Home
| Databases
| WorldLII
| Search
| Feedback
Supreme Court of Victoria |
Last Updated: 22 June 2022
COMMON LAW DIVISION
|
|
|
|
|
|
---
JUDGE:
|
|
WHERE HELD:
|
|
DATE OF HEARING:
|
|
CASE MAY BE CITED AS:
|
|
MEDIUM NEUTRAL CITATION:
|
PRACTICE AND PROCEDURE – Application to vary undertakings –
Whether changed circumstances justify variation of undertakings
– Whether
the interests of justice favour variation of undertakings.
INJUNCTIONS
– Application for injunction to restrain mortgagee sale of land by private
contract – Whether mortgagee acting
in good faith – Whether
mortgagee having regard to the interests of mortgagor – Whether mortgagee
should be ordered to
sell land by competitive sale process – s 77
Transfer of Land Act 1958.
---
APPEARANCES:
|
Counsel
|
Solicitors
|
For the Plaintiffs
|
Tisher Liner FC Law
|
|
|
|
|
For the First Defendant
|
United Associates Barristers & Solicitors
|
|
|
|
|
For the Second Defendant
|
No Appearance
|
|
|
|
|
For the Third Defendant
|
Mr S Hay QC with
Mr J McKay |
Jem Lawyers Pty Ltd
|
Introduction
1 The primary issue in dispute between the
parties is whether the first defendant, Qi Yong 7 Pty Ltd (‘QY7’),
is permitted
to enter into a contract (‘proposed contract’) for the
sale of the land at 328–338 McKimmies Road, Mill Park (‘Land’)
with the second plaintiff, Belmont Collection Lo Pty Ltd
(‘Belmont’). Belmont is a company owned and controlled by the
first
plaintiff, Mr Branko Atanasovski (together ‘the Atanasovski
parties’). QY7 is the holder of the first registered
mortgage over the
Land and seeks to exercise its power of sale under s 77(1) of the Transfer of
Land Act 1958 (‘the Act’). The third defendant, Bundoora
Park Estate Holdings (‘Bundoora’), is the current registered
proprietor of the
Land and resists QY7’s sale of the Land to the
Atanasovski parties.
2 Two principal issues for
determination are as follows. First, whether the Atanasovski parties and QY7
should be released from the
undertaking proffered to the Court by its counsel on
29 September 2021, as varied by the Court on 28 April 2022
(‘Undertaking’).
The Undertaking prevents QY7 from taking any step
to sell or buy the Land or alter Bundoora’s registered proprietorship of
the Land. QY7’s entry into the proposed contract is therefore prevented
by the Undertaking it has proffered.
3 Second, in
the event that QY7 and the Atanasovski parties are released from the
Undertaking, Bundoora, by summons dated 2 June
2022, seeks an interlocutory
injunction to restrain QY7 from exercising its power of sale on the grounds that
the proposed sale constitutes
a breach of QY7’s duties under s 77(1) of
the Act.
4 I have concluded that it is in the
interests of justice for the Atansovski parties and QY7 to be released from the
Undertaking.
Bundoora’s application for an injunction to restrain the
Atanasovski parties from purchasing the Land from QY7 for $14.75
million is
rejected. Bundoora has established a serious question to be tried that the
proposed sale is not a lawful exercise of
the power conferred by s 77 of the
Act. However, the balance of convenience strongly favours the refusal of
the injunction application. The undertaking as to damages
proffered in support
of the application for an injunction is not an undertaking of substance.
Damages are an adequate alternative
remedy. The $14.75 million which the
Atanasovski parties will pay QY7 has the advantage of being certain and timely
satisfaction
of the debt currently owed to QY7 by Bundoora.
Background
5 Prior to 18 July 2019, the Land was
owned by 328–338 McKimmies Road Pty Ltd (‘McKimmies’), a
company controlled
by Mr Atanasovski. In September 2018, Mr Nhut Quang Dai
Huynh, the sole director of Bundoora made an offer to purchase the Land
from the
Atanasovski parties for $16.8
million.0F[1] Settlement was to occur
on 18 July 2019.
6 Bundoora was unable to secure
finance by the date of settlement. In order to avoid the settlement not going
ahead, the Atanasovski
parties advanced $1.18 million in vendor finance to
Bundoora, securing the loan in the name of McKimmies. McKimmies was granted
a
third registered mortgage over the Land. Mr Huynh acted as guarantor for
Bundoora.
7 In order to finance the purchase of the
Land, Bundoora had previously secured two other mortgages. QY7 held the first
mortgage
over the Land valued at $10.269 million (‘QY7 Mortgage’).
A related entity, Qi Yong 8 Pty Ltd (‘QY8’), held
the second
mortgage over the Land valued at $2 million.
8 The
QY7 Mortgage commenced on 18 July 2019. Under the mortgage, the $10.269 million
was to be repaid within twelve months of the
commencement date. Interest was
fixed at a rate of between 9.00–14.00%, with payments to be made
monthly.1F[2] It is common ground
between the parties that interest accrued under the three mortgages at a rate of
approximately $200,000 per
month.2F[3]
9 On
25 July 2019, Havenport Fixed Maturity Fund SPC (‘Havenport’) lodged
a caveat over the Land pursuant to an agreement
between Havenport and Bundoora
under which Havenport had loaned monies to enable the payment of the deposit on
the Land.
10 On 14 October 2019, Bundoora entered
into a contract to sell the Land to a related entity, Bundoora Park Estate
Development Pty
Ltd (‘BPED’) for $14.7 million, with settlement due
on 10 January 2021 (‘BPED
Contract’).3F[4] Toorak
Property Holding Pty Ltd, a company under the control of Mr Huynh was nominated
as transferee under the BPED Contract. Bundoora
had earlier entered into an
agreement with BPED on 12 December 2018, under which BPED would develop the
Land.4F[5] That contract did not
proceed to settlement because as at the proposed settlement date of 10 January
2021 QY7 was mortgagee in possession
of the
Land.
11 On 28 February 2020, Havenport appointed Ms
Leanne Chesser and Mr Craig Shepard of KordaMentha as receivers and managers of
Bundoora,
who subsequently took steps to sell the Land. In his affidavit dated
7 March 2022, Mr Huynh deposed that the Receivers were unable
to obtain a price
better than $14.7 million:
As I understand it, the Receivers then attempted to market and sell the Land through the estate agent JLL International. However, I was informed by Ms Dai that the Receivers could not obtain an offer that exceeded the BPED Contract price, and had declined to sell the Land.5F[6]
12 The receivers resigned on 29 May 2020,
having incurred fees of $236,249.46 in attempting to sell the Land
(‘Havenport Receivers’
Fees’). A caveat in respect of these
fees was subsequently lodged on the Land on 6 October 2020.
13 On 2 March 2020, QY7 issued a default notice to
Bundoora claiming repayment of unpaid interest accruing from 17 November 2019
(‘First
Default
Notice’).6F[7] The notice gave
Bundoora 14 days to repay interest payments due under the mortgage, which were
specified in the notice as amounting
to $236,610. Upon failure to comply with
the First Default Notice, QY7 took possession as mortgagee of the Land on 17
March 2020.
14 Following the Receivers’
failed sale campaign, QY7 undertook a further expression of interest campaign in
June 2020 through
real estate agents Knight
Frank.7F[8] QY7 sought to obtain a
price better than the $14.7 million under the BPED
Contract.8F[9]
15 On 23 June 2020, QY7 entered into a contract of
sale to sell the Land to the Atanasovski parties, with the second plaintiff,
Belmont,
nominated as the transferee of the Land (‘first contract’).
Under the contract, the Land was to be sold to the Atanasovski
parties for $12.5
million with settlement to occur on 1 September 2021.
16 On 27 July 2020, Mr Atanasovski lodged a caveat
on the title (AT462476G) to protect his interest as purchaser of the Land.
Proceedings in the Supreme Court
17 On 30 August 2021, two days prior to
the proposed settlement of the first contract, Huu Loi Yarra Valley Pty Ltd
(‘Huu Loi’)
lodged a caveat on the Land, claiming that it was a
creditor of Bundoora and that it held an interest in the nature of an implied,
resulting or constructive trust in the Land. On 3 September 2021, the
Atanasovski parties commenced a proceeding in this court (S
ECI 2021 03232)
seeking to remove the caveat. The Atanasovski parties’ claims against Huu
Loi were resolved on 8 September
2021 with Huu Loi agreeing to remove its caveat
upon settlement of the sale to the Atanasovski parties.
