FEDERAL COURT OF AUSTRALIA Allhours Enterprises Pty Ltd (ACN 105 534 058) v Global Food Services Pty Ltd (ACN 103 727 877) (In Administration) [2005] FCA 459 PRACTICE AND PROCEDURE – interlocutory injunction – sale of business – purchase by instalments - charge over business to secure payment – assignment of contract of sale and charge to third party – claim against vendor for variation of contract pursuant to s 87 of Trade Practices Act 1974 (Cth) – claim based upon misrepresentations as to turnover and profitability – whether interlocutory relief available against assignee of charge to restrain appointment of receiver for non-payment of part purchase price – conditions for grant of interlocutory relief TRADE PRACTICES – misleading or deceptive conduct – inducing entry into contract – contract for sale of business – charge over property under sale – claim for variation of contract based on misleading or deceptive conduct- variation under s 87 of Trade Practices Act – whether rights of assignee of charge consequentially varied – whether interlocutory relief may be ordered against assignee of charge Trade Practices Act 1974 (Cth) s 87 Federal Court of Australia Act 1976 (Cth) s 23 ALLHOURS ENTERPRISES PTY LTD (ACN 105 534 058) v GLOBAL FOOD SERVICES PTY LTD (ACN 103 727 877) (IN ADMINISTRATION), RICHARD TRAINER and TRISTANIA HOLDINGS PTY LTD (ACN 009 426 206) WAD 67 OF 2005 FRENCH J 19 APRIL 2005 (Date of Orders) 20 APRIL 2005 (Publication of Reasons) PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD67 OF 2005 BETWEEN: ALLHOURS ENTERPRISES PTY LTD (ACN 105 534 058) APPLICANT AND: GLOBAL FOOD SERVICES PTY LTD (ACN 103 727 877) (IN ADMINISTRATION) FIRST RESPONDENT RICHARD TRAINER SECOND RESPONDENT TRISTANIA HOLDINGS PTY LTD (ACN 009 426 206) THIRD RESPONDENT JUDGE: FRENCH J DATE OF ORDER: 19 APRIL 2005 WHERE MADE: PERTH THE COURT ORDERS THAT: Upon the Applicant undertaking: (a) to submit to such order, if any, as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory orders or any continuation (with or without variation) thereof; and (b) to pay the compensation referred to in (a) to the person there referred to: AND UPON THE FURTHER CONDITIONS SET OUT IN THE ORDER BELOW IT IS ORDERED THAT: 1. Until trial or further order the First and Third Respondents are hereby restrained whether by their directors, servants, agents or otherwise from taking any steps under the Charge granted by the Applicant to the First Respondent on 14 April 2004 consequent upon non-payment by the Applicant of the instalment of $1,300,000 purportedly payable by it to the Third Respondent on 14 April 2005 under the Sale of Business Deed between the Applicant and the First Respondent on or around 14 November 2004. 2. Until trial or further order, the First and Third Respondents are hereby restrained whether by their directors, servants, agents or otherwise from taking any steps under the Charge granted by the Applicant to the First Respondent on 14 April 2004 in consequence of the alleged default specified in the Notice of Default under Charge, dated 12 April 2005 issued pursuant to cl 9.1 of the Charge. 3. The above orders are made on the following conditions: A. The Applicant do within 7 days pay into Court the sum of $120,000 by way of bank guarantee in a form approved by the District Registrar. B. The Applicant continue to operate the Business the subject of the Sale of Business Deed in the ordinary course of business and do not by its directors, servants, agents or otherwise, sell, grant or lease or otherwise dispose of or encumber the business or any part thereof or grant any interest in the business or any part thereof to any other party. This condition does not require the Applicant to recommence operation of the Fast Eddy's cafe in Kalgoorlie. 4. The Applicant is to comply with condition B until further order. 5. There is liberty to the parties to apply at short notice to vary the above orders. 6. The costs of the application for interlocutory relief are reserved. 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 WAD67 OF 2005 BETWEEN: ALLHOURS ENTERPRISES PTY LTD (ACN 105 534 058) APPLICANT AND: GLOBAL FOOD SERVICES PTY LTD (ACN 103 727 877) (IN ADMINISTRATION) FIRST RESPONDENT RICHARD TRAINER SECOND RESPONDENT TRISTANIA HOLDINGS PTY LTD (ACN 009 426 206) THIRD RESPONDENT JUDGE: FRENCH J DATE OF ORDER: 19 APRIL 2005 PUBLICATION OF REASONS 20 APRIL 2005 PLACE: PERTH REASONS FOR JUDGMENT Introduction 1 On 1 March 2003, Allhours Enterprises Pty Ltd (Allhours) made an agreement to purchase the business of four cafes for $3.1 million. It made the agreement with Global Food Services Pty Ltd (In Liquidation) (Global). It says it was induced to do so by misleading or deceptive conduct on the part of Global. It claims various forms of relief against Global and its director, Mr Trainer. 2 Global has assigned the benefit of the sale contract to another company, Tristania Holdings Pty ltd (Tristania) and also has assigned the benefit of a Charge over Allhours property which secures the performance of its obligations under the sale contract. 3 Allhours seeks to vary the contract under s 87 of the Trade Practices Act 1974 (Cth) (the Act) by reducing the purchase price payable to what it says is the true market value of the business. In the meantime it wants to restrain Global and Tristania from exercising any rights under the Charge to appoint a receiver for non-payment of an outstanding instalment of the purchase price. 4 For the reasons that follow I am satisfied that an interlocutory injunction can and should be granted. However, that grant will be upon conditions that Allhours keeps the currently operating businesses going and that it pays a portion of the unpaid purchase price into Court. Procedural history 5 On 24 March 2005, Allhours filed an application in this Court claiming various orders including relief under s 87 of the Act and damages against Global, its director, Richard Trainer, and Tristania. 6 In its statement of claim Allhours says that on 1 March 2003 it entered into an agreement with Global to purchase from it four Fast Eddy's Cafes at Bunbury, Kalgoorlie, Carousel Shopping Centre and Morley for $3.1 million. $600,001 of the purchase price had been paid prior to the execution of the agreement. Completion of the sale took place on 14 April 2004. The balance of the purchase price was to be paid by instalments of $1.3 million on 14 April 2005 and $1.2 million on 14 April 2006. Monthly interest payments of $18,125 in arrears for the first year and $9,425 for the second year were also payable to Global. The payment of the balance of the purchase price was secured by a charge granted by Allhours in favour of Global. On or about 21 May 2004, Global assigned its rights to receive the payment of the balance of the purchase price under the Deed of Sale and the Charge to Tristania. 7 Allhours now says it was induced to enter into the agreement by antecedent representations made on behalf of Global which were misleading or deceptive or likely to mislead or deceive. The representations related, inter alia, to the trading history and profitability of the businesses. Allhours says that Global contravened s 52 of the Act and that Allhours thereby suffered loss and damage incurring an obligation to pay $3.1 million for the cafes in circumstances where their true value as of 14 April 2004 was $870,000. Mr Trainer is sued as a person knowingly involved in the contraventions. 8 Allhours claims orders against Global pursuant to s 87 of the Act varying the terms of the Deed of Sale by reducing the purchase price payable from $3,100,001 to $1.2 million or such other figure as the Court considers appropriate. It also claims a corresponding reduction of the instalments from $1.3 million in April 2005 to $312,000 and $1.2 million in April 2006 to $288,000. It claims corresponding reductions in the interest sums payable. There are claims for aggravated damages under s 82 and damages for breach of contract. As against Tristania, Allhours claims a declaration that the assignment by Global to Tristania of Global's rights to receive payment of the balance of the price under the Deed of Sale was an assignment of Global's rights as varied by the proposed s 87 orders. 9 The application as filed was endorsed with a claim for interlocutory relief. The interlocutory injunction claimed would restrain Global and Tristania from taking any steps under the Charge granted by Allhours to Global on 14 April 2004 consequent upon non-payment by Allhours of the instalment of $1.3 million payable on 14 April 2005. In an amended application a second order is sought to prevent action pursuant to a Notice of Default based upon alleged contravention of the Charge by the grant to a third party of an option to purchase one of the cafes. 10 On 30 March 2005, directions were given relating to the filing of affidavit evidence in support of and in opposition to the claim for interlocutory relief. Directions were also given for the filing of defences, counterclaims, replies and defences to counterclaims. The claim for interlocutory relief was heard on 15 April 2005 and judgment reserved until 19 April 2005 when the orders set out in the Minute at the commencement of these reasons were made. 11 Before turning to the evidence and submissions in support of the claim, it is convenient to refer in outline to the allegations set out in the statement of claim. The Statement of Claim 12 The statement of claim identifies Allhours as applicant (SC 1) and Ian Brain as a director of Allhours and of another company called Westhaven Nominees Pty Ltd (Westhaven) (SC 2). Global is identified as a corporation and Mr Trainer as a director of that company (SC 3 and 4). Global is said to have 'engaged in trade or commerce, as an operator of a fast food business ...'