First Capital Group Limited v Wentworth Mutual Investment Management Pty Ltd - [2007] WASC 93

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: FIRST CAPITAL GROUP LIMITED -v- WENTWORTH MUTUAL INVESTMENT MANAGEMENT PTY LTD & ORS [2007] WASC 93

CORAM: HASLUCK J

HEARD: 19 APRIL 2007

DELIVERED : 24 APRIL 2007

FILE NO/S: CIV 1219 of 2007

BETWEEN: FIRST CAPITAL GROUP LIMITED (ACN 009 264 699)
Plaintiff
AND
WENTWORTH MUTUAL INVESTMENT MANAGEMENT PTY LTD (ACN 099 896 876)
First Defendant
WENTWORTH HOLDINGS LIMITED (ACN 080 167 264)
Second Defendant
KEY 2 RENTAL MANAGEMENT LIMITED (ACN 092 356 842)
Third Defendant
ALIQUOT PROPERTY MANAGEMENT PTY LTD (ACN 097 003 953)
Fourth Defendant
ANANDA KATHIRAVELU
Fifth Defendant
MATTHEW SPENCER FOGARTY
Sixth Defendant
JOHN CECCON
Seventh Defendant

Catchwords:

Injunction - Application by plaintiff to restrain appointment of a receiver - Provision of fixed and floating charge linked to state of account between the parties under a sales agreement - Dispute as to nature and effect of price adjustment mechanisms concerning size of rent roll - Whether serious issue to be tried that the plaintiff as vendor was not indebted to the first defendant as alleged - Turns on own facts

Legislation:

Trade Practices Act 1974 (Cth), s 52, s 87

Result:

Injunction granted

Category: B

Representation:

Counsel:

Plaintiff:     Mr G R Donaldson SC & Mr S J Lemonis
First Defendant             :     Mr T O Coyle & Mr D G Sanders
Second Defendant         :     Mr T O Coyle & Mr D G Sanders
Third Defendant           :     Mr T O Coyle & Mr D G Sanders
Fourth Defendant          :     Mr T O Coyle & Mr D G Sanders
Fifth Defendant            :     Mr T O Coyle & Mr D G Sanders
Sixth Defendant            :     Mr T O Coyle & Mr D G Sanders
Seventh Defendant        :     Mr T O Coyle & Mr D G Sanders

Solicitors:

Plaintiff:     Fairweather & Lemonis
First Defendant             :     Lavan Legal
Second Defendant         :     Lavan Legal
Third Defendant           :     Lavan Legal
Fourth Defendant          :     Lavan Legal
Fifth Defendant            :     Lavan Legal
Sixth Defendant            :     Lavan Legal
Seventh Defendant        :     Lavan Legal

Case(s) referred to in judgment(s):

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199
Australian Broadcasting Corporation v O'Neill [2006] HCA 46
Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148
Fletcher v Ould Pty Ltd [2000] WASC 322
Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161
Issa v Berisha [1981] 1 NSWLR 261
Paul Kennedy Transport Pty Ltd v ANZ Banking Group Ltd (1993) 6 BPR 13,883
Pukallus v Cameron (1982) 180 CLR 447

HASLUCK J:

Introduction

The plaintiff, First Capital Group Limited, has issued a summons dated 14 March 2007 seeking an interlocutory injunction. The plaintiff seeks to restrain the first defendant, Wentworth Mutual Investment Management Pty Ltd, from taking any steps or exercising any rights pursuant to a charge entered into by these parties.
The plaintiff's application for an interlocutory injunction is supported by the affidavits of Ananda Kathiravelu, sworn 9 March and 17 April 2007. An undertaking as to damages in the usual form has also been provided.

Background

The dispute between the parties arises in this way. The plaintiff ("First Capital") was formerly known as Key 2 Limited and as Plantard Limited. Key 2 Rental Management Limited ("Key 2") and Aliquot Property Management Pty Ltd ("Aliquot") were previously wholly owned subsidiaries of the plaintiff. The two latter companies owned property management rights to rental properties in Western Australia. Mr Kathiravelu was a director of the plaintiff company.
By an agreement dated 30 September 2004 entered into between the plaintiff as vendor (described as "Key 2 Limited") and Wentworth as purchaser, the plaintiff agreed to sell its Key 2 shares and Aliquot shares for the purchase price specified in the subject agreement.
The term "purchase price" was defined to mean $3.50 per dollar of management fees per year for each rental management property listed in a schedule to the agreement (based on management fees actually received for the months of October or September 2004) less the amount owing pursuant to the so‑called "NAB loan" and employee entitlements as at the settlement date.
By cl 3.8 provision was made for certain amounts to become a debt due and owing by the vendor to the purchaser being (a) the amount of any creditors not discharged as at the settlement date; (b) the amount of any entitlements not paid to any employees; (c) the amount of any payment not made pursuant to the NAB loan together with the amount of any draw down made in relation to that loan above the amount of $1.959 million drawn down as at 31 August 2004.
By cl 3.10 the plaintiff, as vendor, was required to grant to Wentworth a first ranking fixed and floating charge over all of its assets as security for any such debt as was referred to in cl 3.8 of the agreement.
Provision was made for payment of the purchase price by instalments. The agreement also contained various mechanisms which allowed for an adjustment of the purchase price and amounts due under the agreement, including provision for retention moneys, as it seemed that the "rent roll" or number of properties being managed could fluctuate.
By cl 4.3 there was to be a first instalment of $600,000 by way of an issue of shares in Wentworth on the settlement date, a second instalment of $625,000 in cash less the employee entitlements and the amount of any debt owed pursuant to cl 3.8 and a third instalment of up to $900,000 by way of an issue of Wentworth shares 12 months after the settlement date.
Clause 4.3(d) (as numbered in the original form of the agreement) contained provision for a fourth instalment in these terms:
"(d)a fourth instalment of the balance of the Purchase Price (less the amount of any debt owed pursuant to cl 3.8 together with any interest owing on that debt) will be paid on the date that is the earlier of 12 months after the settlement date and the date upon which Ananda Kathiravelu is removed by shareholders from his position as a director of Wentworth with the final amount of the instalment calculated in accordance with cl 5.5."
I digress briefly to note that cl 4.3(d) was later renumbered to become cl 4.3(c). By cl 11.1 Wentworth was to appoint Mr Kathiravelu to the board of the second defendant. It was common ground at the hearing before me that in fact this appointment was not made.

