Bartlett Investments Pty Ltd v Commonwealth Bank of Australia

Not for Distribution

IN THE FEDERAL COURT	OF AUSTRALIA	)	.	,$
1

QUEENSLAND DISTRICT REGISTRY	1	QLD. G74 of 1987
1
GENERAL DIVISION	)

BETWEEN:

BARTLETT INVESTMENTS PTY.

LTD.

First Applicant

SYDBART PTY. LTD.

Second Applicant	i '
I

AND :

NORTH QUEENSLAND DEVELOPMENT

(NO. 2 ) PTY. LTD.

Third Applicant

AND :

COMMONWEALTH BANK OF AUSTRALIA

First Respondent

AND :

WILSON JOSEPH WILDE

Second Respondent

SPENDER J.

BR1 SBANE

2 4

JUNE

1987 .

REASONS FOR JUDGMENT

In these proceedings the applicants seek

way

interlocutory relief an injunction until the hearing of the application or further order, restraining the Commonwealth Bank of Australia ("Commonwealth Bank") and Wilson Joseph Wilde from

taking any further steps pursuant to a deed

of appointment

whereby the Commonwealth Bank appointed Mr. Wilde receiver and

manager of the first applicant's assets and undertakings.

The respondents, by notice of motion made returnable

the

time

appointed

for

the

hearing

of the

application

for

interlocutory relief, seek orders that the statement of claim be

struck out because

it discloses no

reasonable cause of action;

that the applicants provide security for the respondents' costs;

that it be made a condition

of the grant

of the interlocutory

injunction sought by the applicants, that the first respondent be

restrained from taking any further steps pursuant to the deed

appointment of the second respondent

as receiver and manager

o f

the first applicant's assets and undertaklngs, that the first

applicant pay into Court $7,481,815.00, being the whole

the

moneys presently due and owing by the first applicant

to the

first respondent pursuant to the deed of equitable charge; and

also for an order that the first applicant forthwith deliver to

the second respondent books and records which are particularised

in the notice of motion.

On 19 August 1985, eleven companies, including the first

, ,

and third applicants entered into a deed

of equitable mortgage

with the Commonwealth Bank.

is not in dispute that there is

owing by Bartlett Investments Pty. Ltd. to the Commonwealth Bank

a conslderable sum of money under that mortgage. While there

no agreement as to the precise amount owing, on any vlew of	the
matter, it is in excess of $6,000,000.00.

On 23 April 1987, the Commonwealth Bank

in purported

exercise of its powers under the equltable mortgage, appointed	8
L-.

Mr. Wilde as receiver and manager of the first applicant's assets

I .

3 .

and undertaking. By its application filed

in the Federal Court

on 5 May 1987,

the applicants sought a declaration that that

appointment is invalid, as well as'relief pursuant to the Trade

Practices Act

1974.

It was

at one stage contended that the

equitable mortgage signed

on behalf of

the first applicant

was

deficient and did not contain any power to appoint a Receiver

but, on the original mortgage being obtained,	no issue remains in
this respect.

The

applicants

for

interlocutory

relief

assert

that

there is a

serious

question

tried

concerning

the

Commonwealth Bank's

entltlement to appoint a receiver of the

first applicant's assets and undertakings, and that the balance

of convenience favours the issue of an interlocutory injunction restralning the Receiver from exercising hls powers. It is said there is a serlous questlon to be trled concerning the bank's

entitlement

appoint

Receivers

pursuant

the

equltable

mortgage because the bank, on or about

5 March 1986, agreed that

it would

not

appoint a recelver or receivers to the first

I .A

applicant in the absence of a material change of circumstances.

It is further said that

no such materlal change in

circumstances

occurred prior to the purported appointment of	Mr. Wilde on	23	. .	.,
April 1987.
!

The respondents assert that there is

no serious question

of such an agreement as contended for by the applicants and, even

!	if there were, there had been a material change	of circumstances
!
I.

4 .

in a number

of respects and, on the question of balance

convenience, an interlocutory injunction ought not be granted

. ,

it would be futlle.	,
i
I. '
I.

Mr.

