Innua Australasia Pty Ltd v Fortis Bank (Nederland) NV & anor

[2009] NSWSC 179

CITATION:	Innua Australasia Pty Ltd v Fortis Bank (Nederland) NV & anor [2009] NSWSC 179
HEARING DATE(S):	25 February 2009
JURISDICTION:	Equity Division Duty Judge List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	25 February 2009
DECISION:	Orders varied to remove any doubt as to interpretation, and to give effect to original intent. Interim regime that would jeopardise defendant’s proprietary interests refused.
CATCHWORDS:	Interlocutory injunction – variation – where doubt as to interpretation – in order to remove doubt – balance of convenience – jeopardy to proprietary rights of one party against risk of insolvency of other
CATEGORY:	Procedural and other rulings
PARTIES:	Innua Australasia Pty Ltd (plaintiff) Fortis Bank (Nederland) NV (first defendant) Brian Silvia (second defendant)
FILE NUMBER(S):	SC 1107i/09
COUNSEL:	Mr R Harper SC (plaintiff) Stevenson SC w A Lo Surdo (first defendant) F Austin (second defendant)
SOLICITORS:	HWL Ebsworth Lawyers (plaintiff) Norton White Lawyers & Notaries (first defendant) Paul Bard Lawyers (second defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY JUDGE LIST

BRERETON J

Wednesday 25 February 2009

1107/09 Innua Australasia Pty Ltd v Fortis Bank (Nederland) NV & anor

JUDGMENT (ex tempore)

1 HIS HONOUR: The plaintiff Innua Australasia Pty Ltd is a subsidiary of the Normandy Group SA which has, since at least the early 2000s, had banking and financing facilities with the first defendant Fortis Bank (Nederland) NV, most recently under a facility agreement of 27 May 2008 by which the bank provided a facility of $US45 million to Normandy. As part of the documentation that contains Normandy’s arrangements with the Bank, a joint and several liability agreement of 9 October 2001 makes Innua jointly and severally liable for any facility made available by the Bank to Normandy. That joint and several liability is supported by a fixed and floating charge granted by Innua to the Bank on 11 December 2002 which, inter alia, operates as a fixed charge in respect of assets described as a “nominated collections account” and “receivables”. The nominated collections account is an account in the name of Fortis with Westpac into which payments by customers of Innua are remitted and in respect of which is imposed a charge to Fortis. The receivables are the amounts owing to Innua by its customers.

2 Innua says that a subsequent arrangement between the parties had the effect that 20 per cent of its receipts from receivables was effectively “carved out” of the security, so that the charge operated only in respect of 80 percent of what was received into the nominated collections account (“the 80/20 arrangement”). Fortis accepts that there was some arrangement between the parties pursuant to which some of the amounts received into the nominated collections account would be ultimately remitted to Innua, but the terms of that arrangements are in dispute. For present purposes, most importantly, Fortis says that the arrangement was to operate only so long as Innua was not in default under the security documentation. Fortis contends that such arrangement as there was left a substantial discretion in Fortis as to what if any amount it would remit.

3 In December 2008, Fortis asserted that Innua was in default under the security documentation in several respects. It thereupon ceased to permit any of the receipts into the nominated collections account to be remitted to Innua – thus effectively cutting off Innua’s income stream and depriving it of the ability to pay its creditors including the Australian Taxation Office. Innua contends that this action was in breach of the 80/20 arrangement to which I have referred. Further, Fortis contends that even if there were a binding 80/20 arrangement (which it denies), it was entitled to take the action it did as a result of Innua going into default under the security documentation.

4 In these proceedings, Innua claims declaratory and other relief to the effect that it be paid what it claims to be its 20 percent share of the amounts received into the nominated collections account and not remitted to it.

5 On 15 January 2009, Innua obtained from a vacation judge ex parte orders as follows (apparently without being required at that stage to give an undertaking as to damages):

3. I order that it will be sufficient service upon the defendant for the plaintiff to send any documents that are required to be served upon it by sending them via facsimile to a Netherlands fax no [phone];

4. I appoint 10.00am on Wednesday 21 January 2009 before the vacation judge for the return of the Summons;

5. I appoint Brian Silvia as the receiver and manager of the assets of the plaintiff including the receivables of the plaintiff as defined in the Deed of Charge dated 11 December 2002 made between the plaintiff and the defendant.
6. I order that up to and including 4.00 pm on Wednesday 21 January 2009 the defendant by itself, its servants or agents, or howsoever otherwise be restrained from withdrawing, transferring or otherwise dealing with any moneys presently held in the nominated collections account as defined in paragraph (1) of the Summons.
7. I order that up to and including 4.00pm on Wednesday 21 January 2009 the defendant by itself, its servants or agents, or howsoever otherwise be restrained from:

