Prendergast v DaimlerChrysler

[2005] NSWSC 131

CITATION:	Prendergast v DaimlerChrysler [2005] NSWSC 131
HEARING DATE(S):	22/12/04
JUDGMENT DATE :	23 December 2004
JUDGMENT OF:	White J
DECISION:	See paras 114-117.

CATCHWORDS:	CORPORATIONS - s 237 - Leave to bring under section. - INJUNCTIONS - Heads of Agreement - Notice of termination - Whether serious question to be tried - When compromise of a claim is sufficient consideration - Whether arguable that the court has jurisdiction to grant relief against forfeiture of rights under dealership agreement - Where time stipulations essential.
LEGISLATION CITED:	Corporations Act 2001 (Cth)
CASES CITED:	Wigan v Edwards (1973) 1 ALR 497 Carter & Harland "Contract Law in Australia" 4th ed, paragraph 352 Scandinavian Trading Co v Flota Petrolera Ecuatoriana (1983) 2 AC 694 Shiloh Spinners Ltd v Harding (1973) AC 691 Makucha Developments Pty Ltd v Federal Airports Corporation (1993) 115 ALR 679 Chaka Holdings Pty Ltd v Sunsim Pty Ltd (1987) NSW Conv R 55-367 Sigma Pharmaceuticals Pty Ltd v NUC-1 Enterprises Pty Ltd (1998) VSC 204 Liristis Holdings Pty Ltd v Wallville Pty Ltd [2001] NSWSC 428 Hewitt v Debus (2004) 59 NSWLR 617 Stern v McArthur (1988) 165 CLR 489
PARTIES:	John Francis Prendergast v DaimlerChrysler Australia Pacific Pty Ltd
FILE NUMBER(S):	SC 6889/04
COUNSEL:	Plaintiff: CRC Newlinds SC, P Newton Defendant: BR McClintock SC, L Gyles
SOLICITORS:	Plaintiff: Phillips Fox Defendant: Robinson Legal

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

23 December 2004

6889/04 JOHN FRANCIS PRENDERGAST v DAIMLERCHRYSLER AUSTRALIA PACIFIC PTY LIMITED

JUDGMENT

1 HIS HONOUR: In these proceedings, the first plaintiff seeks an order pursuant to s 237 of the Corporations Act 2001 (Cth) granting leave for him to bring the proceedings on behalf of the second and third plaintiffs against the defendant. He also seeks an order that the defendant be restrained from acting upon or implementing a purported notice of termination of certain dealership agreements between the defendant and the second and third plaintiffs.

2 The injunctive relief which was sought and argued before me yesterday was sought until further order, although counsel accepted that some time limit might be placed on the relief, if granted.

3 The first plaintiff is a director and shareholder of the second and third plaintiffs, and Mr Vincent Muriti is also a director and shareholder.

4 The second plaintiff, Marshalls Motors, was appointed by the defendant as a dealer for the sale of Mercedes Benz passenger cars pursuant to an agreement made on 22 July 2000.

5 The agreement was for a term expiring on 31 December 2000, but, unless written notice of non-renewal was given by the defendant to Marshalls Motors 90 days before that date then it revived automatically and continued in force until the last day of each calendar year, unless and until not less than 90 days prior written notice of non-written renewal was given by the defendant before the expiry date. No such notice of non-renewal was given. Accordingly, unless the agreement was validly terminated it would continue until at least 31 December next year.

6 Section 9 of the agreement contained detailed provisions for its termination. It is not necessary to set those provisions out in any detail. There is provision for determination of the agreement by the dealer on giving not less than 60 days prior written notice, but that provision has not been activated. There is provision also for termination of the agreement in the event of a breach that is not rectified within 14 days upon specified grounds, none of which is engaged in this case.

7 There is also provision for immediate termination of the agreement in five specified circumstances in clause 9.4. I was referred to clause 9.4.3 which instances one of those circumstances as being the making by the dealer, or its authorising the making of, any false or misleading statement or misrepresentation concerning any product or part or concerning the defendant to any third party in a manner which damages or adversely affects, or is likely to damage or adversely affect the reputation of, inter alia, the defendant.

8 The third plaintiff, Perfect Auto Body, was appointed by the defendant as its vehicle body repair dealer by an agreement made on 12 September 2003.

9 Clause 7 of that agreement provides for its continuation until terminated by mutual agreement, or by either party giving the other party not less than 60 days prior written notice of termination, which notice may be given at any time.

10 Clause 8 also provides for termination in other circumstances. In particular, there are provisions which authorise the defendant at its discretion immediately to terminate the agreement in seven specified circumstances. One of those relates to the making of false statements likely to damage or adversely affect the reputation of the defendant and is materially in the same terms as the provisions of the first dealership agreement to which I have referred.

11 The present dispute arises because the defendant threatens to terminate the dealership agreements. The first plaintiff, Mr Prendergast, and Mr Muriti, have entered into an agreement called a Heads of Agreement, but which is nonetheless expressed to be a legally binding contract between them, pursuant to which they have agreed to separate their interests in Marshalls Motors and Perfect Auto Body.

