a, #, 225% « Not for Distribution IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QLD. G74 of 1987 ee ee GENERAL DIVISION BETWEEN: BARTLETT INVESTMENTS PTY. LTD. First Applicant AND: SYDBART PTY. LTD. Second Applicant AND: NORTH QUEENSLAND DEVELOPMENT (NO. 2) PTY. LTD. Third Applicant AND: COMMONWEALTH BANK OF AUSTRALIA First Respondent AND: WILSON JOSEPH WILDE Second Respondent SPENDER J. BRISBANE 24 JUNE 1987. REASONS FOR JUDGMENT In these proceedings the applicants seek by way of interlocutory relief an injunction until the hearing of the application or further order, restraining the Commonwealth Bank of Australia ("Commonwealth Bank") and Wilson Joseph Wilde from taking any further steps pursuant to a deed of appointment whereby the Commonwealth Bank appointed Mr. Wilde receiver and manager of the first applicant's assets and undertakings. ren, "ae The respondents, by notice of motion made returnable at the time appointed for the hearing of the application for interlocutory relief, seek orders that the statement of claim be struck out because it discloses no reasonable cause of action; that the applicants provide security for the respondents' costs; that it be made a condition of the grant of the interlocutory injunction sought by the applicants, that the first respondent be restrained from taking any further steps pursuant to the deed of appointment of the second respondent as receiver and manager of the first applicant's assets and undertakings, that the first applicant pay into Court $7,481,815.00, being the whole of the moneys presently due and owing by the first applicant to the first respondent pursuant to the deed of equitable charge; and also for an order that the first applicant forthwith deliver to the second respondent books and records which are particularised in the notice of motion. On 19 August 1985, eleven companies, including the first and third applicants entered into a deed of equitable mortgage with the Commonwealth Bank. It is not in dispute that there is owing by Bartlett Investments Pty. Ltd. to the Commonwealth Bank a considerable sum of money under that mortgage. While there is no agreement as to the precise amount owing, on any view of the matter, it is in excess of $6,000,000.00. On 23 April 1987, the Commonwealth Bank in purported exercise of its powers under the equitable mortgage, appointed Mr. Wilde as receiver and manager of the first applicant's assets Mp ree pe cee ee w pew pss wee tr ee re cr ee er er no mre ra any *. ' Hey ' A 3. and undertaking. By its application filed in the Federal Court on 5 May 1987, the applicants sought a declaration that that appointment is invalid, as well as relief pursuant to the Trade Practices Act 1974. It was at one stage contended that' the equitable mortgage signed on behalf of the first applicant was deficient and did not contain any power to appoint a Receiver but, on the original mortgage being obtained, no issue remains in this respect. The applicants for interlocutory relief assert that there is a_ serious question to be tried concerning the Commonwealth Bank's entitlement to appoint a receiver of the first applicant's assets and undertakings, and that the balance of convenience favours the issue of an interlocutory injunction restraining the Receiver from exercising his powers. It is said there is a serious question to be tried concerning the bank's entitlement to appoint Receivers pursuant to the equitable mortgage because the bank, on or about 5 March 1986, agreed that it would not appoint a receiver or receivers to the first applicant in the absence of a material change of circumstances. It is further said that no such material change in circumstances occurred prior to the purported appointment of Mr. Wilde on 23 April 1987. The respondents assert that there is no serious question of such an agreement as contended for by the applicants and, even if there were, there had been a material change of circumstances mace me ore oma wy oe ors, ao separ reg i ey "es Shaneenhiner mien ad 4. in a number of respects and, on the question of balance of convenience, an interlocutory injunction ought not be granted as it would be futile. Mr. John Colin Bartlett, a director of each of the applicants, swears in his affidavit that on 5 March 1986, he called a meeting of the secured creditors of the Bartlett group of companies at the offices of Touche Ross & Co. in Sydney. While there is a dispute as to whether a private meeting had occurred before or after the meeting of secured creditors, there is no doubt that there was on that day a private meeting between Mr. Bartlett and his wife, and Mr. Weaver and Mr. Collis Hollis on behalf of the bank, and two persons from Messrs. Coopers and Lybrand. According to Mr. Bartlett, there was discussion concerning the state of the bank's security documents. There was discussion and agreement reached that the bank would appoint receivers to those companies that were threatened by unsecured ereditors to protect its interest and to enable a_ realisation programme of assets to proceed. Mr. Bartlett's affidavit then baldly states:- "It was further agreed that the Bank would not appoint a Receiver to Bartlett Investments Pty.Limited, thus ensuring my control of the Group for the