Central Management Holdings Pty Ltd and Aphelion Marketing Pty Ltd v Nauru Phosphate Royalties Trust

LEGISLATION CITED: District Court Act 1973 Supreme Court Act 1970

CASES CITED: Wight v Haberdan Pty Limited (1984) 2 NSWLR 281 Commonwealth Bank of Australia v Hadfield(2001) 53 NSWLR 614

Central Management Holdings Pty Ltd (First Plaintiff) PARTIES: Aphelion Marketing Pty Ltd (Second Plaintiff) Nauru Phosphate Royalties Trust (Defendant)

COUNSEL: M Elliott for the Plaintiffs E Finnane for the Defendant

JUDGMENT 1 On 1 October 1997 the first plaintiff, Central Management Holdings Pty Limited and the second plaintiff, Aphelion Marketing Pty Limited, were the holders of twenty per cent and five cent respectively of the profit units in the Ronsi Holding Trust, which I will refer to in this judgment as "the Trust". The remaining profit units in the Trust were held by NPR (Sydney) Pty Limited. The Trust was established by the Trust Deed dated 19 July 1997, which is located behind tab 2 in the plaintiffs' hearing bundle, being exhibit A in these proceedings. Ronsi Holdings Pty Limited was the Trustee.

2 It is not in dispute that under the terms of the Trust Deed the holders of the profit units were entitled to give the Trustee directions regarding the making and calculation of interim distributions.

3 On 1 October 1997, the holders of the profit units in the Trust directed the Trustee to make quarterly distributions to them in the amounts determined in accordance with the Settlement Deed dated 24 December 1996 which is located at page 1 of exhibit A.

4 Clause 7.6 (b) of the Settlement Deed provided that the net profits in respect of the operations of the Railway Square Hotel were to be determined in accordance with the hotel accounting principles and formula as set out in annexures C and D thereto.

5 On 1 October 1997 the defendant, Nauru Phosphate Royalties Trust, an entity constituted under the Republic of Nauru Finance Corporation Act, 1972, having its Australian registered office at Level 50, 80 Collins Street, Melbourne, Victoria, executed the letter dated 1 October 1997 (the "Letter of Undertaking") addressed to each of the plaintiffs. The Letter of Undertaking is located behind tab 5 of exhibit A. It was signed on behalf of the defendant by its Chairman. Relevantly, the second paragraph of the Letter of Undertaking was in the following terms: "I confirm that the Nauru Phosphate Royalties Trust undertakes that either it, or its nominee, will provide to the relevant entities holding Profit Units in the Ronsi Holding Trust quarterly, limited recourse, interest free loans for amounts equal to the estimated amount of quarterly interim distributions to these entities calculated as per the Settlement Deed clause 7.6 (b) subject to the entities granting a charge over future distributions and interim distributions from which the loan will be repayable."

6 The background to the Letter of Undertaking can be gleaned from the facsimile from Allen, Allen & Hemsley to Tim Sullivan, North Shore Legal, dated 26 September 1997, which appears at page 477 of exhibit A.

7 In 2000 the plaintiffs commenced proceedings in the Supreme Court of New South Wales Equity Division Commercial List against the defendant, as a result of the failure of the defendant to meet its obligations under the Letter of Undertaking to pay the quarterly, limited recourse, interest free loans to each of the plaintiffs. It was not in dispute in those proceedings, nor is it in this Court, that the Letter of Undertaking constituted a binding contract whereby the defendant agreed it would lend each of the plaintiffs sums of money equal to the amounts that would otherwise be payable by way of distributions from the Trust if expected difficulties arose.

8 The Supreme Court proceedings were heard by Brownie A J and his Honour gave judgment in favour of the plaintiffs on 22 November 2001. A copy of His Honour's reasons can be found behind tab 10 of exhibit A. Consistent with his Honour's reasons, the Supreme Court's orders, which are located behind tab 11 of exhibit A, were entered on 19 April 2002. Specifically, orders three and four required the defendant to pay the first plaintiff and the second plaintiff respectively, certain sums of money plus interest pursuant to section 94 of the Supreme Court Act 1970. In addition, orders one and two made by the Supreme Court were in the form of declarations that each of the plaintiffs was entitled to interest free loans from the defendant in accordance with the Letter of Undertaking.

