Mr Adam Hartley and Mr David Driver had commercial dealings in recent years. They invested funds into an investment unit trust, the Aurora Australasia Investment Trust ("the Trust"), which they formed in August 2022 and to which they held and equal number of units. Hunt Prosperity Pty Ltd ("Hunt Prosperity"), the first defendant, an entity controlled by Mr Phillip Hunt, was appointed trustee of the Trust.
At the same time as they formed the Trust, Mr Driver and Mr Hartley incorporated the plaintiff, Aurora Australasia Pty Ltd ("Aurora"), which initially acted as the manager of the Trust. Mr Hartley and Mr Driver each hold 100 of the 200 shares issued by Aurora. Mr Hartley holds his 100 shares through a company he controls, AMHP Pty Ltd ("AMHP"). But the parties agreed that Mr Driver is the sole director and secretary of Aurora.
Hunt Prosperity administers the issue of units (and certificates of entitlement to units) in the Trust to investors in the Trust's commercial investment offering, which includes foreign currency trading.. The financial statements published by Hunt Prosperity show that the balance of the fund, at 31 December 2023 was $39,926,684.95.
These proceedings concern a dispute between Mr Hartley and Mr Driver about their respective entitlement to units in the Trust fund represented by two unitholder certificates issued by Hunt Prosperity, namely the certificates numbered 3 and 4 ("Certificates 3 and 4"), which were issued to Aurora. It was not disputed that by convention as between the parties Mr Driver was entitled to the benefit of Certificate 3 and Mr Hartley was entitled to the benefit of Certificate 4.
Commencing in October 2023 Mr Driver sought in correspondence with Hunt Prosperity to redeem the 258,284 units in the Trust represented by Certificate 3 and to have the proceeds of the redemption (said to be about $1.5 million) paid into a recently created Commonwealth Bank of Australia ("CBA") bank account, under his, Mr Driver's, control. On the present application, Mr Hartley seeks to have the Court restrain Hunt Prosperity from redeeming the Certificate 3 units and paying the proceeds into the CBA bank account.
Mr Hartley's motivation to restrain this payment into Mr Driver's CBA bank account is that he claims that Mr Driver owes him, or more accurately his company AMHP, a substantial debt. It is not in contest that between August and September 2022 either Mr Hartley or AMHP advanced to Mr Driver seven tranches of between $500,000 and $1.5 million to a total of $7.5 million. Mr Hartley claims that these monies are now unpaid, due, and payable by Mr Driver to AMHP or in the alternative to himself.
Mr Hartley and AMHP further claim that in correspondence in mid-2023, Mr Driver charged whatever interest he might have in the funds of the Trust that are represented by Certificate 3 to secure the repayment of the $7.5 million debt that Mr Driver owes to AMHP. Mr Hartley contends that unless the Court restrains the payment of the redeemed proceeds of Certificate 3 that Mr Driver will deal with those proceeds without regard to the security interest that AMHP has over those proceeds. Mr Driver contends that AMHP has no basis to restrain Aurora from dealing with the redeemed proceeds of Certificate 3.
The matter was contested in the Equity duty list on 6 February 2024. Mr J. Ireland KC appeared for Mr Hartley and AMHP instructed by Mr David Balog, of DC Balog & Co. Mr M. Elliott SC appeared on behalf of Mr Driver's interests instructed by Andrew Lacey, McCabe Curwood Pty Ltd. Mr S Drummond of Norton Rose Australia, appeared on behalf of the trustee, Hunt Prosperity, and apart from foreshadowing a possible application for judicial advice adopted a largely submitting role in the present contest.
[2]
The Course of the Proceedings
Instigated by Mr Driver, Aurora commenced these proceedings by Summons on 18 December 2023 seeking that Hunt Prosperity as trustee of the Trust, redeem Certificate 3 and pay the funds so redeemed to Aurora. In the alternative, Aurora sought relief that Hunt Prosperity be removed as trustee of the Trust. The Summons was originally returnable on 21 February 2024.
