Galnom (No 8) Pty Limited v G and L Warehouse Pty Limited [1991] ACTSC 73; (1991) 105 FLR 395 (27 September 1991)

SUPREME COURT OF THE ACT

GALNOM (No. 8) PTY LIMITED v. G. and L. WAREHOUSE PTY LIMITED
S.C. No. 457 of 1991
Contract Law
[1991] ACTSC 73; (1991) 105 FLR 395

COURT

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

CATCHWORDS

Contract Law - Appointment of receiver - Interlocutory application to determine whether the appointment was prima facie valid - Interpretation of agreement - evidence to support proposition that plaintiff was insolvent - "Unable to pay from its own moneys" - Meaning of.

Failure to pay sums due to defendant in accordance with deed - No "demand" by defendant as specified in agreement - No ground to support appointment.

Failure to pay all rents as they fall due - Breach remedied by date of appointment - No ground to support appointment.

Breach of covenant preventing plaintiff creating a charge over premises without prior consent of defendant - Breach of charge not relied on by defendant at time of appointment of receiver - Open to defendant to rely on breach despite being unaware of the ground for doing so at time of appointment.

Continuation of appointment - Balance of convenience.

McMahon v State Bank of NSW (1990) 8 ACLC 315

Retail Equity Pty Ltd and Ors v Custom Credit Corporation Ltd and Ors (1991) 4 ACSR 23

Benny and Ors v Canberra Advance Bank Limited and Anor (No. SC 796 of 1990; ACTSC; Higgins J; 12/6/91; unreported)

Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666

Anjelkovic v AFG Insurances Ltd (1982) 49 ALR 245

HEARING

CANBERRA
27:9:1991

Counsel for the Plaintiff: Ms Beezley QC with Mr R. Mildren

Instructing solicitors: Messrs Romano and Co

Counsel for the Defendant: Mr J. Purnell

Instructing solicitors: Messrs Gallens Crowley and Chamberlain

ORDER

The plaintiff's application for interlocutory relief be refused.

DECISION

The plaintiff seeks interim orders restraining the second defendant (the Receiver) from continuing in possession of and/or receiving the profits of and/or proceeding towards the sale of two businesses alleged to be owned and operated by the plaintiff. Those businesses were, respectively, a supermarket and a liquor store (the "Supa Barn" at Chisholm and the "10 to 10" Liquor Store at Kaleen).

2. The first defendant ("G and L") was the supplier of stock to those businesses.

3. G and L entered into an agreement with the plaintiff on 15 February 1989. This agreement bound G and L to supply stock to the plaintiff from time to time as requested and to allow favourable terms as to credit. In return, the plaintiff promised to adhere to those credit terms and also charged the assets of its undertaking to support that promise. In the event of a breach, as specified in the agreement, G and L was to be entitled (inter alia) to appoint a receiver and manager to take possession of the assets of the plaintiff with power to manage and/or sell those assets to recover the sums then due to G and L. It has, in fact, purported to appoint Mr Robert Yeomans as receiver and manager ("the Receiver").

4. Before examining the agreement and its application to the facts alleged, it should be noted that this is not a final hearing. It may well be that each side has an arguable case. In that event, my task is to determine the balance of convenience between now and the final hearing.

5. The starting point, it seems to me, is whether there is prima facie evidence that the Receiver was validly appointed. If the plaintiff has established that he was clearly and unarguably invalidly appointed, then it is entitled to the relief it seeks irrespective of other issues.

