Kleentex (Thailand) Co Ltd v Corporate IM Pty Ltd - [2012] SASC 71

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
KLEENTEX (THAILAND) CO LTD & ORS v CORPORATE IM PTY LTD & ORS
[2012] SASC 71
Judgment of The Honourable Justice White
2 May 2012
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - SUMMARY JUDGMENT
CORPORATIONS - RECEIVERS, CONTROLLERS AND MANAGERS - APPOINTMENT - BY CREDITOR
The chargee of a fixed and floating charge seeks by way of summary judgment a declaration that its interest in the charged property is superior to that of the defendants and an injunction restraining the defendants from interfering with the exercise by its appointed receiver of his functions.
Whether the appointment of the receiver was invalid - whether an event of default had occurred justifying the receiver's appointment - whether the failure to give notice of a default invalidated the appointment - whether the charge had an ulterior purpose which invalidated the appointment - whether permission should be granted for the defendants to bring proceedings in the name of the second plaintiff.
Held: granting summary judgment, the appointment of the receiver was not invalid; leave should not be granted for the defendants to bring proceedings in the name of the second plaintiff as such a course of action is not in the second plaintiff's best interests.
Corporations Act 2001 (Cth) s 236, s 237; Supreme Court Act 1935 (SA) s 23; Supreme Court Civil Rules 2006 (SA) r 232, r 35, r 36, r, 37, referred to.
Downsview Nominees Ltd v First City Corporation Ltd (1933) AC 295, discussed.
Spencer v The Commonwealth (2010) 241 CLR 118; Ceneavenue Pty Ltd v Martin (2008) 106 SASR 1; Estate of the Late Sir Donald Bradman v Allens Arthur Robinson (2010) 107 SASR 1; Davies v Minister for Urban Development and Planning (2011) 109 SASR 518; Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87; McMahon v State Bank of New South Wales (1990) 8 ACLC 315; National Australia Bank Ltd v Troiani (2002) QCA 196; Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359; Concut Pty Ltd v Worrell (2000) 75 ALJR 312; Allen v Flood (1898) AC 1; Shamji v Johnson Matthey Bankers Ltd [1986] BCLC 278; Williams v Spautz (1992) 174 CLR 509; Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; Canyon (Aust) Pty Ltd v Aktieselskabet Dampskibsselskabet Svendborg (2004) 232 LSJS 206, considered.

KLEENTEX (THAILAND) CO LTD & ORS v CORPORATE IM PTY LTD & ORS
[2012] SASC 71
Civil

WHITE J. This decision concerns disputes which have arisen following the appointment of a receiver.
The second plaintiff, Image Mats Pty Ltd, is a distributor of goods. It occupies premises at Melrose Park and Wingfield.
Image Mats obtains supplies from the first plaintiff, Kleen-Tex (Thailand) Co Ltd, and has done so since 2005. In the period between 2005 and 2009, Image Mats built up a large indebtedness to Kleen-Tex. With effect from 31 August 2009, the indebtedness in its trading account was made the subject of a formal loan agreement (the Loan Agreement), which provided for the loan to be repaid wholly over a three year period.
Kleen-Tex and Image Mats took other steps in 2009 to formalise their relationship. First, on 12 June 2009, they entered into a Consignment Agreement under which Kleen-Tex supplied some goods to Image Mats on a consignment basis. The Consignment Agreement provided for the consigned goods to be sold to Endeavour Industries Pty Ltd and required Image Mats to make payment for them within one business day of receipt of payment by Endeavour.
Secondly, on 19 October 2009, Image Mats granted to Kleen-Tex a fixed and floating charge over its assets (the Charge) and that Charge was then registered with ASIC.
Thirdly, on 6 November 2009, Kleen-Tex, Image Mats and Image Mats’ sole director (Mr Kelly) entered into a written supply and distribution agreement (the Distribution Agreement). The term of the Distribution Agreement is five years. During all but the first year, Image Mats has the exclusive right to sell Kleen‑Tex’s products in Australia and New Zealand. By cl 6.1 of the Distribution Agreement, the title to the products passes to Image Mats only when it pays the full invoice price to Kleen‑Tex, and by cl 6.2, Image Mats is required to pay for the products within 45 days from the date of their receipt.
Originally, the sole shareholder of Image Mats was Mr Kelly and, as indicated, he was its sole director. However, in mid 2009, the second and third defendants, Mr Ursini and Mr Ly, provided significant capital to Image Mats. Various arrangements were made at the same time to give effect to their participation. First, the first defendant, Corporate IM Pty Ltd (CIM), was established and on 21 September 2009 each of Messrs Ursini, Ly and Kelly were appointed as its directors. Secondly, on 12 November 2009, Mr Kelly transferred his shareholding in Image Mats to CIM, and a shareholders’ deed reflecting the interests of trusts associated with Mr Ursini (40 per cent), Mr Ly (40 per cent) and Mr Kelly (20 per cent) was executed. Thirdly, Image Mats and Kelly entered into a formal management agreement on 12 November 2009.
