Almona Pty Ltd v Parklea Corporation Pty Ltd

Judgment

1. Judgment in this matter was given on 20 December 2019: Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868.
2. In the final paragraph of the reasons for judgment the parties were invited to consider the orders that are appropriate to be made to give effect to the reasons.
3. By reason of the fact that the plaintiff sought, among other relief, an order that there be an inquiry into certain matters, the hearing that has occurred and the reasons for judgment that have been delivered do not dispose finally of all of the issues in the proceedings.
4. A hearing occurred on 28 February 2020 concerning the orders that should be made. There was insufficient time at the hearing for the parties to properly address all relevant issues. It is appropriate that the orders that can now be made be made, so that the time for parties to commence such appeals as they may be advised to make will start to run. However, it is not propitious that all orders be made now, and it became necessary for the Court to fix a further hearing date. The only convenient date for that purpose in the near term was 8 April 2020. As I will be sitting in the duty list it will be necessary for the parties to deal with all outstanding issues as efficiently as possible.
5. The plaintiff provided proposed short minutes of order to which the defendants did not agree. The second defendant proposed alternative short minutes of order that were supported by the other defendants. The plaintiff opposes those orders being made.
6. For convenience I will annexe to these reasons the following relevant documents: Annexure A - The prayers for relief in the plaintiff's further amended statement of claim filed on 4 March 2019. ANNEXURE A (597 KB, pdf) Annexure B - Plaintiff's proposed short minutes of order. ANNEXURE B (661 KB, pdf) Annexure C - Second defendant's proposed short minutes of order. ANNEXURE C (330 KB, pdf)
7. I will focus on the plaintiff's proposed short minutes of order and refer to the second defendant's document where appropriate.
8. The declarations sought in the plaintiff's proposed orders 1 and 2 are, in effect, declarations that the second defendant and the first defendant engaged in fraudulent or dishonest conduct in the manner identified in the draft orders.
9. The draft declarations encapsulate findings made in the reasons for judgment at the paragraphs identified in parentheses.
10. I will not make declarations in the terms sought in draft orders 1 and 2 for the following reasons.
11. First, declarations to that effect were not sought in the prayers for relief in the further amended statement of claim. The declarations sought were those in prayer A.
12. The Court's practice does not confine it to only making declarations in terms precisely sought in the initiating process. Section 90(1) of the Civil Procedure Act 2005 (NSW) provides: "The Court is, at or after trial or otherwise as the nature of the case requires, to give such judgment or make such order as the nature of the case requires". It is commonplace for the Court to implement this requirement by making declarations in appropriate terms after the completion of a hearing, frequently in terms that are different and more confined than general prayers for declarations contained in the initiating process. However, the Court should exercise care when asked to make declarations that are not sought in the initiating process, where defendants may not have conducted their defence in anticipation that the plaintiff would ask the Court to make the declarations sought.
13. In the case of the declarations in proposed orders 1 and 2, the subject matter of the declarations is not a pronouncement of a legal right that the plaintiff has established in these proceedings. Rather, they are encapsulated in findings that form part of the reasoning process in the reasons for judgment, which were steps along the way to the final conclusions reached by the Court. Although the reasons were intended to be precise in respect of their relevance to the reasoning process, they were not formulated with the precision that would be appropriate for the making of declarations of right.
14. Further, I am not satisfied that the plaintiff has demonstrated that there is sufficient utility in the declarations being made.
15. The declarations sought by the plaintiff in proposed orders 3 to 6 are different in substance and effect to the declarations sought in orders 1 and 2.
16. That is because they take the form of a declaration that particular conduct by a person was a contravention of a provision of the Competition and Consumer Act 2010 (Cth) Schedule 2 (Australian Consumer Law) or the Australian Securities and Investments Commission Act 2001 (Cth).
