John Bernard Benny; the Opal Mining and Export Company Pty Limited (Receiver and Manager Appointed); the Australian Opal and Gemstone Museum Pty Limited (Receiver and Manager Appointed) and Yerapin Pty Limited (Receiver and Manager Appointed) v Canberra A [1991] ACTSC 35 (12 June 1991)

SUPREME COURT OF THE ACT

JOHN BERNARD BENNY; THE OPAL MINING AND EXPORT COMPANY PTY LIMITED (Receiver
and Manager appointed); THE AUSTRALIAN OPAL AND GEMSTONE MUSEUM PTY LIMITED
(Receiver and Manager appointed) and YERAPIN PTY LIMITED (Receiver and Manager
appointed) v. CANBERRA ADVANCE BANK LIMITED and BARRY ANTHONY TAYLOR
S.C. No. 796 of 1990
Contract Law
(1991) 104 FLR 197

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Higgins J.(1)

CATCHWORDS

Contract Law - security for loans - joint venture - whether breach of contract - appointment of receiver and manager - validity of appointment - certain defaults alleged by defendants - whether "events of default" financial change "poor performance" - service of s.364 Notice Companies Act Provision of Financial Statements - waiver - failure to pay rates/land tax - failure to complete landscaping - whether breach of Crown Lease or Mortgage - no grounds to entitle defendants to appoint receiver/manager - plaintiff not "unable to pay debts as and when they fall due" - availability of interim injunction - remedies.

Harold Meggitt Ltd v Discount and Finance Ltd (1938) 56 WN (NSW) 23

Wrights Hardware Pty Ltd v Evans (1988) 13 ACLR 631

Waldron (CAC) v MG Securities Australasia Ltd (1975) VR 508

Bond Brewing Holdings Ltd v National Australia Bank (1990) 1 ACSR 445

McMahon v State Bank of New South Wales and Anor (1990) 8 ACLC 315

Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634

Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406

Inglis v CTB (1971) 46 ALJR 48

Samuel Keller (Holdings) Ltd v Martins Bank Ltd (1971) 1 WLR 43

Harvey v McWatters (1948) 49 SR (NSW) 173

Glandore Pty Ltd v Elders Finance and Investment Co Ltd [1984] FCA 407; (1984) 4 FCR 130; 57 ALR 186

Brutan Investments Pty Ltd v Underwriting and Insurance Ltd (1980) 39 ACTR 47

White and Carter (Councils) Ltd v McGregor [1961] UKHL 5; (1962) AC 413

Hounslow L.B.C. v Twickenham G.D. Ltd (1971) Ch 233

Bunge Corporation v Tradex Export SA [1981] UKHL 11; (1981) 1 WLR 711

Nund v McWaters (1982) VR 575

HEARING

CANBERRA
12:6:1991

Counsel for the Plaintiffs: Mr P. Sheils QC

Instructing solicitors: Messrs Scott Campbell and Sheils

Counsel for the Defendants: Mr T. Jucovic QC with Mr M. Oakes

Instructing solicitors: Messrs Mallesons Stephen Jaques

ORDER

The Court orders that leave be granted to the parties to bring in short minutes of orders giving effect to the proposal herein.

DECISION

On the 17 December 1990, the plaintiffs issued a Writ of Summons claiming damages, injunction and declaration together with ancillary orders.

2. The first plaintiff ("Benny") is a director and shareholder of the second plaintiff ("Omex"), the third plaintiff ("Museum") and the fourth plaintiff ("Yerapin").

3. Omex owns various opals and gemstones known as "the Benny Collection" as trustee for the Benny Family Trust. Museum displays the collection under licence from Omex. Yerapin owns the Crown Lease of the premises in which the display is housed. That Crown Lease is over Block 401, District of Gungahlin in the Australian Capital Territory.

4. The building was erected by Wollongong Constructions Pty Ltd ("Wollongong"). That company is controlled by a Mr O. Da Deppo. Mr Da Deppo and Mr Benny each (with their wives) share control of Yerapin.

5. To raise finance for the venture a sum of money was borrowed from the Canberra Permanent Co-operative Building Society Ltd. The Society subsequently became the first defendant ("CA Bank").

6. $2m was borrowed. $1.2m was loaned to Omex and $0.8m to O and E Da Deppo Holdings Pty Ltd ("Holdings"). Those companies were to advance those funds to Yerapin to enable the museum complex to be constructed. Security was provided to the CA Bank over the Crown Lease and improvements, the gemstone collection and the business undertaking of Omex. Additionally the various companies and individuals personally guaranteed the repayment of the loans and of the performance of all subsidiary obligations.

7. More particularly, for present purposes, a Deed of Charge was entered into by Omex in favour of the CA Bank. Museum (then known as Keltie Pty Ltd) did likewise. Yerapin granted the CA Bank a mortgage over the Crown Lease.

8. These instruments, other than the Mortgage, were executed on 20 November 1989. The Mortgage was executed on 22 November 1989. Each of them referred to and applied the terms of a Deed of Covenant, executed on 20 November 1989.