18 Havenport and the Atanasovski parties entered
into an agreement for the Havenport Receivers’ Fees to be paid out of the
sale
of the Land. Havenport was subsequently joined to the proceeding against
Huu Loi. Justice Croucher made orders on 10 September 2021
reflecting the
agreement reached between Havenport and the Atanasovski parties.
19 On 13 September 2021, Bundoora commenced
proceedings (S ECI 2021 03338) against QY7, QY8, and the Atanasovski parties
seeking injunctions
to restrain QY7 from completing the first contract. The
proceedings were withdrawn and subsequently dismissed on 17 September 2021.
20 On 20 September 2021, following QY7’s
failure to proceed to settlement, the Atanasovski parties commenced proceedings
(S
ECI 2021 03427) against QY7 and its solicitors, the second defendant in this
proceeding, United Associates Barristers and Solicitors
(‘UABS’)
seeking specific performance of the first
contract.
21 On 23 September 2021, Bundoora
commenced a further proceeding (S ECI 2021 03485) against QY7 and the
Atanasovski parties seeking
an order to set aside the first contract. A
directions hearing in this matter was held on 29 September 2021 before
Cavanough J.
As recorded in the ‘Other Matters’ section of the
orders by his Honour of that day, the defendants gave an undertaking
to the
Court that:
The defendants, by their counsel, undertake to the Court that, until the hearing and determination of this proceeding or further order, the defendants will not, whether by themselves, their officers, servants or agents:
...
b. take any step to:
i. sell or buy (as the case may be) the Land; or
ii. alter the plaintiff’s registered proprietorship of the Land.9F[10]
This is the Undertaking sought to be
varied by QY7 and the Atanasovski parties.
22 On 1
October 2021, QY7 commenced proceedings (S ECI 2021 03591) against the
Atanasovski parties, seeking a declaration from the
Court that it was not
obliged to complete the first contract and that the contract was voidable.
23 Subsequently, on 12 October 2021, Matthews AsJ
made orders consolidating the various proceedings commenced on 12, 20 and 23
September
into a single proceeding. While the proceeding was originally listed
for trial on 19 October 2021, the Associate Judge granted leave
for the
Atanasovski parties to file an amended originating motion. The 19 October 2021
trial date was vacated and the proceeding
was set down for trial on 3 May 2022.
24 By their statement of claim, as amended on 6
April 2022, the Atanasovski parties make various claims against QY7 and
Bundoora.
They seek specific performance of the first contract as against QY7.
In the alternative, the Atanasovski parties seek damages from
QY7 under various
heads of damages (‘Atanasovski Damages Claim’). They claim for the
difference between the price payable
under the first contract and the value of
the Land as at 1 September 2021. The Atanasovski parties also seek damages for
wasted
costs relating to a proposed development plan, as well as damages for
lost profits arising from the proposed development of the Land.
25 As against Bundoora, the Atanasovski parties
claim that Bundoora has, by its conduct, represented to the Atanasovski parties
that
QY7 had a valid power of sale and that the first contract is enforceable.
On that basis, the Atanasovski parties make claims against
Bundoora under the
Australian Consumer Law or alternatively in equitable estoppel,
seeking damages at law and in equity,
respectively.
26 By its defence, QY7 admits that it
did not have the power to enter into first contract. It is admitted by QY7 that
the notice
of default served on Bundoora on 2 March 2020 did not, by reason of
incorrectly stating the amount owing under the QY7 Mortgage,
comply with the
requirements of s 76(1) of the Act. It claims that the contract cannot
be specifically performed.
27 By its counterclaim,
Bundoora seeks declarations that the contract is unenforceable as the power of
sale either did not properly
arise, or that QY7’s exercise thereof did not
comply with s 77(1) of the Act.
28 Between
October 2021 and March 2022 the parties filed material in preparation for the
trial that was to commence on 3 May 2022.
This material included an expert
valuation report dated 16 February 2022 filed by the plaintiff and authored by
Ms Luana Kenny of
m3 Property.
Proceedings in the County Court and Statutory Demand Proceeding
29 On 9 November 2021, McKimmies
initiated proceedings against Bundoora and Mr Huynh in the County Court of
Victoria to recover the
amount owing under the mortgage. The amount claimed by
McKimmies totalled
$1,808,145.40.10F[11]
30 On
30 November 2021, McKimmies was successful in obtaining judgment in default of
appearance in the County Court
proceeding.11F[12]
31 Following non-payment of the default judgment,
McKimmies served a creditor’s statutory demand on Bundoora on 7 December
2021.
On 21 December, Bundoora initiated proceedings in this Court (S ECI 2021
04862) seeking orders under ss 459G and 459J(1)(b) of the
Corporations
Act to set aside the statutory demand on the grounds of abuse of process
(‘Statutory Demand Proceeding’). The matter was
set down for
hearing before Efthim AsJ on 11 April 2022.
32 Prior to the hearing before the Associate Judge,
on 29 March 2022, Bundoora filed a summons seeking an order pursuant to r 9.06
of the Supreme Court (General Civil Procedure) Rules 2015 that McKimmies
be joined to the present proceeding as the Fourth Defendant by
counterclaim.12F[13] Bundoora also
sought leave to file an amended defence and counterclaim which included, amongst
other amendments, the addition of
a collateral abuse of process
claim.13F[14] Bundoora contended
that the statutory demand had been initiated by McKimmies for the collateral
purpose of winding up Bundoora in
order to preclude it from successfully
pursuing its defence and counterclaim in the present
proceeding.14F[15] The prayer for
relief in the proposed amended defence and counterclaim included an injunction
to restrain McKimmies from prosecuting
proceedings to wind up Bundoora until the
hearing and determination of the present
proceeding.
33 In my ruling dated 31 March 2022, I
refused the joinder of McKimmies and the amendment to include a collateral abuse
of process
claim in the proposed amended defence and counterclaim. No
satisfactory explanation had been provided as to why Bundoora did not
apply for
joinder of McKimmies and amendment to its pleadings at or about the time it was
served with the statutory demand on 7 December
2021.15F[16] Further, no sound
reason was advanced as to why the Associate Judge should not hear and determine
the collateral abuse argument
in the context of the application to set aside the
statutory
demand.16F[17]
34 The
hearing before Efthim AsJ proceeded on 11 April 2022. As his Honour’s
judgment records, Bundoora contended that McKimmies
issued the statutory demand in order to wind up the plaintiff not in order to recover a debt but, rather, to prevent the plaintiff from obtaining finance and placing it in the hands of a liquidator who, with regard to the Consolidated Proceedings, would either not oppose Mr Atanasovski’s claim or, being unable to make a decision prior to the trial date, would not be able to provide effective opposition to Mr Atanasovski’s claim for specific performance.17F[18]
35 In his judgment delivered on 19 May 2022, his Honour determined that the issuing of the statutory demand did not constitute an abuse of process.18F[19] His Honour found that owing to the failure to comply with the statutory demand, Bundoora was presumed to be insolvent.19F[20]
The Deed of Settlement and Proposed Contract
36 On 22 April 2022, the Atanasovski parties and QY7, QY8 and UABS entered into a deed of settlement. The deed annexed the proposed contract for sale of the Land, under which the Atanasovski parties will purchase the Land for $14.75 million.20F[21] Clause 2 of the deed of settlement set out a number of conditions precedent before the proposed contract could be entered into:
(a) Each of QY7 and the Atanasovski Parties making an application to the Supreme Court of Victoria, in the case of QY7 by no later than the next business day after entering into this deed and in the case of the Atanasovski Parties by no later than seven days before the hearing of that part of QY7’s application that relates to the entry into the New Contract of Sale, to be released from or to vary the undertakings they each gave to the Court on 29 September 2021, through their respective Counsel, and recorded in the Orders made on that date by The Honourable Justice Cavanough in the Fourth Proceeding (Undertaking);
(b) The Supreme Court of Victoria releasing or varying each of QY7 and the Atanasovski Parties from the Undertaking sufficiently to enable the parties to give effect to this Deed and the New Contract Sale;
(c) QY7 serving a fresh Default Notice complying with the requirements of the first mortgage and ss 76 and 77(1) of the Transfer of Land Act 1958 (Vic.), on Bundoora, each other person who appears by the Registrar to be affected by those notices and any guarantors to those loans, in accordance with the terms of the applicable loan agreements and mortgages;
(d) Bundoora and any guarantors failing to comply with the Default Notice referred to in clause 2(c); and
(e) The expiry of the Default Notice referred in clause 2(c) above.21F[22]
37 Pursuant to the deed of settlement,
the Atanasovski parties are to pay $14.75 million to QY7, which is to be
partially set off
by payment of $3,377,610 by QY7 to Belmont in settlement of
the Atanasovski Damages Claim made in these proceedings. Importantly,
both QY8
and McKimmies, the holders of the other registered mortgages over the Land,
consent to the sale
price.22F[23]
38 On
26 April 2022, QY7 applied to vary the Undertaking so as to allow it to serve a
fresh notice of default on Bundoora pursuant
to s 76 of the Act
(‘Second Notice of Default’). By that point, the principal sum
of $10.269 million had not been repaid and $2,374,467.61
of unpaid interest had
accrued over the course of the mortgage. QY7 had not received an interest
payment since 18 January
2021.23F[24]
39 In
the event of non-compliance with the Second Notice of Default, QY7 applied to
vary the Undertaking to permit QY7 and Belmont
to enter into and settle the
proposed contract on terms substantially the same as those proposed in the 22
April 2022 deed of settlement.
