FEDERAL COURT OF AUSTRALIA Returned & Services League of Australia (Queensland Branch) Sarina Sub Branch Inc v Returned & Services League of Australia (Queensland Branch) [2012] FCA 1105 Citation: Returned & Services League of Australia (Queensland Branch) Sarina Sub Branch Inc v Returned & Services League of Australia (Queensland Branch) [2012] FCA 1105 Parties: RETURNED & SERVICES LEAGUE OF AUSTRALIA (QUEENSLAND BRANCH) SARINA SUB BRANCH INC v RETURNED & SERVICES LEAGUE OF AUSTRALIA (QUEENSLAND BRANCH) and HARVEY WINSTON FEWINGS TRADING AS CRANKY LIZARD CONSULTANTS File number: QUD 401 of 2012 Judge: COLLIER J Date of judgment: 12 October 2012 Catchwords: PRACTICE AND PROCEDURE – application for interlocutory relief – injunction sought to prevent expiry of option to purchase interest in land and buildings – allegations of unconscionable conduct – principles in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 – whether serious question to be tried – whether damages an inadequate remedy – whether balance of convenience favours granting of injunction Legislation: Associations Incorporation Act 1981 (Qld) s 144 Australian Consumer Law ss 20, 21, 236, Pt 5-2 Div 4 Subdiv A Federal Court of Australia 1976 (Cth) s 43 Religious Educational and Charitable Institutions Act 1861 (Qld) Trade Practices Act 1974 (Cth) ss 82, 87 Cases cited: Australian Broadcasting Corporation v O'Neill [2006] 227 CLR 57 applied Australian Postal Corporation v Digital Post Australia Pty Ltd [2012] FCA 372 cited Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 cited Communications, Electrical, Electronic, Energy, Information, Postal and Allied Services Union of Australia v Dee Vee Pty Ltd [2012] FCA 988 cited Elco Food Co Pty Ltd v Oliana Foods Pty Ltd [2012] FCA 410 cited Hughes v Western Australian Cricket Australia (Inc) (1986) ATPR 40-748 followed Samsung Electronics Co Ltd v Apple Inc (2011) 286 ALR 257 cited Date of hearing: 10 October 2012 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 34 Counsel for the Applicant: Mr N Francey Solicitor for the Applicant Kelly Legal Counsel for the Respondents: Mr P Telford Solicitor for the Respondents: M+K Lawyers IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 401 of 2012 BETWEEN: RETURNED & SERVICES LEAGUE OF AUSTRALIA (QUEENSLAND BRANCH) SARINA SUB BRANCH INC Applicant AND: RETURNED & SERVICES LEAGUE OF AUSTRALIA (QUEENSLAND BRANCH) First Respondent HARVEY WINSTON FEWINGS TRADING AS CRANKY LIZARD CONSULTANTS Second Respondent JUDGE: COLLIER J DATE OF ORDER: 12 OCTOBER 2012 WHERE MADE: BRISBANE SUBJECT TO THE USUAL UNDERTAKING AS TO DAMAGES TO BE PAID BY THE APPLICANT THE COURT ORDERS THAT: 1. Until further Order of the Court or agreement between the parties, the operation of the 18 October 2010 Heads of Agreement document between the applicant and the first respondent (as defined in paragraph 31 of the Statement of Claim filed herein and as referred to in paragraphs 67 and 68 of the Affidavit of Frederick Wayne Davis sworn 18 August 2012 and filed herein) be suspended. AND THE COURT FURTHER ORDERS THAT: 2. The respondents pay the costs of the applicant of and incidental to Order 1 of these Orders, to be assessed if not otherwise agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 401 of 2012 BETWEEN: RETURNED & SERVICES LEAGUE OF AUSTRALIA (QUEENSLAND BRANCH) SARINA SUB BRANCH INC Applicant AND: RETURNED & SERVICES LEAGUE OF AUSTRALIA (QUEENSLAND BRANCH) First Respondent HARVEY WINSTON FEWINGS TRADING AS CRANKY LIZARD CONSULTANTS Second Respondent JUDGE: COLLIER J DATE: 12 OCTOBER 2012 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This judgment deals with part of an application for interlocutory relief sought by the applicant to the substantive proceedings. The substantive proceedings concern a claim by a Sub-Branch of the Returned Services League of Australia (Queensland Branch) (the applicant) against the Returned Services League of Australia (Queensland Branch) (the first respondent) and Mr Harvey Fewings trading as Cranky Lizard Consultant (Mr Fewings), in respect of, inter alia, a Heads of Agreement entered between the applicant and the first respondent on 18 October 2010. 2 The respondents had also filed an interlocutory application upon which the parties reached a consent position, with the exception of costs in respect of that particular application, with which I will deal in a separate judgment. 