Geographe Point Pty Ltd v Hughes [2004] FCA 729 (17 May 2004)

FEDERAL COURT OF AUSTRALIA
Geographe Point Pty Ltd v Hughes [2004] FCA 729

GEOGRAPHE POINT PTY LTD v BRYAN KEVIN HUGHES,
CHRISTOPHER MUNDAY and ONYX (WA) PTY LTD
W92 of 2004

CARR J
17 MAY 2004
SYDNEY (by videolink to Perth)

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W92 OF 2004

BETWEEN:	GEOGRAPHE POINT PTY LTD APPLICANT
AND:	BRYAN KEVIN HUGHES & CHRISTOPHER MUNDAY FIRST RESPONDENTS ONYX (WA) PTY LTD (ACN 066 277 521) SECOND RESPONDENT
JUDGE:	CARR J
DATE OF ORDER:	17 MAY 2004
WHERE MADE:	SYDNEY (by videolink to Perth)

THE COURT ORDERS THAT:

1. The applicant’s motion, filed on 12 May 2004, be dismissed.

2. Costs of the motion be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W92 OF 2004

BETWEEN:	GEOGRAPHE POINT PTY LTD APPLICANT
AND:	BRYAN KEVIN HUGHES & CHRISTOPHER MUNDAY FIRST RESPONDENTS ONYX (WA) PTY LTD (ACN 066 277 521) SECOND RESPONDENT

JUDGE:	CARR J
DATE:	17 MAY 2004
PLACE:	SYDNEY (by videolink to Perth)

1 This is a motion for the grant of an interlocutory injunction restraining the first respondents from exercising or purporting to exercise any power as receivers and managers of the applicant’s interest in a property development known as the "Chinderah Bay Marina Project" ("the Project") pursuant to a charge granted by the applicant to the second respondent, or from holding themselves out as receivers and managers of the applicant’s interest in the Project. Seven affidavits have been filed in support of the principal application and the motion, mainly sworn by Mr Terrence Charles Posma, the sole director of the applicant. Three affidavits have been filed on behalf of the second respondent who is its financial controller and company secretary; one affidavit has also been filed on behalf of the first respondents.

2 None of that affidavit evidence has been tested by cross-examination. The factual picture which may emerge after a trial of the principal application may be different to the factual recitation which I am about to give. Subject to those observations, the facts of the matter are as follows.

3 The applicant, Geographe Point Pty Ltd (to which I will occasionally refer as "Geographe") is in partnership with a company called Rivercolt Pty Ltd ("Rivercolt") in respect of the Project. The second respondent says that there is a written partnership agreement (which does not appear to have been drawn by a lawyer). However, Clause 13 of that document provides that any matters not covered by it are governed by the Partnership Act 1892 (NSW).

4 On 19 October 2001, the applicant and the second respondent (to which I shall occasionally refer as "Onyx") entered into a written agreement whereby the second respondent agreed to advance to the applicant an amount of $303,750.00 to enable the applicant to purchase a 25% interest in the Project. That agreement has been referred to as the "First Agreement" and I shall refer to it in the same way.

5 On the same date the applicant and the second respondent executed a deed of charge ("the Charge") whereby the applicant charged all its property undertaking and rights present or future to Onyx as security for the payment of what is described in that document as the "Secured Money". That term is, not surprisingly, a defined term to which I shall come in a moment.

6 On 21 June 2002 the applicant and the second respondent entered into another agreement to replace the First Agreement ("the Second Agreement"). The terms of the Second Agreement are identical to those of the First Agreement but for the amount advanced which had been reduced significantly by a lump sum repayment by the applicant to the second respondent. The reduced amount secured was $132,418.49. The Second Agreement was later varied, on 31 December 2002, by reducing the interest payable from 12.5% per annum to 10.5% per annum.

7 On 19 December 2003, the second respondent caused a default notice to be issued against the applicant. It made a further demand on 16 January 2004. On 25 February 2004 the applicant paid to the second respondent the sum of $90,000 in reduction of the principal owing under the Second Agreement. The second respondent claims that there is still outstanding to it an amount for fees and charges incurred in enforcing its rights under the Charge. That claim is the subject of proceedings in the District Court of Western Australia.