12 It seems, from the terms of that agreement, that those companies carry on their businesses as trustees for unit trusts and it appears that companies associated with each of Mr Prendergast and Mr Muriti are unit holders of those trusts. The agreement provides for the acquisition by Mr Muriti, or companies associated with him, of the interests in the unit trusts held by Mr Prendergast or companies associated with him. It also makes like provision for the acquisition by Mr Muriti of shares in the second and third plaintiffs held by Mr Prendergast.

13 Thus, pursuant to the agreement, Mr Muriti will acquire Mr Prendergast’s shareholdings and unit holdings which gave him, or companies associated with him, an interest in the fortunes of the two businesses. Companies associated with Mr Prendergast will buy the interests of companies associated with Mr Muriti in various pieces of real property on which the businesses are located.

14 The Heads of Agreement provides for the grant of leases to the companies associated with Mr Muriti. The agreement provides that it should be completed and that all sale and purchase transactions contemplated by it would be completed simultaneously as soon as practicable and prior to 30 September 2004. That has not happened. There have been disputes in relation to completion which have delayed it. One such dispute had been listed for hearing before the Supreme Court in December of this year, but following an amendment to the issues in the proceedings raised by Mr Muriti, that hearing date had to be vacated and presently the matter is listed for hearing before me commencing on 21 February 2005.

15 I am told from the Bar table - and there is no contrary material before me - that that issue is the only matter which is holding up completion, save that completion is conditional upon the approval of the ANZ Banking Group Limited. That is an approval which is to be procured by Mr Muriti. Counsel for the first plaintiff, Mr Prendergast, said he had no reason to doubt that ANZ's approval would be forthcoming, but it was not in his client's power to procure it.

16 The defendant does not claim to take issue with the integrity or the reliability of Mr Muriti. In fact, the reverse appears to be the case. It does not claim - or at least there is no evidence to establish - that the continued operation of the dealership beyond 31 December 2005 is likely to cause it to suffer any damage either to its reputation or otherwise, except possibly any damage which may already have been suffered by it arising from an alleged incident occurring between Mr Prendergast and one of its senior employees in about June of this year.

17 There is no allegation before me that the business of the dealership is not being properly conducted or that, if the termination of the dealership is restrained, it is likely that any damage will be suffered by any customers who may wish to purchase, or have already purchased Mercedes Benz motor vehicles.

18 The defendant, however, says that these considerations are irrelevant. It claims that there is no serious question as to its right to terminate the dealership agreements or, perhaps more accurately, to treat the dealership agreements as having been terminated by agreement between the parties, such termination having taken effect on 30 November 2004 or, in any event, would take effect no later than 31 December 2004.

19 To consider those contentions it is necessary to refer to the correspondence between the parties. On 29 June 2004 the defendant wrote to Mr Prendergast and Mr Muriti and referred to a meeting which occurred on 25 June 2004 in which, according to the defendant, Messrs Prendergast and Muriti were informed that the current dealer agreements would be terminated effective on 30 July 2004 on the grounds that they, as a dealer and particularly Mr Prendergast as the dealer's principal, had publicly engaged in conduct which was injurious and which damaged adversely the defendant's reputation and that of the Mercedes Benz brand.

20 The letter asserted that the oral notice of termination had been accepted by Messrs Prendergast and Muriti. It recorded their having asked the defendant whether it would be prepared to consider alternative means, "to move forward". Its response was that it would be prepared to enter into new dealer agreements in relation to the current operations, subject to Mr Prendergast disposing of all of his Mercedes Benz interests to a party or parties proposed by Messrs Prendergast and Muriti who were acceptable to the defendant, provided that occurred before 30 July 2004. If that did not happen, the defendant said the determination would take immediate effect and the defendant would appoint parties acceptable to it without further reference to the plaintiffs.

21 There was no evidence before me about the alleged conduct engaged in by Mr Prendergast that led to that letter. I was told from the Bar table that it would be alleged that he had assaulted a regional manager of the defendant. That allegation, I understood from counsel from the Bar table, would be denied by Mr Prendergast. In any event, whether an allegation or an allegation of that kind were made out or not, Mr Prendergast denied that the defendant had any right to terminate the dealership agreement on such a ground.

22 Counsel pointed out that the defendant did not, in its correspondence, refer to any particular provision of the dealership agreements dealing with their termination which were triggered. Nor was any such provision referred to by counsel for the defendant in the course of submissions. His contention rather was that the grounds for termination in the dealership agreements were not exhaustive and that the alleged conduct was, he would say, a repudiation of the agreements by the plaintiffs which entitled the defendant to terminate them.

23 I hasten to add, however, that the defendant did not put its case only on the ground that it was entitled to terminate the agreement in the way contended for in the letter of 29 June, but that, by reason of subsequent dealings between the parties, the plaintiffs had acquiesced in that termination such that there was now an agreement between the parties that the plaintiffs would relinquish their dealerships by 30 November 2004 or possibly 31 December 2004.

