Forest Marsh Pty Ltd v Pleash

Facts 7 On 21 December 2007, the appellants (and two other companies controlled by Mr Powell) entered into a factoring agreement with Bibby. At the time the factoring agreement was executed, Forest Marsh provided collateral securities to Bibby including a fixed and floating charge (the charge) over its assets as well as a second mortgage over the property. The property was, and still is, the subject of a first mortgage to the National Australia Bank (NAB) which takes priority over the mortgage to Bibby. The amount presently owing to the NAB under that mortgage is said to be approximately $240,000. 8 Forest Marsh also granted a third mortgage over the property to a company called Business Expansion Capital Pty Ltd (BE Capital) which ranks behind those given to NAB and Bibby. The amount presently owing to BE Capital is the subject of dispute, though the appellants' solicitor indicated at the hearing before me that the debt claimed by BE Capital was in the order of $2 million. 9 On 4 April 2008 Bibby, acting under the charge, appointed Mr Pleash as receiver and manager of Forest Marsh. Various attempts were made by Mr Pleash to sell the property in order to satisfy Forest Marsh's indebtedness to Bibby. Such attempts have failed for various reasons: see paras [12] to [25] of the trial judge's reasons. 10 At trial, the appellants alleged that following payment of the amount of $309,423.26 by Forest Marsh into Bibby's solicitors' trust account on 10 October 2008, Mr Pleash was legally obliged to terminate the receivership and retire. Instead, so the appellants alleged, the receiver, in breach of duties owed to Forest Marsh, continued with the receivership and wrongly incurred additional fees and expenses. 11 It was central to the appellants' case that the receiver was not entitled to continue with the receivership once the $309,423.26 was paid. This was because, at least in so far as the case was argued before the primary judge, the receiver's solicitors had sent to the appellants' solicitors a letter on 7 October 2008 which represented that the amount required to discharge the debt due to Bibby was $309,423.26 including $286,000 which was shown in a spreadsheet accompanying the letter as representing the debt owing by Forest Marsh to Bibby as at 30 September 2008. 12 His Honour went on to find that, as at 10 October 2008, the sum of $309,423.26 was not sufficient to discharge Forest Marsh's indebtedness to Bibby because by that time further interest had accrued and further fees and expenses were incurred. 13 The primary judge rejected the proposition that the receiver was obliged to retire upon payment of the $309,423.26 on 10 October 2008. His Honour made various findings in support of his conclusion that the letter of 7 October 2008 could not be reasonably understood as anything other than indicative of the amount that would be required to be paid at any future settlement. 14 Subsequent to the receiver's solicitors sending the letter of 7 October 2008, there was an important development involving BE Capital. On 10 October 2008 the managing controller of BE Capital began to press a claim against both Forest Marsh and Mr Pleash for $116,650.77. That claim was eventually resolved for $28,442.94 but not before the receiver had incurred considerable fees and expenses investigating and responding to it. 15 The appellants' case before the primary judge was that the additional fees and expenses ought not to have been incurred at all or that, alternatively, they were excessive and unreasonable. The argument that they ought not to have been incurred at all was based upon the proposition that the receiver was legally obliged to retire on 10 October 2008. That proposition was rejected by the primary judge for the reasons I have previously discussed. There was nothing put to me in the course of argument to suggest that the correctness of his Honour's conclusion on that question is open to doubt. 16 As to the alternative argument, the primary judge held that there was simply no evidence from which to conclude that the costs and expenses incurred after 10 October 2008 were unreasonable or excessive. The primary judge said at para [102]: As to the allegation that the fees incurred by the first respondent were unreasonable or excessive, the applicants have not demonstrated how, why or in what respect or respects the first respondent's fees after 10 October 2008 were unreasonable or excessive. The first respondent made an affidavit summarising the amounts paid and payable by the second applicant and his companies under the factoring agreement and the collateral securities, including his fees and disbursements (rendered and unrendered) and the respondents' solicitors' fees and disbursements (rendered and unrendered). Both the first respondent and the respondents' solicitor, Mr Anderson, were cross-examined, but not on any of these matters. The applicants' allegation in this regard rests simply in assertion and fails for want of proof. 17 It was not suggested by the appellants in argument before me that, contrary to his Honour's observations, there was any evidence showing that the receiver's fees and expenses were unreasonable or excessive or that para [102] of his Honour's reasons was otherwise incorrect.

