21 Million Pty Limited v Clarence Street Pty Limited

The material facts 10. The material facts begin with a conversation that took place between Mr. Taylor and Mr. Stanley in or about August 2001. It is Mr. Taylor's evidence that he and Mr. Stanley had discussions concerning "whether or not Stanley and I would purchase and develop" the Property with others and that, in the course of those discussions, he said to Mr. Stanley: "As usual my interest will be held by Headland", to which Mr. Stanley responded: "Fine." The reference to "Headland" was intended to refer to a company, Headland Properties Pty Ltd ("Headland"). 11. On 6 September 2001, Careerpath Australia Pty Limited ("Careerpath"), FBN, Koombari Pty Limited ("Koombari") and Clarence Street entered into a joint venture agreement ("JVA") in relation to the Property. Careerpath is a company associated with Theo Baker, Koombari is a company associated with Chris Voukidis and FBN was a company associated with Mark Stanley until 11 June 2003 and thereafter with Gregory Taylor. Clarence Street was described in the agreement as the Venture Manager. 12. Recital A(c) of the JVA indicates that the Property had already been acquired by Clarence Street as at the date of the JVA. Recital C recited the management activities of Clarence Street as including "management of the subdivision of the property into strata units and the disposal of those units". Clause 1 provided that the recital "C" purposes constituted the objectives of the joint venture. Thus one of the objects of the joint venture was ultimately the disposal of the units into which the Property was to be subdivided. 13. Clause 2 of the JVA provided that the Joint Venturers (defined as Careerpath, Koombari and FBN) were to contribute capital as to $1.2m by Careerpath, $1.2m by FBN and $1.6m by Koombari. Clause 3 provided that upon the making of such capital contributions the Joint Venturers would participate in the Joint Venture in "Participating Interests" of 30% for Careerpath, 30% for FBN and 40% for Koombari. Clause 5 provided that Clarence Street holds the Property on behalf of the Joint Venturers as tenants in common in the proportions of their Participating Interests. Thus, on the assumption that FBN made its designated capital contribution, the JVA provided that it would have a beneficial interest in the Property of 30%. 14. Consistently with the object of disposal of the Property, clause 9(d) provided that the Joint Venturers were to agree unanimously on the terms and conditions of any contract for sale of the Property. Clause 11.1 provided that Clarence Street was to do all things necessary to advance the interests of the Joint Venturers and to achieve the Objectives including the negotiation of contracts to be entered into by Clarence Street. 15. Clauses 21, 23 and 24 dealt with the disposal by a Joint Venturer of its interest in the joint venture to third parties. Clause 21 provided that a joint venturer wishing to dispose of its interest in the Property had to offer it first to the other Joint Venturers. Clause 23 provided that a Joint Venturer could not encumber its interest in the Property without the written consent of the other Joint Venturers. Clause 25 provided that a Joint Venturer could not assign its interest in the Property without the written consent of the other Joint Venturers. 16. There is nothing in the JVA which reflects the conversation between Mr. Stanley and Mr. Taylor referred to above. There is no evidence which indicates that there was any notice given by FBN to any of the other Joint Venturers of a proposed disposition of part of its interest to Headlands Properties or of their written or other consent to such a disposition at or about this time. 17. On 31 May 2002, Clarence Street entered into a Put and Call Option agreement with Tony Lapananitis in respect of Level 8 of the Property. Mr Voukidis gave oral evidence that that document was executed by Stanley on behalf of Clarence Street, after the agreement of the joint venture partners. The purchase price was $2,450,000. The Put and Call Option agreement was one of 4 such agreements entered into at about that time. Pursuant to those agreements, the party with the option paid $300,000 at the time the option was entered into, which sum would be treated as part of the purchase price under the proposed contract of sale. The put and call option agreement procedure was used to obtain funds required by Clarence Street to fulfil an obligation under a financing arrangement with Investec Bank (Australia) Limited, which financing arrangement was required in order to fund the development of the Property. Clarence Street has obtained a current valuation of level 8 of the Property as at 10 July 2003 of $2,490,000. An increase in value of level 8 of the Property of $40,000 (less than 2%) since 31 May 2002 is not remarkable. There is no evidence of any of the joint venturers suggesting that the agreement of 31 May 2002 was in any way untoward at or about the time it was agreed. Further there is nothing in the evidence to suggest that Clarence Street understood at the time that it should obtain the consent of Mr Taylor or any company of which he was a director. In fact, if one takes at face value the conversation between Mr Taylor and Mr Stanley in August 2001, Mr Stanley was to represent the interests of Mr Taylor. 18. On 14 June 2002, Clarence Street entered into two Put and Call Option agreements with Old Bull Enterprises Pty Limited ("Old Bull") - one in respect of Level 9 of the Property for $2,450,000 and the other in respect of Level 10 of the Property also for $2,450,000. Mr Voukidis gave oral evidence that the documents were executed by Stanley on behalf of Clarence Street and after the agreement of the joint venture partners. The cross examination to the effect that the parts of the document exhibited to Mr Taylor's affidavit do not disclose Mr Stanley's signature did not address the fact that the part shown to Mr Voukidis did not include the relevant execution clause for Clarence Street (compare p55 numbered "12"of the exhibit with p49 numbered "11"), nor that the counterpart signed by Clarence Street was sent to the purchaser. Again, each of the agreements provided for the immediate payment of $300,000 to Clarence Street. Clarence Street has obtained a current valuation of level 9 of the Property as at 10 July 2003 of $2,580,000 and level 10 of the property of $2,580,000. An increase in value of each level of the Property of $130,000 (about 5%) since 14 June 2002 is not remarkable. Further, the evidence was that the subdivision had been completed between the date of the agreements and the current valuation. There is no evidence of any of the joint venture partners suggesting that the agreements of 14 June 2002 were in any way untoward at or about the time they were agreed. Again, there is nothing in the evidence to suggest that Clarence Street understood at the time that it should obtain the consent of Mr Taylor or any company of which he was a director. The attempt in cross examination to prove a relationship between Old Bull and a Clarence Street joint venture partner did not succeed, but in any event it is not a matter of significance having regard to the consent of each the joint venturers to the transaction. Those Put and Call agreements provided that Clarence could sell Levels 9 and 10 to a third party, but to the extent that the purchase price exceeded the amounts in the Put and Call agreements, Clarence Street had to account for the difference (less expenses) to Old Bull. 19. At or about the same time (in May/June 2002), Clarence Street entered into a Put and Call Option agreement with Perikles Giannopoulos in respect of Level 5 of the Property. Mr Voukidis gave oral evidence that that document was executed by Stanley on behalf of Clarence Street and after the agreement of the joint venture partners. The purchase price was $2,450,000. Again the agreement provided for the payment to Clarence Street of $300,000. Clarence Street has obtained a current valuation of level 5 of the Property as at 10 July 2003 of $2,410,000. There is no evidence of any of the joint venture partners suggesting that the agreement of May/June 2002 was in any way untoward at or about the time it was agreed. Further there is nothing in the evidence to suggest that Clarence Street understood at the time that it should obtain the consent of Mr Taylor or any company of which he was a director. 20. On 16 July 2002, Clarence Street entered into a contract for the sale of Level 6 of the Property to Phelan for the sum of $2,650,000. Mr Voukidis' evidence is that the contract was signed by Stanley on behalf of Clarence Street and it was entered into with the consent of the Joint Venturers. Clarence Street has obtained a current valuation of level 6 of the Property as at 10 July 2003 of $2,410,000. There is no suggestion that Phelan has any sort of relationship with any of the Joint Venturers. There is no evidence of any of the joint venture partners suggesting that the agreement of 16 July 2002 was in any way untoward at or about the time it was agreed. Again, there is nothing in the evidence to suggest that Clarence Street understood at the time that it should obtain the consent of Mr Taylor or any company of which he was a director. 