effect. Either the condition precedent was overridden by the letter of offer or its operation was waived.
95 I now turn to consider the various bases upon which the appointment of the receivers is challenged. Here it is necessary to look at those events which the St George companies say justified the appointment.
96 Earlier I summarised those provisions of each debenture that set out the events upon the occurrence of which receivers could be appointed. It is now necessary to set out the relevant provisions in full.
97 Clause 8.1 of each debenture relevantly provides:
"8.1 Enforceability
The moneys owing or so much as shall remain unpaid shall immediately become payable and this charge shall become immediately enforceable at the option of the Mortgagee on the happening of any one or more of the following events without the necessity for any notice or demand:
(a) (Automatic crystallization) if any of the events specified in clause 8.2 shall occur;
(b) (Default in moneys owing) if default be made by the Company in due and punctual payment of any part of the moneys owing at any time due and payable by the Company to the Mortgagee;"
98 Clause 8.2 of each debenture relevantly provides:
"8.2 Crystallization
Every floating charge created under or pursuant to this charge shall automatically crystallize ipso facto upon the happening of any one or more of the following events without the necessity for any notice or demand or intervention by the Mortgagee:
…
(i) (Failure to remit sales tax) if the Company is liable and has for a period in excess of seven days been liable to pay an amount or amounts to the Commissioner of Taxation for Sales Tax and at that time the total of such amount or amounts exceeds $10,000.00;
(j) (Mortgagee in possession) if a mortgagee or other encumbrancer shall seize or enter into possession of or exercise or purport to exercise any power of sale in relation to the whole or any part of the property of the Company or any guarantor;
(k) The Mortgagee makes a demand in writing for repayment of all or any of the principal sum."
99 I will begin by considering the appointment of the receivers to APS. First it is said that APS made default in the payment of money due and owing to St George Wholesale. The applicants concede that APS owed St George Wholesale approximately $2,000,000 as at 12 February 1999 of which they say that approximately $1,400,000 was due and payable. Mr Cahill says that the total indebtedness as at 12 February 1999 was $2,298,305.26 as disclosed by his audit on 11 February 1999.
100 On the evidence it is clear that a significant proportion of the debt (whether the total is approximately $2,000,000 or approximately $2,300,000) was owing before the January audit. That amount is $512,000. Thus, at the very least, on whatever basis the parties had agreed payments should be made, APS was in default in the payment of money that was due and owing to St George Wholesale.
101 It was submitted that the actual amount that was due and payable to St George Wholesale on 12 February 1999 was much greater than $512,000. However, it is not necessary to determine whether this is so because of the significant debt that had not been paid.
102 Second, St George Wholesale relied upon the failure to pay the sales tax that fell due for payment on 21 July 1998 as an event which resulted in the automatic crystallisation of the floating charge under clause 8.2 and therefore gave rise to the right to enforce the charge under clause 8.1. It seems clear enough that when the receivers were appointed on 12 February 1999 the St George companies were not aware that a significant proportion of the July sales tax was outstanding. But, having elected to enforce their security, the St George companies are entitled to rely upon any ground that justifies its conduct, whether or not it was known, to assist at the time of the appointment.
103 Third, the St George companies relied upon the demands for repayment that were served on 23 November 1998 and the failure to comply with those demands in a timely fashion. I will put to one side the issue whether what was said by Mr Phillips on the occasion when the demands were served would preclude the St George companies relying upon their service as an event which justified the enforcement of the charge. While there is much to be said in favour of that view it is not necessary for the issue to be resolved.
104 Upon the service of the demands the St George companies had the option of enforcing each charge. But they did not do so before 12 February 1999, some two and a half months after the service of the demands. In my view, notwithstanding the discussions that were taking place between the parties in the meantime, the proper inference to be drawn is that the St George companies elected not to exercise the option that was available to them: cf Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 646. Thus the service of the demands was not an event that justified the appointment of receivers on 12 February 1999.
105 Finally, there is the alleged insolvency of APS. I will consider that issue when I deal with the same allegation in respect of Irlmond.
106 I now turn to consider whether there were grounds that justified the appointment of receivers to Irlmond. The St George companies rely upon a number of events as giving rise to the enforceability of the charge granted by Irlmond. It will not be necessary for me to deal with them all in detail for the reason that it is clear that at least one event had occurred that justified the appointment.
107 First I will consider whether Irlmond was in default in the due and punctual payment of any money that was due and payable to the St George companies. The applicants say that subject to the availability of certain set-offs, "the amount due and payable by Irlmond on 12 February 1999 was no greater than $679,000 and in fact [was] substantially less". They contend that certain set-offs to which Irlmond was entitled would have eliminated the debt.
