Choice Planning Pty Ltd v Mider @ Franklin Street Pty Ltd
[2015] VSC 59
•27 February 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2014 0222
BETWEEN
| CHOICE PLANNING PTY LTD (ACN 103 233 343) & ANOR (According to the attached Schedule) | Plaintiffs |
| and | |
| MIDER @ FRANKLIN STREET PTY LTD (ACN 135 155 234) & ORS (According to the attached Schedule) | Defendants |
BETWEEN
| MIDER @ FRANKLIN STREET PTY LTD (ACN 135 155 234) | Plaintiff by Counterclaim |
| and | |
| CHOICE PLANNING PTY LTD (ACN 103 233 343) & ANOR (According to the attached Schedule) | Defendants by Counterclaim |
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JUDGE: | HARGRAVE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 February 2015 |
DATE OF JUDGMENT: | 27 February 2015 |
CASE MAY BE CITED AS: | Choice Planning Pty Ltd & Anor v Mider @ Franklin Street Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2015] VSC 59 |
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FREEZING ORDER – Concession by defendants that plaintiffs have good arguable case for both claim in debt and relief under s 172 of the Property Law Act 1958 arising from transfer of land with intent to defraud creditors – Discretionary factors considered – Delay by plaintiff in making application – Whether plaintiffs’ undertaking as to damages sufficiently secured – Freezing order made – Ancillary orders made to ascertain information as to assets relevant to freezing order – Supreme Court (General Civil Procedure) Rules 2005, O 37A – Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd [2009] VSC 418 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs/Defendants by Counterclaim | Mr I Martindale QC with Mr M Garrett | Diakou Faigen |
| For the Defendants/Plaintiff by Counterclaim | Mr D Collins QC with Mr T Scotter | Burke & Associates Pty Ltd Lawyers |
TABLE OF CONTENTS
Factual narrative................................................................................................................................. 5
The defendants’ arguments............................................................................................................ 11
Proposed orders................................................................................................................................ 19
HIS HONOUR:
The plaintiffs are companies controlled by Nicholas Caple. They specialise in mortgage broking for, and on occasions lending money to, property developers. The defendants are companies controlled by Anton Wilson. The defendants and other companies are part of a wider group controlled by Mr Wilson. They specialise in property development.
Mr Caple and Mr Wilson were previously business associates and close friends. During the course of the development at issue, their friendship soured.
The plaintiffs lent over $3 million to the first defendant, Mider @ Franklin Street Pty Ltd, for the purposes of the first two stages of its three stage building development projects in Franklin Street, Melbourne. The plaintiffs contend that the remaining debt, and an agreed profit share, is worth approximately $8 million. Further, they contend that the defendants have moved assets from Mider @ Franklin for the purpose of frustrating the Court’s processes, by ensuring that any judgment recovered by the plaintiffs will be wholly or partly unsatisfied. In these circumstances, the plaintiffs seek freezing orders against the defendants under r 37A.05(4) and (5) of the Supreme Court (General Civil Procedure) Rules 2005.
The circumstances in which the Court may exercise its inherent power to make a freezing order is the subject of harmonised court rules, which apply in all superior courts in Australia. The harmonised rules reflect, and are informed by, the numerous reported cases dealing with the Court’s extraordinary power to freeze the assets of a judgment debtor, prospective judgment debtor or a third party in circumstances where there is a risk that they may act to frustrate or inhibit the Court’s process by taking steps which will or may result in a judgment or prospective judgment of the Court being wholly or partly unsatisfied. In Victoria, O 37A of the Supreme Court (General Procedure) Rules 2005 applies to applications for a freezing order.
Rule 37A.02(1) provides:
37A.02 Freezing order
(1)The Court may make an order (a ‘freezing order’), upon or without notice to the respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.
Rule 37A.03 provides for the making of ancillary orders:
37A.03 Ancillary order
(1)The Court may make an order (an ‘ancillary order’) ancillary to a freezing order or prospective freezing order as the Court considers appropriate.
(2)Without limiting the generality of paragraph (1), an ancillary order may be made for either or both of the following purposes—
(a)eliciting information relating to assets relevant to the freezing order or prospective freezing order;
(b)determining whether the freezing order should be made.