6. In approaching that issue I accept that G and L would be entitled to appoint the Receiver if grounds under the agreement for so doing actually existed at the time of the appointment even though not relied on. (See McMahon v State Bank of NSW (1990) 8 ACLC 315; Retail Equity Pty Ltd and Ors v Custom Credit Corporation Ltd and Ors (1991) 4 ACSR 23; Benny and Ors v Canberra Advance Bank Limited and Anor (No. SC 796 of 1990; ACTSC; Higgins J.; 12/6/91; unreported).) This is subject to the qualification that such breach not be one which has been expressly or impliedly waived. The triviality of the alleged breach may well be indicative of implied waiver. It should also be noted that any issue as to whether, in the course of an otherwise valid appointment, a default or neglect has been committed by the Receiver causing loss to the plaintiff or any other person, is more appropriately resolved in proceedings other than the present proceedings for interim relief. It follows that I do not consider the attitude of the Receiver towards payment of 10 to 10's liquor licensing fee to be relevant to the validity of his appointment. It may have some incidental relevance to the question of insolvency and to the balance of convenience.

7. At the heart of the matter is the question as to whether the defendant was, prima facie, entitled to appoint a receiver and manager of the assets of the plaintiff. It is not contended that any power arises otherwise than from the terms of exhibit G and the associated documents exhibited in the affidavits tendered. Exhibit G is entitled "Credit Application".

8. The terms of that agreement purport to permit G and L, in the event of default in payment for goods delivered by the due date for payment, to seize any and all goods of the plaintiff on any premises it occupies, whether supplied by G and L or not, and to sell them to pay whatever is due to G and L.

9. The terms of the agreement are guaranteed by Antonio and Francesco Iannelli.

10. That document itself gives no right to G and L to appoint a receiver and manager.

11. That document was supported by a Bill of Sale dated 28 April 1989 between Antonio Iannelli and G and L. Clause 30 of that Bill of Sale does permit the appointment of a receiver and manager of any business of the "mortgagor", namely, Mr Antonio Iannelli.

12. The agreement of 15 February 1989 was, however, also supported by a "Deed of Charge". The charge created by that deed was over all the undertaking, property and assets of the plaintiff. It secured the repayment of any monies owed to G and L "for the time being". The clause is expressed in wide terms so as to cover any sum recoverable from the plaintiff by G and L.

13. Much of the "Deed of Charge" seems inappropriate to a security for a running account for the balance owing from time to time for goods sold and delivered. However, surplus or inappropriate provisions may simply be ignored. The general intent of the document is clear enough.

14. The monies secured by the Deed of Charge are, by virtue of cl.3(b), repayable on demand. No such demand is to be made,
"...unless and until the Company is in default under

the terms of the Deed annexed hereto".

15. There is, in fact, no "deed" annexed. However, the Credit Application would seem to be the document referred to.

16. In the alternative, the clause provides that monies due should also become payable

"...at the option of the Mortgagee (G and L)
...immediately without any demand or notice in each or
any of the following events".

17. Then there are enumerated 11 categories of such events.

18. One category which seems to me possibly to have application is (v). The clause has a confusing format.

(p 11) "(v) If the Company (the plaintiff) shall give
notice to any of its creditors that it has
suspended or is about to suspend payment of its
debts or shall without the consent in writing of
the Mortgagee cease or threaten to cease to carry
on its business.
(a) If a meeting of creditors of the Company be
summoned for the purpose of placing the
Company under official management and
appointing an official manager of the Company.
(b) If at a meeting of creditors of the Company
it is resolved that an official manager of
the Company or a Committee of Management be appointed.
(c) If the Company is unable to pay from its own
moneys its debts as they fall due."

19. Generally, the clause would be expected, if all five parts of it have an independent operation (and the two of them in the first part of the paragraph are alternative grounds) to be split into five parts with the use of the word "or" to indicate each situation is to have an independent operation. It is, accordingly, open to construe the clause as requiring two conditions to be fulfilled for a relevant "event" to have happened, namely, one of the two situations in the first part (that is, suspension of or threat of suspension of payment of debts or ceasing or threatening to cease carrying on business) together with one or other of the situations in the second part.

20. The only other subclause I consider could be regarded as relevant would be (ix). The "event" it describes is:-

"If the Company shall fail to observe or perform or
threaten to commit a breach of any of the covenants or
stipulations on its part herein contained or implied"

21. I think it is, however, apparent that such a general provision would be subordinated to an express provision made in respect of particular covenants or stipulations.