108 Clause 26 of each bailment plan agreement provides as follows:
"A Certificate signed by the Managing Director, Deputy Managing Director, Secretary, Manager, or Branch Manager of the Guarantor or other person authorised by the Guarantor in that behalf that as at the date stated in such Certificate any sums have been paid or received or not paid or received by any party hereto, or that any sums or fees are payable or recoverable in respect of any goods taken on display and/or that goods are held under bailment plan and/or that goods are modified goods and/or are new goods and/or are tax free goods and/or are tax paid goods and/or modification works and/or the limits or conditions of any approval given by Wholesale under Clause 6(b) hereof and/or that a transaction is one of consumer supply and/or that goods are or have been bailment goods or demonstrator goods and/or the amount of any loss damage or liability the subject of any indemnity by the Bailee herein shall at all times and in all Courts be prima facie evidence hereof."
109 St George Finance is the guarantor under the bailment agreements. The rights and obligations of the guarantor are to be found in clauses 20, 21 and 24. They provide:
"20. Subject to Clause 8(f) the Guarantor at the request of the Bailee (as testified by the Bailee's execution hereof) guarantees to Wholesale the due observance and performance by the Bailee of all the obligations and indemnities binding upon or attaching to the Bailee hereunder. This guarantee shall not be affected by any time or indulgence granted by Wholesale.
21. The Bailee shall in consideration of the guarantee referred to in the last preceding clause pay to the Guarantor on demand any amount paid by it under the said guarantee and shall also pay to the Guarantor on demand from time to time a fee or charge calculated at such rate on the Guarantor's potential liability or calculated on such other basis as may prior to the delivery to the Bailee of particular goods be fixed by the Guarantor from time to time for the purpose of this clause and notified to the Bailee.
For the purpose of this clause 'potential liability' means the total of:-
(i) Any amount for which the Guarantor is from time to time contingently or presently liable under its guarantee.
(ii) Any sums which the Guarantor has paid or caused to be paid pursuant to its guarantee.
…
24. (a) Wholesale and the Guarantor respectively may pay on behalf of the other of them any moneys which such other may be bound or entitled to pay hereunder. Wholesale and the Guarantor and any Distributor -
(i) May pay or cause to be paid any moneys payable by the Bailee to any third party in respect of any goods and the sum paid shall be deemed a debt due by the Bailee to the party paying the same or causing it to be paid;
(ii) Are irrevocably authorised to appropriate any moneys paid by the Bailee or any sum due to him (whether for deposits or otherwise) by Wholesale or the Guarantor or any Distributor as the case may be towards any debt or liability owing to him."
110 Purportedly in pursuance of clause 26, Mr Phillips, a manager of St George Finance, signed a certificate which reads:
"Certificate of amount owed to St George Motor Finance Ltd ACN 007 656 555 by Irlmond Pty Ltd ACN 006 314 870 trading as Essendon Mitsubishi ('Irlmond')
This is a certificate given in accordance with clause 26 of the Bailment Plan Agreement dated 11 November 1993.
By this certificate, I, Wayne Stephen Phillips, being a Manager of St George Motor Finance Limited, hereby certify:
The sum payable by Irlmond to St George Motor Finance Ltd at 12 February 1999 in respect of new vehicles is $2,298,305.26.
The sum payable by Irlmond to St George Motor Finance Ltd at 12 February 1999 in respect of used vehicles is $679,715.
This certificate is intended to be prima facie evidence of the matters referred to herein."
111 In his evidence Mr Phillips conceded that he made no independent enquiry to ascertain the quantum of the debt that he certified was due to St George Finance. He agreed that he had obtained the information for his certificate from Mr Cahill. In an affidavit that was filed in this proceeding Mr Cahill quantified and explained the amounts said to be owing by Irlmond. He said that those amounts totalled $679,715. One thing that should be noted about Mr Cahill's evidence is that he was not able to specify to whom this debt was owing. In his affidavit he described the creditor as "St George" which he defined to mean St George Bank, St George Wholesale and St George Finance.
112 There is no evidence to suggest that St George Wholesale had called upon St George Finance to honour the guarantee given by clause 20 of the bailment plan agreements. Nor is there any evidence of a demand having been served on Irlmond by St George Finance pursuant to clause 21. Indeed, it is to be inferred from the evidence that St George Finance had not been asked to honour the guarantee and that no demand was served on Irlmond. A significant number of documents have been discovered by St George which have been tendered in evidence. It appears that almost all documents that came into existence between August 1998 and the date of the appointment of the receivers have found their way into evidence in one way or another. None of those documents makes any reference to the guarantee nor to the assumption by St George Finance of any obligations under that guarantee. If such an event had occurred I am sure it would have been mentioned in the documents or by one of the St George witnesses.
113 In those circumstances I decline to act on the certificate. Accordingly it is necessary to consider the evidence of Mr Cahill substantiating the claims.
