Charters Towers Goldmines N L & Charters Towers Mines N L v Suncorp-Metway Ltd [1998] QSC 88

Brisbane Before BETWEEN: AND: AND: Williams J CHARIERS..IDJNERRGOLDMINES-HL (Receivers and Managers Appointed) A.C.N. 060 397 177 CHARIERS-IQWERSMINES~ (Receivers and Managers Appointed) A.C.N. 010 501 165 S111~u:nRP-METWAY I lIMITED A.C.N. 010 831 722 First Plaintiff Second Plaintiff Defendant CAIClllYORD.£: Counsel: £olicitors: Hearingnate..:. Injunction - interlocutory - restrain receivers from selling - challenges to validity of appointment in action - on facts held that no injunction should be granted. Morris Q.C. and Varley for plaintiffs. Sheahan S.C. and Liddy for defendant. Mangano & Co. for plaintiffs. Corrs Chambers Westgarth for defendant. 28 April 1998. -- 1 of 15 -- IN THE SllPREMR-C.QURI OLQl1EENSLAND Brisbane Before Williams J BETJ.YEEN: AND' CHARIERS-.LO~RSflDLnMINESJ~LL (Receivers and Managers Appointed) AC.N. 060 397 177 CHARTERST~INES~ (Receivers and M;magers Appointed) AC.N. 010501 165 SllNGORP-METWAY LIMITED Ae.N. 010 831 722 JIllLGMENT WILLIAM~ Judgment delivered 11 May 1998 First Plaintiff Second Plaintiff Defendant By Notice of Motion each of the plaintiffs (despite the fact that the document is couched throughout in the singular) seek an injunction restraining the defendant (and in particular Receivers appointed by it) from selling or entering into negotiations with a view to selling assets of the plaintiffs particularised in the material. The making of such orders was opposed by the defendant. The action was commenced by writ issued on 30 January 1998, and on 11 March 1998 -- 2 of 15 -- 2 an amended statement of claim was delivered. Further and Better Particulars of allegations made in the original and amended statements of claim have been sought, and some particulars delivered; but as yet no defence has been delivered. It would appear that a further amended Statement of Claim will be required. When the Notice of Motion was first before the Court on 23 April 1998, it was recognised that QIDC Limited was a necessary party; counsel for the defendant also appeared for QIDC and gave an undertaking on behalf of that company dealing with the interim period. As yet the plaintiffs have not taken the formal steps of joining that company. Further, as will become evident in the course of these reasons, the plaintiffs may well have to give further consideration to the nature of the relief claimed in the action. The amended Statement of Claim is some 25 pages in length and pleads many matters which at best are of historical significanc~ only. The essence of the argument in support of the Notice of Motion can be gleaned from a perusal of that amended Statement of Claim and the affidavit material filed in support of the motion. Extensive mining of gold deposits in the Charters Towers region ceased well over 50 years ago, though there are grounds for believing that significant deposits of that precious metal remain in the ground. Largely as a result of the endeavours ofM J Lynch, the plaintiffs since 1969 have accumulated mining rights over a large area of land in the vicinity of Charters Towers. Those companies entered into a joint venture agreement in October 1993 for the exploration and mining of those tenements. The first plaintiff became listed on the Australian Stock Exchange in December 1993. It can be accepted for present purposes that prior to 1995 some $12.7M had been expended with respect to the mining venture. In about 1995 the project had reached a stage where the plaintiffs sought project finance to finalise feasibility studies and exploration with a view to obtaining finance for full realisation of the project's potential. -- 3 of 15 -- 3 Discussions were had with a number of financiers. QIDC became involved and ultimately in about June 1996 it advanced initial funds of approximately $3M. After further feasibility studies were compiled, QIDC in about June 1996 approved a total facility limit of $23.1 M on a number of specified terms and conditions. The letter of approval of 27 June 1996 detailed the existing and additional securities which were required; it also specified that the purpose of the term loan facility was to provide funding for the costs involved in further development of the project, including the development of both the underground mine and several shallow mines. Clause 4.1 thereof provided, inter alia: "the balance of the term loan facility must be repaid in full by 30 June 2002 by way often (10) equal semi-annual instalments commencing on the earlier of the interest reset date in December 1997 or 31 December 1997". It can be assumed for present p~rposes that at all material times the defendant andlor QIDC recognised that funding would be required on a long term basis. That, however, must be regarded in the light of the fact that the plaintiffs represented that the loan could be repaid in full by the year 1999-2000, and the agreed terms of the facility (which included repayment in full by June 2002). In the latter half of 1997 the plaintiffs sought additional funding. It appears that initially in September an amount of$4.5M was sought, but negotiations in December related to a further advance of $3 .45M. Thereafter negotiations concentrated on the