Ozkar Pty Ltd v Ed's Foods Pty Ltd & Anor [2022] VSC 207

1 The plaintiff, Ozkar Pty Ltd (Ozkar), commenced this proceeding in the Corporations List by originating process on 27 September 2021, seeking a declaration under s 418A of the Corporations Act 2001 (Cth) that the second defendant, Mohammed Shahin Hussain (the receiver), has not been validly appointed as a receiver and manager of Ozkar, on the specific grounds stated therein. Ed's Foods Pty Ltd (Ed's Foods), the entity that had appointed Mr Hussain as the receiver to Ozkar, pursuant to the terms of a 'Mortgage Linked Loan Agreement', was named as the first defendant to the Corporations List proceeding.

2 By orders made by Efthim AsJ 'on the papers' on 8 October 2021, a timetable was set for the filing and service of affidavits by the defendants, responding affidavits by the plaintiff, and outlines of submissions by each of the parties, and the matter was listed for hearing before Efthim AsJ on an estimate of half a day on 29 October 2021. However, the hearing of the substantive application did not proceed on that date.

3 It is unclear precisely what took place before his Honour on 29 October 2021. Counsel appearing for the plaintiff on the present application, Mr J Korman, appeared for the plaintiff at the hearing before Efthim AsJ on 29 October 2021, but he was unable to recall the detail of what took place that day. So far as he could recall, the position was that counsel for the first defendant was seeking to have the matter heard that day, but the plaintiff was of the view that the more sensible course was to await the determination of the related proceeding in the County Court, which was being managed by Judge Burchell and was well advanced towards trial.

4 Against that background, Efthim AsJ made orders that the proceeding be stayed until further order, with costs reserved and liberty to apply. In those orders, his Honour recorded under 'Other matters' relevantly that:

1. The substantive issues on this proceeding are the subject of County Court proceeding CI-21-03475, Devmun Pty Ltd (ACN 626 776 190) As Trustee for the Devmun Discretionary Trust & Ors v Ed's Foods Pty Ltd (ACN 090 905 936) & Anor.
2. This matter is stayed pending the hearing and determination of the County Court proceeding.

1. The receivership has not been stayed by virtue of this application.

5 Since then, the receiver has proceeded to sell two properties at Chelsea of which Ozkar is the registered proprietor, and settlement was scheduled to take place on Monday 11 April and Wednesday 13 April 2022 respectively. Each of those properties is encumbered by a (first) registered mortgage in favour of Perpetual Corporate Trust Ltd (Perpetual) and there is an unregistered mortgage in favour of Ed's Foods. The receiver has deposed that both properties were sold at prices above the valuations he had received - unit 1 (an untenanted residential property) sold for $805,000 (incl. GST) and unit 3 (an untenanted commercial property) sold for $555,500 (incl. GST) - and upon settlement of the sale of those properties, there will be sufficient proceeds to pay the first mortgagee in full.[1] However, Ozkar and Ed's Foods are in dispute regarding how the remaining net proceeds of sale of the properties should be dealt with, and in those circumstances, Ozkar has brought on a summons in the Corporations List proceeding, before the Duty Judge, seeking urgent relief to restrain the receiver from disbursing the net proceeds of sale of the properties.

6 In its summons filed on 31 March 2022, Ozkar sought an order to the effect that the receiver hold the proceeds of sale of the Chelsea properties after discharge of the first mortgagee's security interest in the subject land, and that those funds be disbursed by the receiver as follows:[2]

1. the second defendant's [receiver's] reasonable remuneration, costs of the receivership, and disbursements are to be retained by the second defendant; and

1. the balance of the proceeds of sale are to be paid into Court, pending the hearing and determination of this proceeding.

7 The first defendant to the summons, Ed's Foods, opposes that course and submits that Ozkar's summons should be dismissed with costs.

8 The second defendant, the receiver, has adopted what is essentially a neutral position save that he is seeking to effect settlement of the properties in a timely way and finalise the receivership. While he does not propose to take an active part in the proceedings, he seeks to protect his position, and requires that the costs associated with the sale of the properties and his fees and disbursements be paid from the net proceeds of sale.

9 Shortly prior to the hearing of the urgent application, Ozkar's solicitor circulated a proposed form of amended summons and notified the Court and the parties that Ozkar would be seeking leave to amend its summons at the hearing. The revised form of order sought was to the effect that the receiver hold the proceeds of sale of the Chelsea properties after discharge of the first mortgagee's security interest in the subject land, to be disbursed by the receiver as follows:[3]

1. the second defendant's [receiver's] reasonable remuneration, costs of the receivership, and disbursements and the future costs and disbursements of the receivership in the amount of $28,600[4] are to be retained by paid to the second defendant; and

1. the balance of the proceeds of sale are to be paid into Court, pending the hearing and determination of this proceeding.

10 It appears that prior to circulating the proposed amended summons, Ozkar's solicitor had written to the receiver by letter dated 6 April 2022, sent by email to the parties that day, informing them as follows:[5]

We refer to the affidavit of Mohammed Shahin Hussain affirmed 4 April 2022 and filed for the second defendant in this matter ("Receiver's Affidavit").

The plaintiff consents to the receiver retaining $26,000 plus GST from the proceeds of sale to cover his future remuneration and future legal fees, as set out in the Receiver's Affidavit, and to restrict the proposed changes to be made in the amended summons solely to substitution of the word "retained by" with "paid to", as requested by the receiver.

Given the plaintiff's consent, can you please confirm that you will inform the court that the receiver neither opposes nor consents to the orders as sought in the original summons, with the said substitution and will not take an active part in the application.

Material relied on at the hearing of the urgent application

11 In support of its application for urgent relief, Ozkar relies on the following affidavits in support:

(a) an affidavit of its sole director, Ms Munire Kara, affirmed on 26 September 2021 (first Kara affidavit) and filed on 27 September 2021 in support of its originating process;

(b) supplementary affidavit of Mr Barry Moshel, Ozkar's solicitor, affirmed on 1 April 2022 (supplementary Moshel affidavit) and filed in support of Ozkar's application for urgent relief;[6]

(c) third affidavit of Mr Barry Moshel, affirmed on 6 April 2022 (third Moshel affidavit) and filed in support of Ozkar's application for urgent relief;

12 I note that those affidavits refer to other affidavits and pleadings filed in the County Court proceeding and also in the Federal Court of Australia in a sequestration proceeding commenced by Ed's Foods against Ms Kara, as follows:

(i) as exhibit MK-19 - an affidavit of Mr Mehmet Gundem affirmed on 10 September 2021 (with exhibits), filed in the County Court proceeding (Gundem 10.09.2021 affidavit); and

(ii) as exhibit MK-18 - and a copy of the amended Writ (amended pursuant to the orders of Judge Burchell made on 10 September 2021) and statement of claim filed in the County Court proceeding dated 23 September 2021, joining Mr Gundem as the second defendant.

(b) The supplementary Moshel affidavit exhibits as part of Exhibit BM-2, an affidavit of Mr Mehmet Gundem affirmed on 4 November 2021 (Gundem 04.11.2021 affidavit) (with selected extracts from exhibit MG-17), filed in the County Court proceeding and also a copy of the (further) amended statement of claim dated 27 October 2021 filed in the County Court proceeding.

(c) The third Moshel affidavit exhibits the complete exhibit MG-17, an affidavit of Ms Kara affirmed on 15 March 2022, filed in the County Court proceeding in opposition to the defendants' application for security for costs, which in turn exhibits, inter alia, materials filed in Federal Court of Australia proceeding No VID 327/2021 including a Creditor's petition filed by Ed's Foods against Ms Munire Kara together with an affidavit of Mr Mehmet Gundem sworn on 11 June 2021, and an affidavit of Ms Kara affirmed on 21 July 2021 in opposition to Ed's Foods application for a sequestration order.

13 Ed's Foods relies on the following affidavits in support:

(a) affidavit of Mr Mehmet Gundem affirmed on 15 October 2021, filed in the Corporations List proceeding in response to the first Kara affidavit (Gundem 15.10.2021 affidavit);

(b) affidavit of Mr Jack Rennex affirmed on 4 April 2022, filed in the Corporations List proceeding (Rennex affidavit).

14 The receiver relies on the following affidavits in support:

(a) affidavit of Mr Mohammed Shahin Hussain affirmed on 15 October 2021, filed in the Corporations List proceeding (first Hussain affidavit);

(b) affidavit of Mr Mohammed Shahin Hussain affirmed on 4 April 2022, filed in the Corporations List proceeding (second Hussain affidavit).

15 As will be apparent, a substantial body of material was adduced before the Court on the hearing of the urgent application.

16 On 18 August 2021, Ozkar, Devmun Pty Ltd in its capacity as trustee for the Devmun Discretionary Trust (Devmun) and Munire Kara (together, the plaintiffs) commenced County Court proceeding CI-21-0347 against Ed's Foods (the County Court proceeding). Ms Kara is the sole director of Ozkar and also the sole director and shareholder of Devmun.

17 On 23 September 2021, the plaintiffs joined Mr Mehmet Gundem as a second defendant to the County Court proceeding. Mr Gundem is a director of Ed's Foods.

18 The County Court proceeding arises from a transaction entered into in late September 2018, whereby Devmun purchased a restaurant in Coolaroo known as 'Mehmet Usta' from Ed's Foods.

19 From about September 2018, discussions took place between Ms Kara, in her capacity as director of Devmun, and Mr Gundem in his capacity as a director of Ed's Foods about the purchase of the restaurant. Each of the parties to the transaction was represented by solicitors. A suite of documentation was entered into between the parties to facilitate the transaction, as follows:

(a) Sale of Business Agreement dated 27 September 2018 - made between Ed's Foods as Vendor and Devmun as trustee for the Devmun Discretionary Trust as Purchaser, with Munire Kara as Guarantor and Mehmet Gundem as Covenantor. The purchase price was stated to be $600,000 and Devmun paid a deposit of $5,000.

(b) (Unregistered) Mortgage over the fee simple in the land in certificate of title volume 8216 folio 158 (being the parent title from which units 1 and 3 were created) given by Ozkar as mortgagor in favour of Ed's Foods as mortgagee as security for the debt or liability described. The mortgage referenced a Memorandum of Common Provisions AA2785 and stated:

Without limiting the Mortgagee's rights under this Mortgage, the parties acknowledge and agree that this mortgage secures the Mortgagee against the Mortgagor's performance of its obligations and liabilities as set out in:

(a) the Mortgage Linked Loan Agreement dated on or about the date of this Mortgage; and

(b) the Business Sale Contract between Mortgagee and DEVMUN PTY LTD (ACN 626 776 190) as trustee for the Devmun Discretionary Trust of 404/808 Sydney Road Brunswick 3056 dated on or about the date of this Mortgage.

The mortgage was executed by Ozkar on 27 September 2018.

