John Rhodin and Son Pty Ltd v Australia and New Zealand Banking Group Limited

Re: JOHN RHODIN & SON PTY. LIMITED
And: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
No. G 77 of 1985
Trade Practices
(1985) ATPR para 40 - 578

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart J.

CATCHWORDS

Trade Practices - misleading or deceptive conduct - application for injunction restraining respondent from appointing a receiver or receiver and manage pursuant to a deed of mortgage - whether a serious question to be tried - whether alleged representations capable of constituting representations as pleaded - whether representations constitute misleading and deceptive conduct - consideration of the balance of convenience matters relevant to discretion.

Trade Practices Act 1974: ss. 52, 80(2).

HEARING

CANBERRA
#DATE 17:4:1985

ORDER

The injunction granted by this Court on 14 April 1985 that Australia and New Zealand Banking Group Limited by itself, its servants and agents be restrained up to and including Tuesday, 16 April 1985 from exercising the power of appointment of a Manager and/or Receiver under a Mortgage Debenture dated 4 March 1985 be discharged;

The notice of motion of 15 April 1985 be dismissed;

The costs of this application for interlocutory injunctive relief be the respondent's costs in the proceedings; and

The matter be adjourned for further directions to Friday, 26 April 1985 at 9.30 a.m.

JUDGE1

John Rhodin & Son Pty. Limited (the applicant) seeks an interlocutory injunction for a period of approximately one week to restrain Australia and New Zealand Banking Group Limited (the respondent) from exercising its power of appointment of a receiver or receiver and manager under a deed of mortgage dated 4 March 1983. The proceedings were commenced in this Court last Sunday evening (14 April 1985) when the applicant sought an ex parte injunction restraining the respondent from exercising the power of appointment to which I have referred. I heard the application and ordered that the respondent be restrained from exercising the power of appointment up to and including yesterday. I gave leave to the applicant to serve short notice of motion returnable yesterday (16 April 1985) at 10.15 a.m.

The case for interlocutory relief was heard yesterday and today. As the case did not conclude yesterday I extended the operation of the injunction up to and including today. The evidence consists of affidavits filed on behalf of the applicant but primarily the affidavits of a director of the applicant (John Stephen Rhodin) who, according to the evidence (though this is not entirely clear), is also its managing director. There is, of course, documentary evidence that in the main consists of annexures to affidavits. There has been no cross-examination of any deponent and no affidavits have been read by the respondent.
In its statement of claim the applicant alleges that:-

- In about December 1982 the respondent agreed to make a loan

upon security to the applicant to be used by it to facilitate the conduct of its business of selling motor vehicles from premises at Haberfield.

- Pursuant to that agreement the respondent lent money to the

applicant and the applicant executed documents including the deed of mortgage of 4 March 1983. The applicant also

procured others to execute security documents in the

respondent's favour to secure the money advanced by the

respondent.

- In the course of negotiations between the applicant and the

respondent for an increase in the amount of the loan to

enable the applicant to sell its business at Haberfield and to purchase a new business at Lakemba, the respondent

represented to the applicant that

(a) the respondent would procure for the applicant floor

plan facilities in the sum of $750,000; and

(b) the respondent would adjust securities and charges taken and to be taken from the applicant, the applicant's

associated companies, and other associates of the

applicant in such a way as to satisfy the security

requirements of a financier who would grant floor plan facilities in the sum of $750,000 to the applicant.

- At the time of making these representations the respondent

intended and knew or ought to have known that the applicant would rely and act upon them and would be induced thereby to enter into an agreement to purchase the business at Lakemba.

- On or about 3 May 1984 the applicant entered into an

agreement for the purchase of the new business at Lakemba and completed the agreement, relying and acting on the faith of the representations.

- The representations were untrue and deceptive or misleading

or likely to deceive or mislead.

- The applicant has suffered loss and damage by reason of these

matters.

