[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[2]
EX TEMPORE Judgment
HIS HONOUR: Drama Unit Pty Ltd moves on a notice of motion filed on 6 November 2019 seeking interlocutory relief, the details of which I will shortly summarise, in relation to its claimed interest in certain land at Luddenham which is the subject of a reserved decision of the Court of Appeal.
Drama Unit Pty Ltd v Timothy James Cook as Administrator of Fearndale... [2019] NSWCA 276 | Case summary | Zoe
The short facts are that on 8 October 2019 Mr Cook, the administrator of Fearndale Holdings Pty Ltd, entered into a contract for the sale of land with CFT No 13 Pty Ltd, with a purchase price of $14 million, which is due to be completed on Tuesday week, 19 November 2019.
Completion of that contract faces a number of obstacles. One is a third caveat which has been lodged by Drama Unit, coincidentally also on 8 October 2019, which is the subject of a separate interlocutory process, which I have been told is to be heard in the Corporations List at 2 o'clock this afternoon (that is, in some 80 minutes' time). However, all parties at the Bar table have told me that that caveat should have been removed and it is not expected that that issue will take long in the Corporations List. The more substantial obstacle is that, in the event that the Court of Appeal allows Drama Unit's appeal in its entirety, then it would be entitled to an equitable interest in the land as a tenant. All parties before me accepted that the contract for sale entered into on 8 October 2019 was entered into with knowledge of the reserved decision of the Court of Appeal. The purchaser CFT No 13 was named in the notice of motion as an "Interested Party" but it was accepted during the hearing that it was a necessary respondent.
I turn to the details of the relief that is sought. As refined during the course of hearing, the orders sought are as follows:
"Upon Mr Michael Gerace, one of the appellant's directors, by his counsel given to the Court the USUAL UNDERTAKING AS TO DAMAGES:
1. Order that the appellant by granted leave under subsec 74O(2)(a) of the Real Property Act 1900 (NSW), to lodge a further caveat claiming the same estate, interest or right as previously claimed in caveats, dealing numbers, AM234196V and AN872019.
2. Further, or in the alternative, CFT No. 13 Pty Limited be restrained, pending this Court handing down judgment in the reserved decision of Meagher JA, Brereton JA and Emmett AJA, from selling, encumbering or otherwise dealing with the property known as Lot 3 in DP623799 ("the property"), otherwise than by giving notice to any such person or third party of the appellant's claimed leasehold interest in the property, the subject of the reserved judgment in this Court.
3. So far as necessary, leave be granted to the appellant under sec 440D of the Corporations Act 2001 (Cth) to bring and maintain this notice of motion as against the first respondent."
In that form, the application is somewhat narrower than is found in the notice of motion, which was only filed last Wednesday and was the subject of orders for short service made later on that day by the Registrar. The salient differences are twofold. First, the undertaking is proposed to be given by Mr Gerace, one of Drama Unit's directors, rather than on behalf of the company itself. I note that in the evidence opposing interlocutory relief, something was sought to be made about the impecuniosity of the company. Nothing has been said to undermine the efficacy of the undertaking by its natural person director.
Secondly, although perhaps not apparent on the face of the injunctive relief sought in para 2 as amended, Mr Sneddon who, with Mr Phillips, has appeared for Drama Unit, made plain that it is not intended to prevent CFT No 13 from entering into such dealings, including by way of registered mortgage over the subject land, as may be necessary to finance its acquisition. Rather, it is directed to the possibility of an on-sale by CFT No 13 to some fourth party purchaser who lacks knowledge of Drama Unit's claimed interest, which is subject to the reserved decision of the Court of Appeal.
Against the possibility that the existing leave supporting its appeal might be insufficient. I made an order at the commencement of the hearing pursuant to s 440D of the Corporations Act 2001 (Cth) granting leave to Drama Unit to bring and maintain its notice of motion.
The speed with which this application has been prosecuted has led to, no doubt, some difficulties with the evidence that has been provided on both sides. I am not critical of any party for that. It is perhaps one reason why, in some respects, there were some gaps in the evidence before me. I was assisted by the fact that the parties readily made what seemed to me to be sensible concessions, including on behalf of the administrator, for whom Mr Golledge SC has appeared, that this application should be determined on the basis that the presently reserved appeal is reasonably arguable. Accordingly, the focus of all parties has been on the balance of convenience.
The essential question before me amounts to this: has Drama Unit, by its admittedly delayed application for interlocutory relief which, so it submits, is designed to preserve the status quo, made out a case such that the respondent, which presently enjoys the benefit of final orders made following a trial in the Equity Division, should be denied the fruits of its victory? That formulation of principle derives from Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 694, Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737 at 741; [2002] NSWCA 383 at [17]-[20] and Vaughan v Dawson [2008] NSWCA 169 at [16]. The onus lies upon Drama Unit to make out such a case and, given that what is sought is leave to lodge a further caveat, it is necessary to understand in some detail, as Brereton J indicated in De Meyrick v Dimitriou [2011] NSWSC 1291 at [6], the circumstances in which, in this case, no fewer than three earlier caveats have been permitted to lapse or are agreed should be withdrawn. Further, the attention by the parties to the balance of convenience means that it is necessary to deal in some little detail with the factual background that has brought us to the position today.
On 4 June 2019 final orders were made by the primary judge (Black J) declaring that Fearndale Holdings, the owner of the land, had validly and effectively terminated a lease which had been enjoyed by Drama Unit, granting judgment against Drama Unit in amounts of $341,890.72 for rent due and payable and $34,157.10 for outgoings due and payable, ordering Drama Unit to "forthwith withdraw the caveats, being dealing numbers AM234196V and AN872019" and paying costs, including, as to part, on an indemnity basis.
Quite a deal has happened in the five months thereafter. Two days after the orders were made, Drama Unit's solicitor advised that it would be seeking a stay of the orders made on 4 June 2019 from which it intended to appeal. It was on that basis that, so it appears from the evidence, no steps were taken to comply with the order that it withdraw the caveats. On 17 June 2019 lapsing notices were issued and it was on that basis that the two caveats I have mentioned have lapsed.
The matter came before the primary judge (so far as it seems, coincidentally) in relation to, so I was told, a statutory demand issued pursuant to the money judgments, on 8 July 2019, when Mr Sneddon confirmed his instructions that Drama Unit would be applying for a stay. It may be that the focus of that submission was to a stay of the money judgment, as opposed to the withdrawal of the caveats, but it is not necessary to take that matter any further. However, no stay was ever in fact sought.
The other thing that had happened, at a speed considerably faster than contemplated by the rules, was that on 21 June 2019 Drama Unit had filed a notice of appeal. The procedural history of the appeal is not in evidence before me, but I would infer that both parties cooperated in a much more rapid timetable than provided by the rules so as to enable an appeal to be heard on 10 September 2019. That appeal is presently reserved.
In the meantime, Mr Cook was proceeding to cause the real property owned by the company to be sold. Apparently there was a process which involved expressions of interest (the details of what marketing occurred are not contained in the evidence before me), but it is clear that at either the end of September or the beginning of October, that process came to an end. Correspondence between the solicitors for the parties dated 2 October 2019 confirmed that "expressions of interest have now closed in relation to the proposed sale of the Luddenham property". In response to a question from Drama Unit's solicitors, the solicitors for the administrator advised that "an appeal was on foot was disclosed in the information memorandum issued as part of the sale campaign".
As noted above, a contract was entered into on 8 October 2019. On the same day, a further caveat was lodge by Drama Unit. The statutory declaration was made by Mr Gerace and witnessed by a Justice of the Peace. The nature of the caveatable interest was described as:
"caveatable appealed determination of lease and judgment is reserved. Registered proprietor is threatening to sell the land even though there is a reserved judgment".
There is also evidence before me of a conversation between the solicitors acting for the parties which occurred on the evening of 8 October 2019. It is common ground that the conversation commenced with the words "Can we have a without prejudice discussion?", and initially objection was taken to evidence of it, but ultimately that objection was withdrawn on the basis that the conversation did not disclose any offer of compromise which might give rise to a without prejudice privilege. The detail of the conversation does not matter. What is plain is that Drama Unit, on 8 October 2019, was expressing active interest in acquiring the land and had been told that:
"It's already been sold. Your clients are too late".
