Balmain Leagues Club Ltd v Rozelle Village Pty Ltd [2014] NSWSC 295

Supreme Court New South Wales

Medium Neutral Citation: Balmain Leagues Club Ltd v Rozelle Village Pty Ltd [2014] NSWSC 295 Hearing dates: 18 March 2014 Decision date: 19 March 2014 Jurisdiction: Equity Division - Duty List Before: Brereton J Decision: Interlocutory injunction granted restraining defendants from appointing receiver in reliance on alleged events of default Catchwords: MORTGAGES - Mortgages and charges generally - remedies of the mortgagee - events of default EQUITY - Equitable remedies - injunctions - interlocutory injunctions Legislation Cited: (Cth) Corporations Act, s 292(1), s 319 Cases Cited: Kolback Securities Pty Limited v Epoch Mining NL (1987) 8 NSWLR 533 Category: Interlocutory applications Parties: Balmain Leagues Club Limited (plaintiff) Rozelle Village Pty Limited (first defendant) Pacific Link Investment Pty Limited (second defendant) Representation: Counsel: CRC Newlinds SC w G Lucarelli (plaintiff) DR Pritchard SC w J Emmett (defendants) Solicitors: Minter Ellison (plaintiff) Swaab Attorneys (defendants) File Number(s): 2014/73478

Judgment (EX TEMPORE) 1HIS HONOUR: The plaintiff Balmain Leagues Club Ltd is a company limited by guarantee and a registered club. It is effectively controlled by the Balmain Rugby League Football Club, which it has supported financially. The football club, together with Western Suburbs Rugby League Football Club Pty Limited, owns and operates West Tigers Rugby League Football Pty Limited, a participant in the National Rugby League. 2The objects of the plaintiff include, relevantly: (b) to assist generally in the promotion, conduct and provision of rugby league football in the rugby league football district of Balmain or elsewhere and to provide or assist in the provision of training from within a teaching facility for football clubs in accordance with the rules of the New South Wales Rugby Football League; and (l) to render aid, either financial or by other means, to clubs and associates in the Rugby League Club District of Balmain or elsewhere in which clubs or associations are playing or conducting football played in accordance with the rules of the NSW Rugby Football League. But its first object is: (a) to provide for members and for members' guests a social and sporting club with all the usual facilities of a club including residential and other accommodation, liquid and other refreshments, libraries and other provision of sporting, musical and educational activities and offer social amenities. 3Clause 11 of its constitution provides that the income of the club is to be applied solely towards the promotion of its objects, and that it is a non-profit organisation. 4The plaintiff, which for the sake of convenience I shall call "the club", for many years operated a club of the type contemplated by object (a) from premises in Victoria Road. However, in July 2009 it entered into arrangements with the first defendant Rozelle Village Pty Limited, pursuant to which Rozelle Village assumed the club's debts and acquired the Victoria Road site for redevelopment and ultimately lease back of a part of it to the club - a well-worn path which has been followed in the past by many clubs with, at best, mixed results. 5Relevantly, the arrangements between the club and Rozelle Village included a $4.5 million working capital facility provided to the club, initially by another entity called DEC Financial Services Pty Limited ("DEC") on 21 May 2009 but assigned on 31 July 2009 to the second defendant Pacific Link Investment Pty Limited ("PLI"). Pacific Link is a related entity of Rozelle Village. The purpose of this facility was stated in the facility agreement, clause 1.1, to include meeting the working capital shortfall requirements of the club, which meant "the money required by [the club] in order to continue to meet the shortfall in its current costs and expenses including, but not limited to, the costs associated with its support of the Balmain Football Club, the West Tigers Joint Venture and its operational and statutory expenditure in accordance with the relevant terms of this agreement." 6When that facility agreement was assigned by DEC to PLI on 31 July 2009, only about $250,000 of it had been drawn down. The balance has been drawn down subsequently. It is common ground, for present purposes, that that facility has been extended until at least November 2014, although the club contends that it has been extended for a longer period than that. 7After making these arrangements with Rozelle Village the club, upon being required to do so by Rozelle Village, vacated the Victoria Road premises in anticipation of the redevelopment, in connection with which, on 18 November 2009, Rozelle Village provided to the club a "refurbishment facility" of $3.1 million to fund the fit out of alternative premises from which the club might operate in the future. 8For one reason or another, the redevelopment has not proceeded. The club operates from temporary premises in Five Dock and Sydney Markets at Flemington. It is common ground that there were discussions between Mr Wright of Rozelle Village and officers of the club about capitalising interest under the refurbishment facility, in order to assist the club's cash flow. It appears to be common ground that it was initially agreed to capitalise interest for a period of seven months. It is also apparently common ground that there was some subsequent agreement about further capitalisation, although there is disagreement about the period for which that was agreed: the club says that Mr Wright represented that the club need not worry about paying interest which could be capitalised indefinitely, whereas Mr Wright says that the representation was to the effect that it was until the "NRL media rights kick in". In any event, interest on the refurbishment loan was shown as capitalised in the club's financial statements for the 2011 and 2012 financial years. 