Truebit Pty Ltd v Westpac Banking Corporation

[1996] FCA 861

CATCHWORDS

INTERLOCUTORY INJUNCTION - applicants seeking interlocutory injunction to prevent respondent appointing a receiver and manager in respect of first applicant's business under and pursuant to a bill of mortgage - whether balance of convenience favoured granting of injunction - first applicant clearly in default under mortgage - first applicant unable to pay debt owing into Court - no advantage in applicants retaining control of business.

Trade Practices Act 1974 (Cth)
Fair Trading Act 1987 (NSW)
Fair Trading Act 1989 (Qld)

Bond v HongKong Bank of Australia Limited (1991) 25 NSWLR 286
Bunbury Foods Pty Limited v National Bank of Australasia Limited and Anor (1984) 153 CLR 491
Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161
Harvey v McWatters (1948) 49 SR(NSW) 173
Jeans West Corporation Pty Limited v JWD Pty Limited (1991) 4 ACSR 689

TRUEBIT PTY LTD, EDMUND JOHN CONROY and JILLIAN CONROY v WESTPAC BANKING CORPORATION

No. NG 456 of 1996

CORAM:    FOSTER J
DATE:     19 JULY 1996
PLACE:    SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA )
  )
NEW SOUTH WALES DISTRICT REGISTRY )    No. NG 456 of 1996
  )
GENERAL DIVISION                 )

BETWEEN:TRUEBIT PTY LTD

First Applicant

EDMUND JOHN CONROY

Second Applicant

JILLIAN CONROY

Third Applicant

AND:WESTPAC BANKING CORPORATION

Respondent

JUDGE MAKING ORDERS:    FOSTER J

DATE:     19 JULY 1996

PLACE:    SYDNEY

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1.The application for interlocutory relief be dismissed.

2.The applicants pay the respondent's costs of this interlocutory application.

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 )    No. NG 456 of 1996
  )
GENERAL DIVISION                 )

BETWEEN:TRUEBIT PTY LTD

First Applicant

EDMUND JOHN CONROY

Second Applicant

JILLIAN CONROY

Third Applicant

AND:WESTPAC BANKING CORPORATION

Respondent

CORAM:    FOSTER J

DATE:     19 JULY 1996

PLACE:    SYDNEY

REASONS FOR JUDGMENT
  (Extempore)

FOSTER J:    I have been hearing an interlocutory application in these proceedings.  The application is to restrain the respondent, Westpac Banking Corporation ("the Bank"), from appointing a Receiver and Manager to or in respect of the property known as Biggera Waters Shopping Centre.  That property is owned by the first applicant.  The second and third applicants are the directors and controlling shareholders of the first applicant.  The property consists of premises of the type commonly described as a shopping centre in a suburban area of Queensland.  It was purchased by the applicants in late 1991 or early 1992 from a receiver, who had been appointed by the respondent because of previous financial problems which had arisen with it.

The application for interlocutory relief is sought in the context of an application, brought by all three applicants against the respondent, seeking a variety of relief in respect of problems that have arisen between them and the respondent, in relation to the shopping centre.  The applicants have filed an extensive statement of claim in which numerous allegations are made against the respondent.  These allegations concern the conduct of certain officers of the respondent in relation to the purchase by the first applicant of the shopping centre.  They can be characterised as allegations of misrepresentation, either made actively or by silence, as a result of which it is alleged the applicants were seriously misled as to the appropriate purchase price and the earning capacity of the shopping centre.  These misrepresentations are pleaded both at common law, and as breaches of the Trade Practices Act 1974 (Cth), the Fair Trading Act 1987 (NSW), and the Fair Trading Act 1989 (Qld).

Allegations are also made of breach of fiduciary duty on the part of the respondent.  It is alleged that, as a result of the prior relationship between the respondent and the applicants, a relationship of trust existed between them which was breached as a result of the conduct to which I have made reference.

The applicants assert that, as a result of these misrepresentations and the breach of the equitable obligations alleged to be owed to them, they have suffered very considerable financial loss.  In respect of that loss, they seek compensation from the Bank.  That compensation is spelt out in various parts of the statement of claim, and is referred to in affidavit evidence to which I have been taken.  If the applicants establish their case against the Bank it is fairly clear that they will be entitled to considerable damages.  It has been put to me those damages may be difficult to calculate.  I am not prepared to find that that would necessarily be so, although of course at this point of time precise calculation is not a matter that has been put before me, nor does it appear in the pleadings. 

