Katsikalis, S. v European Asian Bank Aktiengesellschaft

[1989] FCA 225

JUDGMENT No. .=,Ss

IN THE FEDERAL COURT OF AUSTRALIA	)	1
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QUEENSLAND DISTRICT REGISTRY	1	QLD. G192 of 1986
1
GENERAL DIVISION	i

BETWEEN:

STAVROS MTSIMLIS AND ORS.

Applicant

AND :

EUROPEAN ASIAN BANK ARTIENGESELLSCHAFT AND ORS.

Respondent

nINUTE OF ORDER

JUDGE MAKING ORDER:	SPENDER J .
DATE OF ORDER:	14 APRIL 1989
WHERE MADE:	BRISBANE
THE COURT ORDERS THAT:

(1) The application for an interlocutory

injunction filed by the applicants on

5 April 1989 be dismissed.

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( 2 ) The applicants pay the respondents' costs of opposing the application for the injunction, to be taxed on the ordinary party and party basis.

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

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IN THE FEDERAL COURT OF AUSTRALIA	)
1
QUEENSLAND DISTRICT REGISTRY	1 QLD. G192 of 1986
1

GENERAL DIVISION 1

BETWEEN:

STAVROS KATSIKALIS AND ORS.

Applicant

AND :

EUROPEAN ASIAN BANK ARTIENGESELLSCHAFT AND ORS.

Respondent

SPENDER J .

BRISBANE

14 APRIL, 1989.

EX TEMPORE REASONS FOR JUDGMENT

This is an application for an interlocutory injunction.
It was filed on 5 April 1989 by interests that I will refer to as

"Katsikalis". The motion seeks that Deutsche Bank AG by its

exercise its power of sale, selling or attempting to sell or	servants or agents or otherwise be restrained from purporting to
otherwise disposing of real property which is set out in paragraph 1 of the motion.
Further, it seeks similarly to restrain the receivers until the trial of the action or further order, from selling that land and, in particular, it seeks to restrain Mr. Summerson from

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completing a contract of sale with Ivory Crest Proprietary

Limited dated 14 January 1989. I

I was informed at the hearing that it was proposed that that contract would settle today, Friday, 14 April 1989, which gives some indication of the urgency with which this motion was heard.

It was filed on 5 April 1989 and some submissions were made on very short notice on 6 April. It was adjourned until Wednesday 12 April where submissions continued late in the day. Other very pressing matters occupied the whole of yesterday, again going very late in the day, so that these reasons necessarily have to be shorter than might otherwise be the case. Phey have certainly not had the consideration that a more expansive time frame might permit and they have to be given orally, but I have reached a firm view as to what I ought to do, and that is to refuse the motion.

The statement of claim in the principal proceedings was arose out of a loan in foreign currency made by European Asian	filed on 17 December 1986. Initially, the nature of the dispute
Bank Aktiengesellschaft S.A., the predecessor of Deutsche Bank
Aktiengesellschaft S.A.. The nature of the dispute stems from claimed breaches of S. 52 of the Trade Practices Act 1974 and the Honey Lenders Act 1916 (Q.). The applicants allege that certain mortgages taken by the bank under which the receivers and managers were appointed had been obtained as a result of misleading and deceptive conduct on behalf of the bank and

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secured advances which were made in contravedtion of the noney	\
Lenders Act.

The dispute has escalated from there and involves allegations concerning breaches by the receivers and also further breaches by the bank in its exercise, or its purported exercise, of its power of sale pursuant to the mortgage. On this application I am concerned with whether there is a serious question to be tried disclosed on the quite voluminous material and, if so, does the balance of convenience favour the grant of the injunctions sought. In my opinion the applicants fail in respect of both aspects of that approach.

Involved in the first aspect are two questions: first, that concerning whether the original proceedings have been discontinued and, secondly, whether, in any event, they have been compromised or, putting it another way, whether there is a rerious question to be tried as to whether the applicants may proceed to litigate its claims that any suggested compromise of the original proceeds was invalid or ineffective for any one of a number of advanced reasons.

On the question of discontinuance, the respondents claim

that the principal pleadings have been properly discontinued. On

3 April 1989 a notice of change of solicitors was filed,

indicating that Messrs. Chambers McNab Tully and Wilson had been appointed as solicitors for the applicants in place of Messrs. Bell Fradgley smith and Bowman, solicitors, from the Gold Coast, who had been the solicitors for the applicants in the principal

proceedings. I

On 6 April a document labelled Notice of Discontinuance was presented to the Registrar or Registry for filing. Notwithstanding a stamp which appears on that document, (which is now part of Exhibit 1 on this motion), the document was not received by the Registrar for filing. A letter dated 6 April from the Deputy Registrar to me indicates what occurred in relation to it. The letter speaks for itself. It says:-

"1 forward herewith a Notice of Discontinuance purported to have been filed by Messrs. Feez Ruthning on 6 April ' 8 9 . Pursuant to the provisions of 0. 46, r. 7, I seek a direction before accepting same for filing upon the basis that it on its face purports to be signed by a firm of solicitors no longer on the record as solicitors for the applicant. Your Honour may vish to sort the efficacy of this document out with counsel tomorrow."