24 To return to the chronology, on 4 August 2004, Messrs Prendergast and Muriti wrote to the defendant enclosing a copy of the signed Heads of Agreement to which I have already referred. They said that completion of the transactions provided for by that agreement would occur by 30 September 2004, failing which Marshalls Motors and Perfect Auto Body "hereby undertake to relinquish their appointments as authorised Mercedes Benz dealers under the dealer agreements now existing with DaimlerChrysler Australia/Pacific Pty Limited. Effective 30 September 2004." That, says the defendant, was an enforceable contract, or at least it would be if the undertaking were accepted by it.

25 The defendant says that it was accepted. On 5 August 2004, the defendant noted the undertakings provided in the previous letter and said, "We confirm that in consideration of the receipt of the undertakings, DaimlerChrysler Australia/Pacific Pty Limited agree to extend the expiry of the termination to close of business 30 September 2004."

26 The defendant says that, by that date, it had become irrelevant whether it had been entitled to threaten to terminate, or to purport to terminate, the agreement as it did in June. It says that the plaintiff had accepted its position and whether or not it was entitled to terminate was irrelevant. By agreeing not to terminate by 31 July, or not to enforce a termination as at 31 July as it threatened, it had provided consideration for the plaintiff's undertakings to relinquish their appointment as authorised Mercedes dealers.

27 On 15 September 2004, the defendant requested that it be given a six-month lease of the trading premises of the plaintiffs after 30 September so it could service its customers if the dealerships were relinquished or terminated. It is clear from the defendant's letter of that date that its position was that the undertakings to relinquish the dealerships would only be operative if the Heads of Agreement were not completed by 30 September.

28 Mr Prendergast responded to the defendant's request of 15 September. He proposed that he would give a six-month lease of the premises commencing on 1 January 2005 if the defendant agreed to extend the existing deadline from 30 September to 31 December 2004.

29 On 20 September, the defendant agreed to extend the relevant date until 31 December 2004 provided that all of the following conditions were first satisfied. They were:

“1. VM agrees to extension sought by JP in the terms and conditions of this letter; and
2. JP disposes of his interests in the businesses to a person acceptable to DCAuP by no later than 30 November 2004; or
3. If JP fails to comply with condition (2) by 30 November 2004, JP agrees to lease the properties to DCAuP effective 1 January 2005.....”

30 There then followed provisions relating to the terms of any such lease.

31 Although it is not entirely clear from the terms of the letter, in the light of the earlier correspondence, I think page 2 of the letter should be read in the sense that the defendant agreed that, if the first condition was satisfied and if Mr Prendergast's interests in the business were not disposed of to a person acceptable to the defendant by 30 November 2004, then clause 3 would come into effect.

32 When it is read in the context of the earlier correspondence, the effect of the letter I think is that if the first two conditions were satisfied, the defendant would not terminate the agreement, or not require the second and third plaintiffs to relinquish their dealerships on 31 December 2004 or at all.

33 On 27 September, the solicitors for Mr Prendergast confirmed that he agreed to the conditions stipulated by the defendant in its letter of 20 September. Having regard to one of the submissions I have made, I will set out the last three paragraphs of the letter verbatim:

“We confirm that Mr Prendergast agrees with those conditions.

Further, we are advised by legal representatives of Muriti that he will also be confirming in writing to you that he is in agreement with the condition set out in your letter.

We would be grateful if, as foreshadowed in your letter, you would provide us with your written consent to the extension of 31 December 2004."

34 On 29 September 2004, the defendant wrote to Mr Prendergast's solicitor. It said that, on the basis of his acceptance of the matters in its letter of 20 September, it "hereby grants its consent to extending the date upon which Marshalls Motors...and Perfect Auto Body...respectively relinquish appointments of authorised Benz dealers would become effective to 31 December 2004."

35 By this date, proceedings had already been commenced in the Supreme Court in proceeding number 5094 of 2004 by Mr Muriti and the company associated with him for, inter alia, an order that the Heads of Agreement be specifically performed and carried into effect. Those proceedings were commenced on 16 September.

36 On 24 September 2004, the parties to those proceedings, that is, Mr Muriti and his interests and Mr Prendergast and his interests, consented to orders, including an order that each party to the Heads of Agreement do everything necessary or reasonably required by another party to give effect to the agreements of the parties therein expressed on or before 29 October 2004 and, for that purpose, the parties accept DaimlerChrysler's extension offer. That order was made by Windeyer J on that date.

37 I was told by counsel for the plaintiffs that issues arose in the proceedings 5094 of 2004 relating to the terms upon which leases would be required to be given of the relevant premises and that those proceedings were sent to a referee and ultimately determined.

