Sanirise Pty Ltd v Darling Harbourside (Sydney) Pty Ltd

ioy t

74-

JUDGMENT No. ........ .. .. ..I ........ ....

IN THE FEDERAL COURT OF AUSTRALIA	1
1

NEW SOW	WALES DISTRICT REGISTRY	j	NG 32s of 1993
1

BETWEEN:

SANIRISE PTY 1

.IMITED (ACN 003 773 3 2 a

Applicant

Fourth Cross-Respondent to First Cross-Claim

Second Cross-Respondent to Second Cross-Claim

Lbr!D:

DARLING HARBOURSIDE (SYDNEY) PlY LIMITED

(ACN W2 928 476)

Respondent

Cross-Claimant to First Cross-Claim

First Cross-Respondent to Second Cross-Claim

DELAMOS PTY LIMITED (ACN 003 243 936)

First Cross-Respondent to First Cross-Claim

Second Cross-Respondent to First Cross-Claim

Second Cross-Claimant

VANIK BERBERIAN

Third Cross-Respondent to First Cross-Claim

MOSHFEGHI-NETAD

Fifth Cross-Respondent to First Cross-Claim

CHRISTINE E1 .IZABETH KELLY

i	',	Sixth Cross-Respondent to First Cross-Claim
\

\ C o r n :

Davies J.

're:

14 December 1994

Sydney

FEDERAL CWRT OF

AUSTRAUA

\	PRINCIPAL
REOISTRY

, .*'

- 2 -

REASONS FOR JUDGMENT

The applicant, Sanirise Pty Limited ("Sanirise") became the lessee of certain shops and premises at Darling Harbour. The lessor was the respondent, Darling Harbourside (Sydney) Pty Llmlted ("Darhng Harbourside").

In these proceedings, whch were ~nstituted

in the first half of 1993, Sanirise

seeks damages alleged to arlse from conduct on the part of Darling Harbourside in breach of section 52 of the Trade Practices Act 1974 (Cth). Sanirise also claims that

there have been breaches by Darling Harbourside of certain terms of the leases. Included is an allegation that Darling Harbourside has wrongly levied Saninse for

operating expenses which were not operating expenses as specified in the leases and that Darlihg Harbourside has wrongly calculated certain other matters taken into account in the ascertainment of the rent. Darling Harbourside has instituted a cross- claim claiming possession of the premises, rent and money due, and damages.

The proceedings were first fured for hearing on the four days commencing on

31 August 1993 but Sanirise desired that these dates be vacated. On 20 August 1993

Wilcox J so ordered. A number of undertakmgs were given to the court. Of these I

note the first, gven by Sanirise, be~ng

that:-

T h e applicant undertdkes to the court to pay dlrectly to the respolident on 5 September 1993 the sum of $60,522 28 and to pay d~rectly to the respondent on the fifth day of every calendar month thereafter (untrl further order) the sum of S58.677.01, such payments to be made wlhout delay, deduction or set-off, wthout

prejudice to the r~ghts

of the respondent."

I also note the fourth undertaking given by Darling Harbourside:-

'Without admiss~on of hablllty and upon the applicant giwng the usual undemking as to damages, the respondent underlakes that a will not until funher order o r (if earher) unt~l fallure of the apphcant to comply wth any of I& underrakings set out above:

(a) attempt to retake possession of, or interfere with the applicant's possesslon of shops 1131115, 415, 353, 357, 359, 361 and 363 and storerooms S141 and S142 in the burld~ng known as the Harbounide Festrval Marketplace; or

@) grant a lease of those premises,

promded that this undertaking shaU not prevent the respondent or I& agent entering

the premises on reasonable notice for the purposes of inspection or repair.'

These undertakings were complied with until 5 July 1994. On that day

Mr John Vouris was appointed administrator of Sanirise under Part 5.3A of the

Corporations Law. The affairs of the company immediately came under the control

of the administrator and the powers of the company's officers were suspended save

under the administrator's written consent.

Section 440C of the Corporations Law provides:-

"Dunng thc adm~nlstration of a company, the owner or lessor of property that is used or occupied by, or is in possesslon of, the company cannot take possession of th properly or othewse recover it, except:

(a) with the administrator's written conscnt; or

(b) with the leave of the Court.'

Subsertion 440D(!) of the Corporations Law provides:-

"During the administration o f a wmpany, a proceeding in a court against the company

or in relation to any of its property cannot be begun or proceeded with, excepr:

(a) mth the adminatrator's wrltlen consent, or

@) with the leave of the court and in accordance with such terms (if any) as

the Court imposes."

These sect~ons precluded Darling Harbourside from enforcing its rights under the

leases and from pursulng its cross claim whlle the admnlstration was in place.

