IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 3158 of 1997 BETWEEN: QUEANSBURY PTY LIMITED (ACN 000 859 969) Applicant AND: STICKMAKERS PTY LIMITED (in liquidation) (receiver and manager appointed) (acn 055 361 852) First Respondent IVOR WORRELL AND RAJENDRA KUMAR Second RespondentS commonwealth bank of australia (acn 123 123 124) fourth respondent FREEHILL HOLLINGDALE & PAGE FIFTH RESPONDENT JUDGE: LINDGREN J DATE: 20 APRIL 1998 PLACE: SYDNEY REASONS FOR JUDGMENT (ex tempore) INTRODUCTION There is before the Court an issue as to directions appropriate to be made in relation to interrogatories. The parties had joined in submitting that the matter could be resolved within the scope of a short directions hearing, without the necessity of a formal motion supported by evidence, and as a matter of impression. In order to expedite progression of the proceeding, I permitted the issue to be dealt with in that manner. The hearing has taken somewhat longer than expected and the lack of evidence has not been helpful. At the centre of the dispute is Stickmakers Pty Limited (in liquidation) (receiver and manager appointed) ("Stickmakers"). The second respondents are its liquidators. The third respondent ("the Receiver") is its receiver. He was appointed by the fourth respondent ("the Bank"). The fifth respondents are the solicitors of the Receiver. The applicant ("Queansbury") is a chargee under a charge given by Stickmakers. BACKGROUND FACTS The issue has been debated by reference to the pleadings. The following account of the factual background is based on them. I make no findings of fact. On 16 February 1993, Stickmakers gave to the Bank a registered memorandum of mortgage over leasehold land at Gladstone in Queensland and an equitable mortgage in the nature of a fixed and floating charge. Queansbury, which was related to Stickmakers, gave a continuing guarantee to the Bank in respect of Stickmakers' indebtedness to it. It was a term of the continuing guarantee that Queansbury might discontinue its liability for future advances by giving written notice of discontinuance to the Bank. On 8 July 1994, Stickmakers gave a charge, by way of deed of charge, in favour of Queansbury. According to Queansbury's reply, the Bank became aware of the Queansbury charge at the latest on 21 November 1995. On 3 May 1996, Queansbury gave notice to the Bank terminating the guarantee. Apparently this prompted a course of correspondence between Queansbury and the Bank in May and June 1996. Apparently an agreement was reached that Queansbury would withdraw its notice of discontinuance, at least for a time. According to the amended statement of claim, the Bank and Queansbury agreed that Queansbury's guarantee would continue in force for a period on the basis that Queansbury's potential liability under the guarantee would be limited to certain amounts totalling between $1,200,000 and $1,300,000. On 22 August 1996, the Bank appointed the Receiver as receiver of Stickmakers. In December 1996, the Bank demanded payment of $745,070.83 from Queansbury pursuant to the guarantee and Queansbury paid that amount to the Bank. In March 1997 the Receiver sold the business assets and stock of Stickmakers for a total amount of between $2,800,000 and $2,900,000. Out of the proceeds, the Receiver paid out the Bank's mortgage over the land at Gladstone. This left a sizeable amount in hand. The dispute between the Bank and Queansbury is as to which of them is entitled to that amount. On 14 April 1997 it was ordered that Stickmakers be wound up. As I said earlier, the second respondents were appointed as liquidators. On 8 August 1997 certain orders were made in this present proceeding by Lockhart J. They included an order that Queansbury was entitled to the net proceeds of realisation of the receivership subject only to any priority to which the Bank might be entitled under its equitable mortgage. The issue between the Bank and Queansbury is whether the Bank's equitable mortgage dated 16 February 1993 or Queansbury's charge dated 8 July 1994 enjoys priority in respect of the remaining proceeds of the receivership. By its amended application filed on 4 September 1997, Queansbury seeks a declaration that Queansbury is entitled to priority as against the Bank except to a specified extent. PLEADINGS The pleadings are to be found in Queansbury's amended statement of claim filed on 4 September 1997, the Bank's amended defence filed on 24 October 1997, and Queansbury's reply filed on 6 February 1998. I need not give an account of the amended statement of claim. It is necessary, however, to refer to the amended defence. The Bank pleads that as and from 16 February 1993, the date of the securities given to it by Stickmakers, Queansbury was aware of certain things. Apparently, in substance, this awareness is said to arise from certain common directorships as between Queansbury and Stickmakers. It is said, for example, that Queansbury was aware of the existence of the Bank's mortgage and charge dated 16 February 1993. Of particular importance is an allegation that Queansbury was aware of clause 7.2 of the charge and clause 5.2 of the mortgage. According to the amended defence, those provisions were to the effect that Stickmakers would not, without the Bank's consent, create any "security interest" (as that term was defined) in or over, or otherwise deal with or dispose of, any part of the property the