17. There is a question whether it is appropriate for declarations in the terms sought to be made in proceedings between private litigants. The plaintiff did not have a proper opportunity to address that question or to put authorities to the Court at the hearing, and I agreed to defer to the next hearing the issue of whether the declarations in proposed orders 3 to 6 should be made. This will give the plaintiff an opportunity to address the appropriateness of such declarations being made more fully.
18. An exception to this approach is that the Court will not make the declaration sought in order 5, as it relates to a person who was not a party to the proceedings, and who was not given any proper notice that a declaration in those terms would be sought by the plaintiff. There is no proper utility from the plaintiff's perspective in that declaration being made.
19. One concern I have about the form of the declarations in orders 3, 4 and 6 is that they are not, in substance, declarations as to the plaintiff's legal rights in respect of any party. It may be inappropriate, for that reason alone, for declarations in the terms sought to be made. It is difficult to see, in real terms, the benefit to the plaintiff that will be achieved if the declarations are made. They are no more than declarations that a particular party contravened a statutory provision, or was involved in such a contravention. The declarations appear to lack utility. The position may be different where a public regulator asks for such declarations to be made, as there may be public utility in demonstrating, by means of a declaration, that conduct of a particular precise nature is a contravention of a general statutory prohibition.
20. Of the circumstances where it may be appropriate for the Court to make declarations as to the private rights of parties, one may be where the effect of the declaration will be to clearly describe the legal right of a party that has justified the Court in making a subsequent operative order. The operative order may be, for example: Order that the transfer of Blackacre by A to B be set aside and that the Registrar General record in the register C as the registered proprietor of Blackacre. There may be utility in an order to that effect being preceded by a declaration in the following terms: Declaration that C is entitled to have the transfer of Blackacre from A to B set aside and an order that the Registrar General record C as the registered proprietor of Blackacre notwithstanding that B is the registered proprietor on the ground that the transfer was procured by the fraud of A to which B was a party.
21. It may also be, as here, where a plaintiff may establish a right to an inquiry, that it would be of practical utility for the purposes of the proper conduct of the inquiry for the Court to make, in addition to an order for the inquiry, a precise declaration as to the legal right established by the plaintiff that will be explored and quantified by the inquiry. That will not always be the case. For example, there are circumstances, such as the right of a mortgagor to have an account from a mortgagee, where it may be sufficient to order an inquiry and that an account be taken. However, in other cases, where the entitlement of the plaintiff to an account may be a remedy for a particular form of wrongdoing by the defendant, it may be appropriate, if not essential, for the Court to first make a declaration of the plaintiff's rights that precisely defines those rights.
22. The declaration sought in proposed order 7 and the interim judgment in order 8 arise out of the finding in par 703 of the reasons for judgment that the second defendant's conduct caused the plaintiff to suffer a loss of $4.25 million on 22 March 2016. I found that the first defendant was involved in the second defendant's conduct in a way that made it also liable for that loss suffered by the plaintiff.
23. As the declaration in order 7 is formulated in terms that depend upon the making of the declarations in orders 1 to 6, a declaration in those terms could not be made now.
24. As I understand the practice of the Court, it is not usual for the Court to make a declaration as to the nature of the right of the plaintiff that gives the plaintiff a right to a subsequent order that a defendant pay a particular sum by way of damages to the plaintiff. However, there may be utility in such a declaration being made, and I will defer ruling at this stage on the appropriateness of making a reformulated declaration as presently sought in order 7.
25. As to proposed order 8, at the hearing on 28 February 2020 the plaintiff provided to the Court an interest calculation that showed that the total interest at the Court's prescribed rate between 22 March 2016 and 28 February 2020 was $923,373.38, with interest accruing at the present daily rate of $580.60.
26. The defendants did not have an opportunity to verify the calculation. Consequently, I will not formally make the orders that I propose below until the defendants have confirmed their agreement to the interest calculation.
27. The first and second defendants resisted the Court making a final order at this stage that they pay the plaintiff $4.25 million plus interest.