38 On 23 November 2004, the defendant again wrote to Messrs Muriti and Prendergast and said that the deadline for the disposition or Mr Prendergast's interests in Marshalls Motors and Perfect Auto Body of 30 November 2004 would not be extended. It was not suggested in argument before me that the first condition of the defendant's letter of 20 September 2004 had not been satisfied, namely that Mr Muriti had not agreed to the extension or the terms and conditions of the letter.

39 The defendant's contention was that the second condition appeared likely not to be satisfied by 30 November.

40 On 1 December 2004, the defendant declined to extend the 30 November deadline. It said it would enter negotiations for entry into the leases of the premises and it put in train thereafter correspondence to deal with the termination of the dealership agreement. It also put in train steps to obtain the relevant leases by appointing an independent valuer to determine appropriate rentals.

41 On 10 December 2004, Messrs Phillips Fox, acting for Mr Prendergast, claimed that the undertakings extracted by the defendant from Messrs Prendergast and Muriti, by which they agreed to relinquish their appointments as Mercedes Benz dealers appeared to have been obtained against the threat of termination of the dealership agreements in circumstances where the defendant may have been acting unlawfully or at least outside its contractual rights.

42 It followed, they claimed, that there was probably no consideration for those undertakings and that those undertakings were not enforceable. This letter was replied to by the defendant through its solicitor on 16 December 2004. The letter did not seek to demonstrate a basis for the threat made in the letter of 29 June 2004 to terminate the dealerships.

43 On the question of whether there was a serious question to be tried in the proceedings, the principal submission made by counsel for the plaintiffs was that foreshadowed in Phillip Fox's letter of 10 December 2004, that, (a), there was at least a seriously arguable question as to whether the defendant was entitled to terminate the dealership agreements by reason of the conduct to which it referred and; (b), that there was no consideration for the later undertakings from Mr Prendergast and Mr Muriti.

44 Mr McClintock, SC, who appeared with Mr Gyles for the defendant submitted that the principal question was not whether the defendant would have been entitled to terminate the contracts for the misconduct alluded to in the letter of 29 January. He submitted that, even if that claim were not well-founded, a compromise of the claim would be sufficient consideration for the plaintiffs providing their undertakings to the defendant such that those undertakings were contractually enforceable. It was enough, counsel contended, that the claims were not frivolous or vexatious and it was submitted that the claims were not frivolous or vexatious as its asserted claim to terminate had been acknowledged by the plaintiffs.

45 Counsel referred me to the decision of the High Court in Wigan v Edwards (1973) 1 ALR 497. In that case, at pages 512 to 513, Mason J, as his Honour then was, said:

“The general rule is that a promise to perform an existing duty is no consideration, at least when the promise is made by a party to a pre-existing contract, when it is made to the promisee under that contract, and it is to do no more than the promisor is bound to do under that contract.
...
An important qualification to the general principle is that a promise to do precisely what the promisor is already bound to do is a sufficient consideration, when it is given by way of a bona fide compromise of a disputed claim, the promisor having asserted that he is not bound to perform the obligation under the pre-existing contract or that he has a cause of action under that contract.
...
It is no objection to the existence of a bona fide compromise of a dispute that the Court considers that the claim made by the promisor that he was not bound under the former contract would not have succeeded had the issue been litigated.
...
But it is perhaps open to question whether a bona fide compromise of a dispute is sufficiently established by showing that the promisor honestly believed that his claim was well founded. It has been said that it must also be shown that the claim was not vexatious or frivolous.
...
The different expressions of the principle do not reflect an important conceptual difference. There will be few cases involving an honest or bona fide belief in a claim which is vexatious or frivolous.”

46 Thus, the compromise of a claim which is not frivolous or vexatious is sufficient consideration if the claim is honestly made.

47 It appears, however, to be essential that, in order for the compromise of a claim which is not well founded in law to be a sufficient consideration that the claim must have been maintained in good faith. See Carter & Harland "Contract Law in Australia" 4th ed, paragraph 352.

48 The question of whether the defendant was entitled to terminate the agreement, by reason of the events alluded to in the letter of 29 June 2004, is plainly itself a seriously arguable question. It was not contended that the conduct, about which no evidence was given, fell within any of the express provisions for termination in any of the dealership agreements.

49 The more difficult question is whether the agreements procured from Mr Prendergast and Mr Muriti and, through them, from the second and third plaintiffs which were procured under threat of such termination, may themselves be unenforceable for lack of sufficient consideration.

50 That issue in turn raises, it seems to me, the question of whether the relevant officers of the defendant did honestly believe that they were entitled to terminate the agreement by reason of the conduct of Mr Prendergast which was alluded to. That is not a question which is really susceptible of being determined at an interlocutory stage. The defendant did not call evidence.

51 The plaintiff can point to the fact that never in the correspondence has the defendant sought to explain how it contended that the alleged right to terminate arose in the first place.

52 It may well be that the defendant believed it was entitled to terminate the dealership agreements as a result of the incident in question. On the other hand, it may be that the defendant felt such moral indignation at what was claimed from the Bar table to have been a physical assault on a senior employee that it determined that it would terminate the contract, whether it was within its legal rights to do so or not. That is an issue which cannot be decided short of a trial.