9 Since judgment was delivered by Brownie A J, loans have fallen due in subsequent quarterly periods. Each of the plaintiffs called upon the defendant to honour its obligation under the Letter of Undertaking with respect to those loans. The defendant failed to make the loans. Consequently, the plaintiffs commenced these proceedings by ordinary statement of claim filed on 27 April 2004. The matter was heard on 8 March 2005 and the plaintiffs proceeded on their amended ordinary statement of claim filed in Court on 26 November 2004. The defendant relied on its notice of grounds of defence filed earlier on 8 November 2004.

10 Mr Elliott appeared for the plaintiff and Mr Finnane appeared for the defendant.

11 In the defendant's outline of submissions the defendant conceded it had not made the loans and that it did not dispute the plaintiffs' calculations of the amounts they claimed that the defendant was required to lend to each of them. In that regard, the evidence establishes that the amount required to be paid by the defendant to the first plaintiff was $308,224.00 plus interest pursuant to section 83A of the District Court Act 1973. In the case of the second plaintiff, the amount required to be paid was $77,056 plus interest pursuant to section 83A of the District Court Act 1973.

12 The defendant's statement of issues is contained in the document faxed to my associate on 7 March 2005 and served on the plaintiff's counsel. In relation to items 1 and 2 in the defendant's statement of issues, during the course of the hearing it became abundantly clear to the Court that the way in which each plaintiff had pleaded its claim against the defendant was in the nature of a claim for specific performance. Thus, in my opinion, it was unnecessary for the plaintiffs to seek the leave of the Court to amend their statement of claim further in this respect nor did the plaintiffs make such an application.

13 Leaving aside for one moment this Court's jurisdiction to make the orders sought by the plaintiffs, the next issues raised by the defendant are those referred to in items 3 and 4 of the defendant's statement of issues.

14 It is surprising that the defendant has raised these issues because, in my opinion, they have already been dealt with by Brownie A J. Before Brownie A J the defendant contended that the Court ought not make the orders for specific performance because damages were an adequate remedy. The plaintiffs on the other hand contended that damages would not be an adequate remedy in the peculiar circumstances of their case. In that regard, apart from the decision of Brownie A J, there is ample authority for the proposition that an agreement for the loan of money may be specifically enforced in circumstances where a remedy in damages is not adequate to satisfy the demands of justice, e.g. Wight v Haberdan Pty Limited (1984) 2 NSWLR 281 per Kearney J.

15 In the proceedings before Brownie A J, Mr Powell appeared for the plaintiffs and Mr Turner appeared for the defendant. During the course of Mr Powell's opening, as the transcript reveals at p 175 of exhibit A, his Honour enquired of Mr Powell whether he accepted the defendant's categorisation of the plaintiffs' claim in those proceedings as ones for specific performance, and Mr Powell affirmed to the Court that the plaintiffs sought specific performance of the agreement contained in the Letter of Undertaking. His Honour then enquired as to what might happen when the last claim fell due (meaning, as I understand it, after judgment might be given) and Mr Powell responded as follows: "The last claim is up to 30 September 2001. Assuming we are successful in these proceedings, then we would expect if we issued a claim as at 31 December this year it would be paid. If it wasn't paid then we commence proceedings and hopefully obtain a summary judgment relying on this judgment."

16 In fact the plaintiffs have had to institute the proceedings in this Court because of the defendant's failure to honour its obligations under the Letter of Undertaking subsequent to Brownie A J delivering judgment.