Kleen-Tex asserts that Image Mats did not comply with the terms of trade contained in cl 6.2 of the Distribution Agreement with the effect that its trading liability to Kleen-Tex gradually increased. By 31 December 2011, the total liability of Image Mats on its trading account with Kleen-Tex was said to be US$404,800. The outstanding balance under the Loan Agreement at the same date was US$73,238, Image Mats having made repayments by instalments on the amount which it owed in July 2009.
On 24 January 2012, Kleen-Tex, in the exercise of its powers under cl 12.1 of the Charge, appointed the third plaintiff, Mr Jorgensen, as a receiver and manager of Image Mats. That appointment was made without any notice to Image Mats or to any of the persons and entities associated with it.
The matters which I have recounted above are common ground or, as I understood it, non-controversial. It is the defendants’ response to the appointment of Mr Jorgensen as receiver and manager which has given rise to the present litigation. They took a number of steps by way of resistance to, or interference with, the discharge by Mr Jorgensen of his functions in the period between 24 January and 13 February 2012.
On 3 February 2012, Kleen-Tex, Image Mats and Mr Jorgensen commenced the present proceedings. On 6 February, a Master made a number of orders. First, the defendants were required to deliver up to Mr Jorgensen possession of Image Mats’ premises at Melrose Park. Secondly, they were required to deliver to Mr Jorgensen possession of all of the assets of Image Mats within their possession, custody or power, including the assets which the defendants said had been sold by Image Mats to CIM by way of a business sale agreement made on 24 May 2011 (the BSA). The Master also enjoined the defendants until further order from interfering with the exercise by Mr Jorgensen of his powers as receiver and manager of Image Mats.
On 13 February, the Master made further orders which, in effect, restrained the defendants until further order from interfering with the exercise of Mr Jorgensen’s functions as receiver and manager with respect to the premises at both Melrose Park and Wingfield, and from conduct in relation to the assets of Image Mats, except insofar as the conduct involved dealing by the defendants with Mr Jorgensen in respect of the disposal by him as a receiver and manager of Image Mats’ assets.
By their statement of claim, the plaintiffs seek the following relief:
1.A declaration that in respect of the present and future right, title, and interest in all other assets and undertakings of Image Mats Pty Ltd (collectively “the Assets”):
1.1    the Assets are subject to the Charge; and
1.2    any interests of the defendants in the Assets are subject to the interests of Kleen-Tex Thailand under the Charge.
2.For such time as the Third Plaintiff continues to hold office as the Receiver of the Second Plaintiff, the First Defendant (together with its directors, officers and servants) the Second Defendant and Third Defendant be restrained and an injunction [be] granted against them, from taking any steps to:
2.1    exclude, prevent, restrict, hinder or impede the Third Plaintiff from exercising his powers as the Receiver and Manager of Image Mats Pty Ltd pursuant to the Charge Number 1868586 in the proper discharge of the Receiver and Manager’s function of gathering in the Assets so as to pay out the First [Plaintiff] including:
2.1.1occupying the business or warehouse premises of the Second [Plaintiff] at Melrose Park or Wingfield respectively (the Premises);
2.1.2impeding the Third Plaintiff from taking steps to enforce the security under the Charge;
2.1.3[replacing, removing, selling, disposing of], or in any way [dealing] with present and future assets of Image Mats Pty Ltd except insofar as any such dealing relates to any dealing with the Third Plaintiff in respect of the disposal by him as Receiver and Manager of the assets of the Second Plaintiff; or
2.1.4[modifying, changing or altering] the fittings and fixtures within and upon the premises.
3.That the Defendants pay the plaintiffs’ costs of the proceedings.
At the hearing the plaintiffs confined their claim to a declaration to that which was sought in par [1.2]. In essence, the plaintiffs seek a declaration that the interest of Kleen‑Tex in the assets of Image Mats is superior to that of the defendants and an injunction restraining the defendants from interfering with the exercise by Kleen‑Tex of its rights with respect to those assets.
By their defence, the defendants deny the plaintiff’s entitlement to this relief.
This decision concerns two interlocutory applications: one by the plaintiffs and one by the defendants. The defendants wish to bring proceedings in the name of Image Mats challenging the validity of Mr Jorgensen’s appointment as receiver and manager and seeking relief in a variety of forms against Mr Kelly and Kleen-Tex. They seek the leave of this Court under s 237 of the Corporations Act 2001 (Cth) to do so.
By their application filed on 27 February 2012, the plaintiffs seek summary judgment in respect of the relief sought by them in their statement of claim.
There is some degree of overlap between the respective applications. This makes it inappropriate to determine the plaintiffs’ summary judgment application without considering, at least in part, the defendants’ application.
Summary Judgment Applications - Principles
By r 232 of the Supreme Court Civil Rules 2006, the Court may give summary judgment. If the applicant for the summary judgment is a plaintiff, the Court may grant summary judgment only if satisfied that the defendant has no reasonable basis for defending the plaintiff’s claim.