Upon becoming aware of the proceedings Mr Hartley and AMHP became concerned that their claimed security interest might be lost if Hunt Prosperity paid out the funds in accordance with the summons. So they approached the Duty Judge (Hammerschlag CJ in Eq) on 1 February 2024 in the first week of the new law term and obtained ex parte and procedural relief: joining AMHP as a second defendant and a cross claimant, permitting AMHP to file a cross claim joining Aurora, Hunt Prosperity and Mr Driver as cross-defendants and seeking a declaration that Aurora has charged its interest in Certificate 3 in the Trust in favour of AMHP to secure repayment of the $7.5 million debt.
At the ex parte duty judge hearing on 1 February 2024 AMHP gained interlocutory relief pending determination of these proceedings restraining Hunt Prosperity from paying to Aurora the proceeds of any redemption of Certificate 3. The interim restraint did not attack the act of redemption by Hunt Prosperity, just the payment out of the proceeds of the redemption. The parties were in contest as to whether AMHP had adequately discharged its duty of disclosure at this ex parte hearing.
The ex parte relief granted on 1 February 2024 was returnable on 6 February 2024, when legal representatives of each of Aurora, AMHP and Hunt Prosperity appeared. On 6 February 2024, AMHP sought a continuation of its ex parte injunction against Aurora and Hunt Prosperity. Aurora sought to have the injunction discharged on the grounds of alleged nondisclosure at the time but the ex parte relief sought and on the basis that AMHP had not demonstrated a serious question to be tried.
In the meantime, Hunt Prosperity has sought judicial advice as trustee, as to the course that it would be justified in taking in the circumstances. But if the ex parte injunction is continued, judicial advice will not be necessary for Hunt Prosperity in the short term, as its obligation is not to participate any breach of the Court's orders.
And finally at the hearing on 6 February 2024, Mr Hartley was given leave to file an Amended Cross Summons, in which he was joined as a second cross claimant in addition to Aurora, the first cross claimant. This arose out of uncertainty as to whether the $7.5 million debt was advanced by Mr Harley through Aurora.
The respective positions that the parties each advance will shortly be described. But first some additional factual background to the interlocutory contest is required. In such an interlocutory hearing, the Court's reasons cannot encompass all the relevant facts. The focus of this narrative is the uncontentious facts. Otherwise, the Court's narrative below should only be understood, and is mostly expressed, as a forecast of the kind of evidence that each party could adduce at a final hearing.
[3]
Some Relevant Dealings Between the Parties in 2022 and 2023.
Mr Hartley's principal affidavit sworn on 1 February 2024 annexed an email dated 14 July 2023 that he had sent to Mr Driver. Mr Hartley's affidavit stated that "I withheld recovery action against Mr Driver on the basis of the assurances contained in that email". In other words, Mr Hartley stated that he had forborne collecting the $7.5 million debt because of the "assurances" in the 14 July 2023 email.
The 14 July 2023 email from Mr Driver to Mr Hartley said the following:
"Dear Adam,
Firstly, I would like to sincerely apologise that I have placed you in this position. It was never my intention to cause you any anxiety or concern when out of the kindness of your heart you offered to help me financially. I honestly expect that this matter to have been resolved and the loan is repaid within the three months following the provision of the loans. I'm guilty of being both naive and stupid in relation to both the court case and my property developments.
To provide security against your loan is an up until the loans are repaid in full, I offer you the below: -
(1) Pledge my 50% shareholding in Aurora to you.
(2) Pledge my share of the current retained profits and future profits held in Aurora under my name to you, currently $2 million.
(3) Pledge my share of the profits from the sale (estimated October 2023) of the DA approved site (approval expected in August 2023) at [address of Cronulla property not published] to you, approximately $1 million.
(4) Pledge my share of the profits from the final sale of apartments at [address of second Cronulla property not published]
(5) Pledge my shares in Botanical Water Technologies (BWT) Pty Ltd to the value of the loan… the value of my shares remain at a minimum of $37.5 million.
…
The above pledges can be formally placed in a document drafted by lawyer.
In the meantime, I'm doing everything I possibly can to conclude the court case and return the loans to you, on or before December 2023.
Following your consideration of the above, let us meet next week at a time convenient for you to go through everything.
I generally want to give you comfort and security over the loaned amounts and I'm deeply saddened that this has damaged our relationship and friendship. I'm truly sorry for this."
