Loan Limit Reason For Woollahra Mortgage
Sydney Morning Herald
Wednesday October 16, 1991
Woollahra Council mortgaged public land at Double Bay to a small development company, now in liquidation, because the council could not raise the money to construct a new works depot.
The mortgage, on three parcels of land on Cross Street, was offered to the Westpac Banking Corporation to provide up to $18 million to Scotts Developments, in May 1989 without being debated by the council.
The circumstances surrounding the controversial mortgage are set out by Woollahra's town clerk, Mr Michael Regnis, in a report to be discussed at a specially convened committee meeting today.
The report responds to questions asked by the Double Bay Residents'Association two months ago, and by new alderman Andrew Petrie, about the 1989 sale of land to Scotts for a $180 million hotel, retail and residential development and the development of a new works depot at Waterloo.
The report said the council provided mortgage financing for Scotts to alleviate the financial burden from Scotts and the bank. As the depot was an economic benefit to the council "it would therefore be appropriate for the council to provide the bank with a third party mortgage."
Although the mortgage was not discussed by the council, Mr Regnis pointed out that there were references to it in the council's report on the sale of the Cross Street lands.
As previously reported, some aldermen of the former council have said they were not aware that there was a mortgage related to the sale.
The former Double Bay ward alderman, Beatrice Gray, said she sighted the mortgage only when it was obtained at the Land Titles Office by the Double Bay Residents' Association in June. That was when reports of Scotts financial problems were first reported in local papers.
Mr Regnis explained in his report that the council authorised the Double Bay Lands Task Force in May 1989 to complete the negotiations and to affix the common seal of the council to all necessary documents.
The task force comprised Ald Elaine Cassidy and three former aldermen -David Rofe, John Darling and Susan Collett.
The report said the task force alluded to the mortgage at a finance committee meeting in June 1989, but that no specific mention of the mortgage was made.
Mr Regnis could not say why none of the 15 aldermen on the council had debated the issue at committee or council meetings.
"Presumably all the aldermen would have taken the opportunity to read the report to the committee and the special condition attachment," Mr Regnis wrote.
The mortgage was one of the "special conditions" of the sale of the Double Bay land and was mentioned under Condition 63 of the contract.
The report said there had been no better way than the mortgate for the council to secure finance for its new depot.
The council was limited in its ability to borrow on the external loan market. The limitation for a council of the size of Woollahra was between $1.2 million to $1.6 million. The depot was estimated to cost about $12 million.
Like a third-party mortgage, the report said,council guarantees had to offer security; and under terms for council guarantees the council would be obliged to pay for any default by Scotts. Under the mortgage the council had no personal obligation to pay any money.
Mr Regnis did not reply directly to the question of why the mortgage was allowed to be open-ended. He said the mortgage secured all the money which Westpac would advance to Scotts, and that a copy of the mortgage was attached to his report.
The council would pay all taxes, rates, duties, charges and outgoings, maintenance and insurance costs on the Cross Street land, as well as interest on the money that Scotts borrowed, because it was to remain in possession of the land until Scotts had finished building the depot.
"I understand this is the usual case with any mortgage," Mr Regnis wrote.
The mortgage deed was examined by council's former solicitors, McDonell Moffitt Dowling Tayler and discussed with, and approved by, the task force. No written assessment was made.
Mr Regnis said the value of the 9,125 sq m land at Cross Street and therefore the council's exposure "relates to how those lands may be used and what encumbrances might attach to them."
(The mortgage documents attached to the report do not give a value for the land. Last month the Valuer-General's department valued it at about $8 million.)
Scotts was selected by the council from eight proposals. Like two other companies shortlisted, the Scotts tender was financially assessed by KPMG Peat Marwick, and commercially evaluated by estate agents Richard Stanton Pty Ltd.
Scotts was also supported by a letter from its financier, Westpac Project and Advisory Services, which stated that Westpac's expertise and resources would optimise the benefits from the development for Scotts.
As first reported in The Eastern Herald four months ago, Mr Regnis' report said that Scotts, as the successful tenderer, was chosen expeditiously because of the risk that the option on the purchase of the land at Waterloo for the new depot would expire.
A council report had said: "... notwithstanding the risks and perceived difficulties the council cannot afford to miss the opportunity."
Several times in the report, Mr Regnis stressed that a failure to secure the option could have seen the collapse of the sale of the Cross Steet lands. The council had obviously been worried that it might not be able to find another site for the relocation of the depot.
The council approved progress payments to Scotts for its work on the depot. The work was certified by Scotts' consultant, the director of Development and Construction Economics, Mr John Weaver.
The report confirmed that the $850,000 of unpaid liabilities to the sub-contractors was approved by Mr Weaver. It was reported in June, however, that the sub-contractors left the depot uncompleted because they had not been paid.
Mr Regnis said he could not comment about what happened to the $850,000.
Although Mr Regnis appointed the council's deputy engineer, Mr Russell Lloyd, to oversee the completed work, he was not responsible for determining if the claim was paid to sub-contractors, the report said.
Mr Regnis said that because Scotts terminated the contract (when the liquidator failed to ratify the contract within 30 days of his appointment)Scotts had forfeited the $2.6 million deposit.
There had been no negotiations between the council and the bank, Mr Regnis said. But the bank was prepared to discuss its options with the council.
The Double Bay Residents' Association will make its own submissions on the report to the committee's meeting today.
© 1991 Sydney Morning Herald
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