Canberra Advance Bank Ltd v Benny

[1992] FCA 823

Re: CANBERRA ADVANCE BANK LTD and BARRY ANTHONY TAYLOR
And: JOHN BERNARD BENNY; THE OPAL MINING AND EXPORT COMPANY PTY LTD; THE
AUSTRALIAN OPAL AND GEMSTONE MUSEUM PTY LTD and YERAPIN PTY LTD
No. ACT G34 of 1991
FED No. 823
Receiver - Waiver - Appellate Court
(1992) 9 ACSR 179
(1992) 38 FCR 427
(1992) 115 ALR 207

COURT

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Neaves(1), Miles(1) and O'Loughlin(1) JJ.

CATCHWORDS

Receiver - Validity of appointment - power to support appointment by breach of conditions existing at time of appointment but discovered subsequent to appointment - whether secured creditor must act "reasonably" - extent to which a secured creditor may rely on "technical" breaches - waiver - extent to which waiver of a breach affects subsequent (and like) obligations.

Waiver - See above

Appellate Court - functions of - restricted right to interfere with findings of fact.

Companies Act 1981 (Cth), s.364

McMahon v State Bank of New South Wales and Anor (1990) 8 ACLC 315

White and Carter (Councils) Ltd v McGregor (1962) AC 413

Bunge Corporation, New York v Tradax Export S.A., Panama (1981) 1 WLR 711

Brunskill v Sovereign Marine and General Insurance Co Ltd (1985) 59 ALJR 842

Warren v Coombes (1979) 142 CLR 531

S.S. Hontestroom v S.S. Sagaporack (1927) AC 37

Paterson v Paterson (1953) 89 CLR 212

Abalos v Australian Postal Commission (1990) 171 CLR 167

R v Paulson (1921) 1 AC 271

Sargent v ASL Developments Ltd (1974) 131 CLR 634

Legione v Hateley (1983) 152 CLR 406

HEARING

CANBERRA

#DATE 6:11:1992

Counsel for the appellants: Mr M. Oakes

Solicitor for the appellants: Mallesons Stephen Jaques

Counsel for the respondents: Mr P. Shiels QC and Mr I. Harvey

Solicitor for the respondents: Scott Shiels and Glover

ORDER

THE COURT:

1. Orders that the appeal from so much of the judgment of the Supreme Court of the Australian Capital Territory as declared the appointments of Barry Anthony Taylor as Receiver and Manager of The Opal Mining and Export Company Pty Ltd and The Australian Opal and Gemstone Museum Pty Ltd void ab initio and from the declaration and orders consequential thereon be allowed.

2. Orders that the declarations made by the Supreme Court of the Australian Capital Territory in relation to the appointments of Barry Anthony Taylor as Receiver and Manager of The Opal Mining and Export Company Pty Ltd and The Australian Opal and Gemstone Museum Pty Ltd, the orders consequential thereon (including the order that the further trial of the issue as to damages be referred to the Master for assessment) and the order for costs be set aside and in lieu thereof it be declared that Barry Anthony Taylor was validly appointed as Receiver and Manager of those companies and it be ordered that John Bernard Benny, The Opal Mining and Export Company Pty Ltd and The Australian Opal and Gemstone Museum Pty Ltd pay two-thirds of the costs of Canberra Advance Bank Ltd and Barry Anthony Taylor of the proceedings in that Court.

3. Orders that the appeal be otherwise dismissed.

4. Declares that Barry Anthony Taylor as such Receiver and Manager is entitled to exercise all the powers referred to in the respective instruments of appointment dated 16 August 1990.

5. Orders that the first appellant, within 14 days after the date of this Order, publish in "The Canberra Times" newspaper a notice that it has been declared by this Court that the appointments of Barry Anthony Taylor as Receiver and Manager of The Opal Mining and Export Company Pty Ltd and The Australian Opal and Gemstone Museum Pty Ltd were validly made and that the said Barry Anthony Taylor remains the Receiver and Manager of those companies and is entitled to exercise all the powers referred to in the respective instruments of appointment dated 16 August 1990.

6. Orders that the first appellant, within 14 days after the date of this order, lodge a sealed copy of these Orders and Declarations at the office of the Corporate Affairs Commission.

7. Orders that the matter be remitted to the Supreme Court of the Australian Capital Territory for any further order or relief consequential upon these Orders and Declarations.

8. Orders that the first, second and third respondents pay two-thirds of the appellants' costs of the appeal.

9. Reserves liberty to the parties to apply to this Court as they may be advised.
Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

NEAVES, MILES AND O'LOUGHLIN JJ. This appeal has arisen as a result of a declaration by the learned trial Judge in the Court below that certain appointments purporting to have been made by the first appellant, Canberra Advance Bank Ltd, whereby the second appellant, Barry Anthony Taylor, became the Receiver and Manager of the undertakings of two companies and the Receiver and Manager of part of the property of a third were void ab initio. The facts were complex as were the documents that are relevant to a resolution of the issues in this matter. It is, therefore, best to start by identifying the parties to the appeal.

1. The respondents were the successful plaintiffs in the Court below. The first of them, John Bernard Benny ("Mr Benny") was at all material times a director of each of the corporate respondents, The Opal Mining and Export Company Pty. Ltd. ("Omex"), The Australian Opal and Gemstone Museum Pty. Ltd. (formerly known as Keltie Pty. Ltd. and so described in some of the documents) ("Museum") and Yerapin Pty. Ltd. ("Yerapin"). Mr Benny controlled Omex and Museum and jointly controlled Yerapin with a Mr Da Deppo. Although not parties to the proceedings, the names of Mr and Mrs Da Deppo and the names of their companies, Wollongong Constructions Pty. Ltd. ("Wollongong") and O. and E. Da Deppo Holdings Pty. Ltd. ("Da Deppo Holdings"), will be mentioned from time to time in recounting the history of this matter.

