FEDERAL COURT OF AUSTRALIA Magenta Nominees Pty Ltd v National Mutual Life Association of Australia Ltd [2004] FCA 1462 CORPORATIONS – duties of receiver - sale of properties – tender process – interlocutory injunction sought restraining receiver from exercising power of sale – whether an apprehended breach of receiver's duties – no arguable case – application for interlocutory relief dismissed Corporations Act 2001 (Cth) s 423, s 434A, s 1321 s 420A(1) MAGENTA NOMINEES PTY LTD v NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALIA LTD AND BRIAN KEITH McMASTER W244 OF 2004 FRENCH J 3 NOVEMBER 2004 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W244 OF 2004 BETWEEN: MAGENTA NOMINEES PTY LTD APPLICANT AND: NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALIA LTD RESPONDENT JUDGE: FRENCH J DATE OF ORDER: 3 NOVEMBER 2004 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The claim for interlocutory relief is dismissed. 2. The applicants are to pay the respondent's costs of the claim for interlocutory relief, including the proceedings before Lee J. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W244 OF 2004 BETWEEN: MAGENTA NOMINEES PTY LTD APPLICANT AND: NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALIA LTD RESPONDENT JUDGE: FRENCH J DATE: 3 NOVEMBER 2004 PLACE: PERTH REASONS FOR JUDGMENT ON CLAIM FOR INTERLOCUTORY RELIEF 1 The application before the Court was filed on 29 October 2004 and said to be made under ss 423, 434A and 1321 of the Corporations Act 2001 (Cth) (the Act). The applicants are the owners, under an investment trust, of properties in Kelmscott on Albany Highway secured in favour of the National Mutual Life Association of Australasia (AXA). They have defaulted in relation to those securities and have consequently suffered the appointment of a receiver in respect of the secured property. 2 In the application they seek the following substantive relief: '1. An immediate inquiry into the alleged failure of [the receiver] to faithfully perform and observe his controllers (sic) functions; 2. An order under section 434A of the Act that [the receiver] do forthwith cease to act as receiver and manager and do forthwith give up possession and control of the subject properties; 3. Such other orders and/or directions under sections 423 and 1321 of the Act as this Honourable Court in its discretion thinks fit.' 3 Today, the applicants claim the interlocutory relief which is endorsed on the application. That relief is by way of an injunction restraining the receiver, until further order, from selling or taking any further steps to sell any of the subject properties and/or from accepting tenders for the purchase of any of the said properties. The secured properties have been the subject of a tender process. Extracts from the relevant tender conditions and documents have been exhibited to the affidavit of Sydney James Chesson in support of the claim for interlocutory relief. 4 The receiver, who was appointed some three and a half months ago, is presently considering tenders and it appears likely that if the receiver finds one of those tenders to be acceptable, then there is a real possibility that it will be accepted within the next 24 hours or so. 5 The properties are identified in red on an aerial photograph which was submitted to the Court. They are variously 2841 Albany Highway, 2861 Albany Highway and a backing block, 17 Denny Avenue, together with a larger area of land occupied by what is known as the Kelmscott Central Shopping Centre. Adjacent to those properties are other properties owned by the applicants but not secured in favour of AXA. 6 By way of background there has been an attempt to obtain development approval in respect of the whole of the land comprising those pieces which have come into the hands of the receiver as a result of his appointment and the other blocks which are also owned by the applicants but not subject to securities in favour of AXA. It appears that an application for development approval was rejected by the City of Armadale. An appeal to the Town Planning Appeal Tribunal was dismissed on 19 March this year. 7 Since that decision there has been further correspondence and discussion about the development and, it appears, perhaps a modification of planning policy, the upshot of which seems to be that there is a much more favourable climate for the possible approval of a development of that land with a shopping centre of lesser area than in the original application. However, at this time there is no formal development application before the relevant authorities and no indication, which appears from the evidence, as to the timeframe within which a development application might be considered and approved if lodged. 8 The claim for interlocutory relief relates solely to the apprehended exercise of the receiver's power of sale in respect of the secured properties. It is necessary that the applicants show first that there is a serious question to be tried in favour of their contentions and in favour of the restraint upon the sale proceeding and second, that the balance of convenience favours the grant of the interlocutory relief. Those two considerations are interdependent. The strength of the case will affect the extent to which the balance of convenience has to tip one way or the other to favour the grant of interlocutory relief. A strong case will not require much in the way of balance of convenience to justify interlocutory relief whereas a weak case will require a considerable balance of convenience in favour of the applicant to justify the grant of relief. 