8 The partnership was in dispute until recently with a Mr & Mrs Harford. That dispute was settled by a deed of settlement dated 16 March 2004 ("the Deed"). Under the terms of the Deed it was a condition precedent to a waiver by Mr & Mrs Harford and to certain mutual releases that the applicant and Rivercolt pay Mr & Mrs Harford the sum of $400,000 by bank cheque by no later than midnight Sydney time on 3 April 2004.

9 The applicant was unable to raise the funds to contribute its share of the moneys to be paid to Mr & Mrs Harford. Accordingly, the second respondent (Onyx) paid the whole sum of $400,000 to Mr & Mrs Harford. Onyx is a related company of Rivercolt.

10 Mr Posma swears that Onyx has not lent the applicant the sum of $100,000 for the purposes of paying Mr & Mrs Harford. He says that he suggested to the secretary of both Rivercolt and Onyx, that is, Mr Swarts, that Onyx should advance the sum of $400,000 to the partnership so that Mr & Mrs Harford could be paid. The applicant’s position is that it did not request Onyx to pay the sum of $100,000 on its behalf to Mr & Mrs Harford.

11 Mr Swarts, in his affidavits gives somewhat different evidence. I shall return to that matter in a moment. The parties have proceeded today on the basis that the sum of $400,000 was paid to Mr & Mrs Harford.

12 On 28 April 2004 Onyx served a notice of demand on the applicant (by agreement upon its solicitors). By that notice Onyx, through its solicitors, claimed that the applicant was in default under the Second Agreement. Onyx demanded payment of all moneys owing pursuant to Clause 3 of the Second Agreement and Clauses 4.1 and 4.2 of the Charge. In the notice of demand Onyx also claimed immediate payment of what it described as the applicant’s portion of the amount paid by Onyx to Mr & Mrs Harford for the purpose of honouring the settlement agreement, which it claimed was secured by the Charge. It also claimed all legal expenses so far incurred by Onyx on a full indemnity basis pursuant to Clause 18.1 of the Charge and fees payable for the time spent by Onyx’s employees in what was described as "this matter". That latter fee was claimed under Clause 18.4 of the Charge. Finally, the notice of demand stated that the total amount payable was $126,697.56. It is reasonably clear that $100,000 of this amount represents what is said to be the applicant’s portion of the amount paid to Mr & Mrs Harford while the balance of $26,697.56 represents legal expenses and fees claimed by Onyx. The applicant denies that it is liable to Onyx for those legal expenses and fees or any part of them.

13 The applicant says that it is prepared to pay the sum of $26,697.56 into a joint interest-bearing account in the joint names of the solicitors for Onyx and the applicant to provide substitute security pending the resolution of the dispute as to the applicant’s liability to pay all or any part of that sum. It is not prepared to pay the second amount claimed on a similar basis.

14 On 4 May 2004, by letter of that date from Messrs Pitcher and Partners, Mr Christopher Munday of that firm informed Mr Posma that on 3 May 2004 Onyx had appointed him (Mr Munday) and Mr Bryan Kevin Hughes as receivers and managers of the applicant’s interest in the Project. Mr Hughes and Mr Munday are the first respondents to this application. In that letter Mr Munday set out what he considered to be the effect of that appointment on Mr Posma’s position as a director in relation to the powers of management of the Project and sought, amongst other things, delivery up of all property, books and records of the applicant relating to the Project, and the preparation of a Report as to Affairs.

15 The principal application in this matter was filed on 7 May 2004. In it the applicant claims, under s 418A of the Corporations Law, a declaration that the purported appointment of the first respondents as joint and several receivers and managers of its interest in the Project was invalid, injunctive relief, and damages for trespass against both the first respondents and the second respondent.