53 If the latter were the position, it is not obvious that the case would be one in which sufficient consideration for the undertakings which were extracted would be provided by the compromise of the claimed right to terminate, assuming that the plaintiff at trial succeeded on the claim that either the alleged conduct did not occur; or, if it did, it did not provide a contractual ground for termination.

54 Next, it was put that, even if consideration were lacking for the original acceptance by the plaintiff of the oral notice of termination, the later variations to the agreements for the plaintiffs to relinquish the dealerships were themselves supported by sufficient consideration. That may well be so, but I think there is a serious question whether it is so or not.

55 Leaving aside for the moment the question of whether there was a bona fide compromise, it is at least arguable that, if the alleged agreement to accept an oral termination was unenforceable for the lack of consideration, then the agreement by the defendant to vary the period on which the notice would become effective would, prima facie, not be supported by consideration moving from the plaintiff. That is because, in those circumstances, the defendant was not giving up anything in deferring the exercise of such a right because, on this hypothesis, it was not a right which it had.

56 That consideration, I think, applies to each of the successive variations. However, as the defendant's counsel submitted, different considerations may arise at each successive stage on the question of whether there was a bona fide compromise of claims. Thus, it may be sufficient for the defendant to say that it honestly believed that it could enforce the plaintiff's prior agreement or acquiescence to the initial termination of the oral agreements, or that it honestly believed that it had already provided consideration by compromising its right to enforce an effective termination.

57 If that were the position, then the defendant would be on strong ground for contending there was sufficient consideration for the later agreements. However, that in turn again raises the question of the defendant's state of mind about which there was no direct evidence. As I have said, the question of the defendant's state of mind is a matter which would need to be determined at the final hearing.

58 Next it was submitted that, in any event, there was sufficient consideration provided for the plaintiff's undertakings by the defendant's acquiescence in the request made in the last paragraph of the letter from Mr Prendergast's solicitor of 20 September 2004. It will be recalled that in that letter the solicitors asked to be provided with the defendant's written consent to the extension to 31 December 2004 and that consent was provided two days later.

59 The provision of the letter was itself sufficient consideration, the defendant submitted. However, it seems to me, at least arguable that the provision of the defendant's written consent was not itself a consideration referable to the plaintiff's promise to relinquish their dealerships.

60 It is, I think, arguable that it was not an inducement for the plaintiff's promise, but an independent request which the defendant voluntarily agreed to. The letter of 20 September 2004 confirmed the acceptance by Mr Prendergast of the conditions set out in the defendant's letter of 20 September. It is at least arguable that the last sentence was not a condition of the acceptance which had to be met before the acceptance was effective.

61 It is, therefore, at least arguable that the provision of the written letter was not a consideration referable to the promise of the plaintiffs which the defendant seeks to enforce.

62 Finally, on the question of consideration, I note that it was not argued that sufficient consideration for the plaintiff's undertakings could be found in a release of the plaintiff's obligations to perform their obligations under the dealership agreements after the specified dates.

63 For these reasons, and having regard to the issues about consideration which were argued, I think there is a sufficiently serious question to be tried as to the validity of the termination of the dealerships or the enforceability of the alleged agreements to relinquish the dealerships so as to satisfy the requirements in s 237(2)(d) of the Corporations Act, and so as to give rise to considerations of where the balance of convenience lies.

64 Other issues were, however, referred to in argument although touched on lightly in some cases and I will deal with them more briefly.

65 First, however, there is a matter to which I will allude, but which was not raised in argument and upon which I do not therefore rely on in this decision. It is this. There may be an issue as to whether there was a meeting of minds between the parties in relation to the alleged agreement contained in the letters of 20 September 2004 and 27 September 2004.

66 The letter of 20 September 2004 provides for an extension of the relevant date until 31 December if Mr Prendergast disposed of his interests in the businesses by no later than 30 November. However, the response to that letter of 27 September appears to me to characterise the earlier letter as requiring the disposition of Mr Prendergast's interests by no later than 31 December 2004.

67 On one view, that was an interpretation of the offer which Mr Prendergast, through his solicitors, accepted, although I think it is clear it is not the construction - or not the meaning of the offer - which the defendant intended to convey.

68 Whether that would itself be sufficient to preclude an agreement coming into existence from the correspondence is not something which it is necessary to decide.

69 I have said that if there were an agreement in terms of the letter of 20 September 2004 it is probably the case that when that letter is read with earlier correspondence it means that if conditions one and two were complied with by the specified dates, the defendant would not enforce the termination of the dealership agreement, or the plaintiffs would be released from their agreement to relinquish the dealership agreement by 31 December.

70 Assuming that the correspondence can be so read, then two further questions arise. The first is whether in terms of condition two, Mr Prendergast did dispose of his interests in the businesses to a person acceptable to the defendant by no later than 30 December 2004. If not, the second question which arises is whether the second and third plaintiffs are nonetheless entitled to relief against forfeiture of their interests in the dealerships.

