Australian and Pacific Investment Corporation Pty Ltd v Austpac Funds Management Limited

background 7 The hotel and associated assets were previously owned through unregistered managed investment schemes. Glenbelle was the owner of the Management Lot. In 2010, the schemes were wound up by the Court on the application of ASIC and the Management Lot was sold by the receivers of Glenbelle to Golden Heritage Golf Pty Ltd ("GHG"). Upon GHG acquiring the Management Lot, GHG agreed to meet all the obligations of the Management Lot owner under the Hotel Management Agreement. 8 It was a term of the Hotel Management Agreement that the appointment of a receiver to GHG constituted an event of default entitling the non-defaulting party to exercise any rights and remedies provided under the agreement, including termination: clause 20.2(c)(v). It was also a term that if any party was in default under clause 20.2, the non-defaulting parties could together terminate the agreement by giving the defaulting party a notice of termination of the agreement, effective on any day set out in the notice: clause 20.4. 9 Receivers were appointed to GHG on 31 January 2014. On 2 February 2014, Mr Boerkamp, who was then the managing director of AFML, caused AFML and YVL to enter into an agreement whereby, in consideration for YVL agreeing to assist AFML in terminating the Hotel Management Agreement in accordance with clause 20.4, AFML agreed the following: (1) YVL could continue to operate the Yarra Valley Lodge upon the same terms and conditions as set out in the Hotel Management Agreement for the duration of that agreement; (2) AFML would recommend to the room owners that AFML grant YVL two further option periods of five years each in addition to the remaining option period; and (3) if the room owners did not vote for the reinstatement of the Hotel Management Agreement once it was terminated by AFML and YVL together, AFML would pay YVL the termination fees that YVL was entitled to receive from both AFML and GHG under clause 21 of the Hotel Management Agreement. 10 On the same day, Mr Boerkamp caused AFML and YVL to serve a Notice of Automatic Default and Termination ("Notice of Termination") on GHG pursuant to clause 20.4 of the Hotel Management Agreement. The Notice stated that: Pursuant to clause 20.4 of the [Hotel Management Agreement], AFML and YVL hereby: 1 terminate the [Hotel Management Agreement], effective from the date on which completion of the sale and purchase of the Management Lot pursuant to the attached Exercise Notice under clause 21.2 of the [Hotel Management Agreement] occurs; and 2 seek damages. 11 Mr Boerkamp also caused AFML to give notice to GHG exercising AFML's option to purchase the Management Lot from GHG pursuant to clause 21.2(a). Clause 21.2(a) of the Hotel Management Agreement provided: If this Agreement is terminated for any reason whatsoever while GHG or any of its Related bodies corporate is the Management Lot Proprietor, then AFML shall be entitled for a period of 60 days from the service of notice of termination (Option Period) to serve a notice ("Exercise Notice") on the Management Lot Proprietor requiring that the Management Lot be sold to AFML or as it shall direct following service of the Exercise Notice, AFML must purchase or procure the purchase of and GHG must procure the sale to AFML or as it shall direct of: (i) the Management Lot on the basis set out in clause 21.2(b) below; and (ii) the Management Lot FF&E and the Management Lot Proprietor's share of Common Areas FF&E and Operating Equipment at their written down costs, and termination will not be effective until the earlier of expiry of the Option Period and completion of the sale and purchase. 12 Further notices of termination were issued by AFML on 15 February 2014 and 19 March 2014. 13 On 4 April 2014, the receivers of GHG commenced proceedings ("SCI 2014/1597") against AFML (when Mr Boerkamp was still in control of AFML). The claims included a claim that the Hotel Management Agreement terminated with effect from midnight at the end of 3 April 2014, a claim that AFML had breached implied terms of the Hotel Management Agreement, and a claim that YVL had breached the Hotel Management Agreement. 14 On 17 July 2014, AFML and GHG exchanged an executed contract of sale of the Management Lot ("the Management Lot Contract") and an executed Goods Sale Deed. The purchaser was "AFML and/or nominee". Special Condition 8 in the Management Lot Contract provided that: The vendor and purchaser will comply with each of their obligations under the Hotel Management Agreement until such time as the Hotel Management Agreement is terminated or Settlement, whichever is the earlier. 