Supreme Court New South Wales Medium Neutral Citation: K & B Trading Pty Ltd v Riverina Hay Pty Ltd (Receiver and Manager Appointed) [2020] NSWSC 1257 Hearing dates: 14 September 2020 Date of orders: 16 September 2020 Decision date: 16 September 2020 Jurisdiction: Common Law Before: N Adams J Decision: (1) Judgment for the plaintiff against the first defendant in the sum of $1,949,662.66 and foreign currency exchange rate losses in the sum of $21,032.64. (2) The first defendant is to pay the plaintiff interest in the sum of $881,354.35 being the interest calculated in accordance with clauses 3.2(a) and 3.2(f) of the Riverina Loan Deed executed on or about 2 October 2018. (3) Judgment for the plaintiff against each of the second and third defendants in the sum of $2,649,662.66 (being the total of $1,949,662.66 and $700,000) and foreign currency exchange rate losses in the sum of $21,032.64. (4) The first, second and third defendants are to pay to the plaintiff the fees and disbursements of the Receiver and Manager of the first defendant. (5) Judgment for the plaintiff against the fourth defendant in the sum of $700,000. (6) The fourth defendant is to pay the plaintiff interest in the sum of $254,071.24 being the interest calculated in accordance with clauses 3.2(a) and 3.2(c) of the Currabubula Loan Deed executed on or about 1 March 2018 less the amount of $44,646.57 already paid. (7) The second and third defendants are to pay the plaintiff interest in accordance with the Loan Deeds referred to in Orders 2 and 6 above pursuant to clause 3.2(a) of Deeds of Indemnity and Guarantee executed by each of those defendants on or about 1 March 2018 and 2 October 2018 respectively. (8) The defendants are to pay the plaintiff's costs of the proceedings on the ordinary basis. Catchwords: MONEY CLAIM – loan associated with farming business – two separate deeds – interest payable – personal guarantees – default – defendants indicate that they do not wish appear at the hearing – amounts owed Legislation Cited: Civil Procedure Act 2005 (NSW), s 98(1)(a) Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005 (NSW), Pt 42, r 42.1, r 42.5 Cases Cited: Du v Feng [2020] NSWSC 875 Category: Principal judgment Parties: K & B Trading Pty Ltd (Plaintiff) Riverina Hay Pty Ltd (Receiver & Manager appointed) (First Defendant) Jimmy Yang (Second Defendant) Freda Feng (Third Defendant) Currabubula Property Pty Ltd (Fourth Defendant) Representation: Counsel: L T Livingston (Plaintiff) Solicitors: Gang Sun, Sunfield Chambers Solicitors & Associates (Plaintiff) No appearance by the defendants File Number(s): 2019/276754 Judgment 1. The plaintiff, K & B Trading Pty Ltd, is an Australian proprietary company trading in the beef cattle industry. The second and third defendants, Mr Jimmy Yang and Ms Freda Feng, are a married couple involved in the business of exporting Australian produce to China. They are the directors of the first defendant, Riverina Hay Pty Ltd (Receiver & Manager Appointed) ("Riverina Hay") and the fourth defendant, Currabubula Property Pty Ltd (Controller appointed) ("Currabubula"). On or about 28 June 2018, the fourth defendant changed its name with the Australian Securities and Investments Commission ("ASIC") from UWE Currabubula Station Pty Ltd to Currabubula Property Pty Limited. 2. In early 2018, the plaintiff advanced $700,000 to Currabubula for a period of three months. Currabubula was the registered proprietor of a property at 118 Keechs Road, Currabubula. The plaintiff was granted a mortgage over that property and Mr Yang and Ms Feng each provided a personal guarantee on that loan. The loan was never repaid. 3. In September 2018, the plaintiff advanced $1,949,662.66 to Riverina Hay for a period of three months. Riverina Hay was the registered proprietor of land in Murrami. The plaintiff was granted a mortgage over that property. Mr Yang and Ms Feng each provided a personal guarantee on that loan as well. This loan was never repaid either. 4. On 5 September 2019, the plaintiff filed a statement of claim against the first three defendants seeking judgment in relation to the monies owed under the loan to Riverina Hay. A defence to that claim was filed by the first, second and third defendants on 18 October 2019. 5. On 18 November 2019, the plaintiff filed an amended statement of claim adding the fourth defendant and seeking the monies owed under the loan to Currabubula. No defence was ever filed to the amended statement of claim. 6. On 23 June 2020, this matter was listed for a four-day hearing on Monday, 14 September 2020. 7. On 6 July 2020, Ms Feng filed an affidavit on behalf of the second and third defendants. She did so without legal representation. Further affidavits in reply were then filed on behalf of the plaintiff. 8. The hearing was allocated to me on 8 September 2020. On 9 September 2020, I arranged for the matter to be listed for mention at 2pm on Thursday 10 September 2020. Later that day, my Associate received an email from Ms Feng on behalf of the defendants in the following terms: "To avoid wasting the Court's time, we write to inform you that we will be unable to proceed any further in the above matter. We have been informed today that the plaintiff's administrator is proceeding to sell our land, plant and equipment at Murrami NSW for only $1.8m. We consider this about half its true value of $3.5 - $3.8m. However, due to the total collapse in our trading income since early this year, we simply cannot afford legal representation to defend our position. We sincerely regret this outcome but appear to have no options left to us. We have copied the plaintiff's lawyers with this email." 