oh CATCHWORODS Trade Practices - Practice and Procedure - Federal Court proceedings alleging misleading and deceptive conduct in connexion with the provision of loan funds - Supreme Court proceedings based on the loan agreement, and securities given in support - appropriate forum — ELTRAN PTY. LIMITED & ORS. V. QLD. G1l41 OF 1986 SPENDER J. BRISBANE 16 OCTOBER 1986. injunctive relief. WESTPAC BANKING CORPORATION & ORS. ee ae ee ope ge eee ia en ee tae, Say miprrey tt ne somrmat oe wp een un oe ea GT > Ty wel , . yok ot rn er ne ee eee . Ne : ny pou te we IN THE FEDERAL COURT OF AUSTRALIA t QUEENSLAND DISTRICT REGISTRY QLD. G14] of 1986 GENERAL DIVISION BETWEEN : ELTRAN PTY. LIMITED First Applicant oe " PREMAYDENA PTY. LTD. ~a0 Second Applicant CRESWELL PLACE PTY. LTD. Third Applicant ate ert yr meee ee egy pte a pe erp ee oe twos . ooo ' a ADAM'S ROW PTY. LTD. Fourth Applicant Sines one eG Lad . wy . Q CARTER LANE PTY. LTD. Fifth Applicant BERNARD STREET PTY. LID. Sixth Applicant AND: ORACA PTY. LTD. Seventh Applicant oar BINON PTY. LTD. y . ' Eighth Applicant TREVOR RONALD KING Ninth Applicant WESTPAC BANKING CORPORATION First Respondent JOHN GEOFFREY ALLPASS and ALAN RAPHAEL TUTTLE Second Respondents MINUTES OF ORDER ve Rare to. poewe- way JUDGE MAKING ORDER: SPENDER J. DATE OF ORDER: 16 OCTOBER 1986 WHERE MADE: BRISBANE THE COURT ORDERS THAT: Upon the usual undertakings as to damages being offered by each of the applicants:- 1. NOTE: The first respondent be restrained until trial or further earlier order from prosecuting or taking any further proceedings in the Supreme Court of Queensland action no. 4002 of 1986. The first and second respondents be restrained until trial or further earlier order from prosecuting or taking any further proceedings in the Supreme Court of Queensland action no. 4052 of 1986. Until trial or further earlier order, Messrs. John Geoffrey Allpass and Alan Raphael Tuttle, and each of them, have power in respect of each of the properties the subject of their appointment as receivers and/or managers by the First Respondent, to receive all rentals, to give an effective discharge in respect of the payment of rentals, to exercise the ordinary day to day powers of management including, without derogating from the generality of the above, the approval of new tenants, the approval of assignment of tenancies, the approval of repairs, the authorisation of action to recover arrears of rent, the authorisation of payment of accounts, the employment and payment of general outgoings for such properties, including cleaning contractors, general maintenance contractors, electricity accounts and yates accounts, ensuring that. current, appropriate and adequate insurance is maintained in respect of those properties. The second respondents be restrained from taking any steps to advertise for sale, offer for sale or sell the said properties without first giving written notice of the intention to do so to the solicitors for the applicants; the applicants thereafter to have seven days in which to make any application to the Court in respect thereof, failing which application the second respondents may take the said steps. Liberty to apply. Costs of the interlocutory proceedings be costs in the cause. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. yA Tht ore ee rs ae at, 7 Ee Pa een. . w ar 0 et ote cat IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION ) ) ) QLD. G141 of 1986 ) ) BETWEEN : AND: AND: AND: DATE JUDGMENT DELIVERED: ELTRAN PIY. LIMITED First Applicant PREMAYDENA PTY. LTD. Second Applicant CRESWELL PLACE PTY. LTD. Third Applicant ADAM'S ROW PTY. LID. Fourth Applicant CARTER LANE PTY. LTD. Fifth Applicant BERNARD STREET PTY. LTD. Sixth Applicant ORACA PTY. LTD. Seventh Applicant BINON PTY. LTD. Bighth Applicant TREVOR RONALD KING Ninth Applicant WESTPAC BANKING CORPORATION First Respondent JOHN GEOFFREY ALLPASS and ALAN RAPHAEL TUITLE Second Respondents 16 OCTOBER 1986 aan wo nn pee tee COUNSEL: - for the applicant for the respondent McLachlan Q.C. and Mr. P. Dutney instructed by A. Kootsookos & Co. Mr. R. Wensley and Mr. A. Morris instructed by Feez Ruthning & Co. P. APPLEGARTH ASSOCIATE TO SPENDER J. ood a ns wre Gay eet emer IN THE FEDERAL COURT OF AUSTRALIA ) ) QUBENSLAND DISTRICT REGISTRY ) ) GENERAL DIVISION ) BETWEEN : ELTRAN PTY. LIMITED QLD. G14l of 1986 First Applicant AND: PREMAYDENA PTY. LTD. Second Applicant AND: CRESWELL PLACE PTY. LTD. Third Applicant AND: ADAM'S ROW PTY. LTD. Fourth Applicant AND: CARTER LANE PY. LTD. Fifth Applicant AND: BERNARD STREET PTY. LTD. Sixth Applicant AND: ORACA PTY. LTD. Seventh