On 6 July 1994, I ordered that the operation of the first undertaking given by Sanirise on 20 August 1993 be suspended for seven days. Other judges thereafter continued the order of suspension during the period of the administration.

On 7 July 1994, Sanirise filed a notlce of motion seeking release from the

undertaking given on 20 August 1993.

The administration came to an end on 9 October 1994 when a deed of

company arrangement was executed. The only property dealt with by the deed was

the contingent asset specified in clause 3.1 of the deed of arrangement which read:-

7 h e property that IS available to crcdllors conslsts of the contingent asset, namely all actual or potential legal claims by and of the company whtch relate to evenu or conduct oacurnng prlor to the Fmed Date"

The deed also provided:-

"BAR TO CREDITORS' CLAIMS

7.0 When this Dced takes effect, no credltor shall, subject to Section 444D of the

Corporations Law, in respect of his debt or clam agalnst the company incurred or

alleged 10 have been Incurred by the Company on or before the

date (whether

the cred~tor's

debt or clam 1s or 1s not adm~lted

or established under lhls Deed)

(a)

Institute or prosecute any acuon, proceeding or s u ~ t

agalnst the Company

(d)	exerclse any right of set-off or cross-action to whlch the creditor would not

have been ent~tled

had the Company been wound up at the fvled date; ...

DEED'S ADMINISTRATOR'S POWERS AND DUTIES

*9.4* The Deed Admlnlstrator will not be tnvolved in nor rcspons~ble for the management, operation or control of the company, ~ t s	business or l~tlgatlon.
COMMIlTEE O F CREDITORS
...

12.1	The Committee of Creditors shall have the power to dlrect the Company:
(a)	to appolnt agents to do any bustness in wnnectlon wlth any llt~gation,

whether accountant, sollc~tors,

barr~slers or other experts, or to attend to do any

matter whlch is necessary for the conduct of any Iltlgatlon;

to br~ng,

prosecute and defend in the name and on behalf of the company any

actlons, sults or proceedings in any Court ~n Australia in rclat~on

to any transaction,

act or omlsslon of the Company or any person arlslng our of or hanng I& orlg~n

any matter occurring on or pr~or	to the fixed date,
COMPANY'S OBLIGATIONS

The Company agrees that dur~ng

the continuance of I ~ J S

Deed it wll:

use its best endeavours .;

enforce cl1 rrghts agalnst Darling Harbourside

(Sydney)

Ply

L~mlted ~ncludmg, w~thout hmltat~on, pursulng

enst~ng Federal

Court

proceedings.

DIRECTOR'S OBLIGATIONS

15 The Directors undertake to procure the performance by the Company of all

~ t s

obligations under t h ~ s

Deed."

While dealing with the deed of arrangement I should mention that it provides

for the lssue of units.

Preferential A units are to be issued to the ordlnary and

preferential creditors who prove their debts to the satisfaction of the deed

admln~stration. Preferent~al B units are to be issued to persons who provide cash services or other constderatlon to the deed fund. The proceeds of recovery are to be dealt with as provlded by clause 5.5, whlch reads:-

"Redcmptlon of Units and Dlstrlbut~on

5.5

The Deed Admlnlstrator may redeem Ordlnary Units. Preferential A Units and Prcferent~al B Units at such t lma as he shall think fit, subject to the

following rules:

(a)	Units are to be redeemed in the followng order of priorlly:

(1)	In payment of the msts and expenses of the Deed and its

admlnistratlon,	Including	the	remuneratlon	of	the	Deed
Admlnlstrator;

(il)	In payment of Cred~tors	who hold Preferent~al A Un~ts;
(111)	In payment of Crcd~tors	who hold Preferential B Uruls;
(IV)	In payment of Cred~tors	who hold Ordiiary Umts.

@) Units are redeemed on the basis that one unit equals S1. Provided that if the money sland~ng to the cred~t of the Deed Fund is insuffinent to redeem unlts held by a class of crcdltors, such money as are available may be. distributed pro-rat amongst the members of such a class.

(c) If there is a surplus of money in the Deed Fund aftef all units have been redeemed in full at value of $1, thc Deed Admtnlstrator must dlstnbute the surplus money on the followmg basls:

(1) 50% of any surplus money is to be paid to the Credaors. lrrespectlvc of the class, on a pro rala basis in aocordance with units lssued by the Deed Administrator;

(ii)

50% of any surplus money is to be. pa~d

to the Company.'

When the suspension of the operation of the undertaking came to an end on 10

October, the

- undertaking reverted to its full force and effect. Only two of the payments

due in July, August, September and October were made by the administrator, leaving two

of the sums outstanding.

On 14 October 1994, Darling Harbourside took the possession of the shops and premises, the subject of the leases. Two notices of motion on the part of Darling Harbours~de have been filed. Counsel for Darling Harbourside has sought only the

following orders:-

"l. Adeclarat~on

that the Appllcanl has fa~led

to comply wth tts Undertaking to t

Court given on . 20 August 1993.

2 An order rhal any procecd~ng by the Appl~canl be stayed on lu Appl~cat~on.

Further Amended Slalcmcnl of Clam, and any amendmenu thereof be stayed unlll the

Applicant pays to the Respondent the balance of $117,354 02 payable pursuant to thesd~d

Undertalung in respect of the months of July, August, September and October 1994 and

st~ll

unpa~d

Counsel for San~r~se

has moved that Sanirise be released from its undertaking

glven on 20 August 1993.

In my oplnlon, Sanirlse should be released from its

undertahng as the undertaking was glven to establish an interlocutory regime prlor to trlal. Thls reglme was interrupted when the administrator was appointed. The lnterruptlon continued untll 9 October 1994 and came to an end when Darling

Harbourside re-entered possession.

Continuance of the undertaking would serve no purpose. The substratum of the undertaking was destroyed by the arlrninistratlon and by the retaking of possession. Although there is no express evidence that, when the administration came to an end,

Sanirise did not have funds to meet the rent outstanding, I infer from the fact that the

admirustrator did not make the two payments that this was in fact the case. The sum undertaken to be paid was not a sum fixed as the rent. The quantum of the rent will be

determ~ned

when judgment is given.

The sums undertaken to be paid were interim sums

whlch, when pald, were to be taken Into account in the determination of the rent pald

or outstanding by Saninse.

As the judgment in the proceedings will determine whether rent is due, and if so,

how much, the undertahngs serve no further interlocutory purpose.

I consequently order

that Sanirise be released from the first undertalung glven on 20 August 1993. There is

no need to make any order wlth respect to the second and thlrd undertakings.

The undertaking havlng been released, the motions brought on behalf of Darling

Harbourside must fall.

It is unnecessary for me to consider the nice questions which would otherwise arise as to whether Sanulse was in contempt of court and thereby precluded from pursuing this proceeding unt~l it had purged its contempt by paying the two instalments which had not

been paid.

I am grateful to Mr C P Comans of counsel for the research he has

undertaken as to the law of contempt but think it better not to enter into any discussion

of this difficult area.

The orders wll be that Sanirise be released from the first undertaking given to the

Court on 20 August 1993. The motlons brought on behalf of Darl~ng

Harbourside will

be dismissed. The three motions arose from the failure of Sanirise to comply with the

interlocutory regime which had been agreed upon. On the other hand, Sanirise was

successful in the motlons.

I think that a fair order as to costs will be that each party

ablde to its own costs of the three motions.

Darling Harbourslde also seeks an order that security for costs be provided.

Evldence has been glven by a solicitor, Patrlcia Maly Hutton, that Darling Harbourside

has already incurred costs on a party and party basis exceed~ng $28,000. MS Hutton has

estimated that the hearing, which is listed to commence on 6 March 1995 and which has

been set down for 20 sltting days, would lnvolve substantial costs and that, if the matter

proceeds, Darling Harbourside's further costs lncludlng disbursements on a party and

party basis would exceed $200,000.

No evldence to the contrary was adduced. Indeed, a report of the administrator

to cred~tors

included the information that h ~ s

solicitors belleve that the costs of

preparation for trlal and the trial would exceed $250,000.

MS Christlne Elizabeth Kelly, a director of San~nse,

has deposed in her affidawt

that she attr~butes Sanlrise's financial position directly to actions and lack of action on the part of Darling Harbourslde and its agents. This evidence does not however, of itself, constitute prima fac~e evidence of the matters alleged in the statement of claim or evidence that Sanlrlse would be likely to obtain judgment against Darlmg Harbourslde m a significant sum. No advlce of counsel to this effect has been tendered. Rather a report made by the administrator to creditors stated that:-

"My solicltor IS of the opin~on, based on the material revlewed by hlm . . . that as the

matter presently stands, he does not belleve that the prospects of the company recovering

any s~gnificant

quantum of damages exceeds 50%".

The adminrstrator also reported to creditors that there was a prospect that an order for

security of costs would be made.

The claim made on behalf of Sanlrlse IS for substantial damages. The amount 1s

as yet unspecified but, at a creditors' meeting, figures of $5 million and more were

mentioned. It should perhaps be noted that the proceedings are not public interest litigation where the lssue to be resolved 1s one of general Interest to the community or

even to a significant number of people. This litigation is brought for the recovery of

money and alleges breaches of dutles owed by Darllng Harbourside to Sanlrise.

The affidavit of MS Kelly discloses that the directors of Sanirise have funded the litigation by obtaining the services of its solicitors and counsel on a contingency fee basis.

