Zeng v Mossensons Pty Limited
[2013] NSWSC 1206
•03 September 2013
Supreme Court
New South Wales
Medium Neutral Citation: Zeng v Mossensons Pty Limited [2013] NSWSC 1206 Hearing dates: 25 June 2013 Decision date: 03 September 2013 Jurisdiction: Equity Division Before: Robb J Decision: 1. Notice of motion dismissed.
2. The court will hear the parties on costs.
Catchwords: BREACH OF TRUST - repayment of money received in breach of trust - satisfaction of condition - breach of deed - estoppel - termination of deed - summary judgment - satisfaction of test for summary judgment. Legislation Cited: Uniform Civil Procedure Rules 2005 Cases Cited: Baulderstone Hornibrook Pty Ltd v HBO & DC Pty Ltd [2001] NSWSC 821
Dey v Victorian Railway Commissioners (1949) 78 CLR 62
Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87
General Steel Industries Inc v Commissioner for Railways (NSW)(1964) 112 CLR 125Category: Principal judgment Parties: Zeng Zhao Qin (First Plaintiff)
Mossensons Pty Limited (First Defendant)
Shandong Tianye Mining Co Limited (Second Plaintiff)
Shandong Tianye Group Pty Limited (Third Plaintiff)
Ian Mossenson (Second Defendant)
Shandong Tianye Australia Limited (Third Defendant/First Cross Claimant)Gabriel Ehrenfeld (Fourth Defendant/Second Cross Claimant)
Tilapia Pty Limited as Trustee for the WWH Distribution Trust (Fifth Defendant)
Fundamental Capital Pty Limited as Trustee for the WWH Acquisition Trust (Sixth Defendant/Third Cross Claimant)
Steinbruck Management Services Pty Ltd (Seventh Defendant/Fourth Cross Claimant)Representation: Counsel: P Coveney (Plaintiffs)
L Tyndall (Third to Seventh Defendants)
P A Horvath (Sixth Defendant)
Solicitors:
HWL Ebsworth (Plaintiffs)
Kennedys (Australasia) Pty Ltd (First and Second Defendants)
Carrolls Lawyers (Third to Seventh Defendants)
File Number(s): 2012/203913 Publication restriction: Nil
Judgment
This is an application by the plaintiffs by notice of motion filed on 1 May 2013 for summary judgment under Uniform Civil Procedure Rule 13.1 on part of the plaintiffs' claim.
The notice of motion also claimed an order for the entry of default judgment for the same relief under Rules 36.1, 16.3 and 30.1 of the UCPR on the ground that the defendants had failed to file a commercial list response within the time allowed by the court . As the first and second defendants filed commercial list responses on 1 May 2013, and the third to seventh defendants did so on 2 May 2013, the plaintiffs did not pursue their claim for default judgment.
The first plaintiff ("Mr Zeng") is a director and shareholder of the second plaintiff ("Shandong Mining"), a company incorporated in the People's Republic of China. Mr Zeng is also the sole director and shareholder of the third plaintiff ("Shandong Group") which is a company incorporated under the Corporations Act 2001 (Cth). Mr Zeng and Shandong Mining are the claimants for the relief sought in the notice of motion, and will be called collectively "the plaintiffs". Shandong Group was a party to some earlier agreements and was replaced by Shandong Mining by novation.
The first defendant, Mossensons Pty Ltd ("Mossensons"), is a company which holds, or held, on trust the funds which are the subject of the dispute between the plaintiffs and the third to seventh defendants. The second defendant, Mr Mossenson, is apparently the sole director of the first defendant. The amount held on trust by Mossensons was originally $1,800,036 (the "trust money"). The relevant agreements permitted $100,000 of that sum to be paid from the trust money to the third defendant (which has generally been called "SDT"). The plaintiffs allege that Mossensons paid out a further $412,400 to SDT and $110,000 to the seventh defendant (Steinbruck). Mossensons retains a balance of $1,183,779.83 in a nominated trust account at the National Australia Bank (the "trust account balance"). In substance the effect of the plaintiffs' claim for summary judgment is that the court should order Mossensons to pay the trust account balance to the plaintiffs, and order SDT and Steinbruck to pay to the plaintiffs $412,400 and $110,000 respectively, plus interest.
There was no appearance for the first and second defendants on the hearing of the plaintiffs' notice of motion. Counsel for the plaintiffs tendered a letter dated 21 June 2013 from Kennedys (Australasia) Pty Ltd, who are the solicitors for the first and second defendants. That letter stated that as the plaintiffs only seek against Mossensons an order that the balance of the funds held in the trust account by Mossensons be paid out to the plaintiffs, and seek no other order against Mossensons and Mr Mossenson personally, they do not wish to be heard in relation to the plaintiffs' claim. They agreed to abide the decision of the court. The court has proceeded on that basis.
As the third to seventh defendants were the only defendants who took an active part in the hearing of the application, it will be convenient to call them collectively "the defendants" unless it is necessary to refer to them individually.
On 29 June 2012, after the plaintiffs became aware of the payments which had been made to SDT and Steinbruck by Mossensons, the plaintiffs sought and obtained from the court a preservation order under UCPR 25.3(1) restraining Mossensons, Mr Mossenson, SDT and the fourth defendant (Mr Ehrenfeld) from dealing with the trust account balance until further order.
In their outline of argument dated 17 June 2013 the plaintiffs put the case for summary judgment on the basis that Mossensons held the money which remained in its trust account on a bare trust for the plaintiffs, and that SDT and Steinbruck held the $412,400 and $110,000 which they had received respectively on trust for the plaintiffs, as they had received those sums from Mossensons knowing that they had been paid out in breach of trust.
The plaintiffs' claim was based primarily on the terms of a single deed, which they called the September 2010 Deed in the outline, but which is described in the commercial list statement as the "Final Deed". The plaintiffs said that they were required by clause 2.1 of the Final Deed to pay the sum of $1,800,036 (called the "Share Money" in that deed) into a trust account in the name of Mossensons to be held on trust for the plaintiffs (collectively called "Shandong" in the deed) in accordance with the terms of the Final Deed. The plaintiffs also said that clause 4 of the Final Deed governed how the funds in the trust account were to be applied. By clause 4.3 Mr Ehrenfeld was entitled to release the money to SDT on or after the "Release Date". By clause 4.1, if the Release Date did not arise on or before the "End Date" (which was defined as being 16 December 2010) then the plaintiffs were entitled to direct Mossensons to release the funds back to them. The Release Date is defined in the Final Deed as being the date by which all of three events have occurred. Those events were that the shares in SDT have been transferred to the plaintiffs, that the plaintiffs have had the opportunity to appoint up to three directors to the board of SDT, and that a prospectus has been lodged by SDT with ASIC. The plaintiffs' case was that the evidence incontrovertibly demonstrates that the Release Date did not happen before 16 December 2010. Accordingly, so the plaintiffs submitted, whatever other issues may arise in these proceedings concerning alleged breaches of various agreements by the parties, and the possible entitlement of one or other party to damages, the plaintiffs are entitled to the orders sought in the notice of motion on a summary basis. It was said to be clear beyond argument that Mossensons holds the trust account balance for the plaintiffs, and that the other monies which were paid out to SDT and Steinbruck were paid out in breach of trust so that they are payable to the plaintiffs.
