Tambakis v Ferluga - [2010] SASC 122

SUPREME COURT OF SOUTH AUSTRALIA
(Appeals to a Single Judge)
TAMBAKIS v FERLUGA & ORS
[2010] SASC 122
Judgment of The Honourable Justice Gray
30 April 2010
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - SERIOUS QUESTION TO BE TRIED - PROBABILITY OF SUCCESS
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - BALANCE OF CONVENIENCE
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - JURISDICTION AND AVAILABILITY OF REMEDY GENERALLY - POWER OF COURT TO AWARD DAMAGES IN ADDITION TO OR IN LIEU OF AN INJUNCTION
Appeal against a decision of a District Court Judge refusing an application for an interlocutory injunction - deposit paid to stakeholder as part of an agreement for the sale and purchase of a second floor apartment at Semaphore - the appellant, as purchaser, sought to restrain the respondents from drawing upon a bank guarantee issued in lieu of a cash deposit - consideration of the role and legal status of stakeholder - whether Judge erred in finding that conveyancer did not hold deposit as a stakeholder - whether Judge erred in refusing the interlocutory injunction - whether Judge erred in finding damages to be an adequate remedy - whether balance of convenience weighed in favour of the grant of an injunction.
Held: appeal allowed - factual misapprehension on part of the Judge is such as to give rise to the need for this Court to exercise the discretion afresh - stakeholder holds bank guarantee for both the vendors and purchaser pending the outcome of the event contemplated by the contract - damages not necessarily an adequate remedy in the circumstances of this proceeding - balance of convenience clearly favours injunctive relief.
Tambakis v Ferluga & Ors [2009] SADC 122; Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (in liq) (2004) 89 SASR 337; Burt v Claude Cousins & Co Ltd [1971] 2 QB 426; Sorrell v Finch [1977] AC 728; Skinner v Trustee of the Property of Reed (a bankrupt) [1967] Ch 1194; Harington v Hoggart (1830) 109 ER 902; Wiggins v Lord (1841) 49 ER 248; Hastingwood Property Ltd v Saunders Bearman Anselm (A Firm) [1991] Ch 114; Potters (A Firm) v Loppert [1973] Ch 399; Romanous v Saleh [2008] NSWSC 656; Hairun Chen v Statewide Developments Pty Ltd [2007] NSWSC 518; Wood v Richardson (1840) 49 ER 305; Ampol Petroleum Ltd v Mutton (1952) 53 SR (NSW) 1; Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; Norman v Mitchell (1854) 5 De GM & G 648; Preston v Luck (1884) 27 Ch D 497; Municipal Council of Rockdale v Municipal Council of Kogarah (1926) 26 SR (NSW) 552; Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159; Kilpatrick Green Pty Ltd v State Supply Board (1991) 56 SASR 591; Zhang v VP302 SPV Pty Ltd (2009) 223 FLR 213; Prior v Kuji Pty Ltd (1992) Q Conv R 54-423; Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443; Fletcher Construction (Aust) Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812; Manzanilla Ltd v Corton Property & Investments Ltd (Court of Appeal, 13 November 1996, unreported), considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"Stakeholder"

TAMBAKIS v FERLUGA & ORS
[2010] SASC 122
Miscellaneous Appeal
GRAY J:
Introduction

This is an appeal against a decision of a District Court Judge to refuse an application for an interlocutory injunction.
Background
This appeal arises from a contract for sale and purchase entered into on 5 September 2007 between the purchaser James Anthony Tambakis, the plaintiff and appellant, and the vendors Moreno Ferluga, Susan Lynette Ferluga, Renato Ferluga, Giancarlo Caon, Miriam Caon and TLT Constructions Pty Ltd, defendants and respondents. St George Bank Ltd was also joined as defendant and respondent. The contract related to the sale and purchase of an apartment on the second floor of a complex at Semaphore, South Australia, to be constructed in accordance with plans annexed to the contract.
Following the construction of the apartment the purchaser challenged the enforceability of the contract. In the primary action, to be heard in the District Court, the purchaser alleges that a number of the respondents engaged in misleading and deceptive conduct, entitling the purchaser to an order that the contract be set aside or rescinded.
The decision of the Judge in the District Court related to an application by the purchaser for an interlocutory injunction restraining the vendors from drawing upon a bank guarantee issued by St George Bank.
The schedule to the contract provided for a deposit in the amount of $100,000.00. The purchaser satisfied this obligation by a guarantee provided by St George Bank.
