Politano, Bruno v ACN 060 442 926 Pty Ltd
[1998] FCA 572
•29 MAY 1998
FEDERAL COURT OF AUSTRALIA
INJUNCTION – Interlocutory Injunction – meaning of “serious question to be tried” – purchaser of business secures vendor finance by fixed and floating charge, defaults, and seeks interlocutory injunction restraining vendor from appointing receiver pending trial – final relief seeks declarations under s 87 of Trade Practices Act 1974 (Cth) that agreements and charge void – purchasers had also purported to rescind – no seeking of final relief with which handing back of business to vendor would be inconsistent – claim for unliquidated damages alone no ground for preventing secured creditor from exercising rights.
Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161
Murphy v Abi-Saab (1995) 37 NSWLR 280 (CA)
BRUNO POLITANO AND MARIA TERESA POLITANO & ANOR v ACN 060 442 926 PTY LIMITED & ORS
NG 416 of 1998
LINDGREN J
SYDNEY
29 MAY 1998
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 416 of 1998
BETWEEN:
BRUNO POLITANO AND MARIA TERESA POLITANO
FIRST APPLICANTSFRESH 'N CLEAN PTY LIMITED
(ACN 078 797 994)
SECOND APPLICANTAND:
ACN 060 442 926 PTY LIMITED
FIRST RESPONDENTJOSEPH MICHAEL JOHN FARRUGIA
SECOND RESPONDENTSANDRA LEE FARRUGIA
THIRD RESPONDENTJOHN CAINS
FOURTH RESPONDENTJUDGE:
LINDGREN J
DATE OF ORDER:
29 MAY 1998
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
The application, in so far as it claims interlocutory relief, be dismissed.
The parties’ costs of the application for interlocutory relief be reserved.
The proceeding be stood over to Tuesday 2 June 1998 at 9.30 am for directions.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 416 of 1998
BETWEEN:
BRUNO POLITANO AND MARIA TERESA POLITANO
(FIRST APPLICANTSFRESH 'N CLEAN PTY LIMITED
(ACN 078 797 994)
SECOND APPLICANTAND:
ACN 060 442 926 PTY LIMITED
FIRST RESPONDENTJOSEPH MICHAEL JOHN FARRUGIA
SECOND RESPONDENTSANDRA LEE FARRUGIA
THIRD RESPONDENTJOHN CAINS
FOURTH RESPONDENT
JUDGE: LINDGREN J DATE: 29 MAY 1998 PLACE: SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
The applicants seek an order that until further order, the first second and third respondents be restrained from appointing a receiver to the assets of the second applicant.
The first applicants, Mr and Mrs Politano, are, and were at all material times, the directors and members of the second applicant (“Fresh ’N Clean”). At a time when Fresh ’N Clean was called “Brutess Pty Limited” (a name derived from the first names of Mr and Mrs Politano) it purchased a business from the first respondent. The second and third respondents are, and were at all material times, the only directors and members of the first respondent. At the time of the sale, the first respondent was called “Fresh ’N Clean Pty Limited”. Following the transaction the vendor company gave up, and the purchaser company adopted, the name “Fresh ’N Clean Pty Limited”. The fourth respondent, Mr Cains, was the accountant for the first respondent and its principals, Mr and Mrs Farrugia. Interlocutory relief is not sought against Mr Cains and I excused his counsel from further attendance on the hearing of the application for such relief. I will refer to the first respondent and Mr and Mrs Farrugia as “the respondents” in these Reasons for Judgment.
The Agreement for Sale of Business is dated 15 August 1997 and the transaction was completed on that date. The business is described in the Agreement for Sale of Business as “wholesale/retail distribution business of cleaning and associated products”. There was vendor finance to the extent of $125,000 recorded in a Loan Agreement between the two companies dated 15 August 1997. This was secured by a fixed and floating charge of the same date from Fresh ’N Clean to the first respondent and personal guarantees given by Mr and Mrs Politano and Guiseppe Politano, the father of Mr Politano. Notice of the charge was lodged on 20 August 1997 and particulars of it were entered in the Australian Register of Company Charges, the charge being allotted No. 605713. Fresh ’N Clean defaulted and the first respondent has threatened to appoint a receiver.