As part of the events which occurred in and around their purchase of this shopping centre, the applicants obtained valuations of it, which have been put in evidence.  These valuations, it would appear, were obtained independently of any valuations supplied or referred to by the Bank.

After having failed to find satisfactory financial support elsewhere, the applicants then approached the respondent.  They received, by way of secured loans, finance sufficient to enable them to complete the purchase, the contract for which they had already entered into.

The relevant security documents are set out in the application.  There is a bill of mortgage registered in Queensland and referred to in the application as the "Biggera Waters Mortgage".  There is a personal guarantee given by the second applicant.  There is a mortgage debenture, which is apparently a fixed and floating charge over the business of the shopping centre, and there is a second registered mortgage over the home of the second and third applicants in a suburb of Sydney.

In respect of these securities, the Bank is seeking only to exercise its rights to appoint a receiver and manager in respect of the shopping centre under and pursuant to the bill of mortgage referred to as the Biggera Waters Mortgage.  It is apparent from the evidence that has been placed before me that the Bank is seeking to do so because of the first applicant's default of its obligations under that security.  The Bank is not currently asserting any rights to enforce its other securities to which I have just made reference. 

It appears that there has not been a happy history so far as the running of the business of the shopping centre is concerned.  It has lost money and is in significant financial difficulties.  More particularly, there is currently, having regard to present valuations which are significantly lower than the valuations at the time of the purchase, a difference of some $735,000 between the amount of the debt currently owed to the Bank and the present valuation of the shopping centre.  The interest debt to the Bank pursuant to the security runs at $60,000 a month.  At present there is in place an arrangement which was the result of, as I understand it, an interim order made when the matter was first before the Court about a month ago, under which some $45,000 to $47,000 a month is being paid towards the interest debt.  It is not suggested that there can be any significant improvement upon this situation.

Looking to the ultimate hearing of this case, then, one sees a situation where the value of the Bank's security will deteriorate, whilst at the same time the debt it secures will be increasing incrementally, even if the current arrangements were capable of being kept in place.

It should be said in favour of the applicants that they have paid off amounts owing to the Bank, and that apart from the claims that they make in these proceedings, they have sought to honour the financial obligations that they have incurred.  They, of course, assert in these proceedings that they should never have had to incur those obligations, and that they were misled into this situation. 

These proceedings have been heard throughout the course of today and, indeed, as I speak, the hour is late.  They are interlocutory proceedings.  The Court must consider whether there is a serious issue to be tried, and also consider the balance of convenience, in determining whether the interlocutory relief which is sought should be given, up to and including the hearing of this matter. 

It is an unfortunate fact that whatever may have been the position in years gone by, it is no longer possible, having regard to the workload of this Court, to solve matters in the somewhat simpler way that was possible of giving them very early hearing dates.  I must, accordingly, approach this question on the basis that, if I accede to the granting of the interlocutory relief sought, it will be in place for what will necessarily be a considerable period of time. 

As to the question of whether there is a serious issue to be tried, it has been asserted forcibly, first, on the part of the respondent that there is no such issue, and secondly on behalf of the applicants that the issue is clear and virtually already established beyond reasonable doubt.

I am of the view that there is enough material placed before me to indicate the existence of a serious issue, in the sense that serious allegations are made and they are seriously contested.  It is quite impossible to form a view as to the likely outcome of the kind which can, of course, have a significant influence on the outcome of interlocutory proceedings.  I am not able to say that it is demonstrably a weak case that has been brought, such that it would not in any event warrant interlocutory relief.  Conversely, I am not able to say, because certain matters have been raised which point to difficulties in it, that it is demonstrably a strong case.  I can only say that it is a case which is capable of being tried, and which obviously will be a heavily contested matter on all questions of fact.  I must, therefore, decide in my view what order I should make based upon my approach to the balance of convenience.

In this case there is, in my view, no doubt that the Bank demonstrates a prima facie entitlement to enforce the Biggera Waters Mortgage by the appointment of the receiver.  I have been taken to relevant portions of the security documents which indicate that its entitlement exists, having regard to the fact of the clearly established default on the part of the first applicant. 

The question was raised as to whether sufficient notice had been given in a notice of demand.  My general view on that matter is that, having regard to the provisions to which I have been taken, there is no notice of demand needed.  Should I be wrong in that, I am satisfied that the period of notice, having regard to the principles in this area laid down in cases such as Bond v HongKong Bank of Australia Limited (1991) 25 NSWLR 286 and Bunbury Foods Pty Limited v National Bank of Australasia Limited and Anor (1984) 153 CLR 491, is adequate in the circumstances. It is, of course, abundantly clear that no extended period of notice would have enabled the applicants, in the unfortunate financial position in which they find themselves, to find the money to answer the respondent's demand.

I therefore approach this on the basis that the respondent has established its entitlement to appoint the receiver, unless for reasons that have been cogently and eloquently put to me on behalf of the applicants, I should exercise a discretion to restrain it from so doing.

This discretion in a court in a situation such as this is not at large.  In the first place there is no suggestion that the amount of the Bank's debt can be brought into Court.  I am not unmindful of what has been put to me that, should the applicants be successful, the amount of that debt may be significantly reduced.  But as things stand there is a substantial amount owing, and there is no prospect of the applicants conforming with the well-known principles set out in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161, namely that in order to obtain the injunctive relief sought they should bring into Court the whole or a substantial part of the amount in issue.

I therefore have to consider the question on the basis of whether the applicants have demonstrated an entitlement to the relief sought because of principles which
have been considered in cases such as Harvey v McWatters (1948) 49 SR(NSW) 173.

I have considered what has been put to me in this regard, and cannot, of course, help but have considerable sympathy with the position of the applicants.  I do not, however, see how I can accede to the submissions that have been made on their behalf.  I can see no basis upon which I can mould any order which would have the effect of protecting the mortgagee in these circumstances, according to principles which have been set out in cases such as Jeans West Corporation Pty Limited v JWD Pty Limited (1991) 4 ACSR 689 and other cases that have been referred to me in argument.

Quite apart from that problem, I have also given consideration to factual questions that have been raised on the issue of the balance of convenience.  It has been put to me with considerable force that the appointment of a receiver could have a deleterious effect upon this shopping centre, its value, and the ability to conduct any sort of profitable business in it. 

The shopping centre has one major tenant, the well-known grocery retailer, Franklins.  It indeed was a tenant when the shopping centre was last put into receivership.  It is currently a tenant holding over under a monthly tenancy.  There can be little doubt that if it withdraws the effect upon the shopping centre will be deleterious.  There is no indication before me however as to whether it would withdraw if receivership occurred.  It apparently had no problems in continuing its tenancy under the last receiver and I cannot be satisfied that it would not seek to continue the business under a subsequent receivership.

It has been extremely difficult to obtain any clear view of what the applicants would do if they were able to remain in control pending the hearing of these proceedings.  It is apparent that they have been seeking various ways in which to discharge their obligations to the respondent and also maintain some viability in the business, either through the introduction of venture capital, or the taking in of a venture partner, or something of that kind.  To this end they have sought to obtain assistance from Macquarie Bank.  Material has been placed before me indicating the sort of advice they have been seeking and the sort of advice they have received.  That advice appears to be directed towards maintaining, so far as possible, the value of the shopping centre, with a view to it being sold.  It was submitted that if the shopping centre is put in receivership its value will necessarily be diminished.

I have taken those considerations into account.  I have weighed them up against what is the major thrust, of course, of this litigation.  That is, serious complaints made on behalf of the applicants, the nature of which I have already adverted to.  The outcome of those complaints, if successful, will of course sound in substantial damages.  They will be damages awarded against a defendant quite capable of meeting them.  Conversely, any undertaking as to damages given on behalf of the applicants, which, of course, would be necessary if interlocutory relief were to be granted is, because of their unfortunate financial position, not likely to be honoured or honoured in full.

Doing the best that I can, and being grateful for the assistance I have received from counsel in what has been to me a difficult task, I have come to the conclusion that I must dismiss this application for interlocutory relief in the truncated form that it in fact has been brought. 

I order the applicants to pay the respondent's costs of this interlocutory application.

I certify that this and the preceding ten (10) pages are a true copy of the reasons for judgment herein of the Honourable Justice M. L. Foster.

Associate:

Date:   19 JULY 1996

A P P E A R A N C E S

COUNSEL FOR THE APPLICANTS:  J. GARNSEY QC
  M. CASHION

INSTRUCTED BY:              NICHOLAS EDDY & COMPANY

COUNSEL FOR THE RESPONDENT:  P.A. KEANE QC
  J.C. SHEEHAN

INSTRUCTED BY:              FEEZ RUTHNING

DATE OF HEARING:   19 JULY 1996

DATE OF JUDGMENT:  19 JULY 1996