The plaintiffs recognised the principles laid down in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 and Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91. That is, the power to order summary judgments should be exercised with great care, and not unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 at 99.
The plaintiffs claimed that they could surmount the difficulties involved in obtaining summary judgment because the effect of the Final Deed was that if the Release Date had not occurred by the 16 December 2010 End Date then the money in the trust account was required to be returned to the plaintiffs, and the fact that the Release Date had not occurred by 16 December 2010 was capable of clear and unambiguous proof.
However, during the course of the hearing of the plaintiffs' notice of motion the ground shifted under the plaintiffs. For reasons which will more fully be considered below it became apparent that, at least arguably, the plaintiffs by their conduct extended the End Date by permitting and encouraging the defendants after 16 December 2010 to continue with the work necessary to achieve the satisfaction of the three conditions which were required to be satisfied before SDT would become beneficially entitled to the money in the trust account held by Mossensons.
In fact, the possibility of this outcome was inherent in the terms of the plaintiffs' commercial list statement. In pars 28 to 30 of part C the plaintiffs plead the relevant terms of the Final Deed. In pars 31 to 39 they plead the factual matters relevant to the satisfaction by the defendants of the conditions that were required to be satisfied before the End Date. Then in pars 40 to 42 they plead the failure of the defendants to achieve the satisfaction of the conditions before the End Date. Significantly, the plaintiffs plead in par 43 that pursuant to clause 4.4 of the Final Deed they were entitled to direct Mossensons to release the trust money to the plaintiffs, and in par 44 that by letters dated 18 February 2011 and 14 March 2011 the plaintiffs, by their solicitors, directed Mossensons to pay the trust money to the account of the plaintiffs. Par 45 alleges Mossensons failed to comply with the demands. The plaintiffs plead in pars 46 to 48 that the payments made by Mossensons to SDT and Steinbruck out of the trust money were made in breach of the Final Deed, and in breach of trust, and without the authorisation of the plaintiffs.
These allegations support the plaintiffs' claim for summary judgment for the orders sought in the notice of motion.
However, the plaintiffs also plead in par 59 that by letter dated 18 July 2012 the plaintiffs, by their solicitors, terminated the relevant agreements, including the Final Deed, and demanded that all of the trust money, including the money paid out to SDT and Steinbruck, be paid to the plaintiffs' solicitors.
The termination letter was dated some 18 months after the 16 December 2010 End Date.
The plaintiffs did not specifically plead the basis of their right to terminate the Final Deed in their commercial list statement. Nor did they provide particulars of any breaches relied upon. It may be inferred that the plaintiffs intend to rely upon the making of the alleged unauthorised payments by Mossensons to SDT and Steinbruck on the instructions of SDT or Mr Ehrenfeld as being a breach of the Final Deed which entitled them to terminate that Deed.
The termination letter relevantly provided:
"3. Your clients are in default of the Original Agreement, Variation Agreement and the Final Deed as follows (Breaches):
(a) Mr Ehrenfeld has failed to contribute the amount of $650,000 to the fees, costs and disbursements of implementing the Original Agreement, in breach of clause 2.2.4 of the Original Agreement;
(b) Mr Ehrenfeld has failed to procure Shandong Australia to enter into an agreement to purchase the Gypsum Mine for the sum of $300,000 payable in cash, in breach of clause 5.1 of the Variation Agreement;
(c) In relation to the sum of $1,800,036 which our clients procured the payment to a trust account of Mossensons Australian Lawyers ("Trust Funds"), Mr Ehrenfeld has directed Mossensons Australian Lawyers to release more than $100,000 of the Trust Funds to the following persons, in breach of clause 2.3 of the Final Deed:
(i) Shandong Australia;
(ii) Steinbruck Management Services Pty Ltd...; and
(iii) Mossensons Australian Lawyers.
4. In reliance on the Breaches, our clients hereby give notice of their election to terminate all agreements between your clients and our clients. This termination is effective immediately.
5. As the agreements are now at an end, our clients are entitled to have the Share Money (as defined in the Final Deed) of $1,800,036 repaid to them..."
Paragraph 3(c) of the termination letter therefore gives the alleged unauthorised payment of part of the trust money as the basis for termination of the Final Deed.
The termination letter then required Mr Ehrenfeld to pay the sum of $616,256.17 to the plaintiffs' solicitors' trust account and to provide a written authority authorising the release of the $1,183,779.83 held by Mossensons to the plaintiffs.
The plaintiffs initially put their claim for summary judgment on the basis that the Release Date did not occur before the End Date, and not on the basis upon which they actually claimed in the termination letter to be entitled to payment of the trust money.
The defendants' response will be considered in more detail below, but in broad sweep it was that the End Date had been implicitly extended by the conduct of the plaintiffs, with the result that the plaintiffs could no longer claim an entitlement to be repaid the trust money simply because the Release Date did not occur by 16 December 2010, and that the plaintiffs are estopped from making that claim. The defendants argued that with the knowledge and implicit consent, and in a number of respects with the positive co-operation of the plaintiffs, the defendants continued to pursue the satisfaction of the conditions necessary to achieve the Release Date after 16 December 2010. They said that they had achieved, or substantially achieved, the satisfaction of the conditions, and claimed that they were hindered in their efforts to finally satisfy the conditions by interference and lack of cooperation by the plaintiffs.
In their oral submissions in reply the plaintiffs noted that the defendants had not pleaded in their commercial list response that the plaintiffs had by their conduct extended the End Date. However, the plaintiffs acknowledged that the defendants had pleaded in their cross claim that the End Date had been extended. Further, in par 3 of the cross summons the defendants seek a declaration that the monies in the trust account should remain in the trust account and be used pursuant to the Final Deed.
Ultimately, the position adopted by the plaintiffs was that whether they became entitled to repayment of the trust money because the Release Date did not occur before the End Date, or because that entitlement arose when the Final Deed was terminated, they are entitled to the orders sought in the motion for summary judgment, as the defendants have not claimed title to the trust money themselves.
Whatever may be the proper resolution of the dispute it is clear that the questions at issue are considerably more complex than the simple basis upon which the plaintiffs initially put their claim for summary relief.