. (SC 3.2) An administrator was appointed to Global on 25 February 2005 (SC 3.3). It is common ground, although not pleaded, that on 7 April 2005 a winding up order was made against the company and Mr PM Melsom appointed as its liquidator. 13 Before Allhours was incorporated, Mr Brain's dealings with Global were conducted on the basis of his disclosed intention that a new company, Allhours, would be incorporated to acquire the business operated by Global (SC 5). Tristania is also identified as a corporation (SC 6). 14 Robert O'Connell is pleaded as a person who at all material times acted on behalf of Global (SC 7). 15 On 7 May 2003, Westhaven and Global executed Heads of Agreement under which: 1. Westhaven agreed to pay $600,000 to Global for the licences to operate Fast Eddy's Cafes at Perth and Fremantle being purchased by Westhaven from Camwell Pty Ltd (In Administration). 2. Westhaven agreed to pay $1 for the rights to manage four Fast Eddy's Cafes owned by Global at Bunbury, Kalgoorlie, Carousel and Morley. 3. Global granted to Westhaven an option to purchase the Global Cafes with associated assets and intellectual property for $2.5 million. 4. Westhaven and Global agreed to execute a formal Deed of Sale that was more fully to record the terms agreed by them. (SC 8) 16 In or around June 2003, Robert O'Connell agreed to assist Mr Brain to obtain finance for the price payable to Global under the Option. He prepared a submission in July 2003 on behalf of Allhours that was presented to Challenge Bank and contained an Appendix 3 purporting to set out current average weekly turnovers for the Global Cafes, totalling $102,000. The turnovers allegedly set out in the Appendix were: 1. Carousel Store $45,000 2. Bunbury store $15,000 3. Morley store $22,000 4. Kalgoorlie store $20,000 (SC 9) It is alleged that O'Connell's conduct in preparing the submission and providing a copy to Mr Brain constituted a representation by Global to Brain that the current average total weekly turnover for the Global Cafes as at July 2003 was $102,000. This is designated as the 'First Representation' (SC 10). 17 Allhours was incorporated in or around mid July 2003 and thereafter conducted negotiations with Global with a view to the execution of the formal deed contemplated by the Heads of Agreement (SC 11). In mid-September 2003, Allhours and Global began negotiating terms by which Allhours would purchase the business rather than simply retain option and management rights. This had to do with concerns about the acceptability of previously proposed arrangements to the Department of Racing, Gaming and Liquor (SC 12). 18 On 18 September 2003, Global, through Mr Trainer, provided Allhours by facsimile with turnover costs and profit figures for the Global Cafes disclosing a profit of $216,967.11 for pleaded periods (SC 13 and 14). Further representations are said to have been made on ten occasions by Mr O'Connell in telephone conversations with Mr Brain between August 2003 and early October 2003 relating to the receipts for the Kalgoorlie cafe and the Bunbury cafe for the week preceding each of those conversations. The receipts are said to have been represented as ranging from $21,000 to $26,000 for Kalgoorlie and $17,000 to $18,000 for Bunbury (SC 15). 19 Further representations are said to have been made by Mr O'Connell on behalf of Global on a number of occasions between September and October 2003 that Global then intended, and had the capacity, to purchase the freehold of the land on which the Kalgoorlie cafe was located and the assets of that business from the owner of the land prior to settlement (SC 16). A number of implied representations are alleged, namely: 1. The business of the four cafes was continuing to achieve and was capable of continuing to achieve trading levels at or better than the trading levels represented in the submission to Challenge Bank in July 2003. 2. The total profit for the cafes for the year ending 30 June 2004 would be approximately $900,000. 3. The business of the cafes was capable of generating annual profits for the year ending 30 June 2004 and succeeding years of approximately $900,000 (SC 17). Section 51A of the Act is invoked to support the plea that Global did not have reasonable grounds for making any of the implied representations or the representation as to its intention and capacity to purchase the freehold and assets of the Kalgoorlie business so far as they were representations of future matters (SC 18). 20 Induced by the various representations, it is said that on 1 November 2003 Allhours executed a Deed of Sale by which it agreed to purchase the business for a total of $3.1 million on terms and conditions set out in the Deed of Sale (SC 19). The terms of payment have already been mentioned. Other provisions of the Deed of Sale are also pleaded, but need not be set out now (SC 20). It was executed on or around 14 November 2003 (SC 21). Completion took place under the Deed of Sale and Allhours took possession of the business of the four cafes on 14 April 2004. Allhours executed a charge in favour of Global to secure its payment and other obligations under the vendor finance terms set out in the Deed of Sale (SC 22). Terms contained in the Charge are pleaded (SC 23). 21 Global assigned its rights to receive payment of the balance of the price under the Deed of Sale and its rights under the Charge to Tristania on or around 21 May 2004 (SC 24). On or around 25 May 2004 Tristania gave written notice to Allhours of the assignments (SC 25). 22 A plea of breach of contract is made on the basis that Global failed to provide records and manuals to Allhours as required by the Deed of Sale. Allhours says it suffered loss and damage as a result of those breaches (SC 26 and 27). The value of the manuals is said to have been $382,995 and the value of the records and, alternatively, the cost of recreating them is said to be $200,000 (SC 27). 23 Each of the representations said to have been made on behalf of Global is alleged to have been false and/or misleading or deceptive in various respects which are set out (SC 28). In substance they are: 1. The true turnover for the four cafes was significantly less than represented. 2. The true profit for the business for the relevant periods was significantly less than represented. 3. The true turnovers of the Kalgoorlie and Bunbury cafes for the relevant weeks were significantly less than represented. 4. Global, contrary to its representation, did not intend and did not have the capacity to acquire the Kalgoorlie assets prior to settlement or at all. 5. The business was not reasonably capable of generating an annual profit for the year ending 30 June 2004 and succeeding years of approximately $900,000. By reason of these matters Global is alleged to have engaged in misleading or deceptive conduct in contravention of s 52 of the Act. Allhours says it suffered loss and damage in that it incurred an obligation to pay $3.1 million for the Global assets in circumstances where their true value as at 14 April 2004 was $870,000. Mr Traineris said to have been accessorially involved in the contravention (SC 31). The relief claimed 24 Allhours has filed an amended application seeking additional interlocutory relief. The interlocutory orders it now seeks are in the following terms: '1. An order that until trial or further order, an injunction be granted pursuant to section 80 of the Trade Practices Act, further or alternatively, section 23 of the Federal Court Act 1976 (Cth), further or alternatively, the inherent equitable jurisdiction of this Honourable Court, against the first and third respondents restraining them whether by their directors, servants, agents or otherwise from taking any steps under the charge granted by the applicant to the first respondent on 14 April 2004 consequent upon non-payment by the applicant of the instalment of $1,300,000 purportedly payable by it to the third respondent on 14 April 2005 under the Sale of Business Deed between the applicant and first respondent executed on around 14 November 2004. 2. An order that until trial or further order, an injunction be granted pursuant to section 80 of the Trade Practices Act, further or alternatively section 23 of the Federal Court Act 1976 (Cth), further or alternatively, the inherent equitable jurisdiction of this Honourable Court, against the first and third respondents restraining them whether by their directors, servants, agents or otherwise from taking any steps under the charge granted by the applicant to the first respondent on 14 April 2004 in consequence upon the alleged default specified in the Notice of Default Under Charge, dated 12 April 2005, issued pursuant to clause 9.1 of the Charge' The latter additional order is sought because Tristania has issued a Notice of Default to Allhours upon the basis that it had granted an option to a third party, Mr Emery, to purchase the Morley cafe contrary to restrictions contained in the Charge. The evidence 25 Allhours relied upon the affidavits of Ian David Brain sworn 24 March, 11 April and 15 April 2005 and the affidavit of Asha Gabrielle Stewart sworn 31 March 2005 exhibiting a valuation report by Mr G Wheeler. It also relies upon an affidavit sworn by the liquidator, Peter Michael Melsom on 12 April 2005, save as to paragraphs 7, 8 and 10. Objection was taken to the latter affidavit, but it was read saving the excluded paragraphs and subject to weight and relevance. 