SUPREME COURT OF QUEENSLAND CITATION: PARTIES: Highvic Pty Ltd & Ors v Quarterback Group Pty Ltd & Anor [2012] QSC 8 HIGHVIC PTY LTD (Applicant/First Plaintiff) AND BRIAN FRANCIS GEANEY (Second Plaintiff) AND JOHN JOSEPH GEANEY (Third Plaintiff) V QUARTERBACK GROUP PTY LTD (Respondent/First Defendant) AND DARYL JAMES FENNELL (Second Defendant) FILE NO/S: S375/2011 DIVISION: PROCEEDING: ORIGINATING COURT: Trial Division Application Supreme Court Rockhampton DELIVERED ON: 1 February 2012 DELIVERED AT: Rockhampton HEARING DATE: 30 January 2012 JUDGE: ORDER: McMeekin J The Applicant to bring in a minute of the Order reflecting these reasons CATCHWORDS: EQUITY EQUITABLE REMEDIES INJUNCTIONS INTERLOCUTORY INJUNCTIONS RELEVANT CONSIDERATIONS BALANCE OF CONVENIENCE GENERALLY where accountants appointed receivers and managers pursuant to securities where the resolution of the issues turns on the validity of securities where there is
2 COUNSEL: SOLICITORS: dispute about who should control the sale and proceeds of land where if the land was peremptorily sold the potential damages would be difficult to quantify where the right to exercise the power of sale, the amount of the debt, the amount presently due and owing and the interest payable is in issue where adequate protection is in issue Uniform Civil Procedure Rules 1999 r468 American Cyanamid Co v Ethicon Ltd [1975] AC 396 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 Chisholm v Reif (1953) 2 FLR 211 Dwyer v Corliss & Anor [2003] QSC 149 Glandore Pty Ltd v Elders Finance and Investment Co Ltd (1984) 4 FCR 130 Harvey v McWatters (1948) 49 SR (NSW) 173 Inglis v Commonwealth Trading Bank (1972) 126 CLR 161 AM Arnold for the applicant DEF Chesterman for the respondent Johnson Law for the applicant Nicholsons Solicitors for the respondent [1] McMeekin J: Highvic Pty Ltd ( Highvic ) has brought two applications for interlocutory injunctions to issue until trial: (a) to restrain two named accountants from acting as its receiver manager; (b) to restrain Quarterback Group Pty Ltd (Quarterback) from exercising a claimed power of sale over certain land owned by Highvic. [2] Quarterback appointed the accountants as the receivers and managers of Highvic pursuant to powers contained in certain securities. The validity of those securities is in contest. Similarly the power of sale is claimed under those disputed securities. [3] In any application for an interlocutory injunction there are three issues is there a serious question to be tried; does the balance of convenience favour the granting of the injunction; are damages an adequate remedy? [4] The disputing natural persons are Mr Brian Geaney and his brother John on the one hand and Mr Daryl Fennell on the other. Mr Fennell controls Quarterback and Messrs. The Geaneys now control Highvic. All the shares in Highvic are owned by Days Road Investments Pty Ltd. The shares in Days Road Investments Pty Ltd ( Days Road ) are owned equally by the Geaney brothers and Mr Fennell. Serious Question to be Tried?