Further provisions of the agreement

By cl 4.4 of the agreement the amount allocated towards the purchase price for each property was to be reduced in accordance with certain prescribed percentage rates (related to contingencies and the quality of the management) with such reduction to be deducted from the first instalment.
Clause 4.9 provided that Wentworth was to grant a fixed and floating charge over the assets and undertaking of the purchaser, Key 2 and Aliquot in order to secure payment of the balance of the purchase price. It was common ground that in fact this charge was not granted.
Clause 5 contained various provisions allowing for a reduction of the purchase price if the size of the rent roll diminished. In that regard cl 5.5 (in its original form) provided that if six months after the settlement date the rent roll was less than 1700 properties the price was to be reduced in accordance with a prescribed formula.
By cl 5.6 any sums deducted (or retained) from the purchase price were to be deducted from the third instalment and to the extent that further deductions were required after the third instalment had been reduced to zero, any remaining amount was to be deducted from the fourth instalment.
It is immediately obvious from a consideration of these provisions that from the outset the parties contemplated that fluctuations could occur and that adjustments would have to be made to the price. Not surprisingly, this led to a situation in due course when negotiations were undertaken to effect variations to the agreement. In that respect the plaintiff was represented by Mr Kathiravelu. Wentworth was represented by Glenn John Wheeler. I note in passing that the defendants' position in opposing the application for an injunction was supported by the affidavits of Glenn John Wheeler and Brian Gerard McNamara sworn 11 April 2007.

Deeds of variation

By a first deed of variation the parties revised the definition of "purchase price" in cl 1.1 of the agreement by specifying that it was to mean $3 per dollar of management fees per year for each residential property and $0.20 per dollar of fees for each commercial property.
A considerable number of other amendments were made. Importantly, provision was made for the deletion of cl 5.6 and for the insertion of a new cl 16 concerning valuation.
By cl 16.1 as at 30 June 2005 Wentworth was to perform a calculation of the value of the subject rent roll in accordance with a prescribed formula. By cl 16.2 in the event that the valuation sum was less than $2,600,000 the vendor was to pay the purchaser the amount of the difference within 60 days.
Then, by a second deed of variation, a new cl 5.6 was introduced into the agreement to this effect: in the event that as a result of the reductions required by cl 5 each of the first, third and fourth instalment was reduced to zero any further reduction required by cl 5 was to become a debt due and owing by the vendor to the purchaser and was to attract interest at the rate set out in cl 3.9 and was to be subject to the charge referred to in cl 3.10. The formula in cl 16.1 was also revised.
I note in passing that it was a matter of controversy at the hearing before me as to whether cl 5.6 and cl 16 were directed to essentially the same issue; that is, broadly described, that if the size of the rent roll diminished, resulting in an adjustment of the price downwards, possibly leading to a debt due by the vendor to the purchaser, then the purchaser could recover this debt from the vendor. I will call this the "cl 5.6 vendor debt issue".

The clause 5.6 vendor debt issue

The cl 5.6 vendor debt issue bears upon a claim for rectification of the agreement being advanced by the plaintiff as vendor. On the plaintiff's case, the introduction of the new cl 5.6 was an error because the common intention of the parties was that the vendor debt issue was to be dealt with by the valuation process allowed for by cl 16. This claim is relied upon by the plaintiff as one of the bases for obtaining an injunction.
In his first affidavit Mr Kathiravelu presented evidence concerning the claim for rectification in these terms:
"13.In the Second Deed of Variation, clause 5.6 was inserted in terms that where the purchase price valuation under clause 5 fell below zero, the Plaintiff was to pay to the First Defendant the amount by which it was less than zero. The Sixth Defendant and I negotiated the Second Deed of Variation on behalf of the Plaintiff, primarily with Mr Wheeler of the First Defendant. Mr Wheeler and I negotiated the valuation model used in clause 16. In relation to the amendments made by the Second Deed of Variation, Mr Wheeler and I both said to each other words to the effect that the mechanism under clause 16 set out the circumstances where the Plaintiff would need to repay part of the purchase price to the First Defendant. The insertion of clause 5.6 was an error as it provides for an additional circumstance (without regard to clause 16) where the Plaintiff is required to repay part of the purchase price to the First Defendant. I am informed by the Sixth Defendant and verily believe that he also considers that the insertion of clause 5.6 was an error for the reasons expressed at this paragraph."
Mr Wheeler referred to this issue also in his affidavit. He said that he became concerned that the agreement in its original form did not take into account the possibility that Wentworth could be acquiring companies in circumstances where Wentworth was to assume responsibility for the repayment of the NAB loan. This liability could, on a worst case scenario, exceed the value of the rent roll.
According to Mr Wheeler, he said to Mr Kathiravelu that Wentworth could not proceed unless an additional mechanism was inserted into the contract to address this matter. This led to an amendment to the mechanism of payment of the purchase price, so that no amount of the purchase price would be paid at settlement, but instead would be calculated a year after settlement.
Wentworth would proceed with the acquisition even though Key 2 and Aliquot could not pay out their creditors provided that the creditors of those companies at settlement other than the loan did not exceed $625,000 (cl 4.3). There was to be a consequential reduction of the total amount of the purchase price by $625,000. Further provision was made for the insertion of a clause requiring the rent rolls being acquired to be valued by 30 June 2005. The plaintiff, as vendor, was to pay Wentworth any shortfall in the event that the valuation was less than $2.6 million (that is; the NAB debt estimated at close to $2 million and the creditors estimated at close to $625,000).
Put shortly, provision was made for Wentworth to recover from the plaintiff the amount of any shortfall as a vendor debt.
Mr Wheeler referred to the negotiations that went on after execution of the first deed of variation. One of the concerns he had was that by reason of the substantial reduction in the number of properties comprising the rent rolls, the purchase price might in fact fall below zero when the final calculation was performed 12 months after the settlement date. He therefore wanted to be sure that if the purchase price did fall below zero Wentworth would be compensated to the extent of the shortfall.
Accordingly, one of the amendments he requested to be inserted in the second deed of variation was to ensure that if the purchase price fell below zero, the amount of such deficiency would become a debt owing by the plaintiff to Wentworth. He considered that this could be achieved by a new cl 5.6, that provided that if the adjusted purchase price was below zero, the deficiency would be a debt payable to Wentworth.
Mr Wheeler said (at par 39 of his affidavit) that at no stage did he or Mr Kathiravelu say to the other that there was only to be one price adjusting clause. As I have indicated, Mr Kathiravelu said that cl 5.6 was inserted in error. He said also (at par 3 of his first affidavit) that the plaintiff was not legally represented in the preparation of the first and second deeds of variation.
It emerges from this review of the evidence in summary form that there is a dispute between the parties as to whether the insertion of cl 5.6 in the second deed of variation occurred as the result of an error. A comparison between the two clauses does suggest that they were both directed at essentially the same matter, namely, the possibility of a diminution of the rent roll to such an extent that provision would have to be made to compensate the purchaser.