21. On 31 July 2002, Mr. Stanley sent a letter to "Mr. G.J. Taylor, Headland Properties Pty Ltd", saying (inter alia): "It is acknowledged that FBN Investments Pty Ltd holds its interest in these joint ventures on behalf of itself and Headland Properties Pty Ltd in equal shares" (emphasis added). The letter is written on the letterhead of Ambridge Investments Pty Ltd. Although that letter is said to be the "Declaration of trust" referred to in the 21 Million Caveat, it makes no reference whatever to 21 Million and it is plainly not an instrument "between" FBN and 21 Million. Indeed, 21 Million was not incorporated until 30 January 2003, some 6 months after this letter was sent. 22. Clearly, as at 31 July 2002, 21 Million did not have an equitable interest in the Property and any interest that it now has must have arisen otherwise than under a declaration of trust dated 31 July 2002. 23. This now appears to be conceded by 21 Million, which has relied instead on 2 events that occurred after 31 July 2002. The first is a conversation between Mr. Taylor and Mr. Stanley which took place in January 2003. Mr. Taylor's evidence is that he told Mr. Stanley: "I am nominating 21 Million to hold Headland's interest", to which Mr. Stanley responded: "Okay". That conversation appears to predate the existence of 21 Million, which was incorporated on 30 January 2003. 24. The second event relied on by 21 Million is a document entitled "Heads of Agreement", which was created on 31 January 2003. 21 Million relies on the fact that a version of this document was signed by Mr. Stanley on behalf of FBN and includes the words: "It is agreed that FBN Investments Pty Ltd will give effect to the vesting to Headland Properties Pty Ltd's nominee: 21 Million Pty Ltd of the 50% of its interest in the Clarence Street Joint Venture being 15% of the Venture, and held on its behalf by FBN Investments Pty Ltd, and that Clarence Street Pty Ltd and St Leonards Property Pty Ltd agree to record the said vesting." 25. There are 3 versions of the "Heads of Agreement" document in evidence. Each of them was on its face intended to be signed by 4 parties (FBN, 21 Million, Clarence Street and St. Leonards Property Pty Ltd). The first version was only signed by Mr. Stanley on behalf of FBN. The second version bears Mr. Stanley's signature but (as will be explained) contains subsequent handwritten alterations made by someone other than Mr. Stanley. The third version contains additional handwritten amendments and bears the signatures of Mr. Stanley and of Mr. Taylor on behalf of 21 Million. None of the documents are signed by Clarence Street or St Leonards Property Pty Ltd ("St Leonards"). More significantly, none of them are signed on behalf of Headland Properties. 26. Mr. Taylor's evidence is that he prepared the first version of the Heads of Agreement document, had it signed by Mr. Stanley on behalf of FBN and forwarded it to Mr. Voukidis (a director of Clarence Street). It is important to observe that, aside from the reference to 21 Million as Headland Properties' nominee, that document contains matters of some significance to both Clarence Street and St Leonards, being matters on which their agreement was required. 27. Relevantly, it says that Clarence Street "agree[s] to record such vesting". Under clause 24 of the Joint Venture Agreement, FBN was precluded from assigning its interest in the Property without the "written consent of the other Joint Venturers (which consent shall be at the absolute discretion of that Joint Venturer)." Clarence Street, as the Joint Venture Manager, was being asked to record a dealing that would have amounted to a breach of the Joint Venture Agreement unless the consent of the other Joint Venturers was first obtained. 28. Next, the first version of the "Heads of Agreement" document went on to provide that: "21 Million agrees to… concurrently assume $600,000 of FBN Investments Pty Ltd debt severally not jointly to St Leonards Property Pty Ltd which sum is to be repaid on or before payment by FBN Investments Pty Ltd of the balance due to St Leonards Property Pty Ltd and secured by fixed and floating charges for their respective debts over FBN Investments Pty Ltd and 21 Million Pty Ltd, which charges are to be released upon payment of their respective debts." 29. There is in evidence a Loan Facility Agreement between St Leonards (as the Lender), FBN (as the Borrower) and Mr Stanley (as the Guarantor). The Facility Limit under that agreement was $1,330,000. It is that agreement that gave rise to the Charge, pursuant to which the Receiver was ultimately appointed. More will be said about these transactions presently. 30. In the meantime, it is important to observe that both the Loan Facility Agreement and the Charge are dated 31 January 2003; that is, they were entered into on the very day that Mr. Taylor prepared the first version of the Heads of Agreement. It would appear from the terms of the Heads of Agreement set out in the previous paragraph that Mr. Taylor had in mind that the Loan Facility Agreement and the Charge which had been entered into would be replaced by new agreements and new charges, whereby $600,000 of FBN's total debt would be assumed by 21 Million and a charge would be granted to St Leonards over that company. In this regard, it is noted that the Heads of Agreement document concludes with the words: "The parties below agree that the abovementioned is to be documented by St Leonards Property Pty Ltd and executed by all parties by February 14, 2003." 31. It follows that both Clarence Street and St Leonards were necessary parties to the Heads of Agreement document and that their assent to its terms was vital if the document was to have any binding effect. 32. According to Mr. Taylor's evidence, the first version of the Heads of Agreement was sent to Mr. Voukidis (a director of Clarence Street) on 31 January 2003. Mr. Taylor nowhere says that Clarence Street or St Leonards agreed to its terms. Rather, his evidence is that he received a letter from Clarence Street's solicitors on the same day, which "enclosed the Heads of Agreement with amendments handwritten on the document". Mr. Taylor goes on to say: "I did not agree to the amendments as proposed… and the agreement was not executed." 33. On 21 Million's own evidence, therefore, the Heads of Agreement document on which it rests a substantial part of its case never constituted a binding contract. It was a proposal that went nowhere. 34. The subsequent versions of the Heads of Agreement document are dealt with by Mr. Voukidis. He confirms that the first version was sent to him by Mr. Taylor on 31 January 2003. After reading it, he rang Mr. Taylor and said (inter alia): "I can't sign this Heads of Agreement. As far as we are concerned, FBN is the beneficial owner of the interest in Clarence Street and the transfer of any interest beneficially owned by FBN would require the consent of all joint venture participants." That statement was entirely correct, having regard to clause 24 of the Joint Venture Agreement. 35. Mr. Voukidis then instructed Clarence Street's solicitor to forward an amended version (the second version) of the Heads of Agreement document to Mr. Taylor. The amendments made on that document are significant. In particular, what is in this version described as the "transfer" to 21 Million is expressly made "subject to" various conditions, including: (i) prior consent of the other Joint Venturers; and (ii) "execution of a loan agreement and registrable charge by 21 Million Pty Ltd and G.J. Taylor in substantially the same form as those executed by FBN Investments Pty Ltd (but for a principle sum of $600,000)". 36. After that version was sent, Mr. Taylor phoned Mr. Voukidis and said there were some matters that he would not agree to. Mr. Voukidis told him to make changes to the document but said that Clarence Street could not agree to the terms unless the other Joint Venturers consented. 37. Mr. Voukidis thereafter received the 3rd version of the Heads of Agreement. That version had been signed by Mr. Taylor, but 2 of the 5 conditions which had been inserted in the 2nd version were crossed out. 38. On or about 3 February 2003, Mr. Voukidis asked Mr. Baker (of Careerpath Pty Ltd - one of the Joint Venturers) whether he would agree to Heads of Agreement. Mr. Baker responded in no uncertain terms that he would not agree. Accordingly and quite properly, Clarence Street has not executed or communicated an acceptance of the Heads of Agreement. 