Mio Art Pty Ltd v Macequest Pty Ltd
[2012] QSC 165
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- Unreported Judgment
- Mio Art Pty Ltd v Macequest Pty Ltd[2012] QSC 165
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Mio Art Pty Ltd v Macequest Pty Ltd[2012] QSC 165
Mio Art Pty Ltd v Macequest Pty Ltd[2012] QSC 165
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO: | |
Trial Division | |
PROCEEDING: | Application for interlocutory injunction |
DELIVERED ON: | 20 June 2012 |
DELIVERED AT: | Brisbane |
HEARING DATES: | 8, 12 and 15 June 2012 |
JUDGE: | Mullins J |
ORDER: | The application filed on 16 May 2012 is dismissed |
CATCHWORDS: | EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – RELEVANT CONSIDERATIONS – BALANCE OF CONVENIENCE GENERALLY – where plaintiff is a shareholder of the company which owns land that is being developed in a joint venture pursuant to a project management agreement (PMA) with the defendant – where the plaintiff alleges against the defendant and related companies and persons breaches of the PMA, breaches of trust and oppression in relation to the conduct of the company’s business – where sales of developed lots are due for completion – where plaintiff seeks an interlocutory injunction about the payment of the proceeds that would override the defendant’s responsibility in relation to the financing of the project under the PMA – where damages or compensation would be an adequate remedy for the plaintiff’s claim if it were successful – where interlocutory injunction would alter the status quo – whether balance of convenience favours the grant of an interlocutory injunction Corporations Act 2001 (Cth), s 233, s 237, s 241 Supreme Court Act 1995 (Qld), s 246 Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57, followed Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, considered Bingham v 7-Eleven Stores Pty Ltd [2003] QCA 402, considered |
COUNSEL: | F M Douglas QC and K M Connor SC for the plaintiff D A Kelly SC and M Hodge for the first to seventh defendants |
SOLICITORS: | Delta Law for the plaintiff Carter Newell for the first to seventh defendants |
[1] This proceeding was commenced by the plaintiff against 20 defendants on 15 May 2012. The names of the 20 defendants are listed in appendix A to these reasons.
[2] Mr Richard Spencer as the trustee of the Spencer Family Trust held shares in the 20th defendant, Kinsella Heights Developments Pty Ltd (KHD). The plaintiff succeeded Mr Richard Spencer as the trustee of the Spencer Family Trust Spencer and claims to hold the shares that he held as trustee of the Spencer Family Trust. The issue that was initially raised during the hearing about the standing of the plaintiff arising from whether the transfer of the shares from Mr Spencer to the plaintiff had been recorded on the register of KHD was unnecessary to address, as counsel for the first to seventh defendants did not press the standing point for the purpose of this interlocutory application, although reserving the first to seventh defendants’ right to take that point when defending the statement of claim.
[3] The first defendant as the trustee of the Michael Power Family Trust is the holding company of the second defendant. The third to the seventh defendants are companies controlled by the second defendant. The second to seventh defendants are part of the group of private companies referred to as the BMD Group which are involved in construction, consulting and urban development.
[4] Mr Spencer and Ms Perovich were the original shareholders in KHD. The original shareholders sold half their shares in KHD to the third defendant, Mango Boulevard Pty Ltd (Mango). The Mango Boulevard Unit Trust (MBUT) was established with Mango as trustee. The fourth defendant, Urbex Pty Ltd (Urbex), is the sole unit holder of the units in MBUT.
[5] On or about 24 June 2003, KHD and Mango entered into the Project Management Agreement (PMA) that provided for them to associate in a joint venture for the purpose of carrying out the project that was the acquisition and development of the property at Mango Hill comprising about 240 hectares. KHD also executed a mortgage over the property in favour of Mango to secure the performance by KHD of its obligations under the PMA.
[6] On or about 4 July 2003 the original shareholders, Mango and KHD executed the Shareholders Deed (SHD). Under the SHD, Mango covenanted with KHD and the original shareholders that Mango would use its best endeavours to ensure that KHD successfully conducted the project. KHD acquired the property for $22m with funds provided by Mango. It is MBUT that is undertaking the development of the property, paying all costs in relation to the project, and bearing the commercial risk of the project.