71 Mr McClintock SC raised three answers to the first issue. The first was that the letter of 20 September was written after the heads of agreement were entered into. Hence the disposition of Mr Prendergast's interests referred to in the letter should be read as meaning the completion of the heads of agreement, not any disposition in equity which might arise from entering into the heads of agreement.

72 Secondly, he submitted that in any event and on any view, Mr Prendergast did not dispose of his interests in the businesses because even if there were a disposition effective in equity, he still held the legal title to the shares in the company. Thirdly, he submitted that in any event there was no disposition of his interests in equity because ANZ's consent to the completion of the agreement was still required.

73 Having regard to the apparent interests of the defendant in the matter I think there may be scope for debate about the first two answers Mr McClintock put forward. However, I think his third point is right. Assuming that the heads of agreement is capable of specific performance, (and the parties have consented to an order in the nature of specific performance), nonetheless I think it is clear that there can have been no assignment of the beneficial interests of Mr Prendergast and of his companies to Mr Muriti or his companies until the third party's consent has been given. Until it is given, an order for specific performance would go no further than requiring Mr Muriti to use his best endeavours to obtain the consent.

74 However, the second issue, that of relief against forfeiture, is more difficult. Within that issue there are at least three other issues. The first is whether the contract is of a kind in respect of which relief against forfeiture could be given.

75 If so, the second question is whether relief against forfeiture could be given where the time stipulations appear to be essential.

76 And the third, which only arises if the first two are answered favourably to the plaintiffs, is whether the circumstances are such that it is arguable that relief against forfeiture may be available.

77 These matters were not explored in any depth and I am not to be taken as expressing any concluded view, or indeed any preference, in relation to how they might be disposed of.

78 In Scandinavian Trading Co v Flota Petrolera Ecuatoriana (1983) 2 AC 694, Lord Diplock, with whom the other members of the House of Lords concurred, in referring to Lord Wilberforce's speech in Shiloh Spinners Ltd v Harding (1973) AC 691, said at 702 that Lord Wilberforce’s statement was never meant to apply generally to contracts not involving any transfer of proprietary or possessory rights. That statement has been generally followed in England, but its reception in Australia is less certain.

79 In Makucha Developments Pty Ltd v Federal Airports Corporation (1993) 115 ALR 679 Davies J said at 699 that Scandinavian Tanker Co and other English authorities to which he referred, had tended to retreat from the general principle enunciated by Lord Wilberforce in Shiloh Spinners v Harding. Davies J continued:

“However, the propositions enunciated in those authorities are inconsistent with the approach taken by the High Court of Australia in Legione v Hateley, and in the other decisions I have mentioned. The decision of the High Court of Australia established the law for this country.”

80 In Makucha Developments Davies J was prepared to apply the principles for relief against forfeiture to an agreement, even if it were characterised as one which gave the applicant merely a personal licence to occupy land and was not a lease. That is to say, his Honour contemplated that those principles might be applicable even though the agreement in question created no proprietary interest in the applicant. I interpolate, however, that it was his Honour's view that properly construed the agreement did create such an interest.

81 His Honour in contemplating that equity's jurisdiction might go wider referred to the fact that the contract there in question was one which on any view would be protected by injunction or specific performance. If that is a sufficient criterion for the existence of the jurisdiction, namely that the contract is one which would be protected by injunction or specific performance, then the criterion would be at least arguably satisfied in this case.

82 In Chaka Holdings Pty Ltd v Sunsim Pty Ltd (1987) NSW Conv R 55-367 Young J envisaged that in exceptional cases relief against forfeiture is to be given in respect of a contractual licence with respect to lands. (See at 57305.)

83 Moreover, the jurisdiction to relieve against forfeiture is not confined to cases where the property in question is land. In Sigma Pharmaceuticals Pty Ltd v NUC-1 Enterprises Pty Ltd (1998) VSC 204 Gillard J accepted that there was jurisdiction to grant relief against forfeiture in respect of a commercial agreement involving the transfer of intellectual property rights in respect of goods. His Honour stressed, however, that the fact that the contract was a commercial contract was a matter of substantial weight in considering whether relief should be given.

84 Finally in Liristis Holdings Pty Ltd v Wallville Pty Ltd [2001] NSWSC 428 Barrett J described the jurisdiction to relieve against forfeiture as:

“not confined to forfeiture of proprietary rights but applies also to deprivation by way of contractual termination: See for example Federal Airports Corporation v Makucha Developments Pty Ltd . As the judgment of Davies J in that case confirms, the jurisdiction to grant relief against forfeiture is today based upon the principle that equity will prevent reliance on a legal right where that reliance is unconscionable" .(at [116])

85 It must be said, however, that his Honour applied the principles there to an orthodox case involving relief against forfeiture of a tenant's interest in the lease.