9. The first instalment in repayment of the loans was due on 30 June 1990 and thereafter the last day of each following month. Omex and Holdings failed to pay that first instalment. A dispute had by then arisen between Mr Da Deppo and Mr Benny. It seems this involved an accounting to fix the sum due from Yerapin to Wollongong. The precise details of that dispute are not directly relevant but it apparently remains unresolved.

10. On 31 July 1990, at least partly to enable Mr Benny to seek alternate sources of finance, a Deed of Variation was entered into between all of the previous parties to the Deed of Covenant. The significant effect of this was the extension of time for making the initial repayment to 1 September 1990.

11. The dispute between Wollongong and Yerapin led, on 16 August 1990, to Wollongong serving a notice under s.364 of the Companies Act 1981 (Cth). The notice then claimed $1.4m. Subsequently, that claim has been reduced to approximately $0.6m. Apparently, no steps have been taken by Wollongong to enforce its alleged debt. Even that sum is disputed.

12. On the same day, CA Bank appointed the second defendant (Mr Taylor) to be the Receiver and Manager of Omex, Museum and Yerapin. Mr Taylor then took control of those companies. He has managed the companies since then.

13. On 17 December 1990 I ordered that Mr Taylor be restrained from selling the assets of the companies (otherwise than in the ordinary course of business). I also ordered that the matter be set down on 19 December 1990 for the trial of the issue as to whether Mr Taylor had been validly appointed as Receiver and Manager.

14. As a result, on 19 December 1990 argument and evidence was addressed to that issue. Subsequently, Mr Purnell, for the defendants, stated that he had not understood that the issue of the validity of the appointments of Mr Taylor was for final, as opposed to interlocutory, decision. The arguments and the issues were not made any different by this lack of understanding. However, in the event that there may have been factual material bearing on the separate issue to be tried, I offered Mr Purnell the opportunity to present further material before 7 January 1991. Further material has now been produced.

15. On 28 February 1991, when this matter resumed, Mr Jucovic QC appeared for CA Bank. He sought to rely on certain additional grounds to support the receiver/manager's appointment. He frankly conceded that these were not grounds relied on either when the receiver/manager was appointed or when CA Bank was subsequently asked to give particulars of the grounds upon which it had relied to appoint the receiver/manager.

16. The issue then is whether, as at 16 August 1990, the CA Bank was lawfully entitled to act as it did in appointing Mr Taylor to be Receiver and Manager of the corporate plaintiffs.

17. There is, obviously, a clear connection between advice given to CA Bank that Wollongong had issued the s.364 notice and the CA Bank's decision to appoint Mr Taylor. There was no other relevant event between 31 July 1990 (date of the Deed of Variation) and that date. That does not, however, mean that the notice should be viewed in isolation or that other grounds, if they then existed, can be ignored. Nevertheless, given that the appointments relied on were purportedly pursuant to powers conferred by a written agreement rather than a Court appointment, justification for those appointments must be found within the four corners of that agreement. (See Harold Meggitt Ltd v Discount and Finance Ltd (1938) 56 WN (NSW) 23; Wrights Hardware Pty Ltd v Evans (1988) 13 ACLR 631.)

18. A risk of failure of the undertaking of the company whose assets secure the debt may be a ground for a Court appointment of a receiver and manager (see Waldron (CAC) v MG Securities Australasia Ltd (1975) VR 508). Appointments for collateral purposes will not be supported (see Bond Brewing Holdings Ltd v National Australia Bank (1990) 1 ACSR 445.

19. Accordingly, CA Bank has taken to itself the burden of establishing that the Deed of Covenant as varied by the Deed of Variation, supports the appointments. If it is wrong, CA Bank will have breached the terms of the Deeds of Charge and of the Mortgage. That may well amount to a repudiation thereof. It may well, also, have to pay damages for that breach and be unable, as a result, to exclude the optimistic hypothesis put forward by Mr Benny that the plaintiffs could have traded successfully if he had retained control of them. If assessed on that basis, the damages could well be substantial.

20. On 29 November 1990, Mr Benny, on behalf of the plaintiff companies, sent a letter to CA Bank enquiring as to the grounds for the appointments of Mr Taylor. This letter was not even acknowledged.

21. On 6 December 1990, solicitors for Mr Benny and the plaintiff companies (Messrs Scott Campbell Sheils) wrote to CA Bank. Essentially, though with greater precision, they also asked for the grounds upon which the appointments were made. A reply of 10 December 1990 was received which did not, it appears, address that question. On 10 December 1990, the request was repeated. A more informative response was received, dated 13 December 1990.

22. It stated as follows (in part):-
"2. Grounds for appointment

There are various grounds on which our client
relies for the appointment of the Receiver and
Manager on 16 August 1990 including without
limitation, winding up proceedings threatened
against Yerapin Pty Limited by Wollongong
Constructions Pty Limited as unpaid builder, the
poor performance of the museum operations and the
insolvency of the various companies."

