75 Port Douglas Road Pty Ltd v Keystone Asset Management Ltd (receivers and managers appointed) (administrators appointed)
[2024] FCA 1269
•31 October 2024
FEDERAL COURT OF AUSTRALIA
75 Port Douglas Road Pty Ltd v Keystone Asset Management Ltd (receivers and managers appointed) (administrators appointed) [2024] FCA 1269
File number: VID 1142 of 2024 Judgment of: MOSHINSKY J Date of judgment: 31 October 2024 Catchwords: PRACTICE AND PROCEDURE – application for an interlocutory injunction before commencement of a proceeding – where the prospective respondent had given notice that it was entitled to appoint a receiver or receiver and manager to the prospective applicant – where the prospective applicant contended that the notices of default were defective because they did not specify the amount said to be payable – whether prima facie case established – held: application for injunction dismissed Legislation: Federal Court of Australia Act 1976 (Cth), ss 37AF, 37AG Cases cited: Australia & New Zealand Banking Group Ltd v Cooper (1993) 9 WAR 112
Australian Broadcasting Corporation v O’Neill [2006] HCA 46; 227 CLR 57
Australian Securities and Investments Commission v Keystone Asset Management Ltd [2024] FCA 1019
Australian Securities and Investments Commission v Keystone Asset Management Ltd (receivers and managers appointed) (administrators appointed) (No 2) [2024] FCA 1040
Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; 118 CLR 618
Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10; 153 CLR 491
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 48 Date of hearing: 31 October 2024 Counsel for the Prospective Applicant: Mr PJ Wheelahan KC with Mr MTW Kirk Solicitor for the Prospective Applicant: Holding Redlich Counsel for the Prospective Respondent: Mr HNG Austin KC with Ms V Bell Solicitor for the Prospective Respondent: Norton Rose Fulbright ORDERS
VID 1142 of 2024 BETWEEN: 75 PORT DOUGLAS ROAD PTY LTD
Prospective Applicant
AND: KEYSTONE ASSET MANAGEMENT LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) IN ITS CAPACITY AS TRUSTEE FOR THE ADVANTAGE DIVERSIFIED PROPERTY FUND
Prospective Respondent
ORDER MADE BY:
MOSHINSKY J
DATE OF ORDER:
31 OCTOBER 2024
THE COURT ORDERS THAT:
1.The Prospective Applicant’s interlocutory application (contained in paragraphs 1 to 4 of its Urgent application before start of a proceeding dated 25 October 2024) be dismissed.
2.The Prospective Applicant pay the Prospective Respondent’s costs of the interlocutory application.
3.In relation to paragraph 5 of the Urgent application before start of a proceeding, this paragraph be adjourned to a date to be fixed.
4.Subject to further order, for a period of three years, pursuant to ss 37AF and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth), in order to prevent prejudice to the proper administration of justice, the following documents be confidential to the parties and be suppressed and not published to anyone other than the parties:
(a)Confidential annexure JMT-2 to the affidavit of Jason Mark Tracy dated 30 October 2024; and
(b)Tabs 12, 15, 17, 19 and 22 of Annexure HRR-1 to the affidavit of Howard Roger Rapke dated 25 October 2024.
5.There be liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MOSHINSKY J:
Introduction
This is an interlocutory application by the prospective applicant, 75 Port Douglas Road Pty Ltd (Port Douglas) seeking, in summary, an injunction restraining the prospective respondent, Keystone Asset Management Ltd (receivers and managers appointed) (administrators appointed), in its capacity as trustee of the Advantage Diversified Property Fund, from appointing a receiver, or a receiver and manager, to Port Douglas. The interlocutory application is made by paragraphs 1 to 4 of an Urgent application before start of a proceeding dated 25 October 2024.
In these reasons, I will use the expression Keystone to refer to Keystone Asset Management Ltd (receivers and managers appointed) (administrators appointed). In other words, the expression covers both the company in its capacity as trustee of the Advantage Diversified Property Fund (ADPF) and in its other capacities.
The context in which the present application is brought includes a previous proceeding in this Court brought by the Australian Securities and Investments Commission (ASIC) against Keystone and Paul Chiodo (a former director of Keystone) (proceeding No. VID 536 of 2024) (the Previous Proceeding). The nature of that proceeding and the relief granted are set out in Australian Securities and Investments Commission v Keystone Asset Management Ltd [2024] FCA 1019 and Australian Securities and Investments Commission v Keystone Asset Management Ltd (receivers and managers appointed) (administrators appointed) (No 2) [2024] FCA 1040. By paragraph 5 of Port Douglas’s Urgent application before start of a proceeding, Port Douglas seeks an order that it have leave to join the Previous Proceeding and file an originating application within 14 days. It is not clear to me whether such an order is appropriate (or whether Port Douglas should instead bring any claim in a fresh proceeding). However, this procedural issue can be put to one side for present purposes.
In support of its interlocutory application, Port Douglas relies on:
(a)an affidavit of Howard Roger Rapke, a partner of Holding Redlich, the solicitors for Port Douglas, dated 25 October 2024 (the First Rapke Affidavit);
(b)an affidavit of Mr Rapke dated 30 October 2024 comprising 11 paragraphs (the Second Rapke Affidavit); and
(c)an affidavit of Mr Rapke dated 30 October 2024 comprising 6 paragraphs (the Third Rapke Affidavit).
In opposition to the interlocutory application, Keystone relies on:
(a)an affidavit of Jason Mark Tracy, one of the receivers and managers, and one of the administrators, of Keystone, dated 30 October 2024 (the Tracy Affidavit); and
(b)an affidavit of Callum Jonathon Dunlop, a graduate employed by Norton Rose Fulbright Australia, the solicitors for Mr Tracy and Ms Lucica Palaghia, the receivers and managers and administrators of Keystone, dated 30 October 2024.
In advance of the hearing today, Keystone provided an outline of submissions dated 30 October 2024. At the hearing today, senior counsel for Port Douglas handed up an outline of submissions and supplementary submissions.
Background
The background to the interlocutory application is set out in the First Rapke Affidavit at paragraphs 5 to 33 and in the Tracy Affidavit at paragraphs 8 to 44. I note, in particular, the following matters.
Keystone is the responsible entity of the Shield Master Fund (SMF), a managed investment scheme registered in May 2021 and the trustee of the Advantage Diversified Property Fund (ADPF).
Units in the SMF were made available to investors including over platforms operated by Macquarie Investments Management Ltd and Equity Trustees Superannuation Ltd.
All of the units in the ADPF are owned by the SMF.
Keystone, in its capacity as trustee of the ADPF, made loans to numerous special purpose vehicles (SPVs), including to Port Douglas.
The current director of Port Douglas is Mr Chiodo.
On 7 February 2024, ASIC made interim stop orders on four product disclosure statements for classes of units of the SMF.
In the Previous Proceeding, Mr Tracy and Ms Palaghia of Deloitte Financial Advisory Pty Ltd (Deloitte) were appointed:
(a)under orders made by O’Callaghan J on 26 June 2024 (26 June Orders), to undertake the following tasks:
(i)verify whether any payments and other transactions proposed to be entered into by Keystone constitute Permitted Transactions (as defined in paragraph 3 of the 26 June Orders) by way of the following process:
(A)Simon Milne of CF Capital Investments Pty Ltd to issue proposed payment approvals (PPAs) to Deloitte in respect of all proposed transactions;
(B)Deloitte to issue a response to the PPAs either verifying those purchase orders as Permitted Transactions or rejecting those PPAs; and
(ii)prepare the report on the financial position of the SMF and the ADPF referred to in paragraph 6 of the 26 June Orders;
(b)under orders made by me on 27 August 2024 (27 August Orders):
(i)as joint and several receivers and managers, without security, of the property of Keystone for the purposes of, amongst other things:
(A)identifying, collecting and securing the Property of Keystone held in any of its Relevant Capacities (defined as meaning its capacity as responsible entity of the SMF, its capacity as trustee for the ADPF and its capacity as trustee for the Quantum PE Fund); and
(B)recovering Investor Funds; and
(ii)to prepare a further report on matters including the financial position of the SMF and ADPF under paragraph 7 of the 27 August Orders;
(c)under orders made by me on 5 September 2024, as the administrators of Keystone.
