(FOR LIMITED DISTRIBUTION) IN THE FEDERAL COURT OF AUSTRALIA VICTOPIA DISTRICT REGISTRY GENERAL DIVISION a ly co Ee a ry ee w to nm EX TEMPORE JUDGMENT Between: INT AUSTRALIA PTY. LTD, (Applicant) And: WILTON NOMINEES PTy. LTD., JASEL NOMINEES PTY. LTD. and JOSEPH WILLIAM GEORGE WILTON \Farst Respondents) E fa] A G.W.P. AARONS and R. J. GARTS IDE (Second Respondents) = Coram: Ryan J. Date: 14 November 1986 EX TEMFORE REASONS FOR JUDGMENT By these proceedings, the applicant seeks interlocutory injunctions in the course of an application for relief under the Trade Practices Act 1974 (C'th), ("the Act") and otherwise, 1n respect of an agreement for the purchase by the applicant of a business from the respondent. The agreement was by deed dated 18 October 15986 and provided for the sale KN de as Le . f ~ nena: FEDT| sc gar AUSTVALIA Pst opa REG winy a te wie BG of a business carried on under the businéss names "Auto Care" and "Auto Trans", which involved the provision of certain specialized services ain respect of aumported and Locally manufactured motor vehicles. It was recited in cl.4d.1 of the deed that the business being sold comprised goodwill, equipment, stock, work in progress and the two business names. It was stipulated in cl.4.2 that the price payable by the applicant should he calculated by adding to the value of the stock and work in progress on the completion date, an amount of 31,100,000 for the equipment and 33,180,000 for the goodwill and the business names. The deed further provided for payment of a deposit of $418,500 oan execution, to be held by the respondent's solicitors as stakeholder pending completion. The price for the equipment and stock was to be paid on the completion date, while the amount for work in progress was to be paid for as s00n as practicable after the work had bean completed and paid for by the customers for whom 1t was done. That part of the price referable to the goodwill and the business names, after deducting the amount of the deposit and an allowance in relation to emplovee benefits, was to be paid on completion. Subject to the condition specafied in cl.21 of the deed, c1.5.1 specified that completion of the purchase should occur on 31 October i386, but I was informed by counsel that the completion date was subsequently extended by mutual agreement to 5 November 1386. Under the heading "Assistance by the Vendor", is] te recited that: "As from the date hereof and until completion the Vendor and Mr. Wilton will afford to the Purchaser 5 representatives reasonable access to all operations, accounts, books and records of the business in order that they may observe the various facets or the business and inspect and take extracts and copies from the accounts, books and records thereof." Clause 7 contained an extensive recital of the vendo warranties, including: "7.3 Each of the Vendor and the Covenantors warrant to the Purchaser the truth fairness completeness and accuracy of the management accounts as at the 30th dav of April, 13986 pertaining to the business, being item 8 of the Schedule, and acknowledge that the Purchaser has entered ainto this agreement relying on such accounts." Clause 7.6.14 recited that: "The financial performance of the business disclosed by the anformation given by or on behalf of the Vendor to the Purchaser, as reflected in the said management accounts as at the 30th day of April, 1386 was not materially affected by any unusual or non-recurring items and no material change has occurred in the assets and liabilities or in the financial performance of the business from that disclosed by such information prior to the date of the exchange of a Be this Deed or itsubject always to clause dg) will occur prior to completion." Then, cl.15 of the deed recited that: "This Deed supersedes all previous agreements proposals and negotiations hetween the parties hereto and the parties acknowledge that no other terms, conditions, warranties or representations are applicable to the relations between them as governed by this Deed save as expressly referred to herein or implied by necessary implication." The penalty interest in default of payment of any moneys due to be paid by the applicant as purchaser was made recoverable by cl.22 in the following terms: "Tf the Purchaser is at any time in default in payment of any moneys due to be paid by the Purchaser under this Deed then in addition to any other rights and remedies which the Vendor may have in respect of such default, the Vendor 1s to be entitled to and the Furchaser shall pay to the Vendor interest on the amount in default from the date on which it was due until the date on which at as actually paid at the rate of 20 per cent per annum calculated on a daily basis." Schedule 8 to the deed comprised a sat of so-~callad "Management Accounts" including a document headed "Balance Sheet" which disclosed a net profit for the year of $1,472,432. A document forming part of the same accounts headed "Trading Profit and Loss Statement" showed net income for the year to date of $1,133,580 compared with 369,984 for the whole of the last year to 30 June 1985. uw In the course of this application for an interlocutory injunction, Mr. Hayes, for the applicant, referred to four statements and representations, which are set out in sub-paragraphs (a), (Bb), (d) and (e@) of paragraph 1ll of the applicant's statement of claim, which was filed on Ill November this year. Those statements and representations as pleaded were: "lar The net profit of the business for the 10 months to 30 April 1586 was $1,472,432 as shown in the balance sheet and profit and loss statement as at 30 April 1526, (a copy of which is annexed hereto and marked "At (b) the expenses of the Business for the 19 months to 30 April 13986 were as contained un the profit and loss statement as at 30 April 19386; (d) the April accouncs accurately set forth the financial position of the business; (e) between 30 April and 18 October 1986 there had been no decline in the net profitability of the Business and that the financial information contained in the April accounts accurately represented the financial position of the Business as at 18 October 1986." Each of those representations or statements was, 1t was contended, false, and the making of each of them was conduct which was misleading and deceptive or likely to mislead and deceive in contravention of s.5z2 of the Act. It was also contended that, because the accounts of the business to 30 June 1986, which were made available to the applicant on 3 November 1586, showed a net profit for the year of $303,535, there had been a oreach of the warranty in cl.7.6.11 that: "Subject always to clause 28 there has not been {and as at completion there will not have been) any material adverse change in the trading and atfairs of the business since April 30, 1986." The application, as amended by leave granted by me in the course of the hearing, includes the following paragraphs in the prayer for relief: "(2) An Order for variation of the Deed of Agreement between the applicant and the first respondents dated 18th October 1386 ("the Deed") 5O aBi- (a) to axtend the date for completion of the terms of the agreement until the <a2lst November, 1986 or further order; (b) to reduce the purchase price payable by the applicant to the first respondents pursuant to the terms of the agreement; (c) to compensate the applicant for misleading and deceptive conduct referred to in the Statement of Claim." Then, the succeeding paragraphs of the prayer for relief in the amended application claim: "3. Alternatively, rescission of the Deed. 4. Further, and/or alternatively damages and compensation for breach of section 52 of the Act. 5. Further, damages for breach of warranty. 6. An order that pursuant to the terms of clause 6.1 of the Deed, the first respondents provide to the applicant reasonable access to all operations, accounts, books and records of the business." By way of interlocutory relief, the applicant claimed: "lL. an order that until the hearing and determination of the application herein or Turther order the first respondents and their servants and agents be restrained from: - (a) Requiring completion of the sale and purchase under the terms of the Deed; (b) rescinding the agreement contained in the Deed; (c) forfeiting or take any stevs to forfeit the deposit of $418,500.00 paid by the applicant to the first respondents on or about 18 October 1386. 2. An order that the first respondents comply with clause 6.1 of the Deed and provide to the applicant reasonable access to all operations, accounts, books and records of the business." On 5 November 1986 his Honour Mr. Justice Woodward granted an interim injunction in these terms: "That unt11 5S pm on Gth day of November, 1986 or further order the Respondent, whether by itself or by 1t5 servants and agents be restrained from geequiring completion of the sale and purchase under the Respondent, Deed between the Applicant and the Jasel Nominees Pty. Limited and Joseph William George Wilton bearing the date 18th October 1986." Then, on 6 November 1986 his Honour, Mr. Justice Nocthrop, after hearing Mr. Hayes of counsel for the applicant, and for ou the respondent its solicitor in the morning of that day, and in the afternoon Mr. Gillard g@.C., with Mr. UColbran of counsel, ordered: "That until 5 pm on 11 Novemper 1986 or until further order the respondent, whether by itself or by its servants or agents, be restrained: (a) from taking any steps to enforce the deed entered into between the applicant, the respondent, Jasel Nominees Pty. Limited and Joseph W.G. Wilton dated 18 October 1986; (b) from rescinding the deed; (c) from giving any direction or doing anything in relation to the su $418,500 referred to in paragraph 4.3 of tne deed." I extended that injunction until 5 pm on 12 November 1986, and again to 5 pm on 13 November 1986 and until further order to enable judgment to be given this morning. The interlocutory relief which the applicant seeks was varied from that set out in the amended application to provide a restraint on the respondent from taking the steps referred to in the amended application for a period of 14 days. Interlocutory relief in that form was characterized by Mr. Hayes as a "period of grace" in which the applicant might complete an investigation by 1ts accountants of the financial books and records of the business free of the constraints imposed by the service on behalf of the vendor of a notice to complete dated 7 November 1986 which purported to make time of the essence of the agreement for the sale of the