Mariner Corporation Limited v Suncorp-Metway Limited [2014] NSWSC 1876

Supreme Court New South Wales

Medium Neutral Citation: Mariner Corporation Limited v Suncorp-Metway Limited [2014] NSWSC 1876 Hearing dates: 26 March 2014 Decision date: 26 March 2014 Jurisdiction: Equity Division - Duty List Before: Brereton J Decision: Operation of caveats extended. Catchwords: REAL PROPERTY – Torrens title – caveats – application to extend operation – whether seriously arguable case for caveatable interest – balance of convenience Cases Cited: Martyn v Glennan [1979] 2 NSWLR 234 Category: Procedural and other rulings Parties: Mariner Corporation Limited (plaintiff) Suncorp-Metway Limited (defendant) Representation: Counsel: S J Burchett (plaintiff) D L Cook (defendant)

Solicitors: Piper Alderman (plaintiff) Norton Rose Fulbright Australia (defendant) File Number(s): 2014/86353

Judgment (ex tempore) 1. HIS HONOUR: In or about June 2013, the plaintiff Mariner Corporation Limited by its Chief Executive Officer Darren Olney-Fraser commenced negotiations with the defendant Suncorp-Metway Ltd, a bank, with a view to acquiring debt owed to Suncorp-Metway by Becton Living Hervey Bay Pty Ltd, then in the order of $7.878 million, which was secured over a development site at Wahroonga on which it was proposed to build or extend a retirement village. 2. Pursuant to those negotiations, on 19 September 2013, Suncorp-Metway as vendor and Mariner as purchaser entered into agreements of that date by which Mariner agreed to purchase and Suncorp-Metway to sell the Becton debt for a price of $7.6 million, which represented a discount of approximately 3.75 per cent on the debt. Mariner paid a non-refundable "negotiation fee" of $380,000 to Suncorp-Metway on or about 19 September 2013. The transaction documentation comprised an assignment deed which provided for the assignment by Suncorp-Metway to Mariner of "all of its rights, title and interest in the assigned assets free of any encumbrance together with all the rights, remedies and resource in respect of the same" and incorporated the "agreed terms", to which I shall come. The assigned assets meant any and all of the assignor's present and future rights, title and interest in and in respect of in essence the Becton debt and the security for the Becton debt. The relevant securities included mortgages over the land at Wahroonga. 3. The agreed terms comprised a "loan market association trade confirmation" dated 19 September 2013, which relevantly identified the settlement date as 18 November 2013, and the "loan market association standard terms and conditions for par and distressed trade transactions", in which "settlement date" was defined as "the date on which settlement of the transaction occurs"; clause 6.1 provided that "each of the seller and the buyer shall use its reasonable endeavours to ensure that any conditions specified in the agreed term are duly fulfilled on or before the settlement date"; clause 10.1, headed "Settlement Date", provided that "unless otherwise specified in the agreed terms, the seller and the buyer shall use their reasonable endeavours to settle the transaction as soon as reasonably practicable"; and clause 22.3 ("Buy in/Sell Out") provided a procedure which a non-defaulting party could if it wished invoke to bring about a resale of the debt and measure the deficiency on resale affording the defaulting party due protection in respect of any such resale, providing that upon completion of such a resale there would be no failure by either party to perform its settlement deliberate obligations and also providing an opportunity to the defaulting party to remedy the default after the buy in/sell out procedure had been invoked. The transaction documents do not appear to contain any other provisions expressly dealing with events of default or termination for default. The buy in/sell out clause provides a "substitute settlement date" in the event that the procedure for which that clause provides is invoked. 4. Between 15 November and 17 December 2013, there were communications between the parties about a possible restructure of the transaction. To the extent that it is necessary to reach any conclusion in this respect at this stage, I do not think it is seriously arguable - and for that matter it was not submitted - that those communications resulted in any enforceable agreement or amendment or variation of the existing agreement. 5. On 15 November 2013, the solicitors for Suncorp-Metway agreed at the request of Mariner to extend the settlement date to 19 December 2013. Prior to 19 December 2013, there were a number of further communications between the parties. On 10 December, Mariner's chairman communicated to Suncorp-Metway that they did not realistically expect to have funding in place "this side of Christmas" and requested that instructions be sought on a further extension. That request was refused, and on 17 December 2013 Suncorp-Metway 's solicitors advised that Suncorp-Metway "will not agree to the request to extend settlement to 18 February 2013. Accordingly, we confirm that settlement of the debt sale is scheduled to be effected on 19 December 2013". 