Rule 37A.05(4) specifies circumstances in which the Court may make a freezing order or an ancillary order against a defendant or judgment debtor:
37A.05Order against judgment debtor or prospective judgment debtor or third party
…
(4) The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because any of the following might occur—
(a)the judgment debtor, prospective judgment debtor or another person absconds; or
(b)the assets of the judgment debtor, prospective judgment debtor or another person are—
(i)removed from Australia or from a place inside or outside Australia; or
(ii)disposed of, dealt with or diminished in value.
Rule 37A.05(5) specifies circumstances in which the Court may make a freezing order or an ancillary order against a person other than the judgment debtor or prospective judgment debtor, referred to in the rule as a ‘third party’:
37A.05Order against judgment debtor or prospective judgment debtor or third party
…
(5)The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a ‘third party’) if the Court is satisfied, having regard to all the circumstances, that—
(a)there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because—
(i)the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or
(ii)the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or
(b)a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment of the Court, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.
While the Court’s powers to make a freezing order or an ancillary order are not limited to the circumstances stated in r 37A.05,[1] in the present case such powers can be determined by reference to the circumstances specified therein. Of course, an order will not follow as a matter of course if the elements for the existence of the Court’s power are established. The Court retains a discretion and must consider the balance of convenience.
[1]Rules 37A.05(6), 37A.06.
The legal principles to be applied in deciding whether or not to grant a freezing order were conveniently summarised by J Forrest J in Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd, in the following terms:
First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party’s capacity to deal with his or her assets.
Second, the order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.
Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order.
Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts.
Fifth, that before such an order can be made it is necessary that the applicant establish –
(a) an arguable case against the defendant; and
(b)that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant’s actions in either removing the assets or disposing or dealing with them so as to diminish their value.
Sixth, the balance of convenience must favour the granting of the freezing order.
Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case.
Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party’s assets and property.
Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court.[2]
[2][2009] VSC 418, [20] (citations omitted).
Where the freezing order or ancillary order is sought against a third party, the applicant for the freezing order must establish ‘a good arguable case’ that the third party holds, is using, or is controlling assets of the judgment debtor or prospective judgment debtor, or that the third party may be obliged to disgorge assets or contribute towards satisfying the judgment or prospective judgment.[3]
[3]Robmatjus Pty Ltd v Violet Home Loans Australia Pty Ltd [2007] VSC 165, [59]; Deputy Commissioner of Taxation v Ekelmans [2013] VSC 346, [23]-[26].
In this case, the plaintiffs have pleaded in their statement of claim that Mider @ Franklin has transferred property to related companies with intent to defraud creditors (in particular the plaintiffs) and that, accordingly, the transfers are voidable in accordance with s 172 of the Property Law Act 1958.
The defendants acknowledge that the plaintiffs have established a good arguable case for the outstanding loan moneys and interest and for an entitlement to half the net profit of stage 2 of the property development at issue. The defendants also acknowledge that the quantum of these cases is about $8 million, and that there is a good arguable case that the impugned transfers from Mider @ Franklin to the third and fourth defendants were made with intent to defraud creditors, and are therefore voidable. Further, for the reasons given below, I would add that I am satisfied on the evidence as a whole, as it presently stands, that the plaintiffs have established a good arguable case that the third defendant, Grand 8 @ Franklin Pty Ltd, holds, is using, or is controlling, assets of Mider @ Franklin, namely, the as yet undetermined profits of the stage 2 development.
As appears below, the defendants contend that freezing relief should not be granted on a number of discretionary grounds, including by reason of undertakings offered by them and a related company, Mider Group Pty Ltd, which are intended to protect the plaintiffs’ interests to a limited degree.
Before dealing with the defendants’ contentions, it is necessary to recount the facts in more detail, so as to understand how the discretionary factors relied upon by the defendants arise. Moreover, the strength of the plaintiffs’ ‘good arguable case’ is obviously a factor to be considered in the exercise of the Court’s discretion.
Factual narrative
Mider @ Franklin purchased land in Franklin Street, Melbourne, in about February 2009. The land was subdivided into three lots to enable a three stage development by Mider @ Franklin, as follows:
(1) the stage 1 development, involving 92 residential lots and three retail lots;
(2) the stage 2 development, involving 168 residential lots and one retail lot; and
(3) a proposed stage 3 development, involving a 67 room hotel and associated retail lots. The proposed stage 3 development was not proceeded with, and an alternative development involving 54 residential lots and one retail lot has been undertaken and completed on lot S3 by the third defendant, Grand 8 @ Franklin Street Pty Ltd. For convenience, I will refer to this as ‘the stage 3 development’.