Pleadings
In their commercial list statement the plaintiffs plead that, beginning on 26 October 2007, various of the parties entered into a series of agreements. In their commercial list response the defendants largely admit the making and the terms of the agreements alleged by the plaintiffs, although they plead in relation to some of the agreements that the plaintiffs did not perform those agreements completely or on time.
The defendants admit that on 26 October 2007 Mr Zeng, Shandong Group and Mr Ehrenfeld entered into an Acquisition Agreement for the purpose of acquiring ownership of an Australian company that was listed on the ASX but suspended from trading. The purpose of acquiring the company was to recapitalise it, cause it to acquire or establish a business, and then for the parties to the agreement to become shareholders of the company.
The plaintiffs plead that under clause 2.2.3 of the Acquisition Agreement Mr Zeng and Shandong Group would pay Mr Ehrenfeld the sum of $1,050,000 as a cash contribution to the fees, costs and disbursements of implementing the agreement, and pay a subscription deposit of $200,000 under clause 2.2.5. Further, the plaintiffs allege that Mr Zeng and Shandong Group would be responsible under clause 3.2.1 for ensuring the subscription of $2,000,000 for new share capital in the company to be acquired, and if so requested by Mr Ehrenfeld under clause 3.2.2, would ensure the subscription of a further $150,000 for new share capital in the company, if the company needed to satisfy a spread or market test requirement demanded by the ASX. The defendants admitted the existence of these obligations, but alleged they were not performed fully or on time.
Additionally, the plaintiffs plead that clause 2.2.4 of the Acquisition Agreement obliged Mr Ehrenfeld to contribute the amount of $650,000 to the fees, costs and disbursements of implementing the agreement. In the commercial list response the defendants allege that the $650,000 could be contributed by Mr Ehrenfeld "in time and resources devoted to the project" and that Steinbruck, an entity controlled by Mr Ehrenfeld, had paid $650,000 in expenses for the purposes of the project.
The plaintiffs allege that on 26 August 2008 Mr Zeng, Shandong Group and Mr Ehrenfeld entered into a Variation Agreement by which they varied the terms of the Acquisition Agreement. The defendants admit that the effect of clause 3.1 of the Variation Agreement was that, in addition to the payment of $1,050,000, Mr Zeng and Shandong Group would subscribe $320,000 in seed capital for shares in the company, and under clause 4.1 that the balance of the $2,000,000 would be paid into a nominated trust account. For reasons which need not be explained, the amount of that balance was $1,800,036. Ultimately, it is this sum which constitutes the trust money, and is the subject of the dispute between the parties. Again, the defendants admit these allegations but say that the payments were not made on time.
The plaintiffs plead, and the defendants admit, that on 26 August 2008 Mr Zeng, Shandong Group, Shandong Mining and Mr Ehrenfeld entered into a Deed of Novation whereby Shandong Mining replaced Shandong Group as a party to the Acquisition Agreement.
The parties also agree on the pleadings that on 9 June 2010 Mr Zeng, Shandong Mining, Mr Ehrenfeld and, the fifth defendant, Tilapia Pty Ltd (in its own capacity and as trustee for the WWH Distribution Trust) ("Tilapia") entered into a Warranty Deed which contained a number of warranties which were, by clause 3.1(a), made contingent on the payment by Mr Zeng and Shandong Mining to SDT of the sum of $1,800,036.
The plaintiffs plead that on 28 November 2008 SDT resolved at a general meeting to allot 320 million shares, of which 250 million shares were to be issued to Mr Zeng or his nominee, but in fact on 24 December 2008 SDT issued the 250 million shares to Tilapia rather than to Mr Zeng or his nominee. The defendants admit this allegation but say that the shares were issued to Tilapia on trust for Mr Zeng, as the beneficiary of the WWH Distribution Trust, pending performance of the plaintiffs' obligations and to avoid the potential lapsing of approvals. The defendants also admit an allegation made by the plaintiffs that 70 million shares in SDT were issued to a company controlled by Mr Ehrenfeld.
The plaintiffs then in the commercial list statement plead the terms of the Final Deed which was entered into on 13 September 2010 by Mr Zeng, Shandong Mining, SDT, Mr Ehrenfeld and Tilapia (on its own account and as trustee for the WWH Distribution Trust).
The defendants effectively admit the parties' entry into the Final Deed. Given the significance of the terms of the Final Deed to the plaintiffs' application for summary judgment, it will be convenient to set out the relevant terms of that deed, rather than to refer to the summary effect of those terms as set out in the pleadings.
The Final Deed contains an express statement of the intention of the parties in the following terms:
"It is agreed by the parties to this agreement that the intention of the parties is the following:
A. That [the plaintiffs] transfer to Mossensons Trust Account the sum of $1,800,036 for the purposes as so described in prior executed agreements between the parties;
B. That the sum of $1,800,036 be held on trust for [the plaintiffs] for the purpose of the re-quotation of SDT;
C. That Ehrenfeld is only able to use up to $100,000 of the
$1,800,036 for the purposes of ensuring re-quotation;
D. That the sum of $1,800,036 be released to SDT at the same time that:
a. [The plaintiffs are] issued with the shareholding that would equate to no less than 70% of SDT;
b. [The plaintiffs are] able to appoint directors the amount of which corresponds proportionately to the shareholding as held by [the plaintiffs];
E. That upon the Share Money being transferred from the Mossensons Trust Account to the Company, i.e. SDT, SDT will appoint [the plaintiffs] as the signatories to the company's bank account. The intention being for [the plaintiffs] to have control of the Share Money after the money being held on trust for [the plaintiffs] in the Mossensons Trust Account, i.e. $1,800,036 has been transferred to the company.
F. That if re-quotation is not successful, then the amount of monies being equal to the sum of monies that was held on trust for [the plaintiffs] in the Mossensons Trust Account, i.e. $1,800,036 be returned to [the plaintiffs] on or before the End Date".
Clause 1.1 of the Final Deed defines "End Date" as meaning 16 December 2010 or such later date as was extended in accordance with the Final Deed.
"Release Date" is defined as meaning the date on which all of the following have been satisfied:
"(a) the Trust Shares have been transferred to [the plaintiffs] in accordance with clause 4.5 of this Deed;
(b) [the plaintiffs have] the opportunity to appoint Directors to SDT if so desired by [the plaintiffs]'s (being any number up to 3, and more than 3 if such number would not exceed the proportion that corresponds to the proportion of all shares in SDT held by [the plaintiffs]... Ehrenfeld is not required to comply with any direction given by [the plaintiffs] where such direction requires Ehrenfeld to appoint [the plaintiffs'] nominated directors before [the plaintiffs are] entitled to have the Trust Shares transferred to it; and
(c) the Prospectus is lodged with the ASIC and the other Conditions Precedent have been satisfied (or [the plaintiffs have] waived in writing the need for compliance with any particular Conditions Precedent)".