6. In subsequent communications, a time for settlement was appointed and the requirement for a bank cheque for the balance purchase price specified. A place for settlement in Melbourne was also agreed. On 19 December, representatives of both parties attended at the appointed time for a dry run of the settlement in the morning and again for the settlement itself that afternoon. The evidence is somewhat elliptical as to exactly what happened, save that settlement did not take place, the representative of Mariner did not tender a cheque, and the representative of Suncorp-Metway did not hand over the settlement documents, although all those documents were available and had been inspected on behalf of Mariner that morning. 7. For present purposes, given the preceding indications that Mariner was not likely to have its funding in place, the absence of response to a notice to produce any cheque that it did have on that occasion, and the circumstance that none was tendered, I would infer that Mariner was not in a position to pay the balance purchase price on 19 December and was not then ready, willing and able to complete the contract. On the other hand from the evidence of what happened at the time of the dry run of the settlement and the production of all relevant documents and the absence of any apparent dispute about their adequacy, I would infer that Suncorp-Metway was in a position and ready, willing and able to complete on that occasion. 8. After settlement did not proceed on the afternoon of 19 December, Suncorp-Metway sent to Mariner a letter of that date which purported to confirm that "our client was ready, willing and able to settle and that Mariner failed to effect settlement in accordance with the terms of the trade confirmation". The letter from Suncorp-Metway 's solicitors asserted that the failure to effect settlement was a fundamental breach of the trade confirmation and "our client reserves all of its rights". 9. On 20 December, Suncorp's solicitors sent a further letter to Mariner restating that the failure to effect settlement the preceding day was a fundamental breach and that "Suncorp elects to terminate the assignment deed and the trade confirmation" and otherwise reserving Suncorp's rights. Subsequently, also on 20 December, Mariner sent to Suncorp-Metway a letter, albeit dated 19 December, in very similar terms purporting to confirm that Mariner would have been ready, willing and able to settle if Suncorp-Metway had been, and that Suncorp-Metway failed to effect settlement in accordance with the terms of the "settlement terms", alleging that that was a fundamental breach, reserving all of its rights and advising that it had "caveated the land to protect its interest". 10. On 27 December 2013, the caveats the subject of these proceedings, dated 19 December 2013, were registered in respect of the Wahroonga land. 11. Subsequently, on 4 February 2014, Mariner purported to serve on Suncorp-Metway a notice to complete purporting to require completion on 28 February 2014 in terms that required prior delivery of a contract of sale and amended deed of assignment in accordance with an alleged amended contract. As I have said, it is not in my view seriously arguable that there was any amended contract. Suncorp-Metway responded that the transaction had been terminated on 20 December 2013 and they would not be attending settlement. 12. On 19 February 2014, Mariner sought a meeting to resolve the impasse. On 26 February, Suncorp served lapsing notices in respect of the caveats, which were received on or about 28 February 2014. By summons filed on 21 March 2014, Mariner claimed interlocutory relief extending the operation of the caveats and, by way of final relief, declarations that the purported termination of the agreement was of no force and effect, and specific performance of the agreement. The operation of the caveats was extended on an interim basis until today. 13. As is now well established by the authorities (see for example Martyn v Glennan [1979] 2 NSWLR 234) on an application for the interlocutory extension of a caveat, the court adopts essentially the same approach as it does on an application for an interlocutory injunction. Thus the caveator is required to establish a seriously arguable case that it has a caveatable interest in the land and that the balance of convenience favours the maintenance rather than the lapsing of the caveat. That said, because interest in land and priorities in respect of those interests are often concerned, the balance of convenience tends to play a lesser role in this type of case if it is established that there is a seriously arguable case that there is a caveatable interest. 14. In this case, the interest as described in the caveats is as follows: Equitable interest as assignee under deed of assignment dated 19 September 2013. 1. The reader of that claim would think that the caveator was claiming an interest as beneficial owner pursuant to an assignment of an interest in the land, whereas in fact the caveator's interest if any is as assignee of a security interest under the relevant mortgages. For that reason, the caveats are at least arguably defective, but the plaintiff has addressed that by filing today by leave an amended summons which claims in the alternative leave to lodge amended caveats or further caveats describing the interest claimed as: Equitable interest as assignee under deed of assignment dated 19 September 2013 of the interest of the assignor Suncorp-Metway Limited as mortgagee of the land securing assigned debts. 1. No suggestion has been made, nor do I think it could be, that such a description would inadequately describe the true interest claimed by the caveator. 