Erbamere Pty Ltd v Campbell's Formal Wear Pty Ltd & Ors [1991] QSC 261

IN THE SUPREME COURT OF QUEENSLAND CHAMBERS JURISDICTION No. 1159 of 1991 BETWEEN: ERBAMERE PTY. LTD. Plaintiff AND: CAMPBELL'S FORMAL WEAR PTY. LTD. First Defendant DRESS CIRCLE FORMAL WEAR PTY. LTD. Second Defendant MANIX HOLDINGS PTY. LTD. Third Defendant JOHN SELBY CAMPBELL Fourth Defendant AND: JACK BASTIAN Fifth Defendant BASTIAN KURTZE & co. (a firm) Sixth Defendant JUDGMENT - RYAN J. Delivered the Sixteenth day of September, 1991. Counsel: Mr. D. Cooper for Defendant/Applicant Mr. W. Sofronoff Q.C. with Mr. M. Martin for Solicitors: Messrs. W.T. Purcell, Chadwick & Skelly t/a for Messrs Jack Cohen, Serry & Co., Solicitors, Melbourne for Defendant/Applicant McCullough Robertson for Respondent/Plaintiff Hearing Date: 2nd September, 1991. -- 1 of 12 -- IN THE SUPREME COURT OF QUEENSLAND CHAMBERS JURISDICTION BETWEEN: AND: No. 11 5 9 of 1 9 91 ERBAMERE PTY. LTD. Plaintiff CAMPBELL'S FORMAL WEAR PTY. LTD. First Defendant DRESS CIRCLE FORMAL WEAR PTY. LTD. Second Defendant MANIX HOLDINGS PTY. LTD. Third Defendant JOHN SELBY CAMPBELL Fourth Defendant JACK BASTIAN Fifth Defendant BASTIAN KURTZE & CO. (a firm) Sixth Defendant JUDGMENT - RYAN J. Delivered the Sixteenth day of September, 1991. Application has been made by the defendants for the discharge of orders made on 9 July 1991 restraining the first defendant from appointing a receiver or otherwise exercising its rights pursuant to a debenture between the plaintiff and the first defendant dated 31 January 1989 without the prior leave of the Court, and restraining the third defendant from appointing -- 2 of 12 -- 2 a receiver or otherwise exercising its rights pursuant to a debenture between the plaintiff and the third defendant dated 31 January 1989 without the prior leave of the Court. It is also sought to have the action transferred to the Supreme Court of Victoria. By a writ issued on 9 July 1991, the plaintiff claims orders pursuant to s. 87 of the Trade Practices Act 1974 (Cth) (a) declaring that a contract of sale dated 13 December 1988 between the applicant as purchaser and the first and second defendants as vendors is void; (b) that a mortgage debenture between the applicant and the third defendant dated 31 January 1989 is void; (c) that a debenture between the applicant and the first defendant dated 31 January 1989 is void. Alternatively, orders are sought that the contract of sale and debentures be varied, and further or in the alternative damages are sought pursuant to s. 82 of the Trade Practices Act. On 9 July 1991, orders were made by Dowsett J. which it is sought to have discharged. These orders were made on notice to the respondents, but they were not represented as the Victorian solicitors for the respondents had thought that the hearing of the application would be adjourned, since an ex parte order made by his Honour on 8 July, 1991 adjourning the notice of motion until 9 July was unsealed. It was submitted that the order made by Dowsett J. should be discharged since there had been an omission to disclose material facts to his Honour on the hearing of the application before him. The principle invoked was that stated by Isaacs J. in Thomas S. Edison Ltd. v. Bullock (1913) 15 C.L.R. 679 that it -- 3 of 12 -- 3 is the duty of a party asking for an injunction ex parte to bring under the notice of the Court all facts material to the determination of his right to that injunction. Unless that is done, the implied condition upon which the Court acts in forming its judgment is unfulfilled and the order obtained must almost invariably fail. In the instant case, the orders were made on notice to the respondents, but as they did not appear I consider that I have jurisdiction to discharge the orders if matters which were not disclosed to his Honour were such that he would have refused to make the orders if they had been disclosed to him. The material upon which his Honour made the orders consisted in affidavits by two directors of the plaintiff. Mr. Bledsoe deposed that he had negotiated in December 1988 with the fourth defendant and fifth defendant on behalf of the first and third defendants for a purchase of a formal wear hire business then owned by the first defendant. At the commencement· of the negotiations, they provided him with financial records setting out the business's profits since 1984. These indicated a profit which rose to $327,017 for the year ended June 1987. In March 1988, the fourth defendant told him and another director, Mr. Cox, that in addition to these profit figures, he was taking $200,000 per year out of the business which was consequently tax free. That representation was said to be correct by the fifth defendant. In May 1988, the fourth defendant told him that the sales figures for the financial year ended 1989 would be at least those achieved by the business in the year since 1984. Throughout 1988, the fourth and fifth defendants represented that the -- 4 of 12 -- 4 business's stock was in good order and had been regularly replaced, and that plant and equipment owned by the business was in good working order. On the basis of the representations made, the plaintiff agreed to purchase the business from the first and second defendants for $2,700,000 and on 13 December 1988 executed a contract for the purchase. This was financed by a loan from the first defendant to the plaintiff for $1,500,000, secured by a mortgage debenture, and a loan of $900,000 from the third defendant, which already had a charge over the business to the extent of $700,000. At settlement this charge was released, and a new mortgage debenture entered into. It is deposed that if the representations had not been made by the fourth and fifth defendants, the plaintiff would not have entered into the contract or the mortgage debentures. On 1 February 1989 the plaintiff took over the business. It is stated that it became apparent that the business's stock had