Substantially the same facts were also pleaded as establishing an alternative cause of action, namely, a common law breach by the respondent of certain warranties given by it to the applicant; although the essence of the applicants' case is the alleged contravention of s. 52.
Mr. Rhodin swore in his affidavit dated 14 April 1985 that he has been engaged in the retail sale of motor vehicles in Sydney since 1961; that since that time he has had dealings with finance companies who have financed motor dealers engaged in the retail sale of motor vehicles and that he has become familiar with the types of finance made available for that purpose. He also swore that in December 1982 the respondent agreed to finance the applicant in the conduct of its business of selling used Mercedes Benz motor vehicles from its premises at Haberfield by a commercial bill line facility of $1.3 million. He said that the respondent took securities and guarantees for the provision of that facility, including mortgages over the assets of the applicant and companies and persons associated with it.
Although the evidence is not very clear on the point, it seems that in about February 1983 the respondent agreed to increase its financial assistance to the applicant and to readjust its securities accordingly. In February 1983 the applicant did not have a floor plan to finance the stock of its motor vehicles.
Mr. Rhodin stated in his affidavit of 14 April 1985 that floor plan arrangements are the usual way of financing stock at motor vehicle dealerships. "Floor plan arrangements" are arrangements which exist between a motor vehicle dealer and a financier when a dealer sells vehicles as agent for a financier, the financier giving possession of the vehicles to the dealer who may sell them on behalf of the financier. The dealer is charged a fee for his possession of the vehicle and when he sells the vehicle he must account to the owner, who is the financier, for the proceeds of the sale. It was said to be established practice for financiers who are involved in financing floor plans to require security for approximately 33% of the value of vehicles on the showroom floor.
In February or March 1983 Mr. Rhodin became aware of the opportunity to purchase an existing Mercedes Benz and Honda dealership at Lakemba of which the principle was a Mr. Brian Townsend. Mr. Rhodin and Mr. Townsend discussed the matter and agreed upon a price for the purchase of the business at $1,750,000. Mr. Rhodin then approached the respondent about financing the project.
In March 1983 Mr. Rhodin went to the premises at Lakemba with representatives of the respondent and discussions took place about a floor plan. Late in March 1983 Mr. Donaghy, Assistant State Manager of the respondent and Mr. Maple, Area Manager for the respondent, said to Mr. Rhodin that they would consider the proposed transaction on the basis of floor plan approval and the granting of two franchises, one relating to Mercedes Benz and the other to Honda motor vehicles.
The applicant continued with its business at Haberfield, but the business was allowed to run down in the sense that stock sold was not replaced in anticipation of the change of business and premises from Haberfield to Lakemba. In April or May 1983 the applicant applied to Mercedes Benz (NSW) Pty. Limited ("Mercedes Benz") for approval as a dealer. Apparently it takes about 90 days for approval to be given by that company to applicants for dealership. Mr. Rhodin negotiated with Borg Warner Acceptance Corporation (Australia) Limited ("Borg Warner") for a floor plan agreement for new vehicles for the applicant for the proposed business at Lakemba. He received from Borg Warner a letter of 23 September 1983 referring to his application for floor plan facilities of $750,000 and stating that the application had been approved subject to certain conditions relating to security. Mr. Rhodin says that to the best of his knowledge he sent a copy of that letter to the respondent in about September 1983.
Due to the delay in commencing the conduct of its new business and the running down of the old business, the applicant's financial position deteriorated and its indebtedness to the respondent increased substantially, to the extent of approximately $1.7 million.
From about July 1983 Mr. Donaghy and Mr. Maple telephoned Mr. Rhodin on many occasions about the proposed franchise from Mercedes Benz and other matters. It is apparent that the respondent was, at or about this time, showing signs of concern about the applicant's account. In December 1982 when the respondent had agreed to lend to the applicant $1.3 million it had taken security for the loan; but as the applicants' indebtedness had exceeded $1.3 million it had not required further security.
The applicant continued to trade unprofitably and at all relevant times representatives of the respondent telephoned the applicant about the account. Indeed, by August 1893 Mr. Donaghy was in daily communication with Mr. Rhodin by telephone.
In March 1984 Mr. Rhodin was informed that the applicant was soon to be approved as a Mercedes Benz dealer and he mentioned that fact to Mr. Maple and Mr. Donaghy and others. He said that during all relevant conversations with the respondent's officers there was discussion about the fact that the applicant would need a floor plan.
