Eastmark Holdings Pty Limited v Kabraji
[2013] NSWSC 667
•24 May 2013
Supreme Court
New South Wales
Medium Neutral Citation: Eastmark Holdings Pty Limited v Kabraji [2013] NSWSC 667 Hearing dates: 24 May 2013 Decision date: 24 May 2013 Jurisdiction: Equity Division Before: Ball J Decision: The third defendant's motion filed on 11 February 2013 be dismissed with costs.
Catchwords: PROCEDURE - civil - whether leave should be granted to file cross-claim - whether there is an overlap between the issues in the proposed cross-claim and the issues in the proceedings - Civil Procedure Act 2005 (NSW) s 22 Legislation Cited: Civil Procedure Act 2005 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189 Category: Procedural and other rulings Parties: Eastmark Holdings Pty Limited (ACN 003 901 953) (Plaintiff)
Eddie Kabraji (First Defendant)
Hendersenhayes Pty Ltd (ACN 151 719 461) (Second Defendant)
The Owners - Strata Plan No. 74602 "Beau Monde" (Third Defendant)
Kris Bruckner (Fourth Defendant)Representation: M Green / Ms B A Oliak (Plaintiff)
M Christie SC (First and Second Defendants)
Ms K C Morgan (Third Defendant)
J Moran (Solicitor) (Fourth Defendant)
Swaab Attorneys (Plaintiff)
Henry Davis York (First & Second Defendants)
TressCox Lawyers (Third Defendant)
Norton Rose (Fourth Defendant)
File Number(s): 2011/328524 Publication restriction: Nil
EX TEMPORE Judgment
By a notice of motion filed on 11 February 2013, the third defendant, the Owners - Strata Plan 74602 (the Owners Corporation) seeks leave to file a cross-claim against the plaintiff, Eastmark, a director of Eastmark, Jin Hong Park (Mr Park) and 1 Denison Street Holdings Pty Ltd (1 Denison Street).
It is necessary to begin by setting out some background facts.
Eastmark is the developer of a site in Berry Street North Sydney. The development consists of 4 lots. Lot 1 (the Residential Lot) consists of a 30 storey residential tower and associated car parking. Lot 2 consists of a 7 storey commercial tower. Lot 3 consists of a shopping centre. Lot 4 consists of a car park. In accordance with a strata management statement which was registered on 6 April 2005, the four lots are managed by a Building Management Committee (BMC) consisting of four members. The owners of each lot are entitled to appoint one member of the BMC.
The Residential Lot is the subject of a strata scheme (the Scheme) consisting of 241 lots and common property known as the Beau Monde Apartments. The Owners Corporation is the owners corporation of the Scheme. The first defendant, Mr Kabraji, is the chairman of the executive committee of the Owners Corporation. He is the sole director and shareholder of the second defendant, Hendersenhayes. The fourth defendant, Mr Bruckner, is another member of the executive committee of the Owners Corporation.
1 Dennison Street is a subsidiary of Eastmark and, since October 2012, is the owner of two of the lots. The remaining lot continues to be owned by Eastmark.
Shortly after the Scheme was established, the Owners Corporation entered into agreements on 8 April 2005 and 21 June 2005 with a company known as BMAUS Pty Limited (BMAUS) by which BMAUS agreed to supply caretaking, cleaning and concierge services to the Scheme.
Disputes have arisen between the Owners Corporation and BMAUS concerning those agreements and, in particular, the amounts payable to BMAUS under those agreements. It appears that the Owners Corporation ceased making payments under those agreements and in 2011 BMAUS commenced proceedings seeking to recover amounts allegedly due to it.
On 6 April 2011, the Owners Corporation filed a cross-claim in those proceedings against BMAUS and Eastmark. In relation to Eastmark, the Owners Corporation alleged, among other things, that at the meetings at which the Owners Corporation resolved to enter into the agreements, Eastmark controlled voting rights attaching to in excess of 50 percent of the lots in the strata scheme, that it owed fiduciary duties in exercising those voting rights and that it breached those fiduciary duties by voting in favour of approval of the agreements.
For reasons which remain unclear, the BMAUS cross-claim was not served until 5 October 2011. In the accompanying letter, the Owners Corporation requested Eastmark not to file a defence and advised that an amended cross-claim would be served within a day or two. In fact, that cross-claim was not served until 24 February 2012 and was not filed until 25 May 2012.
