CATCHWORDS PRACTICE AND PROCEDURE - interlocutory injunction refused - no jurisdiction under s 23 the Federal Court of Australia Act to grant an injunction restraining respondent from ejecting applicant from premises where applicant makes no claim of entitlement to the premises, but wants the use thereof until trial to generate moneys to fund the litigation Federal Court of Australia Act 1976 (Cth) - s 23 Trade Practices Act 1974 (Cth) - ss 52, 82, 87 Cases Considered American Cyanamid Co v Ethicon Ltd [1975] AC 396 Custom Credit Corporation Ltd v Whitehall Holdings Pty Ltd (Supreme Court of Western Australia, Ipp J, unreported, 7 April 1992) Jackson v Sterling Industries Ltd (1987) 162 CLR 612 Siskina (Owners of Cargo Lately Laden on Board) v Distos Compania Naviera S.A. [1979] AC 210 Geoffrey Ross Fletcher and Janice Beryl Fletcher v Foodlink Ltd & Ors QG 164 of 1995 Drummond J Brisbane 18 October, 1995 IN THE FEDERAL COURT OF AUSTRALIA) No. QG 164 of 1995 QUEENSLAND DISTRICT REGISTRY ) GENERAL DIVISION ) BETWEEN: GEOFFREY ROSS FLETCHER and JANET BERYL FLETCHER personally and as trustees of the G. & J. Fletcher Family Trust Applicant AND: FOODLINK LTD. ACN 009 786 485 First Respondent AND: BON-IRS PTY. LTD. ACN 009 992 161 Second Respondent AND: G.C. BONNEY & CO. (DEVELOPMENTS) PTY. LTD. ACN 009 900 458 Third Respondent AND: GEOFFREY CLIVE BONNEY Fourth Respondent AND: JOHN TERENCE BERRY Fifth Respondent AND: ROBERT VICTOR HARRIS Sixth Respondent MINUTES OF ORDERS JUDGE MAKING ORDER: Drummond J DATE OF ORDER: 18 October, 1995 WHERE MADE: Brisbane THE COURT ORDERS THAT: 1. Upon the first respondent by its counsel undertaking to keep an accurate record identifying the stock in trade at supermarket premises at 119 Toolooa Street, Gladstone sold and the amount of the purchase moneys it receives for the stock, the application seeking interlocutory relief against the first respondent is dismissed. 2. The application seeking interlocutory relief against the second respondent is dismissed. 3. The costs of and incidental to the application for interlocutory relief are the respondents' costs in the proceedings. UPON the applicants by their counsel: a. providing the usual undertaking as to damages; b. undertaking to prosecute the foreshadowed application for leave to appeal this decision with reasonable expedition; and c. undertaking not to deal with the stock in trade pending the hearing of the foreshadowed application for leave to appeal otherwise than in the ordinary course of business THE COURT FURTHER ORDERS THAT the first and second respondents are respectively restrained until the hearing of the application for leave to appeal this decision or until further order from taking any action to enforce any of their default rights under the chattel mortgage and the operating agreement. THE COURT DIRECTS THAT: 1. The applicants file and serve their amended statement of claim by 25 October, 1995. 2. The respondents file and serve their reply and answer (if any) by 15 November, 1995. 3. The parties file and serve their verified list of documents by 20 December, 1995. 4. Mutual inspection be completed by 2 February, 1996. 5. The matter be listed for further directions on a date in February to be fixed by the District Registrar and advised to the parties. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA) No. QG 164 of 1995 QUEENSLAND DISTRICT REGISTRY ) GENERAL DIVISION ) BETWEEN: GEOFFREY ROSS FLETCHER and JANET BERYL FLETCHER personally and as trustees of the G. & J. Fletcher Family Trust Applicant AND: FOODLINK LTD. ACN 009 786 485 First Respondent AND: BON-IRS PTY. LTD. ACN 009 992 161 Second Respondent AND: G.C. BONNEY & CO. (DEVELOPMENTS) PTY. LTD. ACN 009 900 458 Third Respondent AND: GEOFFREY CLIVE BONNEY Fourth Respondent AND: JOHN TERENCE BERRY Fifth Respondent AND: ROBERT VICTOR HARRIS Sixth Respondent Coram: Drummond J Date: 18 October, 1995 Place: Brisbane REASONS FOR JUDGMENT This is an application by the applicants, who operate a supermarket, for interlocutory injunctions to restrain the first respondent from enforcing a chattel mortgage over the applicants' trading stock and to restrain the second respondent from terminating what is called an "operating agreement" with the applicants. There are other agreements involving the parties, but the debate is centred upon these two contractual arrangements. The first respondent supplies stock to the applicants' business under a supply agreement. The chattel mortgage secures to the first respondent payments by the applicants of, among other things, all moneys due in respect of such supply. By notice dated 2 October, 1995 the first respondent demanded payment of moneys, which included the sum of $36,899, which should have been paid at the end of July by way of direct debit from the applicants' account, but which were not paid. The applicants say this omission occurred without fault on their part. However, Mr. Fletcher, the male applicant, says that the applicants are not able at present to pay this sum. It is the operating agreement between the applicants and the second respondent that entitles the applicants to access to the store premises. These premises are owned by the third respondent. I was told, without objection, that the second respondent is a joint venture between the first and third respondents. The second respondent pays rent to the third respondent from funds available to it, including the payments due to the second respondent by the applicants under the operating agreement. Initially the