Thls is consistent with the deed of arrangement which provides that the preferent~al B

unlts may be ~ssued to a person who provldes cash, services or other consideration to the Deed. Such units could be issued to solicitors and counsel. The result could well be, if

no order for securlty were made, that Sanirise could proceed with the litigation without either inc;rr1ng legal costs itself or being troubled about any order as to cost which may be made against it.

Counsel for Saninse submitted that an order should be refused because of Darling

Harbourside's delay. Darling Harbourslde first gave notlce of its intention to seek

security in August 1993. However, it dld not then proceed with the motion. In my oplnion, the period of administration, the deed of arrangement and the loss by Sanirise of its premises have been facts which have radically changed the situation so as to justify Darling Harbourside in renewlng its motion. Moreover, the moneys (if any) incurred to date by Sanlrlse on legal costs are so relatively mlnor that they provide no ground of

prejudice for refuslng to make an order.

On the other hand, the application has been made only a short time before the

date on which the matter is listed for hearing. The matter has been on foot for some

time. If it is to be heard at all, it should be heard in March 1995. It is undesirable that an order be made which may delay the trial. Counsel for Sanuise submitted that the making of an order for security will st~fle the proceedings. It is conceded for the

purposes of this motion that ne~ther

Sanirise nor the directors could provide security.

Indeed minutes of a creditors' meeting show that Sanirise has a deficiency of

approximately $2,180,000 and that the Westpac Bank holds a fixed and floating charge

over its meagre assets.

In my opinion, the making of a reasonable order as to security would not be likely to stifle the litigation if it is litigation that ought to proceed. If the creditors who are owed over-$2 million are not prepared to back the litigation with funds, I would draw the conclusion that it was not litigation which should be allowed to involve Darling Harbourside in a great deal of expense or to occupy 20 days of the Court's valuable

hearing time.

It would indeed be plainly unjust to Darling Harbourside to refuse to make an order for security. Darllng Harbourside would otherwise be put in the position where it would be better served by offering $200,000 in settlement of the litigation so as to avold the cost and expense of golng on.

L~tlgation

is fairest to the persons concerned when both sides of the record are

at risk of losing sums in respect of costs if litigation which should be discontinued or

settled IS carried on unnecessarily

The facts of the present case are analogous to those

considered In Semler v M u r ~ h y

[l9681 1 Ch 183, where Lord Denn~ng

MR said at 192:-

"It coma to l h ~ s It tllc actlon succeeds, the pla~nt~ff's

brother w ~ l l

go off w11h thc whole

proceeds and let the other cred~tors

'wh~stle'

for tllelr moncy. whereas if the actlon fallb.

the

pla~nt~ff

w~l l

not be able to pay the cosh of the defendant

It 1s the very lund of case

m wh~ch

secunly for costs should bc ordcrcd

I should also add, on the subject of st~fling

llt~gation,

that the view. whlch both

counsel appear tentat~vely

to prefer wlth respect to the deed of arrangement, 1s that it

e~nbraces

Darhng Harbourslde's cross-claim and precludcs Darhng I-Iarboursidc fro111

pursulng it agalnst San~rise. From a pract~cal polnt of view, this may have little

significance as the monetary claims raised in the cross-claim will be hkely to be talten into account in the assessment of the clalms wh~cll San~rlse makes and as no factual recovery by Darling Harboursldc trom Sanlrlse would be hkely. Of course, Darling Harlxxrslde

st~ll

has its cross-clalms agamst the other cross-respondents.

In my oplnion, the sum m respect of which an order for security should be made IS $100,000. In adoptlng this t~gure, I take all the factors into account lncludlng the tact

that the case is listed for hearlng on G March 1995. I think this sum will not be likely to st~fle the litigation if it is judged by the creditors to be lltlgatlon which should be pursued.

After all, the claim may amount to $5 mlll~on	and the creditors are owed $2 m~ll~on.	In
this light, $100,000 IS a very modest sum.

I shall order that the apphcant, Sanir~se,

provide secur~ty

for the costs ot the

respondent. Darhng Harbourside, in the sum of $100,000 and that this sum be paid Into

court or a bank guarantee therefor, in a form approved by the Registrar, be lodged with the Court by 31 January 1995. In default of the provision of that securlty on or before 31 January 1995, the application will be stayed.

Darling Harbourside should have the costs of the motlons.

I cert~fy

that thls and the twelve (12) preced~ng

pages are a true

wpy of the reasons

judgment hereln of the Honourable

Just~ce

Danes

Counsel for the apphcant:

Chaikin

Solicitors for the appl~cant:	Stojanonc & David
Counsel for the respondent	C P Comans

Sollc~tors

for the respondent:

Harrls & Cn

Date of heanng	13 and 14 December 1994
Date of judgment:	14 December 1994

[1994] FCA 1093

14 Dec 1994