26 Mr Brain's affidavit exhibited the Heads of Agreement executed on 7 May 2003 expressed to be between Mr Trainer as sole director and shareholder of Global and Mr Brain as an individual and duly authorised director of Westhaven. The Heads of Agreement comprised three components. The first was a Licence Agreement. This provided that on the payment of $600,000 Global would issue a licence to Westhaven to trade as Fast Eddy's in the Perth and Fremantle stores which it had already acquired. The background to this, which led to the transactions between Global and Westhaven, is that Westhaven having acquired these stores found that it had not, at the same time, acquired the right to use the name Fast Eddy's. That right was evidently held by Global. 27 The second component of the Heads of Agreement was a Management Agreement whereby, for a payment of $1, Global would allow Westhaven to manage the Carousel, Morley, Bunbury and Kalgoorlie stores. The leases would be held in the name of Global. All expenses and income would be the property of Westhaven. There were a number of conditions attached to the Management Agreement. 28 The third component of the Heads of Agreement was entitled 'Option to Purchase'. Westhaven agreed to pay $2.5 million as full and final payment for the purchase of all Global's assets and all intellectual property associated with the Fast Eddy's name. Payment of the amount could be completed by way of one payment of $2.5 million within twelve months subject to a rebate of $300,000. An alternative mode was two payments, the first of $1.3 million before the anniversary of the Licensing Agreement and the second of $1.2 million no later than its second anniversary. An interest rate of 10% would apply to the balance to be paid monthly at a rate of $10,000. Ownership of all plant, equipment, memorabilia, intellectual property and property leases would remain with Global until the last payment had been cleared. The so-called 'Option' then provided: 'Failure to meet either of the above payment terms will make this agreement terminated and all funds transferred at that times (sic) will be come (sic) the property of Global Foods Services Pty Ltd. The second years (sic) license fee of $300,000 will be refunded. The licensing agreement will expire and all rights given and assumed being retracted by Global Food Services Pty Ltd. Westhaven Nominees Pty Ltd, its directors, employees and consultants in regards to the trading name and ownership to the intellectual property may make no claims.' There was provision that on completion of the agreed option payment ownership of Global would be transferred to Westhaven by the sale of Mr Trainer's shareholding to that company. As appears from the mode of drafting, the Heads of Agreement were not prepared by a relevantly skilled legal practitioner. It appears that it was prepared by Mr O'Connell. 29 Shortly prior to the execution of the Heads of Agreement, Mr Brain had discussions with Mr and Mrs Ken Folley with a view to them becoming part owners of the cafes. They agreed it would be necessary to incorporate a new company. Mr Brain made Mr Trainer and his consultant, Robert O'Connell, aware that a new company was to be incorporated as the owner of the cafes. He referred to discussions which he had with Mr Trainer and Mr O'Connell shortly prior to 7 May 2003. He understood that Global had recently acquired the cafes and associated equipment and intellectual property. The Kalgoorlie cafe was not operating and would be re-opened by mid-June 2003. The assets associated with the cafes included all of the plant and equipment used in their conduct and certain of the historical items associated with the business. 30 Discussions followed between Messrs Brain and O'Connell in relation to the formal contract contemplated by the Heads of Agreement. He was provided with a valuation dated 6 May 2003 prepared by Gregsons valuing the assets associated with the cafes. The Kalgoorlie plant, equipment and memorabilia was valued at $406,215. 31 In or around July 2003, Mr O'Connell offered to assist Mr Brain in raising the funds payable to Global under the Option. He prepared a submission on behalf of Allhours to be made to Challenge Bank. A copy of the submission was exhibited to Mr Brain's affidavit. The amount of finance sought was $2,500,000. Appendix 3 to the submission set out a valuation schedule for plant, equipment and memorabilia, present turnover figures and lease details. The weekly turnovers for the four stores the subject of the agreement, as set out in Appendix 3, were as follows: 1. Carousel $45,000 2. Bunbury $15,000 3. Morley $22,000 4. Kalgoorlie $20,000 The turnovers of the Fremantle and Perth stores were also included in that list. Mr Brain says that the trading figures were obtained by Mr O'Connell. He assumed they were accurate and that the figures for the Kalgoorlie cafe were based on trading after it had been reopened on 1 July 2003. In the event, Challenge Bank was not prepared to provide the finance. 32 Mr Brain received an email from Mr O'Connell on 10 September 2003 stating that the proposed arrangements under the Heads of Agreement for Allhours to manage the cafes could not proceed because of problems relating to liquor licensing. He then decided that Westhaven should negotiate to purchase the cafes subject to the trading figures being maintained and the terms being acceptable. Allhours was incorporated as the vehicle for the proposed acquisition. In or around 24 September 2003, Mr and Mrs Folley were appointed as directors of Allhours and they acquired half of the shares in it. 33 Mr Brain said he telephoned Mr O'Connell almost weekly during August, September and early October 2003 seeking more recent trading figures. He said that on approximately ten occasions Mr O'Connell told him that weekly turnovers at Kalgoorlie for the preceding week had been in the range of $21,000 to $26,000 and that the Bunbury store had been at between $17,000 and $18,000. Mr O'Connell however said that he was overseas from 12 August 2003 to 5 September 2003 and that he had no communication with Mr Brain in that time, nor any communication of the kind alleged at all. 34 Mr Brain received a fax from Mr Trainer dated 18 September 2003 with turnover costs and profit figures for the cafes. The trading figures showed an overall profit of $216,967.11. That covered the period June to August 2003 for the Bunbury, Morley and Carousel cafes and July and August 2003 for the Kalgoorlie cafe. He assumed that the trading figures set out were accurate. He calculated on the basis of these representations that the annual net profit of the cafes would be approximately $900,000 for the year ended 30 June 2004. On that basis he considered, and the other directors agreed, that Allhours should purchase the cafes for a total price of $3.1 million. $600,000 of that had already been paid under the Heads of Agreement. 35 Mr Brain was telephoned by Brad Cassidy of Commercial Kitchens in September 2003 and informed that Commercial Kitchens had a claim over some of the plant and equipment at the Kalgoorlie cafe. He received a fax from Christensen Vaughan, Solicitors on 16 September 2003 setting out the claim against the landlord with the Kalgoorlie cafe, Sinja Pty Ltd, for $119,000 for various items of plant and equipment sold and delivered to the cafe which had been subject to a title retention clause. 36 Mr Brain sent an email to Mr O'Connell in relation to the Commercial Kitchens' claim. In some six telephone conversations between 19 September and early October 2003, he said Mr O'Connell told him that Global was purchasing the freehold of the Kalgoorlie cafe and the plant and equipment and that Allhours would get clear title to the plant and equipment at settlement. Mr Brain discussed these issues with Allhours' then solicitors and a clause was included in the draft agreement to provide some assurance in relation to Commercial Kitchens' claim. He believed that at settlement on the purchase of the business the applicant would obtain title to the assets of the Kalgoorlie cafe. 37 On 1 November 2003, Allhours executed a Deed of Sale with Global under which it agreed to purchase the four cafes for a price of $3.1 million, of which $600,001 was taken as paid under the Option Agreement. By a notice dated 21 November 2003, Allhours elected, pursuant to cl 3.2(b) of the Deed of Sale to take vendor finance under the terms set out in Schedule 6 to the Deed. 38 Mr Brain inspected the Kalgoorlie assets on 28 March 2004. By an email dated 7 April 2004, he was informed by Allhours' solicitor that Global's solicitors had said that Global did not own the Kalgoorlie assets. Global subsequently reserved its rights in relation to any claim in relation to the Kalgoorlie assets. 39 Settlement on the Deed of Sale occurred on 14 April 2004 and Allhours commenced conducting the business of the four cafes that afternoon at about 5pm. Payments made under the Deed of Sale comprised the deposit of $600,000 paid prior to its execution and eleven payments of interest under the vendor finance terms. Each of those payments was $18,125 making a total of $199,375. 