Gillespie v Novara Furniture Pty Ltd
[2006] VSC 132
•20 February 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 7594 of 2006
| COLIN AND KAREN GILLESPIE | Plaintiffs |
| v | |
| NOVARA FURNITURE PTY LTD & ORS | Defendants |
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JUDGE: | Hansen J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 February 2006 | |
DATE OF JUDGMENT: | 20 February 2006 | |
CASE MAY BE CITED AS: | Gillespie & Anor v Novara Furniture Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 132 | |
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Undertaking – In nature of a Mareva injunction – Given by counsel out of court – No cross-undertaking for damages – Application to be discharged from undertaking to enable a commercial fund raising – Undertaking replaced by injunction with undertaking for damages – Injunction permits fund raising.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A W Sandbach | Hall Solicitors |
| For the Defendants | Mr A Herskope | Kalus Kenny |
HIS HONOUR:
This is an application brought by a summons in a proceeding for an order discharging an undertaking in writing dated 2 December 2005.
In terms the order sought is that the undertaking given on behalf of the defendants to the plaintiffs be discharged. As so expressed the order is wider than that sought today by counsel who has appeared for the defendants. The discharge from the undertaking is sought only in respect of the second defendant, Caprice Investments Pty Ltd and I treat the application accordingly.
The undertaking was given wholly out of court by a document signed by counsel for the plaintiffs and counsel for the defendants. The undertaking, while dated 2 December 2005, was expressed to be effective from 30 November 2005.
It is first convenient to refer to the proceeding itself which was commenced by writ on 9 August 2005. In a statement of claim endorsed on the writ the plaintiffs, Mr and Mrs Gillespie, claim against Novara Furniture Pty Ltd, Caprice Investments and Robert Ives, certain relief as set out in the statement of claim.
One needs therefore to go to the statement of claim. It is alleged that Ives was a director of Novara and Caprice and that Novara conducts the business of manufacturing and selling solid timber furniture.
It is then alleged in paragraph 5 that Caprice is the registered proprietor of certain factory premises in Bayswater from which the first defendant, Novara, conducts its business. From that point the statement of claim goes on to plead the making of loan agreements, three in total, between 27 May 2004 and 1 March 2005, by which in the case of the first two loan agreements, the first plaintiff Mr Gillespie lent money to Novara, $100,000 in the aggregate.
And then by the third loan agreement, which is also said to be an agreement for the sale of shares, the plaintiffs Mr and Mrs Gillespie and Novara and Ives agreed on the lending by Mr Gillespie of a sum of $200,000 comprising the $100,000 already lent and a further $100,000, and the plaintiffs and the defendants agreed to purchase and sell 50 shares in the first defendant and the second defendant for $300,000.
The statement of claim refers to advances that were made, then to demands for repayment, to the third defendant having failed to transfer shares in Novara and Caprice, to representations and ultimately there is a prayer for relief.
In the prayer for relief damages are claimed, monies owing pursuant to the agreements are claimed, and there is interest, and specific performance is sought of the sale of shares agreement.
It was said by counsel for Caprice that the only reference to it in the statement of claim was in paragraph 5 where it is referred to as the registered proprietor of the factory premises. But it will be noticed that Caprice is also referred to in paragraph 16 which pleads the third loan agreement and sale of shares agreement, and where there is a reference to the sale of shares in Caprice. But it is to be noted as to that that the agreement, itself, was not made with Caprice. It is alleged to have been made between the plaintiffs, on the one hand, and Novara and Ives, on the other hand. Then it is further to be noted that no relief is sought in the statement of claim against Caprice.
One can be fairly confident of that because despite the width of the prayer for relief or the non specificity of it in relation to defendants, there could hardly be any claim for relief against Caprice in view of the absence of a material allegation relating to a cause of action having been pleaded in the body of the statement of claim.
It appears from the evidence that in the course of the disputation three undertakings in writing have been provided by counsel for the defendants. These undertakings have been signed by counsel and they appear to have been worked out with counsel for the plaintiffs.
The only undertaking that is in question is that which I have referred to as dated 2 December 2005. I should say that while the recitals in the undertaking refer to a threatened application by the plaintiffs for injunctive relief against Caprice and its shareholders, no such application was ever made to the court. The matter has been dealt with wholly out of court.
It should further be noted that the undertakings are in the nature of Mareva injunctions and that the plaintiffs did not give an undertaking for damages.