22. Thus cl.3(b)(ix) would not apply to a situation covered by cl.3(b) (the first alternative).

23. The power to appoint a Receiver is contained in cl.3(c). It arises in the following circumstance:

"(c) That at any time and from time to time after the
moneys hereby secured become payable to the Mortgagee
(G and L) they may appoint in writing any person to be a
Receiver of the mortgaged premises or any part thereof..."

24. The subclause enumerates various powers of such a Receiver. I do not need to detail them, they are very wide. The term Receiver is also defined to include a Receiver and Manager (cl.6(d)).

25. In June 1991, the plaintiff had been experiencing difficulty in reducing the credit terms from a temporarily permitted five weeks to the previously agreed four weeks. Mr Antonio Iannelli, for the plaintiff, attended a meeting with a Mr De Costa representing G and L. Legal advisers also attended.

26. The plaintiff agreed to try and reduce the credit terms to four weeks. On 20 June 1991, Mr Iannelli informed Mr De Costa that the plaintiff had been unsuccessful in so doing. Mr De Costa required cash for the next delivery ($36,000.00). Mr Iannelli paid $40,000.00. He agreed to pay the balance of the weekly payment ($147,000.00) in order to get further stock.

27. A bank cheque was delivered, Mr Iannelli deposed, but further stock delivery was denied except on a cash/bank cheque basis. A further cheque for $50,000.00 was assigned to G and L for further stock. Mr De Costa suggested that the business of the plaintiff be sold. Mr Iannelli agreed in principle. Some discussions followed in relation to that proposal but on 5 July 1991 at about 9.45pm the present Receiver was installed without prior notice or warning to the plaintiff or any of its representatives.

28. The plaintiff asserts that it is not insolvent, is a part of a solvent group of companies and is concerned that its business will be damaged if the Receiver continues in possession.

29. Mr De Costa, Managing Director of G and L, recounted in his affidavit of 9 July 1991 details of the blow-out of credit terms from three weeks to five weeks. Many cheques given by the plaintiff up to May 1991 had been returned unpaid although they had been replaced with bank cheques after their return was drawn to the plaintiff's attention.

30. Mr De Costa says that on 4 June 1991 cheques from the plaintiff given on that day were not met on presentation but were later substituted by bank cheques. There was an arrangement for a further $250,000.00 to be paid on 27 June 1991. It was not paid.

31. As at 5 July 1991 the sum outstanding to G and L was $752,741.00 for the Chisholm store and $85,146.00 for the Kaleen liquor store. Whether the latter debt is the responsibility of the plaintiff is, of course, in dispute.

32. On 11 July 1991, the Receiver, Mr Yeomans, expressed the opinion that the plaintiff had a deficiency of liabilities over assets of $1.721m.

33. In a subsequent affidavit, Mr De Costa denied that he had agreed with Mr Iannelli to extend any further credit or that there was any arrangement for future supplies (except for cash/bank cheques). He was aware of interested buyers of the plaintiff's business but denied that he had urged Mr Iannelli to "sell the shop". He does say, however, that he discussed that proposal on 25 June 1991 with Mr Iannelli.

34. It is clear that the reduction of $250,000.00 Mr De Costa referred to was, on his own account of it, not a promise from the plaintiff but a statement of expectation. Mr De Costa says that he promised, if the payment was made, to resume supplies of goods on credit.

35. It seems that whilst there were some overtures from others about purchase of the Chisholm store with G and L assistance by way of promises of finance or credit or both, no definite proposal was forthcoming. The Board of G and L accordingly, without further communication with the plaintiff, determined to appoint Mr Yeomans as Receiver. At that time, Mr De Costa deposed, Chisholm owed $792,041.62 and Kaleen owed $95,259.34. This figure differs from the amount previously mentioned.

36. Mr Iannelli did, in a subsequent affidavit, endeavour to explain the difficulties with cheques. He also challenged the proposition that the outstanding balance due to G and L represented a deterioration of the previous credit terms.

