Global Realty Development Corp v Dominion Wines Ltd (in liq)
[2005] VSC 474
•8 December 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 9712 of 2005
| GLOBAL REALTY DEVELOPMENT CORP (a Delaware company) | Plaintiff |
| V | |
| DOMINION WINES LTD (IN LIQ) | First Defendant |
| MARK F MENTHA | Second Defendant |
| PLUNKETT KILLEEN PTY LTD | Third Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2 December 2005 | |
DATE OF JUDGMENT: | 8 December 2005 | |
CASE MAY BE CITED AS: | Global Realty Development Corp v Dominion Wines Ltd (in liq) | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 474 | |
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CORPORATIONS – application for interlocutory injunction to restrain completion of contract for the sale of assets of company in liquidation pending application to set aside creditors’ resolution for winding up – whether serious question to be tried – balance of convenience – other discretionary considerations.
PRACTICE AND PROCEDURE – application for interlocutory injunction – whether abuse of process where second interlocutory application being made for the same relief.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R G Forster, SC Mr G Drew | Mills Oakley Lawyers |
| For the First and Second Defendants | Mr R Brett, SC Ms C Harris | Deacons |
| For the Third Defendant | Mr E Woodward | Maddocks |
HIS HONOUR:
On Friday 2 December 2005 an urgent application for an interlocutory injunction was heard in the directions list of the Corporations List and the application was dismissed. I indicated that my reasons would be delivered later and these are the reasons for dismissing the application.
The plaintiff (“Global Realty”) sought an interlocutory injunction to restrain the completion of a contract of sale of land and the winery erected thereon. The vendor is the first defendant company (“Dominion Wines”) and the second defendant is its liquidator (“Mr Mentha”). The purchaser is the third defendant company (“Plunkett”). The settlement date for the contract of sale was Monday 5 December 2005, hence the urgency of the application.
The proceeding was commenced on 23 November 2005 in the Supreme Court of New South Wales. It was transferred to the Supreme Court of Victoria by order of Barrett J on 30 November 2005. By the same order Barrett J dismissed Global Realty’s application for an interlocutory injunction seeking the same or substantially the same relief as was later sought before this Court on 2 December 2005.
The relief sought in the proceeding was an order, pursuant to s.600B(3) of the Corporations Act 2001 (Cth) (“the Act”) to set aside the resolution for the winding up of Dominion Wines passed at the reconvened second meeting of creditors, under Part 5.3A of the Act, held on 3 November 2005.
The prime asset of Dominion Wines is 107 acres of freehold land in the Strathbogie Ranges upon which was erected in 1999 a purpose-built contract wine-making facility with a production capacity of 7,500 tonnes of wine grapes. The land also has 24 acres under vine and Dominion Wines produces its own wine as well as providing the winery to other grape growers.
Global Realty is a creditor of Dominion Wines. On or about 20 September 2005 Mr Mentha was appointed administrator of Dominion Wines by resolution of its directors. Dominion Wines had previously been in voluntary administration between July 2004 and December 2004. Shortly after Mr Mentha’s appointment in September 2005 he advertised the land and winery for sale. Whether or not the directors were aware of the administrator’s intention to so advertise, they became aware of the advertisement on or about 22 September 2005.
In an administrator’s report dated 7 October 2005, Mr Mentha said that he had commenced an intensive sale of business campaign on 22 September 2005 to identify potential purchasers of the company and/or its assets. Mr Mentha also reported that he had sought expressions of interest from parties interested in refinancing Dominion Wines’ finance facilities, obtained from a secured creditor (hereafter referred to as “GE”).
Mr Mentha’s report of 7 October 2005 gave details of the implementation of his “three point plan”, consisting of business as usual, sale process and statutory reporting. His report set out a short timetable for the sale process and also referred to a possible deed of company arrangement (“DOCA”) proposed by the directors and Global Realty. Mr Mentha commented that the directors had advised him that they had been in discussion with a potential foreign investor for a number of months but that, to date, he had not been provided with evidence to give him any comfort that this investment was likely. He also referred to discussions by the directors with an alternate financier who had a genuine interest but was yet to provide a binding letter of offer. He said that he had asked the directors to provide him with a letter from the financier containing an unconditional offer of not less than $2.7M to support the proposed DOCA.
The second meeting of creditors was held on 17 October 2005. The chairman advised the meeting that two binding offers had been received (for the land and winery) and that, in Mr Mentha’s view, one of the offers would provide a better return to creditors than the proposed DOCA. A resolution was passed that the meeting be adjourned for a period of up to 60 days.
