Re Mooloolaba Development Corporation Limited (Receiver and Manager Appointed) Anduser Kaf Pty Ltd v Evans Harch Constructions Pty Ltd [1992] FCA 8; (1992) 33 FCR 524 (10 January 1992)

FEDERAL COURT OF AUSTRALIA

Re: MOOLOOLABA DEVELOPMENT CORPORATION LIMITED (RECEIVER AND MANAGER
APPOINTED) andUSER KAF PTY. LTD.
And: EVANS HARCH CONSTRUCTIONS PTY. LTD.
No. Q G178 of 1991
FED No. 18
Interlocutory Injunction
[1992] FCA 8; (1992) 33 FCR 524

COURT

IN THE FEDERAL COURT OF AUSTRALIA
DISTRICT REGISTRY
GENERAL DIVISION
Drummond J.(1)

CATCHWORDS

Interlocutory Injunction - Restraining petition for winding up - applicant insolvent - whether bona fide dispute as to judgment debt in respect of which petition threatened.

Avery v Worldwide Testing Services Pty Ltd (1990) 2 ACSR 834

Contractor Services Pty Ltd and Ors v Esanda Finance Corporation Ltd. and Ors. (1990) ATPR 41-020

General Welding and Construction Co. (Qld.) Pty Ltd v International Rigging (Aust) Pty Ltd (1983) 2 Qd R 568

Mine EXC Pty Ltd v Henderson Drilling Services Pty Ltd (1989) 1 ACSR 118

Re Mosbert Finance (Australia) Pty. Ltd. (1976) 2 ACLR 5

HEARING

BRISBANE
10:1:1992

Counsel for the applicants: Mr P.R. Dutney QC

Solicitors for the applicants: Walker Smith and Breen

Counsel for the respondent: Mr D.A. Savage

Solicitors for the respondent: Corrs Chambers Westgarth

ORDER

The application is dismissed.

The applicants pay the respondent's costs of and incidental to the application.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

Mooloolaba Development Corporation Limited ("Mooloolaba") and a related company, User Kaf Pty. Ltd. ("User Kaf"), have commenced an action for an injunction restraining the respondent, Evans Harch Constructions Pty. Ltd. from commencing or prosecuting any application to wind up Mooloolaba until the determination of a particular Supreme Court action in respect of which there is an appeal pending. They now seek an interlocutory injunction for the same relief, pending the trial of the action. One applicant may be entitled to interlocutory relief and the other applicant not. However, if either is entitled to it, that will serve the purposes of both, but it is necessary to look at the position of each applicant in turn, to determine whether it is entitled to the relief now claimed.

2. I will consider the position of Mooloolaba first. The respondent, Evans Harch, originally claimed $156,966.46. This is the amount of the final progress certificate issued by Mooloolaba's superintendent under a contract for the construction of wharf facilities for a joint venture comprising Mooloolaba and another company, Nessale Pty. Ltd.. The work has long been complete. The certificate is dated 14 August, 1989 and became payable at the end of August in that year. After initially seeking payment, the respondent desisted for a time. It was engaged by User Kaf to carry out building works on the Underwater World project under another contract between User Kaf and the respondent, made in July 1990. According to exhibit 6, which is a copy of a plaint issued earlier this week by the respondent against User Kaf, practical completion of that contract was achieved in December 1990. There followed a 12 months defect liability period and disputes arose after December 1990 between the respondent and User Kaf in relation to defects.

3. In July 1991, the respondent's solicitors made demand on Mooloolaba for payment of the $156,966.46 in respect of the progress certificate of August 1989 and for the interest thereon, said to be calculated in accordance with the Wharf Facility contract. There is no material before me to indicate what if any response Mooloolaba made to this demand.

4. On 7 November, 1991, in an action in the Supreme Court commenced at the end of September last, Master White gave summary judgment against Mooloolaba for the amount of this progress certificate, together with interest totalling $41,490.75. Mooloolaba apparently sought to resist this judgment on the basis of an interpretation point it raised in relation to the Wharf Facility contract. On 12 November, 1991 Mooloolaba filed an appeal from this decision. In the Supreme Court, on 3 December, 1991 Dowsett J. dismissed Mooloolaba's appeal and refused to give the leave necessary to allow Mooloolaba to appeal this dismissal to the Full Court.

