In a decision handed down from the bench on May 13, High Court Chief Justice Susan Kiefel and Justices Sam Edelman and Jacqueline Gleeson rejected review of a NSW Court of Appeal decision in August that declined to set aside the sale of the land despite finding that Constantine’s firm Almona had agreed to a lower price for the sale of the property through misleading and deceptive conduct.

The judges said the proposed appeal was not an “appropriate vehicle” to decide questions about the duty of a mortgagee concerning its power of sale of Parklea Markets.

“Having regard to the pleadings, the findings of fact and the parties joined to the proceedings the relief sought raises a real question as to its utility.  Special leave is refused with costs,” said Chief Justice Kiefel.

The High Court’s decision comes after Almona defaulted on a $53.2 million loan to Secured Asset Porfolio III, a subsidiary of Hong Kong based financier PAG (also known as Pacific Alliance Asia Special Situations Fund). PPB Advisory was appointed as receivers and managers in April 2015.

SAP then sold the property in March 2016 for $81.1 million to Parklea Corporation, a subsidiary of the Dyldam property group, which hoped to undertake a $1 billion redevelopment of the markets.

The contract of sale included what was called an ‘occupancy condition’ under which Almona was promised $85.35 million if Constantine vacated his residence on the Parklea Markets land and $81.1 million if he did not.

Constantine was unaware of this condition and did not vacate his residence, thus selling the property for the lower price of $81.1 million.

Almona sued Parklea Corporation, SAP and a third entity, independent security trustee PT Limited, in the NSW Supreme Court seeking to set aside the contract of sale and alleging that Parklea and SAP had engaged in fraud. Alternatively, Almona sought to regain the $4.25 million it claimed it was owed if it had been made aware of the occupancy condition.

In a 2-1 decision, NSW Court of Appeal Chief Justice Tom Bathurst and Justice John Basten dismissed Almona’s appeal and found that, although Dyldam-owned Parklea Corporation and financier PAG’s failure to inform Almona of certain conditions of the sales contract “may well be viewed as a fraud”, there was nothing suspect about the arrangements before final offers were lodged in December 2015.

Chief Justice Bathurst rejected Almona’s arguments that mortgagee SAP’s entry into the contract of sale amounted to fraud despite the fact that PAG controlled SAP and was financing the sale at the same time through Parklea, which it had jointly established with Dyldam.

Justice Richard White issued a dissenting opinion, finding that PAG unit Secured Asset Portfolio III “did not exercise its power of sale in good faith”  and had engaged in a “collusive bargain” with Parklea during the transaction.

On May 13, Almona’s barrister David Williams SC argued that NSW Court of Appeal Justice Basten failed to consider a “central aspect” of Almona’s case about whether the sale was a “truly independent bargain”.

The two majority judges of the NSW Court of Appeal should have found SAP decided to sell the property not to recover the debt but rather to ensure a sale in which another PAG company had an indirect 80 per cent economic interest. 

“It was a ‘collusive bargain’ and not an ‘independent bargain’,” Williams said.

“It was incumbent upon SAP and Parklea to satisfy the court that the power of sale was exercised in good faith and the best price obtained.  

“They did not even seek to do this.  All witnesses who could have shed light on the sale process were kept from scrutiny.”

Williams said the Court of Appeal judges ignored facts raised in the case that showed the sale was a “collusive bargain” because Almona failed to expressly plead the allegations.

Williams argued the Court of Appeal should have considered events happening after the contract of sale became unconditional, saying the power of sale was exercised “up and until such time as completion occurred”.

“There had been a finding of fraud and sharp practice in that period that had a direct effect on the transfer.  As a result of the fraudulent conduct, the land was transferred at the lesser value of $81.1 million and not $85.36 million,” Williams said.

Counsel for SAP, Noel Hutley SC, argued the High Court should refuse leave to appeal because Almona had “no real prospects” of being granted the relief Constantine sought, which was to regain the property.

The barrister argued there was no prohibition on SAP as mortgagee selling to Parklea when PAG had a direct or indirect interest in the sale.

“So, the first point we say just simply falls over at that point.  To do it, they would have to convince the court that it is impermissible for a mortgagee ever to have an interest in the incoming purchaser,” said Hutley.

“It has been the law as we understand it for at least 100 years, if not more, and has always been treated to be the law in this court, and a moment’s reflection, it must be the law.”

Hutley said there was a “thoroughgoing examination of the market” involving two rounds of bidding and that the Court of Appeal was correct to find it was “a proper exercise of obtaining the best price”.

Hutley also argued special leave should be refused because Almona did not allege at trial that there was a conspiracy to suppress the price for SAP’s related company’s commercial gain.

“My client does not have to guess at a completely un‑pleaded, very serious fraud, and this is made clear in the judgment at first instance by the trial judge,” said Hutley.

“It would have been an outrage, with respect, for my clients to be found guilty of – a finding of fact to be made that my clients engaged in a criminal conspiracy to bid‑rig on the basis of those pleadings and that material.”

Hutley said the allegation that SAP’s motivation in the sale was not to recover the mortgage debt was “farcical”.

“They gave a year’s worth of opportunities, their associates could have got the property any time they want, and yet they went through an incredibly elaborate auction process which on any view was fairly determined to get to the point of selling this thing.” said Hutley.

“There was no fraud on the power.  It was an honest acquisition of the money.  Now, there was at the very heel of the hunt an act which was found to be improper, but that was only with respect to the uplift, did not impugn the transaction.”

Almona held the land on which the 22-hectare Parklea Markets is located in Western Sydney. Constantine built the markets in 1985, growing it from a nursery into the bustling retail centre it is today.

Bartier Perry partner Norman Donato, who represented Almona in the matter, told Lawyerly Friday that despite the High Court’s decision his client had proved that the mortgagee and the buyer acted dishonestly.

“Our client has fought this matter for six years because of the important matters of principle and law.  It’s disappointing that the High Court formed the view that this was not the right vehicle to agitate the issues raised by the appeal,” Donato said.

“The case highlights the almost insurmountable challenges and dangers mortgagors face when a mortgagee decides to sell the mortgaged property to a buyer in which they have a substantial interest in, and that fact is hidden at the time.

“In future a case should arise which presents an opportunity for the High Court to consider whether law today appropriately balances the rights of a mortgagee and a mortgagor particularly in relation to proving that a mortgagee sale was above board, or whether a mortgagee can avoid the rigors of a court supervised foreclosure process by simply purporting to sell to an independent third party.”

Almona is represented by David Williams SC and Nick Riordan, instructed by Bartier Perry. Parklea Corporation is represented by Kevin Andronos SC and Simon Keizer, instructed by Norton Rose Fulbright. PT is represented by Michael Izzo SC and Jonathan Burnett, instructed by Corrs Chambers Westgarth. SAP is represented by Noel Hutley SC and Elliot Hyde, instructed by King & Wood Mallesons.

The case is Almona Pty Ltd v Parklea Corporation Pty Ltd & Ors.

Copyright Lawyerly Media. Unauthorized reproduction or distribution of this article is prohibited.

A reprint licence is required to reproduce or distribute this article. Contact Us for a reprint licence.