Supreme Court New South Wales Medium Neutral Citation: In the matter of Festival Corp Pty Limited [2020] NSWSC 372 Hearing dates: 3 April 2020 Date of orders: 03 April 2020 Decision date: 03 April 2020 Jurisdiction: Equity - Corporations List Before: Rees J Decision: 1. Ex parte interlocutory injunction restraining Sam Fayad, Dyldam Developments Pty Limited and C88 Project Pty Ltd from dealing with monies held on behalf of the C88 Project Pty Ltd. 2. Ex parte interlocutory injunction restraining Special Gold Pty Ltd from dealing with the land. Catchwords: CIVIL PROCEDURE — ex parte interlocutory injunctions — orders made for a short period until inter partes hearing Cases Cited: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 Warner-Lambert Co LLC v Apotex Pty Ltd (2014) 311 ALR 632; [2014] FCAFC 59 Category: Principal judgment Parties: Festival Corp Pty Limited (First Plaintiff) Joseph Khattar (Second Plaintiff) BNB 88 Pty Limited (First Defendant) Sam Fayad (Second Defendant) Dyldam Developments Pty Limited (Third Defendant) Fayad Lee Fayad (Fourth Defendant) Remon Fayad (Fifth Defendant) Maria Fayad (Sixth Defendant) C18 Pty Ltd (Seventh Defendant) Centro Holdings Pty Ltd (Eighth Defendant) Golden Mile 1888 Pty Ltd (Ninth Defendant) Grange Road Properties Pty Ltd (10th Defendant) Hills Shoppingtown Pty Ltd (11th Defendant) Hills Shoppingtown Holdings 88 Pty Ltd (12th Defendant) J.S.T. (NSW) Pty Ltd (13th Defendant) Lexing House 88 Pty Ltd (14th Defendant) Macquarie Investments 8888 Pty Ltd (15th Defendant) Marrace Pty Limited (16th Defendant) Merchantland 88 Pty Ltd (17th Defendant) NR Pendle Pty Ltd (18th Defendant) NR Pendle Holdings Pty Ltd (19th Defendant) NR Samantha Pty Ltd (20th Defendant) Parra Victoria St Pty Ltd (21st Defendant) Pennant Corp Pty Ltd (22nd Defendant) Pennant Hills Estates 88 Pty Ltd (23rd Defendant) Rainbowforce Pty Ltd (24th Defendant) Rainbow Carlingford One Pty Ltd (25th Defendant) Rainbow North Rocks One Pty Ltd (26th Defendant) Remal Holdings Pty Ltd (27th Defendant) Special Gold Pty Ltd (28th Defendant) Sterling House 88 Pty Ltd (29th Defendant) West 88 Pty Ltd (30th Defendant) NR Complex Pty Ltd (31st Defendant) Raymond Khattar (32nd Defendant) B. & G. Properties Pty Limited (33rd Defendant) C88 Project Pty Ltd (34th Defendant) Stamford House 88 Pty Ltd (35th Defendant) Representation: Counsel: Mr M Condon SC (Plaintiffs) No appearance (Defendants) Solicitors: Sage Solicitors (Plaintiffs) File Number(s): 2020/104424 ex tempore Judgment 1. HER HONOUR: This is an ex parte application brought before me as Duty Judge by the plaintiffs, Festival Corp Pty limited and Joseph Khattar, to commence proceedings against 35 defendants and for interlocutory orders restraining: 1. the second defendant, Sam Fayad, 2. the third defendant, Dyldam Developments Pty Limited, 3. the 28th defendant, Special Gold Pty Limited, and 4. the 34th defendant, C88 Project Pty Ltd, from dealing with money and property in respect of two transactions until the matter is returned on an inter partes basis early next week. 1. This application was served by email on the solicitor for the relevant defendants, Tim Webster of K&L Gates, at 3.35 pm today. For economy, I will refer to K&L Gates hereafter as the defendants' solicitor, although it appears that the firm may only act for some of the defendants in these proceedings. At 4.37 pm, Mr Webster informed my associate that he acted for some of the named defendants, had received the material after 3.00 pm and did not have instructions to appear nor had he briefed counsel. The hearing commenced before me at 4.30 pm and Mr Webster's email was brought to my attention. Given that the parties last communicated in respect of the transactions which were the subject of the application more than two weeks ago, it is not entirely clear to me why it is necessary to bring this matter before the Court at this late hour on such short notice to the legal representatives for the relevant defendants, with whom the plaintiffs have been in communication for some time. 2. It is also apparent that these proceedings will concern a large number of companies, people and property developments over many years. I cannot be confident in the time available to me that I have accurately captured the material on which senior counsel has mainly relied. This is not to suggest that senior counsel has done other than discharge his obligations in an ex parte hearing but is simply a consequence of the factual complexity of these proceedings. Facts 1. In support of the interlocutory injunctions sought, the plaintiffs relied on the affidavit of Joseph Khattar sworn on 3 April 2020 and the relevant portions of the exhibit to his affidavit. Mr Khattar deposed that he is the sole shareholder of Festival Corp and his wife, Chahida Khattar, is the sole director and secretary of the company. Festival Corp is the investment vehicle which Mr Khattar and his wife usually use for their investments and shareholdings. 