Bevillesta Pty Limited v Perpetual Nominees Ltd & Ors [2010] NSWSC 839 (30 July 2010)

Last Updated: 4 August 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Bevillesta Pty Limited v Perpetual Nominees Ltd & Ors [2010] NSWSC 839


JURISDICTION:


FILE NUMBER(S):
10/243106

HEARING DATE(S):
27 July 2010

JUDGMENT DATE:
30 July 2010

PARTIES:
Bevillesta Pty Limited ACN 008 428 162 (Plaintiff)
Perpetual Nominees Limited ACN 000 733 700 (First Defendant)
Perpetual Trustee Company Limited (Second Defendant)
Challenger Managed Investments Limited (Third Defendant)
AMAL Asset Management Limited (Fourth Defendant)
Colonial First State Investments Limited (Fifth Defendant)

JUDGMENT OF:
Ball J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
S Robb SC (Plaintiff)
N Bearup (Plaintiff)
M J Cohen (Defendants)


SOLICITORS:
Middletons (Plaintiff)
Norton Rose (Defendants)


CATCHWORDS:
PRACTICE AND PROCEDURE - interlocutory injunctions - serious question - whether valuation certificate is conclusive of value of property under loan agreement and mortgages - balance of convenience

LEGISLATION CITED:


CATEGORY:
Procedural and other rulings

CASES CITED:
Clarke v Japan Machines (Australia) Pty Ltd (No 2) [1984] 1 Qd R 421
Ellison v Alliance Acceptance Ltd (1984) NSW ConvR 55-217
Harvey v McWatters (1948) 49 SR (NSW) 173 at 178
Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161
National Australia Bank Ltd v Sampson (No 2) (1991) 11 BPR 21513
Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284

TEXTS CITED:


DECISION:
1. An order that, until further order, the first, second, third, fourth and fifth defendants, by themselves, their servants or agents be restrained from asserting or enforcing any alleged rights arising from the alleged breach of the Syndicated Loan Agreement between the plaintiff and the defendants dated 24 June 2007 as amended (the Facility) or any related documents as a result of, or in reliance on, the notice from the fourth defendant dated 7 July 2010.
2. The order referred to in paragraph 1 is conditional on:
(a) the plaintiff giving the usual undertaking as to damages;
(b) the plaintiff making an application for expedition of the hearing of these proceedings and complying with any timetable fixed by the court for the preparation of the case for hearing.
3. Liberty to apply on three days’ notice.



JUDGMENT:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION



BALL J

30 JULY 2010

2010/243106 BEVILLESTA PTY LIMITED v PERPETUAL NOMINEES LIMTED & ORS

JUDGMENT

Background

1 By a lease dated 5 March 1988, the plaintiff leased from the Darling Harbour Authority for a period of 99 years property at Darling Harbour. The property was developed into the Harbourside Shopping Centre.

2 By a syndicated loan agreement dated 29 June 2007 made between the plaintiff on the one hand and the first, fourth and fifth defendants on the other, the first defendant agreed to lend the plaintiff the lesser of $124,800,000 and an amount equal to 65 per cent of the Harbourside Shopping Centre. The facility was provided to refinance existing facilities and to provide additional working capital for the plaintiff. The agreement was amended by an amending agreement dated 9 April 2008. Pursuant to a substitution agreement dated 29 June 2009, the first defendant was replaced by the second and third defendants as parties to the agreement. I will refer to the agreement as amended as the “Loan Agreement”.

3 The security trustee under the Loan Agreement, who is now the fourth defendant, holds two mortgages, one dated 11 November 2004 and the other dated 15 November 2005, over the leasehold interest held by the plaintiff in the Darling Harbour property. The mortgages are relevantly in identical terms.

4 Clause 11.5 of the Loan Agreement provides:

“If the LVR exceeds 65% then the Borrower must within 21 days after written demand by the Facility Agent reduce the Debt by such sum as will cause the LVR to be equal to or less than 65%. A failure to comply with this clause 11.6 [sic] will be an Event of Default.”

“LVR” (that is, loan to value ratio) is defined to mean the ratio of the Debt to the value of the Property (excluding GST). “Debt” is defined to mean the amount owing under the agreement and “Property” is defined to mean the Harbourside Shopping Centre.

