New South Wales Supreme Court CITATION : Circuit Finance Pty Ltd v Castagnet Property Group Pty Ltd; Circuit Finance Pty Ltd v Louis Castagnet & Anor [2006] NSWSC 553 HEARING DATE(S) : Monday 5 June 2006 JUDGMENT DATE : 8 June 2006 JUDGMENT OF : Simpson J DECISION : plaintiff to be restrained from acting upon the consent orders of 16 May 2006; injunction to be unconditional; parties to prepare short minutes of order in accordance with reasons for judgment Circuit Finance Pty Ltd - Plaintiff PARTIES : The Castagnet Property Group Pty Ltd - Defendant in proceeding numbered 13920 of 2005 Louis Castagnet - 1st Defendant in proceeding numbered 13921 of 2005 Patricia Castagnet - 2nd Defendant in proceeding numbered 13921 of 2005 FILE NUMBER(S) : SC 13920/05; 13921/05 COUNSEL : RJ Brender - Plaintiff PE King - Defendants SOLICITORS : Leonard Deane Lawyers - Plaintiff Segal & Associates - Defendants IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION SIMPSON J Thursday 8 June 2006 13920/05 Circuit Finance Pty Ltd v The Castagnet Property Group Pty Ltd 13921/05 Circuit Finance Pty Ltd v Louis Castagnet & Anor JUDGMENT 1 HER HONOUR: Two related proceedings are before the Court. In each, the only issue for present determination is whether an injunction ought be granted to the defendant(s), restraining the plaintiffs from proceeding to implement orders, described as "consent orders" dated 16 May 2006. (In fact, no such orders have yet been made. It will be necessary to set out the circumstances of the events leading up to the creation of the document so entitled.) 2 The substantive proceedings in each case were commenced by Circuit Finance Pty Ltd by statement of claim filed on 29 August 2005. The plaintiff claimed orders for possession of land situated at 6/97-99 Birraga (sic) Road Bellevue Hill (proceedings numbered 13920/05), of which the Castagnet Property Group Pty Ltd is the registered proprietor, and at 119 Wallis Street Woollahra (proceedings numbered 139121/05) of which Mr Louis and Ms Patricia Castagnet are the registered proprietors. The plaintiff holds a second mortgage over each property. The defendants are in default in payments under the mortgages. 3 On 25 January 2006 default judgment against each defendant was entered, and the defendants were ordered to give possession of the land to the plaintiff. Thereafter the parties negotiated with a view to enabling the defendants to refinance. On 23 March 2006 the defendants filed notices of motion seeking orders that the default judgments be set aside, that any action by the Sheriff on the default judgments be stayed, and that execution of the writs of possession be stayed. On 3 May Registrar Howe granted a temporary stay of each writ, the stays being operational until 12 May. On that day McClellan CJ at CL extended the stay until 15 May. 4 On 15 May the legal representatives of the parties signed documents containing the terms of orders that were, the following day (16 May), made by Hidden J by consent. The principal order was that the writs of possession be stayed until 4 pm on 7 August 2006. The balance of the proceedings were stood over to that date. 5 The terms also noted agreements between the plaintiff and the defendants. These include provision for staged payments of money by the defendants to the plaintiff. The defendants were required to pay at least $100,000 by 4.00 pm on 26 May 2006; at least $400,000 by 4.00 pm on 23 June 2006; one half of the then balance of indebtedness, if any, by 4.00 pm on 21 July 2006; and any outstanding balance by 4.00 pm on 4 August 2006. Also contained in the terms were the following: (i) the plaintiff agreed to cooperate to facilitate the refinancing of the properties; (ii) the parties agreed that, simultaneously with the execution of those orders, the defendants' solicitor would hand to the plaintiff's solicitor executed consent orders vacating the stays contained in the principal order mentioned above (of writs of possession) and permitting the Sheriff (at the behest of the plaintiff) to execute the writ and take possession of the land. Those consent orders were to be held in escrow, the plaintiff having liberty to lodge them immediately upon default of any of the payments previously referred to; (iii) an express note that the plaintiff had entered the agreement at the request of the defendants on the basis that it was a final opportunity for the defendants to meet their acknowledged indebtedness, that time is of the essence in all respects, and that the defendants would not seek again to challenge the validity of the plaintiff's notices, procedures, debt or writs and would not again seek stays in connection with the proceedings (unless they had strictly complied with the payment terms). 6 Other terms (itemised as sub-paragraphs (k), (l) and (m) respectively) made reference to procedures taken to wind up the corporate defendant; confirmed that the plaintiff had withdrawn bankruptcy notices served on the individual defendants; and noted that the terms of the agreement were to remain "private and confidential". 7 The consent orders referred to in 5(ii) above were duly signed by the defendants and held on behalf of the plaintiffs in escrow pursuant to the agreement. The consent orders provide: "1. Set aside Order 1 made on 15 May 2006. 2. Direct that the Sheriff be at liberty to execute the writ of possession of the parcel of land …" The "Order 1" referred to is, in each case, the order staying execution of the writ of possession. This "order" is central to the present application. Also central to the application is the note that the terms of the agreement were to remain private and confidential. 