5. At the commencement of the hearing of the appeal to Dowsett J., Mooloolaba sought to rely on material not put before the Master, namely an affidavit by Mr William Murphy, the principal director of both Mooloolaba and User Kaf.

6. This affidavit was only sworn on 2 December, 1991. In it Mr Murphy deposed to matters, which are repeated in paragraphs 10, 11, 12, and 13 of his later affidavit filed in the proceedings in this Court:
"10. In late 1989 I had discussions with Mr Pat Evans and

Mr Trevor Harch, directors of the plaintiff,
concerning payment of the moneys the subject of the
plaintiff's claim. I explained to them that MDC was
caught up in litigation with its joint venture
partner, Nessale, and this had the effect that the
joint venture was not able to pay out moneys to the
plaintiff until the resolution of the dispute which
was expected to be a lengthy dispute. Both Mr Evans
and Mr Harch stated that they were prepared to wait
for payment of the moneys until such time as a
resolution of the dispute could be achieved.
11. In or about May 1990, I had a meeting with Mr Pat
Evans and Mr Trevor Harch at the Centre Management
Office at The Wharf, Mooloolaba. The purpose of the
meeting was to discuss the awarding of a contract for
the construction of the Stage 2 extensions at the
Underwater World project being an Oceanarium situated
at Parkyn Parade, Mooloolaba in the State of
Queensland. I explained to Mr Evans and Mr Harch that
the dispute with Nessale was continuing and this meant
that the joint venture was unable to pay the moneys
claimed by the Plaintiff. I stated to both Mr Evans
and Mr Harch that User Kaf was prepared to award the
Plaintiff the contract for the Stage 2 extensions to
Underwater World ("the Stage 2 contract"), without the
contract going out to tender, because the Plaintiff
was prepared to wait for the resolution of the Nessale
dispute and not take any action against either the
joint venture or MDC. Trevor Harch replied that they
very much appreciated that as the Plaintiff was
looking for work and since the Murphys were doing the
right thing by them in giving them the contract he
said they were prepared not to take any action against
MDC or the joint venture. Mr Harch further said that
he accepted this arrangement as long as I agreed that
once the Nessale dispute was resolved we would look at
the debt owing to them (the Plaintiff) on the Wharf
project and see if there was some way we would reach a
resolution or come to some compromise. I agreed and
said that once the Nessale dispute was ultimately
resolved we would sit down and work out some form of
compromise or resolution on the outstanding moneys
owing on The Wharf. Mr Evans stated that he agreed
with the above arrangement.
12. During the course of the discussions referred to in
paragraph 11 above I was acting in my capacity as
Director of both MDC and User Kaf and as Managing
Director of Murphy Corp.
13. It was on the basis of the Plaintiff's undertaking not
to take any action against either the joint venture or
MDC that User Kaf entered into the Stage 2 contract
with the Plaintiff."

7. If accepted, Mr Murphy's account may provide a basis for a finding that nothing is yet due to the respondent with respect to the progress certificate of August 1989, since the dispute between Mooloolaba and Nessale has only reached the stage where Mooloolaba has an as yet unlisted and unheard appeal against the judgment obtained by Nessale in July 1990 in the Supreme Court litigation against it, which arose out of the dispute between them.

8. While it is common ground that there were discussions between the parties from time to time concerning Mooloolaba's difficulties in paying the certificate because of the falling out between the joint venture parties, Mr Murphy's account of an agreement supported by consideration or a representation by the respondent as to its willingness to defer payment with respect to the progress certificate is disputed by the respondent. See exhibit 5, the affidavit sworn by the respondent's principal, Mr Evans, for use before Dowsett J., which became unnecessary for the respondent to rely upon there. As appears from exhibit 5, on 8 June, 1990, which, according to Mr Murphy's affidavit, was a few weeks after the deferral agreement had been made, Mr Evans wrote to the parent company of Mooloolaba and User Kaf to inquire when it could expect payment of the progress certificate.