(c) Mortgage Linked Loan Agreement undated but made between Ed's Foods as Mortgagee, Ozkar and/or Devmun as Mortgagor/Borrower and Munire Kara and/or Ozkar as Guarantor on or about 19 October 2018. The 'Principal' is $595,000 (exclusive of GST). The 'Term of the loan' is stated as being 'Until all amounts owing by the Borrower to the Mortgagee under the Sale of Business Contract between the Mortgagor and the Borrower dated the day of this Agreement ("Business Contract") have been paid in full.' Instalments of principal and interest are due '[i]n accordance with the terms and conditions of the Business Contract.' The Mortgage Linked Loan Agreement also references Memorandum of Common Provisions AA2785.

(d) General Security Agreement entered into on or about 19 October 2018 and made between Devmun as Grantor and Ed's Foods as the Secured Party. Thereunder, Ed's Foods agreed to provide financial accommodation to Devmun on security of the collateral being present and after-acquired personal property of the company.

20 It is common ground that the Sale of Business Agreement must be read together with the Mortgage Linked Loan Agreement, so that the obligation to pay the purchase price under the Sale of Business Agreement was considered by the parties to each have been satisfied and replaced by the obligation to pay the 'Principal' under the Mortgage Linked Loan Agreement, in or about October 2018 or at latest April 2019.[7]

21 Thus far, Devmun has paid only $385,000 in total to Ed's Foods in respect of the restaurant business. There is a dispute between the parties as to whether the purchase price for the restaurant business was $600,000 as stated in the transaction documents or whether it was actually $700,000, by reason of an alleged oral agreement made between Ms Kara (in her capacity as director of Devmun) and Mr Gundem (as director of Ed's Foods) in or about September 2018 prior to entry into the contract for the Sale of Business Agreement.[8] But whatever be the correct agreed purchase price, it is clear that at least $215,000 of instalments remains unpaid by Devmun, and interest is accruing on unpaid instalments at two per cent above the rate prescribed by s 2 of the Penalty Interest Rates Act 1983 (Vic) (currently 10%).

22 On 6 August 2021, pursuant to the Mortgage Linked Loan Agreement, Ed's Foods, as mortgagee, through its solicitors, Merton Lawyers, issued a written notice of default to Ozkar pursuant to s 76 of the Transfer of Land Act 1958 (Vic) with respect to the Chelsea properties.[9] The notice was issued to the solicitor acting for Ms Kara, Ozkar and Devmun, Barry B Moshel Legal, under cover of a letter dated 6 August 2021.[10] In the notice, the default was stated as follows:[11]

THE DEFAULT

4. The Borrower is in default under the Loan Agreement by failing to pay principal and interest payments for the term of the loan pursuant to the Loan Agreement and the Mortgage. Details of the defaults made as of 31 August 2020 [sic.] are:

(a) balance of the purchase price $315,000;

(b) interest $88,258.80; and

(c) reasonably foreseeable costs., losses and expenses $78,429.31.

(d) Total Amount Due $481,688.11.

23 By email sent to Merton Lawyers on 13 August 2021, Mr Moshel of Barry B Moshel Legal responded, in terms:[12]

We acknowledge receipt of your correspondence and notice of default.

We advise that we are seeking instructions from our client with a view to making an offer to your client to avoid further litigation and costs.

Our client is making arrangements regarding funds and we expect to be in a position by later next week to provide you with that offer.

24 The County Court proceeding was commenced by Ozkar, Devmun and Ms Kara as plaintiffs by Writ dated 18 August 2021. In the County Court proceeding, Ozkar, Devmun and Ms Kara challenge Ed's Foods' entitlement to be paid the balance of the purchase price for the restaurant business. Relevantly for present purposes, the plaintiffs allege misleading and deceptive conduct on the part of Ed's Foods in breach of s 18 of the Australian Consumer Law and contend that Mr Gundem was a person involved in Ed's Foods breaches of s 18. They seek, amongst other things, damages and orders pursuant to the Australian Consumer Law setting aside the General Security Agreement and Mortgage Agreement.[13]

25 In essence, the plaintiffs contend that during negotiations in relation to the sale of the restaurant, representations were made by Mr Gundem on behalf of Ed's Foods to Ms Kara on behalf of the plaintiffs which the plaintiffs relied upon in purchasing the business and entering into the vendor financing facility (by way of the Mortgage Linked Loan Agreement and the unregistered Mortgage) and also the General Security Agreement (by which Devmun granted Ed's Foods a first ranking charge over its present and after-acquired personal property). Relevantly, in their (further) Amended Statement of Claim dated 27 October 2021, the plaintiffs plead:[14]

8. In the course of the negotiations referred to in the preceding paragraph, Mehmet Gundem told Munire Kara that:

(a) he was the very first tenant at the restaurant;

(b) he built the shop fit-out and outdoor decking located in a protected area in front of the built premises ("decking");

(c) Ed's Foods had permission to build the decking;

(d) he couldn't find the documents or other correspondence evidencing that Ed's Foods had permission to build the decking, because it had been too long; and

(e) Munire Kara should trust him.

(the representations pleaded in subparagraphs (c), (d) and (e) collectively, Representations)

26 They also plead that at no time during the negotiations leading up to the sale on 27 September 2018 did Mr Gundem or Ed's Foods disclose that:[15]

(d) the restaurant that constituted the Business could legally seat no more than approximately 50 65 people;

(da) Ed's Foods was operating the Business unlawfully and in breach of its planning permit which permitted no more than 65 seats to be made available to patrons at any one time without the written consent of the Responsible Authority;

(e) Ed's Foods did not have permission to build the decking;

(f) Ed's Foods did not have permission to use the decking for seating restaurant customers; and/or

(g) the decking was built illegally on land belonging to the Owners' Corporation and the Owners' Corporation had not consented to its use by the restaurant.

27 The plaintiffs contend that the alleged Representations misled or deceived, or were likely to mislead or deceive Ms Kara and Devmun and Ozkar, whose guiding mind was and is Ms Kara, because:[16]

(c) Ed's Foods did not have permission to build the decking;

(d) Ed's Foods did not have and never had any documents or other correspondence evidencing that it had permission to build the decking because it had never been granted such permission and had never been provided with such documents or correspondence; and

(e) Munire Kara should not have trusted him.

28 Further, they say, there was a reasonable expectation that Ed's Foods would have disclosed the matters constituting the Omissions to Ms Kara (and thereby to Ozkar) and/or Devmun prior to 27 September 2018. They plead that:[17]

28. The reasonable expectation of disclosure arose because the matters constituting the Omissions, to the knowledge of Ed's Foods:

(a) reduced the seating capacity of the restaurant and consequently its income-earning potential by approximately 40-50 percent; and

(b) substantially reduced the fair market price of the Business and the amount that Devmun would have been prepared to pay for the Business; and

(c) were critical to any decision that would be taken by:

(i) Devmun as to whether to enter into the Business Sale Agreement and the General Security Agreement; and

(ii) the plaintiffs as to whether to enter into the Mortgage Agreement.

29 Accordingly, they contend that in making the Representations, and in failing to disclose the matters constituting the Omissions prior to 27 September 2018, Ed's Foods breached s 18 of the Australian Consumer Law. They say that but for Ed's Foods making the Representations and omitting to disclose the matters constituting the Omissions, the various plaintiffs would not have entered into the transactional documents being the Business Sale Agreement/the General Security Agreement/the Mortgage Agreement as the case may be; alternatively, Devmun would have agreed to pay no more than a reduced price for the restaurant; and alternatively Ozkar would have agreed to secure, and Ms Kara to guarantee, a reduced amount under the Mortgage Agreement.

30 Further, they allege that Mr Gundem is a person involved in Ed's Foods breaches of s 18.

31 In the prayer for relief, the plaintiffs claim, inter alia:[18]

A. Damages.

B. Orders under section 237(1) of the ACL:

(i) setting aside the Business Sale Agreement, General Security Agreement and Mortgage Agreement;

. . .

1. Further or alternatively orders under s 236(1) of the ACL requiring compensation to be paid by Ed's Foods and Mehmet Gundem:

1. the amount in excess of true market value paid for the Business under the Business Sale Agreement or borrowed under the General Security Agreement; and

2. losses incurred in operating the Business since Devmun entered into the Business Sale Contract;

3. expenses incurred as a result of enforcement actions taken by Ed's Foods, including the costs of resisting those enforcement actions.

(ii) to Ozkar in respect of consequential losses arising from Ozkar's inability to deal with its land due to the caveats lodged by Ed's Foods, and expenses incurred as a result of enforcement actions taken by Ed's Foods, including the costs of resisting those enforcement actions; and/or

(iii) to Munire Kara in respect of loss and damage incurred in defending insolvency proceedings commenced by Ed's Foods.

32 On 10 September 2021, Devmun, Ozkar and Ms Kara filed a summons in the County Court proceeding seeking an order restraining Ed's Foods, by itself, its employees, servants, contractors or howsoever from:[19]

(a) causing or facilitating the appointment of a receiver to the business conducted by Devmun; or

(b) taking possession of, or selling the land owned by Ozkar at Units 1 or 3, 484 Nepean Highway, Chelsea 3196.

33 On 13 September 2021, the plaintiffs' summons was heard by Judge Burchell at a contested hearing between the parties. Her Honour dismissed the plaintiffs' summons and awarded Ed's Foods its costs of and incidental to the summons from 7 September 2021. The materials before the Court include a copy of the orders made by the County Court and a transcript of her Honour's ex tempore reasons.[20] The orders made that day record under 'Other Matters' an undertaking that was given at the hearing by Ed's Foods, as follows:[21]

The defendant by its counsel undertakes to the Court that it will not cause or facilitate the appointment of a receiver to the first plaintiff (Devmun) or otherwise exercise its rights under clause 13 of the General Security Agreement that was executed on or around 19 October 2018 without first providing the plaintiffs with written notice of not less than 21 days or by order of the Court.

34 Relevantly, Judge Burchell's ex tempore reasons record that her Honour was satisfied that there was a serious question to be tried. She stated:[22]

... in my view, it is clear there is a serious question to be tried as to any entitlement by the plaintiffs to relief at trial and that the court in an application such as this, without viva voce evidence and cross-examination about representations both oral and by silence, cannot be determined today or to have a firm view as to likelihood of success at trial in order to preserve the status quo pending trial.

I therefore turn to the other factors that the court must take into account such as whether the plaintiffs are likely to suffer injury for which an award of damages would not be an adequate remedy and the balance of convenience.

. . .

35 Turning to deal with those matters, her Honour said:[23]

In my view, the obligations under the mortgage are separate to the business sale agreement and the plaintiffs have had the benefit of running a business and occupying the business without paying for the full purchase price as contracted by the parties and provided for in the vendor finance document.

In my view, the obligations under that mortgage agreement operate until they are set aside, which would be by way of final relief in this proceeding if the plaintiffs are able to make good their cause of action.

However, the plaintiffs also seek damages in addition to any setting aside of the three documents and require the defendant to refund to the plaintiffs all moneys paid to the defendant under any of those agreements.