2. The dispute between the parties had its origin in a large and valuable collection of opals and gemstones known as "The Benny Collection" ("the collection"). The collection was owned by Omex in its capacity as trustee of "The Benny Family Trust". Through arrangements which were not investigated in depth at the trial, a situation evolved whereby Omex licensed Museum to display the collection in a museum complex that Wollongong was to build on behalf of Yerapin and which Yerapin would rent to Museum; the land on which the complex was to be built (of which Yerapin was the Crown Lessee) was that comprised and described in Crown Lease Register Book Volume 1044 Folio 94 being Block 401, District of Gungahlin in the Australian Capital Territory. Yerapin held its interest in that Crown Lease as the trustee of a unit trust styled the "Opal Museum Unit Trust". The issued units in that trust were owned as to one-half by the "Benny Family Trust"; the remaining half was owned by the "Da Deppo Family Trust No.1".

3. Funding was needed to build the museum complex. This was achieved by Canberra Permanent Co-operative Building Society Ltd. ("the Society") advancing a total of $2M; of this, $1.2M was borrowed by Omex and $0.8M by Da Deppo Holdings. The first named appellant, Canberra Advance Bank Ltd, ("the Bank") is the successor in title to the Society; as such, it is, because of the purported appointments, the party who, together with Barry Anthony Taylor, its Receiver and Manager ("the Receiver"), was sued by the present respondents. References in these reasons to "the lender" are, therefore, references to the Society or the Bank as the case may be.

4. Before investigating Mr Taylor's appointments and the competing arguments relating to the learned trial judge's finding that they were void, it is necessary to refer to the documents that were executed as security for the advances totalling $2M.

The relevant security documents
6. The starting point is a document dated 20 November 1989 entitled "Deed of Covenant". The parties to that document were, first, the Benny group which comprised the first two corporate respondents together with Mr Benny and his wife, secondly, the Da Deppo group comprising Mr and Mrs Da Deppo and their company, Da Deppo Holdings (Wollongong was not a party), thirdly, the jointly owned Yerapin and, finally, the Society as the intending lender. The provisions of this Deed explained that Yerapin needed money to complete the construction of the museum complex and that the "Associated Persons" (who by definition were all the parties to the Deed other than the lender) had requested the lender to provide financial accommodation to both Omex and Da Deppo Holdings in order that they, in their capacities as the respective trustees of the two family trusts, could subscribe for additional units in the "Opal Museum Unit Trust" (of which Yerapin was the trustee). Recital G to the Deed contemplated that Yerapin would thereafter:

"... use the moneys so subscribed by Omex and (Da Deppo) Holdings to complete the construction of the Building."

1. Recital H to the Deed of Covenant noted that the lender had agreed to provide the requested financial accommodation "subject to the terms, conditions and provisions of the Facility Documents". The Facility Documents were listed in a schedule to the Deed; they were twelve in number (including the Deed of Covenant) but, for the purposes of this appeal, only the Deed of Covenant and four of the other Facility Documents need be considered in detail. Those other four are:
   

- A Loan Agreement between Omex as borrower and the Society as lender. (This particular document was omitted from the Appeal Books. However, the matching Loan Agreement between Da Deppo Holdings and the Society was included; as the material provisions were not in dispute the omission has not, fortunately, caused any difficulties). - A Deed of Charge executed by Omex in favour of the lender; this security document was primarily a fixed charge over the collection but it also extended to other assets of the "Benny Family Trust".

- A Deed of Charge executed by Museum in favour of the lender; that was a fixed charge as to certain assets and a debenture by way of floating charge as to other assets of Museum. (The provisions of this and the preceding Deed of Charge were virtually identical and may be treated as identical for the purposes of these reasons).

- A Memorandum of Mortgage in favour of the lender as mortgagee from Yerapin of its Crown Leasehold estate in the land upon which the museum complex was to be built.

1. The remaining Facility Documents were mortgages from Mr and Mrs Benny and from Mr and Mrs Da Deppo and a series of Guarantees and Indemnities which need not be referred to.

2. The Loan Agreement and the two Deeds of Charge were all dated 20 November 1989 (the same date as the Deed of Covenant) but for some unexplained reason the date appearing in the Memorandum of Mortgage from Yerapin is 22 November 1989. This difference in dates should not be regarded as a matter of significance. As already mentioned, the Deed of Covenant defined the Facility Documents as those that were listed in a schedule to the Deed. The Mortgage of the Crown Lease was one such document as were the Loan Agreement and the two Deeds of Charge. Throughout its provisions, the Deed of Covenant referred to the Facility Documents collectively; it is clear from a reading of this Deed that it was intended by all parties that the Facility Documents were to be executed contemporaneously. Furthermore, in the Memorandum of Mortgage, there is a definition of the Deed of Covenant; it is defined by reference to the names of the parties to the Deed and as being the Deed that was "made or to be made at or about the date of this Mortgage". A gap in time between the execution of one document and another - whether it is a matter of minutes or hours or, as in this case, two days, should not constitute grounds for questioning the efficacy of the Facility Documents unless cause for an investigation is established; no such cause was established in this case.

3. During the course of his submissions, Mr Oakes, counsel for the appellants, said that there were expressions of concern by the learned trial judge about the Mortgage of the Crown Lease and whether it was or was not a Facility Document. Any such concerns may be put aside; the Court was informed that all parties now acknowledged that the Mortgage was a Facility Document; this is as it should be.

The obligation to repay the borrowed moneys
11. The primary obligation on Omex to repay its borrowed moneys to the lender was contained in sub-cl 3.1 of the Loan Agreement. That provision required the borrower (i.e. Omex) to repay the loan in 84 equal instalments, the first of which was to fall due and become payable on 30 June 1990. However, it was common ground that the parties to the Deed of Covenant entered into a Deed of Variation on 31 July 1990 in which it was acknowledged that all parties (other than the lender) had requested the lender - and the lender had agreed - to vary the Facility Documents so that, effectively, the date for the repayment of the first instalment was deferred for a period of two calendar months from 30 June to 31 August 1990. Other variations were made which are not relevant for present purposes. The effect of the Deed of Variation was limited to the alterations that were specifically identified by its terms. To emphasise this aspect of the matter the Deed of Variation contained, in cl 6, a term that each of the parties irrevocably and unconditionally:

"(a) Agrees that this Deed is a Facility Document as defined in the Deed of Covenant (as varied by clause 5 of the Deed);

...

(d) otherwise ratifies and confirms with effect from 20 November, 1989 his duties liabilities and obligations under the Facility Documents and each of them;"

1. In each of the two Deeds of Charge Omex and Museum, and in the Mortgage Yerapin, assumed a direct liability as a primary debtor in respect of all and any moneys which:
   

"... remain owing or unpaid by any Associated Person or any 2 or more Associated Persons to the (lender) pursuant to the Facility Documents...."

In each of these three security documents the term "Associated Persons" was defined as having "the meaning given to that expression in the Deed of Covenant". As earlier mentioned, these persons were all the parties to the Deed of Covenant other than the lender.

Event of Default
13. Sub-clause 9.1 of the Loan Agreement provided:

"If any Event of Default occurs, the Lender may by notice to the Borrower:

(a) declare that the obligations of the Lender under this Agreement are terminated, whereupon those obligations shall terminate, and

(b) declare the whole of the Debt to be immediately due and payable, whereupon the whole of the Debt shall become immediately due and payable and must be immediately paid in Dollars by the Borrower to the Lender,

all without demand for payment or notice of any kind, all of which are irrevocably and unconditionally waived by the Borrower."

1. In the Loan Agreement, the two Deeds of Charge and the Mortgage, the expression "Event of Default" was defined in identical terms as having "the meaning given to that expression in the Deed of Covenant". Clause 12 of the Deed of Covenant defined the expression by stating that "(f)or the purposes of the Facility Documents an Event of Default occurs if" any one of numerous acts or events were committed or occurred. As clause 12 extended over seven pages, it is fortunate that it is not necessary to refer to all eventualities - it is sufficient to address only those that were identified by counsel during the course of argument as being relevant to the issues that must be decided.

The Disputes
15. Upon the execution of the Facility Documents, Wollongong commenced work on the Museum complex for Yerapin. However, within a few months, disputes arose which culminated in Wollongong serving on Yerapin a Notice of Demand under s364 of the Companies Act 1981 (Cth) (cf. s460 of The Corporations Law) for payment of an alleged debt. Section 364 deemed a company to be unable to pay its debts if it failed to pay the sum demanded or if it failed to secure or compound for it to the reasonable satisfaction of the creditor within three weeks after the service of the notice.

1. The Notice of Demand was served on Yerapin on 16 August 1990; it claimed an amount of $1.4M but that was subsequently reduced to $0.6M. On the same day, the Bank appointed Mr Taylor as Receiver of the undertakings of Omex and Museum and as Receiver of Yerapin's Crown Leasehold estate. As to the actions of the Bank and the appointments of Mr Taylor, the learned trial judge had this to say:
   

"The truth of the matter is that CA Bank, having been advised of Wollongong's action in issuing a s364 Notice, panicked. It acted precipitately and, in my view, without any legal justification. The appointments of Mr Taylor were accordingly invalid and I propose to set them aside."

1. The appellants have challenged these conclusions; the Bank claims that it was entitled to appoint Mr Taylor as such Receiver. It acknowledges that some of the grounds upon which it now relies were not known to it at the time of the appointments, but there is authority that a secured creditor can, in certain circumstances, sustain the appointment of a receiver by having regard to information discovered subsequently to the appointment. If therefore, a borrower has, unbeknown to his lender, breached his obligations prior to the appointment of a Receiver, that breach, when discovered by the lender can, in appropriate circumstances, be called in aid to repel an attack upon the appointment of the Receiver.

2. In McMahon v State Bank of New South Wales and Anor (1990) 8 ACLC 315 the New South Wales Court of Appeal decided this point in favour of the secured creditor. The respondent bank had relied on the non-payment of interest as its ground for the appointment of a Receiver. The trial judge referred to certain evidence that was led on behalf of the plaintiff, saying that:
   

"...the facts do seem to show, at least in outline, a basis or an arguable basis for a case in which the bank was under an equitable estoppel which prevented it from relying on the overdraft limit being exceeded by reason of the debit to any account of the interest charges." (Quoted by Meagher J.A. on appeal at p 318).

1. However, the trial judge in McMahon's case proceeded to find that there was evidence before the court that established that the company had breached another covenant in its debenture by leasing a motor car from a finance company without the bank's consent and that this breach (which occurred before the appointment of the Receiver but which was not discovered by the bank and the Receiver until after the appointment) validated the appointment of the Receiver. On appeal Meagher J.A. (with whom Mahoney and Priestley JJ.A agreed on this point) said that:
   

"...the correct legal position is that a party who takes a step pursuant to a contract is entitled to justify the taking of that step if the objective facts which justify the taking of that step existed at the relevant time even although that party at the time that step was taken did not know of these facts. The valuable judgment of Brooking J. in Nund and Ors v. McWaters (1982) VR 575, particularly at p 585, cites the authorities which support that proposition. Indeed, to hold otherwise would be to put a premium on concealment." (p 319)

