Balout v Bella Ikea Cronulla Pty Ltd

FACTS

1. These, and related Corporations List proceedings, concern a failed collaboration by Mr Balout and Mr Touma to develop a block of units in Cronulla. The site had five apartments and the benefit of a development consent to demolish the existing building and build nine apartments instead. The existing apartments comprised two one-bedroom apartments (units 2 and 4), two two-bedroom apartments (units 1 and 3) and one three-bedroom apartment (unit 5).
2. In May 2017, before Mr Balout came into the picture, Bella & SEB purchased unit 3 and unit 5 for $1,147,221.24 and $1,250,176.99 respectively. In October 2017, Bella Ikea purchased unit 2 and unit 4 for $705,982.30 and $764,814.16 respectively. Mr Touma was then the sole director of Bella & SEB and Bella Ikea. His company, Bilpin Projects Pty Ltd, was the sole shareholder. The defendants later contended in the Corporations List proceedings that Bilpin advanced funds to Bella & SEB and Bella Ikea to purchase the apartments and fund development costs.
3. In August 2018, Bella Ikea purchased the remaining unit 1 for $1.2 million. The plaintiffs later contended in the Corporations List proceedings that, in 2018, Mr Balout and Mr Touma entered into a joint venture agreement to develop the Cronulla property. Under the agreement, Mr Balout paid $1.85 million for a 50% share in Bella Ikea and Bella & SEB. Mr Balout and Mr Touma were to be directors of both companies. Mr Balout became a director of Bella Ikea. Although Mr Balout signed the form to become a director of Bella & SEB, Mr Touma failed to lodge the form with the Australian Securities and Investments Commission (ASIC). The defendants proffered a different arrangement but agreed that the funds provided by Mr Balout to acquire a shareholding in Bella Ikea were used, together with funds provided by Bilpin, to purchase unit 1.
4. As I understand it, Bilpin had a loan from the Commonwealth Bank of Australia, which was guaranteed by Bella Ikea and secured by a mortgage over units 1, 2 and 4. The defendants later contended in the Corporations List proceedings that, in February 2019, Bella Ikea also obtained a loan of $1,788,750 from BNY Trust Company of Australia Ltd, which was also guaranteed by Bella & SEB and secured by a mortgage over Bella & SEB's units.
5. The plaintiffs later contended in the Corporations List proceedings that, in January 2021, Mr Touma removed Mr Balout as a director of Bella Ikea, without Mr Balout's knowledge or consent. Mr Touma's wife was appointed as a director instead. The defendants later contended that the removal of Mr Balout was appropriate.

Mr Dimassy

1. Mr Dimassy is a builder and runs his own demolition and excavation works business known as DC Earthworks. He also undertakes property development. Mr Dimassy was the sole director and shareholder of Ybami Pty Ltd. In August 2021, Ybami exchanged contracts with Bella Ikea and Bella & SEB to purchase units 1, 3 and 5 for $776,000, $750,000 and $890,000 respectively. It will be immediately observed that these purchase prices fell far short of what Bella Ikea and Bella & SEB had paid for the units some years earlier. More specifically, the combined purchase price was $1,181,398 (or 33%) less than had been paid for the apartments three to four years earlier. Mr Touma also proposed to enter into sales contracts in respect of unit 2 (to Mark Ghajar for $620,000) and unit 4 (to Robin-al Azad for $640,000). All up, the contracts of sale added up to $3,676,000, being some 25% less than the $4,943,194 earlier paid for the units.
2. The plaintiffs later contended in the Corporations List proceedings that the apartments were sold without Mr Balout's knowledge or consent. The defendants later contended that Mr Touma had sought to sell all of the apartments for market value, where Bella & SEB and Bella Ikea were no longer going to develop the property and were not generating sufficient income to discharge their liabilities, including development loans.

Corporations List proceedings

1. A week after exchange of the contracts for sale, on 12 August 2021, the plaintiffs commenced proceedings against the defendants in the Corporations List seeking inter alia to restrain the sale of the units to Ybami. On 13 August 2021, Black J made orders by consent and without admission: on the plaintiffs giving the usual undertaking as to damages, the defendants undertook not to complete the sale of the units until 20 August 2021 or determination of the plaintiffs' application for interlocutory relief. On 21 August 2021, Black J made further orders by consent, extending the undertakings until final determination of the proceedings.
2. In September 2021, Ybami terminated the contracts to purchase units 1, 3 and 5. On 21 September 2021, the defendants gave revised undertakings to the Court on a without admissions basis, not to sell, encumber, transfer or otherwise deal with Bella Ikea or Bella & SEB's property without Mr Balout's consent or an order of the Court, until further order.
3. The Corporations List proceedings continued towards final hearing, with amended pleadings and affidavits filed. As ultimately framed, the plaintiffs brought an oppression suit. Mr Balout sought a declaration that his removal as a director of Bella Ikea was invalid, as was the appointment of Mrs Touma in his stead. Mr Balout sought a declaration that he was a director of Bella & SEB. A buy-out order was sought or, alternatively, that Bella Ikea and Bella & SEB be wound up. The plaintiffs also complained that Bella Ikea funds had been used to repay Bilpin's loans.
4. The defendants denied the plaintiffs' claims and the existence of a joint venture agreement. Further, it was said to be appropriate to use Bella Ikea's funds to make payments on Bilpin's loan, where Bella Ikea had given a mortgage over its units to secure the loan, was not generating sufficient income to discharge its liabilities, and the plaintiffs had not previously complained about 15 payments made by Bella Ikea in respect of the loan.
5. In September 2022, the matter was listed for hearing before Black J on 21 February 2023 for three days.
6. In December 2022, an application for finance was made to the fourth defendant, Benthos Investments Pty Ltd. On 5 January 2023, Benthos advanced $1,932,768.03. According to Mr Touma, as relayed to Mr Moore, the loans were advanced to Bella Ikea and Bella & SEB. It would appear that the loan from BNY Trust Co was refinanced.
7. On 17 February 2023, the plaintiffs' solicitors wrote to Benthos and its agent, Mario Salvo of Salvo Property Group, in advance of the trial set to commence on 21 February 2023. The plaintiffs' solicitors advised that they had been informed that Benthos had taken possession, or intended to take possession, of units 1, 3 and 5 due to the default of Bella Ikea and Bella & SEB under the mortgage assigned to Benthos by the former mortgagee. Copies of correspondence with the defendants were sought.