2. Mr Khattar describes the history of the Dyldam group of companies since 1969 and how, in the 1980s, Chahida's brother and Mr Khatter's brother-in-law, Sam Fayad, became involved in the business. Mr Khattar says that, in about 2012, his relationship with Mr Fayad began to deteriorate and, since April 2018, they have not spoken. Interlocutory injunction sought in respect of Special Gold 1. Special Gold was incorporated in 1997 and Mrs Khattar became a director. Mr Khattar owns 20% of the shares in Special Gold, as does Mr Fayad. Special Gold owns property in Argyle Street, Parramatta. 2. In November 2016, Mrs Khattar was removed as a director of Special Gold and Mr Fayad became a director. Mr Khattar says that he was not aware that his wife had ceased to be a director and there was no meeting of directors or shareholders at the time. Although the Change to Company Details forms lodged with the Australian Securities and Investments Commission (ASIC) were said to have been lodged by Raymond Khattar, he has told Joseph Khattar that he did not ask for the documents to be prepared, nor sign the forms at the time and was unaware that Mrs Khatter was no longer a director of Special Gold and Mr Fayad was. 3. On 5 November 2019, the plaintiffs' solicitor wrote to Mr Fayad advising that he was instructed that there had been a number of invalid appointments of directors to companies within the Dyldam Group by Mr Fayad and members of his family, including to Special Gold. Mr Fayad was asked to immediately rectify ASIC's records. A written undertaking was also sought that Mr Fayad would cease holding himself out as a director of that company. Failure to do so would result in an application to the Duty Judge seeking urgent injunctive relief. 4. On 28 November 2019, the parties met to discuss their differences. On 6 December 2019, the defendants' solicitors wrote inter alia in respect of Mr Fayad's appointment as a director of Special Gold, accepting that the Change to Company Details forms had not been signed but suggested that his appointment was nonetheless agreed at the time. The basis for any injunctive relief was said to be lacking. The plaintiffs' solicitor rejoined, disputing that there was any agreement to Mr Fayad's appointment to the board. 5. The Dyldam Group appears to have been in negotiations with the ATO to enter into a payment arrangement to pay significant sums of outstanding taxes. On 7 February 2020, PricewaterhouseCoopers, who had been conducting these negotiations on behalf of the Dyldam Group, wrote to various directors including Mr Khattar setting out the negotiations then in train. PricewaterhouseCoopers referred to a proposal that the Argyle Street property would form part of a package, to be sold to fund instalments towards tax obligations. Mr Khattar replied promptly, saying that it had never been mentioned that Special Gold's property would be included or be part of this agreement; only two metro sites had been discussed, neither of which involved Special Gold. PricewaterhouseCoopers also replied promptly, saying that they clearly recalled discussing the inclusion of Special Gold's property in the proposal and, if that property was no longer available, then instructions were sought as to what other assets could be sold in the short to medium term to raise sufficient value to pay existing and upcoming tax debts. 6. On 20 February 2020, the directors of Special Gold, Mr Fayad, Raymond Khattar and Fayad Lee Fayad passed a resolution agreeing to sell the Argyle Street property. 7. On 2 March 2020, some payments were made from Special Gold's bank account to PricewaterhouseCoopers and the spouse of Raymond Khattar. Mr Khattar says that he was not aware that these payments were being made from Special Gold's bank account and did not approve these payments. He considers that these payments are not expenses of Special Gold and should not have been paid by that company. There is presently some $413,000 in Special Gold's bank account. 