 SR (NSW) 173; considered in Macedonian Society of Western Australia (Inc) v St George Bank Ltd [2003] WASC 17 in which Allfox Building Pty Ltd v Bank of Melbourne Ltd [1992] NSW ConvR 55-634 is also referred to. 3 The applicant, in accepting that is appropriate for orders for payment to be so moulded, proposes the following. First, within 7 days the applicant will repay outstanding interest due under the securities. Second, any orders granted by way of interlocutory injunction are to be in place only until 31 March 2005 based on the understanding that by that date the applicant will have been refinanced by a reputable institution. Third, by that date and upon such refinancing, the applicant is to pay to the respondent: * all amounts due in payment of default interest on outstanding instalments * $9369.83 in payment of legal costs relating to the default * $4187.14 for costs of the mortgagee and will continue to pay interest by way of monthly instalments. 4 The applicant's case is supported by an affidavit of Mr Taggart, one of its directors. The respondent's case is supported by an affidavit of Mr Tan, one of its directors. background circumstances 5 The applicant's submissions describe the relevant circumstances as follows. The applicant is a property developer. It is in the process of developing a large (over 450 lots) residential subdivision. It claims to have raised $36 million, subject to one outstanding condition likely to be met in March. 6 The applicant's evidence in the affidavit of Mr Taggart is as follows. On 10 January 2005, Suncorp-Metway Ltd made an offer of a development finance facility to the applicant on certain terms and conditions. The total facility limited is to the sum of $30 596 500. The outline development plan has reached the stage of having been approved by all authorities other than the Environment Protection Authority ('EPA') and the Minister for the Environment. Conditional approval has been obtained by the EPA subject to the appeals process being finalised. It is expected that a recommendation will be made to the Minister by 25 February 2005. The applicant is confident that the outline development plan, which was designed in accordance with EPA's recommendations, will be approved as a plan. However, the Court may take judicial notice of the fact that a State election has been called in Western Australia for Saturday, 26 February 2005, so that it may be inferred that there is some uncertainty as to who the Minister will be in the near future and that either a change of Government or the reestablishment of the present Government has the possibility of delaying the decision-making. 7 Prior to these arrangements being put in place, the applicant required interim finance. That was agreed to be provided by the respondent, negotiating through its agents, Mr Salpietro and Ms Ying. The applicant required the funds urgently, to the respondent's knowledge. 8 The applicant maintains that at the same time the respondent sought to obtain a large equity interest in the applicant. Its evidence is that when the applicant rejected that proposal, the respondent sought to avoid the loan by obfuscation and that the applicant was forced to demand a time for settlement and to bring about settlement. Further it says that the respondent continues to seek an equity investment. The applicant's evidence is that the respondent's conduct towards it continued in the same way even after the loan was advanced. 9 In particular, the applicant's evidence is that the respondent would not provide a payout figure or permit repayment. It contends that the inference from the respondent's conduct is that the respondent is seeking to use the loan facility and security documents for a collateral purpose and therefore to use them unconscionably. 10 The loan advanced by the respondent was secured by a loan agreement dated 15 September 2004. This was supported by a deed of charge and a mortgage bearing the same date. 11 In the loan agreement repayment was provided for in the following terms: '3. PAYMENT (a) Subject to clause 4, the Borrower must pay to the Lender: (i) the Interest in advance by equal monthly instalments in the amount set out in Item 3(b) on each of the dates set out in Item 3(c); (ii) the Loan Amount on the Loan Repayment Date; and (iii) the balance of the Repayment Amount on the Loan Repayment Date (as calculated on the Loan Repayment Date). (b) The Borrower must make all payments required under this Deed and the Transaction Documents either by bank cheque, by direct debit or by electronic funds transfer to the Lender's nominated bank account as the Lender may in its absolute discretion required from time to time without set-off, counterclaim, withholding or deduction.' 12 Clause 4 provided for early repayment in the following terms: '4. EARLY REPAYMENT (a) If the Borrower complies with all its obligations pursuant to the Transaction Documents and, in particular, is complying with its obligations pursuant to clause 3(a)(i) as regards the payment of Interest, the Borrower may give a notice in writing to the Lender electing to repay the Loan Amount before the Loan Repayment Date ("Early Repayment Notice"). (b) An Early Repayment Notice is given by the Borrower in accordance with clause 4(a) must nominate a date for repayment of the Loan Amount that is before the Loan Repayment Dated ("Early Repayment Date"). (c) On or before the Early Repayment Date, the Borrower must pay to the Lender: (i) the Interest (less all amounts paid to the Lender before the Early Repayment Date on account of Interest); (ii) the Loan Amount; and (iii) the balance of the Repayment Amount (as calculated on the Early Repayment Date).' 