3 [5] It is plain that there is a serious question to be tried. That is so whether the test be as set out in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 or in American Cyanamid Co v Ethicon Ltd [1975] AC 396. See Shercliff v Engadine Acceptance Corp Pty Ltd [1978] 1 NSWLR 729. [6] The resolution of the issues turns on the validity of the disputed securities. [7] If the securities were put in place by Mr Fennell fraudulently or in breach of fiduciary and other duties owed, as the Geaneys allege, then they will be set aside and Quarterback would have no right to appoint a receiver manager and no right to sell up Highvic s land. [8] The disputed securities include a loan agreement, a mortgage and a fixed and floating charge over Highvic s assets. The loan agreement asserts that the presently outstanding debt owing by Highvic was in excess of $1.25M. The applicant asserts that the debt is substantially overstated. The Geaneys have retained an independent accountant to work out the amounts each of the venture partners are owed. He has had to make assumptions about various matters and relied to some extent on instructions that may not be agreed. His workings suggest that the debt may be overstated by as much as $670,000. The debt is said to be immediately due and owing contrary to the previous arrangements between the parties which provided for debts to be met only at the conclusion of the venture. There is no right of set off or counterclaim against the debt. Interest at 5% is said to be due with a penalty interest of 10%. The prior arrangements had no interest owing on monies advanced by the parties to the joint venture. The securities result in Quarterback ranking ahead of the other parties in retrieving any money from the venture, again contrary to prior arrangements. [9] Hence the terms of each of the documents provides a significant financial advantage to Quarterback and is against the interests of Highvic and the Geaneys. Each document was executed by Mr Fennell and only Mr Fennell, he purporting to act on behalf of both sides of the transaction in his then capacity of director of both companies. There is no contemporaneous and unequivocal document showing that the Geaneys knew of and consented to the transactions. [10] Mr Fennell claims that the documents were executed following discussion and agreement between the three parties. The Geaneys claim there was no such agreement and to have no knowledge of the execution of the disputed documents until informed subsequently. Mr Fennell put at the forefront of his case that at least Mr Brian Geaney could be shown to know about the disputed arrangements because Mr Fennell wrote him a letter at the time, in February 2009, setting out the effect of the discussions he claims took place. The letter on its face was sent to a Post Office box address which the Geaneys assert did not exist until over a year after the letter was supposedly sent. If that is shown to be true then the date on the letter cannot be accurate and a strong inference could be drawn that the letter is a forgery. Mr Fennell s credit then would be seriously undermined. And Quarterback s case depends, not solely but to a very large extent, on his credit. [11] I have not sought to set out the full arguments on each side. That is not necessary at this stage. There are difficulties in the Geaneys position. At the very least they appear to have stood by knowing that a mortgage was in place from April 2009.
4 The issues are complicated by the very close relations that existed between the parties at that time. [12] Here, without in any sense deciding the issues, the respondent faces some difficulties. Mr Fennell has put in place documentation and securities which on their face assert the existence of a debt well in excess of any amount that an apparently independent accountant can justify; gave to his corporate entity a significant financial advantage in documents executed on both sides of the transaction by himself where normal practise and common sense would require that the parties to be disadvantaged be involved; advances no contemporaneous documents to support his version save the letter that I have mentioned and that letter, on the present evidence, is quite possibly a forgery; and finally the claimed reason for the Geaneys conceding these significant advantages is not, on its face, compelling. The justification for the alleged agreed change in arrangements was that Mr Fennell was advancing significantly greater capital than the others. The accountant s workings indicate that all three have advanced significant monies and while Mr Fennell appears at this stage to have advanced more than the Geaney interests the difference does not compel the view that the Geaneys would have willingly given up so much. [13] I appreciate that the evidence is far from complete and the parties have had limited time to prepare. Nonetheless the applicant has in place a case that is far from weak. Suffice to say that there is evidence, if accepted, that