8. On 26 March 2020, Mr Khattar was advised by PricewaterhouseCoopers that Special Gold had resolved to sell the Argyle Street property. Mr Khattar says that this resolution was passed without his knowledge, consent or approval. On 27 March 2020, Mr Khattar's solicitor wrote to the defendants' solicitors requesting that Mr Fayad refrain from selling the property without Mr Khattar's approval. Mr Khattar's solicitor asserted that the plan to sell the property was a clear breach of an undertaking and again threatened to bring an urgent application to the Court seeking an injunction. The defendants' solicitor replied that, as Mr Khattar was not a director of Special Gold, the plaintiffs did not have standing to challenge the decision to sell the property, nor any legitimate basis for doing so as it was proposed to sell the property on the open market to a third party for market value. A copy of the proposed agency agreement was attached. The plaintiffs' solicitor was invited to articulate the basis on which any injunctive relief might be sought. 9. On 31 March 2020, Mr Khattar's solicitors wrote to the defendants' solicitor advising that he intended to bring the application which is presently before the Court and the defendants' solicitor queried the urgency inherent in such an application and what issue was sought to be contended on this occasion. 10. On 1 April 2020, Mr Khattar was informed by his wife that she could not access Special Gold's bank account. Mr Khattar contacted the bank and was told that the bank had received an email from Ray Koura, chief financial officer of the Dyldham Group, to suspend Mrs Khattar's access to the bank account. The request was also copied to the three directors of Special Gold. 11. Mr Khattar says that he is concerned that, unless Mr Fayad is restrained from making further decisions in relation to Special Gold, the company will proceed to sell the Argyle Street property without his agreement or knowledge. He is also concerned that his wife has been removed as a signatory on Special Gold's bank account shortly after he notified the defendants' solicitors of this intended application. Interlocutory injunction sought in respect of C88 Project 1. The plaintiffs seek to restrain Mr Fayad and Dyldam Developments from dealing with monies which are held by Dyldam Developments on behalf of C88 Project. The latter company is one of which Mr Fayad and Chahida Khattar are both directors. Companies associated with Mr Fayad and Mr Khattar are equal shareholders in C88 Project. C88 Project has recently completed a substantial development of residential units in Carlingford of which approximately 107 residential units remain unsold. 2. In November 2019, C88 Project refinanced loan facilities it had against its assets and discharged a registered mortgage held by Fortress Investment Group. On 14 November 2019, Fortress' solicitor sent C88 Project's solicitor an email confirming that Fortress' solicitor held $4,091,480.65 in its trust account on account of GST withholding amounts from the settlements of individual lots in the Carlingford development. Instructions were sought as to where these funds should be paid. Between 14 and 19 November 2019, Mr Khattar caused his wife to follow up Fortress' solicitors in respect of the monies and, on 25 November 2019, caused his solicitor to do likewise. Mr Khattar was informed by his solicitor that Fortress' solicitor did not transfer the monies to C88 Project but to a bank account nominated by staff members employed by Dyldam Developments. Mr Khattar then made inquiries of the defendants' solicitor as to where the money had been paid. On 26 November 2019, the defendants' solicitor advised: The sum of $4,019,480.65 is presently held in the Dyldam Developments Pty Ltd bank account for payment of the balance of GST and ATO debts pending agreement between Joseph Khattar and Sam Fayad in relation to appropriate adjustments in respect of an amount of approximately $3,024,820.37 previously paid to Festival Corporation. 1. On 26 November 2019, Mr Khattar's solicitor replied, requiring that the monies be transferred from Dyldam's bank account to C88 Project's bank account. Your client continues to intermingle the funds of third party entities with other entities, as he has done in this case. My client is concerned that these funds will be dissipated by your client unless the funds are returned to C88 Project Pty Ltd. C88 Project Pty Ltd has a substantial tax debt itself and unless the funds are returned to C88 Project Pty Ltd, there will be insufficient funds to discharge the tax debt. Mr Khattar's solicitor also advised that he was instructed to take the necessary steps to ensure that the funds were not dissipated including seeking a restraining order. 