Applicant AND: BINON PTY. LTD. Eighth Applicant AND: TREVOR RONALD KING Ninth Applicant AND: : WESTPAC BANKING CORPORATION First Respondent AND: JOHN GRHOFFREY ALLPASS and ALAN RAPHAEL TUTTLE Second Respondents — Ve ee ay ap ene pote ore tee Se aden Pek Sadie) comes come Soe noses epee mn cere * seat SPENDER J. BRISBANE 16 OCTOBER, 1986. REASONS FOR JUDGMENT This is an application for interlocutory relief which concerns substantial sums said to have been lost on borrowings in foreign currencies consequent on the devaluation of the Australian dollar. The applicants, on 3 October 1986, filed proceedings in the Federal Court of Australia. The first applicant, Eltran Pty. Limited, which I will call Eltran, seeks declarations that it is not in default under the terms of a loan agreement, which is more specifically referred to in the Statement of Claim and to which reference will be made later. It claims damages pursuant to s.82 of the Trade Practices Act 1974; alternatively, damages for breach of contract; and, alternatively, damages for negligence. The second to eighth applicants claimed first a declaration that the appointment of the second respondents as receivers and managers under several mortgages which they gave are null and void, a declaration that the first respondent, ("Westpac"), is not entitled to exercise a power of sale pursuant to those several mortgages, an order restraining the receivers and managers from exercising or purporting to exercise powers as receivers or receivers and managers; and further, an order restraining them from exercising or purporting to exercise the power of sale which is given by those mortgages. ur oe By way of interlocutory relief, with which I am presently concerned, the applicants seek to restrain the first respondent from prosecuting an action number 4002 of 1986 in the Supreme Court of Queensland. That is a claim for the amount said to be due under the loan agreement from Eltran to Westpac. They seek, again by way of interlocutory order, an injunction restraining all respondents from prosecuting further action number 4052 of 1986, which essentially is an action in the Supreme Court of Queensland seeking declarations that receivers and managers have been validly appointed. There is also interlocutory injunctive relief sought concerning the power of sale, and concerning the power to manage and receive given pursuant to the mortgages. The facts for present purposes are that Mr. Trevor King is the major shareholder and managing director of each of the applicant companies, each of which is the trustee of a trust. The various companies own substantial income producing properties primarily in south-east Queensland. Those properties are mainly shopping centres. In September 1983, Mr. King, to assist in acquiring some of those properties, arranged for the borrowing in foreign currency to the equivalent of SA5 million from the European and ioaaleieee Ma G pore bres ake epee a cee erie syca7 Whe w1y . me eine epee erste m7 een "vt try en oy oe ea en we ae ee ee "ETT e Vamoo Asian Bank Agency and, later in that year, a further equivalent of $§A800,000 was borrowed from that bank to purchase further property. Then, in July and October 1984, the sums owing to the European and Asian Bank were paid out by borrowings in foreign currency from Westpac. Between 20 July 1984 and 30 October 1984, the first respondent, Westpac, advanced to Eltran the sum of SA8 million, and that loan was drawn down in the sum of Swiss francs 40,552,725.78 and Japanese yen 167,672,000. Those monies were advanced pursuant to the terms of a facility letter dated 11 July 1984, a facility letter dated 18 July 1984, and a facility letter dated 10 October 1984. It is those borrowings with which the present proceedings in the Federal Court, and the proceedings in the Supreme Court, are concerned. The borrowings arise out of two meetings which were held in June and July of 1984. To secure the monies advanced, mortgages were given by each of the second to eighth applicants inclusive, and a personal guarantee was given by Mr. King. The clause of primary concern in the litigation is clause 13. It provides at 13.01:- "13.01 If at any time, or from time to time, the Bank in its absolute discretion determines that the Australian Dollar equivalent of the Loan at that time (converted at the Bank's spot rate of exchange on the relevant date) exceeds seventy per centum (70%) of the Value of the Security (such excess being hereinafter called the ee ' 4248 vo oe case vases ae met 4 ' ' .t peevey sogecer eee = ron, LATA Ae epee mas " "Shortfall") then, without prejudice to any