40 The operative provisions of the Deed of Sale included cl 2.4 which provides: 'The Vendor shall sell and assign to the Purchaser, and the Purchaser as trustee for the Trust shall purchase and accept an assignment from the Vendor of the Assets for the Purchase Price free of Encumbrances.' The Assets are defined in cl 1.1. They include the goodwill, plant, equipment and memorabilia, intellectual property, business names, brand names, business records, and the rights and benefits of Global under the Business Contracts and the rights and benefits of Global under the leases. Certain excluded assets are defined. These comprise freehold property, cash and cash on hand, debts owed to Global and all other rights and assets not expressly referred to in the definition of assets. Plant, equipment and memorabilia is also defined. 41 Clause 3.2 makes provision for the payment of the purchase price. It provides two alternatives. The first requires payment of $1.9 million by 21 November 2003, subject to a discount of $600,000. Alternatively, vendor finance is offered on terms set out in Schedule 6 to the Agreement. The terms of vendor finance as set out in that schedule have been referred to earlier in these reasons. The balance of the purchase price of $2,5 million is to be made in instalments of $1.3 million payable one year from completion and $1.2 million payable two years from completion. There are interest payments to be made monthly in the amount of $18,125 for the first year following completion and $9,425 in the second year following completion. 42 Clause 11.1 of the Deed of Sale states that Global makes no warranties in relation to the sale of the assets and the business save to say that it acquired the Assets and the business from the Fast Eddy's Cafe – Australia Pty Ltd (In Liquidation) (Receivers and Managers Appointed) and only has title to the Assets and business as assigned to it by that company. 43 Clause 11.2 contains an acknowledgement by the parties that there is a claim by Commercial Kitchens for the return of plant and equipment pursuant to a retention of title clause. Global undertook that if the claim were upheld it would procure the agreement of Commercial Kitchens for the purchaser to have unencumbered title to all plant, equipment and memorabilia where there is a finding that it be returned to Commercial Kitchens pursuant to its claim. 44 Clause 12 relates to limitation of liability and provides, inter alia: '12.1 No reliance and no liability for matters outside this Deed (a) The Purchaser acknowledges and warrants that: (i) it enters into this Deed solely as a result of its own due diligence, investigations, inquiries, advice and knowledge concerning the Business and the Assets; and (ii) it does not rely on any representation or warranty made by or on behalf of the Vendor which is not set out in this Deed and to the fullest extent permitted by law all such representations and warranties are excluded and expressly disclaimed. (b) Neither the Purchaser nor the Vendor will bring any Claim or Action unless it is based solely on and limited to the express provisions of this Deed. (c) (i) The Purchaser acknowledges that its claims against the Vendor relating to this Deed, the purchase of the Business and the Assets and the negotiation therefore are intended by the parties to be limited to the warranties, indemnities, guarantees and conditions expressly contained herein upon which the parties have negotiated and agreed. (ii) Accordingly, the Purchaser and the Vendor jointly release their respective officers, employees, advisers and agents from all claims, demands, rights or liabilities whether in tort (including negligence), statute, contract, or otherwise which it has or may hereafter have arising out of the negotiations for and subject matter of this Deed other than as may be provided for in this Deed.' 45 The Deed of Charge is expressed to be between Allhours and Global. Under cl 2.1 it provided: 'By this Charge, the Chargor as trustee of the Trust charges the Charged Property to the Chargee to secure the satisfaction of the Obligations and the payment to the Chargee of the secured money.' 46 The Chargor is Allhours and the Chargee is Global. The Charged Property is defined in cl 1.1 as all of Allhours assets, undertaking and rights, both present and future, including the assets, undertaking and goodwill of the businesses conducted by Allhours, its uncalled and called, but unpaid capital and the whole of the assets of the Allhours Unit Trust. 47 Importantly, the term 'Obligations' referred to in cl 2.1 is defined in cl 1.1 as follows: '"Obligations" means all the liabilities and obligations of each Relevant Person to the Chargee under or by reason of: (a) any Transaction Document; or (b) any other transaction, matter or event, and includes any liabilities or obligations which: (c) are liquidated or unliquidated; (d) are present, prospective or contingent; (e) are in existence before or come into existence on or after the date of this charge; (f) relate to the payment of money or the performance or omission of any act; (g) sound in damages only; or (h) accrue as a result of any Event of Default, and irrespective of: (i) whether the Chargor or any other Relevant Person is liable or obligated solely, or jointly, or jointly and severally with another person; (j) the circumstances in which the Chargee comes to be owed each liability or obligation and in which each liability or obligation comes to be secured by this charge, including, any assignment of any liability or obligation or of this charge; or (k) the capacity in which the Chargor, any other Relevant Person and the Chargee comes to owe or be owed that liability or obligation.' 48 Clause 4.1 provides: 'The Chargor will satisfy, or procure the satisfaction of, the Obligations and will pay the Secured Money in the manner provided in this charge or in any Transaction Document.' 49 There are certain restrictions in relation to dealings with the Charged Property. These are set out in cl 5.1 and include the following: 'The Chargor will not without the Chargee's prior written consent or as expressly permitted in any other Transaction Document: ... (b) (No Sale, lease etc): sell, convey, assign, transfer, lease or otherwise dispose or part with possession of, make any bailment over, grant any option over or create or permit to exist any other interest in any part of the Charged Property whilst that part of the Charged Property is subject to the fixed charge created in this charge;' 50 Events of Default are set out in cl 7.1, including failure to pay any secured money at or before the due time, on the due date and in the manner specified in any Transaction Document or otherwise in accordance with the Obligations. 51 Clause 7.2 sets out rights of the Chargee in the following terms: 'If any Event of Default occurs and while it subsists, at the option of the Chargee and notwithstanding any delay or previous waiver of the right to exercise that option, the Secured Money becomes immediately due and payable on demand, and all Powers not previously exercisable become exercisable, and also at the like option of the Chargee, the right of the Chargor to deal with the Charged Property immediately ceases.' 52 Clause 17.14 provides: 'The Chargor does not enter into this charge in reliance on or as a result of any representation, promise, statement, conduct or inducement by or on behalf of the Chargee or by or on behalf of any Relevant Person otherwise than as set out in the Transaction Documents.' 53 Notice of assignment of the Charge was given on 21 May 2004 and a copy is annexed to Mr Brain's affidavit. 54 Following the settlement Mr Brain said that he became concerned that the turnover of the business was substantially less than represented, particularly in relation to the Kalgoorlie and Bunbury cafes. He exhibited to his affidavit documents setting out trading performance since settlement. 55 Allhours operated the business of the cafes as trustee of the Allhours Unit Trust. For the period 30 June 2004 the Allhours Unit Trust showed a net operating loss of $2,108,843. Mr Brain had discussions with Mr Folley in May 2004. Mr Folley was not prepared to join in action against Global in relation to the poor performance of the cafes and other concerns which Mr Brain had in relation to the business. In March 2005 the Folleys resigned as directors of Allhours and transferred all of their shares in that company to Mr Brain's wife, Marie. Mr Brain decided in January 2005 that Allhours should cease trading at the Kalgoorlie cafe as it was not profitable. In March 2005, he instructed his solicitors to provide advice. They wrote to the administrator of Global and to Tristania seeking undertakings that no steps would be taken under the Charge consequent upon any non-payment of instalments. The requested undertaking was not forthcoming. At the time he swore his affidavit Allhours was not able to raise sufficient funds to pay the instalment on 14 April 2005. It is not in dispute that the payment was not made on 14 April. Westhaven can advance $600,000 to Allhours to assist in part payment. Bankwest was not able to advance any funds as the business was not making enough profit to support such an advance. Allhours could not raise further funds. 