Supreme Court New South Wales Medium Neutral Citation: Caird Seven Pty Ltd v Attia (No 4) [2016] NSWSC 1750 Hearing dates: 30 November 2016 Decision date: 12 December 2016 Jurisdiction: Equity - Commercial List Before: Emmett AJA Decision: Notice of motion dismissed with costs on the indemnity basis. Catchwords: PRACTICE AND PROCEDURE – whether leave should be granted to file cross-claim out of time – whether funds paid into court should be retained to preserve remedy for possible cross-claim rather than being paid out to defendant – if leave were to be given, whether completion of the court orders should be affected or deferred pending determination of the cross-claim – whether cross-claim has any reasonable prospects of success – whether relief should be granted where applicant is in default of court orders Legislation Cited: Australian Consumer Law Evidence Act 1995 (NSW), s 79 Cases Cited: Attia v Caird Seven Pty Ltd [2016] NSWCA 271 Caird Seven Pty Ltd v Attia Pty Ltd [2016] NSWSC 1088 Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 2) [2016] NSWSC 1217 Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 3) [2016] NSWSC 1452 Category: Procedural and other rulings Parties: Caird Seven Pty Limited (Plaintiff / First Respondent) Mina Attia (First Defendant / First Applicant) Shopsmart Pharmacy Franchising Pty Ltd (Second Defendant / Second Applicant) Zhi Zhao (Second Respondent) Westpac Banking Corporation Limited (Third Respondent) Australian Pharmaceutical Industries Ltd (Fourth Respondent) MNB Variety Imports Pty Ltd (Fifth Respondent) Representation: Counsel: Mr PD Herzfeld (Plaintiff / First and Second Respondents) Mr MR Pesman SC (First and Second Defendants / First and Second Applicants) Mr JM White / Mr D Habashy (Third Respondent) Solicitors: Meridian Lawyers (Plaintiff / First and Second Respondents) Bransgroves Lawyers (First and Second Defendants / First and Second Applicants) Gadens Lawyers (Third Respondent) File Number(s): 2014/354640 Judgment 1. EMMETT AJA: I have previously made orders in these proceedings on 9 August 2016, [1] 22 August 2016 [2] and 13 October 2016 [3] for reasons published on those dates. In Schedule 1 to my reasons of 13 October 2016, I set out the orders that had previously been made in the proceedings. In these reasons, I shall use terms as they were defined for the purposes of my earlier reasons. 2. In essence, the orders already made in the proceedings required the specific performance by Mr Attia and Shopsmart of the terms of the Rescission Deed made between Caird, of the one part, and Mr Attia and Shopsmart, of the other part. Those orders have not been complied with except to a limited extent and there is currently outstanding a motion for the Defendants to be dealt with for contempt. That motion has not yet been fixed for hearing. In the meantime, the Court has been involved in the supervision of the performance by the parties of the terms of the Rescission Deed. 3. By the Orders, Mr Attia was required to provide certain documentation and other things to the solicitors for Caird by 22 August 2016. He was also required to procure a bank cheque in the sum of $2,050,000 by 23 August 2016 for the purposes of enabling completion of the Retransfer Contract referred to in the Rescission Deed. Finally, Mr Attia and Shopsmart were required to attend and complete settlement of the Retransfer Contract, whereby the Pharmacy Business would be transferred to Mr Attia. While some of the documents required by the Orders were provided, other documents were not and the bank cheque was not procured. Settlement of the Retransfer Contract has not taken place. However, on 17 November 2016, the sum of $2,050,000 was paid into Court by Mr Attia in compliance with an order of the Court made that day. 4. By notice of motion filed on 11 November 2016, as amended orally, Mr Attia and Shopsmart seek what is tantamount to variation of the orders for specific performance already made. The current position of the Defendants is to seek an order that completion of the Retransfer Contract be effected on the basis that the money in Court be applied in part-payment of the price payable under the Retransfer Contract, limited to the extent of amounts owing by Caird that are secured on the assets of the Pharmacy Business. [4] The Defendants seek an order that the balance of the price, if any, not be paid to Caird but be retained in order to meet an equitable setoff claimed by Mr Attia and Shopsmart in respect of damages for alleged breach by Caird of the terms of the Retransfer Contract as well as alleged contravention by Caird of the Australian Consumer Law. 5. On 29 July 2016, I granted leave to the Defendants to file a cross-claim in the proceedings no later than 2 September 2016. At that stage, the Defendants had foreshadowed a claim that Caird had committed breaches of the Retransfer Contract. That leave was not taken up. However, by the notice of motion of 11 November 2016, Mr Attia and Shopsmart now seek leave to file a cross-claim in the form annexed to their motion. I shall say something further about the cross-claim below. 