[7] The project was delayed, but stages 1 and 3 of the northern precinct which comprise 91 residential lots, two multi-unit dwelling lots and two super lots are close to completion which has enabled KHD to sell lots and sales are likely to proceed to settlement from the end of June 2012. The proceeds from the sales in stages 1 and 3 are estimated at $23m.
[8] The financing arrangements for the project are complex. The sixth defendant, Mango Hill (Prime) Pty Ltd (Prime), has advanced funds for the development and the books of the BMD Group show that an amount in the vicinity of $113m is owing by MBUT to Prime. The amount of $113m is greater than any of the suggested current values for the property.
[9] KHD sold about 12 hectares of the property to the Roman Catholic Church for a purchase price of $5.95m plus GST that was completed in August 2008. From these proceeds approximately $3.98m was applied by Mango in partial repayment to Prime and the balance of the settlement proceeds were retained by Mango to pay costs associated with the project.
[10] On 16 May 2012 the plaintiff filed an application for interlocutory relief. The plaintiff sought an injunction restraining KHD and Mango from applying the proceeds from the sale of the developed lots in payment of any costs relating to the project claimed by Mango pursuant to clause 11.1(a) of the PMA and requiring KHD to pay the proceeds of sale into court. The plaintiff also sought to restrain KHD and Mango from selling any part of the property in an undeveloped state.
[11] During the course of the hearing, the plaintiff amended the terms of the interlocutory relief sought against KHD and Mango to that set out in the proposed amended statement of claim (exhibit 5), so that what the plaintiff now seeks is for the proceeds of sale to be applied in discharge of the securities held by the National Australia Bank Limited (NAB) pursuant to the security trust deed of which the ninth defendant is the trustee and thereafter in discharge of the securities held by the junior beneficiary or the mezzanine beneficiary pursuant to the security trust deed. The plaintiff abandoned its claim for interlocutory relief in relation to any proposed sale of the undeveloped property, as it became reasonably clear during the hearing that negotiations that had been undertaken or facilitated by the BMD Group for that purpose from late 2011 were done at the request of the original shareholders.
[12] The first to seventh defendants oppose the granting of any interlocutory relief and submit the plaintiff’s application should be dismissed.
[13] There are other proceedings in this court arising from the project: BS1999 of 2006 which concerns the residual shares held by the original shareholders in KHD (and is set down for trial in July 2012) and BS1714 of 2011 which concerns payment for the shares sold by the original shareholders to Mango and transferred on a deferred consideration basis.
[14] Ms Perovich became bankrupt on 20 August 2007 and Mr Spencer became bankrupt on 24 August 2007. Both remain undischarged bankrupts. As a result of their bankruptcies, accountant Mr Vicca was appointed a director of KHD in February 2008 by the plaintiff and the trustees of Ms Perovich’s bankrupt estate. From the time of his appointment, Mr Vicca constantly raised with his fellow directors of KHD, the solicitors for KHD and the BMD Group the disclosure of relevant finance documents affecting KHD and the property and it took about three years for that disclosure to be made. Both Ms Perovich and Mr Spencer act as consultants to the plaintiff in relation to the litigation relating to the project. The sole shareholder and director of the plaintiff is Mr Spencer’s son, Mr Michael Spencer.
Key provisions of the PMA
[15] Under clause 7.1 of the PMA, Mango’s rights are limited to its rights under the joint venture to participate in the profit of the project. Under clause 5.1 of the PMA, Mango is entitled to all profit of the project up to a profit on cost percentage of 25 per cent and 60 per cent of any profit in excess of that profit, and under clause 5.2 of the PMA, KHD is entitled to 40 per cent of all profit in excess of a profit on cost percentage of 25 per cent.
[16] Under clause 9.1 of the PMA, Mango is responsible for raising all finance required to fund the project and must bear all costs of arranging that finance. Under clause 9.2 the finance is permitted to be secured over the property and KHD was required to execute all documents that may be required by Mango to secure the project finance over the property. (The plaintiff relies on clause 8.2 of the SHD which prohibits KHD giving financial assistance to any of its shareholders or the BMD Group without the prior written consent of, and on terms approved by, all other shareholders. The application of both clause 9.2 of the PMA and clause 8.2 of the SHD will be in issue in the proceeding.)