There was an exchange of correspondence immediately thereafter the gravamen of which was to the effect that Drama Unit sought to maintain what are described as the status quo pending the outcome of the appeal, and the respondent complained of delay on the part of Drama Unit in seeking a stay notwithstanding statements that had been made over the previous few months, which I have summarised above.
What follows summarises the substance of the detailed submissions made orally by Mr Sneddon and Mr Golledge. Mr Sneddon emphasised that what was sought was maintaining the status quo. He submitted by reference to clauses on the contracts dealing with a "Disruption Event" that this purchaser must be taken to have entered into the contract subject to the litigation risk. The more refined relief sought in the proposed orders reproduced above did not in those circumstances significantly prejudice either the respondent or the purchaser, and the fact that Mr Gerace was prepared to give the usual undertaking as to damages personally dealt with such concerns as had been expressed about the impecuniosity of Drama Unit.
Mr Golledge emphasised the procedural history that I have summarised above, highlighting the facts that there had been (a) non-compliance with the final order made by the primary judge to remove the first and second caveats, (b) repeated statements in correspondence and through Drama Unit's counsel to Court, that a stay would be sought, while no stay ever had or indeed has today been sought, (c) what should be inferred to have been occurring in the facts was an attempt to achieve the same substantive outcome as would have been obtained had a stay been sought, but without making an application or without giving an undertaking of damages, and (d) letting the sale process proceed including with the entry of a third party purchaser while not seeking to put in place any different regime. The substance of this was to focus upon delay, the inconsistent position maintained by Drama Unit in the period after judgment until its notice of motion of last Wednesday, all unattended by any explanation as to why that had occurred.
Mr Golledge made one further discrete submission, which was that in the event that if interlocutory relief were to be granted, then the usual undertaking as to damages should not be confined to Mr Gerace but should also extend to Drama Unit. I am not sure that that is so. I am not sure what significant matter is added by a second parallel usual undertaking as to damages from a company which, until Mr Gerace proffered a personal undertaking, was the subject of sustained complaint as to its impecuniosity. However I did not take that up further with Mr Golledge, and on the view that I take it is not necessary to do so.
I deal with each of the proposed orders separately. The first is an order granting leave to Drama Unit to lodge what will be a fourth caveat claiming the same estate interest or right as it has previously three times claimed. I am disinclined to place as much force upon the pejorative submissions of opportunism and calculated delays that were made by Mr Golledge as he would wish. Against the fact that, contrary to the injunction from the Equity Division, Drama Unit did not immediately withdraw the caveat, the fact was that it was lapsed in fairly short order thereafter.
This is not a case where an unsuccessful respondent has delayed the appellate process; to the contrary, rather than the three months which it could have enjoyed had a notice of intention to appeal been filed, these parties succeeded in having an appeal readied and heard only a little more than two months after final orders were made. It is easy with the benefit of hindsight to forget how attention needs to be focused upon the points at hand, which will have included preparing appeal books and submissions in support of that appeal, rather than interlocutory applications the utility of which tends to be diminished if, as occurred in this case, there can be a rapid final hearing of the appeal.
Although, as I have said, to that extent I would discount some of Mr Golledge's submissions, I am left with the proposition that throughout the entirety of the period from Black J's orders made on 4 June 2019 until today, the "status quo" has been no caveat. That period included, to the knowledge of Drama Unit, some weeks or months during which a sale process was being undertaken by the administrator. There is evidence that earlier, in January 2019, Drama Unit made an offer, and it is plain from the (admittedly limited) material of negotiations or at least conversations between the lawyers for the parties that Drama Unit was aware of the existence of that process and the time for expressions of interest closing on 2 October 2019.
When reference is made to preserving the "status quo" pending appeal, that is normally taken to be a reference to the position which obtained prior to the (ex hypothesi unsuccessful) outcome of the trial. That is not the sense in which I use the term for present purposes. In ordinary cases, where application is made at the beginning of the appellate process, it makes sense to refer to the position which obtained prior to the adverse judgment as the status quo. But in the present case, 5 months have elapsed and the appellate position has almost concluded. Further, after the determination at first instance there were ongoing attempts to sell the land, of which Drama Unit was aware and in circumstances where there was no caveat, until, on the day in which a contract was entered into, a third caveat was lodged, and it is conceded by Mr Sneddon that that caveat should not be lodged and should be withdrawn.
