Yellowrock Pty Ltd v Liberty Services Pty Ltd &Ors
[2000] VSC 39
•3 February 2000
SUPREME COURT OF VICTORIA
PRACTICE COURT Do not Send for Reporting Not Restricted
No. 8081 of 1999
| YELLOWROCK PTY. LTD. AND ANOTHER | Plaintiffs |
| v. | |
| LIBERTY SERVICES PTY. LTD. AND OTHERS | Defendants |
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JUDGE: | BEACH, J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 2 FERUARY 2000 | |
DATE OF JUDGMENT: | 3 FEBRUARY 2000 | |
CASE MAY BE CITED AS: | YELLOWROCK PTY. LTD. & ANOR. v. LIBERTY SERVICES PTY. LTD. & ORS. | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 39 | |
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CATCHWORDS: Interlocutory injunction – Weakness of plaintiffs' case – Inappropriate to grant injunctive relief.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr. P. Hayes QC and Mr. A. Rodbard-Bean | Sherrill O'Connor-Sraj |
| For the 1st, 2nd, 5th, 6th and 7th Defendants | Mr. R. Greenberger | John Preat |
| For Ragamuir Nominees Pty. Ltd. | Mr. D.J. Williams | John R. Burnou & Co. |
HIS HONOUR:
I have an application by the plaintiffs to extend the injunctive relief granted by me on 28 January 2000 whereby I restrained the defendants until 4:15 p.m. today from disposing of, dealing with or otherwise dissipating the proceeds of the 1999 apple crop of Mount Barker Orchards at Harcourt to the trial of the proceeding or further order.
The background to the proceeding is somewhat complex. No useful purpose will be served by setting out the detail of it in my reasons for judgment, even if I had the time available to me to do so. I shall, however, make reference to certain salient features of it as and where necessary.
In May 1994 the plaintiffs Yellowrock Pty Ltd and Pro-Plas Pty Ltd entered into a lease of an apple orchard at Harcourt (the orchard) with the second defendant Mount Barker Orchards Pty Ltd (Mount Barker). The lease commenced on 18 May 1994 and was expressed to run for a period of five years and six weeks ending on 30 June 1999. The lease has now expired.
On 18 May 1994 the plaintiffs entered into an agreement with the first defendant Liberty Services Pty Ltd (Liberty) whereby Liberty was to manage the orchard for a period of five years. That agreement has also now expired.
The rental for the orchard was $75,000 per annum payable in advance. Under the management agreement Liberty was to pay the rent for the first 12 month period from the management fee paid to it and thereafter was to pay the rent and all other payments due under the lease.
The management agreement also provided that:
(a)The remuneration of Liberty for the first 12 months was to be $1,875,000 and that Liberty was to be entitled in that period to a one half share of the apple crop harvested. Thereafter Liberty's remuneration was expressed in the agreement to be the sum equal to one half of the cost of production and one half share of the apple crop harvested.
(b)Liberty was to maintain proper and adequate books of account with respect to the business and make them available for inspection by the plaintiffs at all reasonable times. Further, Liberty was required to report to the plaintiffs every six months.
(c)Liberty was required not later than three months before the 1st day of June 1995 to submit to the plaintiffs a budget relating to the period between 1 July 1995 and the end of the financial year in which that date fell, and not later than three months before the beginning of each financial year thereafter was to submit to the plaintiffs a budget relating to the business for the next financial year.
Mount Barker guaranteed Liberty's performance under the management agreement. The deed of guarantee is also dated 18 May 1994.
The guarantee contained the following provision:
"... by the expiry of five years from the date hereof the share Farmer (that is the plaintiffs) shall receive as a result of its entry into the Agreements, not less than amounts equal to the following:
(1) $650,000 plus
(2)interest thereon at the simple rate of 15% per annum on the balance outstanding from time to time calculated on a monthly basis."
There were a number of other agreements entered into by the parties and other entities associated with them in relation to their dealings, including a Deed of Put Option between the plaintiffs, Mount Barker, and a company called Wydome Pty Ltd (Wydome): A loan agreement between Liberty, as lender, and Wydome, as borrower, whereby Wydome borrowed $1,300,000 from Liberty. Wydome in fact is a company associated with the plaintiffs.
