New South Wales Supreme Court CITATION : Australian Barter Currency Exchange Pty Ltd v Uniting Church NSW Trust Association Limited [2009] NSWSC 607 HEARING DATE(S) : 10/06/2009 JUDGMENT DATE : 2 July 2009 JUDGMENT OF : Hoeben J DECISION : Defendant be restrained from holding auction for the sale of the Bathurst Street properties with consequential orders. CATCHWORDS : INJUNCTION - Application by mortgagors to restrain a sale of properties - whether prospect of refinancing very likely - relevance of lateness of application - explanation for delay - discretionary matters and balance of convenience. LEGISLATION CITED : Real Property Act 1900 CATEGORY : Procedural and other rulings CASES CITED : Parist Holdings Pty Limited v Perpetual Nominees Ltd [2006] NSWSC 599 PARTIES : Australian Barter Currency Exchange Pty Ltd - Plaintiff Uniting Church NSW Trust Association Limited - Defendant FILE NUMBER(S) : SC 11739/2009 COUNSEL : Mr M Ashhurst SC/Mr D Allen - Plaintiff Mr M Condon/Ms T McEnierney - Defendant SOLICITORS : Proctor & Associates - Plaintiff Holman Webb - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION HOEBEN J Thursday, 2 July 2009 11739/2009 – AUSTRALIAN BARTER CURRENCY EXCHANGE PTY LIMITED & Ors v THE UNITING CHURCH (NSW) TRUST ASSOCIATION LIMITED JUDGMENT 1 HIS HONOUR: Nature of proceedings This matter came on for hearing as an urgent matter in the Duty Judge's list on 10 June 2009. The plaintiff companies as mortgagors sought by way of Notice of Motion injunctive relief to restrain the exercise of a power of sale by the defendant as mortgagee. The properties concerned were 19-21 Kennett Street, Baulkham Hills; 68 Bathurst Street, Liverpool; 70 Bathurst Street, Liverpool and 72-74 Bathurst Street, Liverpool. Auction sales in respect of those properties had been arranged for 11 June 2009. The defendant opposed the application. 2 Although the Notice of Motion referred to only one plaintiff (Australian Barter Currency Exchange Pty Limited) it is clear from the Summons and the affidavits of Mr Malek that the properties, the subject of this application, were not all owned by the plaintiff but by some of the plaintiff companies in the Amended Summons in the principal proceedings. I have accordingly referred to the plaintiffs in the plural throughout this judgment. Factual background 3 In 2004 David Cassaniti, who is now a director of the plaintiff companies, borrowed approximately $14 million from the defendant in four separate loan transactions. The loan was secured by mortgages over 29 properties. The value of the 29 properties was said to be $27 million. Those properties were owned by companies controlled by Mr Cassaniti. Some of those companies are plaintiffs in the present proceedings. 4 Payment under the loan agreements became due in 2006. Payment did not take place. One of the problems faced by Mr Cassaniti and the companies was that Mr Cassaniti was in prison serving a sentence between November 2005 and July 2008. In July 2008 the companies which he controlled, including the plaintiff companies, went into provisional liquidation. The provisional liquidator was Robert Moodie, a partner in the firm of Rodgers Reidy. 5 Most, if not all of the properties, appear to be tenanted. Rental payments from those properties went a long way towards meeting the payment obligations under the four loan agreements. After the appointment of the provisional liquidator, however, those interest payments ceased and rental payments were retained by the provisional liquidator to fund the provisional liquidation process. Accordingly from July 2008 payment of interest under the loan agreements ceased. 6 As a result of the default in the repayment of the loans and in meeting interest payments, the defendant served notices on the mortgagor companies pursuant to s 57(2)(b) of the Real Property Act 1900. It is common ground that those notices were not complied with. 7 Upon his release from prison, Mr Cassaniti sought to refinance the loans. He says that he was frustrated in this exercise because the company mortgagors were in provisional liquidation and lenders were not prepared to advance monies until that situation was remedied. In fact the provisional liquidator was not removed until 26 February 2009. Because his fees had not been fully paid, the provisional liquidator lodged caveats over the properties. Full payment of the provisional liquidator's fees and removal of the caveats did not take place until 27 May 2009. 8 Mr Cassaniti also had difficulties in persuading ASIC to remove the qualification "under external liquidation" from their records in relation to the companies. This is despite the fact that the necessary forms were filed on 11 March 2009. This situation was not remedied until 2 June 2009 when Mr Cassaniti was once again shown on the records of the companies as a director. 9 Following his release from prison, Mr Cassaniti put a number of proposals to the defendant concerning refinancing the loans. None of those proposals came to fruition. By the end of January 2009 the defendant had lost patience and arranged for the sale of 5 of the 29 properties at public auction on 2 and 8 April 2009. 10 On 31 March 2009 the plaintiff companies commenced the principal proceedings by way of an Amended Summons seeking to restrain the sale of those properties. The matter was heard by Justice RA Hulme as an urgent Duty Judge matter. Relying upon such cases as Parist Holdings Pty Limited v Perpetual Nominees Ltd [2006] NSWSC 599 (Hamilton J) the plaintiff companies argued that they would be able to redeem the loan within a fairly short time and that there was in place a refinancing proposal which was rather likely to be fulfilled. The defendant opposed the application and referred the Court to the history of unfulfilled promises and to the form of the offers to refinance. 