Drane v Aqualyng Holdings[2016] QSC 139

SUPREME COURT OF QUEENSLAND

1. The parties are in dispute over consideration and security for the sale to the defendants of the plaintiff’s shares in a company carrying on an industrial water supply system and treatment business.
2. The plaintiff makes application for:
   1. summary judgment on a discrete component of its broader claim against the defendants (“the summary judgment application”); and
   2. the appointment of a receiver of the plaintiff’s former shares or an injunction restraining dealing in the shares (“the application for receiver or injunction”).
3. Each application falls for separate determination.  However some appreciation of the nature of the overall dispute between the parties is required by way of background to both applications.

Background

4. The plaintiff owned the entire share capital, comprising three ordinary shares, in a company, Integrated Chemical and Environmental Systems Pty Ltd (“ICES”).
5. ICES carried on businesses involving the design and construction of a variety of industrial water supply systems, provision of operation and maintenance, on and off site technical support, laboratory services for environmental support, temporary plant hire, supply of waste water treatment equipment and supply of chemicals.

The agreement

6. The plaintiff agreed to sell two of his shares (“the sale shares”) in a share sale agreement (“the agreement”) executed prior to June 2014.^[1]  The defendants were together the purchaser under the agreement with the second defendant being the transferee of the shares.^[2]
7. The total purchase price for the sale shares under the agreement was the so called “initial purchase price” of $12,197,333, comprising $7,318,400 (60 per cent) in cash and $4,478,933 (40 per cent) worth of shares (“consideration shares”) in the capital of the first defendant, subject to adjustment pursuant to clauses 4.4 and 8 of the agreement.^[3]  Clause 4.4 dealt with adjustments up or down in the initial purchase price depending on whether the company’s net current assets were higher or lower than $600,000.  Clause 8 dealt with reductions of a so called “final payment amount” of $1,097,760 by the amount of any resolved warranty or indemnity claims or unresolved outstanding warranty or indemnity claims by the defendants, giving rise to a so called “adjusted final payment amount”.
8. The agreement provided for the initial purchase price to be paid in different components on the completion date and final payment date respectively.^[4]

Payment problems

9. On the completion date, being 30 June 2014, the purchaser was required to pay:
   1. $6,220,640, being the 60 per cent cash component of the initial purchase price of $7,318,400 less the final payment amount of $1,097,760; and
   2. the value of $4,878,933, being 40 per cent of the initial purchase price, through procuring the issue of that value of consideration shares.
10. The plaintiff’s claim against the defendants pleads the defendants have failed to procure the issue of the consideration shares to the plaintiff.  It also pleads the defendants failed to prepare the necessary reports about the company’s net current assets required to determine any adjustment to the initial purchase price pursuant to clause 4.
11. On the final payment date, being 15 months after the completion date on 30 September 2015, the purchaser was required to pay the adjusted final payment amount, that is $1,097,760 adjusted for warranty or indemnity claims pursuant to clause 8.  The plaintiff’s claim also alleges that payment, which is the focus of the summary judgment application, has not been made.

The security

12. By a put and call option deed, the defendants also granted the plaintiff the option of compelling the sale of his remaining share (“the option share”) to the defendants.  The plaintiff exercised the put and call option in compliance with the deed on or about 24 July 2014.  The deed provided for various reports to be prepared as part of a process of determining the option share purchase price but the plaintiff pleads the defendants has also failed to prepare those reports.
13. The agreement required the first defendant to provide security for the payment of any outstanding amounts of the purchase price under the agreement and put and call deed by a share mortgage over the sale shares and a so called ICES security, being both a guarantee in favour of the plaintiff by ICES and a general security interest in favour of the plaintiff over ICES.  By a mortgage on shares granted by the second defendant to the plaintiff on or about 30 June 2014 the second defendant granted the plaintiff a fixed charge over the second defendant’s right, title and interest in the sale shares to secure payments required under the agreement. 
14. The mortgage deed^[5] required at clause 9.1.1 that until the money secured has been repaid the mortgagor must “not sell, assign, mortgage, change (sic), encumber or otherwise deal with” the sale shares without the mortgagee’s prior written consent.  It is alleged the second defendant has assigned and or dealt in the shares without the plaintiff’s consent.  This attracts the application for receiver or injunction.

Defence and Counterclaim

15. The Defence and Counterclaim of the defendants alleges, inter alia, breaches of the plaintiff’s obligation to co-operate in the defendants’ procuring of the various reports required by the agreement and deed and various breaches of warranty by the plaintiff.

The summary judgment application

16. The plaintiff makes application for summary judgment in respect of that part of its claim contained within the paragraphs of its pleading relating to the defendants’ liability to pay the final payment amount of $1,097,760 without adjustment on 30 September 2015.  It seeks entry of judgment for the plaintiff against the defendants in that amount together with interest, as well as the plaintiff’s costs of and incidental to that part of its claim contained in the aforementioned paragraphs.

