Leitch, D.H. v Natwest Australia Bank Limited

[1992] FCA 1001

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JUDGMENT No. ........ ........ .. ..,..,.,,,,,

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IN THE FEDERAL COURT OF AUSTRALIA )	NO. PG 174 of 1991
QUEENSLAND DISTRICT REGISTRY	1
GENERAL DIVISION	)

BETWEEN:  DAVID HENRY LEITCH

First Applicant

AND :  ALMA MARGARET LEITCH

Second Applicant

AND :  GARY DAVID LEITCH

Third Applicant

AND :  GUDE PTY. LTD.

Fourth Applicant

AND :  GLEN PACIFIC PTY. LTD.

Fifth Applicant

AND:  NATWEST AUSTRALIA BANK LIMITED

First Respondent

AND :  PETER MURRAY WALKER

Second Respondent

AND :  GLANDORE PTY. LTD. (IN LIOUIDATIONL

Third Respondent

MINUTES OF ORDERS

Drummond J
18 Decembe~

Brisbane

THE COURT ORDERS THAT:

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1.	The notice of motion filed 15 December, 1992 is	I ,
dismissed.	I

1. The costs of and incidental to the application for interlocutory relief are to be the costs in the proceedings of the respondents to the notice of motion.

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

IN THE FEDERAL COURT OF AUSTRALIA )	NO. QG 174 of 1991
DUEENSIAND DISTRICT REGISTRY	1
GENERAL DIVISION	)

BETWEEN:  DAVID HENRY LEITCH

First Applicant

AND :  ALMA MARGARET LEITCH

Second Applicant

AND :  GARY DAVID LEITCH

Third Applicant

AND :  GUDE PTY. LTD.

Fourth Applicant

AND :  GLEN PACIFIC PTY. LTD.

Fifth Applicant

AND :  NATWEST AUSTWIA BANK LIMITED

First Respondent

AND :  PETER MURRAY WALKER

Second Respondent

AND :  GLANDORE PTY. LTD. (IN LIOUIDATIONL

Third Respondent

Coram:  Drummond J

Place: Brisbane

Date:  18 December, 1992

REASONS FOR JUDGMENT

This is an application for an interlocutory injunction to restrain Natwest Australia Bank Limited, the mortgagee of a grazing property known as "Oonavale" owned by Glandore Pty. Ltd., and to restrain Mr. Walker, the receiver

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of Glandore's business and property who was appointed by	I-
Natwest, from selling that property. Natwest and Walker are	1
two of the respondents in the main proceedings which were commenced by Mr. Leitch and certain others in December 1991.
It emerged that it is Natwest, in its capacity as mortgagee in possession, who is intending to proceed with the
sale by public auction of the property. The application for
the injunction is brought not by the mortgagor company, but by	I
Mrs Leitch, Gude Pty. Ltd. and Glen Pacific Pty. Ltd., three	l
of the five applicants in the action.	The motion came before

me yesterday afternoon. The sale is to take place at 11 a.m. I-,

today. There has been little time in which to consider the

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matter and the competing arguments advanced by the parties.

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Two of the three applicants on the notice of motion claim standing to seek the interlocutory injunction in	I	-.
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reliance on their being shareholders of the mortgagor company.	I
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That company is in liquidation and its liquidator, Mr.	k:	! - a
Jefferson, says that he was approached on 8 December, 1992 by

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the solicitor for these three applicants to ascertain whether,	l I
as liquidator of Glandore, he would become an applicant in the	L
proceedings on this motion. He says:

"I have declined that request on the basis that the

administration is without funds and I am not	i	1
prepared to incur any costs nor to risk exposure for any personal liability." It is submitted in reliance on a dictum of Marks J

in Farrow v Reqistrar of Buildinq Societies [l9911 2 V.R. 589 at 594, that in- view of the liquidator's understandable refusal to join in the claim for interlocutory relief, the three applicants on the motion have standing to claim that relief to prevent threatened injury to Glandore. The question of standing was argued only briefly and I have not had time to look into the issue in any detail myself. I will therefore assume that the notice of motion is properly before me.

The main basis upon which the injunction is sought is that Natwest does not, at the moment, have the right to sell "Oonavale". It was acknowledged in argument that it is not possible for the applicants to bring into Court the amount of the mortgage debt, the usual requirement when it is sought to restrain the exercise by a mortgagee of its power to realise its security. Gude and Glen Pacific are both in receivership and there is no evidence that Mrs. Leitch has any assets of her own. M r . Leitch senior, and Mr. Gary Leitch, the other applicants in the action, are not in a position to

provide the necessary funds. They are both bankrupt.

However, it is said that this rule really only applies in cases in which there is no challenge to the mortgagee having the right to sell, that is, in cases such as those in which the mortgagor disputes the amount of the mortgage debt, or attacks the mode of exercise of the power of sale. In addition to authorities of this Court, the decision in Hcnrv Roach (Petroleurnl Pty. Ltd. v Credit House (Vice\ Ptv. Ltd. 119761 V.R. 309 at 319-320, is relied on for this

proposition.