The appellants' notice of appeal 18 The appellants' notice of appeal contains four grounds of appeal. I shall set them out in full together with some observations of my own in relation to each of them: 19 Ground 1 The court ought to have found that the payment of the September payout amount, $309,423.26, into the respondents' solicitors' trust account on 10 October 2008 was sufficient to discharge the first appellant's indebtedness to the second respondent as at that date, save and except for: (i) interest which continued to accrue on the then outstanding debt to the second respondent of $286,000.00 as at 30 September 2008; (ii) further insubstantial costs and fees incurred by the first respondent as receiver between 30 September 2008 and 10 October 2008 and to be incurred until the retirement of the first respondent as receiver; and (iii) the contingent claim made by BE Capital for $116,650.77. The appellants' case before the primary judge was that the payment made on 10 October 2008 was effective to discharge Forest Marsh's indebtedness to Bibby. That case was rejected by his Honour for the reasons already mentioned. Ground 1 does not purport to identify error in the primary judge's reasons. Indeed, ground 1 appears to assume that the payment made on 10 October 2008 was not effective to discharge Forest Marsh's indebtedness to Bibby. 20 Ground 2 The court ought to have further found: (a) that the respondents were adequately secured by the charge on the Forest Marsh land for and in relation to the interest and further insubstantial costs and fees pleaded under ground 1(a)(i) and (ii); and (b) that the first respondent, acting reasonably and in accordance with his duties at common law and under the Corporations Act ought to have applied the sum of $309,423.26: (i) first to discharge the first applicant's primary indebtedness under the charge for repayment of capital, which would thereby have been discharged in full; (ii) second to discharge the first applicant's indebtedness under the charge for interest, which would thereby have been discharged in full; (iii) third to discharge pro tanto any further indebtedness of the first appellant under the charge for the first respondent's costs fees and charges secured by the charge; and (c) as to the third party claim by BE Capital, that: (i) the first respondent ought to have referred the claim made by BE Capital to the second respondent for resolution; and (ii) as a matter of fact that occurred; and (iii) at all material times the second respondent was adequately secured by the charge for and against any loss resulting or likely to result from the claim. Ground 2 does not identify error in his Honour's reasoning but raises what must in substance be a challenge to the primary judge's findings based upon cl 3.2(a) and cl 12 of the charge. His Honour said at para [97]: The difficulty that confronts the applicants with this aspect of their argument is that, by clause 3.2(a) of the charge, the second respondent had the right to appropriate, in the manner it saw fit, all payments made towards satisfaction of the indebtedness under the charge. Furthermore, under clause 12 of the charge, the second respondent was entitled to determine what funds the first respondent was at liberty to keep in hand with a view to the performance of his duties as receiver, and the first respondent was entitled to retain moneys in hand for his remuneration and expenses. It is not suggested by the applicants that, in retaining the funds he did, the first respondent was acting otherwise than in accordance with the directions of the second respondent who, the evidence shows, had also instructed the first respondent to deal with the managing controllers' claim. Moreover, by 10 October 2008, the first respondent was threatened with the prospect of separate legal proceedings being brought against him personally by the second applicant and B E Capital, with all the cost that that would involve. This aspect of the applicants' argument therefore fails at the outset, given the specific powers of appropriation under the charge and the first applicant's liability under the charge not only for costs and expenses relating to the exercise, preservation or aid of the second respondent's rights and powers under the charge, but also for the first respondent's costs and expenses as receiver, as well as his remuneration. Thus, ground 2 simply ignores the whole basis upon which his Honour rejected the appellants' complaints as to the way in which the $309,423.26 was applied. 21 Ground 3 The Court ought to have further found, consequentially upon the findings pleaded under ground 2, that: (a) the first respondent ought to have retired as receiver of the first appellant no later than one month after 10 October 2008; and (b) no fees or charges are recoverable by the first respondent relating to any period after the expiration of the one month period pleaded under ground 3(a), save and except for such costs and fees as were reasonably incurred by the first respondent as receiver: (i) in the course of the receivership between 30 September 2008 and the expiration of the one month period; and (ii) in retiring from the receivership; and (c) the appellants suffered damage as a result of the wrongful continuation of the receivership, including ongoing interest, increased costs, fees and charges, and lost business opportunities. Ground 3 is predicated upon an acceptance of ground 2. Leaving that aside, the appellants' contention that the receiver ought to have retired no later than one month after 10 October 2008, seems to be at variance with the way in which the case was pleaded and argued before the primary judge. According to the statement of claim, the appellants' case was that the receiver should have retired "on or about 10 October 2008" which was a logical extension of the appellants' contention that the payment made on that date discharged Forest Marsh's indebtedness to Bibby. 