1. At the mention of the matter, at 2pm on 10 September 2020, Ms Feng appeared by way of telephone on behalf of the second and third defendants. The plaintiff's solicitor appeared for the plaintiff. Ms Feng indicated at that time that she was aware that if the defendants played no further part in the proceedings then the orders sought would most likely be made. She indicated that, consistent with the email, she and her husband had tried to obtain legal representation but were unable to afford to do so and did not wish to appear for themselves. She did not seek any adjournment of the matter and confirmed that the defendants did not wish to play any further part in the proceedings. 2. At the hearing of the matter on Monday, 14 September 2020, Mr Livingston of counsel appeared for the plaintiff. There was no appearance on behalf of the defendants. As a result of what was conveyed to me at the mention of this matter on Thursday, 10 September 2020, I was satisfied that it was appropriate for the hearing to proceed without any appearance by the defendants. 3. Mr Livingston read the following four affidavits: 1. Affidavit of Yi Shen affirmed 12 February 2020; 2. Affidavit of Yi Shen affirmed 28 July 2020; 3. Affidavit of Shumit Banerjee affirmed 27 July 2020; 4. Affidavit of Shumit Banerjee affirmed 10 August 2020. 1. Ms Shen is the director of the plaintiff and Mr Banerjee is the Receiver appointed by the plaintiff in relation to the first defendant. 2. Mr Livingston also tendered the exhibit to the first affidavit of Mr Shen (Exhibit A). Written submissions were provided. I reserved my decision in order to consider the evidence. Determination 1. In circumstances where the plaintiff's claim is unopposed, the issues for determination are narrow. They turn on whether I am satisfied on the balance of probabilities that the defendants owed or are liable for the monies loaned to the first and fourth defendants by the plaintiff in the amounts claimed. Although no evidence was read on the part of the defendants, a defence has been filed on behalf of the first three defendants and there was no application for it to be struck out. That defence is in these terms: 1. It is denied that there is a subsisting debt owed to the plaintiff. 2. The calculation by the plaintiff of interest, fees and disbursements is not admitted. 3. The plaintiff has taken possession and control of the Murrami property and all items and equipment on it by appointing a Receiver and Manager of the first defendant. 4. The realised or realisable value of the Murrami property and all the items and equipment on it exceeds the amount of the plaintiff's claim against the defendants. 5. Having obtained value in cash or kind in excess of the plaintiff's claim, the plaintiff has no subsisting debt owing to it by the defendants. 6. In the alternative, there being no subsisting debt owing by the defendants to the plaintiff, the plaintiff is estopped from seeking any further payment from them. 1. I have had regard to the matters raised in the defence filed on behalf of the first three defendants and considered them in the context of the material filed by the plaintiff. Having regard to the evidence, I am satisfied that I should make the orders sought. The evidence upon which I am so satisfied can be summarised as follows. Mr Shen's first affidavit The loan to Currabubula (the fourth defendant) 1. Ms Shen is the sole director and shareholder of the plaintiff. He also goes by the name Simon Shen. He met the second and third defendants in about January 2016 through the introduction of a friend. Mr Shen understood that they had been working in the agricultural commodity sector for a long time and were successful in trading with businesses in China. 2. In or about late February 2018, the second and third defendants requested that the plaintiff lend them a sum of $700,000 due to difficulties they were encountering with their farming business. They needed the money to buy stock and pay off a high interest rate loan. The loan was to be made to their company, the fourth defendant, Currabubula. 3. Mr Shen recalls the second defendant, Mr Yang, saying to him words to the following effect at that time: "Rest assured that there is sufficient security for your loan. We are trustworthy and respectable people. We need the money in about the next two or three days. Please have the loan documents prepared urgently." 1. After agreeing to loan the funds, Mr Shen requested his solicitors to prepare the relevant loan documents. Those documents were as follows 1. A Loan Deed (hereinafter referred to as "Loan Deed A"); 2. Mortgage documents including an unregistered mortgage, memorandum of mortgage provisions and caveat over the Currabubula property; 3. A Deed of Guarantee and Indemnity between the plaintiff (as the secured party) and Mr Yang; and 4. A Deed of Guarantee and Indemnity between the plaintiff (as the secured party) and Ms Feng. 1. Loan Deed A was entered into on or about 1 March 2018. Some relevant clauses of that deed are as follows: "2 General Terms (a) At the request of the Borrower and the Guarantors, the Lender will lend to the Borrower an amount of seven thousand dollars ($700,000) on the terms of this deed (Loan). (c) Subject to mutual agreement by the parties (which can be withheld unconditionally by the Lender), the loan term in clause 2(b) will automatically be extended for a further three (3) months from the End Date (Further End Date). (d) The Borrower must use the Loan amount for the purpose of purchase of cattle for the business of the Borrower, or otherwise as agreed with the Lender. 