(a) deducting any further moneys received after the date of this order into the nominated collections account without first remitting to Brian Silvia in his capacity as the receiver of the plaintiff 20 per cent of the sums to be withdrawn;
(b) taking any step to cause cessation or interruption to payment to the plaintiff or alternatively Mr Silvia of 20 per cent of any moneys received after the date of this order into the nominated collections account and which the defendant intends to withdraw from the nominated collections account;
(c) taking any step to deny to the plaintiff or alternatively Mr Silvia the benefit of the agreement to remit as defined in paragraph (1) of the Summons; and
(d) taking any step that would cause the plaintiff to be in breach of clause 8.11 or any other clause of the Deed of Charge.

6 The usual undertaking as to damages was, however, subsequently given and those orders were continued on 21 and 22 January 2009 and ultimately, on 23 January, when further orders were made as follows:

The order made by Harrison J and extended by Fullerton J on 21.1.2009 is extended up to and including 1pm, 23.1.2009.

Matter to be listed before Fullerton J. at 10am 23.1.2009

7 Directions were also made for pleadings by Notice of Motion filed on 17 February 2009. Innua claims orders to the effect that the receiver pay from the assets of the plaintiff under his control various amounts owed by Innua to unsecured creditors amounting to some $1,410,000, and further or alternatively an order to the effect that the receiver is entitled to apply up to 20 per cent of the moneys held in the account which he has established, in payment of amounts owed by Innua to those unsecured creditors.

8 Fortis cross-claims declaratory and other relief, to the effect that all moneys standing to the credit of the nominated collections account are charged in its favour, and that all moneys collected by the second defendant/receiver also stand charged in its favour. By Notice of Motion also filed on 17 February 2009, Fortis seeks a declaration that, properly construed, the orders made on 15 January and subsequently continued permit Fortis to withdraw 80 percent of the sum received into the nominated collections account since 15 January 2009 and, in addition, an order requiring the receiver to remit to Fortis 80 percent of the amount received by him into the receiver’s account since its establishment.

9 Accordingly, the issues for determination are:

· First, whether, pending final resolution of the matter, 80 per cent of the amounts received since 15 January 2009 into the nominated collections account and the amounts received into the receiver’s account should be paid to Fortis;

· Secondly, whether Innua or its receiver should be at liberty to use the other 20 percent to satisfy unsecured creditors; and

· Thirdly, whether various directions belatedly sought by the receiver should now be made.

10 So far as the first is concerned, ultimately it was not seriously disputed – if it was disputed at all – that Fortis should be permitted to receive that share of the receipts as, on the plaintiff’s case at its highest, Fortis’ entitlement was no less than that. Fortis did not at this stage press its claim to 80 percent of the amount standing to the credit of the nominated collections account as at 15 January 2008, which Innua says represents arrears of its 20 per cent share, due to it. Although I am firmly inclined to the view that the intent of the orders made on 15 June, subsequently continued, was that Fortis should be permitted to draw 80 percent of the receipts into the nominated collections account after that date, I do not think a declaration can be made other than on a final basis, and I am reluctant to make a declaration on an interlocutory motion as to the construction of orders made previously in the proceedings. The preferable course is to make an order varying those orders, so as to make more explicit what was originally, I think, intended. And there is no order in respect of the receiver’s account, it will be necessary to make a further, separate, order in that respect.

11 Coming then to the second issue, for present purposes I accept, and it was not disputed, that Innua has a seriously arguable case that the 20 percent share may have been carved out of the security in the way to which I have referred. On the other hand, it is not and could not be in dispute that Fortis has a seriously arguable case to the contrary.

12 On an application of this type, although in those circumstances the balance of convenience may be determinative, it is appropriate to have regard to some extent to the relative strengths of the competing cases. The description of the arrangements contained in Innua’s letter of 27 July 2004 to Westpac, and the absence of an assertion of an 80/20 arrangement in the correspondence which emanated from Innua in December 2008 when default was first asserted, together incline me to the view that, while both parties may have a seriously arguable case, at this very early stage, Fortis’ appears the stronger – although obviously that may be affected by further evidence in due course.

13 On the balance of convenience, the chief considerations are, on the one hand that if Innua is permitted access to the 20 percent share that will, if the order turns out to be incorrectly made, have eroded the bank’s security and in that way detracted from its proprietary rights; whereas on the other hand, if an order to that effect is incorrectly declined, then that will have prevented Innua from servicing its creditors, with a high degree of likelihood that Innua will be propelled into insolvency and liquidation.