Subsequently on 27 November 2012, the Owners Corporation offered to discontinue the amended BMAUS cross-claim on the basis that it would pay 66 percent of Eastmark's costs. That offer was accepted by Eastmark and the cross-claim was discontinued.
In the meantime, on 1 July 2011, the Owners Corporation entered into an agreement with Hendersenhayes for that company to supply the services of Mr Kabraji, as a project manager, to manage proceedings in which the Owners Corporation was involved. Those proceedings included various proceedings to recover outstanding levies, the BMAUS proceedings (which have since been resolved) and potential proceedings against Eastmark and Mr Park. The amount payable to Hendersenhayes under the agreement is $380,000 per annum excluding GST.
On 14 October 2011, Eastmark commenced these proceedings alleging that Mr Kabraji breached fiduciary duties he owed as chairman of the executive committee to the Owners Corporation by causing Hendersenhayes to enter into the consultancy agreement without obtaining the informed consent of the lot owners.
The proposed cross-claim makes a large number of allegations against Eastmark, Mr Park and 1 Denison. As against Eastmark, it alleges that Eastmark breached duties it owed to the Owners Corporation:
(a) by causing the Owners Corporation to enter into the caretaker, concierge and cleaning contracts with BMAUS;
(b) by causing the Owners Corporation to approve the building management committee entering into a management agreement with Savills;
(c) by preparing and registering or authorising the preparation and registration of the strata management scheme and amendments to schedules 1 and 2 of the strata management scheme.
Alternatively, it is alleged that Eastmark committed a fraud on the minority by causing the Owners Corporation to enter into the caretaker, concierge and cleaning contracts with BMAUS.
As against Mr Park, it is alleged that he was knowingly involved in Eastmark's breaches of duty. Mr Park is also alleged to have owed a duty himself as an officeholder of the executive committee of the Owners Corporation and as the Owners Corporation's representative on the BMC. It is alleged that he breached those duties by voting in favour of the resolutions about which the Owners Corporation complains.
As against 1 Denison Street, it is alleged that it (as well as Eastmark) is in breach of the agreement between the Owners Corporation, Eastmark and 1 Denison Street constituted by the strata management scheme.
The right to file a cross-claim is relevantly governed by s 22 of the Civil Procedure Act 2005 (NSW) (CPA) and r 9.1 of Uniform Civil Procedure Rules 2005 (NSW) (UCPR).
Section 22 of the CPA provides:
(1) Subject to subsection (2), the court may grant to the defendant in any proceedings ("the first proceedings") such relief against any person (whether or not a plaintiff in the proceedings) as the court might grant against that person in separate proceedings commenced by the defendant for that purpose.
(2) Relief may not be granted under this section against a person who is not a plaintiff in the first proceedings unless the relief relates to, or is connected with, the subject of the first proceedings.
(3) A person against whom a defendant makes a claim for relief under this section:
(a) has the same rights in respect of his or her defence against the claim as he or she would have in separate proceedings commenced against the person by the defendant, and
(b) if not already a party to the first proceedings:
(i) becomes a party to the first proceedings, and
(ii) unless the court otherwise orders, is bound by any judgment (including a judgment by consent or by default) or decision (including a decision by consent) on any claim for relief in the proceedings (including a claim for relief in any cross-claim in the proceedings).
UCPR r 9.1(1) provides:
(1) A party ("the cross-claimant") may make a cross-claim:
(a) in proceedings commenced by statement of claim, within the time limited for the party to file a defence, or
(b) in proceedings commenced by summons, before the return day specified in the summons,
or within such further time as the court may allow.
The parties also placed reliance on sections 56-59 of the CPA.
Section 56 of the CPA relevantly provides:
(1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.
(2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule.
Section 57 of the CPA provides:
(1) For the purpose of furthering the overriding purpose referred to in section 56 (1), proceedings in any court are to be managed having regard to the following objects:
(a) the just determination of the proceedings,
(b) the efficient disposal of the business of the court,
(c) the efficient use of available judicial and administrative resources,
(d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties.
(2) This Act and any rules of court are to be so construed and applied, and the practice and procedure of the courts are to be so regulated, as best to ensure the attainment of the objects referred to in subsection (1).
Section 58 requires the court in making any order or direction for the management of proceedings to act in accordance with the dictates of justice. Section 58(2) says that in determining what are the dictates of justice in a particular case the court must have regard to ss 56 and 57 and may have regard to a number of other factors set out in s 58(2) including "such other matters as the court considers relevant in the circumstances of the case".