The document is undated, but the body of it provides:-

"The first, second and third applicants by consent

discontinue the proceedings against the first,

second, fourth, fifth, and sixth respondents."

Then there appears the name Bell Fradgley Smith and Bowman, as	solicitors for the first, second and third applicants.
Underneath this appears:-

"The first, second, fourth, fifth and six respondents hereby consent for the first, second and third applicants discontinuing the proceedings against the first, second, fourth, fifth and sixth respondents."

And it is signed by Hessrs. Feee Ruthning as solicitors for the

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respondents. The circumstance involving the third respondent, Hr. Anthony Kootsookis, is that he has, since the institution of I

the proceedings, died. The provinance of this document is to be found in clause 3.2 of a document referred to as a work-out agreement, to which some detailed reference must later be given.

But on the question of discontinuance, first of all,

0. 45 r. 3 deals with a change of solicitors and r. 8 of that

order deals with the effect of change. In my opinion, by 0 . 45

r. 8, a change of solicitor is effective, so far as the court is

concerned, on the filing of that notice.

This makes the Registrar's referral to me of the document presented for filing on 6 April not only prudent, but right. That rule, however, also provides that the change is effective vie a vis the respondents only on service. The

material, which I ought refer to in some more detail, indicates that that service was effected only after the document had been presented in the registry.

Hr. Ian Arendt, a solicitor acting for the applicants, deposes to the circumstances concerning this notice of	discontinuance in some detail in his affidavit filed on 11 April.
Hr. Katsikalis, also, in an affidavit filed on 11 April speaks of his inquiries in relation to any discontinuance, or notice of discontinuance that may have come into existence either with the former firm acting for him or since he discontinued his instructions to that firm.
On the other hand, Hr. Lionel Hogg, t e solicitor in the employ of Fees Ruthning, having the conduct of the matter on 2
behalf of Deutsche Bank AG, deposes in an affidavit filed in court on 7 April, particularly in paragraphs 8, 22 and 23, as to what he says were the factual circumstances relating to the notice of discontinuance.
Now the fact of the matter is that the notice of dircontinuance, while it was presented for filing, was not filed, and 80, technically, there has not been a discontinuance of the proceedings. However, regard also has to be had in addition to
0. 45 rr. 3 and 8 to 0. 22, r. 2, and 0. 11 rr. 10, 15 and 22.
Without going into that in any detail, in my view, the pleadings have not closed. It cannot be said that a reply is not called for by the rules or, in any event, that it would be contrary to the rules for a reply to be filed, and certainly the time for filing has not expired because the defence to the cross-claim was filed only on 3 April 1989.
It seems to me, however, that that matter, which I rubridiary to the more important question of whether there has, resolve by saying that there has been no discontinuance, is
in truth, been a compromise of the principal proceedings. ~t is in respect of that important matter that I have reached the view that there is no serious question to be tried as to those matters to the principal proceedings having been compromised.
This depends in a large measure on the validity and efficacy of the workout agreement, which is aniagreement made on

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11 September 1987. The entirety of that document is important but I will refer in some more detail to parts of it. It was an agreement to compromise a number of proceedings: in particular, proceedings No.G 192 of 1986, the present proceedings with which I am concerned.

It is an agreement which was worked out with independent and able legal advice on both sides and it was intended by both parties, as Rr. Katsikalis himself acknowledges, to be an agreement made in good faith and to be binding on all parties. Of the more important provisions, clause 3.1 provides:-

"Upon execution of these presents and until default hereunder by a party hereto, none of the bank, the Borrower, or the Guarantors, nor the Corporate Guarantor shall take any further step in the prosecution of any of the proceedings (except in order to preclude the proceedings being struck out for want of prosecution)."

And then clause 3.2 provides:-

"Upon registration of the transfers of each of the outside securities in favour of the bank free from encumbrance, each of the parties hereto shall file	a notice of discontinuance in each of the	proceedings, with each party to the same to bear
its own costs in the action and the notices of discontinuance delivered in accordance with clause 7.3 shall in the interim be held in escrow by the bank's and the borrower's respective solicitors."