15 The clause then states (in a hand-written notation): The vendor and the purchaser acknowledge that as at the day of sale they have not agreed as to the date upon which the Hotel Management Agreement has terminated or will terminate. 16 In August 2014, Mr Boerkamp resigned as managing director of AFML. 17 On 11 September 2014, the Board of AFML resolved to establish the Austpac Management Lot Fund and resolved that the purchaser of the Management Lot would be AFML in its capacity as trustee of the Austpac Management Lot Fund. Adrian Blake, a director of AFML, deposed that the purchase was not by AFML in its capacity as the responsible entity for the Heritage Lodge Scheme, as the Heritage Lodge Scheme did not have sufficient funds to cover the purchase price and AFML was bound not to acquire that property by virtue of a deed poll that AFML had entered into with the room owners in June 2011. Under that deed poll AFML had given various undertakings to the room owners, including that AFML would not acquire the Management Lot unless room owners approved that acquisition by ordinary resolution. Mr Blake deposed that in conversations he had with Anthony LoGiusto, the manager of the hotel for YVL, Mr Blake understood that room owners were generally not interested in funding the purchase of the Management Lot. 18 Settlement of the purchase of the Management Lot by AFML was originally scheduled to occur on 15 September 2014. Shortly before the scheduled settlement a dispute arose between AFML and Mr Boerkamp's entities regarding the capacity in which AFML was purchasing the Management Lot. 19 That dispute was the subject of Supreme Court proceeding S ECI 2014/00082. In summary, AFML contended that it was purchasing the Management Lot in its capacity as trustee of the Austpac Management Lot Fund. On the other hand, Mr Boerkamp contended that AFML had agreed to purchase the Management Lot as trustee for Austpac Hotels & Resorts Property Fund, the units of which he had transferred to Willona, so that he was in control of the purchase of the Management Lot. 20 On 7 October 2014, the parties entered into a settlement deed ("the Settlement Deed"). Pursuant to that deed, Mr Boerkamp gave up any right to claim ownership of the Management Lot. He also agreed to complete the sale of his Austpac Group shares to the Pacific Group. 21 Clause 4.1 of the Settlement Deed stated that: AFML, in its capacity as trustee for the Austpac Management Lot Fund, undertakes to complete the purchase of the Management Lot and FF&E pursuant to the Management Lot Contract and Goods Sale Deed. 22 Clause 4.2 of the Settlement Deed stated that: Within 180 days of completing the purchase of the Management Lot and FF&E in accordance with clause 4.1 herein: (a) AFML, in its capacity as trustee for the Austpac Management Lot Fund, will offer the Management Lot and FF&E (by way of an offer of interests the structure of which is to be determined), making such offer (in accordance with clause 4.2(b)) to all room owners in the Heritage Lodge Scheme at a price that will not exceed the price AFML paid for it. (b) The terms and structure of the offer will (other than as to price) be at AMFL's discretion but must be reasonable and commercial. 23 On 28 October 2014, proceeding SCI 2014/1597 was settled by a Deed of Settlement and Release. Clause 2(b) of the Deed of Settlement and Release relevantly stated: The Parties hereby agree that all Notices served on behalf of AFML and YVL under the [Hotel Management Agreement] are deemed withdrawn and of no effect. Clause 2(c) provided: The parties to the [Hotel Management Agreement] hereby agree that the [Hotel Management Agreement] has not been terminated and, subject to clause 2(d), the [Hotel Management Agreement] remains in force. GHG agrees to novate its rights and obligations under the [Hotel Management Agreement] to AFML as the purchaser of the Management Lot upon the terms of the annexed form of Deed of Novation. Clause 2(d) provided: Each of AFML and YVL agree that neither GHG nor the Receivers and Managers shall have any further obligation or liability under the [Hotel Management Agreement] after the date of this Deed and hereby indemnify and agree to keep indemnified each of GHG and the Receivers and Managers from any Claim made or brought by any person against the Receivers and Managers and GHG in relation to the [Hotel Management Agreement] generally and any act or omission by any of them with respect to or in connection with the [Hotel Management Agreement]. 