56 Mr Brain said that if Tristania appoints a receiver under the Charge, the receiver will incur substantial costs in relation to investigation and ongoing management of the business, will pay the whole of the profits less fees to Tristania and will probably sell the business for less than a price that might be realised if it were sold in an orderly manner as a going concern. In that event, Allhours would lose its sole asset and the opportunity for further profits from the business and remain liable to pay a large amount to Global and/or Tristania by way of balance of the purchase price. Moreover, Allhours would be unlikely to be able to pay legal fees in relation to the proceedings or to resist a claim for the balance of the price owing under the Deed of Sale. Mr Brain said that if an injunction is granted in the terms sought he will ensure that Allhours will continue to operate the business in an efficient manner so that its value is preserved. Allhours is prepared to pay to Global the amount reflected in the true value of the business as at 14 April 2004 less amounts paid to date. In that connection Allhours had procured a valuation report. 57 The valuation report which was that of GJ Wheeler of Pitcher Partners expressed the opinion that as at 14 April 2004 the business of the cafes had a collective value in the range $560,000 to $1.267 million. The valuation range was wide because of changes in the ownership and/or operators of the stores over the past three years and their wide fluctuations in performance and operational costs over that period. The valuation was based on capitalisation of future maintainable earnings. The report was 'preliminary in nature' as its author expected that further information would emerge as part of the discovery process which would enable further analysis of the business and may impact on the conclusions reached. I am prepared to accept on a provisional basis for the purposes of the claim for interlocutory relief that the conclusions as to the value of the business offered by Mr Wheeler are arguably correct. 58 The respondents relied upon affidavits of Richard James Trainer sworn 6 April 2005, Robert John O'Connell sworn on the same date and the affidavit of Yin Chieh Fang sworn 13 April 2005. 59 Mr Trainer said that he telephoned Mr Brain in March 2003 and informed him that Global was in the process of purchasing the Bunbury, Carousel and Morley Fast Eddy's restaurant outlets and understood that he had purchased the Perth and Fremantle outlets. He met with Mr and Mrs Brain shortly afterwards. Also present were Mr Rob O'Connell and Mr Rob Murphett, a colleague of his. Mr O'Connell was a business consultant assisting him in relation to the acquisition of the Fast Eddy's outlets. During the meeting he told Mr Brain that he would not be able to trade under the Fast Eddy's name because Global had the rights to use that name, related trade marks and intellectual property as a result of the purchase of the Bunbury outlet. After the meeting, Mr Trainer instructed his solicitors to write to Mr Brain to put him on notice that he had no entitlement to use the Fast Eddy's name at the Perth and Fremantle outlets. 60 They spoke again by telephone a few weeks later and then met at a bar in the Old Swan Brewery complex. Mr O'Connell was also present. They discussed a number of possibilities including the purchase by Mr Brain of the outlets being acquired by Mr Trainer's company. Mr Trainer told Mr Brain he wanted $2.5 million for his outlets. Mr Brain said he would pay that. Mr Trainer wanted a deposit. Mr Brain subsequently obtained a cheque book and wrote out a cheque for $250,000. However, he would not hand over the cheque until a written agreement had been drawn up. 61 Messrs. Trainer, Brain and O'Connell met again a few days later. They made an arrangement reflected in the Heads of Agreement document. That document was prepared by Mr O'Connell. After some amendments Messrs Trainer and Brain signed the document in Mr O'Connell's presence. Mr Brain handed Mr Trainer his cheque which, according to Mr Trainer, was dishonoured on first presentation. As to that Mr Brain says he gave a cheque for $250,000 to Mr Trainer on a Westhaven account intending later to arrange for funds to be transferred into that account. Shortly after the meeting Mr Folley said he would arrange for electronic transfer of the amount direct to Global. Mr Brain telephoned Mr Trainer and told him that the funds would be provided directly and that he should not bank the cheque but should destroy it. He did not receive any notice of dishonour on the cheque from his bank. 62 Some weeks later Mr Trainer was present at a discussion between Mr Brain and Mr O'Connell in his office. Mr Brain needed to obtain finance to fund the acquisition. Mr O'Connell said that he had a contact at Westpac whom he was happy to approach to see if Westpac might be able to provide the funding required. Mr O'Connell said he would be happy to assist Mr Brain prepare a submission for Westpac for the purpose of obtaining the funding. Mr O'Connell asked Mr Trainer if that was alright with him. Mr Trainer recalled saying something along the lines of 'so long as you don't charge me for it'. There was some discussion about Mr O'Connell's hourly rates. Mr Brain said that he hoped that Mr O'Connell's rates were less than those charged by solicitors. 63 Mr O'Connell recalled the meeting as having occurred on 18 June 2003. Mr Brain and his associates had just met with Mr Mark Caddy of Security Capital to discuss finance for the acquisition of Global's cafes. Consistently with Mr Trainer's evidence, Mr O'Connell said that he told Mr Brain that he had a friend at the Westpac Bank who might be able to assist. He asked Mr Brain whether he would like him to assist him making a submission to Westpac. Mr Brain said words to the effect that he would like Mr O'Connell's assistance. Mr O'Connell recalled asking Mr Trainer whether he had any difficulty with that and Mr Trainer did not so long as he was not paying for that assistance. Mr O'Connell said to Mr Brain that if as a result of his assistance finance was obtained he would expect to be paid a fee based on time spent working on the project. Mr Brain agreed. They met subsequently to discuss the submission to Westpac. It took place at the Perth Fast Eddy's outlet. Mr Brain provided Mr O'Connell with background information concerning his family and the Folley family and their respective asset and liability positions. Mrs Folley sent some information about her financial position and that of her husband by email. 64 Mr O'Connell prepared an outline of a submission document. He sent a copy to the Brains and a copy to the Folleys under cover of an email dated 1 July 2003. He prepared the draft submission using the information he had obtained from the receivers who had sold the Global cafes and from information that Mr Brain and Mrs Folley had provided to him. He received an email from Mrs Folley on 2 July 2003 with comments on the draft submission. He sent an email to Mr Brain requesting projections referred to in Mr Folley's email. Mr Brain responded with documents which were described as his projections for the cafes. Mr O'Connell included some but not all of the spreadsheets included in the projections sent to him by Mr Brain under cover of his email of 3 July 2003. 65 Mr O'Connell said he met with Mr Brain to discuss the draft submission and the supporting information. He cannot recall the detail of the discussions but recalls the substance. He explained to Mr Brain that the summaries of financial data had been prepared by him by reference to historical information made available by the receivers. They discussed the turnover figures that were included in Appendix 3 to the submission. He said that Mr Brain supplied him with the turnover figures for the Perth and Fremantle Fast Eddy outlets because he did not have that information. He said they discussed the figures for the other outlets. Global had only been trading in Kalgoorlie since 1 July 2003 and in Bunbury since 16 June 2003 and had not taken possession of the Carousel and Morley outlets. These facts were discussed by Mr Brain and they discussed what figures should be recorded as the turnover for the Bunbury, Kalgoorlie, Carousel and Morley outlets based on historical information available from the receivers. He discussed with Mr Brain some matters which were the subject of handwritten annotations on the copy of the submission made available to Mr Brain. Some amendments were made as a result. Mr Brain sent an email on 15 July 2003 with further amendments to the submission. 66 Mr O'Connell said he went on holiday from 12 August 2003 until 5 September 2003. He had no communication with Mr Brain or anyone on his behalf while he was overseas. He said he had no communication, of the kind alleged by Mr Brain, in August, September or October 2003. He was not aware of the turnover of the Global cafes in that period. He had no involvement in the trading activities and no knowledge of the trading figures. He did not say to Mr Brain words to the effect that Global was purchasing the freehold of Kalgoorlie. He recalled saying words to the effect that the lease of the Kalgoorlie premises contained a right of first refusal to purchase the freehold for the sum of $900,000. 