9Each of the two facilities to which I have referred specifies a number of events of default, upon the occurrence of which the creditor is entitled to accelerate repayment of the loan by declaring, in effect, immediately repayable. That is to be found in clause 11 of each facility agreement. Each of the facilities is secured by a charge over the assets and undertaking of the club in substantially similar, if not identical, terms; such differences as these are not material for present purposes. Each charge also specifies a number of events of default, upon the occurrence of which the creditor is entitled to appoint a receiver of the assets and undertaking of the club: see clause 10 of each deed of charge. 10According to the club's financial statements for the 2012 financial year, its liabilities of approximately $12 million exceed its assets of approximately $6 million, obviously enough by $6 million. It recorded losses of more than $3 million for the 2010 financial year, more than $2 million for the 2011 financial year and more than $400,000 in the 2012 financial year. That figure of $400,000 is reached only after treating as income profit of $900,000 generated on the sale of poker machine entitlements, to which I shall later refer. 11Rozelle Village and Pacific Link contend that events of default have occurred under the charges and the facility agreements, entitling them to appoint a receiver and/or to accelerate repayment of the loans. It is important to appreciate that they do not need the assistance or permission of the court to appoint a receiver, and they do not come to court seeking the court's appointment of a receiver or permission or assistance to do so. However, by summons filed on 10 March 2014, the club seeks declaratory relief to the effect that it has not committed the alleged events of default and injunctions restraining the defendants from appointing receivers or taking other enforcement action in purported reliance on the alleged events of default. The court, by consent, granted interim injunctive relief until 5 pm on 18 March 2014, setting down the matter for hearing of the club's application for interlocutory injunctive relief that day, when I extended the interim injunction until today. 12Again, it is important to appreciate that I am not engaged in the final determination of the club's claim for relief. This is an application for an interlocutory injunction pending the final determination of the case. On an application for an interlocutory injunction of this kind the approach taken by the court is to ask whether there is a sufficiently seriously arguable case for final relief that the balance of convenience favours the grant over the withholding of interlocutory injunctive relief, essentially to preserve the status quo in the meantime. Stating the test that way highlights that before one comes to consider the balance of convenience at all, there must be an arguable case for final relief. But it also emphasises that there is a connection between the strength or arguability of the case for final relief and the balance of convenience. Thus, where the case for final relief appears a very strong one, little may be required to tilt the balance of convenience in favour of granting interlocutory relief. On the other hand, where the case for final relief appears a weak one more may be required to persuade the court that the balance of convenience favours a grant of interlocutory relief. Likewise, where interlocutory relief can be granted without detriment or without risking injustice to the other party, less may be required so far as the strength of the arguable case is concerned. 13It is sometimes said that on an application for an interlocutory injunction a third question is whether damages are a sufficient remedy. In my view, the correct approach is that that forms part of the question as to whether there is a sufficiently seriously arguable case for final relief: the adequacy of damages as a remedy is an answer to an application for a permanent injunction, and thus it affects whether there is a seriously arguable case for a final injunction. 14Additional considerations emerge where an interlocutory injunction may practically determine the ultimate outcome of the case. As McLelland CJ in Eq said in Kolback Securities Pty Limited v Epoch Mining NL (1987) 8 NSWLR 533 (at 536): ... although normally the Court "does not undertake a preliminary trial, and give or withhold interlocutory relief upon a forecast as to the ultimate result of the case" ... there are some kinds of case in which for the purpose of seeing where lies the balance of convenience (or more specifically "the balance of the risk of doing an injustice" ... it is desirable for the Court to evaluate the strength of the plaintiff's case for final relief ... One class of case to which this applies is where the decision to grant or refuse an interlocutory injunction will in a practical sense determine the substance of the matter in issue ... 15So far as establishing its claim for final relief is concerned, the club will have to show that on balance of probabilities there is no event of default entitling the defendants to appoint a receiver under the charges or to accelerate repayment under the facilities. That involves the club having to undertake the difficult task of proving a negative but that difficulty is somewhat mitigated by the circumstance that, in such a case the defendants have at least a forensic onus to point to the events of default upon which they rely. 16On an interlocutory application such as the present, it is not necessary that the plaintiff's case rise to the heights of balance of probabilities, and it suffices to establish that it is seriously arguable that there is no event of default entitling the defendants to take action. Again, there is a forensic onus on the defendants to point to the events of default upon which they rely. I accept in this respect the submission for the club that where events of default have been raised at the eleventh hour, less may be required to persuade the court that there is a seriously arguable dispute as to whether they can be sustained or not. 17Finally, on the approach to this application, I would observe that it is not inconsistent with there being a seriously arguable case for final relief, that as things stand the probabilities may favour the opposing view. It is consistent that there may be a seriously arguable case for final relief on both sides of the record. 