[17] Under clause 11.1 of the PMA, upon the sale of any lots, the proceeds of sale are to be applied, firstly, in payment of all costs relating to the project (where costs has the meaning in clause 1.1 of the PMA), secondly, in distribution of the profit pursuant to clause 5, and any shortfall in the proceeds required to pay the balance of any costs outstanding at that time (if any) is to be paid by Mango.
[18] The term “costs” is defined in clause 1.1 of the PMA to mean the aggregate of the following costs in respect of the project:
“(a)the purchase price of the Property referred to in the Contract;
(b)$5,000,000.00 in respect of the purchase price of the Shares;
(c)the costs in relation to the civil construction, internal and external to the Property;
(d)the costs relating to the provision of infrastructure to the Property including electricity, telecommunications, gas etc;
(e)Council fees and charges relating to the Property, including headworks charges;
(f)Consultants fees incurred in relation to the Project;
(g)Development Management Fees;
(h)the Development Facilitation Fee;
(i)Landscaping and open space betterment costs in relation to the Property;
(j)Holding costs in relation to the Property, including interest, land tax and rates;
(k)Advertising and marketing costs relating to the sale of the Property or any Lot, including costs in relation to the set up and maintenance of a sales office;
(l)such other costs as may be reasonably incurred in relation to the Project.”
[19] The following expenses are expressly excluded from the definition of “costs” in clause 1.1 of the PMA:
“(a)any commissions paid in connection with the sale of the Lots;
(b)conveyancing fees and costs associated with the sale of the Lots;
(c)any costs or fees in relation to the Project which have been paid to the Management Committee, Urbex, BMD Constructions Pty Ltd, BMD Consulting Ply Ltd or any other person who is a Related Person of Mango Boulevard or BMD and which are in excess of reasonable arm's length commercial fees as determined by the arbitrator/mediator pursuant to clause 10.9;
(d)corporate costs incurred by the Consultant, the Company, Mango Boulevard, Urbex and BMD which are not Project specific costs, including but not limited to overhead costs.”
[20] The expiration of the term of the PMA is specified in clause 12.1 as the first to occur of the completion of the project or termination of the PMA by mutual agreement.
Nature of the plaintiff’s claim
[21] The plaintiff’s claim for interlocutory relief relies on s 233 of the Corporations Act 2001 (Cth) (the Act) and s 246 of the Supreme Court Act 1995 (Qld) in support of the court’s equitable jurisdiction to grant relief against a breach of trust.
[22] The plaintiff has foreshadowed applying for leave pursuant to s 237 of the Act to bring proceedings in the name of KHD to pursue the same issues raised in the current proceeding, but as a derivative claim. The purpose of the proposed application for leave is to ensure that the current proceeding did not fail for procedural reasons and to take advantage of the powers given to the court under s 241 of the Act.
[23] The plaintiff relies on s 232 of the Act and allegations of breaches of contract and trust against the first to seventh defendants in respect of the project and the conduct of the business of KHD by reference to identified events in connection with the project. In broad terms, it is alleged that the BMD Group set up the financing of the project in such a way that interest would be charged for the cost of funds that would deprive KHD of the opportunity of earning profits in respect of the project and that Mango limited the extent of approvals obtained, delayed the development of the property and prevented KHD from successfully conducting its business.
[24] The arrangements for original financing were made in August and September 2004. There was a directors’ meeting of KHD held on 30 August 2004 at which resolutions were passed that facilitated the finance arrangements. There is a written consent of the original shareholders to the execution by KHD of some security documents that was forwarded by their solicitor to KHD’s solicitor on 3 September 2004. For the purpose of this interlocutory hearing, the first to seventh defendants concede that there is some question to be tried about whether and when the full nature and extent of the finance arrangements were fully disclosed to KHD. The concession is made on the basis that there is a significant factual controversy about what was disclosed and when it was disclosed that cannot be resolved on an interlocutory hearing.
[25] In late 2004 the BMD Group (to the knowledge of the original shareholders) entered into a joint venture agreement with Babcock & Brown Group in relation to the joint development and financing of the project and giving each a 50 per cent holding of units in MBUT. A facility agreement was set up between Prime as lender to Mango. It utilised moneys borrowed by Prime from the seventh defendant, Mango Hill (Mezzanine) Pty Ltd (Mezzanine), a facility of $13.75m from one financier and a further facility from a related financier of $5m. There was a security trust deed to which KHD was a party that set up a syndicated finance arrangement to cover the senior lender, the junior lender and the mezzanine lender.
[26] Among various security documents KHD executed are a mortgage over the property in favour of Mezzanine which secures all moneys that might become owing to Mezzanine by Prime, a charge over its assets and undertaking in favour of Mezzanine and a mortgage over the property in favour of the financier.
[27] Critical allegations are made by the plaintiff in paragraphs 94 to 96 of the statement of claim that attribute bad faith on the part of the BMD Group and its officers at this early stage of the joint venture. It is then alleged that bad faith pervades subsequent actions taken by the first to seventh defendants in connection with the joint venture.
[28] The plaintiff alleges continuing breaches in connection with changes in financing arrangements between December 2004 to March 2005, followed by allegations of continuing breaches in connection with transactions between April to August 2007. In April 2008 the Babcock & Brown Group withdrew from its joint venture with the BMD Group which affected the financing arrangements for the joint venture and the plaintiff alleges the same type of breaches in connection with changes in financing arrangements between April and October 2008.
[29] There were further changes to financing arrangements in June 2010 that set up the facilities that remain in existence under the security trust deed. These facilities are in place until 30 June 2013. The senior lender is the NAB for the loan of $13.75m. The second defendant is the junior lender and Mezzanine is the mezzanine lender. The source of funds provided to Prime by the junior lender and the mezzanine lender are facilities held by the BMD Group.
[30] There are a number of factual errors in the statement of claim of relevance to the allegations that are made by the plaintiff that became apparent during the hearing of the application. By way of example, it is alleged in paragraph 94(a) of the statement of claim that interest under the identified facilities from which Prime sourced the funds provided to Mango would be calculated at the rate of 25 per cent per annum capitalised and compounded monthly in arrears, if the interest was not paid, and it is alleged that became the fact. It appears there may have been errors in calculations made within the BMD Group of interest due by Mango under the facilities, but that that has been addressed in the affidavit of the BMD Group’s treasury accountant, Ms Toombs, who has prepared revised loan statements for the relevant facilities. There was never any calculation of interest at 25 per cent. The plaintiff proposes to amend both its claim and statement of claim.
[31] One of the many affidavits filed in support of the interlocutory injunction application was from Mr Vicca sworn on 17 May 2012 which expressed his professional concern at the “financial stress” shown in the published accounts of the BMD Group for the year ending 2011 and stated:
“I am concerned that companies in the BMD Group are accumulating an unsustainable level of debt secured by mortgage over the Property with a view to “judgment proofing” themselves in the event that Proceedings BS1999 of 2006 and BS1714 of 2011 are decided adversely to them. I am also concerned that BMD has or is using the Property as security fro the obligations of the BMD Group.”
[32] Although the plaintiff did adduce some evidence from accountant Ms Conrad on calculations of cash flows from a timely development of the property to yield about 2,500 lots, the first to seventh defendants challenge that yield by reference to the actual development approvals. In any case, the unchallengeable proposition is that it is in the interests of both the original shareholders and the BMD Group for the profits from the project to be maximised. The ultimate calculation of the costs for the purpose of the project that can be taken by Mango from the proceeds of sale must be determined in accordance with the PMA. Mango is on notice by the claims made in this proceeding that it will have to justify the total amount of costs claimed from the proceeds. Apart from that, the nature of any claims of KHD for the breach of the PMA or breach of trust and the plaintiff’s claims arising from the PMA and the SHD and the manner in which the business of KHD has been conducted must be quantifiable in damages.
[33] Because of the downturn in the construction industry in recent years which has had an impact on the BMD Group’s profits, the plaintiff changed its approach during the hearing of the interlocutory injunction application to contend for the full repayment of the NAB loan from the sale proceeds from the developed lots, even though it is not due to be repaid for over 12 months. The plaintiff argues that if Prime were to default in its obligations to repay the NAB loan on or before 30 June 2013, NAB could make demand on KHD which would be unable to meet the claim and would result in KHD losing the property on a mortgagee’s sale which would adversely affect the plaintiff’s interests.
[34] It was conceded on behalf of the plaintiff at the conclusion of the oral evidence that the short point to be determined on this application for an interlocutory injunction is whether the plaintiff is entitled to insist upon the NAB facility for $13.75m being repaid and the securities associated with that facility being discharged by way of mandatory interlocutory relief, because the plaintiff contends that payment by Mango to reduce the other facilities would benefit the BMD Group’s other businesses and not the joint venture.