The 14 July 2023 email was highly promissory in tone, made multiple references to the idea of giving a "pledge" and placed a premium on declarations of sincerity. It also undertook a financial calculation that the various forms of property that Mr Driver was holding out to Mr Hartley were worth in total more than $7.5 million as potential security. The email also referred to certain Supreme Court proceedings about BWT Pty Ltd, in which Mr Driver was involved. It is not difficult to infer that Mr Hartley might rely upon a email expressed in these terms.
Few other pieces of correspondence between the parties apart from this 14 July 2023 email were attached to Mr Hartley's affidavit of 1 February 2024, which was read to the Court on the ex parte application on 1 February 2024. Subsequent more detailed correspondence was first presented to the Court at the hearing on 6 February 2024.
The correspondence between Mr Hartley and Mr Driver continued after 14 July 2023, with Mr Hartley stipulating for more assurances from Mr Driver. Some of the subsequent correspondence was written on behalf of Mr Hartley by a business associate of his, Mr Trent de Wit. Indeed, Mr de Wit wrote back the same day, 14 July 2023, seeking among other things: payment of the $7.5 million debt out of the proceeds of the Supreme Court proceedings, a higher rate of interest compensation on the outstanding debt based upon the rate of return for money invested in Aurora, a percentage of Mr Driver's net proceeds of the Supreme Court proceedings, and a transfer of Mr Driver's interest in Aurora to AMHP.
Mr Hartley followed this by drawing up two loan agreements to formalise the advances that constituted the $7.5 million debt, including terms for the grant of a charge. Mr Hartley directing his solicitors on 25 July 2023 to forward them to Mr Driver. It can fairly be said that these draft loan agreements stipulated for terms that were more demanding than those originally offered by Mr Driver in his 14 July 2023 letter. The legal representatives of Mr Driver rejected these terms. On any view a negotiation had commenced in which both parties were jockeying for commercial advantage. These negotiations continued until late October without a formal binding agreement being reached. On 27 October 2023, upon what appeared to be a breakdown in negotiations Mr Hartley's solicitor, Mr Balog, wrote a letter of demand before action threatening recovery of the debt. Mr Elliott SC points out with some force that the various demands made on Mr Hartley's behalf from this time in late 2023 and in early 2024 do not assert the existence of an agreement to give a charge over the proceeds of the redemption of Certificate 3. He submits that there must have been little belief on AMHP's and Mr Hartley's part in the existence of a charge in their favour over Certificate 3 even as late as January 2024.
In this context Mr Driver caused Aurora to make the redemption request in respect of Certificate 3 on 29 November 2023 and then commenced these proceedings to require Hunt Prosperity to execute on the request. By mid-January Mr Hartley's solicitors, Balog & Associates, aware of the proceedings, had written to Hunt Prosperity denying that Aurora had authorised the redemption request that purported to come from Aurora. The legal representatives of Hunt Prosperity, Thompson Geer pointed out to Balog & Associates, on 31 January 2024 that Balog & Associates had not put forward material that indicated that Mr Driver did not have Aurora's authority to make the redemption request, nor did Mr Hartley's contentions cause the trustee to doubt that it should perform its duty to process the redemption request.
[4]
Applicable Legal Principles
The Court's task on an interlocutory hearing such as this one was well expressed by the English Court of Appeal in Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892; [1984] 2 All ER 408; (1984) 81 LSG 2225; (1984) 128 SJ 484 when Sir John Donaldson MR said (at 894H - 895A):
"The defendants now appeal. It is of paramount importance that everyone should understand the exercise upon which the judge was, and we are, engaged. There is to be a speedy trial at which the rights of the parties will be determined. That has not yet happened. We are concerned, so far as we can, to preserve the rights of the parties meanwhile. It is not our function to decide questions of fact or law which will be in issue at the trial. If they are arguable, that is the time and the place when they should be argued."
Later in the same judgment his Lordship further explained the Court's duty in following terms (at 898E-898G):
"What then should we do? I stress, once again, that we are not at this stage concerned to determine the final rights of the parties. Our duty is to make such orders, if any, as are appropriate pending the trial of the action. It is sometimes said that this involves a weighing of the balance of convenience. This is an unfortunate expression. Our business is justice, not convenience. We can and must disregard fanciful claims by either party. Subject to that, we must contemplate the possibility that either party may succeed and must do our best to ensure that nothing occurs pending the trial which will prejudice his rights. Since the parties are usually asserting wholly inconsistent claims, this is difficult, but we have to do our best. In so doing, we are seeking a balance of justice, not of convenience."
