FEDERAL COURT OF AUSTRALIA LCW Enterprises Pty Ltd v Collins [2011] FCA 1373 Citation: LCW Enterprises Pty Ltd v Collins [2011] FCA 1373 Parties: LCW ENTERPRISES PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) AS TRUSTEE FOR THE WALKER FAMILY TRUST (ACN 114 573 518) v GERALD COLLINS AND MATHEW JOINER IN THEIR CAPACITY AS RECEIVERS AND MANAGERS OF LCW ENTERPRISES PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) File number(s): QUD 523 of 2011 Judge: GREENWOOD J Date of judgment: 30 November 2011 Catchwords: PRACTICE AND PROCEDURE – consideration of an application under Rule 7.01 of the Federal Court Rules 2011 for an order before commencement of proceedings – consideration of an application for an interlocutory injunction to restrain receivers and managers appointed to the applicant company from selling two properties the subject of the charge – consideration of the principles to be applied in granting an interlocutory injunction Legislation: Federal Court Rules 2011 Cases cited: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 - cited Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 – cited Date of hearing: 29 November 2011 Date of last submissions: 29 November 2011 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 17 Counsel for the Applicant: D Kissane Solicitor for the Applicant: Condon Charles Lawyers Counsel for the Respondent: J Peden Solicitor for the Respondent: Freehills IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 523 of 2011 BETWEEN: LCW ENTERPRISES PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) AS TRUSTEE FOR THE WALKER FAMILY TRUST (ACN 114 573 518) Applicant AND: GERALD COLLINS AND MATHEW JOINER IN THEIR CAPACITY AS RECEIVERS AND MANAGERS OF LCW ENTERPRISES PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Respondent JUDGE: GREENWOOD J DATE OF ORDER: 30 NOVEMBER 2011 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application under Rule 7.01 of the Federal Court Rules 2011 is dismissed. 2. Lyndon Clifford Walker pay the respondent's costs of and incidental to the application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 523 of 2011 BETWEEN: LCW ENTERPRISES PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) AS TRUSTEE FOR THE WALKER FAMILY TRUST (ACN 114 573 518) Applicant AND: GERALD COLLINS AND MATHEW JOINER IN THEIR CAPACITY AS RECEIVERS AND MANAGERS OF LCW ENTERPRISES PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Respondent JUDGE: GREENWOOD J DATE: 30 NOVEMBER 2011 PLACE: BRISBANE EX TEMPORE REASONS FOR JUDGMENT 1 This is an application under Rule 7.01 of the Federal Court Rules 2011 for an order before action. The applicant in the application is LCW Enterprises Pty Ltd and that company is presently subject to a Deed of Company Arrangement. The application is for an interlocutory injunction pending the commencement and determination of an action in which the applicant seeks or will seek damages pursuant to s 82 to the Trade Practices Act 1974 (Cth) (the "Act") in respect of contraventions of s 52 of that Act. It seems to be common ground between the parties that the Act as it stood prior to the recent amendments is the relevant law applying to the conduct the subject of the proposed action. The second limb of the application involves an order to avoid the Deed of Appointment of Receivers appointed to the company. The receivers and managers were appointed on 1 September 2011 by the National Australia Bank Ltd ("NAB" or "the bank") pursuant to particular securities granted as a result of financing arrangements entered into between the bank and the applicant. 2 Of course, it is important to recognise at the outset, then, that the substantive cause of action which the applicant seeks to bring is one for damages under s 82 of the Act, which, of course, reflects a reliance loss, that is to say, loss or damage suffered by conduct in contravention of the Act (Wardley Australia Ltd v Western Australia (1992) 175 CLR 514). I mention that matter because it reflects the important consideration that essentially the substantive claim of the applicant is a money claim for damages and the interlocutory application is an application for an injunction in aid of the primary cause of action measured by the loss suffered by the conduct in question. The ultimate result of that matter, of course, is that the applicant company seeks to rely upon that cause of action expressed in the form of damages, as an answer to the actions of the receivers and the bank. I say the bank because the present formulation of the application does not involve the bank as a party and the focus of the application, at least for the interlocutory injunction, is the proposal by the receivers to sell two properties the subject of the securities. They are properties located at 18 to 20 Hanna Court, Kearneys Springs, Toowoomba and another property at 41 Russell Street, Toowoomba. 3 The principles which govern the question of whether an interlocutory injunction should go are well established and they are best reflected in the observations of the High Court in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 and, in particular, [65] to [72] in the judgment of their Honours Gummow and Hayne JJ. Those observations were also adopted in the joint judgment of Gleeson CJ and Crennan J. The important consideration for the moment, apart from the general principles applying to the grant of an interlocutory injunction, is the question of the probability of success in the proceeding at trial. That involves an analysis of the evidence in support of the contended contravention of s 52. 4 The application is supported by an affidavit from Mr Lyndon Clifford Walker sworn 25 November 2011 and it is necessary to refer to aspects of the affidavit. 5 In the affidavit Mr Walker says that he is the sole director and secretary of the applicant company. That company since 3 June 2005 has acted as a corporate trustee of the Walker Family Trust in the conduct of various investment activities and businesses. The Walker Family Group, however, is comprised not just of the applicant company but of other interests reflected in Mr Walker's participation as a sole director of Mexicano Investments Pty Ltd and a company called Ignition & Earth Pty Ltd. The Mexicano entity conducts a restaurant venture called Banjo's. That company, however, was placed in liquidation on 13 May 2011. The Ignition & Earth entity which conducts a business called "Cosmetic Cut and Colour" was placed in liquidation on 11 November 2009. In the affidavit, Mr Walker explains the history of the assets and activities of the Walker group of companies and throughout the affidavit the factual matters are described by reference to Mr Walker's engagement with the relevant officer of the National Australia Bank when speaking on behalf of the Walker Family Group of companies, in that aggregated sense. 6 In any event, by September 2007, Mr Walker says that the Walker group of companies had established facilities with Suncorp Metway in the total value of $1,050,000 and the assets securing those facilities are identified. The total asset values were approximately $2m. In addition to those arrangements, the Ignition entity through the business of Cosmetic Cut and Colour also had facilities amounting to $525,000. In September 2007, Mr Walker sought to refinance those facilities and made approaches to St George Bank and other financial institutions, including the National Australia Bank. Those approaches ultimately resulted in a meeting between Mr Andrew Tolputt, a business banker for National Australia Bank and Mr Walker. A discussion for 30 minutes took place in September about the possibility of the bank providing financial facilities to Mr Walker in respect of the applicant entity and the Walker Family Group of companies. The affidavit does not seek to differentiate between particular entities, although it is clear from the subsequent documentation that entities were cross-collateralised in the sense that they gave cross-guarantees and independent securities were taken in respect of assets of the disaggregated entities. 7 Mr Walker says that in September 2007 he wanted to know whether the bank could assist him with purchasing freehold businesses, buying and selling businesses, entering into lease transactions, purchasing the business of Cosmetic Cut and Colour, that is to say, the freehold, and whether the bank could assist in the re-financing of the Walker Group's existing portfolio of properties, then secured with facilities with Suncorp Metway. A discussion took place in which Mr Walker said that he wanted to establish a four-year plan and that cash flow was important to the business. He explained that it was important to the Walker Family Group of companies that a banking facility that allowed the various entities within the Walker Family Group to access cash reserves "when it was required by the companies and myself", was an important matter. At that meeting he handed Mr Tolputt three valuations of properties which he had obtained for the purposes of the Suncorp Metway arrangements. He asked Mr Tolputt, he says, "What type of banking facility would the [bank] recommend?" and Mr Tolputt said, "[a]ll of our bankers here at NAB use Market Rate Facilities" ("MRF facility"). Mr Walker asked Mr Tolputt to explain what that was and Mr Walker says Mr Tolputt said, this is "the best facility for use for business people". Mr Walker asked whether he, that is to say the Walker Group of companies, would be able to "draw on more money at any time" and Mr Tolputt said yes as the facility "rolls every month". 8 Mr Walker says that he told Mr Tolputt that it was important for the Walker Group of companies to set up these businesses and that Mr Walker needed consistency with payments and cash flow "every day and every month". He said that he did not want to endure high interest rates. He says that this was fundamental to the property portfolio and businesses, the cash flow, and that consistent payment terms were required. Mr Walker says that Mr Tolputt responded to this conversation by saying that the MRF facility was "the best thing" and is, "product of the moment" and Mr Walker says that he can clearly remember telling Mr Tolputt that he did not want an overdraft as he wanted "a fixed term capital loan". Other aspects of that conversation took place which led to Mr Tolputt saying that he would expedite the prosecution of the loan application supported by particular documents which Mr Tolputt would prepare. On the following night, Mr Tolputt told Mr Walker that the MRF facility recommended was often taken up as a treasury facility. 9 Mr Walker, in his affidavit, then addresses the question of the documents. The documents, of course, include the loan facilities, the letter of offer, the special conditions, the general conditions, the guarantees and the securities which would support the making of a loan of $1.3 million. Mr Walker explained in his affidavit that he attended a meeting at the bank to sign the documents. There were many of them. He signed some. He says that he thinks he did not sign all of them. He says that he was not told to seek independent legal advice. He says that he did not review each of the documents carefully and he says that he was not provided with some of them. He says, at para 56, that he never received copies of the MRF loan terms and conditions. The total amount funded under all of these arrangements was $1.3 million and those funds were drawn down. 10 Mr Walker explains in his affidavit the final draw down arrangement. Mr Walker also explains in his affidavit the scope and nature of the various securities and he describes the funding for the acquisition of the freehold of the Cut and Colour business and the acquisition of the Hanna Street property which occurred on 6 December 2007. Mr Walker then describes various communications with the National Australia Bank in relation to the operation of these facilities. He says that he began to notice that there was a lack of consistency in the treatment of the interest repayments. Sometimes repayments were debited to the accounts, on a number of occasions in the same month and Mr Walker explains some of those matters in further parts of his affidavit. He also explains the arrangements in relation to loan facilities for the renovation of the Mexicano Restaurants and he explains that had the bank given Mexicano an appropriate loan in the first instance, Mexicano would have been able to trade the businesses in an efficient manner. He makes that observation at para 94 of his affidavit. 