3 Repayment, interest and security 3.1 Repayment of Loan (b) Subject to clause 3.1(c) below, the Loan (and any accrued but unpaid interest as set out in clause 3.2(a) and any other costs payable under this deed), must be repaid on the End Date. 3.2 Interest and security Initial Term (a) The Borrower must pay the Lender interest at twelve per cent (12%) per annum on the Loan for the first three (3) months of the loan term, calculated from the Date of Advancement (Initial Term). (d) Interest accrues from the day any part of the Loan is advanced until and including the day the whole of the Loan is repaid. 3.4 Default interest If the Borrower does not repay the Lender the loan amount (or any part of it) and /or the interest payable on the Loan amount strictly in accordance with the terms of this deed, then the Borrower must pay the Lender default interest, calculated at eighteen per cent (18%) per annum on any moneys outstanding, from the date of default to the date of actual repayment. 4 Event default ​​​​ There is an Event of Default if: (a) the Borrower fails to pay any other moneys which become payable under this deed, and such failure continues unremedied by the Borrower for a period of five (5) Business Days after notice in wiring requiring payment has been given by the Lender to the Borrower. 5 Effect of Event of Defaults Despite any delay or previous waiver by the Lender, if an Event of Default occurs, the Lender may: (c) register and enforce the mortgage in respect of the Property. 7 Personal Guarantee 7.1 The Guarantors, jointly and severally, hereby unconditionally and irrevocably personally guarantees the due and punctual performance by the Borrower of all its obligation and payment of all moneys payable by the Borrower under this deed. 7.2 The Guarantors undertake and agrees that they will jointly and severally be liable to pay the Lender all moneys payable by the borrower under this deed, and to indemnify the lender for all costs, loss, expenses and damages incurred by the Lender as a result of any default under this deed. 7.3 Clauses 7.1 and 7.2 above may be enforced against the Guarantors irrespective of whether any steps or proceedings, or whether any rights are enforced against the Borrower." 1. The plaintiff was provided with an unregistered mortgage and a registered caveat over title of the Currabubula property and was entitled to enforce the mortgage in the event of default. The first mortgagee on that property was the Commonwealth Bank of Australia ("CBA"). Some of the relevant clauses of the mortgage document are as follows: "2 Mortgagor's covenants 2.1 Charge The Mortgagor hereby charges the Secured Assets to the Mortgagee: (a) for payment of the Secured Money; and (b) to secure performance of the obligations owed by the Mortgagor to the Mortgagee. 2.3 Secured Money The Mortgagor secures payment of the Secured Money. The Mortgagor must pay to the Mortgagee the Secured Money on the date agreed between the parties or, if the is no agreement, on demand. 2.13 Dealings with the Secured Assets The Mortgagor must not, without the Mortgagee's prior written consent: (a) dispose of, deal with or part with possession of: ​​​​​​​(i) any estate or interest in the Secured Assets; or (ii) any rights and benefits in connection with the Mortgaged Land (including rights to air space, plot ratio, or floor space ration); or (iii) any estate or interest in connection with any lease or licence to use or occupy the Mortgaged land. ​​​​​​​2.20 Indemnities The Mortgagor indemnifies the Mortgagee and its officers, agents and employees from and against all action, claims, demands, losses, interest, fees, damages, costs and expenses of any nature which the Mortgagee or that Mortgagee's officers, agents or employees sustain or incur or for which the Mortgagee may become liable at any time in respect of or arising from any one or more of the following: (a) Any neglect or default of the mortgagor to observe and perform any of the terms, covenants and conditions contained in or implied by the Mortgagee. ​​​​​​​10.2 Rights on default Despite any other provisions of the Mortgage, at any time after an Event of Default occurs how and when the Mortgagee in its absolute discretion decide, the Mortgagee may sign anything and do anything the Mortgagee considers appropriate to recover the Secured Money and deal with the Secured Assets. Without liming the rights specified in the last sentence, the Mortgagee may do any one or more of the following: (a) Demand and require immediate payment of the Secured Money. (d) Sell, assign, transfer, dispose, exchange, barter, and grant option in respect of the Secured Assets. The Mortgagee may sell the Secured Assets in one line or by separate lots in any manner and on any terms and conditions the Mortgagee thins fit including terms as to payment of the whole or any part of the purchase money either with or without interest, and either with or without taking security. If the Mortgagee deals with the Secured Assets so that the money is received by the Mortgagee in instalments, the money will be credited to the Mortgagor only when actually received by the Mortgagee irrespective of when title to any of the Secured Assets is transferred." 