28. As I understand it, that resistance arises out of the fact that the plaintiff did not explicitly claim that amount in its prayers for relief, and the plaintiff claimed, in prayers 3 and 3A, that there be an inquiry into and an account taken as to certain matters that would include the finding of the Court that the first and second defendants are liable to pay the amount of $4.25 million to the plaintiff. At the end of the inquiry, an order will be made that one or more parties pay an amount to another party as determined by the inquiry. The first and second defendants submitted that they had conducted the hearing on the basis that there would not be an order that any party pay another party a specific sum in advance of the completion of the inquiry.
29. The plaintiff responded with the submission that the Court has, in fact, made a final finding that the first and second defendants are obliged to pay it $4.25 million plus interest, and pointed to the fact that the plaintiff sought damages and equitable compensation in prayer 7 of the further amended statement of claim.
30. As I understand it, the position of the first and second defendants is that it would be inappropriate for the Court to order, at this stage, that a definite money sum be paid by them to the plaintiff, because they maintain a right, in the inquiry that will take place, to establish offsetting claims against the plaintiff that may reduce their liability to the plaintiff to less than the amount of $4.25 million. Although the right to make offsetting claims in the inquiry has been foreshadowed, particulars of the offsetting claims have not yet been given.
31. I am satisfied that the plaintiff has established an entitlement at this stage, as a result of the findings in the reasons for judgment, to an order that the first and second defendants pay the plaintiff the sum of $4.25 million plus interest. The plaintiff is entitled to that order either on the basis of damages or equitable compensation. The Court has finally determined that the plaintiff has that right.
32. It may be that, in any inquiry that is to take place, the first and second defendants will be able to establish some right against the plaintiff that would give rise to a set off against the obligation to pay the plaintiff $4.25 million plus interest.
33. The first and second defendants may, in any event, apply for a stay of the order pending any appeal they may wish to pursue, or pending the final determination of the inquiry. The plaintiff is entitled to start from the position that the first and second defendants have a present obligation to pay it the $4.25 million plus interest. The first and second defendants must establish the basis for a stay. If a stay application is made, the first and second defendants will have to give particulars of the claims that they assert they are entitled to set off against the plaintiff's entitlement in the inquiry. The Court will have to apply the usual principles relevant to the making of a stay of judgment. That may require the Court to consider the consequences in respect of the plaintiff's capacity to pursue any inquiry or appeal, or resist any cross appeal, if the order in its favour is stayed completely.
34. Proposed orders 9 to 11 govern the basis upon which the inquiry sought by the plaintiff should be conducted.
35. Order 9 has been formulated on the premise that the plaintiff may, in the proposed inquiry, establish that it has suffered damages in addition to the loss of the $4.25 million the subject of the Court's current finding in its favour.
36. There may well be some additional entitlement of the plaintiff that it may have prospects of establishing in a further inquiry. The plaintiff has not yet identified those matters with precision. It is the general practice of the Court not to order that an inquiry be undertaken, unless the plaintiff has demonstrated an adequate basis for the Court to conclude that there is a sufficient prospect that the result of the inquiry will be an order that the defendant is obliged to pay money to the plaintiff to warrant the inquiry being conducted.
37. Furthermore, I have decided that, as a proper case management matter, the Court should not make an order that any inquiry be conducted, unless the legal basis for the inquiry has been identified. Further, it is my present inclination that any order for an inquiry that is made should identify with reasonable precision what the contentions of the parties to the inquiry will be, including the amounts of money involved to the extent now possible.
38. I will therefore not make proposed order 9 at this stage. The plaintiff in the first instance should consider these reasons and then formulate as precise a draft order as can presently be prepared to identify the subject matter of the proposed inquiry, and serve the draft on the first and second defendants, in time for them to respond before the next hearing. I appreciate that there may be practical issues about the level of detail that can be achieved in the short-term, and am open to the formulation of case management orders that will permit the relevant parties to conduct any inquiry that may be ordered efficiently.
