Contractor Services Pty Ltd v Esanda Finance Corporation Ltd

[1990] FCA 120

120,

JUDGMENT No ........ ........ .. ........

C A T C H W O R D S

TRADE PRACTICES - misleading or deceptive conduct - sale of hotel land and business - mortgages in favour of financier and vendors

- second mortgagees sale by vendor's receiver - claim for

interlocutory relief - delay - no offer to pay mortgage debt - no offer to pay arrears or interest - general principles - claim refused.

NORTGAGE - mortgagee sale - claim for interlocutory relief - general principles.

Trade Practices Act 1974 s.82, s.87

Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161

Cunnin ham v ~ational	Australia Bank Ltd (1987) 15 FCR 495
d l b r o o k	Pty Ltd v Deutsche Bank (Asia) AG (1988) 12 NSWLR
1 6

Harvey v HcWatters (1949) 49 SR(NSW) 173
Glandore Pty Ltd v Elders Finance and Investment Co. Ltd (1984) 4
FCR 130
Graham v Commonwealth Bank (1988) ATPR 40-908

13 MARCH 1990

Mainbanner Pty Ltd v Dadincroft Pty Ltd (1988) ATPR 40-896

CONTRACTOR SERVICES PTY LTD AND OTHERS v ESANDA FINANCE
CORPORATION LTD AND OTHERS

WAG 14 OF 1990

FRENCH J.

PERTH

IN THE FEDERAL COURT	)
OF AUSTRALIA	)
WESTERN AUSTRALIA
DISTRICT REGISTRY	1
GENERAL DIVISION	NO. WAG 14 of 1990
B E T W E E N :	CONTRACTOR SERVICES PTY LTD

First Applicant

and

BERYL FRANCES WILLOUGHBY,
JOHN FRANCIS WILLOUGHBY,

MICHAEL STEPHEN WILLOUGHBY,

DONNA 1-1ARGARET W I LLOUGHBY

and NARK ROBERT WILLOUGHBY

Second Applicants

and

WILLOUGHBY INVESTMENTS PTY LTD

Third Applicant

and

KALGOORLIE CONCRETING PTY LTD

Fourth Applicant

and

ESANDA FINANCE CORPORATION LTD

First Respondent

and

VENETIA HOLDINGS PTY LTD

Second Respondent

and

COUGAR HOLDINGS PTY LTD

Third Respondent

and

GARY JAMES JOHNSON

Fourth Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER:	FRENCH J.
DATE OF ORDER:	13 PIARCH 1990
WHERE MADE:	PERTH
THE COURT ORDERS THAT:

1.        The claim for interlocutory relief is dismissed so far as it relates to the sale of the Leederville Hotel on 14 March 1990.

The claim for interlocutory relief is otherwise adjourned to 20 March 1990 at 2.15 pm at which time further directions might be sought.

Costs of today to be the respondents in any event.

NOTE: Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT	)
OF AUSTRALIA	)
WESTERN AUSTRALIA	)
DISTRICT REGISTRY	1
GENERAL DIVISION	1 NO. WAG 14 of 1990
B E T W E E N :	CONTRACTOR SERVICES PTY LTD

First Applicant

and

BERYL FRANCES WILLOUGHBY,
JOHN FRANCIS WILLOUGHBY,
MICHAEL STEPHEN WILLOUGHBY,
DONNA MARGARET WILLOUGHBY

and MARK ROBERT WILLOUGHBY

Second Applicants

and

WILLOUGHBY INVESTMENTS PTY LTD

Third Applicant

and

KALGOORLIE CONCRETING PTY LTD

Fourth Applicant

and

ESANDA FINANCE CORPORATION LTD

First Respondent

and

VENETIA HOLDINGS PTY LTD

Second Respondent

and

COUGAR HOLDINGS PTY LTD

Third Respondent

and

GARY JAMES JOHNSON

Fourth Respondent

CORAM :  FRENCH J.
13 MARCH 1990

EX TEHPORE REASONS FOR JUDGMENT

ON CLAIM FOR INTERLOCUTORY INJUNCTION

This application, which was filed on 6 March 1990, seeks against the first respondent, Esanda Finance Corporation Ltd ("Esanda") and the second and third respondents, Venetia Holdings Pty Ltd "(Venetian)and Cougar Holdings Pty Ltd ("Cougarn)as vendors of the land and business of the Leederville Hotel, damages under s.82 of the Trade Practices Act 1974 for misleading or deceptive conduct and orders, pursuant to s.87 of the Act, varying contract, security documents and other arrangements subsisting between the parties. Without traversing the detail of the statement of claim, the central allegations are that the applicants were induced to purchase the business and land of the Leederville Hotel by misrepresentations as to the performance of that business made by representatives of the vendors and of Esanda. It is said also that the purchase was brought about at the urging of Esanda in the commission of what is

