SW Investments NSW Pty Ltd v 16 Boondilla Pty Ltd (No 2)

[2018] NSWSC 299

Supreme Court

New South Wales

Medium Neutral Citation:	SW Investments NSW Pty Ltd v 16 Boondilla Pty Ltd (No 2) [2018] NSWSC 299
Hearing dates:	On the papers
Date of orders:	12 March 2018
Decision date:	12 March 2018
Jurisdiction:	Equity
Before:	Darke J
Decision:	Order made that funds held by stakeholder be paid to the fourth defendant
Catchwords:	EQUITY – trusts – funds held by stakeholder – funds held pending conclusion of proceedings and direction of court – funds obtained from proceeds of sale of real property owned by fourth defendant – fourth defendant in liquidation – plaintiffs successful against first to third defendants but did not seek leave to proceed against fourth defendant – whether funds should be paid to fourth defendant or to plaintiffs – funds be paid to fourth defendant where plaintiffs established no claims against it or interest in the real property or its proceeds
Legislation Cited:	Competition and Consumer Act 2010 (Cth), Sch 2, s 237 Corporations Act 2001 (Cth), ss 500, 568 Supreme Court Act 1970 (NSW), s 23
Cases Cited:	SW Investments NSW Pty Ltd v 16 Boondilla Pty Ltd [2017] NSWSC 762
Category:	Procedural and other rulings
Parties:	SW Investments NSW Pty Ltd (First Plaintiff) Huijing Song (Second Plaintiff) 16 Boondilla Pty Ltd (First Defendant) PRM Development (NSW) Pty Ltd (Second Defendant) Xin Li (Third Defendant) PRCM Constructions Pty Ltd (Fourth Defendant)
Representation:	Solicitors: Juris Cor Legal (Plaintiffs) Morabito Legal (Fourth Defendant)
File Number(s):	2015/338463
Publication restriction:	None

Judgment

1. These proceedings were heard on 5 June 2017. Judgment was given on 14 June 2017 (see SW Investments NSW Pty Ltd v 16 Boondilla Pty Ltd [2017] NSWSC 762). The plaintiffs were successful in obtaining various orders, including an order under s 237(1) of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (“the Australian Consumer Law”) that the first to third defendants pay the first plaintiff the sum of $287,400 plus interest.

2. The only issue remaining in the proceedings concerns the fate of a sum of $4,789.93 which is held by the plaintiffs’ solicitors in a trust account. The money was placed in the account in accordance with an undertaking given by the fourth defendant to the plaintiffs on 20 May 2016. The terms of the undertaking provide that the money is to be held by the solicitors as “stakeholder for the parties pending conclusion of the Proceedings and the Court’s direction with respect to such monies”.

3. The fourth defendant was not a party to the proceedings when the undertaking was given. The fourth defendant became a party when the plaintiffs filed an Amended Statement of Claim on 11 July 2016. However, the fourth defendant was placed in liquidation on 24 May 2017. The liquidation was a creditors’ voluntary liquidation. Accordingly, s 500(2) of the Corporations Act 2001 (Cth) operated so that the proceeding against the fourth defendant could not be proceeded with except by leave of the Court. At the hearing the plaintiffs did not seek that leave so as to allow them to proceed against the fourth defendant. The plaintiffs proceeded against only the first to third defendants. The proceedings were adjourned in so far as they concerned the claim against the fourth defendant.

4. The plaintiffs have since indicated that they do not seek to proceed against the fourth defendant. However, they do seek the release to them of the $4,789.93 (referred to as “the undertaking monies”).

5. On 9 February 2018 directions were made for the provision of written submissions on that issue with a view to the matter being dealt with on the papers. The plaintiffs and the fourth defendant have provided submissions in accordance with those directions. The plaintiffs have also provided a submission in reply.

6. The plaintiffs’ submissions raise a threshold question concerning the Court’s jurisdiction to determine their application. They submit that the undertaking is part of a contract that remains in existence notwithstanding the liquidation of the fourth defendant, and that the Court has power to make orders in respect of the contract under s 568(9)(a) of the Corporations Act. The plaintiffs submit that such an application does not require the leave of the Court, but that if leave is required, it should be granted.

