FEDERAL COURT OF AUSTRALIA Refund Property Fees Pty Ltd v Prime Project Development (Cairns) Pty Ltd [2011] FCA 851 Citation: Refund Property Fees Pty Ltd v Prime Project Development (Cairns) Pty Ltd [2011] FCA 851 Parties: REFUND PROPERTY FEES PTY LTD ACN 145 709 360 v PRIME PROJECT DEVELOPMENT (CAIRNS) PTY LTD ACN 109 685 332, PROMOSEVEN PTY LTD ACN 102 606 324 File number: QUD 172 of 2011 Judge: LOGAN J Date of judgment: 21 July 2011 Catchwords: PRACTICE AND PROCEDURE – interim receiver – whether to appoint an interim receiver of a secured loan under s 57 of the Federal Court of Australia Act 1976 (Cth) – where first respondent had purportedly assigned the loan to the applicant – where substantive proceeding claimed relief under the Trade Practices Act 1974 (Cth) and the Property Law Act 1974 (Qld) – where receiver would have powers to release security – where receiver would receive monies under loan and pay unsecured creditors instead of secured creditors – where security was effectively held separately – misunderstanding as to the nature of a receiver – necessary party not joined – receiver not appointed – applicant to file and serve statement of claim Legislation: Federal Court of Australia Act (Cth) s 57 Federal Magistrates Act 1999 (Cth) s 114 Judiciary Act 1903 (Cth) s 79 Trade Practices Act 1974 (Cth) ss 52, 87 Australian Consumer Law ss 18, 237 Property Law Act 1974 (Qld) ss 37, 38, 42 Textbook: Frisby S and Davis-White M, Kerr and Hunter on Receivers and Administrators (19th ed, Sweet & Maxwell, 2010) p 190 Date of hearing: 21 July 2011 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 39 Counsel for the Applicant: Mr R O'Hair Solicitor for the Applicant: Hemming & Hart Counsel for the Second Respondent: Mr P Freeburn SC with Ms J Payne Solicitor for the Second Respondent: Courtice Neilsen Lawyers IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 172 of 2011 BETWEEN: REFUND PROPERTY FEES PTY LTD ACN 145 709 360 Applicant AND: PRIME PROJECT DEVELOPMENT (CAIRNS) PTY LTD ACN 109 685 332 First Respondent PROMOSEVEN PTY LTD ACN 102 606 324 Second Respondent JUDGE: LOGAN J DATE OF ORDER: 21 JULY 2011 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application for the appointment of a receiver is dismissed with costs. 2. Leave is granted for the joining of Bluechip Development Corporation (Cairns) Pty Ltd (ACN 117 021 566) as a respondent party. 3. The applicant is to file and serve a statement of claim not later than Thursday 11 August 2011. 4. The second and third respondents are to file and serve a defence not later than Thursday 1 September 2011. 5. The applicant is to file and serve such reply, if any, as it may be advised not later than Thursday 8 September 2011. 6. The matter is adjourned for directions at 9.30am on Friday 9 September 2011. 7. Liberty to apply. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 172 of 2011 BETWEEN: REFUND PROPERTY FEES PTY LTD ACN 145 709 360 Applicant AND: PRIME PROJECT DEVELOPMENT (CAIRNS) PTY LTD ACN 109 685 332 First Respondent PROMOSEVEN PTY LTD ACN 102 606 324 Second Respondent JUDGE: LOGAN J DATE: 21 JULY 2011 PLACE: BRISBANE REASONS FOR JUDGMENT 1 Earlier this month, Refund Property Fees Pty Ltd (Refund) instituted proceedings in the Federal Magistrates Court against Prime Project Development (Cairns) Pty Ltd (Prime) and Promoseven Pty Ltd (Promoseven) as respectively first and second respondents. For reasons which need not be detailed, the Federal Magistrates Court transferred the proceedings to this Court thereafter. 2 In the proceedings, Refund seeks the following by way of final relief: 1. Compensation for losses and/or likely losses occasioned by a breach of s 52 of what was formally termed the Trade Practices Act (1974) (Trade Practices Act) or a breach of s 18 of what is now termed the Australian Consumer Law by Promoseven, pursuant to s 87 of the Trade Practices Act and/or the breach of s 237 of the Australian Consumer Law for inducing Refund to take an assignment of the undivided share of Queensland Registered Mortgage number 712190107 from Prime. 2. The vesting of that mortgage on statutory trust for partition, as provided by s 37B and s 38 of the Property Law Act 1974 (Qld) (Property Law Act). 3. The appointment of a licensed company liquidator named in an accompanying affidavit as the statutory trustee of the statutory trust for partition and for the fixing of the statutory trustee's remuneration. 4. The making of inquiries and the taking of accounts pursuant to s 42 of the Property Law Act, in order to ascertain the amount due to each of the mortgagees, namely Prime as the legal owner of the undivided moiety in that mortgage sold by Prime to Refund, and Promoseven as the legal owner of the remainder of the above-mentioned mortgage. 