As I have said, the plaintiffs provided funds to Mider @ Franklin to enable stages 1 and 2 of the development to proceed. The stage 1 advances were made as loans, to be repaid with interest and, in respect of ‘private money’, to be repaid on a ‘double-up’ basis. Nothing turns on those arrangements for the purposes of this application.
The stage 2 advances were made pursuant to disputed arrangements, which I will refer to as the ‘stage 2 agreement’.
The plaintiffs contend that the stage 2 agreement involved loans made by them to Mider @ Franklin up to an agreed limit of $3 million, on the following terms:
(1) interest at the rate of 15 per cent per annum until 30 November 2011 and, thereafter, at the rate of 20 per cent per annum;
(2) in addition to interest, the first plaintiff would be entitled to an amount equal to 50 per cent of the net profits from the stage 2 development;
(3) principal and interest would be repayable out of the sale proceeds of the units in stage 2; and
(4) each of the parties would act in good faith (towards each other) in respect of the stage 2 agreement.
The plaintiffs contend that they lent a total of $3,464,725 to Mider @ Franklin and $100,000 to the second defendant, Mider Pty Ltd, in connection with the stage 2 development, and that, as at 24 December 2014, the unpaid loan principal and interest owing totalled $2,232,825.21. In addition, they claim half the profit of the stage 2 development, estimated in the sum of $5,770,450, resulting in a total claim of $8,010,275.21. The profit share claim is estimated because Mider @ Franklin has failed or refused to disclose the amount of its profit from the stage 2 development. Mider @ Franklin has failed to provide the net profit calculation, or even an estimate, notwithstanding that the last settlement of its sales of units in stage 2 (with the exception of five units) occurred in December 2012. The remaining five units were transferred by Mider @ Franklin to the fourth defendant, Mider @ City, on or around 31 August 2013. There is one remaining title in the stage 2 development which has not been sold, being retail premises which have been leased for five years, with an option for a further five years, to the proprietor of a restaurant.
Mider @ Franklin disputes the plaintiffs’ version of the stage 2 agreement. In its defence and counterclaim, it contends that the stage 2 agreement contained the following terms:
(1) it would obtain bank finance for the stage 2 development;
(2) Mr Capel, or alternatively Choice Planning Pty Ltd (the first plaintiff), would provide ‘the balance of the funds required to complete the stage 2 development’;
(3) Mider Pty Ltd would manage the stage 2 development and charge project management fees and costs;
(4) the land contributed to the stage 2 development would be valued by the parties at $6 million and treated as a cost of the stage 2 development;
(5) as lots in the stage 2 development were sold, the proceeds of sale would be applied in repayment of the bank finance and, insofar as cashflow permitted, repayment of the advances by Mr Capel or Choice Planning to fund the stage 2 development; and
(6) on completion of the stage 2 development, there would be a taking of accounts in order to determine the profit or loss of the stage 2 development, and Mider @ Franklin would share the profit or bear the loss equally with Mr Capel or Choice Planning.
In his affidavits Mr Wilson characterised the arrangements between the parties under the stage 2 agreement as that of joint venturers or equity partners.[4]
[4]For example, see Mr Wilson’s first affidavit sworn 9 December 2013 at [23], [39].
Mider @ Franklin contends that Mr Capel or Choice Planning breached the stage 2 agreement by refusing or failing to contribute all the funds, other than bank finance, required to complete the stage 2 development. Further funds than initially expected were required when the builder engaged for stage 2 became insolvent and an alternative builder was engaged. Mider @ Franklin contends that the failure of Mr Capel or Choice Planning to provide further funds required it to obtain alternative and more expensive finance and thus suffer loss and damage.
Moreover, as the pleadings presently stand, Mider @ Franklin pleads that the stage 2 development has not been completed and final accounts cannot be taken, because one unit remains unsold (the restaurant which has been leased on long terms), rental guarantees provided to purchasers continue to operate and its taxation position is not yet final. The pleading is now about one year out of date. On my reading of the material, the rental guarantees associated with the arms-length sales to genuine third parties would have expired in December 2014, two years after the last such sale. Mider @ Franklin did not give any rental guarantee to Mider @ City when it transferred the remaining five residential units to it in about August 2013 at an alleged undervalue. Any rental guarantees provided in respect of the onsale of three of those five units were given by Mider @ City, not Mider @ Franklin. Further, there is no substance in the contention that the net profit of the stage 2 development cannot be calculated until the end of the commercial lease of the restaurant for a period of up to 10 years. Obviously, that property can be valued on the strength of the lease covenant and final accounts for stage 2 settled on that basis. Whichever version of the stage 2 agreement is accepted, the stage 2 development would appear to have been completed or nearly so — at least to a stage where a reasonably accurate account could now be taken of any profit made on the development.
The profits of the stage 2 development are, however, unknown. The plaintiffs’ estimate of the net profit is based upon earlier forecasts provided to them by Mider @ Franklin (Mr Wilson). At this interlocutory stage, I infer that there was a net profit of the stage 2 development. The only evidence to the contrary is Mr Wilson’s suggestion in his 9 December 2013 affidavit, in support of an application to set aside a statutory demand served on Mider @ Franklin, that ‘the development has not been as successful as we had hoped’ and he did ‘not believe that there will be a profit which will be able to be shared between Mr Capel and I as was envisaged because of the lack of success of the development’.[5] If there has been no profit, I would have expected Mider @ Franklin to have so informed the Court on this application and, prior to that time, so informed the plaintiffs.
[5]Mr Wilson’s affidavit, 9 December 2013, [108]-[109].
Assuming there was a net profit from the stage 2 development, it is also likely that some or all of that profit has been invested by Mider @ Franklin by lending it to Grand 8, to enable it to complete the stage 3 development. The stage 3 development was completed by Grand 8, and not Mider @ Franklin, in the following circumstances.
On or about 31 August 2013, Mider @ Franklin transferred lot S3 on the plan of subdivision to Grand 8 for a stated consideration of $1,088,850. Further, at about this time, Mider @ Franklin transferred the five remaining residential units in the stage 2 development to Mider @ City for stated consideration of between $147,500 to $152,500 per lot. Mider @ City has since sold three of the five units for considerably higher amounts.[6]
[6]I will refer to these transfers as the ‘impugned transfers’.
The plaintiffs contend that each of the impugned transfers was made at an undervalue and with intent to defraud creditors generally, and them in particular. The defendants deny this and have put forward reasons as to why the consideration was well below the present value of the properties transferred. That dispute can only be resolved at trial. The defendants concede, however, that the plaintiffs have a good arguable case on the issue for the purposes of considering whether a freezing order or ancillary order should be made. In my opinion, this concession is an important factor to be taken into account in determining whether there is a sufficient danger that a prospective judgment of the Court in favour of the plaintiffs will be wholly or partially unsatisfied.
There is no evidence as to what has become of the sale proceeds paid by Grand 8 and Mider @ City to Mider @ Franklin in respect of the impugned transfers. The defendants have chosen not to inform the Court as to whether those sale proceeds are retained by Mider @ Franklin, have been invested in the stage 3 development or have been used to make payments to others. Accordingly, the Court is left in the position of having to make inferences as to what has occurred. Taking the evidence as a whole as it presently stands, I infer on an interlocutory basis that it is probable that both the sale proceeds and the profits from the stage 2 development have been invested in the stage 3 development undertaken by Grand 8, probably via intercompany loans or book entries if the sale prices were not in fact paid to Mider @ Franklin. Of course, the relevant information is in the possession of the defendants but they have chosen not to reveal it to the Court or the plaintiffs.
Construction of the stage 3 development did not commence until the first half of 2014 and proceeded quickly. The plan of subdivision was registered on 14 November 2014, and certificates of occupancy, allowing settlements of sales to settle, were issued in January 2015. The plaintiffs applied for freezing orders in December 2014 and appropriate undertakings have been in place since.