7. In its submissions, the fourth defendant (which remains in liquidation) stated that given the small amount of money involved it would concede that “the formalities of seeking leave to lift the stay can be dispensed with solely for the purpose of the Court’s determination in relation to the disbursal of the undertaking monies”.

8. The undertaking was given and the fund was created when the fourth defendant was not a party to the proceedings. Nevertheless, the establishment of the fund occurred in the context of the proceedings, it was expressly contemplated that the undertaking monies would ultimately be dealt with in accordance with an order of the Court, and the fourth defendant later became a party to the proceedings. In my view the Court has jurisdiction under s 23 of the Supreme Court Act 1970 (NSW) to make orders in respect of the undertaking monies, which are part of what is essentially an interlocutory regime agreed to by the plaintiffs and the fourth defendant.

9. I am not convinced that the plaintiffs do not require the leave of the Court to seek an order for the release of the undertaking monies. I do not think the plaintiffs’ application should be characterised as one for an order under s 568(9)(a) of the Corporations Act. The plaintiffs are not seeking the discharge of the contract pursuant to which the undertaking monies are held. Further, it seems to me, without the benefit of extensive argument, that it is at least arguable that the plaintiffs’ application is a civil proceeding within the meaning of s 500(2) of the Corporations Act. Against that possibility, and given the attitude of the fourth defendant referred to earlier, I think that the appropriate course is to grant leave to the plaintiffs under s 500(2) to the extent necessary to enable them to seek the order for the release of the undertaking monies.

10. In order to understand the basis of the plaintiffs’ application it is necessary to briefly describe the nature of the proceedings brought by the plaintiffs, and the circumstances in which the undertaking monies came to be held by the plaintiffs’ solicitors as stakeholder.

11. The proceedings were originally commenced by Summons (filed on 17 November 2015) against only the first to third defendants. The plaintiffs sought relief in respect of various agreements made with the first and second defendants, and a sum of $287,400 that had been paid by the first plaintiff to the first defendant. As noted earlier, the fourth defendant became a party to the proceedings when the Amended Statement of Claim was filed on 11 July 2016. The Amended Statement of Claim included a claim that the fourth defendant was liable to account to the first plaintiff for a sum of $140,000 alleged to have been paid to the fourth defendant by the first defendant out of the aforementioned sum of $287,400. It was alleged that the $287,400 was held by the first defendant on trust for the first plaintiff, and that when $140,000 of that sum was paid to the fourth defendant it knew the money was paid in breach of trust so that it held the $140,000 on constructive trust for the first plaintiff.

12. In the meantime, the first plaintiff had lodged a caveat (AK95727) on the title to a property owned by the fourth defendant at Toowoon Bay. The caveat itself is not in evidence, but it seems that the first plaintiff claimed an interest in the nature of an equitable charge. In any event, the fourth defendant entered into a contract to sell the property. The contract was due for completion in May 2016, but the existence of the caveat was an impediment to completion. Negotiations ensued.

13. It appears that it was common ground that $140,000 (actually $140,010) had been paid by the first defendant to the fourth defendant out of the $287,400 the first plaintiff had paid to the first defendant. It was also accepted by the fourth defendant that it had made two mortgage payments (totalling $4,789.93) in respect of the Toowoon Bay property out of the $140,000. The fourth defendant contended that the extent of any interest held by the first plaintiff in the Toowoon Bay property was limited to $4,789.93. In return for a withdrawal of the caveat, the fourth defendant offered (on a without admissions basis) to pay that sum out of the proceeds of sale into a trust account, to be held pending the outcome of the proceedings and to be dealt with as the Court may direct. Agreement was reached, and the parties formalised their agreement by the proffering of various undertakings on 20 May 2016. The sale of the Toowoon Bay property was subsequently completed, and out of the proceeds the undertaking monies were placed in a trust account of the plaintiffs’ solicitors to be held as “stakeholder for the parties pending conclusion of the Proceedings and the Court’s direction with respect to such monies”.

14. The plaintiffs submitted that the undertaking monies should be released to them because they “form part of the Judgment Debt” of the first to third defendants which remains unsatisfied. That is, the undertaking monies are monies that derive from the $287,400 the subject of the proceedings.