39. On 4 February 2003, Clarence Street entered into a contract for the sale of Level 5 of the Property to Phelan for the sum of $2,650,000. Mr Voukidis' evidence is that the contract was signed by Stanley on behalf of Clarence Street and it was entered into with the consent of the Joint Venturers. Clarence Street has obtained a current valuation of level 5 of the Property as at 10 July 2003 of $2,410,000. Again there is no suggestion that Phelan has any sort of relationship with any of the Joint Venturers. There is no evidence of any of the joint venture partners suggesting that the agreement of 4 February 2003 was in any way untoward at or about the time it was agreed. Again, there is nothing in the evidence to suggest that Clarence Street understood at the time that it should obtain the consent of Mr Taylor or any company of which he was a director. As indicated above, the proposal contained in the Heads of Agreement was not consummated. Because Level 5 was the subject of the Put and Call Option in favour of Giannopoulos in the sum of $2,450,000, the difference between that sum and the sale price of $2,650,000 (less expenses) is to the account of Giannopoulos. In other words, there was no benefit to Clarence Street in achieving a sale price greater than $2,450,000. 40. Under the Loan Facility Agreement between St Leonards, FBN and Mr. Stanley, repayment of the $1,330,000 loan was due on 28 February 2003. 41. On 5 May 2003, FBN received a letter notifying it that the repayment date had passed and that no payment of principal or interest had been received. 42. On 31 May 2003, Clarence Street entered into a sale agreement with Koombari (Voukidis' company) for $1,550,000 in respect of Level 11 of the Property and for $2,580,000 in respect of the Ground Floor of the Property. Mr Voukidis' evidence was that each of those agreements was entered into with the consent of the other joint venturers on the basis that valuations were obtained to support the sale prices. Clarence Street has obtained a current valuation of level 11 of the Property as at 11 July 2003 of $1,550,000 and of the Ground Floor of the Property of $790,000, $740,000, $540,000 and $510,000 totalling $2,850,000. 43. On 2 June 2003, the Receiver was appointed to FBN by St Leonards pursuant to the Charge. 44. On 11 June 2003, Mr. Stanley ceased to be a director of FBN and Mr. Taylor became the sole director of that company. Also on that day, Mr. Stanley signed a statutory declaration in which he said, inter alia, that he had "represented to Mr. Taylor" that the liabilities of FBN included a "loan from St Leonards Property Pty Ltd for $1,330,000, plus interest". 45. On 22 August 2003, Clarence Street entered into a sale agreement with Roy for the sale of part of Level 10 for the sum of $1,495,000 and on 19 September 2003 a sale agreement with Creata Investments Pty Limited for the sale of the other part of Level 10 for $1,495,000, in each case with the consent of the Receiver for FBN and the other joint venturers. Neither of those purchasers is related to any of the joint venturers. Those parts of the property were the subject of one of the Old Bull Put and Call Agreements, hence the difference between the total of those two figures and $2,450,000 (less expenses) was for the account of Old Bull. 46. On 3 September 2003, Mr. Taylor purported to lodge a caveat in respect of the Property on behalf of FBN. That caveat was withdrawn by the Receiver on 23 September 2003. 47. On 23 September 2003, Clarence Street entered into a Put and Call Agreement with One to Four Holdings Pty Limited (a Baker company) for $7,960,000 in respect of Levels 1 to 4 of the Property. Mr Voukidis' evidence is that that occurred with the approval of the Receiver and the other joint venturer's subject to valuation. Mr Taylor also participated in the discussions and approved the sale subject to valuations which Mr Voukidis agreed to provide to the Receiver and leave it up to the Receiver as to whether they should be provided to Mr Taylor. Clarence Street has obtained two valuations of Levels 1 to 4, one dated 29 August 2003 for $7,575,000 and one dated 3 June 2003 for $7,960,000. 48. On 14 October 2003, Clarence Street entered into a contract for sale of Unit 3 of the Property with Kolovos for $705,000 with the consent of the Receiver and the other joint venturers. Kolovos is unrelated to any joint venturer. 49. On 14 October 2003, Clarence Street entered into a contract for sale of Unit 2 of the Property with Laskas for $713,000 with the consent of the Receiver and the other joint venturers. Laskas is unrelated to any joint venturer. 50. On 15 October 2003, Mr. Taylor purported to lodge the FBN caveat. On the same day, Mr. Taylor caused the 21 Million Caveat to be lodged. 51. A Lapsing Notice in respect of the 21 Million Caveat was served on 6 November 2003. 52. On 18 November 2003, proceedings were commenced in the Federal Court (in the name of FBN on the instructions of Mr. Taylor) challenging the validity of the Receiver's appointment and the Court made ex parte orders on that day. St Leonards is a party to the Federal Court proceedings, as is the Receiver. The gravamen of the challenge to the Receiver's appointment appears to be that there was no loan to FBN and that the Loan Facility Agreement and the Charge referred to above were a "sham". It goes without saying that this is a serious allegation and one would ordinarily expect the party making that allegation to have in its possession and to put before the Court persuasive and fairly detailed evidence of the particular facts on which they rely. 53. The existence of the Loan Facility Agreement and the Charge themselves cannot be disputed. It has already been noted that the Heads of Agreement (which was prepared by Mr. Taylor on the same day that the loan agreement and the charge were entered into) refers to the fact that FBN was indebted to St Leonards Property. Moreover, Mr Voukidis' oral evidence was that, after the signing of the loan agreement, St Leonards by cheque signed by him or by Mr Anastasopoulos paid to Careerpath (Mr Baker's company) $1,330,000, at the direction of Mr Stanley (who was then a director of FBN). That evidence accords with the Statutory Declaration of Mr Stanley dated 11 June 2002, in which he stated that FBN was indebted to St Leonards in the sum of $1,330,000. Mr Voukidis indicated that Careerpath had provided the funds in excess of $900,000 to Clarence Street by way of a loan to FBN in partial fulfilment of FBN's obligation to contribute to the Joint Venture. Although Mr Voukidis was not able to explain the difference between that amount and the figure of $1,330,000, it does not alter the fact that on any view a sum in excess of $900,000 was owed by FBN to Careerpath at the time the loan agreement was entered into. 54. There is no reason why the Court should not accept Mr. Voukidis' evidence on this point. Moreover, such evidence as Mr. Taylor purports to give on the question rises no higher than a statement that he cannot now find any documents which (to his mind) evidence the receipt of the loan funds by FBN. Given Mr. Voukidis' evidence, the non-existence of such a record is entirely understandable. 55. These proceedings were commenced by 21 Million and (purportedly) by FBN on 21 November 2003. At the commencement of the hearing before this Court, Mr. Wilson sought leave to withdraw the joinder of FBN as a Plaintiff on the basis that, although FBN may be a proper party, it should not be a Plaintiff. The Court granted such leave on the basis that the question of costs in relation to FBN's joinder as a Plaintiff be reserved. 56. Besides an order seeking an extension of the 21 Million Caveat pending the determination of these proceedings, the only relief sought by 21 Million is a declaration that Clarence Street holds the whole of the Property on trust for 21 Million "as to a 15% interest as tenant in common. A declaration in those terms is not reconcilable with the interest claimed in the 21 Million Caveat (which refers to a declaration of trust between FBN and 21 Million), nor is it consistent with 21 Million's present contention (which is that FBN held 50% of its interest on trust for Headland Properties, until January 2003, when FBN was directed to hold that interest on behalf of 21 Million). There is no evidence, nor has a submission been made, to the effect that Clarence Street itself declared a trust in favour of 21 Million or that Clarence Street somehow conferred an equitable interest upon 21 Million. 57. On 24 November 2003, Clarence Street lodged an Application for Preparation of a Lapsing Notice in relation to the FBN Caveat and Clarence Street's Cross-Claim was filed on 27 November 2003. All parties have agreed that the Cross-Claim should be dealt with at this time. 58. On 27 November 2003, St Leonards filed a motion in the Federal Court proceedings, seeking an order that those proceedings be transferred to this Court pursuant to s.5(4) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). That motion was returnable in Melbourne on 2 December 2003, which was the day before the hearing commenced in this Court. However, on 28 November 2003, the parties to the Federal Court proceedings agreed to an interim regime pending the outcome of the hearing before this Court. 59. On 2 December 2003, Clarence Street was served with a Notice issued by Investec Bank (Australia) Limited ("Investec") pursuant to s.57(2)(b) of the Act. Investec is one of 2 parties who currently holds a registered mortgage over the Property, the other being Permanent Trustees Australia Limited ("Permanent"). The Notice issued by Investec on 2 December states that, unless the sum of $13,201,453.19 is paid to Investec within 1 month, Investec "proposes to exercise its power of sale in respect of" the Property.