The defendants’ position
[35] The first to seventh defendants claim that the costs recoverable by Mango under the PMA to 30 April 2012, excluding interest, amount to $63,931,833.04. It is common ground that at the very least Mango has incurred the costs of acquisition of the property and the direct costs of development which in total approximate $30m on account of which it has received only the sum of $5.95m from the August 2008 sale. That means that the anticipated proceeds of sale from stages 1 and 3 will not exceed costs that have been incurred for the project for which Mango has not been reimbursed and are undisputed (apart from the plaintiff’s foreshadowed set off in equity for damages or compensation).
[36] According to Mr Atkinson, who as the development manager of Urbex is responsible for the project, the remainder of the site will be developed in a further 17 stages when the lots in stages 1 and 3 have been sold and that further construction will await sales in stages 1 and 3 due to cash flow required for the future development and to avoid market saturation.
[37] Mr Wayne Rex was appointed a director of KHD (on the nomination of Mango) at the directors’ meeting on 16 September 2011. Mr Rex is also the general manager of Urbex. He is the thirteenth defendant in the proceeding. He explained that the development work that was undertaken from the latter part of 2011 to get stages 1 and 3 of the project to the point where sales could be completed was funded by cash from the BMD Group. Because the NAB loan is secured over the entire property, he expects that any requirement by the NAB for repayment in respect of its loan from the proceeds of sale of the lots in stages 1 and 3 would be only in the proportion of the amount of the sales proceeds to the valuation of the property, as the loan to value ratio is calculated in relation to the entire property and is very low. Mr Rex remains of the view that the best way to prosecute the project for the benefit of KHD is to develop the property in its totality and sell the lots. He does not support the immediate payout of the NAB loan. He was cross-examined on the views that were expressed at the directors’ meeting on 16 September 2011 about the potential for default in respect of the NAB loan, but that was before the development of stages 1 and 3 was completed with the generation of the proceeds of sales as a result.
[38] According to Mr Mortensen, who is a director of the second defendant and the chief financial officer of the BMD Group, it is proposed by the BMD Group that after the payment of costs directly associated with the development and sale of stages 1 and 3 ($3m), Mango will repay the surplus proceeds ($20m) to Prime to reduce debt with the intention that Mango will make further redraws under its facility with Prime, as and when required, to fund the development of stage 2.
[39] Mr Mortensen explained that the cash that the BMD Group made available to Mango for the purpose of completing stages 1 and 3 was provided by way of a loan from Mr Power that has not been repaid and is “subordinated debt”.
[40] Mr Mortensen expects that the BMD Group would be in a position to start commencement of the construction of the next stage in the project in September 2012. He was able to confirm that it is the BMD Group’s intention to complete the project and that BMD does not wish to be associated with a failed project. Mr Mortensen unequivocally rejected Mr Vicca’s assertion that the BMD Group was seeking a return from the project through the accumulation of debt secured against the property.
[41] Mr Mortensen provided extensive detail of the BMD Group finances for the purpose of the application and was cross-examined extensively on profits, net assets and financing of the BMD Group. Mr Mortensen was frank about the effect on the BMD Group’s financial performance of the global financial crisis in 2008 and 2009, the downturn in the property market and wet weather and floods in 2010 and 2011. He explained the allowances that had been made in 2011 and were likely to be made in 2012 for impairment of property related assets. He was disclosed the forecast for improved financial performance for the group in the 2013 financial year.
Has the plaintiff made out a prima facie case?
[42] The first to seventh defendants rely on the principles for granting interlocutory injunctions that were confirmed in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [65]-[72] (per Gummow and Hayne JJ whose explanation of these principles was the subject of express agreement by Gleeson CJ and Crennan J at [19] and particularly the explanation at [65] of what is meant by “prima facie case”:
“…it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial.”
[43] The principles that were confirmed were found in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 which was a patent infringement case and the outcome of the appeal was the grant of an interlocutory injunction to restrain infringement and therefore preserve the status quo.
[44] The respective submissions made by the plaintiff and the first to seventh defendants engaged in the controversy that is referred to in Bingham v 7-Eleven Stores Pty Ltd [2003] QCA 402 at [106]-[108] about whether an applicant for an interlocutory mandatory injunction is obliged to meet the test of “high degree of assurance of success” or the same test that is applied for an interlocutory prohibitory injunction. It is not necessary to address that controversy in order to dispose of this application.