The applicants allege that they were induced to enter into the transaction by misrepresentations made by the first respondent, Mr and Mrs Farrugia and Mr Cains. The applicants seek to be relieved of the transaction in its entirety. In the meanwhile, however, they wish to be able to continue to carry on the business free of the risk of the appointment of a receiver. The business is their only means of income. They do not pretend that they will be able to maintain the loan repayments to the first respondent. However, the takings of the business are sufficient to enable payments to be made under mortgages which Mr and Mrs Politano and Mr Politano’s parents gave to Permanent Custodians Ltd to secure an advance of $360,000 to finance the purchase. If a receiver is appointed, there will be default under the mortgages and the mortgagee will be entitled to exercise its powers.
In sum, the choice to be made as to the regime pending the final hearing is between on the one hand, allowing the applicants to continue to carry on the business while continuing their default by making no repayments to the first respondent, and on the other hand, allowing the first respondent to appoint a receiver and manager over the business, thereby depriving the applicants of their only source of income and causing them and Mr and Mrs Politano senior to default under the mortgages.
FACTS
The following account of the facts is based largely on Mr Politano’s affidavit. I make no findings of fact in this interlocutory application.
In the first half of 1997, Mr and Mrs Politano were looking for a new business, having sold at the end of 1996 a takeaway food business which they had conducted for about two years. Mr Politano worked for about three months part time in a food distribution business. His idea at the time was to purchase or commence a food distribution business of his own.
In about early May 1997, Gilbert Beck of “Direct Business Brokers” told Mr Politano about a cleaning supplies distribution business carried on in Wollongong and Bomaderry under the name “Fresh ’N Clean”. Mr Beck gave him some figures as at, and for the six months ended, 31 December 1996. They comprised nine pages but it is sufficient for me to set out the first page:
FRESH N CLEAN PTY LTD
A.C.N. 060 442 926
TRADING STATEMENT
FOR THE SIX MONTHS ENDED 31 DECEMBER 1996
1997
$1996
$TRADING REVENUE
Sales525,015
1,008,360
Less: Cost of Goods Sold
Opening Stock
Add: Purchases38,168
338,248
376,41634,413
564,321
598,734Less: Closing Stock 48,000 37,868
Cost of Goods Sold 328,416 560,866
GROSS TRADING PROFIT/(LOSS) $196,599 $447,494
It will be noted that although “1997” appears as the heading of one of the columns of figures, the general heading “for the six months ended 31 December 1996” makes it clear that the figures in that column relate to only the first half of that financial year. Indeed, they could not relate to the whole of it since they were handed to Mr Politano in May 1997.
The applicants complain that the business to which part of the 1996 figures related was larger than that to which the 1997 figures related. I will need to return later to this issue but, shortly, the position is that the figures for the 1996 financial year included half a year’s figures for business activity which, in December 1996, was “hived off” and sold as a separate business, whereas the figures for 1997 did not include any figures in respect of that part of the business which had been sold. A mere reading of the figures handed to Mr Politano would not have disclosed this.
Shortly after his meeting with Mr Beck, Mr Politano met Mr Farrugia at the Bomaderry outlet. Mr Politano asked Mr Farrugia about an item “dispensers and machines” in the figures which Mr Beck had handed to him. Mr Farrugia explained that they were hand towel and toilet roll dispensers which the business supplied to customers and left with them while they were purchasing supplies from the business.
Mr Politano discussed the proposal with his own accountant, Mr Paul Finch. Mr Finch advised him to seek more detailed financial information. Mr Politano made a request of Mr Beck who supplied him with a manila folder containing financial statements and copies of income tax returns. Mr Politano took these to Mr Finch and told him that Mr Beck had said that the asking price was $300,000 plus stock at valuation. Mr Finch expressed the view that Mr Politano should not pay more than $175,000 for the business.
