Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd

[1988] FCA 510

C A T C H W O R D S

TRADE PRACTICES - Misleading or deceptlve conduct - claim by

mortgagors against mortgagee - mortgagors granted ex parte

lnterlocutory in~unction - application to discharge - balance of

convenience - failure by mortgagors to comply with order of Judge
granting lnjunction - inability of mortgagors to pay interest on
borrowings - inability to satisfy or support undertaklng as to

damages.

Trade Practices Act	1974 ss.52, 87
BETWEEN:

TOWN & COUNTRY SPORT RESORTS (HOLDINGS) PTY. LTD, TOWN & COUNTRY

SPORT RESORTS PTY. LTD, VIMITED PTY. LTD, and KRARAT PTY. LTD.

Applicants

- and -

PARTNERSHIP PACIFIC LIMITED	Respondent
Fisher J. Adelaide
8 September 1988
IN THE FEDERAL COURT OF AUSTRALIA	)
)

SOUTH AUSTRALIA DISTRICT REGISTRY	)	NO. S.A. G51 Of 1988
)
GENERAL DIVISION	1

B E T W E E N :

TOWN & COUNTRY SPORT RESORTS

(HOLDINGS) PTY. LTD, TOWN & COUNTRY SPORT RESORTS PTY. LTD,

VIMITED PTY. LTD,	and KRAKAT
PTY. LTD.

Applicants

- and -

PARTNERSHIP PACIFIC LIMITED

Respondent

MINUTES OF ORDER

JUDGE MAKING ORDER	FISHER J.
WHERE MADE	ADELAIDE
DATE OF ORDER	8 SEPTEMBER 1988
THE COURT ORDERS THAT:

1. The interlocutory in~unction g ran .ted 22 June 1988 be

discharged.

2.	The question of costs of the application to discharge	the
interlocutory injunction be reserved.
-	Note: Settlement and entry of orders is dealt wlth	in Order 36 of

the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

)

SOUTH AUSTRALIA DISTRICT REGISTRY	)	No. S.A.	G51 of 1988
1
GENERAL DIVISION	)

B E T W E E N :

TOWN & COUNTRY SPORT RESORTS

(HOLDINGS) PTY. LTD, TOWN &

COUNTRY SPORT RESORTS PTY. LTD,

VIMITED PTY.	LTD,	and	KRAKAT
PTY. LTD.

Applicants

- and -

PARTNERSHIP PACIFIC LIMITED

Respondent

REASONS FOR JUDGMENT

CORAM: Fisher J.

8 September 1988

This is an application by Partnership Pacific Limited

("P.P.L.") to discharge an interlocutory injunction	granted by
this Court on 22 June 1988. The essential background facts	are
as follows.

On 22 June 1988 the four applicant companies ("the

applicants") filed an application	in this Court seeking damages
for contraventions of the Trade Practices Act 1974 ("The Act")	an

order under para.87(2)(b) thereof and i terlocutory an

injunction. This application was supported by an affidavit sworn

by Barbara Joy Hunt, a director of each of the applicants.

Twenty two very substantial documents were exhibited to	the
affidavit. It	was therefore perfectly apparent that some little
time was spent	in preparing for the application during which tune
P.P.L.,	but for other conslderations, might have been given

notlce of the orders to be sought on that day. However the

applicants on 22 June 1988 sought	an urgent ex parte hearing
before Forster J. of their application for	an interlocutory
restraining order. Orders were made that day restrainlng	P.P.L.
from appointing a receiver	or selling or dealing with the assets

of the applicants. A further order directed the applicants

forthwith to serve the application, the affidavit in support and

the restraining order on P.P.L.

In her affidavit Mrs. Hunt deposed to the fact that the

applicants	had	common	shareholders	and	common	interests.	It
recited	the	landholdings	and	business	activities	of	the

applicants and the involvement of Rrakat Pty. Ltd. ("Krakat") and

subsequently Town and Country Sport Resorts (Holdings) Pty. Ltd.

("Holdings") with P.P.L. in relation to a foreign currency loan.

Reference was also made to other business dealings between the applicants or one or more of them and P.P.L., in particular with

reference to an abortive attempt to obtain what was called

"equity finance" for the purpose of reducing the borrowings of

the applicants. It was alleged that the conduct and advice of

P.P.L.	in this regard was misleading and deceptive. Extensive
material was provided in the affidavit	on the topic of borrowings
by the applicants from P.P.L.	and the securities supporting the
borrowings. Mrs. Hunt also stated	that the applicants believed

that P.P.L. might be intending to appoint a receiver and manager

of the applicants' business and the following letter was

exhibited to the affidavit.