John Colin Bartlett, a director of each of

the

applicants, swears in his affidavit that on

5 March 1986, he

called a meeting of

the secured creditors of the Bartlett group

of companies at the offices of Touche Ross & Co. in Sydney.

While there

is a dispute

as to whether a private meeting had

occurred before or after the meeting

of secured creditors, there

is no doubt that there

was on that day a private meeting between

Mr. Bartlett and his wife, and Nr. Weaver and Mr. Collis Hollis on behalf of the bank, and two persons from Messrs. Coopers and

Lybrand.

According

Mr.

Bartlett,

there

was

discussion

concerning the state of the

bank's security documents. There was

dlscussion and agreement reached that the bank would appolnt

receivers to those companies that were threatened

unsecured

creditors

protect its interest and to enable a realisation

programme of assets to proceed. Mr.	Bartlett's	affldavlt then
baldly states:-

"It was

further agreed that the Bank would not

appoint

Receiver

Bartlett

Investments

Pty.Limited, thus ensurlng my control

of the Group

€or the purpose of implementing the realisation

programme. "

His affidavit continues:-

"On 13 March, 1986 I received a telex from the Bank

confirming that it would not appoint a receiver to

the first applicant, unless there	was a material
change of circumstance."

I .

That telex, addressed to Bartlett Group of Companies attn.: Mr. John Bartlett from: corporate, head office, John Day, stated in the body of the telex:-

"WE CONFIRM ADVICE AND

GIVEN BY MR. COLLIS HOLLIS

THAT THE BANK WILL NOT APPOINT A RECEIVER TO BARTLETT INVESTMENTS PROPIETORY (sic) LIMITED. HOWEVER, WE RESERVE THE RIGHT TO APPOINT A

RECEIVER IN

THE EVENT OF A MATERIAL CHANGE IN

CIRCUMSTANCES.

It was said in argument on behalf of the applicants that

the sworn assertion by Mr.

Bartlett of the agreement raises a

questlon of fact to be tried. The

respondents say that, while

Mr. Bartlett swears to the agreement pleaded, a close examination

of all relevant material would lead to a conclusion that there is

simply no serious question to be

tried.

It is polnted out that

the agreement is

set out In M r . Bartlett's affidavit in the

barest terms, and

no particularity

1 s given nor are the

words

used

constitute the agreement set out; there 1s no information as to who agreed on behalf of the bank, although

the

statement of claim pleads that	the agreement was made by Mr.
Hollis on behalf of the bank.

Mr.

Sherlock from Messrs. Coopers

& Lybrand,

in his

affidavit sets out the sentence from Mr. Bartlett's

affidavlt

dealing

with the agreement not to appoint

receiver.

Mr.

i '

Sherlock says:-	I ,
I .

"I say

that to the

best of my knowledge and

recollection there was

no such agreement reached

at that meeting and

further that such matter was

not discussed at that meeting."

File n

,es of that meeting

which

seem to have been taken by

another member of Messrs. Coopers	& Lybrand make no reference to
any such agreement.

Mr. Hollis

also

explicitly

denies

making

any

such

agreement. He says:-

"I say that there was no agreement reached at

the

aforementioned meeting for the First Respondent

not to appoint a Receiver to Bartlett Investments

Pty.Limited.

In fact no undertaking was given by

any of the persons present

that meeting and

representing the first Respondent that a Receiver

would not

be appointed to Bartlett Investments

!	Pty.Limited."

The respondent draws attention to a letter dated

7 March

1987 signed by Mr.

Bartlett addressed to the General Planager

the Commonwealth Bank, the body

of which reads:-

"We, John Colln Bartlett and Rene Maud Bartlett

being the

sole

directors of the undermentloned

Companles

hereby

request

Commonwealth

Bank

Australla to demand payment

of all monles owing to

the Bank by all or any

of those Companies and to

proceed to appoint a

Receiver or Receivers

those Companies as soon

as is posslble."

The companies referred to are twenty-five in number and include

Bartlett

Investments

Pty.Ltd..

It 1s submitted

that

curious to the point of disbelief that two

days

after the

agreement contended for by Mr. Bartlett he

1s requesting the

Commonwealth Bank to appoint a receiver to Bartlett Investments

Pty.Ltd. as soon as possible.