described as unconscionable conduct motivated by the failing	financial position of the previous owners of the hotel who were
indebted to Esanda to the extent of some $2,000,000 under an advance made and secured by a mortgage over the hotel land.

The application seeks interlocutory relief, which is

widely expressed:

1.    An order that Esanda be restrained from exercising all rights as mortgagee, chargee or otherwise, under all mortgages and charges granted by the applicants as mortgagors and grantors and/or guarantors to the first respondent as to Esanda until trial of this action or further order;

2.    An order that the vendors who are the second and third respondents be restrained from exercising all rights as mortgagees or charges or otherwise under all mortgages or charges granted by the applicants as mortgagors and/or guarantors to the second and third respondents until trial of the action or further order.

Although the interlocutory claims are widely drawn and relate to the exercise of rights under any of the securities granted in favour of the respondents, the urgent element of the claim today concerns the proposed sale of the hotel tomorrow by the respondent, Venetia, under its second mortgage. Esanda as first mortgagee obviously has a vital interest in the sale as it takes in priority to Venetia. There is evidence which suggests

Bank which has a charge which may take priority over some	of the indebtedness to Esanda and possibly the National Australia that the proceeds of sale will be sufficient only to satisfy part
interests of Esandars. I do not therefore, propose to deal with the claim insofar as it goes wider than the proposed mortgagee's sale; a sale which, it is not disputed, the applicants were advised of no later than 7 February this year and which they may have been advised of at some earlier time.
The delay in bringing the claim for interlocutory relief which was filed in this Court last Tuesday is relevant to the question of how the discretion is to be exercised in determining whether or not interim relief is to be granted under s.80 of the Trade Practices Act 1974. The general principles governing the grant of such relief have been well canvassed in the cases and again in Court before me today. They require the applicant to show that there is a serious case to be tried and that the balance of convenience favours the grant of the injunction. There is a relationship between those two factors. They are not entirely independent. Where there is not a strong case demonstrated, a marked balance of convenience in favour of the restraint is necessary before the Court will make the order sought. It is necessary, in that context, to add the caveat that any comments made here about the strength of the respective cases are purely provisional. Interlocutory injunctions are frequently decided upon incomplete evidence, and sometimes upon evidence that would not be admitted at trial or which has not been properly and fully tested. That is particularly so when, as in this case, the injunction claim is brought at short notice and with voluminous papers. In connection with the proposed sale tomorrow, I am
applicants and the second respondent, Venetia. So far as the case strictly concerned only with the position as between the
against the second and third respondents is concerned, I am not prepared to say more, on the papers before me, than that there is a triable issue as to whether or not representations were made which induced the applicants to enter into the various transactions of which they now complain. I am not prepared to say that it is a strong case nor would I be prepared to make a finding that it is a weak case; there is simply a tziable issue. The truth of the factual allegations made and the defences raised can only be determined after a substantive hearing.
The balance of convenience as against the vendors is affected by general principles that the court has enunciated in relation to the grant of interlocutory relief against the exercise of a mortgagee's power of sale. The Courts have broadly accepted the principles laid down in Inglis v commonwealth Trading Bank of Australia (1972) 126 CLR 161, that interlocutory relief restraining the exercise of a power of sale will not be granted unless the amount of the mortgage debt is paid into court or held in some account pending the outcome of the proceedings - Cunningham v National Australia Bank Ltd (1987) 15 FCR 495,
Muswellbrook Pty Ltd v Deutsche Bank (Asia) AG (1988) 12 NSWLR 16. No such payment is offered in this case, nor is there any offer made of payment of arrears of interest thereon or other expenses. The full impact of that condition has been mitigated in cases where the claim is said to go to the root of the mortgagee's
title, including the case in which relief is sought under s.87 of the Trade Practices Act 1974 to vary or set aside the mortgage -