17 There can be no doubt, then, that the defendant was well and truly alive to the nature of the plaintiffs' claims and nature of the relief they sought in the proceedings heard by Brownie A J. In those proceedings, Mr Turner submitted that specific performance was a discretionary remedy and ought only be granted if the damages were shown to be an inadequate remedy. Mr Turner submitted that no attempt had been made to lead evidence to demonstrate why damages were inadequate and his Honour's response to this submission was as follows (p 217 of exhibit A): "It's interest free and limited recourse. I imagine the plaintiff is going to say it is self evident."

18 There was then further discourse between Brownie A J and Mr Turner, as a result of which, on the following day, as the transcript makes clear, Mr Turner in effect conceded that his submission about damages being an inadequate remedy was a weak one. At p 223 of exhibit A Mr Turner is recorded as saying to Brownie A J: "I took your Honour's point yesterday about the recourse point. While it is a contract, the recourse point is a very powerful argument about the remedy of damages and one in favour of specific performance."

19 Mr Turner went on to say at p 224 of exhibit A: "My submission was damages was an adequate remedy, but your Honour's point to me yesterday was a very powerful point."

20 No doubt the Supreme Court considered the point was very powerful because Brownie A J did not need to expand on the matter further as is apparent from his reasons for judgment. Clearly, by virtue of the relief granted in the Supreme Court, Mr Turner's careful submissions on the matter were rejected by Brownie A J.

21 In light of that background, I accept the plaintiffs' submission that it is not open to the defendant in this Court to submit that an order for the payment of the further loans which are being sued upon should not be made as opposed to an award of damages. The fact that the Railway Square Hotel may have been sold and the proceeds held by receivers is neither here nor there. Brownie A J's categorisation of the plaintiffs' claims in the case he was dealing with as interest free, limited recourse loans with the attending consequences is no different from the way they should be categorised in this Court.

22 I turn now to consider the jurisdictional point.

23 Mr Finnane submitted that this Court did not have jurisdiction to make the orders sought by the plaintiff, being in the nature of orders for specific performance for the payment of money. He submitted that the plaintiff's claim fell outside section 134(1)(h) of the District Court Act 1973. That section provides as follows: "134(1) The Court shall have the same jurisdiction as the Supreme Court, and may exercise all the powers and authority of the Supreme Court, in proceedings for:

(h) Any equitable claim or demand for recovery of money or damages, whether liquidated or unliquidated (not being a claim or demand of a kind to which any other paragraph of this subsection applies), in an amount not exceeding $750,000."

24 The parties were in agreement that the plaintiffs' claim did not fall within any other paragraphs of the subsection.

25 Obviously, the plaintiffs' claims are not claims in which they seek to recover damages. In terms of each claim being one "for recovery of money", Mr Finnane submitted that recover meant "restore, regain, or get back", as defined in the Shorter Oxford English dictionary, an extract of which he handed up in Court. Mr Finnane relied on this definition to submit that because the plaintiffs were entitled to borrow money under the Letter of Undertaking, their claim could not amount to a "recovery of money" and he seemed to suggest, based on the dictionary definition, that "recovery of money" meant, in effect, the recovery of a debt and nothing more. That is not supported by the authorities however.

26 The jurisdiction of this Court in exercising its powers under section 134(1) of the District Court Act 1973 was considered in the Court of Appeal in Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614. In that case the Court was concerned with a mortgagor's claim against a mortgagee relating to the surplus proceeds of the mortgagee's wrongful exercise of its power of sale. In that case the plaintiff brought a claim for accounts as between mortgagor and mortgagee. The Court of Appeal determined that this was a claim for equitable relief in the nature of an equitable claim for the recovery of money. Beazley J A gave the main judgment, in which she referred to what the Minister had said in his second reading speech in the Legislative Counsel on 26 June 1997. The extract is set out at para 59 of the reported decision, and her Honour made further remarks about it at para 61 of the report. Importantly, the gravamen of Her Honour's judgment is contained in para 65 of the report as follows: "In my opinion, section 134(1)(h) covers the claim made here - it is an "equitable claim…..for recovery of money". As was explained in Meagher, Gummow and Lehane, and in Sykes and Walker in the extracts quoted earlier, an action for an account is a claim to recover the surplus proceeds of sale, to which the mortgagor claims to be entitled. There is nothing in the express words of the provision, or within the context of the provisions conferring equitable jurisdiction on the Court, to exclude the claim nor is there any reason to limit the words "equitable claim or demand for recovery of money" to a claim "involving money in the form of debt" as was said in the second reading speech."