A mortgage of the orchard between Mount Barker and the plaintiffs to secure Mount Barker's obligations under the Deed of Put Option and to give the plaintiffs the right to exercise the power of sale pursuant to the mortgage if Mount Barker failed to respond to a notice served under the Put Option, a deed of clarification entered into by the plaintiffs, Mount Barker, Wydome and Liberty dated 22 July 1994, and a supplementary deed dated 8 November 1994 between the plaintiffs and Liberty.
The details of the various agreements entered into by the parties are to be found in the affidavit of Garry Lothar Reichert sworn 3 January 2000 and the exhibits to that affidavit.
Other companies and persons involved in the dispute are Bitters Pty Ltd, which was incorporated by one of Mount Barker's directors in March 1999 and was to operate the orchard on a sub-contract basis for Liberty, a company called Green Strategies Pty Ltd, which appears to have done nothing but provide office accommodation and office services for various companies including Liberty, Peter Plevritis and Anthony Loftus who are directors of Mount Barker and Liberty (Plevritis is also a director of Bitters) and Michael Loftus who appears to be associated with both Mount Barker and Liberty.
Towards the end of 1996 disputes arose between the parties concerning the proceeds of sale of the 1995 and 1996 apple crops. On 28 November 1996 the plaintiffs filed a proceeding in the County Court naming Liberty as defendant whereby they sought to recover the sum of $100,000 in respect of the 1995 crop and $97,500 in respect of the 1996 crop. If I may say so, very modest returns when you have regard to the fact that the management fee paid in respect of the first 12 months was $1,875,000 plus one half of the crop harvested that year. That proceeding is still on foot.
On 25 May 1999 the plaintiffs caused two notices to be served on Mount Barker, one notice was a demand pursuant to the guarantee given to them by Mount Barker for the sum of $650,000 plus interest; the other was a notice pursuant to the Deed of Put Option making demand on behalf of Wydome that Mount Barker acquire the whole of the plaintiffs' interest in the orchard.
A clause in the Put Option relevant for present purposes is Clause 6 which reads:
"The Share Farmer agrees that, as at the date that the notice in writing referred to in Clause 2 is received by MBO (MBO of course being Mount Barker Orchards) it shall commence acting as the trustee and agent of MBO, for and on behalf of MBO, in relation to the Share Farmer's interest in the Agreements, until the acquisition of that interest by MBO as contemplated in this Deed."
The share farmer there referred to is of course the plaintiffs.
No response was received to the notices and on 18 November 1999 the plaintiffs served a further notice on Mount Barker pursuant to the mortgage giving Mount Barker notice that at the expiration of 21 days from the service of the notice it would exercise its powers of sale under the mortgage. On the same day the plaintiffs appointed a receiver of Mount Barker.
On 17 December 1999 the receiver convened a meeting which was attended by counsel and the solicitor acting for the plaintiffs, Michael Loftus who stated that he was representing Liberty, and Peter Plevritis.
Reichert's account of that meeting appears in paragraphs 49 and 50 of his affidavit sworn 3 January 2000 which read:
"49.The Receiver conducted the meeting and put a number of questions to Mr Loftus and Mr Plevritis. The Receiver ascertained that the 1999 apple crop had been picked and removed from the Mount Barker Orchards property to the cold stores of Messrs WF Montague Pty Ltd in Narre Warren.
50.Mr Loftus and Mr Plevritis gave the meeting to understand further that the crop had been sold or was in the process of being sold by WF Montagues through the Coles supermarket chain. When asked about the details of this crop and previous crops and the whereabouts of any proceeds of the sales of the crops, Mr Loftus and Mr Plevritis stated that they could not provide details but that these details would be provided in due course."
The plaintiffs' fears as to what may occur if injunctive relief is not granted in their favour are set out in paragraphs 53 to 55 of Reichert's affidavit which read:
"53.The plaintiffs have sought unsuccessfully to obtain the books of account in respect of the business, the subject of the Share Farming Agreement, and the books of account in respect of each of the years of the sale of the apple crops from 1995 onwards.