Rule 232 and analogous provisions have received considerable judicial attention in recent years. See, for example, Spencer v The Commonwealth;[1] Ceneavenue Pty Ltd v Martin;[2] Estate of the Late Sir Donald Bradman v Allens Arthur Robinson;[3] and Davies v Minister for Urban Development and Planning.[4] It may be thought that the Full Court of this Court settled the applicable principles in relation to r 232 in Ceneavenue, but as Bleby J noted in Davies,[5] the observations of Debelle J in Ceneavenue may not be consistent with the reasons of the plurality in the later High Court decision of Spencer. Rather than engage in a detailed review of the authorities, I consider it sufficient for present purposes to proceed in accordance with the following principles:
1.Summary judgment on a plaintiff’s application may be given if, and only if, the Court is positively satisfied that there is “no reasonable basis for defending the [plaintiff’s] claim”.[6]
2.The expression “no real basis for defending the [plaintiff’s] claim” requires that there be disclosed in the material before the Court a basis for defence which is more than fanciful.[7] That basis may relate to the underlying merits of the entitlement asserted by the plaintiff and involve issues of fact or of law or of combined fact and law. Alternatively, the basis may relate to the form of relief sought by the plaintiff in relation to a claim which is otherwise meritorious. As Debelle J observed in Ceneavenue, “the word ‘real’ is intended to distinguish a bona fide defence from one that is fanciful or spurious or an abuse of process seeking to delay and defeat the plaintiff’s just claim”.[8]
3.The Court is not required to be satisfied that the defence proffered by the defendant is “hopeless” or “bound to fail”.[9] However, if the defence is characterised in that way, the r 232(2)(a) criterion will be satisfied.
4.On the other hand, provided that there are relevant factual or legal issues in dispute, the Court’s opinion that a defence is unlikely to succeed is not sufficient for a grant of summary judgment on a plaintiff’s claim. A plaintiff’s entitlement to summary judgment does not turn simply on the Court’s prediction as to the likely ultimate outcome.
5.The power to enter summary judgment under r 232 should be exercised with caution.[10] In particular, if the determination of whether a defendant has a reasonable basis for defending a claim requires consideration of apparently complex questions of fact or of law and fact, considerable caution is required.[11]
6.The onus of establishing that summary judgment should be granted lies on a plaintiff,[12] but in considering whether the onus has been discharged, the Court will of course have regard to the cogency of any defence raised by the defendant.[13]
[1] [2010] HCA 28; (2010) 241 CLR 118.
[2] [2008] SASC 158; (2008) 106 SASR 1.
[3] [2010] SASC 71; (2010) 107 SASR 1.
[4] [2011] SASC 87; (2011) 109 SASR 518.
[5] Ibid at [43]; 532.
[6]    Supreme Court Civil Rules 2006, r 232(2)(a).
[7]    Spencer v The Commonwealth [2010] HCA 28 at [25]; (2010) 241 CLR 118 at 132.
[8]    Ceneavenue Pty Ltd v Martin [2008] SASC 158 at [78]; (2008) 106 SASR 1 at 20.
[9]    Spencer at [17], [52]-[53], [56].
[10] Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99; Spencer at [24], [60].
[11] Spencer at [26].
[12] Ceneavenue at [78].
[13] Ibid.
The Plaintiffs’ Claim for Summary Judgment
The basis upon which the present plaintiffs seek summary judgment as pleaded in their statement of claim is relatively straightforward and can be summarised as follows.
By cl 2 of the Charge, Image Mats charged to Kleen-Tex all the “Charged Property” to secure payment of the “Secured Money”. The charged property is defined in cl 1.1 to include “the present and future right title and interest in all assets and undertakings of the Chargor”. The secured money is also defined in cl 1.1 to include all monies owed by Image Mats in any capacity to Kleen‑Tex.
The Charge is a fixed and floating charge: fixed in relation to certain types of assets (cl 3.2(a)), and floating on the rest of the charged property (cl 3.2(b)).
The Charge restricts Image Mats’ ability to deal with the charged property. Clause 3.3 provides (relevantly):
The Chargor shall not, without the prior written consent of the Chargee:
(a) dispose of, deal with or part with possession of any interest in the Charged Property over which the Charge created by this deed is fixed;
(b) dispose of, deal with or part with possession of any interest in the Charged Property over which the Charge created by this deed is floating except in the ordinary course of its ordinary business; or
…
The Charge provides for the crystallisation of the floating charge:
[3.4]The Floating Charge referred to in cl 3.2(b) shall automatically and immediately crystallise and operate as a fixed Charge:
(a)upon notice to the Chargor from the Chargee in relation to the Charged Property specified in the notice; or
(b)without the necessity for any act of or notice by the Chargee:
(i)in respect of all the Charged Property, upon the occurrence of an Event of Default or a Potential Event of Default;
…
The plaintiffs plead that the entry by Image Mats and CIM into the BSA on of 24 May 2011 was without the prior written consent of Kleen-Tex and therefore a breach of cl 3.3(a) of the Charge and an “Event of Default” as defined in cl 12.2(b) of the Charge. By par [13] the plaintiffs also plead that, by a document entitled “Deed of Assignment of Lease” dated 27 January 2012, Image Mats purported to assign the lease of the Melrose Park premises to CIM. That purported assignment was also a breach of the Charge because Kleen‑Tex had not provided its consent, as required by cl 3.3.