16 In respect of the balance of $100,000, the applicant’s position is that, so it appears to the applicant, that sum was paid by Onyx for or on behalf of Rivercolt to discharge the partnership’s obligation to Mr & Mrs Harford. The applicant says that that sum of $100,000 has not been advanced by Onyx to it and this sum cannot possibly be secured by the Charge. By letter dated 6 May 2004, the applicant invited the respondents to provide a written reasoned statement as to how it is said that the sum of $100,000 was so secured by the Charge.

17 By letter of the same date, the solicitors for the receivers stated that the amount of $100,000 fell within the definition of Secured Money in Clauses 1.1.1(b), (d) or (e) of that definition. Clause 1.1.1 defines Secured Money as:

a. the Mortgagor [the applicant] is liable to pay the Mortgagee [Onyx] pursuant to the Agreement [the Loan Agreement];

ii. may become actually or contingently liable to pay to the Mortgagee in the future pursuant to any transaction or arrangement at any time entered into or made by the Mortgagee with any person;

d. has been advanced or paid by the Mortgagee to a person with the express or implied consent or at the express or implied request of the Mortgagor; or

e. the Mortgagee is or may become actually or contingently liable to pay a person in connection with a transaction or arrangement entered into with the express or implied consent or at the express or implied request of the Mortgagor, other than money payable under a provision which is void under section 261 of the Income Tax Assessment Act 1936.’

18 I think it is important to refer to some correspondence by fax and email which took place between 8 March 2004 and 2 April 2004.

19 On 8 March 2004, the applicant’s solicitors in Perth sent a fax to Messrs Bartier Perry, a firm of solicitors in Sydney, the material parts of which read as follows:

20 On 2 April 2004, the applicant’s solicitors sent a fax to Messrs Bartier Perry which read as follows:

21 Next there is an email dated 2 April 2004 from Mr Posma to Mr Ian Swarts (the company secretary of both Rivercolt and Onyx). That email followed an exchange of emails between Mr Posma and Mr Swarts on the previous day. I return to the text of the email dated 2 April 2004. It reads:

22 It is not necessary to recite the effect of the authorities relating to the grant of interlocutory injunctions. In essence, it is necessary for an applicant for such an injunction to show a serious question to be tried. The other principal consideration is the balance of convenience or, perhaps more accurately, the risk of doing an injustice to the applicant if an interlocutory injunction is not granted compared to the risk of doing an injustice to a respondent if an interlocutory injunction is granted. The two matters are not in watertight compartments; they are to be considered both separately and together. Other relevant considerations are whether damages might be an adequate remedy and whether the interests of persons not being parties to the litigation may be affected.

23 On the state of the evidence to date I am satisfied that there are serious questions to be tried. They include whether the sum of $100,000 was loaned by Onyx to the applicant or to Rivercolt or to the partners as partners, whether the advance by Onyx to pay Mr & Mrs Harford is "secured money" as that expression is used in the Charge and whether the various items of expenses and legal costs are sums payable pursuant to the Charge.

24 There is also a serious question to be tried as to whether, in appointing the first respondents as receivers, the second respondent has breached any duty of good faith which it might owe to the applicant. I do not propose to recite the evidence put forward by the applicant on that issue.

25 While I have found there are these serious questions to be tried, and which will need to be resolved by evidence at the final hearing, my impression on the state of the evidence to date is that the applicant’s case is not a particularly strong one. An essential part of the applicant’s case is that Onyx could not have lent it money without the applicant’s approval or a request from the applicant to make the loan.

26 It was common ground that when the settlement was reached with Mr & Mrs Harford, the parties agreed that the applicant would pay $100,000 of the settlement amount, being its share of the sum of $400,000. It is also reasonably clear that the applicant by 2 April 2004, was not in a position to contribute its agreed share. There was then the exchange of email between Mr Posma and Mr Swarts, which culminated in Mr Posma's fax of 2 April 2004.

27 In my view, it is strongly arguable that in that email Mr Posma asked Onyx to send the full amount of $400,000 to the partnership. It is clear from exhibit IS7 of Mr Swarts’ affidavit of 14 May that on that day, ie, 2 April 2004, Onyx remitted the sum of $400,000 to the trust account of the solicitors for the partnership. It is also common ground that those moneys were paid by those solicitors to Mr and Mrs Harford.