22 Ground 4 Alternatively, the Court ought to have found that the quantum of fees and charges incurred by the receiver on and after 10 October 2008 was prima facie: (a) manifestly excessive and unreasonable; and (b) evidence of breach of duty by the first respondent as a receiver at common law and under the Corporations Act; in respect of which the Court should have (c) ordered that the first respondent be removed as receiver; and/or (d) ordered that there be an enquiry under s.423 of the Corporations Act into the conduct of the first respondent in continuing the receivership after 10 October 2008 and in relation to the excessive and unreasonable fees purportedly incurred by the first respondent as receiver from 10 October 2008. I have already referred to his Honour's reasons for rejecting the appellants' contention that the receiver's fees and expenses were excessive or unreasonable. Ground 4 does not identify error in those reasons. In particular, it is not suggested in the notice of appeal (nor was it suggested in argument before me) that his Honour overlooked any evidence showing that any of the receiver's fees and expenses were excessive or unreasonable.

The PARTIES' SUBMISSIONS 23 The appellants' primary submission was that they would suffer irreparable harm if the interlocutory injunction sought was refused and their appeal was subsequently allowed. They also contended that the granting of such an injunction would not cause any harm to the respondents. In support of the latter contention, the appellants referred to Bibby's security over the property which, they argued, would adequately protect the respondents' interests. They submitted that the proceeds from the sale of the property, even after discharging the appellants' debts to the NAB and the respondents, including the respondents' estimated future costs, would be more than sufficient to make good any loss that might be suffered by the respondents in the event the interlocutory injunction was granted and the appeal was later dismissed. 24 The appellants also relied upon an undertaking proffered by the second appellant, Mr Powell, who deposed that he was prepared to pay compensation to the respondents in respect of any loss or damage they may suffer as a result of an interlocutory injunction being granted in circumstances where the appeal was later dismissed. 25 The appellants made the following additional points in support of their case for an interlocutory injunction. 26 First, the appellants submitted that it is likely that the respondents would seek to sell the property very quickly and that such sale would likely take place before the determination of the appeal. 27 Secondly, the orders sought by the appellants in the appeal require Mr Pleash to cease to act as receiver and manager of Forest Marsh and for Bibby to release and discharge all securities over the property. The appellants claim that if the interlocutory injunction sought by them is refused and the property is sold then a successful appeal would be rendered nugatory. 28 Thirdly, the appellants referred to a residence that is located on the property which was said to be the only residence that Mr Powell owns. Although Mr Powell no longer lives at that residence he apparently has keys to it. The appellants argued that it would be extremely difficult to quantify any loss that Mr Powell might suffer as a consequence of him being unable to reside on the property. 29 Fourthly, the appellants submitted that the valuation of the property did not take account of its potential value after subdivision. They argued that if the property were sold as it currently is, then they would lose the opportunity to subdivide the property and sell it in stages. 30 In resisting the application for the interlocutory injunction the respondents argued that first, there are insufficient prospects of the appeal being allowed; secondly, the evidence of the appellants' financial situation and the presence of the third mortgage to BE Capital weigh against the granting of an injunction; and thirdly, the appellants have not established that irreparable harm is likely to be suffered by them or that any such loss which may be suffered by the appellants is likely to be unquantifiable in monetary terms. 31 The respondents argued that if the sale of the property were to be postponed by the granting of an interlocutory injunction, further costs and expenses would be incurred in receivership. This, the respondents argued, would be prejudicial to BE Capital as the third ranking mortgagee because, in the event that the disputed debt to BE Capital was found to be owing, BE Capital would only be able to recover what was left of the proceeds of sale after the debts to the NAB and the respondents were paid. 32 The respondents also argued that, given the evidence of the appellants' current financial position, even if the appellants were successful in the appeal, there is a real prospect that they would not be able to service their debts and that they would fall into default again such that Bibby would be entitled to exercise its power of sale under the second mortgage, irrespective of whether or not there was a receiver in place.