"Conditions Precedent" is not a term which is separately defined in the Final Deed. Clause 1.1, however, provides that capitalised terms used but not defined in the deed have the meaning given to them in the Warranty Deed. The Warranty Deed contains a definition of "Conditions Precedent" in the following terms:
"(a) preparation and completion of a new set of Accounts to 3 December 2009 for [SDT];
(b) preparation of a Prospectus to be issued by [SDT] for the purpose of compliance with ASX requirements in relation to the reinstatement to quotation of [SDT's] securities and
(c) Ehrenfeld procuring subscribers for Ordinary Shares in [SDT] for not less than the subscription amount of AUD $150,000".
"Trust Shares" is defined as meaning 250 million fully paid ordinary shares in SDT held in the WWH Distribution Trust by Tilapia for the plaintiffs.
Clause 2.1 of the Final Deed contains an agreement by the plaintiff to procure the payment of $1,800,036 into the Mossensons Trust Account before 14 September 2010 to be held on trust for the plaintiffs in accordance with the Final Deed.
Under clause 2.3 before the Release Date Mr Ehrenfeld must not (in any capacity) direct Mossensons to release the trust money as per the Warranty Deed.
Clause 4.2 contains an agreement by the plaintiffs that $100,000 of the $1,800,036 held in the Mossensons Trust Account could be used by SDT for the purposes of ensuring re-quotation.
Under clause 4.3 on or after the Release Date Mr Ehrenfeld was authorised to direct Mossensons to release the Share Money to SDT as per the Warranty Deed.
Clause 4.4 provides:
"If the Release Date has not arisen on before the End Date then [the plaintiffs] may:
4.4.1. Extend the End Date; or
4.4.2. Direct Mossensons to release the Share Money to [the plaintiffs and the plaintiffs] will cease to be liable for any further payments under or in connection with the Implementation Agreement or the Warranty Deed".
Clause 4.5 entitles the plaintiffs, subject to payment for the issue of the SDT shares having been made, to direct that the trust Shares be transferred to the plaintiffs "if for any reason the Release Date has not arisen on or before the End Date".
The plaintiffs plead in the commercial list statement that the sum of $1,800,036 was paid into the Transaction Account held by Mossensons on about 20 September 2010, and that that amount was held by Mossensons on trust for the plaintiffs. The amount of $100,000 permitted to be used by STD was withdrawn on 24 September 2010.
The plaintiffs also plead that by the End Date of 16 December 2010 the plaintiffs had not directed Mossensons to release the trust money to any person, and the shares in SDT had not been transferred to the plaintiffs in accordance with clause 4.5 of the Final Deed. Further, the plaintiffs had not had the opportunity to appoint directors of SDT, a compliant prospectus had not been issued by SDT and lodged with ASIC, the plaintiffs had not agreed to extend the Release Date, and the plaintiffs had not waived compliance with any terms of the Final Deed.
It is to be noted that, in relation to the plaintiffs' allegation that a compliant prospectus had not been issued by SDT and lodged with ASIC by the End Date of 16 December 2010, the plaintiffs allege in par C36 that on about 29 July 2011 (after the End Date) SDT lodged a prospectus with ASIC; in par C37 that ASIC placed an interim stop order on the prospectus and issued a statement of concerns to the directors of SDT on about 8 September 2011; in par C38 that SDT withdrew the prospectus on 8 September 2011, and in par C39 that to date SDT has failed to lodge a compliant prospectus.
Consequently, as pleaded by the plaintiffs, the plaintiffs were entitled by clause 4.4 of the Final Deed to direct Mossensons to release the trust money to the plaintiffs, and by letters dated 18 February 2011 and 14 March 2011 the plaintiffs by their solicitors did so. Mossensons failed to pay the trust money to the plaintiffs.
The defendants' commercial list response is not an easy document to follow, as the substantive responses are not always found in the most natural or appropriate place relative to the positive allegations in the paragraphs of the plaintiffs' commercial list statement. However, the following broadly appears from the commercial list response:
(1) The defendants appear to say in response to the requirement of the Final Deed that the Trust Shares be transferred to the plaintiffs that the defendants forwarded an executed off market transfer form to Mr Zeng (par C 4.23).
(2) The defendants say in response to the requirement that the plaintiffs have the opportunity to appoint directors to SDT that the plaintiffs have failed to nominate directors, failed to provide consents to act as directors, and failed to provide proof of good character as required by the ASX Listing Rules (par C 4.24).
(3) The defendants say in response to the requirement that the prospectus be lodged with ASIC that SDT has lodged a compliant prospectus with ASIC, the plaintiffs have interfered and intermeddled with the process of lodgement of that prospectus so as to cause ASIC to impose a stop order and oblige SDT to withdraw the prospectus; the plaintiffs have failed to provide consents for the lodgement of a further prospectus; failed to provide information in relation to the results of boreholes required for the completion of a further prospectus; and failed to provide information in relation to a proposed business plan required for the completion of a further prospectus (pars C 4.25 and 4.26).
The plaintiffs plead that the defendants breached the Final Deed by authorising the payment of $523,677 to SDT, Steinbruck and Mossensons between 21 September 2010 and 31 May 2012. The details of those payments are set out in the particulars to par C 47 of the commercial list statement.
The defendants' response to this allegation as set out in par C 4.31 is:
"In answer to the Plaintiffs' Contentions as a whole, the third to seventh defendants say that any money paid to any of them from money held in the account of Mossensons Pty Ltd as trustee for [SDT] has been used:
4.31.1. As to the sum of $200,000 or, in the alternative, $100,000, paid to the fourth and/or seventh defendant pursuant to the terms of the agreements or some of them;
4.31.2. In furtherance of the project contemplated by the parties;
4.31.3. Through necessity because of the continued and ongoing failure of the Plaintiffs to perform their obligations under the various agreements".
The defendants also allege in par C 4.32 of their commercial list response that they have been ready, willing and able to perform their obligations under the various agreements, but have been prevented from so performing by ongoing breaches by the plaintiffs, including by failing to pay money required in a timely fashion or at all, in failing to provide information to the defendants as required to complete the project, in substituting and removing proposed mines and mine sites from the activities to be undertaken, by contacting ASIC with the intention and effect of derailing the approval of a prospectus, and by providing the defendants with conflicting information about the plaintiffs' related party status to vendors of mineral assets to be vended into SDT.
Generally speaking the defendants' commercial list response makes generalised allegations concerning the alleged conduct of the plaintiffs which allegedly prevented the defendants from achieving the Conditions Precedent, without the defendants specifying particular conduct or identified dates. Accordingly, the commercial list response does not disclose the extent to which the defendants say the plaintiffs' conduct occurred before or after the End Date of 16 December 2010.
The commercial list response does not contain any specific allegation that the plaintiffs expressly extended the End Date under clause 4.4 of the Final Deed, or that by their conduct they did so, or are estopped from denying that they did so.
