Cherry Print Pty Ltd and Ors v Chateau Court Pty Ltd and Ors
[2002] VSC 167
•9 May 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 5301 of 2002
| CHERRY PRINT PTY LTD AND ORS | |
| (ACN 097 093 260) | Plaintiffs |
| v. | |
| CHATEAU COURT PTY LTD AND ORS | |
| (ACN 083 007 274) | Defendants |
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JUDGE: | PAGONE, J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 6 May 2002 | |
DATE OF JUDGMENT: | 9 May 2002 | |
CASE MAY BE CITED AS: | Cherry Print Pty Ltd & Ors v Chateau Court Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 167 | |
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INTERLOCUTORY INJUNCTIONS - Unpaid vendor holding securities - Balance of convenience - Injunction to restrain receiver and manager.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D.H. Denton Q.C. with Mr D. Currao and Mr C. Sievers | McCluskys |
| For the Defendants | Mr G.R. Ritter Q.C. with Mr M.G.R. Gronow | Mason Sier Turnbull |
HIS HONOUR:
In this proceeding the plaintiffs seek interim injunctions to prevent the defendants from exercising rights arising from a contract of sale of business and related securities. Injunctions were initially made by Justice Beach ex parte on 24 April 2002 and have since been varied to continue until further order so as to enable the matter to be determined at a hearing inter partes. That occurred before me on 6 May 2002.
I have not found the determination of the matters before me easy to resolve. The principles upon which interlocutory injunctions may be granted are well known and long established.[1] In this case the parties agree that there is a serious question to be tried. That accords with my own view of the matter which I formed from reading the affidavits filed by both parties. It is clear that there is a serious factual dispute between the parties that calls for prompt determination by a court. The need for a prompt determination stems from the continuing and irreparable harm that the parties will continue to suffer until a resolution of their disputes. It is clear to me, however, that the factual disputes are serious both in the sense that there is evidence on both sides calling for considered adjudication, and also in the sense that the consequences to each party are significant and damaging. The problem for the Court lies in fashioning some order that will preserve the position of the parties in a way that does justice between them pending a hearing and determination of their principal dispute.
[1]See for example The Australian Course Grain Pool Pty. Ltd. v. Barley Marketing Board of Queensland (1983) 57 ALJR 425; Patrick Stevedores Operations No. 2 Pty. Ltd. v. Maritime Union of Australia (No. 3) (1998) 72 ALJR 873.
For present purposes it is neither necessary nor desirable for me to recite all of the facts which have thus far emerged. It will be sufficient to outline the principal matters strictly relevant to understanding the issues before me at this stage and to explain my reasons.
The first plaintiff is the recent purchaser of a printing business that had previously been conducted as the business undertaking of the first defendant. The transactions to effect the purchase included a contract of sale of business dated 2 July 2001, two debentures between the first plaintiff and the first defendant (ASIC charges numbered 815736 and 815737), a guarantee given by the third plaintiff to the first defendant, and a contractual agreement between the first plaintiff and the third defendant. The business acquired by the first plaintiff was to be added to a substantial printing business already conducted.
A practical consequence of the sale is that the defendants have disposed of their business undertaking, but have become security holders to enforce their rights under the sale transactions. Under the agreement between them the purchaser continues to owe money to the vendor and the former has assumed certain obligations in respect of third party leases and hired equipment which have been used by the first defendant prior to the sale of the business.
The plaintiffs have not yet issued substantive proceedings against the defendants, but it is clear from the affidavit material filed in the proceedings before me that a dispute has existed between the parties for several months. At the heart of the plaintiffs' complaints are serious allegations of material and significant misrepresentation about the business sold, the concealment of lost customers, and other actionable complaints. These allegations are all met with rebuttals that will require investigation and resolution. For present purposes I will assume that the plaintiffs have a strong case but I should also assume that they might not succeed in their claims.
The first and second defendants served notice of default under General Condition 8.4 of the Contract of Sale on 10 September 2001 and 18 April 2002. The plaintiffs seek to restrain the defendants from acting upon or giving effect to that notice and from acting under either of the debentures or the guarantee. One of the debentures is especially critical to the plaintiffs' business, because it is over a printing machine used in that business and is significant to the continued operation of that business. Acting upon the debentures is likely to have a significant adverse effect upon the plaintiffs. Similarly, to restrain the defendants from enforcing their security rights may result in their insolvency, especially because they continue to have the obligations to third parties for the hired and leased equipment but no longer have the business which was sold to the plaintiffs and through which they had previously had a source of income from which to meet the obligations to the hirers and lessors. Senior counsel for the plaintiffs criticise the state of the defendants' assertion about the impact to them of these continued obligations, however, in another context embraces the precarious position of the defendants in aid of the plaintiffs' case. Further, in written submissions sent on 7 May 2002 he urges the conclusion that the risk of the defendants being or becoming insolvent should dissuade me from making an order that the defendants apply any funds received from a receiver in or towards the third party obligations.