1. As for the personal guarantees provided by the second and third defendants, some relevant terms of those guarantees (which were identical terms) are as follows: "3 Guarantee 3.1 Guarantee The Guarantor unconditionally and irrevocably guarantees to the Secured Party the punctual observance and performance by the Contract party of the Guaranteed Obligations. 3.2 Payment on demand under guarantee (a) If the Contract Party defaults in punctual payment of any of its obligations and liabilities referred to in the definition of Guaranteed Obligations, the Guarantor must pay the whole amount of those Guaranteed Obligations to the Secured Party immediately on demand. 4 Indemnity 4.1 Indemnity Without limiting clause 3.3, the Guarantor unconditionally and irrevocably indemnifies the Secured Party against all demands, claims, suits, actions, damages, liabilities, losses, costs and expenses which may be made or brought against or suffered or incurred by the Secured Party if the Guaranteed Obligations: (a) are not recoverable by the Secured Party from the Contract Party or from the Guarantor or from a co-Guarantor as surety; (b) cannot be enforced against the Contract Party or against the Guarantor as surety; or (c) remain unsatisfied; for any reason including by reason of: (d) any lack of authority or lack of power, any legal limitation, disability or Incapacity of or affecting any person; (e) the obligation of the Contract Party to satisfy the Guaranteed Obligations or any transactions relating to the Guaranteed Obligations being void, voidable or otherwise unenforceable (whether or not the Secured Party knew or ought to have known of the relevant matters or facts); or (f) the Bankruptcy of the Contract Party. 4.2 Payment on demand under indemnity The Guarantor must pay to the Secured Party immediately on demand any amounts due to the Secured Party under clause 4.1. The Secured Party may make such a demand on the Guarantor from time to time, whether or not demand has been made by the Secured Party on the Contract Party. 8 Costs and expenses The Guarantor must pay and, if paid by the Secured Party, reimburse to the Secured Party: (b) the Secured Party's costs and expenses (including legal costs and expenses on a full indemnity basis) in relation to the exercise or attempted exercise or the preservation of any rights of the Secured Party under this document." 1. The defendants were legally represented throughout the loan negotiations and settlement. 2. Between 27 February 2018 and 2 March 2018, Mr Shen advanced a total of $700,000 to the fourth defendant under Loan Deed A. The loan term was for a term of three months. The principal amount and interest become due and payable on 5 June 2018. The loan funds were drawn down on 5 March 2018. 3. On or about 1 June 2018, Mr Yang approached Mr Shen and asked for an extension of the loan for a further three months until 5 September 2018. Mr Shen agreed. 4. On 12 June 2018, the plaintiff received $23,473.97 from the fourth defendant as interest due under Loan Deed A. On 10 September 2018, another interest payment of $21,172.60 was also received from the fourth defendant under that loan. 5. The loan principal in the amount of $700,000 was not paid by 5 September 2018 when it fell due. Mr Shen spoke to Mr Fang about this. When he had not received any payment by 15 October 2018 he arranged for a letter be sent to the fourth defendant demanding payment of the loan. 6. On or about 24 July 2019, Mr Shen caused his solicitor to send a letter to the fourth defendant inviting it to attend a farm debt mediation. That invitation was subsequently withdrawn when Mr Shen became aware that the CBA, as first mortgagee, had appointed a controller to the fourth defendant. 7. After that controller was appointed, Mr Shen became aware that on or about 6 June 2019 the fourth defendant had entered into a contract to sell the Currabubula property. No consent was sought from the plaintiff to do this so Mr Shen was not aware of this until the Controller was appointed. This was in breach of clause 2.13(a) of the Mortgage document. 8. On or about 19 August 2019, a letter was sent to the second and third defendants demanding repayment of the loan and interest under the Deeds of the guarantee and indemnity. 9. The property has now been sold. The proceeds were insufficient to pay the mortgage secured on the property in favour of the CBA, let alone the plaintiff. 10. Although interest payments of $23,473.97 and $21,172.60 were made totalling $44,646.57, there has been no payment of the principal of this loan. The loan to Riverina Hay (the first defendant) 1. In about July 2018, Mr Yang telephoned Mr Shen and said to him words to the following effect: "Mr Yang: I have caused my companies UWE Hay and UWE Griffiths to be put into liquidation. UWE Griffiths owns land in Murrami with a hay processing factory and UWE Hay owns the machinery and vehicles stored on the land. I've been at the auction and won. Could you please lend me about $2 million to settle the purchases from the liquidator? Mr Shen: What's the security? Mr Yang: I will give you a first ranking mortgage on the property, a charge on the assets of the property and personal guarantees from me and my wife. Mr Shen: Let me consider it." 1. After an agreement on the main terms was arrived at, Mr Shen instructed his lawyers to prepare the relevant loan documents. Mr Yang and Ms Feng incorporated the first defendant to be the borrowing entity for the loan. It was also to be the entity that held the Murrami property and the assets of UWE Hay Pty Ltd. 2. Between 6 and 15 August 2018, Mr Shen caused a total sum of $1,949,662.66 to be exchanged from Chinese renminbi to Australian dollars through an exchange rate service provider and incurred an exchange rate loss of $21,032.64 due, in part, to the urgency of the loan. 3. On or about 26 September 2018, the plaintiff advanced a total sum of $1,949,662.66 to the first defendant. Those funds were used to purchase the Murrami property and the farm assets. 