purpose of implementing the realisation programme." His affidavit continues:- "On 13 March, 1986 I received a telex from the Bank confirming that it would not appoint a receiver to the first applicant, unless there was a material change of circumstance." —rernas- ra SIRT er re ee meee ve we eye OTTER Tre rt mere ao Dono aterat a ° in a , Se ame ee ae ot ee 5. That telex, addressed to Bartlett Group of Companies attn.: Mr. John Bartlett from: corporate, head office, John Day, stated in the body of the telex:- "WE CONFIRM ADVICE AND GIVEN BY MR. COLLIS HOLLIS THAT THE BANK WILL NOT APPOINT A RECEIVER TO BARTLETT INVESTMENTS PROPIETORY (sic) LIMITED. HOWEVER, WE RESERVE THE RIGHT TO APPOINT A RECEIVER IN THE EVENT OF A MATERIAL CHANGE IN CIRCUMSTANCES." It was said in argument on behalf of the applicants that the sworn assertion by Mr. Bartlett of the agreement raises a question of fact to be tried. The respondents say that, while Mr. Bartlett swears to the agreement pleaded, a close examination of all relevant material would lead to a conclusion that there is simply no serious question to be tried. It is pointed out that the agreement is set out in Mr. Bartlett's affidavit in the barest terms, and no particularity 1s given nor are the words used to constitute the agreement set out; there 15 no information as to who agreed on behalf of the bank, although the statement of claim pleads that the agreement was made by Mr. Hollis on behalf of the bank. Mr. Sherlock from Messrs. Coopers & Lybrand, in his affidavit sets out the sentence from Mr. Bartlett's affidavit dealing with the agreement not to appoint a receiver. Mr. Sherlock says:-— "I say that to the best of my knowledge and recollection there was no such agreement reached at that meeting and further that such matter was not discussed at that meeting." ne 6. File notes of that meeting which seem to have been taken by another member of Messrs. Coopers & Lybrand make no reference to any such agreement. Mr. Hollis also explicitly denies making any such agreement. He says:- "I say that there was no agreement reached at the aforementioned meeting for the First Respondent not to appoint a Receiver to Bartlett Investments Pty.Limited. In fact no undertaking was given by any of the persons present at that meeting and representing the first Respondent that a Receiver would not be appointed to Bartlett Investments Pty.Limited." The respondent draws attention to a letter dated 7 March 1987 signed by Mr. Bartlett addressed to the General Manager of the Commonwealth Bank, the body of which reads:- "We, John Colin Bartlett and Rene Maud Bartlett being the sole directors of the undermentioned Companies hereby request Commonwealth Bank of Australia to demand payment of all monies owing to the Bank by all or any of those Companies and to proceed to appoint a Receiver or Receivers of those Companies as soon as is possible." The companies referred to are twenty-five in number and include Bartlett Investments Pty.Ltd.. It as submitted that it 1s curious to the point of disbelief that two days after the agreement contended for by Mr. Bartlett he 1s requesting the Commonwealth Bank to appoint a receiver to Bartlett Investments Pty.Ltd. as soon as possible. Next, there is a deed of acknowledgment dated 12 March 1986; that is to say, approximately a week after the alleged Noyes re ee weer oe wea pear 7. agreement. The deed acknowledged the validity of an earlier guarantee and was executed on behalf of four Townsville based companies including Bartlett Investments Pty.Ltd. and was signed by Mr. Bartlett. Two of the recitals read as follows:- "WHEREAS each of the Townsville Companies considers it would be in their respective interests for the Bank to appoint a receiver or receivers of each of them and WHEREAS the Bank has agreed to appoint a receiver or receivers and if more than one then severally of each of the Townsville Companies subject to the Townsville Companies furnishing to the Bank the acknowledgment herein contained." It is said that this document, which was executed inter alia by Bartlett Investments Pty.Ltd. at the request of the bank to overcome any possible invalidity of the earlier guarantee, sits quite incongruously with the claim that there had seven days earlier been the agreement now sought to be relied on by the applicants. The respondents also suggest that it was this document which led to the sending of the telex to which I have earlier referred. Mr. Hollis, in one of his affidavits, says that on 13 March, 1987, he received a message that John Bartlett had phoned his office. He returned the call and spoke to Mr. Bartlett. He says that in that call Mr. Bartlett requested him to delete Bartlett Investments Pty.Ltd. from the deed of acknowledgment. He said that Bartlett advised him that the reason was that the company was one of two co-guarantors of the Bartlett Property Trust and the appointment of a receiver to that company would be likely to cause the stock exchange to delete the listing of the units. His affidavit continues:- Stren ae ee me op Hy -- -- ae ne ah eee ne ee eee "T advised Mr. Bartlett that I understood that the Commonwealth Bank was not particularly interested in appointing a Receiver to Bartlett Investments . Pty.Ltd., but