9. Mr William Murphy replied the next day in an important letter, which is identified as exhibit S, to Mr Evans' affidavit. Mr Evans' affidavit was not used before Dowsett J. because his Honour initially said that no explanation was given for Mooloolaba's failure to raise in the proceedings before the Master the deferral agreement or the collateral contract, as he termed it, deposed to by Mr Murphy. His Honour therefore exercised his discretion against allowing Mr Murphy's affidavit to be read. When the hearing before his Honour resumed that same afternoon, Mooloolaba sought leave to read short affidavits by Mr Murphy, and his solicitor, Mr Mulcahy, designed to provide the explanation lacking when the matter was first heard. Copies of these affidavits were tendered before me and marked exhibits 3 and 4 respectively. Mr Murphy, in this affidavit, says that at a time, which appears to be about three weeks or so after Mr Mulcahy told Mr Murphy that the respondent had obtained judgment from Master White, and at a time when Mr Mulcahy was preparing Mooloolaba's appeal to Dowsett J. from that judgment, Mr Mulcahy telephoned and asked Mr Murphy why the respondent had held off so long from suing on the progress certificate, whereupon Mr Murphy mentioned for the first time that, and I quote:

"I had an agreement with Mr Evans and Mr Harch whereby they
(the plaintiff) would not pursue the moneys claimed in the
certificate until the dispute with Nessale had been resolved."

10. Mr Mulcahy, in his affidavit, gives a different account. He says that when in late November he rang to tell Mr Murphy that the appeal from the Master would be heard on 3 December, and I will quote from his affidavit:

"Mr Murphy asked me why the plaintiff was entitled to the
judgment when Mr Evans and Mr Harch had agreed not to sue
for the moneys owing under the contract."

11. Dowsett J. said, correctly I think, that neither affidavit really addressed the question why the collateral contract issue, as he called it, was not raised before the Master. He concluded that these affidavits did not affect his decision to dismiss Mooloolaba's appeal.

12. It is not for me to make any finding in these proceedings, on whether Mr Murphy's account should be accepted. I have only to determine whether there is a serious case to be tried and whether the balance of convenience lies in favour of granting the interlocutory injunction sought. These two tests are not independent of each other. In Contractor Services Pty. Ltd. and Ors. v Esanda Finance Corporation Ltd. and Ors. (1990) ATPR 41-020 at page 51,355, French J. said, after referring to the test:

"There is a relationship between those two factors. They
are not entirely independent. Where there is not a strong
case demonstrated, a marked balance of convenience in favour
of the restraint is necessary before the Court will make the
order sought."

13. To the passage just quoted his Honour added the following caveat:

"It is necessary, in that context, to add the caveat that
any comments made here about the strength of the respective
cases are purely provisional. Interlocutory injunctions are
frequently decided upon incomplete evidence, and sometimes
upon evidence which would not be admitted at trial or which
has not been properly and fully tested."

14. There is another reason why it is appropriate here to undertake the exercise of assessing, in a necessarily provisional way, the quality of Mooloolaba's case. It is seeking to restrain presentation of a winding up petition by the respondent, foreshadowed by the respondent's notice of demand issued under s.460 of the Corporations Law and served on Mooloolaba on 19 November, 1991. The notice calls for payment of the debt the subject of Master White's judgment. The core of Mooloolaba's claim to the interlocutory injunction is that, despite the judgment, there is a substantial and bona fide dispute as to the enforceability of the debt on which the judgment was wrongly, it says, given.

15. Where such an issue arises, the proper approach for the Court to take is that set out in the Full Court decision in Western Australia in Avery v Worldwide Testing Services Pty. Ltd. (1990) 2 ACSR 834. At page 841 Seaman J., who gave the judgment of the Court, quoting from an earlier decision of Gibbs J., said:

"... A debt is not bona fide disputed simply because the
respondent ... says that it is disputed. The court hearing the

petition
(or the application for the injunction to restrain presentation of a petition, I interpolate,)

can go into evidence to consider whether or not the dispute
is bona fide, i.e., whether the claim is disputed on some
substantial ground: Re Welsh Brick Industries Ltd. (1946) 2
All ER 197. ... In every case it becomes necessary for
the court to exercise its discretion as to how far it will
allow the question whether or not the dispute is bona fide
to be explored."

