Panebianco Holdings (Qld) Pty Ltd v Australia & New Zealand Banking Group Ltd

Re: PANEBIANCO HOLDINGS (QLD) PTY LIMITED
And: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
No. Q G80 of 1991
FED No. 548
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Spender J.(1)

CATCHWORDS

Trade Practices - injunction - existence of voluntary promise - doctrine of promissory estoppel

HEARING

BRISBANE

#DATE 11:7:1991

Counsel for the applicant: Ms Clarke instructed by

Aubrey Brown and Partners

Solicitor for the respondent: Ms Graham of Corrs Chambers Westgarth

ORDER

The application for interlocutory relief is dismissed.

The costs of and incidental to the interlocutory application be the respondent's costs in the principal proceedings.

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

JUDGE1

This is an application for an interlocutory injunction by Panebianco Holdings (Qld) Pty. Limited seeking to restrain the Australia and New Zealand Banking Group Limited (the ANZ Bank) from causing a receiver and manager to be appointed to the assets of the applicant. The applicant is the registered proprietor of premises at 55-61 Perry Street, North Bundaberg and it conducts business as an hotelier from those premises trading as the Young Australian Hotel.

Here there is no doubt concerning the circumstances under which moneys were advanced by the respondent to the applicant (cf. Glandore Pty Ltd v Elders Finance and Investments Co Ltd 4 FCR 130); Robert and Marie Smith v Commonwealth Bank of Australia and Anor (unreported 11 March 1991, Von Doussa J.), nor is there any argument that nearly $1.5 million is owing by the applicant to the bank.
The applicant, by its amended application, claims:
"1. A declaration that the Applicant and the Respondent entered in to a

valid and binding contract whereunder the Respondent agreed:

(a) to lend the sum of $252,815.00 to be applied to the payment of a licence fee payable by the Applicant to the Licencing Commission;

(b) to:

(i) freeze the Applicant's Account Number 387642939 without requiring further payment of principal and interest pending re-negotiations of the Applicant's loans;

(ii) provide the Applicant with a separate No. 2 Account Number 387651771 with funds to allow the Applicant to continue to trade;

(c) the Respondent waived any and all breaches arising out of non payment of instalments pending the (renegotiations of the) loan(s) by the Respondent to the Applicant of the said sums outlined in (a) and (b) above and for those purposes.

In the alternative, a declaration that the Respondent is estopped

and precluded by its conduct from denying the existence of a valid and binding contract in terms and to the effect of the contract outlined in paragraph 1 above.

An order that the Respondent specifically perform and carry into

effect the contract."