23. I do not believe that Messrs Mallesons Stephen Jaques, solicitors for the defendants, were intending to be misleading or to create an "ambush" by this reply. I take it to mean that those stated grounds were the only grounds that those solicitors could distill from all the information then available to them but, quite properly, they reserved their clients' right to rely on breaches of the agreement not then known to them but which might appear subsequently. This is quite permissible (see McMahon v State Bank of New South Wales and Anor (1990) 8 ACLC 315).

24. At the hearing, the defendants relied on additional alleged defaults. These were in relation to the state of completion of the premises and associated works of the Museum, failure to deliver financial statements, to pay rates and land tax by the due date and a monetary default by O and E Da Deppo Holdings Pty Ltd.
1. Financial Change - Issue of s.364 Notice - "Poor Performance"

25. Mr Paul Kane, Chief Manager of CA Bank, had at all relevant times been in charge of the museum account. Paragraphs 22 and 23 of his affidavit suggest a ground for the appointments related to the "poor performance" referred to in the letter of 13 December 1990.

26. I do not think that those paragraphs do more than detail the matters which the CA Bank (through Mr Kane) perceived as being, at the time of the appointment, matters for concern. It is not inconsistent with the view that the CA Bank responded to the issue of the s.364 notice. However, "concern" is not an "Event of Default" per se. The objective grounds for any such "concern" must fall within clause 12 "Events of Default".

27. Subclause (8) was relied on. It is worth setting this sub-clause out in full. An event of default occurs if:-

"...a change occurs in a circumstance which is
warranted under any Facility Document to exist or in
the business, assets or financial condition of an
Associated Person which in any case in the opinion of
the Lender may have a material adverse effect on the
ability of an Associated Person to observe its
obligations under the Facility Documents."

28. It was suggested that the "matters of concern" enumerated by Mr Kane and the solicitors for CA Bank represented or were based on a relevant change in "the business, assets or financial condition of an Associated Person". The s.364 Notice was also said to represent, or be based on, such a relevant change.

29. It may be noted that Wollongong is not an "Associated Person". Whilst Mr and Mrs Da Deppo are "Associated Persons" there was no evidence that the dispute between Yerapin and Wollongong threatened their or Holding's ability to carry out their obligations under the Facility Documents.

30. The "change" referred to in Cl. 12(8) clearly relates to the situation relative to 20 November 1989 when the CA Bank agreed to make its loan. It was submitted that a lack of change for the better relative to that time should entitle CA Bank to take action to appoint a Receiver and Manager. It seems to me that Cl. 12(9) is designed to deal with such a case. If a failure to meet anticipated growth targets puts the viability of the project in jeopardy, the situation there referred to might well arise. There is also the option of seeking a Court-ordered appointment to cater for such a prospective collapse or failure.

31. The relevant "changes" suggested were:-

. A difference between the cash flow projections for the
Museum received from Mr Benny and Mr Da Deppo.
. Mr Benny's desire to change to "interest only" repayments.
. The omission by Mr Benny of rental to Yerapin in cash flow
projections.
. The failure of Mr Benny to gain a further injection of funds
for advertising by sale of some gems.
. The threat to wind up Yerapin by Wollongong.

32. As to the cash flow projections, they were, it seems, provided before the Deed of Variation was entered into on 31 July 1990. It appears they were for the purpose of persuading CA Bank to agree to the variation. Clearly, CA Bank had an option open to it to decline to agree to the variation. That it did agree indicates that it perceived no relevant change arising from those matters.

33. In any event, CA Bank, before it could decide that criticisms of the cash flow projections were properly matters for concern, ought to have made reasonable enquiries of both Mr Benny and Mr Da Deppo. It made no such enquiries.

34. The omission of "rental" from those projections, for example, could well have been due to a moratorium agreed to between Museum and Yerapin or otherwise due to their association within the development group.

35. The failure of Mr Benny to resolve the project's financial problems at one stroke by selling gems overseas was of more concern. But, even if, contrary to my view, it could be a "change" within the meaning of Cl. 12(8), the lead time before default might occur was still sufficient for alternative non-debt capital to be raised or realised. The proposal of Mr Carter (who had offered finance), referred to in evidence, is an example of this.

36. In any event, if the central problem was through-put of customers and if advertising was essential to build up patronage, there was nothing to suggest that a less ambitious sell-off of some gems might not enable that to be done.

37. The only "change" which seems to have been regarded by CA Bank as relevant was the issue and service of the s.364 notice on Yerapin.

38. In my opinion, it was not reasonable for the CA Bank to regard this matter as being one which "may have a material adverse effect" on Yerapin without enquiring as to whether the asserted claim of approximately $1.4m had any serious prospect of success. Given the subsequent amendment of that claim and the grounds for disputing even that figure, it is more likely than not, in my opinion, that CA Bank would reasonably have concluded that it did not have any immediate relevance.

39. Accordingly, on any view of the construction of Cl. 12(8) the issue of the s.364 Notice provided no ground for Mr Taylor's appointment.