The manila folder and its contents are in evidence. They comprise financial statements and copy income tax returns for the first respondent for the years ended 30 June 1994, 30 June 1995 and 30 June 1996. The documents show a consistency and continuity of the business, in the sense that the figures carry forward from one year to the next and, subject to a minor discrepancy not calling for comment, lead to the figures for 1996 shown in the financial statements handed by Mr Beck to Mr Politano at their first meeting.
Apparently Mr Finch tried to obtain further detail relating to the business but had not been able to do so up to the time when Mr Politano next spoke to him. Mr Finch told Mr Politano that he had not been able to check the figures without having additional material. Mr Politano said:
“The figures look legitimate to me. I can see the business is there.”
The applicants submit that this is evidence of reliance on the figures supplied. The respondents submit that the evidence is equivocal and that it is consistent with Mr Politano’s having relied on what he saw of the business in operation.
Mr Politano was having discussions directly with Mr Farrugia, in particular, about price. On one such occasion, Mr Farrugia told him:
“I had a sanitary service business that I sold in December last year. I sold it for $140,000 and it was doing $11,000 a month profit. This business has got to be worth $300,000.”
This conversation, which is deposed to by Mr Politano, is relied upon by the respondents as showing that the applicants knew, before agreeing to purchase, that part of the business had been sold off in December 1996. However, the terms in which the conversation is deposed to do not suggest that the “sanitary service” being spoken of was anything other than a different business from that to which the figures supplied related.
On Friday 23 May, Mr and Mrs Politano went to the home of Mr and Mrs Farrugia where a price of $250,000 plus stock and valuation was agreed upon. Mrs Farrugia said that the stock at the time had a value of “about $80,000 give or take”.
Mr Politano applied to the Advance Bank for funding in a sum of $290,000 but the Advance Bank responded in the week of 16 June 1997 advising that it was prepared to lend only part of that amount. Mr Politano told Mr Farrugia and said that he would have to drop the price by $50,000 but Mr Farrugia refused. Subsequently Mr Farrugia took Mr Politano to see Mr Cains who gave Mr Politano a business card of John Odewahan of “Howard Pacific Illawarra” in Wollongong.
On 25 June Mr Politano called on Mr Odewahan and completed a form of application for finance in a total sum of $360,000 comprising $290,000 for the purchase of the business (actually $250,000 purchase price and $40,000 for working capital) and a further $70,000 for other purposes. Within a day or two, Mr Odewahan told Mr Politano that the loan was approved in principle. At Mr Farrugia’s suggestion, Mr and Mrs Politano commenced working in the business a few days later, on 1 July.
For the first two and a half weeks Mr Politano worked at the Wollongong outlet and Mr Farrugia worked at the Bomaderry outlet. On 7 July Mr Politano instructed his solicitor, Mr Clisdell of Mulholland Hozack & Clisdell, to act on the purchase. On 15 July Howard Pacific Limited wrote advising of the approval of the loan. The loan amount stated was $360,000 and its purpose was stated to be to purchase the business and stock known as “Fresh ’N Clean” for $290,000 and to refinance a facility at the Advance Bank in a sum of $70,000. The security stipulated was a first registered mortgage by Mr and Mrs Politano over a property at 449 Princess Highway, Bomaderry and a first registered mortgage by Mr Politano’s parents, Guiseppe Politano and Guilia Politano, over a property at 13 Kentwell Road, Manly. They are the homes respectively of Mr and Mrs Politano junior and senior. The payments to be made were $2,673.69 payable monthly in arrears. The borrowers were stated to be Mr and Mrs Politano’s company, Mr and Mrs Politano and Mr Politano’s parents.
About two and a half weeks later, that is, at about the end of July, Mr and Mrs Farrugia commenced giving Mr Politano the takings from the business so that he could bank them into his own company’s account and commence using the money to purchase stock. As well, and at about the same time, Mr and Mrs Farrugia let Mr Politano have the computer on which the records of the business were stored, the computer having been kept at their home and maintained by Mrs Farrugia. Further, Mr Politano was permitted to take a filing cabinet containing customer files.