114 The first amount claimed is the sum of $39,149.96 which was said to be payable under a deferred retail delivery agreement entered into in 1998. In 1998 two vehicles were transferred from the APS bailment plan facility and transferred to the deferred retail delivery agreement. They were sold for $39,149.96 and the amount was not paid to St George Wholesale. The obligation to make that payment was imposed upon APS and not Irlmond. The deferred retail delivery agreement does contain provisions which assume the existence of a guarantee by Irlmond of the obligations of APS. But no such guarantee was produced and I cannot infer that one was ever executed. It follows that the debt, the quantum of which is not disputed, is owed by APS and not by Irlmond.
115 The second claim is for a debt in the sum of $45,672.74 in respect of two demonstrator vehicles the subject of the demonstrator plan agreement with St George Finance which were sold by Irlmond. The debt is not disputed.
116 The third claim is for $32,045 in respect of the sale by Irlmond of three vehicles. Mr Cahill said that the terms of sale required payment of the purchase price to be made within seven days. One vehicle had been sold on 4 February 1999 and the remaining two vehicles were sold on 9 February 1999. The applicants say that the first purchaser did not pay the price for his vehicle until after the appointment of the receivers. It is unlikely that the second purchaser paid the purchase price before 12 February 1999. Thus, whilst it appears that the amount in question was not due for payment on 12 February 1999, it became payable shortly thereafter.
117 The fourth amount claimed is the sum of $56,780 in respect of three used vehicles sold by Irlmond between 10 February and 12 February 1999. By reason of the "three day float" that amount could not have been due and payable as at 12 February 1999. Further, part of the purchase price was satisfied by the trade-in of a Saab motor vehicle. The applicants say that the floor plan value of that vehicle should be deducted from the amount claimed. In this regard reference should be made to clause 6(e) of the bailment plan agreements. That clause provides:
"(e) Every trade-in acquired by the Bailee shall (if covered by the limits of his authority hereunder from Wholesale existing at the time but not otherwise) be deemed to have been purchased by him as agent for Wholesale whether he discloses to the other party the fact of agency or not and he shall be deemed to have paid to the other party as agent for Wholesale an amount equal to the trade-in allowance on the trade-in and Wholesale shall reimburse the Bailee in the manner and to the extent set out below.
(i) In respect of any used goods including trade-ins Wholesale shall reimburse the Bailee in respect of the expenditure incurred by the Bailee as its agent provided that the fixed percentage only of the purchase price or the true wholesale value (whichever is the lesser) shall be reimbursed after the Bailee has complied with paragraph (f) hereof and the balance (if any) shall be reimbursed when the goods are disposed of.
(ii) For the purpose of this sub-clause: 'true wholesale value' of any goods shall mean the sum fixed by Wholesale from time to time as being the true wholesale value of such goods and the sum so fixed shall be final and conclusive between the parties thereto."
118 The manner in which the dealer advised St George Wholesale that a trade-in vehicle had been purchased was explained by Mr Cahill. He said that Irlmond has a computer system on which it entered all trade-in vehicles. That system is connected to computer facilities at St George. Once an entry of a purchase is made, St George staff check to ensure that the used car facility would not be exceeded by the addition of the trade-in vehicle. They also carry out checks to determine whether another finance company has a lien over or other interest in the trade-in vehicle. If these enquiries indicate that all is in order, the trade-in vehicle is allocated to the bailment plan agreement with Irlmond. Then the purchase price of the trade-in vehicle is set-off against the money owing to St George Wholesale in respect of the sale of the new vehicle, leaving the balance payable to St George.
119 As regards to the Saab, Mr Cahill said that St George has records which would indicate whether it had been placed on the floor plan. However, those records were not produced, despite a call being made for their production. There being no suggestion that the Saab should not have been allocated to the Irlmond bailment plan, I would infer that it was or should have been placed on that facility. However, I am not able to say what credit was or should have been allowed to Irlmond in respect of the trade-in vehicle. In those circumstances, only $16,000, being the amount of the purchase price paid in cash, is owing to St George Wholesale. That amount became payable after the appointment of the receivers.
120 Next there is a claim for $287,346.12 in respect of ten vehicles that were sold to Brighton Classic Cars between 10 and 12 February 1999. The purchaser traded in two vehicles which were given a value of $322,000. The applicants say that no allowance has been made for the trade-in vehicles and they were placed on the used car bailment plan. Mr Cahill said that St George Wholesale had not placed the trade-in vehicles on the used car bailment plan because it has concerns about the value attributed to them. That is not a satisfactory explanation for declining to allow a set-off. Clause 6(e) requires St George Wholesale to reimburse Irlmond (in effect by a set-off) either the amount of the trade-in allowance, in this case $322,000, or the true wholesale value of the trade-in vehicles, whichever is the lower figure. Mr Cahill did not say what is the true wholesale value of the trade-in vehicles and I have no way of determining that amount. In result, I cannot be satisfied that any particular amount is payable to St George Wholesale.