The charge

A deed of fixed and floating charge was executed by the parties on 7 February 2005 in the manner allowed for by cl 3.10 of the agreement (whereby the vendor was to grant such a charge as security for any debt referred to in cl 3.8 of the agreement). It is material to note that the new cl 5.6 included reference to the charge referred to in cl 3.10.
By cl 2.1 of the charge the plaintiff charged all its interest in the secured property as security for payment of the secured moneys and performance of the secured obligations.
The secured moneys were defined to mean any amount falling within certain categories including all moneys owed or owing to the chargee pursuant to cl 3.8 of the principal agreement including the principal sum.
The principal sum was defined by cl 5 of the schedule to mean any and all debts owing by the chargor to the chargee pursuant to the principal agreement including but not limited to debts owing pursuant to cl 3.8, cl 4.4, cl 5.6 and cl 16.2.
Clause 3 made provision for payment of secured moneys. Clause 3.5 provided that, save as otherwise agreed in any transaction document, the chargor was to pay the secured moneys to the chargee free of all deductions and setoffs. The transaction document was defined to include the subject agreement.

A further affidavit

It emerges from earlier discussion that Mr Wheeler, as a principal of Wentworth, and as the person who had played a leading role in the negotiations that led to the acquisition of Key 2 and Aliquot, said in his affidavit that he had concerns about the size of the rent roll being acquired. He had concerns as to whether adjustments to the purchase price in accordance with the adjustment mechanisms in the agreement might result in the purchase price falling below zero, leaving a debt owing by the vendor to the purchaser.
This brings me to a further affidavit relied upon by the plaintiff, being the affidavit of Leslie Raymond Freeman sworn 17 April 2007.
Mr Freeman said that he is the Managing Director of the plaintiff. He was the major shareholder in a company known as First Capital Securities Ltd up until about May 2006. Prior to December 2004 he was looking for a listed company shell within which to vend First Capital by way of a backdoor listing.
In that regard, he met with Mr Wheeler who said that Wentworth had purchased the assets of a company called Key 2 and that he (Wheeler) had completed extensive due diligence on that company and that it was in very good shape and could be picked up at a very good price. Mr Wheeler said that Key 2 had no liabilities.
Mr Freeman referred to meetings and exchanges with Mr Wheeler. Mr Freeman said in his affidavit that at no time during his meetings with Mr Wheeler did the latter disclose or mention that the plaintiff had any potential liabilities to Wentworth Mutual or its subsidiaries.
Mr Freeman said that the shares in First Capital were sold to the plaintiff for the total sum of $6,018,763. The purchase price was paid by the issue of shares in the plaintiff to the shareholders of First Capital. Mr Freeman relied on the representations made to him by Mr Wheeler in causing First Capital to enter into the transaction with the plaintiff.
I note in passing that this affidavit by Mr Freeman came to hand at a late stage with the result that the defendants did not have an opportunity to respond to it.

Areas of controversy

It is not necessary for present purposes to traverse all the areas of factual controversy between the parties. However, I feel obliged to note that Mr Wheeler disputed an assertion made by Mr Kathiravelu that cl 11 in the agreement providing for the appointment of Mr Kathiravelu to the board of the second defendant reflected exchanges between the parties in the course of the negotiations.
Mr Wheeler said at par 40.1 of his affidavit that he did not recall Mr Kathiravelu saying words to the effect that it was critical that Mr Kathiravelu be appointed to Wentworth's board to ensure that the interests of the vendor's shareholders were protected. He could not recall saying words to the effect that he (Wheeler) would take care of that at settlement. As I have indicated, it was common ground at the hearing before me that Mr Kathiravelu was not in fact appointed to the board of the second defendant, notwithstanding the provision to that effect in cl 11 of the agreement.
Mr Wheeler went on to say this in his affidavit:
"42.As set out in the Kathiravelu affidavit, the rent rolls purchased was [sic] owned by Key 2 and Aliquot and Mr Kathiravelu remained a director of both Key 2 and Aliquot after settlement. Wentworth Holdings Limited was a holding company, and did not own or operate any of the rent roll businesses in its own right. As such if Mr Kathiravelu had been appointed as a director of Wentworth Holdings Limited he would not have had any influence on the operations of the Key 2 or Aliquot 'rent roll' in that capacity in any event.
43.During the period from July 2004 until settlement of the transaction on 7 February 2005, the managements under the Key 2 and Aliquot rent rolls declined from 2300 to a total of 1350 managements, a reduction of approximately 40%. During the same period, Wentworth's rent roll increased from 580 to 670, an increase of approximately 15%.
44.Although Mr Kathiravelu remained as a director of Key 2 after settlement until approximately 23 May 2005 and Aliquot until approximately 30 April 2006 at no time subsequent to settlement and prior to Mr Kathiravelu's resignation as a director of Key 2 did Mr Kathiravelu raise with me the issue of his appointment as a director of Wentworth Holdings."