other rights which the Bank may have hereunder, the Bank may, at its option, give notice to the Borrower requiring the Borrower within five (5) Banking Days to do either of the following: (a) provide the Bank with additional Security over assets acceptable to the Bank with a value (in the opinion of the Bank) at least equal to the Shortfall, such Security to be in form and substance satisfactory to the Bank; or (b) deposit with the Bank to such account and in such currency as the Bank shall specify cash deposits in immediately available funds equal to the Shortfall and to provide the Bank with such Security over such deposits as the Bank shall require." oR, ¢ Subsequent to the time of the borrowings in 1984, there was a severe depreciation in the Australian dollar. On 2 September 1986, the Manager of Corporate Banking of Westpac, wrote to Eltran in these terms:- pee ione oro oe 4 yD "Re: OFFSHORE LOAN FACILITY PURSUANT TO LOAN AGREEMENT CONSTITUTED BY THE FACILITY LETTER DATED JULY 11 1984 AS AMENDED BY AMENDING LETTER DATED 18 JULY 1984 AND AS FURTHER AMENDED BY AMENDING LETTER DATED 10 OCTOBER 1984 Singapore branch has asked us to advise you as follows :- As at the close of business yesterday the Australian Dollar equivalent of the Loan (converted at the Bank's spot rates of exchange at the relevant date) was AUD 16,416,198 (as summarised hereunder). The value of security at the same time was AUD $12,418,551. In accordance with the provisions of Clause 13 of the Facility Letter the Bank has determined that the Shortfall, based on 70% of the value of the security, is consequently AUD 7,723,212 and we hereby give you, five (5) banking days' notice to deposit with the Bank at its branch at United Dominions House, Creek Street, Brisbane this Shortfall namely the sum of AUD 7,723,212 and to provide the Bank with security over these moneys in accordance with Clause 13.01(b). This notice is given to you in accordance with Clause 13 of the Facility Letter and failure to comply with it in accordance with its terms constitutes (inter alia) an event of default under Clause 12." Eltran did not comply with the demand contained in that letter and, on 12 September, Westpac purported to appoint receivers and Managers pursuant to the powers contained inthe bills of mortgage given by the second to the eighth applicants inclusive. On 18 September 1986, the bank called up the principal sum against Eltran, and on 29 September gave notice of its intention to exercise powers of sale to each of the second to eighth applicants. On 23 September 1986, action number 4002 in the Supreme Court of Queensland was commenced and, on 26 September, action 4056 was commenced in that court. It is accepted that, if Eltran is in default of its obligation pursuant to clause 13 of the facility letter of 11 July 1984, then the bank is entitled to call up the principal sum and entitled, pursuant to its powers under the mortgage, to appoint receivers and managers and to exercise the powers of sale conferred by those documents. The question essentially is: could the bank properly make demand on 2 September and, if so, did it? The applicants ree aa aa ny 4, r rss oe ame ee ae rr im areata TY nEET se ae ae +s at = say that there are two bases, at least, on which the bank was not so entitled. First, the applicants allege that, prior to and in order to induce Eltran to enter into the loan agreements, it engaged in misleading and deceptive conduct contrary to s.52 of the Trade Practices Act 1974; alterntively, it acted negligently in the performance of its duties as banker to Eltran; or, in the further alternative, was in breach of its contractual obligations to Eltran. In the Statement of Claim which accompanied the Federal Court applications, it is alleged in paragraphs 6, 7A and 7B that it was represented to the first applicant by the first respondent that, in consideration of the first applicant accepting the said facility, the first respondent would make hedging facilities and advice in relation thereto available to the first applicant for the purpose of protecting the first applicant's exposure to foreign currency fluctuation in relation to the said loan, and it was further agreed or, alternatively, represented that any decision as to the taking out or reversing hedging contracts would be made by the first applicant and acted upon by the first respondent. Certain particulars are given of those allegations. It is further alleged that the representations were misleading or deceptive, in that at the time such representations were made, neither of the named employees of Westpac intended to act on instructions from the first applicant, except where such instructions followed advice or directions from Westpac. It is asserted that, but for that promise or representation, the first applicant would not have accepted the said facility. ST "ye S73 6 epee taeqe pee ee pee ee rng ene Speen ene . 