business, ia and to require the applicant to complete and to pay the balance of the purchase moneys payable on completion at or before 5 pm on 14 November 1986. The notice concluded with a statement that, unless the applicant so0 completed within the said period, then the deed of sale was rescinded upon the expiration of that period. It was accepted by counsel for both the applicant and the respondent that the Court should first enquire whether the applicant has demonstrated a serious question to be tried. If satisfied on that point, the Court should proceed to consider whether the balance of convenience comes down in favour of or against the grant of an aunterlocutory o injunction. See, for example, Epitoma Pty. Ltd. v. Australasian Meat Industry Employees Union, (No. 2) (1984) 54 ALR 730 where a Full Court of this Court observed at 734: "In an application for an interlocutory injunction the court must inquire first whether there 1s a serious question to be tried (see Australian Coarse Grain Pool Fty. Ltd. v. Barley Marketing Board of Queesland (1992) 46 ALR 398; 57 ALJR 425; Tableland Peanuts Fty. Ltd. v. Peanut Marketing Board (1984) 52 ALR 651; 58 ALJR 283, per Brennan J. at 284). In the Barley case, Gibbs CJ said (57 ALJR at 425) that he inclined to the view taken by the House of Lords in American Cyanamid v. Ethicon Ltd. £19753 AC 396 rather than to some of those expressed obiter in Beecham Group Ltd. v. Bristol Laboratories Pty. Ltd. (1968) 118 CLR 618; £1968] ALR 469. It would seem that the Chief Justice had in mind the following statement of principle in the opinion of Lord Diplock, concurred un by the other Members of the House, in American Cyanamid (at p.407): 'The use of such expressions as "a probability", "a prima fac1re case," or "a strong prima facie case" in the context of the exercise of a discretionary power to grant an interlocutory injunction leads to confusion as to the object sought to be achieved by this form of temporary relief. The court no doubt must be Zatisfied that the claim 15 not frivolous or vexatious; in other words, "tha there 15 a serious question to be triad." ' " Iam satisfied that the applicant has demonstrated, as the evidence stands at present, at least two serious questions. The first 15 whether the so called "Management Accounts" toa 30 April 1986 truly, fairly, completely and accurately represented the financial state of the business as at that date. The second question is whether the financial performance of the business had not been materially affected by some unusual item, or whether there had not been a Material change in the assets and liabilities or in the financial performance of the business from 30 April 1986 to 18 October 1986. There 1s also a serious ancillary question of whether the applicant has suffered, or will suffer, damage on the assumption that one or other of the substantive questions 15 answered favourably to the applicant. The application raises an interesting question of whether the making of a representation which 15 incorporated as a term of a contract, so that if it is shown to be false the other party has a cause of action in damages, can amount to misleading or deceptive conduct so as to give rise to a separate statutory cause of action under the Trade Practices Act. However, ait ss il. 15 unnecessary for me to attempt to resclve that question in determining this interlocutory application. The fundamental question raised by the form of the interlocutory relief sought by the present applicant concerns the nature and function of an interlocutory injunction. Logically, perhaps, those matters ought to be explored even before consideration 1s given to whether there 1s a serious question to be tried. However, in the circumstances of the present case, 1t 15 convenient to consider that fundamental question in the context of the balance of convenience. As I understand 1t, the principal and most usual purpose of an anterlocutory injunction is to preserve the status quo until the Court and the parties are ready for a final hearing of the action. Thus in Ereston v. Luck, (1884) 27 Ch.D. 4537 Cotton L.d. observed at 508: "This 15 an application only for an interlocutory injunction, the object of which is to keep things in statu quo, so that, if at the hearing the Plaintiffs obtain a judgment in their favour, the Defendants will have been prevented from dealing in the meantime with the property in such a way as to make that judgment ineffectual." Clearly, an interlocutory injunction expressed to operate only until 24 November 1986 would not achieve that purpose in the present case. Indeed, Mr. Hayes did not seek to justify his client's application for interlocutory relief on that basis. He put it that the applicant had shown a serious question as to whether 1t would ultimately obtain relief te under 5.837 of the Act, and that a limited injunction of the kind sought would ensure that the applicant did not take any step which might affect that entitlement without having had a reasonable opportunity to investigate the truth, fairness, completeness and accuracy of the accounts as at 30 April 1986 and to investigate whether the financial performance of the business as reflected in those accounts had been materially affected by any change before 18 October 1926. Section 87(1A) of the Trade Practices Act provides that: "Without limiting the generality of saction 80, the Court may, on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this sub-section) in contravention of a provision of Part V, make such order or orders as 1t thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (ancluding all or any of the orders mentioned in sub-section (2)) 1£ the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage." Section 87(2) lists among the orders referred to in s.87(1A): "(a) an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, or of a collateral arrangement relating to such a contract, to be void K us and, 1f the Court thinks fit, to have been void ab initio or at all times on and after such date before the Gate on which the order 15 made as is specified in the order; (b) an order varying such a contract or arrangement in such manner as 1s specified in the order and, 1f the Court thinks fit, declaring the contract or arrangement to have had effect as 50 varied on and after such date before the date on which the order is made as is so specified; (c) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss of damage; (d) an order directing the person who engaged in the conduct or a& person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage." Mr. Hayes appeared to accept, as I understood him, that as against the existing respondent the relief specified in paragraphs (c) and (d) was not materially different from damages at common law for breach of warranty. However, he referred to paragraph (a) as conferring a statutory remedy of rescission which may be granted in circumstances in which corresponding relief would not be available at law or in equity. He also indicated that the applicant may wish to invoke paragraph (b) to obtain a variation of the contract embodied in the deed by reducing the purchase price or extending the date for completion. It was to preserve the avallability in their full range and efficacy of those " 14. remedies, 1t was said, that an injunction restraining the respondent from requiring completion, rescinding the agreement, oc forfeiting the deposit was necessary. I was referred to George Macgregor Auto Services Pty. Ltd. v. Caltex Gil (Australia) Pty. Ltd. (1980) 51 FLR 458, in which his Honour Mr. dustice Northrop granted an interlocutory unjunction restraining the respondent until the hearing and determination of the action or further order from treating the lease of the service station as being terminated. That injunction was granted in aid of an application under 5.87 by a tenant for the deletion of a particular clause from the lease. However, in that case the tenant was not seeking to reserve to itself any right to rescind the lease and the relief being sought under 3.87 in no way corresponded to an award of damages. Nevertheless, it was contended, by analogy, that 1£ an injunction of the kind sought were not granted to the present applicant, 1t would be forced to make an election in an unreasonably short time between terminating the contract for the respondent s breach and completing it, thereby confining itself to its remedy in damages. Here, Mr. Gillard conceded, in my view rightly, that completion of a contract such as the present does not preclude the grant of any of the types of rellef indicated by s.87(2) as available under the Act, although an election in certain circumstances may weigh with the Court in exercising i1ts discretion to grant or withhold one or other of those remedies. Iam reinforced in this view by what Northrop J. said in Mister Figgins Pty. Ltd. v. Centrepoint Freeholds Fty. Ltd. (1981) 36 ALR 23, where his Honour observed at p.60:- "Although the difficulties inherent in the traditional problems of deciding whether to rescind a contract or to affirm the contract and sue for damages in the event of deceit are to be avoided as far as possible in proceedings under ss.82 and 87 of the Act, nevertheless some consideration and weight must be given to the actions of the parties after knowledge of the existence of misleading or deceptive conduct. Section 87 enables the court to overcome many of those types of difficulties, but at the same time the conduct of the parties, and in the present case particularly the conduct of the applicant, is relevant to be considered in the exercise of the discretion conferred by s.87 of the Act, and more particularly for present purposes in determining the amount of damages to be recovered under s.82." I was also referred to Hannam v. Lamney (1926) 43 WN (NSW) 68 where the Chief Judge in Equity, Harvey J., granted an interlocutory injunction restraining a bankrupt defendant from drawing on a bank account to the extent to which it had been augmented by moneys of the plaintiff purchaser of the Business who was seeking rescission of the purchase agreement. However, that case, in my view, falls into a_ special category in which injunctive relief 1s granted to ensure that there will still be assets from which a plaintiff may satisfy a judgment if and when one 15s5ues in his favour. It will he apparent from what has already been said that an election by the applicant to perform this agreement by paying the balance of the moneys due on completion, does not preclude the exercise of the Court's discretion under 