40. However, it is asserted that matters discovered after 16 August 1990 may provide such support. Mr Taylor's affidavit of 19 December 1990 states that, since his appointment, he has examined the trading figures for the museum business. He notes a:-

"...marked decline in trading after week 13 - ie after
the week commencing 14 May 1990."

41. By a subsequent affidavit of 15 February 1991 Mr Taylor further concluded (exhibit A para 3) that as at 16 August 1990, Museum had an excess of liabilities over assets of $356,567.00. He did not, however, highlight the fact that $310,686.00 was a liability to Yerapin. He also concluded that the trading loss for the period to 16 August 1990 was $356,667.00. He did not point out that $247,641.00 of that figure was "rent". That was a liability to Yerapin.

42. Exhibit B "Aged Creditors listing as (sic) 16 August 1990" (of Museum), illustrates this further. On its face it discloses $47,211.84 due to Mr and Mrs Benny. Omex was owed $51,682.56 and Yerapin $225,000.00. These three items alone account for $323,894.40.

43. It is not possible to conclude from these figures that, as at 16 August 1990, Museum's business had progressed, or was likely to progress, so badly that its position was worse than could reasonably have been expected.

44. In any event, whether it was or was not worse than expected by CA Bank, and whether or not it affected one or other of the Associated Persons in the manner contemplated by Cl. 12(8), there is no doubt that CA Bank had not and could not have formed an opinion to that effect by reason of any such figures.

45. It follows that, as at 16 August 1990 no gound existed falling within Cl. 12(8) to support the appointments of Mr Taylor.

46. Although Cl. 12(9) was not expressly relied on, I note there was no evidence which would support the contention that CA Bank's security was in jeopardy as at 16 August 1990.
2. Failure to provide financial statements

47. Cl. 10.1(d) of the Deed of Covenant provides that each "Associated Person" must (if a company):-

"...furnish to the Lender not later than the
forty-fifth day after the close of each Quarter the
financial statements for itself and any trust of which
it is a trustee as at the close of and for that Quarter
prepared in accordance with generally accepted
principles of good accounting practice consistently
applied, certified by two of its directors as fairly
presenting its financial condition and that of any such
trust as at the close of that Quarter and the results
of its and any such trust's operations for that Quarter."

48. It appears that Omex, Museum, Yerapin and Holdings did not provide such statements. That is, no such statements had been provided by 16 August 1990. It is common ground that none of the Corporate "Associated Persons" were requested to provide any such "financial statements".

49. Mr Jucovic QC for CA Bank, admits that there was no request for any such statements but contends that does not excuse a failure to provide such statements or amount to a waiver of that obligation.

50. A threshold question is, of course, whether there is, in fact, a breach of any such obligation.

51. In Cl. 10.1(d) the date from which the period of 45 days is computed is referred to as "the close of each Quarter". The word "Quarter" is capitalised. It would be expected that it would be defined. It is not. That failure leads to some ambiguity. The first is whether "Quarter" is to be accorded its traditional or its popular meaning. The second is whether it refers to a complete "Quarter" or the next complete "Quarter".

52. The traditional days closing the Quarters are 25 March, 24 June, 29 September and 25 December. The even divisions of the year would have closing days of 31 March, 30 June, 30 September and 31 December. It could, I suppose, refer to each period of three months following the commencement of the Agreement in question. That would, in fact, correspond to even divisions, the first closing day being 30 September 1989.

53. On any view of it, the 45 days had expired by 16 August 1990.

54. The question is whether, having ignored that requirement in respect of 14 November 1989, 14 February 1990 and 15 May 1990, it is open to CA Bank now to complain of that non-compliance.

55. Clearly, the liability to furnish financial information was a provision for the benefit of CA Bank. It was open to CA Bank, as Lender, to waive compliance with this provision (see, for example, Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634). If any party turned any attention to this provision it would have been assumed that compliance was not required unless CA Bank had requested it. Certainly, if, as here, no request was made for compliance such an assumption would be inevitable. In some cases no doubt, ignorance of a term and of the need for compliance with it would not lead to such an inference. In this case, CA Bank ignored a term in a document it prepared in relation to an obligation, an extremely onerous and intrusive one, inserted for its benefit. It could hardly be said to have accidentally overlooked such an obligation. Given its involvement with the financial affairs of the project and most of the participants, it is also likely that strict complaince with this provision would have been of little independent value.

56. I have no doubt that CA Bank waived the requirement that the corporate "Associated Persons" should provide, spontaneously, the information referred to in Cl. 10.1(d). To hold otherwise would, in any event, be grossly unjust. Having allowed three due dates to pass without comment, CA Bank cannot now assert an entitlement to insist on compliance. Such a result could also, in my opinion, be attributed to a promissory estoppel by way of the course of conduct of CA Bank. (See Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406.)