not been regularly maintained and replaced with new stock, and that some of the plant was in a state of disrepair. The expected nett profits were not nearly as much as had been represented. For the five months ended June 1989 the business ran at an effective loss (after excluding interest and extraordinary expenses) of $4,818. For the next year, the effective loss was $88,280. On 1 July 1991 the plaintiff defaulted in an interest payment due to the third defendant under the mortgage debenture. Mr. Bledsoe was informed by the fifth defendant that if the interest payment remained outstanding for seven days from 1 July 1991, he would cause the third defendant to appoint a receiver -- 5 of 12 -- 5 to the business pursuant to the terms of the mortgage debenture. The plaintiff was also in default of interest payments pursuant to the mortgage debenture granted by the first defendant. The interest payment was due on 1 July 1991, and the first defendant was entitled to appoint a receiver to the business if the plaintiff remained in default for a period of seven days. Mr. Bledsoe deposed that the plaintiff was negotiating to sell the business in order to mitigate any loss which would be ultimately claimed against the defendants, and that he believed that the appointment of a receiver to the business would drastically reduce its value in the open market and may even render it unsaleable as a going concern. Mr. Davis made an affidavit supporting the allegations by Mr. Bledsoe. -rt was pointed out by counsel for the applicants before me that there had been no disclosure to Dowsett J. that the plaintiff had continued to make interest payments after 31 January 1989 without any demur. There had also been no disclosure of the fact that at a meeting of representatives of the plaintiff and defendants on 21 June 1991, a representative of the defendants had agreed that the third defendant would write to its loan contributors submitting to them a proposal for a moratorium for payment of interest until the end of 1991, and that the defendant's solicitor, Mr. Cohen, informed the plaintiff's representatives that until the loan contributors' replies were received there would be no decision made as to whether or not a receiver would be appointed and that they would be advised if it was intended to appoint a receiver. Mr. Cox, -- 6 of 12 -- 6 the plaintiff's solicitor who was present at the meeting has denied that this statement was made. I am not prepared on this material to conclude that there had been material non-disclosure by the plaintiff. In relation to the interest payments it was at least apparent that interest payments had been made, and there was no suggestion they were made under protest. There is a dispute as to whether the statements attributed to Mr. Campbell and Mr. Cohen were made. It was further submitted that I should discharge the injunctions having regard to further matters placed before me. A considerable number of affidavits were read before me which contained matters which were not before Dowsett J. These do nothing, in my opinion, to lead me to a conclusion contrary to that which Dowsett J. must have.reached, viz that there is a serious question to be tried on the issues of the avoidance or variation of the contract of sale and the mortgage debentures by virtue of s. 87 of the Trade Practices Act 1974. The question I must consider is whether on the balance of convenience the injunctions should be continued or discharged. Before doing so, I must refer to the principle stated by Walsh J. in Inglis v. Commonwealth Trading Bank (1972) 126 C.L.R. 161 that as a general rule an injunction will not be granted restraining a mortgagee from exercising powers conferred by a mortgage unless the amount of the mortgage debt is paid into court. In Harvey v. Mcwalters (1948) 49 S.R. (N.S.W.) 173 it was said by Sugerman J. that in a case in which the matter in dispute is whether the powers of the mortgagee are exercisable at all, the terms as to payment into court that may be imposed upon the -- 7 of 12 -- 7 mortgagor may be moulded so as to require payment in of so much only as will suffice to give adequate protection to the mortgagee. This statement was cited with approval by Williams A.J. in Clarke v. Japan Machines (Australia) Ptv. Ltd. (No. 2) (1984) 1 Qd.R. 421 at p. 423. In Glandore Pty. Ltd. v. Elders Finance (1984) 4 F.C.R. 130, Marling J. stated that in a case of the kind referred to by Sugerman J., the proper approach was to mould an order so as to ensure adequate protection to the mortgagee and to otherwise do justice between the parties during the period pending the final hearing. I accept that this is the approach I should adopt. In this case, unlike the Glandore case, there is evidence that the secured property is falling in value though the debenture mortgage in favour of the third defendant is secured by guarantees. It was, stated in Town & County v. Partnership Pacific (1988) 20 F.C.R. 540 at p. 545 that:- "The traditional rule was apparently relaxed where the mortgagor attacked the enforceability of the security. The powers of this Court under s. 87 of the Act enable the mortgagor to obtain in an appropriate case orders varying the terms of agreements or declaring them void as a consequence of the contravention of the provisions of the Act by the mortgagee. This may strengthen the inclination of the Court in an appropriate case to refrain from requiring the applicant to provide adequate security for its indebtedness before restraining a mortgagee from exercising its powers ... As a matter of discretion the relaxation of such a requirement in this Court usually would be restricted to cases where the allegations which ground the plea for the use of the Court's powers under s. 87 are clearly arguable and not merely colourable and to cases which show an obvious nexus between the allegations of misleading or deceptive conduct in contravention of s. 52 of the Act and the formation of the security documents sought to be varied or rendered unenforceable by the exercise of these powers." -- 8 of 12 -- 8 In the present case, I consider that the allegations which ground the plea for the use of the Court's powers under s. 87 are clearly arguable. Allegations have been made that the plaintiff is seeking improperly to obtain interlocutory injunctive relief, but this is denied. There is a clear nexus alleged between the representations made and the formation of the security documents. I consider that it is appropriate that if the injunctions are not to be discharged I should make an order in this case modelled on that made by Marling J., namely that the plaintiff pay to the mortgagees the amount of the interest owing. In addition, I should require that prompt payment of interest should be a condition of the continuance of the injunctions. I turn now to consider the question of balance of convenience. Affidavits were relied on by the plaintiff which indicated that appointment of a receiver would have an adverse effect on the business through the cancellation of advance orders, the loss of confidence in the business by major clients, and the exercise by lessors of the business premises of the right to re-take possession of the premises. They also indicated that the plaintiff has been attempting to sell the business in order to mitigate its damages which will be the subject of the damages claim against the defendant, and that the appointment of a receiver would drastically reduce the value of the business in the market place and may even render it unsaleable as a going concern. It appears that the highest price that the plaintiff is likely to receive for the sale of the business in its current state is $500,000. -- 9 of 12 -- 9 A director of the plaintiff has deposed that an agreement has been made by certain persons to buy part of the business for $500,000. A request by the plaintiff for the consent of the third and first defendants to the sale was refused. He deposes that if the present level of sales continues, the plaintiff will have to cease trading in the near future. He deposes further that in his opinion neither the first nor third defendant has the financial ability to support the appointment of a receiver to carry on the business, and that the only action a receiver could take would be to close down all of the outlets of the business and try to sell the stock, plant and equipment, fixtures and fittings. On behalf of the defendants, affidavits were read which indicated that it was gross mismanagement by the plaintiff's officers which had converted a profitable business into a financial disaster. I consider that the balance of convenience indicates that the injunctions granted should not be discharged, provided prompt payment is made of interest. The applicants seek to have the action transferred to the Supreme Court of Victoria. It is alleged on their behalf that to rebut the allegations of the plaintiffs it will be necessary to call a substantial number of witnesses (not less than 12) who reside in Victoria. It is alleged also that all the assets of the plaintiff secured by the debenture are now situated in Victoria, that the defendants are resident in Victoria, that the agreement for the sale of the business was made in Victoria, that the misrepresentations are alleged to have occurred in Victoria, -- 10 of 12 -- 10 and that proceedings under the deed of guarantee will be taken in Victoria. It is stated that it is unlikely that, if the action remains on the lists of this Court, it could be allocated trial dates until mid-1992, whereas, once the matter is ready for trial in the Victorian Supreme Court, it will be listed for hearing and will be heard within three months thereafter. For the plaintiffs, who oppose this application, it is deposed that the majority of the witnesses for the plaintiff who were present at the time when representations as to sales and profitability of the business were made or who were involved in negotiations leading up to the purchase of the business by the plaintiff reside in Brisbane, and the majority of the records for the plaintiff relating to the business are held in Brisbane. The relevant issue in determining the appropriate place of trial is what is required in the interests of justice. See Amor v. Marpak Pty. Ltd. (1989) 95 F.L.R. 10. In deciding that issue, it is necessary to consider with which court the action has the . most real and substantial connection. There is no bias in favour of the jurisdiction selected by the plaintiff. See Bankinvest AG v. Seabrook (1988) 14 N.S.W.L.R. 711. In my opinion, the action has the most real and substantial connection with the State of Victoria. Moreover, it seems likely that the matter will be able to be heard more speedily in the Supreme Court of Victoria, and it is important that it be tried as soon as possible. I make the following orders: (a) that the orders made by Mr. Justice Dowsett on 9 July 1991 be not discharged provided the plaintiff pays to the -- 11 of 12 -- 1 1 solicitors for the third and first defendants the sums due to them on account of interest pursuant to the debentures dated 31 January 1989 on or before 4 p.m. on Wednesday 25 September 1991, and thereafter pays to the solicitors for the third and first defendants the sums due to them on account of interest at the times specified in the debentures for the payment thereof, but that they be discharged if such payment is not made. Provided that such sums be retained by the Solicitors for the third and first defendants until the trial of this action or further earlier order. Provided further that such sums may be invested by the solicitors in such funds as are authorised for the investment of trust moneys. (b) that pursuant to s. 5 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 the action be transferred to the Supreme Court of Victoria. (c) that the costs of these proceedings be costs in the action. -- 12 of 12 --