1. The suggested severity of this decision led Priestley J.A. to comment:
   

"The case presents a vivid illustration of the sweeping powers lenders obtain for themselves against borrowers of large sums of money. This is part of the price borrowers pay for use of the money. On what was presented to Bryson J. there was no reason shown to justify the court in interfering with the respondent's exercise of its power to appoint a receiver." (pp 316-317)

1. These observations of Priestley J.A. are of significance in this appeal for there are passages in the judgment of the learned trial judge which indicate that his Honour considered that there was an obligation on the part of a secured creditor to conduct its affairs in a "reasonable" manner and not to take advantage of "technical" breaches of the security documents. Thus, his Honour considered that before the Bank could act upon certain cash flow projections that had been supplied to it, it "ought to have made reasonable inquiries of both Mr Benny and Mr Da Deppo". Elsewhere his Honour expressed the same sentiments, stating that it was not reasonable for the Bank to regard a matter adversely without first "enquiring as to whether the asserted claim of approximately $1.4m had any serious prospect of success". On the subject of a so-called "technical" breach, his Honour said:
   

"In any event, ... there is something incongruous in a conclusion that, if Yerapin was late in paying its rates and land tax, that fact alone would entitle CA Bank to take possession of and dispose of the entire undertaking of the Second, Third and Fourth plaintiffs."

1. Understandable though those views may be, there is strong authority that constrains a court of law from delving too deeply, in cases such as this, into the question whether the action of the lender was reasonable or fair. For example, in White and Carter (Councils) Ltd v McGregor (1962) AC 413 Lord Reid said at pp 429-430:
   

"He went on to say that the only reasonable and proper course which the pursuers should have adopted would have been to treat the defender as having repudiated the contract, which must, I think, mean to have accepted the repudiation. It is this reference to 'the only reasonable and proper course' which I find difficult to explain. It might be, but it never has been, the law that a person is only entitled to enforce his contractual rights in a reasonable way, and that a court will not support an attempt to enforce them in an unreasonable way. One reason why that is not the law is, no doubt, because it was thought that it would create too much uncertainty to require the court to decide whether it is reasonable or equitable to allow a party to enforce his full rights under a contract."

1. Lord Wilberforce pointed to the need for certainty in mercantile contracts. In Bunge Corporation, New York v Tradax Export S.A., Panama (1981) 1 WLR 711 at 715 he said:
   

"The test suggested by the appellants was a different one. One must consider, they said, the breach actually committed and then decide whether that default would deprive the party not in default of substantially the whole benefit of the contract. They invoked even certain passages in the judgment of Diplock L.J. in the Hongkong Fir case (1962) 2 QB 26 to support it. One may observe in the first place that the introduction of a test of this kind would be commercially most undesirable. It would expose the parties, after a breach of one, two, three, seven and other numbers of days to an argument whether this delay would have left time for the seller to provide the goods. It would make it, at the time, at least difficult, and sometimes impossible, for the supplier to know whether he could do so. It would fatally remove from a vital provision in the contract that certainty which is the most indispensable quality of mercantile contracts, and lead to a large increase in arbitrations. It would confine the seller - perhaps after arbitration and reference through the courts - to a remedy in damages which might be extremely difficult to quantify. These are all serious objections in practice. But I am clear that the submission is unacceptable in law. The judgment of Diplock L.J. does not give any support and ought not to give any encouragement to any such proposition; for beyond doubt it recognises that it is open to the parties to agree that, as regards a particular obligation, any breach shall entitle the party not in default to treat the contract as repudiated. Indeed, if he were not doing so he would, in a passage which does not profess to be more than clarificatory, be discrediting a long and uniform series of cases - at least from Bowes v. Shand (1877) 2 App Cas 455 onwards which have been referred to by my noble and learned friend, Lord Roskill."

1. Bearing in mind the remarks of Priestley J.A. in McMahon's case, this Court is of the opinion that the views expressed in these authorities should be applied to a commercial lending transaction such as that which is the subject of this appeal.

2. It is with these observations in mind that an assessment must be made of the grounds that have been advanced by the appellants in support of their claim that each of the three appointments of Mr Taylor was valid. However, before turning to them it would be appropriate to address the provisions of the security documents that dealt with the power to appoint a Receiver.

The Power to appoint a Receiver
26. All three security documents made it clear that any reference to a Receiver included a reference to a Receiver, a Manager and a Receiver and Manager. Sub-clause 13.1 of each of the two Deeds of Charge provided:

"At any time after an Event of Default the Chargee may appoint a person or persons as Receiver of the Secured Property."

1. The position concerning the appointment of a Receiver under Yerapin's Mortgage is not as clear. Clause 9 of the Memorandum of Provisions filed in the office of the Registrar of Titles as No.543598 (which provisions were incorporated in and formed part of the Mortgage) was entitled "Default". It commenced with these words:
   

"Notwithstanding any omission neglect or waiver of the right to exercise all or any of such powers on any former occasion and notwithstanding any forbearance or delay but subject to the exception herein referred to the Society shall be at liberty to exercise all or any of the powers conferred on a mortgagee at law under any statute or this Mortgage immediately upon or at any time after the happening of any one (1) or more of the following events..."

Thereafter, there appeared a series of events, any one of which could lead to the lender exercising the powers conferred on it by cl 9. These events, were, in effect, the Mortgage's version of an "Event of Default". However, there was an express statement in the body of the Mortgage (cl 3) that certain clauses of the Memorandum of Provisions "do not apply to this Mortgage." Clause 9 was one such clause. It seems reasonably apparent that cl 9 was not to apply because the Mortgage, in harmony with the two Deeds of Charge, had adopted the drafting technique of using the expression "Event of Default" and then defining it as having the meaning given to that expression in the Deed of Covenant. Thus the term "Event of Default" found its way into cl 5 of the Mortgage in these terms:

"Immediately upon or at any time after the occurrence of any Event of Default the powers of sale and all other rights powers authorities and remedies conferred upon the Society at law by the Real Property Ordinance 1925 by any other statute or by virtue of this Mortgage may be exercised by the Society...."

