Horwath Corporate Pty Ltd v Huie [1999] NSWSC 242

New South Wales Supreme Court CITATION : Horwath Corporate Pty Ltd v Huie [1999] NSWSC 242 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : 1731/99 HEARING DATE(S) : 19 March 1999 JUDGMENT DATE : 19 March 1999

PARTIES : Horwath Corporate Pty Ltd (P) Jacqueline Huie (D) JUDGMENT OF : Young J

COUNSEL : Plaintiff: H K Insall and C Champion Defendant: D P Robinson SOLICITORS : Plaintiff: Freehill Hollingdale & Page Defendant: Baker & McKenzie CATCHWORDS : Equity [343]; Injunctions; Interlocutory; Undertaking; Trustee; Trustee a nominee company, seeks to limit undertaking to assets of trust; Not accepted ACTS CITED : Conveyancing Act 1919 (NSW) s 129(1) DECISION : See para 23

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

YOUNG, J

FRIDAY, 19 MARCH 1999

1731/99 - HORWATH CORPORATE PTY LTD V HUIE

JUDGMENT 1 HIS HONOUR : This is a rather strange application for an interlocutory injunction. 2 The plaintiff is the trustee of a scheme in which, to put it in an oversimplified form (and which might not be completely accurate) people would buy units in a residential building in an inner suburb. They would then lease those units to the trustee for about seven years. The trustee would pool the units and operate them as part of a hotel and the profits from the pool would be distributed amongst the property owners. 3 Unfortunately, the scheme is faltering because, for one reason or another, insufficient people have been staying in the hotel to enable it to generate profits. This has caused, no doubt, problems to the unitholders who need to fund their purchases and their outgoings, but do not have the expected income from the investment to be able to pay those moneys. The trustee, on the other hand, considers that, in the near future, the enterprise will become profitable and will enable the losses to be paid. From what I hear from the Bar table about fifty percent of the unitholders think the trustee might be correct and the other fifty percent are fed up and want to get out of the arrangement. 4 The application today is for an injunction until next Tuesday, 23 March 1999. If the injunction is granted the trustee indicates it would seek judicial advice as to whether it would be justified in pursuing avenues to obtain finance to pay out its debtors and whether the trust has or must be terminated. 5 Mr Insall, who appeared with Mrs Champion for the plaintiff, says that it is appropriate to grant an injunction for a short period of time because the plaintiff has either a prima facie case that the unitholders are not entitled to put an end to the lease with the trustee at this time, or alternatively they have a reasonable case for relief against forfeiture and that in appropriate cases this Court will grant an injunction to protect that right; cf Riddington v Pye Powell J, 27 February 1989, unreported. 6 On the other hand, Mr Robinson, who appears for the defendant in what might be called an upside down representative action (the defendant representing all the people who wish to gain possession of their units) says that there is no prima facie case and that in any event the undertaking as to damages proffered is inadequate and inappropriate. 7 Mr Williams, solicitor, who is instructed by various other unitholders also sought to appear. I did not formally give him leave to appear, but listened attentively to what he had to say. Essentially his position is that if the only way the trustee can get money to pay out the unitholders who are demanding payment or re-entry is by borrowing against the only trust asset at a substantial discount, he does not want that to occur. The material before the court at the moment tends to indicate that this will be the way the money is raised, if it is raised at all, so I have taken Mr Williams' position to be against the grant of an injunction. 8 There are five points to consider, three dealing with the question of whether there is a prima facie case and two dealing with the balance of convenience. 9 The first point made by Mr Insall and Mrs Champion in respect of the question as to whether there is a prima facie case is that the defendant and her fellow unitholders have issued a notice under s 129 of the Conveyancing Act 1919 which does not allow a reasonable time for the trustee as tenant to comply. 10 Mr Robinson says that as the notice required the payment of rates and the like, it could have been done the next day, so that one day was sufficient and reasonable. That might be right but, on the other hand, all I have to look at, at this stage, is whether the reverse proposition is arguable. 