5. Further or other relief and costs are also sought. 3 The language which I have employed in the description of the claim for relief is that of Refund and its advisors and is drawn from the application filed in the Federal Magistrates Court. 4 Today's proceedings are the result of a claim for interim relief, also made in the application made in the Federal Magistrates Court. No point was taken by any party as to the absence of a separate notice of motion in respect of interlocutory relief. Insofar as to the same may have been necessary, I dispense with the need for it. As set out in the application filed in the Federal Magistrates Court, the claim for interlocutory relief seeks: the appointment, pursuant to s 114 of the Federal Magistrates Act 1999 (Cth) or such other powers as the Court may have, of a receiver and/or a receiver with powers of management to the mortgage until such time as the partition is effected. [For the avoidance of doubt, this is not an application to appoint a receiver under the mortgage, and so the mortgagor is left in possession]. Ancillary interlocutory relief by way of the fixing of the receiver's remuneration is sought. Also sought is that the receiver have such powers as the court deems appropriate: Including but not limited to the giving of a good receipt for funds paid under or in connection with the mortgage, discharging the mortgage to facilitate transfers, as appropriate, exercising any of the powers of the mortgagees under or in connection with the mortgage, striking accounts as between the mortgagees and mortgagor, and applying to the court for directions. 5 The pleadings in the case have not yet been filed. 6 Insofar as the claim for interlocutory relief refers to s 114 of the Federal Magistrates Act 1999 (Cth) , that must be read now, as was apparent from the submissions made today, to a claim for relief pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth). 7 For present purposes, the background to the case emerges from an affidavit of a director of Refund, Mrs Alison Camille Knell (Mrs Knell), filed in the Federal Magistrates Court on 11 July 2011. From that, the following emerges. 8 Mrs Knell's husband is one Sidney Charles Knell. He is a director of a company, Bluechip Development Corporation (Cairns) Pty Ltd (Bluechip). The other director of Bluechip is a Mr Steven Victor Burt. Mr Burt is also a director of the second respondent, Promoseven. Mr Knell is also a director of the first respondent, Prime. I should record that Prime's position in the present proceeding is that of abiding the order of the Court, save as to costs. In other words, it has made a submitting appearance. 9 Prime and Promoseven are the only shareholders in Bluechip. Each holds 100 fully-paid, ordinary class shares. Bluechip was formed in November 2005 to undertake a development in Cairns in respect of property at the corner of McLeod and Aplin Streets. The development was to be known as "Cairns Central". The Cairns Central development was completed in or about May or June of 2009. It may be described as a registered community title scheme, comprising commercial and retail business premises and serviced apartments. In respect of that development, Promoseven and Prime entered into a joint venture agreement on 16 November 2005. Since the completion of the development of Cairns Central, and pursuant to the joint venture agreement, Prime has continued to sell the remaining lots in the community title scheme owned by Bluechip, and also manages the business of Bluechip in conjunction with Promoseven, again pursuant to the joint venture agreement. 10 In or about mid-April 2009, Prime and Promoseven respectively entered into loan agreements with Bluechip for the purpose, as Mrs Knell describes it, "to capture and formalise all loan funds by members to the borrower". The loan agreements, though entered into in mid-April, were dated 22 January 2009. The reason for this, as Mrs Knell gives it, was "to reflect their position in connection with the mortgage". The mortgage referred to is the mortgage described in the application, namely registered mortgage number 712190107. That mortgage was executed, on the evidence before me, on or about 23 January 2009. It will be necessary to refer in more detail both to the loan agreements and to the terms of the mortgage. 