The notice proceeded to assert that Borrower 2 was in default by reason of its failure to pay the interest detailed in Schedule A thereto. It gave notice in terms similar to the notice given to Borrower 1, and demanded payment of the total outstanding amount ($8,750,000) by 12 pm 8 July 2010. It concluded with warnings in terms similar to those given in the notice to Borrower 1.
26 No payments were made in response to the demands. As earlier mentioned, the receivers were appointed to the businesses on 8 July 2010, and to the properties on 9 July 2010.
27 Since their appointment, the receivers have continued the management and operation of the hotels, and are taking steps to ready them for sale.
Determination
28 Almost at the outset of submissions the plaintiffs demonstrated that the amounts of interest claimed to have been unpaid in the notices of 6 July 2010 had, in fact, been paid before the demands were made. In response, senior counsel for the defendant stated that these claimed defaults were not relied upon to justify the appointment of the receivers.
29 The defaults relied upon which enlivened the defendant's entitlement to appoint the receivers as identified by the defendant are listed in Ex 2 "Table of Defaults". They include failures to maintain the required EBITDA and ICR, and to provide monthly management accounts. Also included are failures to ensure that the outstanding amount under the overdraft facility for Borrower 1 did not exceed the facility limit of $500,000. I understood that these defaults were not disputed. In any event, Mr Ogilvy's evidence established their existence.
30 In essence, the plaintiffs submitted that the defendant was bound by clause 2.2 of the Code to act fairly and reasonably towards them, and in a consistent and ethical manner. It was not disputed that the plaintiffs were small business customers to whom the Code applied. In doing so, the defendant was to consider the conduct of each party, and the terms of the relevant contracts. It was put that, as the mortgages were entered into prior to 6 April 2009 when the parties agreed to the General Terms which incorporated the Code, the mortgages must be construed with regard to the obligations under the Code.
31 The plaintiffs' written submissions of 9 August 2010 included the following:
"3. The Bank did not act fairly, reasonably or consistently because:
3.1 It now seeks to rely only upon earlier notified breaches (variously from 6 - 12 months prior to the appointment of the receiver) that it had consistently not relied upon to appoint a receiver.
(a) Having consistently issued notices in relation to alleged past breaches, and then issuing a Notice on 6 July 2009 pursuant to which it purported to appoint a receiver, the Bank now inconsistently seeks to justify the appointment of the receiver without having to provide Notice of its intention to do so…
(b) Having unreasonably issued a Notice alleging a breach which did not exist (alleged non payment of interest) and which is now expressly resiled from, the Bank now unfairly seeks to rely on breaches which in the past it had elected not to rely upon to either:
(i) Issue a formal Notice of Demand stating a time within which the Bank required rectification of the default; or
(ii) To appoint a receiver (with or without a prior Notice of Default).
(c) The Bank has acted inconsistently and unfairly in now relying on the overdraft breach without issuing any Notice which was proximate in time prior to the appointment of the receiver in relation to that default. The Bank agreed with Borrower 1 on 6 April 2009 to renew the overdraft facility with a purported limit of $500,000 when the overdraft on that date was $788,391. It cannot be presumed as a matter of fairness that the bank intended Borrower 1 to be in default from the first day of the renewal of the existing facility. The Bank then elected not to appoint a receiver in October 2009, being the date when the first and only breach Notice was issued in relation to the overdraft (and only notified to Borrower 1 even though that default is now relied upon to appoint a receiver to the security of Borrower 2). Also, no demand for payment of the overdraft was made thereafter by any formal Notice even though there were 3 subsequent Notices served. Further, there was no written request for repayment of the overdraft by any email for at least a 5 month period prior before the appointment of the receiver. Yet that alleged default is now sought to justify the Notice of 6 July 2010 and the appointment of the receiver. The Bank always continued to allow the overdraft account to be debited to repay the interest on the Commercial Facilities: contrary to the express purpose of the overdraft and in a manner which could not suggest the Bank would - without prior notice and with reasonable time to rectify - appoint a receiver by reason of that overdraft being in default. "
32 Further submissions were made in respect of particular aspects of the defendant's actions said to be indicative of unreasonable, unfair, and unethical conduct, but for present purposes it is unnecessary to recite them.
33 In summary, it was submitted that in the circumstances the defendant's reliance upon defaults other than those specified in the notices of 6 July 2010 for the appointment of the receivers under the mortgages was in breach of clause 2.2 of the Code and, accordingly, orders should be made for their removal.
34 The relief sought is in the nature of an interlocutory mandatory injunction. The first consideration is whether the plaintiffs have demonstrated there is a serious issue to be tried that there is, prima facie, a reasonably arguable case on both the facts and the law that the defendant was not entitled under the mortgages to appoint receivers to the properties. (Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199.) In my opinion, in order to meet this test it is necessary for the plaintiffs to demonstrate, at least, that it is reasonably arguable that clause 2.2 of the Code operated to require notice be given of the appointment of a receiver although the express terms of the mortgage (clause 12.2(b); clause 13.1(a)(ii)) empower appointment without notice.