3 The interlocutory relief sought by the applicant has been substantially revised since the original claim was filed on 20 August 2012. In Court on Wednesday morning when the application for interlocutory relief was heard, Mr Francey for the applicant sought the leave of the Court to amend the interlocutory relief sought by the applicant, and to seek orders in the following form: SUBJECT TO THE USUAL UNDERTAKINGS AS TO DAMAGES TO BE PAID BY THE APPLICANT, THE COURT ORDERS THAT: 1. Until further order of the Court or agreement between the parties, the First Respondent shall not by itself, its servants, or its agents, sell, transfer, mortgage, encumber, or otherwise deal with its 51% interest in the land at 34 Central Street Sarina in the State of Queensland, being the land comprising Lots 1 and 2 on RP700623 in the County of Carlisle, Parish of Sarina, and contained in Title References 20175062 and 20352066. 2. Until further order of the Court or agreement between the parties, the operation of the 18 October 2010 Heads of Agreement document between the Applicant and the First Respondent (as defined in paragraph 31 of the Statement of Claim filed herein and as referred to in paragraphs 67 and 68 of the Affidavit of Frederick Wayne Davis sworn 18 August 2012 and filed herein) be suspended. 4 At that stage of the proceedings, Mr Francey, and Mr Telford for the respondents, indicated that the parties were close to reaching agreement in respect of the orders to be put to the Court, and I adjourned the proceedings for a short time to permit discussions to take place between the legal representatives of the parties. On returning to Court, Counsel informed me that the parties had reached a consent position in relation to the first interlocutory order sought by the applicant, but not the second order. The parties also subsequently informed me that they did not contend otherwise that, in respect of costs incurred in relation to the proceedings concerning the second order sought by the applicant, costs should follow the event. 5 In light of the events of last Wednesday, and the oral submissions subsequently made by both Counsel, it does not appear that the respondents opposed the grant of leave to the applicant to amend its interlocutory application. 6 Accordingly, this judgment deals only with the second interlocutory order sought by the applicant. Background 7 The applicant is an association incorporated under the Associations Incorporation Act 1981 (Qld). The first respondent is a body corporate originally incorporated pursuant to the Religious Educational and Charitable Institutions Act 1861 (Qld). I note that the Religious Educational and Charitable Institutions Act 1861 (Qld) was repealed by the Associations Incorporation Act 1981 (Qld) which came into force on 1 July 1982, but that s 144 of the Associations Incorporation Act 1981 (Qld) provides, in summary, for the continuation of bodies incorporated under the previous legislation. 8 The exact nature of the corporate and management relationship between the applicant and the first respondent is not clear to me at this stage, however it appears from the material before the Court that they are associated and that the applicant is in some manner a "subsidiary" organisation of the first respondent. 9 It appears that the applicant was formed following an amalgamation of two separate incorporated associations – the Returned & Services League of Australia (Queensland Branch) Sarina Sub Branch Inc ("Sarina Sub Branch") and the Sarina and District Services Club Incorporated ("Sarina RSL Club") – on 22 October 2009. Prior to amalgamation, the Sarina Sub Branch owned land and buildings at 34 Central Street, Sarina, in Queensland ("Sarina land and buildings"). 10 In the second half of 2007 the Sarina Sub Branch experienced a downturn in profits, and approached the first respondent for financial assistance and guidance. The applicant claims that at that time the Sarina Sub Branch owed debts of approximately $130,000. 11 The applicant claims that on 14 October 2007 a Deed of Transfer of Land was executed between the Sarina Sub Branch and the first respondent transferring a 51% interest in the Sarina land and buildings to the first respondent for the sum of $185,000. To his affidavit sworn 28 September 2012 Mr Stephen Byrne annexes a copy of a valuation dated 14 September 2005 prepared by John Logan & Associates, valuers and property consultants, to the effect that the value of the Sarina land and buildings at that date was approximately $1.36 million. 12 On 4 June 2009 the Sarina Sub Branch and the first respondent executed a "Deed of Variation". The Introduction to that Deed provides: A. On 24 June 2008 the Sub Branch entered into a Deed of Transfer of Land with the State Branch pursuant to which the State Branch acquired a 51% interest in the Sarina Land for the sum of $185,000.00; B. The parties also agreed at the time, but failed to record in any document, that the money paid by the State Branch to the Sub Branch under the Deed of Transfer of Land was to be utilised by the Sub Branch to rejuvenate the Club operated by the Sub Branch on the Sarina Land. C. The parties now wish to formally record that agreement in writing. 13 Materially for the purposes of this judgment, cl 2 of the Deed of Variation provides: 2. Acknowledgement of State Branches Interest in the Business 2.1. The Sub Branch acknowledges that on the completion date referred to in the Deed of Transfer of Land the State Branch acquired a 51% interest in the Business subject to the encumbrances identified in Schedule 1. 14 Mr Fewings was the commercial manager of the first respondent, and acquired a management role in the applicant following the execution of the Deed of Variation. 15 On 18 October 2010 the applicant and the first respondent entered into a Heads of Agreement. This document was relatively short, and provided as follows: In an endeavour to resolve the differences between the above two organisation it was resolved between the parties to agree to the following: (1) Both parties agree that RSL Sarina Sub Branch accepts full responsibility for the commercial operations of the licensed club located at Sarina. That ownership and responsibility for the licensed operations has always been the responsibility of the RSL Sarina Branch Inc. and prior to amalgamation Sarina and District Services Club Inc. (2) Both parties agree that the RSL (Queensland Branch) owns 51% of the land and buildings from which the licensed Sub Branch operates. (3) Both parties agree the RSL (Queensland Branch) will advance to RSL Sarina Branch Inc. a sum of one hundred and ninety thousand dollars ($190,000) which will be applied as a reduction of the term loan ($350,000) the RSL Sarina Branch has with the National Australia Bank. (4) Both parties agree that as part of the settlement process between the parties the RSL (Queensland Branch) will advance to RSL Sarina Branch Inc. a sum of twenty eight thousand dollars ($28,000) which will be applied to extinguish the debt of RSL Sarina Sub Branch to the Australian Taxation Office. (5) Both parties agree that a commercial lease be entered into by the parties as soon as possible for a period of ten years for the land and buildings located at 34 Central Street Sarina Qld. The lease will have a 10 year option to renew, and represent a rental based on local commercial returns. The lease will also include a two year rent free period and will commence one month after the date of this agreement. (6) Both parties agree that RSL Sarina Sub Branch has the option for two years from the date of this agreement to purchase the 51% share of the land and buildings owned by RSL State Branch for the same amount RSL State Branch has advanced to RSL Sarina Sub Branch. This amount equates to $315,000 and is calculated by the sum of; $185,000 plus 2 cash advances of $20,000 each, 51% of the value of the improvements to the building calculated at $52,000, $28,000 for the payment of the tax debt and the payment of an invoice for insurance of $10,000. After this two year term the purchase figure for the 51% share will be in accordance with a commercial valuation as undertaken by a suitably qualified and registered valuer acceptable to both parties. (7) Both parties agree that with the payment of the above sums and the execution of the documents discussed above, namely the lease agreement and the option agreement, no legal action will be commenced by either party against each other in respect of any action, transaction, document, advice both verbal and written that occurred between the parties since August 2007. (8) Both parties agree that every endeavour will be made by each party to act in good faith to complete the terms of this agreement as soon as possible and expedite the preparation of the lease documents and the option agreement. The payment of the two amounts, $190,000 and $28,000 are to be paid in the next seven days. (9) The contents of this document and the terms of settlement will remain confidential between the parties and must not be disclosed to any other party. 