[2009] NSWCA 407
G Scammell and Nephew Ltd v HC and JG Ouston [1941] AC 251
Masters v Cameron (1954) 91 CLR 353
Source
Original judgment source is linked above.
Catchwords
[1999] HCA 18
Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603[2009] NSWCA 407
G Scammell and Nephew Ltd v HC and JG Ouston [1941] AC 251
Masters v Cameron (1954) 91 CLR 353
Judgment (5 paragraphs)
[1]
Judgment
This is an application for summary judgment in the cross-claim in the proceedings and a continuation of freezing orders in connection with that cross-claim. The plaintiff, Mr Damcevski, is a solicitor who practices under the name Corporate & Civil Legal. He acted for the first defendant, Mr Demetriou, and (he alleges) the second and third defendants, Ms Ashley and Ms Demetriou, in Federal Court proceedings for the recovery of moneys from an investment venture. For the purposes of those proceedings, Mr Damcevski retained Mr Ventry Gray of counsel.
In May 2016, Mr Damcevski commenced these proceedings against Mr Demetriou, Ms Ashley and Ms Demetriou for recovery of fees. Judgment was sought for approximately $200,000 said to be outstanding. It appears that Mr Damcevski had received a sum of approximately $65,000 from some other source and that the amounts claimed represent some or all of Mr Gray's outstanding fees, but this is not clear on the evidence. It appears that the fees claimed by Mr Gray have not been assessed and it is not clear whether the fees claimed by Mr Damcevski were assessed.
Mr Damcevski also sought a declaration that he was entitled to a lien over land in Queensland called the Willows Golf Club. That land was then owned by a company known as SPC & Co Pty Ltd ("SPC") which appears to have been associated with one or other of the defendants. SPC was not joined as a defendant to the proceedings at that stage. The proceedings were defended and a defence was filed. On 28 October 2016, there was a mediation at which the first, second and third defendants were represented by the firm of Holding Redlich.
Although he was not a party to the proceedings, Mr Gray also attended the mediation. The mediation resulted in a signed Heads of Agreement which provided, among other things, for $188,000 to be paid to Mr Gray, for security to be provided to him over the Willows Golf Club land and for the discontinuance of the proceedings. The Heads of Agreement contemplated the execution of a deed of settlement.
The following Tuesday, 1 November, Holding Redlich forwarded to Mr Damcevski and to Mr Gray a draft deed of settlement. Mr Gray suggested some amendments which were incorporated by Holding Redlich in a further draft. So far as the evidence before me is concerned, the negotiations somehow seem to have petered out; it is not exactly clear why. Holding Redlich apparently ceased to act for Mr Demetriou. As I have mentioned, a deed had been prepared in draft but it was never signed. A mortgage was also prepared over the Willows Golf Club land. That mortgage was executed but never delivered and remained in the custody of those acting for the first, second and third defendants (or perhaps SPC as well).
Subsequently, the plaintiff and Mr Gray sought by application in these proceedings to obtain enforcement of the payment and security obligations in the signed Heads of Agreement. Eventually it was recognised that further parties needed to be joined. SPC was joined as the fourth defendant and Mr Gray was joined as the fifth defendant. Mr Gray filed a cross-claim against Mr Demetriou, seeking judgment for $188,000 and interest.
It appears that SPC agreed to sell the Willows Golf Club land to a company known as Willows Country Club Pty Ltd ("WCC"). A transfer was lodged but it does not appear to have been registered and I am told that that is because there were some requisitions which needed to be complied with. In the meantime, Mr Gray lodged a caveat over the land claiming an interest as equitable mortgagee pursuant to the signed Heads of Agreement. I understand that as a result of the lodgement of that caveat, even though it post-dates the transfer, the transfer will not be registered while the caveat remains.
Mr Gray also filed a notice of motion seeking summary judgment against Mr Demetriou on his cross-claim. In aid of that claim, he made an application for freezing orders and orders, which I will refer to in more detail at a later point, were made in his favour.
The matter came before me on 30 August 2017 and there were a number of interlocutory applications brought by the parties. Not all of them proceeded to decision.
The plaintiff has now amended the Statement of Claim so as to seek specific performance of the signed Heads of Agreement. This is specific performance in the strict sense: the plaintiff seeks orders which would compel the other parties to the Agreement to execute a deed of settlement as contemplated in that Agreement. Notably, for this purpose the plaintiff is not seeking to have executed any of the versions of the deed prepared by Holding Redlich, but rather seeks to have the Court require execution of a deed prepared by Mr Damcevski and which is said to represent the terms of the Agreement. This form of deed was prepared in July of this year.