On 26 November 2019, Port Douglas became the registered proprietor of a property situated at 71-85 Port Douglas Road, Port Douglas, Queensland (Port Douglas Property). At that time, there was development approval for 79 multiple dwellings (tourist), 127 accommodation premises (motel) and ancillary uses including gym, spa, relaxation lounge, retail, restaurant, function centre, and meeting rooms, on the Port Douglas Property, which approval was due to expire on 30 January 2024.
Port Douglas is a special purpose vehicle. Based on Deloitte’s investigations to date, its sole asset is the Port Douglas Property and it has no source of income.
Mr Tracy gives evidence in paragraph 25 of his affidavit that, as at the date of his affidavit, construction of a hotel on the Port Douglas Property has not commenced.
On 1 March 2022, Keystone as trustee of the ADPF (as lender) entered into a loan agreement with Port Douglas (as borrower) (Loan Agreement). Details of the Loan Agreement and of various side letters apparently (or purportedly) varying the Loan Agreement are set out in paragraphs 27 to 33 of the Tracy Affidavit.
As noted above, Keystone as trustee for the ADPF entered loan agreements with a number of SPVs, including Port Douglas, for the purpose of funding development projects to be undertaken by the SPVs. Advances under the loan agreements were made to bank accounts of Chiodo Corporation Pty Ltd (Chiodo Corp) where the SPVs did not have bank accounts. Based on Deloitte’s investigations to date, Port Douglas has not maintained a bank account. Chiodo Corp was the development manager in respect of development projects undertaken by the SPVs. Mr Chiodo is the sole director of Chiodo Corp.
The interlocutory application is concerned with three notices of default (the Notices) that have been served by Keystone on Port Douglas. The Notices were served under cover of a letter from Norton Rose Fulbright Australia to Port Douglas dated 21 October 2024. A copy of the letter and the Notices appears at Tab 15 of Annexure HRR-1 to the First Rapke Affidavit. The Notices are:
(a)a notice of default and demand dated 21 October 2024 referring to an event of default under cl 12.1(b) of the Loan Agreement (the First Notice);
(b)a notice of default and demand dated 21 October 2024 referring to events of default under clauses 12.1(c) and 12.1(d) of the Loan Agreement (the Second Notice); and
(c)a notice of default dated 21 October 2024 referring to an event of default under a general security agreement dated 6 February 2024 (the GSA) and a mortgage granted by Port Douglas to Keystone (the Mortgage) (the Third Notice).
Mr Tracy gives evidence in his affidavit that the statements in the Notices are based on his knowledge of Keystone’s affairs following Deloitte’s investigations as receives and administrators.
Applicable principles
The relevant principles in relation to an application for an interlocutory injunction are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; 118 CLR 618 (Beecham) at 622-623: see Australian Broadcasting Corporation v O’Neill [2006] HCA 46; 227 CLR 57 (O’Neill) at [65] per Gummow and Hayne JJ. The two main issues may be summarised as:
(a)whether the applicant for injunctive relief has established a prima facie case; and
(b)whether the balance of convenience favours the granting of an injunction.
As Gummow and Hayne JJ stated in O’Neill at [65]:
By using the phrase “prima facie case”, their Honours [in Beecham] did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial.
As Keystone submitted, the practice is settled that, not only on ex parte applications but on a motion on notice, in seeking an injunction that is to operate until the determination of the action or further order, the plaintiff should give an undertaking as to damages. In a proper case, the court may require the undertaking to be supported by security. The undertaking will be moulded so as to fit the circumstances of the case at hand. These circumstances may include the likelihood of the plaintiff’s insolvency, which might produce an inability to discharge any liability to the party enjoined pending a final hearing that might accrue under the undertaking.
Consideration
As developed in oral submissions, the thrust of Port Douglas’s case for an injunction is that the Notices are defective in that they do not specify the amount said to be due and payable by Port Douglas under the Loan Agreement.
Although Port Douglas has not filed a statement of claim, or provided a draft pleading, senior counsel for Port Douglas indicated that the proposed claims would commence with the contention that the Notices are defective and may rely on a contention that the failure to specify the amount said to be owing breached implied terms of the Loan Agreement. It was indicated that the proposed claims would be contractual and may include claims for declaratory relief.