applicants paid $4,000 per week to the second respondent under this agreement. In April 1995, the second respondent agreed to reduce this temporarily to $2,500 per week, as part of a package of assistance then offered to the applicants, but the second respondent later put the applicants on notice that it would require the full $4,000 per week to be paid from 4 September, 1995. On 13 October, 1995 the second respondent gave notice to the applicants of default under the operating agreement, based on the applicants being in default under the chattel mortgage to the first respondent and based also on the applicants having given notice to the second respondent of their intention to cease payment of the operating agreement fee. Notice of the second respondent's own intention to terminate the operating agreement was also then given. The applicants commenced this action on 6 October, 1995. The final relief they seek is, firstly, an order pursuant to either s. 82 or s. 87 the Trade Practices Act 1974 (Cth) ("the Act"), that the respondents pay to the applicants the amount of loss and damage suffered by them by reason of the misleading or deceptive conduct engaged in by the respondents. Secondly, orders pursuant to s. 87 of the Act that: (a) the operating agreement between the second respondent and the applicants be declared void ab initio; (b) the chattel lease agreement between the applicants and the second respondent be declared void ab initio. [This is an agreement under which the applicants obtained access to equipment owned by the second respondent and located in the store.]; (c) the chattel mortgage between the applicants and the first respondent be declared void ab initio; and (d) the second respondent refund to the applicants all money paid by the applicants to the second respondent pursuant to the operating agreement. The applicants set up a case based on, among other things, representations said to have been made on behalf of the first, second and third respondents that induced the applicants to enter into the arrangements with the first and second respondents, which representations are said to amount to conduct infringing s. 52 of the Act. The representations were to the effect, firstly, that a net profit of $4,000 per week was realisable; secondly, that a gross profit on turnover of 22 per cent had been achieved in the past; and, thirdly, that a gross profit of 22 per cent was realisable in the future. The respondents concede that there is a serious question to be tried with respect to the first two of these representations. I accept that there is also a serious question to be tried with respect to the third representation and a serious question as to the applicants having suffered damage as a result of acting on these representations. The first matter for consideration is whether the application for the interlocutory relief against the first and second respondents is misconceived. The applicants' case for interlocutory relief, in essence, is that even though the business is a loss-making one, if they do not have to pay the second respondent the operating fee of $4,000 per week and do not have to remedy, at least immediately, the non-payment of the $36,889 due to the first respondent in July last, they hope to be able both to fund the action and to live from what they can earn from the business, until trial, i.e., until their claim for damages, said to amount to close to $500,000, is determined and until their claims to orders under s. 87 of the Act avoiding the chattel mortgage and the operating agreement are also determined. Under s. 23 the Federal Court of Australia Act 1976 (Cth), the Court has a wide power to grant interlocutory injunctive relief: it can make interlocutory orders of such kinds as the Court thinks "appropriate". But it is not an unlimited power. In Jackson v Sterling Industries Limited (1987) 162 C.L.R. 612, the High Court held that s. 23 the Federal Court of Australia Act 1976 (Cth) extended to conferring on this Court power to grant Mareva injunctions for the purpose of preventing the abuse of the process of the Court by the frustration of its remedies. But the High Court held that the power went no further than that and it set aside an interlocutory injunction ordering the defendant, in a damages action, to pay $3 million into Court as security for the satisfaction of any judgment that the applicant might obtain against him. Wilson and Dawson JJ said, at 619: "... it cannot be suggested that either the power to grant relief under s. 23 or an implied power to prevent an abuse of process extends to the creation and enforcement of rights in addition to those for the protection or enforcement of which the jurisdiction of the Court is invoked." Brennan J said, at 620-621: "... s. 23 confers on the Federal Court such powers as are necessary or incidental to the exercise of that Court's jurisdiction. But that is not to say that the Court's discretion to mould relief is at large. The relief which the Court is authorised to give does not extend beyond the grant of remedies appropriate to the protection and enforcement of the right or subject-matter in issue. ... The power to grant such an injunction [i.e. an interlocutory injunction] does not support the making of an order which goes beyond what is in reasonable protection of a legal or equitable right which the court may enforce by judgment." His Honour referred to a statement by Lord Diplock in Siskina (Owners of Cargo Lately Laden on Board) v Distos Compania Naviera S.A. [1979] A.C. 210 