Wentworth's letter of demand

The second deed of variation had been signed on or about 19 January 2005. The consequence of the amendments and ongoing negotiations was that the settlement date was fixed at 7 February 2005. It seems that the concerns of the purchaser about the status of the rent roll meant that, in the end, no payment was made by the purchaser of any part of the purchase price, and that remains the position as at the present date.
Wentworth as purchaser was of the view that after all the necessary adjustments have been made various amounts are owing to it by the vendor with the result that Wentworth is entitled to exercise its powers under the charge.
Wentworth's stance is reflected in a key letter of demand dated 6 February 2007 directed to the sixth defendant as company secretary of the plaintiff; that is, First Capital, formerly known as Key 2 Limited and as Plantard Limited. It was said in the letter of demand that Wentworth had a claim against the plaintiff in the sum of $2,501,280.81 not including any allowance for interest, and the claim was secured by a first ranking deed of fixed and floating charge over the plaintiff company. It was said that of the total claim, $1,082,557.81 plus interest was now due and payable. $435,871 plus interest was due and payable within 60 days. The remaining $982,852 plus interest was dependent on the outcome of arbitration under the terms of the agreement for sale and purchase of shares. Details of the claim were then provided.
The details set out in the letter of demand include reference to amounts allegedly due pursuant to cl 3.8(a), cl 3.8(c) and cl 3.8(d) of the sale agreement. It is said also that pursuant to cl 16 a valuation was required to be performed as at 31 July 2005 and the plaintiff was required to make a payment to the extent that the valuation sum was less than $2.6 million. The valuation was allegedly performed in accordance with the prescribed formula producing a valuation calculated at $1,705,328. As the valuation sum was less than $2,600,000 it was alleged that the plaintiff, as vendor, was required to pay the purchaser the difference 60 days after the date of the letter of demand.
The letter of demand continued:
"We acknowledge that to the extent the valuation refers to deductions made in accordance with clause 4.4 it was previously agreed to refer this 'determination' to arbitration in accordance with the terms of the Sale Agreement, although to date the arbitration process has not yet been commenced beyond agreeing on a proposed arbitrator. Even if no amount is ascribed to this component to the valuation, however, the amount owing pursuant to clause 16.2 is still $435,871."
The letter of demand went on to allege at par 6 that pursuant to the combined operation of various clauses of the sale agreement including cl 4.4 and cl 5.6, in the event that the purchase price pursuant to the sale agreement was reduced to zero, any further reduction required by cl 4.4 or cl 5 represented a debt due and owing by the vendor to the purchaser. The calculations of the final purchase price contended for by Wentworth were then set out including reference to the fact that as at settlement the amount owing under the NAB loan was $1.959 million. It was said that the "amount owing on the purchase price" was $1,458,606.16. This was due by the plaintiff as vendor pursuant to cl 4.4 and cl 5.6.
It was said, again, that Wentworth acknowledged that the amount comprising the "determination" under cl 4.4 was subject to a dispute referred to arbitration. However, even if this "determination" under cl 4.4 was disregarded, the amount owing by the plaintiff was still $934,555.16.
The letter of demand concludes in this way:
"We hereby demand payment within 14 days of the sum of $1,082,557.81 which is now due and payable (being the sum of the amounts set out in points 1, 2, 3, 4 and 6 above in relation to the Sale Agreement less the amount referred to in point 6 that has been referred to arbitration plus the amount owing for stamp duty under the Charge).
We also demand payment within 60 days the sum of $435,871 referred to in point 5 above in relation to the Sale Agreement together with interest at the rate of 10% from the date of this letter until the date the amount is paid.
In the event that these monies are not paid in full within the time limits referred to we reserve the right to exercise any and all of our rights pursuant to the Charge without further notice."