11 On 11 August 2010, Refund entered into an agreement with Prime termed a "mortgage sale agreement" (as Mrs Knell describes it). Pursuant to that agreement, Refund "purchased from Prime all of Prime's interests in the mortgage". That is not a strictly accurate description of the transaction, in the sense that the loan concerned is evidenced by the separate loan agreement, which is secured by the mortgage. Refund took an assignment of the debt as evidenced under the loan agreement, and as secured by the mortgage. 12 So far as can be gleaned from the statement of the nature of the claim in the application, and Mrs Knell's affidavit, a substantive cause of action in this Court arises in the following way. Prior to, and in contemplation of, Refund entering into the mortgage sale agreement, Mrs Knell took into consideration and presumably relied upon a conversation which she had with Mr Burt on or about 9 September 2009. She said, so she states in her affidavit, words to this effect to Mr Burt: I hope everything goes all right in court this is ridiculous. Akram and Sid are owed a lot of money and there is plenty of assets being sold to cover all debts [sic] To this, Mrs Knell states Mr Burt said to her words to the effect: Don't worry Alison, Sid and I have gone through all the companies financials everything is fine, our loan accounts are accurate and we have a second mortgage which protects us, don't worry the company is solvent and the court will agree. If you like, you can read my latest affidavit. [sic] Mr Burt then handed Mrs Knell a copy of an affidavit which he had sworn the same day, 9 September 2009, which she read in full. She states in her affidavit that she believed the contents of that affidavit to be true, and that she particularly took note of the balance sheet of Bluechip (annexure SB-1). She states that she did this because she wanted to know the financial position of Bluechip, as a winding up order for Bluechip would have had a personal detrimental flow on effect on herself and her family. 13 Mrs Knell's reference to the possibility of a winding-up order is a reference to the proceedings which, at that stage, were pending in the Supreme Court of the Australian Capital Territory for the winding up of Bluechip (SC 102 of 2009). That proceeding was brought by another company, PnP Realty Pty Ltd. Those winding-up proceedings have subsequently been dismissed. 14 So it is that Mrs Knell states in her affidavit that she relied upon Mr Burt's oral statements to her on 9 September 2009 and the contents of his affidavits for their truth. She states in her affidavit that those collectively induced Refund to enter into the mortgage purchase agreement. 15 Mrs Knell further states that, on 9 August 2010, she was told by her husband, Mr Knell, that Prime had not received any repayment on its loan account pursuant to the mortgage, as she puts it. She was also advised by Mr Knell that Prime had performed considerable further work pursuant to the joint venture agreement which entitled Prime to considerably more fees which had yet to be paid by Bluechip. She states her husband said to her on 9 August words to this effect: Prime has not received any money that is owed under the mortgage and we have not been paid for any of the other work that we have done which was over and above our duties under the Development Management Agreement. 16 Yet further, Mrs Knell states in her affidavit that she decided to enter into the mortgage sale agreement understanding that, at 9 September 2009, Prime was owed $3,710, 701.23, Promoseven was owed $9,305,615.40, and that the total amount owing, as she puts it, "under the mortgage" as at that date was $13,016,316.63. Her further understanding was that Bluechip had not made any repayments to Prime other than "a potential set-off of the management rights". She records in her affidavit, again as she puts it, "in fairness to Mr Burt", that he didn't suggest that: …the mortgage was a good investment but I did not want to be in dispute with him and his company. 17 A further representation is alleged by Mrs Knell. This is one which is said to have occurred on 1 September 2010. She states that on that date she had a conversation with Mr Burt at Bluechip's office. She states that she informed Mr Burt that Refund had purchased Prime's interest in the registered mortgage. She states that Mr Burt said words to this effect to her: That's nice for you, we don't know how much is owed to Prime, so how do you know what you should have paid? She states that she replied to this effect: You told me last year that Prime was owed 3.7 million, and you showed me your affidavit and the balance sheet. Nothing has been paid back, so the debt is at least 3.7 million. She also states that Mr Burt said to her words to the effect: 3.7 million? I don't know how much is owing to Prime. It definitely is not 3.7 million irrespective of what I told you last year. 18 The immediacy to the present application is lent by the pendency of settlement in respect of at least three contracts for the sale of lots in Cairns Central. It seems that Refund, as successor to whatever interests Prime has under the mortgage, is desirous of those sales occurring, whereas Promoseven has adopted a more conservative position and, at least for the present, is not disposed to provide the requisite release under the mortgage, which would permit settlement of the sale of the lots by Bluechip. 