6. Caird opposes the grant of leave on the basis that the claims sought to be advanced have no reasonable prospects of success or, alternatively that their prospects are insufficient to warrant a grant of leave, having regard to the delay and other conduct on the Defendants' part in the proceedings. Secondly, Caird says, even if leave were to be given, completion of the Retransfer Contract under the Rescission Deed should not be affected or deferred pending determination of the cross-claim, as Mr Attia and Shopsmart claim. In the course of the hearing of the motion, I ordered that the sum paid into Court be paid out to Caird's solicitors to be retained by them in their Trust Account until further order of the Court or the agreement of the parties. The Cross-Claim 1. The proposed cross-claim would rely on several causes of action. Caird asserts that none of them has sufficiently reasonable prospects of success to justify any interference in the performance by Mr Attia of his obligations under the Rescission Deed. It is desirable to say something of the causes of action intended to be relied on. 2. First, Mr Attia relies on a term of the Rescission Deed that Caird would, between entry of the Rescission Deed and completion of the Retransfer Contract, seek to maintain the goodwill of the Pharmacy Business and carry on the Pharmacy Business in a proper and businesslike way. The proposed cross-claim will allege that, in breach of those terms, Caird has failed to seek to maintain the goodwill of the Pharmacy Business since 31 July 2015 and has not sought to carry on the Pharmacy Business since 31 July 2015 in a proper and businesslike way. The proposed cross-claim would alleged that, in consequence of those breaches, Mr Attia and Shopsmart have suffered loss and damage because there has been a loss in value of the Pharmacy Business since 31 July 2015 and Mr Attia will receive a less valuable asset on completion of the sale of the Pharmacy Business, without any diminution of the purchase price. In addition, it will be alleged that there has been further loss and damage because of a deterioration in the relationship between the Pharmacy Business and suppliers to the Pharmacy Business, which will impact upon ongoing supplier terms, to the detriment of Mr Attia. 3. Second, Mr Attia wishes to rely on a term of the Rescission Deed that Caird would comply with the terms of the lease of the premises in which the Pharmacy Business is carried on. The cross-claim would allege that, in breach of that term, Caird has failed to pay the monthly rent for the premises for the months of June, July, August and September 2016, as a consequence of which Mr Attia will suffer loss and damage by way of damage to his reputation and his relationship with the landlord and by way of loss of the opportunity for other pharmacies at shopping centres in Liverpool, Parramatta and Penrith conducted by the landlord. 4. Third, Mr Attia seeks to rely on terms of the Rescission Deed that Caird must not breach any supplier arrangements or engage in conduct that might cause a supplier to cancel a supply contract and that Caird must comply with the terms of the supplier contracts and must not offer stock-in-trade for sale in any way other than in the usual course of business, including selling stock-in-trade at less than the prevailing retail price. The proposed cross-claim would allege that Caird has breached the terms of one of the supplier contracts by offering for sale stock meant for export to China at substantially lower than the recommended retail price. The cross-claim would allege that, as a consequence of that breach, Mr Attia and Shopsmart have suffered loss and damage consisting of irreparable damage to the relationship with the supplier, loss of bargaining power, less favourable supply terms for Shopsmart, and loss of cataloguing, merchandising and advertising support from the suppliers. 5. The allegations of contravention of the Australian Consumer Law will involve allegations that Caird rebranded the Pharmacy Business but did not disclose the rebranding to the supplier of Shopsmart, resulting in damage to Mr Attia. It is also alleged that, in negotiating the Rescission Deed, Caird did not disclose that the turnover of the Pharmacy Business had dropped between November 2013 and July 2015 and that the value of the Pharmacy Business had reduced during that period. Retention of Purchase Price 1. The refusal of leave to file the cross-claim would not be fatal to the prosecution of those claims. It would be open to Mr Attia and Shopsmart to commence fresh proceedings claiming damages on the bases proposed. Nevertheless, if the claims proposed by the cross-claim are to be prosecuted by Mr Attia and Shopsmart, it is probably more convenient that they be prosecuted in the present proceedings. The present question of significance is whether the prospects for success of the claims are such that Caird should be deprived of the full entitlement of the payment of the price under the Retransfer Contract by reason of the possibility of an equitable setoff of any damages for breach of the Retransfer Contract that might be established in the cross-claim. 2. The claims to be advanced in the proposed cross-claim are similar to the claim that was made earlier in the proceedings, when Mr Attia and Shopsmart first sought to rescind the Retransfer Contract, on the basis of an alleged breach of an essential term. [5] As I have said, leave was granted to Mr Attia and Shopsmart to file a cross-claim no later than 2 September 2016. That leave was not taken up. It appears that those advising Mr Attia and Shopsmart took the view that the cross-claim could not be filed until after completion of the Retransfer Contract, because the damage would not have been suffered until then. 3. Further, Mr Attia and Shopsmart sought leave to appeal from orders that I made declining to set aside the orders for specific performance of the Rescission Deed. Those advising Mr Attia and Shopsmart took the view that, if the appeal was successful and the orders for specific performance were set aside, then a defence alleging breach of the Retransfer Contract would be filed rather than a cross-claim, and therefore there was no utility in filing a cross-claim before the appeal had been determined. Leave to appeal was refused on 15 September 2016 [6] and it was not until that time any thought was given to the drafting of a cross-claim. Even then, no application was made to extend the time for the filing of the cross-claim. 