57. Either way, it is not now open to CA Bank to rely on non-compliance with Cl. 10.1(d) as at 16 August 1990 to support the appointments of Mr Taylor.
3. Failure to pay rates and land tax

58. Mr Taylor's affidavit of 15 February 1991 refers to a Rates and Land Tax Notice for the year 1990/1. As at 4 January 1990, $4,492.80 was due by 15 August 1990 for rates and land tax. A further sum of $2,140.83 was then due immediately which, if paid, would enable the $4,492.80 to be paid by instalments. The first instalment would then be $2,656.00 payable by 15 August. 1990.

59. The next notice referred to was dated 24 July 1990. It claimed arrears of $2,140.83 and interest of $35.68 up to 15 August 1990.

60. A further notice dated 29 August 1990 stated that the 1990/1 rates and land tax had not been made by the due date. It noted the balance overdue was $4,745.69. It claimed interest of $79.09 to 15 September 1990.

61. On 22 November 1989, Yerapin had entered into a Mortgage with CA Bank (under its previous name). Cl 7(c) of a registered Memorandum of Provisions incorporated therein provides that Yerapin would:-

"...at all times...duly and punctually pay all rents
taxes duties charges outgoings and assessments..."

62. It is this provision which CA Bank asserts has been breached. It relies on that breach for the appointment of Mr Taylor.

63. Cl. 9 of the Mortgage provides for the powers of CA Bank upon default. Cl. 9(b) is relied on. It provides for the exercise of those powers:-

"...if default shall be made in the due and punctual
observance or performance...of any of the covenants or
conditions herein..."

64. It is then said that Cl. 15 is activated. That states (relevantly):-

"...Upon default as described in Clause 9
(CA Bank)...may appoint in writing any person ...as
receiver..."

65. ("Receiver" is defined to include a receiver and manager - Cl. 1(1)(q).)

66. However, Cl. 3 of The Second Schedule of the Memorandum of Mortgage of the Crown Lease expressly excludes the operation of Cl. 9 and, therefore, Cl. 15 which depends on it. It follows that there is no power pursuant to the terms of the Mortgage to appoint a receiver and manager by reason of a breach of its terms. That receiver and manager would, in any event, have been of the mortgaged estate, rather than of the mortgagor.

67. The agreement of 20 November 1989 defines "Facility Documents" as those referred to in "Schedule One". Document (j) is "The Mortgage from Yerapin to the Lender over Block 401 Division of Gungahlin in the Territory". However, at that date there was no mortgage document. No such document was executed until 22 November 1989. It was registered on 28 November 1989. There is no evidence that this document was, as at 20 November 1989, a document then "to be made ... or to be granted at or about the date of this Deed".

68. It seems to me, therefore, that I cannot be satisfied that the state of the account between Yerapin and the ACT Revenue Office is in fact a breach of any "Facility Document" (see Cl. 12(22)). In other words, whilst Cl.5 of the mortgage makes an "Event of Default" under the Deed of Covenant a breach of the Mortgage, the converse does not appear to be provided for.

69. In any event, even if the Mortgage of 22 November 1989 is taken to be a "Facility Document", there is something incongruous in a conclusion that, if Yerapin was late in paying its rates and land tax, that fact alone would entitle CA Bank to take possession of and dispose of the entire undertaking of the Second, Third and Fourth plaintiffs.

70. Nevertheless, CA Bank says that because it had no knowledge of these arrears it did not waive compliance with Cl. 9 of the Mortgage. Even if the amount was relatively small, if it is a breach of observance of the terms of the Mortgage then the powers exercisable on default arise. It further says that, even if it was an oversight as between Mr Benny and Mr Da Deppo, it is entitled to regard it as an "Event of Default" on the part of Yerapin and, because Yerapin is an "Associated Person", of Omex and Museum.

71. Under the Rates and Land Tax Act 1926 (ACT), arrears of rates and land tax are dealt with in the first instance by imposition of interest (s.22). There is also a loss of the right to pay by instalments. The Territory may, also, sue to recover arrears. It is only if rates (and land tax) remain outstanding for one year after a relevant Gazette notice that a sale of land can be effected (ss.19, 22F). In my opinion, the term "punctually" in Cl. 7(c) has to be read in the light of the above provisions.

72. The clear purpose of Cl. 7(c) of the Mortgage is to permit the mortgagee to exercise its powers to enforce the Mortgage if its security is threatened. That can only occur if sections 19 and 22F are activated.

73. Accordingly, I am not satisfied that any of the appointments of Mr Taylor can be supported on this ground. Even if failure to pay by the "due date" shown on the rates and land tax notice is a breach of the obligations imposed in the Mortgage and if it is a "Facility Document", the Mortgage contains no power to appoint a receiver of the realty or of its registered proprietor. The Deed of Covenant itself contains no such power. It follows that, whether or not the state of the rate and land tax account is an "Event of Default" under Cl. 12(22) of the Deed of Covenant, only Cl. 5 of the Memorandum of Mortgage is relevant to provide a remedy. This does not permit the appointment of a Receiver/Manager of Yerapin.
4. Failure to complete landscaping and associated works

74. Clause 3 of the Deed of Covenant provides that the "Covenantors" (ie Omex, Museum, Mr and Mrs Benny and Mr and Mrs Da Deppo and Yerapin) would complete the building work as soon as practicable and comply with the terms of the Crown Lease of the Museum. The Certificate of Fitness for Occupancy and Use "covering the whole of the building" was also to be obtained.