Settlement

1. On 21 February 2023, Black J made orders in chambers to resolve the Corporations List proceedings. The parties agreed to appoint a single expert to prepare accounts for Bella Ikea and Bella & SEB, to determine the quantum of any loans and contributions, and to make adjustments if the expert determined that funds had been misappropriated or revenue diverted or funds applied to payments outside the ordinary course of business to Mr Balout, Mr Touma or their related parties.
2. The parties also agreed to appoint an independent real estate agent to advise the sales prices which the units may achieve, either by sale as individual lots or in one line. On receipt of the agent's advice, the plaintiff would nominate which method of sale to pursue. The independent real estate agent would then market the apartments for sale, either in one line or individually, as nominated by the plaintiffs. The sales process was to be completed within six weeks by the exchange of contracts. On completion of the sale of the apartments, the proceeds were to be applied to discharge any mortgages, with the surplus to be paid into a controlled moneys account in the joint names of the parties and to be held pending agreement or an order of the Court.
3. The hearing was vacated. The costs of the Corporations List proceedings were reserved. Black J noted that it was envisaged by the parties that they would seek a mutual discharge of the undertakings given by them in course of the proceedings. Further, the parties intended to re-list the proceedings for directions at least two weeks after the issue of the expert's report.
4. On 23 February 2023, Mr Balout consulted "Which Real Estate Agent" to obtain recommendations for Cronulla-based agents. On 24 February 2023, the plaintiffs put forward three real estate agents to the defendants. On 28 February 2023, the defendants chose one of these agents, being "Ray White Sutherland Shire". An independent accountant and solicitor were nominated and selected in the same manner.
5. On 3 March 2023, Ray White Sutherland Shire was appointed as agent. On 10 March 2023, Alex Pitsis of Ray White Sutherland Shire advised that the development site could expect to achieve between $5.5 million and $6 million if sold in one line. If sold as separate apartments, the one-bedroom apartments could expect to achieve $500,000 each, the two-bedroom apartments could expect to achieve $750,000 each and the three-bedroom apartment could expect to achieve $1.1 million. The total sales revenue if sold individually was expected to be $3.6 million. Sale in one line had a higher estimated sale price of between $1.4 million and $2.4 million than if the apartments were sold individually. On 13 March 2023, the plaintiffs nominated the sale of the properties in one line.

Mr Dimassy again

1. It will be recalled that Mr Dimassy had earlier exchanged contracts to buy units 1, 3 and 5 using his company, Ybami. Mr Dimassy had another company, fifth defendant, 11 Kingston Avenue Pty Ltd, of which he was the sole director and shareholder. On 17 March 2023, Mr Dimassy contacted Derek Cheung of Salvo Property Group, expressing interest in purchasing the three units again and requesting contracts of sale for his solicitors' review. Mr Dimassy proposed to submit a written offer for consideration.
2. Mr Dimassy said his strategy by owning three units was that he could participate in the redevelopment of the site and receive rental income in the meantime. By owning three units, 11 Kingston could either buy the remaining two units if they were offered for sale or negotiate a joint venture with the owner of the two units, Bella Ikea, for redevelopment. As controller of three units, 11 Kingston could share in the profits with the developer or sell the units to another developer at a profit.
3. When asked what relationship, in any, there was between Mr Touma and Mr Dimassy, I was informed by the defendants' counsel that they had no formal relationship "other than they were persons that may have been able to do business, in that they were discussing a joint venture in some future period of time, but it's not like they are related in any sense."
4. On 22 March 2023, Mr Dimassy offered to buy units 1 and 3 for $750,000 each and unit 5 for $900,000, being an offer that "will not be available for long". On 23 March 2023, Mr Cheung advised that the offer was not accepted as it was considered to be significantly below market value. Nor was Benthos satisfied with the proposed settlement terms, or the lack of information regarding the purchaser, or the amount and form of deposit payments. Benthos planned to proceed with a formal marketing campaign.
5. On 27 March 2023, Mr Dimassy emailed again regarding "our offer"; "I am disappointed that you have found our offer unacceptable, but I must emphasize that we cannot engage in an [expression of interest] or Auction process. … we have already made our offer …". Mr Dimassy advised that the proposed purchaser was 11 Kingston. Further, "We have revised our offer and are now willing to offer a 60-day settlement and waive the 66w. Lastly, we are willing to increase the price, provided that you agree to the above and have your lawyers reply to ours … Time is running out, and we cannot afford any delays. If we do not receive your confirmation by the end of the day, we will have no choice but to withdraw our offer." Mr Dimassy did not specify what the increased offer would be. On 28 March 2023, Mr Cheung requested the revised pricing for each apartment.
6. On 29 March 2023, Mr Dimassy prepared deposit cheques, which reflected the revised offer of $850,000 for the two-bedroom units and $1.1 million for the three-bedroom unit. On 4 April 2023, Mr Dimassy pressed Mr Cheung to accept the revised offer, "Our offer has been submitted to you last week without any response … we have made a serious offer … we are seeking a timely acceptance … We now place an expiration date on our offer being 5pm 6th April 202[3]. If our offer is not accepted by this date and time it is withdrawn."
7. Mr Cheung replied that the offer for unit 1 and unit 3 remained below current market value and requested that Mr Dimassy reconsider his offer for those two units. In addition, a settlement term of 42 days was required for all three units. Mr Dimassy replied "We are not aware of your expectations in formulating our offer we only considered buying all 3 for a total of $2.8M … In regards to increasing our price we are not prepared to do so as we believe it's [a] good price for all 3 in addition we save you marketing costs and agents commission … We are prepared to accept 42 day settlement … we also are prepared to pay your legal costs … if this is all acceptable to you please contact our lawyers to complete the exchange."
8. Where Mr Dimassy was the sole director and shareholder of 11 Kingston, his frequent use of the plural in his communications with Benthos' agent - referring to "our offer" and "we" - is curious. It could be his manner of speaking or suggest that he was progressing the proposed purchase of units 1, 3 and 5 with another person, such as his prospective joint venturer, Mr Touma. Either way, purchasing three units in this manner was outside the consensual regime which Mr Touma had agreed and which had been given effect by consent orders made in the Corporations List proceedings on 21 February 2023. The emails between Mr Dimassy and Mr Cheung also indicate that Mr Dimassy was aware of the compulsory sale process and wished to secure the three units outside that process.
9. On 6 April 2023, Mr and Mrs Touma signed agency agreements on behalf of Bella Ikea and Bella & SEB for all five apartments. The same day, contracts were exchanged for the sale of units 1, 3 and 5. The vendor was Benthos as mortgagee exercising a power of sale. 11 Kingston bought units 1 and 3 for $850,000 each and unit 5 for $1.1 million.
10. On 12 April 2023, Mr Cheung advised Bella Ikea and the plaintiffs' solicitor that contracts had been exchanged for units 1, 3 and 5, as mortgagee in possession, and settlement was due on 18 May 2023. On 20 April 2023, the plaintiffs relisted the Corporations List matter. On 24 April 2023, Black J granted leave to the plaintiffs to file an Interlocutory Process in respect of the sale of the properties.
11. Bilpin had also stopped making loan repayments on its loan from the Commonwealth Bank, which, it will be recalled, was secured by a mortgage granted by Bella Ikea over units 1, 2 and 4. On 5 May 2023, the Commonwealth Bank wrote to Mr Touma as director of Bilpin, noting that Bilpin's loan was in arrears; the account had been referred to a department of the bank which specialised in managing customers that may be experiencing financial difficulty. The letter recorded, "Based on your recent interaction with the bank, it is acknowledged that you are currently in dispute with your business partner and as [a] result decided to cease making payments on the [loan]." The bank noted that unit 2 and unit 4 were expected to be sold in the next four to six weeks. Whilst the bank was entitled to commence enforcement action, the bank was prepared to forebear if the units were sold within the expected timeframe. Failing this, the bank may exercise its rights.
12. Meanwhile, Mr Pitsis turned his mind to how much the remaining units 2 and 4 may sell for individually. On 8 May 2023, the agent advised that each one-bedroom apartment could achieve between $550,000 and $600,000 each. That is, in sum, all five apartments would realise some $4 million in total "which is considerably less than if all 5 apartments [were] sold in one line". The agent sought instructions as to how to proceed.

These proceedings

1. On 16 May 2023, the plaintiffs commenced these proceedings against Bella Ikea, Bella & SEB, Mr Touma, Benthos and 11 Kingston, seeking interlocutory injunctions restraining Benthos and 11 Kingston from completing the contracts for sale for units 1, 3 and 5. A declaration was sought that Mr Touma had breached his duties as a director of Bella Ikea and Bella & SEB, knowingly assisted by Benthos and 11 Kingston. Injunctions were sought against Bella Ikea and Bella & SEB, restraining the companies from selling the properties other than in accordance with the orders made by Black J. Damages and equitable compensation were also sought.
2. On 17 May 2023, Hammerschlag CJ in Eq heard the plaintiffs' application for an interlocutory injunction, which was opposed. His Honour enquired whether the plaintiffs were prepared to pay the amount owing to Benthos into Court, in accordance with Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161. (As a general rule, the Court will not interfere to deprive the mortgagee of the benefit of its security "except upon terms that an equivalent safeguard is provided to him, by means of the plaintiff bringing in an amount sufficient to meet what is claimed by the mortgagee to be due": Inglis at 165.) Benthos' counsel advised that the indebtedness was then in the order of $1.9 million. The Court adjourned to enable the plaintiffs' counsel to obtain instructions.
3. After the adjournment, the plaintiffs' counsel advised that he had been informed that the discharge amount was $2,033,000. His Honour noted that the plaintiffs proffered the usual undertaking as to damages. As security for the undertaking, his Honour ordered the plaintiffs to pay $2.03 million into Court. (Ms Smith said the sum of $2.03 million represented an estimated amount of damages to Benthos as the mortgagee on title together with $30,000 representing Benthos' estimate of legal costs.) Benthos and 11 Kingston were restrained from completing the contracts for sale. The proceedings were expedited. The plaintiffs paid the security into Court.
4. On 8 June 2023, the plaintiffs filed a statement of claim, alleging an arrangement, agreement or scheme between Mr Touma, Benthos and 11 Kingston to cause Bella Ikea to fall into default on its mortgage, for Benthos to obtain an assignment of the lender's rights and to exercise those rights, to effect the sale of the units to 11 Kingston and thereby deprive the plaintiffs of the benefit of the orders made by Black J. The defendants were said to have engaged in unconscionable conduct or tortious interference with a contract. Mr Balout also sought leave to bring a derivative action on behalf of Bella Ikea and Bella & SEB.
5. The plaintiffs also relisted the Corporations List proceedings, seeking a stay of Black J's orders pending a resolution of these proceedings. On 19 June 2023, Black J declined to do so, after considering the implications of the mortgagee sale on the consensual regime agreed by the parties, where the plaintiffs had nominated sale in one line. His Honour concluded that both parties had assumed the risk that, if a mortgagee sale occurred, then sale in one line could not go forward in accordance with the steps contemplated by the consent orders. If the plaintiffs' challenge to the mortgagee sale in these proceedings was successful, however, the ability to complete the sale in one line may be restored. The orders sought by the plaintiff were not necessary.
6. The proceedings continued in this Court. Defences were filed. On 23 August 2023, Parker J granted leave to the plaintiffs to bring a derivative suit. The plaintiffs filed a cross-claim by Bella Ikea and Bella & SEB against Mr Touma, Benthos and 11 Kingston, seeking an injunction to restrain completion of the contracts for sale and alleging a breach of director's duties, in which Benthos and 11 Kingston were said to have been knowingly involved. Defences to the cross-claim were filed.
7. On 1 September 2023, Parker J listed these proceedings for hearing on 4 December 2023 for four days. Directions were made for evidence and discovery. However, on 19 September 2023, 11 Kingston issued a notice of termination to Benthos in respect of the contracts for sale for units 1, 3 and 5. Ms Smith said this was 76 days before trial and rendered the final hearing otiose. (On 6 November 2023, Parker J vacated the hearing in these proceedings.)
8. On 24 October 2023, Parker J directed the parties to file any application to vary Black J's consent orders in the Corporations List matter or the interlocutory injunctions ordered by Hammerschlag CJ in Eq. On 3 November 2023, the plaintiffs filed an interlocutory process in the Corporations List proceedings, seeking to join Benthos, vary the consent regime by extending time to complete the steps envisaged in the consent orders, and restrain Benthos from entering into any contract of sale, transfer or otherwise dealing with units 1, 3 or 5 other than in accordance with that regime. On 24 November 2023, Benthos and 11 Kingston filed motions seeking to discharge the interlocutory injunctions ordered by Hammerschlag CJ in Eq.
9. Meanwhile, Ms Smith sought an update from Mr Pitsis as to whether the agent could continue to market and sell the properties during the Christmas holiday period and, if not, when the agent would be able to do so. On 16 November 2023, the agent advised that the Christmas period was not an ideal time to market properties of this nature but proposed to launch the sales campaign in the week beginning 15 January 2024. Mr Pitsis remained of the view that, if sold in one line, the property would achieve a sale price of between $5.5 million and $6 million. Individually, the one-bedroom units would achieve between $550,000 and $600,000, the two-bedroom units would achieve between $750,000 and $800,000, and the three-bedroom unit would achieve $1.1 million. That is, sale in one line was still expected to achieve additional revenue of between $1.7 million and $2.2 million.
10. On 11 December 2023, Parker J varied the consent regime in Black J's orders, extending the time to sell the properties to 29 February 2024. Ms Smith said that neither 11 Kingston nor Mr Touma raised any objection to this extension of time. His Honour also varied the interlocutory injunctions ordered by Hammerschlag CJ in Eq such that 11 Kingston could complete any contracts of sale if the contracts were entered into after carrying out the marketing campaign ordered by Black J.
11. On 2 February 2024, the matter was listed for directions but adjourned by consent given the upcoming auction, and where Benthos wished to ascertain the position of the Commonwealth Bank. The plaintiffs' counsel informed the Court, "If that auction takes place then a lot of the applications before your Honour will be rendered academic and it will … we think quell a lot of the underlying controversy." The hope was that, if the auction went through and the sale of the property was achieved, "then a lot of the proceedings themselves which relate to the sale of this unit block will themselves resolve." Counsel may have spoken too soon.