The plaintiff's response

The plaintiffs response was set out in a letter from their solicitors, Fairweather & Lemonis, dated 27 February 2007. The letter commenced by saying that the letter of demand had been directed to Plantard Ltd, now First Capital Group Ltd. However, for the purposes of the response letter First Capital would be referred to as Plantard.
It was said on the plaintiff's behalf that the letter of demand ignored two fundamental issues. First, there had been a failure to appoint Mr Kathiravelu to the board of the second defendant at settlement. The purpose of the appointment was to enable Plantard to ensure that Wentworth Mutual made all appropriate efforts to maintain the management properties the subject of the agreement. Thus, the clause was fundamental to the arrangements put in place by the agreement.
Second, the new cl 16 valuation process inserted by the subsequent deeds of variation to the agreement extinguished any obligation on Plantard's part to make repayment of the purchase price under cl 5.6. Otherwise, cl 16 and cl 5.6 would operate as an effective "double dip" where, in certain circumstances, Wentworth could be reimbursed for more than what it paid for the rental management properties the subject of the agreement.
The plaintiff's response then went on to address these and other matters in detail.
As to the cl 11 provision it was said that pursuant to cl 4.3(d) the final instalment of the purchase price was to be paid on the earlier of the date 12 months after the settlement date or the date upon which Mr Kathiravelu is removed from his position as a director of Wentworth, with the final amount of the instalment to be calculated in accordance with cl 5.5. On its proper interpretation, this clause meant that where Mr Kathiravelu was not appointed, the balance of the purchase price was immediately payable on settlement and no adjustment was to be made under cl 5.5. Otherwise, the protection afforded to Plantard by the combined operation of cl 11 and cl 4.3(d) would be irretrievably lost in circumstances where Wentworth failed to appoint Mr Kathiravelu to the board of the second defendant.
The consequence of this was that using the Wentworth figure of $106,572.64 for the initial management fees, the total purchase price, properly calculated (as alleged by the plaintiff), after deduction of the NAB loan and employee entitlements and unpaid creditors of $625,000, was to leave a balance due to the plaintiff as vendor of $1,252,615.04. I will call this the "cl 4.3(d) construction issue".
It was said further in the plaintiff's response that if Wentworth's intention was not to have Mr Kathiravelu appointed to the board of the second defendant, this would be misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth). This would entitle the plaintiff to relief to vary the agreement to remove those clauses that provide for a deduction from the purchase price and also to remove the valuation process provided for by cl 16 of the agreement.
The plaintiff's response letter went on to make certain observations about the operation of cl 16 which brought under notice the suggested inconsistency between cl 5.6 and cl 16, being the issue I described in earlier discussion as the cl 5.6 vendor debt issue.
As to that matter, the plaintiff's response letter reads in part as follows:
"The insertion of clause 16 was to provide for a valuation of the rental property management rights as at 30 June 2005 and for there to be an adjustment of the purchase price accordingly. When clause 16 was initially inserted (by the First Deed of Variation) clause 5.6 was deleted. However, in the Second Deed of Variation, clause 5.6 in a revised form was reinserted. In simple terms, clause 5.6 stated that where the purchase price adjustment required by clause 5.5 was less than zero, this then became a debt due by Plantard to Wentworth Mutual. On our instructions, this is an obvious error. Otherwise, the consequences of the amendments are punitive. That is, pursuant to clause 16 there is a revaluation of the rental property managements rights in accordance with the formula prescribed by clause 16. Where that valuation is less than $2,600,000, Plantard shall pay to Wentworth Mutual the amount by which it is less than $2,600,000. Further, the calculation is to be performed in relation to the management fees received for the month of June 2005, which is the same date used in clause 5.5. Accordingly, were clause 5.6 to remain, the consequence of this is that Plantard would be exposed to reimbursing Wentworth Mutual for the purchase price in two separate and distinct ways, neither of which is adjusted to take account of the other. This cannot possibly have been the intention of the parties and on our instructions was not their intention.
Accordingly, the only viable rights Wentworth Mutual has is under the valuation process provided for by clause 16. However, in conducting that valuation, regard also has to be had to the fact that Mr Kathiravelu was not appointed to the WML board. While it is difficult to estimate, our client's instructions are emphatic that if Mr Kathiravelu was so appointed, the figures for June 2005 would have been much higher. Accordingly, on this basis alone, your calculations under clause 16 are flawed because they do not take account of the stronger position that would have resulted if Plantard had been given the opportunity of ensuring (through Mr Kathiravelu) the highest possible number of management properties were retained by the relevant date. Further, you have conducted your calculations as at 31 July 2005 whereas pursuant to clause 16 they were to be calculated by 30 June 2005."
The plaintiff's response then went on to assert that if Mr Kathiravelu had been appointed to the board the size of the rent roll would not have decreased with the result that the relevant calculation under cl 16 would have given rise to an amount due from Wentworth as purchaser within the range of $728,564.04 to $1,252,615.04.
The response letter concluded in this way:
"In conclusion, Plantard's position is that depending on the outcome of the clause 4.4 Arbitration and putting aside for the moment the smaller claims made in paragraphs 1, 2, 3 and 4 of your letter, the net position will be:
1.Wentworth Mutual owes to Plantard the sum of $1,252,615.04 if no clause 4.4 deductions are made.
2.Even if Wentworth Mutual is entitled to the entire clause 4.4 deductions claimed of $524,000.51, the sum of $279,781.04 is still due and owing by Wentworth Mutual to Plantard. That sum is calculated as follows:
(a)assuming the maximum deduction under clause 4.4, the balance of the purchase price due and owing to Plantard is $728,564.04;
(b)The proper calculation of the valuation under clause 16 should be:
(32.4 x $82,570 assuming Mr Kathiravelu's ability to increase retained fees by at least 20%) - $458,801 – (250 x 261) = $2,151,217;
(c)The repayment to be made under clause 16 is:
$2,600,000 - $2,151,217 = $448,783.
On this basis (and without having regard to Plantard's TPA claim) Wentworth Mutual owes to Plantard between $279,781.04 and $1,252,615.04, depending on the outcome of the clause 4.4 Arbitration. You may recall that Plantard contends the entire clause 4.4 deduction calculated by Wentworth Mutual is fundamentally flawed and therefore no deduction is applicable under clause 4.4. Accordingly, Plantard's position is that Wentworth Mutual owes to Plantard the sum of $1,252,615.04, to be adjusted only to the extent the smaller claims made by paragraphs 1 to 4 of your letter can be made out. Even if all these smaller claims arise, this still leaves an amount of approximately $1.1 million due and owing to Plantard.
Plantard does however appreciate that the matters raised between our respective clients are complex and also that a clause 4.4 Arbitration is likely to be both lengthy and expensive. It also goes without saying that the relevant documents are not a model of clarity. Accordingly, Plantard is willing to meet you on a without prejudice basis to see if this matter can be resolved.
If you are not prepared to meet, or the matter cannot be resolved, then Plantard's instructions to us are to commence proceedings seeking payment of the amounts as calculated in this letter and also declaratory relief that the charge in favour of Wentworth Mutual is no longer valid or effectual.
Would you please let us you [sic know] how you would like to proceed.
All of Plantard's rights are reserved."