75. For present purposes, I assume that completion of the "Building" (as defined) includes landscaping.

76. On 8 February 1990 a "Certificate of Fitness for Occupancy and Use" was issued by the Building Controller. It certified satisfactory completion save that it was endorsed "Landscaping not completed". It appears that $15,000.00 worth of work was required to complete the landscaping.

77. Insofar as there was a failure to complete the works within the time limited by the Crown Lease, some background facts may be noted.

78. The original Crown Lease was volume 1044 folio 94. It provided for completion within 18 months from 27 February 1987. That did not happen.

79. Nevertheless, on 22 November 1989, after that time had expired, CA Bank took its Mortgage over the land. The Deed of Covenant was dated 20 November 1989. This was also after that time had expired.

80. Clearly, CA Bank could have been in no doubt that the Building Covenant of the Crown Lease could not be complied with in its original form when the security documents were executed. It knew, or must have known however, that extensions of time were usually given to a lessee making genuine efforts towards completion.

81. That lease was, in any event, surrendered and a new lease issued on 9 January 1990. It commenced on 24 November 1989 and required completion of the works by 24 February 1990. That did occur but for the landscaping as referred to above.

82. The purpose of the provision in Cl. 3 was, I consider, twofold. It was to get the business operating as soon as possible and to avoid any forfeiture of the lease by the Commonwealth. The former objective was achieved as from 12 February 1990. There is not, and has not been since that time, any demand for the completion of the landscaping by the Commonwealth.

83. There is, accordingly, no evidence that the non-completion of the landscaping was a breach of the terms of the lease upon which the Commonwealth could or would rely.

84. Nevertheless, the lack of completion was said to be an "Event of Default" by reason of Cl. 12(5) and (22) of the Deed of Covenant. In turn that is said to be contrary to Cl. 3(b) of the Crown Lease of 24 November 1989. It is said also to be a breach of the terms of the Mortgage. Cl. 6(a)(iii) of the standard covenants imported into the Mortgage require that:-

"...all covenants and conditions contained or implied
in the Lease (that is, the Crown Lease) have been and
will continue to be duly and punctually observed and
performed..."

85. It was conceded that CA Bank took no action to require that the relatively minor outstanding landscaping works be completed. Indeed it insisted on paying the builder notwithstanding that Mr Benny pointed out that non-completion. Further, it participated in meetings of the co-operating companies at which that non-completion was discussed.

86. I further note that Mr Kane deposed that the final payment to the Builder (Wollongong) would not have been made by CA Bank without a relevant officer sighting the Certificate of Fitness for Occupancy and Use and a Certificate of Compliance. Mr Kane said he was told that such Certificates had been sighted. Only the former Certificate was in evidence. If the stated non-completion of landscaping works had been such as to amount to a failure, in the opinion of the Lessor, to observe the covenants and conditions of the Crown Lease, it is unlikely that Certificate would have issued at all. In any event, I consider it more probable than not that a Certificate of Compliance was, in fact, sighted. There is certainly no evidence that the Lessor or the Building Controller considered the lack of full completion, represented by the endorsement on the Certificate which was tendered in evidence, to be a matter for concern.

87. Accordingly, not only has that compliance been waived by CA Bank, the alleged lack of compliance has been waived by the Commonwealth (through the Territory, its statutory manager). It was not until this matter came to court and CA Bank began, with its advisers, to search for an ex post facto justification for the appointments of Mr Taylor, that this issue was raised. Accordingly, I am satisfied that it is not, and never has been, a breach of the Crown Lease.

88. Nowhere does Mr Kane or anybody on behalf of CA Bank claim that this lack of completion was a ground for the appointments of Mr Taylor. It is referred to in paras 26 to 28 of Mr Kane's affidavit. If para 26 is intended to convey that CA Bank was previously unaware of the lack of completion, I cannot accept it as truthful. However, I believe the words were chosen to avoid an admission of truth rather than to assert the contrary of the truth.

89. In any event, as noted above, a failure to comply with the terms of the Crown Lease, if relied on as a breach of the Mortgage, would not permit the appointment by CA Bank of a receiver or receiver/manager of Yerapin.

90. In my opinion, this alleged breach does not support Mr Taylor's appointments as Receiver and Manager.
5. Was "Museum" guilty of an "Insolvency Event"?

91. Such "Events" are defined by Cl. 11 of the Deed of Covenant. It is not necessary to set them out. To establish such an "Event", the defendants relied on the figures provided by Museum which showed a deficit of liabilities over assets of $295,457.00. However, whether that company was "insolvent" by reason of that fact, it was not demonstrated that it was "... unable to pay its debts as and when they fall due".