8 Through a mortgage broker, Mr Peter Roach, the defendants instituted negotiations with the Bank of Adelaide ("the Bank") for refinance. On 23 May Mr Castagnet emailed Mr Simon Craddock, an employed solicitor of the solicitors representing the plaintiff, telling him that he required certain information to provide to the Bank. He identified this as "evidence of the Circuit Finance loan amount and repayment structure". On the following day Mr Craddock sent to Mr Roach, and to the solicitors for the Bank, copies of the 16 May orders (although, inadvertently, what he sent was an earlier draft of the orders and did not include terms (k), (l) and (m), the references to the winding up procedures, the bankruptcy notices, and the privacy and confidentiality agreement.) 9 Mr Craddock also sent to Mr Roach and to the Bank copies of the statements of account. These showed, in respect of the Wallis Street Woollahra property, a then current indebtedness to the plaintiff of $526,444.24, and in respect of the Bellevue Hill property, an indebtedness to the plaintiff of $344,218.55. Significantly, the statements also showed the payment history. This included, in respect of each property, a record of a number of dishonoured payments. 10 On 25 May the Bank declined further to consider the defendants' application for finance. It gave as its reason: "After viewing the Judgment/Order and the Circuit Finance Pty Ltd statements with numerous dishonours, ABL [the Bank] is no longer prepared to consider an application from applicant." The defendants were then unable to make the first payment, of $100,000, required by the agreement, by 26 May. They are thus in default of the orders. 11 By reason of that default, the plaintiff claims to be entitled immediately to file in court the consent orders held in escrow, and therefore to enter and take possession of the properties. 12 The defendants, however, contest this. The basis for the challenge is that they assert that, by communicating the terms of settlement and statements of account to the Bank, the plaintiff breached the agreement, in particular that part of the agreement which was intended to bind the parties to privacy and confidentiality. They claim that the Bank's refusal further to consider their application was a direct result of the plaintiff's breach of the agreement. They characterise the breach as a repudiation of the agreement. If that were correct, the plaintiff would not be entitled to enforce other provisions of the agreement. On behalf of the defendants, cross-claims, proposed to be filed, have been prepared. 13 On 25 May 2006 the defendants' solicitors wrote to Mr Craddock, in part in the following terms: "As a result of the flagrant breach of contract by Circuit Finance our clients' (sic) hereby rescind the agreement dated 15 May, 2006 comprising the settlement between the above parties." 14 There is obviously, as was conceded by counsel for the plaintiff, an issue to be tried in relation to the effect (if any) of the plaintiff's communication to the Bank. It cannot be said that the defendants' position is unarguable. Further, it could well be argued (and will be argued) that the defendants' present incapacity to meet the payments required either by the mortgages, or by the terms of the agreement, is a direct result of that action on the part of the plaintiff. 15 Counsel for the plaintiff argued, however, that the defendants' failure to pay the $100,000 by 26 May itself constituted default on the part of the defendants and that that default triggered its right to implement the consent orders, and have the stays set aside. Thus, even acknowledging that a serious question to be tried has been demonstrated, the default on the part of the defendants crystallised its right to possession. For the purposes of this application, I reject that contention. In my opinion, the evidence is capable of establishing that the defendants' default (on 26 May) is inextricably tied up with the alleged breach of agreement by the plaintiff. 16 I have come to the view that the interests and the balance of justice require the preservation of the status quo until the defendants' claims may be heard, and that the injunction sought on behalf of the defendants ought to be granted on an interim basis. It will be necessary to make orders and give directions which will bring the proceedings on for hearing with a degree of expedition. I propose to give such directions, but will hear the parties before doing so. 17 Counsel for the plaintiff also submitted that an injunction ought not to be granted in the absence of security given by the defendants in respect of the undertaking as to damages. This issue has caused me the greatest difficulty. The evidence establishes that, taking into account the indebtedness of the defendants, not only to the plaintiff, but also to the first mortgagee, they have negative equity in the properties. It is for that reason that I consider the proceedings should be heard with urgency. Not without hesitation, I have come to the view, that, subject to the undertaking as to damages, the injunction ought to be unconditional. That is because of the prospect that the defendants may have been able to extricate themselves from their financial difficulties were it not for the plaintiff's conduct (through its solicitors). I decline to make the injunction conditional upon the giving of security. 18 It will be necessary for the parties to prepare short minutes of order, in accordance with these reasons, including an order that the plaintiff be restrained from acting upon the consent orders of 16 May 2006. ********** 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.