Overview

Put shortly, then, the exchanges between the parties revealed that Wentworth paid no part of the purchase price at or after settlement. The agreement allowed for adjustments to be made to the purchase price but a hard core dispute had arisen between the parties as to certain facts and matters upon which the calculations to be made depended. Further, there was a dispute as to how the agreement should be construed which was bound to affect the outcome of the calculations.
The plaintiff's stance was, having regard to its position concerning the cl 4.3(d) construction issue and the cl 5.6 vendor debt issue and related rectification issue, that moneys were due from Wentworth in respect of the purchase price.
On the other hand, Wentworth as purchaser contended that, as a consequence of a recalculation of the purchase price in the manner allowed for by the agreement, moneys were due to it. Further, having made a formal written demand for the moneys said to be due, it was entitled to exercise its powers as a secured creditor under the fixed and floating charge. I note in passing that in its written submissions and at the hearing Wentworth confirmed that, unless restrained by injunction, it would exercise its alleged power to appoint a receiver and manager under the charge.
There was also a dispute as to the plaintiff's alleged liability for certain "smaller claims", being amounts which were said to be due to Wentworth independently of any dispute about a calculation or recalculation of the purchase price. According to Wentworth these were "undisputed amounts" due pursuant to cl 3.8 and were sufficient, of themselves, to justify the exercise of powers pursuant to the charge. I will call these the "cl 3.8 Wentworth claims".
Before dealing with the central issue of whether the plaintiff should be permitted to restrain Wentworth from exercising its powers under the charge, and the various related issues, I must look briefly at certain legal principles bearing upon the matters before me.

Legal principles

In Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 Gleeson CJ observed at 216 that the purpose of an interlocutory injunction is to preserve the status quo until the rights of the parties can be determined at the hearing of the suit. This means that a plaintiff must be able to show sufficient colour of right to the final relief in aid of which interlocutory relief is sought. If there is no serious question to be tried because, upon examination, it appears that the facts alleged by the claimant cannot, as a matter of law, sustain such a right, then there is no subject matter to be preserved.
His Honour observed further that there is no inflexible rule as to the extent to which it is necessary to examine the legal merits of a plaintiff's claim. It may depend upon the nature of the dispute. For example, if there is little room for argument about the legal basis of a plaintiff's case, and the dispute is about the facts, a court may be persuaded easily, at an interlocutory stage, that there is sufficient evidence to show, prima facie, an entitlement to final relief.
The principles governing the grant or refusal of interlocutory injunctions were summarised by Mason ACJ in Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153. His Honour said that the plaintiff must show, first, that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; second, that he will suffer irreparable injury for which damages will not be an adequate compensation unless a injunction is granted; and third, that the balance of convenience favours the granting of an injunction.
These principles were considered and approved by the High Court in Australian Broadcasting Corporation v O'Neill [2006] HCA 46. However, I note that Gummow and Hayne JJ observed at pars 65 – 66 that the phrase "prima facie case" did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed. Their Honours stated that it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial.
The decided cases indicate that these principles have to be construed subject to special considerations concerning the exercise of powers pursuant to mortgages and charges including the power to appoint a receiver and manager.
In Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 Walsh J observed at 164 that a general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this not be in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into Court. The benefit of having a security for a debt would be greatly diminished if the fact that a debtor has raised claims for damages against the mortgagee were allowed to prevent any enforcement of the security until the litigation of those claims had been completed.
However, in Fletcher v Ould Pty Ltd [2000] WASC 322 Steytler J referred with approval to observations made by the authors of a leading text book to the effect that there are exceptions to this general principle. These are (a) where the amount claimed on the mortgage is obviously wrong or, possibly, (b) when there is a question as to whether the mortgagee's power has become exercisable at all.
His Honour went on to hold that the case before him was of the second type in that the plaintiff contended that there was nothing payable and consequently no call for the exercise by the mortgagee of the powers which were afforded to it under the mortgage. His Honour was therefore prepared to grant an injunction. However, he was of the view that as a condition of the grant the plaintiff should pay into Court a specified amount.
In the course of reviewing these rules counsel for the defendant relied upon a passage in O'Donovan: "Receivers and Managers" at par 310 to the effect that as long as there are circumstances justifying the appointment of a receiver and manager under the terms of a mortgage debenture, the debenture holder may make the appointment. There is no foundation for the suggestion that the appointment of a receiver is a drastic remedy which should only be invoked under pressing circumstances. A mortgagee is not required to act reasonably in appointing a receiver. It is entitled to deal with the security so as to protect its own interest, subject to any contractual and fiduciary duties owed to the mortgagor and its duty not to sacrifice the interests of the mortgagor. See also Paul Kennedy Transport Pty Ltd v ANZ Banking Group Ltd (1993) 6 BPR 13,883.