that the Acknowledgement would need an to be executed by the four (4) First Schedule Pee Companies (which included Bartlett Investments F Pty.Ltd.) because the Acknowledgement contained in i the Deed confirmed what those four (4) Companies t intended to give to the Commonwealth Bank and what [ . the Commonwealth Bank believed it had. I advised hos Mr. Bartlett that it was open for him to request 1, the Commonwealth Bank not to appoint a Receiver of . Bartlett Investments Pty.Ltd. Mr. Bartlett then . asked me whether I could give him an assurance that the Commonwealth Bank would not appoint a Receiver of Bartlett Investments. I replied that 2 I could not give him that assurance, but that I would recommend that the Bank send hima telex to ayy | confirm that the Bank would not appoint a Receiver bes on that day, but that it would keep its options r open if matters changed." L. He says that he requested Mr. Day, an officer of the Commonwealth me Bank, to despatch a telex to Mr. Bartlett confirming that there : would be no Receiver appointed to Bartlett Investments Pty.Ltd. i provided that there was no further material change in a i circumstances. It is also pointed out by the respsondents that ie - the telex refers not to an agreement but to "advice" and the yo respondents submit that the telex constitutes a communication of me, a decision by the bank to forbear, or grant an indulgence, but does not constitute the agreement contended for by the applicants. The respondents further say that the existence of that agreement is inconsistent with the correspondence. There is a letter of 9 July 1986 from the bank to Mr. Bartlett. It commences by referring to a meeting of 18 June 1986 "when the 9. financial position of the group was discussed in detail and to the concern expressed by the bank at that time that there had not been any significant reduction in the group's debts." It later stated:- "The Bank is not prepared to allow this position to continue and unless you can arrange to meet accruing interest and/or effect immediate significant reductions 1n the Group's debts then you will leave the bank little alternative other than to realise on its securities as mortgagee." It is said that this is a curious letter to write if the bank had agreed with Mr. Bartlett that it would not appoint a receiver but would allow him to give effect to a plan to realise his assets. The letter later said:-— "Because of the magnitude of the Group's debts, the weenie: Nn er errs Ge ne repens a eee ee There was no accrual of interest and the minor amounts held in realisation accounts, it will be necessary for you to forthwith arrange urgent sales of the remaining securities held in the names of John Bartlett Constructions Pty.Ltd. for all the properties at "Princeton Park" and "Kirwan", the Beedel Estates Pty.Ltd. security "Kelso Country Club" at Townsville, Beedel Farms and Grazing Pty.Ltd. land at "Kirwan" and the properties of Bartlett Estates Pty.Ltd. at "Horseshoe Lagoon" and "Laudham Park" Townsville to be placed on the market immediately with sales to be negotiated at market value on each property as appropriate. Failure to take the necessary steps to properly market these securities will mean that the Bank will take the necessary action as mortgagee and will proceed to realise upon its securities." the agreement now put forward. response by Mr. Bartlett to that letter asserting yg a wre 10. By letter of 26 September to Mr. Bartlett, the bank wrote in a similar vein. It said in part:- "It is now in excess of two months since your letter and although various undertakings were implied therein, little has been achieved in reducing the Group's indebtedness to the Bank. eee We must now reiterate our earlier advices that unless immediate steps are taken by you to sell the various properties, then the CBA will have no alternative but to proceed to realise on these assets forthwith. Accordingly if a satisfactory plan of sale cannot be implemented by you within the next 21 days, then the matters will be taken into our hands and we will attend to the marketing and sales of these various properties as necessary." There was again no response by Mr. Bartlett to this letter suggesting any agreement arising from the meeting of March 1986. I am not, of course, presently concerned with determining any question in a final way. There is much force in the submissions on behalf of the respondents. Nonetheless, while the evidence as it presently stands does not make one sanguine as to the applicants' prospects at the trial of the action of establishing the agreement which Mr. Bartlett says was made, he has sworn to the 'making of the agreement. His version is contradicted, but there may be some support in the telex of 13 March 1986. It is not irrelevant to note that the letter from the Commonwealth Bank to the Manager of Bartlett Investments Pty.Limited notifying that a receiver and manager of Bartlett Investments Pty. Limited would be appointed was in these terms:-— sere \ ew eee we " y wemtses owe ee ee ee ioe lee Pe ee ete ee Secret eee ee oe y hess * 11. "We refer to our telex dated 13 March 1986. We consider that a material change of circumstance has occurred in the affairs of the Company. We advise that the Bank will be