The auction

1. On 8 February 2024, Mr Touma filed an interlocutory application in these proceedings, seeking to restrain Mr Pitsis and the plaintiffs from selling the property at auction on 22 February 2024. The problem which had emerged was that, since the agent had been chosen by the defendants in February 2023, Mr Pitsis had changed his business arrangements, moving from the "Ray White" banner to "Pitsis Property". The agency agreement, however, was with the same corporate entity that now operated "Pitsis Property". I heard the application on 19 February 2024, when Benthos informed the Court that, if the injunctions sought by Mr Touma were made, it would file an interlocutory process in the Corporations List proceedings, seeking possession of units 1, 3 and 5. In that event, units 1, 3 and 5 would be sold by Benthos such that the higher value hoped to be achieved by a sale in one line would not be realised.
2. Ultimately, Mr Touma withdrew his interlocutory process but would not be drawn to provide any assurance to Mr Pitsis (or anyone) that the agent's authority to conduct the upcoming auction would not be further challenged, nor that he would not challenge the validity of any contract of sale entered into after the hammer fell. As I noted in my ex tempore judgment, "Any suggestion, at the auction, that the agent does not have authority to sell, or that a successful bidder will not gain good title, will be value destructive for all concerned, including Mr Touma." The plaintiffs then sought an interlocutory injunction ore tenus restraining Mr Touma from interfering in the conduct of the auction, which I granted as inter alia such an order would likely benefit Mr Touma by preserving the prospect of selling all five units in one line rather than having the sales fragmented by the intervention of Benthos.
3. At the conclusion of the hearing, I was informed by the plaintiffs' counsel that, once the auction took place, there was no need for the Court's intervention in the disputes between the shareholders of Bella Ikea and Bella & SEB, as these matters were the subject of the consensual regime ordered by Black J; the independent accountant would work out the parties' respective contributions to the development project. The remaining issue in these proceedings was expected to be costs.
4. On 22 February 2024, the auction was held. Mr Touma was the highest bidder, at $6.1 million, but then said "something fishy is going on here. I am done with this" and left the auction, confirming that his bid was withdrawn such that the property was passed in. Mr Pitsis contacted all interested parties and told them to submit their best and final offer and terms. Mr Balout and Mr Touma were both interested. Multiple emails ensued between the parties, seeking to agree on a process to elicit and choose the best offer. Ultimately, the parties agreed to proceed by way of binding offers made to the agent. On 29 February 2024, the property was sold in one line to a third party for $5.5 million.
5. In advance of settlement, the independent solicitor requested that caveators, including Bella Ikea Developments Pty Ltd and Bilpin, withdraw their caveats on title. There was no response from these caveators and, ultimately, the plaintiffs sought leave to bring a derivative suit in the name of Bella Ikea and Bella & SEB in respect of the withdrawal of the caveats. I granted leave to bring a derivative suit on 22 March 2024, which was commenced the same day. On 5 April 2024, I made orders that the caveats be withdrawn.
6. Settlement was delayed, taking place on 24 April 2024. Of the $5.5 million purchase price, the transfers record that $3.3 million was referable to Bella Ikea's units 1, 2 and 4 while $2.2 million was referable to Bella & SEB's units 3 and 5. Benthos was paid out $2,927,608.18. According to Ms Smith, the net proceeds of sale were $1,449.251.06. These moneys were paid into a controlled moneys account in accordance with the orders made by Black J.