Clause 8 adjustment

17. It will be recalled the final payment amount of $1,097,760 adjusted for warranty or indemnity claims pursuant to clause 8, was to be paid on the final payment date of 30 September 2015.  The plaintiff’s case in respect of this component of its claim is that there were no adjustments for warranty or indemnity claims pursuant to clause 8 and that accordingly the full final payment amount of $1,097,760 should have been paid on 30 September 2015.
18. Clause 8 of the agreement relevantly provides:
     

“8.Final Payment

8.1Payment of Final Payment Amount

The Purchaser must pay to the Vendor the Adjusted Final Payment Amount on the Final Payment Date as it directs.

8.2Determination of Adjusted Final Payment Amount

The Adjusted Final Payment Amount is the Final Payment Amount reduced by:

(a)the amount of any Claim made against the Vendor by the Purchaser under the Warranties or the Indemnities in clauses 10, 11, 13 and 14, which on or before the Final Payment Date has been agreed, settled or finalised; and

(b)the amount of any outstanding Claims made by the Purchaser against the Vendor under the Warranties or the Indemnities in clauses 10, 11, 13 and 14, which at the Final Payment Date has not been agreed, settled or finalised.

8.3Payment of left over balance of Final Payment Amount

If any balance of the Final Payment Amount remains after the Claim or Claims referred to in clause 8.2(a) or 8.2(b) have been agreed, settled or finalised after the Final Payment Date, that amount will be paid by the Purchaser to the Vendor in cleared funds immediately following such agreement, settlement or finalisation of the relevant Claim.

8.4Other terms

(a)The Vendor agrees that it is not entitled to satisfy its obligation to pay any amounts payable by the Vendor to the Purchaser under clause 4.4 (adjustments) out of the Final Payment Amount.

(b)Any payment released and paid to the Purchaser under this clause 8 is deemed to be a reduction in the Purchase Price.

(c)Interest shall accrue at the rate of 6% calculated daily on the remaining balance of the Final Payment Amount from time to time from the Completion Date to the Final Payment Date and on the Final Completion Date the Purchaser must pay to the Vendor an amount equal to that accrued interest.”

19. The parties join issue as to whether the adjusted final payment amount should have involved any adjustment by way of reduction pursuant to clause 8.2(b).

The meaning of clauses 10.5 and 10.10

20. Of the clauses mentioned in clause 8.2(b) it is clause 10 with which the present argument is particularly concerned.  The defendants contend that as at the final payment date there were outstanding claims made by them against the plaintiff under clause 10.1.  That clause provides:
     

“10.1Warranties

The Vendor represents and warrants to the Purchaser that the Warranties are true and correct at the date of this agreement and will be true and accurate on the completion date.”

21. “Warranties” is defined by the agreement to mean “each of the representations and warranties given under clause 10 and set out in Schedule 5”.  Schedule 5 sets out 19 different warranties in detail.
22. The two clauses of clause 10 which assume particular importance in the present debate are clauses 10.5 and 10.10:
     

“10.5 Notice of potential Claim

As soon as possible after a party first becomes aware of anything which it is aware is or may be reasonably likely to give rise to a Warranty Claim or an Indemnity Claim:

1. it must notify the other party in writing of that fact, together with all available details; and
2. the Vendor must, as and when requested by the Purchaser, provide to the Purchaser any information and details which the Purchaser reasonably requires.”

“10.10 Time limits on Claims

Other than in respect of Title Subject Claims, the Vendor has no liability for a Warranty Claim, Uncapped Contract Subject Claim or an Indemnity Claim, unless:

1. in the case of a Warranty Claim, Uncapped Contract Subject Claim or an Indemnity Claim (except for a Tax Subject Claim), the Purchaser has given written notice of the Claim to the Vendor on or before the date 15 months after the Completion Date; and
2. in the case of a Tax Subject Claim, the Purchaser has given written notice of the Claim to the Vendor on or before the sixth anniversary of the Completion Date.”

23. Clauses 10.5 and 10.10 involve obviously different acts of notification.  Clause 10.5 obliges either party, if it becomes aware of anything which is or may be reasonably likely to give rise to a warranty or indemnity claim, to give written notice of that fact to the other party together with all available detail.  It also obliges the vendor as and when requested by the purchaser to provide any information and details which the purchaser reasonably requires.
24. The self-evident purpose of clause 10.5 is to prevent parties remaining silent about the potential for a warranty or indemnity claim by obliging notice to be given of facts which may be reasonably likely to give rise to a warranty or indemnity claim inclusive of “all available details”.  The other party is thereby afforded the opportunity to learn of, investigate and potentially correct misunderstanding of the facts causing concern.  Moreover, clause 10.5(b) positively obliges the vendor to provide information and details on request, thus allowing the purchaser to seek out information and detail which might, inter alia, assist it in ascertaining whether it should pursue a warranty or indemnity claim.  In short, clause 10.5 promotes notification of information relevant to a potential warranty or indemnity claim.
25. In contrast, clause 10.10 goes to the giving of actual notice of a warranty claim, uncapped contract subject claim, indemnity claim or tax subject claim.  Clause 10.10 is of special significance in the present context because it provides that in the absence of written notice of such claims by the dates stipulated the vendor “has no liability” for such claims.