28 The applicant submits that the Charge would only secure the sum of $100,000 if, amongst other things, Onyx paid it to the partnership.

29 The applicant points to various conflicting versions of events which it says has been put forward on behalf of the second respondent.

30 In my view, on the present state of the evidence, it is strongly arguable that Mr Posma asked Onyx to lend the full amount of $400,000 to the partnership and that it did so. In those circumstances, on the state of the evidence to date, it seems to me that at the request of the applicant Onyx paid the settlement amount of $400,000 to Mr & Mrs Harford for and on behalf of the partnership, or possibly on behalf of the individuals.

31 In those circumstances, I consider that it is very likely that the obligation of the applicant to repay $100,000 of that amount to Onyx falls within the definition of secured moneys in the charge.

33 The applicant says that damages would not be an adequate remedy for it because, amongst other things, the appointment of receivers and managers under the Charge would place it in default under a separate security agreement it has with St George Bank and that the rights of that secured creditor i.e. St George Bank are not restricted to the applicant. It may have recourse to other parties to the loan agreement if it exercises the rights that arise upon such default.

34 I take those factors into account, but those parties must have been aware of such a possibility when they executed that document. Furthermore, the evidence shows that St George Bank Ltd is aware of the present circumstances and has not yet taken any step. I acknowledge that it may do so in due course.

35 The applicant says that the partnership can continue to function in the normal course of business while the validity of the appointment of the first respondents is determined. It says that there is no question of any insolvency of the applicant or breach of the Corporations Act. Finally, the applicant says that it is prepared to place part of the disputed sum in an interest-bearing trust account.

36 The second respondent has tendered evidence to the effect that it is essential that the Project be moved forward or it risks collapsing by its funding being withdrawn. Mr Swarts refers to matters which he says have a significant detrimental effect on the viability of the Project. Key elements of matters which require attention include the sale of part of the real estate and the need to save stamp duty of some $62,500 if the agreements for sale are not exchanged by 31 May 2004. The respondent also relies on the need to obtain a particular development approval before 19 May 2004 and to effect the withdrawal of another development approval in order to obtain the former development approval. The applicant says, in effect, that all these things can happen without the presence of receivers in the normal course of the conduct of the partnership affairs. But as I see it, that is not the whole point. The whole point includes what will be the effect of the proposed injunction.

37 The second respondent says that it would be inconceivable that the first respondents would act with impropriety if only because of the state of litigation between the parties and the exposure of their actions to the Court and to their respective professional associations.

38 I have inferred from all of the evidence to date that underlying the dispute which appears to be the subject matter of this application is a partnership dispute as to the conduct of the affairs of the Project.

39 Nevertheless, I have approached the question of urgent interlocutory relief as simply one of whether it has been sufficiently demonstrated that the balance of convenience, when taken into account with the other factors which I have mentioned, weighs in favour of granting interlocutory relief. All this in the context of a secured creditor seeking to enforce its security and the debtor not being prepared to pay any more than a limited part of the amount claimed either into Court or into a trust account.

40 I consider that the balance of convenience is fairly even, but if anything, slightly tilted in favour of not granting any interlocutory relief. I think that, in particular, damages are likely to be an adequate remedy if the applicant makes out its claims.

41 In that situation, I take into account what I consider to be the weakness of the applicant’s case on the serious questions to be tried. All in all, I am not satisfied that this is a case in which it would be appropriate, applying the usual principles, to grant the interlocutory injunction sought.

I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr.

Counsel for the Applicant:	Ms G S Pitt

Solicitors for the Applicant:	Messrs Williams & Hughes

Counsel for the First Respondents:	Mr T O Coyle

Solicitors for the First Respondents:	Messrs Phillips Fox

Counsel for the Second Respondent:	Mr N W McKerracher

Solicitors for the Second Respondent:	Summerslegal

Date of Hearing:	17 May 2004

Date of Judgment:	17 May 2004

Federal Court of Australia

Geographe Point Pty Ltd v Hughes [2004] FCA 729 (17 May 2004)