2. The caveator's interest is said to arise by reason of an enforceable agreement between it and Suncorp-Metway for the assignment of Suncorp-Metway's interest as mortgagee in respect of the subject land. 3. There are, it seems to me, three real questions that then arise. The first is whether the purported termination of the agreement on 20 December 2013 was valid and effective on the ground that there was a failure to comply with a fundamental term being an essential time condition; the second is whether the agreements are no longer on foot on account of repudiation by Mariner which has been accepted by Suncorp; and the third is whether in any event the agreements would be specifically enforced. Of course, at this stage of proceedings all the plaintiff need do is establish that it has a seriously arguable case on each of those issues. 4. 19 As to the first, the real question is whether time was essential. True it is this agreement was in substance and reality an agreement for the sale of debt and not an agreement for the sale of land, albeit that it included an agreement to transfer a security interest in land as a component of it. Had that been all, it may well have been difficult to conclude that time was other than essential as it typically is in commercial contracts, particularly contracts where the time value of money is relevant such as share sales and, it seems to me, quite potentially the sale of distressed debt. But there are other indicia in this case. I have referred to the relevant terms of the contract above, but in its internal references to the settlement date, and in its inclusion of the provision found in clause 22.3, there are I think sufficient indicia that time was not regarded as essential that I must, at least at this stage, find it seriously arguable that this was an agreement in which time was not essential. The communications that took place between the parties in the days before 19 December 2013 did not purport to make time essential, although they fixed a time and place for settlement, and they did not contain any of the classic formulae that would have that effect, such as an indication that the right to terminate was reserved in the event completion did not take place. 5. Having regard to the agreed extension from November to December on terms that did not include any reference to essentiality, and the absence of any reference in the ensuing correspondence prior to 19 December to essentiality, it seems to me seriously arguable that time was not essential under the contract, and that time was not made essential by notice prior to 19 December. Accordingly, it is seriously arguable that Suncorp-Metway was not entitled to terminate for breach of an essential time provision. 6. As to repudiation, Suncorp-Metway's argument is that by insisting on completion other than in accordance with the terms of the agreement and in particular by insisting on an additional land contract in respect of the adjoining land, Mariner was demonstrating a refusal to perform the contract in accordance with its terms and a preparedness to perform it only in accordance with different terms acceptable to Mariner. There is force in this argument, but again that is not the test at this stage. The question is whether the contrary is seriously arguable. Although in the correspondence prior to 19 December Mariner had sought the provision of a contract for sale of the adjoining land and had asserted that there was an agreement arising from an email from Suncorp-Metway that indicated terms on which it might be prepared to sell the adjoining land and a belated response from Mariner professing to accept those terms, the final relevant communication on the topic seems to have been Mr Olney-Fraser's email of 19 December at 12.24pm, in which he said: We accept that land can only be sold under a contract of sale. Our point is that Suncorp-Metway has offered to vary the assignment deed by providing a contract for the land contemporaneous with settlement and we have accepted that offer. We do not understand why Suncorp is resisting a sale of the land" which to my mind is consistent with a lay person saying "we accept that there is not a binding agreement although we thought we had an informal agreement in that respect. 1. I do not think it is other than arguable that what took place in this respect up to 19 December did not go so far as to be a repudiation of the contract. Accordingly, again it seems to me seriously arguable for relevant purposes that Suncorp-Metway was not entitled to terminate for repudiation by Mariner of the agreement for sale of debt. 2. As to whether the contract would be specifically enforced by the court, I have found this perhaps the most difficult of the questions. As I have said the contract is in substance one for sale of debt. Prima facie Mariner would be entitled under it to receive the debt of $8.78 million for which it was paying about $8.75 million, and the securities that secured that debt. Having received the subject matter of the contract, it would be entitled to recover the debt from Becton and, to the extent necessary, to enforce the securities for that purpose. Prima facie, its loss if the contract is not completed is the profit it would have made on the transaction, being the difference between the book value of the debt and the price paid, an amount in the order of $340,000. Again, prima facie, damages would seem to be an ample remedy for any such breach. Such an approach would be consistent with equity's view that ordinarily contracts for the loan of money secured or unsecured are not specifically enforced. 3. But Mariner says that this debt is no ordinary debt, but one of special and particular interest and value to it. It says that it has an interest in the retirement village business, and although the evidence on that is very slight, some of its public utterances and reports do refer to it having been engaged in the aged care sector. It is clear from public announcements made at about the time of the agreements that Mariner purchased this debt in the capacity of a so-called "white knight" to "save" the retirement village - part of which was already operating on nearby land and in the development of which it seems that some potential residents had already expressed interest - from being defeated by a sale by the mortgagee in possession. In other words, Mariner's case is that this is not a transaction the benefit of which to it can be fully or properly compensated in damages. 4. There are cases in which the court has specifically enforced contracts to make loans, and likewise it seems to me that if at final hearing it were established that this particular debt was, for the reasons I have described, a matter of specific and particular interest to Mariner, then it is not inconceivable that specific performance would be granted. For those reasons, it seems to me that there is a sufficiently seriously arguable case of a caveatable interest, bearing in mind in particular that the claim arises out of an agreement to, inter alia, assign securities in land, as to require consideration of the balance of convenience. 5. As to the balance of convenience, the question is essentially whether the injustice to the defendant from wrongly extending the caveat would outweigh the injustice to the plaintiff from wrongly declining to extend it. If the court were wrongly to decline to extend the caveat, Mariner would suffer the financial loss of about $340,000 to which I have referred. That would be recoverable by way of damages and there is no suggestion that the defendant would not be able to meet such a claim. However, Mariner would also be defeated in seeking the very object for which it claims specific performance, namely to be in a position to protect the proposed retirement village development from mortgagee sale. 6. If I were wrongly to grant an injunction, Suncorp-Metway would lose a sale which it has currently negotiated of the subject land for what, in the light of the price agreed by Mariner, appears not an unreasonable sum. Because that contract contains clauses which enable Suncorp-Metway to escape from the contract or extend its term if it is prevented from completing by, for example, Mariner's caveats, Suncorp-Metway will not incur liability under the contract in the event that the caveats are extended. However, it will lose the benefit of the current contract. That said, it will retain the land and would be able to resell it if necessary at a later date. 7. The evidence does not enable one to speculate whether the current price is a good price or not, or whether a delay in being able to sell the land would be likely to incur additional loss or not. There is a risk that it would and there is a likelihood that if it did Mariner which appears to be in financial distress itself, would not be able to meet any such loss. Against that, Suncorp-Metway already has the benefit of the $380,000 non-refundable negotiation fee. 8. There is also significant doubt as to whether Mariner will ever be in a position to complete the agreement. As I have said it appears to be in considerable financial difficulties. It has not adduced evidence that it is ready, willing and able to complete, and there is no small amount of evidence that casts doubt on its ability to do so. All of that said, the time for it to establish its ability to complete, namely when completion is fixed by a valid and effective notice to complete, has not yet arrived. 9. In those circumstances it seems to me that the least prejudice will be occasioned by a course which does not effectively permit the ultimate result of de facto termination of the agreement other than in accordance with a valid notice to complete, to be achieved. That means that the balance of convenience favours the extension of the caveats. However it should not be overlooked that, by giving a valid notice to complete, it remains in the power of Suncorp-Metway to bring matters to a head in a relatively short time. For that reason I would reserve leave to Suncorp-Metway to apply to vary the interlocutory orders the court will make. 10. The court orders that: 1. Upon the plaintiff by its counsel giving to the court the usual undertaking as to damages, the operation of caveats AI262207, AI261773, AI262208, AI261790, AI261801, AI261746, AI261763 and AI262198 be extended until further order of the court. 2. The proceedings be adjourned to Friday, 4 April 2014 in the expedition list. 3. The defendant file and serve a notice of motion for expedition and affidavit in support by Monday, 31 March 2014 such motion to be returnable before the expedition judge on Friday, 4 April 2014. 4. Costs of the interlocutory application be costs in the proceedings. 1. These orders may be entered forthwith.