The plaintiffs contend that these circumstances justified the appointment of a receiver and manager to Image Mats (cl 12.1(e)).
The plaintiffs then rely on the evidence indicating interference by the defendants in the exercise of the Receiver’s functions with respect to the assets of Image Mats. The affidavits of the plaintiffs reveal the following:
1.Following the Receiver’s appointment on 24 January 2012, he arranged for his staff to attend at the Melrose Park premises of Image Mats and to commence exercising his functions. Within about three and a half hours, the third defendant Mr Ly arrived at the premises and asserted that the Receiver’s staff were trespassing.
2.On the following day the Receiver received a letter from Fox Tucker Lawyers asserting that that firm had been instructed to act on behalf of Image Mats, CIM, Mr Ly and Mr Ursini; that CIM had purchased the business of Image Mats including all the business assets by way of the BSA of 24 May 2011; that the lease of the Melrose Park premises was assigned to CIM on 24 May 2011 and that accordingly the Receiver was trespassing on the premises.
3.The letter from Fox Tucker Laywers demanded undertakings from the Receiver that for a period of seven days he immediately cease and refrain (in effect) from the discharge of his functions as Receiver and, additionally, put him on notice that if any of the stock was sold without the defendants’ consent he may be liable for conversion.
4.At about 3.30 pm on 25 January 2012 Mr Ursini attended at the Melrose Park premises and asserted that the Receiver’s staff were trespassing. When the staff refused to leave the premises, the police were called. Mr Ursini did not leave the premises until requested to do so by the police.
5.Thereafter correspondence was exchanged between the respective solicitors for the plaintiffs and the defendants, in which the defendants maintained the position that the Receiver was trespassing.
6.On 2 February 2012 the Receiver’s staff found that they could not obtain access to the Melrose Park premises as the locks had been changed. In addition, a sign had been placed on the premises warning that the premises had been leased by CIM and that anyone entering into the premises would be trespassing.
7.By email dated 2 February 2012, Fox Tucker Lawyers repeated the assertion that the defendants were not trespassing and that they had exclusive possession of the premises with the consent of the Landlord.
As noted earlier, a Master from this Court issued an interim injunction on 6 February 2012. The defendants were represented by their solicitor at the hearing. Amongst other things, that solicitor asserted that CIM was in possession of the Melrose Park premises under a new lease entered into by CIM; that Mr Jorgensen had no right of access to the premises; and that CIM was continuing “to trade the business of Image Mats”.

Each of Mr Ly and Mr Ursini made affidavits on 8 February 2012. In his affidavit, Mr Ly says that he and Mr Ursini “started to consider collecting all current and outstanding debtors on 2 February 2012” and that this was “after we had reoccupied the premises again” (at [25]). In par [33] Mr Ly deposed to having taken a locksmith to the Melrose Park premises on 1 February 2012, re-entering the premises, and posting notices on the window. Both Mr Ly and Mr Ursini deposed to entering into the BSA on 24 May 2011. In his affidavit, Mr Ursini confirmed that on Wednesday, 25 January 2012, he had attempted to have the Receiver leave the Melrose Park premises as he believed that the Receiver’s appointment was invalid. He also considered that the premises were at that stage leased by CIM. Both Mr Ly and Mr Ursini raised issues as to the validity of the Receiver’s appointment.
Things took a different turn on 13 February 2012. At the commencement of the hearing of the plaintiffs’ application for an interlocutory injunction, senior counsel for the defendants informed the Court that the defendants disclaimed any entitlement to occupy the premises at Melrose Park; disclaimed any entitlement to any lease to the premises at Melrose Park or at Wingfield; disclaimed any entitlement to any of the assets of Image Mats wherever they were situated (subject to the claims they could make as unsecured creditors), and accepted that they were unsecured creditors only. These disclaimers have been repeated in the filed defence (at [22]) and in the defendants’ written submissions (at [52]).
In these circumstances, the plaintiffs rely upon Kleen-Tex’s entitlement to appoint a receiver; the appointment itself; the interference before 13 February by the defendants with the exercise by the Receiver of his functions; and the defendants’ now disclaimer of any interest in the assets of Image Mats.
The plaintiffs have also adduced evidence of breaches by Image Mats of its terms of trade under both the Consignment Agreement and the Distribution Agreement. However, the pleaded case in respect of which they seek summary judgment turns on Image Mats’ breaches of the Charge by the entry into the BSA on 24 May 2011 and the purported assignment of the lease of the same date.
The Defendants’ Case
Other than with respect to the indebtedness of Image Mats to Kleen‑Tex, I do not understand the defendants to dispute the circumstances outlined above. Their defence is that Kleen-Tex’s appointment of Mr Jorgensen as Receiver on 24 January 2012 was “incompetent” with the effect that this Court should not have issued the interim or interlocutory injunctions and that the plaintiffs should not be granted the relief which they now seek.