54.I am concerned that monies belonging to the Plaintiffs in respect of the sale of crops, and, in particular, the sale of the 1999 crop, are being disposed of or are in danger of being disposed of without the Manager and or its representatives accounting to the Plaintiffs and paying over their entitlements to the Plaintiffs pursuant to the Share Farming Agreement and associated Agreements. I am also concerned that documentation in relation to the crops is being deliberately withheld in order to obstruct the Plaintiffs obtaining access to the books of account of the business and relating to the crops sales.
55.I believe that Mount Barker has failed in its obligations to the Plaintiffs as Share Farmers pursuant to the various agreements and in particular the Guarantee, where Mount Barker Orchards specifically guaranteed to the Plaintiffs as Share Farmer the performance of Liberty as Manager. Further, Mount Barker Orchards guaranteed to the Plaintiffs as the Share Farmer by the expiration of the 5 year term from 18 May, 1994, ie. by 18 May, 1999, sums equal $650,000 plus interest."
The matter first came before me on 23 December 1999 as an urgent application for an interim injunction. At that stage the proposed defendants were Liberty and Mount Barker.
Based upon the material provided to me at that time and having received the appropriate undertaking as to damages, I made the following orders in the matter:
"1.The proposed Defendants be enjoined from disposing of, dealing with or otherwise dissipating the proceeds of the 1999 apple crop of Mount Barker Orchards, Harcourt or alternatively the 1999 apple crop, until 4 p.m. 4 January 2000.
2.The Defendants deliver up to the solicitors for the Plaintiffs all books and records relating to the 1999 apple crop of Mount Barker Orchards on or before 4 p.m. 24 December 1999."
Since that time the proceeding has been back before me on various occasions and the injunctive relief I originally granted has continued to 4:15 p.m. today.
I have also joined as defendants the other parties to which I earlier referred.
Yesterday the first, second, fifth, sixth and seventh defendants appeared before me represented by counsel and addressed submissions to me as to why no further injunctive relief should be granted in the matter. I also heard submissions from counsel for a non-party to the proceeding, Ragamuir Nominees Pty Ltd which on one view of the matter may have been affected by the injunctive relief previously granted to the plaintiff, in particular that granted on 23 December.
The salient features of the represented defendants opposition to the plaintiffs' application may be summarized as follows:
1. The 1999 crop consisted of apples grown on an orchard adjacent to the plaintiffs' orchard and in respect of which the plaintiffs had no proprietary interest. Indeed, those apples were not harvested until the plaintiffs' lease and share farming agreement had expired.
Whilst pursuant to the terms of the share farming agreement they may have been of relevance in determining the value, if any, of any apples grown on the plaintiffs' orchard, the plaintiffs have no proprietary interest in them. In that situation the most the plaintiffs can seek in this proceeding is an accounting in respect of the apples grown on their orchard. They are not entitled to interfere with the defendant's possession of the apples grown on the other orchard.
2. Once the plaintiffs exercised the Put Option, as they did, they became the trustee and agent of Mount Barker in relation to the interest they had in the share farming agreement. Mount Barker is making no claim in respect of the 1999 crop.
3. There is no requirement on the part of Mount Barker to make any payment to the plaintiffs pursuant to the guarantee because under the terms of the guarantee Mount Barker is entitled to set off against any amount it may owe the plaintiffs the amount owed by Wydome to Liberty. The amount owed by Wydome to Liberty is $1,300,000 which is significantly more than any sum Mount Barker could be required to pay to the plaintiffs. It follows from that fact that the plaintiffs had no right to appoint a receiver of Mount Barker pursuant to the terms of the mortgage.
4. The extent of any liability of Mount Barker to Wydome under the Put Option is $1,658,000, however, Liberty has valid cross claims against Wydome for $1,651,000. It follows from that, that the most Wydome could recover from Mount Barker is $7,000.
5. The plaintiffs requests for accounting documentation are unfounded and at the least should not be the subject of any court order. The following matters are pointed to in that regard.