would result in the applicant s case succeeding. The case is not speculative. There is then the necessary prospect of success at a sufficient level to justify the granting of injunctive relief. The first test is satisfied. Balance of Convenience [14] The question of balance of convenience has caused me most concern. [15] This case is out of the ordinary. Both sides want to see the land in question sold and the venture brought to an end. Their dispute is about who should control that sale and the proceeds from it, not whether it should happen. [16] The applicant says that there are potentially substantial costs to all parties that would inevitably flow from the appointment of a receiver and manager. First, it is virtually inevitable that the sale price achieved would be substantially less once the public are aware that receivers are in place and controlling the sale. Secondly, the parties would have to bear the cost of the receiver managers. I have no evidence about that latter cost. [17] Mr Brian Geaney who has 30 years experience as a real estate agent says that typically a sale under the control of a receiver achieves a sale price 10% to 20% less than in a market not so affected. He asserts, without any corroborating evidence, that the land in question is worth in excess of $6M. Despite that lack of corroboration there is no evidence to put against his views. A potential shortfall of $1.2M is plainly significant. [18] The respondent argues that there are significant disadvantages to it if an independent person is not appointed to conduct the sale. First, there is no guarantee that the Geaneys will act expeditiously. Secondly, the Geaneys, it is said, will have
5 access to the proceeds of sale and will or may use those proceeds to fund the action against the respondent in the proceedings that are on foot. Thirdly, there is no trust between the parties. The implication is that the proceeds of sale would not be applied as they ought to be. As supporting the respondent s stance Mr Fennell points out that there have been share transactions carried out which have every appearance of an attempt to remove him from the share register of Days Road without his knowledge or consent. The Geaneys explain that the entries on ASIC records were undertaken in error and have since had them reversed. It was, at the very least, a most unfortunate error. Whatever be the case I can well understand that there is no trust between the parties. [19] There is a further concern on the respondent s side. It is submitted that no worthwhile undertaking as to damages is offered. Undertakings have been offered on behalf of Highvic and by Mr Brian Geaney, but limited to his interest in Highvic. The Geaneys contend that there is sufficient value in the lands held by Highvic to pay out all creditors secured and unsecured and as well provide a profit to the parties. Mr Chesterman of counsel, who appeared for the respondent, submitted that if there is indeed ample money in Highvic after the sale of its land, there would be little point to the present dispute. He points out too that it is not known whether any undertaking from the Geaneys has any value as they have not disclosed their personal circumstances. [20] The applicant retorts that the law requires only that the applicant offers the necessary undertaking and that has been done. The applicant has offered more effectively giving the Fennell interests access to Mr Brian Geaney s share of the eventual proceeds. [21] Even if the Geaneys have no other assets outside the Highvic venture I do not think it right to say that the undertakings offered are worthless. If the undertaking is extended to both Geaney interests then it provides the same protection to Quarterback as is offered by the disputed securities access in priority to the Geaneys to the proceeds of sale of the Highvic land. There remains the additional prospect of incurring significant costs in this litigation. At this stage the Geaneys have been reluctant to offer an open undertaking affecting their own personal interests beyond their interest in Highvic. Whilst the Geaneys are not applicants it is very much in their interest to have the injunctions granted. Their approach ignores the central importance of the undertaking to give the respondent access to a right to damages if it later turns out that the injunctions should not have been granted: see Chisholm v Reif (1953) 2 FLR 211. [22] As I have mentioned the applicant s case is not speculative and raises matters that will require some explanation from the respondent. The strength of the applicant s case can be relevant to the balance of convenience: Dwyer v Corliss & Anor [2003] QSC 149 per Holmes J, as her Honour then was. Damages an Adequate Remedy? [23] It is debateable whether this is in fact an independent criterion that needs to be satisfied or merely one factor that goes to the balance of convenience: see the discussion in Meagher, Gummow and Lehane s Equity: Doctrines and Remedies at [21-375] p 783 (4 th edn).
6 [24] The potential damages that the applicant and hence the Geaneys might suffer if the land is peremptorily sold up by the receiver manager would be very difficult to quantify. It would require a comparison of the price that would be achieved in the hypothetical market of a sale without a receiver involved and alternatively as in fact obtained. Such relief would at the least be very uncertain and unsatisfactory. Payment into Court [25] The respondent contended that it was a mortgagee and the usual rule applicable in cases where a mortgagor sought to restrain a mortgagee exercising powers of sale under its security should be applied namely that sufficient monies to secure the debt be paid into court as a condition of any relief citing Inglis v Commonwealth Trading Bank (1972) 126 CLR 161; Harvey v McWatters (1948) 49 SR (NSW) 173; Glandore Pty Ltd v Elders Finance and Investment Co Ltd (1984) 4 FCR 130. [26] While a rule of that sort is well accepted it is important to understand why it is imposed and why this case differs form those cases in which it has been invoked. In Inglis Walsh J said at p165, after referring to the general rule: 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. [27] That general rule, as Mr Chesterman acknowledged, is not applied where what is impugned is the validity of the mortgage transaction itself: Harvey v McWatters where Sugerman J held that in such a case (which he termed the second class of case) the terms as to payment into court may be moulded so as to require payment in of so much only as will suffice to give adequate protection to the mortgagee. [28] In Glandore Morling J considered that the facts before him were more akin to that second class of a case that Sugerman J had discussed and he concluded (at p135): I am not constrained by authority to require the applicants to pay into court the whole amount of the mortgage debt as a condition of obtaining interlocutory relief. Rather I think the proper approach is to mould an order so as to ensure adequate protection to the mortgagee and to otherwise do justice between the parties He required that no monies be paid into court in respect of the principal debt but required that the applicants pay the amount of unpaid interest and expenses owed to the mortgagee, holding that it was not right that Glandore should have the use of the respondent s money without paying interest on it. There it was common ground that Glandore would pay interest and expenses incurred by the mortgagee as a condition of having the use of its money. [29] The facts here are very different to those in the cases cited. Not only is the right to exercise the power of sale in issue but so is the amount of the debt, the claim that any amount is presently due and owing at all, and the claim that any interest is payable. In the cases cited there was at least no issue about the fact of there being presently due and owing a significant sum and that interest was intended by both parties to be paid on it. [30] The issue then is what is adequate protection in all the circumstances of the case, bearing in mind the need to do justice between the parties. To my mind adequate
7 protection to the claimed mortgagee can be provided by the undertakings that I will impose as a condition of any relief. Orders [31] The considerations here are finely balanced. Given the potentially substantial and adverse impact on the parties fortunes if the sale is conducted by a receiver manager, no matter how competent, the balance seems to me to favour finding another approach and granting relief of the nature sought. I think that the answer to the concerns of the respondent is that they can be met by the imposition of appropriate conditions on the grant of injunctive relief. [32] It may be that one of the significant differences between the approaches of the parties is in the timing of the sale of the properties. Reference was made on the respondent s side to a concern that the Geaneys, who control Highvic, may not proceed with due dispatch. The Geaneys seem concerned that market conditions are not ideal. I propose placing the sale of the Highvic properties under the control of an experienced agent, hopefully acceptable to the parties, who can no doubt offer appropriate advice. I will give no direction that the sales occur within any particular time frame. With the approach I intend to take the air of compulsion surrounding a sale pursuant to an exercise of power of sale in a mortgage may be removed. [33] I propose to grant the injunctions sought until trial or further order but subject to the following conditions: (a) That each of Highvic Pty Ltd, Brian Francis Geaney and John Joseph Geaney provide the usual undertaking as to damages; (b) That each of the parties undertake not to further encumber the Highvic properties without the written consent of the others; (c) That the interim orders concerning the management of the rental accounts concerning 235 Musgrave Street and 237 Victoria Place Rockhampton remain in place; (d) That the parties place the management of the sale of the Highvic properties with a licensed real estate agent to be agreed by the parties or failing agreement to be determined by the receiver manager; (e) That the parties prepare written instructions for the appointed agent concerning the terms of sale of the Highvic property, there being no reference to the disputed appointment of the receiver manager in those instructions and, failing agreement, that those instructions for sale be determined by the receiver manager; (f) That the proceeds of the sale of the Highvic properties be received by the appointed agent and placed by him or her in a trust account and paid out only with the written consent of each of the parties. [34] A submission was made that the trial of the matter should be expedited (see r468 Uniform Civil Procedure Rules 1999). I agree. I have no information concerning the state of preparedness of the parties. Subject to the execution of a request for trial date and the receipt of any further submissions I direct that the proceedings be heard in Rockhampton in the week commencing 26 March 2012. [35] The costs of the two applications are reserved.
8 [36] There should be liberty to apply. [37] I direct that the applicant bring in a minute of the orders to reflect these reasons.