16. Extensive evidence has been put before me, and I am in a position to make a provisional assessment of the strength of the case Mooloolaba seeks to make out in disputing the debt, on the basis of what Mr William Murphy says about the agreement or arrangement reached in May 1990. I propose to undertake that exercise.

17. Mooloolaba's prospects of establishing this agreement or arrangement cannot be said to be strong, in my view, for a number of reasons.

18. Firstly, there is the absence of any suggestion of the existence of such an agreement in Mr Murphy's reply of 9 June, 1990 to Mr Evans' request for advice as to when payment of the certificate could be expected, to which reply I have already referred.

19. Secondly, there is the fact that the first mention of the existence of this agreement or arrangement was made by Mr Murphy in his conversation with Mr Mulcahy in late November 1991, although he and Mr Mulcahy depose in their affidavits, both dated 3 December, 1991, to discussions in late October and early November 1991 concerning how Mooloolaba might defend the respondent's then pending application for summary judgment, which ultimately came before Master White on 7 November, 1991.

20. Thirdly, there is the fact that it is Mr Murphy's clear understanding that the effect of the quite simple agreement or arrangement he relies on and which is set out in his affidavit sworn 2 December, 1991 is to present a bar to the respondent suing on the certificate until the dispute with Nessale is resolved.

21. Fourthly, there is the fact that Mr Murphy is a man of some considerable business experience. He is the managing director of Murphy Corporation Ltd. and the principal director of both Mooloolaba and User Kaf.

22. Fifthly, there is the fact that according to Mr Murphy in his affidavit filed here, the discussion he said he had in May 1990 with the respondent was no mere casual talk but a very detailed discussion.

23. Sixthly, there is the further fact that according to Mr Murphy in his affidavit filed here the agreement or arrangement of May 1990 was raised on three subsequent occasions when, at a "Topping Off ceremony" in October or November 1990, then at the official opening of the Underwater World project and again in or about September 1991, both Mr Evans and Mr Harch inquired of him as to the progress of the Mooloolaba - Nessale litigation. The last inquiry was made not long before the time that Mr Murphy and Mr Mulcahy discussed how Mooloolaba might defend the respondent's application for summary judgment.

24. Seventhly, there is the absence of any explanation, even after opportunity had been given by Dowsett J., for why there had been no mention of this agreement or arrangement before Master White.

25. Eighthly, there is the fact that despite all this, Mr Murphy still does not put forward any explanation for why mention by him of the existence of this agreement or arrangement was first made in a form that can be confirmed only in his affidavit of 2 December, 1991 in the Supreme Court proceedings. Mooloolaba's counsel suggested that Mr Murphy did not think it amounted to a defence at the time and pointed out that "he was, of course, a layman". I must say that that is not a particularly persuasive explanation for the delay given what Mr Murphy has to say about his clear understanding of the effect of this simple agreement and the other matters I have referred to. In any event, there is no evidence from Mr Murphy to that effect.

26. The principals of the respondent, Messrs Evans and Harch, both deny Mr Murphy's evidence that they made an oral agreement or arrangement with him not to sue on the certificate until the dispute with Nessale was resolved. That appears from their affidavits sworn in the Supreme Court action (but not actually filed) which are exhibits "KDB4" and "KDB5" to Ms Broadfoot's affidavit sworn on 9 January, 1992 and filed before me, as well as from Mr Evans' affidavit, which is exhibit 5 here, to which I have already referred.

27. I should say that there is a less than complete explanation in the material before me for why the respondent waited so long to insist on payment of the progress certificate due in August 1989. The fact that the respondent was, due to the Underwater World contract, in a continuing and no doubt beneficial commercial relationship with a member of the Murphy group of companies, at least to the end of 1990, (which relationship seems to have commenced when it was awarded the Wharf Facility contract from another member of that group), may go to explain a significant part of this delay on the part of the respondent. That, however, is the one substantial point in Mooloolaba's favour and the fact which induces me to hold that Mr Murphy in his affidavit of 2 December, 1991 does raise on behalf of Mooloolaba a case to be tried.

