Supreme Court New South Wales Medium Neutral Citation: Garland Lot 3 Pty Ltd v Bridge Property Investments Pty Ltd [2014] NSWSC 253 Hearing dates: 21,25 February 2014 Decision date: 26 February 2014 Jurisdiction: Equity Division Before: Robb J Decision: (1)By consent and without admissions order pursuant to s 74MA of the Real Property Act 1900 (NSW) that the defendant withdraw caveat No AI334849 lodged in relation to certificate of title folio identifier 402/1164413. (2)Order that the claim made by the defendant in prayer 1 of its claim for interlocutory relief in its cross-claim be dismissed. (3)Order the defendant cross claimant to pay the costs of the plaintiff's summons and the first cross claim cross summons on the ordinary basis. Catchwords: CAVEATS - caveat invalid - consent order to withdraw caveat - CONTRACTS - proper construction of deed - meaning of "Lender Consent Matter" - was lender's consent required before purchaser contracted to sell part of project? - consent not required - wrongful failure to object consent would be breach of Deed - balance of convenience does not favour grant of interlocutory injunction Legislation Cited: Real Property Act 1900 (NSW) Category: Interlocutory applications Parties: Garland Lot 3 Pty Ltd (first plaintiff/cross defendant) Garland Lot 4 Pty Ltd (second plaintiff/cross defendant) Bridge Property Investments Pty Limited (defendant/cross claimant) Representation: Counsel: D Stack (plaintiffs/cross defendants) M Sneddon/ K Tang (defendant/cross claimant) Solicitors: Kemp Strang (plaintiffs/cross defendants) Atanaskovic Hartnell (defendant/cross claimant) File Number(s): 2014/55737 Judgment 1These are the reasons for judgment in interlocutory proceedings that came before the Court yesterday, 25 February 2013, in the Duty List. 2The plaintiffs and the defendant are some of the parties to an undated deed, which the parties agreed was entered into in July 2010 (the Deed). The plaintiffs appear to be two of 10 related entities who were parties to the Deed. It will be convenient to refer to those entities as the "Garland entities". 3Under the Deed the defendant agreed to provide finance to certain of the Garland entities in relation to a development project at Zetland in the State of New South Wales. 4The plaintiffs are together the registered proprietors of a property known as Lot 402 in Deposited Plan 1164413 (Lot 402), which is part of the land that is the subject of the development project. 5On or about the 30 January 2014 the defendant lodged a caveat against the title to Lot 402, which was given the number AI334849S. 6On 5 February 2004 the Registrar-General sent a lapsing notice to the then solicitors for the defendant under s 74J Real Property Act 1900 (NSW) (the Act) at the request of the plaintiffs. 7By summons filed in Court on 21 February 2014 the plaintiffs sought an order pursuant to s 74MA of the Act. 8The summons was made returnable before the Duty Judge on 25 February 2014. 9When the matter was called Mr Stack of counsel appeared for the plaintiffs and Mr Sneddon appeared with Mr Tang for defendant. 10During the course of the hearing it became apparent that the defendant could not resist the making of an order for the withdrawal of the caveat. The defendant does not have a caveatable interest in Lot 402, and the caveat accordingly did not disclose any such interest. By consent but without admissions on the part of the defendant I made an order for the withdrawal of the caveat as sought in order 3 of the summons. 11The defendant was given leave to file in Court a cross-claim cross-summons, plus affidavits in support. The plaintiffs were given very little notice of this application. 12To understand the relief sought in the cross-claim it is first necessary to note the following principal factual matters relevant to the dispute. 13On 24 December 2013 the plaintiffs entered into a contract to sell Lot 402 to a purchaser called Ruby Street Project Pty Ltd for a price of $17,415,000. 14The plaintiffs gave notice to the defendant of the sale by letter dated 6 January 2014. The letter explained that despite using all reasonable best endeavours, the Garland interests had been unable to obtain construction finance which would enable "the Lot 4 Project" to proceed. Lot 402 is land that was intended to be part of that project. The letter also advised that the Garland interests would apply the proceeds of sale in accordance with the Deed. My understanding is that the parties proceeded upon the basis that no part of the proceeds would be paid to the defendant, as the money would be paid to parties with prior entitlements to payment under the Deed. 15This revelation prompted the defendant to lodge the caveat that is referred to above. 16It is convenient to note that the defendant provided evidence that a party called Xsite Solutions Pty Ltd sent a letter to one of the plaintiffs on 8 January 2014 that contained a conditional offer to purchase what was described as Lot 204 from the plaintiffs for $19 million plus GST. The conditions included a period for the purchaser to carry out a due diligence investigation. A copy of the letter was annexed to the affidavit of Nicholas Francis John Bolton affirmed on 24 February 2014. Mr Bolton is the sole director of the defendant. The evidence did not disclose how Mr Bolton came into possession of the offer addressed to the plaintiffs. 17As I have noted, the letter misdescribed Lot 402. The defendant tendered a revised version of the letter, which was dated 24 February 2014, and which was the same as the earlier letter, but the property was properly described as Lot 402. The revised offer was an attachment to an email from Mr Bolton to the solicitor for the defendant. The plaintiffs asserted from the bar table that they knew nothing of the revised offer. The evidence does not disclose the relationship between the defendant and the proposed purchaser that led to Mr Bolton obtaining a copy of the revised offer before it was sent by the proposed purchaser to the plaintiffs. 18The defendant took the view, in circumstances upon which I will elaborate below, that in entering into the contract of sale and providing to the defendant the notice of that act on 6 January 2014 (that is after the date of the contract) the plaintiffs had contravened clause 18 of the Deed, which required that the Garland interests not take any step falling within the definition of Lender Consent Matter without the prior written consent of the defendant. 19Shortly put, by its cross-claim the defendant has sought a number of declarations to establish that the proposed sale is a Lender Consent Matter within item (j) for item (k) of Schedule 4 to the Deed, which contains a list of actions that were agreed to constitute Lender Consent Matters. The defendant seeks a declaration that the plaintiffs have breached clause 18.2(a) of the Deed. 20By prayer 5 of the cross-summons the defendant seeks, in effect, an order permanently restraining the plaintiffs from taking any step to complete the contract of sale, or otherwise disposing of Lot 402, without the plaintiffs first having obtained the defendant's consent in writing pursuant to clause 18.2(a) of the Deed. This statement paraphrases the terms of the relief sought. 21The defendant also seeks an interlocutory injunction in the same terms until further order. 22During the course of the hearing Mr Sneddon revised the formulation of the interlocutory relief sought by the defendant. At the commencement of the hearing he called on identical notices to produce that the defendant had served on each of the plaintiffs. The notices to produce became Exhibit 1. In outline, they sought documents concerning the plaintiffs' canvassing of the market before they entered into the contract of sale, all offers received from arm's-length purchasers, documents showing how the purchase price was struck, and documents showing the purchase prices under 'off the plan' contracts that the plaintiffs had already entered into in the expectation that the development project incorporating Lot 402 would go ahead. 23In essence, the defendant revised its application to seek an interlocutory injunction in the terms set out in its cross-claim, but only for a period of one week, as Mr Stack indicated when the notices to produce were called that the plaintiffs would require a week to answer them. The defendant claimed that it should be given a short term injunction in order to obtain the documents so that it would have an opportunity of fully understanding the position in relation to the information that it says it could have required the plaintiffs to provide to it if they had properly complied with clause 18 of the Deed. 24The plaintiffs resisted the defendant's revised application for interlocutory relief, and indeed for any interlocutory relief that it had sought. 25It is necessary to have regard to the material terms of the Deed. 26The Deed contained a definition of 'Property' which meant any one of a list of lots, which included Lot 4. It was agreed for the purposes of the application that Lot 402 is Property for the purposes of the Deed. 'Lot' was defined to mean "in connection with the Project, all or any part of the Property including a lot created as a result of the subdivision of all or any part of the Property". Lot 402 is a Lot. 27Clause 18.1 is headed "Lender Consent Matters" and provides: "Subject to clause 4 and the following provisions of this clause 18, each Lender Consent Matter requires the prior written consent of the Lender." 28Clause 18.2 provides for a process to be followed when a relevant Garland entity requires the defendant to provide its consent in respect of a Lender Consent Matter. The defendant may require to be provided with information relevant to the subject of the consent, and timeframes are set out for relevant communications and the provision of consent. If the defendant withholds its consent "the parties will act reasonably and try to resolve their differences, failing which either party may refer the matter for resolution in accordance with clause 29". Clause 29 contains a dispute resolution provision that requires the parties to try to negotiate a resolution to their dispute, by involving the chief executive officers, and while it requires the parties to act reasonably, it does not contain any binding process for the resolution of the dispute. Shortly put, if the parties do not consensually resolve their dispute, the defendant's refusal to give its consent will stand. 