However, on 20 May 2013 the defendants filed a cross claim commercial list statement. The defendants claim damages from the plaintiffs for breaches of the various agreements between the parties. As the claim for which the plaintiffs seek summary judgment arises under the Final Deed, the following analysis of the allegations made in the cross claim commercial list statement will be limited to the principal allegations which have a bearing upon the plaintiffs' entitlement to repayment of the $1,800,036, less the amount of $100,000 which was permitted to be paid to SDT under the terms of the Final Deed.
The defendants allege that on 5 January 2010 a prospectus which identified three persons nominated by the plaintiffs, including Mr Zeng, as proposed directors was lodged with ASIC, but ASIC advised that the Chinese geologist report provided by Shandong Mining did not comply with the JORC code (pars C43 and 44). Prior to 30 November 2010 Mr Ehrenfeld contacted a representative of the plaintiffs to confirm that the plaintiffs' nominated directors would continue to be the directors for the new prospectus to be lodged with ASIC (par C46). On 9 November 2010 Mr Ehrenfeld contacted the same representative to advise that the ASX had requested certain information to be provided by the plaintiffs to complete the prospectus (par C 47) and repeated that request on 30 November 2010 (par C 48) and 7 December 2010 (par C 49). The plaintiffs did not provide that information before 16 December 2010 (par C 50). The defendants allege that the Release Date was not achieved on or before the End Date due to the conduct of the plaintiffs in failing to provide the defendants with the necessary information, and that the plaintiffs are estopped from claiming an entitlement to the return of the trust money, or alternatively that by their conduct the plaintiffs have extended the End Date (pars C 51 and 52).
The defendants also allege that many steps were taken after the End Date in order to achieve the satisfaction of the Conditions Precedent, and that the plaintiffs participated in or were aware of many of these steps. The defendants allege that they received no communication from the plaintiffs requesting the return of the money in the trust fund between 16 December 2010 and May 2011 (par C 53). They allege that on 13 May 2011 an associate of Mr Zeng advised Mr Ehrenfeld on behalf of the plaintiffs that the plaintiffs wished Mr Ehrenfeld to arrange for the filing of the prospectus and the obtaining of a requotation of SDT on the ASX (par C 54). On about 1 July 2011 Mr Zeng and the two other proposed directors nominated by the plaintiffs provided consents and supporting documentation required by ASIC for the appointment of the nominee directors to the board of SDT (par C 55). Mr Ehrenfeld lodged a prospectus for SDT with ASIC on 29 July 2011 (par C 56). ASIC issued an interim stop order and statement of concerns on 12 August 2011, and SDT resolved all of those concerns to the satisfaction of ASIC on 1 September 2011 (par C 57). On 23 August 2011 one of the plaintiffs' nominated directors advised Mr Ehrenfeld that he had an issue with consents in relation to the prospectus, but the other nominated directors did not do so. Mr Ehrenfeld lodged a replacement prospectus on 2 September 2011 on the understanding that the plaintiffs' nominees consented to be named as proposed directors in the prospectus (pars C 58 to 60). On 6 September 2011 the lawyers for the plaintiffs advised ASIC that the proposed directors did not provide consent to the lodgement of the replacement prospectus (par C 61). The defendants make a similar allegation for 5 September 2011 (par C 63).
The defendants allege that on 13 September 2011 the plaintiffs' representative informed Mr Ehrenfeld that prior to the next prospectus being lodged the plaintiffs needed to have sufficient discussion regarding the exact content of the prospectus (par C 64). On 5 December 2011 the plaintiffs' solicitors advised Mr Ehrenfeld that the plaintiffs wished to continue the re-quotation of SDT in earnest (par C 65). The defendants allege various steps taken by the plaintiffs' lawyers during December 2011 concerning the due diligence process in relation to the preparation of the prospectus, including that one of the lawyers stated that the prospectus that was lodged on 2 September 2011 "was adequate and the financial accounts were the only area that needed to be updated" (pars C 66 to 69). Finally, the defendants allege that in December 2011 a representative of the plaintiffs advised the due diligence committee that the gypsum mine had been altered resulting in a need for a JORC report (par C 70).
It should also be noted, as a matter relevant to the authority of Mr Ehrenfeld to direct Mossensons to pay money out of the trust money to Steinbruck, that it is alleged by the defendants that it was a term of a memorandum agreement dated 17 March 2009 that the parties would procure that SDT enter into an agreement with Steinbruck for the management of regulatory and corporate compliance affairs for a six-month period following re-quotation of the shares of SDT on the ASX. The significance of this allegation is that all of the money that was paid out of the trust money, either directly or indirectly, to Steinbruck was paid before the re-quotation of the shares of SDT on the ASX (which is an event which has never happened).
Consideration
The plaintiffs' case was that, as the Release Date had not occurred before the End Date, the effect of the Final Deed was that the plaintiffs were entitled to be repaid the trust account balance held by Mossensons, and were entitled to be paid by SDT and Steinbruck the monies received by them from the trust money because the payments were unauthorised and made in breach of trust. This was put as a proper summary judgment point because the evidence incontrovertibly demonstrated the fact that the Release Date had not occurred before the End Date.
In their written submissions the plaintiffs relied upon the fact that the SDT shares had not been transferred to the plaintiffs in accordance with clause 4.5 of the Final Deed as required by par (a) of the definition of "Release Date", and that the plaintiffs had not had the opportunity to appoint the requisite number of directors to SDT as required by par (b) of the definition. In oral submissions the plaintiffs added that a complying prospectus had not been lodged with ASIC as required by par (c) of the definition. Furthermore, the plaintiff submitted that a new set of accounts to 3 December 2009 had not been prepared for SDT and there was no evidence that Mr Ehrenfeld had procured subscribers for not less than $150,000 for ordinary shares in SDT as required by pars (a) and (c) of the definition of "Conditions Precedent" in the Warranty Deed.
The evidence tendered on the application clearly established that as at 16 December 2010 the Release Date as defined in the Final Deed had not occurred for the purposes of clause 4.4. That was so because the SDT shares had not been transferred to the plaintiffs, the plaintiffs had not had the opportunity to appoint any directors to SDT, and a complying prospectus had not been lodged with ASIC. The evidence was inconclusive about the preparation of new accounts for SDT and the procurement of subscribers for additional shares in SDT.
The plaintiffs will therefore be entitled to the summary judgment for which they have applied unless there is a real question to be tried as to whether the plaintiffs by their conduct extended the End Date, so that they are not clearly entitled to direct Mossensons to release the trust account balance to the plaintiffs under clause 4.4.2 of the Final Deed on the ground that the Release Date did not occur before 16 December 2010.
