In the matter of Oliver Brown Pty Ltd

[2012] NSWSC 957

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Oliver Brown Pty Ltd [2012] NSWSC 957
Hearing dates:	31 July 2012
Decision date:	01 August 2012
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Hearing dates allocated for 2-3 and 7-8 August vacated. Matter listed before Corporations Judge on 3 September 2012. Costs of argument on 31 July 2012 reserved.
Catchwords:	CORPORATIONS - Corporations Act 2001 (Cth) s 440D - Whether Plaintiffs' claim, or parts of Plaintiffs' claim, stayed by operation of the Act.
Legislation Cited:	- Australian Consumer Law - Australian Securities and Investments Commission Act 2001 (Cth) - Civil Procedure Act 2005 (NSW) ss 56, 57, 58, 98 - Competition and Consumer Act 2010 (Cth) s 51AD - Corporations Act 2001 (Cth) ss 233, 440B, 440C, 440D - Trade Practices Act 1974 (Cth) s 51AD - Uniform Civil Procedure Rules 2005 (NSW) rr 42.1, 42.19(2)
Cases Cited:	- Karabay v Carr [2011] NSWSC 365 - Mead Corporation v Carbonless Papers (Australia) Pty Ltd [2002] WASC 268 - Re Capital General Corporation Ltd; Rodgers v Radly [2000] VSC 570; (2000) 37 ACSR 158
Category:	Interlocutory applications
Parties:	Min Kyu Kim (First Plaintiff) Min Jae Kim (Second Plaintiff) Don Woo Seo (Third Plaintiff) BMJ Chocolata Pty Ltd (Fourth Plaintiff) MTK Chocolata Pty Ltd (Fifth Plaintiff) Byung Sun (Eric) Song (First Defendant) Jacob Jihoon Kim (Second Defendant) Oliver Brown Pty Ltd (Third Defendant)
Representation:	Counsel: J.C. Hewitt (Plaintiffs) J.P. Knackstredt (First Defendant) Solicitors: Dahan Lawyers (Plaintiffs) Clamenz Evans Ellis (First Defendant) No appearance (Second Defendant) No appearance (Third Defendant)
File Number(s):	11/296647

Judgment - EX TEMPORE

1. The Plaintiffs in these proceedings are three individuals, Min Kyu Kim ("MKK"), Min Jae Kim ("MJK") and Dong Woo Seo ("DWS") and two companies, BMJ Chocolata Pty Ltd ("BMJ Co")and MTK Chocolata Pty Ltd ("MTK Co"). The Defendants in the proceedings are Byung Sun (Eric) Song ("ES"), Jacob Jihoon Kim ("JK") and Oliver Brown Pty Ltd ("Company").

1. This matter was listed for hearing before me for six days commencing 31 July 2012. A question has arisen whether, in substance, the hearing dates commencing 31 July should be vacated by reason of recent developments. In particular, JK has recently advised the parties that he was about to file for bankruptcy, although the evidence before me did not indicate whether he had yet done so; the Company has recently been placed in administration; and there have been other recent developments to which I will refer below.

1. The Plaintiffs contend the proceedings are stayed by s 440B of the Corporations Act 2001 (Cth) or alternatively that the Plaintiffs' claims against the Company, and a Cross-Claim by the Company against the Plaintiffs are stayed and it is not in the interests of justice for the balance of the proceedings to go forward. ES contends that the claims against him should be determined.

The nature of the proceedings

1. I should first outline the nature of the claims in the proceedings. By their Amended Originating Process and Amended Statement of Claim, the Plaintiffs seek orders under s 233 of the Corporations Act in respect of oppression and also under the Competition and Consumer Act 2010 (Cth), the Australian Consumer Law and the Australian Securities and Investments Commissions Act 2001 (Cth) in respect of misleading and deceptive conduct, an alleged contravention of the Franchising Code of Conduct and unconscionability.

1. The orders sought in the originating process are that:

• the Defendants refund to the Plaintiffs the amount of their capital contributions to the Company, BMJ Co and MTK Co on terms that the Plaintiffs transfer their shares in those companies to persons nominated by the Defendants.

• orders for the sale of the ordinary shares in the Company, BMJ Co and MTK Co owned by ES and JK to the Plaintiffs.