16 In the Statement of Claim the applicant pleads the circumstances in which the parties executed these Heads of Agreement, in summary: increased levels of debt of the applicant and its predecessor bodies from 2007; advice by Mr Fewings to the applicant that he intended to close down the applicant; the first respondent and Mr Fewings took physical possession and control over the books and records of the applicant and took control of all day-to-day financial transactions of the applicant over a period of several months; and the fact that the applicant's Gaming Machine Licence was due for renewal on 20 October 2010, and certain conditions required satisfaction in respect of this renewal. 17 It appears that the renewal of the Gaming Machine Licence was, from the applicant's perspective, a critical event, for which it required the assistance of the first respondent. It was also clear, however, that there had been disputes between the applicant and the respondents from 2007 until 2010 when the Heads of Agreement were signed. I note, for example, that the Heads of Agreement refers to these disputes. Substantive Claims of the Applicant 18 Following the agreement of the parties last Wednesday in relation to the strike-out application brought by the respondents, the claim of the applicant is, in summary, that the respondents have acted in contravention of ss 20 and/or 21 of the Australian Consumer Law and/or its predecessor provisions under the Trade Practices Act 1974 (Cth) ("Trade Practices Act"), as a result of unconscionable conduct by the respondents. In particular, the applicant claims, in summary: the first respondent was in a special relationship with the applicant which extended to imposing on the first respondent fiduciary and/or other duties owed to the applicant; the relative strength of the bargaining position of the first respondent was superior to that of the applicant; as a result of the respondents' conduct, the applicant was required to comply with and/or accept conditions which were not reasonably necessary for the protection of the legitimate interests of the first respondent; the applicant did not fully understand the various documents it executed; in particular, the 18 October 2010 Heads of Agreement was entered into by the applicant late at night, under pressure and without the benefit of legal advice; the respondents' conduct involved undue influence or pressure being exerted on and/or unfair tactics being used against the applicant; and the respondents' conduct involved the applicant receiving from the first respondent services in circumstances in which the applicant could have acquired identical or equivalent services from another or others for an amount less than that for which the first respondent provided those services. 19 While further and better particulars are yet to be provided by the applicant following the agreement of the parties on Wednesday, from submissions of Counsel at the hearing it is clear that a key concern of the applicant in respect of its claim is that the price the applicant will be required to pay for the recovery of the 51% interest in the Sarina land and buildings will escalate dramatically after 18 October 2012. This is because, pursuant to the terms of the Heads of Agreement, the option of the applicant to repurchase that interest for the sum of $315,000 expires two years from the date of execution of the Heads of Agreement – namely next week. The interlocutory relief sought by the applicant relates specifically to this issue. 20 The substantive relief sought by the applicant includes declarations of unconscionable conduct, damages and injunctions. Interlocutory relief 21 Guiding principles relevant to exercise of the Court's discretion to grant interlocutory injunctions were discussed by the High Court in the well-known case Australian Broadcasting Corporation v O'Neill [2006] 227 CLR 57. 22 As Gleeson CJ and Crennan J explained in O'Neill at [19], an applicant seeking interlocutory relief must demonstrate that: 1. there is a serious question to be tried as to the applicant's entitlement to relief; and 2. the applicant is likely to suffer injury for which damages will not be an adequate remedy; and 3. the balance of convenience favours the granting of an interlocutory injunction. 