121 Then there is a claim for $329,515 being proceeds of the sale of twenty-one vehicles that Mr Still had acknowledged during the two February audits as having been sold and paid for. The applicants do not dispute that these vehicles had been sold and only faintly dispute that the purchase price had been received; although it is likely that in respect of one sale, which occurred on 10 February 1999, the price had not been received by 12 February 1999. The applicants assert that many of these sales were the subject of a trade-in. But there is no evidence to that effect. As it seems to me that the applicants carry the burden of establishing that there were trade-ins, and they have failed to do so, I must find that the amount claimed (apart from the proceeds of the sale of one vehicle) was due and payable as at 12 February 1999 and that the balance claimed became due and payable thereafter.
122 On 10 and 11 February 1999 Irlmond delivered four cheques drawn on its banker and made payable to St George Wholesale in respect of the sale of a number of vehicles. Those cheques were for $8,647.41, $24,616.00, $127,063.90 and $201,476.64 respectively. Each cheque was presented for payment shortly after the appointment of the receivers and was dishonoured. The fact of dishonour is not an event upon which St George can rely to support the appointment of the receivers. But there appears to be no answer to the contention that, upon dishonour, Irlmond became liable to pay to St George Wholesale the value of the cheques and that sum is now due and owing.
123 The cheque in the sum of $310,458.41 requires separate consideration. I have already explained the circumstances surrounding the delivery of that cheque. In my view those circumstances show that it was the intention of the parties that the cheque was not to become operative until a condition had been fulfilled, that condition being that Irlmond should have sufficient funds to place in its account to enable its banker to meet the cheque. That is to say, delivery of the cheque was conditional: see e.g. Goeldner v Marshall (1913) 15 WALR 50; Jones v Thomas (1922) 65 DLR 491; Scafidi v Johnson 420 So2d 1113 (La 1982); Engelcke v Stoehsler 544 P2d 582 (Or 1975); Osburn v Lucas 502 P2d 1382 (Or 1972). This is not a case, of which New London Credit Syndicate v Neale [1898] 2 QB 487 is an example, where the drawer is impermissibly seeking to set up an oral agreement to contradict or vary the terms of the cheque. Here, the promise to pay constituted by the cheque was not an effective promise until there had been satisfaction of the condition. There being no evidence that the condition has been fulfilled, it follows that I must conclude that Irlmond is not liable to St George Wholesale on the cheque. For the sake of completeness, I should mention that I have considered but rejected a possible argument that the condition upon which the cheque was delivered was confined to one where the funds were in the NAB account on Friday, 5 February 1999 or Monday, 8 February 1999 and that the condition ceased to operate thereafter. Whilst I accept that the matter is not free from doubt, I am of the view that by reason of the fact that Irlmond had opened an account with the St George Bank and that it was not likely to make use of its account with the NAB (a fact known to all parties) the condition that was imposed and accepted was as I have found it to be.
124 The applicants assert that notwithstanding the fact that Irlmond is indebted to St George Wholesale for the various amounts that I have found to be due, there should be set-off against those amounts the value of the used vehicles that were in the possession of Irlmond on 12 February 1999 on the basis that Irlmond had the right to require St George Wholesale to purchase those vehicles under its bailment plan agreement. According to the evidence, which I must confess is a little unclear on this aspect, Irlmond had in its possession used vehicles to the value of approximately $900,000 that had not been bailed. The applicants say that I should deduct this amount, or at least eighty-five per cent of this amount (being the approximate value of the vehicles for bailment plan purposes) from the amount found to be due to St George Wholesale in order to arrive at the true state of indebtedness. Of course, that would result in there being no indebtedness to St George Wholesale.
125 There are two answers to this contention. The first is that as at 12 February 1999 the value of the vehicles under the used car facility was approximately $1,700,000. This was in excess of the facility limit. In that circumstance Irlmond did not have the right to bail further used vehicles without the consent of St George Wholesale. There is no evidence that such consent would be forthcoming. The second answer is that the mere potential of placing vehicles under the used car facility is not a sufficient reason, indeed it is no reason, for reducing the debt due to St George Wholesale.
