Q. So, did you understand from that, that the amount advanced of $1.435 million was not set in stone so to speak?
A. What I understand is that I wrote $1.435 million into this loan document. I wouldn't have written it into the document if I didn't think it was set in stone. My - what I did there demonstrates, I think, my feelings about it, what I thought the situation was then. I thought the matter had been sorted out, it had been agreed and that was we could go forward."
28 And later:
"Q. You provided and prepared a lot of information that you say substantiated the loan of $1.435 million?
A. No, that's not what I said. I said Mr Mafi came to the meeting with a bundle of papers that said as to what moneys had been advanced. My memory of that meeting was that he and Mr Ashrafinia had a discussion about that bundle of papers, and there was an agreement between them that they had an agreement about some other items on that sheet of paper and that there was then agreement as to 1.435 million. That is my clear recollection."
29 At the hearing of the application for interlocutory relief, Mr George, on behalf of the plaintiffs, devoted considerable time to the proposition that there was, in November 2004, nothing owing by Salsa to Mafi Holdings and that the charge effectively secured nothing. I was taken through a myriad of items in respect of which it was contended that the person from whom particular funds were received by Salsa was not the lender/chargee, Mafi Holdings. Based on that, it was submitted that receipt of each such sum by Salsa did not give rise to a debt owing by Salsa to Mafi Holdings but, rather a debt owing to someone else (if there was any debt at all). Against this, I was referred to other elements of the evidence suggesting that, while Mafi Holdings may not have been the immediate payer to Salsa, the payment was attributable to and indirectly sourced from Mafi Holdings. It is sufficient to refer to one example to illustrate the point.
30 One relevant item is an item of $149,985.00 which, on the case the plaintiffs seek to make, came from Mr Bailey and therefore did not result in indebtedness on the part of Salsa to Mafi Holdings. The defendants say that there is no issue that that payment was generated by a sale of shares by Mafi Holdings to Mr Bailey, with the result that Mr Bailey became liable to pay the price of $149,985.00 to Mafi Holdings. The making of a payment of that amount by Mr Bailey direct to Salsa is, it is said, perfectly consistent with (and explicable by reference to) the making of a loan or advance of that amount by Mafi Holdings to Salsa, with actual payment being effected by direct movement of cash from Mr Bailey to Salsa at the direction of Mafi Holdings. Mr George, on behalf of the plaintiffs, sought to make much of a discrepancy in the name of Mafi Holdings, but the likelihood that it is Mafi Holdings that is referred to is strongly suggested by the use of the correct ACN.
31 Numerous similar instances were canvassed before me. I need not go into them. It is sufficient to say that, in each case, the evidence is consistent with the possibility of a payment to Salsa by a third party at the direction and for the benefit of Mafi Holdings.
32 It is likely that, upon a final hearing, it will be found that at least some loans were made by Mafi Holdings to Salsa. It is unlikely that the court will find that each and every one of the myriad of payments by apparent third parties direct to Salsa was not in truth a payment by or at the direction of Mafi Holdings. I am satisfied that there is a question to be tried on these issues.
33 The additional contention of the plaintiffs is that there was a collateral oral agreement made at the time of creation of the charge that the deed was not to be binding or would not be relied upon unless and until the sum of $1,435,000 had been verified.
34 On this, much was said about the parol evidence rule and the proposition that evidence of what was said or agreed in conversations cannot be allowed to contradict the clear terms of a deed of loan. But that, in my view, is not what the evidence here would indicate, even if viewed in the light most favourable to the plaintiff. The position is not, as I see it, one in which an attempt is made to show that the parties' contract is, by reason of some oral agreement, inconsistent with or different from the deed they have executed. Rather, it is said that there co-existed with the deed an oral agreement to the effect that, whereas the deed referred to a fixed and specific sum of $1,435,000, the parties would, after execution of the deed, engage in a process directed towards the possibility of future amendment of the agreement embodied in the deed. On Mr Ashrafinia's account, he asked Mr Mafi to confirm that "once the accounts are prepared, if the accounts say different amounts are owed to you and me, you will vary the charge"; to which Mr Mafi is said to have agreed. Mr Bailey's account has Mr Mafi agreeing to Mr Ashrafinia's statement, "if some of the figures in the deed of loan are incorrect, could we have them changed at a later date?" Neither of the others present reports any such exchange.
35 But even if the evidence of Mr Ashrafinia and Mr Bailey were, on this matter, fully accepted and the court eventually found that there had been a collateral oral agreement, that would not affect rights under the deed of loan and the charge. At best, that further agreement is an agreement to vary the rights and obligations arising from the formal documents in a defined future event. That does nothing to detract from the present and continuing efficacy of those formal documents.
36 The basic point made by the plaintiffs is that Mafi Holdings should not be allowed to rely on its charge in any way unless and until "it is established with certainty what the amount secured by the charge is". The words quoted appear in the outline of submissions handed up by Mr George.
37 Mr George thus relies upon the matters regarding the sources of payments and the collateral agreement in support of the application for interlocutory relief. He did not, in advancing the interlocutory application, rely on the attack upon the deed of loan and the charge based on alleged misleading and deceptive conduct and alleged unconscionable conduct.