29As I have noted, the Lender Consent Matters are listed in Schedule 4. There are 12 such matters. They include, without being exhaustive, the cessation of the Project, any material change to the Project Budget or the Project Program or the Business Plan, the commencement of legal proceedings against the defendant, the making of distributions, and any proposals for funding the Project. 30The relevant definitions are in pars (j) and (k), which provide: (j) (Disposal) approving the Disposal of any Lot other than in the ordinary course of the business of the Project or as contemplated in a Project Document or the Business Plan. (k) (Disposal) sell, transfer, lease, license, surrender, forfeit, relinquish or in any other way Dispose of any of any Property other than in the ordinary course of the business of the Project or as contemplated in a Project Document or the Business Plan". 31'Dispose' was given a complicated meaning, which in essence means 'dispose of'. 32It must be noted that these paragraphs did not make any sale of any part of the Property a Lender Consent Matter irrespective of the terms of the sale. It was necessary that the sale not be in the ordinary course of business, or that it not be contemplated in a Project Document or the Business Plan. This was evidently intended to provide the defendant some level of protection in relation to proposed sales that were not in the ordinary course of business of the Project. The term 'Project' was described in the definition provision. It meant five separate projects, being the Lot 1 Retail Project, the Lot 2 Project, the Lot 3 Project, the Lot 4 Project, and the Lot 2032 Project. Each of these Projects was separately defined by reference to various Works, which were also defined. The Lot 4 Project was defined as "the development and construction works required for the construction of a residential apartment building on Lot 4 in accordance with the relevant Approved Plans, Specifications and Approvals, and all associated works." All relevant terms are defined in the Deed. The evidence did not establish what the real nature of the Project was, or the proportion of the Project in practical and financial terms that the Lot 4 Project constituted. In principle, the inability of the Garland entities to proceed with the Lot 4 Project would not necessarily mean that the whole Project would collapse. 33The paragraphs have the effect that the defendant's consent will not be required if a particular disposition is contemplated in a Project Document or the Business Plan. 'Project Document' is defined as including any Finance Document. That term is itself defined as including the Deed. Accordingly, the defendant's consent is not required if a particular disposition is contemplated by the Deed itself. 34Clause 20.1 of the Deed contains an agreement by the defendant that the relevant Garland entities "shall be entitled to enter into a Sale Contract in respect of any Lot." That agreement is subject to the proviso that "the sale of the Lot is made on arm's length terms for fair market value." The term also makes provision as to how the proceeds of sale must be dealt with. 35The defendant's interlocutory application depends upon clause 18 of the Deed being given a construction whereby it has effect as a covenant by the Garland entities not to embark upon a Lender Consent Matter without the prior written consent of the Lender. Clause 18.1 states that each Lender Consent Matter "requires the prior written consent of the Lender', but does not in express terms state that the Garland entities will not undertake the Lender Consent Matter without the prior written consent of the defendant. 36The principal construction issue on this application is whether the necessary negative covenant should be implied into the Deed on its proper construction. 37Clause 18 does not itself provide for the consequences of any failure by the Garland entities to obtain the defendant's prior written consent when that is required by the Deed. 38Clause 21.1 of the Deed sets out a list of events of default, including "(n) a Borrower, Project Entity, P&J Projects or Bartlett otherwise breaches or defaults under a Finance Document". 39As the Deed is a Project Document, a failure by the plaintiffs to comply with clause 18 would be an event of default. 40Under clause 21.3, if an event of default occurs, the defendant may serve a notice on the relevant borrowers declaring that the Total Amount Owing is immediately due and payable, and/or enforce and exercise any of its rights under any Security. 41The Total Amount Owing is for present purposes the amount of the debt owed by the Garland entities to the defendant in respect of the Project. 42'Securities' is a term defined in the definition provision as being Security Interests granted under clause 12.1, and fixed and floating charges granted by specified Garland entities. It is sufficient to note that the defendant was granted securities in respect of the loan that it made under the Deed. The grantors of those securities did not include the plaintiffs. 43It is clear that the notification that the plaintiffs gave to the defendant on 6 January 2014 was not a request for the defendant's consent to the plaintiffs undertaking a Lender Consent Matter. The notice was given after the contract of sale was entered into. It was expressed to be a fait accompli. The plaintiffs did not seek the defendant's consent. 