126 Next, St George Wholesale contends that when Irlmond received the purchase price of each vehicle sold it held that money on trust for St George Wholesale. I do not accept that this was so. It is accepted by all parties that St George Wholesale is the owner of all new vehicles that are bailed. On a sale of a vehicle by Irlmond to a customer, title in that vehicle passes in the following way. In the case of new vehicles, title passes from St George Wholesale to APS, then to Irlmond and then to the customer. In the case of used vehicles, title passes from St George Wholesale to Irlmond and then to the customer. In accordance with ordinary contractual principles each person in the chain was obliged to pay the price of the vehicle to the person from whom title is obtained. Thus, in the case of new vehicles, the customer was obliged to pay the purchase price to Irlmond, Irlmond was obliged to pay the price to APS and APS was obliged to pay St George Wholesale.
127 In practice, payments of the purchase price did not follow this course. On the receipt of the purchase price from the customer Irlmond did not make any payment directly to APS. Instead Irlmond remitted the money to St George Wholesale on behalf of APS and also made payments of sales tax on behalf of APS. It thereby discharged the obligations of APS to pay the purchase price to St George Wholesale and to pay sales tax to the ATO. But this practice did not alter the legal relations between the parties. In particular, it did not constitute Irlmond as trustee of the proceeds of sale of new vehicles. On the sale of a new vehicle Irlmond became a debtor of APS and it discharged that indebtedness by making payments for the benefit of APS.
128 St George Wholesale also contends that Irlmond was obliged to account to it for the proceeds of the sale of new vehicles. The first basis that is put forward to support this contention is that all new vehicles for which St George Wholesale had not received payment have been converted by Irlmond and that it became liable to account to St George Wholesale for the purchase price on a claim for money had and received on the basis that St George Wholesale had waived its claim in tort.
129 There is no substance to the allegation that Irlmond converted vehicles to its own use when it sold those vehicles to its customers. As I have said earlier in my reasons, Irlmond was entitled to sell and deliver new vehicles to its customers on the basis that contemporaneously with such a sale taking place title in the vehicle would pass from St George Wholesale to APS and then to Irlmond to enable the customer to obtain good title. In any event, each sale and delivery was made with the tacit consent of St George Wholesale and thus there could be no conversion of its goods: compare Tozer Kemsley & Millbourn (A'Asia) Pty Ltd v Collier's Interstate Transport Service Ltd (1956) 94 CLR 384. There being no conversion, St George Wholesale has no claim in restitution in respect of the money received by Irlmond.
130 I will now deal with an argument that by the terms of a deed poll made on 26 May 1998, Irlmond assumed the obligations owed by APS to St George Wholesale and St George Finance. The deed poll was executed at the request of St George Finance to deal with a sales tax problem that had arisen. The nature of the problem was not explained in any detail. In any event, it is not necessary to dwell on the precise purpose of the deed.
131 The deed was made by Irlmond and APS in favour of St George Finance. It conferred no benefit on and was not declared to be made in favour of St George Wholesale. The covenants in the deed upon which St George Wholesale relied impose obligations upon Irlmond to perform or to cause APS to perform obligations that are owed to St George Finance or to indemnify St George Finance against loss if APS fails to meet its obligations. There being no provision in the deed which confers a benefit on St George Wholesale, it follows that its reliance on the deed as a source of obligation is not made out.
132 The next contention with which I must deal is that Irlmond is liable to pay St George Wholesale the purchase price received on the sale of all new vehicles by reason of certain provisions in the Chattels Securities Act 1987 (Vic). By that Act (s 7(7)), where a person holds a "security interest" (as defined) over goods and that security interest is extinguished in consequence of the operation of subsections 7(1) or (2), the holder of the security interest is subrogated to the rights of the supplier of the goods, including the right to have recourse to any part of the purchase price for the goods which has not been paid. St George Wholesale says that it had a security interest over all vehicles bailed to APS and that by reason of subsection 7(7) it is subrogated to the rights of APS in respect of those vehicles thus entitling it to recover the purchase price from Irlmond. To deal with this argument it is necessary to refer to the relevant provisions of the Act:
133 "Security interest" is defined in s 3 to mean:
"an interest in or a power over goods (whether arising by or pursuant to an instrument or transaction or arising on the execution of a penalty enforcement warrant issued under the Magistrates' Court Act 1989) which secures payment of a debt or other pecuniary obligation or the performance of any other obligation and includes any interest in or power over goods of a lessor, owner or other supplier of goods, but does not include a possessory lien or pledge;"
134 Subsections 7(1) and (2) provide:
"(1) Subject to section 8, if a secured party has -
(a) an unregistered security interest (whether or not over registrable goods or interstate registrable goods); or
(b) a registered inventory security interest -
in goods but is not in possession of the goods and a purchaser purchases or purports to purchase an interest in the goods (otherwise than at a sale in pursuance of a process of execution issued by or on behalf of a judgment creditor) for value in good faith and without notice when the purchase price is paid (or, if the price is not paid at one time, when the first part of the purchase price is paid) of the security interest from a supplier being -
(c) the debtor; or
(d) another person who is in possession of the goods in circumstances where the debtor has lost the right to possession of the goods or is stopped from asserting an interest in the goods against the purchaser -
the security interest of the secured party is extinguished.