23 The meaning of the phrase "serious question to be tried" was further explained by Gummow and Hayne JJ in O'Neill where, in examining in turn the reasoning of the High Court in the earlier decision of Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, their Honours said (in summary): It is sufficient that the applicant show a sufficient likelihood of success to justify the preservation of the status quo pending the trial: at [65]. The applicant need not demonstrate more than a 50% chance of ultimate success: at [68]. In that light the issue may be understood as whether the applicant has made out a prima facie case for relief: at [65], [70]. Whether the applicant shows a sufficient likelihood of success depends on the: ○ nature of the rights asserted; and ○ practical consequences likely to flow from the interlocutory order sought. Particular considerations arise where the grant or refusal of an interlocutory injunction in effect would dispose of the action finally in favour of whichever party succeeded on that application: at [72]. 24 This reasoning has been consistently applied by this Court (see, for example, Samsung Electronics Co Ltd v Apple Inc (2011) 286 ALR 257 at [57]-[61]; Communications, Electrical, Electronic, Energy, Information, Postal and Allied Services Union of Australia v Dee Vee Pty Ltd [2012] FCA 988 at [18]; Australian Postal Corporation v Digital Post Australia Pty Ltd [2012] FCA 372 at [4]; Elco Food Co Pty Ltd v Oliana Foods Pty Ltd [2012] FCA 410 at [15]). Is there a serious question to be tried? 25 The originating application was filed by the applicant on 20 August 2012, and, as was evident from the hearing on Wednesday, neither the originating application nor the statement of claim have yet been finalised. The respondents are yet to file defences in these proceedings. However notwithstanding the developments on Wednesday, including the agreement of the applicant to amend its pleadings, it is clear that the applicant's claims of unconscionable conduct by the respondents remain live issues in these proceedings. 26 As was also clear in Court on Wednesday, there has been considerable communication between the legal representatives of the parties in these proceedings both prior to and following the commencement of proceedings. Evidence has been filed by the applicant in support of the originating application, in particular an affidavit (with extensive annexures) sworn by Mr Frederick Davis, the President of the applicant, on 16 August 2012. In his affidavit Mr Davis deposed in detail as to: the financial difficulties the applicant had experienced from 2007; the intervention of the first respondent to assist the applicant but also to impose conditions (including as to management and the transfer of a 51% interest in the Sarina land and buildings) on the applicant; details of the management decisions of Mr Fewings, including borrowing of funds; the failure or refusal of the first respondent to pay creditors of the applicant as and when debts fell due for payment; concerns the applicant had with the management committee imposed upon it by the first respondent, including failure of management to adhere to the applicant's constitution, comply with taxation and safety requirements, and fulfil other regulatory obligations; the prospect of impending closure of the applicant by decision of the respondents; ongoing disputes between the officers of the applicant and the respondents, and attempts by the applicant to resolve those disputes; and the fact that the applicant required the cooperation of the first respondent to enable renewal of the applicant's Gaming Machine Licence by 20 October 2010, the failure of the first respondent to complete the necessary forms for renewal, and the fact that the applicant therefore had no choice but to sign the Heads of Agreement on 18 October 2010. 27 This evidence is supported by material including the Heads of Agreement document and extensive correspondence. As I observed earlier in this judgment, the precise nature of the relationship between the applicant and the first respondent has not yet been explained to the Court. Nonetheless, that the applicant is in a subordinate organisational position to the first respondent does not appear to be in dispute. That there has been intervention by the first respondent in the activities of the applicant – whether invited or otherwise – is also apparent. That the parties have executed the documentation the subject of the applicant's claims is also apparent from the evidence before the Court. It is the quality of the conduct of the respondents, and whether it contravenes the Australian Consumer Law, that is the subject of the applicant's claims in this proceeding. 