Directions have been made for the filing of a defence. Mr Demetriou has also filed a cross-claim (which is the second cross-claim in the proceedings) back against the plaintiff in which he disputes the binding nature of the signed Heads of Agreement. He also seeks to have the Agreement, if binding, set aside pursuant to the Contracts Review Act 1980 (NSW). SPC is in administration and has not accepted the validity of Mr Gray's claimed security over the Willows Golf Club land, at least at this stage. WCC resists Mr Gray's claim for security. There is an issue about whether he has a sufficient claim to sustain the caveat.
Mr Gray ultimately accepted that he needs to amend his cross-claim so as to expose his claim to the land (which is also a claim for specific performance) and, for this purpose, orders were made for him to amend and to join at least SPC and WCC to his cross-claim as contradictors. This disposed of a number of the applications that were before me, but Mr Gray presses, as against Mr Demetriou, his application for summary judgment, and also seeks to have the freezing order continued (until enforcement or, if he fails at summary judgment, until final hearing).
[2]
Application for summary judgment
The Heads of Agreement is a handwritten document which contains many interlineations and involves at least two different persons' handwriting. Incorporating the interlineations and different types of handwriting, it provides as follows:
(1) $188,000 - agreed payable to Ventry Gray.
(2) 8% PA interest commencing 28.10.16 compounded annually, meaning any unpaid interest is added to principal debt each year.
(3) Emilios Demetriou is the debtor under the deed (not Janette Ashley or Georgina Demetriou).
(4) An appropriate security over the golf course as a registered first mortgage to be provided within 28 days.
(5) Holding Redlich to prepare within 14 days deed of settlement and release + mutual release including SPC & Co Pty Ltd, all defendants, Ventry Gray, Bobi Damcevski, applicable to every claim known and unknown.
(6) The principal ($188,000) can be repaid by part payments, so long as in multiples of $10,000, unless Ventry otherwise directs in writing.
(7) Proceedings be discontinued within 7 days of execution of deed w/ no order as to costs.
(8) Agreement based on $65,000 applied to an amount properly owed as appearing in trust account records. Evidence to be provided by Bobi by 11.11.16.
(9) Bobi to provide assistance in providing invoices and other documents for preparing a bill of costs against the liquidator of North QLD if the costs order is against them personally.
All of this is written on the front page of a single piece of paper. On the back page, there appear the words "parties to the deed". The document is then signed by Mr Gray, Mr Damcevski, Mr Demetriou, and Ms Ashley. Against the names of Ms Demetriou and SPC, there appears in handwriting: "we are verbally instructed that they have agreed and will sign the deed."
The first question is whether the Agreement is a binding contract and, if so, whether it is in some way conditional. I refer to the well‑known passage of the High Court decision in Masters v Cameron (1954) 91 CLR 353, which classifies agreements which contemplate the execution of a further, more formal, agreement (usually a deed) into three classes (at 360-362). In the third class, the parties do not intend to be bound until a deed is executed and then in terms of the deed so executed. In such a case, until the deed is executed, there is no contractual claim available arising out of the previous "agreement".
In the second class, there are binding contractual obligations, but the performance of the obligations under that binding contract is conditional on the execution of the deed and perhaps other events. In such a situation, a binding contract exists, but until the deed is executed, it cannot be enforced. In the first class, the parties have agreed to be bound immediately albeit contemplating that a more formal document would be brought into existence in due course.
It follows that Mr Gray can only succeed on his application for summary judgment if he can establish that the agreement falls within the first class. Even if he were able to establish that the agreement fell within the second class, obligations would not have arisen at this stage, the formal deed not having been executed.
It appears that for the purposes of the mediation and to some extent for the purposes of these proceedings, the case has been seen as a claim by Mr Gray against Mr Demetriou. In a sense that may be seen as the economic nature of the claim, but from a legal point of view such an analysis is inadequate. Mr Gray had no contractual relationship as a barrister with Mr Demetriou as the client. Mr Gray's entitlement to payment depended upon his retainer by Mr Damcevski. It was Mr Damcevski alone who was responsible for the purposes of that retainer for Mr Gray's fees, and Mr Gray's entitlements depended upon the nature of his retainer agreement with Mr Damcevski. If and to the extent that Mr Damcevski was liable to Mr Gray, then Mr Damcevski had the ability to include that liability in the charges he was entitled to make to Mr Demetriou. There is no clear indication in the Heads of Agreement that the parties recognised that this was the appropriate legal analysis.