The applicant relies principally on Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. Ms. Clarke, counsel for the appellant, seeks to apply the principle referred to by Mason C.J. and Wilson J. that the doctrine of promissory estoppel extends to the enforcement of voluntary promises on the footing that a departure from the basic assumptions underlying the transaction between the parties must be unconscionable. Accepting that a failure to fulfil a promise does not itself amount to unconscionable conduct, with a consequence that mere reliance on an executory promise to do something resulting in the promisee changing his position or suffering indebtment does not bring promissory estoppel into play, she asserts that in the factual circumstances of this present application the evidence establishes that there is a serious question to be tried, namely that there was, by officers of the bank, the creation or encouragement of an assumption that the loan between the applicant and the respondent would be renegotiated. There is some difficulty in determining when, if at all, the agreement asserted in the application came into being, as the promise of funds for the licensing fee referred to in that application happened in September 1989, a proposal by the applicants to the bank concerning refinancing was made on 23 October 1989 after that payment of the licencing fee, and the applicant places reliance on statements by Mr David Wright from the ANZ Bank and Mr John Lord of Duesbury's, an accountant engaged by the bank, made on 16 January 1990.
While it was not relied on by the applicant, I have also had regard to the application of the judgments in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 to the factual circumstances of this case.
It is accepted by the parties that if a serious question to be tried is found on the evidence, then the fate of the application depends on where the balance of convenience lies.
In 1987 the applicant borrowed $440,000 secured by way of mortgage in favour of the ANZ Bank. Mr Ralph Panebianco, the managing director of the applicant, had dealings with a Mr Rod Thompson, who was then manager of the Burwood Branch of the ANZ Bank at Sydney. At the time that amount was borrowed the applicant put a proposal to the bank to acquire two mechanical workshops on either side of the hotel for the purpose of conversion into a liquor barn. The bank lent the money to the applicant for that purpose and took a mortgage over the property. Mr Panebianco says that he entered into arrangements with the liquor suppliers to supply stock on credit to the applicant for the business of the liquor barn.
In the middle of 1988, another hotel in Bundaberg, the Hotel Bundaberg, was to be sold at auction. Mr Panebianco sought finance from the bank to purchase this hotel with the object of forestalling its purchase by his opposition, but the application for finance was refused by the head office of the ANZ Bank. In October 1988, the Hotel Bundaberg, which was purchased by the opposition to the applicant, opened its own liquor barn and a liquor price war ensued.
In about July 1989, the then largest liquor supplier to the applicant's business, Castlemaine Perkins, claimed that a sum of $24,000 was owing on past invoices and that amount was due immediately. Mr Panebianco wrote a cheque for that amount. He asserts that he had had a conversation with Mr Thompson in which Mr Thompson indicated that if there was ever a problem with the supplier's cheque the bank would telephone him. He says that after he had written a cheque for that amount, he did receive a phone call from Mr Thompson. He said to Mr Thompson, "Please don't bounce the hotel's cheque. Bond is our major supplier and they won't extend credit." According to Mr Panebianco, Mr Thompson replied, "I find that hard to believe that Bond won't cover you for a few days. You must be joking. I'll think about it." The cheque for $24,000 was marked by the bank "return to drawer".
Subsequent to the return of the cheque, arrangements were made by the applicant with Castlemaine Perkins to pay the $24,000 over a few weeks, but after that amount was paid the account with Castlemaine Perkins was closed. As a consequence of the closing of the Castlemaine Perkins account, a large number of trading accounts with other liquor suppliers was also cancelled and the applicant was obliged to pay for stock on a "cash before dispatch" basis and the business of the applicant declined rapidly thereafter.
In early 1990, Mr Thompson had contacted Mr Panebianco and told him that, the hotel being in difficulties, the bank wanted him to look for finance elsewhere. Mr Panebianco said he had tried but that no bank would look favourably on him at the moment and Mr Thompson informed him, "Then you have no alternative but to put the hotel up for auction. If you don't, we will." An auction was arranged by the applicant for 7 December 1989. There were no bids at the auction and the hotel was passed in.
According to Mrs Jennifer Panebianco, a director of the applicant, until April 1990 all payments were made punctually, but by the end of April 1990 the applicant was overdrawn on its facility by approximately $15,000 and on 30 April 1990, the bank wrote to the applicant demanding immediate repayment of $1,021,498.30. She says that between 30 April 1990 and 3 September 1990, the ANZ Bank indicated that it was not prepared to assist the applicant, but it did not seek to enforce the demand that had been made.
The annual licence fee of the applicant was due on Monday, 6 September 1990 and, after negotiations on the 3 September 1990 Mr Tony Carter, who had taken over as manager of the Burwood Branch from Mr Thompson, indicated that the bank would assist with the $252,000 licence fee. Shortly after that Mr Carter indicated that he required a proposal as to the amount of the debt the directors were confident the hotel could service and the assistance they needed from the bank.
On 23 October 1990, a proposal was submitted to the bank by the applicant. This proposal has to be seen against the background of the correspondence and the increasing concern by the bank at the position of the applicant.
On the 24 October 1989, Mr Thompson had written to Mr and Mrs Panebianco, stating in part:

"Further to our recent discussions I now confirm that the overdraft limit has been increased to $460,000. This is the absolute maximum of the bank's assistance pending sale of the hotel.

As you are aware, I still wish to continue monitoring all cheques to ensure that only essential payments are being made relating to the ongoing operation of the hotel ..." On 27 December 1989, Mr Thompson wrote saying, inter alia: " The bank is prepared to continue its support in the short term subject to the following conditions ... "

The various conditions were then set out. And he continued:

" The position will be reviewed on 31 March 1990 and during this time you are to make every effort to sell the hotel by accepting any reasonable offer.

You are also to pursue all avenues of obtaining outside finance with a view to paying out the bank. The willingness of the bank to forebear in its discretion from taking immediate action upon your default is subject to the above conditions and to the bank being satisfied as to the efforts being made by you to effect a sale or to refinance."

Further funds had been provided on 10 April 1989. On 10 May the overdraft limit was further increased. In a letter of that date Mr Thompson said:

" I have been urging you for over twelve months to set aside a sinking fund for the licence fee, but to no avail. The Bank cannot be regarded as a bottomless pit, as you have to realise that we must make commercial decisions based on a number of factors regarding your business." He concluded that letter by saying:

" In conclusion, you are to adhere to the current arrangement without fail, otherwise the Bank will be placed in the inevitable position of having to move in under its security, because of your failure to comply."

Solicitors for the applicant wrote to the solicitors for the ANZ Bank on 14 June 1990 advising that negotiations were continuing to rearrange the financial commitments of the company. The letter concluded:

" In the current difficult economic climate, we trust that your client would not wish to jeopardise the refinancing or the sale of the hotel. Our client is making every effort to reach a solution and we shall keep you informed on progress." The solicitors for the bank replied stating, inter alia: " Our client is extremely concerned that the matter of the attending to payment of the unpaid licence fees and the general question of the sale of the hotel still remain unresolved."

On 6 August 1990, the Licensing Board adjourned the hearing of a notice to show cause why the licence should not be forfeited for failure to pay the licence fee to the 3 September 1990, and on 4 September Mr Carter had written to the directors of the applicant saying:

" I refer to recent discussions and in particular to the Bank's agreement to cover the outstanding licence fee viz $252,815.00 subject to submission by you, of a firm and viable proposal and cash flow, evidencing funding and or take-out over whatever period you programme. Our payment of the licence fee does not constitute in any way whatsoever, an indication of the Bank's eventual acceptance/approval of such proposal."

There were a further letter from Mr Carter of 12 September and in an undated letter towards the end of September, a further concern was expressed, Mr Carter saying:

" You obviously have taken the view that with the licence fee paid a sit back attitude could be adopted. Let me firmly put it to you that this is far from the Bank's attitude and this further delay makes it reasonably obvious that the sooner the Bank acts the lesser the hurt."

Eventually, on 23 October 1990, the proposal was forwarded, but the proposal, which was based on projected cash flows, was subject to what was referred to as "one vital proviso", namely "that an arrangement be made as soon as practicable to increase disastrously depleted stock levels".

On 11 January 1991, the ANZ Bank sought the assistance of the accounting firm of Duesbury's to conduct "an investigative analysis into the business of the Young Australian Hotel at Bundaberg". An officer of the ANZ Bank wrote to Duesbury's stating:

"The business currently has debts in the order of $1.336 million to this Bank which are not being properly serviced. Accordingly we would like your analysis on the business' ability (and/or potential) to service this level of debt and for you to also focus on the 'sensitive' areas of the business' trading responsibilities such as the liquor licensing fee, employee entitlements, taxation, stockholdings, etc."

Mr Lord of Duesbury's arrived at the hotel on 15 January 1991 and told Mr Panebianco on his arrival that the account had been transferred to the Sydney office "problem accounts" department and was being handled by Mr David Wright and that Mr Wright would be coming to the hotel on the following day to look over the hotel's accounts with him.

On the following day were discussions on which the applicant places considerable reliance. According to Mr Panebianco he said:

"We have asked in our proposal for additional funds for working capital."

And, according to Mr Panebianco, Mr Wright replied:

"The best way to deal with that problem is for the Bank to give your liquor suppliers bank guarantees. The cost to you will be about two or three percent of the value of the guara ntees."

A list was compiled of liquor suppliers and Mr Lord, according to Mr Panebianco, said to him:

"My recommendation to the bank will be that they advance you the licence fee to be paid immediately. Bank guarantees should then be organised so that you can put stock on your shelves. That should start to put the hotel back on track."

In my view, and taking the evidence at its highest for the applicant, this conversation cannot be regarded as creating or encouraging any assumption that the proposal by the applicant would be accepted and on what terms, nor giving any basis for the applicant to assume that the views expressed by Mr Wright and Mr Lord would be accepted by the bank.

Ultimately, the proposal submitted by the applicant to the bank was rejected. On 1 March 1991, the bank formally advised that the proposals encompassed in Duesbury's report of 22 January 1991 had been rejected by the bank. The letter signed by Mr Wright stated:

"Consequently the bank will not be providing funds to meet unpaid taxes, rates etc., and more importantly will not be covering the unpaid licence fee. Similarly, no Bank guarantees will be provided to any of your trade creditors."

The letter later said:

"Apart from unpaid creditors, you will also need to address the Bank's debts and at least demonstrate how the interest component can be serviced.

Clearly, there is currently insufficient revenue from the hotel liquor barn to contemplate a debt reduction program and we will therefore need to know what your longer term plans will be to address this situation.

It may be that your best option is to marshall together all your family assets and seek a re-finance package from another lending institution."

The letter concluded:

"We request that you provide us with your proposals, etc., by no later than March 11, 1991."

In the report by Mr Lord to the ANZ Bank, he indicated that he was unable to obtain a stock listing as Mr Panebianco had advised him that "the computer was down". He indicated that:

"As an example of the difficulty under which the company is currently trading, on 24 December 1990 Mr Panebianco made 25 separate trips to the Liquor Wholesaler in Bundaberg purchasing stock on a COD basis from funds received from sales earlier that day."

He commented:

"This method of purchasing is obviously expensive and particularly inefficient in the running of the company."

He referred to a valuation on 19 January 1988 by a valuer, Mr John Horrigan, which valued the freehold land and buildings, the furniture and fittings, licence and goodwill (but excluding stock in trade) at $1.6 million. Mr Lord commented that it was unlikely there had been any major change in the value of the land, structural improvements and plant and furniture, but the value of the licence and goodwill would have been substantially reduced. There were substantial penalties in relation to the 1989/90 licence outstanding and the value of the goodwill had been eroded due to the company's inability to properly stock the liquor bar and thereby to properly supply its customers.
The conclusion expressed in his report was:

"The business cannot possibly continue to run in this current state and service the debt to the Bank. Without adequate stock in the Drive-in and Liquor Barn, the sales will continue to decline and customer confidence will continue to fall away creating a 'snowball effect'. In addition, proper management time is not being spent in the day to day running of the hotel. In the current circumstances Mr Panebianco is spending an inordinate amount of time in obtaining stock from the Bundaberg Wholesaler and 'fighting fires' with cred itors."

On 10 May 1991, the bank confirmed by a letter from Mr Wright that the bank "still declines to advance further funds to assist operation of the hotel". On 28 May it advised that it had provided funding to cover the hotel licence fee for the period immediately preceding the current period and at the time of providing those funds, Mr Panebianco was informed of the need to set aside funds to provide for the upcoming licence fee period and that that action had not been effected. The letter concluded by saying:

"In summary, therefore, the Bank is NOT agreeable to a moratorium on interest, NOR would it agree to waive any rights under its securities if the overdue licence fee is pa id."

That letter was in response to a submission of 22 May 1991 by solicitors on behalf of the applicant. The proposal included development of adjacent land at a shopping centre. The proposal acknowledged that the plan required substantial funding and sought a moratorium on the further charging of interest until June 1992. The proposal was submitted under a covering letter which stated:

"We have just been instructed that our client has obtained approval for funds to pay the licence fee but on condition that the ANZ agree to the proposal contained in this letter. "

On 6 June 1991, the bank served a notice of demand on the applicant. The notice of demand sought immediate payment in respect of the Overdraft No. 1 Account of $942,795.59 with interest from 6 June 1991 until payment and in respect of the Overdraft Account No. 2 the sum of $15,396.52 together with interest from 6 June 1991; and in respect of a Fully Drawn Advance, $541,419.45 together with interest from 6 June 1991.
The application in these proceedings was filed on 7 June 1991.
One aspect of the evidence requires comment. Mr Wright says that he received from Mr Carter, then the manager of the Burwood Branch of the ANZ Bank, a copy of the proposal dated 23 October 1990 which the applicant had forwarded in relation to the future conduct of the applicant's business. Mr Wright says that he informed Mr Carter on 4 December 1990 that the proposal was rejected, but there is no evidence indicating that that rejection was communicated by Mr Carter or anybody else on behalf of the bank to the applicant.
Notwithstanding this aspect of the evidence, on the totality of the evidence and when viewed from a perspective most favourable to the applicant, in my opinion there is no serious question to be tried as to whether there was a concluded agreement between the ANZ Bank as to a refinancing, nor is it seriously able to be argued that there was an expectation properly held by the applicant that an agreement in respect of re-financing would be reached and nor can it be seriously argued, in my view, that the bank gave any encouragement to the applicant that proposals made by it for refinancing would be accepted by the bank. In my opinion, there is no sufficient material on which it could be argued that there was some agreement, the terms of which and the date of formation of which are quite uncertain, the effect of which would be that the bank would ultimately provide funds to allow the applicant to trade.
The dealings and the correspondence between the parties reflect an increasing concern by the bank over an extended period to rectify the default in the applicant's various accounts with the bank and increasingly insistent requests that specific steps be taken to remedy the defaults and made provision for the timely servicing of the obligations under the loan agreements.
The further accommodations that were provided and the forbearance displayed over quite an extended period, in my view, do not give rise to any sort of promissory estoppel such as referred to in Waltons Stores.
Even if I am wrong in the conclusion that there is no serious question to be tried on this material, in my opinion the balance of convenience does not favour the grant of the interlocutory injunction sought.
The injunction would not before trial do anything to assist the applicant in relation to the provision of stock to its premises. It seems that the position concerning stock purchases is a source of serious and continuing concern to the value of the goodwill of the business. The applicant does not have the funds to continue to trade successfully between now and the final hearing. In the view I take of the matter, continuation of the present difficulties of the applicant concerning the provision of sufficient stock to the hotel until the determination of the application would seriously exacerbate the decline in the goodwill of the business. That is a factor strongly tending against the grant of an injunction.
In the interests of both the applicant and the ANZ Bank, an injunction which would have the effect of permitting the continuation of the present real difficulties of the applicant should not be granted.
The application for interlocutory relief is dismissed; the costs of it should be the ANZ Bank's costs in the principal proceedings.

[1991] FCA 548

11 JULY 1991