The motions

1. On 26 April 2024, the plaintiffs filed a motion seeking the release of the security paid into court. On 20 May 2024, the defendants filed their motion seeking compensation for loss associated with the interim injunctions. Mr Moore obtained documents from Benthos on subpoena and calculated that the additional interest charged by Benthos from the earlier settlement date of 18 May 2023 until 24 April 2024, and recouped from the proceeds of sale, was at least $309,374.62. In addition, Benthos recouped $668,552.39 in respect of legal fees and disbursements. Thus, in total, compensation of $977,927.01 was sought.
2. On 17 May 2024, I was informed by the plaintiffs' counsel that, so far as the Corporations List proceedings were concerned, they were waiting for the expert's report "of the rats and mice". The General Equity proceedings, save for the motions concerning what should happen with the security in court "have probably run their course. There would be some tidying up. … The Corporation List procedure may have some work, subject to what emerges from the expert report. … Largely, these Expedition List proceedings related to the sale. [That sale having occurred,] that has fallen away. The Corporation List proceeding will hopefully wrap everything up."
3. Certainly, so far as the Corporations List proceedings are concerned, the consensual regime ordered by Black J on 21 February 2023 is now in train. The independent accountant has prepared their report. The proceedings are now listed for directions on 12 July 2024. As far as may be told from the consent orders made on 21 February 2023, what remains to be determined on receipt of the expert's report is, potentially, the costs of the Corporations List proceedings: see [20].
4. As to what remains of these proceedings, I made consent orders on 3 May 2024, dismissing the proceedings against Benthos with no order as to costs. As against 11 Kingston, I made consent orders on 13 June 2024 for the service of evidence and submissions in respect of the costs of the proceedings as against that company. I take it from the consent orders that the only issue remaining between the plaintiffs and 11 Kingston is costs.
5. As to what remains of these proceedings as against Bella Ikea, Bella & SEB and Mr Touma, experience suggests it may be too early to say that the only remaining issue between the plaintiffs and these defendants is costs. I note, however, that these proceedings are effectively 'satellite' litigation to the Corporations List proceedings, commenced to ensure that the consensual regime ordered by Black J was adhered to and not circumvented. That now appears to have been largely achieved.

SUBMISSIONS

1. The plaintiffs submitted that no question of compensation arose unless the Court was satisfied that the interlocutory injunction "ought not have been granted" or where the "plaintiff's claim ultimately fails": Cirillo & Anor v Citicorp Australia Ltd & Ors [2004] SASC 293 at [72] to [74]; Tucker v State of Victoria [2023] VSCA 126 at [77]; National Australia Bank Ltd v Garrett [2016] FCA 714 at [43]. The interim injunction was appropriate. Further, there was no damage where Bella Ikea and Bella & SEB received more than they would have if the units had been sold by Benthos in May 2023. Benthos' legal costs were not caused by the injunction but flowed from the litigation: Air Express at 268. The extraordinary amount of legal costs charged by Benthos was not foreseeable when the interim injunction was ordered. Alternatively, the only damage from the injunction may be the additional interest, but this was far outweighed by the increased price when sold in April 2024 in one line. Any interest charged after the failed auction was said to be attributable to Mr Touma's actions. Further, Bella Ikea or Bella & SEB had not sought to mitigate any loss, as they did not seek to have Benthos' costs assessed, where they were the only parties entitled to do so. Nor could the companies be said to be merely caught up in events, where those companies were controlled by Mr Touma at the time. Rather, the companies benefitted from the plaintiffs' persistence to sell the properties in one line.
2. The defendants accepted that the interlocutory injunction was appropriate at the time it was made, but submitted that it was not necessary to prove that the injunction should not have been granted: Air Express at 319-320. By its plain construction, r 25.8 of the UCPR provides the Court with a wide discretion as to whether to order an enquiry as to damages; Rail Corporation at [82]. On no one's case had Bella Ikea and Bella & SEB been proven to have committed any wrong such that the additional $977,927.01 deducted by Benthos from the proceeds of sale ought to be to their account. Rather, the companies should be compensated from the security paid into Court.
3. The defendants further submitted that it did not matter that Benthos' increased costs arose from the litigation itself, where Benthos' entitlement to payment of those costs arose under the terms of the mortgage (which were not in evidence). The companies' increased liability to Benthos came directly as a consequence of the injunction, which prevented the completion of the sale of the units and the discharge of that mortgage. Further, if the sale in May 2023 had gone through, Bella Ikea would have still retained ownership of units 2 and 4, which but could still be used in the future as part of a combined sale with 11 Kingston, thereby realising any future uplift by selling the units together. There was no reason why Bella Ikea could not have reached a later agreement with 11 Kingston to sell the remaining two units (either together or piecemeal), receiving rent in the interim and then completing when it was most advantageous to do so. This was said to align with the intentions of 11 Kingston. That sale would have been unconstrained by the Benthos mortgage and resulted in an increased net gain for the companies. That opportunity was said to have been lost by virtue of the injunction. Further, any uplift in value by selling the property in one line was not enjoyed by Bella & SEB, where the Benthos mortgage was secured over its units and Bella & SEB did not enjoy any significant uplift from the proposed sale of its units to 11 Kingston.