5 Clause 23.7 of the Loan Agreement provides:

“A statement made by an Authorised Representative of the Facility Agent on any matter relating to any Transaction Document (including any amount owing by the Borrower) is prima facie evidence of that matter unless clearly wrong on its face.”

The Facility Agent is the fourth defendant.

6 Clause 23.11 of the Loan Agreement provides:

“If this document is inconsistent with any other document or agreement between the parties, this document prevails to the extent of the inconsistencies.”

7 The mortgages secure the payment of all moneys owing by the plaintiff under the Loan Agreement: cl 2; schedule, item 3.

8 Clause 12.5 of the standard terms of each mortgage provides:

“MORTGAGEE’S CERTIFICATE: A certificate signed by or on behalf of the Mortgagee as to a matter or as to an amount payable to the Mortgagee in connection with the mortgage is conclusive and binding on the Mortgagor as to the amount stated in it or any other matter of a factual nature in the absence of manifest error.”

9 Clause 12.25 of the standard terms of each mortgage provides:

“(a) The Mortgagee may obtain (at the Mortgagor’s cost and expense) an independent sworn valuation of the Mortgaged Land whenever and as often as it decides.

(b) If the Mortgagee requires more than one valuation per year of the Mortgaged Land the cost and expense of the additional valuation will be for the Mortgagee.

(c) Subject to paragraph (b) above the Mortgagor must pay to the Mortgagee on demand the amount of any valuation fees or expenses incurred by the Mortgagee. Any inspection, valuation, report, opinion, or certificate made or received by the Mortgagee will be for the Mortgagee’s information and purpose alone.

(d) The Mortgagee is under no obligation to disclose to anybody the contents or effect of any valuation or document or any adverse matter or opinion contained in any valuation or document.

(e) If the contents of any of those documents become known to the Mortgagor, the Mortgagor should not rely on them for any purpose, and the Mortgagee will not under any circumstance be liable for any matter contained in any of them.”

10 On 7 July 2010, the fourth defendant sent a letter to the plaintiff which said in part:

“The Lenders have obtained a valuation of the Security Property from M3 Property Pty Limited dated 3 May 2010 (the Valuation).

The Valuation indicates that the Borrower is in breach of clause 11.5(a) of the Syndicated Loan Agreement dated 24 June 2007 (as varied and amended) (the Loan). Clause 11.5(a) of the Loan requires that at all times the loan to value ratio (LVR) must not exceed 65%.

The Valuation indicates that the market value of the Property is $168,000,000 (exclusive of GST). The current debt owing under the Loan is $116,808,000, as at 2 July 2010. Accordingly, the loan to value ratio equates to 69.53%.”

The letter went on to demand that the plaintiff reduce its loan by $7,608,000.

11 The plaintiff seeks an interlocutory injunction restraining the defendants from asserting any rights said to arise out of the letter dated 7 July 2010.

12 In relation to the question whether there is a serious issue to be tried, the plaintiff essentially makes four points:

a Clause 12.5 of the mortgages cannot operate in circumstances where, as in this case, cl 23.7 of the Loan Agreement does. Consequently, the letter dated 7 July cannot be conclusive of anything;

b In any event, the letter dated 7 July 2010 is not a certificate for the purpose of cl 12.5;

c To the extent that cl 23.7 of the Loan Agreement applies to the statements made in the 7 July letter and, in particular, the amount owing by the plaintiff, that letter is only prima facie evidence of that matter and the plaintiff has provided an expert valuation from Colliers International which rebuts that prima facie evidence;

d Consequently, the condition for the operation of cl 11.5 of the Loan Agreement has not been established.

In my opinion, there is a serious question to be tried in relation to these issues.

If clause 12.5 of the mortgages applicable?

13 This question raises two issues. The first is whether cl 12.5 of the mortgages is inconsistent with cl 23.7 of the Loan Agreement and, whether, as a consequence of cl 23.11 of the Loan Agreement, the latter prevails. The second is whether cl 12.5 should be read as determining matters to be determined under the mortgages and cl 23.7 should be read as applying to matters to be determined under the Loan Agreement.