[45] The plaintiff’s claim attacks transactions undertaken by Mango and the BMD Group over a period of eight years. Voluminous material was adduced by the plaintiff in support of its application. The period of time that it has taken since the completion of the acquisition of the property by KHD in 2004 to bring stages 1 and 3 to completion, before embarking on the balance of the development of the property, and the complexity of the finance transactions and their relationship with the costs of financing the project for the purpose of the PMA suggests that the plaintiff’s claims require investigation that will no doubt occur during the course of this proceeding. At this early stage of the proceeding, it is not possible to express a tentative view about the plaintiff’s likelihood of success, other than that, if the plaintiff can address the deficiencies in pleading its claim, the plaintiff’s case is not unarguable.
[46] In the circumstances of this matter, it is therefore convenient to turn first to the question of the balance of convenience.
What is the status quo?
[47] As the plaintiff’s submissions recognised, what the plaintiff is seeking is in effect a mandatory injunction. This is a different category of case to that considered in O'Neill or Beecham where the grant of the interlocutory injunction had the effect of maintaining the status quo.
[48] The PMA remains in operation. The status quo is the continuation of the PMA. The relief that is sought by the plaintiff in the statement of claim (and the proposed amended statement of claim) does not seek termination of the PMA. The proposed interlocutory injunction is in the nature of a Mareva order, based on assertions made by the plaintiff in closing submissions. Those assertions, however, are based on superficial analysis of the financial statements of the BMD Group and do not reconcile with other unchallenged evidence. The first assertion is that it is “most likely” that the only money that will be available on 30 June 2013 to discharge the NAB loan will be the proceeds from the sales of stages 1 and 3 is completely at odds with the expressed intention of the BMD Group to complete the project, the means by which stages 1 and 3 were brought to completion, and assumes that no part of the NAB loan will be extended, if required, which is not an assumption that Mr Mortensen was able to make. The second assertion attributes a purpose on the part of the BMD Group for diverting the funds which is conjecture and completely inconsistent with Mr Mortensen’s evidence on the current profit forecast for the BMD Group for the next financial year and, importantly, that the BMD Group continues in business.
[49] The question of finance of the project is for Mango (and therefore the BMD Group) under the PMA. The facilities about which the original shareholders have expressed concern during the hearing of this application are the responsibility of the BMD Group. The BMD Group is not in default. It is premature for the plaintiff to seek interlocutory relief in relation to the NAB loan when the monthly interest payments are being met and it does not expire (if it is not extended) until 30 June 2013.
[50] It is a powerful factor against the grant of the interlocutory injunction that it seeks to interfere with the operation of the PMA and to override Mango’s responsibility under the PMA for the financing of the project where Mango (with the support of the BMD Group) is intending to continue with the project, making use of the funds generated from the sale of lots in stages 1 and 3.
[51] I am also unable to conclude that damages or compensation would not be an adequate remedy for the plaintiff’s claim, if it were ultimately successful in the proceeding.
Delay
[52] The first to seventh defendants submit that the plaintiff has delayed in bringing this application, as the original shareholders were aware of the mezzanine financing from at least 2006. The plaintiff contends that the original shareholders were unaware of the details of the BMD Group’s involvement in the mezzanine financing and that otherwise the original shareholders were distracted by their bankruptcies and the other litigation with the BMD Group. In view of the delays in providing Mr Vicca with relevant finance documents, I am not inclined to treat the plaintiff’s delay in bringing this proceeding as a factor that counts against the plaintiff on this application.
Ulterior purpose
[53] The first to seventh defendants submit that the application for an interlocutory injunction is an abuse of process and has been commenced for an ulterior purpose. It is alleged against the plaintiff that the preferred position of the plaintiff (and Mr Spencer and Ms Perovich) is to have another developer buy out the BMD Group before the sales of developed lots (other than the two super lots) have been completed. It is common ground that the relationship between the plaintiff and the original shareholders, on the one hand, and the BMD Group, on the other, is strained. Mr Spencer conceded in cross-examination that he did not want this project to be pursued with the BMD Group and would prefer that the BMD Group were bought out by another developer or the property sold for a value that would satisfy both the original shareholders and the BMD Group, but noted that it appeared not to be likely or possible at the present time. The allegation of ulterior purpose is serious. It is not appropriate, but it is also not necessary, on the hearing of this interlocutory application to make findings on the allegation of ulterior purpose made against the plaintiff, Mr Spencer and Ms Perovich.