On 15 August, Mr and Mrs Politano went with their solicitor, Mr Clisdell, to the offices of Devitt & Swan, solicitors for the vendor. Various documents were executed and exchanged on that occasion. First, there was the Agreement for Sale of Business. The vendor was the first respondent, then called “Fresh ’N Clean Pty Limited”, and the purchaser was the second applicant, then still called “Brutess Pty Ltd”. The price for the goodwill, plant, fittings, chattels and fixtures was $250,000 plus stock in trade at valuation, estimated by the vendor to be “$125,000 at cost price f.i.s.”. The Agreement contained a standard printed clause to the effect that the purchaser acknowledged that it had not relied on any statement, representation, warranty or condition made or given by the vendor other than those expressly contained in the Agreement. It was not suggested on the hearing that anything turned on this provision. There was a special condition to the effect that the amount determined for stock would constitute a loan by the vendor to the purchaser payable over three years with interest, with repayments to be made by way of principal and interest commencing on 1 January 1998. It was also provided that security documents, comprising a loan agreement, deed of charge and personal guarantees would be entered into to secure payment of the loan from the vendor.
Other documents which were executed on 15 August were a “Deed of Assignment of Goodwill and Restriction on Trade”, the Loan Agreement to which I referred earlier, a Fixed and Floating Charge, and three Guarantees, one by each of Mr and Mrs Politano and Mr Politano senior. Annexed to the Loan Agreement was a “loan amortisation schedule” listing, inter alia, monthly payments of $3,945.94 commencing on 1 January 1998. The payments were to be made on the first day of each month, but in fact only the first has been made. Accordingly, there was default in making the payments which fell due on the first day of February and of each month thereafter.
On 20 August 1997, the Fixed and Floating Charge from Fresh ’N Clean in favour of the first respondent was registered. It provided that upon default by Fresh ’N Clean, the first respondent was entitled to appoint a receiver of its property who would be armed with, inter alia, a power of sale. Between 19 and 21 August, Fresh ’N Clean changed its name from “Brutess Pty Limited” to its present name and the first respondent changed its name from “Fresh ’N Clean Pty Limited” to its present name “ACN 060 442 926 Pty Limited”.
By about the end of July, after Mr and Mrs Politano had been collecting the receipts for the business for about two and a half weeks, they noticed that the takings were less than what they had expected in the light of the figures which had been supplied to them. Initially, they thought that this was a consequence of inexperience and that the takings would return to their former level once they, as the new operators, became more efficient. But, by 12 August, they were sufficiently alarmed to try to make a comparison between their sales and the figures recorded in the computer. They found, however, that records in respect of the operation of the business prior to July 1996 had been deleted. They were, however, able to extract sales figures for July 1996 for both the Wollongong and Bombaderry outlets. The sales figure for July 1996 was $79,781.99. Mr Politano observed that this figure was generally in line with the figures which Mr Beck had given to him and which gave a monthly average over the six months ended 31 December 1996 of $87,502.00. In fact, Mr Politano printed out sales figures for each month from July 1996 to June 1997. On a later occasion, he printed out the sales figures for the months of July 1997 to January 1998. He makes the point that for the period from July to December 1996, the monthly sales ranged from a low of $74,886.62 (for September 1996) to a high of $87,384.58 (for August 1996), while for the equivalent period from July 1997 to December 1997, the monthly takings ranged from a low of approximately $19,000 to a high of approximately $52,000. (I have not been able to see how Mr Politano gets these figures from the computer print-outs annexed to his affidavit - the figures appear to range from a low of $45,564.44 (for November 1997) to a high of $56,940.12 (for December 1997).)
