Re Scarel Pty Limited v City Loan and Credit Corporation Pty Limited [1986] FCA 419 (27 November 1986)

FEDERAL COURT OF AUSTRALIA

Re: SCAREL PTY. LIMITED
And: CITY LOAN AND CREDIT CORPORATION PTY. LIMITED
No. G513 of 1986
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Fox J.

CATCHWORDS

Trade Practices - consumer protection - interlocutory relief - discussions about whether respondent would exercise its security over applicant's land - whether misleading and deceptive - balance of convenience.

Trade Practices Act 1974 s.52

HEARING

SYDNEY 27:11:1986

Counsel for the Applicant: Mr R K Eassie

Solicitors for the Applicant: Messrs Snelgrove Mucsnik & O'Brien

Appearance for the Respondent: Mr R Anderson (solicitor)

Solicitors for the Respondent: Messrs Lane & Lane

ORDER

The application for interlocutory relief be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

These are interlocutory proceedings to restrain a mortgagee's sale. The applicant is the registered proprietor of land at Normanhurst and the respondent holds a first mortgage over it which is registered. The amount stated as secured is $489,750, but there has been continuing default for several years as a result of which it is said that the amount now payable by the applicant is $1,403,825.37. The respondent has given notice under s.57(2)(b) of the Real Property Act 1900 of its intention to sell and the sale has been advertised to take place by auction on 4 December next.

2. The applicant's case is that arrangements were made, amounting probably to an agreement, between the Managing Director of the applicant (Mr. Yates) and Mr. Adelstein as Managing Director of the respondent in August 1984 that the respondent would not exercise its power of sale over the land but would instead be given security over land at Darling Harbour, which was owned by Yates Property Corporation Pty. Ltd. of which Mr. Yates was apparently the principal. The Darling Harbour land is worth very much more than the land at Normanhurst.

3. The original loan arrangments were made in November 1981. The applicant granted security in the form of the registered mortgage over the Normanhurst land and an equitable charge over its undertaking, which was stated as fixed in relation to realty. The charge has been registered with the Corporate Affairs Commission. Guarantees of the loan were executed by Mr. Yates and by Yates Property Corporation Pty. Ltd.

4. The applicant defaulted and pursuant to the equitable charge a caveat was entered in March 1984 on the title of other land at Crows Nest owned by it. In April 1984 the respondent commenced proceedings in the Supreme Court of New South Wales against the applicant as principal debtor and Mr. Yates and the Yates Property Corporation Pty. Ltd. as guarantors claiming the principal and accrued interest of the November 1981 loan. In early August 1984 the applicant's solicitors requested the withdrawal of the caveat so that the Crows Nest land could be sold, but the respondent's solicitors refused.

5. On 24 September 1984 the position was rearranged. The Supreme Court proceedings were settled on terms which required Yates Property Corporation Pty. Ltd. to grant a mortgage over the Darling Harbour land to the respondent. This mortgage was executed, the respondent becoming a third mortgagee of the Darling Harbour land. The land was resumed later, in May 1985, by the Darling Harbour Authority as part of a large development scheme. The first and second mortgagees, whose mortgages remain registered, would seem now to have been mainly paid out by monies advanced by the resuming authority against the compensation monies which will eventualy be paid by the applicant. The respondent's third mortgage was not registered, but was notified by a caveat on the title.

6. An instrument of variation of the Normanhurst mortgage was executed on 24 September, but was not registered. This only dealt with the repayment date. There was a much fuller "deed of variation of mortgage" executed on the same day, clause 2 of which was as follows:

"2. Mortgage No. S823218 (this being the original
Normanhurst mortgage) and the Deed of Equitable Mortgage
is hereby varied to provide that the principal sum and
interest now outstanding, namely one million & seventy
three thousand twenty five dollars & fifteen cents
($1,073,025.15) shall be repaid to the Mortgagee on the
21st day of September 1985."

The grant of the Darling Harbour mortgage was expressed to be in consideration of this variation.

7. The varied Normanhurst mortgage secured a principal of $1,073,025.15, which represented the original principal and accrued interest on the applicant's loan of November 1981. The Darling Harbour mortgage secured the total of $1,092,525.15 the difference being expressed to be the respondent's costs in the Supreme Court proceedings. The interest rates and date of repayment (21 September 1985) became the same in both mortgages.

8. Although none of the documents referred to the Crows Nest caveat, it would seem that it was then withdrawn and the sale proceeded.

9. The critical conversation is said to have taken place in August 1984. No document was executed and no document has come into existence evidencing it. What did happen was that the Darling Harbour mortgage was thereafter granted. For an understanding of what was said and its meaning and effect it is necessary to set the conversation in its context.

