ARC Enterprises NSW Pty Ltd v Brown [2004] NSWSC 1214

Reported Decision : 52 ACSR 99

New South Wales Supreme Court

CITATION : ARC Enterprises NSW Pty Ltd v Brown [2004] NSWSC 1214 HEARING DATE(S) : 6/12/04 JUDGMENT DATE : 6 December 2004

JURISDICTION: Equity Division Corporations List JUDGMENT OF : Young CJ in Eq DECISION : Interim relief refused with costs.

CATCHWORDS : CORPORATIONS [293]- Winding up- Supervision of liquidators- Two man company- One shareholder seeks to restrain liquidator selling business to other shareholder. LEGISLATION CITED : Corporations Act 2001, s 1324 ARC Enterprises NSW Pty Limited (P1) Daljit Bhardwaj (P2) PARTIES : Neena Chadha (P3) Ronald Brown (D1) Indian Taj Pty Limited (In liq) (D2) FILE NUMBER(S) : SC 5728/04 COUNSEL : R A Parsons (P) C Wood (D) SOLICITORS : Walker Hedges & Co (P) Hugh & Associates (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

YOUNG CJ in EQ

Monday 6 December 2004

5728/04 – ARC ENTERPRISES NSW PTY LTD v BROWN JUDGMENT 1 HIS HONOUR: This is an awkward case. The Court wound up Indian Taj Pty Limited on the just and equitable ground and appointed the first defendant as liquidator. Indian Taj was a company owned as to fifty per cent by the first plaintiff and fifty per cent by the company Win-Win Pty Limited. The second plaintiff is a fifty per cent shareholder in the first plaintiff, ARC: Win-Win is controlled by Mr Sharma. 2 The company runs an Indian restaurant in the Parramatta area. The liquidator continued to run the restaurant as a going concern and wanted to sell it. To put it neutrally, he called for offers. The plaintiffs say that they made an offer on 10 September 2004 and understood that what was happening was a tender process. The plaintiffs say that they put in the highest offer of $401,000 and were congratulated by the liquidator who said that their's was the highest bid. Some time later they were sent a draft contract. Mr Bhardwaj says that he asked the liquidator regularly when the contract would be prepared and whether it could be done quickly but there was a little delay before he was able to extract a draft contract from the liquidator's solicitors. The contract contained some terms which the plaintiffs say showed that the solicitor who drafted it misunderstood the deal. There were also some other points on which the plaintiffs wished to negotiate and they communicated this on 23 September. 3 One of those points was that the plaintiffs would need four weeks to complete. The liquidator replied straight away stating that completion was required within seven days. On the following day, 24 September, the liquidator's solicitors advised the plaintiffs that the liquidator had signed a contract with another purchaser. That other purchaser turned out to be Win-Win. 4 The comparison between the draft contract that was sent to the plaintiffs and that signed by Win-Win is interesting. 5 Clause 2 of the contract that was sent to the plaintiffs required a deposit on exchange. With Win-Win there was to be a payment upon exchange of a non-refundable deposit. In this respect, the contract with Win-Win was more favourable to the liquidator. There were also no problems with what might be called Indian chefs in the contract with Win-Win. 6 However, there are remarkable differences the other way. 7 Under cl 8 in the plaintiffs' contract, the purchaser was responsible for procuring the landlord's consent to an assignment of the lease; in the Win-Win document the vendor was solely responsible for doing that. In the Win-Win contract the purchaser was given, on one version of it, twenty-eight days and on another version, thirty-five days to complete, while the contract that the liquidator wanted the plaintiffs to sign, stated completion was to be within seven days. 8 Clause 17.1.1.(e) of the Win-Win contract contained the extraordinary provision that if the vendor could not obtain the consent of the landlord then the vendor was to grant Win-Win a right of first refusal to be exercised on certain conditions. There was no corresponding clause in the plaintiffs' contract. 9 Furthermore the price in the Win-Win contract is only slightly above that in the plaintiffs' offer. 10 All this seems very extraordinary if, as the liquidator swears in his affidavit, his sole purpose was to sell the business as soon as possible because of the losses it was incurring for the best price and on the best terms. Furthermore, the factual circumstances as presently disclosed seem to suggest that there was no delay in the plaintiffs responding to the terms of the draft contract. 11 It is all very extraordinary and suspicious and I am not at all sure that the liquidator's affidavit to date has dealt with these suspicions that must arise in the mind of any naturally suspicious Judge. 12 However, the only thing I have to deal with today is whether there should be an interim injunction granted under s 1324 of the Corporations Act 2001 to restrain the liquidator proceeding further with the contract he has entered into. Section 1324 enables the Court to grant an injunction where a person has failed to do an act or thing required to be done by the Corporations Act and the Court thinks it appropriate to grant such an injunction. 13 Section 1324(4) notes that where in the opinion of the Court it is desirable to do so, the Court may grant an interim injunction pending determination of such an application. No undertaking as to damages is required where ASIC is the plaintiff. This section says nothing about undertakings as to damages for other parties seeking an injunction. 14 Section 1325 of the Corporations Act enables the Court to make any other order if it finds that a person has suffered, or is likely to suffer, loss or damage because of the conduct of another person. 15 The prime orders sought by the plaintiffs in the originating process are: (1) that the liquidator be removed; (2) that fresh liquidators be appointed; and (3) that there be an inquiry as to the conduct of the present liquidator. 16 It is unusual for an interlocutory injunction to be granted where the primary relief is as I have stated. There is no necessary relation between he conduct of the liquidator and the loss of the plaintiffs. Furthermore, the primary remedy, where there has been a default by a liquidator, is that the liquidator pay equitable compensation rather than he be required to enter into particular contracts. 17 There was brief discussion between counsel and myself as to whether the line of cases under the Administrative Decisions (Judicial Review) Act 1977 (Cth), under which competitors may seek relief, has any relevance: my feeling from what both counsel said is that they do not. 18 In the present case, the liquidator has entered into a contract with Win-Win. On the liquidator's case that contract needs to be completed or else he will be liable in damages to Win-Win. The longer there is debate about the matter and he continues to run the restaurant the greater the losses he incurs are, for which he may be personally liable. He is also caught in the problem that he has created in cl 17.1.1(e) with the first refusal rights he has given to Win-Win if he cannot get the landlord's consent. 19 So far as the plaintiffs are concerned, they have no contract. There may be an equitable estoppel case in that it would seem that after the liquidator had, according to them but denied by the liquidator, agreed to sell the business to them, they entered into contracts to buy the freehold from the landlord. However, that has not yet been fully explored except that it is something that will have to be dealt with at some time or another. However again, if there is some right based on equitable estoppel or proprietary estoppel in favour of the plaintiffs, that would just mean that the liquidator would have to complete with one and pay equitable or legal damages to the other. It does not necessarily mean that there will be some proprietary order in favour of the plaintiffs. 20 The only real reason for making an injunction is to strengthen the plaintiffs' case to get the business and that is, I think, beyond what I should be doing at this stage of the litigation. It may well be that when all the facts come out the Judge will not consider this to be a proper case for there to be an inquiry. Indeed, the great expense of the few inquiries that have been held may, in any event mean that the Judge in his or her discretion will come to that view. 21 The facts when they all come in might not even justify the removal of the liquidator under a lesser test. If, in the long run, there is some misconduct shown it will only sound in equitable compensation and it will not really matter too much whether the contract with Win-Win is allowed to proceed or not because the damage has already been suffered by the plaintiffs by the liquidator entering into the contract with Win-Win. So in that sense the horse has bolted. 22 I am not too sure if I can grant any interim relief under s 1325. For the reasons I have given, it also does not seem to me that the present case is one for any order under s 1324. Therefore, I decline to give that relief. 23 I order that the costs of this application today be paid by the plaintiffs but I do not make any order for those costs and expenses to be paid at this stage.