at 256 to the effect that the wide jurisdiction of the English High Court to grant an interlocutory injunction is similarly limited. After holding that the Federal Court had jurisdiction under s. 23 the Federal Court of Australia Act 1976 (Cth) to grant an interlocutory injunction to prevent a defendant from disposing of his assets so as to defeat any judgment that might be obtained in the action against him, Deane J, with whom the Chief Justice agreed, said of the orders there challenged, at 625: "Put in positive form, it appears to me that, when an order for the preservation of assets goes beyond simply restraining the defendant from disposing of specific assets until after judgment, it must be framed so as to come within the limits set by the purpose which it can properly be intended to serve. That purpose is not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against him. ... It is to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action." Here, the applicants claim against the second respondent an order avoiding the operating agreement ab initio, under s. 87 of the Act. The avoidance claim is made in conjunction with a claim for damages for the losses they suffered as a result of entering into that agreement. They do not seek in the action to enforce any rights with respect to the premises. Rather do they seek an order which will establish that they have neither obligations nor rights with respect to those premises. The interlocutory injunction against the second respondent is sought to enable the applicants to make use of the premises only until trial, in the hope that they will thereby be able to generate funds sufficient to run the action: at the same time they assert a right to have the agreement, which alone gives them the right of user of the premises, set aside from its inception. In my opinion, to grant an interlocutory injunction for the purpose frankly identified as that for which it is sought, would be to go beyond granting an interlocutory remedy appropriate to the protection or enforcement of any of the rights or subject matter in issue in this action. In American Cyanamid Co. v Ethicon Ltd. [1975] A.C. 396, Lord Diplock, at 406, said of an ordinary interlocutory injunction (as distinct from a Mareva injunction): "The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial." The uncertainty his Lordship was referring to was the uncertainty, at the interlocutory stage, as to whether the plaintiff has a legal right of a kind he asserts and as to whether, if the plaintiff does have such a right, the defendant is acting in violation of that right. If an interlocutory injunction were granted against the second respondent, it could not achieve this objective. The applicants' only claims against the second respondent are for avoidance of the agreement and for damages for loss caused to them by conduct of the second respondent that is said to infringe s. 52 of the Act. There is no loss that the applicants could suffer as a result of the alleged infringing conduct of the second respondent that cannot be fully compensated by the award of the damages they seek even if the second respondent ejects the applicants from the premises now. The injunction is not sought to ensure that the applicants will be able to obtain a full vindication of the rights they say they have against the second respondent. It is sought only to give the applicants an opportunity to acquire the financial resources they need to vindicate rights, the value of which cannot be affected in any way by the grant or the refusal of the injunction. The applicants thus seek the injunction against the second respondent for a purpose that is wholly unconnected with either the protection or enforcement of any of their claims for relief. If an impecunious plaintiff, who makes no claim to the respondent's premises, can by interlocutory order obtain the use, without payment, of those premises for the purpose of enabling the plaintiff to thereby generate moneys to fund his action for damages against the respondent, that would seem to me to require the court to determine, in a final way, that the plaintiff's action for damages is well founded, at least to the extent of the pecuniary benefits the plaintiff will derive from the use of the respondent's premises until trial. That is not a matter for interlocutory determination and the order sought is not an "appropriate" one within s. 23 the Federal Court of Australia Act 1976 (Cth). There is, in my opinion, no jurisdiction under s. 23 the Federal Court of Australia Act 1976 (Cth) to grant an interlocutory injunction in such circumstances. Counsel for the applicants referred me to Custom Credit Corporation Ltd. v Whitehall Holdings Pty. Ltd. (Supreme Court of Western Australia, Ipp J, unreported, 7 April, 1992) as authority for the proposition that an interlocutory injunction can be granted to enable an impecunious litigant to obtain possession of premises for the purpose of generating, from the use of those premises, funds necessary to maintain the plaintiff's action against the defendant. The decision does not, in my opinion, support the proposition for which counsel contends. Custom Credit appointed a receiver under a mortgage granted by Whitehall of a property owned and rented out by Whitehall, on the ground of the latter's default under the mortgage. Whitehall commenced proceedings challenging the validity of the appointment of the receiver. What it sought to achieve by the litigation was the return to it of possession of its own