The evidence available to the defendants in their defence of the plaintiffs' motion for summary judgment was affected by the manner in which the defendants responded to the court's directions for the filing of evidence. The notice of motion was set down by Hammerschlag J on 3 May 2013 for hearing on 25 June 2013 with a half day estimate. His Honour directed the defendants to serve any affidavits in response to the plaintiffs' motion by 24 May 2013. At the hearing on 25 June 2013 the defendants sought leave to file in court and read an affidavit of Mr Ehrenfeld sworn on 25 June 2013. That affidavit exhibited some 47 documents comprising approximately 242 pages. The plaintiffs objected to the late filing of the affidavit. Leave to file the affidavit was not refused by the court solely on the ground of its lateness. The court gave the defendants the opportunity to justify the filing of the affidavit paragraph by paragraph. Ultimately leave to file the affidavit in court was refused partly on the basis of lateness, and partly on the basis of the inadmissible nature of much of the evidence contained in it, and the unfairness to the plaintiffs involved in the court receiving the evidence. The court permitted the defendants to tender separately some of the exhibits to the affidavit. Largely as a result of the process of dealing with the affidavit, the hearing did not finish in the allotted day, but was adjourned to 4 July 2013. On that occasion the defendants sought leave to file in court a further affidavit of Mr Ehrenfeld sworn on 3 July 2013. The court followed the same process in considering whether to receive this evidence as it did on the previous occasion with the earlier affidavit of Mr Ehrenfeld. The result was the same. The court declined to give leave to the defendants to file the affidavit in court. A number of exhibits from the affidavit were received into evidence.
The defendants read a number of affidavits of Mr Ehrenfeld which had been filed on earlier dates. They were also permitted to file in court and read an affidavit of Ian Robert Sanderson sworn on 24 June 2013, notwithstanding the lateness of its service on the plaintiffs. That course was permitted partly because Mr Sanderson's evidence was in response to evidence served late by the plaintiffs, and partly because the evidence was less contentious than that contained in Mr Ehrenfeld's affidavits.
As a result of the dilatory approach of the defendants to preparing and serving their evidence on the plaintiffs the evidence that they were able to tender at the hearing of the notice of motion was limited and disjointed, and provided an incomplete substantiation of the defendants' arguments in defence of the application for summary judgment.
However, the court is satisfied that on the available evidence the plaintiffs did not treat their agreements with the defendants as having come to an end on the basis that the Release Date did not occur before the End Date of 16 December 2010. Although the full picture is unclear, the plaintiffs permitted the defendants to continue with their endeavours to implement the project, and the plaintiffs substantially participated in those endeavours, up until the plaintiffs purported to terminate a number of the agreements, including the Final Deed, on 18 July 2012.
The disjointed and incomplete nature of the evidence makes it difficult to identify comprehensively all of the events which occurred which comprised the continuation of the implementation of the project. Those events included the following.
On 16 May 2011 Mr Ji Xingmin, an associate of Mr Zeng's, wrote an email to Mr Ehrenfeld in which he asked Mr Ehrenfeld to send him his plan for the project. Mr Ehrenfeld responded: "I confirm your advice that you are now wanting to proceed with matters". Mr Ji then further responded: "I confirm that I and Mr Zeng have always thought that you was (sic) working on the matter, that I have never told you not to proceed with the matter, and that I met you last Friday to understand where things were at as you did not contact me in such a long time and that the delay has been solely on your behalf. I expect you can send me your timetable as you promised at our meeting".
On 2 July 2011 Mr Ji sent to Mr Ehrenfeld signed consents by Mr Zeng, Mr Ji and Mr Feng Yulu to act as directors of SDT as the nominees of the plaintiffs.
Subsequently, on 29 July 2011 a further version of the prospectus was lodged with ASIC. On 12 August 2011 ASIC issued a stop order, and on 8 September 2011 the draft prospectus was withdrawn by SDT.
The plaintiffs' evidence asserted that the proposed directors of SDT nominated by the plaintiffs were not given the opportunity to review or consent to the 29 July 2011 draft prospectus, and that they did not become aware of its lodgement until about 2 August 2011. The plaintiffs' case was that the consent of those gentlemen to the prospectus was required. On 2 September 2011 a further replacement draft prospectus was lodged with ASIC. The plaintiffs gave reasons in their evidence as to why the proposed directors did not consent to the replacement prospectus. The evidence suggests that the three gentlemen reviewed the prospectus to determine whether it was in order for them to consent to it. On 5 September 2011 the plaintiffs' then solicitors, HWL Ebsworth Lawyers, advised ASIC that the nominated directors had not consented to the lodgement of the replacement prospectus. SDT withdrew both the 29 July 2011 prospectus and the 2 September 2011 replacement prospectus on 8 September 2011.
The evidence shows that the plaintiffs participated in the activities of a due diligence committee established to investigate the reliability of the contents of the proposed replacement prospectus. The committee first met on 19 December 2011, and then met on 20 April 2012, 30 April 2012, 8 May 2012, 21 May 2012, 28 May 2012 and 18 June 2012, which was the final meeting. Mr Ji and Mr Smith represented the plaintiffs on the committee. The plaintiffs' solicitors administered the committee, and may also have acted for SDT for that purpose.
The evidence makes it relatively clear that the plaintiffs did not ultimately insist upon repayment of the balance of the amount of $1,800,036, less the authorised payment to SDT of $100,000, as a result of the Conditions Precedent not being satisfied, and the Release Date not occurring, before the End Date on 16 December 2010. That insistence came with the plaintiffs' 18 July 2012 termination letter.
On 22 November 2010 Mr Tim Smith, a representative of the plaintiffs', warned Mr Ehrenfeld that the plaintiffs would require repayment of the trust money if re-quotation of SDT was not effected by 16 December 2010. On 14 December 2010 in a further email Mr Smith advised Mr Ehrenfeld that he was under instructions to ensure that the funds were returned if the re-quotation had not occurred by 16 December 2010.
On 18 February 2011 the plaintiffs' solicitors by letter demanded that Mossensons repay the trust money to the plaintiffs on the ground that the conditions necessary for the Release Date to occur had not been satisfied before the End Date. The solicitors made a similar demand on 14 March 2011. Mossensons declined to repay the trust money to the plaintiffs on the basis that SDT and Mr Ehrenfeld were Mossensons clients, and they had not given instructions to make the repayment.
The available evidence does not permit a reconciliation of the plaintiffs' apparently inconsistent conduct in demanding repayment of the trust money and continuing participation in the implementation of the project, but that participation continued after the making of the 14 March 2011 demand.
The evidence was not sufficiently clear or complete to enable the court to determine the precise legal consequences of the plaintiffs' conduct in knowingly permitting the defendants to continue with the steps necessary to achieve re-quotation of SDT on the ASX, and in participating in that conduct in various ways, some of which have been described above.