1. On 27 November 2019, the defendants' solicitor replied that there was no need to seek such an order given that the sum was held in Dyldam Development's bank account for the payment of the balance of GST and ATO debts and there was no evidence or reason why Mr Khattar should be concerned that these funds would be dissipated or used other than for that purpose. On 28 November 2019, Mr Khattar's solicitor emailed the defendants' solicitor noting his client's undertaking not to use the funds for any purpose other than the payment of C88 Project's GST and ATO debts and, on 29 November 2019, wrote again requesting that the monies be paid to the ATO to discharge the tax debts of C88 Project, which were described as significant and on which a general interest charge was accruing, stating: There is no legitimate reason for the funds to remain in Dyldam Development's bank account in circumstances where there is an outstanding ATO tax debt. 1. In December 2019, the parties agreed to pay the funds into a new bank account established for C88 Project, with Mr Fayad and Mrs Khattar to be joint signatories. However, it appears that this did not immediately occur. On 20 December 2019, Mr Fayad offered a range of undertakings to Mr Khattar not to pay or disburse funds held in the new bank account other than for the benefit of C88 Project "or in accordance with its pre-existing contractual obligations, including in accordance with the deed with the ATO". Mr Khattar's solicitor sought confirmation that Mr Fayad would transfer the funds to the new bank account but was informed, on 23 December 2019, that the monies would only be dealt with in accordance with the terms of the undertaking proffered. Further, the offices of Dyldham were also closed for Christmas so the bank account and funds transfer would have to occur after 6 January 2020. 2. On 14 January 2020, and again on 5 February 2020, Mr Khattar's solicitor followed up whether the bank account had been established and the funds transferred. On 7 February 2020, the defendants' solicitor replied, advising that "pursuant to our clients undertakings", the funds had been deposited into a new bank account but $2 million of these monies had been paid to the Australian Taxation Office (ATO) in accordance with a Deed with the ATO and undertakings, of which: 1. $500,000 was in respect of tax obligations of CBD88 Pty Ltd; and 2. $1,500,000 was in respect of tax obligations of Rainbow North Rocks One Pty Ltd. Mr Khattar does not have an interest in either of those companies, but Mr Fayad does. Mr Khattar's solicitor contended that this amounted to a blatant breach of Mr Fayad's undertaking and again threatened to bring the matter before the Court. The defendants' solicitors denied any such breach. 1. On 19 February 2020, Mr Khattar's solicitor enquired why the remaining $2 million in the account could not be paid to the ATO towards payment of C88 Project's tax debt, which stood at $9 million, and repeated this enquiry on 19 March 2020. On 20 March 2020, the defendants' solicitors disclosed that a further $500,000 had been paid to the ATO in respect of tax owed by CBD88. 2. Mr Khattar is concerned that, unless Mr Fayad is restrained from further disbursing these funds, there will be no funds remaining to discharge C88 Project's own tax liabilities which presently stand at slightly in excess of $9 million. I note that the most recent letter from the defendants' solicitor is now some two weeks ago. Legal test 1. On an application for an interlocutory injunction, the question is whether the plaintiff has made out a prima facie case and whether the balance of convenience favours the grant of the injunction. As to whether there is a prima facie case, a plaintiff does not need to show that it is more probable than not that at trial the plaintiff will succeed. It is sufficient to show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks: Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 at [87]. 