35 Clause 20.2(b) General Terms provides that the Code does not apply to these (or any) provisions of the mortgage unless it be shown that the provision(s) would "otherwise contravene a requirement of the Code … or impose an obligation or liability which is prohibited by the Code ...". If such is the case the relevant agreement is to be read "as if that provision were varied to the extent necessary to comply with the Code … or, if necessary, omitted". There was no attempt in this case to demonstrate that these or any other provisions of the mortgage fell within clause 20.2(b), or to articulate the variation necessary to comply with the Code, alternatively, to submit that their omission was necessary for compliance. In my opinion, no arguable case was established that the provisions which enabled the appointment of receivers without notice should be read down or varied in any way.
36 For the purpose of this interlocutory application, it is unnecessary to finally determine as a matter of construction the underlying intention of clause 2.2 of the Code. Although the issue was not fully argued in these proceedings, it is appropriate to express my preliminary view about it. According to well known principles the approach to be taken is that as it is a commercial document it should be given a commercially sensible and businesslike interpretation with regard to its language and the objects intended to be secured. Preference is to be given to a construction supplying a congruent operation to the various components of the whole (McCann v Switzerland Insurance Australia Ltd (Allens Case) [2000] HCA 65; Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28).
37 As clause 1.1 states, the Code is a voluntary code of conduct which sets standards of good banking practice to be followed when dealing with individual and small business customers. Clause 2.2 imposes a standard of behaviour in acting towards the customer which is fair and reasonable, consistent and ethical. In doing so, consideration is to be given to the conduct of both the customer and the bank, and to the contractual arrangements between them. Clause 2.3 states that in meeting the bank's key commitments to the customer (which include the commitments under clause 2.2) regard will be had to the bank's "prudential obligations".
38 These provisions impose standards of behaviour to be observed in the performance of contractual rights and obligations, including the exercise of contractual powers. The unambiguous language of clause 2.2 and clause 2.3 shows that the manner in which the bank is required to act in the performance of a contract with a customer is to be ascertained with regard to the conduct of the parties in the context of their contractual arrangements. Clause 2.3 recognises that the bank will have regard to its "prudential obligations" in adhering to the standards of behaviour. The effect of this provision, in my opinion, is to preserve the bank's entitlement to act with careful regard to its own interests under the relevant contract(s).
39 Accordingly, in my opinion, adherence to the Code does not require the bank to subordinate its own interests to those of the customer, or to prefer the interests of the customer. These clauses indicate the bank's commitment to have due regard to the interests of both parties in the course of its performance of the terms of the relevant contract. They are directed to the manner of exercise of the contractual right or power. They do not operate to qualify or vary such right or power.
40 In this case the mortgage provided a power of appointment without notice. In my opinion, the plaintiffs have not demonstrated an arguable case that the Code operates to prevent the defendant from exercising that power in the circumstances of this case. Furthermore, I accept the defendant's submissions that the principles in Canberra Advance Bank Ltd v Benny (1992) 38 FCR 427; McMahon v State Bank of New South Wales (1990) 8 ACLC 315; Bond v Hongkong Bank of Australia Ltd (1991) 25 NSWLR 286 are applicable in the circumstances of this case.
41 For the above reasons I hold that the plaintiffs' interlocutory application must be refused.
42 A further, and alternative, ground for refusing relief is that the balance of convenience is heavily weighted in the defendant's favour. The effects of orders made as sought by the plaintiffs would be to upset the status quo, and to grant at the interlocutory stage what, in substance, would be a significant measure of final relief.
43 The challenge is to the appointment of receivers to the properties. As there is no challenge to their appointments to the businesses and related assets, they will remain in place. It is common ground that the property and business of each hotel are to be sold as one, and that an early sale is desirable. Mr Ogilvy deposed that the value of a hotel is based on the trading performance of the business as opposed to the value of the freehold land on which it operates. He also said that, since their appointment, the receivers have continued the trading operations of the businesses, in addition to preparing them for sale, a process which is well underway. Submissions from selling agents for marketing and sales have been sought.
44 There is no evidence that continuation of the appointment of the receivers over the properties would be in any way detrimental to the plaintiffs' interests. There is no evidence which demonstrates that the plaintiffs would derive any advantage or benefit if they regained possession of the properties at this stage. It is not suggested that there is a risk that the receivers will eventually sell for an amount less than that which might be obtained if the plaintiffs were working with them.
45 On the evidence before me, I have come to the firm opinion that the present situation should be left undisturbed pending final determination of the proceedings.
Conclusion
46 The Court orders: