Wonway Marketing Group Pty Ltd v Fritona Pty Ltd

[2005] NSWSC 961

CITATION:	Wonway Marketing Group Pty Ltd v Fritona Pty Ltd & Anor [2005] NSWSC 961
HEARING DATE(S):	21 September 2005
JUDGMENT DATE :	21 September 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Application for interlocutory relief refused.

CATCHWORDS:	INTERLOCUTORY INJUNCTION - DELAY - Plaintiff sells goods to Defendant - third party disputes Plaintiff's title - balance of purchase price placed into solicitor's trust account pending litigation to establish title - Plaintiff delays inordinately in commencing litigation - whether injunction should restrain distribution of fund in solicitor's trust account.
PARTIES:	Wonway Marketing Group Pty Ltd - Plaintiff Fritona Pty Ltd - First Defendant Maurice May - Second Defendant
FILE NUMBER(S):	SC 5104/05
COUNSEL:	M. Vassili (Sol) - Plaintiff D.A. Smallbone - Defendants M.J. Heath - Third Party (by leave)
SOLICITORS:	Legal Services Group - Plaintiff Maurice May & Co - Defendants

LOWER COURT JURISDICTION:

Ex tempore

1    By a document entitled “Bill of Sale” dated 5 November 2003, the Plaintiff agreed to sell to the First Defendant a large printing press identified by serial number for the sum of $80,000, exclusive of GST. 2    Shortly after the date of the sale document, the First Defendant took possession of the machinery. The Plaintiff says that, although the sale agreement contains a warranty that the equipment was unencumbered and makes no reference to title in the equipment being vested in anyone other than the Plaintiff, in fact it was agreed and understood between the parties that as at the date of the sale agreement the title in the equipment was vested in a finance company and the Plaintiff was in possession of the equipment under a hire purchase agreement. 3    The Plaintiff says that there were oral terms to the agreement in addition to the written terms, including a term that upon settlement of the sale the First Defendant would, at the direction of the Plaintiff, pay the purchase price to the hire purchase company in order to discharge the hire purchase agreement and thereby put the Plaintiff in a position where it acquired good title to the equipment from the finance company and could pass good title to the First Defendant. 4    The First Defendant denies that there were any such additional oral terms to the agreement. However, matters took a sudden unexpected turn shortly after the First Defendant took possession of the equipment because a third party claimed that the equipment was owned neither by the finance company nor by the Plaintiff, but was in fact owned by it. That third party is a company called GM Computers or possibly its principal, Mr Mekrizis. 5    The First Defendant had paid a deposit of $8,000 and owed a balance of $72,000 under the sale agreement at the time that it took possession of the equipment. However, when the First Defendant was put on notice by the solicitors for the third party that the equipment was not owned either by the finance company or by the Plaintiff, the First Defendant, who had no independent means of knowing whether the assertions of the third party or the Plaintiff were correct, did not know to whom to pay the balance of the purchase price. 6    On 2 December 2003, the First Defendant’s solicitor wrote to the Plaintiff’s then solicitor offering a temporary solution to the impasse. In that letter the solicitor asserted his client’s essential position, namely, that it had entered into the purchase agreement in good faith, believing that the Plaintiff had an unencumbered title to the equipment. The letter proceeds:
“We confirm that our client has taken delivery of the printer as a custodian pending the determination of the unencumbered title to the printer. We can confirm that the printer has been received by our client at its premises at 79 King Street, Newtown and we have received into our trust account the sum of $72,000 which is the unpaid balance of the moneys outstanding under the “Bill of Sale” dated 5 November 2003. These funds will be held in our trust account until such time a you are able to demonstrate that your client is entitled to the unencumbered title to the printer following which the moneys will be paid to the proper owner or to the financier of the printer as the case may be. In the event that moneys are found to be payable to the financier once the ownership of the printer has been resolved then payment will be made to the financier.”
7    By that stage it ought to have been clear to the solicitors for the Plaintiff, the First Defendant and the third party, that it was highly probable that legal proceedings would have to be commenced in order to resolve the dispute as to title to the equipment. It was open to either the Plaintiff or the third party to initiate those proceedings and either one of them could have conveniently done so. 8    The Plaintiff could have immediately sued the First Defendant for debt in the District Court claiming the balance of the purchase price of the equipment. The Plaintiff would simply have pleaded that it had entered into an agreement to sell the equipment, that it was able to pass good title upon settlement by directing payment to the financier, and that the First Defendant had failed to pay the amount due under the agreement. The First Defendant would then simply have pleaded that it did not know and could not admit that the Plaintiff could pass good title to the equipment, as a third party had claimed title to the equipment. It could have sought interpleader relief in respect of the fund of $72,000 under DCR Pt 42 r.2; it could have invited the Plaintiff to join the third party as a defendant in the District Court proceedings in order that the title to the goods would have been determined as between the Plaintiff and the third party. The First Defendant in those circumstances would merely have entered a submitting appearance pleading by its Defence that it was prepared to pay for the equipment or to deliver up the equipment to whichever of the Plaintiff or the third party proved that it was the rightful owner of the goods. However, the solicitors for the three parties did not seem to know how to resolve the legal tangle in which their clients found themselves enmeshed. 9    From 2 December 2003 until yesterday, no legal proceedings had been commenced by anyone, that is, neither the Plaintiff nor the third party, to establish title to the equipment, or to payment of the fund which was placed in the trust account of the First Defendant’s solicitor on 2 December 2003. What happened was that the solicitors for the three parties simply kept on sending each other correspondence in which each repeated its respective position over and over again. 10    Eventually the matter was taken over on behalf of the First Defendant by a new solicitor, who is now the Second Defendant. The Second Defendant endeavoured to bring matters to a head. In February 2005, after considerable periods of inactivity between the parties during 2004, the Second Defendant, who had received the $72,000 into his own trust account, wrote to the Plaintiff’s solicitors inviting them to take action to establish their title to the funds within fourteen days. 11    Those requests were repeated throughout April and May 2005 with some increasing and understandable urgency and insistence. For example, on 24 May 2005 the Second Defendant wrote to the Plaintiff’s then solicitors recounting the history of demands for the Plaintiff to initiate some action to resolve the proceedings and saying:
“We are of the view that there is no undertaking to hold the $72,000 in our trust account forever and a day. This dispute has been going on for an extremely long time. If your client asserts that a sale has taken place, let it commence the appropriate proceedings. The very fact that no such proceedings have been commenced indicates to us that your client has no claim against our client.”