That is the explanation for the curious existence of the notice of discontinuance in the light of the change of solicitors and the factual circumstances in early April. The registration of the transfers, which is referred to in clause 3.2, occurred towards the end of 1987 and it is a fact that nothing was done in relation to the requirements of that clause subsequent to that time.

It is important to note that the only condition in respect of the notice of discontinuance is the registration of the transfers of each of the outside securities. AS I earlier indicated, in my view, the principal proceedings have been effectively compromised by this agreement. It is implicit in that that I respectfully have to say that I do not share the view of Mr. Justice Thomas as to the arguable effect of the Money Lenders Act on the validity of this agreement, and I will turn to that shortly.

Apart from clauses 3.1 and 3.2, the whole of clause 8 is important. Apart from acknowledging that the sums defined in the securities as at a certain date are due and owing and acknowledging that each of the securities are valid in subsisting obligations enforceable on their terms and that the fault has occurred and that the securities are valid and subsisting, the clause continues:-

"...and in consideration of those acknowledgements

the bank convenants and agrees that it shall not, at any time after the registration of the transfers of the outside securities in the name of the bank free of all encumbrances, bring or prosecute any action or legal proceedings on the personal covenants contained in the securities against the borrower, guarantors, or corporate guarantor for the payment of any of the original loan and/or the further advance, and/or the debts secured by the outside securities now or at any time hereafter due and/or payable to the bank."

The clause also later recites:-	l
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"The bank and the guarantors and the corporate guarantor and each of them separately hereby warrant to the others that they have taken independent legal advice on the effect and consequences of this argument and agree that the same shall be irrevocable."

Clause 9.1 is a matter of contention. It requires the bank, on the registration of the transfer of the outside securities, to procure the receivers and managers of the leased property to grant a lease in favour of Avongate Proprietary Limited. It was said that this had not occurred and in some way that breach constituted a repudiation of the workout agreement.

Any complaint that the applicants may have about any lease to Avongate, which I understand is the subject of proceedings in the Supreme Court, in my view does not affect the validity of the compromise. It may, of course, give rise to a claim for damages. The reason that I reach a different view from Mr. Justice Thomas essentially is that, in my opinion, this agreement is genuinely a compromise.

Not only is it an agreement in respect of the original loan but it deals, amongst other things, with a release of all the personal covenants in respect of the securities and, further, it has a significant content relating to the further advance, which, on any view, is at least $560,000 and, on one view, was $1,000.000. In respect of that further advance, it seems to me that it cannot properly be said that this is simply a document which deals with the original loan and is also a loan under the

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Money Lenders Act.

I have considered the judgment of the Privy Council in Kok Hoong v. Leong chong Kweng Mines Limited I19641 A.C. 993, the decision of the Court of Appeal in Binder v. Alachouzos [l9721 2

9.8. 151, and all of the speeches in the Court of Appeal and the

New Zealand Court of Appeal case on which the respondents also relied.

I will deal with my view as to the effect of the Money Lenders Act as I deal with the question of balance of convenience. Even if there was a serious question to be tried as to the validity and efficacy of the workout agreement in relation to the principal proceedings, in my view on the material here, the balance of convenience is in favour of the respondents, and very strongly so.

It seems to me that the length of time, and the
diversity of the litigation, is extremely important. These

proceedings commenced in 1986. The workout agreement, the

present motion can succeed - was a live question as from validity of which has to be in serious question before this September 1987.

This motion was filed only on 6 April this year. The

litigation seems to me to be pursued on a piecemeal basis with the object of delaying for as long as might possibly be achieved the powers of the respondents pursuant to the workout agreement. The unreality of the proposal in paragraph 103 of the affidavit

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of Mr. Katsikalis simply compounds my view of~where the balance

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of convenience lies.

I do not want to go into any great detail, but I have had regard to the worth of the undertakings and the capacity as to any ultimate findings to damages in any principal proceedings in the light of what the Pull Court of the Federal Court, of which I was a member, said in Eltran Pty. Ltd. v. Westpac Bankinq Corporation (unreported decision, 15 November 1988). The considerations that applied there are quite different from those which apply here and it seems to me that those matters are

factors - by no means the most important - which also are in the

respondents' favour.

There can be no doubt that third party interests are very much involved and it seems to me that it is not right to say that one ought not to have regard to those matters on the basis that they had notice of the present matters between the applicants and the respondents here.

But I have to say that the primary reason why I think, even if there were a serious question to be tried, the balance of	convenience is against the grant of the injunction, is the
judgment of Mr. Justice Thomas. I do not want to detail the litigation but, late last year, there were applications before Mr. Justice Shepherdson to remove caveats. They were successful; an appeal has been lodged to the Pull Court.