Facts pertaining to the balance of convenience 60. Before leaving the facts and turning to the various propositions of law relied upon by Clarence Street, it is useful to set out some of the more pertinent factual matters relevant to the balance of convenience in these proceedings. They are as follows: (i) As has already been noted, the Property is the subject of 2 registered mortgages. The unchallenged evidence is that the loans secured by those mortgages are for a total amount of $23,438,000, plus interest. Further, Investec has given notice of its intention to exercise its power of sale in respect of the Property in 1 month's time, unless the sum of $13,201,453.19 is paid to it before then. Mr. Voukidis' oral evidence was that Clarence Street will not be able to repay that amount unless it is able to complete a sufficient number of contracts for sale this month. It is not in any party's interests that these debts remain unsatisfied for any longer than is necessary or that the Property be the subject of mortgagee sales. (ii) Clarence Street has already exchanged contracts for sale or Put and Call Options for sale in respect of 84 out of the 95 Lots that comprise the Property. The total proceeds of sale to be received by Clarence Street under those contracts and options is $25,958,000, being an amount sufficient to discharge Clarence Street's obligations to both Permanent and Investec, thereby avoiding further interest charges and the very real prospect of Investec exercising its power of sale. (iii) As detailed above, each of those sales is supported by an independent valuation and was entered into with the consent of the joint venturers (including, after 2 June 2003, the Receiver). (iv) It can be seen from clause 35 of each of the contracts for sale and from the notices of registration of strata plan that were sent to each of the purchasers under those contracts that the completion date under the contracts for sale has already passed, such that notices to complete could be issued and (absent compliance) the contracts could be rescinded by the purchasers. (v) Leaving aside the interests of Clarence Street, the interests of the purchasers and the option holders need to be considered. (vi) There is no persuasive evidence that 21 Million or FBN will suffer prejudice if the existing contracts and options proceed to completion, nor is there any evidence which establishes that damages would not be an adequate remedy. It is a matter of some significance that the Receiver's employee has reviewed valuations, has met with and questioned Mr. Voukidis regarding the proposed sales on two occasions and has "formed the view that the sales and agreements [are] bona fide and at or above market value." The point sought to be made in cross-examination of Mr. Voukidis - to the effect that valuations "for stamp duty purposes" are invariably lower than "market valuations" is disproved by comparing the two valuations obtained by Clarence Street in respect of Levels 1-4 of the Property. The first values Levels 1-4 at $7,960,000 "for stamp duty assessment purposes", while the second (which is a later valuation) concludes that the "market value" of Levels 1-4 is $7,575,000. (vii) Even if 21 Million has (as it claims) a 15% equitable interest in the Property, the actual value of that interest is small relative to the total value of the Property and of the sales presently in the pipeline. In that regard: (a) The total sale proceeds from the contracts or options exchanged to date will be $25,958,000; (b) The remaining Lots (being Unit 1 and Level 7) have been independently valued at $705,000 and $2,490,000 respectively; (c) Therefore, the total value of the Property is approximately $29,153,000; (d) Of that amount, some $13,201,453.19 is presently payable to Investec, while some $10,690,000 plus interest is payable to Permanent, leaving net proceeds of less than $5,261,574; (e) 15% of $5,261,574 is only $789,232. Even if one were to double that figure, it remains a relatively small sum in the circumstances and significantly less than the value of one of the unsold portions of the Property (Level 7). (viii) There is real doubt as to the worth of any undertaking as to damages given by 21 Million or FBN. The former does not have a registered interest in any property in NSW and there is no evidence that it carries on a business or has other assets. As for FBN, it is in receivership and the Receiver's employee has given evidence that FBN's interest in the Property is its "only significant asset".