first step of agreeing as to a loan facility which would enable the plaintiffs to satisfy the demands of outstanding and pressing creditors. In the course of discussions an amount of$500,000 was initially asked for, but then the plaintiffs, through M J Lynch, indicated that approximately $890,000 would be required for that purpose. By letter and enclosure dated 29 December 1997 the plaintiffs informed the respondent that "major accounts requiring immediate payment" totalled $891,135. The -- 4 of 15 -- 4 documentation showed total creditors then outstanding in the sum of $2.249M. Further negotiations resulted in the defendant making an offer by the letter from QIDC of 30 December 1997 of an additional $890,000 facility on the terms and conditions contained therein. There was a recitation of existing securities and details given of new securities required. The new facility was to be repaid in full no later than 30 June 1998. The immediate response from Lynch on behalf of the plaintiffs was that a number of the conditions, particularly relating to additional securities, were not acceptable. QIDC responded by letter dated 31 December 1997 indicating that a number of the conditions objected to were "critical to its security position". It went on to say that without those particular securities "QIDC is not prepared to provide the New Facility". The letter of2 January 1998 from the first plaintiff under the hand of Lynch confirms that there was then no acceptance by the plaintiffs of the terms on which QIDC was offering the extended facility. The problems were then discussed at a meeting held on 5 January 1998 attended by Gluer (an Account Manager in the employ of the defendant), Dare (who subsequently became one of the receivers), Lindwall (the solicitor for the defendant and QIDC) and M J Lynch. There is a factual dispute as to what was said andlor agreed at that meeting; those disputes ultimately can only be resolved at trial. Certainly one of the matters discussed at that meeting was the waiver by Great Mines Limited of a clause in its sub-lease to the plaintiffs which would permit it to terminate the sub- lease in the event of the liquidation of the plaintiffs. Without going into detail it can be accepted for present purposes that at the end of that meeting, and given documentation which came into existence during the ensuing 24 hour period, that particular obstacle to the provision of the additional securities required by the defendant andlor QIDC was removed. What is in dispute is the contention ofM J Lynch that the defendant, through one or more -- 5 of 15 -- 5 of its representatives at that meeting, stated that if the Great Mines Limited issue was resolved, the defendant would accept the tenus and conditions it had proposed as amended by Lynch. There is nothing in writing confinuing that contention; ultimately the dispute will have to be resolved by detenuining credibility issues. There is also a dispute as to whether or not, and if so in what tenus, there was discussion at that meeting about the possibility of the defendant appointing a receiver. Again that issue could only be resolved at trial. I am however satisfied on the evidence as it currently stands, and this is confinued by contemporaneous documents, that there was discussion at that meeting about pressing liabilities of the plaintiffs over and above those amounting to $890,000 previously particularised. Apparently further rental payments to the. Department of Natural Resources had fallen due and there was also payment of wages due to employees. That that matter was discussed is confinued by the fax from the first plaintiff of 6 January 1998 (HLG 16). It shows that the pressing creditors then totalled $1.293M. I am satisfied that it was obvious to those at the meeting on 5 January that an additional facility of $890,000 would not be sufficient to meet the pressing creditors. All of that is confinued by the letter from QIDC of7 January 1998 which is in these tenus: "Further to the above, I confinu my telephone conversation with you yesterday morning, during which I confinued that the Letter of Approval dated 30 December 1997 has been withdrawn. I also confinued that there is no commitment on the Bank's part, to advance any further funds. As advised, the Bank is still considering its position. In that regard, as discussed on Monday afternoon, the Bank is concerned that the amount owing to creditors has increased significantly from $890,000 requested. The Bank confinus that it reserves its rights under the securities in that regard." Thereafter on 8 January 1998 receivers were appointed. The Deed appointing Hennessy and Dare recited the securities held to cover the indebtedness of the plaintiffs and asserted that -- 6 of 15 -- 6 "Events have occurred which entitle the Financier to appoint a receiver and manager of the Mortgaged Property (and of the income from it) under the powers in that behalf conferred in the Security. " There is no allegation made in the amended Statement of Claim, or the material filed in support of the Notice of Motion, or in submissions by counsel for the plaintiffs to the effect that the formal requirements for the appointment of receivers did not exist as at 8 January 1998. In none of that material