Cai v Westpac Banking Corporation

[2005] VSC 317

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 6913 of 2005

CAI & ORS	Plaintiffs
V
WESTPAC BANKING CORPORATION	Defendant

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JUDGE:	Mandie J
WHERE HELD:	Melbourne
DATE OF HEARING:	9 August 2005
DATE OF JUDGMENT:	11 August 2005
CASE MAY BE CITED AS:	Cai v Westpac Banking Corporation
MEDIUM NEUTRAL CITATION:	[2005] VSC 317

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PRACTICE AND PROCEDURE – application for interlocutory injunction to restrain bank from terminating finance facility – whether serious question to be tried.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr G McCormick	Goldsmiths
For the Defendant	Mr D Christie	Minter Ellison

HIS HONOUR:

1. By summons dated 29 June 2005 the plaintiffs seek an interlocutory injunction restraining the defendant bank (“Westpac” or “the bank”) from “terminating the facility described as a Commercial Bill Line provided pursuant to a Business Finance Agreement entered into between the first and third plaintiffs and the defendant on or about 19 May 2000, further or alternatively requiring the reinstatement of the facility”.  The plaintiffs also seek an interlocutory injunction restraining Westpac from enforcing the associated guarantees and indemnities given by the first and second plaintiffs. 

1. The finance facility was provided to the plaintiffs for the purpose of the third plaintiff purchasing a supermarket business and the first plaintiff purchasing the supermarket premises in Frankston North and was used for those purposes.[1]  The first plaintiff and later the second plaintiff gave guarantees to Westpac and the first plaintiff executed a mortgage in favour of Westpac over the supermarket premises.

   [1]The supermarket business and the supermarket property were purchased at a total cost of approximately $1.02m excluding stock.

1. On 2 December 2004 the Commonwealth Director of Public Prosecutions (“the DPP”) obtained from the County Court of Victoria a restraining order pursuant to s.18 of the Proceeds of Crime Act 2002 (Cth).  Westpac has now purportedly terminated the finance facility and demanded repayment of the outstanding monies.  The plaintiffs contend that there is a serious question to be tried as to whether Westpac is entitled to do so.  It was common ground that the balance of convenience favoured the granting of the orders sought because, at least on the evidence before the Court at this stage, the damage which might be suffered by the plaintiffs considerably outweighed any damage likely to be suffered by Westpac.  The application therefore falls to be determined by reference to whether there is a serious question to be tried together with any other discretionary considerations.

1. It is necessary to outline the facts in more detail.  The business finance agreement dated 19 May 2000 was made between Westpac (trading as “Bank of Melbourne“) and the third plaintiff.  Westpac granted a Commercial Bill Line facility to assist with the purchase of the supermarket with a limit of $800,000.  The finance was granted for a term of 15 years and repayment was to be by $15,000 principal per quarter (together with interest).  There were a number of fees including a fee of $100 per roll over (ie of the Commercial Bill).  The agreement was varied in January 2004 for the purpose of assisting with stock purchases.  In essence what happened was that the limit, which by then had reduced to $620,000, was increased by $150,000 to $770,000.  The other terms of the agreement appear to have been substantially unchanged save that the “General Conditions Booklet version 3, dated March 2003” was incorporated in the agreement as varied.

1. The General Conditions empowered Westpac to require immediate repayment of all monies due at any time after a “Default Event”.  For the purposes of this application there are two Default Events relied upon by Westpac contained in section D2 of the General Conditions, which provides so far as relevant:

“A Default Event … occurs if:

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·Any court … does anything relating to any property (for example issuing a notice, making an order, resuming, seizing, freezing, restraining dealing with, confiscating or forfeiting any property … ) which, in the opinion of the Lender may materially adversely affect the Lender’s security or your financial condition or your ability to perform the [agreement];

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·In the opinion of the Lender there is a material adverse change in or affecting any Security, or the business, capital, assets or financial condition of any one or more of you or anyone who gives a Security; …”