10. The context as relied upon by the applicant is simply stated. The Normanhurst land was worth a fraction of the amount secured on it, the respondent was pressing for payment and Mr. Yates had control over or a controlling interest in Yates Property Corporation which owned the Darling Harbour land. It was expected that the land would soon be transferred to the Government and this would realise more than enough to pay out the respondent in full. Mr. Yates offered, or was asked to give, security over the Darling Harbour land and Mr. Adelstein said that if his company, the respondent, had that security it would not bother itself (or words to that effect) concerning the Normanhurst land. I do not know whether Mr. Adelstein was then aware of the amount secured by the existing mortgages.

11. The exchange went in part as follows:

Yates: "Can I have your agreement then that if I give you
the mortgage over Darling Harbour then you won't
make me sell Normanhurst or do anyting that would
interefere with the settlement of Darling Harbour
at which time you will be paid for Normanhurst. As
you know I have enough problems without wondering
what will happen with you in future. I'm trying to
improve the Normanhurst value by obtaining a
development approval. That's costing me more
dollars and helping your position all the time.
Have we a deal Peter?"

Adelstein: "Look what can I do? Normanhurst is useless, I've
been in now with you for three years. I might as
well stay in until this is all resolved. Darling
Harbour will enable me to eventually get my money
back with interest. As long as I can show my Board
that I have adequate security then that will be
O.K. If you can get your approvals and refinance
the loan and pay us back then that's a bonus."

Yates: "Good, thanks Peter, I really do appreciate your
attitude in all this. You'll organise the
documentation?"

Adelstein: "Yes, I'll talk to Roger and get back to you."

There had just before this been discussions about the Crows Nest property.

12. Perhaps the strongest statement supporting the intended arrangement is to be found in the evidence of Mr. Miles, a solicitor then acting for the applicant, who was present at a conference in September 1984 attended by Mr. Yates, Mr. Adelstein and Mr. Cornforth, legal representative of the respondent. He says Mr. Adelstein said:

"Our security over Scarel's Normanhurst property is
virtually of no practical value. If we are granted a
collateral mortgage over Darling Harbour we'll not
bother ourselves any more with the Normanhurst
security."

13. The arrangement relied upon would mean that the respondent would be paid its debt out of the eventual sale of Darling Harbour. The date of repayment, as I have said, was fixed at 21 September 1985. In many cases such a date is not of great significance, but it was purposively fixed in this case.

14. The context as relied upon by the respondent brings into account as additional factors the Crows Nest caveat, the Supreme Court proceedings, and the documents executed on 24 September 1984, and discussions between Mr. Yates and Mr. Adelstein about substituting Darling Harbour for Crows Nest. It is submitted that the intention was that security be given over Darling Harbour to compensate for the loss of recourse to Crows Nest, and not to replace the Normanhurst security.

15. This wider conspectus seems to me to be much more realistic, and correct. I do not accept that the conversation in August, which was one of several, represented a final bargain, and it was not in any event such that it could bind the respondent. It was but one of a series of matters dealt with in discussion.

16. It seems obvious that it was not intended that the Darling Harbour mortgage supplant the Normanhurst mortgage. Mr. Adelstein denies that there ever was an agreement, or even understanding to that effect. If it had been intended that the power of sale should go, it is reasonable to expect that mention would have been made of that aspect in the documents executed in September. The fact is, as I think Mr. Yates conceded, that the intention, or the effect of what is alleged, would not simply have been to remove the power of sale, but to totally overcome the efficacy of the Normanhurst mortgage. Yet it was confirmed and continued, by the variation which was formally executed. What Mr. Yates, and the applicant, sought to have happen was that the Crows Nest property be free to be sold and the Supreme Court proceedings discontinued.

17. It is also clear that Mr. Adelstein did not purport to bind his company. So far as appears he had no actual or ostensible authority to do so, but, beyond that, he several times referred to the need to get his Board's approval, or the need to persuade his Board. The need for formal documentation was apparent, and was mentioned.

18. It is submitted on behalf of the applicant that a case under s.52 of the Trade Practices Act 1974 is made against the respondent because Mr. Adelstein did not have any belief that his company would release the Normanhurst mortgage, or, at least, the power of sale therein. The credit of Mr. Adelstein was attacked. It is not usually appropriate for the Court to express a view on matters of credit at an interlocutory stage, but as I think the applicant's case is otherwise hopeless, I feel free to express the view that I do not see any substance in the criticisms made. On the contrary, the account Mr. Adelstein gives seems to me to be sensible and entirely creditworthy.

19. In my view, the applicant does not have an arguable case, which can be put on sound grounds, or one which justify the grant of interlocutory relief. I should add in this connection that much of the evidence, I would think nearly all of it, which could be presented at a final hearing has been presented before me. In the long run, I think that the terms of settlement, and what was done on 24 September 1984 are virtually insuperable hurdles, but there are the others I have mentioned.

20. On the question of balance of convenience, the applicant has presented little evidence which goes to show the loss it will suffer if the sale goes ahead. The respondent, on the other hand, as the evidence shows, will have lost the not inconsiderable expense of advertising and arranging the sale, if it does not proceed on the scheduled date, and interest at a daily rate of over $500 daily will continue to accrue.

21. I therefore dismiss the application, with costs.