44The first question is whether the plaintiffs were obliged to seek the defendant's consent on the basis that the entry by them into the contract of sale was indeed a Lender Consent Matter within par (j) or (k) of Schedule 4 to the Deed. As the present application is only for interlocutory relief, all that the defendant need demonstrate is that it has a seriously arguable case, or put otherwise a prima facie case that the plaintiffs were required to seek its consent. 45The answer to this question depends upon the application of the relevant provisions of the Deed, which is a question of law that the Court is entitled to determine on this interlocutory application. 46Clause 20 of the Deed was an authorisation by the defendant in favour of the plaintiffs to enter into the contract of sale that was in fact entered into, as Lot 402 falls within the definition of 'Lot', provided that the sale was made on arm's length terms for fair market value. 47There was no evidence at all that the contract of sale was other than on arm's length terms, and the defendant did not submit to the contrary. The defendant sought to rely upon the fact that the price in the conditional offer made by Xsite Solutions Pty Ltd on 8 January 2014 of $19 million plus GST was about $2 million greater than the sale price under the contract of sale (leaving aside the possibly different treatment of GST in each case). 48I do not accept that this evidence establishes, even at the interlocutory level, that the price under the contract of sale was not for fair market value. A highly conditional offer, which is not supported by any evidence as to its genuineness, is not sufficient to provide any satisfaction that the actual price that was negotiated for the purposes of the contract of sale in an arm's length manner was other than fair market value. 49I have mentioned above that the evidence did not explain how the defendant came by the letter of offer, or the revised letter of offer. There is no basis for suggesting that there is anything sinister about this fact. However, it does permit an inference that there was at least some contact between the potential purchaser and the defendant. The original offer was made on 8 January 2014. It is not known when the defendant found out about the offer, and the defendant has not given evidence to explain when that happened. The Court is entitled to place some weight on the fact that the defendant has known about the offer for an unexplained time, and has not sought to put before the Court proper evidence concerning the seriousness of the offer. 50The defendant's case that clause 20.1 of the Deed has not been satisfied has not been supported by any persuasive evidence, even on an interlocutory basis. 51The principal course that the defendant took was to argue that clause 20 was subject to clause 18 of the Deed. Clause 20 is not expressed to be subject to clause 18, and I can see no basis upon which that result could be implied. In order to avoid a spurious 'chicken and egg' problem, concerning which of clause 18 and clause 20 is subject to the other, it is necessary to start with the fact that clause 18 only requires consent in relation to dispositions that fall within pars (j) or (k) of Schedule 4. If a disposition does not fall within either definition, it cannot be a Lender Consent Matter. If a disposition is contemplated by a Project Document, which includes the Deed, it is not a Lender Consent Matter. If a particular disposition is authorised by clause 20 of the Deed, it is contemplated by the Deed. I have held that the current contract of sale was authorised by clause 20, so accordingly it was not a Lender Consent Matter. The prior consent in writing of the defendant was not required before the plaintiffs entered into the contract of sale. 52That finding is sufficient by itself to dispose of the proceedings, and to cause the Court to reject the defendant's application for interlocutory relief. 53I should add for completeness that Mr Sneddon put an argument that, on the construction of the Deed as a whole, it was necessary to construe clause 18 in a manner that effectively made clause 20 subject to clause 18, because otherwise the defendant would not be protected in relation to the recovery of the loan that it made under the Deed. That submission was to the effect that all sales required the prior written consent of the defendant, because if the defendant could not utilise the provisions in clause 18 that enabled the defendant to insist upon being provided with information concerning the proposal, the defendant would not be in a position to know whether its rights were being honoured, and if not take steps to protect itself. 54I reject that argument, first, because it is inconsistent with the natural and ordinary meaning of the terms of the Deed that I have considered above. 