Submissions as to the 21 Million Caveat 61. For the reasons developed below, Clarence Street submits that: (i) The Court should decline to make an order extending the operation of the 21 Million Caveat, as 21 Million does not have an arguable case that the interest claimed in the 21 Million Caveat will be established at a final hearing; (ii) Even if the Court considers that 21 Million has an arguable case sufficient to sustain the 21 Million caveat, the Court should not - as a matter of discretion - extend the operation of that caveat; (iii) If any caveat at all is to be maintained by 21 Million, its alleged interest will be sufficiently protected by an order granting 21 Million leave pursuant to s.74O of the Act to lodge a fresh caveat in respect of Lots 44 - 49 (Level 7) only.

The interest claimed in the 21 Million Caveat will not be established at a final hearing 62. It is respectfully submitted that the application for an extension of the 21 Million Caveat must fail because it is said to arise out of a declaration of trust made on 31 July 2002 between FBN and 21 Million. 21 Million was not incorporated until 30 January 2003 and there is no document which satisfies the description of the alleged declaration of trust referred to in the caveat 63. The Court's power to extend the operation of a caveat derives from s.74K(2) of the Act, which relevantly provides that the Court: "…may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned… but, if that Court is not so satisfied, it shall dismiss the application" (emphasis added). 64. In Penny Nominees Pty Ltd v Fountain (NSWSC, 2 May 1989, unreported) Young J (as he then was) recited the terms of s.74K(2) and held that: " 'The caveator's claim' in that section must mean the claim made by the caveator in his or her caveat . The court has to determine whether that claim has substance or may have substance. By the second alternative, it seems to me that the court considers whether the evidence satisfies it that at the final hearing of the relevant proceedings the caveator may succeed in convincing the court that the claim made in the caveat is established" (at p.2, emphasis added). 65. The claim made by 21 Million in the 21 Million Caveat is that it has an "Equitable interest as joint beneficial owner of the estate in fee simple pursuant to a declaration of trust." Under the heading "By virtue of the instrument referred to below", 21 Million has nominated a "Declaration of trust", said to be dated 31 July 2002, between FBN and 21 Million. 66. There is in fact no "Declaration of trust" between FBN and 21 Million, dated 31 July 2002. Indeed, 21 Million was not incorporated until 30 January 2003, some 6 months after the alleged "Declaration of trust" was made. 67. The affidavit of Mr. Taylor (upon whose evidence 21 Million relies) nowhere refers to a "Declaration of trust" between FBN and 21 Million, dated 31 July 2002. What does emerge from a review of Mr. Taylor's affidavit and other relevant evidence is that: (i) In August 2001, during discussions regarding the possible purchase of the Property, Mr. Taylor said to a Mr. Stanley "As usual my interest will be held by Headland… we should share 50-50". Mr Stanley was then a director of FBN and Ambridge Investments Pty Limited ("Ambridge"). The version of the conversation does not indicate on whose behalf he was purporting to speak. Later documents are consistent with Ambridge being regarded as the relevant party. That conversation predated the acquisition by FBN of any interest in the Property. It is not in terms an assignment of an interest in future property or a declaration of trust of future property. No consideration is identifiable and there is no writing for the purposes of section 23C. The conversation can have no operative effect. (ii) On 6 September 2001, FBN entered into the JVA. As at 6 September 2001, Clarence Street had already acquired the Property. Pursuant to clauses 3 and 4, FBN was to acquire a 30% beneficial interest in the Property upon the making of a capital contribution of $1,200,000. No interest in the Property was granted by the JVA to Headland Properties or to 21 Million. Furthermore, clauses 21, 23 and 24 of the JVA preclude any joint venturer from disposing of, assigning or encumbering its interest in favour of any third party without the written consent of the other joint venturers. (iii) The terms of the JVA make it plain that no joint venturer (including FBN) had an entitlement to prevent sales of parts of the Property in circumstances where each joint venturer had consented to the transaction. (iv) On 31 July 2002, Mr. Stanley sent a letter to "Mr. G.J. Taylor, Headland Properties Pty Ltd", saying (inter alia): "It is acknowledged that FBN Investments Pty Ltd holds its interest in these joint ventures on behalf of itself and Headland Properties Pty Ltd in equal shares" (emphasis added). The letter is written on Ambridge letterhead. In terms it is not a statement by FBN. It is not a declaration of trust document which satisfies section 23C(1)(b) because it is not written by a person able to declare such a trust. Ambridge was not able to declare such a trust. FBN was not able to declare such a trust because such a declaration was prohibited by the terms of clauses 21, 23 and 24 of the JVA. Finally, the document is of no evidentiary value in the absence of stamping (Section 29 of the Stamp Duties Act, NSW). (v) Moreover, the claimed interest of 21 Million in the Property cannot have arisen under that document, as it makes no reference to 21 Million and 21 Million did not then exist. The interest (if any) of 21 Million must therefore arise from a subsequent arrangement (see below) that is not mentioned in the 21 Million Caveat and does not form part of "the caveator's claim" for the purposes of s.74K(2) of the Act. (vi) In January 2003, Mr. Taylor says that he told Stanley that he was nominating 21 Million to hold Headland Properties' interest". That conversation appears to predate the existence of 21 Million. Further, it is not in terms an assignment or a declaration of trust or a direction to a trustee. In any event, it is not in writing and is therefore of no effect. (vii) On 31 January 2003, Taylor forwarded a draft heads of agreement to Voukidis executed on behalf of FBN by Stanley which had to be executed by other parties to take effect. It was not so executed and hence had no effect. The terms of the draft Heads of Agreement refer to "the vesting to Headland Properties Pty Ltd's nominee: 21 Million" and of "21 Million agree[ing] to hold the 15% interest in the Joint Venture on Headland Properties Pty Ltd's behalf". Various terms are also included. The document effectively acknowledges that any disposition of any part of the interest of FBN required the written consent of the other joint venturers. There is also some confusion in its terms as to whether it was envisaged that Headland Properties would assign its equitable interest to 21 Million directly, or whether Headland Properties was to direct FBN to thereafter hold that interest on trust for 21 Million. (viii) The nature of 21 Million's alleged interest is described in different ways in other evidence. In a letter from 21 Million's solicitors dated 2 October 2003, it was asserted that Headland Properties had "assigned" its interest in the Property to 21 Million. (ix) Whatever be the situation, however, no attempted disposition of Headland Property's equitable interest in favour of 21 Million will be effective unless there is "writing signed by the person creating or conveying" the interest (ie, writing signed by Headland Properties): s.23C of the Conveyancing Act 1919 (NSW). This is so, whether the interest is said to have been assigned to 21 Million, or whether it is said that Headland Properties directed FBN to hold its interest on trust for 21 Million. (x) There is no evidence of writing, signed by or on behalf of Headland Properties, recording a disposition of Headland Properties' equitable interest in favour of 21 Million. In that regard, none of the drafts of the Heads of Agreement that are in evidence purport to be signed by Headland Properties. Indeed, Headland Properties was never named as a party to that document. Yet, Mr. Stanley's letter of 21 July 2002 had specifically stated that FBN held its interest "on behalf of itself and Headland Properties Pty Ltd in equal shares" (emphasis added). It was not competent for FBN and 21 Million to agree, in the absence of writing from Headland Properties, that Headland's interest would thereafter be held by 21 Million. By reason of s.23C of the Conveyancing Act, that absence of writing is fatal to any claim by 21 Million that it has an equitable interest in the Property. (xi) To the extent that the Heads of Agreement document is relied upon as evidence of a separate declaration of trust by FBN in favour of 21 Million, such reliance presupposes that there is no existing trust of the same interest in favour of Headland Properties and is inconsistent with the claim made in the 21 Million Caveat (where express reliance is placed on the letter of 21 July 2002 and its "declaration of trust", which favoured Headland Properties). It is also inconsistent with the terms of the Heads of Agreement itself, which assume that Headland Properties does have an interest and purports to deal with that interest. (xii) In any event, the Heads of Agreement were never agreed between the parties and were not (as a matter of construction) intended to be legally binding unless and until they were signed by or on behalf of all parties named therein. That never occurred. Finally, that document is not stamped. (xiii) The statutory declaration of Stanley of 11 June 2003 was made at a time after Taylor had become the sole director of FBN. Hence it is not a document which could fall within section 23C(1)(b). It is not an assignment or other disposition. It is not authorised by the joint venture agreement. It is not stamped. 68. It follows that there is no basis for a conclusion that, at the final hearing of the proceedings, 21 Million may succeed in convincing the Court that the claim made in the caveat (ie, that it has an equitable interest in the Property arising from a "Declaration of trust" dated 31 July 2002, between itself and FBN) is established. That being so, the Court should, in accordance with s.74K of the Act, dismiss the application for an extension of the 21 Million Caveat. 69. There is also no serious question to be tried to the effect that 21 Million has some other equitable interest in the Property. Absent writing signed by Headland Properties, 21 Million's claim to such an interest must fail. 70. It is again noted that the claim made in the 21 Million Caveat (which asserts that FBN holds the Property on trust for 21 Million) is not consistent with the substantive claim made by 21 Million in these proceedings (where a declaration is sought that Clarence Street holds a portion of the Property on trust for 21 Million). Having regard to the claim made in the 21 Million Caveat and the evidence of Mr. Taylor, FBN ought to have been made a Defendant in these Proceedings. However, insofar as 21 Million presses the claim for a declaration as pleaded in the Summons, that claim is likewise bound to fail, given that there is no document signed by Clarence Street that creates or disposes of such an interest in favour of 21 Million.