19 Obviously enough, the facts already recited by me are as they emerge on the material to hand. It goes without saying that I make no finding today as to whether or not those particular facts ought conclusively to be determined in the proceedings. 20 These concern two other court proceedings. One is in the Supreme Court of Queensland. The other is in the Supreme Court of the Australian Capital Territory. 21 There are further background facts to which reference must be made. 22 At present, an application for the winding up of Bluechip is the subject of a reserved judgment in the Supreme Court of Queensland. Judgment in that matter was reserved as recently as late last month. The basis for that winding up is apparently an alleged insolvency on the part of Bluechip and, further, that it is just and equitable, having regard to irreconcilable differences between its shareholders that the company be wound up. 23 The other proceeding is in the Supreme Court of the Australian Capital Territory. In its present form, it is an originating summons proceeding (SC 29 of 2010) as between Refund, as plaintiff, and Prime, Bluechip and Promoseven, as first, second and third defendants respectively. It is, in its present form, in the nature of a construction summons. By that I mean that the plaintiff seeks, as against the defendants, relief in respect of the construction of documents which are annexed to an affidavit. The questions posed in that proceeding are as follows: (a) On 11 August 2010, is the mortgage sale agreement correct in stating that the amount owing under the mortgage therein sold by Prime to Refund as $3,710,701.23? (b) If not, then what is the correct amount as at that date? (c) Is the amount ascertained pursuant to question (b), the amount owing on that day to Refund as a result of the abovementioned mortgage sale agreement? (d) If the answer to question (c) is in the affirmative, then does the right to those moneys give rise to a direct entitlement to those moneys without set-off or deduction from the enforcement of the mortgage the subject of the abovementioned mortgage sale agreement? (e) On 11 August 2010, is the total indebtedness of Bluechip under the mortgage the subject of the mortgage sale agreement $13,016,316.63? (This the total of the amount owing to Prime and Promoseven as at 7 September 2009 in the amounts of $3,710,701.23 and $9,305,615.40 respectively) (f) If not, then what is the correct amount as at that date? 24 It seems that there is a controversy in the Australian Capital Territory Supreme Court as to whether or not the proceeding by way of originating application is an apt way to proceed, if for no other reason that there are controversial issues of fact to resolve. 25 The loan agreements concerned each on their face evidence separate loans; one between Prime as financier and Bluechip, the other, which is in like terms, as between Promoseven as financier and Bluechip. Each of those financiers did not, as one might perhaps expect, were it their desire to have security for their loans, obtain a separate mortgage security. Rather, such security, if any, as is provided by Bluechip in respect of those loans is to be found in mortgage 712190107. That records Bluechip to be the mortgagor and the mortgagees to be Prime and Promoseven. 