Danlay Pty Ltd v Medlane Ltd [1999] VSC 264

Supreme Court of Victoria|1999-07-02|Before: Warren J

Injunction - Contract - Balance of convenience - Foreign plaintiff - Undertaking as to damages -Security for undertaking.

These two matters come before a presently busy Practice Court. The matters have thus far been before the court on four occasions, two of those occasions involving the court sitting outside normal hours to address the alleged urgency of the matters and to some extent address the convenience of the parties' retained counsel in the proceedings.

The first proceeding, No. 5887 of 1999 between Danlay Pty Ltd ("Danlay") and Medlane Ltd ("Medlane"), I hereafter refer to as the "Danlay proceeding", is one in which Danlay seeks removal of a caveat over land that is the subject of a joint business involving Danlay and Medlane. The land is at 690 Geelong Road, Brooklyn ("the land"), and is owned by Danlay. The land has erected and operated thereon a meat rendering and processing abattoir. The plant and equipment is owned by Sibinvest Holding Pty Ltd ("Sibinvest"). The land and plant and equipment was sold on 25 March 1999, the land was sold for the sum of $600,000 to Merpalm Pty Ltd. The relevant plant and equipment was sold for the sum of $1.4 million to Bisk Pty Ltd. The relevant contracts were due for settlement on 25 June 1999. However, shortly before the due date Danlay ascertained that Medlane had lodged a caveat over the land, an interest pursuant to a contract being recited as the source or basis of the interest claimed.

The alleged contract is a contract that has been referred to or termed the "Establishment Agreement". The agreement was initially formed by way of preliminary agreement entered into in about December 1997 and the later formal establishment agreement being dated 10 March 1998.

Medlane alleges that the agreement constituted a joint venture agreement between Sibinvest, Danlay and Medlane. As a result of the agreement the parties are alleged to have conducted a meat processing business on the land on a joint venture basis largely for export purposes and requiring extensive investment for a third party or third parties.

In the second proceeding, No. 5949 of 1999, Medlane has instituted proceedings against Danlay and Sibinvest alleging repudiation of the agreement and seeking damages (I hereafter refer to as the "Medlane proceeding"). Medlane is a foreign company, being incorporated in Cyprus. Its interests are wholly or largely based offshore.

In the Danlay proceeding, Danlay seeks immediate removal of the caveat to enable settlement of the land and plant and equipment contracts postponed, I am informed, to 7 July 1999.

In the Medlane proceeding, Medlane seeks orders tantamount to a Mareva injunction, restraining Danlay from dispersing the balance of proceeds of sale after payment of costs and disbursements, the discharge of the relevant mortgage and payment of Danlay's creditors. Initially Medlane sought to freeze all proceeds of sale not already paid out from deposit monies, however, when it became apparent during of the course of argument that to do so would place Danlay at risk of liquidation, Medlane changed its position. As a result Medlane sought a more modest restraint. It was proposed that the balance of the proceeds of sale, after the payments already referred to had been made, would be lodged in a joint bank account to be operated by Danlay and Medlane's respective solicitors. It was further proposed that the monies in the account could be applied on an ongoing basis for Danlay, as agreed by both Danlay and Medlane. Medlane fears that if the orders are not made as sought there is a risk that the remaining proceeds of the sale of the land and the plant and equipment will be taken offshore.

Medlane fears that if this happens it will find itself in a position that if it is successful in its proceedings any judgment will be hollow. Furthermore, Medlane has put evidence before the court of certain circumstances that it says substantiates a well and valid suspicion that the sale of the land and plant and equipment may not necessarily have been conducted at arm's length.

In this respect evidence was put before the court that the land and plant and equipment were valued for insurance purposes at $8 million but in fact had been sold for $2 million.

In terms of the agreement, Danlay denies that it is bound or has been bound as alleged by Medlane. Medlane alleges by various actions, in particular the sale of the land and the plant and equipment, the joint venture agreement has been repudiated.

In the caveat proceedings, Medlane now concedes that the caveat ought be withdrawn. Whilst not specifically saying so, it can be implied, if not acknowledged as a tacit concession on the part of Medlane, that the caveat was inappropriately lodged in the first place as not being validly substantiated as a matter of law by a proper interest in land.

Accordingly I will make orders in the caveat proceeding as proposed by Danlay subject to hearing counsel further on the issue of costs.

In the Medlane proceeding the requirements are well known as to the onus that lies upon an applicant for a Mareva injunction. An applicant must demonstrate to the court that it has a good arguable case. See Pearce and Anor v. Waterhouse [1986] VicRp 57; (1986) V.R. 603, also Glenwood Management Group Pty Ltd and Anor v. Mayo and Anor [1991] VicRp 45; (1991) 2 V.R. 49.

Nowadays the requirement of an arguable case is generally termed by the courts as a serious question to be tried. See Australian Coarse Grainpool Pty Ltd v. Barley Marketing Board of Queensland (1982) 46 A.L.R. 398, also Nicholas John Holdings P/L v. ANZ Banking Group Ltd [1992] VicRp 98; (1992) 2 V.R. 715.

I am satisfied on the evidence before me that a serious question to be tried has been made out by the applicant Medlane. I form that view on the basis of the affidavit material before me.

The next question of which I must be satisfied is whether the balance of convenience favours where it is otherwise just in all the circumstances the granting of the injunction sought. See State Transport Authority v. Apex Quarries Ltd [1988] VicRp 26; (1988) V.R. 187.

On balance I am not satisfied that there is sufficient evidence before me that there is a risk, and I interpolate on the basis of the authorities that there must be a real risk, see Pearce, supra and Glenwood Management, supra, that the balance of sale proceeds may go offshore.