13 The respondent's submissions outline the relevant circumstances in the following terms: (a) Mr Raymond Tan was approached by Mr Sam Salpietro and Ms Faye Ying in August 2004, with an inquiry for urgent finance that was required by the applicant. (b) On 20 August 2004 Ms Ying was provided with an outline of the development proposal. This was also provided to Mr Tan. (c) This proposal sought finance for the purchase of three properties at 100% of valuation with a 'return on investment' of 25% per annum. (d) On 27 August 2004 Raymond Tan responded stating that the commercial terms set out in the proposal of the applicant of 20 August 2004 were acceptable save that the sum of $642 500 (being the return on the investment) was to be payable if the loan was repaid early. (e) On 31 August 2004 the commercial terms of the loan, including the interest rate, and the early repayment provision, were set out and executed by the parties. (f) The transaction was completed following threats of litigation on behalf of the applicant. (g) The applicant defaulted in meeting its payment obligations in October, November and December 2004, as well as January and February 2005. (h) Raymond Tan was approached by Mr Salpietro and then Ms Ying in mid and late January 2005 respectively, asking if Tah Land wanted to take an equity position. It did not. Mr Tan told Ms Ying that Tah Land was appointing agents to act for Tah Land as mortgagee in possession. (i) On 11 February 2005 Tah Land, as mortgagee in possession, appointed Mr Martin Jones as its agent. 14 Other background circumstances are referred to in the course of reasons which follow. serious issue to be tried 15 It is not in dispute that for an interlocutory injunction to issue there must be a serious question to be tried, the balance of convenience must favour the grant of such an injunction and damages be an inadequate remedy: Australian Broadcasting Corporation v Lenah Games Meats Pty Ltd (2001) 208 CLR 199 at 218, at [13] per Gleeson CJ; Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618per Gleeson CJ citing Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153. Turning firstly to whether there are serious questions to be tried, two matters are contended for by the applicant. Contractual dispute concerning refusal to provide a payout figure 16 The applicant contends that the first serious question to be tried is whether the respondent breached cl 4 of the loan agreement by refusing to provide a payout figure. This submission is made in the context of a letter written by the solicitors for the applicant to the solicitors for the respondent on 22 November 2004 reading as follows: 'We refer to your facsimile of 18 November 2004 to our client which was copied to us. Our client will pay the interest for the period 15 November 2004 to 14 December 2004 today. However, our client has, subject to one final condition which will be satisfied this week, entered into a comprehensive refinance with Rothschilds. Our client intends to pay out the loan from your client to our client. Our client expects to do so on or about 10 December 2004 (depending on precisely when mortgage documents are finalised by Rothschilds' solicitors). The loan agreement between your client and our client provides, in the event of early repayment, for interest for the whole term to be payable. Obviously that provision is an unenforceable penalty. It is not remotely arguable that the acceleration clause is a genuine pre-estimate of the loss suffered by your client on early repayment. Our client proposes to pay interest through to 14 December 2004: ie until after the loan has been repaid. Our client does not have any liability for any further interest. We request that you provide to us a payout figure for the loan as at 10 December 2004. We anticipate being able to inform you of the exact repayment date either late this week or early the next week.' 17 The applicant contends that this letter complied with cl 4 of the loan agreement. 18 A response was given by the solicitors for the respondent in a letter dated 29 November 2004 in which they alleged that given that the letter of 22 November 2004 advised that refinancing was subject to compliance with the final condition, that letter was not an early repayment notice as required by cl 4. 19 It is apparent that, if cl 4 had application in the circumstances there would be a serious question to be tried as to whether the letter of 22 November 2004 constituted a notice in writing electing to repay the Loan Amount. In particular the requirements of cl 4(b) would require consideration. 20 The applicant contends that while in breach of its obligations, the respondent dispensed with performance by the applicant: Foran v Wight (1989) 168 CLR 385 at 396, 417 and 456; ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640, at 665-666 and Darter Pty Ltd v Malloy [1993] 2 Qd R 615 at 621. It contends that having dispensed with performance, the respondent cannot now require the applicant to show that it would have been ready, willing and able to perform: Foran at 396 per Mason CJ, at 417 per Brennan J; ICT at 666 per Clarke, Handley and Sheller JJA. In any case, there is evidence that the applicant could have paid out the loan in December 2004. 21 There is no stated obligation on the respondent arising from cl 4 to provide advice of a payout amount. The amount due is that required in accordance with cl 4(c). The interest provided for in cl 4(c)(i) would have been calculable by the applicant. The loan amount provided for in cl 4(c)(ii) is that provided in Sch 1 to the Loan Agreement, namely, $2.7 million. The balance of the Repayment Amount referred to in cl 4(c)(iii) requires reference to the definition of 'repayment amount' in cl 1.1 of the Loan Agreement. The applicant submits that at least in respect of legal costs incurred in accordance with cl 10.2 of the Loan Agreement these would not be known to the applicant save on advice from the respondent. 22 The respondent says, in any event, that cl 4 simply is not in issue because when the letter of 22 November 2004 was written the applicant was not then in compliance with its obligations pursuant to the Transaction Deed documents as required by cl 4(a) of the Loan Agreement. This was because, as the letter of 22 November 2004 states, the applicant had not paid interest at that date for the period of 15 November to 14 December 2004. This submission, however, is answered by the evidence of Mr Tan that after service of a notice of default, that instalment was paid by a cheque dated 22 November 2004. 