Elders Finance and Investment Co. Ltd (1984) 4 FCR 130; Graham v Harvey v I-lcWatters (1948) 49 SR (NSW) 173; Glandore Pty Ltd v
Commonwealth Bank (1988) ATPR 40-908. In this case although there is, on the face of the application, a claim for relief under s.87, it is not formulated nor has it been suggested in argument that there is any particular way in which s.87 would meet the applicantsf complaints. Primarily their claim appears to be compensatory and to sound in damages. Having regard to that factor and also to the comments made by Pincus J. in Mainbanner Pty Ltd v Dadincroft Pty Ltd (1988) ATPR 40-896, I am not of the view that this is a case where the ordinary condition could be dispensed with.
So far as the balance of convenience, apart from the application of those generally restrictive principles is concerned, I am not satisfied that the applicant has demonstrated any particular effect in relation to the sale that puts this case into the same kind of category as Grahamrs case. The hotel has been operated since August last year by a receiver and manager and presumably the applicants do not derive any continuing income from its operation. On the other hand so far as the vendors are concerned, interest accrues with the continuing delay on the sale. Now, although it may be that at the end of the day they do not get anything out of the sale because of Esandars prior entitlement and perhaps that of the National Australia Bank, the extent to which this sale may satisfy Esandars securities is a matter of legitimate interest to them and the greater the extent to which it
with respect to Esanda because, as has been pointed out, if this satisfies the prior securities the greater the benefit to them. It is also appropriate to take into account the position
sale were to be stayed there would be nothlng to prevent Esanda, absent further injunctive relief, from acting under its mortgage security and exercising a power of sale in its own right. Now, that might well be met with an application for interim relief of the same kind as is sought in respect of the second and third respondents. I am satisfied that I can properly consider both the strength of the case as it is made against Esanda, which would support any such restraint, and also the balance of convenience so far as Esandafs position is concerned.
As indicated to counsel during argument, I do not regard the case disclosed against Esanda as a strong one. And, indeed, Mr DaWeS in his submissions said that on the materials before me his clients could not claim the case against Esanda was particularly promising. It boils down to an assertion of certain oral representations, which are denied, and other assertions of unconscionable conduct in respect of which there seems to be significant documentary evidence to the contrary. Having regard to that characterisation of the case, it would require a marked balance of convenience to justify the grant of interlocutory relief to the applicants. And the simple fact is, that allowing for the realisation of other securities and entitlements that Esanda might derive from an outstanding insurance claim in respect of another hotel over which it has security and which was the
subject of a fire, the applicantsr outstanding indebtedness to the company is in excess of $2,000,000. The interest accrues at a
significant daily rate reducing with delay the extent to which the security would be capable of meeting that debt. I am satisfied therefore, that there is no marked balance of convenience in favour of the applicants so far as Esanda is concerned and, of course, the general principles regulating the grant of interlocutory relief in relation to a mortgagee's sale apply even more strongly in relation to its security than they do in relation to the vendors1 having regard to the strength of the case demonstrated on the materials before me.
For these reasons I propose to dismiss the claim so far as it relates to the proposed sale tomorrow. I think the appropriate course in relation to the balance of the interlocutory relief sought is to adlourn it for the time being and the parties can consider their respective positions and, if necessary, a further application can be made or the application can be renewed on additional materials at some future time if it is to proceed.

I certify that this and the

preceding seven (7) pages are a true copy of the Ex Tempore Reasons for Judgment

of his Honour Justice French.

Associate:
Date :	C ku
/ 3 W  1990.

Counsel for the Applicants: Mr D. Dawes

Solicitors for the Applicants: Butcher Paul1 h Calder

Counsel for the First Respondent: Mr E.M. Corboy

Solicitors for the First Respondent: Mallesons Stephen Jaques

I

i

!	Counsel for the Second and Third Respondents: Mr K. OIToole Solicitors for the Second and Third Respondents: Kevin James
!
!	Date of Hearing:  13 March 1990
1	Date of Judgment:  13 March 1990