The orders sought in paragraphs 1 to 4 of the Urgent application before start of a proceeding are expressed to continue “until further order”. However, at the hearing today, Port Douglas sought injunctive relief for a period of 14 days. This period was sought on the basis that it would allow time for Port Douglas to seek to arrange re-financing as foreshadowed in a letter from Ashurst, solicitors acting for a number of SPVs, including Port Douglas, to Mr Tracy and Ms Palaghia dated 29 October 2024 (annexure HRR-3 to the Third Rapke Affidavit).
In support of the application for injunctive relief, senior counsel for Port Douglas indicated that he had instructions to give the usual undertaking as to damages.
In response to questions from the Court as to whether Port Douglas was prepared to offer security for the undertaking as to damages, senior counsel for Port Douglas said that Keystone already held security by way of its mortgage over the Port Douglas Property. Beyond this, Port Douglas did not offer to provide security for the undertaking as to damages.
I will now consider the question whether Port Douglas has established a prima facie case in respect of its contention that the Notices are defective. It is necessary to consider each Notice in turn.
In relation to the First Notice, as indicated above, the contention of Port Douglas is that the Notice is defective because it does not specify the amount to be paid, relying on Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10; 153 CLR 491 (Bunbury) at 503-504 and Australia & New Zealand Banking Group Ltd v Cooper (1993) 9 WAR 112 at 114-115, 117. It may be accepted that the First Notice does not specify the amount to be paid. However, it does not follow that the Notice is defective (or that there is a prima facie case that the Notice is defective).
The First Notice relies on a non-monetary event of default, being Port Douglas’s alleged use of funds advanced under the Loan Agreement for purposes unrelated to the development. The Notice then states in paragraph 2.1 that, if Port Douglas fails to remedy the relevant obligation by the Specified Date (4.00 pm on 4 November 2024), three consequences will or may follow. These are:
(a)Keystone declares that the outstanding balance of the Amount Owing (a term defined in the Loan Agreement, and having that meaning in the Notice), including the full amount of the principal and any accrued interest, “is immediately due and payable”;
(b)Keystone requires payment of the outstanding balance of the Amount Owing, including any accrued interest, by the Specified Date; and
(c)“without further notice to you, [Keystone] reserves all rights to enforce and exercise any of its rights under the Finance Documents (including the GSA, the Mortgage, the Cross Guarantee and Indemnity and the Individual Guarantee)”.
As is apparent from the above, the First Notice is not structured as a demand to pay an amount, failing which Keystone threatens (or reserves the right) to appoint a receiver. Rather, the First Notice is structured on the basis that an event of default under the Loan Agreement has occurred, and states that, if the relevant obligation is not remedied by a specified time, one or more of three consequences will or may follow. The third consequence is that Keystone may exercise its rights under the relevant documents. These rights include the right to appoint a receiver or receiver and manager. This foreshadowed consequence is independent of the consequences set out in (a) and (b) above. In the terms used in Bunbury at 504, the amount to be repaid is inessential to the validity of the Notice insofar as it concerns the appointment of a receiver or receiver and manager. It follows that, insofar as the First Notice alleges an event of default, and states that Keystone reserves the right to enforce and exercise any of its rights under the Finance Documents, there is no substance in the contention that the Notice is defective because it does not specify the amount that is due to be paid.
Insofar as the First Notice alleges that an event of default has occurred (on the basis that amounts advanced under the Loan Agreement have been applied to costs unrelated to the development), during the hearing I was taken by senior counsel for Keystone to documents that provide support for this proposition (contained in the annexures to the Tracy Affidavit). Senior counsel for Port Douglas accepted that Port Douglas had not, in its evidence, sought to rebut the proposition. Accordingly, on the basis of the material currently before the Court, this aspect does not give rise to a prima facie case.
For these reasons, I consider that Port Douglas has not established a prima facie case that the First Notice is defective or that, on the basis of contract or otherwise, Keystone should be restrained from acting on the Notice.
I note for completeness that, insofar as Port Douglas contended that it is unclear how much is owing under the Loan Agreement (including whether the amount owing is the figure of approximately $11.9 million referred to in the documents or the higher figure of approximately $148 million (as principal) referred to in the documents), there is a significant body of material to support the proposition that the amount owing is a principal amount of $148,797,707, and that the total amount owing as at 31 May 2024 was $175,860,959. The latter two figures appear in a number of documents to which I was taken by senior counsel for Keystone. These include the draft management accounts, and documents that I was told were extracted from the loan ledger maintained by Unity Fund Services, the accountancy services provider (T49). Port Douglas did not adduce any evidence to the contrary. Further, as noted above, the current director of Port Douglas is Mr Chiodo, who was heavily involved in Keystone. He can be taken to be familiar with some, if not all, of these documents: cf Bunbury at 504.