11 His Honour carefully analysed the refinancing proposals and concluded that they were subject to a number of conditions, the fulfilment of which remained doubtful. In the circumstances his Honour was not satisfied that there was a realistic prospect of Mr Cassaniti being able to refinance his property portfolio in the reasonably near future. Accordingly, his Honour declined to restrain the defendant from selling the properties. 12 In due course the sale of those properties took place and the indebtedness of Mr Cassaniti to the defendant has now been reduced to $7.061 million. Rent from the unsold properties is now being directed to the payment of interest on that outstanding amount. I am told that this has resulted in a shortfall of interest payments of approximately $4000 per month. Although agreement has not been reached as to the precise valuation of the unsold properties, it is accepted by the defendant that their value is approximately double the amount of the outstanding loan monies. 13 As a result of the sale of the properties, the subject of the application before RA Hulme J, surplus monies were received by the defendant and are currently being held by it. There is a dispute between the parties as to the amount of that surplus. The plaintiff claimed the surplus was $900,000 and the defendant, $525,000. While I do not propose to determine this dispute, I am satisfied that the defendant is currently holding approximately $500,000 to which one or more of the plaintiff companies is entitled and which could be applied in due course to discharging the indebtedness of Mr Cassaniti to the defendant. 14 On 24 May 2009 Mr Cassaniti received notice from the solicitors for the defendant advising that it intended to sell the properties, the subject of this application, at public auction on 11 June 2009. On 29 May 2009 Mr Cassaniti was provided with up to date loan statements. The defendant was given no warning of this application until it was filed with the Court on 9 June 2009. 15 In support of the plaintiff's application, letters of offer from Global Capital Corporation Pty Limited to refinance the loan were tendered. One letter was dated 2 June and the other 4 June 2009. The amounts referred to would be sufficient to discharge the indebtedness of Mr Cassaniti to the defendant. Those letters stated that "finance had been approved" subject to a satisfactory valuation being obtained. 16 The plaintiff companies also relied upon an affidavit of Mr Bill Salouris of 5 June 2009. Mr Salouris was a director of Global Capital Corporation Pty Limited. The effect of that affidavit was to confirm the contents of the letters of offer and to advise that subject to a satisfactory valuation, refinancing would be completed within six weeks. Submissions 17 The plaintiffs advised the Court that they did not wish to restrain the defendant from conducting a sale of the Kenneth Street, Baulkham Hills property but only the three properties in Bathurst Street, Liverpool, ie numbers 68, 70 and 72-74. The plaintiffs had no objection to the sale of the Baulkham Hills property proceeding as planned. 18 The plaintiffs submitted that the circumstances of this application were rather different to those which normally come before the Court in that the value of the mortgaged properties was at the very least double that of the mortgage debt. That meant that even if there were some delay in payment of the monies loaned to Mr Cassaniti the defendant was fully protected by its security and would not suffer loss. 19 They submitted that in the circumstances of this case the shortfall in monthly interest payments was relatively modest, ie $4000 per month and that as indicated, that shortfall was fully secured by the defendant's mortgages. 20 The plaintiffs referred the Court to the letters of offer and the affidavit of Mr Salouris as indicating a strong likelihood that refinancing of the loan would be completed within six weeks. 21 Mr Cassaniti sought to explain his previous unsuccessful attempt to refinance his loan by reference to the fact that the company mortgagors were in provisional liquidation until 27 February 2009 and that the ASIC records showing that the companies were no longer under "external liquidation" and that Mr Cassaniti was a director had not been corrected until 2 June 2009. 22 Finally, the plaintiffs referred to the surplus of $500,000 from the property sales in April 2009, which was currently held by the defendant. This, it was submitted, was a further sum of money which was available to enable Mr Cassaniti to pay off his indebtedness to the defendant. 23 In response, the defendant submitted that because it had received the documents relied upon by the plaintiffs so late, in particular the letters of offer and the affidavit of Mr Salouris, it had not been in a position to properly test the contents of those documents. It submitted that this was a matter which the Court should take into account in assessing how reliable that evidence was and when determining whether or not to exercise its discretion in favour of the plaintiffs. 24 The defendant referred to the history of earlier offers to refinance which the plaintiffs had placed before the defendant but which had never come to fruition. It referred to the promises of payment which Mr Cassaniti had made in the past but which had not been fulfilled. It submitted that the letters of offer were in reality no stronger than his earlier promises and in particular, no stronger than the material which had been before RA Hulme J and which had not been regarded by him as sufficient to justify restraining the defendant from proceeding with the auction sales in April 2009. 