37. Mr Glanville, a partner of Mr Yeomans, was however, of the opinion that as at 4 July 1991, $27,610,97 was outstanding from purchases made on 16 May 1991. He also expressed the view that as at 4 July 1991 the plaintiff had exceeded seven weeks credit.

38. The oral evidence amplified Mr Iannelli's explanations for the various dishonoured cheques and the dispute concerning the arrangement for the provision of further stock. Mr Iannelli did not dispute the amounts actually debited nor the cheques dishonoured but his evidence was clearly intended to suggest that such defaults should not be accepted as proof of the insolvency of the plaintiff.

39. Mr Glanville amplified his evidence as to the financial position of the plaintiff. So also did Mr Yeomans. It is sufficient to say that the net effect of their evidence is that the plaintiff could be regarded as insolvent but not unarguably so.

40. It follows that, if it is a ground for the appointment of the Receiver that the plaintiff was unable to pay its debts as they fell due, there is evidence to support that proposition. That conclusion does not unarguably follow but it does constitute a serious issue to be tried.

41. It also follows that the plaintiff has a seriously arguable case that the allegation of insolvency is not, in fact, made out.

42. It follows from the preceding propositions that the interpretation of cl.3(b)(v) is the pressing question. It is conceded that no demand for payment was made so as to activate the first part of cl.3(b). Thus unless cl.3(b)(v) permits the appointment of the Receiver on the ground of inability to pay debts as they fall due, the defendant has no answer to the plaintiff's claim insofar as it is based on what has been described as "insolvency".

43. I point out that the appointment is not invalidated because of the dispute as to the ownership of the 10 to 10 store. It is seriously arguable that it is owned by the plaintiff. It is, conversely, seriously arguable that it is not and is the property of Mr Iannelli. Accordingly I cannot, on an interlocutory application, reject the appointment of the Receiver on that basis. It is, also, no ground for opposition to that appointment that a business not owned by the plaintiff (if that be concluded) has been included in the receivership.

44. As I have noted, cl.3(b)(v) is confusingly drafted. Indeed, it would not be too strong a view to say that it is barely literate in legal terms. It is, apparently, drafted to protect the interests of G and L. It was imposed on the plaintiff to enable the latter to secure credit for the purchase of goods from G and L.

45. If cl.3(b)(v)(c) is to be interpreted as a severable "event", it must be noted that "from its own moneys" obviously will include sources of legally available credit. I believe the subclause was intended to convey no more or less than is conveyed by the term "insolvency" as defined in Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666. On that question, as I have said, there is a serious issue to be tried.

46. A question of construction, even if it is of an obscurely worded provision, is one suitable to be determined on an interlocutory application. (See, for example, Andjelkovic v AFG Insurances Ltd (1982) 49 ALR 245; affg [1981] FCA 104; (1981) 54 FLR 398; revd (1980) 31 ACTR 17.)

47. Each of the alternatives in cl.3(b)(v) preceding (a), (b) and (c) thereof is an event which would usually precede and warrant the further events designated as (a), (b) and (c). It therefore seems to me that an "event" within the meaning of clause 3(b)(v) does require the happening of one or more of the introductory "events" as well as one or more of the consequential events (a), (b) or (c).

48. There is no evidence that, at 5 July 1991, any of the introductory events had happened.

49. However, G and L submits that there are other grounds than cl.3(b)(v) or (ix) upon which it is entitled to rely.

50. I will turn now to consider those alleged grounds.

51. Cl.2(a) - This is an obligation to pay the sums due to the defendant in accordance with the Deed.

52. Of course, there is prima facie evidence that the plaintiff failed to pay sums due to the defendant (G and L). However, that breach is specifically provided for by cl.3(b) (preamble). A default "event" occurs only once the demand therein referred to has been made. That was not done.

53. It follows that cl.2(a) cannot be called in aid by G and L.

54. Cl. 2(c) - This relies on an alleged failure to pay all rents as they fall due.

55. Mr John Bradley deposed that on 3 April 1991 he wrote to the plaintiff demanding arrears of rental for Chisholm Developments Pty Limited, the landlord of the Chisholm Supa Barn. The amount demanded was $40,243.25. The rent cheque for March 1991 had been returned unpaid.