39. As appears from order 1 as proposed by the second defendant, it was proposed that a registrar of this Court conduct the enquiry. I record that I informed the parties at the recent hearing that the present procedure of the Court would require that any inquiry be conducted by a Judge of the Court. The inquiry would be conducted in the general list and would be case managed by the Registrar and fixed for hearing before a judge in due course in the ordinary way.
40. Consequently, it may be in the interests of the parties to investigate whether it would be preferable for any inquiry to be conducted by a referee under Pt 20 Div 3 of the Uniform Civil Procedure Rules 2005 (NSW).
41. Proposed orders 10 and 11 appear to relate to a different inquiry and an account that is said to arise out of the relationship between the plaintiff and the second defendant as mortgagor and mortgagee. Order 10 proposes an inquiry and an account as between the plaintiff mortgagor and the second defendant mortgagee and the receivers that were appointed by the second defendant.
42. The receivers are not parties to the proceedings and, as I understand it, when they were appointed by the second defendant they were, in the usual way, appointed as agents of the plaintiff.
43. The plaintiff may have an entitlement to an accounting by the second defendant as its mortgagee, and it may well also be that, if the receivers are the plaintiff's agents, they have to provide an account to the plaintiff on that basis.
44. I would not make order 10, at this stage, for a number of reasons. First, I take it that, if the receivers are the agents of the plaintiff, then the Court should not make an order for an inquiry and an account to be taken of the steps taken by the second defendant as mortgagee on the basis that it is responsible and has to account for the steps taken by the receivers. It will be necessary for the plaintiff to address the principles that govern any inquiry that has to be undertaken, and to justify the precise form of the orders to be made concerning the inquiry.
45. If I am correct in my belief that any obligation of the receivers to account may be owed directly to the plaintiff, then two related inquiries might be required, and an order involving the receivers could not be made except upon the basis of, at the least, a notice of motion served upon the receivers.
46. Further, as was the case for the inquiry proposed in order 9, I have decided that it will be appropriate that any order for an inquiry, concerning the actions of the second defendant as mortgagee and the receivers, should only be made when the issues that will arise in the inquiry have been sufficiently identified.
47. It is appropriate that the Court makes the following preliminary observations concerning the plaintiff's request for orders establishing an inquiry in respect of the conduct of the second defendant, as mortgagee, and the conduct of the receivers.
48. As I have already mentioned, a mortgagor has a right to require the mortgagee to account to the mortgagor in respect of the mortgagee's dealings with the mortgaged property. The mortgagor may also have a right to require any receivers appointed as its agents to account in respect of the receivers' dealings with the property.
49. Ordinarily, any such accounts would be prepared in the form of written accounts, and then a process would be conducted in accordance with long established practice. The process may be different as to whether or not the account is to be taken on the basis of wilful default.
50. Relevantly, as mentioned at par 512 of the primary reasons for judgment, while the mortgagor is entitled to an account from the mortgagee, the mortgagee is entitled to treat the cost of the accounting process as a claim secured by the mortgage, so that the mortgagee is entitled to recompense itself for the cost from the mortgaged property. While the Court does not presently have evidence on the issue, I would suspect that the receivers would also have a right to recompense themselves for the cost of providing an account out of the mortgaged property.
51. The mortgagee, and I assume the receivers, would be denied that entitlement in respect of the consequences of any breaches of duty established against them in the inquiry.
52. I mention these matters because of the necessity for the parties to address in, an efficient and practical way, what is proposed in relation to the conduct of the inquiry, and in particular how the costs are to be treated.
53. If the Court simply made an order that the second defendant as mortgagee and, in due course, the receivers, provide accounts to the plaintiff, then what will happen is that the second defendant and the receivers will provide written accounts, probably at considerable length, of every single transaction undertaken by them. As I have said, that will probably be at the cost of the plaintiff, and it may well be that the plaintiff has no practical interest in a substantial proportion of the entries in the accounts.
