Maras v Manos

[2007] SASC 175

Supreme Court of South Australia

(Civil)

MARAS & ORS v MANOS & ORS

[2007] SASC 175

Judgment of The Honourable Justice Debelle (ex tempore)

14 May 2007

EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS

Dissolution of business relationship of first plaintiff and first defendant – first plaintiff and first defendant jointly control tenth defendant - orders made allowing first defendant to execute documents on behalf of tenth defendant to preserve capacity of tenth defendant to purchase property from third party - application by first to fourth defendants to discharge orders on grounds that plaintiffs did not make full disclosure – whether non-disclosure warrants the orders being set aside.

Behbehani v Salem (1989) 1 WLR 723; Brown v Newall (1837) 2 My & Cr 558; 40 ER 752; Dalglish v Jarvie (1850) 2 Mac & G 231; 42 ER 89; Dease v Plunkett (1843) 1 Drury 255; Holden v Waterlow (1866) 15 WR 139; Thomas A Edison Ltd v Bullock (1912) 15 CLR 679, applied.
Lane v Channel 7 Adelaide Pty Ltd (2004) 232 LSJS 234, considered.

MARAS & ORS v MANOS & ORS
[2007] SASC 175

Civil

1. DEBELLE J.        This is an application to discharge orders in the nature of injunctions made on 20 April 2007. The application is made orally pursuant to a grant of liberty to apply generally in respect of the action.

2. The orders were made in the following circumstances.  Messrs Manos and Maras have, since 1980, been engaged in a business relationship in which they have effectively been partners in a number of projects for the development and management of real estate.  In 2004, they decided to bring their joint enterprise to an end. However, they have been unable to agree on the terms on which they should dissolve their joint enterprise.

3. Messrs Manos and Maras control a number of companies. Some of those companies they control together. Other companies are family companies of each Messrs Manos and Maras.  One of the companies which they jointly control is called Rundle East Company Pty Ltd. For convenience, I will call it “Rundle East”. Since 29 August 2003, Messrs Manos and Maras have been the only directors of Rundle East. Rundle East has two shareholders, each of which holds one of the two issued shares in the company. The two shareholders are family companies of each Messrs Manos and Maras, that is to say, the family trusts of Messrs Manos and Maras each hold one half of the beneficial interest in Rundle East.

4. By memorandum of lease dated 1 December 1993, Rundle East leased seven allotments of land in Rundle Street from the Minister of Housing, Urban Development and Local Government Relations. The lease by which Rundle East leases the allotments in Rundle Street contains provisions by which Rundle East may exercise an option to purchase the properties the subject of the lease. The option must be exercised before 30 June 2007.  Mr Maras has informed Mr Manos that he believes that Rundle East should exercise the option to purchase.

5. The lease agreement provides a number of steps which must be implemented before the option to purchase can be exercised. Shortly stated, it is necessary that Rundle East first give notice of an intention to exercise the option: see clause 52.3.  The parties then have 20 days in which to negotiate and agree the purchase price: see clause 52.4.1. If they are unable to agree a purchase price, each party is to appoint a valuer to value the market value of the land: see clause 52.4.2. Once the valuations have been prepared, a formula is fixed by which clause 52.4.3 determines the purchase price of the properties in Rundle Street.

6. On 2 April 2007, Mr Maras instituted proceedings seeking orders to enable the dissolution of the business relationship with Mr Manos. On 20 April 2007, I heard an application for a mandatory injunction ordering Manos, among other things, to execute a resolution to enable Rundle East to commence the process by which to exercise the option to purchase, that is to say, to give notice of the intention of Rundle East to exercise the option pursuant to clause 52.3.  I did not make the orders sought but made other orders in their place. The orders I made were as follows:

   1.The first plaintiff be at liberty and is hereby authorised to do all things and to execute all documents as shall be necessary for the tenth defendant to give the written notice pursuant to clause 52.3 of the lease dated 28 October 1993 between the Minister of Housing, Urban Development and Local Government Relations and the tenth defendant and registered no 7634950 (“the lease”).

   2.Until further order, the first plaintiff be and is hereby authorised for and on behalf of the tenth defendant to negotiate a price for the purchase of the properties the subject of the lease.

   3.Neither the first defendant nor the tenth defendant shall agree the purchase price of the properties the subject of the lease or enter into an agreement to purchase the said properties unless and until this Court authorises them to do so.

   It is apparent from my reasons for giving those orders that the orders were made to preserve the capacity of Rundle East to exercise the option and thereby to preserve an asset of Rundle Street. In this way, an asset that was one of the assets held as part of the business relationship of Messrs Manos and Maras will be preserved.

7. The giving of the notice of the intention to exercise the option is the first step in a process which has at least two other steps, a process which, as is apparent from the facts already recited, could take a little time. As I said in my reasons for making the order:

   [I]t is necessary to permit the first steps in the exercise of the option to purchase to be implemented lest time expire and the capacity to exercise the option be set at nought. At the same time nothing should be done adversely to affect the interests of Mr Manos.

   In that sense, the order did no more than preserve the status quo and that was the intention of the order. It enabled the preservation of an asset to the mutual advantage of Messrs Manos and Maras. If preserved, the asset can be included with all other assets which are the subject of these proceedings.

8. On 20 April 2007, Mr Manos was in China. The proceedings had come on without any notice to him before he had left on his overseas trip. It was plainly difficult for his legal advisers to obtain full instructions and I was reminded of that in the course of the hearing. I had regard to that fact. Mr Manos has since returned to Australia.

9. Mr Manos applies to have the orders set aside on the ground that Maras did not make full disclosure when obtaining the orders on 20 April. Mr Manos relies on a letter dated 12 April 2007 sent by Shaw Lawyers, the solicitors for Maras, to Mr Gibbings, the chief executive officer of Land Management Corporation which is conducting the negotiations in relation to the purchase of the Rundle Street properties on behalf of the Minister of Housing, Urban Development and Local Government Relations. In that letter, Maras Group (Aust) Pty Ltd seeks to purchase the Rundle Street properties, the subject of the lease, from the Minister of Housing and Urban Development and Local Government Relations. The letter came to light in the process of discovery between the parties.  Maras Group (Aust) Pty Ltd is a company controlled by Maras. For convenience I will call it “Maras Group”.

10. It is unnecessary for the purposes of dealing with this application to recite all of the terms of the letter dated 12 April from Shaw Lawyers.  It is sufficient for present purposes to note paragraphs 2.1 and 2.2 of the letter:

    2.1We are instructed that our client, Maras Group (Aust) Pty Ltd, is prepared to enter into a contract to purchase the Minister’s freehold interest in the East End properties on exactly the same terms as Rundle East Company would purchase the East End properties if the Call Option were exercised under the Lease.

    2.2The contract would, of course, be conditional upon Rundle East Company not exercising its Call Option by 30 June 2007.  If Rundle East Company exercises its Call Option within that period, then the Minister’s freehold interest would be sold to Rundle East Company in accordance with the Lease.

    As is apparent, Maras Group offers to purchase the freehold interest in the Rundle Street properties on the same terms as Rundle East would purchase them if the call option were to be exercised.  However, that offer is conditional upon Rundle East not exercising the option to purchase.  This letter was not disclosed at the hearing on 20 April. It is on that ground that Manos applies for an order discharging the orders which were made on 20 April.

11. It is well settled that it is the duty of a party seeking an injunction on an ex parte application to bring to the notice of the court all facts material to the determination of that party’s right to the injunction: Thomas A Edison Ltd v Bullock (1912) 15 CLR 679 at 681-683. The utmost good faith is required. The duty is to make full and fair disclosure of the entire facts of the case: see Thomas Edison at 682, Holden v Waterlow (1866) 15 WR 139, Dease v Plunkett (1843) 1 Drury 255 and Brown v Newall (1837) 2 My & Cr 558; 40 ER 752. That obligation has been repeatedly re-affirmed: see, for example, Lane v Channel 7 Adelaide Pty Ltd (2004) 232 LSJS 234 at [8] to [11]. Unless the applicant has made a full and candid disclosure of all facts relevant to the determination of the question whether the injunction should be ordered an ex parte injunction will, in almost all cases, be discharged: Thomas A Edison v Bullock at 682 and Holden v Waterlow.

12. The party seeking the injunction is not necessarily excused from making full disclosure because he has believed that particular matters known to him are not material, although that belief may be relevant to the exercise by the court of its discretion whether to discharge the order: see Dalglish v Jarvie (1850) 2 Mac & G 231; 42 ER 89; Behbehani v Salem (1989) 1 WLR 723; and Spry, Equitable Remedies (6^th Edition) at 496.

13. These principles apply upon the hearing of an ex parte application. They apply with equal force to any application for injunction. Plainly, they apply in this case especially given that Mr Manos was in China and the difficulties his legal advisers had in obtaining full and complete instructions from him.  It is by reference to those principles that I proceed to determine this application.