• damages; and

• declarations that certain provisions of an alleged agreement between the parties referred to in the Cross-Claim are void or unenforceable.

1. The Amended Statement of Claim pleads an agreement, or alternatively an understanding, formed between several persons, inter alia, as to the conduct of a business of operating chocolate cafes under the name "Oliver Brown"; that the Company would grant subleases of those cafes to BMJ Co and MTK Co; and as to the issue of shares in the Company. The Amended Statement of Claim pleads representations made by ES and JK, breaches of the alleged agreement and understanding, misleading and deceptive conduct and a claim of oppression under s 233 of the Corporations Act. The Amended Statement of Claim also pleads that the Company failed to create a disclosure document as required by the Franchising Code of Conduct and failed to give a disclosure document, a copy of the Franchising Code of Conduct or other disclosures required under the Franchising Code of Conduct to the Plaintiffs and thereby breached the Franchising Code of Conduct, s 51AD of the Trade Practices Act 1974 (Cth) and the Competition and Consumer Act and engaged in unconscionable conduct, by which the Plaintiffs claim to have suffered loss and damage.

1. By a Cross-Claim filed in the proceedings, ES and the Company seek orders against the Plaintiffs for payment of specified amounts, on the basis that the Plaintiffs have failed to pay those amounts due to the Company.

Recent developments

1. As I noted above, there have been several recent developments, particularly in the last month. In May 2012, the Company purportedly assigned its trademarks and equipment to a third party, although the Plaintiffs did not become aware of this until documents were produced on subpoena in July 2012. It appears that, in June 2012, the Company took steps to assign the lease of one of the chocolate cafes, at Ryde, to a third party, although it appears that a caveat placed by the Plaintiffs and subsequently interlocutory relief granted by the Court may have prevented completion of that transaction.

1. An administrator was appointed to the Company on 13 July 2012. On 15 July 2012, JK advised he would file for bankruptcy in the following week although the most recent searches undertaken by the parties do not disclose his having done so. On 17 July 2012, the administrator of the Company advised the Plaintiffs' solicitor that the two cafes were operated by different entities, although the Company was currently the lessee of the two cafe premises. On 18 July 2012, the administrator of the Company advised the Plaintiffs' solicitor that they intended to "disclaim" the Company's leases for the Chatswood and Ryde cafes and on 20 July 2012 advised that they had done so. I assume that the reference to "disclaim" here is to the administrators' consenting to the lessor taking possession of the premises under s 440C of the Corporations Act.

Whether the proceedings are stayed or the hearing should be vacated

1. The Plaintiffs contend that the entirety of these proceedings are currently stayed by s 440D of the Corporations Act which provides that, during the administration of a Company, a proceeding in a court against the Company or in relation to any of its property cannot be begun or proceeded with except with the administrators' written consent or with the court's leave. I do not consider that I need to determine whether the stay under s 440D of the Corporations Act operates as widely as that, in order to determine the question that presently arises for determination.

1. It is in any event clear that significant parts of the Plaintiffs' claim are presently stayed by s 440D of the Corporations Act. First, its oppression claim and the consequential relief sought in respect of the transfer of shares in the Company are presently stayed. In Re Capital General Corporation Ltd; Rodgers v Radly [2000] VSC 570; (2000) 37 ACSR 158, Warren J pointed to the purpose of s 440D in "freezing" a company's affairs and ensuring that an administrator's role was not "frustrated or interfered with or distracted by other matters such as legal proceedings" and held that the stay under that section extended to oppression proceedings which were primarily brought against a group of shareholders but also against the company under administration. While the oppression claim here is primarily brought against ES and JK, the Company is party to it and would be bound by the orders made. The continuance of that claim falls within the language of s 440D of the Corporations Act and also within its policy, so far as the need for the administrator to determine his or her attitude to that claim would distract the administrator from other aspects of its role. The claim brought by the Plaintiffs against the Company under the Franchising Code of Conduct and for unconscionability is plainly also a proceeding against the Company within the meaning of s 440D of the Corporations Act and would also be stayed.