4. Ms Kate Cooper, the solicitor for the Defendants, said, in an affidavit of 18 November 2016, that in the weeks following the refusal of leave by the Court of Appeal, she was very busy with the proceedings, in particular opposing Caird's application for the appointment of a receiver to enable completion of the Retransfer Contract. She said the preparation for the hearing of that application took up all of her time until 13 October 2016, at which time a junior solicitor who had been assisting her left her firm. Ms Cooper was apparently too busy to turn a mind to the drafting of a cross-claim and, when she did begin to draft the cross-claim, it became apparent "that there were additional issues" that needed to be included in the cross-claim, being matters on which she had not previously taken instructions. Accordingly, she said in her affidavit, about a month and a half elapsed from the determination by the Court of Appeal to the completion of drafting the cross-claim, which she had done as quickly as she could during that time. While the evidence of Ms Cooper is an explanation for the delay, it does not constitute a valid excuse. 5. In the meantime, as I have said, no application was made to the Court to extend time for filing a cross-claim. That failure is somewhat exacerbated by the fact, that throughout the period, notwithstanding default in complying with the Court's orders, no application was made before 11 November 2016 to extend the time for compliance with the Court's orders for specific performance. 6. In effect, as I have said, Mr Attia and Shopsmart are seeking once again to vary the Orders, which require the Defendants to procedure a bank cheque for $2,050,000 for the purposes of enabling completion of the Retransfer Contract. They are seeking to enforce an equitable right, by way of setoff. They seek to do so in circumstances where they are in blatant default of the Orders requiring specific performance. 7. The essential effect of the order now pressed is that, after all secured creditors of Caird have been paid, the balance of the purchase price payable by Mr Attia will be retained against the possibility of his establishing a claim for damages in the cross-claim, which he seeks to set off against the price that the Court has ordered him to pay to Caird in performance of the Retransfer Contract. If completion takes place and the whole of the purchase price payable under the Retransfer Contract is paid to Caird, it will be applied in the satisfaction of indebtedness of Caird to unsecured creditors. Mr Attia contends that the financial position of Caird is such that there would then be no assets of Caird available to meet any judgment that Mr Attia and Shopsmart may obtain, if they succeed in their claims. They assert that they would be denied the opportunity of setting off any damages that they might recover under the cross-claim against the purchase price payable under the Retransfer Contract. 8. To the extent that Caird is in a poor financial position, that is, to a significant degree, the consequence of the conduct of the Defendants. That conduct began with the inflation of the trading figures for the Pharmacy Business, which led to Caird buying the Pharmacy Business in the first place, and has continued through the non-failure to comply with the terms of the Rescission Deed to repurchase the Pharmacy Business under the Rescission Deed, and ultimately the blatant failure to comply with the orders of the Court for specific performance. Further, the assets of Caird include its claim for damages against the Defendants by reason of their failure to complete the Rescission Deed, as originally claimed in their further amended commercial list statement filed on 4 September 2015. There are also substantial costs orders against the Defendants that have not yet been paid. 9. The effect of the orders now sought by the Defendants would be to put them in the place of secured creditors as against the other unsecured creditors of Caird. They seek to do so in relation to a series of claims that are, Caird contends, speculative and unquantified. 10. In support of the claims, Mr Attia and Shopsmart rely on affidavits by Mr Geoffrey Brooks sworn 28 July 2016 and Mr Francesco Sirianni sworn 14 November 2016. Those deponents purport to give opinion evidence concerning the conduct of the Pharmacy Business by Caird and the value of the Pharmacy Business at relevant times. 11. Mr Brooks has been a pharmacist for 49 years and is the director of a company that provides consultant services in pharmaceutical policy and development to government agencies as well as to pharmacists, medical practitioners and dentists. He has held a number of senior pharmaceutical positions and has served as an assistant secretary in the Commonwealth Department of Veterans' Affairs. He has also been responsible for the conduct of the Repatriation Pharmaceutical Benefits Scheme and has represented the Commonwealth before the Pharmaceutical Remuneration Tribunal in the setting of professional fees for community pharmacists throughout Australia. He has also presented submissions to various Commonwealth parliamentary pharmaceutical inquiries and committees as well as serving as a research fellow in major university departments of medicine addressing drug utilisation issues and policy. 