In light of that type of relief, in my view, damages clearly is an adequate remedy and I accept the submissions made by Mr Purton [counsel for the defendant] that the changes made to the business by the plaintiffs make it such a fundamentally different proposition to what had been sold by the defendant to the plaintiffs that damages would be the practical relief or compensation for losses incurred.

Further, on the balance of convenience, in light of the fact that the plaintiffs themselves have sought to sell the properties in question, there is nothing before the court that shows a specific value of the land that makes it an exception to the proposition that damages are not an adequate remedy in relation to land.

Therefore, in my view, there ought not be an injunction in relation to the possession and sale of the investment properties and I will hear the parties in relation to the balance of relief in paragraphs 1(A) and (B).

36 Any defence that may have been filed by the defendants in the County Court proceeding is not in evidence before the Court in the Corporations List proceeding. However, in his affidavit filed in the Corporations List proceeding on 15 October 2021, in opposition to Ms Kara's affidavit in support of the originating process, Mr Gundem deposes:[24]

Response to the Kara Affidavit

22. The matters set out in paragraphs 16 to 25 to the Kara affidavit are in dispute in the County Court proceeding. In this affidavit, I do not respond to the allegations made by Ms Kara because they will be heard and determined by the County Court, save to say that:

1. I deny that I did not have permission to build the decking outside the restaurant.
2. The decking occupied just two car parks and was a small area of approximately 3m x 6m.
3. I deny that any misleading or deceptive pre contractual representations were made to the plaintiff.
4. I deny that there was capacity to seat 40-50 people outside the restaurant at the time it was sold.
5. I deny that Ed's Foods breached any fundamental term[25] or any of the vendor warranties under the Business Contract.

37 On 17 September 2021, pursuant to the Mortgage Linked Loan Agreement and the applicable Memorandum of Common Provisions, Mr Mohammed Hussain was appointed to act as receiver of the Secured Property of Ozkar. The appointment is recorded in a Deed of Appointment made on 17 September 2021 between Ed's Foods and Mr Hussain. The Deed of Appointment recites that:[26]

1. As a result of the occurrence of the above notice [being the notice of default issued on 6 August 2021 pursuant to the Transfer of Land Act] and the Event of Default [being Ozkar's default pursuant to cl 12(a) or cl 12(b) of the Loan Agreement], Ed's Foods is entitled to appoint a receiver over the Secured Property with the same powers as the mortgagee as well as any further powers conferred on a receiver under statute pursuant to clause 6.(f) of the Memorandum of Common Provisions AA2785.
2. Upon the terms and conditions contained in this deed, Ed's Foods has requested that the Receiver [Mr Hussain] accept an appointment to act as receiver of the Secured Property[27] of the Client [Ozkar] and the Receiver has agreed to accept this appointment.

38 Clauses 2 and 3 of the Deed of Appointment provide for the appointment of the receiver and his role as follows:

2. APPOINTMENT OF RECEIVER

2.1 Ed's Foods hereby appoints the Receiver to be the receiver of the Secured Property and to exercise all the powers, authorities and discretions vested in the Receiver by the Mortgage and by law.

2.1 The Receiver warrants to Ed's Foods that they are, within the meaning of all relevant legislation in force as at the date of this deed, properly qualified to accept this appointment.

3. RECEIVER TO ACT AS AGENT AND ATTORNEY FOR THE CLIENT

Ed's Foods declares that, to the full extent permitted by law, the Receiver shall be and act as the agent and attorney of the Client and otherwise the Receiver shall be the agent of Ed's Foods.

39 The acceptance of the appointment of the receiver is acknowledged in cl 11 of the deed as being effective from the Appointment Date.[28]

40 The remuneration of the receiver is addressed in cl 7 of the deed, as follows:

7. REMUNERATION OF RECEIVER

7.1 Ed's Foods will make a payment to the Receiver of $10,000 for his initial costs and outlays, with the balance of the Receivers' costs and outlays to be paid from the sale proceeds of the Secured Property (after payment of the first mortgagee of the Secured Property). The first $10,000 the receiver recovers from the Secured Property, after payment to the first mortgagee, will be immediately become due and payable to Ed's Foods.

7.2 Subject to clause 7.3, the Receiver will be entitled to:

(a) Reimbursement of all costs, charges and expenses properly incurred by them under this appointment;

(b) Remuneration for their services under this appointment at the rate set from time to time for work of that nature by the firm of which the Receiver is a member for the time spent in the provision of those services by the Receiver or by any partner or employee of the Receiver; and

(c) Reimbursement of any GST that is properly incurred by them under or in connection with this appointment (net of any input tax credits to which they may be entitled).

7.3 The Receiver will not be entitled to remuneration or reimbursement greater than that provided in the Mortgage at law or under the Deed of Indemnity.[29]

41 Following his appointment as receiver, Mr Hussain filed with the Australian Securities & Investments Commission a Form 505 notice of appointment of an administrator or controller, notifying that on 17 September 2021 he had been appointed as 'Receiver of the property described in the schedule of property' being the 'Properties located at 484 Nepean Highway, Chelsea VIC 3196 (more accurately described as Certificate of Title Volume 12186 Folio 493 and Volume 12186 Folio 495).[30] The appointment was stated to be 'by instrument' being the Mortgage Linked Loan Agreement dated 19 October 2018.

42 As noted earlier, on 29 September 2021, Ozkar commenced the present proceeding, seeking an order under s 418A(2) of the Corporations Act 2001 (Cth) declaring that Ed's Foods' purported appointment of a receiver to Ozkar's property was not valid, on grounds arising from Ed's Foods' alleged misrepresentations. On 29 October 2021, the proceeding was stayed by Efthim AsJ pending the hearing and determination of the County Court Proceeding.

43 On 12 February 2022, the receiver sold both of Ozkar's Chelsea properties, with respective settlement dates of 11 and 13 April 2022.

44 On 24 March 2022, the receiver advised Ozkar that, if it could not reach agreement with Ed's Foods in relation to the disposition of the proceeds of sale, he would pay the settlement proceeds less his reasonable remuneration, costs of the receivership, and disbursements directly to Ed's Foods subject to any order or direction of the Court to the contrary.[31]

45 Mr Hussain has filed two affidavits in the Corporations List proceeding, dated 15 October 2021 and 4 April 2022 respectively. In his first affidavit, he deposes as to the work to be undertaken by him as receiver, and in his second affidavit, as to the work undertaken to achieve the sale of the Chelsea properties, and the associated costs, charges and expenses incurred by the receiver in addition to his fees by way of remuneration.

46 In his affidavit of 4 April 2022, Mr Hussain deposes as to the net proceeds of sale available following sale of the Chelsea properties, as follows:[32]

Net Proceeds of Sale Available

63. Page 22 of MSH-2 is a spreadsheet I have prepared that shows the costs associated with the sale of the properties and other deductions that will need to be made from the sale proceeds for outgoings.

64. I estimate, subject to confirmation regarding council rates, that the total net sale proceeds will be $1,191,756.

65. I have further included in this spreadsheet amounts for my remuneration and disbursements, legal fees incurred to date and future legal fees expected.

66. It is also noted that the debt owing to the first mortgagee is approximately $724,077.

67. The impact of Capital Gains Tax will also need to be considered.

47 The spreadsheet estimates a balance of $258,718 will be available for payment to Ed's Foods. This estimate generally accords with the estimate given by Mr Rennex, the solicitor for Ed's Foods, in his affidavit affirmed on 4 April 2022.[33] Ed's Foods contends that as at 4 April 2022, the debt owing to Ed's Foods was $656,381, and if the estimated balance from the sale of the Chelsea properties is paid to Ed's Foods, there will be a shortfall of around $395,017.[34]

Ozkar contends there is doubt on specific grounds about the validity of the receiver's purported appointment

48 Section 418A of the Corporations Act provides:

(1) Where there is doubt, on a specific ground, about:

(a) whether a purported appointment of a person, after 23 June 1993, as receiver of property of a corporation is valid; or

(b) whether a person who has entered into possession, or assumed control, of property of a corporation after 23 June 1993 did so validly under the terms of a security interest in the property;

the person, the corporation or any of the corporation's creditors may apply to the Court for an order under subsection (2).

(2) On an application, the Court may make an order declaring whether or not:

(b) the person entered into possession, or assumed control, validly under the terms of the security interest;

as the case may be, on the ground specified in the application or on some other ground.

49 Ozkar accepts that it must show that there is doubt on specific grounds about the validity of the purported receiver's appointment. As Colvin J explained in Goldus Pty Ltd v Cummins & Ors (No 4):[35]

[26] The approach to be adopted where a party disputes the validity of the appointment of a controller or receiver under s 418A of the Corporations Act is to consider whether the plaintiff has demonstrated doubt and, if that is so, then to consider whether the parties supporting the appointment have demonstrated its validity: see the position adopted in Action Scaffolding & Rigging Pty Ltd (in liq) v Citadel Financial Corporation Pty Ltd [2019] FCA 327; (2019) 135 ACSR 372...

50 The relevant concept of 'doubt' was considered by Gleeson J in Action Scaffolding & Rigging Pty Ltd (in liq) v Citadel Financial Corporation Pty Ltd,[36] where her Honour adopted a dictionary definition, being 'a feeling of uncertainty'.[37] Once doubt is established, the burden of proof then shifts to the respondent, here Ed's Foods, to demonstrate that the purported receiver's appointment was a valid appointment.[38]

51 The specific grounds alleged by Ozkar are set out in its amended originating process as follows:

1. the agreement pursuant to which the second defendant was appointed should be set aside under s 237(1) of the Australian Consumer Law for breach of section 18 of the Australian Consumer Law by the first defendant; and/or
2. there was no default which constituted grounds for the appointment of the second defendant because the relevant debt owing to the first defendant was completely extinguished by an offset due to the debtor in respect of compensation payable by the first defendant under s 236 of the Australian Consumer Law for breach of section 18 by the first defendant; and/or
3. prior to the alleged default which constituted grounds for appointment of the second defendant, the first defendant had breached a fundamental term of the agreement that was allegedly guaranteed by the plaintiff.

52 Ozkar filed its summons seeking urgent relief in circumstances where the receiver had informed Ozkar on 24 March 2022, that, if it could not reach agreement with Ed's Foods in relation to the disposition of the proceeds of sale of the two Chelsea properties, he would pay the settlement proceeds less his reasonable remuneration, costs of the receivership, and disbursements directly to Ed's Foods subject to any order or direction of the Court to the contrary.[39]

53 In support of its summons, Ozkar filed an outline of submissions dated 1 April 2022, to which Ed's Foods responded by an outline of submissions dated 5 April 2022.[40] Ozkar filed an outline of reply submissions dated 6 April 2022, in advance of the application being heard on 7 April 2022.

54 Ozkar seeks to restrain the disposition by the receiver of the net proceeds of sale of its two Chelsea properties. It does so in circumstances where it challenges both the validity of the receiver's appointment and the true status of the net proceeds of sale, and because it is concerned that if the net proceeds are paid out to Ed's Foods - which Ozkar contends is a dormant and impecunious corporation - there is a real risk that they will be irretrievably dissipated.

The receiver is under an equitable obligation to pay the funds into Court

55 First, Ozkar contends, the receiver is under an equitable obligation to pay the funds into Court. In essence, Ozkar submits that the receiver was appointed as Ozkar's agent, and as such owes fiduciary obligations to it as well as Ed's Foods, and therefore is obliged not to act in a manner that is likely to prejudice Ozkar's legitimate interests.

56 Ozkar submits that the position of the receiver exercising a power of sale over secured property is similar to that of a mortgagee exercising a power of sale. In this regard, counsel referred to Residential Housing Corporation v Esber,[41] where the New South Wales Court of Appeal held that a mortgagee who holds proceeds of sale is not required simply to pass on the whole net proceeds to the next encumbrancer but is under a fiduciary obligation to all subsequent interest holders not to prejudice their interest in the surplus by the manner in which those proceeds are disposed of.[42] The Court of Appeal was also of the view that insofar as there is a surplus remaining following the exercise of the power of sale, if agreement is not reached between the mortgagor and all subsequent mortgagees, a mortgagee holding a surplus can pay the money into court.[43]

57 The obligations of a receiver appointed out of court were considered and discussed at some length by Einstein J in State Bank of New South Wales Ltd v Chia.[44] His Honour commenced by noting that a receiver appointed by a court owes fiduciary obligations to all persons interested in the subject property,[45] and the function of such a receiver is to preserve the assets of the company and its potential to earn future profits.[46] Whereas in the case of a receiver appointed privately, the position is different. His Honour explained the position, stating:[47]

[868] The purpose of the appointment of a receiver out of court is somewhat different; they are not appointed for the benefit of the company but for the purpose of realising the security held by the appointer: see Re B Johnson & Co (Builders) Ltd [1955] 1 Ch 634 at 644 per Evershed MR, Ostrander v Niagra Helicopters Ltd (1973) 20 DLR (3d) 161 at 167 per Stark J (Ontario High Court). The appointment of such a receiver is performed by the mortgagee, however, it is invariably the case, and is here the case, that the instrument under which the receiver is appointed provides that the receiver is the agent of the mortgagor. It has been said that the agency is 'a very special' and 'limited' one: see WRD Stevenson, 'Receivers' (1973) 44 ALJ 438 at 444. The purpose and effect of rendering the receiver the agent of the mortgagor is to relieve the mortgagee from the liabilities which the law casts upon a mortgagee going into possession and to place upon the mortgagor the liability for the acts and defaults of the receiver: Gaskell v Gosling [1886] 1 QB 669 at 692 - 693 per Rigby LJ (dissenting), approved on appeal: Gosling v Gaskell [1897] UKLawRpAC 40; [1897] AC 575 at 589, 590, 595, Visbord v Federal Commissioner of Taxation [1943] HCA 4; (1943) 68 CLR 354 at 368 per Latham CJ.

[867] To make the receiver the agent of the mortgagor is, of course, something of a contrivance. As Starke J said in Visbord v Federal Commission of Taxation (supra at 376) "...we must not lose sight of the substance of the appointment. It was made for the benefit of the mortgagee and to protect the mortgagee from liability as mortgagee in possession or as principal." Yet it is a contrivance which has the effect of removing a receiver appointed out of court from those classes of persons who may be said to be fiduciaries. As Professor Finn explained in his work Fiduciary Obligations (1977) Law Book Co Ltd, Sydney at 12, there are no reasons for the imposition of fiduciary obligations where, although one party agrees to act for or on behalf of another, the other party is able to control what powers are exercised for or on his or her behalf or able to control the manner of its exercise. Because the receiver is made the agent of the mortgagee, "the receiver-mortgagor relationship becomes one founded upon agreement and escapes the imposition of general fiduciary obligations" (at 13). Accordingly, it is said in R P Meagher, W M C Gummow and J R F Lehane, Equity: Doctrines and Remedies, 3rd ed (1992), Butterworths, Sydney at [2845] that the receiver appointed out of court is the only genuinely non-fiduciary agency: see also Ostrander v Niagara Helicopters Ltd (at 167).

[870] To say that a receiver appointed out of court is not, generally, a fiduciary, is not to say that they are in no circumstances a fiduciary nor to say they owe no duties in the conduct of their receivership. Outside of those imposed by statute, the general law imposes at least three duties upon a receiver. In the first place, the receiver has a duty to the mortgagee to collect and realise the assets of the company for the purpose of discharging the security: Re B Johnson & Co (Builders) (at 645), per Evershed MR, Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 at 831, per Needham J. In the second place, the receiver holds in trust for the mortgagor, any proceeds from the sale of the company's assets after the satisfaction of the claims of the mortgagee and subsequent creditors: Visbord v Federal Commissioner for Taxation (at 384), per Williams J, Expo International Pty Ltd v Chant, (at 830). In the third place, and most relevantly for these proceedings, the receiver, as the donee of a power, must exercise the powers and duties granted to him or her in good faith and for a proper purpose.

[871] The content of this last duty is determined by its assimilation with the duty imposed by the law on a mortgagee exercising a power of sale: Downsview Ltd v First City Corporation Ltd [1993] AC 295 at 312, per Lord Templeman. . . .

58 Against that background, Ozkar submits relevantly to the present application, that the receiver holds in trust for Ozkar as mortgagor any proceeds from the sale of the two Chelsea properties after the satisfaction of the claims of the mortgagee and subsequent creditors.

59 In this case, the claims of Perpetual as registered mortgagee have been satisfied but the claims of Ed's Foods as (unregistered) mortgagee under the Mortgage Linked Loan Agreement are under challenge in the County Court proceeding. Ozkar contends that if the plaintiffs' challenge in the County Court proceeding is upheld, the effect of such an outcome would be to clarify that the receiver was, all along, holding the proceeds of sale in trust for Ozkar.[48] And in circumstances where a trustee may be in breach of trust if the trustee disburses alleged trust funds, the appropriate course is to hold those funds in trust or pay them into court pending determination of the true status of those funds.[49]

Alternatively, injunctive relief is sought to maintain the status quo

60 The second way that Ozkar puts its case for the grant of urgent interlocutory relief, directed to maintaining the status quo pending the hearing and determination of its Corporations List proceeding, is founded upon the powers available to the Court under s 37 of the Supreme Court Act 1986 (Vic) to grant an injunction 'if it is just and convenient to do so' and by reference to the principles applicable to the grant of injunctive relief. Those principles are not in issue between the parties.

61 As Kaye JA explained in Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd:[50]

[108] The principles, governing the grant of an interlocutory injunction . . . require, first, that the applicant must demonstrate that there is a serious issue to be tried as to its entitlement to relief at trial. In order to satisfy that requirement, the applicant must make out a prima facie case as to its entitlement to that relief, in the sense that it must show a sufficient likelihood of success at trial to justify, in the circumstances, the preservation of the status quo pending trial. In addition, the applicant must demonstrate that, if interlocutory relief is not granted, it is likely to suffer injury for which an award of damages would not be an adequate remedy, and that the balance of convenience favours the grant of the injunction.

62 Further, in determining where the balance of convenience lies, the Court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[51] As the Court of Appeal noted in Bradto Pty Ltd v State of Victoria,[52] there is a relationship between 'a prima facie case' or 'a serious question to be tried' and 'the balance of convenience'. The two requirements need to be examined together. It follows that if the claim of a plaintiff is weak, then the balance of convenience must be more strongly in favour of the plaintiff before the court grants injunctive relief.

Serious question to be tried - Ozkar contends it has a strong case as to its entitlement to relief at trial in the Corporations List proceeding

63 Ozkar submits that the material put forward in support of its application demonstrates that it has a strong case as to its entitlement to relief at trial in the Corporations List proceeding.

64 Ozkar accepts that it must show that there is doubt on specific grounds about the validity of the purported receiver's appointment. In its outline of submissions filed on 1 April 2022 in support of its application for urgent relief, the specific grounds relied on by Ozkar as raising doubt, in the sense of a feeling of uncertainty, about the validity of the purported receiver's appointment are summarised as follows:

28. The specific grounds alleged by Ozkar are:

(a) the General Security Agreement, under which the Receiver was appointed, should be set aside under s 237(1) of the ACL because of Ed's Foods' misleading or deceptive conduct;

(b) the unpaid debt which founded the issue of the default notice is completely extinguished by compensation for losses caused to Devmun by Ed's Foods' misleading or deceptive conduct; and/or

(c) Ed's Foods' breach of the fundamental term of the Purchase Contract vitiated the subsequent appointment of the Receiver under the General Security Agreement.

65 At the hearing on 7 April 2022, counsel for Ozkar readily accepted that the reference to the General Security Agreement in grounds (a) and (c) above was a mistake,[53] and that each of those grounds should instead refer to the Mortgage Linked Loan Agreement and the applicable Memorandum of Common Provisions. That is because the Deed of Appointment makes clear that the receiver was appointed pursuant to those documents and not the General Security Agreement.

66 Ozkar relies on the allegations made by the plaintiffs in the County Court proceeding and the material filed in support of them on the hearing of the interlocutory application before Judge Burchell in September 2021 together with the additional material filed in the Corporations List proceeding as establishing a strong case that Ed's Foods' engaged in misleading and deceptive conduct in relation to the sale of the restaurant. That material, in turn, is said by Ozkar to raise doubt on specific grounds about the validity of the purported appointment of the receiver.

20. At the time Ms Kara inspected Ed's Foods' restaurant prior to Devmun's purchase, it had internal seating for approximately 50 people and external seating for 40 to 50 people.[55] Devmun's manager worked in the restaurant for some months prior to the purchase and saw that the restaurant income included income from patrons seated in the outdoor area.[56] Ms Kara's evidence is that Mehmet Gundem, director of Ed's Foods, told her he had permission to build the outdoor decking but couldn't find the paperwork,[57] and omitted to tell her that that Ed's Foods had no right to seat patrons on the decking.[58]

21. On 28 June 2021, Devmun received an email from the Owners Corporation requiring it to remove the decking and threatening to serve a breach notice if that did not occur.[59]

22. Ms Kara testifies that Devmun would not have acquired the restaurant, and Ozkar would not have entered into the General Security Agreement [sic.],[60] had they known that the outdoor section of the restaurant was unlawful.[61]

23. Some months after purchasing the restaurant, Mr Gundem handed Ms Kara a copy of the planning permit for the restaurant, which limited the restaurant to 65 seated patrons.[62]

24. Clause 12 of the Purchase Agreement provided that the vendor made certain Warranties to the purchaser, including a Warranty that the vendor is not in breach of any permit required in order to lawfully operate the restaurant.[63]

25. Importantly, Mr Gundem has testified on oath that at the time the restaurant was sold to Devmun it had the capacity to comfortably seat 95 people inside. He exhibited a photograph of the restaurant with a large number of customers at the time the business was sold to Devmun, and testified that the photograph showed the restaurant had capacity for approximately 95 people inside the premises.[64]

68 Counsel for Ozkar observed that on the hearing of the plaintiffs' interlocutory application before Judge Burchell in September 2021, her Honour found that the allegations made in the statement of claim by the plaintiffs against Ed Foods constitute a serious question to be tried in the County Court proceeding.[65] The allegations of breach of warranty (raised in the third ground advanced by Ozkar in respect of the receiver's purported appointment) were not before Judge Burchell - they were raised for the first time in the (further) amended statement of claim - but Ozkar submits that her Honour's finding establishes that there is doubt, in the sense of a feeling of uncertainty, on the first two of the grounds advanced by Ozkar in respect of the receiver's purported appointment.

69 On the hearing of the present application, in response to questions from the Court, counsel for Ozkar further explained the second ground relied on and Ozkar's submission that the debt to Ed's Foods that purportedly constituted grounds for the appointment of the receiver was 'extinguished by an offset', as follows:[66]

MR KORMAN: . . . the reason why we say that in terms of the second ground is that if there is no outstanding debt, so then a default notice ought not to have been issued and the right to (indistinct) security hasn't been triggered. So that if for argument's sake it was found well, the net outstanding debt for this restaurant was really - the cost of the restaurant ought to have been 300,000 or 200,000. Let's say 200,000 and 285,000 has been paid therefore there is no outstanding debt and therefore the security, the right to call on the security, hasn't been triggered.

. . .

[MR KORMAN: ] . . . So what it is contended in ground B of the originating motion is that if successful in the County Court proceedings, the court will find that in actual fact, at the date of entry into the agreements, due to misleading and deceptive conduct, there was a - either there was compensation payable the other way (Indistinct) the conduct or being less, but either way, the true debt owing at the time of entry into the contract would be the true value of the restaurant and the true value of the security that would have been provided but for the misleading and deceptive conductive [sic.]. So that is what is meant by the debt. It's not a debt that is in any contract. It's a finding of the court which would be dated to the date the wrong was committed.

70 Understood in that way, it seems clear that Ozkar is asserting an equitable set-off which it contends would have the effect of 'impeaching' Ed's Foods' claim as mortgagee to the mortgage debt.

71 In respect of the third ground advanced, Ozkar relies on Mr Gundem's sworn evidence as establishing a 'doubt' in the relevant sense, as follows.

72 Under cl 12 of the Purchase Agreement, Ed's Foods as vendor gave certain warranties to the purchaser, including a warranty that the vendor is not in breach of any permit required in order to lawfully operate the restaurant from the business premises.[67] As noted earlier, Ms Kara has deposed that at the time she inspected the restaurant prior to Devmun's purchase, it had internal seating for approximately 50 people and external seating for 40 to 50 people.[68] Further, her evidence is to the effect that Mr Gundem, director of Ed's Foods, told her he had permission to build the outdoor decking but couldn't find the paperwork, and omitted to tell her that that Ed's Foods had no right to seat patrons on the decking.

73 In his evidence filed in the County Court proceeding, in opposition to the plaintiffs' application, Mr Gundem has deposed that at the time the restaurant was sold to Devmun it had the capacity to comfortably seat 95 people inside. He exhibited a photograph of the restaurant with a large number of customers at the time the business was sold to Devmun, and testified that the photograph showed the restaurant had capacity for approximately 95 people inside the premises.

74 The planning permit that Mr Gundem provided to Ms Kara some months after purchasing the restaurant, which due to an oversight on the part of Ms Kara was not in evidence before the County Court, records that the seating capacity of the restaurant is limited to 65 people at any one time.[69]

75 Against that background, Ozkar submits that the material it relies on in the Corporations List proceeding shows there is doubt, in the relevant sense, in respect of each of the three specific grounds articulated in the amended originating process as to whether the receiver has been validly appointed. Further, it says, having established a prima facie case raising that doubt, the burden of proof shifts to Ed's Foods, to demonstrate that the purported receiver's appointment was a valid appointment.

76 Ozkar submits that payment into court is an often-used method of ameliorating potential injustice attendant upon the disbursement of disputed amounts prior to the hearing and determination of a suit.

77 By way of example, counsel for Ozkar referred to AVS Property Pty Ltd v McMaster,[70] where the receivers disputed the second mortgagee's alleged claim to be paid the entire residual proceeds of the receiver's sale of certain land. At first instance, Goldberg J ordered that the proceeds be paid into court, as a condition of ordering the second mortgagee to provide a discharge of the mortgage. In doing so, his Honour expressed the view that payment into court would ensure that the second mortgagee was 'properly protected', pending determination of its actual entitlement.[71]

Ozkar contends that the proceeds of sale are likely to be dissipated if they are paid out to Ed's Foods

78 Ozkar acknowledges that when the Court is considering whether it should exercise its discretion to grant relief by ordering a receiver to pay the proceeds of sale into court, rather than making payment to a mortgagee, the issue of whether the plaintiff should be confined to its remedy in damages is of central importance.

79 In Elders Limited v Di Giorgio,[72] King AJ observed that 'the expression "balance of convenience", although sanctioned by the highest authority, is sometimes inadequate to express the factors which must often enter into the consideration of how the Court's discretion is to be exercised' and noted that '[w]hen the rights of a secured creditor to enforce the security are in question, special considerations arise.' His Honour referred to 'the primary rule' that applies in such cases as being that stated by Barwick CJ in Inglis v Commonwealth Trading Bank of Australia (Inglis) ,[73] but he noted that it is unclear from the report of that case 'whether the mortgagee's claims related to the mortgage transaction or were capable of affecting the validity of the mortgages.' Having considered several of the cases decided since Inglis, his Honour was of the view that the discretion is one that must be exercised by taking all the circumstances of the case into consideration and paying due regard to the rights of the rival parties. His Honour stated:[74]

What emerges, in my opinion, is that the Court has a discretion whether to restrain the mortgagees, but it is a discretion which must be exercised with due regard to the rights of the mortgagee and the primary rule.

A consideration of great importance in considering how the discretion should be exercised is whether the defendants [the mortgagors who disputed the debt] will suffer irreparable injury for which damages will not be adequate compensation unless the order is made. Frequently that is stated as a condition which must be satisfied before the question of the balance of convenience arises for consideration: Castlemaine Tooheys Ltd v South Australian Brewing Co [1986] HCA 58; (1986) 161 CLR 148 per Mason ACJ at 153. But whether that is so stated or looked upon as an aspect of the balance of convenience, it is a question of central importance. In this case there can be no doubt as to how that question is to be answered. The loss of the mortgaged properties would spell the end of the family business which has been carried on on those properties for many years. The injury would be irreparable. No amount of compensation would repair the injury. The land would be gone, the flow of income would have dried up, the family's means of livelihood would be lost. Compensation would do something to restore the defendants' finances but it could not restore the family properties or re-establish the family business conducted on them.

Against that catastrophe must be weighed the suspension of the plaintiffs' rights [as mortgagees] to enforce their security. The consequences of such a suspension are ameliorated in the present case by two considerations. First, the plaintiffs are large financial institutions. It is not a case in which the mortgagee is dependent upon regular income from the investment. Second, there would be no risk to the plaintiffs in the suspension. The evidence of value proves that the value of mortgaged properties is far more than sufficient to meet the present debt together with any amount of interest which could accrue in the period before trial and judgment.

It seems to me that when these considerations are weighed, the balance is heavily in favour of restraining the plaintiffs until the issue affecting the validity of the mortgages can be determined. I consider that the learned Master's decision to stay the action is correct.

80 Ozkar submits that, in the present case, if the receiver pays the net proceeds of sale to Ed's Foods they are likely to be dissipated. Ozkar relies on the following matters:[75]

37. In this case, on or around 23 September 2021, Ozkar's solicitors advised Ed's Foods that it was concerned that Ed's Foods was impecunious, and sought financial information about the company.[76] Ed's Foods did not respond to that enquiry.

38. But on 5 November 2021, its director Mehmet Gundem, addressed the company's financial circumstances in an affidavit. He disclosed no assets other than the disputed debt from Ozkar, the subject of this proceeding.[77] He exhibited a letter from Ed's Foods' accountants confirming that the company has not been trading since June 2018, and stating that "no financials or tax returns are available".[78]

81 In those circumstances, counsel for Ozkar submits that '[i]t must be inferred that Ed's Foods is dormant and impecunious'.[79]

82 Ozkar poses the question of '[w]hat prejudice will Ed's Foods suffer from an order that the proceeds of sale be paid into Court?' and observes that '[i]f there is no risk of dissipation, Ed's Foods will suffer little or no prejudice from an order for funds into Court.'[80]

44. In this case, Ed's Foods' opposition to an order that the proceeds of sale be paid into Court - in circumstances where it is otherwise impecunious - is itself evidence of a real risk that the proceeds of sale of Ozkar's properties will be dissipated. Ozkar, and the Court, have ample reason to entertain a "feeling of unease" in respect of this eventuality.

84 Ozkar also observes that in the event an injunction is not granted, then Ozkar would be left with no option but to apply for a freezing order - either in this proceeding or have the plaintiffs in the County Court proceeding seek one - resulting in a multiplicity of proceedings. Ozkar submits that such an outcome would not promote the objective under the Civil Procedure Act 2010 (Vic) of facilitating the just, efficient, timely and cost-effective resolution of the real issues in dispute. In those circumstances, even though Ozkar does not presently seek a freezing order, it seeks to introduce 'the likelihood of a successful application being brought to freeze the proceeds of sale if the present application fails'[82] as a consideration that affects the balance of convenience. Ozkar submits that when regard is had to the well-established principles in Zhen v Mo,[83] in the present case the discretionary considerations would favour the grant of such an order.[84]

85 Ed's Foods does not take issue with the legal principles outlined above concerning the Court's power under s 418A to declare that a receiver was validly appointed, or those concerning the Court's power to grant injunctive relief.

86 In opposition to Ozkar's application for urgent relief, Ed's Foods relies on the affidavit of its solicitor, Mr Jack Rennex affirmed on 4 April 2022. In particular, Ed's Foods contends that as at 4 April 2022, the debt owing to Ed's Foods is $656,381[85] and if the estimated balance from the sale of the Properties is paid to Ed's Foods, there will be a shortfall of around $395,017.[86]

87 Ed's Foods submits that Ozkar's summons should be dismissed with costs because:[87]

(a) First, the Corporations List proceeding is stayed, and no basis for lifting it has been identified by Ozkar.

(b) Secondly, Ozkar does not have a prima facie case in this Court to final relief that would entitle it to the relief sought, being a restraint over the proceeds of sale. In essence, it contends that as the Chelsea properties have now been sold and the receiver is in a position to retire, 'the final relief sought under s 418A is moot, save perhaps as to the quantum of the Receiver's remuneration.'[88] But even if relief were available in this Court as an ancillary order to the primary declaration sought, the Court 'would not make an order as to how the net proceeds of sale of the Properties should be disbursed, because the validity of the underlying security interest justifying the appointment of the Receiver is a matter before the County Court in proceeding CI-21-03475, not this proceeding'.[89]

(c) Thirdly, the injunction sought is properly in the nature of a freezing order, and the evidence adduced should not satisfy the Court that an order of that kind should be made.

88 In its outline of submissions filed in advance of the hearing, Ed's Foods did not address Ozkar's primary contention that in circumstances where the claims of Ed's Foods as mortgagee are under challenge, the appropriate course is for the receiver to pay the net proceeds of sale into Court or hold them in trust or pending determination of the true status of those funds. Rather, the focus of Ed's Foods' outline of submissions was on the injunctive relief sought, with Ed's Foods contending that in the present case, the application made by Ozkar was an application in the nature of a freezing order, where it was seeking to enjoin a party from dealing with their assets pending a prospective judgment.

89 During oral submissions, counsel for Ed's Foods submitted that the relief being sought by Ozkar on its present application is not in aid of the s 418A relief sought in the Corporations List proceeding. Rather, he said, the relief sought is 'in aid of, essentially, orders as to the disposition of the proceeds of sale',[90] and by 'effectively entitling the receivers to be paid - not to retain moneys as security for their remuneration costs and expenses, but to actually be paid those amounts - as good as concedes the validity of the receiver's appointment.'[91] Counsel for Ed's Foods referred to the fact that Ozkar, in its outline of reply submissions,[92] had foreshadowed a need to amend the orders sought in the Corporations List proceeding - by including a claim for damages against the defendants and an order that the proceeds of sale, after discharge of the mortgage and payment of the conveyancing and estate agent's costs be paid to Ozkar - but he observed that no proposed amended originating process has been forthcoming and there is no articulation by Ozkar as to what cause of action is said to give rise to the relief which is foreshadowed.[93]

90 Counsel for Ed's Foods observed that the relief which is sought in the Corporations List proceeding is s 418A relief, and the relevant question raised is whether the receiver was validly appointed. He submitted that question is one which is to be 'determined by reference to the fact[s] as they exist at the date of the appointment not by reference to events which may transpire subsequently.' But he effectively acknowledged that 'an alternative question' - which he said 'is not part of this proceeding' but does have 'sufficient articulation in the County Court claim' - would be 'whether or not the security pursuant to which the receiver was appointed could be subsequently impeached, where it had not been impeached at the date of the appointment of the receiver or whether the underlying debt, failure of which to be paid, constituted the event of default giving rise to the appointment of the receiver, was subsequently extinguished but we [sic.] in existence at the date on which the receiver was appointed.'[94] Counsel submitted that in order to make good a claim for an injunction on that basis, it would be necessary for Ozkar to show 'that there is an evidentiary foundation for the existence of a serious question to be tried to impeach either the security or the debt.'[95]

91 Counsel for Ed's Foods then turned to examine, the relief sought in the County Court proceeding, and whether the matters pleaded by the plaintiffs would give rise to any entitlement to challenge the validity of the security, being the Mortgage Linked Loan Agreement, or the existence of the debt as at 17 September 2021 when the receiver was appointed. He noted that in the (further) amended statement of claim, the relief sought at paragraph B of the prayer for relief is framed in terms of orders under s 237 of the Australian Consumer Law 'setting aside the general security agreement and mortgage agreement' and submitted that '[i]f they are set aside that must necessarily operate prospectively'.

92 Counsel for Ed's Foods then turned to address the first ground set out in Ozkar's amended originating process, and submitted:[96]

In other words, it is not in dispute that there was a valid security in existence in the form of the mortgage-linked loan agreement and the mortgage as at 17/09/2021. So, there is no foundation for impeaching the validity of appointment of the receiver on the basis identified at ground 1A of the amended originating process. And if I may say, it's implicit in fact, within the ground, itself, that it cannot succeed. Because it says the appointment should be or the declaration should be made of an invalid appointment on the grounds that the agreement pursuant to which the second defendant was appointed should be set aside - not has been set aside. The fact that there is a prospect that at some future point it would be set aside could not invalidate the appointment of the receiver because the security existed at the time that appointment was made.

93 Moving to the second and third grounds set out in Ozkar's amended originating process, counsel submitted:[97]

A second basis upon which it might potentially be said and I note this is again, contrary to our primary submission, that there wasn't a valid appointment would be that which is articulated in 1B and seemingly, also under 1C - and I say seemingly under 1C because of the way in which Mr Korman sought to articulate what ground 1C meant before Your Honour. And at its heart it's pleading that the debt loaned to Ed's Foods was capable of being and had been extinguished by virtue of an offset due to the debtor in respect of compensation payable by the 1st defendant under s236(1).

Well, the first point is the same as the point I just made in respect of ground 1A. That is, that the orders which are sought are prospective in nature. They are for compensation to be ordered as a remedy, which is said to be further or alternative to the primary remedies which are sought under paragraphs A and B of the amended statement of claim. There is, in those circumstances in my submission, no capacity by which it could be said that if that compensation is ordered it could have already, as at 17/09/2021, it could have already as at 17/09/2021 extinguished by way of an offsetting claim the entitlements of Ed's Foods Pty Ltd to be paid the unpaid amounts under the mortgage-linked loan agreement.

94 Counsel for Ed's Foods submitted that there is no evidence before the Court that would support the proposition that the restaurant business Devmun acquired was worth less than was paid for it. In those circumstances he contended:[98]

There is simply no evidence which would give you any basis on which you could conclude there was a serious question to be tried that what was acquired by Dedmon [sic.] was worth less than what Dedmon [sic.] agreed to pay for. There is no evidence of the value of the restaurant business at all other than the amount which was paid for it.

And that of itself would mean that there could never be a serious question to be tried as to the amount of any compensation which might be payable under s236 and might be capable of some type of offsetting claim.

95 Further, counsel for Ed's Foods adverted to the fact that even if the Mortgage Linked Loan Agreement was set aside, that would not extinguish the loan liability or the obligation to pay the amount related to the purchase price for the business that was acquired by Devmun under the Business Sale Agreement. He submitted:[99]

...Your Honour as can be seen from the amended statement of claim, there is no attempt to set aside the business sale agreement and, in fact, that relief has been expressly deleted by way of amendment such that Dedmon [sic.] is always going to retain the value of the restaurant business.

Therefore, in accordance with the principles from the High Court in Macguire v Macaronas [sic.][100], it would be a condition of setting aside the mortgage-linked loan agreement that there be a recognition of or a repayment of the amount of the debt being the amount paid under the business sale agreement or payable under the business sale agreement.

96 In those circumstances, Ed Foods contended that there is no serious question to be tried of the entitlement of Ozkar to final relief in this proceeding.

97 In reply, counsel for Ozkar sought to address the Court on the submission made by Ed's Foods to the effect that the relief sought in the County Court proceeding could not provide a proper foundation for a finding that the receiver had been invalidly appointed. Counsel for Ozkar commenced by acknowledging that the compensation sought can only be paid prospectively. But, he submitted-[101]

...that doesn't mean that the reasons for the decision can't establish that an entitlement to compensation arose at the time of the loss suffered by - at the time of the misleading and deceptive conduct giving rise to a loss, that is at the date of entry to the contract, at which time the - Dedmon [sic.] acquired and Ozkar guaranteed a purchase on legal terms at an over value due to being misled.

So therefore even though the relief that would be granted would only be prospective in nature, it may well be the case that the County Court will find that upon entry into the contracts, there was either a right to compensation or the - or alternatively that there was a right to ab initio rescission of the mortgage sale, but perhaps the easiest argument to focus on is the right to compensation.

That arises at the time of the wrong, and the fact that the relief granted in the County Court matter would only be prospective doesn't rule out a finding that at the time the receiver was appointed, that appointment was invalid, and I think if one goes back to first principles, that must be the case. ...

That is, the value of the restaurant in this case was 100 seats, whereas it only had 60, so it makes sense from first principles that the agreement that gave rise, the - either the debt or the agreement that gave rise to the appointment of the receiver at that time, either the debt did not exist or the agreement ought not to have been entered into. It's only that the court's recognising the clear date at a later date retrospectively, whatever the relief granted in the County Court.

98 Finally, counsel for Ozkar confirmed that Ozkar relies on both limbs of its case but he said that if the Court is of the view that injunctive relief is the appropriate form of relief to be granted, rather than an order that the net proceeds of sale should be held in trust or paid into Court pending determination of their status, then he is instructed to offer an undertaking in the usual form on behalf of Ozkar.[102]

99 Towards the end of the hearing, the Court enquired as to whether the solicitor for the receiver wished to be heard and make submissions about the form of order that Ozkar proposed be made. At that point, however, counsel for Ed's Foods intervened and informed the Court that he wished to be heard.

100 In essence, counsel for Ed's Foods submitted that in circumstances where Ozkar continues to assert that ultimately it will be entitled to orders declaring the appointment of the receiver invalid, it will likely be necessary for the receiver to continue to be involved. In that event, the additional amount specified in the proposed order, which is $28,600, will not be sufficient to cover the receiver's future costs of any litigation, which the receiver would ordinarily be entitled to retain in accordance with the principles in Korda v Silkchime Pty Ltd.[103] That is to say, until the receiver is in a position to retire and know that the receiver is not likely to be the subject of any further action, the receiver is entitled to retain a sufficient fund to meet a complete indemnity in respect of future remuneration and anticipated legal costs associated with the litigation.[104]

101 In those circumstances, counsel for Ed's Foods submitted that if, contrary to the submissions advanced by Ed's Foods, the Court was nonetheless minded to grant some kind of injunction in favour of Ozkar, 'the injunction should instead be one that the receivers retain the proceeds of sale pending the outcome of the litigation and they can invest the money into trust.'[105]

102 The solicitor for the receiver adopted the position as articulated by Mr Evans QC, and then informed the Court:[106]

So, it would be the receiver's position that if relief was granted the orders, as proposed, regarding his remuneration - regarding the receiver's remuneration would not be opposed. But, the preference would be for payment, or [sic.] the net proceeds of sale, after payment to the receiver for his remuneration and future remuneration to be held in a receivership account.

103 At the conclusion of the hearing late on 7 April 2022, the Court informed the parties that it would not be possible for her Honour to deliver her decision that day. In circumstances where the settlements of the two Chelsea properties (which have been sold by the second defendant as receiver) were scheduled to take place imminently on 11 and 13 April 2022 respectively, the Court required the parties to agree upon an interim arrangement to preserve the status quo. To that end, the second defendant, by its solicitor, undertook not to pay any part of the proceeds of sale of the Chelsea properties to the first defendant, until further order.

104 Ozkar's application for urgent relief is made in the Corporations List proceeding that was commenced on 27 September 2021, following the appointment on 17 September 2021 of a receiver over the Chelsea properties owned by Ozkar that were provided as Secured Property under the Mortgage Linked Loan Agreement.

105 The issue raised by Ozkar in the Corporations List proceeding is whether the receiver has been validly appointed. In seeking declaratory relief under s 418A, Ozkar relies on three specific grounds, each of which arises from or pertains to the claims made and relief sought by Ozkar, Devmun and Ms Kara in the County Court proceeding commenced by them on 18 August 2021. However, because the County Court is not a capital 'C' court for the purposes of the Corporations Act, it was not open to Ozkar to seek declaratory relief under s 418A in the County Court proceeding.

106 There is a clear link between the two proceedings, as was recognised by Efthim AsJ in the orders made in the Corporations List proceeding on 29 October 2021, where his Honour recorded under 'Other matters' that '[t]he substantive issues on this proceeding are the subject of County Court proceeding CI-21-03475 . . .'. Accordingly, he ordered that the Corporations List proceeding be stayed pending the hearing and determination of the County Court proceeding. However, his Honour also recorded under 'Other matters' that the receivership has not been stayed by virtue of Ozkar's application.

107 In the County Court proceeding, the plaintiffs plead that they were misled and deceived by the defendants in relation to the sale of the restaurant business to Devmun and entry into the suite of transaction documents executed to effect the sale and provide security for the vendor finance provided by Ed's Foods. Relevantly, in the case of Ozkar, which effectively guaranteed payment of the purchase price by way of a Mortgage Linked Loan Agreement giving security over the two Chelsea properties it owned, it asserts that the matters pleaded in the County Court proceeding will, if successful, give rise to a set-off which it contends would extinguish the alleged debt which constituted grounds for the appointment of the second defendant as receiver. In so doing, Ozkar seeks to 'impeach' Ed's Foods' claim to enforce the mortgage debt via the appointment of the receiver, and to rely on those matters in the Corporations List proceeding as a foundation for the declaratory relief it seeks.

108 Ozkar has brought its application for urgent relief in the Corporations List proceeding, to which Ed's Foods and Mr Hussain as receiver are the named defendants. Following the making of orders by Efthim AsJ on 29 October 2021, the receiver has sold the two Chelsea properties and upon settlement, the first mortgagee will be paid out in full.

109 The urgent relief Ozkar seeks concerns the net proceeds of sale remaining in the hands of the receiver. In its amended summons, Ozkar seeks orders to the effect that the receiver hold the proceeds of sale of the Chelsea properties after discharge of the first mortgagee's security interest in the subject land, to be disbursed by the receiver as follows:

1. the second defendant's [receiver's] reasonable remuneration, costs of the receivership, and disbursements and the future costs and disbursements of the receivership in the amount of $28,600 are to be retained by paid to the second defendant; and

1. the balance of the proceeds of sale are to be paid into Court, pending the hearing and determination of this proceeding.

Primary ground**: the receiver is under an equitable obligation to hold the remaining net proceeds of sale in trust or pay them into court pending determination of the true status of those funds**

110 As will be apparent, the fund of money that Ozkar seeks to have the Court preserve arises from the sale of its two Chelsea properties by the receiver, in circumstances where Ozkar contests the validity of the appointment of the receiver on 17 September 2021, on grounds linked with or referable to the County Court proceeding in which it challenges the validity of the security, being the Mortgage Linked Loan Agreement, and the existence of the debt.

111 It is clear that a receiver appointed out of court owes duties of the kind described by Einstein J in Chia,[107] not just to the mortgagee and subsequent creditors but also to the mortgagor. And, as his Honour observed, the content of the receiver's duty to exercise the powers granted to him or her in good faith and for a proper purpose is determined by its assimilation with the duty imposed by the law on a mortgagee exercising a power of sale.

112 Ozkar contends that if the plaintiffs' challenge in the County Court proceeding is upheld, the effect of such an outcome would be to clarify that the receiver was, all along, holding the proceeds of sale in trust for Ozkar. And in circumstances where a trustee may be in breach of trust if the trustee disburses alleged trust funds, the appropriate course is to hold those funds in trust or pay them into court pending determination of the true status of those funds.

113 Payment into court (or an order that funds be held in trust) is, as Ozkar submits, a method that is often used by courts as a means of ameliorating potential injustice attendant upon the disbursement of disputed amounts prior to the hearing and determination of a suit. In my view, such an order is appropriate to be made in the present case. And while no formal application for leave was made, to the extent that leave be necessary for Ozkar to seek that relief, I propose that leave be granted.

114 First, it is clear that Ozkar contests the validity of the receiver's appointment, and it does so by reference to the grounds on which it challenges the validity of the underlying security said to justify the appointment of the receiver, being the Mortgage Linked Loan Agreement, and the existence of the debt in the County Court proceeding. In so doing, a serious issue has been raised, which is capable of giving rise to a feeling of uncertainty about the true status of the net proceeds of sale held by the receiver. The orders made by Efthim AsJ in the Corporations List proceeding recognise that the substantive issues that bear upon the validity of the receiver's appointment are the subject of the County Court proceeding and thus the Corporations List proceeding must abide the hearing and determination of the County Court proceeding. In those circumstances, the net proceeds of sale held by the receiver should be preserved and paid into Court or held in trust in the meantime pending determination of the true status of those funds.

115 Secondly, I do not accept that the final relief Ozkar seeks under s 418A is moot. The receiver's appointment is under challenge and for so long as it is, he is required to continue to act. A genuine dispute having been raised by Ozkar as to the validity of the receiver's appointment and the true status of the net proceeds of sale held by the receiver, it is arguable that the receiver may be in breach of trust if he were to proceed to disburse to Ed's Foods the remaining funds which Ozkar alleges are trust funds. In those circumstances, because the receiver is required to continue in his role, it is appropriate that a retention fund be established, in accordance with the principles in Korda v Silkchime Pty Ltd,[108] sufficient to indemnify him in respect of future remuneration and anticipated legal costs associated with the litigation. On current indications, the net proceeds remaining after sale are likely to be in the order of $236,000-$258,000.[109] At this stage, however, it is difficult to estimate the likely quantum of funds that may be required to be set aside for that purpose. In my view, the course which is most likely to ensure that the interests of all parties will be afforded proper protection is for the entirety of the net proceeds of sale remaining to be preserved and paid into court or held in trust pending determination of the true status of those funds.

116 In the ordinary course, where a 'trust' fund is sought to be preserved pending determination of the true status of those funds, the order made would be for payment into Court of the funds representing the net proceeds of sale of the two Chelsea properties. However, Ozkar has indicated that it is equally amenable to an order that the funds be paid into an interest-bearing account of the defendants' choosing, subject to an undertaking that those funds remain in that account until further order of the Court.[110]

117 In the first instance, I will leave it to representatives of the respective parties to consult about the appropriate form of order required to give effect to these reasons, and if necessary, hear from them. In that regard, as the effect of making an order of the kind indicated is tantamount to an interlocutory injunction, consideration should also be given as to whether the undertaking as to damages that is in place should be continued until further order. Further, in light of the orders made by Efthim AsJ, it is in the interests of all parties that the County Court proceeding be conducted with as much efficiency as possible.

Alternative ground**: Grant of injunctive relief pursuant to s 37 of the Supreme Court Act 1986 (Vic)**

118 Given the views I have formed about the primary ground advanced by Ozkar, it is not necessary for me to give elaborate or detailed reasons on its alternative ground whereby it seeks injunctive relief pursuant to s 37 of the Supreme Court Act 1986 (Vic).

119 On the material before the Court, I am satisfied that Ozkar has demonstrated, by reference to the case pleaded by the plaintiffs in the County Court proceeding, that a serious question to be tried has been raised as to the validity of the underlying security that is said to justify the appointment of the receiver, and the existence of the debt sought to be recovered, which in turn serves to manifest a feeling of uncertainty as to the validity of the receiver's appointment on one or more of the specific grounds alleged. Accordingly, I am satisfied that Ozkar has shown the requisite 'sufficient likelihood of success', as a foundation for the relief it seeks under s 418A of the Corporations Act, to justify in the circumstances the preservation of the status quo pending the hearing and determination of the Corporations List proceeding.

120 As to whether damages are an adequate remedy, the present case is one where the relevant question is perhaps more appropriately framed in terms of:[111]

Is it just, in all of the circumstances, that a plaintiff should be confined to his remedy in damages?

121 The funds which Ozkar seeks to have preserved pending the hearing and determination of the Corporations List proceeding are comprised of the net proceeds of sale remaining after the sale by the receiver of its two Chelsea properties. At or in advance of the hearing of Ozkar's application for urgent relief, the receiver indicated that subject to any order of the Court, he proposed to pay the balance of the net sale proceeds remaining after payment of his reasonable remuneration, costs of the receivership and disbursements, and after making allowance for his future costs and disbursements of the receivership, to Ed's Foods.

122 The evidence before the Court is that Ed's Foods has not been trading since June 2018, no tax returns have been filed and it has no assets other than the debt which is disputed in the County Court proceeding. This case is not one where Ed's Foods as mortgagee has contended it is dependent upon regular income from the underlying security to meet its needs. Its solicitor, Mr Rennex has deposed:[112]

Proceeds of Sale

18. I am instructed by Ed's Foods and verily believe that it is a family run business and it will not unnecessarily dissipate or dispose of the proceeds of sale of the secured land. It intends to apply the proceeds of sale to:

1. repay the principal, interest and reasonable recovery costs owed to it;
2. pay its reasonable legal fees for participating in this and the County Court Proceeding;
3. pay its reasonable and ongoing business expenses such as accounting costs and company fees; and
4. use the funds to recommence trading and investigate business opportunities presently open to the company.

123 Counsel for Ozkar made clear that 'it is not suggested in any shape or form that there is impropriety on the part of Ed's Foods' in what is being contemplated with regard to the proceeds of sale. But, he submitted, 'what is suggested is these funds will be dissipated.'[113] If, as the evidence suggests, that be correct, any right to damages is likely to be a hollow one.

124 In circumstances where Ozkar challenges the validity of the underlying security that is said to justify the appointment of the receiver and the existence of the debt sought to be recovered, and contends that those funds are relevantly trust funds in the hands of the receiver, I am not satisfied that it is just in all the circumstances that Ozkar should be confined to its remedy in damages.

125 Turning to the balance of convenience, as the Court of Appeal noted in Bradto Pty Ltd v State of Victoria,[114] there is a relationship between 'a prima facie case' or 'a serious question to be tried' and 'the balance of convenience', necessitating that the two requirements be examined together. Further, the Court of Appeal said, in determining where the balance of convenience lies, the Court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[115]

126 In my view, the balance of convenience would favour the grant of injunctive relief restraining the receiver from disbursing the balance of funds remaining to Ed's Foods. As I have said, given the competing interests of the rival parties and the receiver's claim for indemnity, the course which is most likely to ensure that the interests of all parties will be afforded proper protection, and thus which appears to carry the lower risk of injustice, is for the entirety of the net proceeds remaining in the hands of the receiver to be preserved and paid into Court or held in trust pending determination of the true status of those funds.