The relief sought necessitated vacation of the
trial scheduled to commence on 3 May
2022.24F[25]
40 At
the hearing of the application by summons on 28 April 2022, Bundoora requested
that service of the Second Notice of Default
be delayed to allow Bundoora
additional time in which to obtain finance in order to redeem the
mortgage.25F[26]
41 On
28 April 2022, I ruled that in circumstances where QY7 sought a significant
indulgence, it was fair and reasonable that Bundoora
should be afforded a
realistic opportunity to raise the funds necessary to redeem the
mortgage.26F[27] I ordered that the
Undertaking be varied to permit a Second Notice of Default to be served on
Bundoora under the mortgage, not to
be served before 13 May
2022.27F[28] The ‘Other
Matters’ of that order record that Bundoora did not consent to the
proposed sale of the Land by the 22 April
2022 deed of settlement. Furthermore
Bundoora reserved its right to oppose any application to vary the Undertaking to
effectuate
the sale.
42 On 13 May 2022, QY7 issued
the Second Notice of Default requiring the default in the payment of principal
and interest to be remedied
within 14
days.28F[29] Neither Bundoora nor
the guarantors listed on the default notice remedied the
default.29F[30]
43 On
13 June 2022, Bundoora filed and served a summons returnable 15 June 2022.
Bundoora sought the following orders:
1. An order pursuant to Rule 36.04 of the Rules that the Third Defendant have leave to file a further amended defence and counterclaim in the form exhibited to the affidavit in support of this application.
2. An order that the First Defendant be restrained from exercising its power of sale for the land in Certificate of Title Volume 1062 Folio 392 (Land) by executing the proposed contract of sale annexed to the deed of settlement dated 22 April 2022 (or any similar contract) until the hearing and determination of the proceeding, or further order.
3. An order under s.62 of the Civil Procedure Act 2010 (Vic), and/or Rules 22.16 and/or 23.01 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), dismissing the Plaintiffs’ claims at paragraphs 12, 26(a), 31(a), and A of the prayer for relief contained in the Plaintiffs’ amended statement of claim filed 6 April 2022.
4. Alternatively to paragraph 3, orders that the Court determine the following questions in the proceeding as soon as reasonably practicable:
(a) Whether the Second Plaintiff and First Defendant are entitled under s.77(1) of the Transfer of Land Act 1958 (Vic) to enter into the proposed contract of sale annexed to the deed of settlement entered by them on 22 April 2022.
(b) Whether the First Defendant is obliged under s.77(1) of the Transfer of Land Act 1958 (Vic) to market and sell the Land by expression of interest (or by some other competitive process as the Court may determine).
(c) Whether the Plaintiffs (or either of them) can maintain their claim for performance of the contract between the First Plaintiff and First Defendant made (or purportedly made) on or about 23 June 2020 given the service and expiry of the notice of default of 13 May 2022.
5. Orders under s.90(3) of the Transfer of Land Act 1958 (Vic) (or by mandatory injunction) for the removal of the First Plaintiff’s caveat from the title to the Land.
6. Alternatively to paragraphs 2 to 5, orders under Order 37A of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) freezing a portion of the proceeds of sale received by the First Defendant upon the completion of the contract of sale annexed to the deed of settlement dated 22 April 2022, in the amount of $6,000,000.00, such other amount as the Court may determine.30F[31]
44 On 15 and 16 June 2022, the Court heard Bundoora’s 13 June 2022 summons and QY7’s 26 April 2022 summons seeking to further vary the Undertaking.
45 There are four issues for determination:
(i) Whether the Atanasovski parties and QY7 should be released from the Undertaking, as varied on 28 April 2022, to permit them to enter into a proposed contract for the sale of the Land for $14.75 million;
(ii) If yes to (i), should injunctions nevertheless be granted:
(a) restraining the Atanasovski parties and QY7 from entering into the proposed contract; and
(b) requiring QY7 to offer the Land for sale via a competitive sale process;
(iii) Should Bundoora be granted leave to file and serve an amended defence and counterclaim?
(iv) Should the Atanasovski parties be ordered to take steps to remove the caveat lodged on the title of the Land?
46 In addition, Bundoora has foreshadowed its intention, in the event that the Undertaking is varied to permit the Atanasovski parties and QY7 to enter into the proposed contract and Bundoora’s injunction application is refused, to apply for a freezing order preventing QY7 from disposing or dealing with assets in Australia up to the unencumbered value $12,796,335, or alternatively, $3,250,000.31F[32] Bundoora submitted that consideration of its application for a freezing order should be deferred until the Court has addressed the issues set out in (i) to (iv) above.32F[33]
Variation of the Undertaking
47 It is common ground that the test for
whether a party should be released from an undertaking is whether the interests
of justice
favour the party being released from the
undertaking.33F[34]
48 The
Undertaking proffered by the Atanasovski parties and QY7 was given in
circumstances where a trial of the proceeding was listed
for hearing on 19
October 2021. That trial date was vacated shortly prior to 19 October
2021.
49 It is common ground that since September
2021, Bundoora’s indebtedness to QY7 has increased significantly and
continues to
increase at in excess of $120,000 per
month.34F[35] On 22 April 2022, the
Atanasovski parties and QY7 entered into a deed of settlement pursuant to which
QY7 will sell the Land to the
plaintiff for $14.75
million,35F[36] which is $2.25
million more than the sale price under the first contract for the sale of the
Land entered into between the plaintiff
and QY7 on 23 June
2020.36F[37]
50 On
28 April 2022, the Court granted an application by the Atanasovski parties and
QY7 to vary the Undertaking to permit QY7 to
serve a fresh notice of default
upon Bundoora.37F[38] The service
of this fresh notice of default provided Bundoora with a further opportunity to
redeem the mortgage which it granted
to QY7 and to regain possession of the
Land. The notice was served on Bundoora on 13 May
2022.38F[39] However,
Bundoora’s default has not been
remedied.39F[40]
51 I
accept the submission of the Atanasovski parties and QY7 that circumstances have
changed since the Undertaking was proffered
to the Court on 29 September 2021.
I consider that it is in the interests of justice that the Atanasovski parties
and QY7 should
be released from the Undertaking. However, such release is
subject to Bundoora’s application for an injunction to restrain
the
Atanasovski parties and QY7 from proceeding with the proposed sale, together
with its application for an order that the Land
be subject to a competitive sale
process.
Is there a serious issue to be tried?
52 Bundoora contends that there is a
serious question to be tried that the sale of the Land under the proposed
contract is not a lawful
exercise of the power of sale conferred by s 77 of
the Act.40F[41] It submits
that the proposed sale would neither be in good faith nor have regard to the
interests of Bundoora as mortgagor.
53 Before
addressing the question of whether Bundoora has established that there is a
serious question to be tried, it is necessary
to address a preliminary issue.
On 15 June 2022, on the first day of the hearing of the application Mr Hay QC,
who appeared with
Mr McKay on behalf of Bundoora, applied for leave to
cross-examine Ms Luana Kenny, the author of an expert report filed on behalf
of
the plaintiff for the purpose of the trial which had been scheduled to commence
on 3 May 2022.41F[42] Ms
Kenny’s report is dated 14 February
2022.42F[43] Ms Kenny valued the
Land at $14.7 million on an ‘as is’
basis.43F[44] This valuation is to
be contrasted with a valuation in a report dated 22 May 2022 prepared by Mr
Joshua Johnston relied upon by
Bundoora. This report values the Land at $15.9
million on an ‘as is’ basis, and $18 million on a hypothetical
development
basis.44F[45] Mr Hay QC
submitted that he wished to cross-examine Ms Kenny in aid of his submission that
the proposed sale price of $14.75 million
is not a lawful exercise of the power
of sale under s 77 of the Act.