25 The defendant referred to the unexplained delay between 24 May and 9 June 2009 on the part of the plaintiffs in making this application. The defendant submitted that not only was this a matter which should be taken into account by the Court in deciding whether or not to exercise its discretion in favour of the plaintiffs but it was open to the Court to infer that this application had deliberately been made late so as to prevent proper investigation by the defendant. 26 The defendant submitted that considerable inconvenience would be caused to it if the auction sales scheduled for 11 June 2009 did not proceed. Considerable monies had been expended by the defendant in arranging for the sales. The defendants had incurred marketing and advertising costs with respect to the Bathurst Street properties of approximately $12,500. The sale of these properties was part of the Colliers International (the defendant's real estate agent) 2009 winter portfolio. If the sales of the Bathurst Street properties did not go ahead on 11 June 2009, they would not be able to be sold for at least another three months. 27 Although the defendant was prepared to accept that the delays in refinancing which had occurred up until 2 June 2009 were the responsibility of ASIC, it was nevertheless a serious step to seek to injunct the sale, slightly more than 24 hours before it was listed particularly when the sale was notified on May 24 and no explanation for the delay between 2 June and 9 June 2009 had been provided. The Court, it was submitted, should have regard to the "very considerable public interest in not fettering in any undue way the rights and manner of exercise of a mortgagee's power of sale". Consideration 28 The submissions by the defendant have considerable force. Nevertheless, I have concluded that the situation before me on 10 June 2009 is significantly different to that which confronted RA Hulme J on 31 March and 1 April 2009. A significant part of Mr Cassaniti's indebtedness has been paid off as a result of the April 2009 sales. The offers to refinance which are now before the Court are in much more definite terms than those which were considered by his Honour. In addition, there is the affidavit of Mr Salouris which identified a definite timetable to refinance the loan. Finally, the problems with the ASIC records which undoubtedly adversely affected the plaintiffs' capacity to refinance have now been removed. 29 By way of background, there is as there was before RA Hulme J, the somewhat unusual circumstance that the financial position of the defendant is fully protected because of the very substantial value of the mortgaged properties which significantly exceeds the amount of the loans. Even if a refinancing of the loans did not take place within six weeks, or did not take place at all, the defendant would not suffer financial loss. This is an important consideration when considering the exercise of the Court's discretion. 30 I am satisfied that the situation has changed considerably between that which confronted RA Hulme J and that which was before me. The proposal for refinancing the loans is more certain. Accordingly, I am satisfied that the refinancing proposal is very likely to be fulfilled. In those circumstances, and noting the undertaking as to damages given on behalf of the plaintiffs by senior counsel, I have concluded that the plaintiffs are entitled to the orders which they seek. 31 I note that I made those orders on 10 June 2009 but deferred making further and consequential orders until the provision of these reasons. Costs 32 I am of the opinion that the plaintiffs should pay the defendant's costs of the proceedings before me. The plaintiffs' application was brought at very short notice. Given the history of the matter, it was natural for the defendant to oppose the application. It is clear from the conduct of the matter before me that the plaintiffs did not make their position clear until their submissions were made. For example, it was only in argument before me that the plaintiffs made it clear that they were not seeking to restrain the auction sale of the Baulkham Hills property. 33 The lateness of the plaintiffs' application prevented the defendant from having the opportunity of properly examining its strength and of making an informed decision as to whether to oppose it or not. Given the history of the matter, the defendant was entitled to be sceptical of such a late application. 34 For those reasons, I believe the defendant should have its costs of the application. Orders 35 The orders which I make are as follows: (1) I note the undertaking as to damages given by the plaintiffs to the Court, through their senior counsel. (2) The defendant is restrained from holding auctions for the sale of the following properties until further order of the Court: (i) 68 Bathurst Street, Liverpool, Folio Identifier 104/794351. (ii) 70 Bathurst Street, Liverpool, Folio Identifier 50/1035558. (iii) 72-74 Bathurst Street, Liverpool, Folio Identifier 6/740731. (3) The plaintiffs are to pay the defendant's costs of this application. (4) Should the defendant not wish to rely upon its rights under its mortgages, the plaintiffs are to pay the costs lost by reason of the fact that the auctions of the Bathurst Street properties will not proceed on 11 June 2009. (5) I direct the plaintiffs to advise the defendant within two (2) business days of each of the following events: (i) When the valuations the subject of the Global Capital Corporation letters of offer are completed. (ii) When the mortgage documents in respect of the refinancing by Global Capital Corporation are issued. (iii) The proposed settlement date for the refinancing of the loans. (iv) Any withdrawal of the letter of offer by Global Capital Corporation. (6) The matter is to come back before me for mention at 9.30am on Wednesday, 29 July 2009. (7) I grant liberty to the parties to apply to the Court on 3 days' notice. ********** 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.