26 Item 5 in the panel on the first page of the mortgage, in its description of the debt or liability secured, describes that "the secured obligations" are defined in the attached schedule. The attached schedule contains a definitions clause in which the "secured obligations" are, materially, in clause 1.1(28)(a), described as: All obligations and money which the Mortgagor or any Surety (whether alone or note) is or at any time may become actually or contingently liable to perform or pay to or for the account of the Mortgagee for any reason whatever and in any capacity under or in connection with the Agreements … 27 Reference ought also to be made to some other clauses within the schedule to the mortgage. Clause 1.2(2) provides that: The singular includes the plural and the plural includes the singular. Clause 1.2(12) provides that: A group of persons includes any one or more of the group. Clause 1.4(1) provides that: If a party consists of more than one person, this mortgage binds each of them separately, and any two or more of them jointly. Clause 3.1 provides that: The Mortgagor must satisfy or pay the Secured Obligations to the Mortgagee, or as the Mortgagee directs, immediately on demand by the Mortgagee, unless otherwise agreed in writing by the Mortgagee in this Mortgage, the Agreements or any Collateral Security. Clause 21.1 provides that: If an Event of Default occurs, then the Mortgagee may – (29) appoint any person or two or more persons to be a manager or Receiver of the whole or any part of the Property or the rents and profits of the Property .. 28 It is necessary to observe that the mortgage is a second mortgage. There is apparently a first mortgage in respect of the property held by the Hong Kong and Shanghai Banking Corporation. 29 Insofar as the final relief claimed seeks relief pursuant to the powers conferred by the Property Law Act 1974, Refund points to the operation of s 79 of the Judiciary Act 1903 (Cth). It is not necessary for present purposes to resolve whether or not s 79 operates in the manner alleged. One reason why that is so, apart from the interlocutory nature of the proceedings, is that relief is also sought under what was formerly s 87 of the Trade Practices Act. That provision provides a very wide charter indeed for the granting of ancillary relief if a cause of action arising under the former s 52 of the Trade Practices Act is made out such that a compensation order by way of damages under s 82, as it was once known, would be ordered, or even as a stand-alone remedy. In other words, I am prepared to assume today that one way or another if there were a case in respect of misleading or deceptive conduct made out in respect of the mortgage, that in terms of providing final relief which would seek to place Refund, insofar as it were possible, in a position in which it would have found itself had it not been the subject of misleading or deceptive conduct as alleged, that relief of the kind sought in the application might be ordered. 30 That, though, does not provide an answer as to why it is that a receiver ought to be appointed, particularly one who would enjoy a power of giving release in respect of the mortgage in relation to the sale of lots secured by that mortgage. 31 In Frisby S and Davis-White M, Kerr & Hunter On Receivers and Administrators (19th edn, Sweet & Maxwell, 2010) at p 190, the following observation is made as to the general duty of a receiver: The general duty of a receiver is to take possession of the estate, or other property, the subject-matter of the dispute in the action, in the room or place of the owner thereof; and, under sanction of the court, to do, as and when necessary, all such acts of ownership in relation to the receipts of rents, compelling payment of them, management, letting lands and houses, and otherwise making the property productive, or collecting and realising it, for the benefit of the parties to be ultimately declared to be entitled thereto, as the owner himself could do if he were in possession. 32 That seems to me to be an apt general description of the powers and duties of a receiver. Refund disclaimed any desire or intent in its application to have a receiver appointed in respect of the property the subject of the mortgage. It disclaimed the existence of any dispute as between it and Promoseven as to whether or not a receiver ought to be appointed pursuant to the provision in the mortgage enabling the appointment of such an officer in the event of an act of default by Bluechip, ie, pursuant to cl 21.1 (29). 33 One asks then rhetorically, as did Promoseven in its submissions, appoint a receiver to what and to what end? One apparent end to which the receiver sought would be appointed emerges from the submissions made on behalf of Refund, which in turn pick up sentiments evident enough in exchanges which have occurred between the solicitors for the respective parties. What is said there in effect is that there are rates, taxes and body corporate fees owing by Bluechip to third parties, and that the receiver sought today ought to pay from moneys received by him those third party liabilities. In other words, the nature of the application is not so as to receive moneys which might be owing pursuant to the respective loan agreements. Instead, the receiver would pay moneys which are owed to apparently unsecured creditors rather than hold moneys which are owed to one or the other of the secured creditors, ie, Promoseven and Refund, by assignment from Prime. 