Next, there is a

deed of acknowledgment dated 12

March

1986; that is to say, approximately a week after the alleged

. .

l .

agreement. The deed acknowledged the validity

of an earlier

1	guarantee and	was executed on behalf	of	four Townsville based
I

companies including Bartlett

Investments Pty.Ltd. and was

signed

by Mr. Bartlett.

Two of the recitals read as follows:-

“WHEREAS each

of the Townsville Companies considers

it would be in their respective interests for the

Bank to appoint a receiver or receivers of each of

them and WHEREAS the Bank has agreed to appoint

receiver or receivers

and if more

than one then

severally of each of

the

Townsville Companies

subject to the Townsville Companies furnishing	to
the Bank the acknowledgment hereln contained.”

It is said that this document, which was executed inter alia by

Bartlett Investments Pty.Ltd. at the request of the bank to

overcome any possible invalldity

of the earlier guarantee, sits

quite incongruously

with the

claim that there had seven

days

L .

earlier been the agreement now sought	to	be relied on by	the	F
applicants.	I
I .
.I

The respondents also suggest that it was thls document

which led to the

sending of

the telex to

which I have earlier

referred.

Mr. Hollis, in one of his affldavits, says that on 13

1 March, 1987, he received a message that John Bartlett had phoned

his office. He returned the call and spoke to

I.Ir. Bartlett.

says that

in that call

Mr. Bartlett requested him to delete

Bartlett Investments Pty.Ltd.

from the deed

of acknowledgment.

He said that

Bartlett advised him that the reason was that the

company was

one of two CO-guarantors of the Bartlett Property

Trust and the appointment

of a receiver to that company would be

likely to cause the stock exchange to delete the listing of

the

units. His affidavit continues:-

8 .

"I advised Mr. Bartlett that I understood that the Commonwealth Bank was not particularly interested in appointing a Receiver to Bartlett Investments

Pty.Ltd., but that the Acknowledgement would need

to be executed by the four

( 4 )

First Schedule

Companies

(which

included

Bartlett

Investments

Pty.Ltd.) because the Acknowledgement contalned in

the Deed confirmed

what those four ( 4 )

Companies

intended to give to the Commonwealth Bank and what

the Commonwealth Bank believed it had.

advised

MT. Bartlett that it	was open for him to request
the Commonwealth Bank	not to appoint a Receiver of

Bartlett Investments Pty.Ltd.

Mr.

Bartlett then

asked me whether I could give him

assurance

that the Commonwealth Bank would not appoint

Receiver of Bartlett Investments.

I replied that

I could not give him that

assurance,

but that I

would recommend that the Bank send him

a telex to

confirm that the Bank would

not appoint a Receiver

on that day,

but that it would keep its options

open if matters

changed."

He says that he requested

Mr. Day, an officer of the Commonwealth

Bank, to despatch a telex to Mr. Bartlett confirming that there would be no Receiver appointed to Bartlett Investments Pty.Ltd.

provlded

that

there

was no

further

material

change

circumstances.

It is

also pointed out by the respsondents that

the telex refers

not

to an agreement but to "advice" and the

respondents submlt that the telex constitutes a communication

a decision by the bank to

forbear,

or grant an indulgence, but

does

not

constitute

the

agreement

contended

for

the

applicants.

The	respondents further say that the existence of that

agreement is inconslstent with the correspondence. There is a

letter of 9 July 1986 from

the

bank

Mr. Bartlett. It

commences by referring to a meeting

of 18 June 1986 "when the

. .

9 .

financial position of the group was

discussed in detail and to

the concern expressed by the bank at that time that there had	not
been any significant reduction in the group's debts."
It later stated:-

"The Bank is not prepared to allow this position to

continue

and

unless

you can

arrange

meet

accruing

interest

and/or

effect

immediate

significant reductions in the Group's debts then you will leave the bank little alternative other than to realise on its securities as mortgagee."

It is said that this is a curious letter to write if the bank had agreed with Mr. Bartlett that it would not appoint a receiver but would allow him to give effect to a plan to realise his assets.

The letter later

said:-

"Because of the magnitude of the

Group's debts, the

accrual of interest and the minor amounts held in

realisation accounts, it will be necessary for you

to forthwith arrange urgent sales of the remaining

securities held In the names of

John

Bartlett

Constructions Pty.Ltd. for all the properties at "Princeton Park" and "Kirwan", the Beedel Estates Pty.Ltd. security "Kelso Country Club" at Townsville, Beedel Farms and Grazing Pty.Ltd. land

at "Kirwan" and the properties

of Bartlett Estates

Pty.Ltd. at "Horseshoe Lagoon" and "Laudham Park" Townsville to be placed on the market immediately with sales to be negotiated at market value on

each property as appropriate.

Failure to take the necessary steps

properly

market these securities will mean that the Bank will take the necessary action as mortgagee and

will proceed to realise

upon its securities."

There was no

response by Mr. Bartlett to that letter asserting

! 1

the agreement now put forward.

, -

10.

By letter of 26 September to Mr. Bartlett, the bank

L .

wrote in a similar vein.

It said in part:-

"It is now in excess of two months since your

letter

and

although

various

undertakings

were

implied therein, little has been

achieved in

reducing the Group's

indebtedness to the Bank.

We must now reiterate our earlier advices that

...

unless immediate steps

are taken by

you to sell

the various properties, then

the CBA will have no

alternative but

to proceed to realise on these

assets forthwith.

...

Accordingly if a satisfactory plan of sale cannot	b
be implemented by you within the next 21 days, then the matters will be taken into our hands and we will attend to the marketing and sales of these	t .'
various properties as necessary."	:

There was again no response by Hr. Bartlett to this letter suggesting any agreement arising from

the meetlng of March

1986. t - .

I	I .
!

I am not, of course, presently

concerned

with

determining any question in a flnal way. There is much force In

the submissions on behalf of the respondents. Nonetheless, while

the evidence as it presently stands does not make one sanguine as

to	the applicants' prospects at the trial of the action of	i
l ,

establishing the agreement which Mr. Bartlett says was made,

has sworn to

the

'making

of the

agreement.

His version is

contradicted, but there may be some support	in the telex of	13	!-
t

March 1986.

It is not irrelevant to note that the letter

from

the Commonwealth Bank to the Manager

Bartlett Investments

Pty.Limited notifying that

receiver and manager of Bartlett

Investments Pty . Limited would be appointed was in these terms:-

I	.
l

...

"We refer to

our telex dated

13 March 1986.

consider that a material change of circumstance has occurred in the affairs of the Company. We

advise that the Bank

will be appointing a Receiver

and Manager to Bartlett 'Investments Proprietary

Limited."

, I

I.'

I think I should proceed on the basis that the material discloses	i
!
i s .

a serious question that falls

for determination at the trial.

1 l

In the light of that determination, while there were other issues canvassed, including whether

I..'

the bank could rely on

the presentation of a winding up petition against Bartlett	I.
r .!

Investments Pty. Ltd. as	a material change in circumstances,	or	.,
I -.
!
! '.

whether it was precluded from relying

on that event as a material

change of circumstance	because of its suggested	counselling	or	I '
,
. ,

procuring of that

application

and

support

of it, it 1s

h. I

unnecessary to embark on an assessment of those issues.

v.,

/ . (

On the question of balance of convenience, I am	clearly	' .
I .
; <

of the vlew that I ought not grant the lnterlocutory	in-~unction	I-.
sought by the applicants.	I
i
L .. , .
;

The danger whlch

Mr. Bartlett wishes to avert by the

injunction sought by the	applicants	is the	forced	sale	by	a	, -
I,

receiver which would bring a

low

price and expose him and

his

1 .

wife to liability under their personal guarantees. These

are the

reasons he advances in his affidavit.

While it was not referred

to in his affidavit material, it was also submitted by	counsel	l ,
L .

for the applicants that a recelver would deprive	Mr. Bartlett	of	! .
1. .

control of his company and make	it easier to be wound	up.	It was	i
I .

made

plain

senior

counsel

for

the applicants

that

the

I .