11 At para 101, Mr Walker makes the point again about the irregularity in the interest treatment and the cash flow payments – or the interruption to the cash flow payments. At para 101 of the affidavit, Mr Walker describes a conversation with Mr Tolputt in which Mr Tolputt said that he had exceeded the prudential guidelines governing these sorts of facilities, and events would come to pass where Mr Tolputt would no longer be responsible for the portfolio of financial arrangements with the Walker Group of Companies. These matters represent the foundation facts upon which it is said that the Court ought to be satisfied that there is a sufficient probability of success in the cause of action that an interlocutory injunction should go and, further, it is said that the balance of convenience favours the applicant. 12 There are a number of considerations. The first is that when one turns to the letter of offer, it sets out in the letter of 25 October 2007 a reference to particular documents, including the business letter of offer itself which sets out the key financial provisions and then attaches the specific conditions followed by the general conditions of the facility offer. At clause 4.4 of the general conditions, the following appears: All payments by you must be made in full without set off, counter-claim or deduction. If you or NAB are, at any time, compelled by law to deduct or withhold any amount (including taxes), you must indemnify NAB against that amount and pay concurrently to NAB such additional amounts as will result in payment to NAB of the full amount that would have been received if no deduction had been made. 13 These general conditions apply to letters of offer in relation to the other Walker Group companies as well. It appears, plainly enough, therefore, from the terms and conditions of the contract of loan that any money claim which Mr Walker or the Walker Group of companies may have is not susceptible of a set-off against moneys owing to the bank under the loan arrangements and the facility agreements. As to the facility agreements, Mr Riggs, in his affidavit sworn 29 November 2011, attaches copies of the relevant security instruments and they, too, contain a set-off provision similar to the general conditions. The set-off in the facility documents is to be found in clause 33. 14 It seems clear enough, therefore, that if the foundation of the claim by the applicant is a money claim under s 82 by reason of contraventions of s 52, that money claim is not susceptible under the contract of set-off against the debt payable to the bank under the letters of offer or the facility arrangements. Of course, there is no dispute that, firstly, the money was drawn down and, secondly, the money has not been fully repaid. A further matter which is not in dispute is that the scope of the relief claimed in the action (although one limb of the relief seeks to challenge the appointment of the receivers and managers), does not involve a challenge to the securities. No relief is sought in the proceeding to set aside the security instruments or the letters of offer and thus, they stand for the terms that they recite. 15 The terms foreclose any opportunity to set-off against the realisation of, and repayment or recovery of the amount secured, any possible claim measured by an action for damages under s 82. A second matter, however, concerns whether or not an equitable set-off might arise, and that matter is to be determined by a consideration of whether the claims asserted by the applicant companies supported by Mr Walker's affidavit are sufficient to impeach the claims of the bank. I am not satisfied that the material establishes an equitable set-off in that sense, and nor am I satisfied that the affidavit material establishes the relevant probability of success in the proceedings. 16 It follows, therefore, that because I am not satisfied about the strength of the applicant's case on the probability of success, and having regard to the contractual terms in the letters of offer and security documents (and taking account of the contention about equitable set-off), it seems to me that there is no proper basis on which the Court ought to grant the remedies sought. I should also say that it seems to me that the balance of convenience does not favour the applicant because the prospective action remains capable of being advanced before the Court. The remedy is measured in terms of damages and that opportunity is not foreclosed by any conduct of the bank or, for that matter, the receivers, who are the only relevant party at the moment. The further matter which is relevant is the material going to the strength of the undertaking as to damages which is offered by the company and supported by Mr Walker personally. Mr Walker's assets do not suggest to me that the undertaking is of great value but I would not refuse relief on the application for that reason alone. The fact that Mr Walker is prepared to stand before the Court and put whatever assets he has at risk is a substantial consideration. 17 The problem with the application is that the tests for determining the grant of the relief and thus the exercise of the discretion as discussed in Australian Broadcasting Corporation v O'Neill are not satisfied. The contractual terms foreclose any opportunity of a set-off or cross-claim in answer to the realisation of the securities and payment of the secured debt. No other basis is made out upon which such a claim can be advanced. I can see no foundation for exercising the discretion to restrain the receivers from undertaking or conducting the auctions at 11 o'clock and 12 o'clock this morning, as an interlocutory order in aid of the principal relief which would be sought in the proposed action. There are two other matters. One concerns the question of the standing of the applicant to be in the proceedings. I canvassed with counsel for the applicant the question of whether the applicant company had obtained the consent in writing of the administrator to bring the proceedings, but it seems to be common ground that no point is taken about that matter. One other question might be whether any limitation period applies, in any event, to some aspects of the claim. For all of these reasons, I propose to dismiss the application. Having regard to the fact that the applicant is subject to a Deed of Company Arrangement and it seems to be common ground that Mr Walker is the moving party in the sense of agitating for the relief on behalf of the applicant entity, the Court will order that the respondent's costs of and incidental to the application be paid by Mr Walker on the usual basis. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood. Associate: Dated: 30 November 2011