92. No doubt Mr Kane had some cause to fear that such a situation could in future arise. It had not done so as at 16 August 1990. Mr Kane conceded that neither of the other two corporate plaintiffs was, at 16 August 1990, insolvent in any sense of that word. In any event, the same matters which convinced me that there was no relevant change in the financial circumstances of Museum also convince me that Museum was not shown to have been guilty of an "Insolvency Event".

93. Although a s.364 notice had been served on Yerapin, no fact had occurred which made "Insolvency Event" (g) relevant in respect of that company.
6. Indebtedness of O. and E. Da Deppo Holdings Pty Ltd to State Bank becoming prematurely payable

94. There was evidence that the above company (Holdings), an "Associated Person" under the Deed of Covenant and the Deed of Charge, had borrowed $6.2m from the State Bank. An agreement of 30 June 1989 was tendered. It provided, inter alia, that on default:-

(10.1)"...any obligations of the Lender (State Bank) to
provide the Facilities is thereafter cancelled unless
otherwise agreed upon between the parties hereto and
all Outstanding Amounts shall unless otherwise agreed
upon between the parties without notice be immediately
due and payable."

95. It was suggested that as at 16 August 1990, Holdings was in default in a sum greater than $100,000.00 pursuant to this agreement. This is a relevant allegation because of Cl. 12(3) of the Deed of Covenant. That says it is an "Event of Default" if:-

"...any present or future money obligation of an
Associated Person in an amount of not less than
$100,000.00 -
(a) in connection with money borrowed...
(i) is not satisfied on time or at the end of
its period of grace;
(ii) becomes prematurely payable, or can be
rendered prematurely payable by the giving
of notice or satisfaction of a condition."

96. CA Bank sought to establish that, as at 16 August 1990, Holdings had failed to pay instalments of interest on the "Advance Amount" for June and July 1990 so that in aggregate, more than $100,000.00 was owing as at 16 August 1990 which would be an Event of Default.

97. Mr Gavin, a Manager with the State Bank, confirmed that the Agreement with Holdings was as above. There had been a variation deferring payments for three months up to the end of May 1990. Thus there were interest payments due at the end of June 1990 and July 1990. These were $85,268.10 and $91,390.38 respectively. The former sum was "adjusted" on 4 July 1990, the latter on 2 August 1990. Mr Gavin said "adjusted" meant "paid". It follows that whatever the source of the payment, there was no default possible by reason of non-payment of interest at least until after 16 August 1990.

98. It follows also that this ground provides no support for Mr Taylor's appointments as Receiver/Manager.
7. Deed of Covenant - Cl. 22 - "Events of Default" - other grounds not relied on
(i) (1) - (6) Monetary defaults: It is common ground that, as at 16 August 1990, as a result of the Deed of Variation, there was no monetary default to the CA Bank. There was no stated intention to default nor was there a situation where such default was unavoidable. Mr Benny's desire to have the CA Bank waive principal and interest repayments in favour of "interest only" repayments was not, and was not taken to be, a repudiation giving rise to an anticipatory breach of any such obligation.
(ii) Security in Jeopardy: Although there are varying valuations of the gemstone collection, there is no evidence that the value of the land and gems was not more than sufficient to cover the total sum due as at 16 August 1990. Indeed, that remains the case even after Mr Taylor's management and the loss he has allegedly sustained of about $150,000.00.

99. The defendants, in any event, did not rely on these grounds. There are no other grounds for supporting the appointments of Mr Taylor either relied on or available on the evidence.
8. Availability of Interim Injunction

100. On 10 May 1991, CA Bank applied to dissolve the interim injunction herein. That injunction, pending suit, restrains the receiver from selling or otherwise disposing of the assets of the 2nd, 3rd and 4th plaintiffs. It does not prevent the conduct of the museum business.

101. This application certainly came at the 11th hour. It was based on Inglis v CTB (1971) 46 ALJR 48. It was said that case establishes that a mortgagee cannot be restrained from exercising its powers under the mortgage unless the amount due under the mortgage is brought into court. That objection was not raised when the interim injunction was first granted.

102. However, notwithstanding the last minute nature of the application, it is proper to give it consideration.

103. In Inglis v CTB (supra) (49) Walsh J. referred to "the general rule".

"A general rule has long been established, in relation
to applications to restrain the exercise by a mortgagee
of powers given by a mortgage and in particular the
exercise of a power of sale, that such an injunction
will not be granted unless the amount of the mortgage
debt, if this be not in dispute, be paid or unless, if
the amount be disputed, the amount claimed by the
mortgagee be paid into court."
"...If the debt has not been actually paid, the Court
will not, at any rate as a general rule interfere to
deprive the mortgagee of the benefit of his security,
except upon terms that an equivalent safeguard is
provided to him by means of the plaintiff bringing in
an amount sufficient to meet what is claimed by the
mortgagee to be due."

104. The decision was affirmed by a Full Court ((1972) [1971] HCA 64; 126 CLR 161.)

105. Megarry J. in Samuel Keller (Holdings) Ltd v Martins Bank Ltd (1971) 1 WLR 43 referred to the appropriation of an unliquidated claim to discharge a mortgage debt as "both novel and awkward".