It seems clear enough that in their terms the undertakings contemplated an application to the court in relation to them. For although infelicitously expressed it is clear enough that they are stated to run until the final hearing and determination of the proceeding, order of the court or agreement to the contrary.
They then, in their operative terms, provide, and paragraph 1 is, I think, sufficient reference in this respect, that Caprice and/or its shareholder members not take any step or execute any document whereby to increase the borrowing by it secured by mortgage upon the factory in the sum of $587,300.
That fundamental obligation is elaborated upon in paragraphs 2, 3 and 4 of the undertaking. Then in paragraph 5 of the undertaking it is stated that all of the assets of Caprice and of Novara will be preserved and not dealt with in any manner except in the ordinary course of business.
The undertaking then goes on to refer to certain orders to be sought from the court by consent, and to which it is not necessary to refer. The circumstances which have led to the application to the court for discharge from the undertakings are referred to in the affidavits in support and conveniently in that sworn by Mr Anderson, who essentially and perhaps perfunctorily states that without the loan, which it is now proposed to obtain in the sum of $60,000, Novara has run out of funds and cannot continue to trade.
Furthermore, he states that with the loan of $60,000 Novara can continue to trade profitably and he produces two cash flow charts that he has prepared. He states that Novara had a temporary overdraft facility of $10,000 on its business cheque account, that the facility expired on 31 January 2006, and that as at 15 February 2006 that limit has been exceeded by $553. He concludes that as Novara no longer has an overdraft facility it is required to pay the sum of $10,552.72 being the actual balance forthwith to Westpac Banking Corporation.
I should say that the relationship between Caprice and Novara is, as referred to in the statement of claim, that Caprice holds the freehold upon which Novara conducts its furniture business, Novara paying rent and, in essence, Caprice’s liability under the mortgage on the property. I should also say that in a separate proceeding heard immediately before this application, I have ordered that a caveat lodged by Mr and Mrs Gillespie over the Caprice land be removed.
In essence the Gillespies claimed that in the arrangement they had for the investing of money in the business and the acquisition of shares, that the Caprice land was to be brought into Novara so that they stood, in effect, as having an equity in the land. This simple, but for present purposes sufficient, reference goes to explain, as I would understand it, the reason for the undertaking from the point of view of the plaintiffs.
It is said by counsel for the plaintiffs that when one looks at the bank statements of Novara and one looks at the materials in Exhibit CBG2 to Mr Gillespie's affidavit and the materials generally, that one can see that Novara has been in financially straitened circumstances prior to and at the time when the subject undertaking was given down to the present time. And it is submitted by counsel for the plaintiffs that in order for the undertaking to be discharged, it is necessary for Caprice to show that there has been a change in relevant circumstances such as to warrant the discharge. The appropriateness of the undertaking cannot be challenged, it was said, and it is not challenged by counsel for Caprice in the sense that in no way did he seek to impugn the validity of the undertaking or the fact that it was duly given by counsel and as such bound Caprice according to its terms. But what is said by counsel for Caprice is that it can be seen by the Anderson affidavit, in combination with the Ives affidavit, that the position of Novara has changed from that described by Anderson; that is, it has hit the wall.
The case is a very unusual one. It is not a case of an injunction like that in the decision to which I was referred by both counsel, namely, Rocket Records Pty Ltd v White[1]. This is a case in which the undertakings were in the form of a Mareva injunction. A Mareva injunction is a form of pre-judgment security. Technically it is granted in circumstances in which it may reasonably be apprehended that if judgment goes in favour of the plaintiff, it will not be satisfied, and it goes in aid of seeking to avoid that. But the fundamental premise upon which Mareva injunctions are granted is that the subject of them, that is the party, is able to continue in their way of life or their business as before. It is the fundamental premise of Mareva injunctions. It is sometimes forgotten, and one sees evidence of this at times in the approach that is made to the amount of money that a person, the subject of a Mareva injunction, ought be allowed to live on pending the hearing and determination of the proceeding. In a sense the undertakings themselves contain provisions which reflect that underlying basis upon which a Mareva injunction is granted, namely, a restraint on the use or disposition of assets and a business being able to continue to act in relation to its assets in the ordinary course of its business.
[1](2001) VSC 368.
Counsel for Caprice ultimately came to submit that paragraph 5 of the undertaking permitted or probably permitted what is proposed; that is to say the further encumbering by fresh mortgage of the Caprice property. The difficulty with that is that the entering into a further mortgage over the subject property is contrary to the express provision of the first undertaking. But there is the tension. It might be supposed that the use of the Caprice property for the raising of funds by the related entity, Novara, was an act done in the ordinary course of business. That is the first thing that immediately strikes one about these undertakings.