38 I am accordingly called upon to decide, in the first instance, whether there is a serious question to be tried regarding the proposition that nothing is owing under the deed of loan and nothing is secured by the charge. On the material before me, I do consider that there is a question to be tried to that effect, although it is not strong. In relation to the one item of $149,985.00 to which I have made particular reference, the evidence regarding source and application of funds is likely to be found to show, in my opinion, an advance by Mafi Holdings. But there is another item of some $70,000 involving Mr Bailey which I have not specifically mentioned where there is at least a real doubt. While Mr George sought to show that each and every payment had some third party source, the claim for declaratory relief to which I have referred (item 5 at paragraph [4] above), contemplates a finding by the court that $428,918 is owing by Salsa to Mafi Holdings and secured by the charge. Nevertheless, the evidence as to actual and immediate source of each payment shows that investigation is required.
39 Although it may therefore be said that there is a serious question to be tried regarding the proposition that there is zero secured by the charge, my view is that the balance of convenience would not favour restraining resort to secured creditor remedies by Mafi Holdings. Any case in which a mortgagor seeks to restrain enforcement action by a mortgagee on the ground that there is a dispute as to the amount secured attracts the operation of what Barwick CJ (with the concurrence of Menzies and
Gibbs JJ) called in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at p.169 "the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument", that is, that there should be no restraint absent payment into court of "the amount sworn by the mortgagee as due and owing under the mortgage".
40 The matter I have just mentioned goes to the balance of convenience, indicating as it does that the mortgagor should, as the price of interlocutory orders depriving the mortgagee of freedom to act, put up the whole of the sum sworn to by the mortgagee as owing so that the mortgagee, while prevented from resorting to rights against the mortgaged property, is given an assurance that there will nevertheless be a fund from which his debt, as eventually established, can be paid. Mr George said that the loans are so uncertain that the appointment of a receiver would be unjust and there should be no reliance on the charge without verification of the amounts secured. This is contrary to the position laid down by the High Court.
41 Also under the balance of convenience heading, the plaintiffs say (and I quote from Mr George's outline of submissions):
"The balance of convenience also favours the plaintiffs; if a receiver is appointed, he or she will be concerned with getting-in money to repay the second defendant at the expense of the plaintiffs and creditors generally. Further, the assets will be sold and funds distributed probably before the first defendant's liquidators can act."
42 I must say that I cannot see how this causes the balance of convenience to favour the plaintiffs. Any sale by a receiver appointed by Mafi Holdings and any application of sale proceeds towards the debt owed to Mafi Holdings will not be "at the expense of" anyone. Sale proceeds will be applicable only towards the indebtedness as ultimately determined. It is true that a receiver, if appointed, will sell in such a way as to forestall sale by the provisional liquidators. But principles of prudence and care will apply whichever official effects the sale.
43 On the balance of convenience generally, I cannot see how the possibility of sale by a receiver, as distinct from (and instead of) provisional liquidators, is to the detriment of anyone; nor can I see what detriment will be occasioned by conversion into cash of the assets and undertaking of Salsa which is subject to the charge held by Mafi Holdings.
44 I will therefore not make the interlocutory order restraining steps towards appointment of a receiver.
45 The second interlocutory order sought is aimed at controlling behaviour of the provisional liquidators. I am not satisfied that any basis at all has been shown for the making of that order. Any such restraint would have to be grounded in an apprehension that the provisional liquidators will exceed or abuse their powers. All that has been shown is that they have received a proposal for sale of assets to Mr Mafi or interests associated with him which is of the kind contemplated by the second order at paragraph [12] above. Any insolvency practitioner acting rationally would not give credit for a particular off-set unless convinced that the amount of the off-set was correct and verified - at least without taking steps, including no doubt by way of suitable security (assuming that security could properly be given and taken) - to ensure that the adverse effects of any uncertainty were guarded against. But ultimately, all that is a matter for commercial judgment. The court will not interfere unless there is a demonstrated apprehension of breach of duty.
46 In relation to the interlocutory restraint sought against the provisional liquidators, I can see no serious question to be tried.
47 In the result, therefore, neither of the interlocutory injunctions sought will be granted.
48 I return, therefore, to the s.237 application and the criterion specified in s.237(2)(d), that is, whether there is a serious question to be tried. Bearing in mind what I have said about the issue of quantification of the sum secured by the charge (added to the evidence about the circumstances in which the documents were presented for signature, completed and signed at the 30 November 2004 meeting), the finding on that criterion must be positive, with the result that all elements contemplated by s.237(2) are established and leave must be granted.
49 It was submitted on behalf of the defendants that the grant of leave should be on terms as to costs. I agree. It is commonplace for a person given permission to pursue a claim on behalf of a company to be required, in the first instance, to bear the burden of costs: see the cases discussed in Roach v Winnote Pty Ltd (2006) 57 ACSR 138 at [23] to [29] and the very recent example in Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887.
50 The only order I now make upon the plaintiffs' interlocutory process filed on 12 July 2006 is an order that leave be granted to the plaintiffs, pursuant to s.237 of the Corporations Act, to bring on behalf of the first defendant the proceedings in prayers 5, 6, 7 and 8 of the amended originating process filed on 12 July 2006, such leave being on terms that:
(a) the plaintiffs pay and bear (and indemnify the first defendant against) all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings brought by them on behalf of the first defendant except to such extent, if any, as the court may in future otherwise direct or allow; and
(b) in so far as it may not apply of its own force, s.240 of the Corporations Act shall apply to and be observed in relation to the proceedings brought by the plaintiffs on behalf of the first defendant.
51 The interlocutory process is otherwise dismissed.
52 I grant leave to the plaintiffs to restore the matter to the list on 48 hours notice for the purpose of pressing the application for leave under s.459P(2) and a winding up order in respect of Salsa.
53 I will hear the parties on the costs of the interlocutory process.
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