1. If, therefore, the Society (as mortgagee) was minded to exercise its powers of sale, the provisions of cl 5 and its reference to "Event of Default" and the definition of that term would call for a consideration of the acts and occurrences which were expressed in the Deed of Covenant - not in cl 9 of the Mortgage - to be an "Event of Default". Only if the Society's source of complaint appeared as an "Event of Default" in the Deed of Covenant could the power of sale be exercised. Unfortunately however, the draftsman of the Facility Documents overlooked the fact that there was a cross-reference in cl 15 of the Memorandum of Provisions to cl 9 in these terms:
   

"Upon default as described in Clause 9 the Society or any Officer of the Society may appoint in writing any person or any two (2) or more persons jointly or jointly and severally or severally as Receiver..."

1. There being no other provision in the Mortgage for the appointment of a Receiver, the question for determination is whether the statement that cl 9 was not to apply to the Mortgage meant that cl 15 did not confer power to appoint a Receiver for the reason that there could not be any "default as described in Clause 9."

2. Mr Oakes argued on behalf of the appellants that the provision that cl 9 was not to apply to the Mortgage did not preclude making use of its contents for all purposes. He submitted that the retained reference in cl 15 to cl 9 was for the purpose of enabling cl 15 to operate on what he called "the dictionary of events" which were listed in cl 9 and which (in the physical sense) remained in the document and were capable of being identified. However, the attractiveness of that argument fades when it is accepted that the effect of cl 9 had to be removed from the provisions of the Mortgage. In order that the Mortgage could proceed in harmony with the other Facility Documents, the Mortgage had to have the definitions of "Event of Default" and "Facility Documents" in identical terms with the definitions in those other documents. For this reason cl 15 should have been amended by deleting the words "Upon default as described in clause 9" and by inserting in lieu thereof the words "At any time after an Event of Default" (cf sub-cl 13.1 of the two Deeds of Charge).

3. However, it is not possible to read those words into the Mortgage. To do so would amount to the Court rewriting the parties' contract. This leads to the conclusion that, irrespective of the conduct of the Associated Persons in general and Yerapin in particular, the Mortgage contained no power for the appointment of a Receiver. Accordingly, the learned trial judge was correct in determining that the appointment of Mr Taylor as Receiver of Yerapin's Crown Leasehold estate was void. This part of his Honour's decision should be upheld.

4. It is now appropriate to turn to the further arguments that were advanced by the appellants in support of the validity of the appointments of Mr Taylor as the Receiver of the undertakings of Omex and Museum.

Financial change - events prior to Appointments
33. One of the Events of Default appearing in cl 12 of the Deed of Covenant was that specified in sub-cl (8):

"For the purposes of the Facility Documents an Event of Default occurs if:

...

(8) a change occurs in a circumstance which is warranted under any Facility Document to exist or in the business, assets or financial condition of an Associated Person which in any case in the opinion of the Lender may have a material adverse effect on the ability of an Associated Person to observe its obligations under the Facility Documents."

1. The appellants did not suggest that there had been a change in "a circumstance which is warranted under any Facility Document to exist"; their argument was that there had been a change in "the business, assets or financial condition of an Associated Person" and that the lender formed the opinion that that change "may have a material adverse effect on the ability of an Associated Person to observe its obligations under the Facility Documents". The matters relied upon as constituting a relevant change were said to be:
   

"(1) A difference between the cash flow projections for the Museum received from Mr Benny and Mr Da Deppo.

(2) Mr Benny's desire to change to 'interest only' repayments.

(3) The omission by Mr Benny of rental to Yerapin in cash flow projections.

(4) The failure of Mr Benny to gain a further injection of funds for advertising by sale of some gems.

(5) The threat to wind up Yerapin by Wollongong."

1. If the appellants are to rely on any of these matters, they carry the onus of first establishing its existence and that it constituted a change of the requisite kind and then proving that the lender, through its appropriate officer, directed its mind to that matter and formed the necessary opinion. As the learned trial judge said, it is not sufficient that the lender merely express "concern". Mr Kane, the Chief Manager, Corporate Lending, of the Bank deposed in para.22 of his affidavit of 19 December 1990:
   

"I became increasingly concerned that the borrowers were not able to meet their obligations under the loan documents, particularly as the first repayment fell due on 1 September 1990 (sic). There was a change in the financial condition of the plaintiff companies prior to the appointment of the receiver on 16 August 1990 which in my opinion may have had a material adverse effect upon the ability of the borrowers to observe their obligations under the loan facility documents."

1. It is implicit from a reading of his Honour's reasons that he accepted that Mr Kane (and hence the Bank) was concerned about the ability of some of the Associated Persons to meet their obligations. Although his Honour was of the opinion that none of the matters relied on as constituting a relevant change (being the matters identified in paragraphs (1) to (5) above) amounted to a change of the requisite kind, he did not accept Mr Kane's evidence that they were matters he had taken into account in considering whether circumstances had arisen warranting the appointment of a Receiver. This Court was asked to intervene and to reverse his Honour's decision on this point.

2. There is no doubt that, in appropriate circumstances, an appeal court can interfere and set aside findings of fact that are made in a court below. That will occur, as the High Court pointed out in Brunskill v Sovereign Marine and General Insurance Co. Ltd (1985) 59 ALJR 842 at 844, when:
   

"...the decision of the learned trial judge can be seen to be clearly wrong on grounds which do not depend merely on credibility; for example, on the ground that the evidence which was accepted was inconsistent with established facts or was glaringly improbable."

