Elan Trading Corporations Pty Ltd v Clarence Street Freeholds Pty Ltd
[2001] VSC 339
•12 September 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2063 of 2001
| ELAN TRADING CORPORATION PTY LTD (ACN 080 484 902) | Plaintiff |
| v | |
| CLARENCE STREET FREEHOLDS PTY LTD (Formerly known as Sharpe Partners Properties Pty Ltd) (ACN 088 160 310) | Defendant |
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JUDGE: | Warren J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 September 2001 | |
DATE OF JUDGMENT: | 12 September 2001 | |
CASE MAY BE CITED AS: | Elan Trading Corporations Pty Ltd v Clarence Street Freeholds Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 339 | |
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Mandatory injunction – agreement – execution of mortgage – balance of convenience.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr I. Jones | Meerkin & Apel |
| For the Defendant | Mr J. Tsalanidis | Home Wilkinson Lowry |
HER HONOUR:
The plaintiff seeks an interlocutory mandatory injunction to compel the defendant to execute a mortgage in favour of the plaintiff. The circumstances relied upon by the plaintiff relate to a prior financial history between the plaintiff and the defendant culminating in terms of settlement. The plaintiff has issued proceedings by writ in the Commercial List to enforce terms of settlement, including execution of a mortgage, said to have been reached between the plaintiff and the defendant.
It is necessary at the outset to consider, briefly, the background circumstances.
Background
The general facts relating to these proceedings were contained in two affidavits sworn by one Donald Brownlie Fleming. Mr Fleming is the managing director of the plaintiff, Elan Trading Corporation Pty Ltd ("Elan").
In about May 1999 Mr Fleming met one Jeffrey James Meads who was associated with an accounting firm known as Sharpe Hume Pty Ltd. As a result of the meeting Mr Meads introduced Mr Fleming to one Grahame Norman Sharpe. Ultimately, Messrs Fleming, Meads and Sharpe agreed to form a national accounting practice known as "the Sharpe Group". The proposal proved unsuccessful and, ultimately, disputes occurred between Mr Fleming and the others such that differences occurred. The differences were eventually resolved and the relevant parties, including the plaintiff Elan, representing the interests of Mr Fleming and the defendant, representing the interests of Mr Sharpe entered into a settlement and release agreement dated 28 March 2001 ("the agreement").
It was a term of clause 2.7 of the agreement that "the Sharpe Group", being the group associated with the interests of Mr Sharpe, acknowledged an existing liability to re‑pay to the Fleming Group, being the interest associated with Mr Fleming, the full amount of an item described as the "Outstanding Moneys". It was a further term of the agreement that the outstanding moneys be re‑paid in full by way of bank cheque made out to Elan no later than 1 July 2001. The agreement defined "the Outstanding Moneys". The total of the amounts, excluding interest (clause 1.1(h)) was $689,900. There was a separate debt for the amount of $250,000 relating to another entity known as "the Hall Group". The latter amount constituted a set‑off and the parties agreed that such amount had to be deducted from the sum of $689,999. The balance of "Outstanding Moneys" was the sum of approximately $439,000 plus interest. The outstanding moneys allegedly owed by the Sharpe Group to the Fleming Group under the agreement were not paid pursuant to the terms of the agreement on 1 July 2001. As a consequence the plaintiff, Elan, instituted the present proceeding seeking specific performance of the agreement.
Clause 2.9 of the agreement provided that the Sharpe Group must make available to the Fleming Group, as security for the re-payment of the outstanding moneys, a mortgage over the property known as "the Clarence Street property" being the property located at 201‑203 Clarence Street Sydney, New South Wales. As a consequence, Elan applied by way of summons for an interlocutory mandatory injunction that the defendant execute a mortgage over the Clarence Street property to secure the outstanding moneys pursuant to the terms of the agreement.
An affidavit was filed on behalf of the defendant in opposition to the application by one Peter Rosier, a solicitor acting on behalf of the Sharpe Group. The affidavit of Mr Rosier did not challenge the general facts contained in the affidavits of Mr Fleming as already recounted.