The Mider group proposes to use the net profit of the stage 3 development for two purposes: (1) to fund the preliminary costs of a proposed development in Noble Park by another Mider group company, Mider Group Pty Ltd; and (2) to pay the overhead expenses and operating costs of the Mider group generally. If this is done, the plaintiffs will have difficulty in following the money into different entities should they be successful after a trial of the proceeding. In these circumstances, the plaintiffs seek to freeze the assets of the following defendants:
(1) Mider @ Franklin, in case it retains any profits from the stage 2 development or the proceeds of sale of the impugned transfers;
(2) Grand 8, in respect of the net profit of the stage 3 development; and
(3) Mider @ City Pty Ltd, in respect of the remaining two units in the stage 2 development which it owns and any remaining sale proceeds from the sale of the other three units.
In each case, the freezing order is sought for the total claimed amount of approximately $8 million. In accordance with usual practice, the proposed freezing orders preserve the right of the defendants who are affected to deal with their assets in the ordinary course of business.
The defendants’ arguments
Having acknowledged that the plaintiffs have a good arguable case, including in respect of the claims under s 172 of the Property Law Act 1958, the defendants oppose the application for freezing orders on discretionary grounds.
Before turning to those discretionary factors, however, I note that the defendants’ own version of the stage 2 agreement encompasses a joint venture arrangement between Mider @ Franklin on the one hand and Mr Caple or Choice Planning on the other. There is some evidence to support that characterisation of the arrangement, including an early spreadsheet prepared by Mr Wilson, the fact that Mr Caple gave a guarantee of $33.2 million in respect of bank finance for the stage 2 development, and the agreement to share the net profit equally. If Mider @ Franklin is correct in this characterisation, it would necessarily import fiduciary obligations owed by the joint venturers to each other. On that basis, there may be a good arguable case for breach of fiduciary duty if Mider @ Franklin has transferred the whole of the net profit of the stage 2 development to Grand 8 for use in the stage 3 development. I note, however, that the plaintiffs have yet to plead an alternative case based on the stage 2 agreement containing fiduciary obligations.
The defendants oppose the making of freezing orders on two principal grounds:
(1) First, they contend that the plaintiffs have delayed bringing this application while the stage 3 development was completed, knowing full well of the impugned transfers (especially the transfer of lot S3 to Grand 8) and of the fact that Mider @ Franklin had failed to provide an account of the net profit of the stage 2 development.
(2) Second, the undertaking offered by the plaintiffs is of insufficient worth to protect the Mider group, in particular Mider Group Pty Ltd as the proposed developer of Noble Park, in the event that the plaintiff fails at trial.
I will deal first with the issue of delay. The defendants rely upon the fact that all material matters have been known by the plaintiffs since the statement of claim was filed in January 2014 with the writ. They complain that, in the meantime, the plaintiffs have sought to place illegitimate commercial pressure on the Mider group by embarking upon a course designed to frustrate the stage 3 development. According to the defendants, the plaintiffs have attempted to dissuade or prevent proposed mortgagees from providing development finance by the following means:
(1) a statutory demand under the Corporations Act 2001 (Cth) served on Mider @ Franklin. This necessitated an application to set aside the statutory demand in December 2013, supported by a detailed affidavit of Mr Wilson;
(2) causing the Registrar of Titles to place a ‘Notice of Action’ on the title to lot S3, as a result of which proposed financiers of stage 3 withdrew, and alternative and more expensive finance needed to be obtained once the Notice of Action was removed by the Court. In this context, the plaintiffs were invited to lodge a caveat or to apply for an injunction to restrain dealing with lot S3, but chose to do neither; and
(3) making an anonymous complaint to the Australian Taxation Office concerning the transfers at an alleged undervalue.
I accept that the plaintiffs’ conduct referred to above was largely unjustified, and may have caused some loss to the defendants above the costs incurred in dealing with the statutory demand, the Notice of Action and the ATO enquiry. While I accept that lodging a caveat over lot S3 would have been difficult to justify, an application could have been made for an injunction to freeze Grand 8’s assets, at least insofar as they were obtained from Mider @ Franklin at alleged undervalue. Such an application would, if successful, have likely stopped the stage 3 development and its consequent profits.
However, the defendants were also acting in an unjustified manner during this period. On their own case, they transferred the profits of the stage 2 development to Grand 8 to enable the stage 3 development to proceed, without making any payment or proper disclosure to the plaintiffs as to the estimated amount of the net profit of the stage 2 development — in circumstances where Mider @ Franklin’s own version of the stage 2 agreement is that it was in a joint venture with Mr Caple or Choice Planning under which the parties were to share the profit of stage 2 equally.