subject of the Bank's security. In substance, and at the risk of inaccuracy arising from generalisation, the case seems to be that when Queansbury took its charge from Stickmakers on 8 July 1994, it appreciated that Stickmakers was giving that charge in breach of the terms of the securities which Stickmakers had given to the Bank on 16 February 1993, and that, in consequence, Queansbury's charge was not enforceable. Clearly, in the way in which the Bank has pleaded this aspect of its defence, it will need to prove that "Queansbury was aware" of various matters. It is also necessary to refer to Queansbury's reply. This pleads that the Bank is precluded and estopped from denying the validity of the Queansbury charge and its efficacy as securing in favour of Queansbury sums due to Queansbury by Stickmakers. It refers to the time when the Bank obtained actual knowledge of the Queansbury charge, as being on or prior to 21 November 1995. The reply pleads with some particularity matters which Queansbury alleges the Bank then came to know. Queansbury will wish to establish that knowledge on the part of the Bank. THE CURRENT DISPUTE I come now to the current dispute, which, as I said earlier, is over interrogatories. The Bank served a notice to admit facts on Queansbury, calling upon it to admit, for the purpose of this proceeding, matters set out in 33 paragraphs, directed to establishing Queansbury's knowledge. Queansbury responded with a notice disputing many of the facts referred to in the Bank's notice to admit, but admitting facts set out in 10 paragraphs. The Bank seeks to administer interrogatories because it says that by its notice to admit facts, it has not obtained what it considers it should obtain, namely admissions by Queansbury that through its officers it knew certain things. Queansbury opposes the Bank's request for a direction that interrogatories be answered, submitting that the Bank is seeking to use that device in order to avoid having to call Bank officers to give evidence (if I thought that this was the Bank's purpose, I would not grant the Bank the leave that it seeks). If I should be against Queansbury in this respect, it submits that the Bank should be permitted to administer interrogatories only if it is subjected to a condition requiring it to call certain Bank officers to give evidence. As well, Queansbury would wish, if the Bank is to be permitted to administer interrogatories, that it also should be able to administer interrogatories against the Bank. Both the Bank and Queansbury have handed up forms of the interrogatories which they would respectively wish to administer. REASONING I approach the present issue on the basis that the Court does not encourage the use of interrogatories. To express the matter differently, I approach the issue on the footing that interrogatories should be ordered only where a party cannot reasonably prove a fact otherwise. It may be a possible answer to the Bank's request for leave to administer interrogatories, to say that the matters sought to be proved can be established in one or more of the following ways: by tendering documents of Queansbury and Stickmakers obtained upon discovery and by the issue of subpoenas; by calling their officers or employees or both; or by relying upon an inference from Queansbury's failure to call its own officers or employees in the light of such other evidence as the Bank may be in a position to lead. The Bank has not led evidence establishing that it cannot prove Queansbury's knowledge by any of such or other means. This would ordinarily lead to a refusal of the leave that it seeks. The peculiar position in which I find myself, however, is that the parties have asked me to deal with the issue that divides them quickly as on a directions hearing, as a matter of impression and without evidence. My impression is that the case is an appropriate one for the administering of interrogatories not as extensive as the Bank would wish. I do not accept the submission by counsel for Queansbury that a condition should be imposed that the Bank be required to undertake to call certain officers as witnesses: either the case is an appropriate one for the administering of interrogatories or it is not. Seeking to apply the general approach which I mentioned, I will grant the Bank leave to administer interrogatories 1 to 6, 7(a) to (f) and 8(a) to (f) set out in its draft notice, but not the remaining interrogatories. I will grant Queansbury leave to administer the interrogatories set out in its draft notice. In the course of the hearing, counsel reached agreement in relation to certain other directions set out in the Bank's proposed short minutes of orders. All that I propose to do today is to stand the proceeding over to a time and date convenient to both counsel so that they can prepare agreed short minutes, giving effect not only to my intention indicated above in relation to interrogatories, but also to their agreement relating to those other matters as well. CONCLUSION I stand the matter over to Wednesday 22 April at 9.30 am for the making of orders. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren Associate: Dated: 1 May 1998 Counsel for the Applicant: Mr S Epstein Solicitor for the Applicant: David Blessington and Associates Counsel for the Respondent: Mr J E Marshall Solicitor for the Respondent: L E Taylor Date of Hearing: 17 April 1998 Date of Judgment: 20 April 1998