Legal Principles 33 The decision whether or not to grant an interlocutory injunction pending an appeal raises considerations which are relevant not only to the grant of interlocutory injunctions generally but also considerations relevant to the question whether or not a judgment should be stayed pending an appeal: Stirling Harbour Services Pty Ltd v Bunbury Port Authority (No 2) [2000] FCA 87. In that case French J (as his Honour then was) said at para [13]: The decision whether or not to grant an interlocutory injunction pending an appeal will be informed by general principles governing the grant of such injunctions and, within those general principles, considerations analogous to those which arise in relation to stay orders made in aid of the court's appellate jurisdiction under s 29 or O 52 r 17 and orders for stay of execution under O 37. The weight of authority in this Court does not require the applicant for a stay to demonstrate special or exceptional circumstances before the order will be made … 34 His Honour went on to refer to the significance of the judgment already pronounced against the applicant for the interlocutory injunction. His Honour said at para [15]: The order sought by the applicants in this case is in the nature of an interlocutory injunction. In the ordinary course it is a necessary condition of the grant of such an injunction that the applicant demonstrate a serious case to be tried and that the balance of convenience favours imposition of the restraint. These requirements apply with equal force to a case, such as the present, where the restraint is sought effectively to prevent a party from exercising what have been found to be its rights after trial of an action. It is to be remembered also that the strength of the case and the assessment of where the balance of convenience lies are interdependent. Where the applicant's case has been tried and found wanting there may nevertheless be a serious case to be tried on appeal. However, the Court's assessment of the strength of that case will be influenced by the fact that there has been an adverse judgment at first instance. It is relevant to the balance of convenience that the appeal may be nugatory if the restraint is not granted. It is also relevant that the successful party will be prejudiced if impeded in the exercise of its judicially vindicated rights ... [citations omitted] 35 Given the interplay between the strength of any proposed appeal and the balance of convenience, it is not possible to say how strong a ground of appeal must appear to be before an interlocutory injunction may be given in aid of an appeal against a judgment given after a trial. At the very least the appeal must be arguable since there could be no injustice in refusing an interlocutory injunction that was sought in aid of an appeal which was bound to fail. Thus, it will usually be necessary for the applicant for such an interlocutory injunction to show that there are arguable grounds of appeal which, if upheld, are likely to lead to some material variation of the orders of the trial judge. Often the strength of the proposed appeal and the fact that it is reasonably arguable will be readily apparent from the grounds of appeal and the trial judge's reasons for judgment.

Consideration 36 In the present case I am of the opinion that the appellants' application for an interlocutory injunction should be refused. The considerations that lead me to this conclusion are as follows. 37 To begin with, I am not satisfied that any of the appellants' grounds of appeal against the primary judge's judgment have any reasonable prospect of success. I shall explain why. 38 First, it is clear from the reasons of the primary judge and the appellants' notice of appeal that the appellants do not challenge the proposition that the charge given by Forest Marsh to Bibby is valid and enforceable. Nor do the appellants challenge the validity of Mr Pleash's appointment as receiver. 39 Secondly, as is apparent from the primary judge's reasons, the payment of $309,423.26 was insufficient to discharge Forest Marsh's obligations to Bibby under the charge. So much appears to be accepted by the appellants' grounds of appeal. Hence, there is no reason to doubt the correctness of the primary judge's finding that Mr Pleash was not obliged to retire as a consequence of the 10 October 2008 payment. The proposition that the continuation of the receivership after that date was "wrongful" does not seem to me to be seriously arguable. 40 Thirdly, the appellants' arguments that the quantum of fees charged by the receiver on and after 10 October 2008 was excessive or unreasonable or was evidence of any breach of duty by the receiver are also not seriously arguable in the absence of any direct challenge to his Honour's evaluation of the evidence as set out in para [102] of his Honour's reasons. 41 I turn to the appellants' arguments in relation to the balance of convenience. These arguments appear to be flimsy and based upon various misconceptions. 42 First, there is no evidence to suggest that the receiver is proposing to sell the property under value. It is not to be assumed against the receiver that he will act in breach of his duties in this or any other way. Should the receiver act in breach of any duty, or threaten to do so, then the usual remedies will be available to Forest Marsh. 43 Secondly, the suggestion that Mr Powell will suffer loss as a result of being deprived of possession of a property that he apparently does not occupy is not a matter that can carry any weight. Apart from the fact that Mr Powell does not even live on the property, there is no evidence before me to suggest that he will suffer any loss as a consequence of him being prevented from doing so in the future. 44 Thirdly, the appellants' submissions assume that the valuation does not take account of the development potential of the property. That assumption is incorrect. The methodology used takes the development potential into account. 45 This brings me to what I consider is the appellants' single substantive point, namely, that Bibby has more than adequate security in respect of Forest Marsh's existing and prospective indebtedness. 46 The evidence indicates that the indebtedness of Forest Marsh to Bibby will be in the vicinity of $615,000 in the event the appeal is unsuccessful and Forest Marsh is liable for the respondents' costs of the appeal. This is approximately half of the value of the property according to the valuation as at 30 January 2009. But if allowance is made for the $240,000 owing to NAB, the first mortgagee, then Bibby's position is not as strong as first appears. There is no evidence to indicate whether any interest is being paid to the NAB or whether interest is being capitalised and, if so, at what rate. Further, the valuation is now over two years old and there is a possibility that the property may have declined in value in recent years. 47 So far as Mr Powell's personal undertaking is concerned, there is no evidence to suggest that he has any assets which make it meaningful in the circumstances. 48 Had the appellants satisfied me that any of the grounds of appeal relied upon by them were seriously arguable then my attitude to their application may have been different. However, the closer the primary judge's reasons are analysed the more apparent it becomes that the appellants' grounds of appeal lack substance. 49 In the result, my assessment of the strength of the appeal and the balance of convenience leads me to conclude that the application for an interlocutory injunction should be dismissed. 50 For the above reasons I propose to dismiss the appellants' application for an interlocutory injunction. 51 It remains for me to consider the respondents' application for orders that the appeal be dismissed as incompetent or, alternatively, that the appeal be expedited. 52 While I have held that none of the grounds of appeal is reasonably arguable it does not follow that the appeal is incompetent. It is certainly not suggested that his Honour's judgment was not final in the relevant sense. I am therefore not prepared to make an order dismissing the appeal as incompetent. Nevertheless, it should be apparent from what I have said that the form of the appellants' grounds of appeal is quite unsatisfactory. In particular, the grounds of appeal fail to specify the particular errors in the trial judge's reasons which the appellants say should result in the judgment being set aside. 53 A notice of appeal must comply with the requirements of O 52, r 13(2)(b) of the Federal Court Rules. It provides that a notice of appeal shall state briefly, but specifically, the grounds relied upon in support of the appeal. 54 The appellants can only succeed in their appeal if they are able to persuade the Full Court that the trial judge's decision was affected by error. The identification of such error, at least in relation to the ultimate issues decided by the trial judge against the appellants, is an important function of the notice of appeal. The appellants' grounds of appeal do not fulfil that function. 55 As Branson J observed in Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354 at 356 [5]: A useful practical guide is that a notice of appeal which cannot be used to provide a sensible framework for the appellant's submissions to the Full Court is almost certainly a notice of appeal which fails to comply with the requirements of O 52 r 13(2)(b). The appellants' grounds of appeal do not provide such a framework. 56 I propose to order the appellants to file and serve an amended notice of appeal within 7 days of today. The amended notice of appeal should identify any errors made by the trial judge upon which the appellants wish to rely in support of their appeal. 57 So far as expedition is concerned, I do not think an order for expedition is required. The index to the appeal books is due to be settled on 22 June 2011 and the appeal has been listed for call over on 20 July 2011. 58 It is important that both sides take all necessary steps to ensure that the appeal is ready to be allocated a hearing date by the time the call over occurs. To that end, I propose to order that the appellants file and serve a draft index for each of Part A and Part B of the appeal books within 14 days of today. 59 The respondents were successful in resisting the appellants' application for an interlocutory injunction. And while they were not successful in having the appeal dismissed as incompetent, the basic complaint made by them about the form of the notice of appeal was justified. In the circumstances, it is appropriate that the appellants pay the costs of both notices of motion. 60 I will make orders accordingly. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas.