Liristis v Bank of Western Australia

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

5260/02 LIRISTIS & ORS v BANK OF WESTERN AUSTRALIA JUDGMENT

HIS HONOUR : Nature of the Application 1 The plaintiffs in these proceedings are a company which has borrowed money from the Bank of Western Australia Limited, Mr Liristis (the man who effectively operates that company), and various other companies also under the control of Mr Liristis. All the companies were purportedly placed into receivership by the Bank of Western Australia on 14 October 2002. 2 In today's application the plaintiffs seek interlocutory relief restraining the receivers from acting for a period of 90 days and an order that the receivers be restrained, again for that period, from taking any action or interfering in any way with the assets of the corporate plaintiffs. Estimate of Hearing Time 3 The application is one which came before me in a duty judge list. I embarked on it around 11am. At that time I was given an estimate by counsel that the hearing would take one hour plus. As it turned out, the hearing of evidence and submissions did not finish until a quarter to five. While there were some interruptions to the hearing to deal with other duty judge matters, those interruptions would not in total have exceeded half and hour. In the course of the hearing there were two large volumes of photocopied material tendered and two smaller bundles of photocopied material. The documentation included complex security documentation, and documentation which traced the history of a banker-customer relationship. It is impossible to understand how it could responsibly have been decided that the hearing of this case would take an hour, or anything like it. The Court depends, when it is making decisions on how interlocutory hearings will be run, on the estimates of counsel being responsible so that the Court can organise its business properly. Serious Question to be Tried? 4 The basis upon which the plaintiffs seek the relief is that they challenge the validity of the appointment of the receivers. There is a complex chain of correspondence and documentation which is relevant to this. One strand in that documentation concerns an issue of whether the principal borrower was in default of an overdraft arrangement at the time that the receivers were appointed. The evidence shows that there was some confusion, over the course of operation of the overdraft facility, about precisely what the limit of the overdraft was from time to time. I have the impression, however, that by the time the receivers were appointed the overdraft had been demanded and had not been repaid. 5 There is another strand in the documentation which concerns whether there had ever been an agreement by the bank that it would finance the purchase by Serenity Holdings Pty Limited, a company which Mr Liristis controls but which is not itself a plaintiff, of a service station at Kirrawee. Again, the impression I have gathered from the evidence is that there is very serious doubt about whether the bank ever agreed, in an irrevocable way not subject to conditions, to finance the purchase of that service station. In particular, it appears that the bank agreed to finance the purchase of the service station subject to the provision of a valuation in a sum of $4.75 million, being a valuation which was acceptable to it. While a valuation of $4.75 million was produced to the bank, that valuation was, it seems, not on terms acceptable to the bank. 6 In these circumstances, I have the impression, on the basis of the evidence I have seen, that there may well not be any basis for challenging the validity of the appointment of the receivers. However, given the circumstances in which the hearing has been conducted, it is not possible for me to come to a firm view that there is no such basis. 7 Another most important factor about whether the appointment of the receivers is justified or not arises from the fact that the bank and the principal borrower Mr Liristis (though not the other plaintiffs) entered into a moratorium deed on 27 August 2002. That deed recited that the borrower had made certain itemised defaults under facilities granted to it. It recited that the bank agreed to refrain from realising its security under the facilities and the securities during a moratorium period, on the terms and conditions set out in the deed. 8 The moratorium period began on 26 August 2002 and ended on 8 October 2002, subject to two contingencies. The first such contingency was that if there was an event of insolvency in relation to the borrower or Mr Liristis, or an event of default under any document or security document, the moratorium period would cease. The other contingency was the possibility that the moratorium period could be extended "upon the borrower or Mr Liristis providing the bank with evidence of receipt of an unconditional letter of approval from an Australian domiciled bank or other financial institution" for refinancing. In that circumstance, there was provision for the moratorium period to be extended for a further period of two weeks. No such unconditional letter of approval was provided. 9 The deed contained an acknowledgement by the borrower and Mr Liristis that the defaults itemised in the scheduled had occurred, that the bank is entitled to enforce the securities and intends to do so at the end of the moratorium, and that the bank would continue to issue notices and demands in connection with the facilities and defaults during the moratorium period. 10 The moratorium deed contains a clause saying that the deed recorded the entire agreement between the parties, and superseded all previous negotiations, understandings and agreements. It also contained an acknowledgement by the borrower and Mr Liristis that they had not entered the deed in reliance on or as a result of any statement or conduct of any kind or on behalf of the bank, but entered the deed voluntarily upon their own information and investigation and after taking independent legal advice. 11 There is evidence which shows that the deed was entered into in circumstances where Mr Liristis was about to make an appearance in the Family Court in connection with matrimonial proceedings instituted by his wife and it was of some importance to him, for those proceedings, to have a deed like the moratorium deed. There is evidence that Mr Liristis, at the time he entered the deed, made clear to the bank that his understanding of it was that "all the deed says is defaults have occurred and throws no blame at anyone." 12 The reader will observe that it was about a week after the expiry of the moratorium period that the receivers were appointed. 13 It was submitted on behalf of the plaintiffs that there was reason to doubt the accuracy of the basis upon which this moratorium deed was entered. It was also submitted that the deed may have been entered into with the bank knowing or at least suspecting from the circumstances that there was no opportunity for the parties other than the bank to take independent legal advice. 14 In my view, the existence of the moratorium deed is a circumstance which means that there is quite a strong case on the bank's part for the validity of the appointment of the receivers. However, again given the circumstances in which today's litigation has been conducted, I am not in a position to make a finding that the bank, as a matter of law on the material before me, had a right to appoint a receiver. 15 I therefore approach the present interlocutory application on the basis that there is established a serious question to be tried about the validity of the appointment of the receivers, but that it appears that any case that the receivers were invalidly appointed is a weak one. It is well enough established that the strength of the case for final relief is a matter which can be taken into account in assessing the balance of convenience. Balance of Convenience? 16 The plaintiffs submit that the balance of convenience favours the granting of the orders which they seek. The debt owing to the bank is currently somewhere between $3.8 million and $3.9 million. There is evidence that the bank, at one time in April 2002, put a total value of $5.92 million on the security which it holds. It is submitted, for the plaintiffs, that this shows that the bank is amply secured. 17 As well, the plaintiffs submit that one of the assets over which the bank has security is a family home of Mr and Mrs Liristis. That is true, however, there are matrimonial proceedings on foot between Mr and Mrs Liristis, and they have both moved out of the premises. 18 The assets over which receivers have been appointed include the undertaking and assets of various companies. Those companies, although they once traded, no longer do so. 19 The plaintiffs put that three of the security properties are ones which need work to be carried out to repair them and that it would be more effective if the plaintiffs were given the opportunity to repair and maintain the properties, in some fashion, before they were sold. As well, the plaintiffs put that it is onerous to force the plaintiffs into a position where a damages claim is their only remedy. 20 The plaintiffs present some evidence of a possibility of refinancing. That evidence takes the form of a statement in an affidavit by Mr Liristis that "since I received notice of the appointment of the receivers I have made enquiries about refinancing the debts of Liristis Holdings." Mr Liristis goes on to identify a letter, which he says is "from a financial institution that has indicated that it will provide the necessary finance." That letter is a letter where the identify of the writer has been blacked out and the letterhead on which the letter is written has been blacked out. It is dated 21 October 2002, and has a heading "Loan For $4,000,000." 21 It reads: "Further to our recent phone call I am pleased to advise you that an indicative approval has been given. For the matter to conclude to a full approval we need six-eight weeks to have all documents, valuations and all other paperwork completed. As you would know we would need to (have) access to the family home and as we both have seen the home is in extreme disrepair and we need to have this rectified immediately, before valuations can be done, as this will impact significantly on the amount. We hope the above is acceptable and we look forward to your approval." 22 I am incapable of taking this sort of an offer seriously. It is anonymous, and binds the writer (whoever it might be) to nothing. I do not regard it as providing the slightest evidence that there is a realistic possibility of refinance. 23 That the letter is written as early as 21 October 2002 and that it appears to be the only offer of finance which has been received, notwithstanding that the deed of moratorium contemplated that there would be a refinancing, only strengthens my conclusion that there is no realistic possibility of refinancing by a financial institution of any substance. 24 In those circumstances, it seems as though some sort of a sale of the property will be necessary and that it is really a question of who ought most effectively conduct that sale. 25 While the fact that one of the assets is a family home is a matter which it is appropriate to take into account on the balance of convenience, in circumstances where both Mr an Mrs Liristis have moved out, I do not give this the same weight that it would ordinarily have. Particularly is that so in circumstances where I am not persuaded that there is any realistic prospect of re-financing. 26 While the fact that some of the properties need repair and maintenance is a matter which will be likely to bear upon any ultimate realisation, there is nothing to stop Mr Liristis from putting the receiver in funds to carry out any repairs and maintenance which might be necessary if the receiver is of the view that those repairs and maintenance would indeed improve the prospects of sale of the property, or the price at which the properties might be sold. The receivers will be well aware of their obligations in exercising the power of sale and if they are offered finance to carry out any repairs and maintenance, that is a vastly different situation to the situation that receivers are commonly faced with, of needing to decide whether they themselves will finance repairs and maintenance prior to a sale. The receivers would, however, be entitled to balance against the desirability of effective repairs and maintenance any delay in a sale occurring which would be occasioned by the need to carry out those repairs and maintenance. 27 While there would be some disadvantage to the plaintiffs in having to prove a case of damages, rather than get specific relief of the type they now seek, the weight to be placed on that factors depends on the likelihood of the plaintiffs being able, ultimately, to prove that the receivers were not validly appointed. 28 Against this there is a very large debt outstanding. The bank has received no payment whatever since late June concerning that debt. The companies are not trading, so there is not the same question about the desirability of preserving a corporate goodwill, or the livelihood of employees, that might otherwise exist. 29 In all these circumstances, I am of the view that the balance of convenience favours refusing the interlocutory relief. The application is dismissed. (Mr Dowdy asked that the matter be stood over to next week before the Registrar in Equity.) (Mr Dowdy made application for costs of today. Mr Miller asked that the question of costs be reserved.) 30 The defendants seek their costs of the present application. In my view the appropriate order is that the costs be the defendants' costs in the cause. I so order. 31 I stand the matter over to 9.30am on Thursday 21 November 2002 before the Registrar. **********

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