54 I
rejected Mr Hay QC’s application to cross-examine Ms
Kenny.45F[46] When doing so I
provided brief oral reasons.46F[47]
I stated that I would expand on those reasons when I published my
judgment.47F[48]
55 Bundoora
sought leave to cross-examine Ms Kenny in aid of its application for an
injunction to restrain QY7 from proceeding with
the sale of the Land to the
Atanasovski parties. In the ordinary course, witnesses are not subject to
cross-examination during an
application for an interlocutory injunction.
However, there is no prohibition upon evidence being elicited by way of
cross-examination.
In the circumstances of the present case, I considered it
inappropriate to permit cross-examination of Ms Kenny for the following
reasons.48F[49]
56 Ms
Kenny is one of four valuers who have provided a report in respect of the Land.
In addition to Ms Kenny’s report, QY7
filed two reports for the purposes
of the trial which had been scheduled to commence on 3 May 2022: first, a
report by Quadrin Valuations
dated 24 March 2022 which valued the Land at $14
million;49F[50] second, a report by
First Valuation Group dated 4 April 2022 which valued the Land at
$9,630,000.50F[51]
57 On an interlocutory application for an
injunction the Court is not in a position to express any concluded view as to
which of the
four valuations should be preferred. No party suggested that the
authors of the respective reports are not qualified to express
the valuation
opinions contained therein. Absent cross-examination of all four valuers, each
of the parties had the opportunity
to make submissions regarding any perceived
deficiencies apparent on the face of the reports. There was limited utility in
Ms Kenny
being subject to cross-examination in circumstances where the other
three valuers were not also being
cross-examined.
58 On 3 June 2022, the parties
attended a directions hearing in relation to the applications which were to be
heard on 15 and 16 June
2022. When the applications were set down for hearing I
advised the parties that I was only available on 15 and 16 June because
I was
otherwise sitting in the Practice Court for the remainder of the week commencing
14 June 2022. The parties filed a considerable
amount of material in advance of
the hearing on 15 June 2022. The Court Book comprises in excess of 2,300 pages.
Further, at the
commencement of his submissions on 15 June 2022, Mr Hay QC
handed up a 25-page written submission. If Mr Hay QC had been permitted
to
cross-examine Ms Kenny there was a real possibility that the hearing would not
have been completed within the two days. This
would not have been consistent
with the just, efficient, timely and cost effective resolution of the issues in
dispute between the
parties.
The mortgagee’s duty of good faith under s 77 of the Transfer of Land Act
59 Section 77 of the Act provides as follows:
77 Power of sale under a mortgage or charge
(1) If within one month after the service of such notice or demand or such other period as is fixed in such mortgage or charge the mortgagor grantor or other persons do not comply with the notice or demand the mortgagee or annuitant may, in good faith and having regard to the interests of the mortgagor grantor or other persons, sell or concur with any other person in selling the mortgaged or charged land or any part thereof, together or in lots, by public auction or by private contract, at one or several times, and for a sum payable in one amount or by instalments, subject to such terms and conditions as the mortgagee or annuitant thinks fit, with power to vary any contract for sale and to buy in at any auction or to rescind any contract for sale and to resell without being answerable for any loss occasioned thereby and with power to make such roads streets and passages and grant and reserve such easements as the circumstances of the case require and the mortgagee or annuitant thinks fit, and may make and sign such transfers and do such acts and things as are necessary for effectuating any such sale.
60 Section 77 expressly provides that the power of sale conferred on a mortgagee may be exercised by private contract. The fact that the proposed sale is by way of private contract does not, of itself, render the proposed sale unlawful. Nevertheless, Bundoora submits that the sale of the Land by private contract would contravene s 77. In its written submissions, Bundoora summarised its position as follows:
2. Bundoora contends that the entry into the Proposed New Contract would contravene the requirements imposed on Qi Yong 7 under s.77(1) of the TLA for the following reasons:
(a) It is common ground that Qi Yong 7 has a duty under s.77(1) of the TLA to obtain the best price consistent with the realisation of its security.
(b) There are two matters which suggest that this duty would be contravened by the proposed sale. First, Qi Yong 7 has not advertised the Land for sale in order to attract rival offers. Second, Qi Yong 7’s controllers have had no proper regard to the most recent valuation evidence before the Court which suggests that the Land is worth at least $1,150,000.00 more than the price stated in the Proposed New Contract.
(c) Bundoora submits that in circumstances where a mortgagee proposes to sell without advertising and without going to market, and there is cogent evidence before the mortgagee that the proposed sale price would be below the price achievable at market, the mortgagee should not be permitted to sell without testing the market. The authorities support this proposition, and there is no authority that stands against it.
(d) Even assuming that the case sits at the borderline, there are two further circumstances which suggest a want of good faith. First, Qi Yong 7 has a collateral purpose in seeking to exercise the power of sale in accordance with the Settlement Deed, as this would allow the mortgagee to compromise a substantial damages claim for which it has no genuine defence on terms that are very favourable to its interests. That purpose stands at odds with Qi Yong 7’s statutory duty to obtain the best price consistent with the realisation of its security, having regard to the interests of the mortgagor.
(e) Second, Qi Yong 7’s proposed ‘off-market’ sale is the latest move in a pattern of very poor conduct that has prevented Bundoora from paying out the mortgage debt, and has greatly increased the quantum of that debt (and the debt owed under the puisne mortgages). The Court is entitled to have regard to the mortgagee’s conduct preceding the proposed sale to determine whether a want of good faith is evident. As a matter of practical justice, if the mortgagee’s conduct has greatly increased the mortgage debt and prevented its repayment, the mortgagor should be given a just opportunity to have its land sold at market in order to ameliorate the damage it has suffered.51F[52]
61 In MBF Investments Pty Ltd v Nolan52F[53] the Court of Appeal cited with approval the following passage from the judgment of Buchanan JA in Kravchenko v The Rock Building Society:53F[54]
Generally, the interests of the mortgagee and the mortgagor are best served by obtaining the best price that is available, and that should be the mortgagee’s aim. Nevertheless, as the mortgagee is entitled to prefer his own interests while taking reasonable care to protect the interests of others, in certain circumstances it may be that a mortgagor will be justified in accepting a price that is less than the best price that could be reasonably be obtained, but is a price that can be described as proper. In Vasiliou v Westpac Banking Corporation, Maxwell P, Neave and Kellam JJA said of a mortgagee to whom s 77 of the Act applied:
‘... The mortgagee is obliged to obtain the best price consistent with its entitlement to realise its security.’54F[55]
62 In MBF, the Court of Appeal summarised its position in respect of the nature of a mortgagee’s duty under s 77 as follows:
To summarise our position:
(a) a mortgagee is not a trustee of the power of sale, which is given to the mortgagee to enable the realisation of the security interest;
(b) a mortgagee must act in good faith, that is conscionably, and cannot sell for a purpose other than that for which the power of sale is conferred;
(c) a mortgagee is not required to place the interests of the mortgagor above the mortgagee’s interests in recovering the debt. For example, the mortgagee can sell the property at a time of the mortgagee’s choice, even though the property might realise a higher price if the sale were postponed;
(d) the mortgagee cannot disregard the interests of the mortgagor by simply selling for a price which will cover the amount of the loan. The mortgagee must take reasonable steps to obtain the best price consistently with its right to enforce its security interest. This requires the mortgagee to consider how the property should be advertised and to allow an appropriate time between the advertisement and the sale;
(e) the mortgagee must also have regard to the interests of subsequent security holders; and
(f) if there is no doubt that the sale of the lots preferred by the mortgagor would be sufficient to discharge the debt owed to the relevant mortgage and of any other security holders whose interest the mortgagee is required to consider, a failure to sell the preferred lots may breach the mortgagee’s duty to sell in good faith.55F[56]
63 At point (b), the Court of Appeal describes the obligation to act in good faith as requiring the mortgagee to act ‘conscionably’. The judgment of Young CJ in Ultimate Property Group Pty Ltd v Lord56F[57] is cited in support of this proposition. Earlier in the Court of Appeal’s judgment, when discussing the duty to act conscionably, the Court stated:
The concept of ‘unconscionability’ was also applied in Adamse v Broadway Credit Union Ltd, which concerned the sale of mortgaged property by private treaty rather than by auction. The decision to sell by private treaty was made after the mortgagor made numerous successful attempts at delaying the sale and unsuccessful attempts to refinance the loan. On the facts it was held that the mortgagee had not failed to act in good faith and in wilful disregard of the interests of the mortgagor. Cohen J referred to the statement of McLelland CJ in Eq in Hawkesbury Valley, and said that:
As McLelland CJ in Eq pointed out, however, there can be circumstances where failing to obtain a proper price could be regarded as unconscionable conduct ... It may well be that a failure to consider what is a proper price or a disregard of advice to that effect may in appropriate circumstances amount to a lack of good faith.