11 The reverse proposition is that if, as the landlord knows the tenant is a trustee with limited recourse to assets, and the trustee and the landlord expect that the relevant debts will be paid out of profits generated by the hotel, it is necessary to allow more than the fifteen days that in fact was given before the defendant purported to re-enter, to comply with the notice. On this basis it is put that the notice was not a notice which allowed a reasonable time under s 129(1) of the Conveyancing Act. 12 Under s 129 what is a reasonable time is a question of fact which must be dealt with on the facts of each particular case. It seems to me that the proposition for which Mr Insall and Mrs Champion contend is fairly arguable, so on that basis there is an arguable case. 13 The second point is whether an injunction should go to protect an application for relief against forfeiture. I have no doubt, as Powell J has decided, that in an appropriate case it does. However, this is hardly, in my view, the appropriate case, because this is not the situation of the tenant being in doubt as to whom to pay the rent. It has, it would appear from the material before the court today, deliberately chosen to pay unitholders last, rather than first or pari passu. Furthermore, there is just no real prospect at all, unless the trustee borrows contrary to the wishes of the unitholders for whom Mr Williams appears, of it having any real chance of paying the money in the near future. There are other problems with the submissions as well. 14 The third question is whether in the light of principles set out in Re Buchanan-Wollaston's Conveyance [1939] Ch 217 and 738 the trust deed pursuant to which the various tenants agreed to pool their units gives rise to an equity to restrain the other tenants exercising their legal rights under s 129 of the Conveyancing Act. 15 Mr Insall points to para 14 on p 10 of the prospectus which deals with what happens if the scheme makes a loss, and tends to suggest that the landlord needs to wait to recoup those losses in the next income producing period and, accordingly, the landlord should not determine the lease in the meantime. 16 It is necessary, if either party is going to rely on the Buchanan-Wollaston principles, that the condition that gives rise to the equitable right be very clearly expressed, and it is rather doubtful as to whether the paragraph to which I have referred is sufficiently clear. The matter appears to me to be arguable, but only just. 17 As to balance of convenience, the first point is that the undertaking that is proffered as to damages is that of the trustee limited to the trust assets. This is really a very limited undertaking as, on the evidence before me, the trust assets are very meagre. Mr Insall said that a trustee of this nature should not be required to give a personal undertaking as to damages, and refers to some English authority. 18 However, one cannot allow trustees of trading trusts to obtain benefits for some of their beneficiaries by structuring the trust in a particular way, or having a trustee without assets. The undertaking as to damages is the price of getting an injunction and unless those behind the trustee are prepared to fund the appropriate undertaking as to damages normally no injunction will be given, cf Southern Tableland Insurance Brokers Pty Ltd v Schomberg (1986) 11 ACLR 337. 19 Mr Insall says it is unlikely that any damages will be incurred over the weekend. I take that point, but if that is so there should have been no difficulty in getting members of the class of unitholders who support the trustee to fund a bank guarantee to support the undertaking as to damages. 20 The second point is that it really does not matter very much one way or the other whether an injunction is granted until Tuesday. Mr Insall says "Oh, yes it does, because if there is no injunction other people who have not yet re-entered may do so". 21 This argument is to a degree diluted by Mr Insall's other proposition, which may well be correct (I do not rule on it), that the defendant, who physically got back into her unit, it would seem, by using a swipe key provided by the agents of the trustee, is not back in her unit in her own right but as claiming under the person from whom she got the swipe key. 22 If that argument is right then no real harm is done by allowing that sort of conduct to continue until next Tuesday. Even if that was not correct, then if there is a proper case for relief against forfeiture, that case can be run whether or not there is a re-entry. The only difference will be the form of relief against forfeiture that is given. 23 Accordingly, it seem to me the balance of convenience means that I should just allow market forces to play. Everybody knows what their rights and risks are and, accordingly, I do not consider that I should continue the injunction. 24 I stand the proceedings over for mention before the Registrar on 26 March 1999. Costs reserved.