(2) Subject to section 8, if a secured party has a security interest in a motor car within the meaning of the Motor Car Traders Act 1986 but is not in possession of the motor car and a purchaser purchases or purports to purchase an interest in the motor car (otherwise than at a sale in pursuance of a process of execution issued by or on behalf of a judgment creditor) for value in good faith and without notice when the purchase price is paid (or, if the price is not paid at one time, when the first part of the purchase price is paid) of the security interest from a licensed motor car trader within the meaning of the Motor Car Traders Act 1986, the security interest of the security party is extinguished."
135 "Security party" is defined in s 3 to mean:
"the holder of a security interest and includes the lessor in relation to a lease of goods and the owner in relation to a hire-purchase agreement;"
136 I will assume, without deciding, that by reason of the bailment plan agreement St George Wholesale held a security interest over the vehicles that were bailed to APS. It is not in dispute that this security interest, if it existed, was unregistered.
137 The effect of subsections 7(1) and (2) is to extinguish a security interest over goods when those goods have been purchased for value and in good faith. The subsections will only operate to extinguish a security interest if a purchaser is otherwise unable to obtain good title to the goods sold. To put the matter another way, if the purchaser of goods encumbered by a security interest acquires those goods free of that interest without having to rely on subsections 7(1) or (2), those subsections will have no operation in respect of that sale. In that circumstance the condition for the operation of subsection 7(7) will not be satisfied and no right of subrogation would arise.
138 That is what has occurred in the case of the sale of vehicles by Irlmond. In consequence of the arrangements that subsisted between Irlmond, APS and St George Wholesale, when a vehicle was sold by Irlmond the purchaser obtained a good title free of any security interest independently of the operation of subsections 7(1) or (2). That is, the security interest, if it existed, was not extinguished by the operation of subsections 7(1) or (2). It follows that subsection 7(7) conferred no rights upon St George Wholesale.
139 In view of the conclusion that I have reached it is not necessary to further consider the operations of s 7. But I do not wish to leave this part of the case without indicating that there seems to me to be other bases for contending that St George Wholesale did not acquire a right of subrogation under subsection 7(7).
140 Finally, on this aspect of the case, I must deal with the contention that both Irlmond and APS were insolvent at the time the receivers were appointed. There was a good deal of argument directed to this question but, in the end, I have little doubt that insolvency has been established. First there is the concession that was made by Mr Spalla. True, it is that he only admitted making the statement that the companies were "technically insolvent", but I do not appreciate the distinction between that form of insolvency and any other. Then there is the evidence of Mr Cummings who at the meeting on 2 February 1999 said that Irlmond and APS had a deficiency of assets of $2,200,000. There is also the evidence of Mr Paul Stewart, a chartered accountant in the firm of which the receivers are partners. He had conducted an investigation into the affairs of Irlmond and APS and has reviewed such of the books and records of those companies as he was able to find. His evidence was that both companies were insolvent. He arrived at this conclusion in part by reason of the fact that the dealership had a working capital deficiency of at least $1,177,000 and a balance sheet deficiency of $5,559,000. Further, Irlmond's account with the NAB was drawn to its limit and the dealership had no other ready means of obtaining cash. There is also the fact that Irlmond and APS were not able to pay all of their debts. As I have mentioned, the sales tax that was due and payable on 21 July 1999 had not been paid by the time of the appointment of the receivers. The outstanding debt due to St George Wholesale had not been paid. The business was deteriorating and, according to Mr Still, January was a "dreadful month". In my view the fact that the companies were insolvent is an inescapable conclusion from the evidence.
141 The position thus far reached is that, for the reasons stated above, the charge created by each debenture had, at the option of St George Wholesale and St George Finance, become enforceable thereby permitting the appointment of receivers to the property of Irlmond and APS. The issue that now arises is whether there is some basis for contending that St George Wholesale and St George Finance were not entitled to exercise their power to appoint receivers. Two arguments were put forward in support of the proposition that St George Wholesale and St George Finance were precluded from so doing. First, it is said that they are estopped from relying upon any of the events that gave rise to the enforceability of the charge. The second argument is that the appointment of the receivers was contrary to s 51AC(1) of the Trade Practices Act thereby justifying the grant of relief under s 80 or s 87 restraining the continuation of the receivership.
142 Once it was thought that there were many types of estoppel. Jordan CJ in Discount & Finance Ltd v Gehrig's NSW Wines Ltd (1940) 40 SR(NSW) 598 at 602 - 603 identified them as estoppel by deed, common law estoppel, estoppel by representation and estoppel by acquiescence. To this list his Honour may have added estoppel by judgment, issue estoppel, an estoppel of the Henderson v Henderson (1843) 67 ER 313 variety, and estoppel by convention.