'. ,

I _

12.

applicants did not dispute the right of the bank to exercise its

powers as mortgagee of

entering into possession and selling the

assets covered by the equitable mortgage.

It is

solely the

appointment of a receiver that

is sought to be prevented.

Senior counsel for the applicants

aid:-

"I am not standing here offering any opposition to

the bank's steps to exercise its rights under the

mortgages.

It has its securities. It can go and

seek

realise

them.

I am

not

offering

any

opposition to that."

He did, however, submit that the appointment

of receivers

was

resisted because of the fear that the directors

may lose

thelr

right to defend a winding

up application.

It was submitted that

the powers conferred

on the receivers are

so extensive as to

displace

the

rlghts

directors

defend

the

winding-up

I I ,

application.

Attention

was

directed

to clause 3(1) of the

equitable mortgage, which gives power to the receiver "to

bring

or defend any actlon, suit or

legal proceedings In the name of

the Mortgagor or otherwise for all or any of the purposes

aforesaid".

However,

one

has

note

that

his

power

expressed to be	"for all or any of the purposes aforesald", whlch	!I
I.

purposes relate to taking possession of the assets and

so on.

C '

In my opinion the fears expressed

counsel for the

applicants concerning the extent of the receiver's	powers under
the equitable mortgage are misplaced.

In .-

Paramount Acceptance

Co.Ltd. v. Souster

119811 2

N.Z.L.R.

38, Davison C.J.,

delivering the judgment of the Court

of Appeal, said at p. 42:-

"Now the appellant was in receivership and where

here a receiver and manager is appointed over the whole of the undertaklng, the directors will for most practical purposes become functus officio.

Moss Steamship Co.Ltd. v. Whinney 119121 A.C. 254,

263, per Lord Atkinson:

'This appointment of a receiver and

manager

over

the

assets

and

business of a company

does not

dissolve or annihilate the company,

any more than the taking possession

by the mortgagee of the fee of land

let to

tenants

annihllates

the

mortgagor. Both continue to exist;

but

entirely

supersedes

the

company in

the conduct of its

business, deprives it of all power

to enter into contracts In relation

to that business, or to sell,

pledge, or otherwise dispose of the

property put into the possession,

or under the

control

the

recelver and manager.

Its

powers

In these respects are entirely in abeyance.'

But the directors still retaln residual powers, and if the recelver does not wlsh to cause the

company to bring an actlon then the directors may

do so wlthout his consent so long as the

company

is indemnifled against any liability

for costs."

And Newhart Developments Ltd.

v .

Co-operative Commercial Bank

Ltd. [l9781 Q.B. 814- was cited. In that case, Shaw L.J.,	at p.
819 said:-

"One has

got to see what the function of the

receiver is. It is not, of course, to wind up the

company. It is perhaps interesting to note in passing that -when a liquidator is appointed,

certainly in a

winding up by the court, the powers

of the directors immedrately cease by statutory

provision. There is no such provision in relation

14.

to the appointment of a receiver, whose duty it is

protect

the

interests

the

mortgagee

debenture holders, as the case may be.

In so

far

as it is requisite and necessary for him, in

the

course of his dealing with the assets of the company, bringing them in and realising them, and

so on, to bring actions as well, he is empowered

to do so by the debenture trust deed in the name

of the company.

That makes it possible for him to

institute such

proceedings

without

exposing

himself to the risk

of a liability for

costs

those proceedings should fail.

But the provisions

in the debenture trust deed giving him

that power

is an enabling provision which

invests him with

the capacity to bring an action in the name of the company. It does not di*rest the directors of the

company of their power, as the governing body of the company, of instituting proceedings in a situation where so doing does not in any way

impinge prejudicially upon the position

of the

debenture holders by

threatening or imperilling

the assets which are subject to the charge."

In the light of the expressed attitude by senior counsel

for the applicants to

the bank's rights

under the mortgages,

clause 5 of the mortgage is relevant. It is in these terms:-

"Whether or not a receiver

has been appointed

aforesaid it shall be

lawful for the Bank at any

time

after

the

moneys

hereby

secured

become

payable o r after

this mortgage shall have become

enforceable and wlthout

giving any notice to

exercise all

or any of the powers authorities

discretlons rlghts and remedies which	t e Bank may
confer on a receiver as aforesaid."