An updated report was provided to creditors, dated 24 October 2005. Mr Mentha advised that, having received a firm offer to purchase the business and assets of Dominion Wines supported by a material deposit prior to the meeting on 17 October 2005, he had now executed a sale agreement with the purchaser. Mr Mentha advised the creditors that a condition precedent to the sale agreement was that the creditors must vote in favour of liquidating Dominion Wines at the reconvened second meeting. He said that the contract provided a better return to creditors than the current proposed DOCA but that any amended proposed DOCA would be tabled and discussed at the meeting which was reconvened for 3 November 2005.
At the reconvened meeting Mr Mentha as chairman stated that a sale agreement had been executed with Plunkett on 21 October 2005. Mr Mentha also advised the meeting that the previous evening he had received a proposal for a revised DOCA. Details of the sale contract and the revised DOCA were provided to the meeting and a number of slides were presented, the final one of which contained Mr Mentha’s recommendation that Dominion Wines be wound up and that it would not be in the creditors’ interest for the administration to end or for the proposed revised DOCA to be executed. The minutes of the meeting record that Mr Mentha’s spokesman advised the creditors that the proposal from the directors was not unconditional and was subject to considerable completion risk. One of the directors of Dominion Wines (Mr Carl Voss) also addressed the meeting supporting a further adjournment of the meeting in order to finalise dealings with a private equity party and also the specifics of the revised DOCA. Mr Mentha’s spokesman in effect warned the meeting that the adjournment of the meeting would result in the termination of the agreement with Plunkett – there was “a choice between certainty and the opportunity for a higher return based on uncertainty”.
There was a poll on the resolution for winding up and the result was that 22 creditors voted for the resolution with a combined valued of $193,206.55 and 9 creditors voted against the resolution with a combined value of $4,322,919.30. Further, the chairman exercised proxies of a further 5 creditors with a value of $127,579.55 in favour of the resolution. As there was a majority in number for the resolution and a majority in value against the resolution, Mr Mentha advised that he would exercise his casting vote and stated that he had formed the opinion, on the information available and because of the more certain return, that it was in the best interests of creditors to wind up the company, and that he would cast his deciding vote in favour of the motion to wind up Dominion Wines. Under the resolution Mr Mentha was confirmed as liquidator.
Affidavit material filed on behalf of Global Realty indicated that the directors of Dominion Wines were not aware prior to 22 September 2005 that Mr Mentha was intending to sell the winery. That material also suggests some inaccuracies in the minutes of the reconvened second meeting and that the minutes do not record all that occurred at the meeting. In particular, there is a complaint that a motion to adjourn the meeting was not put to the meeting nor a motion to adopt the revised DOCA.
Global Realty’s affidavit material also endeavours to explain the delay between the passing of the winding up resolution on 3 November 2005 and the commencement of the present proceeding on 23 November 2005. There are references to a delay in obtaining the minutes of the meeting, to discussions with Peter Voss (a principal investor in Dominion Wines and Global Realty) who was in the United States at the time, and to obtaining legal advice. There is also a reference to the fact that the head office of Global Realty is located in Florida and was damaged in a hurricane, although how this caused a delay in the commencement of this proceeding is not stated. Finally there is a reference to obtaining advice from counsel including senior counsel in the period from 16 November to 19 November 2005 and to the return of Peter Voss to Australia on 19 November 2005. An affidavit from Global Realty’s solicitors shows that the liquidator was advised by letter on 16 November 2005 that Global Realty was considering its position and that the letter resulted in correspondence on behalf of the liquidator advising that settlement of the contract with Plunkett was scheduled for 5 December 2005.
An answering affidavit was sworn by Mr Mentha on 25 November 2005 and filed in the Supreme Court of New South Wales. The contract with Plunkett was exhibited and the affidavit contained material in relation to whether the proceeding should be heard in the Supreme Court of New South Wales. Among other things, an order was sought by the first and second defendants that the proceeding be transferred to the Supreme Court of Victoria or the Federal Court in Victoria.
The application before Barrett J was heard on 28 November 2005 and judgment was given on 30 November 2005. Barrett J ordered that the proceeding be transferred to the Supreme Court of Victoria under s.1337H(2) of the Act. His Honour also dismissed Global Realty’s application for an interlocutory injunction. His Honour referred to the alleged shortcomings relied upon by Global Realty to undermine the integrity of the resolution for winding up. His Honour rejected the plaintiff’s submission that the chairman should have preferred the majority in value over the majority in number when exercising his casting vote and added, referring to authorities,[1] that the correct approach was for the chairman to proceed according to what he believed to be in the best interests of those affected, considering also the objectives of Part 5.3A, and that a distinction was to be drawn between the propriety and the wisdom of the decision, the latter probably being non-justiciable. However his Honour found that there was a serious question to be tried under s.600B, on the basis that Mr Mentha may have taken steps to ensure that the winding up resolution was passed in order to satisfy the condition in the sale agreement and that he had subscribed to the sale agreement with an intention of maximising the chances of a successful completion of the sale and that this might on full investigation be found to be something that was not in the best interests of the creditors. His Honour also referred to possible problems with voting by non-creditors (and failure to supply information at the meeting, although that was not a particularly strong ground). A few other matters were mentioned.