One consequence of the structure adopted, namely that Mr Demetriou promised to pay Mr Gray directly, is that it raises an issue as to consideration. When I asked Mr Gray what consideration, on his analysis, he had provided for any promises by Mr Demetriou, he said that it was the release. Of course Mr Gray had no claim against Mr Demetriou, but Mr Gray submitted that he did have a claim against Mr Damcevski and the effect of cl 5 in the Heads of Agreement was that he agreed to release that claim. Mr Gray emphasised that so long as consideration moved from him in the form of forbearance as against Mr Damcevski, it did not matter that such consideration did not move in favour of Mr Demetriou.
Mr Gray's analysis may be correct, but there are other views possible of what the Heads of Agreement provides for. Clause 5 speaks only in general terms of mutual release. No doubt it was contemplated that the parties, who in a general sense were the claimants, namely Mr Gray and Mr Damcevski, would release the defendants and SPC, but cl 5 does not expressly say that Mr Gray would release claims against Mr Damcevski. It is notable that when Holding Redlich prepared the deed, it was drafted in such a way that there was no release provided by Mr Gray to Mr Damcevski, and Mr Gray, when he commented on the draft, did not suggest any relevant change to that structure.
In my opinion, on the true construction of the Heads of Agreement, it is arguable that Mr Gray provided no consideration for any promise by Mr Demetriou.
If that difficulty can be overcome, in my opinion, it is arguable that the Heads of Agreement falls into the third class in Masters v Cameron. As I have already mentioned and as will be clear from what I have quoted, it is a scanty document which lacks detail and precision. A particular feature is cl 4 dealing with security over the golf course land, which simply requires that an "appropriate security" be provided. This give rise to obvious potential issues in terms of agreement to agree: cf G Scammell and Nephew Ltd v HC and JG Ouston [1941] AC 251.
The very fact that the Agreement does not appear expressly to have been structured on the basis of a correct or complete legal analysis in terms of Mr Gray's rights against Mr Damcevski and Mr Damcevski's rights against Mr Demetriou, together with its scanty nature, in my opinion, is capable of suggesting that the parties can only have contemplated a binding agreement once a formal deed was drawn up. Furthermore, cl 8 arguably may be seen as some sort of condition or fundamental term upon which the Agreement is based.
If the Agreement is not in the third class, it is, in my opinion, arguably in the second class. Clause 1 does not specify any time for payment. Clause 6 is difficult, if not impossible, to reconcile with immediate payment (no direction has, in fact, been given by Mr Gray on the evidence before me).
Furthermore, cl 5 is open to the interpretation that the release in question, even if it includes a release from Mr Gray to Mr Damcevski, only takes effect when the deed of settlement has been executed. Again, that was the way in which Holding Redlich drafted the deed. Mr Gray was driven to submitting that they had been wrong to frame the document in that way, but it is notable that this was not something which he rejected or commented on in his comments on the draft.
In my opinion, it is open to argue that, even if the Heads of Agreement gave rise to a contractual relationship between at least Mr Gray and Mr Demetriou, it was subject to conditions which have not yet been fulfilled.
I accept that the three arguments which I have so far addressed are ultimately questions of construction; however, evidence of the factual matrix and, in particular, what happened at the mediation, may inform that construction. Subsequent conduct in the form of the Holding Redlich draft and the response of Mr Gray to it may also be relevant for the purpose of determining whether a contract has been entered into: see Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at [326].
A further relevant fact, in my opinion, is that there are other claims in progress which will involve the Court in determining the contractual validity, conditionality and construction of the Heads of Agreement. Those questions will arise in the plaintiff's claim against Mr Demetriou and Mr Demetriou's cross-claim back against the plaintiff. They are also likely to arise in Mr Gray's claim against SPC and WCC concerning the Willows Golf Club land.
Mr Gray sought to defuse this consideration by making it clear that he would not be relying upon any finding the Court might make in his favour for the purpose of the summary judgment application by way of issue estoppel for other purposes, but that does not overcome the inconvenience to the Court of potentially having to deal with the same issues twice. In my opinion, the fact that the issues raised by the summary judgment application overlap with issues which have not been determined and will need to be determined so far as other parties are concerned is an additional discretionary reason why the application ought to be refused.
