New South Wales Supreme Court CITATION : Harrison Partners Constructions Pty Limited v Jevena Pty Limited [2004] NSWSC 893 HEARING DATE(S) : 24/09/04 JUDGMENT DATE : 24 September 2004 JURISDICTION: Equity Division Technology and Construction List JUDGMENT OF : Einstein J DECISION : Short minutes to be brought in. CATCHWORDS : Practice and procedure - Application to dissolve undertakings to the Court LEGISLATION CITED : Supreme Court Act 1970 (NSW) Trade Practices Act 1974 (Cth) American Cyanamid Co v Ethicon Ltd (1975) AC 396 Appleton Papers Inc v Tomasetti Paper Pty Limited [1983] 3 NSWLR 208 Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618 CASES CITED : Eng Mee Yong v Letchumanan [1980] AC 331 Magna Alloys and Research Pty Limited v Coffey [1981] VR 23 Shercliffe v Engadine Acceptance Corporation (1978) 1 NSWLR 729 Stolznow v Calvert (1982) NSWLR 749 PARTIES : Harrison Partners Constructions Pty Limited ACN 098 802 450 (Plaintiff) Jevena Pty Limited ACN 076 830 147 (Defendant) FILE NUMBER(S) : SC 55023/04 COUNSEL : Mr C Stomo (Plaintiff) Mr C Moschoudis (Defendant) SOLICITORS : David Cohen & Co (Plaintiff) Tzovaras Legal (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY AND CONSTRUCTION LIST Einstein J Friday 24 September 2004 ex tempore Revised 27 September 2004 55023/04 Harrison Partners Constructions Pty Limited v Jevena Pty Limited JUDGMENT 1 There is before the Court a notice of motion pursuant to which the defendant seeks an order dissolving undertakings given to the Court by the defendant on 17 June 2004. The interlocutory situation is held by an accommodation. The proceedings are related to initial proceedings commenced in March 2004 in the Equity Division. Injunctive relief was sought at an interlocutory level. 2 In the fullness of time and following an exchange of affidavits, the interlocutory position was clarified following the plaintiff's application for Mareva injunctive relief which, by reason of the accommodation, did not lead to a judgment. The accommodation involved the giving to the Court on 17 June 2004 by the plaintiff and by Mr Xu of the usual undertaking as to damages in return for an undertaking given to the Court by the defendant in the following terms " 2. The defendant by its counsel undertakes to the court that after allowing so much of the sale proceeds as are necessary for (i) the discharge of the three mortgages identified on the first page of annexure B to the affidavit of Mr John Wood of 20 May 2004 and all expenses, if any, associated with discharge of such mortgages; (ii) the payment of all legal costs fees and disbursements associated with such sale; (iii) the payment of all statutory charges associated with the sale, the defendant will not until further order charge, encumber, mortgage, transfer or otherwise, save as provided in undertaking 3a and note 3b, deal with the proceeds of sale of town houses at 602 Hume Highway, Casula and/or 92 Kendall Drive, Casula owned by the defendant. 3 (a) The defendant undertakes to the court that it will within 48 hours of receipt of $600,000 of the net proceeds of the sale of town houses at 602 Hume Highway, Casula and/or 92 Kendall Drive, Casula owned by the defendant pay those sale proceeds into court to abide the hearing of these proceedings or further order. (b) Note that the defendant following the discharge of its obligation to comply with undertaking 3 (a) shall be free to deal with the remaining net proceeds of the sale of the town houses at 602 Hume Highway, Casula and/or 92 Kendall Drive, Casula owned by the defendant at its discretion in the ordinary course of its regular business." 3 Even without setting out the particular details of the matters to be litigated, it is apparent that the cross-undertakings were seen by the parties as accommodating, although only for a limited period, the interlocutory position. It is clear, however, that the consensual position included leave being granted to the defendant to restore the proceedings to the list after the amended statement of claim had been served upon it for the purpose of seeking to revisit the undertakings given and the orders made on 17 June 2004. The proceedings 4 Something in the order of approximately sixteen affidavits have been filed by the parties during the past several months. The present situation in terms of the pleadings is that on 2 July 2004 the plaintiff filed an amended statement of claim. A defence to the amended statement of claim was filed on 30 July 2004. Also on 30 July 2004 a cross-claim was filed. 5 The plaintiff's contentions centre upon the circumstances in which the plaintiff and the defendant entered into what is said to have been a partly oral and partly written contract at the end of May 2002 pursuant to which the plaintiff was to construct eight townhouses at 602 Hume Highway, Casula, later known as 92 Kendall Drive, Casula. 6 The plaintiff claims that the contract was varied in December 2002. The contention is that the defendant had agreed during the course of the subject conversations, to pay for materials on an ongoing basis as progress payments until completion of the development and that the original estimated cost of the development at $875,000 [included in the executed standard contract in the amount of $875,425.50] was increased in December 2002 when the estimated value of cost of the development was increased to $1.2 million. 7 The plaintiff claims to have completed the development in about October 2003 and not to have been paid for all of the costs of the materials and labour provided by the plaintiff in that regard. The plaintiff's current claim is put at $875,000. The plaintiff's claim is grounded upon: · Breach of contract. · Breach of the Trade Practices Act where allegedly misleading and deceptive representations and promises are said to have been made by the defendant without having reasonable grounds for making the same and where a breach of section 51AC of the Trade Practices Act is alleged in terms of the engaging by the defendant in conduct said to have been unconscionable. 8 An allegation is also made to the effect that a fiduciary relationship was entered into between two of the principals of the plaintiff and the defendant. The plaintiff further claims pursuant to a quantum meruit count. 9 The cross-claim seeks damages for breach of the building contract centrally relying upon allegations of the failure to complete all the works diligently or in a proper and workmanlike manner in accordance with plans and specifications. Other claims are also made in the cross-claim. Background 10 The very detailed affidavits presently before the Court go well outside the detail of the litigation concerning the above described contractual arrangements. It is fair to say that the affidavit materials throw up a very complex web of contractual arrangements and understandings, the central characters in respect of which are Mr Wood, a director of the defendant, and Mr Xu, a director of the plaintiff. It appears that Mr Xu came to Australia under a tourist visa in August 2001 and met Mr Wood, who is said to have represented that he was a migration agent in part and who suggested to Mr Xu that he obtain permanent residency. The allegation is that Mr Wood had represented that he would assist Mr Xu in this regard and that in order to have a successful application Mr Xu should set up as many businesses as possible. 11 In the fullness of time the commercial relationships, arrangements, understanding and contracts between Mr Xu or his company or companies and associates of the one part, and Mr Wood or his company or companies and associates of the other part, led to a number of complex dealings which it is very difficult - indeed impossible - to unravel presently from the affidavits. 12 The plaintiff's case is that Mr Wood essentially having two hats participated in, as an equity partner and/or shareholder, the establishment and operations of a number of companies. 13 Importantly, the plaintiff has contended in the amended statement of claim as follows: · Further and in the alternative the defendant was involved in the following conduct; (a) Advised the plaintiff to enter into a contract for the development (b) Represented that the defendant had secured sufficient funding for the development (c) Promised the plaintiff of punctual payments from time to time as progress payments for the development (d) Proposed a contract price for the development to be accepted by the plaintiff · The matters pleaded in paragraph 9 were conduct engaged by the defendant in trade and commerce within the meaning of the Trade Practices Act (the Act). · Further, Mr Wood, the director and principal party of the defendant, was at all material times a migration agent who was assisting Mr Xu in an application for a business migration visa and had undertaken the following steps for among behalf of Mr Xu (a) Suggested the business structures which should be set up by Mr Xu including the plaintiff company (b) Advised Mr Xu as to the method of operation of the companies (c) Advised Mr Xu that it would be in his interest for the successful application of his residency to abide by the advice given to him by Mr Wood (d) Proposed and employed the various personnel and the companies (e) Had a proprietary interest in other companies in association with Mr Xu, other than the plaintiff company (f) Lodged with and communicated with that the Department of Immigration in relation to Mr Xu's visa application (g) Engaged the services of a solicitor to assist on appeals in relation to the visa application · It was known to Mr Wood that Mr Xu (a) Had only recently been in Australia (b) Spoke no English and was unable to read or write English (c) Was unaware of the laws of Australia (d) Was unaware of the method of contracting in Australia (e) Entrusted Mr Wood for advice as to what was needed to be done and how it should be done for the benefit of obtaining a permanent residency in Australia (f) Relied on Mr Wood for the conduct of his business, including the plaintiff's business · By virtue of the matters pleaded in …Mr Wood was in a fiduciary relationship with Mr Xu." 14 Significantly, there is an admission in the defence to the effect that Mr Xu spoke no audible English. The allegation that the conduct of the defendant was unconscionable is supported by the following particulars: "Given the relative relationship between Mr Wood and Mr Xu we discussed the contractual arrangements on behalf of the defendant and the plaintiff respectively there was - Relative inequality in the strengths of the bargaining positions of the parties section 51AC (4) (a) - The Plaintiff was unable to read and therefore understand any documents relating to the acquisition of the goods and services section 51AC (4) (c) - Failing to advise the plaintiff of the true extent of the financial position of the defendant. In particular the defendant failed to advise the plaintiff that the working sufficient funds for the development. 51AC (4) (i). - Failed to act in good faith in all the circumstances section 51AC (4) (k) In all the circumstances the Plaintiff was vulnerable to the defendant." Dealing with the application to be released from the undertaking 15 The Court is clearly not in a position to determine disputed questions of fact in relation to the cross-allegations made in the summary affidavits. 16 In approaching the interlocutory application it has seemed to me that the principles which govern the Court's approach to the question are those generally dealt with and set out in Appleton Papers Inc v Tomasetti Paper Pty Limited [1983] 3 NSWLR 208. In Appleton McLelland J pointed out the importance of recalling that the Court here deals with a discretionary power conferred on the court in very general terms referring to section 66(4) of the Supreme Court Act which provides that the Court may at any stage of proceedings on terms grant an interlocutory injunction in any case in which it appears to the Court to be just or convenient to do so. 17 As McLelland J made plain at page 216 citing from the judgment of Moffitt P in Stolznow v Calvert (1982) NSWLR 749: "While useful guidance is provided by the manner of exercise of the discretion in other cases, and by the factors considered in those cases to favour the exercise of the discretion in a particular way, each case must depend upon its own facts. It would be contrary to what I understand to be the accepted law in this country, to confine the exercise of a judicial discretion by judge made rigid formulae." 18 At page 214 McLelland J cited the full High Court decision in Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618 at 622, 623 where the Court had said that in dealing with applications for interlocutory injunctions "The Court addresses itself in all cases, patent as well as other, to two main enquiries. The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is, there is a probability that at the trial of the action the plaintiff will be held entitled to relief...the second enquiry...is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused, outweighs or is outweighed by, the injury which the defendant would suffer if an injunction were granted." 19 At page 214 McLelland J further referred to Shercliffe v Engadine Acceptance Corporation (1978) 1 NSWLR 729 at 736, 737, where the Court of Appeal explained the special sense in which the expression "probability" was used by the High Court in the Beecham case, and in particular had said that it did not refer either to a prediction as to the ultimate result or to a better than even chance of ultimate success. The Court said that: "The degree of probability or likelihood of success is simply that which the Court thinks sufficient, in the particular case, to warrant preservation of the status quo." 20 As McLelland J reminds us at page 214, the Court had already stated that in that case the balance of convenience was very strongly in favour of the granting of interlocutory relief (to preserve the status quo), and accordingly the Court's statement, McLelland J believed, might be generalised by saying: ". . . that the degree of likelihood of success to be demonstrated is that which the Court thinks sufficient in the particular case to warrant consideration of where the balance of convenience lies." 21 McLelland J also cited from the Privy Council decision in Eng Mee Yong v Letchumanan [1980] AC 331 at 337 where the Privy Council had expressed the relevant principle in terms derived from the American Cyanamide case as follows: "The Court's power to grant an interlocutory injunction...is discretionary. It may be granted in all cases in which it appears to the Court to be just and convenient to do so...the guiding principle in granting an interlocutory injunction is the balance of convenience; there is no requirement that before an interlocutory injunction is granted the plaintiff should satisfy the Court that there is a `probability', a `prima facie case' or a `strong prima facie case' that if the action goes to trial he will succeed; but before any question of balance of convenience can arise the party seeking the injunction must satisfy the Court that his claim is neither frivolous nor vexatious; in other words that the evidence before the Court discloses that there is a serious question to be tried..." 22 McLelland J at page 215 expressed the view that what was said in the Eng Mee Yong case is not inconsistent in substance with what is said in the Shercliffe case notwithstanding that the form of words used in the two cases is different, and in the Eng Mee Yong case, the expressions "probability" and "prima facie case" seem to be used in somewhat different senses to those in which the same expressions are used in the Beecham case as explained in the Shercliffe case. McLelland J pointed out that it must be remembered that "No Court should consider itself fettered by the form of words as if it were a phrase in an Act of Parliament which must be accepted and construed as it stands." 23 McLelland J further noted that in considering the question of the "balance of convenience" as contemplated in the Eng Mee Yong case and the American Cyanamid Co v Ethicon Ltd (1975) AC 396 case, the relative apparent strength of each party's case may be a relevant matter. As McLelland J pointed out this accords with what the Supreme Court of Victoria said Magna Alloys and Research Pty Limited v Coffey [1981] VR 23 in the following passage relating to the High Court's judgment in the Beecham Group case: "Having regard to the fact that the High Court cited the judgment of James LJ in Plimpton v Schiller with approval, the reference in Beecham's case...to a probability of success should not be understood as meaning that the plaintiff must show that at trial it is more probable than not that he will succeed. Indeed the High Court made it clear that that is not the issue for the judge to determine, for, in the passage already cited the Court said `...the Court does not...give or withhold interlocutory relief upon a forecast as to the ultimate result of the case.' Rather the High Court should be understood as referring to the degree of probability which may be high or low. No doubt the strength or weakness of the plaintiff's case will be relevant when the judge comes to the question of the balance of convenience, if he ever does." 24 At page 216 McLelland J cited Lord Diplock's judgment in American Cyanamid in terms of the power to grant interlocutory injunctions. The passage was as follows: "My Lords, when an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's legal right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken at a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until final judgment is given in the action. It was to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved that the practice arose of granting him relief by way of interlocutory injunction; but since the middle of the nineteenth century this has been made subject to his undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trial that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial." 25 At page 216, McLelland J pointed out that it is the task of the Court on an application for an interlocutory injunction to seek to fulfil this purpose in the manner best calculated to achieve justice between the parties in the circumstances of the particular case. McLelland J pointed out that with possible exception of a passage in the Beecham Group case which deals with what are said to be special considerations arising in a patent suit in which there is a substantial issue as to the validity of the patent, which McLelland J then proceeded to consider, ". . . the decisions to which I have already referred provide authoritative guidance (not however to be interpreted as `rigid formulae') as to how this task of the Court should normally be approached, but do not deny the proposition that the ultimate task of the Court is as I have described it." 26 I have endeavoured to approach the present application for interlocutory relief applying the principles as expressed by McLelland J. The matter is put shortly by Meagher, Gummow & Lehane, Equity Doctrines and Remedies, 2nd Edition at para 2168. "What the plaintiff must prove is that he has a serious, not a speculative, case which has a real possibility of ultimate success and that he has property or other interests which might be jeopardised if no interlocutory relief were granted. Then it becomes a matter of seeing if, in all the circumstances of the case, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction." 27 Likewise in Meagher Gummow and Lehane, at paragraph 217, the learned authors say: "What is meant by saying that the Court must take into account the balance of convenience and the question of hardship is that it must consider carefully what effects the granting of an injunction will have on both parties and in particular whether to grant one would cause hardship to the defendant or to refuse one would cause hardship to the plaintiff." 28 Notwithstanding that the present is a circumstance in which the procedural parameter involves an application by the defendant to be released from the undertaking given to the Court earlier, I approach the application in the same way as one would approach an application for interlocutory relief, that is to say from the perspective that the degree of probability or likelihood of success is that which the Court thinks sufficient in the particular case to warrant preservation of the status quo. 29 It is true that there are some particular difficulties with the pleading presently pursued by the plaintiff. For one thing the claims asserting fiduciary relationships seem to be claims which would be more apposite and apt to be claims made by Mr Xu against Mr Wood rather than between the two companies. More particularly, there is no express claim to damages or an account of profits or other relief for breach of fiduciary obligation. If it is to be the case that the plaintiff is to expand the current pleadings by including fiduciary relationship claims and/or by seeking to join also Mr Xu and Mr Wood as parties, that will be a matter for the plaintiff. 30 To my mind, however, the plaintiff has established sufficient of a prima facie case to relief, particularly in terms of the Trade Practices Act cause of action, to warrant a very close examination of the balance of convenience. That is not to say that the contractual claim is hopeless, but the weight of the claim seems to me to inhere either in the fiduciary relationship or more particularly the Trade Practices Act claim presently. There may be bases for outflanking the statutory difficulties for the plaintiff in relation to its not having been licensed. It is unnecessary to deal with those presently. 31 That examination of the balance of convenience discloses a clear entitlement in the plaintiff to have a justifiable fear of a dissipation of funds. Even before the service of a late affidavit made by Mr Wood on 23 September 2004 the plaintiff, upon the basis of the evidence up to that point in time, put forward the following factors in this regard: · The defendant appears to have no other assets. · The defendant appears to have no other projects in which to invest its money. · The defendant appears otherwise than being obliged to discharge mortgages on title and paying costs to have no other obligations. · The directors of the company appear to have organised their affairs so as to protect their position. Moneys having been borrowed on behalf of the company are said to have been utilised to discharge the mortgage over the directors' home, which was subsequently sold. The only use of the net proceeds of funds is said to be the distribution of the funds, the plaintiff being concerned that the intent is to place the funds elsewhere and away from the reach of the Court. · There is a history between the controlling individuals of the plaintiff and defendant companies whereby it is said that the defendant's directors have acted in a way to cause loss to the entity in control of the plaintiff and other trading matters between the directors. · The defendant has been in default of its obligations under the mortgages and deed of loan. · The defendant has not borrowed sufficient funds to carry out the work it has contracted for the plaintiff to carry out. 32 The fear of dissipation of funds, even if only some of these matters prove to be of substance, is real and not fanciful, the plaintiff relying upon the lack of candour on the part of the defendant as to the trading activities of the defendant and Mr Wood's attempt to mislead, so the plaintiff asserts, in relation to the tiling company. 33 To my mind, many of these parameters are at least prima facie corroborated on the evidence presently before the Court, albeit at an interlocutory level. It is unnecessary to treat with the particular detail. The earlier affidavit by Mr Wood made plain that it was the defendant's intent to import particular goods for distribution in Australia from China and that contractors in China were insisting upon payment prior to accepting any order for goods from the defendant. It was for that reason that the defendant was put forward as requiring unrestricted access to the $600,000 the subject of its undertaking to the Court to pay for those goods as well as other costs associated with importing. The materials then put forward in support of a discharge from the subject undertakings included real problems of the lack of specificity in the defendant's application, including as the plaintiff pointed out the following matters: · There are no costings disclosed in the affidavit. · There is no evidence adduced to show that there is a ready market for these products in Australia. · Products are not identified with any particularity. · Suppliers are not identified. · How the goods are to be purchased in the timeframe in which delivery is to be made is not disclosed. · What the potential profits may be is not disclosed. · The potential purchasers are not disclosed. · Any forward contracts are not disclosed. · The actual break-up of the costing is not disclosed. 34 The very late affidavit to which I have referred makes even more clear than before, that access to the funds currently held in court is sought for the purpose of a complex business venture which has apparently been under discussion or in the air for many months now. 35 To my mind, subject to appropriate orders being complied with pursuant to which Mr Xu would support the usual undertaking as to damages which he has given to the Court by making a payment into court, it is appropriate in the proper exercise of the Court's discretion, once the amount paid into court pursuant to the defendant's undertakings amounts to $600,000, to order that the sum of $200,000 of those payments made by the defendant be released to the defendant. 36 To my mind the proper exercise of the Court's discretion is to order that on or before 31 October Mr Xu pay into court, as security to support his undertaking as to damages, the sum of $200,000. The proper orders to be made will then condition the position qua the defendant so that, in the event that Mr Xu does pay the $200,000 into court on or before 31 October, the defendant if and only if already having paid into Court an amount of $600,000 will only have released to it $200,000 of that sum. On the other hand, if Mr Xu does not pay into court the sum of $200,000 on or before 31 October, the orders will provide for the whole of the amount [which will be held by the Court following the defendant's payments into Court] to be paid out to the defendant. 37 All of those orders will be subject to such further or other order as may be made in the interim, if there is some change of circumstance, but the obvious intent of the Court's exercise of discretion in this fashion is to accommodate to a certain extent the difficulties which each party has with the position of the other party. 38 The defendant contends that the strength of the case against it is not such as to justify the Court continuing to withhold the full amount of $600,000 due to be paid by the defendant into court pending the final hearing. The defendant contends, as I would understand it, that it is entirely appropriate for Mr Xu to make a payment into court to underpin his undertaking as to damages, the proposition being that, unless that does occur, the plaintiff is in a win-win situation. 39 Having said that, I intend to require the parties to bring in short minutes of order and that exercise can occur on Tuesday morning at 9.45 a.m. before me in this Court. No orders are made at the moment. The Court, at that time, will deal with the costs of the application which, to a certain extent, has been successful [but subject to an accommodation which both parties have made]. That will be taken into account in determining costs. I certify that paragraphs 1 - 39 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 24 September 2004 ex tempore and revised 27 September 2004 ___________________ Susan Piggott Associate 27 September 2004 Last Modified: 10/05/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.