The underlying equitable principle was explored more recently in Ultimate Property Group Pty Ltd v Lord, where Young CJ in Eq held:
The duty is a duty to act conscionably towards the mortgagor and persons under the mortgagor. The duty is not to be considered in some mechanical way, but the whole of the mortgagee’s conduct with respect to the sale is to be considered. The mortgagee may, up to a point, act solely in its own interests, but it must also act conscionably towards the mortgagor and those claiming under the mortgagor.
...
Indeed, it is a fundamental principle in the textbooks that mere inadequacy in the price obtained and the value will not normally of itself be sufficient for a mortgagor to upset a purported sale ...57F[58]
64 Prior to entering into the deed of
settlement, QY7 had obtained two valuations. The First Valuation Group report
valued the Land
at
$9,630,000.58F[59] The Quadrin
valuation report valued the Land at $14
million.59F[60] Prior to entering
the deed, the plaintiff obtained Ms Kenny’s report which valued the Land
at $14.7 million.60F[61]
Notwithstanding these valuations, Bundoora submits that the price of $14.75
million under the proposed contract is not a proper
price.61F[62] It places significant
weight on Mr Johnston’s report of 22 May 2022. Bundoora submits that
although this report post-dates
the date the settlement deed was executed, QY7
is now apprised of its
contents.62F[63] It submits that
the Land, valued by Mr Johnston at $15.9 million, is worth at least $1,150,000
more than the $14.75 million sale
price under the proposed
contract.
65 Bundoora submits that QY7 should be
ordered to sell the Land via a ‘competitive process’ to allow for
the possibility
that the Land will be sold at a higher price than $14.75
million.63F[64] Insofar as Bundoora
submits that the Land should be sold via a competitive process, it is relevant
to note that in 2020 the Land
was subject to an unsuccessful competitive sale
process. That process was initiated by receivers appointed by Havenport. On 28
February
2020, Havenport appointed Ms Chesser and Mr Shepard of KordaMentha as
receivers of the Land.64F[65]
Following their appointment, the receivers attempted to market and sell the Land
through JLL International but could not exceed
the $14.7 million price at which
Bundoora had previously agreed to sell the Land to a related
entity.65F[66] Subsequently, in
late May or early June 2020, QY7 engaged in an expression of interest campaign
in relation to the Land.66F[67]
Following this campaign, the Land was sold to the Atanasovski parties for $12.5
million.
66 Absent the report of Mr Johnston,
Bundoora’s contention that the proposed sale price of $14.75 million is
not a proper price
borders on untenable. First, there has previously been an
unsuccessful attempt to sell the Land via a competitive process. Second,
the
proposed price is $2.25 million more than the agreed price under the contract
entered into between the plaintiff and QY7 in June
2020. Third, the proposed
price is higher than three valuations obtained by QY7 and the Atanasovski
parties. Fourth, the proposed
price is more than the price at which Bundoora
had agreed to sell the property to a related entity in October 2019. Further,
in
considering whether the proposed sale is a lawful exercise of the power of
sale under s 77 of the Act, it is necessary to have regard to the
interests of other persons. Relevantly, the second and third mortgagees both
consent to the
proposed sale.67F[68]
67 It is legitimate for QY7 to have regard to its
own interests. QY7 is not required to place Bundoora’s interests above
its
own interests in recovering its
debt.68F[69] The mortgage which
Bundoora granted QY7 secures a loan of $10.269 million which was advanced on 18
July 2019.69F[70] Bundoora has been
in default since May 2020.70F[71]
Bundoora has not made any repayments of the loan since 18 January
2021.71F[72] As at 13 May 2022 the
unpaid interest owing on the loan was
$2,374,467.72F[73] It is common
ground that interest on the three mortgages granted by Bundoora is currently
accruing at the rate of approximately
$200,000 per month. The majority of this
interest is attributable to the first mortgage granted by Bundoora to QY7
because the amount
which was loaned to Bundoora by QY7 is significantly more
than the loan secured by the second and third
mortgages.73F[74] The proposed sale
to the Atanasovski parties has the advantage of certainty and speed compared to
the competitive sale process sought
by
Bundoora.
68 Contrary to Bundoora’s
submission, Mr Johnston’s report does not support a finding that the Land
is worth at least
$1,150,000 more than the proposed sale price of $14.75
million. First, the figure of $1,150,000 has no regard to the costs involved
in
selling Land via a competitive
process.74F[75] Assuming a sale
price of $15,900,000, an agent’s commission of 2% would reduce the return
on sale by $318,000. It is also
necessary to take account of the potential
delay involved in a competitive sale process. Mr Johnston’s report
includes the
following under the heading ‘selling period’:
6.11. Selling Period
A reasonable selling period for the site at the value assessed herein is within approximately six months, assuming a professional marketing campaign by a recognised national selling agent experienced in selling residential development sites of this nature, subject to a professional and substantial marketing campaign. Should a faster realisation or a Mortgagee in Possession sale be required, then a suitable discount on the ascribed value may be necessary to achieve a sale.
This valuation is subject to all intellectual property including, but not limited to; plans, professional reports, planning documents and pre-sale contracts which may form part of any contract for sale of the property being assigned to an incoming purchaser without penalty or additional cost. It is also subject to pre-sale contracts remaining enforceable following transfer, assignment or novation and should this not be available there may be a material adverse change to the site value. In such circumstance the report should be returned to the valuer for comment.75F[76]
69 Assuming a selling period of six
months Bundoora would accrue a further $1.2 million in interest in respect of
the three mortgages
over the Land. A substantial component of this interest is
payable to QY7 which has the largest debt.
70 Mr
Johnston states that his valuation is subject to all intellectual property,
including planning contracts and pre-sale contracts
being assigned to an
incoming purchaser without penalty or additional
cost.76F[77] This qualification is
significant. Mr Johnston’s report notes that 104 of the 107 townhouses
for which a planning permit
has already been obtained have been
sold.77F[78] It is common ground
that the planning permit in respect of these townhouses was obtained by an
entity controlled by Mr Atanasovski.
It is also common ground that the
townhouses have been sold by an entity controlled by Mr Atanasovski. Mr
Johnston’s valuation
assumes that if another purchaser acquired the Land
pursuant to a competitive sale process that the Atanasovski parties would be
prepared to assign to that purchaser the rights he presently holds in relation
to the pre-sale contracts.
71 Mr Johnston’s
‘as is’ valuation of $15.9 million is based on a valuation of $975
per square metre of the site
area. This valuation represents an approximate
midpoint of the per metre valuation of six developments which were identified as
providing ‘a good cross-section of the local
market’.78F[79] Two of the
six developments are in Mill Park with a per square metre site valuation of $507
and $690. The other four developments
are in South Morang ($464 per square
metre), Thomastown ($732 per square metre), Epping ($496 per square metre) and
Coburg ($1,751
per square
metre).79F[80] The $1,751 per
square metre for the Coburg development is more than $1,000 per square metre
more than any other development which
is being used for valuation purposes. Mr
Johnston has used this figure as the upper end of the valuation range. The land
in question
is also in Mill Park. The $975 per square metre valuation is
significantly higher than the two other developments in Mill Park valued
at $507
per square metre and $690 per square metre. A relatively small decrease in the
per square metre valuation of the Land below
$975 per square metre would bring
Mr Johnston’s valuation in line with that of Ms Kenny ($14.7 million) and
the Quadrin valuation
report ($14 million).
72 Mr
Johnston also undertook a project related site assessment resulting in a
valuation of $18 million. For the purposes of his
report Mr Johnston defines
project related site assessment as:
2.6. Definition of ‘Project Related Site Assessment’
While not defined by the IVSC, API nor PINZ, for the purpose of this assessment, we define the ‘Project Related Site Assessment’ as follows:
‘An assessment of the site based upon the proposed development in line with the existing planning permit, building contract and other estimated costs, and presales achieved at the date of valuation. It does not represent the value of the land in isolation, but is an assessment derived using a residual cash flow analysis in relation to the particular proposal for the land’.80F[81]
73 Mr Johnston’s residual cash flow analysis assumes construction costs of $26,833,416 (excluding GST) in accordance with a tender dated 22 December 2022 provided by Evo Homes. This equates to a cost of construction per unit of $250,780.81F[82] There is a real question as to whether Mr Johnston’s assumption regarding construction costs based on the 22 December 2020 Evo Homes tender is valid. On 22 May 2022 Pasquale Garofalo, a director of Evo Homes, wrote to Mr Huynh, the director of Bundoora, as follows:
Thank you for your ongoing business and for reaching out regarding the Bundoora Park Estate Project.
We refer to our quote provided to you on 22 December 2020 for Bundoora Park Estate.
We have examined the new drawing set you have provided us (DKO revision TP03). Compared to the old set of 2020 (Truesource Revision A), all 4-bedroom homes have been reduced to 3-bedrooms on the new drawings. Likewise, all three bedrooms have been reduced to two-bedrooms. The overall gross area has been reduced in most homes.
The construction cost has risen considerably over the last 15 months. We are unable to reduce the price in lieu of the area and bedroom reduction. Nonetheless we are able to apply the previous price to the new set of drawing [sic] provided.82F[83]
74 The construction costs of $26,833,416
which underpin Mr Johnston’s valuation do not correspond with the cost of
construction
of the 104 townhouses which have been pre-sold. Rather, Evo Homes
is only prepared to apply the December 2020 construction tender
to the
construction of smaller townhouses.
75 It is neither
possible nor appropriate at an interlocutory stage of proceeding to express any
concluded view about the competing
valuation evidence. Nevertheless, the report
of Mr Johnston does not provide a firm foundation for concluding that the Land
is worth
at least $1,150,000 more than the proposed sale price. In addition to
the matters referred to above, Mr Johnston has quite properly
noted that his
valuations may be affected by changing market conditions:
Interest rates are currently at historical lows, with many market economists forecasting multiple rises in the second half of 2022, and into 2023. This will increase the cost of borrowing and is likely to create volatility in property markets going forward.
Future increases in the cost of borrowing are forecast to place pressure on the residential property market, with many lenders, including the major banks predicting price declines of up to 15% over the next two to three years. While any forecasting of property markets is difficult, there is considered to be a high risk of price declines over the next 12-24 months.83F[84]
76 Bundoora submits that there are two
matters in addition to the valuation evidence which suggest a want of good
faith. First, it
submits that QY7 has a collateral purpose in seeking to
exercise the power of sale in accordance with the settlement deed, as this
will
allow it to compromise a substantial damages claim brought by the plaintiff. I
accept that if Bundoora can establish at trial
that QY7 was actuated by a
collateral purposes that this would be a relevant matter in determining whether
QY7 has acted in good
faith. However, the primary consideration for the
determination of whether QY7 is acting in good faith is whether the price of
$14.75
million is a proper price. There is a real prospect at trial that when
all valuation evidence has been tested, QY7 will establish
that $14.75 million
is a proper price for the Land.
77 Second, Bundoora
submits that the proposed off-market sale is the latest move in a pattern of
very poor conduct that has prevented
Bundoora from paying out the mortgage debt,
and has greatly increased the quantum of that
debt.84F[85] Bundoora submits that
as a matter of ‘practical justice’ it should be given an opportunity
to have the Land sold at
market to ameliorate the damage it has
suffered.85F[86]
78 At an interlocutory stage of proceeding where
the evidence of the parties has not been tested it is not possible to make a
finding
that the proposed off-market sale is the latest move in a pattern of
very poor conduct by QY7. However, the following matters are
not contentious.
First, Bundoora has been in default under the loan since May 2020 and has not
paid any interest since February
2021. Second, Bundoora has accrued an interest
debt in excess of $2.3 million which it has not paid. Third, the proceeds of
the
sale at $14.75 million will enable QY7 to clear Bundoora’s debt.
Fourth, if the sale of the Land via a competitive process
takes six months,
Bundoora’s debt from the three mortgages over the Land will increase by
$1.2 million. A significant proportion
of this debt will arise under the first
mortgage with QY7. If at trial the Court concludes that there has been poor
conduct on the
part of QY7, any such finding will have to be balanced against
the fact that the wellspring of the disputation between QY7 and Bundoora
has
been the inability of Bundoora to pay its debt to QY7 resulting in Bundoora
being in default from May 2020.
Conclusion on serious question to be tried
79 I accept that the valuation provided by Mr Johnston raises a serious issue to be tried that the sale of the Land to the Atanasovski parties for $14.75 million would not be a sale at a proper price. However, the serious issue to be tried is not a strong case. Mr Johnston’s report does not provide a firm foundation for concluding that if the Land was sold pursuant to a competitive sale process that the Land would be sold for more than $14.75 million. Rather, the report supports a finding that there is a possibility that after a marketing campaign of up to six months the Land might be sold for more than $14.75 million.
Balance of convenience
80 Having found that there is a serious issue to be tried that the proposed sale would not be a lawful exercise of the power of sale conferred by s 77 of the Act, it is necessary to consider whether the balance of convenience favours the grant of an injunction to restrain QY7 and the Atanasovski parties from proceeding with the sale.
Undertaking as to damages
81 Through its counsel Mr Hay QC,
Bundoora proffered the usual undertaking as to damages on behalf of itself, Mr
Huynh and Gordon
Maribyrnong Holdings Pty Ltd (GMH Pty
Ltd).86F[87] If QY7 is ordered to
sell the Land via a competitive sale process such as by a public auction it is
possible that this will result
in a sale price of less than $14.75 million. The
adequacy of any undertaking as to damages is therefore a matter which must be
assessed
when considering the balance of convenience.
82 On 19 May 2022, Efthim AsJ rejected an
application to set aside a statutory demand by 328–338 McKimmies Road Pty
Ltd for
a judgment debt in the sum of
$1,808,145.40.87F[88] As the
statutory demand has not been set aside, Bundoora is presumed to be insolvent.
Apart from this presumption, I agree with
the observation of Efthim AsJ that
Bundoora appears to be insolvent as it cannot pay its debts as and when they
fall due.88F[89] I place very
little weight upon the undertaking proffered by Bundoora. There is little, if
any, basis for concluding that if the
undertaking is called upon, Bundoora would
be able to compensate QY7 for any loss resulting from the competitive sale
process. I
also place very little weight upon the undertaking proffered by Mr
Huynh. There is no evidence as to any assets held by Mr Huynh
which would
support a finding that he could compensate QY7 for any losses arising from a
competitive sale process. Mr Huynh has
provided personal guarantees for the
liability of Bundoora under the three mortgages in respect of the Land. As
Bundoora appears
to be and is presumed to be insolvent, there is a real prospect
of Mr Huynh incurring very substantial personal liability under these
guarantees.
83 Mr Huynh is the sole director and
sole shareholder of GMH Pty Ltd. In an affidavit affirmed on 16 June 2022, Mr
Huynh deposed
that GMH Pty Ltd has completed a development at 429–431
Gordon Street, Maribyrnong. Mr Huynh deposes that GMH Pty Ltd is the
registered
proprietor of real property valued in August 2021 at $13.9 million and that
GMH Pty Ltd has current liabilities of $10,459,226.64,
leaving a total net
equity of
$3,440,773.54.89F[90]
84 GMH
Pty Ltd is the registered proprietor of 429–431 Gordon Street, Maribyrnong
and holds the property as trustee of the Gordon
Maribyrnong Holding Unit
Trust.90F[91] There is no evidence
as to the identity of the unitholders and whether the unitholders have consented
to GMH Pty Ltd proffering
an undertaking to compensate QY7 for any losses for
which Bundoora is held liable. Clause 20 of the trust deed prescribes the
authorised
investments of the
trust.91F[92] I accept the
submission of Mr Bick QC that the prescribed authorised investments of the trust
do not confer a power on the trustee
to proffer an undertaking as to damages on
behalf of another company. Further, there is a significant question as to
whether GMH
Pty Ltd is acting in the interests of the unitholders in proffering
the undertaking. In the absence of any evidence identifying
the unitholders and
confirming their consent, I place little weight upon the undertaking as to
damages proffered by GMH Pty Ltd.
85 The
undertakings proffered on behalf of Bundoora, Mr Huynh and GMH Pty Ltd are not
undertakings of substance. The undertakings
do not provide a basis for the
Court to conclude that in the event that QY7 suffered financial loss as a
consequence of the sale
of the Land via a competitive sale process, it would be
compensated for such loss.
Damages an adequate alternative remedy?
86 If QY7 proceeds with the proposed sale
and the Court subsequently accepts the evidence of Mr Johnston, the quantum of
Bundoora’s
loss will be readily identifiable. Such loss will be the
difference between $14.75 million and any valuation evidence of Mr Johnston
which, after making allowance for the costs of a hypothetical competitive sale
process, would have resulted in net receipts in excess
of $14.75 million. For
example, if the Court accepts that the Land is valued at $15.9 million and that
the cost of a competitive
sale process would be $300,000, Bundoora will have
established a loss of $850,000.
87 Mr Hay QC accepts
that Bundoora’s loss could be quantified if the proposed sale goes ahead.
However, he submits that damages
are not an adequate remedy because Bundoora
does not have the funds to press its claim for
damages.92F[93] Mr Hay QC submitted
that the present proceeding is analogous to a claim for specific performance of
contractual obligations where
a court accepts that damages are not an adequate
alternative
remedy.93F[94]
88 It
is well established that in some categories of claims for specific performance,
injunctions will be granted to restrain a breach
of contractual obligations, in
part because damages are not an adequate alternative remedy. Claims for
injunctions to restrain a
breach of a contractual restraint of trade obligation
between employer and employee illustrate this
point.94F[95] However, in such
cases courts have accepted that damages are not an adequate remedy because of
the difficulty in quantifying loss
if a former employee is not restrained from
acting in breach of post termination employment
restraints.95F[96]
89 Bundoora
does not make any claim for specific performance of any contractual obligation
alleged to be owing to it by QY7. If Bundoora
suffers any loss as a consequence
of the proposed sale, such loss will be able to be quantified if
Bundoora’s valuation evidence
is accepted at trial. Any practical
financial difficulty which Bundoora may have in being able to pursue its claim
for damages does
not translate into a finding that damages are not an adequate
alternative remedy.
90 Bundoora submits that in
assessing the balance of convenience the Court should have regard to the
opportunity to ameliorate financial
damage it says it has suffered, if a better
price than $14.75 million can be achieved via a competitive sale
process.96F[97] If the sale process
takes up to 6 months and sale costs are $300,000, the sale price would need to
be in excess of $16.25 million
before any net benefit will flow to Bundoora. It
is common ground that Bundoora is currently incurring interest costs of
approximately
$200,000 per month, which means an additional $1.2 million of
accrued debt if the sale process takes 6
months.
91 As against the doubts which attend the
extent of any amelioration of Bundoora’s loss via a competitive sale
process, the
proposed sale has the benefit of providing a certain and timely
outcome for QY7.
92 It is also appropriate, when
weighing the balance of convenience, for the Court to have regard to the
interests of third parties
who are likely to be affected by the grant or refusal
of an injunction. In addition to the mortgage to QY7, there are two other
mortgagees in respect of the Land: QY8 (which loaned Bundoora $2 million)
and McKimmies (which loaned Bundoora
$1.18 million).97F[98] Both of
these parties are affected by the proposed sale. Both parties consent to the
proposed sale going ahead.98F[99]
Further, although I do not accord this matter significant weight, it is also
appropriate to have regard to the interests of the
104 purchasers who have
entered into contracts with an entity controlled by Mr Atanasovski for the
purchase of townhouses to be built
on the Land. I infer that the interests of
these purchasers will more likely be advanced if the proposed sale goes ahead
compared
to potential further significant delays if there is a competitive sale
process.
Conclusion on balance of convenience
93 The balance of convenience strongly favours the refusal of Bundoora’s injunction application.
Application for leave to amend
94 Bundoora applies for leave to file and serve a proposed further amended defence and counterclaim. Although Mr Hay QC did not withdraw the application he accepts that there is substance in criticisms as to the form of the proposed pleading which were advanced by Mr Bick QC on behalf of the Atanasovski parties.99F[100] These criticisms were twofold. First, that the particulars to the proposed [65(d)] set out a narrative rather than pleading material facts. Second, that paragraph E of the prayer for relief which claims declarations, fails to set out the form of the declarations. Both of these criticisms have substance. Bundoora will not be granted leave to file and serve an amended defence and counterclaim in the form filed in advance of the hearing on 15 June 2022.
Application for removal of caveat
95 As a consequence of this judgment, the first plaintiff and QY7 will be free to enter the proposed contract. Immediately upon doing so the first plaintiff will have a caveatable interest as purchaser of the Land. In light of this conclusion, there is no utility in addressing Bundoora’s submission that the Atanasovski parties should be ordered to remove its extant caveat because it does not presently have a caveatable interest. Whatever the merits of this submission, the Atanasovski parties’ extant caveat will lapse upon the lodging of a new caveat arising from the proposed sale. There is no doubt that as the purchaser of the Land under the proposed contract the Atanasovski parties will have a valid caveatable interest.
Application to strike out parts of the amended statement of claim
96 By [3] of the summons filed 13 June 2022 Bundoora applies to strike out the following paragraphs of the amended statement of claim:100F[101]
12. Atanasovski and Belmont have not accepted Qi Yong’s repudiation of the contract and seeks specific performance...
26. By reason of paragraphs 21 to 25 (inclusive), Atanasovski and Belmont are entitled to orders:
(a) under s 237 of the ACL, directing Qi Yong 7 to do all things reasonably necessary to transfer the property to Belmont under s 77(4) of the TLA and to give possession of the property to Belmont, on payment of the amount properly due from Atanasovski and Belmont to Qi Yong 7 to complete the contract...
31. By reason of paragraph 30, Atanasovski and Belmont are entitled to equitable relief:
(a) in the event BPEH is also estopped from denying that Qi Yong 7 had no right or power to sell the property to Atanasovski at the time it entered into the contract, being an order directing Qi Yong 7 to do all things reasonably necessary to transfer the property to Belmont under s 77(4) of the TLA and to give possession of the property to Belmont, on payment of the amount properly due from Atanasovski to Qi Yong 7 to complete the contract.
AND THE PLAINTIFFS CLAIM:
A. An order for specific performance against the first defendant.101F[102]
97 There is no utility in addressing Bundoora’s submission that these parts of the amended statement of claim should be struck out. As a consequence of this judgment the claims against QY7 set out above will fall away.
Conclusion
98 The Court will make the following orders:
1. The plaintiffs and the first defendant are released from the Undertaking proffered to the Court on 29 September 2021 as varied on 28 April 2022.
2. The third defendant’s application for an injunction by summons filed 13 June 2022 is dismissed.
3. The third defendant’s application for an order that the first plaintiff be directed to remove the first plaintiff’s caveat from the Land is dismissed.
99 I shall provide the parties with an opportunity to make submissions on the costs of the hearing on 15 and 16 June 2022. My provisional view is that costs should follow the event and that the third defendant should pay the costs of the plaintiffs and the first defendant on a standard basis to be taxed in default of agreement.
SCHEDULE OF PARTIES
S ECI 2021 03427
BRANKO ATANASOVSKI
First Plaintiff
and First Defendant by Counterclaim
and
THE BELMONT COLLECTION LO PTY LTD (ACN 645 220 408) AS
TRUSTEE FOR THE BELMONT COLLECTION LO TRUST
Second Plaintiff
and Second Defendant by Counterclaim
and
QI YONG 7 PTY LTD
ACN 619 702 484
First Defendant
and
LEO LEE & ASSOCIATES PTY LTD, AN INCORPORATED LEGAL
PRACTICE ALSO KNOWN AS UNITED ASSOCIATES BARRISTERS AND SOLICITORS
(ABN 81 164 177 468)
Second Defendant
and
BUNDOORA PARK ESTATE HOLDINGS (ACN 630 535 385)
Third Defendant
and Plaintiff by Counterclaim
---
[1] Affidavit of Jonathan Tisher dated 17 September 2021, [10].
[2] CB760, ‘Mortgage Agreement dated 18 July 2019’.
[3] Transcript of Proceedings, T 205 L 27–8 (16 June 2022).
[4] CB1448, ‘Affidavit of Nhut Quang Dai Huynh dated 7 March 2022’, [53], [56].
[5] CB1440, ‘Affidavit of Nhut Quang Dai Huynh dated 7 March 2022’, [19].
[6] CB1451, ‘Affidavit of Nhut Quang Dai Huynh dated 7 March 2022’, [66].
[7] Affidavit of Nhut Quang Dai Huynh dated 22 September 2021, Exhibit ND-1, 48.
[8] Affidavit of Jonathan Tisher dated 17 September 2021, [13].
[9] CB1451, ‘Affidavit of Nhut Quang Dai Huynh dated 7 March 2022’, [67].
[10] Order of Cavanough J in Bundoora Park Estate Holding Pty Ltd v Qi Yong 7 Pty Ltd & Ors, (Supreme Court of Victoria, S ECI 2021 03485, 29 September 2021).
[11] Affidavit of Jennie Tu Tran dated 23 March 2022, Exhibit JT-1, 45.
[12] Affidavit of Jennie Tu Tran dated 23 March 2022, Exhibit JT-1, 44.
[13] Third Defendant, ‘Summons filed 29 March 2022’.