9 In essence, there has been put before me a substantial amount of background surrounding the obviously difficult relationship between the receiver and the applicants who own the properties the subject of the relevant securities. There are matters of lack of communication, want of cooperation and a number of other issues raised. In discussion with senior counsel for the applicants there have emerged some seven points which go to the question whether or not there is a serious question to be tried that the receiver has breached his duty or is likely to breach his duty in disposing of the properties if not restrained. 10 The relevant duties for present purposes, I think, can be regarded as the general duties of a mortgagee and the superadded duty set out at s 420A of the Act, which provides in subs (1): 'In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for: (a) if, when it is sold, it has a market value – not less than that market value; or (b) otherwise – the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.' 11 The matters to which Mr Jooste has taken me in support of the contention of an arguable case of apprehended breach of the receiver's duties are the following: 1. The unreasonable failure by the receiver to accept or entertain offers for the purchase of the relevant land and two such offers were mentioned in evidence, one from an entity called Newhill and another from Stocklands. 2. The unreasonable failure by the receiver to entertain offers of refinancing of the secured properties. 3. The conduct of the receiver in communication with the City of Armadale advising them of his intention to sell the secured properties, which conduct, it is said, without further qualification or clarification has had the practical effect of impeding the consideration of a revised development application. 4. The unreasonable failure by the receiver to entertain the possibility of a joint marketing of both the secured properties and the other properties owned by the applicants as a global proposition which would be linked to the likelihood of approval of a revised development application. 5. Inadequate advertising. 6. A tender process which is said to have made it difficult to attract the widest range of prospective purchasers; and 7. A global failure to have proper regard or to afford the applicants a proper opportunity to exercise their equity of redemption. 12 I am not satisfied that under any of these heads a seriously arguable case has been disclosed. Much of the basis of my want of satisfaction has emerged in the course of discussion during Mr Jooste's submission. So far as the third party purchase offers were concerned, they were subject to conditions which effectively appear to have put them at little more than the level of options to purchase, they being subject to, among other things, conditions reposing in the offerers an absolute discretion as to whether or not they would be satisfied by the outcome of a due diligence process. The refinancing offers themselves were subject to conditions which, in my opinion, do not give rise to any suggestion or basis for suggesting that the receiver was failing in his duty by not entertaining them. 13 The receiver's communication with the City of Armadale, which is complained of as having an adverse effect on the progress of the development application, was simply a notification of the factual position which is that he was proceeding to deal with the sale of the lots. That is incapable, in my opinion, of being construed as a breach of his duty. 14 The receiver could have entertained the possibility, I suppose, of engaging in a joint marketing exercise in respect of all the land taken together but there is no doubt that that would have substantially extended the timeframe for disposition of the properties and would also be linked to the uncertainties, albeit they were considerably reduced uncertainties, of the success of the development application and its timeframe. I am not satisfied that there was evidence of inadequate advertising or that the evidence of the tender process supports an arguable case of a failure of duty on the part of the receiver. 15 So far as the seventh point, that is, the equity of redemption, is concerned, a valid point is made against the applicants that they have had something like 18 months, since they defaulted in respect of principal, to address that question. Three and a half months have passed since the receiver was appointed. The best they are able to come up with at the present time is an immediate or almost immediate offer of $2 million with the balance to be subject to obtaining refinancing, of which they are confident. That, however, does not in my opinion amount to a tender which would oblige the receiver to defer the sale process in order to entertain it and his failure to do so does not, for the purposes of interlocutory relief, constitute an arguable breach of his duties. 16 For these reasons, I am not satisfied, on the state of the evidence before me, that there is a seriously arguable case to try. My findings in this respect of course, as in any interlocutory matter, are provisional findings. After a trial of an action alleging a substantive breach of the receiver's duties, it may be that another judge or myself doing that trial might come to a different conclusion. The applicants have their remedies in the event that the receiver and through the receiver the mortgagee, is found to have breached its duty in respect of the disposition of the property. 17 In my opinion therefore not only is there not a seriously arguable case but the balance of convenience does not favour the applicants and the grant of interlocutory relief in this respect. For those reasons, I will dismiss the application for interlocutory relief. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 29 November 2004 Counsel for the Applicant: Mr PI Jooste QC with Mr T Galic Solicitor for the Applicant: Galic & Co Counsel for the Respondent: Mr WS Martin QC with Mr CS Gough Solicitor for the Respondent: Minter Ellison Date of Hearing: 3 November 2004 Date of Judgment: 3 November 2004