34 One also has to consider the estate to which the receiver would be appointed. It was put on behalf of refund that there was a joint liability. Whilst it is not necessary to reach a concluded view on that subject, it is a difficult conclusion to reach that there exists a joint liability to Refund assignee from Prime and Promoseven on the part of Bluechip. Telling against that such conclusion is the existence of separate loan agreements which record separate debts. In the face of that, the references in the mortgage to the singular including the plural and to group liability do not, at least at first blush, appear particularly persuasive. It appears that the mortgage secures each separate indebtedness. 35 It may well be that, in respect of a claim founded upon a disagreement between each of the mortgagee parties to the mortgage, ie, Promoseven and Refund, by assignment from Prime, as to the utilisation in the present circumstances of powers under the mortgage to, for example, enter into a possession and sell lots, a court having jurisdiction in respect of such a substantive dispute may be persuaded that the case was an apt one for a receiver. Here, though, I am not so persuaded. The notion that the receiver would pay from proceeds received from sale unsecured creditors strikes me as one which is antithetical to what one might expect to be the primary task of a receiver appointed, for example, to collect moneys owing under the loan agreements, which would be to collect those moneys and hold them pending resolution of a dispute as to the liabilities as between Refund and Promoseven. 36 One option which I canvassed with the parties was the cross-vesting of this case to the Supreme Court of Queensland. It seems to me that it is premature at this juncture to cross-vest the proceeding. Rather, it is desirable that the nature of the claim and that events be identified with precision by pleading before any question of a cross-vesting order otherwise than by consent is made. In making that observation, I in no way indicate a view that this Court does not have jurisdiction to entertain a claim in respect of misleading or deceptive conduct under the Trade Practices Act and for resultant relief. It plainly does have jurisdiction. Rather, the question is the extent to which any such jurisdiction would have about it an accrued jurisdiction concerning what one might term the intramural aspects of the operation of the mortgage, as opposed to whether or not there was misleading or deceptive conduct that led to Refunds' succession to whatever interest Prime has under that mortgage. 37 Again, in making that observation, I accept that aspects of the ancillary relief claimed would overlap with a severance of those intramural relations. Nonetheless, this Court does not have jurisdiction, if a proceeding was separately instituted, just to deal with an aspect of intramural difference as to the operation of the powers conferred under the mortgage. It would be necessary, to engage jurisdiction in that regard, for some federal aspect to be highlighted. No such federal aspect has presently been highlighted. Perhaps that will emerge in the pleadings, but that is to anticipate. For the present, the case does not strike me as one which is apt for the appointment of a receiver, let alone a receiver who would have power to discharge a mortgage. 38 That may appear an unsatisfying result in terms of what, I have no doubt, is a real practical difficulty in relation to a realisation of lots in Cairns Central. That, though, is but a reflection of, firstly, the form in which the proceeding is instituted, ie, not a court of general jurisdiction and, secondly and more importantly, perhaps an inattention as to the estate to which the receiver would be appointed and exactly how a receivership would work in relation to that estate and, in turn, in relation to releasing the mortgage to the extent necessary to permit sales of lots. 39 Finally, it seems to me that, even though it may not have been necessary for Bluechip to be a party in respect of a claim for a receiver on an interlocutory basis, Bluechip is, in the event that there is dispute in relation to what I have termed the "intramural" aspects of the operation of the mortgage, a necessary party. It is for Refund, though, to reflect on the need, if any, for Bluechip to be joined in this proceeding. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate: Dated: 28 July 2011