It therefore seems to me that an order as sought in para 1 belatedly permitting Drama Unit to lodge a further caveat is something distinct from preserving the status quo, despite Mr Sneddon's submissions to the contrary. It is, as was emphasised in the correspondence from the administrator, in substance seeking to put in place the sort of interlocutory stay of execution that ordinarily would occur at the commencement, rather than the conclusion, of the appellate process. There is good reason for that usual position, as illustrated by the Bar table today, because Ms Blunden now appears for a third party which has obtained an interest in the land pursuant to an ongoing sale process which took place without a caveat being on title.
True it is, as Mr Sneddon submits, and this is not without force, that CFT No 13 must be taken to have entered into its contract on 8 October 2019 knowing of the litigation. However, that is very different from the position which would obtain if I were to accede to the first order that is sought, which precludes the completion of the contract for sale. The onus lies upon Drama Unit to establish that the relief that it sought it appropriate in the fact of this case, and in circumstances where the sale process has continued without a caveat, and with an un-stayed order that the caveats be removed, Drama Unit has not persuaded me that it is appropriate to grant the relief that it seeks in para 1.
As refined during the course of the hearing, proposed order 2 as sought is not directed to the first respondent at all. Nor is it directed to CFT No 13 obtaining finance on the strength of a mortgage or charge over its interest in the land. Rather, it is directed to the possibility that CFT No 13 might seek to sell the land to what is fairly described as a fourth party which might not be burdened with the same knowledge of Drama Unit's claimed interest in the land as it has. It is plain from the above that this relief is not only considerably narrower than that sought in the notice of motion, but is also qualitatively different from para 1.
However, there is no utility in the relief sought in proposed order 2 until and unless it is demonstrated that there is some risk that CFT No 13 will on-sell or otherwise cause some fourth party interest to be the subject of a dealing in the property. It is not surprising that there is absolutely no evidence before me that CFT No 13 has any intention of doing so. It is true that it would have been open to CFT No 13 to go into evidence to explain what its intentions were in acquiring this property, but I bear in mind that CFT No 13 was only served with the notice of motion last week and so far as I am aware had not previously played a part in the litigation between the parties.
At the level of principle, I take the view that where interlocutory injunctive relief is sought directed to the risk of some transaction being entered into, the onus lies upon the moving party to establish that there is some basis for considering such a risk. There is, as I have said, no evidence before me that CFT No 13 proposes to do anything with the property and when I raised this during submissions, I understood Mr Sneddon accepted that it was at the level of speculation only (transcript 11 November 2019, p 8). A couple of matters tell against there being any such risk. One is the not inconsiderable transaction costs of the acquisition. Another is the unchallenged evidence before me from the administrator, who is of the view that the sale price that he has achieved is a favourable outcome. The form in which that evidence is expressed perhaps reflects the speed with which the affidavit has had to be drafted, but its substance suggests it is unlikely that there is some other party waiting on the wings to whom CFT No 13 might be able to sell the property, and which would not be burdened by the same level of knowledge as CFT No 13 presently has.
That brings me to a second matter bearing upon proposed order 2, because not only is it necessary for Drama Unit to establish that there is a real risk of a further transfer or encumbrance with the property, but also that the transferee or encumbrance would be a person without knowledge, or at least with sufficiently less knowledge of Drama Unit's claims in the Court of Appeal, so as to diminish its position in the event that the appeal is allowed. There is no evidence of this.
For those reasons, I propose to dismiss the notice of motion filed on 6 November 2019.
[Discussion regarding costs]
I order that:
1. To the extent necessary, grant leave to Drama Unit Pty Ltd pursuant to s 440D of the Corporations Act 2001 (Cth) to bring and maintain its notice of motion filed 6 November 2019.
2. The notice of motion filed 6 November 2019 be dismissed.
3. Drama Unit Pty Ltd to pay the costs of Mr Cook and CFT No 13 Pty Ltd of the notice of motion.
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DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 13 November 2019
Parties
Applicant/Plaintiff:
Drama Unit Pty Ltd
Respondent/Defendant:
Timothy James Cook as Administrator of Fearndale Holdings Pty Ltd