Clause three of the contract for the sale and purchase, titled “Deposit”, contained the following provisions:
(1)The Purchaser shall pay the deposit to the deposit holder at the time or times specified in schedule one.
(2)If it is so specified in schedule one the deposit holder shall hold the deposit as stakeholder.
Schedule one relevantly provided:

DEPOSIT
(Clause 3)
(In words and figures)

One Hundred Thousand Dollars ($100,000.00)

PAYMENT OF DEPOSIT
(Clause 3)
Payable on the execution hereof

Payable on the 1^st NOVEMBER 2007

Payable on the expiration of the cooling off period

DEPOSIT HOLDER
(Clause 3)
(Name and address)
Adcock Conveyancing

*who shall hold the Deposit as stakeholder

From the above, it is clear that the requirement for a cash deposit was substituted by the provision of bank guarantee. It was agreed by all parties that the terms of the contract allowed for the bank guarantee to stand in lieu of the intended cash deposit. It was accepted that the Court should proceed on the basis that whoever held the bank guarantee – in this case, the conveyancer – held it as a stakeholder in accordance with the terms of the contract and in particular schedule one.
On 8 October 2009, the purchaser commenced proceedings in the District Court. The substance of the claim is that an agent for the vendors described the apartment as “huge” and had shown the purchaser plans which indicated a significantly larger useable area than that of the apartment finally constructed. Principally, what was sought was a declaration that the purchaser had lawfully repudiated the contract, a declaration that a number of the defendants had engaged in false and misleading conduct, an order that the contract be set aside, and damages for false and misleading conduct. Finally, a permanent injunction was sought restraining the defendants from negotiating or dealing with the bank guarantee.
On 8 October 2009, a Judge of the District Court granted an ex parte interim injunction so restraining the defendants. The terms of the Court’s order include the following:
Until 5:00 pm on Wednesday the 14^th day of October 2009, the first defendant Moreno Ferluga, the second defendant Susan Lynette Ferluga, the third defendant Renato Ferluga, the fourth defendant Giancarlo Caon, the fifth defendant Miriam Caon, the sixth defendant TLT Constructions Pty Ltd…and the seventh defendant St George Bank Limited…whether by themselves and/or itself (and whether by it or their servants or agents) be restrained and an injunction is hereby granted restraining it and them from negotiation or in any way dealing with a guarantee entitled “Banker’s Guarantee” issued by the seventh defendant to the first to sixth defendants on 19 October 2007 at the request of the plaintiff and Michael Simon Tambakis, as customer, a copy of which is annexed hereto and marked with the letter “A” for identification.
…
Further consideration is adjourned until 2:00 pm on Wednesday the 14^th day of October 2009.
On 14 October 2009, at a further hearing before the same Judge, the interim injunction was extended until further order. On that occasion all parties except St George Bank were in attendance. Apparently it was intended that the full hearing in regard to the application for an interlocutory injunction would take place shortly thereafter.
In the event the application for an interlocutory injunction was heard before a different Judge of the District Court on 29 October 2009. At the conclusion of that hearing, the Judge considered that it was inappropriate to grant an interlocutory injunction. The Judge indicated that the interim injunction would be discharged. On the purchaser advising that it was proposed to appeal from the Judge’s decision, the Judge extended the interim injunction pending the resolution of the appeal. As a result, the defendants continue to be restrained from negotiating of dealing with the bank guarantee.
This is an appeal from the decision of the District Court Judge refusing to grant an interlocutory injunction.
The Appeal
The purchaser submitted that the District Court Judge misunderstood the nature of the contract when he stated in his reasons that the conveyancer did not hold the deposit as a stakeholder. The express terms of the contract, it was contended, were to the contrary. It was argued that this fundamental factual misunderstanding infected the Judge’s reasons to such an extent that it was axiomatic that this Court should allow the appeal and reconsider the application for the interlocutory injunction.
It was further submitted that the District Court Judge, in the circumstance where the defendants had conceded that there was a prima facie case to be tried, erred in two further respects – the finding that damages were an adequate remedy - the failure to exercise his discretion to find the balance of convenience was sufficiently in favour of the purchaser to warrant the grant of injunctive relief.
Material Misapprehension of Fact
It was accepted by the defendants that the District Court Judge had misunderstood the express terms of the contract with respect to the holding of the deposit.[1] This is evident from the reasons of the Judge and the following observation:[2]
The schedule to the contract stipulated that the deposit was to be paid to a named third party who would hold it, but not as a stakeholder.