54. That expectation may be wrong, and the plaintiff may well wish to investigate in depth the justification for a substantial proportion of the steps taken by the second defendant and the receivers. If so, so be it, but the requirement that the costs be proportionate, particularly if they are ultimately to be borne by the plaintiff, justifies the Court in requiring precise attention to the formulation of the nature and terms of any accounting and inquiry that is to take place.
55. On the other hand, it is possible that the plaintiff can identify particular conduct on the part of the second defendant and the receivers with which it takes issue. In that case, it may be more efficient for any continuing claim by the plaintiff to be prosecuted on the basis of specific, identified issues rather than an open-ended inquiry and the taking of accounts.
56. In making these observations, I do not ignore the fact that it is likely that both the second defendant and the receivers have already provided a form of accounts to the plaintiff. The point is that, when a formal order is made for the provision of accounts, much of the work needs to be repeated in a more extensive way in order to produce an account in proper form that is capable of being passed by the Court.
57. Proposed orders 12 and 13 sought by the plaintiff arise out of an observation made by the Court at par 707 of the reasons for judgment. That is as to whether the basis of the Court's finding that the first and second defendants were liable to pay the plaintiff $4.25 million entitled the plaintiff to a proprietary interest in the Parklea property, in the nature of a constructive trust or a charge, whether to the value of the $4.25 million or as to the proportion of the present market value of the property that 4.25 bares to 85.35, representing the $85.35 million price that would have been payable if the wrongful conduct had not occurred.
58. The plaintiff did not claim this relief explicitly in its further amended statement of claim, but it did claim a proprietary interest in the Parklea property. The issue would be whether the requirement in s 90 of the Civil Procedure Act extends in the circumstances to entitling the plaintiff to order 12 or 13, and whether, if either order can be made, the plaintiff has established an entitlement to it.
59. The Court could not make order 12 or 13 at this time, because the first and second defendants have not been given an opportunity to make submissions on the issues of whether those orders can properly be made at this stage of the proceedings, and as to whether the findings in the judgment justify those orders being made as a matter of law.
60. The plaintiff and the first and second defendant must formulate case management orders for the purpose of enabling the Court to decide this issue.
61. Proposed order 14 would return the $200,000 that the plaintiff has paid into Court as security for the second defendant's costs to be returned to the plaintiff.
62. The Court cannot make that order at this stage because the parties have not yet made submissions as to the costs orders that should be made, and as the plaintiff was only partly successful on its claim, it is possible that the Court will order that each of the plaintiff and the second defendant pay some proportion of the other's costs of the proceedings. The Court has not yet been asked to consider the array of potential costs orders that may be available to be made. It is possible that the amount of security for costs provided by the plaintiff will be less than the amount of the costs that the plaintiff will be ordered to pay to the second defendant. The issue is complicated by the possible effect of the costs orders in favour of both parties being set off. Accordingly, it is premature for the Court to consider the making of order 14 at this stage.
63. As a practical matter, it should be borne in mind that the plaintiff has given evidence that it proposes to appeal generally in respect of the orders that will be made by this Court, and some order may be made by the Court of Appeal for the provision of security for the costs of the appeal. The amount required, may, of course, be less than the security required for prosecuting the proceedings at first instance.
64. Proposed order 15 is an order that the plaintiff's claim against the third defendant be dismissed. Proposed order 18 would have the effect that the plaintiff's claims as against the first and second defendants be otherwise dismissed. These two orders would have the same practical effect as order 2 sought by the defendants.
65. I have decided that the better course is for the Court to make the positive orders in favour of the plaintiff that should be made at this stage, to dismiss the prayers for relief in respect of which the plaintiff has finally failed, and to explicitly reserve the question of what additional orders should be made in the future to deal with the relief sought in the proceedings that remain open.
66. It is not necessary for the Court to 'otherwise dismiss' the plaintiff's claims against the first and second defendants, as that may cause difficulty, because some of the open claims have not yet been precisely described. It is not yet possible to know with precision what would fall within the 'otherwise' that would be dismissed.