106. Meagher, Gummow and Lehane "Equity Doctrines and Remedies" (2nd ed. p 73, par 316) commenting on Inglis' Case noted:-

"This is a rule which can, obviously, operate somewhat
harshly if, for example, the mortgagee is exercising
his power of sale in an improper manner. ... To this
the only established exceptions are (a) where the
amount claimed by the mortgagee is obviously wrong, or
(b) possibly, when there is a question as to whether
the mortgagee's power has become exercisable at all."

107. It is necessary to look at these "exceptions". In Harvey v McWatters (1948) 49 SR (NSW) 173, Sugerman J. stated that the "ordinary" rule applies only in a case (174):-

"...in which there is no question that default has been
made and the power of sale is exercisable, but the only
dispute is about the amount due under the mortgage, or
the mortgagor desires to challenge the mode in which
the mortgagee proposes to exercise his power."

108. Where the very matter at issue is whether an occasion for the exercise of the mortgagee's power has arisen the position is otherwise. (178):-

"They (the authorities) do not require that in every
case the whole amount claimed or sworn to by the
mortgagee or seen from the terms of the instrument to
be the greatest amount that could be due should be paid
in. The terms may be moulded so as to require payment
in of so much only as suffices to give adequate
protection to the mortgagee."

109. Similarly, in Glandore Pty Ltd v Elders Finance and Investment Co Ltd [1984] FCA 407; (1984) 4 FCR 130; 57 ALR 186, Morling J., having reviewed the authorities, noted as follows (135):-

"It is clear on the authorities that if the present
case be regarded as one in which the mortgagor's real
claim against the mortgagee is for damages only,
interlocutory relief should be granted only upon terms
that the amount of the mortgage debt is paid into
court. ... But if it be not regarded as such a case, it
is open to the court to grant the relief sought upon
such terms other than payment of the full amount of the
mortgage debt into court as the court thinks appropriate."

110. Sheppard J. in Brutan Investments Pty Ltd v Underwriting and Insurance Ltd (1980) 39 ACTR 47 expressed doubt that the rule referred to in Inglis' Case should be regarded as inflexible.

111. The present case is not one in which the mortgagee is seeking to exercise its powers under the mortgage by reason of its undisputed breach. Nor do the plaintiffs assert only a counter-claim (or claims) seeking to discharge the mortgage by offsetting those claims against the mortgage debt. A claim that a breach has arisen since that time by reason of lack of payments after 16 August 1990 assumes that CA Bank retained that right. It is by no means certain that that is so (see, for example, White and Carter (Councils) Ltd v McGregor [1961] UKHL 5; (1962) AC 413; Hounslow L.B.C. v Twickenham G.D. Ltd (1971) Ch 233; Bunge Corporation v Tradex Export SA [1981] UKHL 11; (1981) 1 WLR 711; Nund v McWaters (1982) VR 575). However, it is not necessary in these proceedings to decide that issue.

112. The plaintiffs' objections to the action taken by the defendants assert that the CA Bank has wrongly appointed Mr Taylor and that the defendants' actions, as a result, amount to a wrongful and invalid exercise by the mortgagee of its powers under the mortgage. It is clear that, although there is power to appoint a Receiver/Manager under the Deeds of Charge, no such power is granted to CA Bank under the Mortgage.

113. For the above reasons, I was not satisfied that the circumstances deposed to in support of the motion to dissolve the interim injunction preventing sale, inter alia, of the realty, warranted such a response.
9. General Conclusions and Remedies

114. Some evidence was directed towards showing that, as at 16 August 1990, the project was financially doomed. Whether that was so is now difficult to discern. The fact remains that the appointment of Mr Taylor was premature. It constituted, inter alia, a breach by CA Bank of the terms of the Facility documents.

115. The truth of the matter is that CA Bank, having been advised of Wollongong's action in issuing a s.364 Notice, panicked. It acted precipitately and, in my view, without any legal justification. The appointments of Mr Taylor were accordingly invalid and I propose to set them aside.

116. CA Bank will, of course, be liable for the damage which has resulted to the various plaintiffs as a consequence of its action. I propose to refer the assessment of these damages to the Master.

117. Accordingly,

1. I declare that the appointments of the second defendant as
Receiver and Manager of the second, third and fourth
plaintiffs was, and is, void ab initio.
2. It is ordered that all control of the property and assets of
the second, third and fourth plaintiffs be forthwith vacated
by the second defendant and all their property and assets
returned to them.
3. It is further ordered that the first defendant publish as
soon as practicable and, in any event, within 48 hours, a
notice in The Gazette and The Canberra Times to the effect
that the appointments of the second defendant, referred to
above, have been declared void.
4. It is further ordered that within such time a copy of such
notice be filed with the Corporate Affairs Commission.
5. The further trial of the issue as to damages payable by the
first defendant and the second defendant to the plaintiffs
is referred to the Master for assessment.

118. I will hear the parties as to costs.