The plaintiffs have not satisfied the General Steel Industries test in relation to the case that they put in their outline of argument and in their oral submissions. That is, the plaintiffs are not entitled to summary judgment on the basis that they were entitled under clause 4.4.2 of the Final Deed to direct Mossensons to release the trust money to the plaintiffs or their nominee on the ground that the Release Date had not occurred on or before the End Date.
The plaintiffs responded to the defendants' claim that the plaintiffs were not entitled to implement clause 4.2.2 of the Final Deed because they had extended the End Date by their conduct by arguing in their oral submissions in reply that they were entitled to summary judgment on the orders sought in their notice of motion because, even if the End Date had been extended, the plaintiffs had terminated the Final Deed by their solicitors' letter dated 18 July 2012, with the result that they became entitled to repayment of all of the trust money because the events had not occurred whereby SDT would have become entitled to that money under the terms of the Final Deed. The plaintiffs submitted that the defendants had not disputed the effectiveness of the act of termination, and that irrespective of what happened after the End Date of 16 December 2010, once the Final Deed was terminated "someone owns that money and it can only be one of two people. It is either the plaintiffs or it is the third defendant and the third defendant doesn't assert a claim to it".
The court is of the view that it should not in the exercise of its discretion grant summary judgment to the plaintiffs on the basis of an argument that was first raised by the plaintiffs in their submissions in reply, particularly where the claim that the plaintiffs had terminated the Final Deed, together with other agreements between the parties, has not been fully pleaded by the plaintiffs in their commercial list statement. While the court is of the view that the manner in which the defendants conducted their defence of the notice of motion was unsatisfactory in a number of respects, it appears to the court that it would be unfair to the defendants for the court to permit the plaintiffs to change their position when the court is not satisfied that the defendants had a proper opportunity to meet the new case.
Furthermore, the court concludes that even though the plaintiffs appear to have a very strong case that they were entitled to terminate the Final Deed and the other agreements between the parties because of the payments made by Mossensons to SDT and Steinbruck, and that consequently the plaintiffs are entitled to repayment of the whole of the trust money, the available evidence and the circumstances in which that evidence was placed before the court are not sufficiently clear to give the court a comfortable level of satisfaction that the evidence satisfies the General Steel Industries test.
A review of the defendants' commercial list response shows that the plaintiffs' contention made in their submissions in reply that the defendants do not make any claim to ownership of the trust funds is not correct. In Part 2 of the commercial list response, which is called "Nature of Defence" the defendants allege in par 2.1.4 that the trust money was paid by the plaintiffs knowingly to an account in the name of SDT for the benefit of SDT, or alternatively in trust for SDT. They say in par 2.1.5 that the money was paid by the plaintiffs to the account of Mossensons as trustee for SDT. They claim in par 2.1.9 that SDT was expressly authorised by the plaintiffs or some of them to draw on the funds held by Mossensons, or alternatively in the events that have happened SDT did not require any authorisation to draw on those funds.
The defendants set out their response to the plaintiffs' contentions in Part 4 of their commercial list response. They do not in any clear way, or possibly at all, plead facts capable of supporting the claims made in Part 2 of their commercial list response which have been set out above. They do positively allege in par 4.23 that they had forwarded an executed off market transfer form to Mr Zeng. They say in par 4.24 that the plaintiffs failed to nominate directors, failed to provide consents to act as directors and failed to provide proof of good character as required by the ASX Listing Rules. They say further in par 4.25 that SDT has lodged a compliant prospectus with ASIC, but then also say in par 4.25 that the plaintiffs have interfered and intermeddled with the process of lodgement so as to cause ASIC to impose a stop order and cause the defendants to withdraw the prospectus, and in par 4.26 that the plaintiffs failed to provide necessary consents for the lodgement of the prospectus, and failed to provide certain necessary information. The commercial list response is not specific as to the dates when the alleged conduct by the plaintiffs is claimed to have occurred. The defendants do not appear to plead an entitlement to the trust money themselves, and in par 4.31 they say that the money paid by Mossensons to SDT and Steinbruck has been used in furtherance of the project contemplated by the parties and through necessity because of the continued and ongoing failure of the plaintiffs to perform their obligations under the various agreements.
The defendants' commercial list response is not in the format prescribed by par 10 of Practice Note SC 3 in that it inserts Part 2 called "Nature of Defence", which is not to be found in the prescribed form. This has had the effect of obscuring the meaning of the commercial list response.
Had the plaintiffs conducted their application for summary judgment from the outset on the basis that their entitlement to repayment of the trust money followed their valid termination of the Final Deed for breach, they may have had more chance of success, and the obfuscatory nature of the defendants' commercial list response may have assisted the plaintiffs. However, the plaintiffs lost that opportunity when they took the tactical course of limiting their argument to the claim that the Release Date had not occurred by the End Date of 16 December 2010.
Mr Ehrenfeld in his 29 May 2013 affidavit set out in par 12 how the money paid out of the trust account by Mossensons to SDT and Steinbruck was applied. That evidence suggested that an amount of $110,000 was paid out directly to Steinbruck on 6 March 2012. Mr Ehrenfeld described the use of that money as being "prospectus costs". Of the $413,677 paid out of the trust fund to SDT, Mr Ehrenfeld claims that $243,000 was paid to Steinbruck as management fees, and the balance was paid as various costs and expenses connected with the implementation of the project.
The plaintiffs submitted that the effect of clauses 2.2.3 and 2.2.4 of the Acquisition Agreement was that the $1,050,000 initially paid by the plaintiffs and the $650,000 required to be paid by Mr Ehrenfeld were to cover "the fees, costs and disbursements" required to implement Stage 1 of the project. Stage 1 was defined in clause 2.1 of the Acquisition Agreement as being the completion of the Initial Objectives set out in clause 2.3 of the agreement. That clause described 10 components of the Initial Objectives which included at clause 2.3.6 negotiations with the ASX and ASIC as required for approval of the re-quotation of the securities. Clause 2.4 also provided that the $1,050,000 contributed by the plaintiffs was also to cover all costs associated with Stage 2 of the Project. Stage 2 was defined in clause 3.1 as being the subscription of $2 million to recapitalise SDT, the facilitation of the lifting of the suspension of SDT on the ASX, and the reinstatement to quotation of SDT's shares.
The thrust of this submission was that all costs and expenses necessary to achieve the re-quotation of SDT on the ASX were required by the Final Deed to be met out of the sums of $1,050,000 and $650,000 required to be contributed by the plaintiffs and Mr Ehrenfeld. There was no justification, so it was said, for the defendants using any of the trust money for those purposes. Furthermore, the $1,800,036 which originally constituted the trust money was part of the $2 million referred to in clause 3.1 and 3.2.1 of the Acquisition Agreement for new share capital to recapitalise SDT. That money was not to be used for the purpose of achieving the re-quotation of SDT.