[1] Affidavit of Mr Mohammad Shahin Hussain affirmed on 4 April 2022 (second Hussain affidavit), at [6]-[9].

[2] Ozkar's summons dated 30 March 2022.

[3] Ozkar's proposed amended summons provided on 6 April 2022.

[4] The amount of $28,600 apparently represents the receiver's estimate of future remuneration of $17,600 (incl. GST) and his estimate of legal fees from 8 April 20022 to final hearing of $11,000 (incl. GST): see second Hussain affidavit, at [71]-[74].

[5] Exhibit BM-3 to the affidavit of Mr Barry Moshel affirmed on 4 April 2022 (third Moshel affidavit), at 89.

[6] The supplementary Moshel affidavit corrects errors which appeared in an earlier affidavit of Mr Moshel affirmed on 29 March 2022 (and filed in the Corporations List proceeding on 30 March 2022), and replaces that affidavit in its entirety.

[7] Ed's Foods' (revised) outline of submissions, at fn 13 and see Transcript of Proceedings (7 April 2022) (Transcript 07.04.2022), at 27-28 (Mr Korman).

[8] Gundem 10.09.2021 affidavit, at [8]-[10].

[9] Gundem 15.10.2021 affidavit, Ex MG-1 at 13-15.

[10] Gundem 15.10.2021 affidavit, Ex MG-1 at 10-12.

[11] Gundem 15.10.2021 affidavit, Ex MG-1 at 14.

[12] Gundem 15.10.2021 affidavit, Ex MG-1 at 16.

[13] Amended Statement of Claim dated 27 October 2021, prayer for relief. Note that the plaintiffs no longer seek to set aside the Business Sale Agreement.

[14] Amended Statement of Claim dated 27 October 2021, at [8].

[15] Amended Statement of Claim dated 27 October 2021, at [10].

[16] Amended Statement of Claim dated 27 October 2021, at [26].

[17] Amended Statement of Claim dated 27 October 2021, at [28].

[18] Amended Statement of Claim dated 27 October 2021, Prayer for Relief.

[19] The materials before the Court do not include a copy of the summons but Mr Gundem deposes as to its contents in the Gundem 15.10.2021 affidavit, at [17].

[20] Gundem 15.10.2021 affidavit, Ex MG-1 at 17 (orders), 18-31 (reasons).

[21] Gundem 15.10.2021 affidavit, Ex MG-1 at 17.

[22] Gundem 15.10.2021 affidavit, Ex MG-1 at 18-31 (reasons) at 28-29.

[23] Gundem 15.10.2021 affidavit, Ex MG-1 at 30-31.

[24] Gundem 15.10.2021 affidavit, at [22].

[25] The reference to a breach of any fundamental term appears to be a reference to cl 12 of the Purchase Agreement, which provided that the vendor made certain Warranties to the purchaser, including a Warranty that the vendor is not in breach of any permit required in order to lawfully operate the restaurant: see Kara Affidavit, Ex MK-5 at 32, 43.

[26] Gundem 15.10.2021 affidavit, Ex MG-1 at 33.

[27] 'Secured Property' means the property secured by the Mortgage. The 'Mortgage' means, as the context requires, the mortgage granted by the Client [Ozkar] over the Secured Property pursuant to the Loan Agreement, Memorandum of Common Provisions AA2785 and any ancillary documents.

[28] The 'Appointment Date' means the date on which the deed is signed by Ed's Foods and the Receiver.

[29] The 'Deed of Indemnity' means the deed of indemnity, executed on or about the date of [the Deed of Appointment] between Ed's Foods and the Receiver in respect of the Receiver's liabilities, expenses and charges arising from the Receivership.

[30] First Hussain affidavit, Ex MSH-1, at 6-7.

[31] Moshel supplementary affidavit, Ex BM-2, at 29.

[32] Second Hussain affidavit, at [63]-[67].

[33] Rennex affidavit, at [13]-[16].

[34] Ed's Foods outline of submissions, at [15] citing Rennex affidavit, at [16].

[35] (2021) 157 ACSR 118.

[36] [2019] FCA 327; (2019) 135 ACSR 372.

[38] In the matter of Aqua Botanical Beverages (Australia) Pty Ltd (receivers and managers appointed) [2021] NSWSC 1214 at [5], applying Native Bond Pty Ltd v Cant [2015] VSC 203 at [9] (Efthim AsJ); Northway Panels v Warry [2018] VSC 581 [fn 24].

[40] Ed's Foods' outline was further revised by the insertion of a new footnote to paragraph 23.

[41] [2011] NSWCA 25; (2011) 80 NSWLR 69.

[42] [2011] NSWCA 25; (2011) 80 NSWLR 69, [143]-[144], [194], [203].

[43] [2011] NSWCA 25; (2011) 80 NSWLR 69, [106]-[109] (Campbell JA), [194] (Macfarlan JA agreeing), [205] (Sackville JA agreeing). Campbell JA observed however (at [119]) that as the rate payable might not be as attractive as that obtainable by another form of investment, 'it might be more advantageous for the disputants to agree upon a regime for keeping the funds secure and invested out of court.'

[44] [2000] NSWSC 552; (2000) 50 NSWLR 587 (Chia).

[45] Citing Cape v Redarb Pty Ltd (1992) 8 ACSR 67, at 78 per Higgins J.

[46] Citing Duffy v Super Centre Development Corporation Ltd [1967] 1 NSWR 382, at 383-384 per Street J.

[47] [2000] NSWSC 552; (2000) 50 NSWLR 587, at 625-626 [868]-[871] (emphasis in bold added).

[48] Ozkar's outline of reply submissions, at [12].

[49] Ozkar's outline of reply submissions, at [13].

[50] [2015] VSCA 98, at [108] (with whom Osborn and Ferguson JJA agreed) (applying Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57, at [65].

[51] Bradto Pty Ltd v State of Victoria [2006] VSCA 89; (2006) 15 VR 65, at 73 [35] (per Maxwell P and Charles JA).

[52] [2006] VSCA 89; (2006) 15 VR 65, at 73 [35] (per Maxwell P and Charles JA).

[53] Transcript 07.04.2022, at 32 (Mr Korman).

[54] Ozkar's outline of submissions, at [20]-[25].

[60] As noted above, the reference to the General Security Agreement is a mistake - Ozkar was not a party to that agreement - and should instead be a reference to the Mortgage Linked Loan Agreement.

[63] Kara Affidavit, Ex MK-5, 32 and 43.

[64] Kara Affidavit, Ex MK-19 (Affidavit of Mehmet Gundem affirmed 10 Sept 2021 with exhibits) - [38(b)] (PDF page 160).

[65] Gundem Affidavit, Ex MG-1 at p 28 (Judge Burchell's ex-tempore reasons for decision).

[66] Transcript 07.04.2022 at 28, 30 (Mr Korman).

[67] Kara Affidavit Ex MK-5 at pp 32 and 43 (pp 13 and 24 (Sch 6) of the Purchase Agreement).

[69] Kara Affidavit, [24], Ex MK-15. Condition 2 of the permit states:

No more than 65 seats may be made available at any one time to patrons on the premises, without the written consent of the Responsible Authority.

[70] [2010] FCAFC 81.

[71] AVS Property Pty Ltd v McMaster [2010] FCAFC 81, [6]-[9].

[72] [1997] SASC 6364.

[73] (1972) 126 CLR 161, at 169 (Menzies and Gibbs JJ concurring).

[74] [1997] SASC 6364 (King AJ, unreported, at p 6).

[75] Ozkar's outline of submissions, at [37]-[38].

[77] Moshel Affidavit, Ex BM-2, 17 at [13]-[15].

[79] Ozkar's outline of submissions, at [40]-[41].

[80] Ozkar's outline of submissions, at [39].

[81] Ozkar's outline of submissions, at [44].

[82] Ozkar's outline of reply submissions, at [7].

[83] [2008] VSC 300 per Forrest J, at [22]-[30].

[84] Ozkar's outline of reply submissions, at [8].

[87] Ed's Foods' outline of submissions, at [3].

[88] Ed's Foods' outline of submissions, at [3(b)].

[90] Transcript 07.04.2022, at 59 (Mr Evans QC).

[92] In its outline of reply submissions, Ozkar stated:

3. But the recent sale of Ozkar's properties has necessitated amendment to the orders sought by Ozkar in these proceedings. The orders must now include a claim for damages against the defendants, and an order that the proceeds of sale after discharge of the mortgage, and payment of the conveyancing and estate agent's costs, be paid to Ozkar. Necessarily, there would at least be a claim against the receiver for funds he has retained from the proceeds of sale, and against Ozkar [sic.] for the balance of the proceeds (whether actually paid or held in trust).

[93] Transcript 07.04.2022, at 60 (Mr Evans QC).

[94] Transcript 07.04.2022, at 62 (Mr Evans QC).

[95] Transcript 07.04.2022, at 63 (Mr Evans QC).

[96] Transcript 07.04.2022, at 65 (Mr Evans QC).

[97] Transcript 07.04.2022, at 65-66 (Mr Evans QC).

[98] Transcript 07.04.2022, at 68 (Mr Evans QC).

[99] Transcript 07.04.2022, at 66 (Mr Evans QC).

[100] A reference to Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449.

[101] Transcript 07.04.2022, at 73 (Mr Korman).

[102] Transcript 07.04.2022, at 74 (Mr Korman).

[103] [2010] WASC 155; (2010) 78 ACSR 675.

[104] Transcript 07.04.2022, at 76 (Mr Evans QC).

[105] Transcript 07.04.2022, at 76 (Mr Evans QC).

[106] Transcript 07.04.2022, at 77 (Mr Elliott).

[107] [2000] NSWSC 552; (2000) 50 NSWLR 587, at [870]-[871].

[108] [2010] WASC 155; (2010) 78 ACSR 675.

[109] The spreadsheet prepared by the receiver, which appears at exhibit MSH-2 at 22, estimates a net balance of $258,718, whereas Mr Rennex (in his affidavit at [15]) estimates that a residual amount of $236,364 would be available.

[110] Ozkar's outline of submissions, at [41], and see also fn 45.

[111] Belgrave Nominees Pty Ltd v Barlin-Scott Airconditioning (Aust) Pty Ltd) [1984] VicRp 75; [1984] VR 947, 955.

[113] Transcript 07.04.2022 at 51-52 (Mr Korman).

[114] [2006] VSCA 89; (2006) 15 VR 65, at 73 [35] (per Maxwell P and Charles JA).

[115] Bradto Pty Ltd v State of Victoria [2006] VSCA 89; (2006) 15 VR 65, at 73 [35] (per Maxwell P and Charles JA).