[1]Citing Young v Sherman (2002) 170 FLR 86 and Kirwan v Cresvale Far East Ltd (2002) 44 ACSR 21.
Turning to the balance of convenience, Barrett J mentioned that the granting of an injunction might force Dominion Wines into a breach of contract but he emphasised that the plaintiff would have to give the usual undertaking as to damages and it was a foreign corporation having no presence in Australia. The latter fact brought into operation the principle that there was a heavy onus on a foreign plaintiff to show a capacity to meet the undertaking as to damages.[2] His Honour said that the plaintiff was given an opportunity to adduce evidence of its assets within the jurisdiction but declined the opportunity and that the sum of $50,000 offered to be paid into Court by way of security was manifestly inadequate. Finally his Honour raised the problem (which remains unresolved in the present application), that, if the liquidator was restrained from acting as such, who would control Dominion Wines pending trial. Accordingly the application was dismissed.
[2]See Hotline Communications Ltd v Hinkley (1999) 44 IPR 445, 456-7; Advanced Communications Technologies Inc v Advanced Communications Technologies (Aust) Pty Ltd [2002] VSC 348, J Aron & Co v Newmont Yandel Operations Pty Ltd (2003) 47 ACSR 243, 247-8.
Upon the transfer of the proceeding to this Court, Global Realty urgently renewed its application for interlocutory injunctions including an injunction to prevent completion of the sale to Plunkett.
It was submitted on behalf of the defendants that this second attempt to obtain the same interlocutory relief constituted an abuse of process.
Reliance was placed by the defendants upon the decision of the Court of Appeal of this Court in D.A. Christie Pty Ltd v Baker[3]. In that case the County Court had refused an application under s.23A of the Limitation of Actions Act 1958 for an extension of time to bring an action in respect of an alleged injury because of the lack of explanation for a period of delay. Some two years later the applicant made a second application to a different County Court Judge supported by further evidence giving an explanation for the delay. That application was granted and the respondent appealed. The Court of Appeal (Brooking and Hayne JJA, Charles JA dissenting) allowed the appeal. Hayne JA (as he then was) referred to principles relating to abuse of process where it was sought to re-litigate a case which had already been disposed of by earlier proceedings. He said that there would be powerful reasons to conclude that a second application was vexatious where it was brought on precisely the same material as the first application, or the additional material put forward on the second application was available at the time of the first application or no explanation was proferred for why it was not put forward at the time of the first application.[4] Hayne JA referred to “the important public interest in ensuring that judicial determinations are binding, final and conclusive and that there should not be conflicting decisions on the same issue …”.[5] However, he added:
“Whether the same considerations apply to interlocutory applications … those under the control of and generally within the discretion of the court in which the action is brought – is not a matter I have to decide. Nothing I say here should be read as deciding whether the renewal of such an application is an abuse of process.”[6]
[3][1996] 2 VR 582.
[4][1996] 2 VR 582, 603-604.
[5][1996] 2 VR 582, 605.
[6][1996] 2 VR 582, 605.
In the light of the last mentioned reservation, I reject the defendants’ contention that the case is direct authority in the present circumstances. No doubt the Court has a discretion to prevent what in its view is an abuse of process in all the circumstances, but the case is not authority for the proposition that there is the same rule of practice in relation to all interlocutory applications. Nevertheless, a litigant making such a second application is taking serious and self-created risks of an adverse exercise of judicial discretion.[7]
[7]See Nominal Defendant v Manning (2000) 50 NSWLR 139, 156 per Heydon JA.
In the present application two additional matters need to be mentioned. Global Realty was in receipt of legal advice for some time prior to the making of the first application. It should have known that as a foreign corporation it was obliged to provide evidence of capacity to meet the usual undertaking as to damages or that it should provide security, particularly in a situation where the potential damages were very substantial. In addition, it was abundantly apparent at the time of the hearing before Barrett J that this requirement called for immediate action. The evidence does not show that anything was done or give any explanation as to why no adequate security had been offered by 30 November 2005 when judgment was delivered by Barrett J.
In those circumstances a second application for the same relief has been brought before this Court on the same material, the only difference being that it is now stated that substantial security in the sum of $5M can be made available without offering any or any adequate explanation as to why that was not organised on or prior to 30 November 2005. I should add that when the application was made on 2 December 2005 the sum of $5M had still not arrived and it was agreed that, should it be held that the relief should otherwise be granted, the making of orders would have to await the morning of Monday 5 December 2005, to ascertain whether the funds were available.