24 The novation was formalised in a Deed of Novation dated 28 October 2014 between GHG (as the outgoing party), AFML (as the new party), AFML as responsible entity of the Heritage Lodge Scheme and Yarra Valley Lodge (as continuing parties) under which AFML (as the new party) assumed the rights and obligations of GHG under the Hotel Management Agreement upon becoming owner of the Management Lot. The Yarra Valley Lodge has since continued to be operated and managed by YVL. 25 On 19 December 2014, settlement of the Management Lot Contract took place. 26 On 23 December 2014, AFML sent an Expression of Interest for Offer to Room Owners for the Management Lot ("Expression of Interest") to all members of the Heritage Lodge Scheme. The document stated, by way of background, amongst other things, that: On 19 December 2014 AFML as trustee for the Austpac Management Lot Fund acquired the Management Lot from the Receivers and Managers of [GHG]. The acquisition was the culmination of an 11 month process that was triggered by the appointment of receivers and managers to GHG. AFML and the hotel manager [YVL] have had various negotiations with GHG and have accomplished the following simultaneous favourable outcomes: • Acquisition of the management lot • A resolution of all disputes between GHG and AFML • Continuation of the longstanding arms'-length Hotel Management Agreement with no unsatisfied historical liabilities. 27 After receiving the Expression of Interest, APIC lodged a caveat against the Management Lot on 22 January 2015 claiming an interest as a beneficiary pursuant to an express, resulting or constructive trust between APIC and AFML. 28 On 23 January 2015, APIC's solicitors sent a letter to AFML's solicitors claiming that the Expression of Interest did not constitute an offer in compliance with clause 4.2 of the Settlement Deed. In summary, it was claimed that the Expression of Interest did nothing more than solicit expressions of interest for an offer which may or may not ultimately be made and it purported to offer the room owners the opportunity to acquire part of the Management Lot, restricted to 5% of the units on offer per room owner. 29 On 3 February 2015, "so as to ensure Scheme members [were] not adversely affected by AFML's improper conduct and the proposed offer [was] fully underwritten", APIC enclosed a registration of interest to acquire all units in the Austpac Management Lot Fund. 30 By letter dated 9 February 2015, APIC's solicitors wrote to AFML's solicitors stating that APIC considered that the representation that the Hotel Management Agreement remained on foot was misleading. APIC's solicitors claimed that the termination notice had provided that termination of the Hotel Management Agreement would take effect upon completion of the sale and purchase of the Management Lot pursuant to the exercise notice, which completion occurred on 19 December 2014. It was also claimed that since the termination took effect on 19 December 2014, the Hotel Management Agreement had operated on a month to month basis at best. 31 On 23 February 2015, AFML's solicitors responded stating that it was incorrect that termination had occurred on 19 December 2014. It was stated: As a result of the negotiations with GHG, the parties agreed on 28 October 2014 that the matters in dispute between the parties were resolved, notices of "automatic default" served by AFML and YVL would be withdrawn and accordingly the litigation commenced by the receivers of GHG would be discontinued. The [Hotel Management Agreement] continued from that date with an acknowledgement that there was no alleged performance default by any party against another. Almost two months later, GHG settled the sale of the Management Lot to AFML and, under the terms of the [Hotel Management Agreement], the parties all executed a Deed of Novation under which AFML took the place of GHG as the Management Lot owner-party to the [Hotel Management Agreement]. 