The Dispute Between the Parties
The ambit of the dispute between the plaintiff and the defendant was confined. The defendant acknowledged that it owed obligations to the plaintiff under the agreement. However, the dispute related to the width of those obligations. The defendant proffered by way of undertaking to execute a mortgage in favour of the plaintiff for the sum of $439,000, and no more. It proffered an undertaking, also, not to further encumber the Clarence Street property pending the trial of the proceeding. The dispute between the parties appeared to revolve around the calculation of the amount of interest payable by the defendant to the plaintiff pursuant to the terms of the agreement. The plaintiff's position was one where it accepted the proposal that the defendant provide a mortgage in the sum of $439,000 save by injunctive order but wished to be provided with additional security by way of such mortgage securing a calculation of the amount of the interest then owing. The principal position of the plaintiff was that it wished to be placed in the advantageous position of being a secured creditor of the defendant for the full amount that it claimed it was owed under the terms of the agreement. So much, urged the plaintiff, enabled it to preserve the status quo.
The defendant's position was that it claimed that it had a right of set-off against the plaintiff in relation to the outstanding moneys under the agreement. The items constituting the alleged set-off were said to arise from transactions involving an entity known as Farmtel Finance Pty Ltd and a company known as York Consultants Pty Ltd. There was no evidence as such of set-off, merely an indication by Mr Rosier of a set‑off on instructions from his client. An additional matter relied upon by the defendant was an alleged further settlement of the agreement on 16 August 2001 said to have been reached between one James Batty on behalf of Farmtel and Mr Fleming on behalf of the plaintiff. These matters were deposed to in an affidavit of Mr Rosier. Mr Fleming, by way of further affidavit, refuted the matters deposed to by Mr Rosier. It is to be observed that in Mr Rosier's affidavit sworn 23 August 2001 he deposed that he was informed by Mr Batty that on 17 August 2001 Mr Batty had a conversation with Mr Fleming to the effect that the interest component of the agreement would be waived on the condition that a mortgage over the Clarence Street property was provided immediately.
For the purposes of the interlocutory application it was conceded by Mr Tsalanidis who appeared on behalf of the defendant that there was no dispute that there was a serious question to be tried between the parties. Rather, Mr Tsalanidis submitted that on the balance of convenience the weight fell in favour of his client because of the matters his client proffered and, also, the potential claim of set‑off. Mr I. Jones who appeared on behalf of the plaintiff submitted that the balance of convenience favoured the grant of the mortgage because of the terms agreed under the agreement and, further, on the basis that there was no prejudice to the defendant giving the mortgage that it had agreed to execute pursuant to the terms of the settlement. The plaintiff, it was said, by contrast, would suffer prejudice if the defendant further encumbered any remaining interest in the Clarence Street property. Mr Jones submitted that damages would not be an adequate remedy for the plaintiff in such circumstances as it would be exposed as an unsecured creditor in respect of an asset that the defendant had agreed to provide as security under the terms of the settlement agreement.
Relevant Legal Principles
Until relatively recently the general approach applied by the courts in considering whether or not to grant an interlocutory mandatory injunction was whether or not there is a "high degree of assurance" that at the trial it will appear the injunction was rightly granted: see Business World Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499, 501-503; also, Shepherd Homes Limited v Sandham (1971) Ch 340, 351. However, the high assurance test has not been followed uniformly: see Business World, supra, at 501-503; Films Rover International Limited v Cannon Film Sales Limited (1986) 3 All ER 722, 780‑1; (1987) 1 WLR 670, 680. Consequently, in more recent times the courts have adopted the course at the interlocutory stage that appears to "carry the lower risk of injustice".
In Films Rover, Hoffman J, as he then was, (at 680) observed:
"The principal dilemma about the grant of interlocutory injunctions, whether prohibitory or mandatory, is that there is by definition a risk that the court may make the 'wrong' decision, in the sense of granting an injunction to a party who fails to establish his right at the trial (or would fail if there was a trial) or alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been 'wrong' in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle."
The High Court addressed the injustice of the relevant circumstances when concerned with mandatory injunctions in the context of the continuation of an alleged tortious conspiracy: see Patrick Stevedores Operations No. 2 Pty Ltd and ors v Maritime Union of Australia & ors (1998) 195 CLR 1, 31.
In a different approach, Kaye J of this Court in Belgrave Nominees Pty Ltd and ors v Barlin‑Scott Airconditioning Aust. (Pty Ltd) (1984) VR 947 considered all the circumstances and determined that it would not be just to confine plaintiffs to a remedy in damages and ordered a mandatory injunction. As little later, in State Transport Authority v Apex Quarries Limited (1988) VR 187, Kaye J held that an injunction may lie to restrain a defendant from breaching a negative term or stipulation of a contract, notwithstanding that the effect of the injunction might be to compel performance of a contract where equity would not decree specific performance. When considering the question of the balance of convenience Kaye J held that the proper test is not whether damages would provide the plaintiff with an adequate remedy but rather whether it is just in all the circumstances, that the plaintiff should be confined to his remedy in damages. The learned judge held in Apex Quarries that damages would not be an adequate remedy and that the balance of convenience favoured enjoining the defendants.