6 August letter not a clause 10.10 notice

26. The defendants contend they did give written notice of such claims by letter on 6 August 2015, prior to the completion date of 30 September 2015.  The difficulty for the defendants is that the correspondence of 6 August 2015 on which they rely is, on its terms, a notice of potential claim pursuant to clause 10.5, not a written notice of a claim pursuant to clause 10.10.
27. The letter commences, after salutations, as follows:

“Integrated Chemical and Environmental Systems Pty Ltd (ICES) – Notice of Potential Claims

Pursuant to clause 10.1 of the Share Sale Agreement dated 20 June 2014 between Robert Drane, Aqualyng Holdings AS and Aqualyng O&M Pte Ltd (SSA), your client warrants to our client that the Warranties are true and accurate at the date of the agreement and will be true and accurate on the Completion Date.

Our client considers that your client is in breach of the Warranties it has provided pursuant to the SSA and gives notice of potential Claims as set out below for the purposes of clause 10.5 of the SSA.”^[6] (emphasis added)

28. Thus the letter is not only headed “Notice of Potential Claims”, mimicking the heading to subclause 10.5, it expressly states that it is a letter giving notice of “potential Claims … for the purposes of clause 10.5”.
29. As to the potential claims set out in the letter beneath the above-mentioned passage, the first claim is that ICES did not recognise revenue and expenses in the proper period with the consequence, contrary to the warranty 4.1, that the 2013 accounts were not accurate.  Examples given in support of that conclusion include a fall in profits of $1.5M in the second half of 2014 despite apparent consistency with past levels of accounts receivable and clients.
30. The second claim relates to tax warranties 6.1 and 6.3 as to ICES’s 2013 accounts and tax liabilities.  It is asserted the plaintiff treated approximately $136,657 as an operating expense rather than more properly a capital cost with resultant potential implications for the tax liabilities of ICES in 2013 and in previous years where similar costs have been recognised as operating expenses rather than capital costs.
31. The third claim, related to the second, alleges that if it is determined that the nature of such costs is capital, it will render financial information provided by the plaintiff misleading and deceptive, contrary to warranties 19.1 and 19.3, and have effects on the determination of the purchase price under the agreement and deed.
32. The defendants submit the language adopted in providing the detail of the potential claims positively alleges breaches of warranty rather than merely giving notice of potential claims for breach of warranty.  An obstacle to that submission is the presence of the words “set out below” within the passage “gives notice of potential Claims as set out below for the purposes of clause 10.5”.  The letter’s unambiguous meaning is that the information “set out below” was expressly provided for the purpose of giving notice under clause 10.5.  That such information would be provided with such a notice is unremarkable in that clause 10.5(a) requires the notice to give all available details which are or may be reasonably likely to give rise to a warranty claim.
33. The end of the letter of 6 August 2015 also contradicts the defendants’ argument.  After outlining the abovementioned claims the letter concludes:
     

“3.Next steps

3.1Pursuant to clause 10.5(b) of the SSA, please obtain your client’s instructions in relation to each of the following matters:

(a)an explanation for the fall in profit as described in paragraph 1.2(a) above;

(b)evidence (in addition to the timesheets already provided to PWC) supporting the validity of the change in the treatment of $136,657 of expenses from operating expenses to capital costs as described in paragraph 2; and

(c)particulars of all expenses in previous periods of a similar nature as those described in paragraph 2 where ICES has treated such expenses as operating expenses and where based on your client’s revised analysis and interpretation should be regarded as capital costs.

Please provide your client’s instructions on the matters requested in paragraph 3.1 by 7 August 2015.” (emphasis added)

34. Once again the letter expressly invokes the operation of clause 10.5, specifically the exercise of the defendants’ entitlement under clause 10.5(b) to have the vendor provide information and details on request.
35. The letter of 6 August 2015 was, and was plainly intended to be, a notice under clause 10.5.  The fact it referred to claims did not mean it had the simultaneous quality of a written notice of such claims pursuant to clause 10.10.  It did not have that quality because the act of giving notice of a potential claim or of circumstances likely to give rise to a claim is short of and not the same as the act of actually giving notice of a claim.  The former, no matter that it might suggest the probability of the claim being made is high, is not notice of the claim.
36. I find the letter of 6 August 2015 was not written notice pursuant to clause 10.10 of the agreement.  It was written notice pursuant only to clause 10.5.

Any claim “made” under clause 8.2?

37. There is no evidence of any other written notice having been given of a claim by the final payment date.  Does it therefore follow from the above finding that the plaintiff should have the summary judgment he seeks for the amount of $1,097,760 plus interest?
38. That amount is the final payment amount under the agreement.  It will be recalled clause 8.1 of the agreement provided the defendants “must pay” the plaintiff the adjusted final payment amount on the final payment date.  Under clause 8.2 the adjusted final payment amount is the final payment amount reduced by amounts of certain claims by the defendants “against” the plaintiff.  The language of clause 8.2 makes it plain the reduction is for a claim which has been made.  Thus clause 8.2(a) refers to “any Claim made” and clause 8.2(b) refers to “any outstanding Claims made”.  The difference between the clauses is that clause 8.2(a) refers to the amount of claims made and resolved by the final payment date, whereas clause 8.2(b) refers to the amount of any outstanding claims made but not resolved by the final payment date.  The common denominator is that the claims, whether resolved or not, have been “made”.  That is, for the amount of any claim to give rise to an adjustment in the final payment amount the defendants were required to pay on the final payment date, it had to have been made against the plaintiff by the final payment date.
39. The defendants’ counsel emphasised the wide definition of claim in clause 1.1 of the agreement:
     

“Claim includes a claim, notice, demand, action, proceeding, litigation, investigation, judgment, damage, loss, cost, expense or liability however arising, whether present, unascertained, immediate, future or contingent, whether based in contract, tort or statute and whether involving a third party or a party to this agreement.”

That a claim might be unascertained or arising in the future was said to mean the letter of 6 August 2015, despite it only identifying potential claims in unquantified amounts, constituted the making of a claim within the meaning of clause 8.2.

40. However, the context in which claims are referred to in clause 8.2 necessarily requires that they are in respect of an identified amount, for that is the amount by which the final payment amount is to be reduced, so as to quantify the adjusted final payment amount required to be paid on the final payment date.  Further, because the letter of 6 August 2015 only purported to give notice of the potential for claims to be made it was not a claim “made”.  It did not purport, for example, to make a claim for the amount of a loss or liability arising in the future.  Rather it flagged the potential that a claim might be made in the future.
41. No claim had been “made” against the plaintiff within the meaning of clause 8.2 by the final payment date.  I therefore find the amount the defendants were obliged by clause 8.1 to pay the plaintiff on the final payment date was the final payment amount without reduction under clause 8.2, that is, $1,097,760.

Summary judgment consideration

42. The effect of r 292 UCPR as it relates to summary judgment for part of a claim is that a court “may” give judgment for a plaintiff against a defendant for part of the plaintiff’s claim if satisfied both that the defendant has no real prospect of successfully defending that part of the plaintiff’s claim and that there is no need for a trial of that part of the claim.^[7]
43. I arrived at the above findings conscious I ought not do so if there were other issues, likely to arise at trial, the resolution of which might support a different interpretation than that articulated above in respect of clauses 8 and 10 and the letter of 6 August 2015.  However the defendants’ counsel could not identify any such issues^[8] and nor are any apparent from the pleadings or affidavit material.  That is unsurprising.  The matters raised are, by reason of the agreement’s structure, readily compartmentalised from the other issues in the case.  However, while I was satisfied of r 292’s prerequisites in arriving at my findings and while those findings would ordinarily be determinative of the summary judgment application, there remains a further argument against the granting of the application: the defendants’ equitable set-off claim.

Equitable set-off asserted

44. The defendants plead they are entitled to set-off the amount for which they counterclaim against the plaintiff’s alleged entitlement to the amount of $1,097,760.^[9]  Their counterclaim pleads three claims with some similarity to the potential claims flagged in the letter of 6 August 2015.  All allege a breach of clause 10.1’s warranty that the agreement’s warranties, set out in schedule 5, were true and accurate.  The defendants submit these claims give rise to an equitable set-off of the amount claimed by summary judgment.

First and third claims irrelevant

45. It is convenient to deal with the first and third claims together.  The first claim alleges, contrary to warranty 4.1, ICES’s 2013 accounts did not give a true and fair view of its financial position and performance to 30 June 2013.  It alleges as a result the company was less valuable than represented by the accounts and assert their loss is the unspecified difference between the purchase price payable and that which would have been payable had the true financial position been known.
46. The third claim alleges, contrary to warranty 19.1 and 19.3, that there were facts known to the plaintiff which rendered the due diligence material it provided misleading or deceptive.  The matters it refers to include the treatment of costs as operating expenses rather than capital expenditure with the consequential effect of greatly increasing the purchase price payable under the deed.  They assert their loss is the amount of $1,093,928 or the difference between the purchase price ostensibly payable and that which would have been payable had the accounts been prepared correctly.
47. The difficulty confronting the first and third claims is they are claims for breach of warranty, that is, warranty claims.  Clause 10.10 deems the plaintiff to have no liability for such claims, excluding tax subject claims, unless written notice is given of the claims by the final payment date.  I have already found no such notice was given.  The application does not specifically seek summary judgment for the plaintiff on any parts of the counterclaim per r 293.  Nonetheless it follows from my finding that the defendants’ first and third claims have no prospect of giving rise to a set-off.

Second claim live for purposes of set-off

48. The same does not apply in respect of the defendants’ second claim.  It alleges ICES’s expenses were overstated in its 2012, 2013 and 2014 accounts and tax returns as a result of the company’s capital expenditure being improperly treated as operating expenses.  This allegedly gave rise to understatements of taxable income and outstanding tax liabilities of $16,565 for 2012, $55,293 for 2013 and $30,985 for 2014, a total of $102,843 plus possible penalties and costs of consequential remedial action.  The quantum of the penalties and costs for which it seeks to be indemnified is not quantified in the pleadings.
49. The second claim, in alleging a breach of clause 10.1, relies upon warranty 6.1, which is to the effect ICES has complied with all of its liabilities and obligations in respect of tax.  The defendants’ relief is asserted as an entitlement to be indemnified, a reference to a tax indemnity in the agreement at clause 14.  The second claim is therefore a claim for a breach of a tax warranty in warranty 6 and or under the tax indemnity in clause 14 and thus meets the agreement’s definition of a “tax subject claim”.  Under clause 10.10(b) the time limit on a tax subject claim is on or before six years after the completion date.  That time is still running, so the counterclaim’s giving of written notice of the tax subject claim avoided the exclusion from liability for a tax subject claim otherwise effected by clause 10.10.
50. The plaintiff does not dispute the defendants remain entitled under the contract to pursue their tax subject claim.  However he contends it does not give rise to an equitable set-off against the plaintiff’s claim to the $1,097,760.

Set-off discussion

51. It is well established that the mere existence of cross demands is not sufficient of itself to give rise to set-off in equity and the defendants must show some equitable ground to be protected from the plaintiff’s claim so that the equity of the defendants impeaches the plaintiff’s title to its demand.^[10]
52. In Forsyth & Anor (as trustees for the C&S Forsyth Superannuation Fund) v Gibbs^[11] Keane JA acknowledged the unhelpful generality of language sometimes used in describing equitable set-off, such as “sufficient connection” and “unfairness”, but went on to explain:

“It is important to emphasise that the availability of an equitable set-off between cross claims does not depend upon an unfettered discretionary assessment of whether it would be ‘unfair’ in a general sense for a plaintiff to insist on payment of the debt owed to it while the cross claim remains unpaid.  It is essential that there be such a connection between the claim and cross claim that the cross claim could be said to impeach the claim so as to make it unfair for the claim to be allowed without taking account of the cross claim.”

53. The argument that the defendants’ tax subject claim does not impeach the plaintiff’s title to the accrued indebtedness derives force from the extent to which the agreement compartmentalised the process for adjusting and paying the final payment amount.  In particular, as already found, the final payment amount could only be reduced by the amount of an unresolved claim made against the plaintiff by the final payment date.  While the agreement does not exclude liability for the defendants’ tax subject claim now brought, that claim has no direct connection under the agreement with the obligation to pay the final payment amount, for the claim was not “made” by the final payment date.
54. However, the compartmentalised process went only to the process of payment of the final payment amount as adjusted.  Sight must not be lost of the fact the final payment amount at issue was merely part of the overall purchase price under clause 4.5 of the agreement.
55. Moreover clause 10.6 of the agreement provides a payment to the defendants for a warranty or indemnity claim, which is what the defendants seek, is to be treated as a reduction in the purchase price.  Were summary judgment now given for the whole of the final payment amount it would potentially impeach the right the defendants are entitled to enjoy under clause 10.6.
56. The defendants have not paid the purchase price in full.  The ultimate quantum of the overall purchase price remains in dispute, indeed unknown, not only by reason of the defendants’ tax subject claim but also by reason of the issues raised by them in defence of the claim, including matters bearing upon quantification of ICES’s net current assets.  It is true the tax subject claim might not result in an award for an amount as high as that claimed by summary judgment.  However it is an unliquidated claim for damages and it is not presently possible to determine the maximum potential extent of the defendants’ entitlement to set-off.^[12]  Further it is impossible to conclude at this stage that the plaintiff will inevitably succeed in his overall claim to such an extent that the defendants will be liable to pay an amount exceeding the amount claimed for by way of summary judgment. 
57. At this stage therefore the quantum of the overall purchase price to be paid cannot be disregarded as an apparently academic or irrelevant connection as between the tax subject claim and the claim.  The tax subject claim bears upon the quantum of the overall purchase price and so impeaches the present claim for summary judgment, for that claim is a claim for part of the purchase price.
58. Looking at the connection from a slightly different perspective, the increased tax liability, tax penalties and other costs that are the subject of the tax subject claim are costs of ICES.  Such costs are relevant to the value of the company and so the price payable for its shares under the agreement.  Thus the plaintiff’s conduct, the subject of the tax subject claim, necessarily reduces the value of ICES’s shares for which the purchase price is payable.
59. The nature of the connection by conduct is further illustrated by clause 10.2 of the agreement.  Under clause 10.2 the defendants are deemed to have entered into the agreement in reliance upon the agreement’s warranties, which include warranty 6.1 in respect of tax.  Thus it can be said if the defendants have any liability under the plaintiff’s claim, it arises, at least in part, from entering into the agreement as a result of the warranty of the plaintiff which is the subject of the tax subject claim. The requirement of set-off in equity that a cross claim impeach the title of the plaintiff’s claim will ordinarily be fulfilled where, as is effectively the defendants’ case here, the plaintiff’s title to the claim would not have come about if the plaintiff had not breached some obligation to the defendant, for instance by misrepresentation.^[13]
60. The above reasons demonstrate the connection between the claim and tax subject claim is such that the tax subject claim if proved would impeach the claim so as to make it unfair even for the summary judgment application component of the claim to be allowed without taking account of the tax subject claim.  That cannot occur without a trial.
61. It follows that the application for summary judgment must be dismissed.

The application for receiver or injunction

62. The plaintiff also makes application, pending the hearing and determination of the action, for orders in respect of the two sale shares transferred by the plaintiff to the second defendant pursuant to the agreement.  The orders sought are that receivers of the two shares be appointed or alternatively that the defendants and a third company, Aqualyng Holding Pte Ltd, and their directors, servants and agents be restrained from selling, assigning, transferring, mortgaging, charging or otherwise encumbering or dealing with the shares.
63. It will be recalled the mortgage deed required that until the money secured has been repaid the mortgagor must not sell, assign, mortgage, charge, encumber or otherwise deal with the sale shares without the mortgagee’s prior written consent.  The plaintiff contends that contrary to that clause there has been an assignment and or dealing in the sale shares. 
64. As will be seen, the most concerning aspect of such dealing as did occur was likely a product of a benign error, since corrected, and there is no utility in disturbing the status quo.

Consent requested to accommodate Aqualyng’s restructure

65. The solicitors for the second defendant did seek the plaintiff’s consent to a dealing.  That was the proposed transfer of the second defendant’s shares in ICES to another company, registered in Singapore, connected with the defendants, namely the abovementioned third company Aqualyng Holdings Pte Ltd (“Singapore Holding”).  The consent was requested in an email of 15 December 2014, the explanation for the proposed transfer being that “as part of an internal restructure, Aqualyng wishes to replace [the second defendant] as transferee of the shares in ICES with Aqualyng Holdings Pte Ltd (Singapore Holding)”.^[14]  The reference in the email to “Aqualyng” was presumably a reference to the management of a group of companies including the defendants and Singapore Holding.

The supplemental agreement

66. Earlier, on 30 August 2014, the second defendant and Singapore Holding entered into a so-called supplemental agreement between each other.^[15]   It was a poorly drafted document, containing ambiguity and legal misconceptions.  In it the second defendant agreed to transfer and assign to Singapore Holding all its beneficial ownership in the two sale shares as well as all liabilities under the earlier discussed agreement, deed, share mortgage and side agreement, the so called original agreements, between the plaintiff and defendants.  It curiously provided that from the date of the agreement Singapore Holdings would be the beneficial owner of the two sale shares and assume all the liabilities of the second defendant under the original agreements “for the purpose of bookkeeping” by the parties.  The agreement was conditioned on the parties procuring the execution of certain documents, described as “new agreements”.  Most of those documents necessarily required execution by the plaintiff.  The supplemental agreement required the execution of those documents to be procured within 12 months and by an unspecified date, described as the date of novation.  It also purported to preserve the plaintiff’s claims upon the second defendant associated with the original agreements until the date of novation. 

Consent not forthcoming

67. On 7 January 2015 an email by the plaintiff indicated a degree of “in principle” agreement to the request of 15 December 2014 but required certain conditions to be met.^[16]  The actual consent of the plaintiff did not eventuate.

Share transfer form held in escrow

68. Meanwhile, the new agreements apparently required to be executed under the supplemental agreement had been prepared and signed by the defendants, Singapore Holding and or ICES.  Those six documents were:
    1. a deed of novation of the share sale agreement, signed by the defendants and Singapore Holding;^[17]
    2. a deed of novation of the put and call option deed signed by the defendants and Singapore Holding;^[18]
    3. a deed of amendment to guarantee and security signed by ICES;^[19]
    4. a deed of release of share mortgage signed by the second defendant;^[20]
    5. a new share mortgage in favour of the plaintiff signed by Singapore Holding;^[21]
    6. share transfer form signed by the second defendant and Singapore Holding.^[22]
69. The documents referred to in (a) to (e) above provided for execution by the plaintiff as the original counterparty to the share sale agreement, put and call option deed, guarantee and indemnity and share mortgage.  There was no such requirement in respect of (f), the share transfer form, in that the shares had already been transferred to the second defendant, albeit subject to the second defendant not dealing further with them without the plaintiff’s consent.
70. The above documents, including the share transfer form, were provided to the defendants’ solicitors Minter Ellison to be held in escrow.^[23]  More specifically as to the share transfer form, Sunil Ghorawat, the chief executive officer of the Aqualyng group of companies and a director of the second defendant and Singapore Holding, deposed the share transfer form was executed on behalf of those two companies “and provided to Minter Ellison to be held in escrow until Mr Robert Drane’s consent was provided to the proposed transfer”.^[24]
71. The plaintiff not having consented to the proposed transfer, the above-mentioned documents, including the share transfer form have continued to remain in Minter Ellison’s possession and not been exchanged or lodged with any other entity.^[25]