The Court should not - as a matter of discretion - extend the operation of the 21 Million Caveat 71. Even if the Court considers that 21 Million's claim to an interest in the Property has sufficient merit to sustain the 21 Million Caveat, it is respectfully submitted that the Court should not - as a matter of discretion under s.74K(2) - extend the operation of the 21 Million Caveat. 72. The Court should approach the question whether to extend the caveat on much the same basis as it would approach an application for an interlocutory injunction; taking into account the nature and strength of 21 Million's case, as well as the balance of convenience. 73. For reasons already given, including the absence of any instrument in writing, 21 Million's claim to an interest in the Property is unlikely to succeed. 74. As to the balance of convenience, the factors referred to above tilt the scales in favour of refusing to extend the 21 Million Caveat. 75. It is also worth observing, in this context, that 21 Million's case at the hearing - to the effect that the contracts and options exchanged to date were entered into in breach of a fiduciary duty on the part of Clarence Street - not only fails at the level of establishing that there is a serious question to be tried on that issue (in particular because the joint venturers consented), but it is a case that has not been pleaded. The only other relief sought in the Summons is a declaration that the Property is held to a certain extent on trust for 21 Million. There is no claim for damages or an account of profits or for any other relief in relation to the existing contracts or options.

Leave pursuant to s.74O of the Real Property Act 76. An alternate approach, if the Court concludes that 21 Million's claim to an equitable interest in the Property may have substance, is for the Court to refuse to extend the 21 Million Caveat but to nonetheless exercise its discretion to grant 21 Million leave, pursuant to s.74O of the Act, to file a further caveat over a limited portion of the Property. 77. As noted earlier, 21 Million's interest in the Property amounts to (at best) a 15% equitable interest as tenant in common. Even if upheld, that interest is subject to the rights of the existing mortgagees. It follows that the value of 21 Million's alleged interest is small relative to the total value of the Property. 78. A fresh caveat lodged in respect of Level 7 (independently valued at $2,490,000) would be more than sufficient to safeguard whatever interest 21 Million may have in the Property pending a final hearing.

The FBN Caveat should be withdrawn 79. The FBN Caveat was lodged by a director of FBN without the authority of the company. At the time of lodgement, there was a subsisting appointment of a receiver to FBN who was the only person with authority to lodge the caveat. This proposition is further developed below. 80. Further, FBN's interest in the subject property was created under and is subject to the terms of the joint venture agreement dated 6 September 2001. That agreement contemplates and permits the sale of the whole or part of the property by the joint venture manager with the consent of the joint venturers. The FBN caveat is framed too broadly insofar as it purports to prohibit all sales, including sales which are authorised by the joint venture agreement. All of the sales which are sought to be completed were agreed at a time when Mr Taylor was not a director of FBN or during the subsistence of the Receiver's appointment. FBN bears the onus of proving that the existing contracts and options were entered into without the consent of the joint venturers. It has not discharged that onus. 81. In any event, whatever conclusion the Court comes to about the authority of Mr. Taylor to lodge the FBN Caveat and the extent of FBN's interest in the property, the principle to be applied in cases where a registered proprietor seeks an order for a withdrawal of caveat is that: "…the caveat should be removed except to the extent that the court is satisfied that the [caveator] would be entitled to an interlocutory injunction restraining the plaintiff from dealing with the property until the final determination of the [caveator's] claim. That, in turn, invokes the principle that where a claimant's entitlement to ultimate relief is uncertain, the court in deciding to grant or refuse an interlocutory injunction must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the respondent of the grant of an injunction in support of relief to which the claimant may ultimately be held not to be entitled, and the consequences to the claimant of the refusal of an injunction in support of relief to which she may ultimately be held to be entitled." 82. In light of the "balance of convenience" factors referred to earlier and the limited nature of FBN's interest in the property, it is respectfully submitted that FBN would not be entitled to an interlocutory injunction restraining Clarence Street from dealing with the property until the final determination of these proceedings. 83. Any undertaking as to damages by FBN would not be of any value. Damages is an adequate remedy. 84. At worst, if there is any basis for a caveat to be maintained on behalf of FBN, it should be a caveat limited to Level 7. 85. Accordingly, the Court should order, pursuant to s.74MA of the Act, that FBN withdraw the FBN Caveat. It is understood that the Receiver of FBN (being the only person who currently has authority to lodge or withdraw a caveat on behalf of FBN) consents to such an order being made.

The "authority" of Mr. Taylor 86. The powers vested in a receiver are, within their scope, exclusive and supersede those of the directors. In the present case, the powers vested in the Receiver under the relevant Charge are extensive and include powers to sell any of the charged property; to perform, enforce or refrain from enforcing rights of the company in relation to its property; and to commence or discontinue proceedings. There was no residual power in Mr. Taylor, as a director of FBN, to lodge a caveat on FBN's behalf following the appointment of the Receiver. It would be extraordinary if it were otherwise, given that the lodgement of such a caveat has interfered with a matter plainly within the Receiver's powers and responsibilities; namely, the realisation of FBN's interest in the Property with a view to satisfying the debts owed to the secured creditor. 87. This is not a case where the Receiver is refusing to pursue a cause of action against the Chargee (St Leonards), nor can it be said that the actions of the director are not prejudicing the legitimate interests of the Receiver and the secured creditor. On the contrary, the Receiver has determined that the only significant asset of FBN is its interest in the Property and that the only way in which the secured creditor is likely to be repaid is if the Property is sold. 88. If the appointment of the Receiver is in due course found to be invalid, FBN will have a remedy against the Receiver in damages to the extent that any loss has been caused to FBN by the Receiver." Dealing with the issues Serious Case 31 I am particularly assisted in terms of the ultimate proper exercise of the court's discretion by the fact that on the evidence the Receiver's employee has reviewed valuations, has met with and questioned Mr. Voukidis regarding the proposed sales on two occasions and has "formed the view that the sales and agreements [are] bona fide and at or above market value." 32 Travelling with more precision through the Clarence Street submissions under the heading "the material facts" it seems to me that almost all of these submissions should simply be adopted as a correct reflection of the evidence presently before the court and of appropriate inferences to be drawn from that evidence but with the following qualifications: · It is not possible, because the position is presently somewhat unclear, for it to be said that the conversation between Mr Taylor and Mr Stanley referred to in the affidavit of Mr Taylor of 20 November 2003 (at [15] pre-dated the existence of 21 million which was incorporated on 30 January 2003. A conversation which took place in January 2003 could have taken place on that precise date. · Clarence Street's submissions deal extremely briefly with the issue which was the subject of cross-examination of Mr Voukidis concerning the precise relationship between Old Bull Enterprises Pty Ltd ["Old Bull"] and a Clarence Street joint venture partner. That this issue is one of great sensitivity is clear. Old Bull was the beneficiary of particularly significant rights under the Put and Call Option agreements which, in the event that Clarence Street sold the subject properties to a third party in an amount which exceeded the amounts in the Put and Call agreements, obliged Clarence Street to account to Old Bull for the difference less expenses. To my mind this is an area where the matter requires to be litigated. But the strength of 21 million's case is not shown to be sufficient to justify the maintenance of the subject caveat in respect of the properties which, originally having been the subject of the Put and Call Option agreements, were later sold to third parties. If and to the extent that the claims to breaches of fiduciary obligation or other legal wrongdoing are litigated on a final basis [possibly with additional causes of action prayed in aid], there is no reason why damages may not be a sufficient remedy, it further being the case that the orders which are to be made may permit 21 million leave to lodge a reformulated fresh caveat in respect of lots 44 - 49 [level 7 only]. This matter is referred to below. 33 It is fair to say that there is a considerable degree of 'smoke' [ie reason for suspicion of legal wrong doing] emanating from the materials which went into evidence during the presentation of the interlocutory case by 21 million. But to a very considerable degree that smoke was explained by the contemporaneous documentation and other detail including oral evidence adduced by Clarence Street. Clarence Street did take advantage of the right to respond to a late affidavit relied upon by 21 million and did so by the adducing of detailed evidence from Mr Voukidis in the witness box. The Court must take care to guard against being enticed, notwithstanding the principle that the Court cannot decide disputed questions of fact on an interlocutory hearing, to accept at face value and as necessarily pervasive or reliable, evidence given by a live witness who, as here, appears to be reasonably confident and well-informed and apparently able to explain matters requiring detailed explanation. The proper occasion for the determination of reliability of such evidence is at a final hearing and not before. 34 That having been said, a real problem for 21 million is that the contemporaneous documentation now mobilised by Clarence Street which, as its detailed submissions earlier set out disclose, at many levels and for many reasons, erode the strength of the 21 million serious case in relation to the first caveat as formulated. Legal wrongdoing is sometimes and quite often difficult to prove at an interlocutory level when the Court is proceeding quickly and at a structural level to work through the proper approach to the staus quo and generally applying the principles laid down by McLelland J to which I have referred. To my mind 21 million at the least has a case deserving of its day in court. 35 Further and applying the earlier set out principles, I have come to the conclusion that the proper exercise of the Court's relevant discretion is to refuse the application to extend the current 21 million caveat but to grant 21 Million an opportunity to apply, pursuant to section 74O of the Act, to file a reformulated caveat in respect of level 7 [which is independently valued at $2,490,000]. To my mind in the event that such leave be granted, such a caveat should be more than sufficient to safeguard whatever interest 21 Million may have in the Property pending a final hearing. 36