32 On 6 July 2015, the plaintiffs' solicitors wrote to the defendants' solicitors referring to the letter of 23 February 2015 and claiming that it was inconsistent for the Hotel Management Agreement to continue to exist in circumstances where AFML had purchased the Management Lot by reason of clause 21.2 of the Hotel Management Agreement. It was further claimed that the terms of the Contract of Sale and Goods Sale Deed did not comply with clause 4.2(a) of the Settlement Deed because it was neither reasonable nor commercial to require the room owners to assume the Hotel Management Agreement as part of the purchase of the Management Lot, in circumstances where AFML acquired the Management Lot free of the Hotel Management Agreement. The letter demanded that AFML comply with its obligations under clause 4.2(a) of the Settlement Deed by issuing an offer to the room owners that did not include a condition that the Hotel Management Agreement be novated to the purchaser. The letter also sought an undertaking that AFML would, as soon as practicable, make an offer to the room owners which did not include such a condition, and an undertaking that AFML would not sell, encumber or otherwise deal with the Management Lot until it had complied with that undertaking and otherwise with clause 4.2(a) of the Settlement Deed. The undertakings were requested by 7 July 2015. The undertakings were not given. 33 In response to the Expression of Interest, AFML received 8 registrations of interest. Out of the total, 7 expressed interest in acquiring only their unit entitlement and one registration was said to be non-compliant (the registration of interest provided by APIC). By email on 18 March 2015, AFML then made an offer to sell the Management Lot to room owners, attaching a Contract of Sale of Real Estate and Goods Sale Deed. The offer was open for 90 days and expired on 18 June 2015. Room owners were advised that the contract would: … necessarily include a term that the purchaser enters a Deed of Novation to be bound by the Hotel Management Agreement in place of the existing Management Lot owner. This is a requirement of the [Hotel Management Agreement] itself, which the Management Lot owner is bound by. Corresponding terms were included in the Contract provided with the offer on 18 March 2015. None of the room owners accepted the offer. 34 AFML then marketed the Management Lot to third parties and on 20 July 2015, entered into heads of agreement with the Mantra Group. 35 On 6 August 2015, APIC and Willona commenced proceedings against AFML and YVL. By the statement of claim it is alleged that by failing to terminate the Hotel Management Agreement, AFML has breached: (a) its statutory duties as a responsible entity under s 601FC of the Corporations Act 2001 (Cth); (b) its undertakings under the deed poll executed in June 2011; and/or (c) its obligations under the Settlement Deed dated 7 October 2014. 36 It is also alleged that by failing to offer the Management Lot to room owners on the basis of a terminated Hotel Management Agreement, AFML breached its obligations under the Settlement Deed. 37 The plaintiffs made application for injunctive relief to restrain AFML from selling the Management Lot to third parties, other than the room owners.

The relevant principles 38 The parties were not in dispute as to the principles to be applied in deciding whether or not to grant the interlocutory relief sought by the plaintiffs. It is common ground that the plaintiffs must show that: (a) they have a prima facie case in the sense that, if the evidence remains as it is, there is a probability that at the trial of the action, they will be held entitled to relief; and (b) the inconvenience or injury which they would be likely to suffer if an injunction were refused outweighs any injury which the defendant would suffer if an injunction were granted. 39 In Warner-Lambert Co LLC v Apotex Pty Ltd (2014) 106 IPR 218; [2014] FCAFC 59, the Full Court said at [70]: Whether an applicant for an interlocutory injunction has made out a prima facie case and whether the balance of convenience favours the grant of such relief are related questions. It will often be necessary to give close attention to the strength of a party's case when assessing the risk of doing an injustice to either party by the granting or withholding of interlocutory relief especially if the outcome of the interlocutory application is likely to have the practical effect of determining the substance of the matter in issue or if other remedies, including an award of damages, or an award of compensation pursuant to the usual undertaking, are likely to be inadequate. In the present case, the defendants contend that there is no serious question to be tried, or if there is, the balance of convenience does not support the grant of an injunction. An additional factor raised by the defendants is what was claimed to be delay on the part of the plaintiffs in seeking injunctive relief.