28. I give full weight to French's J. caveat in the Contractor Services case, but nevertheless feel able to conclude that Mooloolaba's case, dependent as it is upon Mr Murphy's evidence of this oral agreement or arrangement, is not a strong one.

29. If its appeal against Dowsett's J. order of 3 December, 1991 succeeds, that can at most procure only further time for Mooloolaba. The full amount of the progress certificate and interest is incontestably due to the respondent. The only issue raised by Mooloolaba is whether the time for payment has yet arrived.

30. The respondent, therefore, incontestably has standing to petition for Mooloolaba's winding up. It is, even on Mooloolaba's own case, a contingent creditor for the purposes of s.462(2)(b) of the Corporations Law.

31. Mr Dutney QC, senior counsel for the applicants, submitted that where a claim has resulted in a judgment, but that judgment is under appeal and the court is of the view that there is some substance in the appeal, that in itself, in an appropriate case, is enough to constitute a genuine dispute as to the debt.

32. In Re Mosbert Finance (Australia) Pty. Ltd. (1976) 2 ACLR 5, the Chief Justice of Western Australia adjourned a petition where there was a dispute as to whether the petitioner was a creditor, even though the petition was based on a judgment debt. However, there was no discussion as to whether there was in fact jurisdiction to go behind a judgment in such circumstances. The case of Re Derrygarrif Investments Pty. Ltd. (1982) 1 ACLC 558, a decision of Dunn J. in the Supreme Court of Queensland does not, I think, really support Mr Dutney's submission: see particularly page 561. The only other case cited on the point was a decision of Nicholson J. in Re Gasbourne Pty. Ltd. and Ors. (1984) VR 801 which does provide support for the proposition: see particularly pages 854-855.

33. Even if the jurisdiction exists, a question which I think it is unnecessary for me to determine in these interlocutory proceedings, Re Mosbert confirms that the consideration which must always be of critical importance is whether the debt on which the judgment under appeal is based, is shown to be disputed on substantial grounds. At page 6 of the report, the Chief Justice said:

"It seems to me here that there are two considerations which
point in favour of a temporary adjournment of the further
hearing of this petition. The first is that the company
through one of its directors has actively deposed to the
fact that the company disputes that the petitioner is a
creditor, actual, contingent, or prospective; and in support
of that contention, the company has obtained leave to appeal
and has lodged an appeal, ... The second consideration is
that after I adjourned the petition last week for seven
days, the company was able to procure from the judge who
gave the judgment in favour of the petitioning creditor, a
stay of proceedings pending the appeal.
Now, it has not been possible for me merely on the
affidavits to assess the strengths or real merits of the
company's appeal but the grounds of appeal have clearly been
drawn with care and consideration, not in any way
frivolously based; and the fact that the primary judge who
heard the application for summary judgment was disposed to
grant the stay of proceedings does lead to a reasonable
inference that he, himself, was prepared to concede that
there was an arguable case upon the appeal.
These considerations, I think, point strongly in favour of
not making an immediate winding up order."

34. Those comments are, I think, equally applicable to proceedings of the present kind. The circumstances in Re Mosbert can be seen to be quite different from those here. It is common ground here, in contrast to the situation in Re Mosbert, that the respondent is a creditor of Mooloolaba. It remains only to mention that Mooloolaba was unable to obtain a stay of the Supreme Court proceedings, other than a stay on the condition that Mooloolaba pay into court the whole amount of the judgment by 4 p.m. on Thursday, 9 January last.

35. The stay application was only brought before Dowsett J. on Wednesday, 8 January last. Yesterday, in the course of argument, counsel for Mooloolaba told me that his current instructions were that it was unlikely that this condition would be met.

36. Mr Dutney also submitted that this was a clear case for going behind the judgment, because the judgment was entered after there had been a refusal of leave to present evidence which established a defence. But that is not, I think, a fair statement of what took place before Dowsett J. His Honour, I think, ultimately declined to place any reliance on Mr Murphy's affidavit of the deferral agreement, essentially because of its insubstantial force exposed by Mooloolaba's failure, despite opportunity given to it, to explain its very belated emergence.