[3]
Application for freezing order
The order obtained by Mr Gray required Mr Demetriou not to encumber or dispose of two identified pieces of property and not to dispose of moneys which he may have received from sales of other property over a defined past period. The orders contain an exception for costs. Mr Gray's argument was that the freezing order should be continued because Mr Demetriou had shown himself to be untrustworthy and there was a real risk that Mr Demetriou would seek to put assets beyond Mr Gray's reach.
Part of Mr Gray's complaint related to the defence of the proceedings themselves. As I understood him, Mr Gray relied on the fact that Mr Demetriou had not complied with what Mr Gray characterised as Mr Demetriou's obligations under the Agreement. However, I have found that Mr Demetriou has an arguable defence. His conduct may have been opportunistic, but I do not think that it suggests that he would necessarily seek to evade judgment against him if it was given.
The major factor relied upon by Mr Gray, as I understood it, related to the sale of the Willows Golf Club land. The evidence from stamp duty records established that SPC had acquired the land at a valuation of $1.7 million, but the sale to WCC was for only $1 million. In Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, the High Court authoritatively set out the basis upon which freezing orders are granted. Although that case considered a freezing order made against a third party, I do not understand the principles stated by the High Court to be limited to such cases.
In my opinion, the authority stands for two propositions of particular significance for present purposes. The first is that the remedy does not exist so as to provide a fund of money to satisfy a plaintiff's unsecured claim. It is grounded in the threat of abuse of process by the removal of assets from the jurisdiction, or dissipation within the jurisdiction, designed to defeat the enforcement mechanisms of the Court. Secondly, the order is an extraordinary interference with the rights of any party against whom it is made and the Court must be careful to make sure that it makes the minimum order necessary to protect the plaintiff against the abuse identified.
In connection with this application, Mr Gray issued notices to produce and a subpoena to WCC for documents associated with the sale of the property from SPC to WCC. A challenge was made to the subpoena and to the notices to produce. Mr Gray made it clear, as I understood it, that he was not suggesting that his claim against Mr Demetriou personally would be satisfied out of the property (in this respect contrasting the present proceedings with those in Cardile). Rather, as I understood his argument, the transaction demonstrated a willingness on Mr Demetriou's part to dissipate assets or put them beyond the reach of creditors.
In effect, as I see it, Mr Gray has made that allegation against Mr Demetriou and is now seeking documents in the hope of getting evidence to support it. I do not think the Court should encourage a party to make a claim of this type and then seek to use the proceedings so initiated so as to get evidence. I see the notices to produce and subpoena as a form of fishing. Also, given that it is not suggested that the property would directly be part of the property against which any judgment might be executed, I see the matter as having potential to generate a spin-off issue which is only of tangential relevance, rather than focusing on the real issue which is the likelihood of dissipation of assets by Mr Demetriou.
For this reason, at the hearing I made orders setting aside the notices to produce and subpoena. In my view, the evidence of dissipation is weak. For all the Court knows, Mr Demetriou lives at one or other of the properties which are the subject of the existing orders. If one of the properties is his home, he may or may not have significant equity in it. If he does not have sufficient equity in it, that seems to me to be something about which Mr Gray is not likely to be able to complain, since there would be nothing to suggest that that resulted from any steps taken to avoid complying with a potential judgment in favour of Mr Gray. If one of the properties is Mr Demetriou's home and if he sells it, he will still need somewhere to live. There is no suggestion that he is about to move overseas. If there were evidence to identify the property in this way as being Mr Demetriou's home, I am not sure that there would be any case for continuation of the orders. However, there is no such evidence.
On balance, I think there is sufficient justification to continue some orders but that they should be less extensive than the orders currently made. I propose to order that Mr Demetriou not sell or encumber either of the nominated properties unless he has first given seven days' written notice to Mr Gray. My intention is that in that event Mr Gray will be able to come back to court if he so chooses to seek to restrain any such sale or encumbrance. I do not think that any further intrusion on Mr Demetriou's property rights is justified on the evidence before me.
[4]
Conclusions and orders
For these reasons I have concluded that:
(1) The application for summary judgment should be refused;
(2) The freezing orders should be extended but limited to encumbrance or sale of the two identified properties without seven days' prior notice to Mr Gray.
It seems to me that the costs for the summary judgment application should follow the event. The costs of the freezing order application should be determined in the light of the outcome of the proceedings and they will be reserved.
I will direct the parties to bring in Short Minutes of Order to give effect to the judgment I have just delivered.
[5]
Amendments
16 October 2017 - typographical errors
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Decision last updated: 16 October 2017