Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 3)

[2016] NSWSC 1452

Supreme Court

New South Wales

Medium Neutral Citation:	Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 3) [2016] NSWSC 1452
Hearing dates:	19 September 2016
Decision date:	13 October 2016
Before:	Emmett AJA
Decision:	The Court notes the undertakings and makes the orders set out in Schedules 2 and 3 to these reasons.
Catchwords:	PRACTICE AND PROCEDURE – enforcement of court orders for specific performance concerning sale of a business – whether Supreme Court has power to appoint a receiver to enforce final orders pursuant to Supreme Court Act 1970 (NSW), s 67 – appointment of receiver as part of equitable execution – whether discretion to appoint a receiver should be exercised in circumstances where there has been failure to comply with court orders – whether appointing a receiver would be fruitless and would frustrate performance of the court orders
Legislation Cited:	Civil Procedure Act 2005 (NSW), s 106 Conveyancing Act 1919 (NSW), s 66G Corporations Act 2001 (Cth), s 420 Equity Act 1880 (NSW), s 57 Real Property Act 1900 (NSW), s 57(2) Supreme Court Act 1970 (NSW), s 67 Supreme Court of Judicature Act 1873 (Imp), 25(8) Uniform Civil Procedure Rules 2005 (NSW), r 40.8
Cases Cited:	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 Hall v Foster [2012] NSWSC 974 Holmes v Millage [1893] 1 QB 551 In the Matter of Aquaqueen International Pty Limited [2016] NSWSC 508 Maclaine Watson & Co Ltd v International Tin Council [1988] Ch 1 Owners of the Ship “Shin Kobe Maru” v Empire Shipping Company Inc (1994) 181 CLR 404; [1994] HCA 54
Texts Cited:	JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (5th ed 2015, LexisNexis Butterworths)
Category:	Procedural and other rulings
Parties:	Caird Seven Pty Ltd (Plaintiff) Mr Mina Attia (First Defendant) Shopsmart Pharmacy Franchising Pty Ltd (Second Defendant)
Representation:	Counsel: Mr PD Herzfeld (Plaintiff) Mr MW Young SC (First and Second Defendants)   Solicitors: Meridian Lawyers (Plaintiff) Bransgroves Lawyers (First and Second Defendants)
File Number(s):	2014/354640

Judgment

Introduction

1. By notice of motion filed on 26 August 2016 (the Receivership Motion), Caird Seven Pty Limited (Caird) seeks, relevantly, an order, by way of equitable execution, that Mr David Kerr, partner of RSM Australia Partners, or some other fit and proper person, be appointed receiver over the property of Mr Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (Shopsmart) for the purpose of satisfying Mr Attia’s and Shopsmart’s obligations under orders made by the Court on 22 July 2016, [1] as varied on 5 August 2016 (together the Orders). The relevant orders made previously in the proceedings are set out in Schedule 1 to these reasons. The circumstances of the making of the Orders and the background to the proceedings are set out in reasons published on 9 August 2016 and 22 August 2016. [2] In these reasons, terms are used as defined in those earlier reasons.

   1. The notice of motion actually identifies the date of the relevant orders being 29 July 2016, but the context makes it clear that the date to which Caird means to refer is 22 July 2016, as 29 July 2016 was when a notice of motion by the Defendants to vacate the 22 July 2016 orders for specific performance was dismissed.

   2. See Caird Seven Pty Ltd v Attia Pty Ltd [2016] NSWSC 1088 and Caird Seven Pty Ltd v Mina Attia and Shopsmart Pharmacy Franchising Pty Ltd (No 2) [2016] NSWSC 1217.

2. By the Orders, Mr Attia and Shopsmart (together the Defendants) were required to perform the terms of the Rescission Deed made between Caird, of the one part, and Mr Attia and Shopsmart, of the other part. Specifically, by the Orders, Mr Attia was required to provide certain documentation and other things to the solicitors for Caird by 22 August 2016, and to procure a bank cheque in the sum of $2,050,000 for the purposes of enabling completion, by 23 August 2016, of the Retransfer Contract referred to in the Rescission Deed. Finally, Mr Attia and Shopsmart were required, no later than 23 August 2016, 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 have been provided, other documents have not, the bank cheque has not been procured and settlement of the Retransfer Contract has not been completed.

3. Prayer 1 of the Receivership Motion also contains a statement of charge against the Defendants alleging contempt by reason of their failure to comply with the Orders. At this stage, Caird has not moved for the relief contained in prayer 1, but has limited its claim for relief to prayer 2, which is concerned with the appointment of a receiver and the authorisation of any receiver to sign any documents on behalf of the Defendants to enable completion of the Retransfer Contract to be effected.

4. The Defendants resist the orders now claimed by Caird on two bases. The first is that the Court does not have power to appoint a receiver in the present circumstances. The second is that, even if the Court does have power, the circumstances of the case are not such as would justify the appointment of a receiver by the Court in the exercise of its discretion.

Power to appoint a receiver

5. Under s 67 of the Supreme Court Act 1970 (NSW) (the Supreme Court Act), the Court may, at any stage of proceedings, on terms, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient to do so. The Defendants contend, however, that s 67 should be construed narrowly such that it is limited to the interim preservation of the subject matter of litigation pending a final resolution of the proceedings and not with the appointment of a receiver as a final order to give effect to a judgment that has been delivered.

6. The legislative history of s 67 does not support the narrow construction contended for by the Defendants. Its origin is to be found in s 25(8) of the Supreme Court of Judicature Act 1873 (Imp), which relevantly provided as follows:

“A mandamus or an injunction may be granted or a receiver appointed by an interlocutory Order of the Court in all cases in which it shall appear to the Court to be just or convenient that such order should be made; and any such Order may be made either unconditionally or upon such terms and conditions as the Court shall think just …”

That provision was introduced into the Equity Act 1880 (NSW), s 57 of which relevantly provided as follows:

“An injunction may be granted or a receiver appointed by an interlocutory order of the Court in all cases in which it shall appear to the Court to be just or convenient that such orders should be made and whether there be a prayer for an injunction or receiver or not and any such order may be made either unconditionally or upon such terms and conditions as the Court shall think just.”

Section 57 found its way into the Supreme Court Act in the guise of s 67. There is nothing in that history to suggest that the phrase “at any stage of proceedings” in s 67 should be construed as being limited to any stage of the proceedings up to the point of making a final order.

7. The Defendants rely on observations made by Ball J in Hall v Foster, [3] which were subsequently cited and approved in obiter comments made by Kunc J. [4] Hall v Foster was concerned with a contract for sale whereby the plaintiffs agreed to buy a property at Port Kembla from the Defendants for a purchase price of $510,000, of which $385,000 was paid as a “deposit”. The sale was conditional upon the registration of a plan of subdivision and the parties agreed to use their best reasonable endeavours to satisfy that condition. Repayment of the deposit was secured by a registered mortgage from the defendants to the plaintiffs. Originally, the plaintiffs claimed specific performance of the contract for sale but ultimately abandoned that relief and obtained judgment on the basis that the defendants had breached their obligation to use best reasonable endeavours to obtain registration of the proposed plan of subdivision. Part of the judgment amount included the amount secured by the mortgage. The balance of the judgment was unsecured.

   3. [2012] NSWSC 974 at [19].

   4. See In the Matter of Aquaqueen International Pty Limited [2016] NSWSC 508 at [40]-[41].

8. The plaintiffs took steps to sell the Port Kembla property. Thus, they served a notice under s 57(2) of the Real Property Act 1900 (NSW), commenced proceedings for possession and appointed an agent to sell the property. In the meantime, the defendants took steps to sell the property to the brother of one of the defendants for a price of $1.6 million, although no contract for sale had been signed or exchanged. The plaintiffs alleged that the property had a value of $2.3 million and that the proposed sale to the brother was at an under-value. Ball J held that, while it was not possible to determine the question of value on an interlocutory hearing, there was a serious question to be tried as to whether the property was being sold to the defendant’s brother at an undervalue.

9. By notice of motion, the plaintiffs sought an order appointing a receiver to the Port Kembla property and, in the alternative, a freezing order restraining the defendants from dealing with the property. Ball J accepted that, although the general rule is that, once final orders have been made, the proceedings cannot be reopened by the Court, the Court still has power to make additional orders for the enforcement of its own judgment. His Honour referred specifically to s 106 of the Civil Procedure Act 2005 (NSW), which provides that a judgment debt may be enforced by means of a writ for the levy of execution on property, by garnishee order or by a charging order. In addition, his Honour observed, the Court has an inherent equitable jurisdiction to enforce judgments, often referred to as “equitable execution”. The plaintiffs relied on s 67 of the Supreme Court Act to support their application for the appointment of the receiver. However, Ball J considered that the wording of s 67 suggested that it is concerned with the interim preservation of the subject matter of the litigation pending a final resolution of the proceedings and not with the appointment of a receiver as a final order to give effect to judgment that has been delivered. His Honour considered that a court should only grant “equitable execution” where the legal remedies available are inadequate.

10. Ball J concluded that it was not appropriate to appoint a receiver in the case before him because the legal remedies available to the plaintiffs were not inadequate, in that they were able to exercise their powers as first registered mortgagees to sell the Port Kembla property, provided the property was not sold by the defendants. The plaintiffs could be protected against a sale by the defendants by a freezing order. Ball J considered that, if the plaintiffs wished to obtain an order preventing the sale of the property to the defendant’s brother, they should be required to give an undertaking as to damages so as to protect the defendants in the event that the property was ultimately sold for a lower figure than the one that would be realised if the sale to the defendant’s brother proceeded. His Honour therefore considered that the preferable course was to require the plaintiffs to give the usual undertakings to damages. Upon the plaintiffs giving the usual undertakings as to damages, his Honour ordered that the defendants be restrained from encumbering, selling, agreeing to sell, transferring, disposing, or otherwise dealing with the Port Kembla property.

11. Clearly enough, Hall v Foster is concerned with circumstances quite unlike those presently before me. As Ball J observed, there was a perfectly adequate legal remedy available to the plaintiffs to enforce the money judgment that they had against the defendants. The plaintiffs’ concern was to prevent dissipation of assets before the judgment could be satisfied. Accordingly, a freezing order was appropriate to enable the plaintiffs to exercise their powers as mortgagees. If they did not have that power, the freezing order may well have been appropriate pending the issue of a writ of execution in respect of the Port Kembla property.

12. In the present case, Caird has the benefit of the Orders made by the Court. The Orders were made by the Court in order to require the performance by the Defendants of the Retransfer Contract. Caird seeks to have the Orders performed in circumstances where, for whatever reason, the Defendants have not obeyed the solemn orders of the Court. Rather, the Orders have been almost wholly ignored.

13. The Defendants contend, in effect, that there is no simple means whereby Caird can achieve performance of the Orders, other than by entirely indirect means. Thus, they suggest that one means of ensuring compliance would be to press the charges of contempt, on the basis that the fear of punishment may induce the Defendants, who are otherwise recalcitrant, to perform the Orders, as made by the Court. Alternatively, they suggest, Caird could apply to the Court for the termination of the Retransfer Contract and sue for damages for breach of contract with a view to obtaining a money judgment that could be enforced by levy of execution, garnishee order or charging order. While those courses may be open to Caird, they would not be enforcing the Orders. Rather, they would be abandoning the Orders by reason of the Defendants’ non-compliance with them.

14. I do not consider that the language of s 67 should be construed narrowly in the manner contended for by the Defendants. There is nothing in the language of s 67 to indicate that the power conferred by that provision can only be exercised prior to the making of final orders and that a receiver could not be appointed in order to give effect to final orders made by the Court. A provision conferring jurisdiction on or granting powers to a court should not be construed by implying or imposing limitations that are not found in the express words of the provision. [5] There is nothing in the language of s 67 that would limit the exercise of the power to appoint a receiver to a time prior to the making of final orders.

    5. See Owners of the Ship “Shin Kobe Maru” v Empire Shipping Company Inc (1994) 181 CLR 404; [1994] HCA 54 at 421.

15. In any case, the appointment of a receiver in the present circumstances would not be a final order, but would be an interlocutory order, in aid of the Orders, which have already been made. The Orders are specific orders for performance of the Retransfer Contract. It would be an extraordinarily anomalous result for the Court to conclude that it has no power to make interlocutory orders in aid of the final orders that it has made, other than to punish for contempt. Punishment for contempt would not, of itself, achieve performance of the orders. A recalcitrant defendant could take the view that it would rather suffer the punishment than comply with orders of the Court.

16. A court of equity may, in certain circumstances, appoint a receiver in aid of a money judgment, but only where legal remedies are insufficient. Where property of a judgment debtor is not capable of being reached by a common law process, a court exercising equitable jurisdiction may intervene. For example, where a judgment debtor has an equitable interest in property which could not be reached by common law processes, a court of equity may intervene by appointing a receiver in aid of that judgment. However, that has nothing to do with the enforcement of final orders made by a court exercising equitable jurisdiction. Even in the case of a money judgment, it may be that a receiver will be appointed to legal property on the application of a judgment creditor if it can be shown that, because of special circumstances, other methods of execution would be inadequate or extremely inconvenient. [6]

    6. Holmes v Millage [1893] 1 QB 551 at 555; JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (5th ed 2015, LexisNexis Butterworths) at [29-070].

17. The Court has a wide jurisdiction to superintend the performance or working out of an order for specific performance. There is no doubt that, where a plaintiff obtains an order for specific performance, the Court may substitute other forms of relief where the decree of specific performance is not complied with. [7] There is no reason in principle why the Court should not have jurisdiction to make such orders as are appropriate to secure the proper performance of orders that it has already made. Once an order for specific performance has been made, the contractual rights of the parties are not superseded. However, the future exercise of those rights is under the control of the Court and, accordingly, the working out of the order for specific performance is under the control of the Court. [8]

    7. See, for example, Riltang Pty Ltd v L Pty Ltd [2004] NSWSC 977 at [51]-[53].

    8. See Zorbas v Titan Properties (Aust) Pty Ltd [2005] NSWSC 440 at [12].

18. There is every reason in principle for concluding that the appointment of a receiver is a step open to the Court to ensure compliance with its orders for the specific performance of a contract. Accordingly, I am satisfied that the Court has jurisdiction and power in the present circumstances to appoint a receiver in aid of the enforcement of the Orders, which are specific orders for performance of the Retransfer Contract.

19. However, that is not the end of the matter. The next question is whether the Court’s discretion to appoint a receiver should be exercised in the circumstances of the present case.

Exercise of discretion to appoint receiver

20. As noted above, the Defendants have almost entirely failed to comply with the Orders. Having regard to the nature of the Orders, they are not, at this stage, readily susceptible to ordinary methods of execution, such as levy against property, garnishee or charging order. Ultimately, of course, Caird seeks performance of an order for the payment of a sum of money, namely, the purchase price for the retransfer of the Pharmacy Business. However, the obligation to pay the price is conditional or contingent, in the sense that Caird has a concurrent obligation to make Mr Attia the owner of the subject matter of the Retransfer Contract, namely, the Pharmacy Business. There is not yet any debt payable that would be susceptible to any of the remedies available under s 106 of the Civil Procedure Act 2005 (NSW).

21. The Orders require the Defendants to take steps such as procuring a bank cheque, procuring a bank guarantee and the like. A receiver, armed with powers under r 40.8 of the Uniform Civil Procedure Rules, would be in a position to take the necessary steps on behalf of the Defendants to satisfy the Orders. Thus, a receiver may be able to do that by realisation of assets, borrowing against assets, executing relevant documents on behalf of the Defendants and attending the completion of the Retransfer Contract, at which the respective duties and obligations of the buyer and the seller would be satisfied.

22. As I shall explain below, there was some suggestion of hardship if the Defendants were required to realise other assets in order to pay the price payable under the Retransfer Contract. However, it was not suggested on behalf of the Defendants that the Orders are impossible of performance. The history of the dispute between the parties and the steps that have been taken on behalf of the Defendants that have thus far frustrated the performance of the Retransfer Contract constitute a significant consideration in the exercise of the discretion to appoint a receiver in the present circumstances. [9]

    9. See Caird Seven Pty Ltd v Attia Pty Ltd [2016] NSWSC 1088 at [40].

20. Further, not only have the Defendants failed to comply with the court order requiring the procurement of a bank cheque in the sum of $2,050,000, they have also failed to comply with other orders requiring the execution of documents. The only justification advanced by the Defendants for their failure to comply with those orders was the assertion that when the “true purpose of the court” cannot be fulfilled then there is “no real utility in complying with the minor [court] orders” that, on their own, would achieve nothing if the main order for the procuring of the cheque could not be complied with. The Defendants’ non-compliance with the other orders and, importantly, the total absence of contrition for non-compliance constitutes a significant consideration in the exercise of the Court’s discretion.

21. In the circumstances, it is incumbent upon the Defendants to satisfy the Court that the appointment of a receiver would be fruitless or that there is not a real prospect that the appointment of a receiver would serve a useful purpose. [10] Caird points to a number of factors in support of its contention that the Defendants have failed to adduce evidence to support such a conclusion. In response, the Defendants submit that given the current state of Mr Attia and Shopsmart’s finances that there is no real prospect that the appointment of a receiver would usefully advance enforcement of the Orders, particularly the order to procure a bank cheque for $2,050,000, and rather it is likely that appointment of a receiver would remove any realistic prospect of finance being obtained.

    10. Maclaine Watson & Co Ltd v International Tin Council [1988] Ch 1 at 17-18.

22. Mr Attia has sworn an affidavit in which he says that his only interests in land consist of interests in properties situated at Abbotsford and Glenmore Park. He is the registered proprietor as joint tenant with his wife of both properties. Mr Attia adduced evidence of valuations of the Abbotsford property of $8,250,000 and of the Glenmore Park property of $710,000. However, both properties are subject to mortgages to secure substantial sums owing to bankers and other lenders. Mr Attia says that, while the combined value of both properties on the basis of those valuations is $8,960,000, the combined secured liabilities amount to $6,216,000, leaving a combined equity of approximately $2,744,000. He says that, since he is only one of two joint tenants, his interest is no more than $1,372,000. Therefore, he says, if both properties were sold, he would not have sufficient funds to procure a bank cheque for the sum of $2,050,000 as required by the Orders. Nevertheless, that would be a substantial payment towards the sum of $2,050,000.

23. Mr Attia also says in his affidavit that he has shares in a number of companies, most of which were set up for new business ventures that have not yet traded. He asserts in his affidavit that, as at 30 June 2015, Shopsmart had total net liabilities of $8,757,262. That sum included a debt due to him of $10,454,639, which is apparently still owing but Shopsmart does not have the funds to repay the debt. Nevertheless, excluding the debt owing to Mr Attia, Shopsmart had net assets of $1,697,377 at 30 June 2015. Mr Attia also refers in his affidavit to proposed arrangements for the opening of two new pharmacies in Eastgardens Shopping Centre by Shopsmart.

24. The appointment of receiver over Mr Attia’s interest in the two properties owned jointly by Mr Attia and his wife would sever the joint tenancies. There is considerable intertwining of the financial affairs of Mr Attia, Mrs Attia and Shopsmart and the evidence adduced by Mr Attia as to his financial circumstances suggests that there could be some doubt as to whether his interest in the properties is limited to one half. That evidence included bank statements for three loan accounts with National Australia Bank Limited (NAB), secured by a mortgage over the two properties, respectively in the name of Mr Attia, Mr and Mrs Attia and Mrs Attia. The bank statements for all three loan accounts show that all service fees and interest payments for all three loan accounts for the period from late 2015 to mid-2016 were paid from a different NAB account, with account number ending in xx71 (the xx71 NAB Account). The bank statement for the xx71 NAB Account, also in evidence, has the account name “Shopsmart Pharmacy” and is addressed to Shopsmart Pharmacy. That bank statement confirms that multiple payments from that account have been made under the label “INTEREST” and “SERVICE FEE”. Most of the money credited into the xx71 NAB Account from 15 June 2016 to 26 August 2016 (no bank statements preceding that period are in evidence), totalling approximately $50,000, comes from another unnamed account, in transactions labelled “business loan INTERBANK CR COMMONW” [emphasis added].

25. Mr Attia also provided bank statements for Shopsmart’s bank account with Commonwealth Bank of Australia (CBA) named “SHOPSMART PHARMACY FRANCHISING PL IN TRUST FOR SHOPSMART PHARMACY FRANCHISING UNIT TRUST” (the Shopsmart Account). The financial activity in the Shopsmart Account indicates that it is the main trading account for the Shopsmart business, with sums as large as $2 million going in and out regularly. The Shopsmart Account records multiple debits labelled “Transfer to other Bank Commbank App business loan” [emphasis added] on the dates and in the amounts exactly correlating to the credited money in the xx71 NAB Account. I consider that an inference should be drawn that the money being paid out of the Shopsmart Account under the “business loan” label was transferred into the xx71 NAB Account, which was then used to pay the service fees and interest payments of the three loan accounts in the name of Mr Attia, Mrs Attia, and Mr and Mrs Attia.

26. Moreover, the bank statements for the Shopsmart Account also record fairly regular payments in the period 10 May 2016 to 29 August 2016 totalling approximately $79,000 in transactions labelled “Transfer to xx6158 CommBank app M Attia” [emphasis added]. Mr Attia in his affidavit stated that he has “one bank account which is shared with [Mrs Attia]” and provided the bank statement for that account. That account with CBA is called “CASH” (the Cash Account). The bank statement is only from the period 1 August 2016 to 31 August 2016, but some of the credits in the Cash Account are labelled “Transfer from xx3446 CommBank app M Attia” [emphasis added], on dates and in amounts that correlate with the “M Attia” debits from the Shopsmart Account.

27. I consider that an inference should be drawn that regular instalments of money are paid from the Shopsmart Account into the personal bank account of Mr Attia, which, according to his affidavit, is shared with his wife. From that fact, and the payments of interest and service fees of loan accounts held solely and jointly in the name of Mrs Attia, it is clear that Mrs Attia has received the benefit of at least some substantial sums of money from Shopsmart. Accordingly, it cannot necessarily be assumed that the net proceeds of the sale of the two properties would be equally divided between Mr Attia and Mrs Attia. The material presently in evidence would justify a receiver investigating further the extent to which Mrs Attia does in truth have a one half interest in the two properties.

28. As indicated above, according to Mr Attia’s affidavit, Shopsmart has net assets in the order of $1.7 million, if the debt due to Mr Attia is excluded. However, the bank statements and affidavit of Mr Attia raise questions about the assets of Shopsmart. As noted above, in the period 10 May 2016 to 29 August 2016, there were transferred from the Shopsmart Account to the Cash Account of Mr Attia sums of money totalling approximately $79,000. In the same period amounts totalling approximately $142,000 also appear to have been transferred from the Shopsmart Account in transactions labelled “Transfer to xx2322 Commbank app M Attia Visa” [emphasis added] to a Commonwealth Bank account of Mr Attia’s (according to his affidavit) called “Visa Diamond” [emphasis added]. Despite those payments from the Shopsmart Account to accounts belonging to Mr Attia totalling approximately $221,000 in a period of approximately three month from May 2016 to August 2016, Mr Attia’s affidavit records that “Shopsmart has a book-debt owed to me in excess of $10,000,000 but lacks the money to repay that debt.” [emphasis added]

29. Additionally, the two largest transactions in the Shopsmart Account, as recorded in the bank statements in evidence, are two debits of $2 million each, made on 27 July 2016 and on 8 August 2016, respectively labelled “Transfer to CBA A/c CommBank app Online holding acc” and “Transfer to CBA A/c CommBank app Hill Online”. The only explanation for those transfers given by Mr Attia in his affidavit, after stating that Shopsmart “has little money in its bank accounts”, is the following:

“I note that funds have passed through that account from Scentre Management. Scentre Management operates Westfield who will ultimately be the landlord of the Mount Druitt Medical Hubb. Those funds are the landlord contribution to construction of the Mount Druitt Medical Hubb. That is, Shopsmart is a facilitator and instructs the contracts, [sic] who are paid using Scentre Management’s funds which are passed through the Shopsmart Account.”

33. No further details were provided by Mr Attia as to the nature of either of the $2 million payments by Shopsmart or who the recipients of the payments were. Both payments occurred after the making of the Orders on 22 July 2016. Mr Attia said in his affidavit that the Defendants have recently committed to providing bank guarantees for sums in excess of $260,000 to carry out fit-outs of the two new pharmacies. Minimum annual rent payments of $580,000 are required for each of the pharmacies. That suggests the expectation of substantial sums becoming available to Shopsmart in the near future. It would be open to a receiver to examine all of the assets of Shopsmart to determine whether they are capable of being borrowed against or being realised.

34. There is also evidence of a further development of a medical centre in Mt Druitt being undertaken by Shopsmart. The value of that development would probably be substantially greater upon completion than it would be in its present partly completed state, even after incurring the expense necessary to complete the development. During oral submissions, the Defendants sought to extend the time for complying with the Orders to 12 December 2016, when the development of the medical centre is scheduled to be finished. Then, the Defendants say, they could use that asset as collateral for a loan to raise the sum of $2,025,000.

35. Given the history of the Defendants’ failure to comply with orders of the Court, the absence of evidence of any meaningful attempt to comply with the Orders beyond inquiring as to the amount that can be borrowed on security of the Pharmacy Business (with the Defendants instead appearing to operate with a “business as usual” mindset), and the fact that there does in fact appear to be a real prospect of raising the sum of $2,025,000 from the extant assets of Mr Attia and Shopsmart, I am satisfied, subject to three matters, that this is an appropriate case for the appointment of a receiver.

36. The first matter is the identification of the property to which a receiver should be appointed. The Receivership Motion seeks appointment to all of the property of Mr Attia and Shopsmart. Such an order may go too far. Even in the case of a freezing order, there is normally an exception for living expenses, legal fees and the like.

37. The second matter is that it will be necessary to specify the powers of the receiver to take control and possession of the Defendants’ property. A convenient way to deal with the question is to confer on the receiver all the powers conferred on receivers under s 420 of the Corporations Act2001 (Cth).

38. The third matter is the possibility of adverse consequences that would flow to the detriment not only of the Defendants but also of Caird. Significant fees would be incurred by a receiver in exercising his powers. Further, there are likely to be significant adverse consequences in relation to the mortgages securing borrowings on the Abbotsford and Glenmore Park properties. Those consequences would almost certainly impair the ability of Mr Attia and Shopsmart to continue with the fit-out of the two new pharmacies.

39. The Defendants also assert that the appointment of a receiver would constitute default under the mortgage over the properties referred to above and would seriously disrupt the Defendants’ business operations and business relationships. They say that, in those circumstances, the appointment of a receiver would create an impediment to the raising of the purchase price of $2,025,000, as opposed to being an effective means of enforcement.

40. Having regard to the possible consequences of the appointment of a receiver, it is appropriate to delay the making of any order for the appointment of a receiver for a short time, to enable the parties to formulate a specific regime for the realisation of the assets of the Defendants in a fashion that would enable performance of the Orders. Accordingly, I invited further submissions from the parties on possible alternatives to the immediate appointment of a receiver.

41. One alternative was the formulation of a specific regime for the realisation, in a fashion that would enable the performance of the extant orders of assets of the Defendants, such as the Abbotsford and Glenmore Park properties and the assets of Shopsmart and the shares of Mr Attia in other companies. The other alternative would be to appoint the Registrar to sign all documents and to take all steps required to be taken to perform the Orders, apart from payment of the purchase price. The Retransfer Contract would then be completed, save for the payment of the price and judgment would be entered in favour of Caird against the Defendants for the amount of the purchase price. In the meantime, the payment of the price could be secured by a charging order over the Pharmacy Business as well as over the Abbotsford and Glenmore Park properties, the assets and property of Shopsmart and the shares of Mr Attia in other companies.

42. Following further argument from the parties, I have concluded that the appropriate course is to defer the appointment of a receiver on the basis of a regime that combines the two alternatives. While the second alternative is the preferable course, an immediate difficulty with that course is that Caird is indebted to Westpac Banking Corporation (Westpac) in the sum of $1.65 million, in respect of the moneys borrowed to purchase the Pharmacy Business. That loan is almost entirely still outstanding and is secured over the assets of the Pharmacy Business. In those circumstances, unless Westpac consented, there would be an impediment to the transfer of the Pharmacy Business without payment of at least a sufficient sum to discharge the loan. It is unlikely that Westpac would consent unless, at least, the loan were novated by the Defendants and, possibly, further security were offered to Westpac by the Defendants. Nevertheless, a proposal along the lines of the second alternative may be possible if it incorporated a novation of the loan by the Defendants. The assumption of that liability by the Defendants would, in substance, constitute a payment to Caird of a very substantial part of the purchase price under the Retransfer Contract. Following further argument from the parties regarding a proposal that combines the two alternatives, the parties agreed upon the terms of orders that reflect such a proposal.

Costs of the Receivership Motion

43. Caird also asks for an order for the costs of the Receivership Motion on the indemnity basis. The Receivership Motion was necessitated by the failure on the part of the Defendants to comply with the Orders, in circumstances where the failure may be regarded as contumelious. Having regard to the outstanding charge of contempt, I make no finding in that regard. Nevertheless, it is clear that, for whatever reason, the Receivership Motion was necessitated by the failure on the part of the Defendants to comply with solemn orders made by the Court after full argument.

44. The Defendants advanced no proposals for compliance with the Orders, other than to seek an extension, after the commencement of the hearing of the receivership motion. I propose to make orders that have been formulated with a view to avoiding the appointment of a receiver, if possible. However, that course is to be adopted as much for the benefit of Caird as for the Defendants. In all of the circumstances, I consider that Caird should not be out of pocket by reason of having to bring proceedings for the enforcement of the Orders, where no good reason has been advanced for failure by the Defendants to take appropriate steps so as to be in a position to comply with the Orders.

Conclusion

45. I propose to make orders as set out in schedule 2 to these reasons. Those orders accord with the short orders agreed upon by the parties following my indication of the conclusions that I have reached.

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Schedule 1: The Orders made in the Proceedings

1.   On 21 April 2016, Hammerschlag J made the following orders by consent:

(1)   Subject to Westfield granting its consent to the assignment of the lease presently held by the plaintiff, the Defendants are specifically to perform the Deed of Settlement dated 31st July 2015.

(2)   The Defendants are to take all necessary steps and prepare all necessary documents to enable the transfer of the lease.

(3)   The parties have liberty to apply on three days’ notice.

(4)   The hearing date of 26th April 2016 is retained for the purpose only of the Court considering the costs of the proceedings to date.

(5)   The balance of the proceedings are stood over to 22nd July 2016.

2.   On 22 July 2016 I made orders to the following effect:

(1)   Order that by 10 July 2016, the First Defendant execute the documentation pertaining to the transfer of the lease of shops 301, 302, 303, 304 and 305 Westfield, Burwood (Lease), which was enclosed under cover of a letter from Landerer & Co to Meridian Lawyers and copied to Bransgroves Lawyers dated 1 July 2016, and provide those executed documents to Meridian Lawyers together with the following required by the Lessor:

(a)   an original insurance certificate(s) of currency;

(b)   a bank guarantee in favour of Scentre Management Limited ACN 001 670 579 and RE1 Limited ACN 145 743 862 for $86,653.00 for the security required under the Lease;

(c)   a cheque in favour of PT Limited, RE1 Limited and Scentre Management Limited for $24,294.04 (inclusive of GST) in payment of advance rent; and

(d)   a cheque for $272.60 in favour of Land & Property Information in respect of anticipated registration fees.

(2)   Order that by 11 August 2016, the Defendants procure a bank cheque in the amount of $2,050,000.00 (being the balance of the amounts referred to in paragraph 1(d) and (e) of the Deed of Rescission, Settlement and Release entered into between the Plaintiff and the Defendants and dated 31 July 2015 (the Deed)), or such other lesser amount specified in writing by the solicitors for the Plaintiff, for the purposes of enabling completion of the Retransfer Contract referred to in the Deed.

(3)   Order that the Defendants instruct their solicitors/to attend and complete settlement of the Retransfer Contract on 11 August 2016.

(4)   Order that the Defendants take all other necessary steps and prepare all other necessary documents to enable completion of the Retransfer Contract to be effected on 11 August 2016.

(5)   Direct the Defendants to file and serve any motion seeking to set aside the orders made on 21 April 2016 and any stay of orders 1 to 4 above no later than 5.00 pm on Tuesday 26 July 2016, together with any affidavits intended to be relied upon in support of that motion, such motion to be returnable for hearing at 10.15 am on 29 July 2016 before me.

(6)   Direct the plaintiff to file and serve any affidavits on what it intends to rely in opposition to any such motion no later than 5.00 pm on Wednesday, 27 July 2016.

(7)   Order that the motion filed on 14 July 2016 be stood over for further hearing on Friday, 29 July 2016 at 10.15 am.

(8)   Order that the notice to produce dated 20 July 2016 be stood over to Friday 29 July 2016 at 10.15 am.

3.   On 29 July 2016, I made orders to the following effect:

(1)   The Notice of Motion filed on 25 July 2016 be dismissed so far as concerns prayers 1 and 2, which sought that orders 1 and 2 made by Hammerschlag J on 21 April 2016 and orders 1 to 4 that I made on 22 July 2016 be vacated, and be otherwise stood over for further directions on 9 September 2016.

(2)   The Defendants pay the plaintiff’s costs of that motion to date.

(3)   The plaintiff file and serve no later than 12 August 2016 any written submissions that it wishes to make in support of any different order for costs in respect of that motion.

(4)   The Defendants file and serve any written submissions in response no later than 26 August 2016.

(5)   Leave be granted to the Defendants to file a cross-claim in the proceedings no later than 2 September 2016.

(6)   The Defendants pay the plaintiff’s costs of the motion filed on 14 July on an indemnity basis.

(7)   The proceedings be listed for directions generally on 9 September 2016.

4.   On 5 August 2016, I made orders to the following effect:

(1)   Upon satisfaction of each of the conditions stated in paragraph 2, execution of the following orders is stayed until the final disposition of the application for leave to appeal to the Court of Appeal and any appeal:

(a)   paragraphs 1 and 2 of the orders made by Hammerschlag J on 21 April 2016;

(b)   paragraphs 1 to 4 of the orders I made on 22 July 2016; and

(c)   paragraphs 2 to 4 of the orders I made on 29 July 2016.

(2)   The conditions referred to in paragraph 1 are as follows:

(a)   by 4 pm on 22 July 2016, the Defendants deliver to the solicitors for the plaintiffs the executed documentation and other items referred to in paragraph 1 of the orders I made on 22 July 2016; and

(b)   by 4 pm on 23 August 2016, the Defendants deliver to the solicitors for the plaintiffs a bank cheque in the amount of $2,050,000.

(3)   The executed documentation and other items referred to in paragraph 2 are to be held in escrow by the solicitors for the plaintiff until the final disposition of the application for leave to appeal to the Court of Appeal and any appeal.

(4)   In the orders I made on 22 July 2016:

(a)   vary the date in paragraph 1 to 22 August 2016; and

(b)   vary the date in paragraphs 2 to 4 to 23 August 2016.

(5)   Costs of the Defendants’ notice of motion dated 3 August 2016, seeking a stay, be costs in the application for leave to appeal.

(6)   There be liberty to apply on 24 hours’ notice.

5.   On 22 August 2016, I dismissed the Defendants’ Notice of Motion seeking an extension of time for compliance of the conditions of the stay.

6.   On 15 September 2016, the Court of Appeal dismissed the application for leave to appeal from my orders of 22 July 2016 and 29 July 2016.

Schedule 2: Proposed Orders

The Court notes that

A.   The defendants give undertakings to the Court in the form of Schedule 3 to these reasons (the Undertakings).

B.   The effect of paragraph 1 of the orders below is that a receiver and manager is not appointed immediately but that, without any further step being necessary, upon the filing of an affidavit as referred to in paragraph 1 of the orders below a receiver and manager is immediately appointed.