Mr Politano says that from about the end of August 1997, he received cheques drawn in favour of “Fresh ’N Clean Pty Limited” which did not appear to be payments for sales made by his company. He returned the cheques to the senders. After this occurred a few times he discovered that the cheques were intended for a business called “Fresh and Clean - Hygiene” in Wollongong. He contacted Mrs Liz Watts of that business in September 1997 and discovered that the business was the one that Mr Farrugia had earlier told him he had sold in December 1996. Mrs Watts supplied Mr Politano with a copy of the contract by which she and her husband had bought that business. It is dated 18 December 1996. It is in fact between the first respondent (then called “Fresh ’N Clean Pty Limited”) as seller and Barry Alan Watts and Todd Anthony Lester as buyers. The type of business is described in the contract as “Odour Control and Hygiene Services” known as “Fresh ’N Clean” as having a registered business name of “Fresh ’N Clean Hygiene Service”. The sale price was $140,000 plus stock in trade at value. Mrs Watts told Mr Politano that she had also been receiving cheques intended for him. They agreed to forward on to each other cheques intended for the other when received by the wrong person.
On 15 September, Mr and Mrs Politano consulted Mr Cains to see if he could explain why the sales were so much less than those which Mr and Mrs Farrugia had been achieving. Mr Politano states that while they were speaking, it occurred to him that the figures which had been supplied might have included those for the “Fresh and Clean - Hygiene” business which had been sold off in December 1996. Mr Politano says that prompted by this thought, he asked Mr Cains whether he had ever separated the “Hygiene” figures from the figure that he (Mr Politano) had been shown and that Mr Cains replied:
“No. Never. I separated the Bomaderry and Wollongong figures because they wanted to sell each of them separately.”
Mr Politano says that since September 1997 he and his wife have continued to carry on the business but that it has not been profitable. He says that Fresh ’N Clean cannot make the monthly payments to the first respondent because it is not generating sufficient income.
Payment of the amount lent for the stock purchase ($125,000) is secured by the Fixed and Floating Charge, by Guarantees given by Mr Politano, his wife and his father, Guiseppe Politano, and, I assume, by the mortgages given by Mr and Mrs Politano senior and junior. According to his affidavit, none of them has the resources to make the payments. In particular, he and his wife have no income other than that generated by the business. He says that the only funds which they have taken out of the business is a wage paid to him of $200 per week. His father is an old-age pensioner with no income and no interest in the business.
A further affidavit read in support of the applicants’ case is an affidavit of their solicitor, Roger James Clisdell, sworn 4 May 1998. His affidavit annexes correspondence. The correspondence shows that on 11 February 1998, Mr and Mrs Farrugia made what they described as “the third and final request” for payment of the February instalment of $3,945.94 of the vendor loan. Their letter referred to faxes sent on 3 February and 5 February to which, apparently, there had been no reply. They advised that if they did not have a satisfactory reply by the close of business on Thursday 12 February, the matter would be handed over to their legal advisers and that they would enforce their rights, including their rights against the guarantors.
On 16 February, the applicants’ solicitors replied alleging misrepresentations and asserting a right to rescind, as well as rights under the Trade Practices Act 1974 (Cth). The letter included the following:
“In the circumstances, we are instructed to give you notice that, by this letter, our clients rescind the Agreement.
Our clients stand ready to take orderly steps necessary to hand the business the subject of the Agreement back to your company in an orderly fashion. That will involve you refunding to our client the deposit and other monies paid pursuant to the Agreements and compensating our clients for stamp duty, legal fees and other costs associated with the transactions as well as compensating it for losses suffered by them in attempting to make the business viable.” (emphasis supplied)
The letter threatened the commencement of a proceeding in this Court for injunctive and other relief without further notice.
On 13 March, Devitt & Swan, the solicitors for the first respondent, replied. They advised that they would respond in detail once they received information from their client’s accountant. In the meanwhile, they asserted that the Loan Agreement, relating, as it did, to the purchase of stock, stood separately from the allegations made in the correspondence, since the value of the stock has not been in dispute.
On 17 April, the applicants’ solicitor, Mr Clisdell, again wrote to Devitt & Swan. He advised:
“Our client has informed us that yesterday he had a meeting with Mr Donnelly of Ferrier Hodgson, who indicated he was to be appointed as the receiver of our client’s business pursuant to the Loan Agreement. That meeting had apparently been arranged following a request from yourselves. We are surprised that we were not informed of this development.