The error

72. The genesis of the error largely giving rise to the present controversy appears to lie in the mistaken understanding of some personnel in the Aqualyng group that the second defendant’s shares in ICES had already been transferred to Singapore Holding back in August 2014.  That was the month the supplemental agreement was entered into. 
73. That misunderstanding appears in an email dated 1 December 2015 by Sameer Mittal, a consultant accountant engaged by the Aqualyng group to advise on its national accounting and compliance matters, to Matthew Lindsay who, together with Fadey Kassim, was working on preparation for the merger of the Aqualyng group of companies with the Earthwater group of companies.^[26]  The above-mentioned internal restructure may have had some connection with that merger.  The email noted that according to records known to Mr Mittal the share transfer had not been effected with ASIC and Mr Mittal requested updating on the share transfer. 
74. Mr Mittal came by his erroneous understanding that the share transfer had occurred because Mr Ghorawat had incorrectly made that assumption and communicated it to Mr Mittal when asking him to tend to further action required before the proposed merger.^[27]  The abovementioned email was copied to Mr Ghorawat who in turn copied it to Mr Kassim, requesting his “help on top priority to file this in Australia hopefully by tomorrow”.^[28] 
75. On 3 December 2015 Mr Kassim received from Mr Lindsay a copy of an ASIC form 484 “Change to company details” notifying a change of ownership of shares in ICES from the second defendant to Singapore Holding.  Mr Kassim signed and sent to that form to ASIC for lodgement.^[29]
76. The solicitor for the plaintiff discovered the consequential change to the records of ASIC and understandably assumed the worst.  He wrote to the defendants’ solicitors complaining there had been a transfer of the shares in breach of the share mortgage and foreshadowing the present application.^[30]  This was news to the solicitors for the defendants and prompted them to initiate their own enquiries with the defendants. 
77. The defendants’ Berndt Osthus responded to them by email on 21 January 2016, explaining the embarrassing fiasco:

“I have now been fully appraised of what has happened.

Our Singapore accountants have been pushing forward with preparations to merge Aqualyng Holdings Pty Ltd and Aqualyng O&M Pty Ltd (hereinafter O&M).  However, this was from my side stopped for a series of reasons, two of them being that a) Rob Drane would not consent to transfer of title to the shares and b) we have pledged the shares of O&M as security for a shareholder’s loan, which again required that ICES remain in O&M.

The situation is that the shares are still in O&M’s books and not in Holdings’ books.  It seems like there has been a glitch in the communication, causing Fadey to file for change in ownership in Australia.  However, this change has not happened.

I suggest that you inform that the filing was erroneous and due to internal misunderstandings, and that the error is being corrected as we speak, as Fadey is re-registering. …”^[31]

78. Mr Kassim took immediate steps to have his fellow director Mr James lodge a form correcting the error. A “Request to withdraw a lodged document”, ASIC form 106, was duly lodged with ASIC on 25 January 2016.^[32]

Just an error, not a conspiracy

79. The plaintiff’s submissions urged a circumstantial conclusion that something more sinister than error had been afoot, pointing for example to there being a probably common corporate signator to the share mortgage, the supplemental agreement and the share transfer form.  However it hardly follows involvement in that process would preclude the prospect of misunderstanding, particularly in the context of a process the detail of which was likely largely arranged by agents such as lawyers. 
80. That there was genuine misunderstanding by some personnel in the Aqualyng group of companies is obvious.  It is implausible that if some deliberate and covert wrongdoing was being attempted it would have involved foregoing physical control of the critical documents into the hands of the defendants’ solicitor.

The application

81. The plaintiff filed the present application on 29 January 2016.  The following day the defendants’ solicitor informed the plaintiff’s solicitor of the error and the fact it had been corrected.  The plaintiff persisted in this application.  On 10 March 2016 the defendants’ solicitor wrote to the plaintiff’s solicitor confirming the ASIC register had been corrected. Still the plaintiff persisted in this application.
82. The plaintiff relies upon the execution of the supplemental agreement, the execution of the share transfer form and the notification of change of share ownership to ASIC as evidence of a breach of the second defendant’s obligation not to sell, assign, mortgage, charge, encumber or otherwise deal with the sale shares without the plaintiff’s prior written consent.