74 a oN pene are ce aa as The consequence of all this, it was said, was that the applicant would not have been exposed to liability for the loss which is alleged, but for the conduct of Westpac, contrary to s.52. It is further said concerning the bank's entitlement to demand what has been referred to as topping up of the facility pursuant to clause 13 because the loan/security ratio had been exceeded, that the bank had caused loss to the applicant of the order of $9.9 million, which the applicants would be entitled to set off against monies owing to the bank. It is said that this right to set off impeaches the bank's right to require the topping up as referred to in clause 13. I must confess that I have some difficulty with this aspect of the argument, because of the terms contained in clause 13 of the facility letter. That clause entitles the bank to require the topping up of the security to loan ratio on the conditions set out in the clause. That condition is: "Tf the Bank in its absolute discretion determines that the Australian Dollar equivalent of the Loan at a particular time exceeds 70 per cent of the Value of the Security" Now, that condition is expressed to be dependent on the ratio between the Australian dollar equivalent of the loan and the value of the security. It does not refer in any way to what might be the indebtedness between the bank and Eltran. cee oe ~ eee eg cr ener te a Yer poe rere tt ena ere yore et . ' > oe. woth wee eee - oy meres nee . or x If there are obligations by the bank to Eltran, I have difficulty in seeing how that can affect the Australian dollar equivalent of the loan. The comparison on which the topping up requirement is based is not with the amount owing between the bank and Eltran but with the Australian dollar equivalent of the loan, which is a matter capable of computation, at least within quite narrow bands of quantification. However, I accept that the Federal Court claim made by the applicants is genuinely put forward. It is pleaded in the Statement of Claim as a set-off. As to equitable set-off, Spry, in the third edition of his book, The Principles of Equitable Remedies, at 175 says this: "What generally must be established is a relationship between the respective claims of the parties which is such that the claim of the defendant has been brought about by, or has been contributed to by, or is otherwise closely bound up with, the rights that are relied on by the plaintiff and which is such that it would be unconscionable that he should proceed without permitting a set-off. Thus if conduct of the plaintiff is such as to induce the defendant to incur an obligation in favour of the plaintiff, and the conduct itself is fraudulent, negligent or otherwise wrongful so as to give a cause of action to the defendant, the plaintiff is not ordinarily permitted to proceed until he has made good the material claims of the defendant." In this regard, the learned author cites Rawson v. Samuel (1841) Cr. & Ph. 161, 41 E.R. 451; Stimson v. Hall (1857) 1H. & N. 831, 156 E.R. 1436; Minshull v. Oakes (1858) 2H. & N. 793, 157 E.R. 327; Aries Tanker Corporation v. Totai Transport Ltd. £19773 1 W.L.R. 185; Hill v. Ziymack (1908) 7 C.L.R. 352; In re K.L. Tractors Ltd. £19541 V.L.R. 505. wow, te pert ee en oe Po ep ee oe 7 7 4 a. ee ae nn rere = eee - an Note 10. And later, at p.178 of the third edition, the learned author says:- "In Australia there have been fewer departures from orthodoxy, and the tendency has been to apply the principles established by Lord Eldon and Lord Cottenham, so that, for example, it is not necessarily sufficient that the respective claims should arise out of the same contract or have some similar relationship to each other, and it has been affirmed that in order that an equitable set-off should arise the claim of the defendant should indeed impeach that of the plaintiff." Whether it is properly to be characterized as a set-off or simply as a counter-claim, in my opinion, it is genuinely advanced and, further, it is not merely a matter of defence. In Carlton and United Breweries Ltd. & Anor. v. Castlemaine Tooheys Ltd. & Anor. (1986) 66 A.L.R. 347, the High Court concluded that, in the circumstances in that case, no matter which was exclusively within the jurisdiction of the Federal Court was raised in those proceedings