18In order to appoint a receiver or accelerate repayment of the facilities, the creditor must be able to identify an event of default under the deed of charge (clause 10) or an event of default under the facility agreements (clause 11). 19So far as the deeds of charge are concerned, those events of defaults that are of potential relevance are the following referred to in clause 10.1 of each deed of charge: (a) The chargor [that is to say the club] does not pay any of the secured money within seven days of the date it is due for payment and in the manner required under any agreement which imposes the obligation to pay it. (c) A representation or warranty made or taken to be made by or on behalf of the chargor in connection with this charge is found or is notified by the chargor to be incorrect or misleading when made or taken to be made. (e) The chargor attempts to create or allows to exist an encumbrance over the charged property or an encumbrance comes into existence over the charged property, otherwise than in accordance with this charge. (g) The chargor becomes insolvent. 20So far as the facility agreement is concerned, the potentially relevant events of default are the following, referred to in clause 11.1 of the Rozelle Village facility agreement: (a) Failure to Pay: BLC [that is to say the club] does not pay at or before the due time on the due date and in the specified manner any amount payable by it under any transaction document; (b) Failure to Comply: It defaults on fully performing, observing and fulfilling any provision of this agreement, provided that in the case of a default by it is remedied within 30 days of the occurrence of such default; (c) Untrue Warranty: Any representation, warranty or statement made, repeated or deemed to be made or repeated in any transaction document or in connection with the facility or in any document provided under or in connection with a transaction document, is proved to be untrue in any material respect when made, repeated or deemed to be made repeated or furnished (as the case may be); (d) Breach of Undertaking: it breaches any undertaking given at any time to RV or fails to comply with any condition imposed by RV in agreeing to any matter (including any waiver) and such default is not remedied within 7 days after notice to RV; (e) Event of Default under Transaction Document: any event of default by BLC occurs under any transaction document. (f) Insolvency Event: any insolvency event occurs in respect of BLC. ... (k) Failure to Comply with Laws: It fails to duly and punctually comply with all statutes and other laws binding on it and such failure may have a materially adverse effect. 21The defendants did not articulate their case by first identifying the events of default which they said had occurred and then showing how those events had occurred. Rather, they pointed to a number of breaches or alleged breaches of various provisions of the deed of charge and facility agreement, some of which they sought to bring within various of the events of default. It is therefore necessary first to identify, in respect of each alleged breach on which the defendants rely, whether there is a seriously arguable case that there was no such breach and, secondly, whether there is a seriously arguable case that, even if there is a breach, it does not constitute an event of default under a deed of charge or a facility agreement. 22The defendants relied essentially on five matters. The first was the provision of financial accommodation to a related entity, being the football club, said to be contrary to clause 7.2(d) of the deeds of charge. The second was the disposal of poker machine entitlements without consent of the creditor, said to be contrary to clause 5(a)(i) of the deeds of charge. The third was the failure to lodge financial accounts with ASIC within four months of the end of the 2013 financial year, said to be contrary to clause 9.1(f) of the RV facility. The fourth was failure to pay interest accruing on the RV facility, said to be contrary to clause 6.2 of that facility. The fifth was the alleged creation of charges or encumbrances on assets of the club, said to be contrary to clause 5(a)(ii) of the deeds of charge. 23The defendants did not specifically contend or seek to rely on an event of default founded on insolvency. Nonetheless, I think that solvency was sufficiently in issue that I must regard the club as having some burden of showing that there is an arguable case that it is not insolvent. 24I will now address each of those matters in turn. 25The first, as I have said, is the provision of financial accommodation to a related entity, namely the football club. Clause 7.2 of the deeds of charge provides, by subclause (d), that the club as chargor may not, without the consent of the chargee (but the chargee may not withhold that consent unreasonably) provide financial accommodation to or permit financial accommodation to remain owing to it by a related entity of the chargor or satisfy financial accommodation now or in the future owing by the chargor to a related entity of the chargor. By subclause (e) it is provided that the chargor may not deposit money with a person if the money is not repayable unless the chargor pays or discharges other indebtedness or performs or observes another obligation owed to that person or another person. 