SUPREME COURT OF QUEENSLAND CITATION: PARTIES: Gladstone & District Leagues Club Ltd v Hutson & Ors [2007] QSC 010 GLADSTONE & DISTRICT LEAGUES CLUB LIMITED ACN 010 187 961 (applicant) v ROBERT HUTSON (first respondent) and KMQ PTY LTD ACN 105 447 818 trading as KORDA MENTHA (QLD) (second respondent) and CLUB MANAGEMENT PTY LTD ACN 099 093 053 (third respondent) and JOHN PARK (fourth respondent) FILE NO/S: S270 of 2007 DIVISION: PROCEEDING: ORIGINATING COURT: Trial Division Application Supreme Court of Queensland DELIVERED ON: 2 February 2007 DELIVERED AT: Brisbane HEARING DATE: 25 January 2007. JUDGE: ORDER: Philip McMurdo J 1. It is declared that upon the proper construction of the mortgage debenture given by the applicant and held by the respondent Club Management Pty Ltd, the right afforded by cl 14.1(d) to appoint a receiver cannot be exercised unless and until the mortgagee has exercised, by notice in writing to the mortgagor, the option to treat the Secured Amounts as payable immediately. 2. It is further declared that the appointment by Club Management Pty Ltd of Robert Hutson and John Richard Park as receivers and managers of the applicant on 5 January 2007, was invalid.
2 3. That the respondents Robert Hutson and John Richard Park be restrained from acting as receivers or managers of the applicant in reliance upon the purported appointment of 5 January 2007. CATCHWORDS: CONTRACTS GENERAL CONTRACTUAL PRINCIPLES CONSTRUCTION AND INTERPRETATION OF CONTRACTS OTHER MATTERS where mortgage clause provides the right to treat funds as payable immediately and the right to appoint a receiver within a sub-clause whether exercising the right to appoint a receiver requires the exercise of the right to treat funds as immediately payable. MORTGAGES - RECEIVERS APPOINTMENT GENERALLY where clause lists rights on enforcement - where right to treat funds as payable immediately in head clause where there is a right to appoint a receiver within sub-clause whether the chargee can appoint a receiver without treating the funds as payable immediately. Bovill v Endle (1896) 1 Ch 648, considered. Branwood Park Pastoral Co Pty Ltd v Willing & Sons Pty Ltd [1976] 2 NSWLR 149, considered. Hyde Management Services Pty Ltd v FAI Insurances Limited (1979) 144 CLR 541, considered. Myross (NSW) Pty Ltd v Kahlefeldt Securities Pty Ltd [2003] NSWSC 138, considered. COUNSEL: SOLICITORS: H Fraser QC with P Franco for the applicant D Jackson QC with R Jackson for the respondent Warlow Scott for the applicant Mullins Lawyers for the respondent [1] The applicant operates a licensed club from rented premises at Gladstone. Those premises are owned by the respondent, Club Management Pty Ltd. It is also the holder of a mortgage debenture over the applicant s property, by an assignment of that security by the original chargee, National Australia Bank. The bank s debt secured by that mortgage debenture was also assigned to the respondent. [2] The applicant and the respondent are in dispute in several respects and there are other proceedings between them which were commenced last year. The respondent
3 says that there have been defaults under the mortgage debenture entitling it to, amongst other things, appoint a receiver. On 5 January 2007, the respondent appointed Mr Hutson and Mr Park (who are also respondents here) as receivers pursuant to, or purportedly pursuant to, a power in the mortgage debenture. In two ways, the applicant challenges the validity of that appointment. First, it says that there was no event of default. That case involves factual questions which are not raised by the present application. Alternatively, the applicant says that upon its proper interpretation, the mortgage debenture did not authorise the appointment of receivers absent an election by the chargee to accelerate the time for payment of the moneys secured by it. That involves a question of law only, it being conceded that the appointment of 5 January was made without any purported acceleration of the obligation to pay the secured moneys. By this Originating Application, the applicant seeks declarations to the effect that the appointment was for this reason invalid and injunctive relief against the receivers. [3] Clause 12 of the mortgage debenture provides that certain events constitute so called Events of Default. It provides in part as follows: 12 Events of Default The following events (whether or not the happening of an event is in the control of the Mortgagor) are Events of Default: (a) (k) if default is made in the payment of any Secured Amounts; if an Authorised Officer of the Bank forms the reasonable opinion that the Bank has been prejudiced by the Mortgaged Property deteriorating or becoming less valuable, or the Mortgagor does or permits any act, matter or thing which, in the opinion of the Bank, results in the Mortgaged Property deteriorating or becoming less valuable, or which, in the opinion of the Bank results in any of the Mortgaged Property being in danger of being taken or held under any Process or otherwise being in jeopardy;