As noted above the terms of schedule one were to the contrary. The deposit was held by the conveyancer as stakeholder.
[1]    On the hearing of the appeal the following interchange took place:
HIS HONOUR:    It follows that the conveyance would hold as stakeholder.
[COUNSEL FOR THE RESPONDENTS]:         We accept that proposition.
HIS HONOUR:    Follows that his Honour is wrong in asserting to the contrary.
[COUNSEL FOR THE RESPONDENTS]:         Well, in this sense, yes; in the sense that if, in fact, that was a determining factor in his Honour’s decision.
HIS HONOUR:    In the sense that he made a finding of fact that’s wrong?
[COUNSEL FOR THE RESPONDENTS]:         Yes.
HIS HONOUR:    In his reasons he says in the second paragraph, is it, para. 2:
‘-be paid to a named third party…but not as a stakeholder’
The contract is exactly the opposite.
[COUNSEL FOR THE RESPONDENTS]:         Yes, we’d accept that.
HIS HONOUR:    So it follows that his Honour’s entered this…injunction under a factual          misapprehension.
[COUNSEL FOR THE RESPONDENTS]:         That’s correct.
[2]    Tambakis v Ferluga & Ors [2009] SADC 122 at [2].
This observation demonstrates a material misapprehension of fact on the part of the District Court Judge. This is significant because the misunderstanding permeated the Judge’s treatment of the issues before him, including the application of the principles to be applied when addressing a submission that damages were an adequate remedy. The misapprehension is such as to give rise to the need for this Court to exercise the discretion whether to grant an interlocutory injunction afresh.
The Role and Status of a Stakeholder
As earlier mentioned, on the hearing of the appeal, an issue arose regarding the role and status of a stakeholder - whether in the circumstances of this proceeding, the stakeholder held the bank guarantee on trust or in some other capacity. A further question arose as to the impact that the stakeholder holding the bank guarantee on trust or in some other capacity would have upon the Court’s discretion to grant an interlocutory injunction.
As earlier observed, the purchaser asserted that the stakeholder held the St George Bank guarantee on trust. The defendants asserted to the contrary, and in particular argued that the bank guarantee was held under contractual or quasi-contractual obligations.
A stakeholder may be described as a person who receives a deposit from two parties and undertakes to deliver the deposit to one or other of them in accordance with a specified event. The stakeholder, qua stakeholder, has no interest in the outcome. The stakeholder is indifferent as to which of the principals should ultimately become entitled to the deposit. As stakeholder, his only interest it to obtain a good discharge for the deposit.[3]
[3] Manzanilla Ltd v Corton Property & Investments Ltd (Court of Appeal, 13 November 1996 unreported, per Millett LJ).
The legal capacity in which a stakeholder holds a deposit is vexed. One line of authority suggests that a stakeholder holds the deposit as trustee. Another line of authority concludes that a stakeholder is paid a deposit, not as a trustee, but on a contractual or quasi-contractual basis.
In Harington v Hoggart,[4] Lord Tenterden CJ in his consideration of the role of a stakeholder made the following remarks apposite to the within proceedings:
A stakeholder does not receive the money for either party, he receives it for both; and until the event is known, it is his duty to keep it in his own hands.
[4] Harington v Hoggart (1830) 109 ER 902 at 905.
In regard to the duty of a stakeholder in a case involving a deposit as part of the purchase money under a contract for the purchase of land, Langdale MR in Wiggins v Lord[5] observed:
The defendants…had clearly a duty to perform, which was, to keep the money in their hands as a deposit for the person ultimately entitled. Instead of doing that, they paid it away, according to the direction of the vendor, without regarding their duty to the Plaintiff.
[5] Wiggins v Lord (1841) 49 ER 248 at 249.
Neither of these early authorities considered the legal relationship between the stakeholder and the parties to the contract.
In Skinner v Trustee of the Property of Reed[6] the question for the Chancery Court was whether auctioneers, having received a deposit as stakeholders, were entitled to deduct their charges from the deposit in circumstances where the vendors were bankrupt and as a result of encumbrances over the land, there were competing claims on the deposit. Cross J referred to the role of a stakeholder in the following terms:[7]
The purchaser pays his deposit as an earnest to bind the bargain and in part payment of the purchase price, and if the deposit is paid to a stakeholder, then subject to any express term in the contract, the stakeholder holds the deposit on trust to deal with it in different ways in different contingencies.
[6] Skinner v Trustee of the Property of Reed (A Bankrupt) [1967] Ch 1194.
[7] Skinner v Trustee of the Property of Reed (A Bankrupt) [1967] Ch 1194 at 1200.
Later in his reasons, Cross J, in holding that the auctioneers were only entitled to as much of the deposit as had become the property of the vendors on completion of the contract, said that the question depended “on the trust on which in the event he holds the deposit”.[8]
[8] Skinner v Trustee of the Property of Reed (A Bankrupt) [1967] Ch 1194 at 1200.
In what capacity a stakeholder holds a deposit was further considered in Burt v Claude Cousins & Co Ltd.[9]In that case, the Court of Appeal considered whether a deposit was received by a land agent as a stakeholder or as an agent of the vendor. Nothing was said in the contract about the terms on which the money should be held. It was held by the majority that the money was received as agent of the vendor. Lord Denning MR dissented on the basis that if nothing was said about the terms on which the money should be held, the land agent was acting as a stakeholder. However, the following obiter of Lord Denning MR about the role and status of a stakeholder is relevant:[10]
If an estate agent or a solicitor, being duly authorised in that behalf, receives a deposit "as stakeholder" he is under a duty to hold it in medio pending the outcome of a future event. He does not hold it as agent for the vendor, nor as agent for the purchaser. He holds it as trustee for both to await the event: see Skinner v Trustee of the Property of Reed (a Bankrupt) [1967] Ch. 1194, 1200, per Cross J. Until the event is known, it is his duty to keep it in his own hands: or to put it on deposit at the bank: in which case he is entitled to keep for himself any interest that accrues to it: see Harrington v Hoggart, 1 B. & Ad. 577. If the purchaser should become entitled to the return of his deposit, he must sue the estate agent or solicitor for it: see Eltham v Kingsman (1818) 1 B. & Ald. 683; Hampden v Walsh (1876) 1 QBD 189. He cannot sue the vendor, because the vendor has never received it, or become entitled to receive it.
[9] Burt v Claude Cousins & Co Ltd [1971] 2 QB 426. This case has not escaped subsequent criticism, however the extracted remarks of Lord Denning MR remain apposite. See also Sorrell v Finch [1977] AC 728.
[10] Burt v Claude Cousins & Co Ltd [1971] 2 QB 426 at 436-437.
Different conclusions regarding the role and status of a stakeholder were reached in Hastingwood Property Ltd v Saunders Bearman Anselm[11] and Potters v Loppert.[12] In both cases, it was acknowledged that in some circumstances, a stakeholder may be a trustee, but that money may equally be paid to a stakeholder as a principal upon a contractual or quasi-contractual basis.
[11] Hastingwood Property Ltd v Saunders Bearman Anselm(A Firm) [1991] Ch 114.
[12] Potters (A Firm) v Loppert [1973] Ch 399.
Potters concerned the liability of an estate agent to account for interest earned upon a pre-contract deposit paid to him expressly as a stakeholder. No contract was made. In that case Pennycuick V-C made the following observation:[13]
I propose, in the first place, to consider the law in relation to contract deposits. Looking at the position apart from authority, one might perhaps at first sight rather expect that where any property is placed in medio in the hands of a third party to await an event as between two other parties the third party receives that property as trustee, and that the property and the investments for the time being representing it represent the trust estate. Where the property is something other than money - for example, an investment - that must, in the nature of things, almost certainly be the position. But where the property is money - that is, cash or a cheque resulting in a bank credit - this is by no means necessarily so. Certainly the money may be paid to the third party as trustee, but equally it may be paid to him as principal upon a contractual or quasi-contractual obligation to pay the like sum to one or other of the parties according to the event. It must depend upon the intention of the parties, to be derived from all the circumstances, including any written documents, in which capacity the third party receives the money.
[13] Potters (A Firm) v Loppert [1973] Ch 399 at 405-406.
Pennycuick V-C distinguished between pre-contract deposits and contract deposits, the latter involving a deposit paid upon or after the conclusion of a contract. Particularly in respect of the former, Pennycuick V-C considered that absent agreement to the contrary, money was paid to a stakeholder not as a trustee but upon a contractual or quasi-contractual basis, and went on to say the following:[14]
In Barrington v. Lee [1972] 1 Q.B. 326 the Court of Appeal had once again to consider the position of pre-contract deposits, this time paid to two estate agents expressly as stakeholders, one of whom became insolvent. Here, again, no contract was concluded, and the issue lay between the intending purchaser and the intending vendor. In this case Lord Denning M.R. reaffirmed his minority view in Burt v. Claude Cousins & Co. Ltd. [1971] 2 Q.B. 426 and Edmund Davies and Stephenson L.JJ., with obvious reluctance, reaffirmed the majority view in that case, but distinguished it on its facts.