In about the middle of April 1984 Mr. Rhodin was informed by officers of Borg Warner that it no longer wished to proceed with the arrangements relating to the provision of a floor plan which had been detailed in the letter of 23 September 1983.
It became apparent that the increased borrowing of the applicant would require the provision of further security, and in the middle of April 1984 there were further discussions between Mr. Maple, Mr. Donaghy and Mr. Rhodin. Again, reference was made to the necessity for a floor plan to enable the applicant to trade. At one such discussion, between Mr. Rhodin and the respondent's officers which occurred at the respondent's premises on or about 30 April 1984, it being apparent that Borg Warner was no longer interested in providing floor plan arrangements to the applicant, the suggestion was raised as to whether the vendor of the Lakemba business would be able to "help out with the floor plan".
At that meeting of 30 April, Mr. Donaghy, Mr. Miller, Mr. Rhodin and others were present. The text of the conversation is set out in paragraphs 43 and 44 of Mr. Rhodin's principal affidavit. Plainly reference was made to the necessity for the applicant to have floor plan arrangements if its business was to succeed; and it appears that Mr. Townsend, the principal of the vendor of the Lakemba business, said in effect that he would assist with the floor plan as an interim measure and until the applicant could get its own floor plan arrangements. It is not entirely clear from the evidence how this was to occur, but it may be broadly summarised as follows: the existing floor plan arrangements between Borg Warner and Mr. Townsend's company would continue between them as they had in the past although the sale of the relevant vehicles would in truth be made by the applicant conducting the business formerly owned by Mr. Townsend's company. In the result Borg Warner would, as before, deal with Mr. Townsend's company and not with the applicant, irrespective of the fact that the applicant and Mr. Townsend's company would have their own arrangements. This was apparently perceived by Mr. Townsend as the price he had to pay for effecting the sale of his business to the applicant. During the course of this discussion Mr. Rhodin said "But what happens if we cannot get a floor plan and the deal falls through?" to which Mr. Donaghy replied: "We will see that you get this through, John. The bank can supply the cover finance you need." There then followed correspondence from the respondent to the applicant to which I need not refer at this stage. Subsequently Mr. Rhodin was informed by the respondent that it wished the agreement for the purchase of the Lakemba business to be exchanged on 3 May 1984. The agreement was executed on that date together with other documents required by the respondent.
For the purposes of dealing with this interlocutory application I accept that the applicant would not have entered into the agreement on 3 May 1984 unless there was an arrangement whereby it would have available to it a floor plan, and unless Mr. Donaghy made the statements at the meeting to which I have just referred.
The question in the case is what those statements mean in the context of all the relevant circumstances. The applicant commenced trading using the existing floor plan and Mr. Townsend's company as vendor, and those arrangements are set out in correspondence to which I need not refer. In the early part of May 1984 Mr. Lewis, an officer of Borg Warner, said to Mr. Rhodin words to the effect that he knew that the applicant was using Mr. Townsend's floor plan and that Borg Warner could only "cover" the applicant for a few weeks.
Mr. Rhodin approached several finance companies for the purpose of obtaining a floor plan. The respondent had stated that it could offer $200,000 and $150,000 respectively as a priority security for a floor plan of $750,000. This was contained in the respondent's letters of 15 May 1984 and 13 June 1984.
The applicant's financial position deteriorated rapidly from May 1984, and in August 1984 its indebtedness to the respondent had reached $2,750,000. On or about 16 August 1984 Mr. Maple of the respondent said to Mr. Rhodin that there would be no further moneys available from the respondent and no security to support the floor plan, and that the respondent had gone far enough. In relation to the provision of appropriate floor plan arrangements for the applicant, the applicant asserted to the respondent: "The entire bank deal was dependent on the application of the floor plan. By withdrawing the security priority will make it impossible to secure a floor plan". This was contained in a letter of 20 August 1984.
On or about 20 August 1984 Mr. Rhodin had a conversation with Mr. Tuxford, the New South Wales State Manager of the respondent, and Mr. Tuxford said that security was not available to support any floor plan; that the applicant should get its own floor plan and that, if it could not "You will go under". In October 1984 the applicant obtained from Borg Warner approval for a floor plan arrangement for $500,000. At that time the applicant needed a floor plan in the sum of $750,000 to generate sufficient vehicles as stock to carry on its business.
On or about 28 September 1984 the respondent converted the applicant's borrowings from a commercial bill facility to a daily overdraft rate with consequential increase in interest rates. Mr. Rhodin has sworn that the applicant is not in default in its repayments under the terms of its loan from the respondent at the present time, and there is no evidence to the contrary.