Let me now turn to certain principles and decided cases bearing upon the power of a court to rectify a written agreement. I will draw upon discussion concerning this matter in Cheshire & Fifoot's: "Law of Contract" (8th Aust ed) at pars 12.30 – 12.53.
In equity, a written document embodying a mistake can be rectified by order of the Court. However, rectification must be distinguished from the process of construction of a contract in which courts (at common law and in equity) endeavour to discover and give effect to the intention of the parties.
There is a presumption that a written document executed by the parties is a true record of their agreement. But this presumption can be displaced if there is clear evidence of a mistake in recording their agreement. Rectification of common mistake can be employed in two circumstances being, first, where a prior agreement is reached and the parties then erroneously record that agreement in a written document or, second, where the parties have formed a common intention not amounting to a concluded bargain and they have then drawn up a contract to give effect to that intention but it fails to do so because of some slip.
It is for the party seeking rectification to advance convincing proof that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms. The Court must not assume for itself the task of making the contract for the parties: Pukallus v Cameron (1982) 180 CLR 447 per Wilson J at 452.
A rectified document is treated as having been in its rectified form as from its execution: Issa v Berisha [1981] 1 NSWLR 261 at 265.
According to Cheshire & Fifoot (supra) at par 12.53 there is similarity or arguably congruence between the principles that govern both rectification and rescission for unilateral mistake. Thus it is clear that, where there is a mistake in the document known to the other party who keeps silent about it, the Court will order rectification. There is probably no requirement that the unmistaken party engaged in some positive conduct aimed at preventing the other from discovering the mistake. Cases of unilateral mistake are rarely part of the ordinary principles of rectification, that is, a common intention has not been properly recorded in the contractual document.
Let me now return to the circumstances of the present case.

The nature of the transaction

It is apparent from earlier discussion that the principal transaction between the parties is reflected in the sale agreement. The charge was created to secure moneys that might become due to Wentworth under the agreement but in various ways the provisions of the charge seem to allow for the possibility that recovery action will be affected by the state of account between the parties under the agreement.
For example, the amount secured by the charge is ultimately defined by reference to debts owed by the plaintiff pursuant to the agreement. Clause 3.5 provides that "save as otherwise agreed in any transaction document" the chargor shall pay the secured moneys free of all deductions or setoffs. It seems to follow that, in circumstances where the principal agreement contains various price adjustment mechanisms, this arguably allows for deductions and adjustments to be brought to account in determining what is due under the charge.
To my mind, it must follow from this view of the matter that the charge cannot be regarded as a form of security which falls squarely within the general rule enunciated in Inglis (supra) and other decided cases concerning conventional securities. Further, and in any event, as indicated in Ould's case (supra) the general rule is subject to the exceptions described in that case.
All of this means that the question of whether an injunction should be granted or refused should not be weighted in favour of the party entitled to the benefit of the charge. In the special circumstances of this case, the plaintiff is entitled to obtain relief if it can establish a serious issue to be tried as to whether any moneys are in fact due to Wentworth pursuant to the agreement, and thus under the charge, and as to whether Wentworth's powers under the charge are exercisable at all.