income-producing property, free of the mortgage. The question for interlocutory determination was whether Whitehall should have access to the property, pending final determination of its claim to an unfettered right to the property. Ipp J held that Whitehall had raised serious questions to be tried as to whether Custom Credit had satisfied a condition precedent to the appointment of a receiver, viz., whether Custom Credit had given to Whitehall a proper notice of intention to enforce the mortgage, and as to whether the mortgage under which the receiver was appointed had in fact been discharged prior to the appointment and replaced by another agreement. His Honour then turned to the question of the balance of convenience. It was only in that context that he considered the evidence that Whitehall would be financially unable to continue with the action, if an interlocutory injunction restraining the receiver from acting were not granted. The question here, however, arises prior to it becoming relevant to consider the balance of convenience. The question here is whether the purpose for which the interlocutory injunction is sought, in the circumstances of this case, is so foreign to the objectives that can legitimately be achieved by interlocutory relief that the grant of the injunction sought here would involve going beyond the power conferred on the Court by s. 23 the Federal Court of Australia Act 1976 (Cth). For these reasons, I refuse to grant the injunction sought against the second respondent. If, however, I am wrong in holding that the grant of this injunction would involve exceeding the power I have under s. 23 the Federal Court of Australia Act 1976 (Cth), I would still refuse the relief sought against the second respondent on the ground that the balance of convenience heavily favours that course. If the interlocutory injunction against the second respondent is refused, but the applicants have good causes of action against that respondent, that refusal will not affect the applicants' damages claim or the avoidance claim, even though it may deprive them of the opportunity to derive funds necessary to run the action. There is an arithmetical error in the analysis counsel for the respondents produced, which was based on Exhibit "GRF17" to Mr. Fletcher's affidavit filed 17 October, 1995: the gross profit achieved in the period 1 July to 13 October, 1995 appears to be only about 24 per cent. But I accept the respondents' submissions that there is good reason to think that the applicants' hopes of running the business in a manner which will generate surplus funds are overly optimistic. The evidence is that the applicants' trade creditors are not being paid and that those debts are accumulating at a fast rate. On 6 July, 1995 an officer of the first respondent advised the applicants of the critical need to apportion available cash among the most significant of their unpaid creditors, to maintain the support of those creditors. In August 1995 the applicants' solicitor told the respondents' solicitor that their trade creditors amounted to $150,000 to $160,000, while Mr. Fletcher, a little later on, provided a statement showing trade creditors as at 9 September, 1995 at nearly $408,000. There is evidence that over past months the applicants have been trading outside agreed terms with many of their suppliers and that a number of major suppliers have, as a result, insisted on cash on delivery as a condition of continued supply. Although it is not fully explained in Exhibit "GRF17", Mr. Fletcher says the net profit for the 14 week period 1 July to 13 October, 1995 was $32,691.03, or about $2,335 per week. In the course of argument, when I invited counsel for the applicants to indicate what terms the applicants might be prepared to submit to in return for obtaining an interlocutory restraint against the second respondent, counsel volunteered that they would be prepared to resume payments under the operating agreement at the concessional rate of $2,500 per week. Mr. Fletcher, in his affidavit, had said that, on legal advice, the applicants proposed to suspend payment to the second respondent of all periodic payments due under that agreement. More importantly, however, Mr. Fletcher's own analysis of the applicants' trading performance for this period shows that it is only by not paying any part of the moneys due under the operating agreement that the applicants have achieved a net profit of $2,335 per week. Counsel's offer is not, on Mr. Fletcher's own figures, a viable one even if it were appropriate to consider granting the relief sought on terms. Apart from the very real practical problem they face in funding the litigation, there is no reason that I can see for thinking that the applicants will not be able to recover full compensation for any loss that they have suffered at the hands of the second respondent: there is no suggestion that the second respondent is not financially able to pay any damages that may be awarded against it. If, on the other hand, the injunction is granted but the applicants fail at trial, the second respondent will not receive the moneys payable by the applicants under the operating agreement between the period between now and trial and, because of the applicants' impecuniosity, it will be unlikely to recoup those moneys from them pursuant to their undertaking as to damages. The second respondent will, moreover, be deprived of the opportunity to sell the business now to an intending purchaser who is prepared to pay an instalment of $30,000 