1. His Honour had the opportunity of observing Mr Kane who was cross-examined on his affidavit; this is not a case such as Warren v Coombes (1979) 142 CLR 531 where it would be open for an appellate court to draw inferences from findings of fact made by the trial judge that are contrary to the inferences drawn in the court below. In this case, his Honour had to assess the evidence of Mr Kane so that he could determine as a matter of fact what matters the Bank (in the person of Mr Kane) had or had not taken into account. As Lord Sumner pointed out in S.S. Hontestroom v S.S. Sagaporack (1927) AC 37 at 47:
   

"...not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case."

This well known passage has been adopted by the High Court: see Paterson v Paterson (1953) 89 CLR 212 at 222 and Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178.

1. In the proceedings that are under consideration in this appeal, it would not be appropriate to interfere with his Honour's findings on this particular subject; nothing of the kind referred to in the authorities has surfaced that would warrant interference. In fact, it is desirable to emphasise that the views expressed by his Honour, and the conclusion that he reached, were justified by an objective assessment of the evidence. But, in any event, we agree with his Honour's conclusion that none of the five matters that have earlier been identified in these reasons amounted to a change in "the financial condition of an Associated Person" within the meaning of sub-cl 12(8) of the Deed of Covenant. It is true that Mr Benny's projected figures in late 1989 were materially different from those supplied by Mr Da Deppo to the Bank in mid 1990. However, mere projections do not constitute "change". They may be evidence of changes that have occurred or they may be evidence of changes that will or might occur but, without more, it would be unsound to rely on two differing projections as evidencing that a change in the financial condition of the relevant companies had in fact occurred. Much the same comment can be made about Mr Benny's desire to change the method of repayment of the borrowed moneys, to his failure to include an important and obvious outgoing such as rent and his inability to sell some of the gems; these matters were, no doubt, matters of concern but it was necessary to go a stage further and established that they reflected a change of the requisite kind. This the appellants failed to do.

2. There remains the question of the threat to wind up Yerapin - that is, the issue by Wollongong of the s.364 Notice of Demand. Such a Demand is a most serious occurrence in the commercial life of any company; failure to comply with its demand could lead, in the absence of judicial intervention, to a statutorily identified inability to pay its debts. However, it is significant that whilst the two Deeds of Charge addressed the questions of insolvency and inability to pay debts in some detail, they did not make mention of the consequences that would flow from a borrower being served with a s.364 Notice. Each Deed extensively defined "Insolvency Event" and the same definition appeared in the Deed of Covenant. Under cl 12 of that Deed an "Insolvency Event" was identified as an "Event of Default". However, the draftsman of the Facility Documents clearly did not intend the mere service of a s.364 Notice to constitute an "Insolvency Event" or an "Event of Default". On the contrary, the particular segment of the definition of "Insolvency Event" in the three Deeds that addressed the subject of s.364 of the Companies Act 1981 (Cth) was in these terms:
   

"Insolvency Event" means when:

...

(g) a body corporate is unable to pay its debts within the meaning of section 364(2) of the Companies Act 1981, ..."

1. This statutory inability will only occur after the expiration of three weeks from the date of service of the Notice of Demand - and only then if the debtor company has failed to satisfy the demand or failed to obtain the intervention of the Court. The security documents make it clear that the service of such a Notice can operate as a trigger which may, in appropriate circumstances, lead to an "Insolvency Event" and an "Event of Default". However, it would be most inappropriate to accept the mere service of the Notice, without more, as an "Event of Default" in terms of sub-cl 12(8) of the Deed of Covenant. Mere service could not constitute proof of a change in a person's financial condition.
   Financial Change - events subsequent to Appointments

1. Evidence was led at the trial as to the results of Mr Taylor's investigations following his appointment. The matters of material importance were, first, the marked decline in trading after the week commencing 14 May 1990 and, secondly, Museum's excess of liabilities over assets which exceeded $350,000. As to this his Honour said:
   

"He did not, however, highlight the fact that $310,686.00 was a liability to Yerapin. He also concluded that the trading loss for the period to 16 August 1990 was $356,667.00. He did not point out that $247,641.00 of that figure was 'rent'. That was a liability to Yerapin."

1. With the greatest respect to the learned trial judge, this observation is not appropriate. There is no mandate in commerce or in law to ignore debts or outgoings merely because they are owed to an associated person or company. Their existence, assuming always the presence of reasonable commercial standards and values, is as important in the assessment of a business's health as like debts and outgoings in favour of independent third parties. His Honour concluded that it was "not possible to conclude from these figures" the correct state of Museum's business; he also concluded that there was no doubt that the Bank "had not and could not have formed an opinion to that effect by reason of any such figures".

2. In view of the fact that his Honour's conclusions were based upon a misconception relating to the proper use of inter group debts and liabilities, were it not for the "insurmountable hurdle" that is discussed in the next paragraph, it would have been necessary to make a closer examination of the evidence. Mr Oakes sought to do that in support of the appellants' complaint that Mr Taylor's subsequent discoveries amounted to evidence of a change in the financial condition of Museum which, in terms of sub-cl 12(8) of the Deed of Covenant, would have justified the lender's opinion that it may have had a material adverse effect on the ability of Museum to observe its obligations under the Facility Documents.

3. The insurmountable hurdle confronting the Bank in its attempt to support the Receiver's appointments by having regard to the information obtained by Mr Taylor following his appointments is this: for there to be an Event of Default under sub-cl 12(8) that would trigger the appointment of a Receiver the lender must form the relevant opinion. Without that opinion, that particular sub-clause does not become operative. If the Bank did not know of the poor trading results or of the excess of liabilities over assets until Mr Taylor gave it the information, it stands to reason that the date on which the information was received was the first occasion upon which the Bank (through its officers) could have formed the necessary opinion; but that date was of course, some months after the Receiver's appointment. Even if the accuracy of Mr Taylor's investigations be accepted, they nevertheless did not constitute a breach that existed at the time when he was appointed a Receiver. Hence, no such breach can be relied on by the appellants to support the validity of the appointments.