The judgments are important in the present connection for their insistence that the liability of a stakeholder receiving a pre-contract deposit lies in contract or quasi-contract.
Lord Denning M.R. said [1972] 1 Q.B. 326, 337:
"To my mind the claim to the return of the deposit lies in contract and nothing else. When the purchaser pays a deposit to an estate agent, in the course of negotiations before any contract is concluded, there is clearly an implied promise by someone to repay it if the negotiations break down. But who is that someone? Who makes the promise to repay it? The estate agent or the vendor? If the estate agent receives the deposit 'as stakeholder,' then it is the estate agent who makes the promise to repay: and he alone can be sued for it."
[14] Potters (A Firm) v Loppert [1973] Ch 399 at 411-412.

In Manzanilla Ltd,[15] the Court of Appeal returned to this issue. Lord Millett summarised the position in the following terms:
(1)The relationship between the stakeholder and the depositors is contractual, not fiduciary. The money is not trust money; the stakeholder is not a trustee or agent; he is a principal who owes contractual obligations to the depositors: Potters v Loppert [1973] Ch. 399, 406; Hastingwood Ltd. v Saunders Bearman [1991] Ch. 114, 123. The underlying relationship is that of debtor and creditor, and is closely analogous to the relationship between a banker and his customer.
(2)Until the specified event occurs, the stakeholder is entitled to retain the interest on the money. This is usually described as his reward for holding the money: see Harington v Hoggart (1830), 1 B&Ad 577. This right may be excluded by special arrangement, and was excluded in the present case.
(3)Until the event happens the stakeholder holds the money to the order of both depositors and is bound to pay it (strictly speaking an equivalent sum) to them or as they may jointly direct: Rockeagle v Alsop Wilkinson [1992] Ch. 47.
(4)Subject to the above, the stakeholder is bound to await the happening of the event and then to pay the money to one or other of the parties according to the event. The money is payable to the party entitled on demand, and if the stakeholder fails to pay in accordance with a proper demand he is liable for interest from the date of the demand: Lee v Munn (1817 8 Taunt. 45; Gaby v Driver (1828) 2 Y&J 549.
(5)If the occurrence of the event is disputed, the stakeholder cannot safely pay either party, for if he mistakenly pays the party not entitled the payment will not discharge his liability to the other. In these circumstances he may (i) interplead and pay the money into Court; (ii) retain the money pending the resolution of the dispute; or (iii) take the risk of paying one party. The choice is entirely his.
(6)If he takes the second course, he may notify the parties that he is content to abide the outcome of the dispute. There is then no need to join him in any proceedings which are taken to resolve it. If he is not joined, the Court cannot order the money to be paid to the successful party. All it can do is to declare that the successful party is entitled to give a good receipt for the money: see Smith v Hamilton [1951] Ch. 175.
(7)If the stakeholder is not content to abide the outcome of the proceedings, he may be joined in order to bind him. This was done in the present case, albeit on the application of the stakeholder.
[15] Manzanilla Ltd v Corton Property & Investments Ltd (Court of Appeal, 13 November 1996 unreported, per Millett LJ).
More recently, in the context of a stakeholder receiving monies, White J in the Supreme Court of New South Wales characterised the obligation in this way:[16]
The obligation of a stakeholder is usually to pay the deposit to whoever is entitled to it, but the obligation to make that payment is a personal obligation rather than an obligation to account for trust moneys (Potters (a firm) v Loppert [1973] Ch 399 at 409; Hastingwood Property Ltd v Saunders Bearman Anselm (a firm) [1991] Ch 114 at 123; Manzanilla Ltd v Corton Property & Investments Ltd (Court of Appeal, Millett LJ, 13 November 1996 unreported at 11)).
[16] Romanous v Saleh [2008] NSWSC 656 at [16].
It is also to be observed that White J in Hairun Chen v Statewide Developments Pty Ltd[17] in circumstances which have a similarity to those of the within matter, made orders in respect of bonds and cash deposits which maintained the status quo.
[17] See Hairun Chen v Statewide Developments Pty Ltd [2007] NSWSC 518.
The debate about the true nature of the legal capacity in which a stakeholder holds a deposit was addressed in Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd,[18] where Bleby J, having reviewed a number of the authorities, concluded that it was not necessary to resolve whether the deposit was held as trustee or pursuant to a contractual or quasi-contractual obligation.[19]
[18] Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (in liq) [(2004) 89 SASR 337.
[19] Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (in liq) [(2004) 89 SASR 337 at [64].
Whether the conveyancer in the within proceeding holds the deposit as a trustee or on a contractual or quasi-contractual basis, it appears settled that inherent in the role of a stakeholder is the duty to hold the deposit until the occurrence of the specified event, and further, in the event of a dispute, to continue to hold that deposit until the dispute is settled. A court should be reluctant to determine a interlocutory dispute such as that which arises in the within proceeding, so as to permit the possibility of occurrence of a breach of trust,[20] breach of contract,[21] or a breach of any other legal duty. If the stakeholder holds the deposit as a trustee, it might be expected that equity would act to protect the parties’ rights by maintaining the status quo until the outcome of the dispute has been determined. On the other hand, if the deposit is held under a contractual or quasi-contractual obligation, the stakeholder’s role is to act even-handedly with respect to each party who has a contingent interest, or to inter-plead.
[20] See Wood v Richardson (1840) 49 ER 305 at 306.
[21] See Ampol Petroleum Ltd v Mutton (1952) 53 SR (NSW) 1 at 9-10.
As earlier observed, the contract the subject of the within proceedings directs the stakeholder as to how the bank guarantee is to be dealt with in specified circumstances. For example, clause 4 of the contract for sale, headed “Application of Deposit” provides:
The deposit shall be paid and applied as follows:
(a)if settlement takes place, the deposit shall be applied towards payment of the purchase price,
(b)if the deposit is forfeited to the Vendor pursuant to clause 21, the deposit shall be paid to, or retained by, the Vendor,
(c)if this agreement is rescinded by the Purchaser pursuant to section 5 of the Land and Business (Sale and Conveyancing) Act 1994 the maximum amount which may be retained by the Vendor under the section shall be paid to, or retained by, the Vendor and the balance (if any) of the deposit paid shall be repaid to the Purchaser, and
(d)in any other case, upon the rescission or cancellation of this agreement, the deposit shall be repaid to the Purchaser.
It is my view, having regard to the above authorities, the terms of the contract, and the fact that the Court is dealing with a “contract deposit”, whether the deposit is held on trust or under a contractual or quasi-contractual obligation, it is the duty of the stakeholder to hold it in medio pending the outcome of a future event. In this case, the “event” is that contemplated by the terms of the contract, and as such the duty of the stakeholder is informed by those terms. It is not appropriate on the hearing of an appeal with respect to an interlocutory order to reach any final view as to whether the stakeholder acts as a trustee or in some other capacity. Other relevant circumstances may arise at trial.
Reconsideration
As discussed above, the District Court Judge’s misapprehension of fact is in my view material and of such a nature that it is appropriate for this Court to consider afresh whether an interlocutory injunction should be granted.
Interlocutory Injunctions
The principles in relation to an application for injunctive relief are well established. The classic test can be drawn from the decision of the High Court in Australian Broadcasting Corporation v O’Neill.[22] A party seeking an interlocutory injunction must first show that he or she has a prima facie case with a probability of success.[23] Probability of success in this context means a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial, not that it is more probable than not that the plaintiff will succeed.[24]
[22] Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57.
[23] Norman v Mitchell (1854) 5 De GM & G 648 at 675 (Turner LJ); Preston v Luck (1884) 27 Ch D 497 at 506 (Cotton LJ); Municipal Council of Rockdale v Municipal Council of Kogarah (1926) 26 SR (NSW) 552.
[24] Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 82 (Gummow and Hayne JJ, with whom Gleeson CJ and Crennan J agreed at 68).
A further consideration is whether the balance of convenience favours the granting of an injunction.[25] In determining where the balance lies, the court will contrast the injury an applicant is likely to suffer if the injunction is not granted, with the injury to the other party if it is,[26] in view of all the circumstances of the case.[27] A further issue to be considered is whether the applicant would suffer harm for which damages would not be an adequate remedy in the circumstances, if the injunction were not granted.[28]
[25] Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57.
[26] Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618.
[27] Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159.
[28] Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; Kilpatrick Green Pty Ltd v State Supply Board (1991) 56 SASR 591.
On the hearing before the District Court Judge and on appeal, it was conceded by the defendants that there was a serious question to be tried. This was an appropriate concession
Damages an Adequate Remedy
The purchaser contended that the District Court Judge had erred in his approach to the question of whether damages would be an adequate remedy. It is convenient to consider this question before considering the balance of convenience more generally.
In respect of damages as an adequate remedy, the Judge concluded:[29]
Counsel for the plaintiff submits that damages will not be an adequate remedy because if the plaintiff succeeds in obtaining a declaration that he was entitled to repudiate the contract, or an order setting it aside, then the question of damages will not arise. Obviously this would only be so if the defendants had not enforced the guarantee by the time any declaration or order was made.
If the defendants enforce the guarantee and if the plaintiff later succeeds in obtaining a declaration that he has lawfully repudiated the contract, or an order setting it aside, and assuming that he had paid or was liable to pay the guaranteed amount to the bank then plainly he would be entitled to recover that amount from the defendant. It follows accordingly that if the injunction were to be discharged thus permitting the defendants to take steps to call in the guarantee before the action is determined then damages would be an adequate remedy if the plaintiff succeeds in his action thus demonstrating retrospectively that the defendants were not entitled to call in the guarantee in the first place. The plaintiff falls at the first hurdle.
[29] Tambakis v Ferluga & Ors [2009] SADC 122 at [12]-[13].
The purchaser asserted that it was an error to find that damages would be an adequate remedy in circumstances where the purchaser had applied for an injunction in the nature of preserving its rights over a deposit held by a stakeholder, and where the injunction was sought to protect a property right over the deposit under a contract for sale of real property in circumstances where the purchaser had terminated the contract. The District Court Judge’s treatment of the purchaser’s entitlement to recover the deposit in the event that it succeeds in the primary action, as equivalent to an entitlement to damages, is also challenged by the purchaser.
Clause 3(1) of the contract requires that the purchaser pay the deposit to the “deposit holder”. As extracted above, clause 3(2) provides that the deposit holder shall hold the deposit as “stakeholder”. Importantly, clause 4(d) provides that upon rescission or cancellation of the contract, the deposit shall be repaid to the purchaser.
It was said that the vendors calling on the guarantee, would have the effect of destroying once and for all the purchaser’s proprietary interest in the deposit, represented by the bank guarantee. Damages, it was contended, would not be an adequate remedy in this situation.
It is important to observe that the bank guarantee was not provided as a payment of cash to which the vendors became immediately entitled, but was provided as a deposit. It was submitted that as the contract had been rescinded, the purchaser was entitled to recover the deposit.[30] As earlier observed, it was contended that the bank guarantee in this proceeding was held on trust, for the benefit of the purchaser if the contract is set aside, and on trust for the vendors if the contract is enforceable.
[30] See Zhang v VP302 SPV Pty Ltd (2009) 223 FLR 213 at [113] (White J).
Whatever the true legal status of a stakeholder in a given case, in this proceeding, the conveyancer holds the bank guarantee in medio pending the outcome of events as contemplated by the contract, and dependent upon the outcome of the action commenced by the purchaser against the defendants. In particular, if the purchaser succeeds in the principal action, the purchaser holds a proprietary interest in the deposit.
On appeal and in the court below, it was argued by the purchaser that the balance of convenience weighed in favour of the grant of an injunction. It was said that the bank guarantee was given as the deposit, and that the vendors were not entitled to receipt of the deposit unless they were entitled to insist on settlement of the contract. In other words, the contract would need to be found to be enforceable before entitlement to the deposit could be asserted. It was further said that the defendants’ position would not be prejudiced and that in light of the defendants’ substantial assets, they would not be presented with any difficulty if access to the funds represented by the bank guarantee were the subject of an injunction. The defendants conceded that the only prejudice they would suffer would be the inability to make use of the guarantee money from the time they were entitled to call upon the guarantee to the day of final judgment. The purchaser said that any prejudice in this respect is able to be compensated by an award of statutory interest.
Therefore, subject to the above, the defendants’ position is not prejudiced while the issue relating to the enforceability of the contract is determined, because the stakeholder will continue to hold the bank guarantee waiting the outcome of the dispute and in accordance with the terms of the contract.