In deciding whether to grant an interlocutory injunction the Court must consider whether there is a serious question to be tried and then whether the balance of convenience and questions of hardship and related factors warrant the grant of an interlocutory injunction. First, a plaintiff must prove a serious, not a speculative, case which has a real possibility of ultimate success and that property or other interests might be jeopardised if no interlocutory relief is granted: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed 2014, LexisNexis Butterworths) at [21-350] ("Equity Doctrines and Remedies"), discussing the requirements of the Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618; [1968] ALR 469; (1968) 42 ALJR 80; [1968] RPC 301 prima facie case test. Put another way, the plaintiff must show a sufficient likelihood of success to justify the preservation of the status quo pending the trial: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; (2006) 229 ALR 457; (2006) 80 ALJR 1672; [2006] HCA 46 at [70] - [71].
Then, it becomes a matter of analysing if in all the circumstances of the case, considering the balance of convenience and issues of hardship, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction: Equity Doctrines and Remedies at [21-350]; and see also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; (2001) 185 ALR 1; (2001) 76 ALJR 1; [2001] HCA 63 and Beese (Managers of Kimpton Church of England Primary School) v Woodhouse [1970] 1 All ER 769; [1970] 1 WLR 586. Other factors to which the Court will have regard include the adequacy of damages, the possibilities of alternative remedies, whether there has been any laches or delay, the strength of the grounds of defence suggested by the defendant, what, if any, undertakings the defendant is prepared to give, but hardship and the balance of convenience are very important: Equity Doctrines and Remedies [21 - 375]. If any infringement of a plaintiff's right between writ and hearing would be properly compensated in damages, that fact alone can, but not must, be a ground for declining an injunction: McCarty v Council of the Municipality of North Sydney (1918) 18 SR (NSW) 210; (1918) 35 WN (NSW) 85.
[5]
Consideration
The Court has ultimately found Mr Ireland KC's submissions on behalf of Mr Hartley the more persuasive on the issues raised.
Mr Elliott SC first submits that the offer contained in the 14 July 2023 email from Mr Driver was clearly rejected by Mr Hartley and that no agreement was made between the parties to grant a charge over the proceeds of Certificate 3. He next submits that there was no mention at the ex parte hearing on 1 February 2024 of the subsequent correspondence between the parties that showed that Mr Driver's offer contained in the 14 July 2023 email was not only not accepted so as to become a binding obligation but was the subject of continuing inconclusive negotiations. He submits this was a failure to disclose an important material matter at an ex parte hearing and that the injunction should be discharged and not renewed as a result.
On Mr Elliott SC's first submission, the debate in oral submissions between the parties became focused upon the ingredients that are necessary to establish a binding agreement to grant an equitable charge over property and whether these had been established to a prima facie level on the evidence advanced by on behalf of AMHP and Mr Hartley.
The requirements for an agreement for an equitable charge were clearly stated in Pudney and Mongee Nominees Pty Limited v MAN GHH Logistics GMBH, Supreme Court of Victoria, Appeal Division, (13 December 1993) per O'Bryan J, (Southwell J and Nathan J agreeing):
"The requirements in law of an equitable charge are stated succinctly by the learned authors Professor Sykes and Ms Walker in the Law of Securities at 196:
'The only actual requirements of the equitable charge seem to be, first, intention; secondly, if over land, the presence of writing; thirdly, the existence of definite ascertainable property, even though future, over which it is contemplated that the charge shall exist; and lastly, in a few exceptional cases the presence of consideration; consideration would not save a purely oral agreement.'
There are essential elements to every enforceable agreement. In the present case Mrs Crennan, one of Her Majesty's counsel and Mr Denton of counsel for the appellants submitted that the learned Judge was not entitled to find on the evidence of intention on the part of each party to the agreement; secondly the absence of definite and ascertainable property over which the charge would exist; and thirdly the absence of consideration."