4. On or about 2 October 2018, the plaintiff entered into the following written agreements with the defendants: 1. Loan Deed B, which was a written agreement between the plaintiff as lender and the first, second and third defendants; 2. A Registered Mortgage in respect of the Murrami property. The plaintiff became the first ranking mortgagee on that property; 3. A General Security Deed between the plaintiff (as the secured party) and the first defendant as grantor; 4. A Deed of Guarantee and Indemnity between the plaintiff (as the secured party) and Mr Yang; and 5. A Deed of Guarantee and Indemnity between the plaintiff (as the secured party) and Ms Feng. 1. Some relevant causes of Loan Deed B are as follows: "2 General terms 2.1 (a) Subject to the terms and conditions of this Deed and in reliance on the representations and warranties set out in this Deed, the Lender has agreed to lend to the borrower and amount of AUD$1,949,662.66 (Loan) on the Date of Advancement. (c) The Borrower must use the Loan for the exclusive purpose of purchasing the Land from UWE Griffiths Property Pty Ltd CAN 600 930 881 (in liquidation) and UWE Griffiths Poperty Pty Ltd CAN 600 931 833 (in liquidation). 3 Repayment, interest and security 3.1 Repayment of Loan (b) The Borrower must repay the Lender the Loan in full on the last date of the Loan Term, being the last day of the 3rd month calculated from the Date of Advancement (End Date). 3.2 Interest (a) Subject to clause 3.2(f) below and the terms of this Deed, the Borrower must pay the Lender interest at fifteen per cent (15%) per annum (Interest Rate) calculated on the Principal Sum from the date set out in clause 3.2(c) below to the End Date. (d) The Borrower agrees to pay on demand for any and all foreign exchange costs and administrative fees incurred by the Lender as a result of exchanging or transferring the Principal Sum to an Australian currency denominated bank account in Australia. (f) If there is or has been an Event of Default between the Advancement Date and the date of the repayment of the Money Owing, the amount of interest payable will be calculated on the Money Owing at twenty-three per cent (23%) per annum, from the date that the Event of Default occurred to the date that the Money Owing is fully paid. 3.4 Security The Principal Sum, interest and any other moneys payable by the borrower under this registered charge over the Assets, and by way of personal guarantees from the Guarantors, individually and jointly, pursuant to the terms of this Deed. 4 Event of Default ​​​​​​​There is an Event of Default if: (a) the Borrower fails to pay any other moneys which become payable under this deed, and such failure continues unremedied by the Borrower for a period of five (5) Business Days after notice in wiring requiring payment has been given by the Lender to the Borrower. 5 Effect of Event of Default Despite any delay or previous waiver by the Lender, if an Event of Default occurs, the Lender may: (a) by giving notice to the Borrower declare all of the Loan, interest and all other moneys payable under this deed to be payable to the Lender to be immediately due and payable; (b) without further notice take any action or proceedings necessary or desirable against the Borrower and/or the Guarantors to recover all of the Loan, interest and any other moneys payable under this deed (including enforcement under any personal guarantee and indemnity deed); (c) register and enforce the mortgage in respect of the Property. 7 Personal Guarantee 7.4 Irrespective of whether any steps or proceedings are taken against the Borrower, the Lender may enforce its rights against the Guarantors or any one of them first." 1. Some relevant provisions of the General Security Deed are as follows: "13. Costs and indemnities 13.1 What the Grantor agrees to pay The Grantor agrees to pay or reimburse the Secured Party on demand for: (b) the Secured Party's and any receiver's Costs in otherwise acting in connection with this deed, such as enforcing or preserving rights (or considering doing so), or doing anything in connection with any enquiry by an authority involving the Grantor or any of its related Entities. 13.2 Indemnity The Grantor indemnifies the Secured Party against any liability (howsoever arising, whether under contract, equity, tort or otherwise) or loss (whether direct or indirect) arising from and any Costs incurred in connection with: ​​​​​​​(a) an Event of Default; or (b) any person exercising, or attempting to exercise, a right or remedy in connection with this deed after an Event of Default; or (c) the Secured Property or this deed; or (d) any indemnity the Secured Party gives a Controller or administrator of the Grantor. The Grantor agrees to pay amounts due under this indemnity on demand from the Secured Party. 