I tend to the view that the making of a second application in those circumstances is an abuse of process and that the application should be dismissed on that ground alone. However, I heard the parties on the whole application and I prefer to determine it on all issues raised. It seems to me that, in any event, the matter of the application being made for the second time weighs heavily in the Court’s discretion when considering whether an interlocutory injunction should be granted.
I therefore turn to the question whether there is a serious question to be tried.
Section 600B of the Act is applicable in the circumstances in that, because of the chairman exercising a casting vote, a resolution for the winding up of Dominion Wines was passed at the second meeting of creditors under Part 5.3A of the Act[8]. The plaintiff voted against the resolution and is thus entitled to apply to the Court for an order setting aside or varying the resolution[9]. The Court is empowered on such application to set aside or vary the resolution. Section 600B lays down no criteria for the exercise of the discretion so vested in the Court. Matters relating to the conduct of the meeting and any voting irregularities may be relevant. Clearly enough the objects of Part 5.3A[10] and the interests of the creditors and members of the company will necessarily be prime matters to be considered by the Court. However the Court’s discretion, although unfettered, would generally not be used to interfere with a casting vote exercised on the basis of an honest and relevant assessment of the chairman. The chairman’s assessment will usually be informed by his or her commercial experience, in particular in relation to insolvency matters. The wisdom of the decision is not a matter for the Court, although no doubt a casting vote made on the basis of an assessment that is not reasonably open to be made might well be set aside.
[8]S.600B(1) of the Act.
[9]S.600B(2) of the Act.
[10]S.435A of the Act.
On the present application I respectfully adopt what was said by Barrett J. There is a serious question to be tried. Nevertheless it cannot be regarded as a particularly strong one where the choice was between a certain contract for $4.1M[11] immediately available, and a revised DOCA where the finance and conditions were still a matter of uncertainty and they involved further inevitable delays. In addition to the matters raised before Barrett J, counsel for Global Realty contended that the administrator had improperly fettered his statutory powers and duties by causing Dominion Wines to contract with Plunkett on terms in substance that Dominion Wines’ best endeavours would be used to obtain a winding up resolution. Even if that is correct, if the decision ultimately made was in the best interests of the creditors as a whole, it might well prove difficult to succeed in setting aside the resolution. Further, a substantial number of creditors voted in favour of the resolution for winding up and it is to be noted that Global Realty’s debt, which made up part of the amount voted against the resolution, was the debt of a related creditor. Be that as it may, I think that this application is primarily determined by the balance of convenience and other discretionary considerations.
[11]This was $1.1M in excess of the only other offer that had been made.
A refusal of the injunction will no doubt deny the utility of the ultimate relief sought by the plaintiff, but I think nevertheless that the application should be refused.
I am particularly influenced by the position of Plunkett which is a company that is an innocent third party that entered an arms’ length contract in good faith. I am satisfied that in the case of Plunkett damages would probably not be an adequate remedy. The evidence is that the land and the winery is a unique property and facility with unique qualities for Plunkett. In addition, an injunction would cause immediate and significant commercial inconvenience to Plunkett. It is entirely unsatisfactory that this application should be made at the last minute and just before the time for the settlement of the contract. Plunkett has already made arrangements for a meeting on the afternoon of 5 December 2005 with representatives of the Fosters Group to organise the processing of grapes by a merged Plunkett Wines[12] and Dominion Wines facility. It will be necessary for Plunkett to organise a number of matters within the next 8 to 10 weeks and any delay would prejudice the scheduling of grape processing and the contracts on which Plunkett’s proposed merged business will rely. The evidence to which I refer was detailed in an affidavit of Philip Grant Jones sworn 2 December 2005, evidence that was not available on the first application.
[12]A company related to Plunkett.
Further it seems to me that the grant of an injunction is probably not in the interests of the creditors as a whole for substantially the same reasons as were advanced at the second creditors meeting in support of the winding up resolution. If settlement of the contract is delayed, the contract may be lost and the creditors will lose the certainty of a price $1.1M higher than the only other offer obtained and face the uncertainty of the revised DOCA proposal which has been in no way advanced, so far as the evidence shows, in the period of one month which has elapsed since the winding up resolution. The DOCA proposal is itself somewhat vague and unsatisfactory.
Again, there is a secured creditor, GE, which at any time may appoint a receiver who would proceed to sell the assets of Dominion Wines in any event. There is evidence that GE stated that it would so act if an injunction were granted.[13]
[13]Counsel for Global Realty mentioned the possibility that GE might be paid out to avoid such a consequence but there was no evidence that this would probably occur.
In my opinion the foregoing matters show that the balance of convenience is very strongly in favour of the defendants. In addition there is the matter of delay generally, and the discretionary considerations which arise from the circumstances of this application being made a second time, to which I have earlier referred.
Looking at the matter as a whole it is neither just nor convenient to grant the interlocutory relief sought by Global Realty. For those reasons the application was dismissed with costs.
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