New South Wales Supreme Court CITATION : Everest Capital Ltd & Anor v HSBC Bank plc [2009] NSWSC 185 HEARING DATE(S) : 16 and 19 March 2009 JUDGMENT DATE : 19 March 2009 JURISDICTION : Equity Division JUDGMENT OF : Palmer J EX TEMPORE JUDGMENT DATE : 19 March 2009 DECISION : Injunction refused. CATCHWORDS : INTERLOCUTORY INJUNCTION – USUAL UNDERTAKING AS TO DAMAGES – Whether interlocutory injunction should be granted if plaintiff trustees unwilling to accept liability under the usual undertaking as to damages beyond their ability to recoup out of the trust funds – nature and value of the trust funds obscure. CATEGORY : Procedural and other rulings Everest Capital Ltd atf Everest Babcock & Brown Masters Fund II (First Plaintiff) PARTIES : EBB Master Fund SPC for the account of Segregated Portfolio Three (Second Plaintiff) HSBC Bank plc (Defendant) FILE NUMBER(S) : SC 1910/09 COUNSEL : D.B. Studdy SC, J.A. Watson (Plaintiffs) S.G. Habib, S. Ahmed (Defendant) SOLICITORS : Chang, Pistilli & Simmons (Plaintiff) Dibbsbarker Lawyers (Defendant) 1910/09 Everest Capital Ltd & Anor v HSBC Bank Plc JUDGMENT – Ex tempore 19 March, 2009 1 The First Plaintiff is a company incorporated in Australia and it is the trustee of an investment fund called Everest Babcock & Brown Master Fund II. The Second Plaintiff is said to be something called a "cell of a segregated portfolio company incorporated in the Cayman Islands" . I have never encountered such a corporate entity, and its nature is unclear to me. Nevertheless, for the purposes at least of this application, I will take the Second Plaintiff to have a corporate personality cognizable in law. 2 The Plaintiffs seek declarations that Notices from the Defendant terminating an Agreement between themselves and the Defendant are invalid. I do not think it is necessary for me to go too much into the detail of the contentions. Her Honour the Chief Judge in Equity briefly considered issues between the parties in a judgment delivered on 13 March 2009. 3 The Plaintiffs sought an injunction restraining the Defendant from acting upon the termination notice. The Plaintiffs said, firstly, that there was a serious issue to be tried on a final hearing that the Notices were invalid. It was admitted that the right of the Defendant to issue a Notice calling for rectification of the difference in margins involved in the transaction had been triggered, but it was said that the Defendant was not entitled to terminate because the Plaintiffs had put forward, in accordance with the provision in that regard in the Agreement, a proposal for remedying the situation. It is said that the Defendant was obliged to assent to that proposal, unless it could demonstrate that its refusal to do so was reasonable. 4 The Plaintiffs said that the Defendant had not given a reason for refusing to consent to the proposal in writing. That, in itself, was said to be a breach of the Defendant's obligations and disentitled the Defendant to rely upon the Notices requiring rectification. 5 Having considered the terms in the Agreement as to the Defendant's right to act upon the termination Notice, I think that the arguments of the Plaintiffs in this regard are weak indeed. There is nothing which obliges the Defendant to give reasons in writing for its refusal to accept the Plaintiffs' proposal. The Defendant says it has given its reasons orally. In any event, the matters which the Plaintiffs say the Defendant ought to have taken into consideration, or ought now to be taking into consideration, are proposals which are not contained in the original letters from the Plaintiffs to the Defendant for the resolution of the difficulties, but rather seem to emanate from discussion in the in the course of subsequent meetings about a different proposal. I take into account that the case so far put forward by the Plaintiffs in support of an interlocutory injunction is weak. That is not to say it cannot be improved at the final hearing. 6 The question of balance of convenience has not been addressed at any great length. The Defendant has not put forward any evidence, but I am told from the bar table that the Defendant has acquired certain securities in expected performance of its obligations under the Agreement. It says that, having terminated the Agreement with the Plaintiffs, it is now entitled to deal with those securities so as to avoid the loss which it would suffer if the value of those securities continues to fall in a rapidly falling market. 7 The critical question which I have to decide is whether an interlocutory injunction should be granted if the Plaintiffs are not willing to proffer the usual undertaking as to damages in the usual terms. The Plaintiffs are not prepared to offer such an unqualified undertaking. They say that the undertaking should be limited. They say that they are trustees of the investment funds in question and that they should not be exposed to any liability beyond that for which they can recoup themselves by recourse to the assets of the trust. 8 One of the major difficulties in this case is that it is, at the moment, quite mysterious what the assets of these trusts are. I enquired about that matter when the matter first came before me, and Counsel quite frankly said that he was not able to elucidate beyond what appeared in an affidavit in support of the application by Mr Budai. That affidavit, I have to say, does not make the matter clear at all. I see from the earlier proceedings before the Chief Judge in Equity that the same question occurred to her Honour and that her Honour received no better explanation than I have. So, as matters presently stand, the Court does not have any idea what the assets of these trusts are, and what they may be worth. The Court does know, however, that the sums said to be involved are in the tens of millions of dollars. That indicates the order of the loss to which the Defendant may be exposed if an injunction is granted. 