appointing a Receiver and Manager to Bartlett Investments Proprietary Limited." I think I should proceed on the basis that the material discloses a serious question that falls for determination at the trial. In the light of that determination, while there were other issues canvassed, including whether the bank could rely on the presentation of a winding up petition against Bartlett Investments Pty. Ltd. as a material change in circumstances, or whether it was precluded from relying on that event as a material change of circumstance because of its suggested counselling or procuring of that application and support of it, it 1s unnecessary to embark on an assessment of those issues. On the question of balance of convenience, I am clearly of the view that I ought not grant the interlocutory inyunction sought by the applicants. The danger which Mr. Bartlett wishes to avert by the injunction sought by the applicants is the forced sale by a receiver which would bring a low price and expose him and his wife to liability under their personal guarantees. These are the reasons he advances in his affidavit. While it was not referred to in his affidavit material, it was also submitted by counsel for the applicants that a receiver would deprive Mr. Bartlett of control of his company and make it easier to be wound up. It was made plain by senior counsel for the applicants that the ais le or dente leeteeeneneeademetiniens tien tiie inode tee tenatancaneainoncoteeter eee a 12. applicants did not dispute the right of the bank to exercise its powers as mortgagee of entering into possession and selling the assets covered by the equitable mortgage. It is solely the appointment of a receiver that is sought to be prevented. Senior counsel for the applicants said:- "T am not standing here offering any opposition to the bank's steps to exercise its rights under the mortgages. It has its securities. It can go and seek to realise them. I amnot offering any opposition to that." He did, however, submit that the appointment of receivers was resisted because of the fear that the directors may lose their right to defend a winding up application. It was submitted that the powers conferred on the receivers are so extensive as to displace the rights of directors to defend the winding-up application. Attention was directed to clause 3{1) of the equitable mortgage, which gives power to the receiver "to bring or defend any action, suit or legal proceedings in the name of the Mortgagor or otherwise for all or any of the purposes aforesaid". However, one has to note that this power is expressed to be "for all or any of the purposes aforesaid", which purposes relate to taking possession of the assets and so on, In my opinion the fears expressed by counsel for the applicants concerning the extent of the receiver's powers under the equitable mortgage are misplaced. lL - eS en tree eee cen ee aoe ee — ve rd ae > wae a t N t [ ' 13. [Le t \ r In Paramount Acceptance Co.Ltd. v. Souster [1981] 2 N.Z.L.R. 38, Davison C.J., delivering the judgment of the Court of Appeal, said at p. 42:- "Now the appellant was in receivership and where as 4 here a receiver and manager is appointed over the \ whole of the undertaking, the directors will for : most practical purposes become functus officio. Moss Steamship Co.Ltd. v. Whinney [1912] A.c. 254, | 263, per Lord Atkinson: 'This appointment of a receiver and manager over the assets and business of a company does not y dissolve or annihilate the company, j any more than the taking possession ( by the mortgagee of the fee of land | let to tenants annihilates the \ mortgagor. Both continue to exist; F but it entirely supersedes the i company in the conduct of its ' business, deprives it of all power ! to enter into contracts in relation to that business, or to sell, pledge, or otherwise dispose of the property put into the possession, or under the control of the receiver and manager. Its powers un these respects are entirely in abeyance.' But the directors still retain residual powers, and if the receiver does not wish to cause the company to bring an action then the directors may do so without his consent so long as the company is indemnified against any liability for costs." And Newhart Developments Ltd. v. Co-operative Commercial Bank Ltd. [1978] Q.B. 814 was cited. In that case, Shaw L.J., at p. 819 said:-— "One has got to see what the function of the receiver is. It is not, of course, to wind up the company. It is perhaps interesting to note in passing that -when a liquidator is appointed, certainly in a winding up by the court, the powers of the directors immediately cease by statutory provision. There is no such provision in relation 14. to the appointment of a receiver, whose duty it is to protect the interests of the mortgagee or debenture holders, as the case may be. In so far as it is requisite and necessary for him, in the course of his dealing with the assets of the company, bringing them in and realising them, and so on, to bring actions as well, he is empowered to do so by the debenture trust deed in the name of the company. That makes it possible for him to institute such proceedings without exposing himself to the risk of a liability for costs if those proceedings should fail. But