Our client does not consent to the appointment of Mr Donnelly, or anyone, as a receiver to its business. Accordingly, unless we receive an undertaking by 5.00 pm today, that no action will be taken to appoint a receiver to our client’s business before 5.00 pm Tuesday, we will approach the Court for an ex parte injunction on Monday morning.”
On the same day, 17 April, Devitt & Swan replied asserting that their client had no obligation to advise in advance of any proposed appointment of a receiver and that it was a courtesy that Mr Donnelly had held a meeting in his office on 16 April. The letter said:
“As your client is clearly in default of the Loan Agreement, our client has every right to exercise its rights pursuant to the security documents, which it fully intends to do so [sic] if our client is not satisfied by the response requested by Mr Donnelly by 5.00 pm on Monday, 20 April, 1998.”
On 22 April, Devitt & Swan wrote to the company secretary of Fresh ’N Clean, observing that the first respondent had received only one of the monthly payments provided for in the Loan Agreement, namely, the first one which fell due on 1 January 1998. The letter observed that as at the date of the letter, Fresh ’N Clean was in default to the extent of $11,837.82 and that a further payment of $3,945.94 was to fall due a few days later on 1 May. The letter advised that the first respondent intended to exercise all its rights pursuant to the deed of charge and the personal guarantees. On the same day the first respondent made demand upon Mr Politano senior pursuant to the Guarantee given by him. He has not paid.
The applicants launched the present proceeding on 4 May. The application was made returnable on 6 May and the time for service was abridged.
Mrs Farrugia swore an affidavit on 13 May which was read on behalf of the respondents. She says that the figures which were handed by Mr Beck to Mr Politano had been prepared by Mr Cains upon instructions from herself and did not include the trading revenue relating to the operation of the “Fresh ’N Clean Hygiene Service” business as alleged. She claims that for the six month period ended 31 December 1996, “the trading figures relating to Fresh ’N Clean Hygiene Service’” were approximately $86,000. She says that she spoke to Mr Cains after reading Mr Politano’s assertion that Mr Cains had told him that he (Mr Cains) had never separated the “Hygiene” figures from those which had been supplied. She says that Mr Cains denied having said this to Mr Politano. According to Mrs Farrugia, Mr Cains said to her:
“No. The figures that were presented to Bruno, being the financial figures made up to 31 December, 1996 did not include hygiene sales and were prepared by me in accordance with your instructions and figures provided by you.”
Mrs Farrugia also states that the figures obtained by Mr Politano from the computer related only to “account” customers and did not take into account retail sales at the Bomaderry and Wollongong premises. On the other hand, she says that for the purpose of a correct comparison, the sales attributable to a person called “Jenny Knapp” should be deleted because they related to the business of Fresh ’N Clean Hygiene Services. Mrs Farrugia has prepared a set of figures revising those annexed to Mr Politano’s affidavit. Her revised figures include the cash sales at the two shops and exclude the sales by Jenny Knapp. The resulting figures are, according to her affidavit, as follows:
July 1996 $ 80,226.99
August 1996 $ 91,835.93
September 1996 $ 77,663.02
October 1996 $ 86,779.98
November 1996 $ 81,304.52
December 1996 $ 93,076.29
January 1997 $107,045.79
February 1997 $ 72,308.88
March 1997 $ 77,720.20
April 1997 $ 87,444.15
May 1997 $ 70,765.60
June 1997 $ 68,224.64
According to my calculations, these amounts total $994,395.99 for the twelve months and they give an average of $82,866.33 per month over the twelve months, an average of $85,147.79 per month for the first six months and an average of $80,584.88 per month for the second six months.
Mrs Farrugia’s affidavit offers suggestions as to why Mr and Mrs Politano may not have been making as much money from the business as she (Mrs Farrugia) and her husband had done. These suggested causes were changes made by the new management.
REASONING
According to a “Points of Claim” document filed on behalf of the applicants, their case is that a misrepresentation was conveyed by the handing over of the first set of financial statements by Mr Beck and the delivery of the manila folder of additional financial statements and tax returns by Mr Cain. The misrepresentation alleged is particularised in par 10 of the Points of Claim as follows:
“Particulars
The said statements were financial statements in respect of the conduct by the first respondent up to December 1996 of a business carried on under or by reference to the name Fresh ’N Clean Service & Supplies which included the Fresh ’N Clean business.