9 The Plaintiffs say that because there is no evidence from the Defendant as to the quantum of loss to which it may be exposed there is no reason not to limit the exposure of the Plaintiffs pursuant to their undertaking as to damages to whatever the trust funds are worth. I do not think this is a correct approach to take in this, or any other, case where an interlocutory injunction is sought. 10 The Plaintiffs need to demonstrate that they are entitled to an interlocutory injunction. They must show that, having regard to the nature of their case, there is a serious question to be tried and the balance of convenience is in favour of granting the injunction. It is not correct to throw upon the Defendant the burden of proving that the Plaintiffs will suffer less of a loss if the injunction is refused than the Defendant will suffer if it is granted. 11 The second reason advanced by the Plaintiffs for modifying the terms of the usual undertaking is that there are sufficient assets in the trust funds to indemnify the Plaintiffs in respect of any damages which the Defendant might suffer if the injunctions are granted. 12 As I have said, the Court has been given no idea what these trust funds are worth, what their assets are, and where those assets are. All that one knows is that the Plaintiffs, as trustees, may be entitled to acquire rights to invest in hedge funds but there is no evidence as to what the value of any investments in those hedge funds is. If the trust funds were really of substantial value, one would expect that the Plaintiffs would have no anxiety about giving the undertaking as to damages in the usual terms, because they would be confident of recouping their indemnity from the trusts. However, possibly because they themselves are uncertain as to whether the trust funds are of sufficient worth to relieve them of personal liability, they seek to cast upon the Defendant the risk of loss flowing from the grant of the injunction. I do not think it is a proper way of approaching an application of this type. 13 The third reason advanced by the Plaintiffs is that if the usual undertaking were exacted from the Plaintiffs and were ultimately called upon, the interests of third parties might be affected. That is said to be so because the Plaintiffs are trustees of other trusts. The Plaintiffs say that if they are made directly liable for loss in this case the administration of those other trusts might suffer. 14 I am unable to accept this submission. First, there is no evidence supporting or particularising that assertion. Second, as a matter of law in any event, if the Plaintiffs are directly liable to the Defendant on an undertaking to damages, they cannot recoup that liability out of the assets of trusts which have nothing to do with this case. It may be that the Plaintiffs become insolvent. If that happens, then no doubt new trustees will be appointed to the other trusts, and the administration of those trusts will continue unaffected. 15 For those reasons, I think it is quite inappropriate in the present case to modify the terms of the usual undertaking to damages, as the Plaintiffs seek. If the Plaintiffs are unable, or unwilling, to give the usual undertaking as to damages in the usual terms, then as a matter of discretion, on that ground alone I will refuse the injunction sought. 16 Mr Studdy SC, Counsel for the Plaintiffs, now informs me that the undertaking in the usual terms is not given. Accordingly, the injunction presently in force is dissolved forthwith. 17 The Defendants seek the costs of today and of the previous occasion. Mr Studdy says that at least the costs of the previous occasion should not be awarded against the Plaintiffs because they succeeded in obtaining an injunction which continued up until today. 18 I do not think that this is the right way of characterising what has happened. At the end of the previous hearing I made it plain to the Plaintiffs that I would need a very good reason to grant the injunction sought, if the usual undertaking in the usual terms was not proffered. Mr Studdy requested a short time to obtain instructions from what he described as "the interests standing behind the Plaintiffs" , in order to see whether they would be forthcoming with funds or securities to put the Plaintiff trustees in a position where they would be prepared to give the usual undertaking in the usual terms. 19 In those circumstances I allowed a short respite for Mr Studdy to get those instructions and granted an injunction, on a modified undertaking as to damages, in the meantime. In other words, at the conclusion of the last day's proceedings, a brief indulgence was granted to the Plaintiffs; they did not have a victory such as would justify a costs order in their favour. 20 As it has transpired today, the injunction has been dissolved because the undertaking in usual terms could not be proffered. It seems to me in those circumstances, that the Plaintiffs' application and the consequent costs were a discrete issue. The issue was: even if a sufficient case were made out to support an interlocutory injunction and the balance of convenience lay in the Plaintiffs' favour, should the usual undertaking as to damages be modified, as the Plaintiffs sought. That issue has gone adversely to the Plaintiffs. Accordingly, I order that the Plaintiffs pay the Defendant's costs of the Notice of Motion. – oOo – 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.