and that consequently the Supreme Court. of New South Wales had jurisdiction to entertain the defence which was based on the monopolization provisions of the Trade Practices Act 1974. Specifically, it was held that s.86 of the Trade Practices Act 1974 conferred jurisdiction on the Federal Court, and made that jurisdiction exclusive only in those matters which answered the descriptions contained in that section, namely, actions, prosecutions and other proceedings under Part VI of the Trade Practices Act 1974. ete coe ea a eer Or Lhe ee Yo. ee Wem emenge ee ee en erm re il. The claim of the applicants in this present case is within Part VI of the Trade Practices Act 1974 and, in that respect, is the basis for the distinction between what was said in that court and what is the factual situation here. Here, the claim for s.82 damages pursuant to the Trade Practices Act 1974 could not be litigated in the Supreme Court. The second basis on which it is said that the bank is not entitled to make demand, as it did on 2 September, is that, properly construed, clause 13 of the facility letter requires the bank to give to the borrower the option either to provide additional security over assets, as is contemplated in clause 13.01(a) or to deposit with the bank cash and to provide security over such deposits as the bank would require. The claim, in short, is that that clause should properly be construed so as to give the borrower the option of doing either that which is referred to in 13.0l(a) or that which is referred to in 13.01(b). In support of that submission, it is pointed out that both (a) and (b) require satisfaction by the bank of what is offered by way of extra security and that, had it been that the bank was entitled to make stipulation as to whether course (a) or course (b) was to be done by the borrower, it could have said so in plain language. There are difficulties with the interpretation of that clause but, for present purposes, I do not think the contention by the applicants is an unarguable one. ~ ve ee ee pan tiep ee a, pers wee one wie we ap . pene epee ree ee ne ~. - . A Tr pee ee Pe eee Poe ee ee ee 12. On an application for interlocutory relief in the Federal Court, it is clear, following Epitoma Pty. Ltd. v. Australasian Meat Industry Employees' Union & Ors.(No.2) (1984) 54 A.L.R. 730 at 734 and 739, that first the court has to consider whether there is a serious question to be tried and, if so satisfied, it then has to proceed to consider the balance of convenience. Useful reference in present circumstances may be made to some observations by Mr. Justice Northrop, the first in Francis C. Mason Pty. Ltd. & Ors. v. Citicorp Australia Ltd. (1985) A.T.P.R. 40509 at 46067. In that case, the applicants had made a loan agreement and a guarantee agreement with the respondent Citicorp. Citicorp had commenced proceedings in the Supreme Court of Victoria against the applicants, claiming payment of the monies alleged to be due under that loan agreement. Some two months later, the applicant commenced proceedings in the Federal Court, alleging Citicorp's conduct was misleading or deceptive and sought damages under s.82 and orders pursuant to s.87 of the Trade Practices Act 1974, and they then sought interim orders restraining Citicorp from proceeding further in the Supreme Court procedings. Mr. Justice Northrop refused to make those orders because he was not satisfied the federal claims were genuine. As to the proper approach on an application, which is analogous to the one presently made here, he said at 46067, left-hand column: "Before the Federal Court makes an order of the type sought by the applicants, the material before the court must satisfy it that the Federal claims and the State claims constitute one controversy between the parties, that the Federal claims are genuine and that they form a substantial aspect of Sr rhe oa sk, - oe Mae wore tm et en re nee wethe we oe athe . eee 13. that controversy. Counsel for Citicorp has contended that the Federal claims made by the applicants are not genuine and do not form a substantial aspect of that controversy." In Adamson v. West Perth Football Club Incorporated & Ors. (1979) 27 A.L.R., 475, Northrop J. said at p.499: "In my opinion the implied incidental jurisdiction arises whenever there 1s before the Federal Court a matter vested in it by laws made by the Parliament being in respect of matters arising under laws made by the Parliament and the claim made is supported by grounds which do not arise under laws made by the Parliament but which are not completely severable having no relation whatever