And the letter concludes:
“Let’s make one thing clear: if your client claims the right to the $72,000, we invite you and/or your client to commence appropriate action immediately. If your client does not do so within seven days we will be forced to conclude that your client has no claim and, accordingly, there is no reason why the moneys should languish in our trust account forever until your client tries to make up its mind to solve the problem of its own creation.”
12    If I might say so, that was an entirely proper and understandable attitude for the Second Defendant to take. Unfortunately, it provoked no appropriate response from the Plaintiff. 13    There was again a series of letters between the Plaintiff and the Second Defendant in which the Second Defendant undertook, for a limited time, not to dispose of the funds in the trust account if legal proceedings were commenced. The last of such letters was 16 August 2005, a letter from the Second Defendant to the Plaintiff’s solicitors. In that letter, the Second Defendant said that he was prepared to hold the funds in that trust account until 30 August 2005; unless the Plaintiff took action within that time to initiate proceedings for the determination of the title to the equipment and, therefore, the identity of the person to whom the funds should be paid, then the funds would be disbursed to the First Defendant. 14    No proceedings were commenced within the time stipulated. They were not commenced until yesterday. 15    It seems to me that there is, arguably, a serious question to be tried as to whether the funds held by the Second Defendant are held upon a trust to pay the Plaintiff, if the Plaintiff establishes its title. Mr Smallbone of Counsel, who appears for the First Defendant, says that there was no trust but there was, rather, simply an arrangement of convenience whereby the First Defendant, as a token of its good faith and preparedness to meet its obligations, placed its solicitor in funds to pay out the balance of the purchase price. He says that that arrangement does not constitute a trust. 16    There is something to be said for the proposition that a trust was created by unilateral declaration but I would not be prepared to decide that question on the evidence as it presently stands in an interlocutory application. However, what I think is fairly clear and, in fact, I would go so far as to say, very clear, from the terms of the letter of 2 December 2003, is that if there was a trust established by the terms of that letter, then it was a trust upon a condition: it was a trust to hold the funds for a reasonable time to enable the Plaintiff to establish its title to the trust fund by the appropriate legal proceedings. It was not, and could not be, a trust to hold the funds “forever and a day” , to use the Second Defendant’s words, against the possibility that the Plaintiff might decide to establish its title to the trust fund as against the third party. I think that this condition is necessarily implicit in the terms of the letter of 2 December 2003. 17    I do not think that the commencement of these proceedings on 20 September 2005 has been initiated within a reasonable time after the establishment of the trust, if indeed there was a trust established. This is especially so in view of the frequent urgings of the solicitor for the First Defendant to the Plaintiff and its solicitors to commence proceedings to establish its title. 18    Accordingly, it seems to me that if there was a trust then it was a condition of the trust that proceedings be commenced by the Plaintiff to establish its title within a reasonable time. That condition has not been fulfilled and the terms of the trust then enabled the holder of the trust fund, now the Second Defendant, to account for the trust funds to the First Defendant. 19    Accordingly, I would hold at this stage that the Plaintiff has failed to establish that there is a serious question to be tried as to whether it is now entitled to the benefit of the trust fund, or if it be held to be a trust fund. 20    However, in case I am wrong in this conclusion, I should pass on to consider the question of balance of convenience and the effect of delay. 21    In my opinion, the delay by the Plaintiff in commencing proceedings to establish its title to the funds has been inordinate and inexcusable. The First Defendant has been left in a position for almost two years in which it does not know whether the equipment which it is retaining in its premises belongs to the third party, or to it as the purchaser of the equipment, or to the finance company. It does not know to whom the purchase price is payable, if indeed the purchase price is still payable because the First Defendant has given notice terminating the sale agreement and has requested the Plaintiff to remove the equipment. Through its solicitors it has urgently requested the Plaintiff to resolve the dilemma for all concerned by initiating proceedings. The Plaintiff has given no reason in its affidavit evidence for failing to commence proceedings until yesterday. 22    Delay in seeking enforcement of one’s rights is a critical consideration, not only to the question whether a Court should grant or withhold final equitable relief but, even more critically important, in a consideration of the grant of interlocutory relief. The Court acts on the principle that a party seeking to enforce equitable rights, particularly on an interlocutory basis, must be vigilant and quick in coming to the Court to enforce those rights. If it does not do so, then other parties may suffer prejudice and the balance of convenience may be found weighing against the grant of interlocutory relief. 