The defendants challenge the “competence” of Kleen-Tex’s appointment of a receiver on three distinct grounds: first, that as at 24 January 2012, Image Mats was not in breach of the Charge; secondly, that Kleen-Tex had not given prior notice of its intention to make the appointment; and, thirdly, that in making the appointment, Kleen-Tex had an ulterior purpose, namely, providing an opportunity in which it could take the business of Image Mats for itself.
There is a question as to whether these matters are capable of giving rise to a “reasonable basis” for a defence. That is because of the defendants’ standing to raise these matters and because of the confined nature of the relief sought by the plaintiffs. However, for the time being I will put that question to one side and address the contentions of the defendants in turn.
Was there an Event of Default?
Clause 12.2 of the Charge contains a list of matters which constitute an event of default. The first two such matters are relevant for present purposes:
(a)… the Chargor defaults in making payment of the due date of all or any part of the Secured Money;
(b)… the Chargor defaults other than by non‑payment of the Secured Monies in the due and punctual performance or observance of any agreement, covenance, obligation, liability contained in this deed of charge.
It is plain that Image Mats’ entry into the BSA on 24 May 2011 and its purported assignment of the lease to the Melrose Park premises to CIM on the same date constituted a breach of cl 3.3(a) and (b) of the Charge and were therefore events of default as defined in cl 12.2(b).
Counsel for the defendants did not make any submission to the contrary. His submissions were directed instead to the issue of whether Image Mats was in breach of the terms of payment under either the Consignment Agreement or the Distribution Agreement. Counsel focussed on this matter because Kleen‑Tex had relied upon payment defaults of Image Mats in its notice of appointment of Mr Jorgensen as Receiver. By par [13] of that notice, Kleen‑Tex indicated that it was relying upon cl 12.2(a) of the Charge, ie, a default in payment of the secured monies. It did not refer at all in the notice to an event of default under cl 12.2(b), or to the BSA or to the purported assignment of a lease. Kleen‑Tex asserts that it only became aware of those matters after the appointment of the Receiver following the assertions of the defendants that the Receiver was trespassing in the Melrose Park premises and would be liable to conversion if he disposed of any of the assets of Image Mats.
There is evidence suggesting that Image Mats was in breach of the terms of trade under the Distribution Agreement. However, it is not necessary to make findings about that. That is because Kleen‑Tex is entitled to rely for the validity of its appointment of a receiver on an event of default which it ascertained only after the appointment had been made: McMahon v State Bank of New South Wales;[14] National Australia Bank Ltd v Troiani.[15] This is an illustration of the broader principle that the exercise of a right granted by contract may be justified by objective facts existing at the time of the exercise even though the party was then unaware of them.[16]
[14] (1990) 8 ACLC 315.
[15] [2002] QCA 196.
[16] Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 377-8; Concut Pty Ltd v Worrell [2000] HCA 64 at [29], (2000) 75 ALJR 312 at 318.
In the present case, the defendants did not dispute Image Mats’ entry into the BSA nor its purported assignment of the lease. Indeed, in the period between 24 January and 12 February 2012, the defendants purported to rely upon those same matters as the justification for their own conduct.
Accordingly, this ground of objection to summary judgment fails.
Was Notice Required?
The defendants contended that each of the Consignment Agreement, Loan Agreement, Distribution Agreement and the Charge required notice of default to be given by Kleen-Tex before it appointed a receiver. They identified particular provisions in each document which they contended required such notice.[17] As Kleen-Tex acknowledged that it had not given any such notice, they contended that the appointment of Mr Jorgensen as Receiver was “incompetent”.
[17] The defendants did not assert the existence of any implied term in any of the documents which required reasonable notice to be given.
During the course of the hearing, I invited counsel for the defendants to indicate how the documents made the provision of prior notice an essential condition for the existence of an event of default entitling Kleen-Tex to appoint a receiver, or essential to the appointment itself. Counsel declined to do so, saying only that it was “a matter for trial”.
In my opinion, examination of the various provisions to which the defendants referred does not bear out their contention that the absence of any notice by Kleen-Tex of its proposal to appoint a receiver invalidated Mr Jorgensen’s appointment.
The Charge itself does not contain any requirement for notice before the appointment of a receiver, or before an event of default arises. Clause 12.1 provides (relevantly) that if an event of default has occurred, then the Chargee may “at any time” take a number of steps, one of which is the appointment of a receiver. It does not make the appointment subject to the giving of prior notice. Clause 10.3 of the Charge does contain a requirement for reasonable notice, but that requirement relates to the Chargee’s exercise of its right of entry upon Image Mats’ premises, and not of its right of appointment of a receiver.
Clause 13.1 of the Distribution Agreement, to which the defendants referred, provides that, in specified circumstances, Kleen-Tex may terminate the Agreement at any time by giving notice in writing. Plainly, that is a requirement for notice of termination of the Distribution Agreement, and not of the appointment of a receiver.