1. The Plaintiffs could, of course, seek to avoid the effect of the stay by requesting the administrator's consent to the proceedings against the Company or seeking the court's leave for such proceedings. They have indicated that they are not presently in a position to make that application, without ruling out the possibility that it may in future be made. In my view, the Plaintiffs are well-advised to wish to make an assessment of whether the costs of pursuing that claim will be worthwhile where, as they have now discovered, the Company has purported to dispose of its trademarks and equipment acquired at substantial cost for a relatively small amount and the administrator has "disclaimed" its leases. The Plaintiffs have recognised that they may be better advised to seek to acquire the leases themselves by negotiations with the lessors and, if they were to pursue a claim against the Company, it is only likely to have utility if expanded so as to seek to challenge the disposal of the Company's trademarks and equipment so that the order sought for transfer of the Company's shares to the Plaintiffs has practical utility. I do not consider that the Plaintiffs could reasonably be required to assess the implications of these matters, and make a decision how to address them, within the relatively short time since these matters have, in the case of the disposal of the trade marks and equipment, come to their attention and in the case of the disclaimer of the leases, occurred.

1. A further difficulty arises because ES and the Company have brought a Cross-Claim against the Plaintiffs for substantial amounts. ES has indicated that, if the hearing proceeds, he will not press that Cross-Claim. The administrators have not appeared and the position as to that Cross-Claim is unknown. It is at least arguable that the Company's Cross-Claim is also stayed on one of the two bases identified by Hasluck J in Mead Corporation v Carbonless Papers (Australia) Pty Ltd [2002] WASC 268 at [84]-[85]. First, his Honour noted that s 440D was not:

"intended to confer special procedural advantages on a party to litigation which would be the case if a company in administration was able to press a counterclaim against a third party while sheltering behind the temporary immunity afforded to it by a stay of the third party's claim pursuant to section 440D."

Further, the Cross-Claim relates to the Company property for the purposes of s 440D, namely its contractual claim to the amounts alleged to be owing by the Plaintiffs.

1. In this case, the Plaintiffs' claim and the Cross-Claim each rely on agreements alleged to have been reached orally in conversations commencing in March 2010, albeit those agreements are alleged in different terms. If the Company's Cross-Claim were to proceed, there is a substantial likelihood that both the Plaintiffs and ES would have to give evidence as to the relevant conversations twice, once in respect of the Plaintiffs' claim against ES and again in relation to the Cross-Claim. That would be particularly disadvantageous to the Plaintiffs, not only raising the usual difficulties of splitting witnesses' substantive evidence in proceedings, but doing so in circumstances where they would be exacerbated where English is not the Plaintiffs' first language.

1. I am required to exercise my discretion whether to vacate the hearing date having regard to the matters specified in s 58 of the Civil Procedure Act 2005 (NSW) and must seek to act in accordance with the dictates of justice. In determining the dictates of justice in a particular case, the Court must have regard to the provisions of ss 56 and 57 of the Civil Procedure Act and may have regard to other specified matters, including the degree of injustice that would be suffered by the respective parties by reason of any order. Section 56 in turn identifies the overriding purpose of the Act as being to facilitate the just, quick and cheap resolution of the matters in dispute in the proceedings. Section 57 identifies the objects of case management, namely the just determination of the proceedings, the efficient disposal of the court's business, the efficient use of available judicial and administrative resources and the timely disposal of the proceedings and all other proceedings in the court at a cost affordable by the respective parties.

1. I am very conscious of the disadvantage to ES of vacating the hearing date at this stage, where he has incurred the costs of preparation of the proceedings and, understandably, does not wish to have the claims brought against him left unresolved for longer than necessary. There are also several other factors which tend against vacating the hearing date, including the fact that other parties have lost the opportunity to have matters listed in the six days allocated for this hearing and the delay which is likely before the matter could again be set down, if this hearing is vacated.

1. However, I have concluded that there would be substantial injustice to the Plaintiffs in proceeding to a hearing as matters stand, given the developments in the Company's affairs in the last month, the substantial costs which would be incurred in a six day hearing, the fact that the Plaintiffs' claims against the Company would not presently proceed, the doubt as to whether the Company would now have assets available to meet a judgment against it and that the hearing would not determine the Company's Cross-Claim against the Plaintiffs.