67 In his affidavit Mr Trainer said that Global had started to operate the Bunbury store in June 2003 and reopened the Kalgoorlie store on 1 July 2003. Until it took over the operation of the Morley and Carousel outlets on 19 September 2003 its only source of information about the trading activities for those stores was the accountancy firm, Taylor Woodings. Mr Ian Francis was responsible for the operations of the outlets in his capacity as receiver appointed by St George Bank. 68 In or about October 2004 Mr Trainer had a conversation with Mr Folley who said he was not getting on well with Mr Brain. Mr Folley said that he had found out that Mr Brain had sold the Morley outlet to a friend, a Mr Emery, but that the transaction was not shown in Allhours books as a sale. He claimed that the purchase price was recorded as a loan by the purchaser to Mr Brain or Westhaven. In or about January 2005 Mr Folley again informed Mr Trainer that Mr Emery had done a deal with Mr Brain in relation to the Morley outlet and that money had changed hands. However he did not know the quantum involved. 69 In his affidavit in reply, sworn on 11 April 2005, Mr Brain said that he had had considerable discussions with Messrs O'Connell and Trainer in relation to purchase arrangements culminating in the execution of the Deed of Sale. In those negotiations he was concerned to obtain accurate and reliable trading figures as he was negotiating the terms of an outright purchase as opposed to an option to purchase. He denied that there was ever any discussion of any payment being made to Mr O'Connell by himself or Westhaven. No payment has been made by Westhaven or Allhours or himself. 70 Mr Brain referred to documents faxed from Global's office on 18 September 2003. He said he was now concerned that in addition to the matters raised in his affidavit of 24 March 2005, he was also misled in relation to the historical trading figures for Carousel and Morley. The figures set out in the facsimile from Mr Trainer were all said to be inclusive of GST whereas in his fax dated 18 September 2003 Mr Trainer had said that the figures provided were net of GST. By wrongly stating that the figures were net of GST Global effectively overstated the receipts by around 9%. Based on GST exclusive figures, the receipts would have been approximately $67,840.93 for Morley so that Global overstated the receipts by about $6,709.54 for that month. Similarly, in relation to Carousel, the correct receipts for that month should have been $153,147.81 and Global is said to have overstated them by $15,146.48 for that month. 71 In relation to the Kalgoorlie equipment, Mr Brain's complaint was not that Global did not purchase the freehold but rather that it was not able to give title to the Kalgoorlie equipment. 72 As to Mr Emery's alleged acquisition of the Morley cafe Mr Brain said that in or around May 2003 he told Mr Emery that under the Heads of Agreement Westhaven had an option to acquire the four cafes. He had three or four meetings with Mr Emery during which they discussed the possible acquisition by him of the Morley store. In those discussions it was proposed that Mr Emery would manage Morley for twelve months and at the end of that period, if happy with the trading performance, and, subject to the purchase being concluded from Global, he would purchase the Morley store for a total of $450,000. Mr Brain asked Mr Emery if he would be able to advance him $150,000 which he would then pay to Global as part of the $600,000 deposit. Mr Emery did make that advance which was used as part payment of the deposit. Mr Brain told Mr Emery that he would repay the $150,000 if Westhaven resolved not to exercise the option. He said that if Westhaven exercised the option then Mr Emery could exercise an option to acquire the Morley store once Westhaven had paid the balance of the purchase price under the Heads of Agreement. If Mr Emery exercised that option the $150,000 advance would be treated as part payment of the option price. After execution of the Deed of Sale Mr Brain had further discussions with Mr Emery in relation to the option. He told him his option remained in force and that he could exercise it after Allhours had paid the balance of the purchase price under the Deed of Sale. These arrangements have not been set out in any formal contract. 73 Mr Brain denied having had any discussions with Mr O'Connell in relation to figures to be inserted in the submission in relation to the turnover for the Bunbury and Kalgoorlie stores. He did not see the final version of the submission until after it had been finalised by Mr O'Connell land presented to the Bank. He expected that all of the figures being included in the submission would be accurate and he had no reason to believe that any of the facts were not in fact correct. 74 Mr Brain swore a further affidavit on 15 April 2005 observing that Mr O'Connell's affidavit had annexed trading projections prepared by Mr Brain which were substantially the same as the projections annexed to his affidavit of 24 March 2005. Mr Brain said he prepared the projections in early July 2003 for the financial year commencing July 2003 through to June 2004. They did not show the correct commencement date as the program he used was based on a calendar year rather than a financial year. The entries for January to June were for the second six months and not the first six months as appeared on the table comprising the projection. He said he based the projections on gross sales figures for the business provided to him by Mr O'Connell, his own estimate of usual expenses for such business and his own estimate of annual trading patterns and seasonal factors. 75 The information provided to him by Mr O'Connell in relation to each store upon which he said he relied was set out by reference to various telephone conversations and meetings with Mr O'Connell at par 6 of his affidavit. Mr Brain's estimates of expenses were based on twelve years experience in the fast food and cafe industry. 76 Mr Brain submitted a further affidavit of 18 April 2005 stating, by way of clarification of par 15 of his affidavit of 11 April 2005, that his conversation with Mr Emery after the Deed of sale was executed took place in November 2003. 77 As appears from an affidavit of Yin Chieh Fang sworn 13 April 2005, a notice of default under the charge was issued to Allhours by Tristania on 12 April 2005. In that notice the following default was asserted. 'D. Allhours has granted an option to Mr Barry Emery for Mr Emery to acquire the Morley Fast Eddy's restaurant for the sum of $450,000 ("Option"). E. By granting the Option to Mr Emery without written consent, Allhours has granted an Option over part of the Charged Property whilst that part of the Charged Property was subject to the fixed charge created in the Charge thereby breaching clause 5.1(b) of the Charge. F. By reason of the matters set out in recitals D and E above, Allhours is in default under the Charge.' Findings of fact 78 In any claim for interlocutory relief the evidence presented to the Court is generally incomplete and untested. In this case the affidavit material on both sides has not been tested by cross-examination. Any findings of fact at this stage are at best provisional. The Court is concerned to determine whether there is a serious question to be tried and, if so, where the balance of convenience lies as between the parties in relation to the grant or refusal of interlocutory relief. These factors are interdependent. The weaker the case for the applicant, the stronger the balance of convenience must be to justify the grant of interlocutory relief. The more powerful the balance of convenience in favour of the respondent, the stronger the case to overcome that imbalance if interlocutory relief is to be granted. Whether there is a serious case to be tried depends in the first instance upon whether the evidence offered to the Court establishes the necessary factual foundation for one or more of the causes of action pleaded in the statement of claim. 79 The principal causes of action pleaded involve the contention that, prior to the execution of the Deed of Sale Global engaged in conduct which was misleading or deceptive or likely to mislead or deceive and which caused Allhours to suffer loss and damage. The case is pleaded in the statement of claim by allegations of pre-contractual representations, said to have been false, which were relied upon by Mr Brain and induced the execution of the Deed of Sale by Allhours. The representations alleged may be grouped as follows: 1. Representations as to current average weekly turnover as at July 2003 set out in Appendix 3 of the Challenge Bank Submission prepared by Mr O'Connell and attributable to Global (SC 9 and 10). 2. Representations as to profits earned by the four cafes made by Mr Trainer on behalf of Global in a facsimile from Mr Trainer to Mr Brain dated 18 September 2003 (SC 13 and 14). 3. Representations as to weekly receipts for Kalgoorlie and Bunbury cafes made by Mr O'Connell on behalf of Global between August and October 2003 (SC 15). 4. Representations by Mr O'Connell on behalf of Global as to Global's intention and capacity to purchase the freehold of the Kalgoorlie cafe and the Kalgoorlie cafe assets (SC 16). 5. Implied representations arising from 1, 2 and 3 above (SC 17). 80 The matters relied upon to falsify the alleged representations are set out in pars 18 and 28 of the statement of claim. Paragraph 18 alleges want of reasonable grounds for making the representations relating to the freehold and assets of the Kalgoorlie cafe and the implied representations to the extent that they were representations as to future matters. Paragraph 28 alleges that the turnover and profit figures were significantly less than represented, that Global did not intend or have the capacity to acquire the Kalgoorlie assets before settlement or at all and that the business of the cafes was not reasonable capable of generating an annual profit for the year ended 30 June 2004 and succeeding years of approximately $900,000. There is, for the most part, no clear-cut evidence which supports the falsification of the representations pleaded as to turnover and profit. For the most part, as senior counsel for Allhours accepted, the falsities asserted are '... based upon inferences to be drawn from subsequent trading after the purchaser, the applicant, took possession of the business' (T 19). 