Mr Elliott SC points out that mere intention is not sufficient to establish an agreement to grant a charge over the assets represented by Certificate 3. This submission is correct to the extent that a binding agreement to grant a charge is being relied upon. Consideration would be necessary to establish a binding agreement. As Mr Ireland points out here, as the property in Certificate 3 is personalty not realty, a written agreement is not required.
But the focus of the debate became somewhat diverted from examination of the actual evidence supporting the case for a charge that AMHP advanced on 1 February 2024. It is important to return to that evidence when analysing whether there is a serious question to be tried. As is commonly the case in interlocutory contests about available causes of action, the parties and the Court did not have the benefit of pleadings, so the available claims for relief were not examined with the precision of a final hearing.
Although the post 14 July 2023 negotiations make it difficult to accept that a binding form of agreement was made for Mr Driver or Aurora to grant a charge over Certificate 3, an obligation to grant a charge may nevertheless arise on the evidence adduced, by the application of doctrines of equitable estoppel based on the principles stated in Waltons Stores (Interstate) Pty Limited v Maher (1988) 164 CLR 387 at 428-429; [1998] HCA 7 [34] , or indeed upon a statutory claim in misleading and deceptive conduct based on the same conduct.
Such a claim for final relief is available because: (1) the 14 July 2023 email is a particularly strong representation of an intention to grant a charge over the proceeds of Certificate 3 and other property, and (2) Mr Hartley's evidence makes clear that whatever happened after 14 July 2023 during negotiations, he actually continued to forbear from enforcing the debt because of that representation, and relied upon it to his detriment.
In my view this is enough to establish a serious question to be tried in this case. Such a claim for relief would be available whether the $7.5 million debt was owed by Mr Driver to AMHP or Mr Hartley.
This then puts the nondisclosure claim into perspective. It is true as Mr Elliott SC submits that at the ex parte application on 1 February 2024 there was no mention on behalf of Mr Hartley of the negotiations that took place between 14 July 2023 and January 2024 and the failure of Mr Hartley to assert in correspondence that a binding agreement to grant a charge had been made. It is also true that there was no disclosure of the fact that the Hartley/AMHP interests had caused Mr Driver to be unable to use Aurora's bank accounts to receive the funds that might be paid out by Hunt Prosperity upon a redemption of Certificate 3.
But all of these matters are far less material candidates for disclosure if the plaintiff's claim for relief is framed in estoppel, and is as described in its evidence. A claim for relief in estoppel is not significantly diminished in power by the fact that negotiations are continuing. Indeed, the fact of negotiations combined with forbearance is commonly a circumstance that is relied upon to show that the estoppel has potency.
The obligation of disclosure can be demanding: Cool-Off Pty Ltd (ABN 79 068 308 225) v Thomas Foods International Pty Limited ABN 52 008 178 121 [2023] NSWSC 1183. But it is important to test the adequacy of disclosure against what is material to the claim for relief and here the evidence not disclosed on 1 February 2024 was not so material to the most arguable claim for relief as to give a misleading impression. Moreover, authority suggests that in a case such as this, where the explain injunction was only given for a limited period and the question is whether or not it should be extended there is little to discharge and, the matter can be looked at afresh in light of all the evidence: Bennett v The Excelsior Land, Investment and Building Company Limited (1893) NSWR (Eq) 179.
The balance of convenience favours granting an injunction. The cross claimants have given an undertaking as to damages. No doubts have been raised about the quality of Mr Hartley's or AMHP's undertaking as to damages, which in any event is supported by evidence of the debt owed to him or to AMHP. Mr Hartley has valuable entitlements in Aurora through Certificate 4. The balance of convenience favours the grant of injunctive relief to protect the grant of a security the benefit of which might otherwise be lost to the Hartley/AMHP interests. If the injunction is granted it is not demonstrably likely to cause any significant identifiable hardship to Mr Driver.
In my view this answers Mr Elliott SC's submissions and the Court will continue the injunctive relief granted on 1 February 2024.
[6]
Conclusions and Orders
For these reasons the Court makes the following orders and directions:
1. Upon the cross claimants by their counsel giving the usual undertaking as to damages, continue order (5) made on 1 February 2024, namely the relief sought in prayer for relief (1) of the Amended Cross Summons until further order; and
2. costs are reserved.
[7]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 04 March 2024