was there any challenge to the validity of the securities, nor was there any challenge to the debt. The current indebtedness of the plaintiffs to the defendant is of the order of $23.7M and interest is accruing at approximately $3,500 per day. Further, there is no challenge to the default of the plaintiffs in failing to make a repayment of principal on 31 December 1997 as required by cl. 4.1 o~ the letter of approval of 27 June 1996. The following are the critical factual allegations made by the plaintiffs in the amended Statement of Claim and the affidavit material in support of the motion: i) The defendant represented to the plaintiffs (in and after June 1995) that it was prepared to finance the project to completion and it understood the long term financing needs of the project. There was in consequence a representation by the defendant that it would "provide long term and patient financing in respect of the project"; ii) The defendant did not have "reasonable grounds for making such representati ons"; iii) By making those representations the defendant was guilty of misleading or deceptive conduct because it was not prepared to finance the project to completion and did not intend to provide long term and patient financing in -- 7 of 15 -- 7 respect of the project; iv) The representations were likely to mislead or deceive in that they were likely to induce a reasonable person to believe that the defendant proposed to finance the proj ect over the long term and that it understood the financing needs of the project; v) Relying on those representations the plaintiffs borrowed monies from the defendant; but for those representations the plaintiffs would have obtained finance elsewhere on terms reasonably similar to those provided by the defendant; vi) As a consequence of that misleading or deceptive conduct the plaintiffs have suffered loss and damage; vii) That at the meeting on 5 January 1998 the defendant accepted the amendments proposed by the plaintiffs to its offer of additional finance in the sum of $890,000 on terms and conditions set out in the letter of30 December 1997; viii) By the conduct of the defendant from July 1995 until early January 1998 the plaintiffs were led to believe that the defendant proposed to advance the sums sought and to continue to finance the project as sought; during that period no suggestion other than favourable suggestions in relation to the further funding were forthcoming from the defendant; ix) The plaintiffs did not at any time receive any demand from the defendant in relation to the repayment of outstanding funds, nor did they receive any notice of default; x) All of the aforesaid conduct of the defendant was misleading and deceptive or -- 8 of 15 -- 8 likely to mislead and deceive within the meaning of those terms as used in the Irade-.Erac.ticesAc.t 1974; xi) The defendant did not have reasonable grounds for making any such misrepresentation or engaging in such misleading and deceptive conduct; xii) The defendant by its conduct led the plaintiffs reasonably to assume that the funds the plaintiffs sought from the defendant would be forthcoming in or about early January 1998 and that the defendant would approve the lending of such funds. The defendant by its conduct reasonably induced the plaintiffs to adopt an expectation or assumption that such funding would be forthcoming. Acting in reliance upon such assumption or expectation the plaintiffs abstained from applying for finance elsew,here, which finance would have been forthcoming and available on terms the same or similar to those sought by the defendant. The defendant knew or ought to have known that the plaintiffs were acting upon such expectation or assumption. The plaintiffs decision not to apply for finance elsewhere has caused it to act to its detriment particularly if its assumption or expectation is not now fulfilled by the defendant. By the amended Statement of Claim the following principal relief is claimed: "(i) $1,428,000,000 (One billion four hundred and twenty-eight million dollars) damages pursuant to Section 82 of the ~ct. (ii) Such further or other relief pursuant to Section 87 of the Irade..Erac.ticeB..Act as to this Honourable Court may seem meet. (iii) $1,428,000,000 (One billion four hundred and twenty-eight million dollars) damages in equity. (iv) A declaration that the purported appointment of receivers by the Defendant was void, invalid and of no effect. -- 9 of 15 -- 9 (v) An order that the receivers purportedly appointed by the Defendant on or about 8 January 1998 be removed. vi) An order that the Defendant and all the receivers return to the plaintiffs all of the property of the Plaintiffs which is now come into the possession of the receivers or the Defendant. vii) An order that the Defendant not be at liberty to enforce any of its rights under any securities it might hold in its favour from the Plaintiffs until the expiration of a period of not less than 90 days so as to allow the Plaintiffs an opportunity to obtain refinancing with an entity other than the Defendant." It can be readily conceded that if the misrepresentations pleaded were established at the trial, the plaintiffs would be entitled to damages, but such findings alone would not provide a basis for