immediately and 78 weekly installations of $1,000 each and who is also prepared to enter into other arrangements with the second and first respondents similar to those involving the applicants. Different considerations as to the power of the Court to grant interlocutory relief are raised by the applicants' claim for the interlocutory injunction against the first respondent from those with respect to the claim against the second respondent. In so far as the applicants seek an interlocutory injunction against the first respondent to restrain it enforcing its chattel mortgage, that is relief which can be said to be in aid of ensuring that the final relief the applicants seek against that respondent in the form of avoidance of the chattel mortgage will be effectual. On any view, the Court's power under s. 23 the Federal Court of Australia Act 1976 (Cth) extends to the grant, in a proper case, of an interlocutory restraint against enforcement of a mortgage which the mortgagor contends should be declared void ab initio. There are serious questions to be tried as to whether misrepresentations were made which could provide a foundation for an order setting aside the first respondent's security from its inception. In my view, however, the balance of convenience strongly tells against the grant of interlocutory relief against the first respondent. If the applicants succeed in obtaining avoidance of the security, they will take, at least as between themselves and the first respondent, an unencumbered title to any trading stock in their possession at judgment, although they will, of course, remain liable to pay the first respondent for all stock delivered to it. I have held that the applicants are not entitled to orders allowing them to retain access to the second respondents' shop premises until trial. The applicants' avowed impecuniosity suggests that they are not in a position to set up business at other premises in which the existing trading stock might be used. Even if the first respondent were to be restrained from enforcing its security against the applicants' stock, it would not be appropriate, given this, to permit the applicants to deal with the stock, pending trial and determination of the question of the validity of the first respondent's mortgage, in a way which would enable them to raise funds from or by means of that stock. Part of the stock, moreover, is no doubt perishable. It is therefore impracticable, if the relief now sought against the first respondent were granted, to mould an order that would leave the stock in the appellants' control, but frozen in their hands until trial, and which would also protect the first respondent's rights as mortgagee, should the applicants fail at trial against the first respondent. If the injunction is granted against the first respondent, but the applicants fail against that respondent at the trial, the first respondent will be deprived, for the time being, of its rights as a secured creditor and will be unlikely to recoup payment due now to it from the applicants under the undertaking as to damages they will have to give, because of their impecuniosity. If the injunction is refused, but the applicants succeed at trial, there is no suggestion that the first respondent will be unable to pay any damages that may be ordered against it and there will be no impediment to granting the other final relief they seek. The first respondent is likely in the meantime to enforce its security by sale: but there is no suggestion that it will sell the applicants' trading stock at an undervalue. The evidence is to the contrary. The respondents' solicitor deposes to the intention of the first respondent to sell the existing stock in the supermarket to the proposed new purchaser I have referred to at normal wholesale prices, payable as to one half in 14 days and the balance in 21 days after a sale agreement is reached. Provided the first respondent keeps an accurate record identifying the stock sold and the amount of purchase moneys it receives, it is difficult to see how the applicants could suffer irreparable injury for which damages will not be fully adequate compensation if the injunction is refused but the applicants obtain an order avoiding the first respondent's security at trial. The fair value of the trading stock will be ascertained by the price paid by the new operator. The applicants have no prospect of turning the existing trading stock to their own profit, if the injunction were granted. But estimates of profits that might have been earned on the retail sale of the stock should be readily able to be made. The application for interlocutory relief against the second respondent is dismissed. If the first respondent is prepared to give an undertaking to keep an accurate record identifying the stock sold and the amount of the purchase moneys it receives for the stock, the application for interlocutory relief against it will also be dismissed. I certify that this and the preceding 16 pages are a true copy of the reasons Associate: for judgment herein of the Honourable Justice Drummond. Date: 18 October, 1995 Counsel for the applicants: Mr. F.W. Redmond Solicitors for the applicants: Kenny & Partners Counsel for the first, second, fifth and sixth respondents: Mr. D.J.S. Jackson QC Solicitors for the first, second, fifth and sixth respondents: Phillips Fox Counsel for the third and fourth respondents: Mr. D.J.S. Jackson QC Solicitors for the third and fourth respondents: M.F. Lyons & Associates Date of Hearing: 18 October, 1995