37. Mooloolaba did not attempt to establish that it was solvent. The evidence before me suggests it is not. In contrast, I mention that User Kaf's solvency was expressly deposed to in paragraph 9 of Mr Walker's affidavit filed before me on 19 December, 1991. The inference can therefore safely be drawn that Mooloolaba is insolvent. Mr Dutney, however, submitted that Mooloolaba was entitled to the injunction even though it made no attempt to demonstrate its solvency. He submitted that the Western Australian cases of Mine EXC Pty. Ltd. v Henderson Drilling Services Pty. Ltd. (1989) 1 ACSR 118 and Avery v Worldwide Testing Services Pty. Ltd., supra, should be preferred to the Queensland authorities, culminating in the decision of General Welding and Construction Co. (Qld.) Pty. Ltd. v International Rigging (Aust) Pty. Ltd. (1983) 2 Qd R 568. That was a decision of McPherson J. in which, at page 569, he said:

The jurisdiction to restrain prosecution of a winding up
petition by a creditor whose debt is disputed by the company
is well established. The first requirement is that the debt
on which the petition is founded must be shown to be
genuinely disputed on substantial grounds. The second is
that there should be evidence that the company is solvent;
..."

38. As to that second requirement for jurisdiction, as McPherson J. put it, his Honour, at page 570, said:

"The second of the two requirements referred to above has
also attracted conflicting judicial conclusions. In Mann v
Goldstein (1968) 1 WLR 1091, it was held that a petition
on a disputed demand would be restrained even though the
company was shown to be insolvent. But with respect Lucas J.
was surely correct in Community Development Pty. Ltd. v
Engwirda Construction Company (1968) Qd R 541, 547, when he
said that the basis of the jurisdiction to restrain a
petition founded on a disputed debt is the injury which may
be done to a solvent company. An insolvent company has no
trading reputation or commercial credit capable of amounting
to an interest which the law either will or ought to protect
by interposition of an injunction. Insolvent companies
ordinarily suffer, and certainly deserve, their appointed
fate of being wound up unless they are fortunate enough to
pass under a scheme of arrangement."

39. The difference between the two lines of authority is not, I think, likely in practical effect to be very great but, as presently advised, I prefer the more flexible approach taken in Western Australia and in the United Kingdom, which makes the existence or absence of proof of solvency in proceedings for an injunction to restrain presentation of a petition, a powerful discretionary consideration for or against the grant of that relief, rather than a condition of jurisdiction to grant the relief.

40. I will therefore follow Ipp J. in the Western Australian decision of Mine EXC Pty. Ltd. v Henderson Drilling Services Pty. Ltd., supra, where, at pages 120-121, his Honour said:

"In my opinion, the court's jurisdiction to grant an
injunction is not conditioned upon proof of the plaintiff's
solvency. The standing of a company to restrain a creditor
from proceeding with winding up is established upon proof
that the creditor's claim is genuinely disputed on
substantial grounds. However, that standing, alone, is not
sufficient to entitle the company to relief. The ordinary
elements of an injunction must be established. One of those
elements is, of course, that irreparable damage, or at least
significant and substantial damage (see Fortuna Holdings v
Deputy Commissioner of Taxation (1978) VR 83 at 108) must
be shown to be the likely consequence of the mere
presentation or advertisement of the petition. For the
reasons expressed in General Welding and Construction (Qld)
Pty. Ltd., supra, it is unlikely that the likelihood of the
requisite degree of damage will be able to be established by
an insolvent company.
The element of solvency is also a relevant factor in
determining whether a debt is genuinely disputed. A court
would more readily conclude that the dispute is bona fide
when it is shown that the plaintiff is manifestly solvent
than would otherwise be the case."

41. I do not think Mooloolaba is entitled to the injunction sought for the following reasons.

42. It is not disputed that the respondent has standing to petition for the winding up of Mooloolaba: the respondent is at least a contingent creditor, on Mooloolaba's own case.