The second is that if the plaintiffs had come to court they could hardly have obtained a Mareva injunction against Caprice because while it is a party, it is a party against whom no relief is sought. At the very best it could be said that it was joined on the basis that even if it was not a necessary party, it was a proper party to the proceeding. That is because in the pleading concerning the third loan agreement and share sale agreement, 50 per cent of the shares in Caprice were the subject of the share sale agreement. So the view could have been taken by the draftsman of the statement of claim, and particularly in view of the fact that an order of specific performance was sought of that agreement, that it was appropriate for Caprice to be made a party. But, as I mentioned earlier, no relief was sought against it, and that is consistent with the understanding that I would take of the statement of claim and the reason why Caprice was made a defendant. Furthermore, it is not at all uncommon that a party might be added where a question of its land is concerned. But no relief was claimed against it and I really cannot see how if a Mareva injunction had have been sought, it could have been granted against the second defendant.
I said in the course of argument to counsel for the plaintiffs that paragraph 5 should be struck out. On reflection I am not so sure about that for the reason I just mentioned. It may be that it is a party, as it was considered to be a proper party as shares in it were subject to a claim. Against the possibility that that is so, and subject to anything further that may be said, I therefore will not strike out paragraph 5 of the statement of claim. But that does not alter the fact that it is a party only in the sense that I have referred to.
It is in these circumstances that one comes to decide what it is that ought be done with this matter. In the course of argument, counsel for the plaintiffs stated that he was instructed to give an undertaking for damages. That was a proper thing for counsel to intimate at that stage. Inherent in that is this, that if an undertaking for damages was to be given, as I think it should be, because I think it is quite wrong for Mareva injunctions which do not go in aid of a right but go in aid more to ensuring that one obtains the fruits of a judgment, if they obtain it - in other words, it does not go in aid of something like a contractual or proprietary right. Something like a Mareva injunction should carry an undertaking for damages, but if there is to be an undertaking, the injunction itself has to be brought into and made by the court. We could not have an undertaking in the air, so to speak.
The whole thing should be converted into an injunction, in my view, expressed in appropriate language. If it is approached in that way, and that is how I think it should be approached, in the determination of this issue, then what I have really got in front of me is an application to vary a Mareva to allow the company to raise funds to enable it to conduct its business. And when it is expressed in that way, and not being of the view on the materials that the purpose is bogus or contrived, but genuinely required by the company - and of course I do not overlook in that respect that these are funds to go into the overall exercise - it seems to me appropriate that the injunction, as I would refer to it but meaning the undertaking, be varied so as to permit the further loan to be undertaken.
I have not at the moment referred to the fact that in the submissions that he made, counsel for the defendants, but particularly Caprice in this respect, asserted that if the further loan proceeded that the plaintiffs would be no worse off from the point of view of the equity of Caprice in the land.
To seek to make that submission out, counsel referred to some figures, but it was done in the round, so to speak. The figures were pretty bald. I did not understand the like adverse analysis to be made. The contention of counsel for the plaintiffs really was that it's been a bad show for a long time, and it is only getting worse, if I can put it as simply and perfunctorily as that.
Nevertheless, I have regard to what counsel said as to the plaintiff being no worse off. I also take account of the fact that I have not got precise figures on that aspect.
It is further to be noted that Mr Ives' wife who had lodged a caveat subsequent to that lodged by Mr and Mrs Gillespie which I ordered removed this morning, has indicated that she is to instruct solicitors who will see to the removal of her caveat. That means that the title will be clear from the point of view of the proposed new lender.
I am satisfied, regarding the matter overall and having heard all that counsel have said, that the undertaking should be varied, as I have indicated, to permit this particular loan to proceed. What will be required is that the undertakings be re-written to provide expressly for this. They should be brought up to date and put in appropriate terms for an injunction. There is a degree of repetition in them as presently expressed in my view. It is unnecessary to have all the paragraphs that are in the present undertaking. And there should not exist the tension that exists between undertakings one to four on the one hand and paragraph 5 on the other. What is in paragraph 5 should be rolled into and included in the simple primary restraint.
I will, once that is prepared, take an undertaking from counsel for the plaintiffs as to damages and grant the undertaking. I will hear counsel as to costs. My present inclination is to reserve the costs on the application. I will hear counsel if they wish to say anything about that.
(Discussion ensued re costs and the form of order.)
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