14 I doubt that the first of these issues is reasonably arguable. In my opinion, cl 12.5 of the mortgages and cl 23.7 of the Loan Agreement provide alternative means of proof and, to the extent that they are both available, it seems to me that the fourth defendant can elect which to rely on in a particular case.

15 On the other hand, I think that there is a serious question to be tried that a certificate under cl 12.5 can only be a certificate in relation to matters arising under the mortgages, including the quantum of any amount secured by the mortgages or payable under them. An amount does not become payable under cl 11.5 of the Loan Agreement until 21 days after a demand is made by the Facility Agent. Consequently, that amount does not become payable under the mortgages until that time. However, a demand can only be made if the LVR exceeds 65%. Whether the LVR exceeds 65% is not an issue that arises under the mortgages. It is an issue that arises under the Loan Agreement. In my opinion, there is a reasonably arguable case that it follows that a certificate cannot be given under cl 12.5 of the mortgages in respect of that issue.

Was the letter dated 7 July 2010 a certificate under cl 12.5?

16 The plaintiff raises two issues in relation to this question. First, it says that the letter dated 7 July is not in a form a certificate. Second, it submits that the letter is not a true certificate because it does not certify the facts that are intended to be its subject.

17 In relation to the first point, the plaintiff points out that the letter does not, on its face, purport to be a certificate under cl 12.5. Instead, it takes the form of a letter of demand. Moreover, it does not clearly identify the facts in respect of which it purports to be a certificate. In particular, nowhere does the letter specifically purport to certify that the value of the Property is $168,000,000. For example, it says that “the Valuation indicates that the market value of the property is $168,000,000”. That is a statement of fact about the valuation, not a statement of fact about the market value. The plaintiff also submits that a statement of valuation is not a statement of fact, but a statement of opinion. I do not accept that this last proposition is reasonably arguable. In my opinion, a statement of opinion (for example, that a particular property has a particular value) is a statement of fact for the purpose of cl 12.5. However, in my opinion, there is a serious question to be tried in relation to the balance of the plaintiff’s argument for the reasons the plaintiff gives.

18 The second point raised by the plaintiff in this context is that, in order to be a certificate for the purposes of cl 12.5, the document must contain a certification by somebody who has knowledge of the facts that those facts are true. It is not sufficient for a piece of paper simply to record the relevant facts. In support of that submission, Mr Robb, who appeared for the plaintiff, relies on the decisions of Young J (as he then was) in National Australia Bank Ltd v Sampson (No 2) (1991) 11 BPR 21513 and Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284. On this basis, a person who is familiar with the financial records of the fourth defendant could certify the amount owing by the plaintiff based on those financial records. However, that person could not give a certificate about the value of the mortgaged property. A certificate of that sort would have to be provided by a valuer on behalf of the fourth defendant. Again, in my opinion, there is a serious question to be tried in relation to that issue.

Application of cl 23.7 of the Loan Agreement

19 The defendants appear to accept that, if cl 23.7 of the Loan Agreement is the relevant clause, then there is a serious question to be tried in relation to the value of the property having regard to the valuation of Colliers International. In any event, I think that that must be the position. Whatever prima facie evidence is provided by the letter dated 7 July 2010, that evidence is rebutted by that valuation.

Balance of convenience

20 The balance of convenience raises two issues. The first is whether, in order to obtain interlocutory relief, the plaintiff must pay the amount in dispute into court in accordance with the principle stated in Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161. The second is whether, assuming that it is not required to do so, whether the balance of convenience is in the plaintiff’s favour.

21 In relation to the first issue, the plaintiff submits that the principle in Inglis is not applicable in this case. In the plaintiff’s submission, this case falls within the exception which was stated in these terms by Sugerman J in Harvey v McWatters (1948) 49 SR (NSW) 173 at 178:

“There is a distinction between what I have called the ordinary case and the case in which the existence of the power of sale or the question whether it is exercisable at all is in question. The present case is of the second class. What is called the ordinary rule applies to cases of the first class, and to those cases only. This flows from the principles and reasoning on which that rule depends. Cases of the second class are, as regard interlocutory applications, governed by a rule of a similar type. But it is a rule resting on different principles and reasoning. These permit of a greater flexibility. They do not require that in every case the whole amount claimed or sworn to by the mortgagee or seen from the terms of the instrument to be the greatest amount that could be due should be paid in. The terms may be moulded so as to require payment in of so much only as sufficies to give adequate protection to the mortgagee.”