I do not accept that the plaintiffs’ delay has caused such prejudice to the defendants or any of them so as to justify refusal of the freezing orders on the ground of delay only. Mere delay is not fatal to an application for an interlocutory injunction. For delay to be a decisive factor there must be both unreasonable delay and substantial prejudice to the defendant or third parties, so that it becomes ‘practically unjust’ to grant the remedy sought.[7] I am not satisfied that this is such a case. The Mider group wanted to proceed with the stage 3 development. They did so in the knowledge that the plaintiffs were claiming ‘consequential orders to make lot S3 and each of the five units available to meet the claims of creditors of [Mider @ Franklin]’.[8] There will be no injustice if it transpires that the plaintiffs succeed in the action and their delay has enabled Grand 8 to undertake the stage 3 development and make profits. If those profits are available to satisfy the plaintiffs’ judgment, which may require some amendment to the pleadings and relief sought, that is not prejudice caused by delay. Of course, any profits of the stage 3 development will include proper allowance for the wider Mider group’s management fees and costs.
[7]I C F Spry, The Principles of Equitable Remedies (Law Book Co, 7th ed, 2007) 488-93.
[8]Statement of claim, prayer for relief G.
I decline to refuse relief on the grounds of delay only.
As to the undertaking as to damages, it is clear that the undertaking will extend to third parties. Those third parties include Mider Group Pty Ltd, which is the vehicle chosen by Mr Wilson for the proposed Noble Park development. Mr Wilson has sworn that he intends that the profits of the stage 3 development will be invested in the Noble Park development.
Mr Wilson has also sworn that, absent the availability of those funds to enable this to occur, the Mider group cannot proceed with the Noble Park development from its own resources. Further, Mr Wilson has deposed that, if Grand 8’s assets are frozen, the Mider group will need to terminate its business, as the group will be unable to afford to pay its eight employees (including Mr Wilson and his wife). Mr Wilson deposed in his 13 February 2015 affidavit that the effect of a freezing order against Grand 8 ‘would be catastrophic for the Mider group’ for four reasons. The first reason is that the ‘proceeds from stage 3 are required to enable the Noble Park development to proceed’. This implies that there are profits from the stage 3 development, but no details are given as to the amount of those profits. Of course, the amount will be dependent upon how much of the profits from the stage 2 development, and the proceeds of sale of lot S3 and the five units, were invested in the stage 3 development.
Second, Mr Wilson deposed that it will be catastrophic for the Mider group because the proceeds from the stage 3 development are required to pay project management fees and expenses to the Mider group in respect of the stage 3 development, GST liabilities on sales, the balance of estate agents’ commissions, and legal fees and accounting fees relating to the stage 3 development. Of course, these payments would fall within the ordinary course of business exceptions should a freezing order be made against Grand 8, as they all appear to be part of the ordinary costs and expenses of the stage 3 development by Grand 8.
The defendants’ principal reason for its contention that the plaintiffs’ proffered undertaking as to damages is insufficient is Mr Wilson’s brief estimate that the Noble Park development is projected to earn a profit of about $4 million. The evidence of this projection is contained in a spreadsheet produced by Mr Wilson at the hearing on 20 February 2015 as an exhibit to a further affidavit sworn by Mr Wilson. Against that, the plaintiffs have offered to secure their undertaking as to damages by a cash payment into Court of $500,000 immediately, and a further $470,000 within 7 days, making a total of $970,000. The defendants contend that an undertaking secured by only about one-quarter of the projected profitability of the Noble Park development is insufficient and, as a matter of discretion, the Court should refuse the application for freezing orders on that ground alone. They rely upon the decision of Mandie J in Blue Wedges Inc v Port of Melbourne Corporation & Anor,[9] where his Honour stated that an undertaking as to damages will be required save in exceptional circumstances. The plaintiffs are not, however, refusing to give an undertaking — it is just the worth of the undertaking which is in dispute. The worth of an undertaking which is proffered is only ‘a factor’ to be taken into account in the discretion to grant or withhold interlocutory injunctive relief.[10] Every case depends on its own facts, and the Court’s assessment of the nature and merits of the plaintiff’s claims, even though tentative on an interlocutory application, are relevant to the balance of justice in the particular case.[11]
[9][2005] VSC 305, [11].