Clause 2.1 Final Deed expressly provided that Mossensons would hold the trust money on trust for the plaintiffs. Clause 2.3 expressly prohibited Mr Ehrenfeld from directing Mossensons to release the trust money before the Release Date. By clause 4.2 the parties agreed that on transfer of the trust money to SDT, SDT and Mr Ehrenfeld agreed that those funds would be used only for the purposes of ensuring the money was maintained by SDT in its bank account in cash for the purposes of ensuring re-quotation and thereafter for the other purposes referred to in the Implementation Agreement and the Warranty Deed. Only up to $100,000 of the trust money could be used by SDT for the purposes of ensuring re-quotation.
The plaintiffs relied upon the terms of the memorandum agreement dated 17 March 2009 which provided that the parties would procure that SDT enter into an agreement with Steinbruck for the management of regulatory and corporate compliance affairs for a six-month period following re-quotation of the shares of SDT on the ASX. The remuneration was to be $10,000 plus GST per month, plus disbursements. The parties agreed that the board of SDT would review the term and remuneration payable under this arrangement during the initial six-month period. The plaintiffs' submission was that there was no basis for Steinbruck to receive any management fees as its appointment was to follow re-quotation of SDT's shares on the ASX, which is an event which never occurred.
The evidence which the defendants tendered to meet this case was disjointed and inconclusive. The defendants relied substantially on Exhibit 10, which was a series of communications between representatives of the plaintiffs and the defendants, some of which may suggest that the plaintiffs were aware of at least some of the payments which had been made by Mossensons out of the trust fund to SDT or Steinbruck. On 5 August 2011 Mr Ji sent an email to Mr Ehrenfeld in which he stated that Mr Zeng had reviewed the SDT prospectus and asked:
"3. Please elaborate the Expenditure Item $800,000 under 14.3.1 and $1,130,000 under 14.3.2 - are these two sums of money to be paid from the $2 million raised funds or from other accounts?"
A draft of the replacement prospectus with a date 12 August 2011 was in evidence. This draft postdated Mr Ji's email. It is likely Mr Ji was referring to an earlier draft of the replacement prospectus. Par 9.2 of the draft provides in part:
"Subsequent to the date of this Prospectus, it is the intention of the Company to issue a further 10,000,000 shares in the Company to raise $2,000,000, subject to obtaining the necessary approval from the shareholders of the Company. For the avoidance of doubt, the $1,800,000 from Mr Zeng referred to in paragraph 4.2.6 will form part of this $2,000,000."
Paragraph 4.2.6 described the provision of $1,800,000 by Mr Zeng to SDT as a subscription for shares in the company as being a condition precedent to completion of the transaction which was the subject of the prospectus.
Paragraph 14.3.1 stated: "Based on a minimum subscription of $800,000 under this Prospectus and the raising of $2,000,000 as per paragraph 9.2 of this Prospectus", and then stated that SDT had a budget to spend $800,000 in "Year 1", $0 in "Year 2" and $800,000 in "Year 3" on "Re-quotation on ASX (including success fee and disbursements." Paragraph 14.3.2 had a different budget to cover the possibility that the prospectus raised $2,000,000 rather than $800,000.
It is notable that par 14.3.3 states that SDT anticipates receiving the $2,000,000 "immediately after closing this Prospectus". That statement appears inconsistent with any right on SDT's part to spend any part of the trust money before the closing of the prospectus.
Mr Ehrenfeld appears to have replied to Mr Ji on 5 August 2011, by an email in which he said:
"Other than amounts previously agreed, any cash spent in the re-listing process will not come from Mr Zeng's funds but from funds that we obtain in addition to these, so the matter remains neutral to Mr Zeng".
On 4 September 2011 in a further email Mr Ji asked:
"Please explain the costs and the expenses (sic) $350,000 in the prospectus: who will pay this (sic) costs and expenses? from (sic) the 2 million we raised?..."
It is possible that the material that follows this statement in the email is an extract from a draft prospectus. It may be that par 30.2 of the document being referred to is a statement that: "Costs and expenses of the issue, including disbursements, ASIC and ASX fees, fees for professional advisors and consultants, prospectus design, printing and advertising expenses and other miscellaneous expenses will be approximately $350,000 plus GST where applicable excluding the success fee". There is then an obscure statement of "expenditure" which includes: "Re--quotation on ASX $800,000.00 $0 $800,000". The material in this email is meaningless without explanation.
There is little point in the court attempting to make further sense out of these exchanges. It is possible that they have the effect that the plaintiffs were aware that additional expenditure was required for the purpose of implementing the prospectus. The evidence does not establish that the plaintiffs approved the payments that were made by Mossensons out of the trust fund to SDT and Steinbruck. On balance the material, though inconclusive, appears to suggest that the plaintiffs were assured that additional expenditure would not come out of the plaintiffs' funds.
The plaintiffs have established a strong case that the payments made from the trust money to SDT and Steinbruck were not authorised, and the circumstances in which the payments were made constituted a breach of the Final Deed which justified the termination by the plaintiffs. However, it is possible that result has been caused by the way that the plaintiffs changed their position in their reply. The court is not satisfied in the circumstances that the plaintiffs' alternative case satisfies the General Steel Industries test.
In retrospect this application for summary judgment justifies the general rule contained in par 62 of Practice Note S C Eq 3. The observations of Bergin J (as her Honour then was) in Baulderstone Hornibrook Pty Ltd v HBD & DC Pty Ltd [2001] NSWSC 821 are also apt, in view of the course this application has taken.
At the end of its submissions in reply the plaintiffs made an application to amend their notice of motion to seek an order in the alternative that SDT and Steinbruck pay the monies received by them out of the trust fund back to Mossensons to be held by it on the original trusts pending the final determination by the court of the issue of who is beneficially entitled to those monies. The defendants did not oppose the amendment being made to the notice of motion, though they must be taken to oppose the granting of the alternative relief sought.
The court is of the view that it would not be appropriate to grant the alternative relief sought by the plaintiffs. That relief is not sought in the plaintiffs' commercial list summons. The court should not grant summary judgment for orders that are not claimed. Furthermore, the claim is more in the nature of an interlocutory injunction pending the final determination of the proceedings than it is a claim for summary judgment. Whatever the merits might be of a claim by the plaintiffs that SDT and Steinbruck replenish the trust fund pending the determination of the proceedings, the case was not conducted as an application for interlocutory relief, and the parties have not had the opportunity to address the issues that would arise if such an application were made.
The plaintiffs' notice of motion is dismissed.
The court will hear the parties on costs, as the manner in which the defendants conducted their defence to the application is likely to have increased the costs unnecessarily both in relation to the length of the hearing and the preparation of the affidavits which were not permitted to be filed.
Decision last updated: 03 September 2013
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