86 The dealership agreement here gave the plaintiffs a licence to use intellectual property. Whilst not suggesting that I would necessarily endorse so wide a view of the jurisdiction to grant relief against forfeiture, I think it may be seriously arguable that such a wide jurisdiction as the plaintiffs would seek to invoke is available in this class of case involving a licence to use property and where the contract as a whole may be capable of protection in equity by specific performance or injunction.

87 Whether this is so or not is not something which can or should be determined on the present interlocutory application. Partly that is because the matter was not fully argued; partly because of the constraints of time.

88 As to the second issue, namely whether relief against forfeiture could be available where the time stipulations are essential, it is sufficient to refer to what Giles JA said with the concurrence of McColl JA in Hewitt v Debus (2004) 59 NSWLR 617. At paragraph 75 his Honour noted that Legione v Hateley (1983) 152 CLR 456 and Stern v McArthur (1988) 165 CLR 489 had appeared to settle for Australia that relief against forfeiture could be available and found a decree for specific performance even though the purchaser was in default of an essential stipulation as to time. His Honour continued:

“The joint judgment in Tanwar Enterprises Pty Ltd v Cauchi (2003) 77 ALJR 1853 might be thought to reopen the question, or at least narrow the occasions on which the relief will be granted, and perhaps to make essentiality of time an element in a wider view of equitable relief. It pointed to circularity in finding a purchaser's interest in land, and endorsed reluctance to interfere with the parties' choice to make time of the essence of the contract. It rested equitable relief more directly on whether specific performance remained an available remedy because the vendor's reliance on his legal right to terminate was unconscientious.”

89 This is not the occasion to debate this question. It is sufficient to say that I am not persuaded that it is unarguable that relief against forfeiture is not available, however unconscientious might be the defendant's reliance on its legal rights to terminate the dealership agreement, or to enforce the relinquishment of the dealership after the expiry of the specified time.

90 If jurisdiction to relief against forfeiture exists, the next question which arises is whether there is a serious question to be tried that it is unconscientious in the circumstances for the defendant to insist on its strict legal rights.

91 In Makucha Developments Davies J at 696 cited Story's Commentaries on Equity Jurisprudence at 1316 that:

“The whole system of equity jurisprudence proceeds upon the ground that a party, having a legal right, shall not be permitted to avail himself offer of it for the purposes of injustice or fraud, or oppression, or harsh and vindictive injury.”

92 It is not obvious to me why in the present circumstances the defendant is seeking to insist upon the exercise of what it contends are its strict legal rights. Essentially counsel said that it was entitled to do so and that the query did not arise. The defendant has not called any evidence on that subject. It appears that it is satisfied with the purchaser, Mr Muriti. There is no clear evidence as to its intention if the dealerships were terminated. On the one hand it had indicated its intention to go into possession itself in order to service the needs of its customers. On the other hand, in its letter of 29 June 2004 it envisaged entry into new dealer agreements in relation to "your current operations", subject to Mr Prendergast disposing of his interests and subject to the particular time frame. As I have said, there is no evidence of any dissatisfaction with the day-to-day conduct of the dealership.

93 In the absence of any clear evidence on the subject, it remains a possibility that the defendant might be seeking to enforce termination of dealerships with a view to entering into new agreements with Mr Muriti, or his interests, with the possibility, and no more than that, that Mr Muriti might then contend that the heads of agreement with Mr Prendergast has been frustrated.

94 I make no finding about that, suffice to say that in the absence of evidence on the topic I think that if the jurisdiction to relieve against forfeiture exists then there is a serious question which would have to be determined at trial, as to whether, notwithstanding the commercial nature of the contract, there may be grounds for relief against forfeiture.

95 For these reasons I am satisfied that there is a serious question to be tried.

96 In terms of s 237 of the Corporations Act it is clear, first of all, that the first plaintiff has standing to make the application - see s 237 (1) and s 236 (1) (a). It is clear also that the company is deadlocked on this issue. Mr Muriti expressed the opinion that it was not in the two companies’ interests to bring the proceedings against the defendant for three reasons. First, there were insufficient prospects of success to warrant the application for injunctive relief. Secondly, it was in the interests of the companies that negotiations continue with the defendants regarding the extension of the deadline; and thirdly, there were potentially unfavourable commercial consequences from seeking an injunction against the defendant which was the franchisor of the company's businesses.

97 It is not necessary to deal with each of those grounds on which Mr Muriti declined to join in to cause the second and third plaintiffs to bring the proceedings. It is sufficient to show that the ground in para 237(2)(a) is made out. I do not think there is any contention that the first plaintiff is acting in good faith.

98 The question of whether it is in the best interests of the companies that the applicant be granted leave is a more difficult one, having regard to the matters which Mr Muriti raised.

99 However, as the companies’ businesses appear to depend upon their remaining as the dealers of the defendant, and as the defendant has made its intention to enforce termination of the dealership agreements perfectly clear, I think it is in the best interests of the companies that the defendant be restrained from taking that course, if that relief is otherwise available.