13.4 Payment of third party losses The Grantor agrees to pay the Secured Party on demand an amount equal to any liability or loss and any Costs of the kind referred to I Clause 13.2 suffered or incurred by: (a) any Receiver or Attorney; or (b) any of the secured Party's employees, officers, agents, or contractors." 1. The Mortgage documents and personal guarantees were in similar terms to those in relation to the first loan. 2. Pursuant to clause 3.2 (a) of Loan Deed B, the loan principal in the sum of $1,949,662.66 and the interest accrued under Loan Deed B fell due and payable on 26 December 2018. That amount was not paid at that time. 3. On 11 February 2019, the plaintiff, through its solicitor, served on the first defendant a letter of demand for the principal loan plus interest payable under loan deed being a total sum of $2,139,480.44. 4. On or about 19 February 2019, the plaintiff through its solicitor served on the second and third defendants a letter demanding payment of the amount then outstanding under Loan Deed B. 5. On 23 April 2019, the plaintiff appointed Mr Shumit Banerjee as Receiver and Manager to the assets of the first defendant. 6. As stated above, these proceedings were then commenced on 5 September 2019. Mr Shen's second affidavit 1. Mr Shen affirmed a second affidavit on 28 July 2020. It was sworn in response to allegations made in an affidavit filed by the third defendant, Ms Freda Feng, on 6 July 2020. That affidavit has not been read in these proceedings. On that basis, I am of the view that most of Mr Shen's second affidavit is not relevant to my consideration. Despite that, I propose to summarise those parts of it which go to explain, at least in part, the delay in the loans becoming due and the bringing of these proceedings. 2. Mr Shen deposes in his second affidavit that he had some discussions in the early half of 2018 with Mr Yang about the plaintiff taking shares in the second and third defendant's "farm company". Mr Shen understood this to be a reference to the Currabubula property. After becoming aware that the return on the investment would only be 2%, he informed Mr Yang that he was not interested. The conversation took place before the second loan agreement was entered into. 3. During a conversation in relation to the second loan, Mr Yang said to Mr Shen words to the following effect: "It's a pity that you have decided not to work with us on the farm company. However, we can still see whether we can work together in the hay business. In the meantime, I will send you a document showing that the hay processing business and assets are worth $4.5 million so rest assured that there is security for your loan." 1. Mr Shen's evidence is that at no point in time did he ever agree to acquire any interest in the first defendant or waive the plaintiff's interest under any loans advanced or to be advanced by the first defendant. He states that he would not have agreed to loan money to the first defendant without the first ranking mortgage secured on the Murrami property and the personal guarantees provided by the second and third defendants. Despite this, there were ongoing discussions in which the second and third defendants proposed that the plaintiff acquire an interest in the first defendant by converting the loan into equity. 2. On or about 1 October 2018. Mr Yang said to Mr Shen words to the effect of "I have calculated that the Hay company is worth at least $7 million to $8 million". Later, on 1 October 2018, Mr Shen met with Mr Yang in Sydney and the following conversation took place: "Mr Shen: I have sent you my proposed terms. I would not consider acquiring shares in your company or converting K&B's loans into shares unless my requirements are satisfied, including that I get the day-to-day management rights and say in the business. Do you and Freda agree? Mr Yang: No Freda and I do not agree." 1. Mr Shen states that the second and third defendants continued proposing that Mr Shen convert the plaintiff's loans into shares in the first defendant. On about 18 October 2018, Mr Yang informed Mr Shen that another creditor was going to convert his loans to the first defendant into a shareholding. 2. There were further discussions as to whether the plaintiff would invest in the first defendant. In about late November 2018, Mr Shen said words to the following effect to Ms Feng. "I would not consider yours and Jimmy's proposal to become a shareholder of Riverina and do business with the two of you until I'm satisfied with the due diligence. Please let me know of the current debt position of you, Jimmy and your related companies." 1. Emails were sent on 4 December 2018 which disclosed that the liability of the defendants far exceeded Mr Shen's then understanding. As a result, on 5 December 2018, he said to Mr Yang and Ms Feng words to the following effect: "I will not consider going any further with these discussions unless there is capital injection of at least $2,000,000 from investors into Riverina Hay. The business will go nowhere if no one puts money into it." 1. On 11 February 2018, the plaintiff, through its solicitors, served a letter of demand on the first three defendants for the full amount owed under Loan Deed B. Shortly after this, Ms Feng called Mr Shen and said words to the following effect: "Why did you get your lawyers to send us a demand for payment? If you insist on repayment, it will be lose-lose situation for us all. You should think carefully." 