[10]Allen & Ors v Jambo Holdings Ltd [1980] 1 WLR 1252, 1258 (Templeman LJ); Meagher Gummow and Lehane’s Equity Doctrines and Remedies (Lexis Nexis Butterworths, 5th ed, 2015) 774 [21-410].
[11]I C F Spry, The Principles of Equitable Remedies (Law Book Co, 7th ed, 2007) 485-6.
I decline to refuse relief on the ground that the proffered undertaking is insufficient. Taking the facts as a whole at this interlocutory stage, the plaintiffs’ case is sufficiently strong that the balance of justice favours accepting their offer to secure the proposed undertaking as to damages by a cash sum of $970,000. There are three principal reasons for this conclusion.
First, the defendants concede that a good arguable case has been made for both the claim in debt, of about $8 million, and for relief under s 172 of the Property Law Act 1958 in respect of the impugned transfers by Mider @ Franklin.
Second, the defendants have failed to place evidence before the Court as to critical matters, including:
(1) the amount or estimated amount of profit, if any, made from the stage 2 development;
(2) the amount of the stage 2 profit, if any, which has been invested in the stage 3 development and how it has been invested;
(3) whether the proceeds of the impugned sales by Mider @ Franklin to Grand 8 and Mider @ City were paid in cash and, if so, what has become of the proceeds;
(4) if the proceeds of the impugned sales were not paid in cash, how they were accounted for; and
(5) the amount of the estimated profit of the stage 3 development which the defendants propose to invest in the Noble Park development.
The defendants were served with notices to produce requiring documents relevant to some of these issues, and, at the conclusion of argument, were given a further opportunity by the Court to file further material concerning these issues should they choose to do so. No material was filed.
Third, in the absence of a freezing order, Mr Wilson’s own evidence establishes that a significant portion of Mider @ Franklin’s assets, if not all of them, are presently in the hands of Grand 8 and will be further disposed of by transfer to Mider Group Pty Ltd for the proposed Noble Park development. Like all property developments, the projected profit of the Noble Park development is subject to considerable risk and, in this case, there is also the risk that the profit could be manipulated by the Mider group by inter-company charges designed to reduce it. In my opinion, the danger that any judgment in favour of the plaintiffs will be unsatisfied will significantly increase if the transfer occurs. Put simply, Mider @ Franklin’s assets will be one stage further removed from being available to satisfy any judgment obtained by the plaintiffs. In order to meet this position, the defendants and Mider Group Pty Ltd proposed the following undertakings, designed to make the profit of the Noble Park development available to the plaintiffs should they succeed at trial:
Upon the respective defendants and Mider Group Pty Ltd undertaking, until the hearing and determination of this proceeding or further order, as follows:
(i)Mider @ Franklin undertakes that it will not dispose of or deal with or diminish the value of Lot 3 and Lot 1A on Plan of Subdivision 629109B (Certificates of Title 1299/318 and 11386/924) other than in accordance with Paragraph (iv)(c)-(e) below;
(ii)Mider @ City undertakes that it will not dispose of or deal with or diminish the value of the 2 Remaining Units (as that term is defined in Mr Caple’s 13 December affidavit) being Certificates of Title Volume 11386 Folios 937 and 944) other than in accordance with Paragraph (iv)(c)-(e) below; and
(iii)Grand 8 undertakes that it will not in any way dispose of, deal with or diminish the net proceeds of the sales of the lots on Plan of Subdivision PS628109B other than in accordance with Paragraph (iv)(a)-(e) below;
(iv)The undertakings in (i), (ii) and (iii) above do not prevent the Defendants from:
(a)making advances to Mider Group Pty Ltd for the purpose of completing the contract of sale dated 4 October 2014 for the purchase of 20-30 Ian Street Noble Park (‘the Noble Park Property’) (‘the contract of sale’) and performing the development of that property substantially as permitted by planning permit PLN 13/0389 as amended from time to time (‘the development’);
(b)making advances to Mider Pty Ltd for the purpose of enabling it to pay its expenses incurred in the usual and ordinary course of its business;
(c) paying their reasonable legal expenses;
(d)dealing with or disposing of any of their assets in the ordinary and proper course of their businesses, including paying business expenses bona fide and properly incurred;
(e)in relation to matters not falling within sub-paragraphs (c) or (d), dealing with or disposing of any of their assets in discharging obligations bona fide and properly incurred under a contract entered into before this undertaking was given, provided that before doing so they give the Plaintiffs, by their solicitors, if possible, at least two working days written notice of the particulars of the obligation.