It is appropriate to repeat in terms of the balance of convenience issue the pervasive submission of Clarence Street which was: · It is correct to say that outside of an order seeking an extension of the 21 Million Caveat pending the determination of these proceedings, the only relief sought by 21 Million is a declaration that Clarence Street holds the whole of the Property on trust for 21 Million as to a 15% interest as tenant in common. · A declaration in those terms is, as I accept, not reconcilable with the interest claimed in the 21 Million Caveat (which refers to a declaration of trust between FBN and 21 Million), nor is it consistent with 21 Million's present contention (which is that FBN held 50% of its interest on trust for Headland Properties, until January 2003, when FBN was directed to hold that interest on behalf of 21 Million). · There is no evidence, to the effect that Clarence Street itself declared a trust in favour of 21 Million or that Clarence Street somehow conferred an equitable interest upon 21 Million. · The Property is the subject of 2 registered mortgages. The unchallenged evidence is that the loans secured by those mortgages are for a total amount of $23,438,000, plus interest. · Further, Investec has given notice of its intention to exercise its power of sale in respect of the Property in 1 month's time, unless the sum of $13,201,453.19 is paid to it before then. Mr. Voukidis' oral evidence was that Clarence Street will not be able to repay that amount unless it is able to complete a sufficient number of contracts for sale this month. It is not in any party's interests that these debts remain unsatisfied for any longer than is necessary or that the Property be the subject of mortgagee sales. · Clarence Street has already exchanged contracts for sale or Put and Call Options for sale in respect of 84 out of the 95 Lots that comprise the Property. The total proceeds of sale to be received by Clarence Street under those contracts and options is $25,958,000, being an amount sufficient to discharge Clarence Street's obligations to both Permanent and Investec, thereby avoiding further interest charges and the very real prospect of Investec exercising its power of sale. · Each of those sales is supported by an independent valuation and was entered into with the consent of the joint venturers (including, after 2 June 2003, the Receiver). · It can be seen from clause 35 of each of the contracts for sale and from the notices of registration of strata plan that were sent to each of the purchasers under those contracts that the completion date under the contracts for sale has already passed, such that notices to complete could be issued and (absent compliance) the contracts could be rescinded by the purchasers. · Leaving aside the interests of Clarence Street, the interests of the purchasers and the option holders need to be considered. · There is no persuasive evidence that 21 Million or FBN will suffer prejudice if the existing contracts and options proceed to completion.

Balance of convenience 37 There is special significance in the fact that as I accept, there is real doubt as to the worth of any undertaking as to damages given by 21 Million or FBN. As was submitted by Clarence Street, the former does not have a registered interest in any property in NSW and there is no evidence that it carries on a business or has other assets. As for FBN, it is in receivership and the receiver's employee has given evidence that FBN's interest in the Property is its "only significant asset". 38 As Clarence Strict also submits and as I accept, there is also particular significance in the fact that even if 21 Million has (as it claims) a 15% equitable interest in the Property, the actual value of that interest is small relative to the value of the Property and of the sales presently in the pipeline. In that regard I accept the following integers as flowing from the evidence presently before the court albeit an interlocutory level:

(a) The total sale proceeds from the contracts or options exchanged to date will be $25,958,000;

(b) The remaining Lots (being Unit 1 and Level 7) have been independently valued at $705,000 and $2,490,000 respectively;

(c) Therefore, the total value of the Property is approximately $29,153,000;

(d) Of that amount, some $13,201,453.19 is presently payable to Investec, while some $10,690,000 plus interest is payable to Permanent, leaving net proceeds of less than $5,261,574.