The Court orders that

1.   Upon the solicitors for the plaintiff filing an affidavit deposing to any breach of any of the Undertakings by either or both of the defendants, for the purpose of satisfying the obligations of the defendants under the orders of the Court made on 22 July 2016 as varied by the orders of the Court made on 5 August 2016, David Kerr, partner of RSM Australia Partners, registered trustee in bankruptcy, registered liquidator and official liquidator, of Level 13, 60 Castlereagh Street Sydney NSW 2000:

a.   without security be appointed receiver and manager by way of equitable execution over the property of the defendants;

b. be authorised to exercise, in respect of such property, all of the powers that a receiver may exercise in respect of the property of a corporation pursuant to s 420 of the Corporations Act 2001 (Cth); and

c.   without limitation of his other powers, be authorised to sign any document on behalf of the defendants.

2.   The defendants pay the plaintiff’s costs of and incidental to prayer 2 of the notice of motion filed 26 August 2016 on an indemnity basis.

3.   There be liberty to apply on 24 hours’ notice.

Schedule 3: Annexure to Orders

The defendants undertake to the Court:

A.   that by 4 pm on 18 October 2016 an independent and suitably qualified real estate agent or agents, agreed by the plaintiff, will be appointed to sell as soon as reasonably practicable:

(a)   the property at 53 Abbotsford Parade, Abbotsford (Abbotsford Property); and

(b)   the property at 29 Muru Drive, Glenmore Park (Glenmore Park Property);

B.   following the sales referred to in A, to the extent that the orders of the Court made on 22 July 2016 as varied by the orders of the Court made on 5 August 2016 (Specific Performance Orders) remain unsatisfied, to appoint an independent and suitably qualified agent or agents, agreed by the plaintiff, to sell as soon as reasonably practicable:

(a)   the head leases of the two pharmacies in the Eastgardens Westfield held by the second defendant, and any other contracts or interests in those pharmacies;

(b)   the lease and licences for the Mount Druitt Medical Hub held by the second defendant;

(c)   any shares the first defendant holds in the second defendant or any other company; and

(d)   any shares the second defendant holds in any other company;

C.   from the date of these Orders, to pay into their solicitors' trust account:

(a)    all income of the defendants less:

(i)   ordinary living expenses up to a maximum of $1,000 per week;

(ii)    ordinary business expenses;

(iii)   reasonable marketing and sale costs of the Abbotsford Property and the Glenmore Park Property;

(iv)   ordinary mortgage repayments;

(v)   any other ordinary loan repayments;

(vi)   reasonable legal expenses; and

(b)   half of the net proceeds of the sales referred to in A and B above,

such amounts not to be paid out by the solicitors other than in satisfaction of the obligations under the Specific Performance Orders;

D.   until the obligations pursuant to the Specific Performance Orders are satisfied, to conduct all of their affairs so as to satisfy those obligations as soon as reasonably practicable including (without limitation) so as to:

(a)   achieve the sales referred to in A and B above as soon as reasonably practicable; and

(b)   maximise the amounts paid into the account referred to in C above.

E.   to copy to the solicitors for the plaintiff all correspondence to any agent referred to in A and B above, and instruct any such agent to copy to the solicitors for the plaintiff all correspondence and provide any information requested (whether orally or in writing) by the solicitors for the plaintiff in connection with the sales referred to in A and B above;

F.   by 4 pm on 21 October 2016 to provide to the solicitors for the plaintiff the outstanding documents and things required by paragraph 1 of the orders of the Court made on 22 July 2016;

G.   to cooperate with the plaintiff in, and make best endeavours to procure, as soon as reasonably practicable, the novation to the defendants of the loan from Westpac Banking Corporation to the plaintiff (Loan);

H.   if such novation occurs:

(a)   thereupon to complete the settlement of the Retransfer Contract as defined in the Deed of Rescission, Settlement and Release dated 31 July 2015 as required by the Specific Performance Orders, save that the amount that the defendants must pay is the amount specified in paragraph 2 of the orders of this Court made on 22 July 2016 less the amount of the Loan outstanding at the time of novation (Outstanding Balance);

(b)   to pay at the settlement of the Retransfer Contract the Outstanding Balance to the extent that the defendants are then able to do so, including by recourse to the amounts in their solicitors’ trust account referred to in C above; and

(c)   to the extent that the amount paid by the defendants in accordance with (b) is insufficient to discharge any charges or encumbrances over stock in trade on settlement (Stock Charges), then the defendants will assume responsibility for meeting such of the Stock Charges that do not exceed the Outstanding Balance (Assumed Charges) and will (to the extent only of the quantum of the Assumed Charges and not otherwise) waive the requirement under the Retransfer Contract for stock in trade transferred by the Plaintiff on settlement to be free from any charges or encumbrances. The quantum of the Assumed Charges shall be deducted from the Outstanding Balance.

(d)   so far as it remains unpaid, to consent to judgment for the Outstanding Balance (as adjusted by H(c)) in favour of the plaintiff; and

(e)   provided that no Outstanding Balance remains unpaid, if either or both of the Abbotsford Property and the Glenmore Park Property has/have not been sold, the defendants may take them off the market; and

I.   not otherwise to deal with their assets, save for in the ordinary course of business or to give effect to these Orders.

Endnotes

Decision last updated: 13 October 2016