Clauses 7.2 and 14.2 of the Loan Agreement and the Consignment Agreement respectively (to which the defendants refer in their pleading) do contain requirements for the giving of notice in relation to events of default as defined in those respective Agreements. However, they cannot reasonably be construed as imposing a requirement for notice under the Charge which is a separate document and granted by Image Mats well after its entry into the Consignment and Loan Agreements.
This ground of objection fails.
Ulterior Purpose
By par [19] of their defence, the defendants contend that Kleen‑Tex had an ulterior purpose for the appointment of the Receiver, namely, to “restructure the business of Image Mats, meaning to take over the business, with Kelly, without paying anything for it”.
The defendants then plead by way of particulars matters said to constitute and evidence the improper purpose. By par [20] of the defence, the defendants allege that, acting pursuant to the ulterior purpose, Kleen‑Tex failed to give Image Mats proper notice of the breaches or a reasonable opportunity to make good the breaches, appointed a receiver “based on a vague and unclear default or breach” and “was indifferent as to whether or not there had in fact been any default or breach of the arrangements [between it and Image Mats]”. The defendants then plead that “by reason of the matters pleaded” Mr Jorgensen was invalidly and inappropriately appointed as receiver.
The consideration of this defence on a summary judgment application involves two matters: whether the presence of an ulterior purpose could invalidate the appointment of the Receiver; and, if so, whether the evidence indicates a reasonable basis for the defence.
In general, the motive by a party for the exercise of a contractual right vested in the party is immaterial. A contractual right or remedy, once it arises, may be exercised regardless of motive: Allen v Flood.[18]
[18] (1898) AC 1 at 46.
Counsel for the appellant acknowledged that this was so but submitted that the appointment of a receiver and manager was “special” with the consequence that an “idiosyncratic” rule was applicable. Counsel referred to Downsview Nominees Ltd v First City Corporation Ltd.[19] In that case, the Privy Council held that a debenture holder who had appointed a receiver for an improper purpose and the receiver who had conducted the receivership in bad faith were both liable in damages for the losses suffered by a second debenture holder who had been prevented from enforcing its security. The trial Judge had found as a fact that the receiver had accepted the appointment, not for the purpose of enforcing the security under the debenture, but for the purpose of preventing the enforcement by a second debenture holder of its debenture. In effect, the receiver had been appointed to prevent a receiver appointed by the second debenture holder from exercising its powers, and thereby to permit the debtor to keep trading at a loss to the detriment of the second debenture holder. This was tantamount to a fraud.
[19] (1993) AC 295.
The Privy Council applied the following principle:
A mortgagee owes a general duty to subsequent encumbrancers and to the mortgagor to use his powers for the sole purpose of securing repayments of the monies owing under his mortgage and a duty to act in good faith. He also owes the specific duties which equity has imposed on him in the exercise of his powers to go into possession and his powers of sale. It may well be that a mortgagee who appoints a receiver and manager, knowing that the receiver and manager intends to exercise his powers for the purpose of frustrating the activities of the second mortgagee or for some other improper purpose or who fails to revoke the appointment of a receiver and manager when the mortgagee knows that the receiver and manager is abusing his powers, may himself be guilty of bad faith but in the present case this possibility need not be explored.[20]
[20] Ibid at 317.
The circumstances considered in Downsview Nominees were of an unusual kind. It is to be expected that the cases in which a like finding may be made will not be common. A party seeking to impugn an appointment of a receiver on this ground will have to establish, in effect, bad faith[21] or, at least, an absence of good faith.
[21] Shamji v Johnson Matthey Bankers Ltd [1986] BCLC 278 at 283.
The defendants’ pleas of ulterior purpose in its defence and in the statement of claim on the counterclaim which they wish to bring in the name of Image Mats are, for relevant purposes, identical. Neither document alleges that the Charge contained an implied duty of good faith in the exercise of the rights arising under it, let alone a breach of such a duty. Further, neither document asserts that the purposes for which Kleen-Tex made the appointment of the Receiver was not the securing of the payments to Kleen-Tex of the monies owed to it, or that that purpose was not the predominant purpose which Kleen-Tex sought to achieve. Instead, as seen, the defendants plead only that Kleen-Tex had “an” ulterior purpose for the appointment. This is not a plea that the ulterior purpose was “the” reason for the appointment, let alone that it was the “predominant” purpose for the appointment.[22]
[22] Cf Williams v Spautz (1992) 174 CLR 509 at 524.
These considerations are important. That is because the implied contractual duty of good faith does not preclude a party from acting so as to promote its own legitimate interests.[23] This being so, there is difficulty in concluding that the alleged ulterior purpose of Kleen‑Tex, at least as presently articulated, provides a real basis of defence to the plaintiffs’ claims.
[23] Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187 at [172]; (2001) 69 NSWLR 558 at 570.