56. Mr Iannelli agreed that the rent was paid late. It was, however, paid. The circumstances are particularly set out in Mr Freeman's affidavit of 25 July 1991. There is no complaint that, as at 5 July 1991, there were any arrears of rent.

57. In my opinion, the breach of cl.2(c) would warrant action under cl.3 if, and only if, there was an existing breach not remedied at the date of the appointment of the Receiver. The reason for this is obvious. There may be numerous reasons for late payment of rent. The real purpose of cl.2(c) is to enable the Mortgagee (G and L) to intervene to protect its security before the landlord can lawfully forfeit the lease. Plainly, if the plaintiff had remedied the breach, that risk would no longer exist.

58. I do not think the alleged breach of cl.2(c) assists G and L.

59. Cl.2(v) - This is a covenant to -

"...not at any time during the continuance of this
security (the Deed of Charge) execute or create any ...
charge ... over ... the ... premises ... without the
previous consent in writing of the (defendant)."

60. There is in evidence a Charge (CL 20125 - exhibit F) dated 16 November 1990. Mr Iannelli says that he had applied for a loan on the security of his farm property. He was unaware of the fact that one of the documents he signed was a charge over the undertaking property and assets of the plaintiff. He agrees that he did not get the prior consent in writing of G and L.

61. It is contended by the plaintiff, however, that G and L did not exercise the option to appoint a Receiver by reason of the existence of the Charge in favour of the National Australia Bank Limited.

62. However, as I have already noted, it is open to the holder of a security containing an option to appoint a Receiver to exercise that option without specifying or being aware of any ground for doing so. If later it appears there was such a ground, even if the holder of the security did not purport to rely on it, the appointment may thereby be supported.

63. Of course, a failure to cite and rely upon a ground known to exist at the date of appointment could well evidence waiver. There is, however, no such evidence here.

64. Accordingly, it seems to me that, prima facie, the existence of the charge of 16 November 1990 is a contravention of cl.2(v) which would allow the appointment of the Receiver to be supported under cl.3(b)(ix).

65. It follows that, arguably, the Receiver's appointment is valid. I must therefore, consider the balance of convenience.
Balance of Convenience

66. The plaintiff asserts that the businesses of Chisholm Supa Barn and Kaleen 10 to 10 store are likely to be damaged if the receivership continues. There is no evidence that the Receiver has, in fact, conducted the businesses in a negligent or damaging manner with one possible exception to which I will refer.

67. There is evidence, which is accepted as common ground, that prior to the appointment, the plaintiff had been attempting to sell the Chisholm business.

68. There is prima facie evidence that "10 to 10" Kaleen is part of the assets etc. of the plaintiff as I have previously noted. However, there was an issue raised as to whether the Receiver had caused loss to that business by not paying a relevant liquor licence fee. This failure and correspondence in connection with it was said to be "high handed" and an attempt to get Iannelli to concede that the business was part of the plaintiff's undertaking.

69. Insofar as that contention relates to the present issue, it may be noted that the Receiver has to elect whether or not to act as if the receivership is valid. He cannot hedge his bets as he has thus apparently sought to do. It is, of course, by no means improper for him to attempt to do so if he can unless it prejudices the value of the asset in question. If it does so, in my view, it will be no answer to point to Mr Iannelli's contention that "10 to 10" is his, not the plaintiff's property. The Receiver, and those liable to indemnify him must take the risk of that issue being decided ultimately in favour of Mr Iannelli.

70. It seems to me that the balance of convenience favours the continuation of the conduct of each business by the Receiver. If it be shown that the appointment of the Receiver was not valid or that the Receiver has caused any loss or damage, the award of damages will be, I think, an appropriate remedy.

71. I refuse the plaintiff's application for interlocutory relief.

72. I will hear the parties as to costs.