26It is not in dispute that the football club is, for relevant purposes, a related entity of the club by reason of having six common directors. Over the last three years or so, the club has made grants totalling in excess of $1.8 million to the football club - $932,000 in the 2010 financial year, $588,000 in the 2011 financial year and $280,000 in the 2012 financial year. These grants have been made at a time when, as the facts to which I referred at the outset show, the club has been making substantial losses in each year. No request was made for the creditor's consent to any of those advances being made, until very recently after the parties had fallen into dispute and complaint was made about them. Given the club's financial position, which effectively means that there is already inadequate security for the total advances by the defendants and in which security is being further eroded on a daily basis, it could not be considered unreasonable for the creditor to withhold consent if entitled to do so. 27On 29 November 2013, the creditor's solicitors wrote to the club's then solicitors, emphasising that under clause 7.2 of the charge the club may not, without the consent of Rozelle Village, provide financial accommodation to or permit financial accommodation to remain owing to it by a related entity. This was reiterated in another letter on 31 January 2014. Notwithstanding that, during the period 1 November 2013 to 31 January 2014 it seems that the club advanced further funds to the football club, in the order of $172,417. 28The club's response in essence has been that it was always anticipated and understood that it would continue to fund the football club. In these proceedings it submits that given its express objects - particularly objects (b) and (l) to which I have referred above - and given what is said to be notorious in the relationship between leagues clubs and rugby league football clubs, the defendants must have known that the club would continue to support the football club financially, and that the provision of such support was disclosed in the club's accounts which were provided to the defendants each year. 29On behalf of the defendants, Mr Wright denies that he knew of any practice, notorious or otherwise, amongst leagues clubs of providing financial accommodation to their associated football clubs. I do not accept that the financial arrangements between leagues clubs and rugby league football clubs are sufficiently notorious that the court would infer that a person dealing with the leagues club must, on that account, have known that such advances would be made. But in this case there is something more than that. I have referred above to the expressly stated purpose of the working capital facility, which included the provision of capital to enable the club to continue to meet the shortfall in its expenses, including the costs associated with its support of the football club and the West Tigers Joint Venture. It is true that that provision was contained in a facility originally struck with another party, namely DEC, but at the time that it was acquired by the second defendant PLI, only $250,000 had been advanced under it, so that the remaining $4.25 million must have been advanced under it since the assignment to PLI. Mr Wright, on behalf of the defendants, says in para 9 of his affidavit: I understood that BLC could provide financial support to the football club from the funding under the DEC facility. I did not understand that it was never suggested to me that there would be continuing or ongoing financial support to the football club. I expected that the consent of Rozelle Village and Pacific Link would be sought whenever any financial support would be given by BLC to the football club. 30It is not necessary on an application of the present kind to reach any view that what Mr Wright says strains credulity. It is sufficient to say that it leaves ample scope for cross-examination at a final hearing. In particular, given that $4.25 million was advanced under the DEC facility from the time of its assignment to PLI and only $1.8 million appears to have been granted to the football club during that period, the DEC facility itself is, on one view, sufficiently ample to account for the total advances to the football club. Moreover, what Mr Wright says in that passage indicates that it is at least arguable that he understood that, despite the restriction on providing financial accommodation to a related entity contained in the DEC facility, it was nonetheless permissible to provide financial support to the football club. It seems to me that that leaves ample scope for an argument that upon the proper construction of the DEC facility agreement, which for relevant purposes is in identical terms to the Rozelle Village agreement, the parties did not intend or understand the restriction on providing financial accommodation to related entities to extend to the football club. 31Accordingly, it seems to me that there is a seriously arguable case that the defendants would be estopped from asserting that the provision of financial accommodation to the football club was a contravention of clause 7.2(d) of the deeds of charge. 32If that conclusion be incorrect, it would be necessary to consider whether the provision of such financial accommodation was an event of default. In short, it does not appear to me to have been demonstrated at all how a contravention of clause 7.2(d) of the deed of charge is an event of default under clause 10 of the deed of charge. I have referred above to the various events of default that are potentially relevant in this case, and it simply does not appear how a contravention of the prohibition on providing financial accommodation to a related entity falls within any of those events of default. Nor is there anything in the events of default in the facility agreement which would capture a breach of clause 7.2(d) of the deeds of charge. While the facility agreement captures more widely defaults in performing, observing and fulfilling any provisions of "this agreement", in respect of "transaction documents", which would include the deeds of charge, it captures only "events of default" under the transaction documents. 33Accordingly, it seems to me strongly arguable that even if a breach of clause 7.2(d) were established, that breach would not constitute an event of default within the definition of that term in the deeds of charge such as to support appointment of a receiver or, in the facility agreement, such as to support acceleration of repayment. 