(e) 15% of $5,261,574 is only $789,232. Even if one were to double that figure, it remains a relatively small sum in the circumstances and significantly less than the value of one of the unsold portions of the Property being Level 7. 39 I have taken into account the close submissions addressed by 21 Million to the Court which centrally sought to deal with the suggested real questions said to arise as to whether the sales otherwise than to Creata Investments, Roy and Phelan are concerned. These submissions travel the distance of closely examining the suggested differences between the 'valuation for stamp duty purposes' mode of valuation of the sale to Kolovos of unit 3 and to Laskas of unit 2. The same submission is also treated with in terms of the suggested real issues as to whether or not Mr Stanley on behalf of FBN gave his informed consent to the sales to Koombari of level 11 and of lots 1-4. 40 A further question in relation to the suggested undervalue of the lots sold to One to Four Holdings Pty Ltd has been raised. 41 It suffices to say that applying the appropriate test, in my view the degree of probability or likelihood of success of 21 Million's case in relation to a number of these suggested questions, is simply that which the Court thinks sufficient, in the particular case, to warrant preservation of the status quo. The submission which I have made plain appears to me to be one appropriate to adopt, as I have said, is that there is no evidence to the effect that Clarence Street itself declared a trust in favour of 21 Million in terms of the claimed equity described in the first caveat. This is not to say that 21 Million may not be in a position by a reformulation of the wording in an appropriate caveat to otherwise make good a claim to have a relevant equitable interest. It is for that reason only that it seems to me that in this case, the preservation of the status quo may translate to an order granting leave to 21 Million to lodge a reformulated fresh caveat in the form in which it may be advised in respect of lots 44-49 (level 7). Nor in terms of granting leave to reformulate the terms of the caveat, does the Court intend in any fashion to prejudge the merit of an attack which may be forthcoming when an application to apply for the section 740 is heard. The short position is that the interlocutory hearing presently before the Court threw up a large number of areas for concern and the Court takes the view that the plaintiff, at least for a few days, should in effect be entitled to a statutory injunction to preserve such claim as it may wish to pursue in a reformulated caveat in an attempt to establish a relevant equitable interest. 42 The position in relation to the FBN Caveat is for the reasons given by Clarence Street, that an order should be made now requiring the withdrawal of that caveat. In particular I accept and adopt the following submission as a correct statement of the pervasive principle here to be applied: · The powers vested in a receiver are, within their scope, exclusive and supersede those of the directors [See: Re Scottish Properties Pty Ltd (1977) 2 ACLR 264; Meagher, et al, Equity at [28-240-28-260] and the authorities there cited. See also: Pollnow Garden Mews - St Leonards Pty Ltd (1984) 9 ACLR 82 at 89, where McLelland J held that the directors of a company to which a provisional liquidator had been appointed did not have a residual power to authorise the institution and prosecution of proceedings in the name of the company, as "the directors cannot retain powers which are exercisable by the provisional liquidator."]. In the present case, the powers vested in the Receiver under the relevant Charge are extensive and include powers to sell any of the charged property; to perform, enforce or refrain from enforcing rights of the company in relation to its property; and to commence or discontinue proceedings. There was no residual power in Mr. Taylor, as a director of FBN, to lodge a caveat on FBN's behalf following the appointment of the Receiver. It would be extraordinary if it were otherwise, given that the lodgement of such a caveat has interfered with a matter plainly within the Receiver's powers and responsibilities; namely, the realisation of FBN's interest in the Property with a view to satisfying the debts owed to the secured creditor. · Under the terms of the Charge Mr Wily has broad powers, in addition to his powers at law. The terms of Mr Wily's appointment did not exclude any power. Mr Wily's powers as receiver include the power: to commence, discontinue, prosecute, defend, settle or compromise in its name or the name or on behalf of the Chargor, any proceedings … · Relevantly, the receiver's powers under the Charge include the following further general powers: · to manage, enter into possession or assume control of any of FBN's assets and undertaking (which relevantly would include its rights under the joint venture agreement dated 6 September 2001); · to do anything to maintain, protect or improve any of FBN's assets and undertaking (which would include lodging a caveat); and, · "to do anything the Chargor could do in respect of the Charged Property"

· This is not a case where the Receiver is refusing to pursue a cause of action against the Chargee (St Leonards), nor can it be said that the actions of the director are not prejudicing the legitimate interests of the Receiver and the secured creditor [Cf. Newhart Developments Ltd v Co-0operative Commercial Bank Ltd [1978] QB 814 at 819-821; Re Geneva Finance Ltd (1992) 7 ACSR 415 at 430; Deangrove Pty Ltd v Commonwealth Bank (2001) 37 ACSR 465 at [40-44].]. On the contrary, the Receiver has determined that the only significant asset of FBN is its interest in the Property and that the only way in which the secured creditor is likely to be repaid is if the Property is sold. · There is no controversy in terms of the FBN caveat having been lodged by Mr Taylor on or about 15 October 2003 without the authority or consent of the receiver. · Mr Taylor's contentions do not appear to take into account the following matters (paragraphs 10, 11 and 12 of Mr Stoljar's submissions): · "First, as appears from the summary of the receiver's powers above, the receiver's powers are ample in scope and include the power to lodge a caveat. As stated by Street J in Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd (1970) 92 WN (NSW) 199 at 209: A valid receivership and management will ordinarily supersede, but not destroy, the company's own organ through which it conducts its affairs. The capacity of those organs to functions bears a direct inverse relationship to the validity and scope of the receivership and management. · In other words the broad powers conferred on the receiver pursuant to the Charge, including with respect to lodging a caveat (and with respect to defending proceedings in the name of FBN), are held by the receiver to the exclusion of FBN's director, Mr Taylor [see also M Wheeler & Co v Warren [1928] Ch 840 at 844, 846]. To the extent that, or if, Newhart Developments Ltd v Cooperative Commercial Bank Ltd [1978] QB 814 suggests to the contrary it should be confined to its own facts [Meagher Gummow Lehand Equity: Doctrines and Remedies ¶28-255], which are distinguishable. · Secondly, and in any event, on any view, Mr Taylor could not act as director pursuant to any residual power such as to interfere with the performance of the receiver's duties. The receiver is of the view that it is in the best interests of the chargee and FBN that the sales of the units in the Clarence Street property proceed [Hakki Hassan 2.12.03, ¶6,11]. The lodging of the FBN caveat by Mr Taylor is directly inconsistent with, and an impediment to, that course. It is thereby an inappropriate interference with the receiver's carrying out of his duties." 43 In any event the evidence presently before the court has fallen far short, as it seems to me, of establishing the type of serious case which would require to be established for a proper exercise of the discretion of the Court to be seen to require the making of orders at an interlocutory level in effect upholding or validating a retention of the status quo [in terms certainly of the retention on the title of the second caveat] grounded upon an acceptance at an interlocutory level of any suggestion that there was residual power in Mr. Taylor, as a director of FBN, to lodge that caveat on FBN's behalf after the appointment of the Receiver. 44 Further, and in any event, the balance of convenience favours the withdrawal of the FBN caveat. 45 Clarence Street may suffer significant prejudice if sales already entered into do not proceed, including the prospect of a mortgagee taking possession, having already served a notice under section 57(2)(b) of the Real Property Act; and there is the question of the accumulation of default interest. 46 Mr Taylor has not established any or any significant prejudice by reason of the removal of the FBN caveat. He has put forward no cogent evidence that the sales entered into are of undervalue. The valuation proffered in Mr Nicholson's affidavit is a preliminary estimate only. It would appear clear from Mr Voukidis' oral evidence that each sale was the subject of discussion and consensus between the joint venturers, including FBN (and, after his appointment, the receiver). Although, of course, this is a factual issue which will require to be determined at a final level.

47 It would appear unlikely, on the evidence presently available, that Mr Taylor will be successful in proving a deficiency in the receiver's appointment. As I have said, he contends that the loan facility agreement was a "sham". The evidence before the Court in support of that allegation leaves a deal to be desired. On the other hand, as I have earlier said, the Court accepts that it is particularly difficult at an interlocutory level to prove serious legal wrongdoing and there is an entitlement of a party to have its day in court. It is correct to say that it is at best unclear that Mr Taylor or entities associated with him have contributed moneys to the joint venture. He has been on notice of Mr Wiley's appointment since at least 17 June 2003 and it is correct to say that he has delayed some months before bringing proceedings challenging his appointment. 48 It is appropriate to note that on the occasion of the delivery of the ex tempore judgment the Court having initially announced the propriety of simply granting 21 million leave to lodge a reformulated fresh caveat, following some interchange with counsel, ultimately determined only to permit 21 million a short opportunity to seek leave to lodge a reformulated fresh caveat. In that regard an undertaking was given to the Court by Clarence Street not to deal with lots 44 - 49 up to and including 5 pm on 9 December 2003. These revised reasons include the reasons for the orders which were then made. The matter being interlocutory these revised reasons are to be taken as the reasons for the making of those orders

I certify that paragraphs 1 - 48 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 4 December 2003 ex tempore revised 8 December 2003

      Susan Piggott
      Associate
      8 December 2003

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