“16 June 1988

Messrs O’Loughlin Robertson,
Solicitors
National Australia Bank Building
70 Pirie Street

ADELAIDE SA 5000

ATTENTION: ROBYN PAK-POY

Dear Sirs,

KARTA PTY. LTD. AND TOWN AND COUNTRY SPORT RESORTS	PTY.
-	LTD.
We refer to the	writer’s attendance on Mr. Opie and

Miss Pak-Poy on Tuesday 14th June 1988 and to the

writer‘s telephone conversation with	Miss Pak-Poy on
the 16th June 1988	and confirm that we have conferred
with our client as to the matters raised	by you.
Our instructions are as	follows:-

(a) Our client is not prepared to finance the

syndicate’s purchase of the business for a sum as low as $450,000. Our client fails to see how a business

valued at approximately $2.0M in March can be worth as

little as $450,000 in June. addition In all

negotiations thus	far have been	based on a value of
$1.531.

(b) The proposed re-arrangement of your client‘s debts

and the security offered is unacceptable. Our client

feels that the whole tenor of all negotiations as	to
security to date has been fundamentally altered	by your
client‘s most recent proposals.
(c) That unless a suitable form	of loan and security
documentation is agreed by 5.00 pm on Monday 20th	June
1988 with execution to follow upon presentation	of
documentation, our client will have no alternative but
to take such action as	it may be advised to protect its
position.

Our client regrets that the matter has reached this

stage, however, the present uncertain climate cannot	be
allowed to continue.
Yours faithfully BAKER McEWIN
(SIGNED) PAUL D.	BEAR”
Having obtained the injunction order on	22 June 1988

that they sought, the applicants took no action to alert P.P.L.

to this fact. In particular the order was not served untll 29

July 1988 and the appllcation and affldavlt in support not untll

2 August 1988, notwithstanding the requirement of the Court that

these documents be served "forthwlth". It is slgniflcant that in

the affidavit the applicants through Mrs. Hunt gave not only	the
standard undertaking as	to damages but also undertook to do and

cause to be done everything reasonably practicable to facilitate

an early trial of the matter.

On 18 August 1988 Mr. Plummer the South Australian

Manager of P.P.L. swore an affidavit supporting	an application to
discharge the ex parte injunction.	In that affidavit he deposed
to the fact that	as at 4 August 1988 the applicants were indebted

to P.P.L. in the sum of $13,278,023.34 although subsequently he

acknowledged that $3747,545.25	of this amount had been advanced
to an associated company Karta	Pty. Ltd. It was not made clear
at the hearing whether any of the applicant companies	or any
directors were liable	by way of personal or cross guarantees or

otherwise to secure the repayment of this amount. Interest was

accumulating on the debt of the applicants at the rate of $5,000

per day. M r . Plummer strongly denied the allegations of the

applicants that P.P.L. was negligent in its advice to the

applicants or had contravened the provisions of the Act.

At the hearing a further affidavit of Mrs. Hunt was

tendered and also a further affidavit of Mr. Plummer. Included

in the exhibits thereto were copies of security documents and

valuations. Mrs. Hunt deposed to the considerable prejudice the

applicants' business would suffer if a receiver was appolnted.

. I

Each of the deponents was cross-examined upon hls or her

affidavit. On the material before me I make the following very

tentative findings of fact which findings are primarily relevant

to the question of the balance of convenience, to the worth of

the applicants' undertaking as to damages and to the exerclse of

my discretion. I stated during the hearing that I was prepared

to accept, as Forster J. had accepted, that there were serious

questions to be tried.

The total amount owing by the applicants and Karta Pty.

Limited to P.P.L. as at 31 August 1988 was $13,414,697.16.

Interest is accruing on this sum at the rate of $150,000 per

month. No interest has been paid since 8 December 1987 and Mrs.

Hunt conceded that the group is presently unable to meet this

interest bill. The bulk of the interest accrulng has for quite

some time been capitalised. Of the amount of $13,414,697.16

outstanding, $10.861,326.37	represents advances and the balance
capitalized interest.	Counsel for the applicants contended that

not all of these borrowings were the subject of security,	but	/
this was not conceded	by P.P.L.	Certainly the primary security
documents for the borrowings of	Karta had not	been executed at

the date of the hearing. Notwithstanding this fact P.P.L. had

made advances to Rarta substantially in excess of the sum of

$2,500,000 which P.P.L.	originally agreed to provide to cover the
construction of a Sports Centre by that company.	There was much
argument concerning the value of the assets subject to	P.P.L's
securities. These securities comprised a mortgage granted	by the

applicant Vimited, a mortgage granted by Holdings, first and

second ranking debenture charges over the whole of the assets and

undertakings	of	that	company	and	first	and	second	ranklng
debenture	charges	over	the	assets	and	undertaklngs	of	the

applicant Town and Country Sport Resorts Pty. Ltd. ("Resorts").