(v) Mider Group Pty Ltd undertakes that:
(a)it will not in any way dispose of deal with or diminish any amounts advanced to it by the third defendant or the net proceeds of sale of the development or any part of the land purchased pursuant to the contract of sale other than:
(i) applying them to the completion of the contract of sale; or
(ii)in the ordinary and proper course of its business of conducting the development, including paying expenses of the development bona fide and properly incurred and repayment of any sums borrowed for the purposes of the development; and
(b)in consideration of any advances made to it by the third defendant it agrees that it will pay the profits of the development to the third defendant to the extent they are required to satisfy any judgment obtained against the third defendant in this proceeding.
I have considered those undertakings. In light of the defendants’ conduct in transferring assets from Mider @ Franklin, and its failure to provide the information referred to above, I am not persuaded that the undertakings are a sufficient basis to refuse the freezing orders. The plaintiffs have already been forced by Mider @ Franklin’s conduct into a situation where its assets, which would otherwise have been available to satisfy any judgment, have been disposed of by investment in the stage 3 development under the ownership and control of a third party, Grand 8, rather than Mider @ Franklin as contemplated by the parties when the stage 2 agreement was made. As events have transpired, that project has apparently been successful and profits made. The plaintiffs should not, however, be forced to accept a situation where Mider @ Franklin’s assets are further removed and used for the purposes of another project about which they know very little, which may or may not be successful, and which may need to be investigated as to whether charges by Mider group companies were bona fide and properly incurred in accordance with the proposed undertakings.
Proposed orders
I will accordingly make the freezing orders sought. Given the lack of information and the conduct of the defendants in transferring assets between Mider group members, I will order that the freezing orders against Mider @ Franklin, Mider @ City and Grand 8 each extend to the full amount of the prospective judgment debt of $8,010,275.21.
As will be apparent from the above reasons, the lack of information from the defendants is a principal reason for the grant of freezing orders. Mr Wilson’s evidence, however, is that the effect of freezing orders will be to prevent the Mider group from proceeding with the Noble Park development. The contract of sale for the Noble Park land is due for settlement on 3 April 2015. I will accordingly make the freezing orders ‘until further order’, rather than on an interlocutory basis until determination of the proceeding. In addition, I will make ancillary orders under r 37A.04(2), requiring the defendants to file affidavits by a specified time disclosing their current financial positions, containing the information referred to above which they have thus far chosen not to reveal to the Court or the plaintiffs, and producing relevant supporting documentation. That information clearly relates to assets relevant to the freezing orders and whether they should continue in their present form until trial.
I will also take over the management of the proceeding. I will hear the parties as to further interlocutory orders designed to bring the proceeding to trial in an expeditious manner and to fully inform an early mediation.
SCHEDULE OF PARTIES
| S CI 2014 0222 | |
| BETWEEN: | |
| CHOICE PLANNING PTY LTD (ACN 103 233 343) | Firstnamed Plaintiff |
| CHOICE FINANCIAL PTY LTD (ACN 101 109 353) | Secondnamed Plaintiff |
| - and - | |
| MIDER @ FRANKLIN STREET PTY LTD (ACN 135 155 234) | Firstnamed Defendant |
| MIDER PTY LTD (ACN 107 879 734) | Secondnamed Defendant |
| GRAND 8 @ FRANKLIN STREET PTY LTD (ACN 164 372 490) | Thirdnamed Defendant |
| MIDER @ CITY PTY LTD | Fourthnamed Defendant |
| AND BETWEEN: | |
| MIDER @ FRANKLIN STREET PTY LTD (ACN 135 155 234) | Firstnamed Plaintiff by Counterclaim |
| - and - | |
| NICHOLAS JOHN EDWIN CAPLE | Firstnamed Defendant by Counterclaim |
| CHOICE PLANNING PTY LTD (ACN 103 233 343) | Secondnamed Defendant by Counterclaim |
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