2. The second question 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 was granted: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622-623; [1968] HCA 1; Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at [65]-[72]. Whether an applicant for an interlocutory injunction has made out a sufficient prima facie case and whether the balance of convenience favours the grant of such relief are related, not independent, questions: Warner-Lambert Co LLC v Apotex Pty Ltd (2014) 311 ALR 632; [2014] FCAFC 59 at [70]; Mineralogy v Sino Iron at [87]. Consideration 1. In respect of the application for an interim injunction to restrain Special Gold from entering into a contract for sale in respect of the Argyle Street property, there appears to be a serious question to be tried as to whether the board of Special Gold has the requisite authority to resolve to sell the property; whether the plaintiffs agreed to the Argyle Street property being sold to meet the tax obligations of the Dyldham Group; whether the proposed sale is in breach of Mr Fayad's undertaking; and whether these circumstances amount to oppression. 2. In terms of the balance of convenience, there is no evidence that there is a purchaser in the wings which is keen to enter into a contract for sale, more particularly, a purchaser prepared to pay a price which is so attractive that granting an interlocutory injunction may run the risk of losing that purchaser with resultant damages exceeding the plaintiffs' ability to compensate the affected defendants consistently with their proffered undertaking as to damages. 3. In respect of the application for an interim injunction in respect of C88 Project, on the material which I have reviewed on this ex parte application, there appears to be a serious question to be tried as to whether the monies are held on trust for C88 Project; or whether the defendants are entitled to use those funds of the benefit of companies other than C88 Project by reason of an undertaking, agreement or otherwise. As to the balance of convenience, there is no evidence that there is any immediate need for Dyldam Developments to use those funds in the short term future and thus it seems to me that it is appropriate to grant an interlocutory injunction for a short period of time. 4. In those circumstances I am prepared to grant the orders sought on this ex parte application and to bring the matter back before the Court early next week. 5. For these reasons I make orders 2 through 6 in the Short Minutes of Order which are initialled by me, dated today and placed with the papers. Those orders will be entered forthwith and I am grateful to my associate and tipstaff for assisting me at this hour. 1. Order that, upon Charly Tannous undertaking to pay the requisite filing fees, the plaintiffs have leave to file their Originating Process dated 3 April 2020, initialled by her Honour and placed with the papers together with the affidavit of Joseph Khattar sworn on 3 April 2020 and accompanying exhibits. 2. Order that, upon the plaintiffs by their counsel giving to the court the usual undertaking as to damages: 1. the second defendant, the third defendant and the thirty-fourth defendant, by themselves, their servants and agents, be restrained up to 5 pm on 7 April 2020 from dissipating, alienating, encumbering or otherwise dealing with the monies held by the Third Defendant on behalf of the thirty-fourth defendant; and 2. the twenty-eighth defendant, by itself, its servants and agents be restrained up to 5 pm on 7 April 2020 from encumbering, charging, alienating or otherwise dealing with the land described as 27-29 Argyle Street, Parramatta (being the land described as lot 131 in Deposited Plan 1055406), including entering in to any contract to sell the said property; 1. Order that the originating process be made returnable before the Corporations Duty Judge at 2 pm on 7 April 2020. 2. Abridge time for service of the originating process and the affidavit of Joseph Khattar sworn on 3 April 2020 to 10am Monday 6 April 2020. 3. Order that service in the first place may be effected by sending the same and a copy of these orders by email to Tim Webster of K & L Gates, namely, tim.webster@klgates.com. 4. Grant liberty to restore on 1 day's notice to each of: 1. Sam Fayad (Second Defendant) 2. Dyldam Developments Pty Ltd (ACN 003 408 008) (Third Defendant) 3. Special Gold Pty Ltd (ACN 078 553 321) (28th Defendant) 4. C88 Project Pty Ltd (ACN 165 409 003) (34th Defendant) If you: (a) refuse or neglect to do any act within the time specified in this undertaking for the doing of the act; or (b) breach the undertaking by doing an act which the undertaking requires you to abstain from doing, you will be liable to imprisonment, sequestration of property or other punishment. any other person who knows of this undertaking and does anything which helps or permits you to breach the terms of this undertaking may be similarly punished. ********** 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: 08 April 2020