setting aside the appointment of the receivers, particularly where there was admitted default in terms of the securities. In the course of argument senior counsel for the plaintiffs conceded that one argument would have to be that such conduct on the part of the defendant provided the basis for an estoppel which would prevent the defendant from appointing receivers or deprive it of the right to recover the debt; but no estoppel is pleaded in the amended Statement of Claim or is strictly raised by the material in support of the motion. But senior counsel for the plaintiffs sought comfort in the relief claimed in the amended Statement of Claim pursuant to Section 87 of the Irad_e-..Erac:tike.s.A.ct; in broad terms that section provides that where a court finds that a party has been guilty of misleading or deceptive conduct the court may, if it thinks it appropriate make "an order varying such contract ... in such manner as is specified in the order and, if the court thinks fit, declaring the contract '" to have had effect as so varied on or after such date before the date on which the order is made as is so specified". Again, it should be noted, that no such specific order is sought in the amended Statement of Claim. The argument on the motion concentrated on the events of late December 1997 and early -- 10 of 15 -- 10 January 1998. The submission pressed was that with respect to the motion the court should accept that there was deceptive and misleading conduct on the part of the defendant relating to the extension of the loan facility and that such conduct precipitated the appointment of the receivers. I have real difficulty, on the material presently before the court, in seeing how the plaintiffs could obtain an order for the variation of the securities which would result in the appointment of the receivers being declared void, invalid and of no effect. The conduct of the defendant with respect to the application for additional funding of $890,000 in no way caused or precipitated the failure of the plaintiffs to repay the instalment of principal due on 31 December 1997. True it is that there were discussions on 5 January 1998 as to the further facility when it must have been known by the defendant that such default had occurred. But there is no allegation that the defendru:-t expressly waived its rights consequent upon such default, and there is no allegation in the material that any such waiver should be implied from conduct. Indeed, on the defendant's material (some of which is contested) there was express mention at the meeting of 5 January of its rights to appoint a receiver and the fact that it was reserving its rights in that regard. In the period since their appointment the receivers have undertaken a thorough review ,,;. ' of the financial position of the plaintiffs. The mining activities have not been profitable since 8 January 1998 and it would be necessary for the receivers to continue borrowing funds in order to keep the mining operations going. The return from mining operations would not meet the expenses incurred. The material also establishes that the receivers have endeavoured to obtain "toll milling contracts" to make use of plant and equipment owned by the plaintiffs. They have not been successful in obtaining any such contracts. It is the opinion of the receivers that the companies are insolvent. There is material to suggest that the value of the securities held by the -- 11 of 15 -- 11 defendant and QIDC is less than the current indebtedness of the plaintiffs to the defendant on which, as previously noted, interest is accruing at approximately $3,500 per day. In those circumstances the receivers made the decision that the business of the plaintiffs should be sold. It is the view of the receivers, particularly in the light of their of their experience, that there should be a "structured marketing campaign". To that end on 22 April 1998 they caused a public statement to be issued to the stock market and made a public statement to shareholders. Advertising commenced on 23 April 1998 in major newspapers. It was in consequence of the receivers taking those steps that the plaintiffs caused the Notice of Motion to be filed. It seeks, as earlier noted, an injunction restraining the receivers from proceeding with the marketing program and/or negotiating for the sale of any of the assets of the plaintiffs. Counsel for the plaintiffs conceded that his clients were not in a position to offer payment of interest during the currency of any interlocutory injunction. The plaintiffs are not in a position to make any payment of the kind discussed in Inglis--.LCQmmol1W..e~alth..TIadingBank oiAustralia (1972) 126 CLR 161. The most the plaintiffs offered were personal undertakings from six individual persons who had some association with the plaintiffs to pay damages, if any, occasioned by the granting of the injunction. There was no evidence put before the court as to the value of those undertakings; that is, there is no evidence as to the capacity of any of those persons to pay damages which might at least be calculated at $3,500 per day during the currency of the injunction. It is in all of those circumstances that the issues raised by the Notice of Motion must be determined. The