On 6 January, an application was made before Mr. Justice

Thomas, and I will go to that in some detail. Since that judgment, there have been applications made to Mr. Justice Carter, to Mr. Justice Cooper on two occasions and, I have just been told this morning, to Mr. Justice Moynihan, all of which have been unsuccessful. However, the primary matter of concern to me is the application made to Mr. Justice Thomas and the disposition of that application.

At page 2 of his reasons for judgment, his Honour said:-

"The applications before me are by Katsikalis for a stay of an order made by Shepherdson J. on 12 December 1988 removing Katsikalisl caveat on these properties and for further orders which would permit Katsikalis to litigate against the bank on the issue of invalidity of the mortgages (and the com~romise) on the nrounds that they were all void under the noney ~enaers Act by reasbn of the fact that the bank was in the business of money lending, but it was not a registered moneylender at any material time. The application also seeks an injunction restraining the bank from exercising its power of sale.

It should be noted that the alleged invalidity of the mortgages under the Money e enders Act had- been in issue in the earlier ntigation which had been - compromised."

Be says later:-

"If the Money Lenders Act point is available at

this stage to be raised by Katsikalis, the bank concedes that it can raise no claim to have been registered at the material time, and it does not suggest that there is no case to be met that the bank vas in the business of money lending. If those matters were raised and established in litigation between the parties, the securities vould be void, ... subject only to the power of the court upon application of the lender to declare the loan valid in vhole or in part under

section 4 C ( 3 ) of the Act."

His Honour noted also that Mr. natsikalis himself

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describes the workout agreement as having been entered into in good faith and with a view to resolving the court actions. He refers to Kok Hoong and Binder v. Alachouzos, and says of the observations by Lord Justice Roskill at p. 160 of Binder's Case, as to the effect of a compromise, that:-

"This view has much to commend it, but I do not
think it is a complete answer to Katsikalisrs
claim in the present case. No fresh mortgages

were entered into."

Re later said:-

"I therefore do not regard Binder's Case as making

Katsikalisr claims untenable."

He then expressed his state of mind:-

"In this intermediate situation I think the correct conclusion is that there is an issue fit for determination by a court whether the relevant securities are prima facie void under the none

Lenders Act, and that there may be a comp -I?! ex

question of fact to be determined in order to say whether Katsikalis is estopped from raising this point against the bank.

With some hesitation then I conclude that

Katsikalis has an arguable case of statutory	invalidity, and an arguable response to the
suggestion that it is estopped from raising it."

And at p. 8, he said:-

"I do not think that Katsikalis should be permitted to embark upon this further ambitious chapter of litigation without securing at least that amount. Indeed, there are grounds for thinking that such claims ought not to be permitted to be advanced without securing the additional million dollars which Katsikalis obtaind on the footing that the Honey Lenders Act was no longer in issue. Having

regard to this, as well as the fact that it is only by the securing of a very substantial sud by Katsikalis that the balance of convenience can be tilted his way, I think that the only condition upon vhich Katsikalis should be permitted to obtain a stay of the order setting aside the caveat (pending appeal), or upon which the bank should be enjoined from pursuing its remedy of sale, or upon which Katsikalis ought to be permitted to litigate these further issues is the payment into court by Kalsikalis of $1,000,000 to abide the further order of the court."

And his order of 6 January required that payment in to be within seven days. That was not done. The position therefore is that the relief sought here has been sought in the Supreme Court, has been granted only on terms, and the terms have not been complied with.

The effect of Regulation 11, which is said to have had some effect in not permitting any variation of those terms, seems to me to be of minor importance in this regard. The fact of the matter is that precisely the relief claimed here was sought before Mr. Justice Thomas. Contrary to what I would have viewed to be the resolution of the question of whether there were any "legs" in the argument as to statutory invalidity of the workout

agreement, he, with some hesitation, found that there was a	serious question to be tried, but the balance of convenience
favoured the grant only on terms of payment of a million dollars within seven days.
That this was the conclusion and that it has not been complied with, I regard as very important in the course that I ought to adopt.

It would be destructive of the orderly and just administration of justice if the history and effect of the body of litigation in the Supreme Court could effectively be side-stepped by a belated and last gasp application in the Federal Court for relief which had previously been given but on terms by the Supreme Court. For those reasons, I refuse the

motion. Do you want to say anything about costs?

In the circumstance, I propose to grant you your costs but on an ordinary party and party basis.

I cert~fy rlisc ribis ar~d the 14 preceding

pages are a true copy of the reasons for

judgment herein of Mf JuSha s h w ,

6. QYY Associate

Dated ' O 9 l y P q ,