The facts on the basis of which it is now said that there is a serious question to be tried as to whether the mortgagee presently has the right to sell the property will be determined in the action which will come to trial in the New Year. They are complex. They arise out of a number of discussions Mr. Leitch says he had with officers of the mortgagee in 1989, but more relevantly in mid-1991. Essentially, the allegations of present significance which Mr. Leitch makes on oath, and which are reflected in the amended statement of claim filed in the action, are that in July 1991 he made an oral agreement with officers of Natwest the effect of which was that Natwest undertook not to enforce its mortgage for a period of 18 months, that is, until January next, in order to allow Mr. Leitch, the principal of Glandore and associated companies, to sell "Oonavale" and other assets of what can be called the Leitch group of companies, in an

orderly manner. Mr. Leitch also says that it was a term of	this agreement that Natwest would provide funds additional to
the very substantial funds advanced to the Leitch group in past years, and which still remain outstanding, to ensure that the group's operations, including the grazing and other operations on "Oonavale", could be continued and the assets of the group sold as going concerns. From the proceeds of this sale program, Mr. Leitch says that Natwest was to be repaid

the many millions of dollars owing to it. The expectation, according to him, in July 1991 was that this would be achieved by January next, that is, in the 18 month period I have referred to. Mr. Leitch goes on to assert that in August 1991 Natwest breached this agreement of July 1991 by appointing a receiver who took possession of various of the group's assets, and also by failing to provide the carry-on funding promised.

In the main action, damages are sought against Natwest and Walker for negligence, breach of contract and in respect of conduct said to be in breach,of S. 52 of the Trade Practices Act 1974 (Cth). The applicants also seek orders under S. 87 of that Act which, if granted, will relieve them of their obligations under various security agreements entered into with Natwest in respect of funding provided by it to companies in the Leitch group.

The respondent-mortgagee disputed before me the

applicants' claim that, based essentially on the evidence of

Mr. Leitch, there was a serious question to be tried as to

whether it now had the right to sell "Oonavale". The	mortgagee submitted that an analysis of Mr. Leitch's o y ~
evidence in his lengthy affidavit showed that there were significant contradictions and inconsistencies in his account and in the supporting documentation upon which he relied relating to the critical agreement said to have been made in July 1991. There is substance in this submission. It was also submitted that a tenuous or weak case that a mortgage was

not presently enforceable should not be sufficient to enable a mortgagor to escape from the usual rule that, as the price of interlocutory relief, the amount of the mortgage debt claimed by the mortgagee as due must be brought into Court. This proposition is supported by authorities, including Town and Countrv S~ort Resorts fHoldinas1 Ptv. Ltd. v partners hi^ Pacific Limited (1988) ATPR 40-911, Mainbanner Ptv. Ltd. v Dadincroft Ptv. Ltd. (1988) ATPR 40-896 and Nicholas John Holdinas Ptv. Ltd. v Australia & New Zealand Bankina GrOUD Ltd. [l9921 2 V.R. 715, the latter decision of Hedigan J being the most recent discussion of this area of the law. I agree with it.

However, Natwest has chosen to rely on the analysis of Mr. Leitchts evidence to show that there is no case fo;

interlocutory relief made out or, alternatively, only such a

weak case that relief should be granted only on the usual

terns which the applicants acknowledge they cannot meet.	1
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Natwest has not put in any evidence from its own people who	1.
were involved with Mr. Leitch in the critical events of mid-	i

July 1991 to show where and to what extent there is testimony	I
that contradicts Mr. Leitch's account.

I think that in these circumstances the applicants

get over the first hurdle:  I think that they have shown a

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serious question to be tried as to whether the mortgagee at I

present has power to sell.	However, I do not think having	I
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regard to the analysis to which Mr. Leitch's evidence was	I - '
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subjected before mc that it can be said by any means to be a strong case.
I should also record that Natwest sought to show that there was no such question made out by reference to a series of cases in which Mr. Leitch and various of his companies, including Glandore, have been involved in litigation with various financiers, other than Natwest, over the past eight years or so. The submission was that the case Mr. Leitch seeks to make out here to send off the imminent sale is a ploy of much the same kind that he has used sometimes successfully, sometimes not, in seeking to buy time when he and his companies have in the past been faced 'with other lenders' demands. I have not taken these matters into account in coming to the view I have expressed as to there being a question to be tried.
It was also submitted that Natwest was in breach of its duty as mortgagee exercising its power of sale in that it is said that it failed to properly advertise today's sale. In
reliance on HenrV Roach fpetroleum) Ptv. Ltd. v Credit House	(Vic.) Ptv. Ltd., it is submitted the injunction should issue
for this reason. The evidence upon which this submission is
founded is contained in three paragraphs of Mr. Leitch's
affidavit, namely, paragraphs 130-132. There is, however,
evidence from Mr. Bruce Smith and Mr. Rodney Douglas, the
property sales manager for Queensland of Dalgety Winchcornbe
FGC and the principal of Rod Douglas Property Sales
respectively as to what has been done on behalf of Natwest to
market the property in the lead-up to today's sale. I do not
think the applicants' evidence is sufficient to make out a
claim that there is a breach of duty by the mortgagee in the
regard complained of to warrant further consideration of	i
whether an injunction can or should issue on this basis.	i'