The applicant is presently, and has been since June 1984, trading at a loss. There is evidence that Mr. Maple said to an associate of Mr. Rhodin on Tuesday, 9 April 1985 that the respondent was nervous and likely to appoint a receiver by the end of that week or shortly thereafter. That suggestion was affirmed by a principal of Messrs. Howarth Dulhunty, chartered accountants, in a discussion on 10 April 1984 between him and Mr. Rhodin.
During the week commencing 25 March 1985 Mr. Lewis of Borg Warner telephoned Mr. Rhodin and said in effect that the floor plan facility which had been $500,000 was now reduced to $100,000 and asked him to make arrangements to fully pay out the floor plan. This was done on 12 April 1985 by the applicant selling all the stock the subject of the floor plan, leaving an indebtedness owing to Borg Warner by the applicant of about $30,000.
Mr. Rhodin has sworn that in the last three days (i.e. the last three days preceding his affidavit of 14 April 1985) the applicant entered into negotiations with a third party to sell an interest in the business on the basis that the purchaser would provide security for a fresh floor plan.
It emerged in the course of argument that the applicant seeks to avoid the appointment by the respondent of a receiver so that it can negotiate with a third party to improve its business or financial position in some form relevant to the provision of fresh floor plan arrangements.
That is, in broad form, the evidence which has been adduced before me. There is, of course, other evidence and the fact that I have not referred to it does not mean that I have not considered it. Indeed, I have considered all the evidence before me.
The principles on which interlocutory relief are granted are well known and need not be restated. I propose to consider first the question whether there is a serious question to be tried and then turn to the question, if it should arise, of balance of convenience. The applicant's case rests essentially upon the conversation of 30 April 1984 when Mr. Donaghy said to Mr. Rhodin in response to his question as to what would happen if the applicant could not get the floor plan and the deal fell through, "We will see that you get this through, John. The bank can supply the cover finance you need."
It is said that this conversation answers the description, within the meaning of the statement of claim, of a representation by the respondent to the applicant that (a) the respondent would procure for the applicant floor plan facilities in the sum of $750,000 and/or (b) the respondent would adjust securities and charges taken and to be taken from the applicant, the applicant's associated companies and the applicant's associates in such a way as to satisfy the security requirements of a financier who would grant floor plan facilities in the sum of $750,000 to the applicant.
I am, of course, not making any final determination of any issues in this case; but inevitably I must form interim views about some of the issues, otherwise no conclusions can be come to at all. I am conscious that there has been no cross-examination of any persons who have sworn affidavits and that there is no evidence from any bank officer. I am obliged to act on the material contained on the face of the affidavits themselves and the documents annexed thereto and other documents in evidence.
The first question which I will deal with is whether the alleged representations made by the respondent are capable of constituting representations as pleaded in the statement of claim. Although I see some force in the argument of counsel for the respondent that they are not capable of being so construed, I am content for the purposes of this application to assume that they are capable of bearing either of those constructions to which I have referred, although I confess to having misgivings about that assumption.
The next question is whether there is any real prospect that the applicant will succeed at the trial in establishing those constructions. I have considered the whole of the evidence, especially the relevant conversation that is relied upon by the applicant in the light of other conversations to which my attention has been directed and, in particular, the events that took place in April 1984. I am satisfied that there is no real prospect of the applicant succeeding in establishing its claim. I think that when the evidence is viewed as a whole, although I express no final view on it, the role of the respondent has been essentially that of banker to its customer, that it has not stepped outside the role which one would normally expect to see a banker adopt in those circumstances, and that it has not, in truth, conducted itself through its officers in conversations or otherwise so as to lead to any prospect of the applicant establishing that whatever was said or not said by a bank officer at any time fell within the ambit of the representations pleaded in the statement of claim. Nor am I satisfied that, even if there was a real prospect of success in establishing that matter at the trial, there is a real prospect that the applicant would succeed in establishing that the representations so construed could constitute misleading or deceptive conduct or conduct likely to mislead or deceive.