5.87(2)(a) to declare the contract to have been void ab initio or to have been void at all times on and after a date specified in the order and to order repayment of all moneys paid thereunder. The other orders which may be made under s.87(2) in a case such as this are even more closely analogous to an award of damages. Accordingly, I am not persuaded that an injunction in the form sought for a limited period is necessary to preserve some presumptive entitlement of the applicant, the loss of which cannot be compensated by an award of damages or an order under 5.87 for payment or repayment of a sum of money. In addition, to grant such an injunction would effectively extend the date for completion agreed on by the parties, and thereby afford the applicant in these interlocutory proceedings a measure of final relief of the kind indicated in s.87(2)(b). It ais true, of course, that the applicant would be bound by its undertaking as to damages to compensate the respondent for any loss occasioned by such a variation of the contract, if 1t should ultimately be held that 1t should not have occurred. However, I consider that such an irrevocable order should only be made where no other means are available to protect the applicant's position. Moreover, by granting such an injunction and effectively extending the completion date for a fortnight beyond that agreed by the parties, the Court would compel the respondent and its directors to continue the management of the conduct of the business for that period. Should it eventually be held that the imposition of such a burden was unwarranted, 1t may be difficult to quantify the monetary compensation which the applicant should be required to make pursuant to its undertaking as to damages. This is another consideration which inclines the balance of convenience in favour of the respondent. On analysis, the only factor which can properly be put aunto the scale by way of inconvenience to the applicant, is the risk that the respondent may dissipate the moneys received by way of the whole purchase price or the deposit, so that an ultimate pecuniary judgment in favour of the applicant would not be satisfied. See Hannam v. Lamney (Supra) and Heavener v. Loomes (1924) 34 CLR 306, where the majority of the High Court, (Knox CJ and Gavan Duffy and Starke JJ.) in a joint judgment observed at 313: "The money in dispute has actually been paid over by the defendant Dennis to the defendant lLoomes, and there 15 no evidence which enables us to affirm that the defendant Loomes is impecunious Or in such a position that the moneys cannot be recovered by the plaintiffs if they establish any right to them. We think the interests of justice are best served by giving them an opportunity of establishing that right at the hearing of this suit, without encumbering the defendants by unnecessary restrictions." It must be remembered that the amount of the deposit under this deed is $418,500, and the amount by which the applicant may have paid too much for the business has been estimated by its own accountant, Mr. Wraght, at $720,000. In these circumstances there 1s nothing in the evidence from which it can reasonably be inferred that there is a real risk of the respondent being unable to satisfy any monetary judgment which the applicant might recover against 1t. Moreover, as I was reminded by Mr. Gillard, Mr. Wilton, the managing director of the respondent and the moving force behind the development of its business, and Jasel Nominees Pty. Ltd., which was one of the covenantors to the warranty clause in the Deed, and is the trustee of Mr. Wilton's family trust, and the owner of certain real estate on which the business is being conducted, could both be joined as respondents for the purpose of obtaining relief under 8.87(2)(c) or (d). That would form an added measure of assurance of full recover of any moneys to which the applicant may be found to be entitled. 19. I am also comforted, in coming to the conclusion which I have, by the fact that the combined researches of counsel have been unable to discover any reported case in which an injunction of this kind has been granted in circumstances such as the present. For these reasons, the application for an unterlocutory aunjunction in the form of paragraph 2 of the application for interlocutory relief in the amended application, as modified in the course of argument, is refused and the injunction granted by Northrop J., and extended by me until further order, is dissolved. In view of that refusal of the principal interlocutory relief sought by the applicant, I am not disposed, without an opportunity for a complete investigation of the relevant facts and full argument, to grant, by way of interlocutory relief, a mandatory injunction in the form of paragraph 2 of the application for interlocutory relief in the amended application. I consider that the giving of discovery and answers to interrogatories will appropriately secure the applicant access to the books of account and other records of the business, and other relevant information, which it may reasonably require for the trial of the application. I certify that this and the vreceding eighteen (18) pages are a true copy of the Reasons for Judgment of the Honourable Mr. Justice Ryan. SOPOT Be ee Associate Dated: +* wovemser "92S