the provisions in the debenture trust deed giving him that power is an enabling provision which invests him with the capacity to bring an action in the name of the company. It does not divest the directors of the company of their power, as the governing body of the company, of instituting proceedings in a situation where so doing does not in any way impinge prejudicially upon the position of the debenture holders by threatening or imperilling the assets which are subject to the charge." In the light of the expressed attitude by senior counsel for the applicants to the bank's rights under the mortgages, clause 5 of the mortgage is relevant. It is in these terms:- "Whether or not a receiver has been appointed as aforesaid it shall be lawful for the Bank at any time after the moneys hereby secured become payable or after this mortgage shall have become enforceable and without giving any notice to exercise all or any of the powers authorities discretions rights and remedies which the Bank may confer on a receiver as aforesaid." The bank can do the things which a receiver can do without appointing a receiver, and the difficulties attendant on a forced sale (which is the basis sworn to by Mr. Bartlett for seeking injunctive relief) is a prospect to which the applicants are exposed whether the forced sale be by a receiver or by the bank exercising its powers of sale. To grant an interlocutory injunction in these circumstances would be futile. oI ad we ee er eee pe eee ee ee wo roe eee eee 7 's . Brel 15. I dismiss the application for interlocutory relief. As to the respondents' notice of motion, it is unnecessary to consider the third prayer for relief. Detailed criticism was directed at each of the causes of action pleaded in the statement of claim in support of the application to have it struck out as disclosing no reasonable cause of action. Without dealing minutely with those criticisms and the responses made to them, in my opinion, it is not appropriate to exercise the power conferred by 0.20 (r.2) to strike out the statement of claim as disclosing no reasonable cause of action. As Lockhart J. observed in W.A. Pines Pty.Ltd. v. Bannerman (1980) 41 F.L.R. 175 at p. 183:- "l..it is only in a very clear case that a summary order should be made which prevents a plaintiff from pursuing his case before' the customary Tribunal. The tests to be applied, all indicating the considerable causation with which the power should be exercised, are referred to by Barwick c.Jd. in General Steel Industries Inc. Vv. Commissioner for Railways (N.S.W.) (1964) 112 C.L.R. 125 at 129-130." On the question of security for costs, it was submitted that the material disclosed that the first and third applicants were insolvent, the third applicant hopelessly so with a deficiency of liabilities over assets of just over $23,000,000.00, and it was submitted that the interest of the second applicant in the litigation is not the same as_ the 7T} amy ai aes ee ee ee pe eRe Hes mee nney ge nore, erkae 16. interests of the first and third applicants, and it could not therefore be said that Sydbart Pty.Ltd. would be liable for all of the costs should the applicants lose. After the respondent had made submissions on the question of security for costs, senior counsel on behalf of Sydbart Pty.Ltd. accepted liability for all costs incurred by all the applicants in these proceedings. On that undertaking, Sydbart Pty. Ltd. is fully liable for costs in the event of the applicants' failure. Consistent with the observations of Connolly J. in Harpur v. Ariadne Australia Ltd. (1984) 2 Qd.R. 523 at p. 531-2, security for costs in these circumstances should not be ordered. There is no material suggesting that Sydbart Pty. Ltd. lacks the capacity to satisfy any order for costs that may be made against 1t. In these circumstances, the application for security for costs should be refused. As to the application for a mandatory injunction for the delivery up of documents, the second respondent, through his senior counsel, gives the usual undertaking as to damages in respect of an interlocutory mandatory injunction, and it was accepted that, should the applicants fail in the application for interlocutory injunctions, 1t is right that I make an order for delivery up as sought in the notice of motion. I therefore refuse the application for interlocutory relief. I decline to strike out the statement of claim as disclosing no reasonable cause of action. I make no order in relation to security for costs. On the second respondent giving ve es wey mer ta re Part we Pal 17. the usual undertaking as to damages, I order that the first applicant forthwith deliver to the second respondent the following books and records:- statutory records of the first applicant; the common seal of the first applicant; copies of the first applicant's tax returns; working papers; bank statements; cash books; journals; ledgers; invoices; share scrip and other title documents; security packets. RAR A RA RRR AN wu TQ hoe anon we ewe I will hear the parties on costs. ! certify that this 7. Uk . seceding nages are a true copy of the reasons for judgment herein of His Honour Mr. Justice Spender ( \A De A Assoclate aqléh7 Dated wT en ee na ee mre 5 y A y ee 2 eee ~ tote pee?