ENFORCING AN UNDERTAKING ABSENT A FINAL DETERMINATION

1. The usual undertaking as to damages "has been in use since about the middle of the nineteenth century": Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249 at 260 (per Aickin J). The undertaking is required "as a response to the anxiety entertained by the court that otherwise its interlocutory order might lead to damage for which there could be no redress except by an order for costs": European Bank Ltd v Evans (2010) 240 CLR 432 at [15], citing Russell v Farley (1881) 105 US 433 at 438 (per Bradley J). The form of the undertaking may be found in r 25.8 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR): The "usual undertaking as to damages", if given to the court in connection with any interlocutory order or undertaking, is an undertaking to the court to submit to such order (if any) as the court may consider to be just for the payment of compensation (to be assessed by the court or as it may direct) to any person (whether or not a party) affected by the operation of the interlocutory order or undertaking or of any interlocutory continuation (with or without variation) of the interlocutory order or undertaking.
2. Historically, the circumstances in which damages are available under the usual undertaking have been variously expressed, as examined by Aickin J in Air Express: at 260. In Graham v Campbell (1878) 7 Ch D 490, such damages were "occasioned by an interlocutory injunction, which, on the hearing, is found to have been wrongly asked for": at 494 (per James LJ). In Griffith v Blake (1884) 27 Ch D 474, damages were available "If the Defendants turn out to be right": at 476 (per Baggallay LJ).
3. In Air Services, damages were sought after an appeal to the High Court had been determined. Aickin J considered that the question was whether the plaintiff had ultimately failed, not whether it was correct in the circumstances prevailing at the time to grant the interlocutory injunction: at 260-262. His Honour rejected the argument that, as a "preliminary step", it was necessary to decide whether the interlocutory injunction had been obtained without just cause or ought not to have been made: at 268.
4. An appeal from Aickin J to the Full Court was dismissed. Gibbs J referred to the circumstances in which it may be appropriate to award compensation under the undertaking in Air Express at 311: (emphasis added) "The object of requiring a plaintiff who seeks an interlocutory injunction to enter into an undertaking of this kind is to attempt to ensure that a defendant will receive compensation for any loss which he suffers by reason of the grant of the injunction if it appears in the event that the plaintiff was not entitled to obtain it. The insistence upon the giving of an undertaking is a very important, if not an essential, means of preventing injustice from being done by the court when it makes an order at an interlocutory stage, before the rights of the parties have been finally determined. The court has a discretion not to enforce such an undertaking, but unless the defendant has been guilty of conduct that would render it inequitable to enforce the undertaking it would seem just, speaking generally, that a plaintiff who has failed on the merits should recompense the defendant for the damage that he has suffered as the result of the making of the interlocutory order. … ."
5. Similarly, Stephen J stated at 318: (emphasis added) "What occurs when such an undertaking is extracted from a plaintiff is that the court, as a condition of its grant of interim or interlocutory injunctive relief, has ensured that, should it turn out that that relief should never have been granted, it will have the power, so far as monetary compensation allows, to make good the harm which the grant has done to the defendant."
6. Stephen J also observed that a plaintiff "who sues for an injunction and obtains interlocutory relief, giving an undertaking to the court as the price of that relief, commits no wrongful act, no breach of contract or of duty when, at the trial, he fails to obtain any perpetual injunction": at 319. Likewise, Mason J noted, "The object of the undertaking is to protect a party, normally the defendant, in respect of such damage as he may sustain by reason of the grant of an interim injunction in the event that it emerges that the plaintiff is not entitled to relief": at 324-325. Each of their Honours' formulation of the relevant principles proceeded on the basis that the final resolution of the parties' claims also revealed whether the plaintiff was, in fact, entitled to restrain the defendant from doing what they were threatening to do.
7. Whether it is just and equitable to award damages absent a final determination is not as straightforward, for example, if the interlocutory injunction is discharged before trial, by consent or otherwise, or the proceedings are abandoned or settled. In this event, it remains necessary to establish that the interlocutory injunction should not have been granted, such that the Court's discretion should be exercised in favour of awarding compensation under the usual undertaking as to damages. The mere fact that an interlocutory injunction has been discharged, or that the proceedings have been discontinued, does not prove that the injunction should not have been granted.
8. For example, in Computer Accounting & Tax Pty Ltd v Professional Services of Australia Pty Ltd (No 5) [2012] WASC 382, freezing orders were obtained by an external administrator against a company and its directors but were later discharged. The directors then sought compensation. Simmonds J observed that the discretion to enforce an undertaking as to damages was enlivened by it being established that the orders ought not to have been made: at [51], citing Cheltenham and Gloucester Building Society v Ricketts [1993] 1 WLR 1545. Further, at [52]: "Where further proceedings between the parties are discontinued, and thus there will be no final determination of the merits and therefore of whether or not the orders ought to have been granted (putting aside the case of orders obtained by wrongful conduct), that of itself does not show the orders ought not to have been granted."
9. His Honour was not satisfied that the freezing orders should not have been made. While Simmonds J accepted that the Court may enforce a suitably worded undertaking, even if freezing orders were not wrongly made, for the benefit of innocent third parties (citing Peter Biscoe, Freezing and Search Orders: Mareva and Anton Piller Orders (2nd ed, 2008, LexisNexis) at [4.7]), the same could not be said in the case at hand where the directors could not be described as innocent third parties: at [57].
10. Where there is no final determination to hand to readily establish that the interlocutory injunction was "found to have been wrongly asked for", the means by which this may be established were detailed by Gibson LJ in Cheltenham and Gloucester Building Society v Ricketts at 1558: (emphasis added) "The court will of course first consider whether or not the injunction was wrongly granted, and in so doing it will confine itself to the facts available at the time of the order. But all the circumstances of the case must, in my judgment, be considered when the court decides whether to exercise its discretion as to the enforcement of the undertaking. If there are matters on which the court cannot yet make a final determination, but which would be material to the question whether it is just to enforce the undertaking, then the court should not take the decision at that stage but should [either stand the matter over to trial or direct that liability be determined on the inquiry as to damages]. It will not be able to make a final determination if material matters are in dispute and must await the trial for their resolution."
11. That is, the Court will first look at whether the interlocutory injunction should have been made at the time it was granted, but may also have regard to all the circumstances of the case. Rail Corporation NSW v Leduva Pty Ltd [2007] NSWSC 571 is a good example, where an interlocutory injunction was dissolved by consent before trial. Rail Corporation had obtained the interim injunction to restrain Leduva from carrying out construction work, where Leduva failed to provide certification of works being undertaken to ensure that no load was placed on a rail tunnel. Leduva conceded that the interlocutory injunction was properly given at the time and, indeed, was ordered by Nicholas J to pay Rail Corporation's costs of the application for injunctive relief on an indemnity basis. When considering whether the usual undertaking as to damages would be enforced where proceedings did not progress to final hearing, Einstein J considered that the whole of the circumstances in which the injunction application was brought, maintained and, ultimately dissolved, including the conduct of Leduva and the findings made by Nicholas J, was relevant to whether the undertaking should be enforced: at [82].