23 The respondent also contended that as at 22 November 2004 the applicant was committing an anticipatory breach when it claimed that the provision for payment of interest was an unenforceable penalty. At the hearing on the application for the interlocutory injunction the applicant expressly abandoned that position. I do not regard this as open to argument in establishing that the applicant was non-compliant with its obligations when sending the letter of 22 November 2004. 24 The result is that I do not think that the respondent's contentions establish that it is arguable that the effect of cl 4 is not a serious question to be tried. However, there are two obvious areas of difficulty facing the applicant in relation to that issue. The first is whether the letter of 22 November 2004 was an election having the consequences of invoking cl 4. The second is whether the respondent was in fact under any obligations to provide a payment figure. As the strength of the serious question is to be tried is a matter which may be taken into account on the balance of convenience, I record that I do not consider that, in the light of these two particular features facing the applicant, that the applicant's contentions in relation to the contractual issue can be regarded as strong. UNCONSCIONABLE conduct by respondent 25 The second serious question to be tried, which the applicant contends supports the grant of interlocutory relief, is that the respondent's conduct constituted a contravention of s 51AC of the Trade Practices Act 1974 (Cth). It is not in dispute that s 51AC is not limited to traditional equitable or common law notions of unconscionability: Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 at [31]; Australian Competition and Consumer Commission v Lux Pty Ltd [2004] FCA 926 at [98]; Australian Competition and Consumer Commission v 4WD Systems Pty Ltd (2003) 200 ALR 491 at 543, at [183]. Section 51AC requires conduct which is 'clearly unfair or unreasonable': Hurley v McDonald's Australia Ltd (2000) ATPR 41-741 at [22]; or conduct 'showing no regard for conscience, irreconcilable with what is right or reasonable': Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at [44]. See also 4WD Systems at 544, at [185] and Lux at [98]. 26 The conduct on which the applicant particularly relies is the respondent's conduct in what is said to be its refusal to provide a payout figure. That, of course, requires that the first serious issue is able to be made out. Additionally the applicant contends the respondent misused its advantage from the moment it promised to make a loan to the applicant. The applicant contends that it is only vulnerable due to the respondent's earlier conduct in preventing the loan from being repaid. The evidence for the respondent disputes this interpretation of the circumstances. 27 The applicant relies on the evidence which it says is available concerning the respondent's conduct to also support the claim for tort of duress. 28 The respondent simply denies either the occurrences relied on or the interpretation placed on them by the applicant. 29 It is clear, therefore, that there are factual circumstances which would give rise to considerable evidentiary conflict. The issue may be arguable but it is clearly not strongly arguable. balance of convenience 30 It follows that I do not regard either of the issues relied upon by the applicant as giving rise to an issue of such strength that it should be weighed in the balance of convenience. 31 The applicant submits that the balance of convenience lies in its favour. It says the facts show it is in a position to bring the payments up to date and has obtained substantial finance. Additionally, there is evidence of increase in the value of the land in issue so that there is no risk to the respondent. However, on the other hand there is a significant risk to the applicant if the three lots were sold by the respondent in exercise of its powers as mortgagee in possession. In short, the applicant says that its profitable development would be put at risk if the respondent were able to exercise its powers. Damages could run into very considerable sums which would be beyond the respondent to meet. Further, the persons who have already purchased lots, numbering 36, could be affected, although it is not said why this would necessarily occur. 32 I have no doubt that the proposition put before the Court by the applicant may constitute a sensible commercial resolution in the circumstances if the respondent were minded to accept it. However, the function of the Court in granting interlocutory relief is to decide in accordance with the established test and to look to the issue of legal rights applied in accordance with that test. 33 I am not satisfied that the balance of convenience favours the applicant. The orders which the applicant proposes and which are said to be moulded to the circumstances do not provide to the respondent adequate security. That is because those orders are entirely dependent upon the finalisation of finance to the applicant and the clearance of the outstanding condition which is a precondition to the financing. If it were the case that, whether as a consequence of the occurrence of the State election or for other reasons, the final Ministerial approval was not obtained by 31 March 2005 or the finance was not advanced by that date, the applicant would not be in a position to meet the obligations to the respondent which the orders would require. The result would be that the respondent would have been kept out of its rights up until that date and the Court would in fact impose on the respondent a commercial risk arising from the fact that the applicant is dependent upon the obtaining of the finance to satisfy the orders. Orders moulded as the applicant proposes, in my view, do not suffice to give adequate protection to the respondent as mortgagee in possession. They provide only for the immediate payment of outstanding interest. In respect of the balance, it is the respondent which remains at risk. 34 Accordingly, I am of the view that the application for interlocutory relief should be refused. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson. Associate: Dated: 24 February 2005 Counsel for the Applicant: JC Giles Solicitor for the Applicant: Solomon Brothers Counsel for the Respondent: J Gilmour QC and G Flynn Solicitor for the Respondent: Hotchkin Hanly Date of Hearing: 22 February 2005 Date of Judgment: 23 February 2005