15. The fourth defendant submitted that it was the owner of the undertaking monies, subject only to the conditions of the undertaking. It submitted that no judgment or orders have been made against it, and as the plaintiffs are not seeking leave to proceed against it to press the claims in the Amended Statement of Claim, there is no likelihood of any judgments or orders being made against it. The fourth defendant submitted that in those circumstances the plaintiffs have no entitlement to the undertaking monies. The fourth defendant also took issue with the proposition that the undertaking monies form part of the judgment debt. The fourth defendant contends that the Court should order that the undertaking monies be released to it.

16. In reply, the plaintiffs submitted that the fourth defendant had not explained how it is the owner of the undertaking monies, which were provided on the basis that the $4,789.93, that was used to make mortgage payments, was derived from the $287,400 the subject of the judgment debt. The plaintiffs submitted that in those circumstances the fourth defendant did not hold beneficial title to the undertaking monies. The plaintiffs further submitted that it was irrelevant that there was no judgment against the fourth defendant because what the plaintiffs rely upon is “the first plaintiff’s judgment debt against the first defendant, and that money is owed by the fourth defendant to the first defendant”. The plaintiffs submitted that it would be a peculiar outcome if the Court released the undertaking monies to the fourth defendant “in circumstances where the Court has previously recognised the plaintiffs’ entitlement to the sum of $287,400 (which the undertaking monies are part of)”.

17. The plaintiffs’ argument rests at least in part upon the proposition that the undertaking monies “form part of the Judgment Debt” as they are monies “derived from the $287,400 the subject of the proceedings”. It is true that $140,000 of the $278,400 paid by the first plaintiff to the first defendant was transferred to the fourth defendant, and out of that $140,000 a total of $4,789.93 was paid towards the mortgage over the Toowoon Bay property. However, the undertaking monies (also $4,789.93) are not the same monies that were paid away by the fourth defendant; they are part of the proceeds of the sale of the Toowoon Bay property which was owned by the fourth defendant.

18. The first plaintiff claimed an interest in the Toowoon Bay property that was disputed by the fourth defendant. As part of an agreement designed to allow completion of the sale of the property, the undertaking monies were placed with the plaintiffs’ solicitors to hold as stakeholder pending the conclusion of these proceedings and the direction of the Court. The undertaking monies should thus be seen as a fund set aside to await the outcome of the proceedings brought by the plaintiffs. It must have been envisaged that the plaintiffs would advance in those proceedings any claims they had against the fourth defendant that might ultimately justify an order in their favour in respect of the undertaking monies.

19. The claims subsequently made in the Amended Statement of Claim against the fourth defendant included a claim that the fourth defendant was liable to account to the first plaintiff as a constructive trustee in respect of the $140,000 it received. There was also a claim for equitable compensation. No claim was made that the plaintiffs, or either of them, held an interest in the Toowoon Bay property or the proceeds of its sale.

20. The plaintiffs have declined to seek leave to proceed with their claims against the fourth defendant. Accordingly, those claims cannot be taken to be established. It cannot be assumed therefore that the fourth defendant held the $140,000 on constructive trust for the first plaintiff. Further, even if it was assumed that the fourth defendant held the $140,000 on constructive trust for the first plaintiff, the mere fact that part of the money was paid to a mortgagee of the Toowoon Bay property does not establish an interest in that property (or the proceeds of its sale) in favour of the first plaintiff.

21. It seems to me that as the plaintiffs have not made out any causes of action against the fourth defendant, and have not established an interest in the Toowoon Bay property (or the proceeds of its sale), there is no basis for the Court to order that the undertaking monies be released to them. Rather, it is my view that the undertaking monies should be released to the fourth defendant. As the owner of the Toowoon Bay property it is prima facie entitled to the net proceeds of its sale which include the undertaking monies. The plaintiffs have not displaced that prima facie entitlement. It is not to the point that the judgment against the first defendant remains unsatisfied whilst the fourth defendant may owe money to the first defendant. That does not give the plaintiff rights over the property of the fourth defendant.

22. The Court will therefore order that the monies held by the plaintiffs’ solicitors pursuant to the undertaking given by the fourth defendant on 20 May 2016 be paid to the fourth defendant. The plaintiffs should pay the fourth defendant’s costs of the application.

**********

Decision last updated: 12 March 2018