The bank can do the things

which a receiver can

without appointing a receiver, and

the difficulties attendant on

i '

a forced sale (which is the basis sworn

to by Mr. Bartlett for

' _

seeking injunctive relief) is a prospect to	which the applicants
are exposed whether the forced sale be by	a receiver or by the

bank exercising its powers of sale.

To grant an interlocutory

injunction in these circumstances would

be futile.

15.

I dismiss the application for lnterlocutory relief.

As to

the

respondents'

notice

motion,

it is

unnecessary to consider the third prayer for relief.

Detailed criticism

was directed at each of the causes

action pleaded

in the statement of claim in support

the

application to have it struck out as disclosing no reasonable

, .

cause of action.

Without dealing minutely with those criticisms

l '

and

the

responses

made

them, in my opinion, it is not

appropriate to exercise the power conferred by 0.20 (r.2)	to	I
t
l

strike out the

statement of claim

disclosing no reasonable

cause of action.

As Lockhart J. observed in

W.A. Pines Pty.Ltd. v.

Bannerman (1980) 41 F.L.R. 175 at p. 183:-

"...it is only in a very clear case that

a summary

order should be

made which prevents

a plaintlff

from

pursuing

his

case

before

the

customary

Tribunal. The tests to be applied, all indicating

the conslderable causation with which

the power

should be exercised, are referred to

Barwick

C.J. in

General

Steel

Industries

Inc.

Commissioner

for

Railways

(N.S.W.)

(1964)

112

C.L.R.

125 at 129-130."

On the question of security for costs,

it was submitted

, ,

that the material disclosed that the first and third applicants

I .

were insolvent, the	third	applicant	hopelessly	so with a	I
!

deficiency	liabilities	of	over	assets	ju t	of	over	1	,
I,

$23,000,000.00, and

it was submitted that the interest

the

second applicant in the litigation

not

the

same

as the

16.

interests of the first and third applicants, and

it could

not

therefore be said that Sydbart Pty.Ltd. would be liable for	all
of the costs should the applicants lose.

After

the

respondent

had

made

submissions

the

question of security

for costs, senior counsel on behalf

Sydbart Pty.Ltd. accepted liability for all costs incurred by

all

the

applicants in

these

proceedings.

On that

undertaking,

Sydbart Pty. Ltd. is fully liable for costs in the event of the

applicants'

failure.

Consistent

with

the

observations

Connolly J. in Harpur v. Ariadne Australia Ltd.

(1984) 2

Qd.R.

523 at p . 531-2,

security for costs in these circumstances should

not be ordered. There is no material suggesting that Sydbart

Pty. Ltd. lacks the capacity to satisfy any order

for costs that

may be made against it.

In these circumstances, the

application

for security for costs should

be refused.

As to the applicatlon for

a mandatory injunction for

the

delivery up

documents, the second respondent, through his

senior counsel, gives the usual undertaking as to damages in respect of an interlocutory mandatory injunction, and it was accepted that, should the applicants fail in the application for interlocutory in~unctions, it is right that I make an order f o r delivery up as sought in the notice of motion.

I therefore refuse

the application for interlocutory

relief. I decline

strike

out

the

statement

claim

disclosing no reasonable cause of action.

make no order in

relation to security for costs. On the

second respondent giving

r 1.

!I ,

the usual undertaking as to damages, I or	der th	[at	the first	I '
I I

applicant

forthwith

deliver

the

second

respondent

the

following books and

records:-

statutory records of the first applicant;

the common seal

of the first applicant;

copies of the flrst applicant's tax returns;

working papers;

bank statements;

cash books;

journals;

ledgers;

invoices;

share scrip and other title documents;

security packets.

I will hear the partles

on costs.

judgment herein of

H I S Honour

Mr.	Justice	Spender G \A,[ &&LK	!.-,	i .
I

3 & h 7

Assoclate

Dated

[1987] FCA 338

24 Jun 1987