34The second matter relied on was the disposal of poker machine entitlements without consent. The deeds of charge provide, by clause 5(a)(i), that the club as chargor may not, without the consent of the chargee, purport to dispose of, deal with or part with possession of any interest in the charged property other than a disposal in the ordinary course of the chargor's business on the usual terms of sale. 35Like most clubs, the club owned poker machines and with them held poker machine entitlements created under the applicable legislation. Since 21 December 2012, the club has disposed of 111 of its poker machine entitlements. It says - and there is no reason to doubt for present purposes - that the entitlements of which it disposed were surplus to its present and future requirements. 36The defendants consented on 21 December 2011 to the disposal of 51 poker machine entitlements by the club and, in April 2013, to the disposal of a further six entitlements. It says that it has not consented to the disposal of the other 54. The plaintiff submits that the defendants knew that the club would be selling off its surplus poker machine entitlements to raise funds to meet its commitments, that the defendants did not object to that course and that the sale of the entitlements and their proceeds were reflected in its accounts but none of that, even if fully established, proves more than knowledge and non-objection. It does not prove consent. Consent was sought on three occasions and given twice. On another occasion when consent was sought the defendants indicated that they would consider the request further once a proper business case was provided. The course of dealing between the parties in which consent was sought, twice given and once declined on the basis that further information was required is inconsistent with a conclusion that the plaintiff assumed that the defendants had consented when express consent was not given. 37The plaintiff submits that the sale of the poker machine entitlements was a disposal in the ordinary course of the plaintiff's business on usual terms of sale. I am content to accept that it was on usual terms of sale. There is at least some evidence that the entitlements were sold for full market value but that does not, of itself, establish that the disposal was in the ordinary course of business. Poker machine entitlements are very valuable assets. In this case they were liquidated, not even to retire debt but to fund ongoing losses or grants. It amounted to a significant deprivation of the creditor's security. A sale of fixed assets for the purpose of paying losses cannot in my view be said to be in the ordinary course of business. The club was not in the business of buying and selling poker machine entitlements. This was an extraordinary transaction, not an ordinary transaction. I do not regard it as seriously arguable that there was not a contravention of clause 5(a)(i). 38However, that is not an end of the matter because it is then again necessary to consider whether a breach of that provision is an event of default under the deed of charge. It has not been explained how it constitutes any one of the relevant events of default under the deed of charge, nor how it constitutes an event of default under either facility agreement. In my view it is at least seriously, if not strongly, arguable that even if established - and as presently advised I think it will be - it would not constitute an event of default supporting the appointment of a receiver or an acceleration of repayment of the loans. 39I turn then to the third matter, the failure to lodge financial accounts within four months of the end of the financial year. The Rozelle Village facility, that is to say the so-called refurbishment facility, provides by clause 9.1(f) that the club represents and warrants to Rozelle Village that "BLC has complied with all statutes and regulations relevant to it and the businesses carried on by it." Clause 9.4 provides that that representation and warranty is repeated on each day whilst any money, the payment or repayment of which forms part of the obligation, remains outstanding, whether or not it is due for payment. Accordingly, that warranty is taken to be repeated each day up to the present. 40(Cth) Corporations Act, s 292(1), requires all public companies, of which BLC is one, to prepare a financial report and directors' report each financial year. Section 319 requires the club to lodge its reports for each financial year within four months after the end of its financial year. Under clause 90 of its constitution the club's financial year ends on 31 October. Accordingly, the club's financial statements for the financial year ended 31 October 2013 were required to be lodged with ASIC by 28 February 2014. The evidence establishes that as at the hearing yesterday, 18 March 2014, the club had not yet lodged those financial statements. 41Further, there is some evidence that in 2012 it did not lodge its financial statements until after the four month period. Apparently its 2012 financial statements were lodged on or about 7 March 2013. In that respect it seems to me that it cannot be seriously disputed that there has been a failure to comply with a statute relevant to BLC. 42Accordingly, the warranty being repeated every day thereafter, there has been a breach of the warranty referred to in clause 9.1(f). The defendant suggests that the failure in respect of 2012 is exacerbated by the fact that, although lodged after 28 February, the financial statements or, at least, the director's report in them was dated 25 February. In this respect, they invoke clause 9.2(a), which provides that all information relating to Balmain Leagues Club provided by Rozelle Village in connection with this facility is, at the time that it is provided, true in all material respects and not by motion or otherwise in any other material respect. 43The financial statements, of course, are statements provided to ASIC and not necessarily then what is contemplated by information provided to Rozelle Village. Moreover, the allegation concerning the 2012 accounts was raised late, and the evidence descends to little detail in respect of it. The date 25 February is part of the printed material on the accounts and may well have been placed there by the accountants at the time when the accounts were finally prepared before they were signed. 