In submitting in the court below and on appeal, that the balance of convenience favoured the confirmation of the injunction, the purchaser relied on the decision of the Supreme Court of Queensland of Prior v Kuji Pty Ltd.[31] That case involved an application by purchasers under a contract for the sale of a home unit for an interlocutory injunction restraining the defendant who was the vendor under the contract, from exercising its rights under a bank guarantee given in part-satisfaction of the deposit stipulated in the contract, by a company connected with the plaintiffs. The purchaser in the present proceeding cited Prior as authority for the proposition that an injunction is an appropriate remedy to prevent a vendor from calling in a surety given as a deposit. In this respect the District Court Judge rejected counsel’s reliance on that case and remarked:[32]
As I understand him, counsel for the plaintiff submitted that Prior is authority for the proposition that, and I quote from his outline of submissions “It is generally understood that an injunction is an appropriate remedy to prevent a vendor from calling in a bond given as a deposit”. As I read the reasons in Prior, the judge was doing no more than applying what he perceived to be the guiding principles to the facts of the case and that he was not purporting to lay down any absolute proposition of the kind contended for. Also, his Honour did not consider the question of whether damages would be an adequate remedy either, separately or within the ambit of the balance of convenience and, with all due respect, his failure to do so must call the correctness of his ultimate conclusion into doubt. Accordingly, Prior’s case cannot assist the plaintiff.
In my view the decision in Prior is not so limited. The decision does provide support for the purchaser’s contentions. However, ultimately the circumstances of the particular proceeding will inform the exercise of the discretion of the Judge.
[31] Prior v Kuji Pty Ltd (1992) Q Conv R 54-423.
[32] Tambakis v Ferluga & Ors [2009] SADC 122 at [16].
In respect of the balance of convenience, the District Court Judge concluded:[33]
The balance of convenience is thus even or so little in favour of the plaintiff so as to have no bearing on the outcome of the ultimate question of whether an injunction should be granted or not. If the question of damages and the question of balance of convenience are considered together under the head of balance of convenience the result is the same for the reason that the plaintiff cannot point to anything which suggests that the defendants would be unable to repay the money represented by the guarantee if the action was ultimately determined in favour of the plaintiff.
[33] Tambakis v Ferluga & Ors [2009] SADC 122 at [18].
As can be seen from the above, the balance of convenience favours the purchaser. The defendants conceded that they would suffer no real prejudice with the granting of an injunction, and that there was a prima facie case to be tried. Damages would not necessarily be an adequate remedy, and in any event, this is a case where the balance of convenience clearly favours injunctive relief.
Finally, although described as “unconditional”, the bank guarantee is subject to the conditions of the contract which prescribe the circumstances in which the vendors can deal with the deposit. As earlier extracted, clause 4 of the contract provides for how the deposit shall be paid and applied. If there was a valid termination of the contract by the purchaser, the defendants’ entitlement to call upon the guarantee is likely to be affected.
Further, clause 21(5) of the contract expressly qualifies the circumstances in which the deposit may be dealt with, importantly distinguishing the present proceeding from cases dealing with pure unconditional bank guarantees.[34] That clause provides:
[34] See Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443; Fletcher Construction (Aust) Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812.
If this agreement is terminated pursuant to the provisions of this clause:
(a)all money paid or payable by the Purchaser by way of deposit shall be forfeited to the Vendor, and
(b)the Vendor may, at the Vendor’s option, either
(i)retain the Land and the included property and recover from the Purchaser damages for breach of contract, or
(ii)resell the Land and the included property by public auction or private contract and –
(A)The Purchaser shall pay the Vendor the amount (if any) by which the sale price upon the resale, after deduction of all costs charges and expenses of and incidental to the Purchaser’s default and the resale and any attempted resale, is less than the purchase price, and
(B)the Vendor may recover any such deficiency as and by way of liquidated damages (the Purchaser receiving credit for any deposit paid) PROVIDED THAT any proceedings for the recovery of any deficiency may only be commenced within twelve calendar months after the termination of this agreement and provided further that if there is any surplus on such resale the same shall belong to the Vendor.
A further qualification to the unconditional nature of the deposit is that it is held by a stakeholder.

Finally, the authorities referred to earlier in these reasons demonstrate that a party in the purchaser’s position may not necessarily have a cause of action against the defendants, as vendors, for recovery of the deposit, but only against the stakeholder. This emphasises that damages may not be an adequate remedy, that the Judge’s misapprehension regarding the status of the conveyancer was a material misapprehension, and that the balance of convenience weighs in favour of the granting of an injunction.
For the reasons given, it is my view that the balance of convenience clearly weighs in favour of the granting of an injunction.
Orders
The appeal is allowed. The order of the District Court Judge of 13 November 2009 is set aside and the injunction granted on 14 October 2009 is to be extended and operate as an interlocutory injunction until further order.