1. Mr Shen deposes that after having this conversation he became concerned. This concern, as well as the continued defaults under the loan agreements, led him to appoint a Receiver to the first defendant in April 2019. 2. On about 2 May 2019, Mr Shen was in China. Mr Yang telephoned him without notice and the following conversation took place: "Mr Yang: Hi Simon. I have Freda, our solicitor and another shareholder Grahame Steer on the telephone line with us. In relation to the loans, we are requesting that you enter into a forbearance with us. Mr Shen: Now is not a good time to speak. Could you please contact my solicitor regarding this? They have previously written to you and Freda regarding the loans. Mr Yang: In Australia, in accordance with law, I must contact you directly and cannot contact your solicitors. Such a matter like this must be discussed between us. Ms Feng: Simon, we request that you put a forbearance proposal regarding the loans to us in writing. Mr Shen: I am surprised by what you are proposing today as you have not suggested this before. You should put a proposal to me in writing, and when I receive it, I will consider it and consult with my lawyer." 1. There is no reference to any such proposal being put in writing to the plaintiff. 2. Mr Shen deposes that he had recently learned that the defendants owed another creditor, Mr Allen Du, a significant amount of money as a result of the publication of the following decision: Du v Feng [2020] NSWSC 875. Affidavits of Mr Banerjee 1. Mr Banerjee is a registered liquidator who was appointed as a Receiver and Manager to the properties of the first defendant on 23 April 2019. He deposes to the work he has undertaken in that role since then. I do not consider it necessary to set out the contents of his affidavits in any detail. Suffice it to say that the expenses he has incurred appear reasonable given the work involved. He also addresses the value of the property for the purpose of re-sale which can be summarised as follows. 2. Mr Banerjee obtained a valuation report for the property prepared by Herron Todd White dated 11 June 2019 which valued the Murrami property, including the land and buildings, at $2.1 million. 3. Ray White Griffith was subsequently engaged to coordinate a marketing and sale campaign for the property and the sale campaign commenced in about mid-September 2019. Only three expressions of interest were received by 25 October 2019 and there was no sale. The property continued to be advertised on Ray White's website and other websites thereafter. 4. A development application for a hay processing and storage facility to be located on the property as well is a development of a rail freight terminal in the region had been lodged. During the marketing of the property, Mr Banerjee became aware that the property only ever had a temporary occupation certificate in this regard with outstanding material compliance issues. The property is still not compliant for its intended purpose. Mr Banerjee opines that in his experience prospective purchasers of such a specialised property would require it with the plant and equipment for the purpose of operating a hay or plant manufacturing business. The fact that the property is not fully compliant for that purpose has affected and will continue to adversely affect the sale of the property and the achievable sale price. 5. Mr Banerjee swore his affidavit on 27 July 2020 and, at that date, the property had been on the market for over 315 days. Although an offer of $1.8 million was accepted, the buyer ultimately declined to proceed with it for personal reasons. The highest offer otherwise obtained by mid-April was $1.1 million. Mr Banerjee states that on or about 17 April 2020 he had a conversation with Ms Feng to the following effect: "Hi Freda. I wanted to give you an update on the property. The agent has done a good marketing campaign and we have tried our best to achieve the best possible outcome. However, because of issues including the compliance issues with the property and that it is not fully compliant for its intended purposes, the Australian bushfires that we had at the end of last year now COVID-19 the property has attracted very few interested parties. We have received a recent offer for $1.1 million. I wanted to understand your thoughts about this offer." 1. Mr Banerjee deposes that Ms Feng's response to this was, "[y]es, I understand it has been difficult. The offer you mentioned is understandable." 2. That offer was not accepted because it was so far below the valuation from the previous year. It became apparent that due to the non-compliance issues, the bushfires, COVID-19 factors and, as at May 2020, the property was "off-season", a new updated valuation report was required. A report from the same valuer was obtained on 1 July 2020. The value of the property was assessed at that time as $1,160,000. Conclusion 1. The evidence satisfies me that the first and fourth defendants entered the agreements and owe the money as alleged. The second and third defendants personally guaranteed those loans as directors. These guarantees included the payment of all money and damages that those companies owe to the plaintiff and agreements to indemnify the plaintiff for all costs and expenses incurred by the plaintiff by reason of non-compliance with the loans. 