143 In the trilogy of cases Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, Foran v Wight (1989) 168 CLR 385 and Commonwealth v Verwayen (1990) 170 CLR 394, an attempt was made to unify these categories of estoppel. For most purposes, in particular for what is commonly known as promissory estoppel, the elements that must be satisfied for an estoppel to arise have been summarised by Brennan J in Waltons Stores, supra, at 428 -429:
"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise."
See also Verwayen, supra, at 444 - 446 per Deane J.
144 The applicants found their argument on estoppel on two broad propositions. First, it is said that by representations and conduct the St George companies led Irlmond and APS to believe, and they did believe, that no reliance would be placed on any of the grounds that I have found would justify the appointment of receivers. The second basis was enunciated by senior counsel for the applicants in the following language: "What St George was in effect saying to the dealer was 'we will continue to provide ongoing floor plan finance and otherwise support you financially to the extent necessary to get you in a position to sell or refinance'".
145 As to the first proposition, it is no doubt true that for many years (probably for the whole of the period between 1994 and 1998) St George Wholesale was willing to overlook the fact that Irlmond and APS were late in the payment of the debts due to St George Wholesale. I also accept that, despite their protestations to the contrary, Messrs Hiller, Phillips, Beed and Cahill were aware of certain of the practices employed by Irlmond and APS as a means of delaying payments to St George Wholesale. In particular I am satisfied that they were aware that Irlmond retained cheques that were described as "funds in transit" as a method of delaying payment. Further, I am of the view that those officers were also aware of the practice adopted by Irlmond of deferring the delivery of vehicles that had been sold so as to delay the receipt of funds that would have to be paid to St George Wholesale. I must say that I found the evidence of Messrs Phillips, Beed and Cahill on these aspects of the case quite unsatisfactory. In the case of Mr Hiller, his denial of knowledge was made in his affidavit but he readily conceded his actual state of knowledge during cross-examination. I am inclined to the view that Mr Hiller did not give proper attention to the contents of his affidavit before it was sworn. As it turned out, Mr Cummings said he had discussed all of these practices with them and there is no reason to doubt this evidence.
146 However, although Mr Spalla, with some support from Mr Cummings, said that Messrs Phillips and Cahill were also aware of the improper use that had been made of the deferred payment facility, I doubt this to be so. The evidence of Mr Spalla was that there had been many discussions about the use of the facility. But he did not descend to any detail. The documents that have been discovered by the respondents do not support Mr Spalla. They tend to suggest that there was no knowledge of this practice. Here I include those documents in which reference was made to the need to ascertain the "true" state of indebtedness of Irlmond and APS. I have no doubt that the St George companies were not aware of the "true" indebtedness at any particular point in time. The need to discern the "truth" is not evidence of knowledge of the improper use that had been made of the deferred payment facility.
147 In this connection also there is a revealing answer given by Mr Still to the first question put to him in his cross-examination. There had been evidence that one of the purchasers whose contract had been improperly allocated to the deferred payment facility was the King of Punjab, the business name of a restaurant. Apparently this had caused some amusement within the dealership. The transcript records the following:
"Q: Mr Still, tell his Honour what the joke was about the King of Punjab? A: The King of Punjab was a restaurant down I think Maribyrnong way. We put that vehicle on deferred to see how it would go. St George accepted it and we paid it out 30 or 40 days later as a normal course of events but deferred."
This indicates to me that although the misuse of the facility had been going on for some time, Mr Still did not believe that the St George companies had knowingly acquiesced to the practice.
148 If Irlmond and APS, through Mr Spalla, did believe that the strict contractual rights that governed the relationship between the parties would not be enforced, they cannot show that that belief was induced by the conduct of the St George companies. In that regard I do not accept that conduct that amounts to no more than mere acts of indulgence can constitute a promise or assurance that late payment would forever be indulged or would be indulged until notice to the contrary was given so as to found an estoppel: Tool Metal Manufacturing Co Ltd v Tungston Electric Co Ltd [1955] 1 WLR 761; John Burrows Ltd v Subsurface Surveys (1968) 68 DLR (2d) 354. Here the conduct relied upon amounts to nothing more than mere acts of indulgence. In any event, Mr Spalla did not say that the St George companies had promised or assured Irlmond or APS that they would always overlook late payments. Indeed, Mr Spalla said that when he was served with the notices of default in November 1998, he understood that the St George companies were seeking immediate payment of all the money that was due to them and that Irlmond and APS were obligated to make those payments. This is not consistent with a belief that late payments would be tolerated or, at the least, that they would be tolerated after the service of the notices.