1. Based on allegations that the first plaintiff had committed the offence of sale of cut tobacco contrary to the provisions of the Commonwealth Excise Act 1974 (Cth) and Criminal Code Act 1995 (Cth) in the period September 2003 to November 2004, the DPP obtained a restraining order from the County Court on 2 December 2004. Upon the DPP giving the usual undertaking as to damages on behalf of the Commonwealth, the County Court ordered that specified property not be disposed of or otherwise dealt with by any person. So far as relevant, the specified property was the supermarket premises. On the same date the DPP sent a fax to Westpac serving the order and informing the bank that the effect of the order was to prevent any person from dealing with the property without first obtaining the DPP’s consent or a further order from the Court and that the DPP considered that any further withdrawing of funds from an associated account for which the property was security would constitute a dealing with the property. The attention of the bank was also drawn to the offences provided for in s.37(1) of the Proceeds of Crime Act.

1. In an affidavit sworn on behalf of Westpac on 4 August 2005 a manager employed by Westpac (Mr Busuttil) deposed that as a result of the making of the restraining order and the said letter from the DPP, Westpac had formed the opinion that the restraining order had a material adverse effect on the mortgage and that there was also a material adverse change affecting the business within the meaning of the General Conditions.  The opinion as to material adverse change was based on the facts that the first plaintiff was the sole director and secretary of the third plaintiff and primarily responsible for running the supermarket business and that the consequence of his being charged with an offence was that the third plaintiff might lose its packaged liquor licence and might have its IGA supermarket franchise agreement terminated and that the circumstances of the charge might generally adversely affect the business.

1. Mr Busuttil deposed that in December 2004 Westpac determined that it should terminate the facility as a result of these alleged default events but “this determination was not actioned correctly” in that Westpac had established an unpaid bills account with the intention that the facility be retired but, in fact, had continued to roll over the existing bills.  On 1 April 2005 Mr Busuttil contacted the first plaintiff and advised him that Westpac had retired the facility to the unpaid bills account and on 11 April 2005 Westpac made its position clear by letters of that date when the first and third plaintiffs were advised that the bank required full clearance of the debts as a consequence of the restraining order.  The bank relied on the  relevant provision in section D2 of the General Conditions. 

1. Subsequently the bank served a demand and notice on the first plaintiff in his capacity as mortgagor and a demand on the second plaintiff as a guarantor.

1. Mr Busuttil deposed in his affidavit as to further charges which were laid against the first plaintiff in March 2005 in relation to alleged bribery and in August 2005 in relation to alleged kidnapping or false imprisonment.  The bank apparently became aware of the bribery charge in March 2005 and the other charges this month.  The bank was also informed by the DPP in late July 2005 of other charges against the first plaintiff of unlawful assault and possession of ammunition without a license. 

1. It was submitted on behalf of the plaintiffs that there was a serious question to be tried as to whether the bank had formed the opinion which it said it had formed and, as I understood it, whether the bank was entitled to form that opinion in the circumstances.  I do not accept this submission.

1. In my opinion the existence of the restraining order is a matter which rendered it reasonably open to the bank to form the opinion which it says that it did and the evidence is that it did form such opinion.  The same can, I think, be said about the other opinion basis relied upon as giving rise to a second default event.  The circumstances of the charge against the first plaintiff of which the bank learned in March 2005 was a matter which in my view the bank was also entitled to take into account in all the circumstances in forming its opinion on the second basis.

1. However, even if the foregoing conclusions are incorrect, there are in my view discretionary considerations which should lead to the dismissal of this application.  It remains open to the bank to form the necessary opinion as to material adverse change based upon the totality of the continuing circumstances disclosed in Mr Busuttil’s affidavit including the charges of which the bank learned in July and August.  Indeed, it is clear from the submissions advanced on behalf of Westpac that the bank holds such opinion. 

1. In those circumstances it would be an inappropriate exercise of the Court’s discretion to restrain the bank from terminating the facility until trial and, given that the bill facility has been terminated, to require the bank, as the plaintiffs seek, to reinstate the facility.  Further, I think that it would be fruitless to make a more limited order restraining Westpac “until further order” from terminating the facility or from recovering its monies or enforcing its security, given that further grounds for forming, and the intent to form, such opinion have already been shown to exist by Mr Busuttil’s said affidavit.

1. For those reasons the application was dismissed with costs.

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