There are other matters relevant to discretion which I will refer to briefly. The evidence before me, which is not in dispute, is that the indebtedness of the applicant to the respondent rose from $1.7 million to $2.76 million at relevant times in order that the respondent could carry on its business and effect its purchase of the Lakemba business. But in September 1984, as I said earlier, the commercial bill facility was converted by the respondent into a daily overdraft rate so that the whole or any part of the indebtedness of the applicant to the respondent could be called up any time by the respondent and, if that demand was not met, there would be no bar to the appointment of a receiver by the respondent.
Also I know very little about the negotiations between the applicant and a third party which are referred to in paragraph 74 of Mr. Rhodin's affidavit. I realise, of course, that negotiations of this kind are no doubt delicate, but I know nothing of their subject matter or of the person or persons with whom they are being conducted, assuming that they are still being conducted. This must be a relevant matter to be taken into account on the question of discretion in deciding whether an injunction could lie if I were satisfied that there was a serious question to be tried which, as I have said, I am not.
Strictly speaking, it is not necessary to consider the question of balance of convenience, but I shall do so as it has been fairly fully argued. To do this, of course, I must act on the assumption that the applicant has established that there is a serious question to be tried. I think that on this assumption, notwithstanding the arguments of counsel for the respondent, although the applicant has sustained losses for the past two years or so and the losses appear from the evidence to be increasing, the appointment of a receiver or receiver and manager of the applicant's business, would undoubtedly jeopardise the applicant in the conduct of its business. Although it has been forcibly submitted that any losses of the applicant cannot be laid at the door of the respondent, it would be contrary to commonsense to say that the appointment of a receiver and manager in the circumstances feared by the applicant would not in all probability lead to jeopardy to the applicant.
Then there is some evidence that the respondent holds security in excess of the $2.76 million owed to it. In that regard, however, I must observe that a substantial portion of this security appears to rest on the assumption that the applicant's business is conducted as a going concern. The question whether the bank is adequately secured or not, is not a matter in respect of which I have been able to form a view one way or the other. As to the balance of convenience I have also taken into account other matters which I have dealt with earlier under the general head of discretion. I am left in the position, that had I been required to decide this issue I would not have concluded that the balance of convenience favoured the granting of an injunction; nor would I have concluded that it did not. My conclusion simply would have been that I am not satisfied that the balance of convenience favours the granting of an injunction.
In all the circumstances I decline to grant interlocutory relief. As the existing injunction expires at the conclusion of today the appropriate course is to now discharge that injunction. The relief which the applicant seeks from its financial difficulties and which has occupied and is occupying a great deal of its time and effort, is a matter which must be resolved in the business world, not in the courts.

[1985] FCA 257

17 APRIL 1985