149 Leaving aside the issue of late payments, there is no basis in the evidence for concluding that St George Wholesale was estopped from appointing receivers if sales tax was not paid. It is true that in 1994 there had been a significant default in the payment of sales tax followed by an agreement with the ATO that the tax could be paid by instalments. It is also true that the St George companies were aware that there were other occasions when sales tax was not paid on time. But it does not follow from this that if sales tax was not paid on the due date for payment, on some other occasion the St George companies had represented that they would take no action. Moreover, I do not believe that Mr Spalla was of that opinion.
150 Finally there is the insolvency of the two companies. There is no suggestion that Mr Spalla believed that the St George companies would not act on that insolvency if they were minded to do so. If he was of that belief, it was not brought about by any conduct on the part of the St George companies.
151 The suggested promise that the St George companies would continue to support Irlmond and APS until they were able to dispose of the dealership or obtain refinance is also not made out on the evidence. It is clear that in the latter part of 1998 and the first few weeks of 1999, Mr Spalla was encouraged to make the dealership as attractive as possible to entice another financier to take over the account or to encourage a prospective purchaser to acquire the business. As Mr Hiller said, that was the reason why St George Wholesale contemplated writing off a substantial portion of its debt. Of course it was in the interests of not only Mr Spalla and his companies but also of the St George companies that the business to be sold or refinanced. However, Mr Spalla had been told in October 1998 that the St George companies wished to terminate the facilities. In many of the important discussions that took place thereafter the possible appointment of receivers was raised. Thus Mr Spalla knew that if the dealership was not sold or refinanced, the St George companies might well appoint receivers if an event occurred that justified their appointment. Indeed, nowhere in the evidence is it suggested that Mr Spalla was promised or given an assurance that this would not occur.
152 Much of what I have said in relation to the estoppel claim is also directly relevant to the claim that the appointment of the receivers was unconscionable conduct in contravention of s 51AC(1) of the Trade Practices Act. In my view the true position was that the St George companies had given Mr Spalla every reasonable opportunity to make arrangements to avoid the appointment of receivers. He had been told in September 1998 to obtain another financier or sell the dealership. When the notices of demand were served Mr Spalla was told that they would not be acted upon because the parties were hopeful that Capital would take over the finance. St George Wholesale offered to release some of the debt due to it to assist in that regard. It continued to accept late payment without real complaint. It allowed Irlmond and APS to exceed the limits of their facilities. It did all of these things with the risk that its own financial position may suffer. In the end the St George companies appointed receivers to protect their position. They were entitled to do so and were not acting unconscionably in making that appointment.
153 The last aspect of the applicants' case with which I must deal is the claim for redemption. Irlmond and APS have a right to redeem the charges granted by them on payment of principal interest and costs. It is a right which cannot be disputed: Tasker v Small (1837) 40 ER 848. The St George companies only oppose the making of redemption orders on the ground that they will be futile because neither Irlmond nor APS has the funds to pay out the amounts that will be required to effect a redemption. However, that is not so obviously clear, especially in the case of Irlmond, that I should refuse to make the orders. Accordingly I will grant to Irlmond and APS the relief that they seek in this regard.
154 Now I turn to consider the cross-claim. First, in view of the findings that I have made, it is apparent that the St George companies are entitled to a declaration that the appointment of the receivers and managers was lawful.
155 Second, as to their money claims, I have determined the amounts that are due and payable to the St George companies in the process of considering whether there were grounds for the appointment of the receivers. The St George companies are entitled to judgment for the amounts that I have found to be due to them.
156 Third, there is a claim against Mr Spalla and Anstella under the guarantee given by them. It is not disputed that those parties are liable to judgment under the guarantee for the amounts payable to the St George companies. The St George companies no longer pursue their claim under the guarantee against Mrs Spalla. Accordingly that claim will be dismissed as will the other causes of action that were pleaded but not pursued.
157 Mrs Spalla asks for her costs and an order that they be taxed on an indemnity basis. It was put that the claim against Mrs Spalla was hopeless and brought for the improper purpose of putting pressure on Mr Spalla to discontinue the proceeding.
158 In my view it is preferable to deal with the question of costs on a somewhat different basis. In the course of resolving the various issues raised by the parties, whilst the St George companies were successful on most issues, there were a number of areas where their submissions were not upheld. Thus I do not think that the St George companies should receive all of their costs of the claim and cross-claim. In my view the proper order to make is that they recover eighty per cent of their costs except to the extent that they relate to the proceedings against Mrs Spalla. As a matter of form it is appropriate to order that Mrs Spalla recover her costs of the cross-claim although it is unlikely that she has incurred any separate costs. In any event I do not think it appropriate that her costs be taxed on an indemnity basis.
159 The parties should bring in minutes of orders to give effect to these reasons. I have already circulated draft minutes that should assist the parties in that regard.