14. The orders which were made on 20 April 2007 were made for the express purpose of enabling Rundle East to take the first of the several steps necessary for the purpose of exercising the option to purchase. It will have been noticed that, in a sense, the steps to be taken in relation to the exercise of the option are to proceed under the scrutiny of the court. In that respect I refer to paragraph 3 of the orders recited above which expressly states that neither Mr Maras nor Rundle East might enter into agreement to purchase the Rundle Street properties unless and until the court authorises them to do so.

15. It is readily apparent from paragraph 2.2 of the letter from Shaw Lawyers that the request of Maras Group to purchase the properties in Rundle Street was conditional upon Rundle East not exercising the option.  In other words, the effect of the orders made on 20 April prevents Maras Group from proceeding with its offer. Had that letter been disclosed, it would not have caused me to decline to make the orders on 20 April especially given that the offer is subject to Rundle East not exercising the option to purchase. Those facts must be weighed against the fact that the letter from Shaw Lawyers discloses that Mr Maras might have a conflict of interest and duty in the transaction. As Mr Wells QC properly pointed out, on one view of the matter Mr Maras could act in a way which would result in the option to purchase not being exercised by Rundle East before 30 June 2007. It is unnecessary to examine all of the possible means by which Mr Manos could do so.  Mr Wells QC referred to some means by which that result might occur. It is possible to imagine others. This apparent conflict of interest and duty is of a kind that required that the letter from Shaw Lawyers dated 12 April 2007 be disclosed.

16. In considering whether the failure to disclose the letter requires that the orders made on 20 April be discharged, I have regard to the fact that the giving of the notice of intention to exercise the option, which paragraph 1 of those orders enabled Mr Maras to give, is but the first of several steps in the negotiations leading to the option to purchase. Even if Mr Maras were not to bargain astutely on the purchase price so that the process proceeded to the next step, the relevant fact is that the next step requires an exchange of valuations.  That is a safeguard. The valuers will be required in the proper discharge of their duties as valuers to value the Rundle Street properties at what they believe to be their fair market value.  That fact, combined with the fact that the steps which Mr Maras must take are proceeding, as it were, under the gaze of the court, leads me to believe that it is not necessary to discharge the order. I also reach that conclusion for the reason that, had the letter of 12 April been tendered on 20 April, I would nevertheless have made the orders for the purpose, as I have already said, of preserving the status quo in the sense of preserving an asset which will be available for the benefit of both Mr Manos as well as Mr Maras.

17. In this respect, it is to be noticed also that on 8 May 2007, I made an order for the purpose of ensuring that Mr Manos is informed of all steps in negotiations as they occur. In a moment, on the application of the first to fourth defendants, I will be varying that order so as to ensure that Mr Manos is more fully informed of all steps in the negotiations. It might be added that there is nothing in the orders made on 20 April which prevents Mr Manos assisting Mr Maras with the negotiations.

18. In reaching this conclusion I have also had regard to the fact that the orders made on 20 April 2007 were given on an undertaking by Mr Maras as to damages. If Mr Maras were to act in such a way as to allow his interest to conflict with his duty he will be liable on that undertaking. That only serves to indicate that he would not have acted in a way to defeat the interests of Rundle East, or to use Mr Wells’ expression, he would not have “run cold” or pulled his punches when negotiating on behalf of Rundle East.

19. I also have regard to the fact that Mr Maras has instituted these proceedings and has by an interlocutory application sought the assistance of this court to enable the exercise of the option on behalf of Rundle East.  One must weigh the contentions of Mr Wells with that fact. If Mr Wells is right, Mr Maras is engaging in a very expensive exercise to preserve an asset on behalf of Rundle East, not intending in fact to exercise the option to purchase on behalf of Rundle East.  The proposition has only to be stated to demonstrate the falsity of Mr Wells’ contention.

20. Aside from all of these factors, an important factor is the fact that this is all proceeding, as it were, under the gaze of the court.

21. For all of those reasons the application to discharge the order made on 20 April 2007 is dismissed.

22. Mr Whitington QC for the plaintiff applies for an order for costs. Given that the letter from Shaw Lawyers of 12 April ought to have been disclosed, the proper course is to deny the application and order that there be no order as to costs on the application: cf Holden v Waterlow.  Mr Wells QC does not apply for the costs of Mr Manos.  Effectively the parties will each bear their own costs of the application.