to, the claim made in respect of matters arising under laws made by the Parliament. In those circumstances, the Federal Court has jurisdiction to hear and determine the claim in so far as it is based on those other grounds. The claim made must be in respect of matters arising under laws made by the Parliament and must be bona fide and substantial, but the validity or strength of the claim in respect of the matters arising under laws made by the Parliament is quite immaterial so long as they are genuinely raised." In Alexander & Ors, v. Murphyores Incorporated Pty. Ltd. & Anor. (1986) A.T.P.R. 40678, which again has some broad analogy to the present application, I there referred to the relevant High Court authorities dealing with jurisdiction and discretion. Those authorities are not altered in my view by the judgment of the High Court in Carlton and United Breweries Ltd. & Anor. v. Castlemaine Tooheys Ltd. & Anor. (supra). Factually, I find that here there is a single controversy which is centred on the meetings of June and July of 1984, out of which the facility letters constituting the loan wep ern gree Soe ay. a tye veep eee oe "yp 14. agreement arose. That controversy involves claims which are exclusively federal in character, as well as claims which are non-federal. In general, as the authorities show, it is preferable that litigtion be conducted in the forum which does have the power completely to resolve the dispute. The question here is are there any grounds on which that prima facie preference should not be followed. In Vinpark Investments Pty. Limited v. Dainford Limited (1985) A.T.P.R. 40543, there were circumstances in which L concluded that it would be fair for the Federal Court proceedings to be stayed pending a resolution of the Supreme Court proceedings. There I was anxious that the Federal Court would not lend its support to what I saw as duplication and waste, and there had in fact been considerable standing-by while the Supreme Court proceedings had gone almost to the point of being heard. In this particular case, the Supreme Court proceedings are very much in their infancy, and the considerations that led me in Vinpark not to restrain the applicants from proceeding further in the Supreme Court, do not here apply. Only recently, on 22 September 1986, Mr. Justice Northrop in L. Grolio & Co. Pty. Ltd. & Ors. v. Palmdale Insurance Limited (in Liquidation) & Anor. (unreported) was concerned whether proceedings in the Victorian Supreme Court should be pursued by the respondents. Te 1 "r be tenon 15. Again, as a matter of discretion, Mr. Justice Northrop said that it seemed to him that the best course to adopt was to refrain from making any order preventing Palmdale from proceeding with its actions in the Supreme Court. Again, the situation was that the proceedings in the Supreme Court had been pending for a long time, in fact, a number of years, that there had been a number of separate hearings of matters arising in those proceedings, and the matters in the Supreme Court could be heard in the not too distant future. For those reasons, it was appropriate that the matters remain in the Supreme Court. In the present case, as I have indicated, there is no real reason why the prima facie preference for the forum which has the power to dispose of all matters should not be the forum to try the matters and, so, I am prepared to grant the application so far as it relates to restraining the respondents' proceeding in the Supreme Court actions. So far as the interlocutory relief which was sought in respect of the power of sale is concerned, there is, as the affidavit material shows, no present intention to exercise that power. I propose to make orders which will permit further consideration, should any question of the exercise of the power of sale arise. So far as the interlocutory relief concerning the Management of the properties the subject of the various mortgages, it seems to me that, as a matter of fairness between the parties, notwithstanding what I accept is a financial cost - Toe ne 16. associated with having receivers act, that the bank ought not to be denied the opportunity of involvement in relation to these properties pending the trial of the matter, and that the appropriate course is to permit the receivers to continue to operate the various properties on a day-to-day basis, pending trial or further earlier order. I therefore make the orders that I have indicated before. I certify that this and the preceding 15 pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Spender. — Dated 16 October 1986. 4 2. 7 rpliganth Associate th Wawa Yolo