44There are many possibilities by which the fact that they were dated 25 February might be regarded as not misleading in a material respect. The defendants also invoked clause 9.2(b), which, in broad terms, requires that accounts be prepared in accordance with Australian accounting standards and principles, and clause 10.1(c), which requires that they be prepared in accordance with the constitution, the Corporations Act and accounting principles. The date 25 February could represent the date on which the directors adopted the accounts or, as I have said, the date on which they were prepared or finalised by the accountants. I am not satisfied that there has been a material breach in that respect. 45But more needs to be said about the principal complaint that the current accounts for 2013 remain unlodged. As I have said, I am satisfied that, in that respect, there is an untrue warranty and, prima facie, that falls within the event of default in clause 11.1(c), to which I have referred above. Nonetheless, what constitutes such an event of default is if the warranty is proved to be untrue in any material respect when made, repeated or deemed to have been made, repeated or furnished. That event of default then needs to be seen in the context of default (k), which refers to "a failure to duly and punctually comply with all statutes and other laws binding on it and such failure may have an adverse material effect". Event of default (c) is a very general one, referring to all representations, warranties or statements and thereby prima facie capturing the warranty that Balmain Leagues Club has complied with all statutes and regulations relevant to it and the business carried on by it. But event of default (k) is a specific one dealing with failure to comply with statute and other laws. Under event of default (k), a failure to comply with a relevant statute or other law constitutes an event of default only if failure may have a "material adverse effect". It would deprive event of default (k), including that limitation of its purpose, if exactly the same matter was caught by event of default (c), without requiring a "material adverse effect". 46For that reason, I think it is seriously arguable that a breach of the warranty in clause 9.1(f) is not within and not capable of being within event of default (c), because it is within the specific territory covered by event of default (k). 47"Material adverse effect" is defined in clause 1.1 as "a materially adverse effect on the ability of [the Club] to perform its obligations under this agreement or on the financial condition of the business conducted by the Club". I do not see how a mere failure to lodge financial statements on time could have a materially adverse effect on the Club's ability to perform its obligations, or on the financial condition of its business. 48For those reasons, although I cannot find that there is a seriously arguable case that there has been no breach of clause 9.1(e), there is a sufficiently arguable case that it does not constitute a relevant event of default, because the only relevant event of default is event of default (k), and the breach was not one such as could have a materially adverse effect. 49So I turn to the fourth matter, the failure to pay interest under the refurbishment agreement. I have referred above to the factual controversy as to capitalisation of interest. The refurbishment facility agreement provides, by clause 6.2, that the Club must pay to Rozelle Village interest calculated in accordance with clause 6.1 monthly in advance from the date on which the advance was made until the date upon which final repayment is made. Clause 6.3 provides: Without prejudice to RV's ability to exercise its rights following the occurrence of event of default (including for avoidance of doubt the non-payment of interest when due) any amounts not paid on the due date for its payment, will be capitalised at the option of RV. 50In the facility agreement, a failure to pay interest when due would be an event of default, within event of default (a) described above; (failure to pay any amount payable under any transaction document at or before the due time), and would also be an event of default under the deeds of charge, event of default (a), (not paying any of the secured money within seven days of the date it is due for payment). It is not in doubt that there is approximately $736,887 unpaid interest in respect of the period December 2010 to September 2013. The Club's case is that there was an agreement that interest could be capitalised during that period. The defendants' case is that that agreement expired not later than August 2012, by which time the "NRL media rights kicked in". 51In this respect, there is a factual conflict and the court cannot tell at this stage, without cross-examination, which version will ultimately prevail. The Club's case derives some support from the circumstance that no demand was made in respect of unpaid interest until September 2013. While Mr Wright has an explanation for that, it cannot be said that the events that transpired are objectively inconsistent with the Club's version. When the defendant did demand payment of interest, the Club resumed paying interest. Accordingly, once it was indicated that there was a resiling from the alleged representation not to require payment of interest, the Club responded and has resumed and continued to pay interest. 52In this case, although there is no doubt that if the breach were established it would be an event of default, there is a sufficiently arguable case that the defendants would be estopped from insisting on their strict legal rights arising out of non-payment of interest until September 2013. 53I turn finally to the complaint concerning the creation of charges or encumbrances. The deeds of charge, by clause 5A(ii), provide: (a) The Club may not, without consent of the chargee: ... (ii) purport to create or allow to come into existence an encumbrance which affects the charged property (except a security interest which arises by operation of statute to secure an amount payable to any authority which amount has been due for payment for no more than 14 days [or a right of title retention in connection with the acquisition of good in the ordinary course of business on the usual terms of sale of the supplier where there is no default in connection with the relevant acquisition]); 54Security interest is defined as meaning: Any bill of sale (as defined in any statute), mortgage, charge, lien, pledge, hypothecation, title retention arrangement, trust or power, as to in effect as security for the payment of a monetary obligation or the observance of any other obligation. 