14 Needless to say, these are both very serious matters of prejudice and inconvenience on either side. In those circumstances, an undertaking as to damages may be determinative. In this case, Innua accepts that, if Fortis’ case ultimately prevails and its claim as to the amount of the Normandy debt is correct, then there will be insufficient assets to satisfy the whole of Fortis’ debt. That means that the proposed order would materially and in a practical way impact on Fortis’ proprietary rights. I cannot help but reflect that if Fortis were the plaintiff, seeking an injunction to restrain Innua from dealing with assets which it claimed to be the subject of the charge, there would be a strongly arguable case that Fortis should have such an injunction, particularly where its undertaking as to damages was valuable. In this case, of course, Fortis is not the plaintiff and needs to establish nothing, and Innua does not offer or propose any alternative or substitute security, or other means of remedying the potential detriment to Fortis from the erosion of what, prima facie, is its security.

15 While the prejudice to Innua of being unable to pay its unsecured creditors is obvious and serious, I do not think that can outweigh the prejudice to a secured creditor from the erosion or loss of its security. In my view, the balance of convenience does not favour permitting Innua interim access to the 20 percent that it seeks.

16 As to the third issue – the receiver’s application – I have considered whether or not I should deal with it at all in the light of its lateness, but I think the parties can probably be saved costs and disputation if I at least give some indication of my attitude on the material currently before the Court, to what is proposed in it.

17 First, I cannot see why the Court should order that the receiver be removed as a party, when Fortis as cross-claimant is seeking orders against the receiver in respect of the assets held by the receiver. I immediately record I have not researched this question, and in particular whether there are any special rules about joining a court-appointed receiver, and further argument might be illuminating in that respect; but at first sight the Court would not order, against the wishes of Fortis, that the receiver cease to be a party.

18 Next, the receiver seeks a number of orders intended to permit him to pay expenses and remunerate himself out of the moneys collected by him from time to time. While, as I understand it, that is intended to be a reference to the 20 percent and not the 80 percent, the fact remains that that 20 per cent is very much the subject of dispute and at least arguably is part of Fortis’ security. This receiver was appointed, albeit by the Court, on the application of the plaintiff, and it is the plaintiff who should be primarily responsible for remuneration of the receiver, out of assets other than those to which Fortis has a claim. Of course, that might be revisited at the end of the case, but the interim position should be that the plaintiff be responsible – independently of the 20 per cent – for the receiver’s remuneration and expenses.

19 The receiver then seeks an order permitting him to repay an amount of some $822,000 said to have been paid erroneously into his account. There is no evidence before the Court that would enable this question to be determined. However, it is appropriate that that amount be retained in the receiver’s bank account for the time being, before remitting 80 per cent of the remainder to Fortis.

20 The receiver has agreed to provide a statement of account each Monday, and that apparently addresses at least one of the additional claims in Fortis’ motion.

21 For those reasons, I propose to make the following orders, subject to any submissions that counsel may wish to make as to their form:

(1) I vary orders 4 and 5 made on 15 January 2009 and subsequently continued until further order by adding the following:

(5A) It is the intent of orders 4 and 5 that the first defendant be permitted to withdraw, transfer or otherwise deal with the sum of $564,765.40 standing to the credit of the nominated collections account as defined in paragraph 1 of the Summons on condition that it first remit to Brian Silvia, in his capacity as receiver of the plaintiff, a sum of $141,191.35.


(2) I vary order 3 made on 15 January 2009 as subsequently continued by adding the words "provided that Mr Silvia is not entitled to retain as against the first defendant any assets of the plaintiff including the receivables as defined in the deed of charge referred to in order 3 which secure the liabilities of the plaintiff to the defendant, except as to 20 percent only of the value of those assets, until further order”.

(3) I order that within 48 hours Mr Silvia transfer by electronic funds transfer to the account of the Normandy Group SA with Fortis Bank (Nederland) NV, IBAN: NL50FTSBO24082XXXX BIC: FTSBXXXX, a sum representing 80 per cent of the value of the receivables received by him into his receiver’s account, after providing for (1) the sum of $141,191.35 to be remitted by the defendant to Mr Silvia in accordance with order 1 above, and (2) the sum of $822,911.02 being the aggregate of the two payments allegedly made erroneously into his account.

(4) I note the agreement of the receiver, the plaintiff and the first defendant that the receiver will provide each of the plaintiff and the first defendant by no later than 5pm each Monday a statement of the total receipts and payments for the preceding week and for the administration to date and a listing of aged debtors at the close of business for the preceding week.

(5) I order that simultaneously with the provision of such statement Mr Silvia transfer to the account identified in order 3 above a sum representing 80 per cent of the receivables received by him into the receiver’s account during the preceding week.

(6) I order that the plaintiff pay the first defendant’s costs of both motions.

(7) Liberty to apply by arrangement with my Associate in the event of any difficulty arising in connection with the form of the orders.

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