Is there a serious question to be tried? 40 In seeking the injunction, the plaintiffs did not raise any argument concerning the breach of statutory duties claim or alleged breach of the undertakings under the deed poll. The case was confined to the allegation of the breaches of the Settlement Deed. Shortly stated, the argument was that clause 4.1 of the Settlement Deed must be read in conjunction with Special Condition 8 of the Management Lot Contract. This, it was submitted, required AFML to terminate the Hotel Management Agreement at or before the settlement of the Management Lot Contract because the entry into the Management Lot Contract (and AFML's purchase of the Management Lot) was effected pursuant to clause 21.2 of the Hotel Management Agreement, that is, on the basis that the Hotel Management Agreement was to terminate by reason of the Notice of Termination. It was submitted that on the proper construction of clause 4.1 of the Settlement Deed, by failing to offer the Management Lot to room owners unencumbered by the Hotel Management Agreement, the offer made by AFML to the room owners did not comply with AFML's obligations under clause 4.1 of the Settlement Deed because: (a) the Management Lot was offered to the room owners with a significant burden, being the Hotel Management Agreement, as a result of which the price sought of $2 million did not reflect its fair market value (being $1.7 million); (b) it restricted acceptances from room owners to a single acceptance, with all "inconsistent acceptances being automatically deemed ineligible"; and/or (c) AFML did not issue a product disclosure statement to the room owners, or provide any other detailed information in its capacity as responsible entity of the Heritage Lodge Scheme, so that the room owners could make a proper and informed decision on the purchase of the Management Lot. 41 I consider that the construction urged by the plaintiffs is one that is open but I am not satisfied that the plaintiffs have made out a strong prima facie case that their construction is the correct construction. 42 First, Special Condition 8 of the Management Lot Contract did not, in terms, oblige AFML to terminate the Hotel Management Agreement but rather it obliged AFML to comply with the Hotel Management Agreement until termination or settlement, whichever was the earlier. 43 Secondly, Special Condition 8 contained the acknowledgement that GHG and AFML had not at the time of entry into the Management Lot Contract agreed as to the date upon which the Hotel Management Agreement "has terminated or will terminate". There is a forceful argument that, as at the date of sale, the Hotel Management Agreement had not terminated pursuant to the Notice of Termination given by AFML and YVL under clause 20.4 of the Hotel Management Agreement. Clause 20.4 of the Hotel Management Agreement provided that termination was effective "on any day set out in the notice". The Notice of Termination specified that the termination will be "effective from the date on which completion of the sale and purchase of the Management Lot pursuant to the attached Exercise Notice under clause 21.2 of the [Hotel Management Agreement] occurs". That did not occur until 19 December 2014. Counsel for the plaintiffs appeared to accept that the Hotel Management Agreement did not terminate pursuant to clause 21.2(a) until settlement of the Management Lot Contract. 44 Thirdly, the terms of the Hotel Management Agreement were capable of variation by the agreement of all the parties to that contract. The parties to that contract were, at the relevant time, GHG, AFML and YVL. The Deed of Settlement and Release entered into on 28 October 2014 was made between AFML (which had been sued in its capacity as the responsible entity of the Heritage Lodge Scheme), YVL and GHG and its receivers. Critically, pursuant to that agreement, the notices of automatic default and termination were withdrawn. Additionally, the Deed of Novation, entered into in pursuance of the terms of settlement, was entered into by AFML both in its own right and in its capacity as responsible entity for the Heritage Lodge Scheme. I accept that there is force in the defendants' construction that clauses 2(b) and (c) of the Deed of Settlement and Release were effective to vary the terms of the Hotel Management Agreement so that the agreement has remained in effect. 45 Fourthly, if the Hotel Management Agreement had not terminated by force of the Notice of Termination, clause 22.10 of that agreement bound AFML to include in any contract for the sale of the Management Lot a term that the purchaser enters a deed of novation to be bound by the Hotel Management Agreement in place of the existing Management Lot owner. In other words AFML is contractually bound to offer the Management Lot on terms that the Hotel Management Agreement continues.