43. Even if there is jurisdiction to go behind the Supreme Court judgment given in proceedings which Mooloolaba contested, the extensive material before me, which includes evidence that a conditional stay has been granted but which condition, on the information before me is not likely to be met, reveals that Mooloolaba's case that the debt owing to the respondent, which has now merged in the Supreme Court judgment, is not presently due, is not a strong one.

44. Accordingly, a marked balance of convenience in favour of the restraint sought must be shown to exist before the injunction will be granted.

45. However, no attempt was made by Mooloolaba to point to considerations which markedly bring the balance down in its favour. The contrary is, I think, the case. The inference is that Mooloolaba is insolvent. There is no material relied on by Mooloolaba which shows that, if the injunction does not issue, it will suffer any damage from presentation of a winding up petition beyond the damage which such a step will inevitably cause an insolvent company to suffer, let alone material pointing to a detriment so serious as to markedly sway the balance of convenience in favour of the grant of the injunction.

46. I will now move on to User Kaf's position. There is no suggestion that the respondent is in a position to wind up User Kaf, and the evidence shows that User Kaf is solvent. Its claim, however, is based on exactly the same agreement or arrangement that Mr William Murphy says was reached with the respondent in May 1990, upon which Mooloolaba relies in its own turn. Many of the comments I have already made in relation to the evidence concerning that agreement or arrangement are equally applicable to User Kaf's position, so far as its claim for interlocutory relief is concerned.

47. User Kaf asserts that it is either a party to the binding agreement with the respondent reached in May 1990 and that the respondent is in breach of this agreement with User Kaf by continuing to pursue recovery action against Mooloolaba or, alternatively, that, if User Kaf is not a party to the binding agreement, it is entitled to the benefit of that agreement, by force of s.55 of the Property Law Act 1974 (Qld.) and can sue on it in its own right. User Kaf also relies on a third basis, that is, that the actions of the respondent's representatives at the meeting of May 1990 give rise to a claim by User Kaf against the respondent in respect of a breach of s.52 of the Trade Practices Act 1974 (Cth). I should mention that the claim that User Kaf was itself a party to a binding agreement is founded upon what Mr Murphy says in paragraph 12 of his affidavit filed here, that is, that when he had these discussions with the respondent's representatives, he was acting on behalf of both User Kaf and Mooloolaba and also in his capacity as Managing Director of the parent company, Murphy Corporation Limited.

48. It is not now necessary to express any view on the legal validity of these propositions if they can be made good. It is enough to assume that, if any of these contentions can be established on the evidence, User Kaf will have a good claim in law and would be entitled to appropriate relief. It is further submitted on behalf of User Kaf that only an injunction to restrain presentation of the petition against Mooloolaba is an adequate remedy for the respondent's breach of its contract with User Kaf or for the respondent's misleading conduct towards User Kaf.

49. The question for me is whether User Kaf has made out a claim for relief on an interlocutory basis. Mr Dutney submits that, if a petition is presented against Mooloolaba, the consequences will be, to use his words, "catastrophic for User Kaf". The evidence shows that under the mortgage User Kaf granted to Bill Acceptance Corporation Limited which secures borrowings by User Kaf of $15,000,000, User Kaf will, at the option of the mortgagee, immediately be in default under clause 3.01(p) of the mortgage deed if an application for winding up is made in relation to a corporation related to User Kaf. Mooloolaba is, of course, such a corporation.

50. In such event, the mortgagee, if it chose to do so, would be entitled to exercise its various default rights against User Kaf which are set out in clause 3.02 of the mortgage deed. However, apart from Mr Murphy's short statement in paragraph 28 of his affidavit filed here, which says:

"Should the Mortgagee exercise his rights contained in the
deeds substantial hardship will be caused to the Second
Applicant (that is, User Kaf) and its associated activities"

User Kaf has not put any evidence before me relevant to the likelihood that, if a petition is presented against Mooloolaba, the mortgagee would invoke any of its default rights against User Kaf or put any pressure at all on User Kaf. Nor has User Kaf put any evidence before this Court as to what its position would be likely to be, in terms of financial difficulty, if the mortgagee in that event, were to invoke any one of its default powers against it, or to put any other form of commercial pressure on it. User Kaf, instead, relies on submissions by its counsel that a corporate armageddon would overwhelm User Kaf.