55It is at least arguable that that definition does not capture certain deemed security interests of the type now referred to in the personal property securities (PPS) legislation and, in particular, that it does not capture leasehold interests, although such interests are deemed security interests under the PPSA. 56The allegation that there has been a contravention of clause 5A(2) depends on searches conducted on behalf of the defendants of the PPS register. Those searches have established that there a number of securities affecting assets of the Club on that register. Many of them are, the defendants concede, so called PMSIs, but not all of them are noted in the register as PMSIs. Those that are not are referred to in a document prepared by the defendants' solicitors, which extracts the description of the collateral in each relevant registered security interest. 57It seems to me that the description of the collateral in those registered security interests that are not PMSIs is not only consistent with, but suggestive of, the security interests being in the nature of retention of title or leasehold interests. With one exception, they are all limited to property supplied by the secured party, which is strongly suggestive of their being leasehold interests or retention of title securities. The exception is limited to "Genesis System Software", the very specificity of which suggests that the security is in the nature of a retention of title or lessor's interest. It should be observed that this matter also was raised only shortly before the hearing. 58For those reasons, it seems to me, arguable that there has been no contravention of clause 5(a)(ii), although, if there were such a contravention, it would be event of default under event of default (e) in the charges. 59I turn then to the question of solvency. As I have said, under the deeds of charge it is an event of default if the Club be "insolvent", which is defined as follows: Insolvent in relation to a party means: (a) it is an insolvent under administration or insolvent (each as defined in the Corporations Act; or (b) it has had a controller (as defined in the corporations Act) appointed, or is in liquidation, in provisional liquidation, under administration or wound up or has had a receiver or receiver and manager appointed to any part of its property; or (c) it is subject to any arrangement, assignment, moratorium or composition, protected from creditors under any statute, or dissolved (in each case, other than to carry out a reconstruction or amalgamation while solvent on terms approved by the other party); or (d) an application or order has been made, resolution passed, proposal put forward, or any other action taken, in each case in connection with that person, which is preparatory to or could result in the occurrence of any of the events described in paragraphs 9a), (b) and 9c) of this definition; or (e) it is otherwise unable to pay its debts when they fall due. 60In the facility agreements, it is an event of default if "any insolvency event occurs in respect of [the Club]", and "insolvency event" is defined as an order that the Club be wound up; a liquidator provisional liquidator, etc, is appointed; an application is made for the appointment of any such persons and not withdrawn within 14 days; the Club resolves to wind itself up or otherwise dissolves itself; or otherwise the Club is deemed unable to pay its debts under the Corporations Act or any other applicable law. As it seems to me, the question whether there has been an insolvency or event under that definition is narrower than whether the Club is insolvent on the wider definition of "insolvent" in the charges, which includes inability to pay debts when due. 61I have referred above, in broad terms, to the financial position of the Club, including its very substantial deficiency of assets against liabilities. Without descending to detail, it can be observed that there is a similar deficiency of current assets against current liabilities. Nonetheless, against that the directors have, in the last available set of financial accounts, subscribed to a declaration of solvency, and the auditors, although drawing attention to some material matters relevant to the ability of the Club to continue as a going concern, have not qualified their report and, in particular, not included a qualification so far as solvency is concerned. There is, as Mr Newlinds submitted, no evidence that the Club is not paying its debts as and when they fall due, save for the capitalisation of interest, and it is now paying the interest as and when it falls due, although not the disputed capitalised amount. It may well be that the solvency of the Club is largely contingent on whether the working capital facility is repayable by November 2014 or whether, as the Club contends, it does not fall repayable until a later date. 62In my view, particularly given that solvency was not specifically relied on as one of the matters supporting the appointment of a receiver or an acceleration, and given the other matters to which I have referred, it cannot be said that the Club is so plainly insolvent that the contrary cannot be seriously argued. In other words, it is sufficiently arguable that the Club is not insolvent in the sense of being able to pay its debts when they fall due. 63I have, therefore, concluded that, in respect of each of the matters apparently relied on to support the appointment of a receiver or an acceleration of repayment, there is a sufficiently arguable case to justify considering the balance of convenience, either that the relevant breach has not occurred, or where it has occurred, that it does not constitute an event of default within the security documentation. I, therefore, turn to the balance of convenience. 