Interlocutory injunctions should not result in a party to future litigation obtaining an anticipatory victory to the detriment of an adversary. The vendor of a business with continuing entitlements to payment under the contract, and in particular who continues to have obligations to third parties, is in a position of some vulnerability. Such a vendor, whose interests have been secured by debentures or guarantees, has sought protection against that vulnerability by converting its previous position as owner of an income producing business into that of a security holder. In my opinion a security holder in such a position should rarely be deprived of the right to enforce the security. Such a view accords with the general rule expressed in O'Donovan Company Receivers and Administrators "that a court will not grant an interlocutory application for an injunction to restrain a receiver and manager because this would deprive the mortgage debenture holder of the benefits of its security".[2] In this case it may be added that the securities held by the defendants arose from the transactions effecting the sale which are now the subject of the dispute. In other words, that in the context of the transactions which have generated the underlying disputes, the parties considered and dealt with the situation of non-performance by the plaintiffs. The securities which the defendants may seek to enforce were given by the plaintiffs against their interests in favour of the defendants to guard against a situation where the plaintiffs may not have discharged their obligations. The securities were in the contemplation of the parties as the means by which the defendants might enforce obligations which the plaintiffs may have failed or refused to honour for whatever reason. It would be curious if security holders could easily be prevented from exercising the rights sought to be secured in the event of a dispute.
[2]Volume 1 at 1314
What weighs heavily in my mind against the defendants is the potential severity to the plaintiffs of enforcing the securities. In Re Broadtree Finance Pty. Ltd.; Lofthouse v. Broadtree Finance Pty. Ltd.[3], Hayne J. said:
"I accept that the appointment of a receiver to a company will very likely have serious effects on that company. Indeed, s.549C of the Corporations Law requires the Court to presume a company to be insolvent if within the period of three months before application is made to wind up the company a receiver is appointed under a power contained in an instrument relating to a floating charge on property of the company. The consequences flowing from a wrongful appointment of a receiver are not only large, they are not readily compensable by damages. Accordingly, the effects on Broadtree Finance which I have mentioned are important matters to be taken into account in striking the balance of convenience. However, these matters do not stand alone."
To these considerations may be added in the present case that there is some risk that any monies paid by an administrator or receiver to the defendants may not be capable of being recovered by the plaintiffs in the event that they are ultimately successful in the proceeding.
[3]Unreported, VSC, Hayne J., 9 November 1993 at 20
There is no solution which presents itself to me as being without some inadequacy. The plaintiffs offer the usual undertakings as to damages together with a bank guarantee of $500,000 but this strips the defendants of the benefit of the security they obtained from the plaintiffs, leaves the defendants exposed to the third party debts, relieves the plaintiffs of the obligations they assumed to take up those third party debts and makes real the possibility that the defendants may be forced into insolvency. The defendants offer an undertaking that all monies received by them upon their enforcing the security will be applied solely to the discharge of third party debts. The same position could have been achieved if the plaintiffs had offered an undertaking to discharge those debts as a condition upon the continuation of the injunctions previously made, but they state through their counsel that they will not do so. I accept that the refusal to give such an undertaking on the part of the plaintiffs was not intended as a form of brinkmanship and that counsel was of the view that such an undertaking could not be offered. In the circumstances, however, the best that presents itself to me is to discharge the injunctions upon a suitable written undertaking being tendered to the Court through counsel for the defendants. In the supplementary written submissions on behalf of the plaintiffs they urge that any payments made to the third parties may "effect an unfair preference", however the evidence relied upon does not establish the defendants' insolvency. On the contrary, the evidence relied upon in the plaintiffs' submissions is, as I read it, designed to show that the insolvency may be caused by a failure to receive the benefits of those payments. The "proper approach is to mould an order so as to ensure adequate protection to the mortgagee and to otherwise do justice between the parties during the period pending the final hearing."[4] The discharge of the injunctions subject to an undertaking from the defendants of the kind indicated does not necessarily result in any payment being made by a receiver to the defendants or to the third parties. Whether payments should be made will be a matter for the receiver after investigation; the defendants' undertaking will ensure, however, that anything received will not be applied otherwise than to discharge those third party obligations if such a discharge may lawfully be effected.
[4]Glandore Pty. Ltd. & Ors. v. Elders Finance and Investment Co. Ltd. (1984) 4 FCR 130 at 135
Both parties agreed to submit to mediation and the plaintiffs asked that I order that the parties undertake mediation. This case is one which should be resolved as soon as possible and the suggestion that a solution be mediated is one which I embrace. I propose, therefore, to order that the parties mediate their dispute and to defer the removal of the current injunctions for three weeks to allow a mediation to occur under present circumstances.
The orders which I propose to make are the following:
A.That the existing orders be discharged on 30 May 2002 upon the defendants providing a written undertaking satisfactory to the Court to the effect that any monies received from the enforcement of the debentures or guarantee be used to satisfy subsequent payments falling due upon the hire and lease of equipment identified in schedule B to the contract for the sale of the business.
B.That the parties undergo mediation by no later than 23 May 2002.
I shall hear counsel on the question of costs and as to the form that these orders should take.
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