Section 59 of the CPA provides:
In any proceedings, the practice and procedure of the court should be implemented with the object of eliminating any lapse of time between the commencement of the proceedings and their final determination beyond that reasonably required for the interlocutory activities necessary for the fair and just determination of the issues in dispute between the parties and the preparation of the case for trial.
The Owners Corporation submits that the issues raised by the proceedings and the cross-claim are part of a broad dispute between the Owners Corporation and Eastmark concerning Eastmark's conduct as the developer and original majority owner in the strata plan. In its submission, it is in the interests of justice that those disputes be heard together.
Eastmark, on the other hand, submits that the disputes are entirely separate. The evidence raised by its claim has largely been served. If the Owners Corporation was given leave to file the cross-claim, that would delay the hearing of the proceedings. Eastmark submits that the court should also take into account the fact that the Owners Corporation has delayed in bringing the cross-claim and that it made similar allegations in the BMAUS proceedings which it discontinued. Eastmark submits that it would not have agreed to the discontinuance of that claim on the terms that it did had it known that the Owners Corporation would seek leave to file the existing proceedings. Eastmark also submits that it would be prejudiced if the cross-claim were permitted because, to the extent that the claims are based on events that occurred before February 2007, they are statute barred or the claim for relief will fail on the ground of laches.
Ms Morgan, who appeared for the Owners Corporation, conceded that the essential question in resolving these competing claims was whether there is an overlap between the issues raised by the proposed cross-claim and the issues raised by the proceedings. She submitted that there was an overlap for three reasons.
First, both the proceedings and the cross-claim raise the question whether members of an executive committee of an owners corporation owe fiduciary duties to the corporation, and the scope of those duties. Second, Ms Morgan submitted that part of the allegation made in the proceedings is that the terms of the consultancy agreement are unfair, and in order to assess that question it is necessary to understand the underlying disputes. Third, Ms Morgan pointed out that Eastmark sought to bring a derivative action against the owners corporation on the basis of the fifth exception to the rule in Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189, namely, that it is in the interests of justice to permit the derivative action to be brought. She submitted that Eastmark's motives in bringing the action were relevant to that question, and to understand its motives it was necessary to understand the wider dispute between Eastmark and the owners corporation.
I do not accept Ms Morgan's submissions.
The questions whether Eastmark or Mr Park owed fiduciary duties as the promoter of the scheme, and as the promoter's representative and initial executive committee member, raise very different questions from whether an elected member of the executive committee, once the strata scheme is in operation, owes fiduciary duties and the scope of those duties. In a broad sense, the two cases raise issues concerning the nature and scope of fiduciary duties, but that is not a sufficient overlap to warrant the two claims being heard together.
I accept that it may be necessary, or desirable, to have some understanding of the disputes between Eastmark and the Owners Corporation to assess whether the consultancy agreement is unfair and whether it is in the interests of justice to permit a derivative action to be brought. However, in my opinion, that background is likely to involve nothing more than considering the relevant pleadings to understand, for example, the complexity of the issues involved. There are no issues of fact or law raised in the cross-claim that require resolution for the purpose of the claim itself. In my opinion, the fact that the existence and nature of the claims the Owners Corporation seek to bring may shed some light on the reasons for the consultancy agreement, and the motives Eastmark has in bringing these proceedings, is not sufficient to make the two claims connected in the sense required by s 22 of the CPA.
In any event, I accept the submissions of Mr Green, who appeared on behalf of Eastmark, that there are strong discretionary reasons for refusing leave to file the cross-claim. The current proceedings are ready for hearing. They involve issues of a limited scope and will likely take a few days, at most, to hear. On the other hand, the cross-claim raises extensive factual issues which would not be ready to be determined for a considerable amount of time. It is difficult to see how there could be any significant saving in overall time and cost if the two claims were heard together. The Owners Corporation has known for some time the facts which form the basis of its claim. Indeed, it pursued, for a time, a number of those claims in the BMAUS proceedings. It is not in the interests of justice to inflict substantial delay on the plaintiff in those circumstances. In addition, I do not see why the proposed cross-defendants should be deprived of any limitation defence they might have arising from that delay.
For those reasons the third defendant's motion filed on 11 February 2013 should be dismissed with costs.
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Decision last updated: 04 June 2013
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