The Fresh ’N Clean business was created by the sale in December 1996 of part of the Fresh ’N Clean Service & Supplies business to a third party who has since conducted it under and by reference to the name Fresh ’N Clean Hygiene Services.”
In sum, the figures supplied to Mr Politano are said to have included figures in respect of the odour control and hygiene services part of the business, that is, the part that was sold off on 18 December 1996 to Messrs Watts and Lester.
The present evidence in support of this case is not strong. The essence of it is that Mr Politano says that Mr Cains told him that he had never separated the “Hygiene figures” from the figures which had been given to him (Mr Politano). Mr Cains has not sworn an affidavit replying to this allegation, but Mrs Farrugia says that the figures were prepared by Mr Cains upon instructions from her and are based exclusively upon trading revenue relating to the wholesale and retail distribution business sold to Mr Politano’s company. She says affirmatively that the trading revenue figures do not include the trading revenue figures relating to the operation of the Fresh ’N Clean Hygiene Service and that the figures which were handed over by Mr Beck had been “specifically prepared by Mr Cains after deducting the trading figures relating to the Fresh ’N Clean Hygiene Service which, for the six month period ending 31 December, 1996 (when it was sold), was approximately $86,000.00.” Mrs Farrugia was cross-examined briefly. To date I have seen no reason to disbelieve her, but, of course, I reach no final conclusions on this application for interlocutory relief. The existing evidence does not explore the detail touching the preparation of the figures. It may be, for example, that Mr Cains did not separate out “the Hygiene figures” but that Mrs Farrugia had done so with the result that all that Mr Cains had had to do was to produce a special set of accounts from the figures supplied to him by Mrs Farrugia.
However, I am required for present purposes only to determine whether there is a serious question to be tried. On the final hearing it may emerge that the figures for the financial year ended 30 June 1996 did include, for the period down to December 1996, figures relating to the “Hygiene business”. It may emerge, for example, that Mrs Farrugia instructed Mr Cains to effect the separation but that through oversight or misunderstanding he failed to do so.
It is submitted for the respondents that there is no evidence of reliance. I agree that the evidence of reliance is also weak. Mr Politano’s evidence is that he said to his accountant, Mr Finch:
“The figures look legitimate to me. I can see the business is there.”
This evidence may, when elaborated upon in evidence on the final hearing, be sufficient to carry the day on the issue of reliance.
Other persuasive submissions are made on behalf of the respondents. For example, it is pointed out that the applicants did not promptly seek relief upon making the discovery which they claim to have made. Rather, they did nothing until the first respondent threatened to appoint a receiver after Fresh ’N Clean had defaulted under the Loan Agreement.
In the event I need not explore these evidentiary issues further because there are more fundamental reasons why, in my view, the applicants have failed to show a serious question to be tried. The common reference to “a serious question to be tried” is an abbreviated form of reference to a serious question to be tried as to the granting of a form of final relief, the substance of which, in the relevant respect, would be rendered nugatory by the course of action threatened and sought to be prevented. So, for example, if a vendor has purported to terminate or rescind a contract for the sale of land and is threatening to re-sell the land to another, the original purchaser, seeking final relief in the form of an order for specific performance of the contract, may seek an interlocutory injunction restraining the vendor from re-selling pending the final hearing. Similarly, if an owner of a business gave a charge over it as security for the indebtedness of another and on some ground sought to have the charge declared void ab initio, an interlocutory injunction against a threatened appointment of a receiver would be in aid of the final relief, that is, ridding the business of the charge and restoration of the unencumbered possession and enjoyment of the business which obtained before the charge was granted. In such cases, the substance of the final relief sought, in the relevant respect, is that the applicant will have unchallenged ownership and possession of property.