81 I consider that there is a difficulty in the way of the contention that Mr O'Connell's conduct in preparing Appendix 3 of the submission to the Challenge Bank is attributable to Global. There is no evidence that he was paid by Global in respect of the work. Global acquiesced in his preparation of the submission for Allhours no doubt because it was in its interests for Allhours to secure bank finance. That acquiescence does not make Mr O'Connell the agent of Global. The difficulty is not overcome by the application of s 84(2) of the Act because that subsection is premised upon the attributed conduct being engaged in 'on behalf of' a body corporate. It begs the question in issue here. 82 There is evidence to support the proposition that Mr Trainer's facsimile of 18 September 2003 was misleading or deceptive in that it conveyed the false representation that the trading figures set out in it were 'net of GST'. The Kalgoorlie title issue is something of which Mr Brain was aware and for which the Deed of Sale made express provision. There is no doubt an arguable case in relation to the intention or capacity of Global to ensure that title was provided but it does not seem to be, on the materials presently available, to be a very strong case. On the other hand, Allhours' case may be assisted by the reverse onus imposed by s 51A of the Act and I take that into account. 83 Allhours' reliance case is affected by the fact that Mr Brain had entered into the Heads of Agreement, had set out to purchase the cafes and had paid the sum of $600,000 before any representations, save for those said to have been made in Appendix 3 to the Challenge Bank submission, were made. It is true that the Heads of Agreement in so far as they provided for an Option Agreement so called, allowed Mr Brain effectively not to go ahead with the acquisition, albeit not without penalty. In this respect it does not matter for present purposes whether the agreement is properly characterised as an option or something else. The evidence, in any event, is suggestive of an early commitment by Mr Brain to the acquisition. 84 As counsel for Tristania pointed out, the reliance case is also affected by the fact that Mr Brain made his own calculations of projected turnover and profitability of the business and provided them to Mr O'Connell for the purpose of the financial submission to the Bank. He prepared the turnover and profit schedules comprising Appendix 1 to the submission. They show that, as at 3 July 2003, he considered that the business of the cafes would generate a weekly turnover of $108,230 and an estimated annual profit of $660,030. The profit figure, it is pointed out is at odds with the allegation in par 17 of the statement of claim that Mr O'Connell's figure in the submission supported an implied annual projected profit of $900,000. There is plainly a tension between the allegation that Mr Brain relied upon and was induced by that implied representation to enter into the Deed of Sale when his own projection was 'significantly less', to use the language of par 28 of the statement of claim. 85 In the event I consider that there is a seriously arguable case in relation to the representations made by Mr Trainer in September 2003. There is an arguable case in relation to the other representations. I do not consider, however, that the case disclosed on the material overall is a particularly strong one. This has implications for the extent to which the balance of convenience should favour the grant of interlocutory relief sought. The application of section 87 86 Before turning to the balance of convenience it is necessary to have regard to whether s 87 of the Act is available, as claimed, to write down the purchase price in the Deed of Sale and consequentially the obligations secured by the Deed of Charge. 87 Section 87(2)(b) of the Act authorises the Court to make orders varying a contract or arrangement made between a person who has suffered loss or damage by reason of the contravention of another and the contravening party. The orders can only be made against a person who has engaged in contravening conduct or been involved in the contravention. Section 87 does not relevantly provide for orders to be made against a party who is not a contravener. In the event that Global is found to have engaged in misleading or deceptive conduct inducing Allhours to enter into the Deed of Sale at a price greater than the true market value of the businesses acquired, then it will be open to the Court to vary the purchase price by reducing it to the market value of the businesses at the relevant time. In my opinion, which I express provisionally, such an order would necessarily vary the obligations secured by the Charge. That variation would affect Tristania's position as assignee of the Charge. There is nothing in the terms of the Deed of Sale, the Charge itself or the assignment of the Charge which puts the contractual obligations between Allhours and Global beyond the reach of s 87(2)(b). The Charge may be said to be 'ambulatory' in the limited sense that the obligation it secures is an obligation which is subject to the contingency of variation by the grant of the statutory relief. It was subject to that contingency at the time it was assigned. The Charge involves no novation of an obligation as between Allhours and Tristania. It applies to the obligation under the Deed of Sale. 88 I express the preceding views subject to the important caveat that after more extensive argument and a trial of the action, the Court might be persuaded to a different conclusion. However, in my opinion, there is a strong case for the proposition that the obligation secured by the Charge assigned to Tristania was subject to variation by orders made under s 87. This is not a question of a chargee taking subject to prior equities or some other form of prior interest in the assigned rights. It is simply a question of the availability of the statutory remedy under s 87 against the assignor, Global and its consequences for the content of the assigned obligation and the enforcement of the Charge. It may well be the case in many, if not most cases of contractual assignment that, absent novation, the assignee takes subject to the changes that may be effected to the assigned rights by orders made under a variety of statutes including the Trade Practices Act and the Fair Trading Acts of the various States. 89 Once it is accepted that the obligation secured by the assigned charge is arguably amenable to variation under s 87 there is a basis, in my opinion, for the grant of interlocutory relief under s 23 of the Federal Court of Australia Act 1976 (Cth) to restrain the chargee from enforcing the security on the basis of the contractual rights as they presently stand. 90 The question that must next be considered is whether the balance of convenience favours such an order, whether it may be affected by conditions attached to the order and, if so, what conditions would be appropriate. The balance of convenience 91 Tristania contends that the grant of the option to Mr Emery over the Morley store gives rise to real concern about whether Allhours will preserve the Charged Property. The option is said to have been given surreptitiously and its existence not disclosed until raised by Tristania in these proceedings. Moreover, it is submitted, no undertaking has been offered that Allhours will only conduct the businesses of the cafes in the ordinary course of those businesses. 92 The undertaking offered by Allhours is said to be inadequate. The accounts exhibited to Mr Brain's affidavit disclose that Allhours is in a parlous financial state. Accepting that to be correct no doubt it would be argued by Allhours that its financial condition arises from its acquisition of businesses which were misrepresented to its corporator. Certainly its financial health appears to be directly linked to that of the businesses it was formed to acquire. 93 Allhours submits that if the Charge were enforced through the appointment of a receiver over the businesses of the cafes this would most likely lead to an early sale. Such a sale would have the adverse consequences referred to in Mr Brain's affidavit. On the other hand, Tristania has other security and the business of the cafes is being properly maintained. The injunction would enable the position to be preserved pending trial. 94 The unconditional grant of interlocutory relief in this case would, in my opinion, impose an unacceptable risk of loss on Tristania. Its tangible assets apart, the value of any business is a fragile thing depending critically on the ongoing capacity and commitment of its owners and management. The desire to get in secured property promptly after default is entirely understandable. On the other hand there is, in my opinion, a risk that were a receiver appointed, the properties would be disposed of and any effective relief under s 87 of the Act put beyond the reach of Allhours. In that event Allhours would be left to prove in the Global liquidation and to seek such remedies as it could against Mr Trainer. 95 There is evidence from the liquidator of Global, Mr Melsom, about concerns he has relating to whether transactions between Global and Tristania associated with the assignment of the Charge might be uncommercial transactions under s 588FB of the Corporations Act 2001 (Cth). The liquidator's concerns in this respect are expressed to be based in part upon a telephone conversation he had with the former administrator of Global, Mr Kim Wallman. Mr Wallman informed Mr Melsom that based upon his discussions with Mr Trainer and the books and records of Global it appeared that: 1. The sum of $1.8 million was advanced by Tristania to Global under a Loan Agreement and of that sum about $1,683,717.47 was lent by Global to Mr Trainer. 2. The advance to Mr Trainer was paid to the vendor of a property at 9 Duncraig Road, Applecross now owned by Mrs Trainer. 3. Global did not take any security from Mr Trainer in relation to the loan to him. 4. There was no benefit to Global in entering into the loan from Tristania. 5. Global gave Tristania, as security for the Tristania loan, the assignment of the debt owing by Allhours under the Deed of Sale and the assignment of the Charge. 6. The books and records of Global do not show that Global received any part of the amount to be advanced under the Tristania loan from which it appears that the amount advanced under the loan to Mr Trainer was paid direct to the vendor of the Applecross property. 7. Mr Trainer appears unable to repay the amount of the loan to Global. 96 There is exhibited to Mr Melsom's affidavit a Loan Facility Deed dated 24 March 2004 under which Tristania, as lender, provided Global, as borrower, with a loan facility. The amount of the loan facility was equal to the 'Loan' for the 'Term'. The 'Loan' was defined in cl 1 as the sum of $1,988,203.75. The 'Term' means the period from and including the commencement date to and including the termination date. The commencement date was the date of the Advance. The termination date was 12 months from and including the commencement date or when the Money Owing became due and payable, whichever was the earlier. Clause 2.2 of the Loan Facility Deed shows that the Advance was to provided by the lender in the sum of $1.8 million by bank cheque made payable to the borrower or to a party or parties nominated in writing by the borrower to the lender at least 24 hours before the commencement date to be delivered by the lender to the borrower on completion. There was provision for other payments made in cl 2.2 albeit they referred to sums payable to the lender. There was provision for payment of interest (cl 4.2) and default interest (cl 4.3). To secure the facility Global undertook with Tristania to execute an assignment of the Debt and Debt Securities to Tristania within 5 days of the Commencement Date (cl 6.7). The term 'Debt' referred to all moneys owing from time to time by Allhours to Global pursuant to the Sale of Business Agreement. The 'Debt Securities' was defined as the security granted or to be granted by Allhours and its guarantors to Global pursuant to the terms of the schedule (Vendor Finance Terms) of the Sale of Business Deed. 97 Also exhibited to Mr Melsom's affidavit was a handwritten document called 'Loan Deed' entitled Agreement between Global Food Services and Richard James Trainer. By that document Global undertook to lend Mr Trainer the amount of $1,683,717.47. The loan was expressed to be for a period of 12 months from the date of drawdown. The interest rate was to be 27% paid in arrears on the 12-month anniversary of the loan. There was an option to extend the loan for a further 12 months. 98 There is clearly enough, on the documentary material exhibited to Mr Melsom's affidavit and the information provided to him by Mr Wallman, to provide a real basis for his concern that the transactions between Tristania and Global may be questionable. As appeared from par 9 of his affidavit, Mr Melsom intends to seek funds from creditors to carry out further investigations into those transactions and depending on the results of such investigations and the provision of further funding, may bring proceedings for relief under the Corporations Act. He consents, as liquidator, to the granting of an injunction against Global provided that it is subject to liberty to apply to vary or discharge the injunction should circumstances change. 99 I take into account Mr Melsom's concerns which cannot be dismissed as merely based upon second-hand hearsay. The transactions to which he refers are evidenced by documentary material exhibited to his affidavit. In the context of assessing the balance of convenience in this case and the risk that might be associated with Tristania's unconstrained ability to appoint a receiver to the business, I am entitled to accord some weight to the summary which he received of the transactions from Mr Wallman. 100 In my opinion, provided that the businesses currently operating are continued in operation and that some part payment of the amount due under the Deed of Sale is made into Court and that there is liberty to apply at short notice to vary or discharge the proposed injunction, the balance of convenience favours the grant of the interlocutory relief claimed. 101 In relation to the notice of default from Tristania concerning the Emery transaction, counsel for Allhours submitted that the Emery arrangement preceded the grant of the Charge and that cl 5.1 of the Charge is expressed prospectively. It is not a warranty as to past transactions. There is, in any event, no present grant in the oral arrangement deposed to by Mr Brain. It is at least arguable, as counsel contends, that cl 5.1(b) is concerned with present grants of options in circumstances where the option purports to be capable of exercise in a way that would create some right arguably inconsistent with that of the Charge. I express no concluded view on the Emery transaction at this stage but I am satisfied that, as an incident of preserving the subject matter of this litigation, I should also restrain action by Tristania on the basis of the alleged default deriving from the Emery option. 102 In calculating an amount to be paid into Court, counsel for Allhours submits that it should reflect a purchase price adjusted provisionally on the basis of the valuation offered by Mr Wheeler. Taking a figure halfway along the range indicated by him, suggests a revised purchase price, reflecting true value, of $913,500. That is reduced from $3.1 million. On that basis the two annual instalments would be reduced to $163,020 and $150,480 respectively. The monthly interest figures would be reduced from $18,125 in the first year to $4,350 and from $9,425 in the second year to $2,088. Allhours has already paid $600,000 on account of the principal sum and has paid interest under the Deed in the amount of $199,375. The interest payments reflect an overpayment of interest, having regard to the putative adjustment to the purchase price. Allhours submits that having regard to the putative adjusted purchase price and the principal and interest payments already made, it is appropriate that it now pay into Court $82,257.26. That sum is calculated as follows: 1. Adjusted Purchase Price $913,500.00 2. Less Deposit Paid $600,000.00 $313,500.00 3. Less overpayment of interest $151,525.00 $161,975.00 4. Less interest at 6% of excess interest payments $ 3,787.95 $158,187.05 5. 52% of balance equals$ 82,257.26 103 The assumptions made in support of the calculation seem to me somewhat generously tilted in favour of Allhours having regard to the range of values contemplated in Mr Wheeler's report. His maximum value is $1.267 million. Even around the range which he has posited there is obviously room for debate and other views. 104 It seems to me at this stage that an appropriate amount to be paid in having regard to the range of possible values contemplated by Mr Wheeler and the uncertainties attending his report, is $120,000 with liberty to apply to vary that condition. I had contemplated the possibility of requiring that additional amounts be paid in over a period of time as an incentive to Allhours to expedite the bringing on of the trial in this matter. That however might give other parties an interest in delaying the proceedings. I will allow liberty to apply to vary the amount required to be paid in as a condition of the continuance of the interlocutory injunction. It will also be a condition of the continuance of the injunctions that Allhours continue to operate the currently operating businesses in the ordinary course and not encumber or dispose of them in any way. 105 It is sufficient, I think, that the amount to be paid into Court be paid in by way of bank guarantee in a form approved by the District Registrar. However, if the parties agree an alternative procedure I will entertain their submissions in that respect. I certify that the preceding one hundred and five (105) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 20 April 2005 Counsel for the Applicant: Mr C L Zelestis QC with Mr TO Coyle Solicitor for the Applicant: Phillips Fox Mr PM Melsom, Liquidator of the First Respondent, appeared on his own behalf Second Respondent: Mr R Trainer appeared on his own behalf Counsel for the Third Respondent: Mr PA Tottle Solicitor for the Third Respondent: Tottle Partners Date of Hearing: 15 April 2005 Date of Orders: 19 April 2005 Publication of Reasons: 20 April 2005