28 In this case there is a serious question to be tried as to whether the respondents have acted in contravention of s 20 and/or s 21 of the Australian Consumer Law (or predecessor legislation), including engaging in unconscionable conduct towards the applicant and including the resultant execution of the Heads of Agreement on 18 October 2010. In my view, on the material currently before the Court, the applicant has demonstrated a sufficient likelihood of success to justify the preservation of the status quo pending the trial, including the suspension of the operation of the Heads of Agreement and in particular to prevent the expiry of the date by which the applicant can exercise the option to repurchase the 51% interest in the Sarina land and buildings for $315,000. Is the applicant likely to suffer injury for which damages will not be an adequate remedy? 29 The respondents contend, inter alia, that because the applicant seeks damages in its substantive claim in respect of losses and damage already suffered, damages would be an adequate remedy as an alternative to the interlocutory relief sought by the applicant. In my view the fact that the applicant seeks damages generally does not automatically mean that any injury to be suffered by the applicant, should interlocutory relief be refused, could be compensable by damages. 30 In this case the respondents contend that should the applicant be successful in its claim of unconscionable conduct, it would be entitled to move the Court for relief under s 82 and s 87 of the Trade Practices Act (or s 236 and Pt 5-2 Div 4 Subdiv A of the Australian Consumer Law), including declarations voiding or varying the Heads of Agreement, payment of compensation, or an order directing the return of an interest in the subject property. In the circumstances however I am not persuaded that any future award of damages would adequately compensate the applicant for the costs and risks associated with a future application to the Court to restore the position it currently holds. Balance of convenience 31 In my view the balance of convenience clearly favours interlocutory relief preserving the status quo pending the outcome of the trial of the substantive proceedings. This is because: The respondents have consented already to an interlocutory order preventing them from dealing with their 51% interest in the Sarina building and land pending further order of the Court or agreement between the parties. To that extent, the status quo in relation to that interest has been preserved. It is but a small – and in my view, logical – step to preserve the rights of the parties concerning the exercise of the applicant's option to repurchase that interest for $315,000, pending the outcome of the substantive trial. While the respondents contend that, should the applicant be successful in the substantive proceedings, it could apply for restorative orders under the Australian Consumer Law or the Trade Practices Act, nonetheless: ○ This approach entails, of necessity, greater inconvenience to the applicant than maintaining the status quo. ○ I am not persuaded that, should the applicant ultimately be successful, the cost and inconvenience to the first respondent in retransferring its interest in the Sarina land and buildings to the applicant would be less than the maintenance of the current position. ○ The Court has a discretion under s 87 of the Trade Practices Act and Pt 5-2 Div 4 Subdiv A of the Australian Consumer Law, and to that extent the outcome of any application pursuant to those provisions is in no way certain. The first respondent has not demonstrated any particular damage it would suffer from an extension of the time by which the applicant is entitled to exercise the option to repurchase the 51% interest in the Sarina land and buildings, other than consequences naturally flowing from the postponement of the expiry of the option. There is no material before the Court to support a finding, for example, that the first respondent would suffer specific financial damage because of a waning property market on a likely diminution in the value of the Sarina land and buildings because of delays in sale. Conclusion 32 In light of these findings, it follows that the applicant has substantiated its case for interlocutory relief in the terms it has sought. Costs 33 On Wednesday the parties indicated consent to an order that costs should follow the event. 34 Clearly orders as to costs are at the discretion of the Court: s 43 Federal Court of Australia Act 1976 (Cth). However, in the absence of special circumstances warranting a different order, it is appropriate that costs should follow the event: Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136. In my view this is the appropriate approach to be adopted in this case. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier. Associate: Dated: 12 October 2012