By their application in the present case the applicants seek the following substantive relief:
“1.A declaration pursuant to s.87 of the Trade Practices Act 1974 that the agreements annexed to the affidavit of Bruno Politano sworn 29 April 1998 and filed herein (‘Mr Politano’s affidavit’) are void and of no effect.
2.A declaration pursuant to s.87 of the Trade Practices Act 1974 that the deed of charge of the undertaking of the second applicant identified in the certificate which is annexure H to Mr Politano’s affidavit is void.
3.Such consequent orders as are necessary in light of the declarations set out in paragraphs 1 and 2 above.
4.Damages pursuant to s.82 of the Trade Practices Act 1974 as against the first, second and third respondents.
5.Alternatively, orders for the payment of monetary compensation by the first, second and third respondents pursuant to s.87 of the Trade Practices Act 1974.
6.Damages pursuant to s.68 of the Fair Trading Act 1987 (NSW) as against the second, third and fourth respondents.
7.Alternatively, order for the payment of monetary compensation by the second, third and fourth respondents pursuant to s.72 of the Fair Trading Act 1987 (NSW).”
It was not, and could not be, suggested that the agreements and the Fixed and Floating Charge do not stand or fall together. Indeed, par 13 of the applicants’ Points of Claim assert that the applicants entered into all the agreements executed by them, including the Agreement for Sale and the “Company charge dated 15 August 1997 numbered 605713”, in reliance on the representation.
It is not inconsistent with the substance of the final relief sought, in the relevant respect, that the first respondent appoint a receiver. The substance of that final relief, in that respect, is the handing back of the business. The declarations sought would require that the applicants hand the business back to the first respondent. This is, in fact, what the applicants offered to do in their solicitors’ letter dated 16 February 1998, the relevant extract from which was set out earlier. Another way of making the present point is to say that the legal results contended for by both parties entail a handing back of the business, the position of the first respondent being that this results from its enforcement of the contractual arrangement, and that of the applicants that it results from their right to be rid of the contractual arrangement. While the appointment of a receiver is inconsistent with the form of the final relief sought by the applicants, it is consistent with its substance in the relevant respect. It would be consistent with its form as well if the first respondent was seeking similar relief to that sought by the applicants based upon misleading and deceptive conduct of the applicants. But it is with the substance in the relevant respect of the final relief sought that I must be concerned.
The applicants also seek damages. If they succeed on liability, and the first respondent has appointed a receiver, its having done so and the consequences of its having done so will be factors to be taken into account in augmentation of the quantum of the applicants’ damages. The respondents are on notice of the nature of the applicants’ claim.
The existence of the claim for unliquidated damages itself is no answer to the first respondent’s right to enforce its security: Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; Murphy v Abi-Saab (1995) 37 NSWLR 280 (CA) at 289B (Gleeson CJ). It lent $125,000 to Fresh ’N Clean; Fresh ’N Clean does not bring the amount outstanding and secured into Court or offer security for that amount; and no attack is made on the validity of the Fixed and Floating Charge given to secure the advance other than the attack on the transaction as a whole which I described above and which does not raise a “serious question to be tried” for the reasons mentioned.
CONCLUSION
The application, in so far as it claims interlocutory relief, should be dismissed. I will reserve the parties’ costs of the application for interlocutory relief. The proceeding will be allocated a date for a directions hearing with a view to the setting of a timetable for preparation for a final hearing.
Since writing what appears above, I have become aware of the decision of Drummond J in Fletcher v Foodlink Ltd (1995) 60 FCR 262 where his Honour reached a similar conclusion in a not dissimilar case.
I certify that this and the preceding sixteen (16) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren
Associate:
Dated: 29 May 1998
Counsel for the Applicants: Mr R.J. Webb Solicitor for the Applicants: Mulholland Hozack & Clisdell Counsel for the First, Second and Third Respondents: Mr A I Tonking Solicitor for the First, Second and Third Respondents: Devitt & Swan Counsel for the Fourth Respondent: Mr H Packer Solicitor for the Fourth Respondent: Cunich Lawyers Date of Hearing: 19 May 1998 Date of Judgment: 29 May 1998
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