12. Mr Brooks visited the Pharmacy Business on 25 July 2016 for an hour and a half. On the basis of that visit and the experience and knowledge summarised above, Mr Brooks expressed a number of opinions concerning the Pharmacy Business. 13. First, he said that it was unusual for a pharmacy of the relevant size located opposite Woolworths and next to a medical centre that, in the time he was there, only three or four customers walked into the pharmacy. He expressed the opinion that the pharmacy appeared "to be very sterile and clinical" as if it had just been completely cleaned and the stock recently installed and that it looked as though someone had only just restocked the shelves in the last few days "given how ordered they appeared". He said that it appeared that the pharmacy "had just enough stock to fill the shelves without appearing empty". Mr Brooks also expressed the opinion "that the pharmacy did not have a proactive environment" and that there was "a lack of a partner or manager figure … monitoring the staff and effectively driving the business." 14. I do not consider that Mr Brooks' evidence satisfies the requirements of s 79 of the Evidence Act 1995 (NSW) for his opinion evidence to be admissible. While he may well have some specialised knowledge based on his training, study and experience, I am not persuaded that the opinions expressed in his affidavit are in anyway based on the specialised knowledge about which he has given evidence. I do not consider that any weight should be given to the opinions expressed by Mr Brooks. 15. Mr Sirianni gives his opinion as to the value of the Pharmacy Business as at 31 July 2015 and as at 10 November 2016. He estimates the value as at the former date at $784,000 and at the latter date at $434,000. He based that opinion on his assumption that Mr Attia and Shopsmart and their solicitors had made available to him all information requested that was available to them and all information that they believed was relevant. He said that all significant matters of judgment had been determined or approved by Mr Attia and Shopsmart or their solicitors. He also made some assumptions concerning market capitalisation rates. 16. Mr Sirianni made his valuations on the basis of a capitalisation rate of 18.16 per cent as of 2016. He applied that rate to figures as to the trading performance of the Pharmacy Business. However, it is difficult to understand the basis upon which he arrived at the capitalisation rate. Further, in the absence of evidence as to the way in which the Pharmacy Business has been conducted, the figure propounded by Mr Sirianni do not give rise to any inference of breach on the part of Caird of the terms of the Retransfer Contract. 17. In the circumstances, I do not consider that the material presently before me supports that the claim propounded in the draft cross-claim has any real prospects of success. When those circumstances are coupled with the conduct of the Defendants that I have outlined above, I do not consider that the Court should interfere with the legal entitlement of Caird under the Rescission Deed. I do not consider that, even if the proposed cross-claim is filed, there should be any variation of or interference with the Orders requiring specific performance of the Retransfer Contract. 18. Accordingly, there is no utility in filing the proposed cross-claim in these proceedings. There is nothing to prevent Mr Attia and Shopsmart commencing fresh proceedings in order to pursue the claims if they are so advised. Be that as it may, I am not persuaded that there should be any variation in the Orders, which require specific performance of the Retransfer Contract. The notice of motion should be dismissed with costs. 19. The motion should never have been brought. The applicants on the motion sought to re-agitate, in slightly different terms, the issues that they raised and were dealt with in my earlier reasons. They did so in circumstances where they have for some time been in default in complying with orders for specific performance made by the Court. The applicants on the motion should pay the costs on the indemnity basis. ********** Endnotes 1. Caird Seven Pty Ltd v Attia Pty Ltd [2016] NSWSC 1088. 2. Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 2) [2016] NSWSC 1217. 3. Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 3) [2016] NSWSC 1452. 4. The notice of motion filed on 11 November 2016 originally sought different orders, which resulted in the naming of other parties as respondents to the notice of motion, including Westpac Banking Corporation Limited as the secured creditor of Caird. However, in the course of case management, the notice of motion was amended and the matters concerning the other parties were dealt with by consent. As a consequence, the other parties' involvement in the current matter was no longer required. 5. See Caird Seven Pty Ltd v Attia Pty Ltd [2016] NSWSC 1088. 6. See Attia v Caird Seven Pty Ltd [2016] NSWCA 271. 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. Decision last updated: 12 December 2016