Adara v Deal Corporation
[2018] VSC 831
•21 September 2018
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE COMMERCIAL COURT CORPORATIONS LIST | Not Restricted |
S ECI 2018 1294
| ADARA ACQUISITIONS PTY LTD (ACN 621 140 761) and ADARA BRUNSWICK TENANCY PTY LTD (ACN 616 341 550) | Plaintiffs |
| v | |
| DEAL CORPORATION (KNOX) PTY LTD (ACN 101 011 536) and ADARA KNOX CITY PTY LTD (ADMINISTRATORS APPOINTED) (ACN 616 447 593) | Defendants |
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JUDGE: | Digby J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 September 2018 |
DATE OF RULING: | 21 September 2018 |
CASE MAY BE CITED AS: | Adara v Deal Corporation |
MEDIUM NEUTRAL CITATION: | [2018] VSC 831 |
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PRACTICE AND PROCEDURE – Interlocutory injunction – Balance of convenience – Prima facie case – Lower risk of injustice – Third party interests – Where injunction framed in prohibitory terms would have coercive or mandatory effect – Where interlocutory injunctive relief has the effect of final relief.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr R Moore | Rothwell Lawyers Pty Ltd |
| For the First Defendant | Mr J D McKay | Saxbys Lawyers |
| For the Second Defendant | No appearance |
HIS HONOUR:
The Proceeding
This proceeding concerns an urgent application by which the first plaintiff, Adara Acquisitions Pty Ltd (Adara Acquisitions), a company asserting to be the owner of certain furniture and fittings, seeks orders including requiring the first defendant, Deal Corporation (Knox) Pty Ltd (Deal Corporation) to deliver up certain furniture and fittings to Adara Acquisitions and which facilitate the plaintiffs (the Adara Group) taking possession of the said furniture and fittings.
The above relief sought by the Adara Group was predicated upon the plaintiffs providing undertakings. Such undertakings ultimately evolved during the course of the plaintiffs’ application to ensure that the subject furniture and fittings are not alienated by the Adara Group, are insured and that they are only used by the Adara Group in the ordinary course of business at the premises of the second plaintiff, Adara Brunswick Tenancy Pty Ltd (Adara Brunswick) at Brunswick Apartments, 288 Albert Street, Brunswick, in the State of Victoria (Brunswick Apartments). Ultimately, the relevant undertakings also included that the said furniture and fittings are to be returned to the Deal Corporation in a satisfactory state of repair in the event that the Adara Group are ultimately unsuccessful at trial in those proceedings.
The Application
In this proceeding, by Summons filed 12 September 2018 and subsequently amended by Summons filed 17 September 2018, the Adara Group seeks interlocutory relief of the type outlined above specifically in relation to the furniture and fittings referred to in the Affidavit of William Kevin Pulbrook sworn 10 September 2018.[1]
[1]Affidavit of William Kevin Pulbrook sworn 10 September 2018 (Pulbrook 10 September 2018 Affidavit), [11] and [12] and Exhibits ‘WKP-7’ and ‘WKP-8’.
On 20 September 2018 the plaintiffs’ Summons was returned before the Court and leave was granted to the Adara Group to commence this proceeding against the second defendant, Adara Knox City Pty Ltd (Adara Knox) a company to which Administrators were appointed on 22 August 2018, pursuant to s 440D(b) of the Corporations Act 2001 (Cth).
The Administrators of Adara Knox neither consent nor oppose the orders sought by the Adara Group’s Amended Summons provided the agreement between Adara Acquisitions and Adara Knox, referred to in the Affidavit of Tracey Pauline Rothwell sworn 20 September 2018,[2] remains unaltered.
[2]Affidavit of Tracey Rothwell sworn 20 September 2018, Exhibit ‘TPR–1’.
Overview of the Facts Giving Rise to the Underlying Proceeding
The Adara Group and Adara Knox provide short-term serviced apartment accommodation in Melbourne.
The Deal Corporation is a property developer which has developed what are known as the ‘Kubix Apartments’ at the corner of Stud Road and Burwood Highway, Wantirna South, in the State of Victoria.
As part of the commercial model utilised for the Kubix Apartments, the Deal Corporation sold apartments ‘off-the-plan’ to purchasers. The purchasers then entered into rental guarantee agreements with the Deal Corporation pursuant to which the purchasers appointed the Deal Corporation as their ‘attorney’, in respect of the leases.
Adara Knox entered into an agreement with the Deal Corporation pursuant to which Adara Knox also agreed to enter into leases with the purchasers for not less than 40 apartments and no more than 80 apartments (Agreement for Lease).[3]
[3]Pulbrook 10 September 2018 Affidavit, Exhibit ‘WKP-5’.
Pursuant to the Agreement for Lease, Adara Knox was to install furniture and fittings, and other goods in the apartments it leased from the purchasers.[4]
[4]Ibid [11].
Notwithstanding that the terms of the Agreement for Lease provided that Adara Knox be responsible for the supply of the furniture and fittings, and other goods as things transpired, Adara Acquisitions purchased the subject furniture and fittings referred to in the Pulbrook 10 September 2018 Affidavit[5] from various retailers including ‘Move-in’ and ‘The Good Guys’.
[5]Ibid [11] and [12] and Exhibits ‘WKP-7’ and ‘WKP-8’.
The subject furniture and fittings are currently located in the Kubix Apartments.
On 23 August 2018, the solicitors for the Adara Group wrote to the Administrators of Adara Knox and the solicitors for the Deal Corporation outlining the Adara Group’s intention to remove the furniture and fittings from the Kubix Apartments, with commercial carriers engaged to attend the premises the next day. In response, the solicitors for the Deal Corporation requested further information as to the Adara Group’s entitlement to take possession of and retrieve the furniture and fittings concerned.
There followed a number of communications between the solicitors for the Adara Group and the solicitors for the Deal Corporation, however the furniture and fittings remained under the Deal Corporation’s control at the Kubix Apartments.
Ultimately on this application, the Deal Corporation contends that it has not unlawfully refused to deliver up the furniture and fittings in answer to the Adara Group’s demand for delivery.
The Deal Corporation asserts that it is entitled to refuse the Adara Group’s demands whilst the title to the goods were doubtful and it has also sought additional time to investigate the question of title to the furniture and fittings.[6] The Deal Corporation also asserts that this position obtained until at least the issue of this proceeding.
[6]Ibid [18] and [30] and Exhibts ‘WKP–13’ and ‘WKP–25.’
The solicitors for the Deal Corporation have continued to decline access to Adara Acquisitions to take possession of and remove the furniture and fittings from the Kubix Apartments to the Adara Group’s premises at the Brunswick Apartments despite the Administrators’ consent to this occurring.[7]
[7]Ibid [30] and Exhibit ‘WKP-30’.
Adara Knox went into voluntary administration on or around 22 August 2018. Messrs Stephen Dixon and Richard Short were appointed joint and several Administrators. On about 29 August 2018 the Administrators consented to Adara Acquisitions’ removal of the furniture and fittings from the Kubix Apartments subject to undertakings which are outlined below.[8]
[8]Ibid [27]-[30] and Exhibits ‘WKP-21’-‘WKP-26’.
Considerations
Serious Issue to be Tried
The first consideration in relation to this application is to determine whether there is a serious issue to be tried. In this regard the Adara Group pressed in particular the second component to the interlocutory relief sought in the Summons, being an interlocutory injunction that the Deal Corporation by itself, its servants or agents shall not obstruct, hinder or delay Adara Acquisitions by itself, its servants or agents from taking possession of the furniture and fittings.[9]
[9]Allied Westralian Finance Ltd v Wenpac Pty Ltd (1992) ATPR (Digest) 46-082.
As I understood the submissions of both Counsel, there was no question that there are serious issues to be tried, and indeed several of some factual intensity and complexity.
The argument here was as to how strong the prima facie case of the parties was, and how the respective strengths of the parties’ cases interrelated with the balance of convenience in this matter.
The approach to the evaluation of the required strength of the moving parties’ prima facie case in relation to the serious issue or issues to be tried is, with respect, succinctly explained in the following terms by Gummow and Hayne JJ of the High Court of Australia in Australian Broadcasting Corp v O’Neill:[10]
…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…[11]
[10](2006) 227 CLR 57.
[11]Ibid 82.
Counsel for the Adara Group emphasised the strength of his clients’ prima facie case against the Deal Corporation.
The cause of action asserted by the Adara Group is detinue. The parties in substance both argued on the basis that the prima facie success of the Adara Group’s claim can be reduced to an assessment of two questions:
(a) whether Adara Acquisitions has a right to ownership of the furniture and fittings; and
(b) whether the Deal Corporation has acted reasonably in rejecting a demand for the furniture and fittings to be surrendered over to the Adara Group.
Although I acknowledge that the extensive affidavit material put on by both the Adara Group and the Deal Corporation on this application gives rise to a number of disputes of fact, evaluating that evidence as best I can on this urgent interlocutory application, I am satisfied that the Adara Group’s prima facie case is made out and the case for possession, based on purchase of the subject furniture and fittings, is insufficiently impugned by the Deal Corporation’s contrary factual assertions.
The Adara Group’s case is supported by the following which, if accepted at trial, would be likely to result in Adara Acquisitions and the Adara Group prevailing in their action:
(a) there is documentary evidence that Adara Acquisitions paid for the subject furniture and fittings. This is evidenced by various invoices made out to Adara Acquisitions from a number of relevant retailers;
(b) the Deal Corporation does not in fact assert a competing proprietary interest in the relevant furniture and fittings;
(c) the Deal Corporation seeks to impugn the Adara Group’s claim to an immediate right to possession of the furniture and fittings by very recently raised assertions, namely that via a transaction in about late 2017 it is asserted that Mr George Stathopoulos (Stathopoulos), a director of Abdix Pty Ltd, paid a sum in excess of $600,000 to Mr William Pulbrook of the Adara Group which amount included sums used to pay for the subject furniture and fittings;[12]
(d) any competing rights to ownership of the furniture and fittings which are asserted by Stathopoulos are not part of any claim in this proceeding, given he is not a party. The assertion now made by Stathopoulos that he has an interest in the subject furniture and fittings was not made until the filing and service of his Affidavit in this proceeding on 18 September 2018, and after the proceeding against the Deal Corporation was initiated;
(e) Stathopoulos’ claim to a competing interest in the furniture and fittings prima facie appears weak. The suggestion that Stathopoulos, via Abdix Pty Ltd, paid $750,000[13] for an interest in the subject furniture and fittings also appears doubtful in light of the evidence that Stathopoulos was already committed to using this money to purchase an interest in another property, namely Adara Richmond.[14] Further, the evidence put forward by Deal Corporation in this application refers to various unreconciled and inconsistent amounts in relation to the issue of what sum Stathopoulos asserts was paid for, amongst other things, the furniture and fittings.[15]
[12]Affidavit of David Kobritz, 17 September 2018, [4] and [14]. I note that Stathopoulos’ claim was not raised in the first defendant’s initial response to the first plaintiff’s request to access the premises on 23 August 2018 (see Pulbrook 10 September 2018 Affidavit, Exhibit ‘WKP–13’). Nor was it raised in a VCAT proceeding between the first plaintiff and the first defendant on 11 September 2018 (Affidavit of Christopher John Harrison, 20 September 2018 at [7], [8]). It appears that Stathopoulos’ claim was only raised against the first plaintiff on or around 17 September 2018 in the Affidavit of David Kobritz, 17 September 2018, [8]. Indeed Pulbrook deposes he was unaware of the claim until service of the first defendant’s affidavits (Pulbrook 19 September 2018 Affidavit, [67]).
[13]First Defendant’s Submissions, 20 September 2018, [8(p)], contradicted by plaintiff which contends that Stathopoulos paid a total of $602,565.70 under the Adara Knox Heads of Agreement (Pulbrook 19 September 2018 Affidavit, [12]-[17].
[14]Transcript 20 September 2018, T17.10-17; Pulbrook 19 September 2018 Affidavit at [28]-[30] and Exhibit ‘WKP-9’.
[15]First Defendant’s Submissions, 20 September 2018 [10(m)]; Pulbrook 19 September 2018 Affidavit, [31] and Exhibit ‘WKP-10’.
Furthermore, the Deal Corporation’s denial of access to the Adara Group in relation to the furniture and fittings was made at a time when the Deal Corporation was unaware of any third party assertion of title to the furniture and fittings.
At or about that time the Deal Corporation, via is legal representatives Messrs Saxbys Lawyers, made no assertion of title on behalf of the Deal Corporation nor any other party and did not raise any cogent issue with respect to title, which justified further enquiry or delay in respect of Adara’s demand for the subject furniture and fittings.[16]
[16]Transcript 20 September 2018, T11.2-10.
Accordingly in my view, assessed in this interlocutory context, Stathopoulos’ claim to title is relatively weak for the reasons I have alluded to, and weaker in turn, as sought to be deployed by the Deal Corporation in this application.
Nature of the Relief Sought is Functionally Mandatory
The injunctive relief sought is functionally mandatory in the sense that it will allow Adara Acquisitions to enter the premises and take possession of the furniture and fittings.
To this end, the Adara Group must show a sufficiently strong likelihood of success, in detinue, in the circumstances, to justify allowing Adara Acquisitions to take possession of the furniture and fittings and use them in the ordinary course of its business pending determination of the proceeding at trial.
In relation to the questions outlined at [24] above, the elements which must be arguable in a claim for detinue are:
(a) The elements of the tort that must be proven are:
(i) the plaintiff made a demand for possession of the goods at a time when they had a right to immediate possession of them.
(ii) the defendant wrongfully refused to comply with that demand.
(b) The defendant's refusal must be clear and unqualified.
(c) The defendant's refusal to allow collection will not be unlawful if the defendant is taking a reasonable time to inquire into the rights of the plaintiff.
In my view the Adara Group’s case in detinue enjoys a sufficiently strong likelihood of success to justify the effectively mandatory order sought. I have also reached this conclusion informed by my evaluation of the balance of convenience in this matter which, for reasons I outline, I consider strongly favours the Adara Group.
I do not accept that the defence argued for by Counsel for the Deal Corporation on behalf of his client in relation to it being reasonable, in the circumstances, for the Deal Corporation to refuse the Adara Group’s demand for the furniture and fittings. More specifically for present purposes, I am not persuaded that at or about the time of Adara’s demand for the furniture and fittings, the Deal Corporation had or conveyed any reasonable basis for not immediately handing over the furniture and fittings in dispute.
At best I consider that this position put by the Deal Corporation enjoys only a slight prospect of ultimate success for reasons I have earlier mentioned.
Balance of Convenience
The Adara Group
In their application the Adara Group highlighted and relied upon the principles attending injunctive relief referred to by the Victorian Court of Appeal in Bradto Pty Ltd v Victoria.[17] The Court relevantly stated:
…whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[18]
[17](2006) 15 VR 65.
[18]Ibid at 73.
Counsel for the Adara Group urged that granting injunctive relief in the form proposed in their Summons carried the lower risk of injustice. He noted that there was ‘uncontested evidence’ of Adara Brunswick losing $5,000 per day in rental income because it cannot let out the Brunswick Apartments without the subject furniture and fittings which are currently located in the Kubix Apartments.
In the event that the injunctive relief sought by the Adara Group is granted, Counsel for the Adara Group conveyed his instructions that his clients offered an undertaking to the Court, in addition to the usual undertaking as to damages, that the furniture and fittings will be held on trust pending final determination of the proceeding, and that the furniture and fittings will be used only in the general course of the group’s business.
The same undertaking had been given to the Administrators of Adara Knox.
Thus, if the Adara Group were ultimately unsuccessful at trial, the furniture and fittings would be returned to the Deal Corporation. Further, I note in the event that the Deal Corporation succeed at trial, and the furniture and fittings were not appropriately returned to it by the Adara Group, the breadth of undertakings proffered by the Adara Group would be likely to adequately protect and compensate the Deal Corporation.
The Deal Corporation
In response to the Adara Group’s assertion that it was favoured by the balance of convenience, Counsel for the Deal Corporation submitted that his client owned ten apartments in the relevant subdivision that were either unencumbered or only encumbered to the extent that would leave at least half a million dollars of available equity. This meant, on his client’s submission, that there was a sufficient sum of money to cover the losses that Adara Brunswick asserts it had incurred or would incur in the lead up to the trial.
Counsel for the Deal Corporation submitted that there was no concrete evidence of Adara Group’s ability to meet the undertakings that it has proffered to the Administrators and to the Court and to the Deal Corporation.
Counsel for the Deal Corporation also asserted that there was no substance to Adara Brunswick’s contention that it was incurring losses of up to $5,000 per day. He characterised the evidence on that aspect as ‘hazy’ and amounting to the subjective views of the person who is operating the business.
Counsel for the Deal Corporation also submitted that the primary concern of the Court should be that a third party, and potentially a person with an in personam claim against the Deal Corporation, would be deprived of the furniture and fittings the subject of a pending sale transaction to one of two serviced apartment operators in relation to the Kubix Apartments.
Mr David Kobritz (Kobritz), a director of the Deal Corporation, deposes that he believes that neither of the two service apartment operators that he is negotiating in relation to a prospective sale will remain interested in such a transaction if the Kubix Apartments are not furnished.
In my view, in summary, the balance of convenience in this matter decisively favours the Adara Group.
In that regard I am also of the view that the orders I propose to make will give rise to the least risk, in the event that at trial the Deal Corporation ultimately succeeds in this proceeding.
As earlier outlined, the Adara Group have offered broad undertakings, in addition to the usual undertaking as to damages, and although the Deal Corporation has asserted by its Counsel that there is no reason to believe that the Adara Group have the substance to make good their undertakings, I am unpersuaded that there is any evidentiary basis, or other cogent reason to conclude that the Adara Group are unable to support the undertakings it offers.
The potential issues of the substance in relation to the Adara Group’s undertakings and also the Deal Corporation’s ability to meet an order for damages were obvious to the Deal Corporation, or should have been, from at least the date of the Summons, namely 13 September 2018. However, the Deal Corporation has failed to either put forward evidence supporting the doubts it now seeks to raise as to the substance and solvency of the Adara Group. Nor has the Deal Corporation sought to put forward any meaningful evidence as it its own financial strength. The titles tendered by the Deal Corporation[19] at the close of the hearing yesterday do not provide meaningful reliable evidence of the value of the assets to which they relate, absent valuation evidence and evidence of relevant encumbrances, or the like.
[19]Transcript 20 September 2018, T26.12-14.
The Adara Group however, points to the value of the subject furniture and fittings which were purchased for $500,000, demonstrating at least its ability to make a recent payment in that substantial sum.
I consider for the above reasons; in particular the lack of material supporting any real question about Adara Group’s asserted lack of substance or solvency, the Adara Group’s relatively recent ability to make a $500,000 cash payment, and the Adara Group’s assets constituted by the subject furniture and fittings, that the Adara Group’s undertakings will likely obviate any risk to the Deal Corporation caused by:
(a) furniture and fittings will be alienated, or encumbered in any way; or
(b) were the Adara Group to fail at trial, the furniture and fittings will not be returned to the Deal Corporation; or
(c) in the event the Adara Group loses at trial, and the furniture is returned in a damaged state (excepting reasonable wear and tear).
In all likely foreseeable circumstances, the Adara Group’s undertakings would in my view be likely to protect and adequately compensate the Deal Corporation.
I ascribe little weight to the late assertion of Kobritz that the loss of possession of the furniture will, he believes, bring to an end the present negotiations between two serviced apartment operators said to be in negotiation for the Kubix Apartments in a furnished state because, on the material put on by the Deal Corporation in this application, that position appears to be something of an afterthought, and tellingly, Kobritz provides no detail or documentary support to establish that such negotiations are on foot or imminent, nor any email correspondence or other material rendering either positon credible.
On the other hand the Adara Group have put forward sworn evidence that Adara Knox is incurring substantial losses as a consequence of the Deal Corporation denying access to the subject furniture and fittings. Further, Adara Knox is paying substantial rent to the landlords of the Brunswick Apartments which it cannot lease because those apartments are unfurnished. This is an ongoing, likely costly scenario, prejudicial to the Adara Group.
The Adara Group’s prejudice is also heightened because here, unaddressed by any undertaking or surety, the Deal Corporation intends to relinquish possession of the apartment block in which the furniture and fittings are presently located and sell the subject furniture and fittings to third parties.
This gives rise to the risk and prejudice to the Adara Group that the furniture and fittings may soon be disposed of, or alienated, so as to render them unrecoverable, and/or exposing the furniture and fittings to possible damage.
That the Deal Corporation intend to on-sell the furniture and fittings to third parties, who may well take as bona fide purchasers for value and possibly without notice giving rise to an additional risk that such a scenario may extinguish pre-existing interests to the prejudice of the Adara Group.
I therefore conclude that, on balance, there is little or no likely detriment to the Deal Corporation in the event I make the orders now sought by the Adara Group whereas if no such orders are made the Adara Group will continue to suffer considerable detriment of the type I have earlier outlined.
Orders
Accordingly upon the plaintiffs by their Counsel undertaking:
(a)to abide by any order the Court may make as to damages in case the Court shall hereinafter be of the opinion that the defendants shall have sustained any, by reason of these orders, which the plaintiffs ought to pay;
(b)to hold on trust and insure the furniture and fittings referred to in paragraph [11] and Exhibit ‘WKP–7’ and paragraph [12] and Exhibit ‘WKP–8’ of the Affidavit of William Kevin Pulbrook sworn 10 September 2018, pending final determination of this proceeding;
(c)to use the said furniture and fittings only in the ordinary course of business at the second plaintiff’s Brunswick Apartments at 288 Albert Street, Brunswick, and to not sell, encumber or otherwise deal with the furniture and fittings in any way until further order; and
(d)that if ultimately unsuccessful at trial, to return the said furniture and fittings to the first defendant and to pay the first defendant the costs of repairing any damage to the furniture and fittings save and except for fair wear and tear.
I order that:
1.The plaintiffs have leave to commence this proceeding against the second defendant pursuant to s 440D(b) Corporations Act 2001 (Cth).
2.The plaintiffs have leave to file and serve a further Amended Summons.
3.The first defendant by itself, its servants or agents shall not obstruct, hinder or delay the first plaintiff by itself, its servants or agents from taking possession of the furniture and fittings referred to in paragraph [11] and Exhibit ‘WKP-7’ and paragraph [12] and Exhibit ‘WKP-8’ of the Affidavit of William Kevin Pulbrook sworn 10 September 2018.
4.The costs of and associated with the plaintiffs’ Summons dated 12 September 2018 be reserved.
5.The parties have liberty to apply.
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