2. Two matters are raised in the defence. First, it is contended that "the calculation by the plaintiff of interest, fees and disbursements is not admitted". The interest rates and default rates are clearly set out in the respective loan deeds. Those rates are higher for the second loan than for the first loan. Given that there are four defendants, I am satisfied that the plaintiff has had to incur fees in relation to commencing the proceedings against the four defendants. 3. I have had regard to the costs of the receivership and they do not appear to be excessive. The Receiver has been in office for over a year. That period has included the period of the COVID-19 pandemic. Mr Banerjee's affidavit annexes his Remuneration Report dated 3 August 2020. He is an independent officer subject to duties under the Corporations Act 2001(Cth). I have no reason to conclude other than that he has performed his office consistent with his statutory obligations. 4. The remaining grounds all make the same complaint: it is contended that the value of the defendants' assets satisfies the debt such that no money is owed. On the evidence before me, that is an unsustainable contention. The evidence discloses that the Receiver's selling agent has experienced ongoing difficulties selling the Murrami property for an acceptable price. On any view, its sale will be inadequate to discharge even the principal owing on the Riverina Hay loan. 5. Having regard to the loan documents and other evidence before me, I am satisfied that judgment should be made in favour of the plaintiff. The only outstanding issue is to calculate the precise amounts owed up until the date of judgment. The first loan (to the fourth defendant) 1. I am satisfied of the following: 1. The principal loan amount is $700,000.00. 2. The interest from 5 March 2018 until 16 September 2018 (at 12% for 186 days) is $42,575.34. 3. The default interest from 6 September 2018 until 16 September 2020 (at 18 % for 742 days) is $256,142.47. 4. The interest already paid of $44,646.57 is to be subtracted from the amount owed. 5. The amount owing as at 16 September 2020 is $954,071.24. The second loan (to the first defendant) 1. I am satisfied of the following: 1. The principal loan amount was $1,949,662.66. 2. The interest from 15 August 2018 until 26 December 2018 (at 15% for 134 days) is $107,364.98. 3. The default interest from 27 December 2018 to 16 September 2020 is $773,989.37 (at 23 % for 630 days). 4. The Receiver and Manager's costs from 23 April 2019 to 29 July 2020 are $130,018.50. 5. The exchange rate loss is $21,032.64. 6. The total amount owed under the second loan is $2,982,068.15. Costs of the proceedings 1. Finally, as for the cost of bringing these proceedings, the plaintiff sought that they be ordered to be paid on an indemnity basis. Section 98(1)(a) of the Civil Procedure Act 2005 (NSW) provides that costs are in the discretion of the court. Despite this, these are some fetters on the discretion to award costs. One such fetter is to be found in Part 42 of the Uniform Civil Procedure Rules 2005 ("UCPR"). The question is whether I would instead make an order that costs be paid on an indemnity basis whereby "all costs are to be allowed": UCPR r 42.5. 2. An order for indemnity costs is not made to punish an unsuccessful party for persisting with a case that fails. Rather, such an order is made to compensate a successful party for costs incurred in certain circumstances. Such circumstances include when litigation has been conducted unreasonably or in bad faith. 3. I have considered the conduct of the defendants in this matter. There was no delay caused by the conduct of any of the defendants once the proceedings had been commenced. As soon as the second and third defendants became aware that they could not afford to defend the matter, the court was notified. I do not consider this to be a case in which indemnity costs should be ordered. I propose to order that the costs be paid on the ordinary basis. ORDERS 1. The Court orders: 1. Judgment for the plaintiff against the first defendant in the sum of $1,949,662.66 and foreign currency exchange rate losses in the sum of $21,032.64. 2. The first defendant is to pay the plaintiff interest in the sum of $881,354.35 being the interest calculated in accordance with clauses 3.2(a) and 3.2(f) of the Riverina Loan Deed executed on or about 2 October 2018. 3. Judgment for the plaintiff against each of the second and third defendants in the sum of $2,649,662.66 (being the total of $1,949,662.66 and $700,000) and foreign currency exchange rate losses in the sum of $21,032.64. 4. The first, second and third defendants are to pay to the plaintiff the fees and disbursements of the Receiver and Manager of the first defendant. 5. Judgment for the plaintiff against the fourth defendant in the sum of $700,000. 6. The fourth defendant is to pay the plaintiff interest in the sum of $254,071.24 being the interest calculated in accordance with clauses 3.2(a) and 3.2(c) of the Currabubula Loan Deed executed on or about 1 March 2018 less the amount of $44,646.57 already paid. 7. The second and third defendants are to pay the plaintiff interest in accordance with the Loan Deeds referred to in Orders 2 and 6 above pursuant to clause 3.2(a) of Deeds of Indemnity and Guarantee executed by each of those defendants on or about 1 March 2018 and 2 October 2018 respectively. 8. The defendants are to pay the plaintiff's costs of the proceedings on the ordinary basis. ********** Amendments 17 September 2020 - Minor typographical correction DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 September 2020