Financial Statements
46. Clause 10 of the Deed of Covenant contains a series of general undertakings from each Associated Person. Thus paragraph (d) of sub-cl 10.1 provides that:

"10.1 Each Associated Person must:

...

(d) furnish to the Lender not later than the forty- fifth day after the close of each Quarter the financial statements for itself and any trust of which it is a trustee as at the close of and for that Quarter prepared in accordance with generally accepted principles of good accounting practice consistently applied, certified by 2 of its directors as fairly presenting its financial condition and that of any such trust as at the close of that Quarter and the results of its and any such trust's operations for that Quarter."

1. Although the word "Quarter" is not defined in the Deed of Covenant (nor in the Deeds of Charge and Mortgage), it is defined in the Loan Agreement as meaning:
   

"(a) the period from (and including) the date of this Agreement to (and including) 31 December 1989, and

(b) each successive period of 3 consecutive Months ending on 31 March, 30 June, 30 September and 31 December thereafter until the Debt is fully paid and satisfied."

1. Having regard to the nature of the Facility Documents - and in particular to the manner in which they are linked together - and having regard to the fact that all Facility Documents relate to or are connected with the borrowings by Omex, it is not unreasonable to make use of the definition of the word "Quarter" in the Loan Agreement when determining its meaning in the Deed of Covenant: particularly when the meaning attributed to the word is neither strained nor uncommon. In fact, it is quite common place to find references in business documents to "Quarters" as being the three monthly periods ending on the last days of March, June, September and December.

2. The forty-fifth day after the close of the June 1990 Quarter was 14 August 1990; it is common ground that none of the companies, Omex, Museum or Yerapin (each of whom was an Associated Person for the purposes of the Deed of Covenant) had by that date furnished to the lender the requisite financial statements that are referred to in paragraph 10.1.(d) of that Deed. There can be no doubt that these failures to comply with the provisions of the Deed amounted to breaches of obligations under the Deed and cl 12 of the Deed of Covenant made it clear that "An Event or Default" occurred if:
   

"(22) any Associated Person otherwise breaches any of its obligations or agreements under the Facility Documents."

1. Bearing in mind that the definition of an "Event of Default" was common to all Facility Documents, this meant that, in respect of each Deed of Charge, the failure to furnish the financial statements became an Event of Default; therefore, the right to appoint a Receiver (as contained in sub-cl 13.1 of each Deed of Charge) was activated. In fact, sub-cl 12(22) of the Deed of Covenant has a further and wider consequence in that it refers to any Associated Person's breach of any obligation under the Facility Documents. Thus a breach by company A of one of its obligations would constitute an Event of Default available against all Associated Persons. There was complaint that the failure to supply financial statements was an inconsequential breach and that it should not give rise to such draconian consequences - the more so since financial statements for the December 1989 and the March 1990 Quarters had not been furnished and the lender had not made any complaints or demands about those failures. Whilst such an attitude is understandable, it is not to the point; in fact it cannot be permitted because of the strict provisions of cl 12 of each Deed of Charge. That provision makes it clear that delays and waivers do not constitute any impediment to the lender's rights to enforce its security upon the happening of any Event of Default:
   

"12. The Secured Money is not only payable as previously provided but also at the option of the Chargee and not withstanding any delay or previous waiver of the right to exercise that option or the acceptance of interest or other money from an Associated Person or any Associated Persons the Secured Money becomes due and payable and must be immediately paid by the Chargor to the Chargee and this security is immediately enforceable upon the happening of any Event of Default."

A similar provision appears in sub-cl 13.4 of the Deed of Covenant; it provides:

"No failure or delay on the part of the Lender in exercising any right under this Deed will operate as a waiver of, or impair, that right. No single or partial exercise of any right of the Lender under this Deed will preclude any further or other exercise of that right or the exercise of any other right. No waiver of any right of the Lender under this Deed will be effective unless given in writing. No waiver of any right of the Lender under this Deed will constitute a waiver of any of the Lender's other rights under this Deed."

1. The learned trial judge found that the respondents were protected against this breach because of the Bank's "waiver". There are occasions when, notwithstanding the presence of a provision to the effect that a waiver must be in writing, the courts have found that waiver has occurred despite the absence of writing. R v Paulson (1921) 1 AC 271 is one such example. The headnote adequately summarises the relevant passage from the judgment of their Lordships appearing at pp 282-283. It is in these terms:
   

"The principle of law that a lessor who accepts rent knowing that there has been a breach of a covenant in the lease thereby irrevocably elects to treat the lease as subsisting, and is precluded from claiming a forfeiture, is applicable although the lease provides that no waiver by the lessor shall take effect unless it is in writing."

1. His Honour also referred to Sargent v ASL Developments Ltd (1974) 131 CLR 634 and Legione v Hateley (1983) 152 CLR 406. In the first of those cases, the vendors of land lost their right to rescind, notwithstanding the purchaser's breach, because of their activities in taking money from the purchaser and joining with the purchaser in converting the land from the "Old System" to Torrens Title. Thus, as in Paulson's case, there was a specific act by a party with knowledge of a breach which act was inconsistent with that party's subsequent attempt to rely on that breach. It is, of course, true that a term in a contract which states that any waiver must be in writing can be the subject of evidence which would justify a finding that the conduct of a party was such that the requirement for writing had been waived by that party. However, with due respect to the learned trial judge, he made no such finding against the Bank. On the contrary, it would seem that it was the Bank's prior silence or inactivity or failure to enforce its rights that resulted in his Honour concluding that this was a case of "waiver". His Honour's opening remarks on this subject were:
   

"The question is whether, having ignored that requirement in respect of 14 November 1989, 14 February 1990 and 15 May 1990, it is open to CA Bank now to complain of that non-compliance."