Furthermore, in assessing the balance of convenience account must be taken of the actual or potential damage to Danlay. If its monies are frozen it faces the risk either short-term or long-term of liquidation. It already has many creditors some of which have served notices of statutory demand. In so far as it is proposed on behalf of Medlane that an arrangement can be entered into and secured by way of orders of this court for ongoing payment as agreed between the parties, I consider such an arrangement to be inappropriate. It is a long held principle in injunction applications that courts will not make injunctive orders where the court may have to supervise the injunctive orders on an ongoing basis, (e.g. such as in matters of specific performance).

In any event, the price of an injunction is almost always an undertaking as to damages. It is a price paid for an injunction that is virtually mandatory. See the observations of the Full Court in National Australia Bank Ltd. v. Bond Brewing Holdings Ltd [1991] VicRp 31; (1991) 1 V.R. 386, 559 and most recently of the Court of Appeal in Optus Networks v. City of Boroondara (1997) 2 V.R. 318, 321, 330, 340.

As matters stand, I am informed by counsel for Medlane that an undertaking for damages would be given, but, that of itself is not sufficient because of the fact that Medlane is a foreign corporation. It is a well known principle that a foreign plaintiff bears an onus to produce specific evidence as to its capacity to meet an undertaking for damages if called upon to do so. See Vapourmatic Co. Ltd v. Sparex Ltd (1976) 1 W.L.R. 39, also Loch International v. Beswick (1989) 1 W.L.R. 268. There is no such evidence of capacity before me.

Furthermore, there is no evidence before me as to any reciprocity of judgment arrangements between the State of Victoria and Cyprus, being the place where Medlane is incorporated. It has been most recently stated by this court that it is a requirement for security for an undertaking for damages where the party seeking an injunction is a foreign entity. See Ty Hyung Kim v. Melton Wool Pty Ltd, an unreported judgment of Beach, J. delivered 25 February 1999.

In the course of submissions before me the requirement for the plaintiff Medlane to provide security for any undertaking as to damages was drawn to the attention of its counsel, Dr Bleechmore (on 29 June 1999). In the course of argument Dr Bleechmore indicated that he was unable to obtain instructions because his actual clients are located overseas, and accordingly no proposal could be put forward to the court as to the specific amount of security that could be offered to support the undertaking proffered.

In any event, Dr Bleechmore proposed that a sum in the region or range of $50,000 would be an appropriate sum, and that he had anticipated that if his client had a few more days available to it arrangements could be made in all likelihood for such an amount to be put forward to the court as security. In any event, the outcome of the orders sought by Medlane would involve an amount in the vicinity of $850,000, at present being the monies to which Danlay is entitled, being held and generally unavailable to Danlay.

In all these circumstances it impresses me as being entirely inappropriate that Medlane puts forward a proposal that it provide security in an amount of approximately $50,000 whilst Danlay is required on an ongoing basis to have an amount in the range of $850,000 frozen and awaiting trial. This aspect of the matter goes to both the balance of convenience and the issue of security for undertakings. In all the circumstances I cannot be satisfied that the undertaking proffered by Medlane is an undertaking that is sufficiently supported by security.

I observe that despite the matter having been raised with Medlane's counsel in the course of argument some days ago, Medlane has not taken the opportunity to come forward to the court ready to offer an adequate undertaking as to damages.

Furthermore, Medlane has been involved in proceedings against Danlay before the Practice Court since 25 June 1999. On that day different counsel appeared for Medlane and counsel, Mr Kowalski, informed the court that at that time pleadings were being drawn by Dr Bleechmore of counsel for Medlane. Given that Medlane has been represented after 25 June 1999 by experienced counsel, it could be reasonably anticipated that Medlane has known or at least ought to have known since on about 25 June 1999 that if it sought an injunction from this court it would be necessary, it being a foreign corporation, to provide adequate security for the undertaking proffered. It has not done so. In all those circumstances and following the observations I have made, it follows that the application by Medlane for injunctive relief against Danlay fails.

I declare that the first-named defendant does not have a caveatable interest in the land and improvements situate at and known as 690 Geelong Road, Brooklyn in the State of Victoria and being the land more particularly described in Certificate of Title Volume 10214 Folio 813, the land as claimed in the caveats dated 27 May 1999 and 8 June 1999, being caveat numbers W104490D and W095815J respectively, the caveats.

1. In the event that the said caveats have been registered, then pursuant to s.90(3) of the Transfer of Land Act 1958 the caveats be removed.

2. In the event that the said caveats have not been registered the second-named defendant not record the caveats and return the caveats to the lodging party.

3. The second-named defendant give effect to the orders sought above.

4. The first-named defendant pay the plaintiff's costs of this application.

I make no further orders in the Danlay proceeding.

In the Medlane proceeding, the plaintiff who has been unsuccessful on its summons before me proposes that costs be reserved. In all the circumstances this matter involved an application for a Mareva injunction, the plaintiff has been unsuccessful and there are no circumstances put before me that justify an order other than the usual order that costs follow the event. Accordingly, I propose that the plaintiff Medlane Ltd will pay the costs of the defendants.

So far as a timetable is proposed to expedite this proceeding, given the circumstances and the difficulties that both parties face, I am satisfied that it is desirable that an expeditious timetable be put in place. Given that there may be some difficulty for the Danlay parties to comply with the timetable proposed, I intend to allow some indulgence by way of a more generous timetable than that proposed by Medlane.

Accordingly, the orders I will make in this proceeding are:

1. The plaintiff's summons dated 28 June 1999 is dismissed.

2. The defendants file their defences on or before 29 July 1999.

3. The parties file and exchange affidavits of documents on or before 12 August 1999.

5. The proceeding be referred to the Listing Master to be listed with such priority as the Listing Master considers appropriate.

7. The plaintiff pay the costs of the defendants of the application.

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