12. Einstein J concluded that a number of factors pointed to an exercise of the Court's discretion against enforcing the undertaking, where Rail Corporation sued for breach of contract, Leduva admitted having breached the contract and the injunction was dissolved after Rail Corporation carried out further investigations which indicated that, notwithstanding Leduva's breach, there was no material risk to the rail tunnel. His Honour concluded that this was a case where it was inappropriate to enforce the undertaking, even though final relief was not granted, as the interlocutory injunction was properly granted and "it is only through the occurrence of subsequent events that the grant of final relief has become inappropriate": at [83(viii)] citing Ushers Brewery Ltd v P.S. King and Co (Finance) Ltd [1972] 1 Ch 148. Further, the interlocutory injunction was properly granted as there was a breach of contract and time was needed to secure public safety, even if no permanent injunction resulted: at [83(x)]. The interlocutory injunction did not stand or fall with a final injunction but was in a discrete category and was justified irrespective of whether a final injunction would have been granted: at [83(xii) and (xiii)].
13. It may be difficult to establish the circumstances warranting an order for damages under the usual undertaking, before a final hearing and judgment. The Courts have approached this in a number of ways, as collated in Cheltenham and Gloucester Building Society v Ricketts. There, an interlocutory injunction (and freezing orders) had been made against four defendants alleged to be engaged in serious mortgage fraud, but discharged against two defendants before trial. Neill LJ summarised the approaches at 1551: (emphasis added) "… (4) In a case where it is determined that the injunction should not have been granted the undertaking is likely to be enforced, though the court retains a discretion not to do so. (5) The time at which the court should determine whether or not the interlocutory injunction should have been granted will vary from case to case. … (7) Where an interlocutory injunction is discharged before the trial the court at the time of discharge is faced with a number of possibilities. (a) The court can determine forthwith that the undertaking as to damages should be enforced and can proceed at once to make an assessment of the damages. It seems probable that it will only be in rare cases that the court can take this course because the relevant evidence of damages is unlikely to be available. … (b) The court may determine that the undertaking should be enforced but then direct an inquiry as to damages … (c) The court can adjourn the application for the enforcement of the undertaking to the trial or further order. (d) The court can determine forthwith that the undertaking is not to be enforced. …"
14. To illustrate each of the "number of possibilities" identified by Neill LJ in turn, starting with (a), one of the "rare cases" in which the Court was able to determine that the undertaking should be enforced and to proceed to assess damages was Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545. A customer of a bank initially obtained an interlocutory injunction to restrain the bank from paying monies to the beneficiary of a bank performance bond. But 18 days later, a further extension of the injunction was refused. Young J proceeded to assess damages, where the evidence indicated that the beneficiary of the performance bond would have invested the money, had they received it. His Honour considered that it was more convenient to assess damages "here and now" rather than send the matter to the master for an enquiry as to damages: at 559. Young J concluded that the damages could not exceed the court's prescribed interest rate on the principal sum for 18 days: at 559.
15. Turning to (b) - determining that the undertaking should be enforced but directing an inquiry as to damages - whether the court should proceed down this path ought to be approached with circumspection. For example, in Fourie v le Roux [2007] UKHL 1, a liquidator of two South African companies obtained an ex parte Mareva injunction against two individuals, alleged to have stripped the companies' assets by fraud and deception and removed the proceeds to England. The freezing order was later discharged for jurisdictional reasons (later overturned by the House of Lords). Lord Scott also set aside the 'usual' directions made by the judge for the immediate enforcement of the undertaking as to damages. Where the gravamen of the liquidator's complaint was that the respondents had fraudulently stripped the companies of assets, to the extent that the Mareva order prevented them from dealing with assets that they had fraudulently obtained "it seems to me very highly questionable whether it can be right that they should be enabled to obtain compensation for loss caused to them by being so prevented. … a decision as to what, if anything, should be paid … should not be taken until the result of the litigation is known": at [42] (per Lord Scott).
16. Turning to (c) - adjourn the application to enforce the undertaking until trial or further order - this course was commended in Ushers Brewery, where an interlocutory injunction was dissolved before trial as the subject matter of the injunction had ceased to exist. (The lessors were injuncted from taking possession of the leased premises but forfeited the lease; the plaintiffs surrendered possession.) Plowman J observed "an inquiry as to damages will not be ordered … until either the plaintiff has failed on the merits at the trial or it is established before trial that the injunction ought not to have been granted in the first instance": at 154. The proper course, where an interim injunction was discharged before trial and the question whether the injunction was rightly granted had not been determined, was to stand the motion over to the trial of the action: at 155.
17. More recently, White J adjourned the application for the enforcement of the undertaking to trial in IceTV v Ross [2008] NSWSC 898. There, an interlocutory injunction was granted in a restraint of trade case but was later discharged when it became apparent that the plaintiff was in financial difficulty and therefore their undertaking as to damages "[was] not a valuable one": IceTV v Ross [2007] NSWSC 1232 at [3] (per Brereton J). White J declined to direct an inquiry as to damages before the final hearing, following Cheltenham and Gloucester Building Society v Ricketts, at [10]-[11]: "The final determination of these proceedings is likely to be highly material to a decision as to whether the undertaking as to damages should be enforced. If, at a final hearing, the Court decides that the contractual restraints were valid and that on their proper construction the defendants were in breach of those restraints, and if the Court also then considered that this would have been an appropriate case for the grant of a final injunction at a final hearing prior to the expiry of that period of restraint, then the Court might well conclude that it would not be just to enforce the undertaking. That would be so because had there been such a final hearing, the plaintiff would not have needed to proffer an undertaking as to damages in order to obtain such final relief and the question of the plaintiff's ability to meet an undertaking as to damages would not have arisen. Hence the fact that the interlocutory injunction was discharged because of the plaintiff's inability to make good its undertaking as to damages would prima facie be irrelevant to its entitlement to injunctive relief and hence it would not be just to enforce the undertaking as to damages. … the question as to whether the undertaking as to damages should be enforced cannot be decided justly in advance of the final hearing."
18. As for (d) - the court determines that the undertaking is not to be enforced - this course was adopted in Indoor Holdings Pty Ltd v Bennett (No 2) [2010] WASC 307. The plaintiff had injuncted the defendant from using a licensed business name outside the licence area, but then went into partnership with the defendant such that the defendant became entitled to use the name. The interlocutory injunction was discharged by consent and the plaintiff discontinued the proceedings. Following Ushers Brewery, Le Miere J concluded that it was not appropriate to order an inquiry as to damages, as it had not been established that the injunction ought not to have been granted in the first instance; the plaintiff had not capitulated but discontinued the proceedings because the subsequent partnership with the defendant effectively removed the subject matter of the dispute: at [36]. Whether the injunction was wrongly granted could only have been determined at trial and, as neither party wished to proceed to trial, the undertaking as to damages could not be enforced: at [39].
19. In sum, the obligation to provide an undertaking as to damages is equitable in origin, exacted to facilitate the Court's exercise of its equitable jurisdiction to grant an interlocutory injunction. The fact that an interlocutory injunction is lifted before trial does not prove that it should not have been ordered. Where the matter has not, or will not, proceed to trial, a defendant cannot readily point to a final judgment to establish that the interlocutory injunction was "wrongly asked for". But a defendant who seeks compensation under the usual undertaking as to damages must establish a basis for the Court's exercise of its discretion to enforce the undertaking, either by reference to the circumstances at the time the interlocutory injunction was ordered or, in light of all the circumstances of the case including subsequent events. Otherwise, "When the issue is resolved before trial and the action terminates without fault on the part of the plaintiff, the defendant is not entitled to enforce the undertaking if the plaintiff was right in seeking the injunctive relief granted": Metropolitan Properties Pty Ltd v Caltex Petroleum Pty Ltd [1999] WASC 153 at [13] (per Heenan J).