100 For the reasons I have given I am satisfied there is a serious question to be tried. Notice of the application has been given to the other director and shareholder and I am satisfied in terms of para 237(2)(e)(ii) that it is appropriate to grant leave, even though 237(2)(e)(i) was not satisfied, so far as the evidence reveals.

101 For these reasons I make an order in terms of para 3 of the summons.

102 I return to the application for an interlocutory injunction. Having found that there is a serious question to be tried, the question is where the balance of convenience lies, or to put it more accurately, what order would carry the lower risk of injustice.

103 I do not think it desirable to try to rate the plaintiff's prospects of success at a hearing. As is said in Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 4 ed at para 270, there is an inherent absurdity in requiring the Court to calculate the plaintiff's chance of success when the evidence is incomplete and unsatisfactory and the only object of the exercise is, in any event, to preserve the status quo. The status quo is that the dealership agreements are on foot. There is a clear balance of convenience in favour of maintaining that position.

104 The second and third plaintiff have a substantial annual turnover. The second plaintiff employs ninety staff. The third plaintiff employs fifty staff. Quite apart from the position of Mr Muriti and Mr Prendergast, the position of the employees is such that the balance of convenience heavily favours maintaining the status quo.

105 Clearly, the second and third plaintiffs would be likely to suffer substantial damage if the dealerships were terminated and they were no longer authorised to act as Mercedes Benz dealers or repairers. It is not likely that such damages could be adequately compensated for by an award of damages because it would be impossible to know what business which would otherwise have been attracted was lost by virtue of the termination.

106 No countervailing damage was suggested in the defendant's case, except that it was said that the conduct engaged in by Mr Prendergast was such that the defendant's reputation would be damaged in the industry if the termination of the dealership agreements were not enforced. There was no evidence about that.

107 The defendant was prepared to allow Mr Prendergast to remain engaged in the business until 30 November 2004 and I am not satisfied that the somewhat ephemeral nature of that risk in any way displaces the strong balance of convenience in favour of the plaintiffs.

108 The real question which was argued was whether there was a sufficiently serious question to be tried to justify the grant of an injunction. It is not necessary to establish that there is a probability of success. I think the circumstances are such that when the plaintiffs' prospects of success are considered together with the other circumstances, that the lower risk of injustice entails preserving the status quo.

109 For those reasons I will make an order in terms of para 10 of the summons.

110 What I have said has been predicated upon the provision of an appropriate undertaking as to damages. No undertaking as to damages is proffered by the second and third plaintiffs and I think that is appropriate. No such undertaking could be proffered because Mr Prendergast does not by himself have authority to proffer such an undertaking on behalf of those companies. However, he personally offers his undertaking as to damages and I was told by counsel for the plaintiffs that that undertaking would also be given by the corporate entities with which Mr Prendergast is associated.

111 Upon the provision of those undertakings as to damages I will make an order in terms of para 10 of the summons, although the question of the period of the injunction is a matter to which I will return.

112 It was submitted for the defendant that the injunction should not go until further order but should operate for a more defined time. Counsel for the plaintiffs was inclined to accept that, and suggested that the injunction should run until some short time after the conclusion of the hearing of the proceedings between Mr Prendergast and Mr Muriti. I assume that the assumption behind that concession was that: (a) a judgment in those proceedings would be given immediately; and (b) that thereafter the agreement would be completed.

113 For myself I see little, indeed, no advantage to such a course which would mean that the injunction expired in, say, the beginning of March 2005. If the present circumstances change, (by present circumstances I mean the current expectations as to the disposition of proceedings number 5094/04 and completion of the agreement), then it would be open in any event to the defendant to seek to discharge the injunction. On the other hand, if circumstances have not changed, but either judgment was not given, or for some other good reason the matter was not completed, it would then be necessary for the plaintiffs to apply for a fresh order.

114 In my view there is sufficient protection for the defendant if I grant an injunction in accordance with paragraph 10 until further order accompanied, as there will be, with liberty to apply. Notwithstanding the concession made by counsel for the plaintiff, I think the better course is to make an order in terms of para 10.

115 I note that counsel for the plaintiffs has instructions to give the usual undertaking as to damages on behalf of the first plaintiff and also on behalf of Rolcross Pty Ltd and Worthbrook Pty Ltd. Upon the first plaintiff and those two companies by their counsel giving the usual undertaking as to damages I order that the defendant by itself, its servants or agents be restrained from acting upon or implementing a purported notice of termination of the agreement set out in the schedule to the summons given by the defendant in a meeting on 25 June 2004, confirmed in a letter from the defendant dated 29 June 2004 and varied by letters from the defendant dated 5 August 2004 and 29 September 2004, until further order of the Court.

116 I grant liberty to apply on seven day's notice.

117 The costs of the application for the interlocutory injunction will be the plaintiffs' costs of the proceedings. Otherwise the costs of the summons and the costs of the hearing, including the application for leave under s 237 will be costs in the proceedings.

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