Restraining order?

83. The restraining order sought by the plaintiff is interlocutory in nature.  To obtain such an order the plaintiff must have a prima facie case, in the sense discussed in Australian Broadcasting Tribunal v O'Neill,^[33] and the balance of convenience must favour the granting of relief.^[34]
84. The second of those requirements is a determinative obstacle to the relief sought here, in that the relief is unnecessary.  The plaintiff was of course entitled to be concerned by the unheralded news that a change of ownership of the shares had been notified to ASIC.  However the information which has since come to hand, and which has been summarised above, convincingly demonstrates error rather than conspiracy and the error has been corrected.
85. There is a significant relevant quality about each of the three acts relied upon as constituting supposed breaches of the obligation not to assign or deal with the shares without consent.  That quality is, regardless of whether or not there is a prima case that they were breaches, none of them ground a presently credible concern that the plaintiff’s interests are in jeopardy.
86. The first act was the execution of the supplemental agreement.  On that agreement’s own confused terms the documents to be executed to make it effective were required to be executed within one year.  That time has passed without the condition being met.  Whatever arguable legal status the supplemental agreement’s purported assignment may have had pending the lapse of one year it cannot sensibly be regarded as lasting beyond that time.  Even allowing for the possibility the condition was merely voidable, the ongoing absence of execution of the documents by the plaintiff makes it unrealistic to fear the plaintiff’s secured property is presently any more jeopardised by the supplemental agreement without the orders sought than with them.
87. The second act was the execution of the share transfer form.  Even if that act without more were a breach, more would need to happen for it to actually prejudice the plaintiff’s position.  The form continues to be held in escrow by the defendants’ solicitor, who is an officer of this court.  It is to be released only upon the consent of the plaintiff.  It obviously came to be so held because of the intention of the parties who had executed it that, in the absence of the plaintiff’s consent, it is not to be relied upon to effect a transfer.  The plaintiff’s interests are adequately protected by this continuing position.  It is unnecessary to venture into the theoretical prospect of a rival equitable interest being asserted based on the bare execution of the share transfer form, for again the interlocutory relief sought would not afford any more material protection against such a claim than the present arrangement.
88. The third act was the erroneous notification of share ownership to ASIC.  It is difficult to see how that act alone was a dealing with the shares.  For instance, a transfer of legal ownership of shares requires a change to the company’s register of members^[35] and no relevant entry has been made in ICES’s register;^[36] a company must only register a transfer if an approved transfer form has been delivered to the company^[37] and that has not occurred; a share certificate is prima facie evidence of  title^[38] and the share certificate still specifies the second defendant’s title to the shares.^[39]  In any event the erroneous notification was reversed.  ASIC’s records again accurately reflect the second defendant’s continuing ownership of the shares.
89. A further relevant consideration is that an undertaking has been made by both defendants and Singapore Holding, which was also served with the application, that they will not sell, assign, mortgage, charge, encumber or otherwise deal with the sale shares without the plaintiff’s prior written consent pending the determination of the proceeding.^[40]
90. The balance of convenience clearly favours the status quo.
91. Because the balance of convenience weighs determinatively against the granting of a restraining order it is unnecessary to express a concluded view on whether the requirement of a prima facie case has been met.  I nonetheless record my appreciation for the thorough assistance of both counsel in their submissions upon that requirement.

Receiver?

92. As to the application to appoint a receiver, section 12(2) Civil Proceedings Act 2011 (Qld) provides:

“The court may, at any stage of a proceeding, make an interlocutory order appointing a receiver if it considers it just or convenient.”

93. If the balance of convenience does not justify the making of a restraining order then the reasons giving rise to that conclusion logically tell against it being just or convenient to take the inherently more drastic step of appointing a receiver.  Such a step has the potential to cause prejudice to the second defendant and ICES.  More significantly it is unnecessary to protect the plaintiff’s secured property.  For the reasons already given the secured property cannot realistically be regarded as being in jeopardy.
94. It is not just or convenient to appoint a receiver.

Conclusion

95. In light of the above reasons both applications should be dismissed.
96. My orders will reflect the undertaking given in respect of the second application. They will also accommodate an election by the parties as to whether they wish to be heard as to costs on some designated date or leave costs reserved.

Orders

97. My orders are:
    1. The application filed 8 January 2016 (the summary judgment application) is dismissed.
    2. On the undertaking given by the defendants and Aqualyng Holding Pte Ltd that they will not sell, assign, mortgage, charge, encumber or otherwise deal with the sale shares without the plaintiff’s prior written consent pending the determination of the proceeding, the application filed 28 January 2016 (the application for receiver or injunction) is dismissed.
    3. I will hear the parties as to costs on a date to be fixed by the Registry on request by either party and absent such request costs are reserved.