4 [4] Clause 14 provides for certain rights of the chargee (again referred to as the Bank) including the right to appoint a receiver. Each of those rights requires the occurrence of an Event of Default. The event said to justify the appointment of 5 January was the existence of a reasonable opinion in terms of cl 12(k). The existence of a genuine and reasonable opinion of that kind is disputed by the applicant, but that involves factual questions which are not raised by the present application. [5] Clause 14 provides in part as follows: 14 Rights on Enforcement 14.1 Rights of the Bank Subject to Clause 14.2, at any time after an Event of Default occurs the Bank may at its option exercisable by notice in writing to the Mortgagor (and notwithstanding there is an agreement in writing or course of dealing to the contrary and notwithstanding any concession or delay or previous waiver by the Bank of its right to demand payment of the Secured Amounts) treat the Secured Amounts as payable immediately and may immediately or at any later time (in addition to any other rights, powers and remedies conferred on a mortgagee by law and so that no delay or failure by the Bank to exercise any of the Rights of the Bank prejudices their later exercise) do all or any of the following things without giving any or further notice or demand to the Mortgagor: (a) (b) possession: enter upon, and take possession of, collect and get in the whole or any part of the Mortgaged Property and of its rents and profits or both (and for that purpose take any proceedings in the name of the Mortgagor or otherwise as seems expedient to the Bank and to give effectual receipts for any of them) and, if the Bank thinks fit, manage and use any Mortgaged Property and carry on at the risk of the Mortgagor any business or pursuit included in the Mortgaged Property or for the time being or usually carried out upon any Land included in the Mortgaged Property, with all the powers of an absolute owner; and Lease: whether in or out of possession, lease the Mortgaged Property, accept the surrender of any Lease of the Mortgaged Property whether or not granted by the Bank, and surrender any Lease included in the Mortgaged Property; and
5 (c) (d) (e) (f) sale: whether in or out of possession, sell the whole or any Mortgaged Property and exercise all other powers conferred upon a mortgagee by law; and Receiver: whether in or out of possession and whether or not the Bank is entitled to appoint a Receiver under any Statute, appoint any person or persons to be a Receiver of the whole or any of the Mortgaged Property; and powers of Receiver: whether in or out of possession and whether or not a Receiver has been appointed under this Deed, at any time after the Bank has become entitled to appoint a Receiver and without giving any notice, exercise all or any of the powers, authorities and discretions which may be conferred on a Receiver under this Deed or by law; and agent: appoint under the hand of an Authorised Officer of the Bank and employ one or more agents to act (and, if more than one, jointly or severally or jointly and severally as the Bank thinks fit) on behalf of the Bank in the exercise of any Rights of the Bank. 14.2 Procedural Requirements Before the Bank exercises any other right, power or remedy conferred by Clause 14.1 or on a mortgagee by law, the Bank must give any notice or demand and allow any period of time to elapse which the Bank is required to give or allow by a law which cannot be excluded, waived or negatived by agreement, but: (a) (b) (c) to the extent that any of these requirements can be excluded, waived or negatived by agreement, they are excluded, waived and negatived; without limiting the effect of paragraph (a) above, any notice or lapse of time prescribed by a law before the Bank is allowed to exercise a power of sale relating to default of a non-monetary covenant, agreement or condition expressed or implied in this Deed is excluded, waived and negatived; to the extent that any notice or demand which is required to be given cannot be excluded, waived or negatived by agreement before the Bank may enforce this Deed or exercise a particular right, power or remedy, then (to the extent that the law permits) no further or other notice or demand is required to be given to exercise any right, power or remedy after that notice or demand has been given or where another right, power or remedy is to be exercised; and
6 (d) to the extent that any period of time which is required to be allowed before the Bank exercises a right, power or remedy conferred by Clause 14.1 or on a mortgagee by law cannot be excluded, waived or negatived by agreement, but may be abridged by the express stipulation or fixing of a lesser specific period, that period of time is stipulated and fixed as one day or (to the extent the period of time cannot be one day) is stipulated and fixed as being the minimum period in excess of one day which the law permits. [6] The question raised by the present application is whether upon its proper interpretation cl 14.1 permits the chargee to appoint a receiver without also having exercised its option to treat the Secured Amounts as payable immediately, that is to accelerate the date for payment of the moneys secured. [7] The applicant s argument points first to the use of the conjunction and after the words treat the Secured Amounts as payable immediately. It is said that this word is critical because it precludes an interpretation by which the power of appointment of a receiver could be exercised without an acceleration of the debt. Further, the applicant refers to the structure of cl 14 which says it distinguishes between the power of acceleration and the several powers conferred by paragraphs (a) to (f). It argues that had it been intended that any of those powers could be exercised absent the exercise of the option to accelerate, the acceleration power would have been expressed after the introductory part of cl 14 rather than within it. It further argues that if a receiver could be appointed absent the acceleration of the debt, the chargee would be able to effectively take control of the chargor s business for the full term of the loan without the chargor being able to repay the debt and regain its business. [8] It is convenient to first deal with that last submission. Where a loan is repayable on a certain date, in general the borrower has no right to repay the debt before then:
7 Hyde Management Services Pty Ltd v FAI Insurances Limited. 1 The position is different, however, where the relevant agreement itself provides that right of early repayment. 2 In the present case, the borrower does have a right to repay early: cl 4 of the loan agreement provides that the borrower must repay the principal by a certain date and provides for certainly monthly instalments to represent the minimum rate at which the principal is to be repaid. In any event, a mortgagor has a right to repay prior to the agreed date if the mortgagee either demands payment or takes steps to compel payment. An entry into possession by a mortgagee, for example, has been characterised as such a step. 3 For these reasons the moneys secured here could be repaid early without an acceleration, that is without the applicant becoming obliged to repay early. Therefore an acceleration would not benefit the chargor in the way which its argument suggests. Absent an acceleration, it could still discharge the mortgage debt and thereby regain its business from a receiver. [9] The applicant s argument as to the structure of cl 14 is more persuasive. The power to accelerate the Secured Amounts does seem to be intentionally distinguished from the other powers conferred by the clause. Perhaps there is an explanation for that distinction in that the acceleration power is exercisable by a notice whereas each of the other powers is said to be exercisable without any or further notice or demand. Nevertheless that distinction could have been employed within a structure in which the acceleration power was listed in a sub-paragraph within the list of the other powers. 1 (1979) 144 CLR 541. 2 (1979) 144 CLR 541, 544. 3 Bovill v Endle (1896) 1 Ch 648, 651; Branwood Park Pastoral Co Pty Ltd v Willing & Sons Pty Ltd [1976] 2 NSWLR 149, 152-153; Myross (NSW) Pty Ltd v Kahlefeldt Securities Pty Ltd [2003] NSWSC 138 at [9]-[11].
8 [10] The respondent points to the words any or within the expression without giving any or further notice or demand to the Mortgagor. It argues that if those other powers required the exercise of the acceleration power, which does require a notice or demand, there could be no sensible purpose for the words any or. It may be that in that respect the language is somewhat superfluous, just as it is within sub-paragraph (2) with the phrase without giving any notice. And there may be another explanation for these words any or. As cl 14.2 anticipates, there may be some requirement by law that one or more of the powers within the sub-paragraphs in cl 14.1 be exercised only after some demand or notice. The intention in the introductory part of cl 14.1 may have been that the mortgage debenture itself did not require any notice or demand, or any further notice or demand in the sense of one which was further to that as required by law. [11] Clause 17 makes further provision for the appointment of receivers and the exercise of their powers. In particular receivers are given powers to sell or lease and to take certain other steps which would result in their receipt of funds. Clause 18 deals with the application of such funds and provides in part as follows: 18 Application of Moneys 18.1 General Subject to the repayment of any claims having priority to this Deed and to any Statute that overrides this Clause 18.1, moneys received under the power conferred by or by virtue of this Deed must be paid or applied in the following order of priority: (a) (b) (c) in satisfaction of all costs, charges and expenses paid or incurred by the Bank or any receiver appointed under this Deed and in satisfaction of the remuneration of the Receiver in or towards satisfaction of the whole or any parts of the Secured Amounts in such order as the Bank chooses; as to the surplus (if any) to the person or persons who in the opinion of the Bank or the Receiver are entitled to the surplus.
9 18.2 18.3 Surplus Moneys If at any time after satisfaction of the Secured Amounts there is any surplus in the hands of the Bank which is payable to the Mortgagor or any other person entitled to the surplus, the surplus does not carry interest and the Bank may pay the surplus to the credit of an account in the name of the Mortgagor or any other person entitled to the surplus in the books of the Bank and is under no further liability in respect of the surplus. [12] Clause 18 assumes that the Secured Amounts are due and payable at the time funds are in the hands of receivers. It requires the funds to be applied in or towards satisfaction of the whole or any parts of the Secured Amounts. It provides for the application of funds in satisfaction of the Secured Amounts before payment of a surplus (if any) to other persons and in particular to the mortgagor. Clause 18 makes no provision for an acceleration of the date for payment of the Secured Amounts by, for example, an acceleration on or after a receiver s sale. Rather, it assumes that all of the Secured Amounts have become due and payable. This strongly supports the applicant s argument. [13] In my conclusion, the applicant s interpretation of cl 14 is to be preferred, mainly because it accords with the language and the structure of the clause which markedly distinguishes the acceleration power from those within the various sub-paragraphs. Any of the rights the subject of the various sub-paragraphs of cl 14.1 is exercisable only once the acceleration right is exercised. [14] The remaining question is that of the appropriate relief. It will be declared that upon the proper construction of the mortgage debenture given by the applicant and held by the respondent Club Management Pty Ltd, the right afforded by cl 14.1(d) to appoint a receiver cannot be exercised unless and until the mortgagee has exercised, by notice in writing to the mortgagor, the option to treat the Secured
10 Amounts as payable immediately. It will be further declared that the appointment by Club Management Pty Ltd of Robert Hutson and John Richard Park as receivers and managers of the applicant on 5 January 2007, was invalid. [15] The Originating Application sought an order restraining those persons from acting as receivers or managers of the applicant. The respondents did not oppose some injunction in the event that the applicant s construction was preferred. But the injunction should be confined to acting pursuant to the invalid appointment. It will be ordered that the respondents Robert Hutson and John Richard Park be restrained from acting as receivers or managers of the applicant in reliance upon the purported appointment of 5 January 2007. [16] At the hearing reference was made to what should occur in the event that such orders were made and in particular to whether possession of any property presently controlled by the receivers should be returned to the applicant before any further step was taken by Club Management Pty Ltd. However I was not asked to make some order to that effect or otherwise to determine that it was necessary that such property be returned before receivers could be appointed. [17] I will hear the parties as to costs.