CONCLUSION

1. The principles are, broadly, as contended by the plaintiffs. (Rule 25.8 of the UCPR does not confer a discretion on the Court but sets out the form of the undertaking.) It remains to be seen whether the plaintiffs' substantive allegations concerning the defendants will actually be determined at a final hearing, or then resolved in the defendants' favour. But the defendants seek an exercise of the Court's discretion in their favour now. The defendants accept that the interlocutory injunction was appropriately ordered by Hammerschlag CJ in Eq after a contested hearing. But the defendants have not established that this is one of those "rare cases" where the Court should enforce the undertaking and assess damages now.
2. Nor have the defendants established that they have suffered loss flowing from the interlocutory injunction. Accepting that Benthos was paid out an additional $977,927.01 when the Cronulla property was ultimately sold at auction in April 2024, Bella Ikea and Bella & SEB also benefited by receiving a higher sale price for the units when sold in one line. In April 2023, Benthos sold units 1, 3 and 5 to 11 Kingston for $2.8 million, leaving two one-bedroom apartments (units 2 and 4) which Mr Pitsis then expected to sell for $500,000 each. That is, if the interlocutory injunction had not been granted, Bella Ikea and Bella & SEB stood to realise some $3.8 million on sale of the apartments. Almost a year later, the apartments were sold for $5.5 million. After deducting Benthos' additional pay-out figure, Bella Ikea and Bella & SEB are still ahead by some $720,000.
3. Nor is it correct to say that the defendants bear an unfair burden in respect of the additional amount deducted by Benthos from the proceeds of sale, where Mr Balout and Mr Touma remain equal shareholders of Bella Ikea and Bella & SEB through their respective corporate entities. That is, the burden of Benthos' additional interest and costs falls equally. Were I to make the orders sought by the defendants, the burden would fall on the plaintiffs alone. That would be unfair.
4. The defendants' submission that they could have realised the uplift in value, even if units 1, 3 and 5 had been sold by Benthos in May 2023, is really the flip-side of the plaintiffs' allegations supporting their application for an interlocutory injunction in the first place. The plaintiffs complain that Bella Ikea and Bella & SEB - then under the control of Mr Touma - effectively agreed to the consensual regime ordered by Black J but promptly sought to avoid that regime by enlisting Mr Dimassy. The defendants complain that the interlocutory injunction prevented some kind of arrangement with Mr Dimassy's company, 11 Kingston, being explored and realised for their mutual gain.
5. It is not necessary on this application to make any finding as to the details of any arrangement between Mr Touma and Mr Dimassy. Nor am I in any position to do so, where Mr Dimassy was not cross-examined and Mr Touma did not give evidence. But the defendants' submission that the interlocutory injunction prevented exploration of such an arrangement is not a circumstance which supports an exercise of the Court's discretion to award compensation under the undertaking as to damages, where the allegation of such an arrangement was a reason why the injunction was granted.
6. Where these proceedings go from here is unclear. If the substantive allegations made by the plaintiffs proceed to trial, then the defendants may, if they choose, seek compensation from the plaintiffs in respect of the usual undertaking as to damages should the proceedings be determined in their favour. But it is not obvious to me why the defendants should have access to the security presently in court. That security was provided as a condition of the Court injuncting the mortgagee, Benthos, in accordance with Inglis v Commonwealth Bank: see [57]. Absent Benthos' role as the vendor of units 1, 3 and 5 as mortgagee in possession, there is no suggestion that the security would have been required to support the plaintiffs' usual undertaking as to damages vis a vis Bella Ikea, Bella & SEB and Mr Touma.
7. For these reasons, I make the following orders: 1. Order that the remaining security paid into Court by the plaintiffs be released to the plaintiffs forthwith. 2. Order the first, second and third defendants to pay the plaintiffs' costs of the notice of motion filed on 26 April 2024. 3. Dismiss the first, second and third defendants notice of motion filed on 20 May 2024, with costs.

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