More recently, the Appeal Division of this Court in D.S. & N. Nominees Pty Ltd and ors v Movieland Franchise Systems Pty Ltd, unreported judgment delivered 15 September 1994 considered the granting of an injunction that required the appellants to cease the conduct of a business and the assignment of a lease of premises prior to trial. The Appeal Division appeared to maintain the high degree of assurance test.
Of course, an interlocutory injunction, more so a mandatory injunction, will never be granted lightly: National Australia Bank Ltd v Bond [1991] 1 VR 529. Whether a court applies the high assurance test or the lowest risk of injustice test, a serious issue to be tried must be made out. The defendant conceded that a serious issue arose here. The question was where the balance of convenience lay.
The Balance of Convenience
On the basis of the defendant's proposal the plaintiff would have the benefit of undertakings as to the effecting of the mortgage to secure the sum of $439,000 and interest at a specified amount. The plaintiff would have the protection, also, of an undertaking not to further encumber the Clarence Street property. In support of the defendant's position there is no evidence of its insolvency.
On the other hand, there is no adequate evidence of the set‑off relied upon by the defendant in support of the assertion that the moneys owed by it under the agreement are subject to the set‑off. Furthermore, there is a clear dispute between the parties as to whether or not there was a further settlement agreement or variation of the original agreement. I observe that the evidence by Mr Rosier on behalf of the defendant does not meet the total refutation by Mr Fleming in his affidavit. On this basis, therefore, the plaintiff satisfies the high assurance test of success. Even if it did not, it does at the very least make out the lower risk of injustice test. My view in this respect is based upon the fact that there is no satisfactory evidence by the defendant even for interlocutory purposes of the alleged set-off. Furthermore, there is no satisfactory evidence for interlocutory purposes that the agreement was re‑negotiated or varied. The matter is entirely refuted by Mr Fleming. I observe that a number of opportunities were provided to the defendant to provide evidence on affidavit as to the surrounding circumstances of the agreement and subsequent events. The opportunity was not taken advantage of. It seems to me, therefore, on balance that the evidence of the defendant through Mr Rosier even for interlocutory purposes is so unsatisfactory that I should allocate it little if any weight. It follows, further, that the plaintiff has good prospects, for interlocutory purposes, on either the high assurance standard or the lower risk of injustice test of success at trial.
However, is it entitled, therefore, to have the benefit of preserving the status quo pending the trial of the proceeding that is security for the defendant's potential obligations under the agreement? In each of the authorities referred to where a mandatory injunction was granted the court was faced with an element of urgency or threat to which the applicant was subject and thereby provided the foundation for the mandatory injunction granted: see State Transport Authority v Apex Quarries Limited, supra; Business World Computers Pty Ltd v Aust Telecommunications Commission, supra; also, Films Rover International Limited & ors v Cannon Film Sales Limited, supra. As I have observed already there was no evidence of actual or potential insolvency on the part of the defendant. In so far as there was any threat to the plaintiff there was none made out on the evidence. On proper analysis the foundation for the seeking of the mandatory injunction was the alleged breach by the defendant of the agreement. Essentially, therefore, by way of an application for an interlocutory mandatory injunction the plaintiff was endeavouring to secure the outcome it would hope to achieve at the final determination of the proceeding. So far as I am aware it is unprecedented for a party to be granted a mandatory injunction on an interlocutory basis where all that the party seeks to do is achieve the status of a secured creditor presumably in the event that insolvency may occur at a later point in time. In my view to grant the injunction in these circumstances would constitute no more than speculation in so far as the future of the defendant is concerned. Furthermore, it would be an inappropriate application of the principles usually applied by the courts in the granting of interlocutory injunctions.
In any event, in so far as the exercise of the discretion is concerned I am satisfied that the proffering of the undertakings by the defendant is ample protection and satisfaction to the complaints by the plaintiff against the defendant. In weighing up the balance of convenience and bearing in mind the proffering of the undertakings adverted to it seems to me that the balance lies with the defendant. It follows that the application for an interlocutory mandatory injunction will be refused but that the defendant will be required to formally proffer the undertakings foreshadowed.
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