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As I have said, the applicants have shown that there is a question to be tried as to whether the mortgagee's power	l ' l- *	I
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of sale has arisen, but the case is not a strong one.	This is	I
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a consideration that is relevant to working out where the	i
balance of convenience lies.
In Bullock v The Federated Furnishina Trades Society of Australasia (No. 11 (1985) 5 F.C.R. 464, Woodward J, in giving a judgment: in which the other members of the Full Court of this Court agreed, said of the interrelationship between the strength or weakness of the case made out as to there being a question to be tried and the balance of convenience:

more readily to grant an injunction when the balance	"Thus an apparently strong claim may lead a court
of convenience is fairly even. A more doubtful claim (which nevertheless raises 'a serious question to be tried') may still attract interlocutory relief if there is a marked balance of convenience in favour of it." (page 472)

In submitting that the balance of convenience lies in favour of the grant of interlocutory relief, the applicants

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relied heavily on a decision of the Full Court of this Court

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and in particular on the judgment of Spender J with whom Gallop J agreed in Eltran Ptv. Ltd. v WestDac Bankinq Corvoration (1991) 32 F.C.R. 195. They relied particularly on passages at page 200, 202, and 204 of the report.

That was a case in which a mortgagee had successfully resisted an application for an interlocutory injunction to restrain the realisation of its 'security. It failed, however, on appeal. The mortgagee had conceded at first instance that there was a serious question to be tried as to whether the mortgagors were in default and thus as to whether the power of sale had arisen. Here, in contrast, I have found that a relatively weak case only has been made out on this question. In my view, for the following reasons, the balance of convenience favours refusal of relief.

Firstly, the amount owing by Glandore as at 30 November, 1992 was $14,594,285.00. There have been no repayments of either principal or interest since mid-1989.

Secondly, the mortgage debt is increasing due not

only to accruals of unpaid interest, but also because Natwest
has had to provide the receiver with funds to keep "Oonavale"
in operation. If the property is retained by the mortgagee
beyond today, Natwest will have to provide still more funds.
The receiver, Mr. Walker, at paragraphs 5, 6 and 7 of his
affidavit, says that since his appointment, Natwest has funded
repairs to dwellings and improvements erected on the property

and rcbuilt cattle yards - an expenditure of about $135,000.00
- and has built substantial grain sheds and purchased

essential farm operating equipment at a further cost of $213,000.00. By way of operating expenses, to 30 November, 1992, it appears that a further sum of about $280,000.00 has been provided by Natwest to the receiver. The receiver says that there is a deficit from farm trading operations and he goes on to express the opinion that in the absence of a sale, in the financial year ending 30 June, 1993, a minimum of a further $110,000.00 - and if the crop does not bring in anticipated proceeds, a further $100,000.00 again on top of that - may be required to enable the property to be kept as a going concern.

Thirdly, it is alleged by the applicants that as a result of the mortgagee's misconduct, the subject of the claims in the action, they have suffered losses far in excess of what the mortgagee now claims as due to it, and indeed far in excess of anything the mortgagee may be entitled to recover at the end of the day. This involves the proposition, or the

discharge of the securities after setting off their damages	implied proposition, that they may therefore be entitled to a
against what is ultimately found to be due in respect of the mortgage debt. But as I have said, their case here is not a strong one.
Fourthly, if the sale is restrained, the mortgage debt will continue to increase, while the applicants' undertaking as to damages - which, in the absence of payment into Court, is all that Natwest will have to look to to recoup the losses it will suffer from the grant of an interlocutory injunction - is worthless.
Fifthly, on the other hand, if the applicants' case should succeed, there is no reason to doubt that Natwest will have the capacity to pay any damages that may be assessed.
Sixthly, various of the statements in Eltran that the applicants' rely on in support of the argument that the balance of convenience favours the grant of an injunction, for example, the significance of the mortgagor having acquired the property before the capital gains tax regime came into force, proceed on the assumption that if the mortgagor is successful, it will retain the property in question. But apart from the proposition that their damages will exceed the debt, one which I have already commented on, the evidence shows that one of the objects that the agreement of July 1991 that Mr. Leitch sets up - and which it is submitted remains on foot despite Natwest's breach - was intended to achieve, was the sale of "Oonavale" by Glandore in the 18 months to January 1993 to aid
in the repayment of the mortgage debt: see particularly Mr. Leitch's affidavit at paragraph 82. The applicants' case now is that the mortgagee's misconduct has turned a situation in which it was long accepted by the applicants that "Oonavale" had to be sold to aid in repayment of the mortgage debt, into a situation in which they will be able to retain "Oonavale" but only if their speculative action succeeds at trial.
Finally, on the evidence before me, the sale is not being conducted as a fire sale. There is no reason to think that a significantly higher price than that which may be achieved now might be obtainable if the sale is put off for an indefinite future time.

I therefore propose to dismiss the motion for

interlocutory relief.

I certify that this and the preceding

eleven pages is a true copy of the reasons for judgment herein of the Honourable Mr. Justice Drummond.

Associate:
Date :	18 December, 1992