first question is whether or not there is a serious question to be tried as between the parties. and if that is answered in the affirmative then the balance of convenience must be -- 12 of 15 -- 12 addressed. Both in written submissions and in oral argument senior counsel for the plaintiffs confined the serious question to be tried to the issue whether the defendant and QIDC accepted the amended terms and conditions for making the further advance of $890,000 at or shortly after the meeting of 5 January 1998 or, alternatively, whether the conduct of the defendant and QIDC misled and deceived the plaintiffs by representing that $890,000 would be available and would be approved upon the undertaking given by Great Mines Limited which was duly obtained and forwarded to QIDC. I have grave difficulty in seeing how acceptance of those questions as serious triable issues would afford a proper basis for granting the injunctions sought. As already noted there was antecedent default by the plaintiffs which enlivened the power of the defendant or QIDC to appoint receivers. In my view, unless the plaintiffs can show a serious question to be tried as to the validity of the appointment of the receivers there is no relevant serious question to be tried. On the pleadings as they stand, and in the light of the evidence in support of the Notice of Motion and submissions of counsel, I am not satisfied that such a case is made out. What the plaintiffs appear to be saying is that there was an agreement reached on 5 January 1998 in terms of which the defendant promised to make available an additional $890,000. If that be so then the defendant was in breach of contract in failing to honour that promise; but not fulfilling a promise (a contractual obligation) does not of itself amount to misleading conduct. It may well be, for example, that having made that promise the defendant became aware of the significant increase in the value of pressing creditors which (in its view) made the position ofthe plaintiffs not viable. The defendant may, because of that, have decided not to honour its promise. In those circumstances there would not be such conduct on the part of the defendant as would deprive it of the right to recover the full amount of its existing loan consequent upon the default of the plaintiffs in making a repayment of principal on 31 December -- 13 of 15 -- 13 1997. It is important to note that nowhere do the plaintiffs allege that the defendant or QIDC represented that they would continue to make finance available if the plaintiffs were in default in complying with conditions attaching to the loan facility. Another relevant question is whether or not the non fulfilment by the defendant of a promise made on or about 5 January 1998 to make an additional $890,000 available to the plaintiffs had any relevant consequences. The allegation made by the plaintiffs is that they were deprived of the opportunity to seek alternative finance either to the extent of $890,000 or for total refinancing. The material suggests that from about September 1997 the plaintiffs had sought additional funding of between $3M and $4M, but from September 1997 to January 1998 there was no offer of funds from the d~fendant or QIDC other than to the limited extent of $890,000. If the plaintiffs were interested in refinancing one would have thought they would have taken some steps prior to 5 January 1998 by which time they were in default of making of the repayment on 31 December 1997. In any event, the critical period so far as this submission was concerned, would appear to be the few days after 5 January 1998. Realistically, what chances did the plaintiffs then have of refinancing. They would have had to disclose their default in making repayment of principal on 31 December 1997 and, in addition, outstanding pressing creditors of approximately $1.293M. As already noted, in my view there would be grave difficulty in the plaintiffs obtaining any relief under s.87 of the Irad~~e.s..Act by way of varying the security documents, particularly given the fact that they were in default as at 31 December 1997. On what basis could the court deprive the mortgagee of its rights under the securities consequent upon that default? -- 14 of 15 -- 14 Even if it were accepted that there was a serious question to be tried as to the validity of the appointment of receivers I would hold that, because of considerations relevant to the balance of convenience, no injunction should be granted. On the evidence there is no valuable undertaking as to damages offered, the business of the plaintiffs cannot be carried on profitably in the interim, and the value of the defendant's securities is less than the debt. In the circumstances it is not necessary to give further consideration to questions raised by authorities such as Inglis~GQmmonw.ealtlLRank_oiAustralia and Clarke-'LJapanMachineB (Australia}1~1JLLtd_(N.Q2_) [1984]1 Qd.R 421. Nor is it necessary to consider the argument addressed to the court by senior counsel for the defendant based on cases such as re Bmadtr.e_e Einanc_e~t~Ltd (umeported, Supreme Court of Victoria, Hayne J, 1 November 1993). In the circumstances the Notice ,of Motion should be dismissed with costs, including reserved costs. -- 15 of 15 --