51. I have already said that the case based on the existence of an oral agreement or arrangement for the respondent to defer calling up the progress certificate is not a strong one. If User Kaf is to get an interlocutory injunction it must be able to show that the balance of convenience comes down markedly in favour of the grant of that relief.

52. Little, if any, detriment will flow to the respondent if the interlocutory injunction is granted, especially since it will have an undertaking as to damages from User Kaf, a company that is solvent and has assets sworn to amount to $30,000,000 with identified liabilities of only $15,000,000.

53. But I am not prepared to find in the circumstances of this case that the necessary detriment may fall on User Kaf if its claim is rejected. I adopt that approach because there is a paucity of evidence coming from User Kaf as to what, if any, detriment it will suffer if relief is refused now. If User Kaf were really likely to experience catastrophic consequences, or even less severe but still damaging consequences, from the issue of a petition against Mooloolaba, there is no reason why such evidence should not have been forthcoming from User Kaf.

54. It is true that presentation of a petition against Mooloolaba will put User Kaf in default under its mortgage, although that will be so only at the election of the mortgagee. But the appointment of a receiver and manager to any part of Mooloolaba's undertakings would also put User Kaf in default, again only at the election of the mortgagee. That follows from clauses 3.01(c) and (p) of the mortgage deed. Just such an appointment occurred on 19 July, 1991, with respect to 60% of Mooloolaba's interest in its joint venture with Nessale. See exhibit "KDB11" to Ms Broadfoot's affidavit. There is no suggestion that that event caused the mortgagee to become nervous to the slightest degree about the security of its position under its mortgage from User Kaf, let alone that it considered putting User Kaf into default under that mortgage.

55. It is true, as the exhibit shows, that Mooloolaba's receiver and manager was not appointed on the usual ground, even though Mooloolaba is insolvent, and it is also true that Mooloolaba remains in management control of the joint venture assets. But if the mortgagee had felt any concern for its security with User Kaf, it is to be expected that it would have taken some action to express concern to User Kaf at the very least, if not to elect to move against User Kaf, on the default created by the appointment of the receiver and manager of part of Mooloolaba's undertaking. Yet there is an evidentiary silence on User Kaf's side as to the likely impact of presentation of a petition against Mooloolaba, on User Kaf's relationship with its mortgagee. The only submission from its counsel is that the petition will have catastrophic consequences.

56. User Kaf is bound to give the mortgagee notice of any event that can amount to a default. (See clause 2.20(j) of the mortgage deed.) The inference is that the mortgagee was content to ignore the appointment of Mooloolaba's receiver and manager and content that its mortgage debt was well secured by User Kaf's assets, now said to amount to $30,000,000.

57. Given all this, and given the evidence as to User Kaf's solvency, I am not prepared to infer that presentation of a petition against Mooloolaba will cause any problems for User Kaf in respect of its mortgage, in the absence of evidence touching on the likelihood of such problems arising.

58. It was submitted on behalf of User Kaf that, if I refused relief to Mooloolaba and to User Kaf, the latter would be forced to meet the condition imposed by Dowsett J. on the grant of a stay of execution of the judgment against Mooloolaba. This would be wrong, so it was said, because User Kaf, who relevantly owes nothing to the respondent, would be forced to give security to the respondent for its claims against Mooloolaba although the respondent is not entitled, on any ground enforceable by it against Mooloolaba, to such security, and also wrong because Mooloolaba is an insolvent company.

59. But this submission is based on the assumption that User Kaf will have no practical commercial option than to do this if relief is refused here. No evidence was tendered to show this to be a possibility. I have been prepared to infer that the contrary is the position, insofar as the submission relies on the proposition that a petition against Mooloolaba would cause great harm to User Kaf in its relationship with its mortgagee. I do not therefore think User Kaf is entitled to the relief claimed.

60. I propose therefore to dismiss the application.