1. As matters presently stand, a substantial part of the Plaintiffs' case is stayed and the utility of seeking leave to pursue those claims is uncertain given the events to which I have referred. As I have noted, proceeding to a hearing would expose the Plaintiffs to the risk that they would be cross-examined twice, in relation to several meetings over an extended period, in respect of their claim against ES and the Cross-Claim, as well as raising the risk of inconsistent factual findings if new evidence were to emerge on a second cross-examination. I have therefore concluded that there is no alternative other than to vacate the hearing dates and relist the matter for directions before the Corporations Judge on 3 September 2012 as the Plaintiffs propose.

1. There remains the question of costs thrown away by vacating the hearing date. In Karabay v Carr [2011] NSWSC 365 at [16], Harrison J observed that a party applying for an adjournment occasioned by that party's own fault, and without fault or counterveiling considerations on the other side, would ordinarily, if not usually, be ordered to pay the costs of the other party thrown away or occasioned by the adjournment.

1. I do not think that there has been such fault on the Plaintiffs' part, nor has any fault on ES's part been established in respect of these matters. The Plaintiffs have been faced with significant developments in the period shortly before the hearing to which I have referred above. ES criticises the Plaintiffs for not raising the impact of these matters on the hearing date when the matter was before the court on 16 or 23 July, but the first of those dates was prior to the surrender of the Company's leases and the second shortly after it. It is not surprising that it would have taken some time to assess the significance of these matters, and the Plaintiffs made clear by their solicitor's letter dated 27 July their view that they did not consider the hearing could proceed in the light of these events.

1. I do not consider that there has been fault on the part of the Plaintiffs which warrants an order for costs thrown away against them. There is no suggestion that they have contributed to the events which have required the hearing dates be vacated.

ES's Cross-Claim

1. The Plaintiffs have sought an order that ES be directed to discontinue his Cross-Claim by filing a notice of discontinuance and paying the Cross-Defendants' costs pursuant to Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 42.19(2). As I noted above, ES had indicated, by his solicitor's letter dated 27 July 2012, that he would not press that Cross-Claim in the light of the recent events. There is no suggestion that the Plaintiffs have relied to their detriment on that statement, which was plainly made in the context that ES was seeking to preserve the hearing dates notwithstanding the recent events. Where those hearing dates are to be lost, I do not consider that the interests of justice would support the direction sought, even if the court otherwise had jurisdiction to make it. I will not make that direction. It may be that recent events will require amendment both of the Plaintiffs' claims and of ES's Cross-Claims if they are to be pursued.

Orders and costs

1. Accordingly, I make the following orders:

1. The hearing dates allocated for these proceedings on 2-3 and 7-8 August 2012 be vacated.

2. The proceedings be listed before the Corporations Judge for directions on 3 September 2012.

3. Liberty to apply on two days notice.

1. My tentative view was that the proper course was to reserve the costs of the argument before on 31 July 2012 in respect of whether the hearing should proceed me but I heard the parties as to the question of the costs of that argument.

1. Mr Hewitt, who appears for the Plaintiffs, submits that costs should follow the event and that his client was substantially successful on the main issue before me, namely, the question whether the hearing dates should be vacated. Mr Knackstredt, who appears for ES, submits that either costs should be costs in the cause or alternatively that costs should be reserved on the basis that first, the Plaintiffs could have proceeded with the hearing date; second, they only gave notice of their intention not to do so at a late stage and, Mr Knackstredt contends, ambiguously; and third, ES should not be visited with the costs of the argument in circumstances that ES was seeking to avoid the waste of costs involved in vacating the hearing date.

1. While s 98 of the Civil Procedure Act and UCPR r 42.1 establish a general position that costs will follow the event, that general position is subject to the exercise of the court's discretion. It is by no means clear to me that this is a proper case for costs to follow the event where both parties have been visited with events that they have not, on the evidence before me, caused which have led to outcomes that are adverse to each of them.

1. I think it likely that the court will be in a better position to exercise a discretion as to costs once the future development of the proceedings is clear. In particular, what occurs in terms of amendments in respect of either party's case may be relevant to the question of costs. It is also possible that the ultimate outcome of the proceedings will be relevant to the question of costs. In these circumstances, I consider that the proper course is to reserve the costs of argument before me on 31 July 2012 on the basis that it may be agitated before me or the trial judge at a time when greater information is known as to the ultimate outcome.

1. Accordingly, I reserve the costs of the argument before me on 31 July 2012.

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Decision last updated: 07 September 2012