55Secondly, the defendant is specifically and expressly protected by the terms of clause 20 itself, which require that the sale be at arm's length and for fair market value, and for the proceeds of sale to be dealt with in an appropriate way. 56Thirdly, as I have noted, clause 18 does not contain any express covenant by the Garland entities not to undertake a Lender Consent Matter without the prior written consent of the defendant. The proper construction of the Deed requires the conclusion that, if required consent is in fact not obtained, the result is that there is then an event of default within the meaning of clause 21.1. The defendant has the protection of being entitled to demand repayment of the whole of the debt immediately, and to enforce the securities that it agreed to accept as being sufficient for it to make the advance. 57The Deed would probably be commercially unworkable if a different construction was placed on the relevant terms. The defendant would be given an absolute and perpetual right to decline for any reason whatsoever to give its written consent. That would apply not only to the subject matter of pars (j) and (k), but all of the other matters listed in Schedule 4A. A conclusion that that result was objectively intended by the parties to the Deed is unwarranted. 58Additionally, I am not satisfied on the evidence that the balance of convenience favours the granting of the interlocutory injunction that the defendant now seeks, even though the relief is now claimed on a short-term basis. 59First, the evidence establishes that under the current contract of sale the plaintiffs are required to carry out many steps, including arranging for existing contracts that have been entered into with purchasers of the apartments that are proposed to be constructed on Lot 402 to be novated in favour of the purchaser. If the plaintiffs are prohibited from taking those steps, the continuing operation of the contract of sale may be jeopardised, and the plaintiffs may be subjected to a very real risk of being held liable to the purchaser for significant damages. 60The evidence does not demonstrate that, if the plaintiffs are restrained from proceeding with the current contract of sale, there is a sufficiently real prospect that the plaintiffs will be able to find any alternative purchaser, let alone a purchaser who will pay significantly more than the purchase price under the current contract, to justify the granting of interlocutory relief. 61Even if it were to be assumed that the proposed purchaser under the conditional offer that I have referred to above would enter into and complete an alternative contract of sale for a price of $19 million plus GST, the defendant has not shown by evidence that it would thereby receive some partial repayment of its debt that it will not receive if the current contract of sale is completed. 62As I have noted above, the Lot 4 Project is only part of the whole Project. The Deed contains provisions for dealing with the disposal of the proceeds of sale of each part of the Project, and ultimately clause 8.6 provides for what is commonly called a 'waterfall' of payments in which the defendant is given a particular priority as to receipt of the interest and the capital to which it is entitled. There is simply no evidence about the ultimate effect of the current contract of sale being completed on the defendant's prospects of receiving some or all of the money to which it is entitled. The evidence establishes that the Garland entities have been in default under the Deed since 31 December 2012. The Court could not be confident on the issue of the balance of convenience without having the advantage of more substantial evidence as to what the overall position is concerning the whole of the Project, and how the Lot 4 Project fits into the scheme of things. 63Ultimately, the problem that the defendant has with the issue of the balance of convenience is that the evidence does not satisfy the Court that any parties will be better off if the interlocutory injunction is granted than if it is not. 64It would not be proper for the Court to grant the short term injunction that is now sought, unless the Court was satisfied that there was a realistic possibility that the Court might grant the final injunction at some stage, and also that it is proper for the short-term interlocutory injunction to be granted. The Court must ask itself, what useful result may be achieved if the interlocutory injunction is granted for one week? The defendant says that in that time it will be able to call on the notices to produce, and will have the benefit of a consideration of any documents that are produced. As I am satisfied that on the proper construction of the Deed the entry by the plaintiffs into the current contract of sale did not involve a Lender Consent Matter, I cannot see any purpose in granting the short term injunction, which in the circumstances would operate more in the nature of a preliminary discovery, rather than a proper interlocutory injunction. The defendant simply did not make it sufficiently clear to me what it is that might usefully happen at the end of the week. 65In these circumstances I will dismiss the claim made by the defendant in prayer 1 of its claim for interlocutory relief in its cross-claim. 66The parties have not yet been given an opportunity to address the issue of costs, and I will hear them on that subject when I deliver these reasons for judgment. 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 March 2014