The applicants stated the value of their business at Plympton

Park at $13,000,000 as at December 1987 although Hrs. Hunt

conceded that this valuation was based on a certain level of
profitability which had not been achieved. She also agreed that
a valuation which had been obtained of their business at Gum
Valley was not realistic as at the present time no business was
being conducted on that site. Furthermore the land and buslness

of the applicants at Campbell Park which had been valued in

December 1987 was no longer an asset of the applicants as thls

had been taken over by the Official Receiver. Notwithstanding

these doubts as to the values of the various securities held by

P.P.L.	certain things	are very apparent and were hardly, if at
all, disputed. Both	P.P.L. and	the applicants have been trying

for some time to sell the Plympton business but without success.

Almost certainly the proceeds of sale will be insufficient to

discharge the applicants' indebtedness to P.P.L. The	applicants
have no other assets out	of which to repay their borrowings or to
support the undertaking which they have given	as the price of the

interlocutory orders. P.P.L. is most unlikely to be able to

recoup all the amounts it has lent to the group and the

capitalised interest thereon. It is even less likely to achieve

this result unless the business can be sold as a going concern

otherwise than on a forced or mortgagee sale.

In attempting to determine whether to discharge the

interlocutory orders I am impressed with the following matters.

It is in the jolnt interests of the appllcants and

P.P.L. that the busmess be conducted In such a manner as to

maximise the proceeds of sale. However the applicants are unable

to meet interest payments prior to conclusion of the proceedings

or sale, their undertaking as to damages 1s worthless and even if

they succeed in their claims against P.P.L. the amount they can

recover must be substantially less than the amounts owlng by

them. A matter which greatly concerns me, and which is most

relevant to the exercise of	my discretion whether to continue the
injunction, is the conduct of the applicants	at and subsequent to

22 June 1988. In my opinion their actions were directed to

obtaining through the Court an advantage the existence of which

P.P.L. would be unaware.

Mrs. Hunt said, in the first instance, that at about the

middle of June	1988 a plan was formulated to sell the Plympton
Park Health and Fitness Centre business.	I prefer to accept this
first statement of hers	to her later evidence that this plan was

formulated subsequent to 22 June 1988. This business was of

course subject to a debenture charge in favour of P.P.L. That

company was not agreeable to the sale, which of course would be

thwarted if P.P.L. appointed a receiver. However P.P.L. was not

in a position to appoint a receiver on 22 June 1988 in that no
demand had been made. The ex parte order	was made in the light

of an undertaking to facilitate an early trial and upon the basis

of a direction that forthwith the order, application and

affidavit be served upon P.P.L. The applicants did nothing to

facilitate the expeditious dealing by the Court with the matter

and have not yet filed a statement of claim. They delayed for

J

8.

flve weeks serving the order and later still served the

appllcatlon and affidavit in support. No notlce was glven

whether oral or in writlng of the injunction, notwithstandlng
that a telephone conversation took place early in July between

Mrs. Hunt and Mr. Plummer. Mrs. Hunt agreed that she refrained

from telling Mr.	Plummer of the existence of the Injunction on
that occasion. She did say, in passing, that she	was now the

owner of the business, based on the following circumstances.

On 30 June or 1 July 1988 Mrs. Hunt signed an agreement

as	purchaser and agreed to buy from Resorts the Health and
Fitness Centre business. She as	a director also witnessed the

affixing of the Common seal of Resorts to that agreement. She

said that of the purchase price stated in the agreement of

$200,000, $50,000 was the price of goodwill and the balance

represented plant and equipment. Resorts was under the agreement

obliged to grant to Mrs. Hunt a lease of the premises. On the

same day a notice was filed with the Corporate Affairs Commisslon

advising that Resorts had ceased carrying on business at Plympton

Park under the name Supercentre Country Club and that Mrs. Hunt

was carrying on under that name. She said that having acquired

the business she proposed to resell it to a syndicate.

In my opinion the circumstances urrounding the

obtaining of an interlocutory injunction, including in particular

the failure to serve the order	as directed and the delay In
notification, combined with the somewhat naive attempt	to sell
the Plympton business are significant factors which	I am entitled
to take into account.	I have considered all of the authorities
referred to by counsel for the applicants	who sald everythlng
that could be said in Support	of his cllents' attempts to retaln

the injunction. However none of those cases requlre me in the

circumstances of this matter to keep the Injunction Order on

foot. The applicants have shown a willingness to deceive P.P.L.

and in	so doing have refrained from complying wlth the Court
Order.	This behaviour is an added consideration which when taken

with their inability to provide an undertaking as to damages of

any worth or to keep up their payments of interest requires that

the injunction be discharged. The continuance of the same places

P.P.L. at greater risk than the applicants. In my opinion the

balance of convenience favours P.P.L. and the other

considerations are relevant to the exercise of my discretlon.

I certify that this and

a true copy of the Reasons the 8 preceding pages are

for Judgment of Mr Justice

Fisher.

Associate / G L I t & 8

Counsel for the	Applicants:	Mr. P.A. McNamara
Solicitor:	Mr. A.N. Abbott
Piper Alderman

Counsel for the Respondent:	Mr. D.E. Clayton
Solicitor:	Mr. N.W. Winter Finlaysons
Znd, 5th & 6th September