Balance of convenience 46 Even if I were satisfied that the plaintiffs have a strong prima facie case as to their construction of clauses 4.1 and 4.2 of the Settlement Deed the balance of convenience does not favour the grant of an injunction. 47 First, it was asserted for the plaintiffs that damages would not be an adequate remedy because it would be virtually impossible to assess the loss suffered because of the many and intangible benefits that would flow to the room owners in owning the Management Lot and in being able to operate the Yarra Valley Lodge efficiently without the inequitable burdens imposed by the Hotel Management Agreement. That submission was not supported by any evidence or attempt to justify that the submission has a proper basis by reference to the claim made. Rather, the Court was simply asked to accept as correct the proposition that was put. I am not prepared to accept simply on the basis of assertion that loss and damage is incapable of assessment. 48 Secondly, APIC is only one of 102 room owners. Mr Boerkamp deposed that his motivating concern is, and always has been, to act in the best interests of the room owners and to ensure that the room owners are offered the option to purchase the Management Lot without the Hotel Management Agreement. Mr Boerkamp has also deposed that he believes that AFML has breached clause 4.1 of the Settlement Deed by not terminating the Hotel Management Agreement and offering the Management Lot to the room owners without that agreement. Mr Boerkamp has further deposed that he believes that AFML is not acting in the best interests of the room owners by seeking to sell the Management Lot concurrently with the right to operate the hotel, by selling YVL. He deposed that if AFML sells the Management Lot together with the right to manage the hotel, the room owners will be excluded in perpetuity from the opportunity ultimately to consolidate the freehold interest in the Management Lot with the individual rooms, and being able to renegotiate the Hotel Management Agreement to their advantage. Mr Boerkamp does not, however, represent the other room owners and no other room owners have come forward to indicate their support for the injunctive relief. Absent such evidence, Mr Boerkamp's belief as to what is in the best interests of the room owners is simply assertion by him. 49 Thirdly, the plaintiffs have been on notice since 23 February 2015 at the latest that it is AFML's position that the Hotel Management Agreement has not terminated. At that point in time, it was clear that there was a dispute between the parties as to the proper construction of clauses 4.1 and 4.2 of the Settlement Deed and that AFML did not accept APIC's construction. It has been open to the plaintiffs since February 2015, at the latest, to commence proceedings to claim breach of contract. 50 Fourthly, AFML has, in the meantime, entered into heads of agreement with a third party to sell the Management Lot to a third party. Mr Blake deposed that he has been informed by Michael Moret-Lalli, Director of Acquisitions for the Mantra Group, that as a result of the application by the plaintiffs in this proceeding, the Mantra Group has put on hold any further work in relation to the purchase, including due diligence and that if the transaction documents for the sale are not executed within a few weeks, then Mantra Group will look for alternative assets for its property portfolio and will not proceed with the purchase of the Management Lot and other assets from AFML. In that context, it is relevant to take into account that there is no evidence that the position taken by APIC is supported by any other room owners. Whilst APIC contests AFML's right to sell the Management Lot to a third party without first offering that property to the room owners not subject to the Hotel Management Agreement, APIC is only one out of the 102 room owners and the position of the other room owners is relevant to the balance of convenience. The balance of convenience favours AFML, absent evidence that indicates that APIC has the substantial support of the other room owners. 51 Accordingly, therefore, I consider that the balance of convenience is against the grant of an injunction. As stated, I am not persuaded that damages would not be an available remedy for APIC if ultimately its construction is shown to be a correct one.

conclusion 52 Accordingly, the application for an interlocutory injunction is dismissed. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.