1. Unfortunately this statement is not accurate. The Facility Documents were only executed on 20 November 1989; no financial statements were required on 14 November 1989. His Honour went on to point out, correctly, that the provision of financial information was for the benefit of the Bank and that it was open to the Bank to waive compliance. His Honour then concluded, but without stating the factual matrix upon which he grounded his finding:
   

"If any party turned any attention to this provision it would have been assumed that compliance was not required unless CA Bank had requested it. Certainly, if, as here, no request was made for compliance such an assumption would be inevitable."

1. There are certain observations that must be made about this passage in the reasons of the learned trial judge; first, to suggest that compliance was only necessary upon request is to ignore the express provisions of the Facility Documents - they required the borrowers to supply the financial statements by certain dates. The requirement was not conditional upon a request being made. Secondly, the supply of these quarterly statements was an ongoing responsibility on the part of the borrowers throughout the life of the Loan Agreement - an expected period of seven years. If the learned trial judge was correct in concluding that the Bank, by failing to demand production of earlier Quarterly Statements, had waived its rights to the receipt of the accounts for the June 1990 Quarter, it must mean that his Honour was of the opinion that there was a total waiver of all such Quarterly Statements for the life of the Facility Documents. Thirdly, the authority upon which his Honour relied, Sargent v ASL Developments Ltd, was not authority for the proposition that failure on earlier occasions to exercise a right constitutes waiver of similar and later accruing rights. It might be (it is not necessary to express a view) that there was an effective waiver by the Bank with respect to the December 1989 and March 1990 accounts. Even if that be true, it only means that the Bank would be precluded from later demanding those accounts. It could not possibly mean that the Bank was, forever thereafter, deprived access to the later Quarterly accounts of its borrowers.

2. His Honour concluded his findings on the subject of waiver by saying:
   

"I have no doubt that CA Bank waived the requirement that the corporate 'Associated Persons' should provide, spontaneously, the information referred to in cl 10.1(d). To hold otherwise would, in any event, be grossly unjust. Having allowed three due dates to pass without comment, CA Bank cannot now assert an entitlement to insist on compliance. Such a result could also, in my opinion, be attributed to a promissory estoppel by way of the course of conduct of CA Bank. (See Legione v Hateley (1983) 152 CLR 406.)"

1. With respect, this conclusion cannot stand. There was no justification for holding that the Bank had waived its rights to receive the Quarterly accounts for June 1990 or that it was somehow estopped from enforcing its rights as a secured creditor against a defaulting borrower. Thus, the failure by Omex and the failure by Museum to supply the Quarterly Statements by 14 August 1990 was a breach of the obligations contained in the respective Deeds of Charge, entitling the lender to act accordingly; the lender did so by its appointments of a Receiver two days later on 16 August 1990. This leads inevitably to the conclusion that the appointments of Mr Taylor as Receiver of Omex and Museum were validly made and that the appeal must be allowed to accommodate this conclusion.

2. Other arguments were advanced by the appellants in support of their claim that this appeal should be allowed. They related to the non-payment of rates and taxes with respect to the Crown Leasehold land and the failure to comply with some of the terms of the Crown Lease with respect to landscaping. No useful purpose would be gained by investigating these arguments; even if the appellants were successful they would not justify the appointment of a Receiver of Yerapin's Crown Leasehold estate because of the finding that the Memorandum of Mortgage does not contain any power to appoint a Receiver.

3. Finally, the appellants mounted a strong argument that Museum was, as a matter of fact, insolvent in that it was unable to pay its debts. However, the earlier finding that the appointments of a Receiver of Omex and Museum were valid makes it unnecessary to examine this matter further.

4. The conclusions that we have reached are that the appeal with respect to the appointment of a Receiver of Yerapin's Crown Leasehold estate should be dismissed but that the appeal with respect to the appointments of a Receiver of the undertakings of Omex and Museum should be allowed. The Court:
   

1. Orders that the appeal from so much of the judgment of the Supreme Court as declared the appointments of Mr Taylor as Receiver and Manager of Omex and Museum void ab initio and from the declaration and orders consequential thereon be allowed.

2. Orders that the declarations made by the Supreme Court in relation to the appointments of Mr Taylor as Receiver and Manager of Omex and Museum, the orders consequential thereon (including the order that the further trial of the issue as to damages be referred to the Master for assessment) and the order for costs be set aside and in lieu thereof it be declared that Mr Taylor was validly appointed as Receiver and Manager of those companies and it be ordered that Mr Benny, Omex and Museum pay two-thirds of the costs of the Bank and Mr Taylor of the proceedings in that Court.

3. Orders that the appeal be otherwise dismissed.

4. Declares that Mr Taylor as such Receiver and Manager is entitled to exercise all the powers referred to in the respective instruments of appointment dated 16 August 1990.

5. Orders that the Bank, within 14 days after the date of this Order, publish in "The Canberra Times" newspaper a notice that it has been declared by this Court that the appointments of Mr Taylor as Receiver and Manager of Omex and Museum were validly made and that Mr Taylor remains the Receiver and Manager of those companies and is entitled to exercise all the powers referred to in the respective instruments of appointment dated 16 August 1990.

6. Orders that the Bank, within 14 days after the date of this order, lodge a sealed copy of these Orders and Declarations at the office of the Corporate Affairs Commission.

7. Orders that the matter be remitted to the Supreme Court for any further order or relief consequential upon these Orders and Declarations.

8. Orders that Mr Benny, Omex and Museum pay two-thirds of the costs of the Bank and Mr Taylor of the appeal.

9. Reserves liberty to the parties to apply to this Court as they may be advised.