27 Adopting what her Honour said as a starting point, I reject the submission made by the defendant's counsel that the Court does not have jurisdiction because the plaintiffs' claim is not one involving the recovery of money in the form of debt.

28 In Hadfield's case Bryson J A agreed with the judgment of Beazley J A but made some observations of his own as follows at para 67 ff: "Legislation which confers jurisdiction without limiting any existing jurisdiction should receive an ample construction. Its own terms show that s 134(1)(h) should not be seen as modifying or supplementing previous conferrals of jurisdiction, which until the enactment of s 134(1)(h) were limited in amount of $20,000. The appearance in s 134 (1)(h) of the jurisdictional limit of $750,000 marks a wide reforming purpose. It would not accord with that purpose to construe s 134(1)(h) with limiting implications based on the terms of earlier paragraphs, as if s 134(1)(h) were one more increment in a connected series of conferrals. Harmony with earlier paragraphs is not to be expected. Section 134(1)(h) took a strikingly new direction away from earlier conferrals of equitable jurisdiction characterised by close definitions and small amounts. The parenthetical passage in s 134(1)(h) shows, in my view exhaustively, in what ways the earlier paragraphs limit s 134(1)(h)." 29 In its determination of this matter, this Court is guided by his Honour's remarks.

30 Mr Finnane's next submission was as follows (para 16 of his written outline dated 8/3/05): "In the present case, if specific performance is granted, the plaintiffs will not recover money. They will borrow money. Recover does not mean borrow."

31 This submission is flawed because it assumes an outcome, namely, compliance with orders to be made by the Court without examining the process by which the outcome is achieved. That process is as follows.

32 In each case, the plaintiffs' claim is for a liquidated amount. The relief sought, specific performance, is equitable. The plaintiffs' claims arise out of the defendant's failure to make loans to each of the plaintiffs which they were entitled to borrow under the Letter of Undertaking. The defendant remains in default of its obligations. The process in this Court concerns the enforcement of those obligations. By its very nature, the order each plaintiff seeks is therefore a claim for the recovery of the monies which the defendant failed to loan in the first place. As such, the plaintiffs' claims are therefore within the Court's jurisdiction under s 134(1)(h).

33 Accordingly, the orders of the Court are as follows:

1 Order the defendant to pay the first plaintiff $308,224.00. 2 Order the defendant to pay the first plaintiff interest pursuant to s 83A of the District Court Act 1973 on $25,446.00 from 1 October 2003 to date. 3 Order the defendant to pay the first plaintiff interest pursuant to s 83A of the District Court Act 1973 on $170,342.00 from 1 January 2004 to date. 4 Order the defendant to pay the first plaintiff interest pursuant to s 83A of the District Court Act 1973 on $82,001.00 from 1 April 2004 to date. 5 Order the defendant to pay the first plaintiff interest pursuant to s 83A of the District Court Act 1973 on $30,435.00 from 18 June 2004 to date. 6 Order the defendant to pay the second plaintiff $77,056.00. 7 Order the defendant to pay the second plaintiff interest pursuant to s 83A of the District Court Act 1973 on $6,362.00 from 1 October 2003 to date. 8 Order the defendant to pay the second plaintiff interest pursuant to s 83A of the District Court Act 1973 on $42,585.00 from 1 January 2004 to date. 9 Order the defendant to pay the second plaintiff interest pursuant to s 83A of the District Court Act 1973 on $20,500.00 from 1 April 2004 to date. 10 Order the defendant to pay the second plaintiff interest pursuant to s 83A of the District Court Act 1973 on $7,609.00 from 18 June 2004 to date. 11 Direct the exhibits be returned.

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