Although Sugerman J says in relation to cases falling within the second class that his Honour identifies that it may not be necessary for the plaintiff to pay into court the whole amount in dispute, there are cases falling within this class where the court has not required payment in at all: see, for example, Ellison v Alliance Acceptance Ltd (1984) NSW ConvR 55-217; Clarke v Japan Machines (Australia) Pty Ltd (No 2) [1984] 1 Qd R 421.

22 In my opinion, the balance of convenience is in favour of granting the injunction and that is so without requiring the plaintiff to make any payment into court. I say that for several reasons.

23 First, this is a case where the plaintiff has what I regard as a strongly arguable case that it is not liable to pay any part of the amount claimed by the defendants based on the fourth defendant’s letter dated 7 July. In addition, the plaintiff has ongoing liabilities under the mortgages and it is meeting those liabilities. This is not a case where the plaintiff appears to be avoiding liabilities it clearly has.

24 Second, there is no evidence before me that the defendants will suffer any prejudice if I grant the injunction. The defendants assert that the LVR is now above 65%. However, the only evidence before me on that question is the evidence available in the Colliers International report. That evidence is to the effect that the LVR is below 65%. It is true that the defendant has purported to serve a certificate to the effect that the LVR is above 65%. However, where there is a seriously arguable case that that certificate cannot take effect in accordance with clause 12.5 of the mortgages, I do not think that I should place any weight on it for the purposes of determining the balance of convenience. It is also true that the letter dated 7 July refers to a valuation obtained from M3 Property Pty Ltd. However, the defendants place no reliance on that report and, indeed, objected to its production in response to a notice to produce served by the plaintiff. The defendants’ position is that valuation is irrelevant having regard to the fourth defendant’s letter dated 7 July 2010. Finally, I propose to make it a condition of the injunction that the plaintiff make an application for expedition of this matter promptly and comply with any timetable fixed by the court for the preparation of the case for hearing. In those circumstances, I think that the additional risk to which the defendants are exposed if the current LVR is properly to be regarded as being 69.53% is small, since the likelihood is that that issue will be determined promptly and the defendants will be free to exercise their contractual rights.

25 Thirdly, I accept that the plaintiff is likely to suffer significant hardship if the injunction is not granted. The plaintiff gave evidence that it had access to sufficient funds to pay the amount claimed by the defendants but that it has earmarked those funds for other projects which, if they do not proceed, will cause the plaintiff or entities associated with it significant hardship. I do not see the plaintiff’s hardship quite in those terms. The reality is that, if the defendants are ultimately successful, the plaintiff will have to pay the amount demanded if it is to avoid breaching the Loan Agreement and, no doubt, it will have to plan for that contingency. The hardship as I see it is that the plaintiff is required to pay a substantial sum of money in what is a short period of time and, as a result, has a limited opportunity to makes those plans. I regard that as a substantial hardship that justifies granting the injunction.

26 I make the following orders:

1. An order that, until further order, the first, second, third, fourth and fifth defendants, by themselves, their servants or agents be restrained from asserting or enforcing any alleged rights arising from the alleged breach of the Syndicated Loan Agreement between the plaintiff and the defendants dated 29 June 2007 as amended or any related documents as a result of, or in reliance on, the notice from the fourth defendant dated 7 July 2010.

2. The order referred to in paragraph 1 is conditional on:

(a) the plaintiff giving the usual undertaking as to damages;

(b) the plaintiff making an application for expedition of the hearing of these proceedings and complying with any timetable fixed by the court for the preparation of the case for hearing.

3. Liberty to apply on three days’ notice.

27 Although the liberty to apply is unrestricted, I should make it clear that it is given in part to permit the defendants to make an application that the order in paragraph 1 be discharged in the event that the plaintiff fails to comply with the condition referred to in paragraph 2(b) of the orders that I have made.

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LAST UPDATED:
3 August 2010