Undertaking as to damages
[54] Mr Michael Spencer has recently completed postgraduate studies in law. He is a lawyer and is about to commence employment with a domain name trading company. He has no significant assets to support an undertaking as to damages by the plaintiff. In addition to the usual undertaking as to damages, the plaintiff proposes to undertake that, in the event that it is successful obtaining an interlocutory injunction as to the manner in which the proceeds of sale should be used to discharge the NAB loan and thereafter in reduction of the other facilities, and it is subsequently established at a final hearing that the order should not have been made, the plaintiff will together with Ms Perovich’s bankruptcy trustee’s consent pursuant to clause 8.2 of the SHD to the reimposition of those securities for the benefit of NAB pursuant to the security trust deed. In addition, Mr Spencer’s wife (subject to obtaining legal advice) is prepared to provide a guarantee in support of the plaintiff’s undertaking as to damages on the basis that she is the trustee of the Spencer Bloss Family Trust that owns properties in which there is equity to the extent of $110,000. Although during the oral submissions the plaintiff submitted that the undertaking as to damages that was offered by the plaintiff (taking into account Mrs Spencer’s support) was worth between $500,000 and $1m, the plaintiff’s written submissions in reply filed on 8 June 2012 conceded that the plaintiff’s undertaking as to damages was of no value, as is submitted by the first to the seventh defendants. The financial statements for the year ended 30 June 2011 for the plaintiff do not indicate that the plaintiff‘s undertaking has value at the present time. I will therefore proceed on the basis that the undertaking as to damages (even if supported by Mrs Spencer) would have minimal value.
[55] Because the terms of the interlocutory injunction that the plaintiff seeks were disclosed after the cross-examination of deponents had been completed, the first to seventh defendants had not directed evidence towards the calculation of losses that may arise from the imposition of that injunction. The point is made that the plaintiff is seeking for Mango to repay the NAB loan which has the lowest interest of the three facilities utilised by Prime to advance funds to Mango for the project. In addition the proposed injunction would stop Mango’s using the funds from the sale proceeds to the extent of at least $13.75m in undertaking the next stages of the project which it is entitled to do under the PMA in order to generate further sales from the property.
What does the balance of convenience favour?
[56] The effect of the interlocutory relief ultimately sought by the plaintiff is to alter the status quo without offering an undertaking as to damages that is of appropriate value in the circumstances when Mango (and the BMD Group) will be deprived of the use of $13.75m in its business.
[57] The plaintiff’s application is premature and speculative. The balance of convenience does not support the granting of interlocutory relief at this stage of the dispute. The application filed on 16 May 2012 is dismissed. I will hear submissions on costs.
Appendix A
List of Defendants
Name | Designation |
MACEQUEST PTY LTD | First defendant |
BMD HOLDINGS PTY LTD | Second defendant |
MANGO BOULEVARD PTY LTD | Third defendant |
URBEX PTY LTD | Fourth defendant |
BMD PROPERTIES PTY LTD | Fifth defendant |
MANGO HILL (PRIME) PTY LTD | Sixth defendant |
MANGO HILL (MEZZANINE) PTY LTD | Seventh defendant |
BABCOCK & BROWN REAL ESTATE FINANCE PTY LTD | Eighth defendant |
TASOVAC PTY LTD | Ninth defendant |
KENNETH ROWLAND BIRD | Tenth defendant |
GARY WILLIAM INGRAM | Eleventh defendant |
JAMES VARITIMOS | Twelfth defendant |
WAYNE ROBERT REX | Thirteenth defendant |
RUSSELL JOHN THOMSON | Fourteenth defendant |
DAVID DUNCAN | Fifteenth defendant |
ANDREW MARCOS | Sixteenth defendant |
SCOTT WILLIAM POWER | Seventeenth defendant |
MICHAEL CHRISTOPHER POWER | Eighteenth defendant |
DENISE MARGARET POWER | Nineteenth defendant |
KINSELLA HEIGHTS DEVELOPMENTS PTY LTD | Twentieth defendant |