[14] Affidavit of Jennie Tu Tran dated 23 March 2022, Exhibit JT-1, 27–33.
[15] Transcript of Proceedings, T 12 L 21 – T 13 L 6 (30 March 2022).
[16] Ibid T 6 L 11-17 (30 March 2022).
[17] Ibid T 6 L 24-28 (30 March 2022).
[18] Re Bundoora Park Estate Holding Pty Ltd [2022] VSC 273, [18] (‘Statutory Demand Proceeding Judgment’).
[19] Ibid [50].
[20] Ibid [49]; see Corporations Act 2001 (Cth) s 459C(2)(a).
[21] CB776, ‘Deed of settlement dated 22 April 2022’.
[22] CB780-1, ‘Deed of settlement dated 22 April 2022’.
[23] Transcript of Proceedings, T 116 L 28–31 (15 June 2022).
[24] CB753, ‘Affidavit of Xing Li filed 26 April 2022’, [7].
[25] CB10–11, ‘First Defendant Summons filed 26 April 2022’.
[26] Transcript of Proceedings, T 9 L 26–8 (28 April 2022).
[27] Ibid T 20 L 14–8 (28 April 2022).
[28] CB1433, ‘Order of McDonald J dated 28 April 2022’.
[29] CB233–5, ‘Notice of Default dated 13 May 2022’.
[30] CB368–70, ‘Affidavit of Xing Li dated 1 June 2022’.
[31] CB6–8, ‘Third Defendant Summons filed 13 June 2022’.
[32] Third Defendant, ‘Proposed Freezing Order dated 16 June 2022’.
[33] Transcript of Proceedings, T 146 L 2‑–6 (16 June 2022).
[34] HJ (pseudonym)* v Independent Broad-Based Anti-Corruption Commission [2021] VSCA 200, [87].
[35] CB918, ‘Third Defendant’s Outline of Submissions dated 27 April 2022’, [11].
[36] CB776, ‘Deed of settlement dated 22 April 2022’.
[37] CB15‑–6, ‘Affidavit of Nhut Quang Dai Huynh dated 10 June 2022’, [6], [12].
[38] CB1433, ‘Order of McDonald J dated 28 April 2022’.
[39] CB233–5, ‘Notice of Default dated 13 May 2022’.
[40] CB368–70, ‘Affidavit of Xing Li dated 1 June 2022’.
[41] CB906–7, ‘Third Defendant’s Further Outline of Submissions dated 2 June 2022’, [12]–[13].
[42] Transcript of Proceedings, T 16 L 30‑–1 (15 June 2022).
[43] CB1967, ‘Expert Report of Ms Luana Kenny, m3 Property, dated 14 February 2022’.
[44] CB1970, ‘Expert Report of Ms Luana Kenny, m3 Property, dated 14 February 2022’.
[45] CB404, ‘Expert Report of Mr Joshua Johnson, Ray White, dated 2 May 2022’.
[46] Transcript of Proceedings, T 36 L 23‑–7 (15 June 2022).
[47] Ibid T 35–6 (15 June 2022).
[48] Ibid T 34 L 3–5 (15 June 2022).
[49] Ibid T 36 L 23–7 (15 June 2022).
[50] CB586, ‘Expert Report of Quadrin Valuations dated 24 March 2022’.
[51] CB626, ‘Expert Report of First Valuation Group dated 4 April 2022’.
[52] Third Defendant, ‘Submissions dated 15 June 2022’, [2(a)–(e)].
[53] [2011] VSCA 114; (2011) 37 VR 116 (‘MBF’).
[54] [2009] VSCA 292; (2009) 26 VR 400.
[55] MBF (n 53) 138–9 [74] (citations omitted).
[56] Ibid 144–5 [100] (citations omitted).
[57] [2004] NSWSC 114; (2004) 60 NSWLR 646.
[58] MBF (n 53) 141 [83]–[84] (citations omitted).
[59] CB626, ‘Expert Report of First Valuation Group dated 4 April 2022’.
[60] CB586, ‘Expert Report of Quadrin Valuations dated 24 March 2022’.
[61] CB1970, ‘Expert Report of Ms Luana Kenny, m3 Property, dated 14 February 2022’.
[62] CB881–2, ‘Third Defendant’s Submissions in Reply dated 3 June 2022’, [2]–[4].
[63] Transcript of Proceedings, T 17 L 15 – 27 (15 June 2022).
[64] CB7, ‘Third Defendant’s Summons filed 2 June 2022’, [4(b)].
[65] CB1449, ‘Affidavit of Nhut Quang Dai Huynh dated 7 March 2022’, [59].
[66] CB1451, ‘Affidavit of Nhut Quang Dai Huynh dated 7 March 2022’, [66].
[67] CB1451–2, ‘Affidavit of Nhut Quang Dai Huynh dated 7 March 2022’, [67], [71].
[68] Transcript of Proceedings, T 116 L 28–31 (15 June 2022).
[70] CB234, ‘Notice of Default dated 13 May 2022’; CB760, ‘Mortgage Agreement dated 18 July 2019’.
[71] CB14, ‘Affidavit of Nhut Quang Dai Huynh dated 10 June 2022’, [5].
[72] CB753, ‘Affidavit of Xing Li dated 26 April 2022’, [7(b)].
[73] CB234, ‘Notice of Default dated 13 May 2022’.
[74] CB1439, ‘Affidavit of Nhut Quang Dai Huynh dated 7 March 2022’, [14].
[75] Transcript of Proceedings, T 207 L 20 – T 208 L 14 (16 June 2022).
[76] CB442, ‘Valuation Report of Mr Johnston, Ray White, dated 2 May 2022’ (emphasis in original).
[77] CB442, ‘Valuation Report of Mr Johnston, Ray White, dated 2 May 2022’.
[78] CB404, ‘Valuation Report of Mr Johnston, Ray White, dated 2 May 2022’. See also: Affidavit of Jonathan Tisher dated 5 October 2021, which was filed by the Atanasovski parties in S ECI 2021 03485 Bundoora Park Estate Holding Pty Ltd vs Qi Yong 7 Pty Ltd prior to the consolidation of several related proceedings into the present proceeding.
[79] CB439 ‘Valuation Report of Mr Johnston, Ray White, dated 2 May 2022’.
[80] CB439, ‘Valuation Report of Mr Johnston, Ray White, dated 2 May 2022’.
[81] CB413, ‘Valuation Report of Mr Johnston, Ray White, dated 2 May 2022’.
[82] CB498, ‘Valuation Report of Mr Johnston, Ray White, dated 2 May 2022’.
[83] CB91, ‘Letter from Pasquale Garofalo to Nhut Quang Dai Huynh dated 25 May 2022’.
[84] CB406, ‘Valuation Report of Mr Johnston, Ray White, dated 2 May 2022’.
[85] Third Defendant, ‘Submissions dated 15 June 2022’, [2(e)].
[86] Third Defendant, ‘Submissions dated 15 June 2022’, [2(e)].
[87] Transcript of Proceedings, T 149 L 17 – T 150 L 1 (16 June 2022).
[88] Statutory Demand Proceeding Judgment (n 18).
[89] Ibid [49].
[90] Affidavit of Nhut Quang Dai Huynh dated 16 June 2022, [8].
[91] Affidavit of Nhut Quang Dai Huynh dated 16 June 2022, [8].
[92] Affidavit of Nhut Quang Dai Huynh dated 16 June 2022, Exhibit NH3, 299–300.
[93] Transcript of Proceedings, T 105 L 8–13 (15 June 2022).
[94] Ibid T 201 L 31 – T 202 L 6 (16 June 2022).
[95] See, for example, Crowe Horwath Pty Ltd v Loone (2016) 263 IR 300, [26].
[96] See Willis Australia Group Services Pty Ltd v Griggs [2012] NSWSC 659; (2012) 222 IR 172, [129]-[132]; Cerilian Pty Ltd v Graham Fraser [2008] NSWSC 1016, [10]; Otis Elevator Company Pty Ltd v Nolan [2007] NSWSC 593, [17]-[30]; IceTV Pty Ltd v Ross [2007] NSWSC 635.
[97] Third Defendant, ‘Submissions dated 15 June 2022’, [2(e)].
[98] CB1439, ‘Affidavit of Nhut Quang Dai Huynh dated 7 March 2022’, [14].
[99] Transcript of Proceedings, T 116 L 28–31 (15 June 2022).
[100] Transcript of Proceedings, T 188 L 16–22 (16 June 2022).
[101] CB6–8, ‘Bundoora Summons filed 13 June 2022’.
[102] Plaintiffs’ Amended Statement of Claim filed 6 April 2022.
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/vic/VSC/2022/347.html