The defendants face a further difficulty. The right of Kleen‑Tex to appoint a receiver arises from the Charge. That is a contract between Kleen‑Tex and Image Mats to which the defendants are not a party. It is Image Mats which may raise an allegation of breach of contract by Kleen‑Tex, and the present defendants have no standing in their own right to do so. There are circumstances in which directors and creditors may bring proceedings in the name of the company challenging the appointment of a receiver, but those circumstances are now governed by Part 2F.1A of the Corporations Act 2001 (Cth), to which I will refer shortly. For present purposes, it is sufficient to note that, absent a grant of leave by the Court, it is not open to the present defendants, as strangers to the contract between Kleen‑Tex and Image Mats, to raise some defect in the appointment of the Receiver.
The defendants face still further difficulties. The alleged ulterior purpose of Kleen‑Tex cannot, on any view, provide a basis for a defence to the declaration sought in par [1.2] of the statement of claim. The defendants’ disclaimers acknowledged as much.
I also consider that the alleged ulterior purpose does not provide a basis of defence to the injunction sought in par [2] of the statement of claim. That is an injunction in quite confined terms. The opening words of that paragraph make explicit what would, in any event, be implicit, namely, that the injunction (if granted) will operate only “for such time as Mr Jorgensen continues to hold office as the Receiver of Image Mats”. An injunction in such terms contains its own limitation as to term and does not preclude a challenge to the validity of Mr Jorgensen’s appointment. All it will require is that for so long as Mr Jorgensen’s appointment as receiver stands, the defendants are not to interfere, in any of the specified ways, with the discharge of his functions. If Mr Jorgensen’s appointment is revoked or terminated by Kleen‑Tex, or by Court order, then the injunction will have no further work to do. But in the meantime it is appropriate for Mr Jorgensen to be able to discharge his functions as receiver, and to do so without interference from the defendants. The foreshadowed challenge to the validity of his appointment does not alter that position.
I did not understand the defendants to be raising any issue about the manner of discharge by Mr Jorgensen of his functions. As indicated, their foreshadowed challenge relates only to Kleen‑Tex’s appointment of Mr Jorgensen as receiver.
The Defendants’ Application for Leave to Bring Proceedings
Part 2F.1A of the Corporations Act 2001 (Cth) now governs the circumstances in which persons may bring proceedings of behalf of a company. Section 236 identifies the persons who may bring such proceedings but requires that they must have the leave of the Court under s 237.
Section 236 provides:
(1)A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:
(a)     the person is:
(i)a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or
(ii)     an officer or former officer of the company; and
(b) the person is acting with leave granted under section 237.
(2)Proceedings brought on behalf of a company must be brought in the company’s name.
(3)The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished.
Section 237 provides:
(1)A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.
(2)     The Court must grant the application if it is satisfied that:
(a)     it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b)     the applicant is acting in good faith; and
(c)     it is in the best interests of the company that the applicant be granted leave; and
(d)     if the applicant is applying for leave to bring proceedings—there is a serious question to be tried; and
(e)     either:
(i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii)     it is appropriate to grant leave even though subparagraph (i) is not satisfied.
…
Acting under these provisions, the defendants sought a grant of leave to bring proceedings in the name of Image Mats as “a plaintiff by cross‑claim” with the intention that the defendants to the cross-claim would be Mr Kelly and Kleen‑Tex. Their proposed statement of claim indicates that relief would be sought against Mr Kelly for breach of the Management Agreement and of fiduciary duties which he owed to Image Mats. As against Kleen‑Tex, the cross-claimants propose Image Mats seeking declarations as to the invalidity of the appointment of Mr Jorgensen and orders for his removal as a receiver. The defendants also propose Image Mats seeking relief against Kleen‑Tex on the basis that it has been a participant in breaches of fiduciary and statutory duties by Mr Kelly.
At one stage, counsel for the defendants submitted that they were entitled as of right to bring proceedings themselves or in the name of Image Mats to challenge the validity of Mr Jorgensen’s appointment. Counsel submitted that the entitlement of Messrs Ursini and Ly to do so arose from their shareholding and from their directorship.

There are a number of difficulties with that submission. In the first case, neither Mr Ly nor Mr Ursini is a shareholder of Image Mats. That shareholder is Mr Kelly or, if the assignment of his share has been effective, CIM. Further, Mr Ursini is not a director of Image Mats. The position may be different in the case of Mr Ly, as he lodged a notice with ASIC on 3 February 2012 indicating that he has been appointed a director of Image Mats.
More fundamentally, counsel’s submission ignores the effect of s 236(3). As can be seen, that subsection abolishes the right of a person at general law to bring proceedings on behalf of a company. That means that the defendants can bring the proceedings in the name of Image Mats only with the leave of the Court obtained under s 237.
By s 237(2) the Court must grant the permission if satisfied of each of the five matters specified in sub‑pars (a)‑(e).
In my opinion, it is unnecessary to discuss each of those matters in any detail. It is sufficient to refer to subs (2)(c) only. That subsection requires that the Court be satisfied that it is in the best interests of Image Mats that the defendants be granted the leave which they seek.
The proceeding by way of cross‑claim which the defendants presently contemplate indicates that this criterion cannot be satisfied. That is because the defendants propose a course in which Image Mats would be both a plaintiff in the proceedings (represented by one firm of solicitors on the instructions of the Receiver), on the one hand, and a cross‑claimant (represented by another firm of solicitors on the instructions of the defendants), on the other. The defendants also propose that Image Mats will bring a cross‑action against its co‑plaintiff Kleen‑Tex.
That is a course of proceedings which is likely to be productive of confusion, awkwardness and unnecessary expense. It is, in any event, a course which is not contemplated by either the Supreme Court Act 1935 (SA) or by the Supreme Court Civil Rules 2006. None of rr 35, 36 and 37, which govern cross-actions and third party actions, contemplate a plaintiff bringing proceedings by way of cross-claim against another plaintiff and a third party. The same can be said of s 23 of the Supreme Court Act which provides the Court’s power with respect to counterclaims. Section 23 provides:
(1)The court shall have power to grant to any defendant, in respect of any equitable estate or right, or other matter of equity, and also in respect of any legal estate, right, or title claimed or asserted by him—
(a) all such relief against any plaintiff as the defendant has properly claimed by his pleading, and as the court or judge might have granted in any suit instituted for that purpose by the same defendant against the same plaintiff; and
(b) all such relief relating to or connected with the original subject of the cause or matter, and in like manner claimed against any other person, whether already a party to the same cause or matter or not, who has been duly served with notice in writing of such claim, pursuant to any rules of court, as might properly have been granted against that person if he had been made a defendant to a cause duly instituted by the same defendant for the like purpose.
(2)Every person served with any such notice shall thenceforth be deemed a party to the cause or matter with the same rights in respect of his defence against the claim, as if he had been duly sued in the ordinary way by the defendant.
It can be seen that s 23 is concerned with counterclaims by existing defendants only. It does not contemplate an existing plaintiff bringing a counter‑claim against another plaintiff. In Canyon (Aust) Pty Ltd v Aktieselskabet Dampskibsselskabet Svendborg,[24] Debelle J held that the effect of s 23(1)(a) is that a person who is not a defendant cannot be joined as a co‑plaintiff in a counter‑claim.
[24] [2004] SASC 36; (2004) 232 LSJS 206.
Accordingly, the defendants propose a course of action which is not permitted by law. In those circumstances I consider that the leave which the defendants seek should be refused. It cannot be said to be in the best interests of Image Mats for the defendants to be granted leave to bring proceedings in its name which are not permitted by law, and which would almost inevitably be struck out.
I referred earlier to the difficulties in the defendants’ proposed defence of ulterior purpose. Those difficulties also suggest that it is not in the best interests of Image Mats for the defendants to be granted leave to pursue that defence in the present proceedings. Whether or not the matters which the defendants apparently wish to agitate can be refined and re‑articulated so as to justify a grant of leave in separate proceedings is a matter which it is not necessary or appropriate to address presently.
Discretionary Matters
The defendants raise some issues going to the general exercise by the Court of the discretion to grant a declaration and to issue an injunction.
First, they pointed to the fact that the plaintiffs are presently protected by the interlocutory injunction issued by the Master on 6 February 2012 and extended on 13 February 2012. I do not regard that as a significant matter. Those injunctions were issued to hold the position until final judgment could be given. The grant of interim relief is not a reason for withholding the grant of final relief to which a party is otherwise entitled, whether that be by way of summary judgment or otherwise.
Secondly, the defendants submitted that their disclaimers of any interest in the assets of Image Mats makes both of the orders which the plaintiffs seek unnecessary. I do not accept this. At the time the plaintiffs commenced the proceedings, the defendants had actively interfered with the exercise by Mr Jorgensen of his functions as receiver of Image Mats. The plaintiffs had to come to Court to vindicate their position. The fact that the defendants now acknowledge that their position is untenable is not a reason for denying the plaintiffs the declaratory relief to which they are otherwise entitled.
Thirdly, the defendants submitted that, in the event that the Court does not grant leave under s 237 to them to bring the proposed cross‑claim in the name of Image Mats, they will seek leave to bring separate proceedings seeking, in effect, the same relief. That being so, they submitted that it would be appropriate for the Court to defer final relief in the present matter so that the two sets of proceedings may be heard at the same time.
I am not persuaded by this consideration. It is by no means certain that the defendants will seek leave to bring separate proceedings. Nor is it certain that if they do so that leave under s 237 will be granted. For the reasons given earlier, the relief sought by the plaintiffs is quite confined and, in respect of Mr Jorgensen’s activities, confined to the period during which he is the receiver of Image Mats. In that circumstance, I see no reason why the hearing and determination of the present proceedings should be tied to the hearing and determination of the foreshadowed proceedings.
Conclusion
For the reasons given above, I am satisfied that it is appropriate to grant the plaintiffs summary judgment in terms of pars [1.2] and [2] of Part 2 of the Statement of Claim. I refuse to grant leave to the defendants to bring the proposed cross‑claim in the name of Image Mats. I will hear from the parties as to the other orders necessary to give effect to these reasons.