Conclusion

It is apparent from my overview that no payment has been made by Wentworth in respect of the purchase price and that Mr Kathiravelu was not in fact appointed to the board of the second defendant in the manner provided for by cl 11 of the agreement.
It is clear also that in a case where the agreement allowed for various adjustments to the price having regard to fluctuations in the rent roll, there is now a hardcore dispute as to the valuation of the rent roll and the calculation of the purchase price and related amounts. It is not entirely surprising that such a dispute should arise having regarding to the many contingencies and adjustment mechanisms provided for by the agreement.
Accordingly, it cannot be said that this is a case in which a debtor is relying upon an unconvincing argument as to the amount due with a view to avoiding payment. It is the kind of case in which the underlying facts and state of account will have to be carefully examined. Controversies of this kind are not easily resolved upon the basis of affidavit evidence.
On the plaintiff's case it is not liable to Wentworth at all. It is said that in fact amounts are due by Wentworth to the plaintiff by reason of two crucial matters, namely, that Mr Kathiravelu was not appointed to the board of Wentworth Holdings. Further, that the parties did not intend for there to be a cumulative operation of both the valuation process provided for by cl 16 and the possibility for a refund provided for by the new cl 5.6. The plaintiff submits that there is a serious issue to be tried as to both these matters and that the agreement should be rectified in order to remove the new cl 5.6.
As I have indicated, there is no doubt that Mr Kathiravelu was not appointed to the board. The further evidence relied upon by the plaintiff in regard to this issue is to be found at par 7 of the affidavit of Mr Kathiravelu where it is asserted that he said to Mr Wheeler words to the effect that it was critical that he be appointed to the second defendant's board to ensure that the plaintiff's shareholder interests were protected. According to him, Mr Wheeler responded in words to the effect that he would take care of that at settlement. It was said that the plaintiff would not have entered into the agreement if it was known that the appointment was not to be made.
On the plaintiff's case this is said to give rise to the cl 4.3(d) construction issue; that is, on the proper interpretation of cl 4.3 the date for payment of the final instalment was accelerated to the date of settlement. In other words, cl 4.3 previously recognised that if Mr Kathiravelu was removed from the board of Wentworth Holdings, the date of payment was brought forward. By parity of reasoning, the same should apply where he was not appointed to the board at all. Accordingly, the plaintiff contends, the basis for the claimed deductions by Wentworth pursuant to the operation of cl 5.1, cl 5.2 and cl 5.6 do not arise and applying the definition of "purchase price" in the agreement, the sum of $1,252,615.04 is due by Wentworth to the plaintiff. This calculation is referred to in the plaintiff's response to the Wentworth letter of demand.
It is said also that these circumstances give rise to a claim by the plaintiff to have the arrangements reflected in the agreement set aside or to have the agreement varied pursuant to s 52 and s 87 of the Trade Practices Act so that the new cl 5.6 is deleted.
As to these matters, I consider that there are serious issues to be tried. The plaintiff has reasonable prospects of making out a prima facie case that moneys are due by Wentworth to the plaintiff and that no amount is due and owing by the plaintiff to Wentworth pursuant to the operation of cl 5.6. The matters mentioned in the Freeman affidavit lend support to the plaintiff's position.
To my mind, it does appear that cl 5.6 and cl 16 address the same matters with the result that the facts bearing upon the cl 5.6 vendor debt issue (as I have described it) are arguably sufficient to bring into play the remedy of rectification.
In other words, cl 16 provides for a revaluation of the rental management property rights and where that revaluation is less than $2.6 million, for the plaintiff to refund the difference to Wentworth. Clause 5.6 provides for a revaluation of the purchase price and where that falls below $2,584,000 (being, on the plaintiff's case, the applicable deductions provided for in the definition of the purchase price) for the plaintiff to refund the difference to Wentworth. These clauses therefore appear to provide for separate but related methods of revaluing the assets sold, neither of which takes account of the other.
There is affidavit evidence before me which suggests that the common intention of the party was simply to have a mechanism which would allow for a revaluation of the purchase price having regard to fluctuations in the rent roll. There is no adequate or persuasive evidence before me as to why two clauses appearing to address essentially the same matters should have been inserted in the agreement at the same time. There is force in the plaintiff's submission that Wentworth has not provided any explanation as to the rationale for cl 5.6 and c. 16 both applying to provide a refund to Wentworth. This state of affairs permits the plaintiff to advance a persuasive argument that the agreement should be rectified by deleting cl 5.6 on the grounds that its inclusion did not represent the common intention of the parties.
Further, I consider that there is a serious issue to be tried that the plaintiff is not liable to Wentworth pursuant to cl 16 of the agreement. The valuation date pursuant to the cl 16 mechanism was 31 July 2005. The plaintiff's position in respect of the cl 4.3(d) construction issue is that in circumstances where Mr Kathiravelu was not appointed to the board of the second defendant, it is arguable that the operative date should be brought back to the date of settlement. To my mind, the plaintiff has prospects of establishing, in respect of this matter, that no debts are owing by it to Wentworth with the result that Wentworth is not in a position to exercise its powers under the charge, including the power to appoint a receiver and manager.
I am of the view, in respect of all these matters, that the issues cannot be easily and properly resolved upon the basis of affidavit evidence. To my mind, this consideration is relevant in the circumstances of the present case to the question of whether an injunction should be granted or refused. In the context of a complex agreement which allowed for adjustments of the purchase price, it could be unjust for a provisional ruling to be made upon the matters in issue that might lead to a prejudicial outcome for a party affected by the ruling.
This brings me to the balance of convenience. The appointment of a receiver to the plaintiff under the charge is bound to have severe consequences. According to Mr Kathiravelu (at par 15 of his affidavit) the appointment of a receiver will place the plaintiff's assets in an uncertain position, it will lead to volatility in the plaintiff's share price, it will expose the plaintiff to potential events of default under its loan documentation and inhibit its ability to obtain further funding or raise capital. It is by no means clear on the evidence before me that a claim for compensation or damages by the plaintiff would be a sufficient remedy. To my mind, there is a paucity of evidence on Wentworth's side concerning the balance of convenience issue.
Moreover, counsel for the parties on both sides foreshadowed to me at the hearing that steps would be taken immediately following any ruling upon the grant or refusal of an injunction to have the matter admitted to the Commercial and Managed Cases List. This will allow for orders to be made expediting the hearing of the matter. To my mind, this has a bearing upon the grant or refusal of an injunction also.
However, for the sake of completeness, I must now address the cl 3.8 Wentworth claims. These claims were drawn together by counsel for Wentworth in a table of calculations dated 19 April 2007 in which the amounts in question were set forth. They amounted in total to the sum of $102,251.64 to which was added various claims for interest bringing the total amount claimed to $122,701.96. Wentworth's position was that these amounts had fallen due under cl 3.8 independently of any controversy concerning adjustments to the purchase price. Further, as the charge did not generally allow for setoffs to be made, the presence of a controversy concerning the amount due in respect of the purchase price could not be allowed to stand in the way of enforcement action in respect of these claims.
To my mind, this aspect of the dispute was cogently and sufficiently answered by what was said by counsel for the plaintiff in his final address at the hearing. Counsel conceded that items 1, 2, 3 and 7 on the table of calculations (concerning such matters as debts not discharged before settlement and ancillary fees owed in respect of the NAB loan) arose under cl 3.8 and were outstanding. However, although cl 3.5 of the charge purported to preclude allowance for deductions or setoffs, that was subject to an exception in respect of matters "otherwise agreed in any transaction document".
To my mind, there is a serious issue to be tried as to whether these cl 3.8 Wentworth claims can be setoff against any amount found to be due to the plaintiff in the event of its case against Wentworth succeeding in respect of the purchase price. Accordingly, the cl 3.8 Wentworth claims cannot be characterised as undisputed amounts in the manner contended for by Wentworth.
As to item 4 on the table of calculations, I consider that there is a serious issue to be tried as to whether this falls within the ambit of cl 3.8 or can otherwise be regarded as an amount immediately due and owing to Wentworth.
In summary, then, I am of the view that the plaintiff has made out a serious issue to be tried in respect of the matters in contention which may result in findings that the plaintiff is not indebted to Wentworth in the manner alleged in Wentworth's letter of demand. The corollary to this is that Wentworth is arguably not in a position to enforce its powers under the charge with the result that an order should be made restraining it from doing so. To my mind, the balance of convenience weighs in favour of an injunction being granted. I propose to make orders accordingly.
Finally, I have to say that, having regard to my earlier observations concerning the unusual nature of this transaction and its relationship to the rule in Inglis (supra), I do not consider that it is appropriate to require the plaintiff to make a part payment of the amounts said to be due or a payment into Court.

Summary

An order will be made in terms of pars 1 and 3 of the plaintiff's chamber summons dated 14 March 2007 save that after the numerals "2005" in the last line of par 1 the words "until the trial of the action or further order" are to be added. I will hear from the parties as to whether any further orders or directions are required.