23    The process for resolving the claims of the competing parties in question here is a very simple one and should have been initiated in the District Court in the manner in which I have suggested. It is quite inappropriate to have what is essentially a contract debt for some $80,000, plus interest, determined in the first instance in the Supreme Court. In my view, the delay, unexplained in the evidence on the part of the Plaintiff, is a strong discretionary consideration against the granting of the relief sought. It seems, on the evidence so far, that the Plaintiff is simply incapable of acting decisively and expeditiously to vindicate its legal rights. 24    A second major consideration is that there is no evidence whatsoever to suggest that if the Plaintiff establishes its claim in debt as against the First Defendant, the First Defendant will be unable to pay that judgment debt, except by recourse to the fund held by the Second Defendant. There is no evidence to suggest that the First Defendant is impecunious or that if the fund which has been held now for such a long time is released today it will be dissipated and the First Defendant will then have no means to satisfy a judgment obtained by the Plaintiff. 25    The First Defendant has been kept out of a substantial sum of money for a very long time with no security of title to the equipment in return. It says that it has terminated the sale agreement and wants the equipment removed from its premises. It seems to me that there is no proper basis for requiring that the sum of $72,000 to be retained as some form of security for the Plaintiff for the enforcement of a judgment debt if it is able to recovery such a judgment in the normal way in due course. 26    Accordingly, it seems to me that when one considers the balance of convenience and the discretionary factor of delay in this case there is no proper basis for granting the interlocutory injunctive relief which the Plaintiff seeks. 27    I should turn now to the situation of the third party who has appeared this morning by Mr Heath of Counsel. I have given Mr Heath liberty to intervene, as it were, on a temporary basis in order to inform the Court as to his client’s position. 28    Mr Heath wishes to seek an interlocutory injunction restraining disposal of the fund until such time as he is able to obtain instructions as to any claim which his client might make against the fund. I do not think that it is appropriate to grant an injunction as sought by Mr Heath, for two reasons. 29    The first and major reason is that I cannot see at the moment – and Mr Heath, in view of the shortness of time, has not been able to explain – any basis upon which the third party may claim any sort of proprietary or equitable interest in the fund. The claim of the third party, if it has one at all, is against the First Defendant for return of the equipment or damages for detinue or conversion and, as I say, I cannot see that that claim can be, in some manner, transposed into a claim against a fund established to pay the purchase price to the Plaintiff pursuant to an agreement for sale. 30    The second basis is that Mr Heath, in view of the time limitations, has not been able to obtain instructions for the giving of the usual undertaking as to damages. It seems to me, in those circumstances, that it would be inappropriate to grant any interlocutory relief as sought by Mr Heath in favour of the third party. 31    It is unfortunate that this matter has become so tangled and has, no doubt, proved so expensive for the parties to resolve and that they have now attempted to resolve it in this Court in this fashion. It ought to have been resolved long ago by fairly straight-forward proceedings in the District Court. Nevertheless, I have to deal with it as it now comes to this Court, and for the reasons which I have given I refuse the application by the Plaintiff for the interlocutory relief sought. 32    The orders which I make are as follows. 33    I grant leave to the Plaintiff to file in Court a Summons in the form initialled by me and placed with the papers, returnable before me instanter. 34    I note the affidavit of Mr Kritas which I give leave to file in Court. 35    I note that Mr Smallbone of Counsel appeared for the First Defendant. 36    I note that there has been an appearance, by leave, on behalf of a third party, by Mr Heath. 37    The Plaintiff’s application for interlocutory relief founded upon the Summons is dismissed. 38    The Plaintiff’s solicitor will have to pay the requisite filing fee on the filing of the Summons. I note that Mr Vassili, who appears for the Plaintiff, gives that undertaking. (Counsel addressed on costs) 39    Mr Smallbone applies for a costs order against the Plaintiff on an indemnity basis. I gather that the basis of that application is that the Plaintiff, if properly advised, would not have brought this interlocutory application at all. 40    While I consider that the application has no substance and merit, I do not think I can go so far as to say that it was so obviously untenable that the Court should mark its disapproval of the bringing of the application by an indemnity costs order. 41    There was something to be said for the Plaintiff’s case and I do not consider that there was no respectable argument which could have been advanced. Accordingly, I do not think that this is an appropriate case for the visitation of an indemnity costs order against the Plaintiff. 42    I order that the Plaintiff pay the costs of the First and Second Defendants of this application on the party/party basis. 43    If the parties wish to continue the proceedings I will hear argument as to why they should be continued in this Court rather than the District Court in view of the sums of money involved. If the parties wish, I will make some directions to ensure that the dispute is appropriately determined as soon as practicable.
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