I turn now to the Second Notice. This principally relies on an event of default having occurred under cl 12.1(d) of the Loan Agreement by way of an Insolvency Event having occurred. As with the First Notice, this is a non-monetary event of default. The consequences of the alleged event of default are set out in paragraph 1.6 of the Notice. (They are also set out in paragraph 3 of the Notice.) The consequences include that Keystone may immediately take steps available to it under the Loan Agreement, the GSA, the Mortgage and other relevant documents. These include the right to appoint a receiver or receiver and manager.
As with the First Notice, the Second Notice is not structured as a demand for payment of an amount, with a threat to appoint a receiver if the amount is not paid. Accordingly, there does not appear to be substance in the argument that the Second Notice is defective because it does not specify the amount that is said to be due and payable.
Insofar as the Second Notice contains a contention that an Insolvency Event has occurred, the Tracy Affidavit provides support for the matters relied upon and Port Douglas has not put on evidence to rebut the propositions set out in the Notice. In these circumstances, this aspect does not give rise to a prima facie case that the Notice is defective.
For these reasons, I do not consider there to be a prima facie case that the Second Notice is defective.
I turn now to the Third Notice. This relies on alleged events of default under the GSA and the Mortgage. In paragraphs 1.1 and 1.2 it is alleged that events of default under the GSA and the Mortgage have occurred by reason of events of default having occurred under the Loan Agreement. These paragraphs refer to the “Loan Default Notice”, which is defined as the “notice of default and demand dated 21 October 2024”. It is unclear if this is a reference to the First Notice or the Second Notice, but nothing turns on this for present purposes.
In paragraphs 1.3 to 1.8 of the Third Notice it is alleged that an event of default under the GSA and the Mortgage has occurred by reason of a “Material Adverse Effect” having occurred.
In paragraph 2 of the Third Notice, notice is given that Keystone “may, amongst other things and in addition to any other legal rights, appoint one or more receivers or receivers and managers to the property the subject of the GSA and the Mortgage”. The Notice does not demand payment of an amount said to be owing under the Loan Agreement. In these circumstances, the contention that the Notice is defective because the amount said to be owing is not specified does not appear to be apposite. It was submitted on behalf of Port Douglas that the three Notices should be read together and there is a degree of inter-connectedness between the Notices. I do not accept this insofar as it relates to the contention that the Notices are defective on the basis of a failure to specify the amount said to be owing.
Insofar as the Third Notice alleges that a Material Adverse Effect has occurred, and sets out matters said to support that proposition, Keystone relies on paragraph 3 of the Notice, which refers to cl 24.2 of the GSA and cl 31.2 of the Mortgage, and states that “this notice is sufficient evidence of the matters stated in the notice unless the matters are proved to be incorrect”. It may not be necessary for Keystone to rely on these provisions, because in any event the Tracy Affidavit provides support for the matters relied upon to constitute a Material Adverse Effect and Port Douglas has not put on evidence seeking to rebut the matters. In these circumstances, this aspect does not give rise to a prima facie case that the Notice is defective.
For these reasons, Port Douglas has not established a prima facie case that the Third Notice is defective.
In light of the above, it is unnecessary to consider the balance of convenience.
As indicated above, there was discussion at the hearing as to whether Port Douglas was prepared to offer security for the undertaking as to damages. The position is that Port Douglas has not offered to provide security (beyond the mortgage that Keystone has over the Port Douglas Property). There is some evidence as to the value of the property. The evidence suggests that the value is substantially less than the amounts that appear to be owing under the Loan Agreement. In the circumstances, had I been otherwise minded to grant an injunction, I would have considered it appropriate to require that substantial security be provided for the undertaking as to damages.
Conclusion
For the reasons set out above, I do not consider it appropriate to grant injunctive relief as sought by Port Douglas. I will hear the parties on costs.
I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky. Associate:
Dated: 1 November 2024
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