64As McLelland CJ in Eq observed in the passage to which I have referred from Kolback Securities v Epoch Mining NL, this is really a question of balancing injustice. The question is whether, if an interlocutory injunction be wrongly granted, the injustice to the defendants outweighs the injustice that will result to the plaintiff if an interlocutory injunction be wrongly refused. By "wrongly" I mean by reference to what happens at the final hearing; in other words, if at the final hearing it be found that the party that did not prevail on the question of interlocutory relief should succeed. 65In this case, if an injunction be wrongly granted, the defendant creditors will be held out of important legal rights. The security for their debts, which is already apparently insufficient to cover their debts, will be further eroded by ongoing incurring of interest, and by the reduction in equity from continuing trading losses of the Club. While this can only be a rough approximation, to gain some appreciation of the significance of this, and based on trends over the last couple of years, this is likely to involve interest of about $100,000 per month and trading losses of about the same amount. In other words, each month there is likely to be a deterioration in the defendants' security position by a couple of hundred thousand dollars. This loss will be irreparable and irrecoverable, because the plaintiff's undertaking as to damages has no value at all. 66On the other hand, if an injunction is wrongfully refused, the plaintiff's rights will be invaded when they ought not have been. It will almost inevitably cease trading. It will almost inevitably lose the temporary premises from which it trades. Its assets will be significantly reduced by the costs of receivers. As a social and economic entity, the Club will for practical purposes be destroyed. These too will be irreparable, as no amount of damages will revive the Club as a social entity, even if they can compensate for the economic loss. 67In many applications for interlocutory injunctions, the question can be relatively easily resolved either because the damage will be irreparable on one side only, or it can be covered by an undertaking as to damages. This is not such a case. The damage to be suffered, whatever the outcome, will be irreparable if the injunction turns out to have been wrongly granted. 68I do not overlook that because of the multiple grounds on which the defendants contend that there have been events of default, the plaintiff's ultimate prospects may be thought to be reduced because it has to succeed in negativing each of those grounds. I also do not overlook that in the case of the defendants their proprietary and financial interests are liable to be irreparably affected, whereas in the case of the plaintiff, it is essentially its social existence that is threatened. The absence of any offer of a payment in also bears on the balance of convenience, but where the dispute is as to entitlement to appoint a receiver, payment in is not a condition of relief. 69Against all of that, however, it seems to me that to refuse injunctive relief would amount to a practical final determination of the proceedings against the plaintiff, whereas a grant of interlocutory relief will not by any means finally determine the proceedings against the defendants. In a case that, on balance of convenience, is otherwise fairly finely balanced, that is an important factor. 70Moreover, the ongoing prejudice to the defendants' position through the erosion of their security is mitigated, to some extent, by the undertakings which the plaintiff offers. Bearing in mind that in respect of many of the matters on which the defendants place reliance, it seems to me strongly arguable that even if established, they would not be available events of default, ultimately less injustice will be risked by granting an injunction than by declining one. 71For those reasons, upon the plaintiff, by its counsel, giving to the court the usual undertaking as to damages, I will make orders substantially continuing the extant injunctions. 72I will direct the plaintiff to bring in short minutes to give effect to that conclusion. The present orders deal separately with reliance on three specified alleged breaches. Six have now been raised. It seems to me that it is best to proceed on the basis that the defendants have had the opportunity to bring forward any matter on which they wish to rely to found an entitlement to appoint a receiver or an acceleration, and that the injunction should therefore be framed in general terms, with liberty to the defendants to move on notice to dissolve it in the event that any other matter comes to light that might justify the appointment of a receiver or the acceleration of repayment. 73Finally, I think I should observe that it has been drawn to the court's attention that a person of some public local prominence in the vicinity of the Club has been making public statements, which might be construed as urging the court to take a particular course of action in these proceedings and might be construed as vilifying the defendants for defending their legal rights. If so construed, those matters could amount to contempts of court. I make no finding in that respect, and I do not propose to take any action about it, save to draw to the attention of all concerned the desirability of caution in public utterances upon matters that are before the court and, in particular, the inappropriateness of vilifying a party to litigation for seeking to enforce its legal rights. 74It seems to me the costs of the interlocutory application should be costs in the proceedings, but I will hear the parties on that if they wish. 75Otherwise, I will continue the existing injunction until Friday and stand the matter over for short minutes on Friday and, at that stage, directions about the further conduct of the proceedings can be made. 76The Court orders that: (1)The orders made on 13 March 2014 and extended on 18 March 2014, continue until 5 pm on 21 March 2014. (2)The proceedings be adjourned to 10 am on 21 March 2014 before me in the duty list for short minutes and directions.