67. As to the third defendant, the plaintiff's claim against it has failed entirely, and it is entitled to be dismissed from the proceedings.
68. I consider it to be preferable, however, for the Court to dismiss the prayers for relief that involved the third defendant, as that will have the effect of dismissing the claims against it.
69. I presently propose to dismiss the following prayers for relief: prayer A(c), prayer B, and prayers 4, 5, 6 (in so far as it provides an alternative basis for the making of the orders in 4 and 5), and prayer 6A.
70. The interrelated manner in which the prayers for relief have been drafted introduces some complexity into the issue of identifying the prayers that should be dismissed, and the terms in which the order should be made.
71. As there was not an opportunity for the Court to explore with the parties the precise terms of the dismissal order that should be made, if the approach I propose is adopted, I will give the parties three days to submit short written submissions to my associate, limited to the question of whether the approach that the Court proposes is appropriate, and the terms of the order that should be made.
72. Proposed orders 16 and 17 must be considered together with the defendants' proposed order 3.
73. As the plaintiff's claim against the third defendant wholly failed, the third defendant is in principle entitled to an order that the plaintiff pay its costs.
74. I cannot see any reason why that order should not be made, although the making of the order leaves open the entitlement of the plaintiff to claim an order that those costs should be paid by the first and second defendants on its behalf. The basis of such a claim has not yet been articulated by the plaintiff, and the first and second defendants have not yet had an opportunity to respond to it.
75. It would therefore be premature for the Court to make any order against the first and second defendants in respect of reimbursing the plaintiff for the costs that it will be ordered to pay the third defendant.
76. Consequently, order 16 cannot be made, as the third defendant will be entitled to look to the amount of $140,000 paid by the plaintiff into Court as security to cover its costs. Whether a balance will remain to be repaid to the plaintiff is not known at this stage.
77. As to proposed order 19, the parties other than the third defendant have not yet been heard on the question of costs, and the determination as to the costs orders that will be appropriate as between those parties must be deferred until the issue has properly been addressed.
78. I will make the orders that can now be made shortly after the parties have responded to my invitation to provide brief written submissions as to the suitability of those orders. I will, so far as it proves to be possible, make orders for the further prosecution of these proceedings at first instance after the next hearing.
79. I note that the plaintiff proposes to file an extensive appeal against the findings in the principal judgment, the first defendant has advised the Court of an intention to appeal on a limited basis, and it remains open to the second defendant to pursue an appeal. It follows that the parties should give careful thought to the most cost efficient manner in which the remaining issues in these proceedings at first instance should be prosecuted.
80. Subject to my consideration of any further submissions that may be received from the parties, I propose to make the following orders at this stage: 1. Order the first defendant and the second defendant to pay to the plaintiff the sum of $4.25 million plus interest of $923,373.38 for the period from 22 March 2016 to 28 February 2020 inclusive, with interest continuing at the present daily rate of $580.60 until payment. 2. Dismiss the plaintiff's claims as made in prayer A(c), prayer B, prayers 4 and 5, prayer 6 (in so far as it provides an alternative basis for the making of the orders in prayers 4 and 5), and prayer 6A of the further amended statement of claim. 3. Note that accordingly the plaintiff's claims against the third defendant are dismissed. 4. Order the plaintiff to pay the third defendant's costs of the proceedings. 5. Reserve all other questions as to the orders that should be made to give effect to the Court's reasons for judgment delivered on 20 December 2019 and for the future prosecution of these proceedings. 6. Stand the proceedings over to 10 AM on 8 April 2020 before Robb J.
81. I have invited the parties to confer for the purpose of submitting proposed short minutes of order to deal with steps that should be taken by the parties to enable the hearing to proceed efficiently on 8 April 2020. The parties will have leave to make any necessary notices of motion returnable on that date. The Court will deal with the outstanding issues to the extent that it is convenient to do so on the next occasion.

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