(a)The only obligation on the part of Liberty was to maintain proper and adequate books of account of the business and make them available for inspection by the plaintiffs at reasonable times. The share farming agreement has now expired, and although the obligation on Liberty to make them available may have extended for a reasonable period of time after the agreement expired, that obligation has now ceased.
(b)The dispute relating to books of account has been on foot since November 1996. It is totally inappropriate to grant injunctive relief in the matter after that period of time, let alone on the hearing of an ex parte application.
(c)The plaintiffs obtained orders for discovery in the County Court proceeding on 3 April 1997. They have made no attempt to enforce the orders. In such a situation they were not entitled to obtain the order they did in the matter from this court.
(d)In any event the plaintiff caused Liberty's books to be inspected by the plaintiffs' accountant in February 1998, see Exhibit AL3 to the affidavit of Anthony Loftus sworn 1 February 2000.
6. By letter of 23 April 1999 the plaintiffs' solicitors threatened to seek injunctive relief against Liberty. They did not persist with their threat. It was totally inappropriate therefore that they make an urgent ex parte application to the court on 23 December seeking an interim injunction without giving notice to Liberty's solicitors.
Having considered the material placed before the court and the submissions of counsel in relation to it, it is my opinion that whilst there may be issues to be determined by the court in relation to the dispute between the parties, the strength of the plaintiffs' case in relation to those issues is such that it would be quite inappropriate to grant injunctive relief in the matter. I consider that the matters relied upon by counsel for the represented defendants, and to which I have referred, are strongly arguable in favour of those defendants and that their prospects of successfully defending the proceeding are high.
I consider that it was totally inappropriate in the circumstances of this case for the plaintiffs to make an ex parte application to the court at the time they did without giving notice to the solicitors then acting for Liberty and with whom they had previously been in communication.
Further, there is no material before me to suggest that any of the defendants have acted inappropriately in dealing with the 1999 crop or the proceeds of sale of the crop.
One final comment I wish to make concerns the nature of the agreements between the various parties in this case. As I have observed earlier, they are of a most complex nature and on the face of them somewhat difficult to comprehend. To suggest that the manager of an orchard containing of the order of 40,000 fruit trees should be paid management fees of $1,875,000 for work performed during the first year of the management agreement, and also receive one half of the apple crop harvested, seems to me to be a commercial nonsense. All the more so when at the same time as the share farmer enters into such an agreement with the manager another company associated with the share farmer borrows $1,300,000 from the manager. My suspicion is that such artificial arrangements have been entered into for purposes of taxation minimization or avoidance, however, a court does not act on suspicion.
The plaintiffs' application for further injunctive relief is dismissed with costs to be taxed including reserve costs and paid by the plaintiffs.
It is my opinion that it was totally inappropriate to bring this proceeding by way of originating motion. The disputes between the parties clearly require pleadings.
Pursuant to the provisions of Rule 4.07 of the Supreme Court Rules I order that this proceeding continue as if commenced by writ.
I order that within 30 days of this day the plaintiffs file and deliver their statement of claim. I do not consider that the proceeding has such urgency about it as to entitle it to special consideration.
Accordingly, I order that further pleadings and interlocutory matters be filed, served and carried out in accordance with the Rules.
As to the costs of Ragamuir Nominees Pty Ltd of the application, including the costs reserved on 4 January 2000, in my opinion it was necessary for Ragamuir to be present before the court on that occasion and yesterday because of the plaintiffs' contention that the apples in its possession were covered by my order of 23 December.
The fact is that they were not. I order that the plaintiffs pay Ragamuir's costs of the application including its costs of 4 January.
I direct that this order be prepared by the solicitors for the represented defendants and brought to me for authentication by 12 noon tomorrow.
Any injunction affecting the non-represented parties lapses at 4:15 today.
I order that the plaintiffs return to the solicitors for the represented parties the documents previously handed to them pursuant to my earlier orders.
In my opinion it was quite inappropriate for the plaintiffs to have made the application they did for reasons I have endeavoured to spell out in my reasons for judgment. The order for costs against the plaintiffs will be on a solicitor-own-client basis, that will also include the order for costs in favour of Ragamuir.
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