Goulston v Sundell as executor of the estate of the late James Ralph Sundell

Applicable Legal Principles

1. The Court's task on an interlocutory hearing such as this one was well expressed by the English Court of Appeal in Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892; [1984] 2 All ER 408; (1984) 81 LSG 2225; (1984) 128 SJ 484 where Sir John Donaldson MR said (at 894H - 895A): "The defendants now appeal. It is of paramount importance that everyone should understand the exercise upon which the judge was, and we are, engaged. There is to be a speedy trial at which the rights of the parties will be determined. That has not yet happened. We are concerned, so far as we can, to preserve the rights of the parties meanwhile. It is not our function to decide questions of fact or law which will be in issue at the trial. If they are arguable, that is the time and the place when they should be argued."
2. Later in the same judgment his Lordship further explained the Court's duty in following terms (at 898E-898G): "What then should we do? I stress, once again, that we are not at this stage concerned to determine the final rights of the parties. Our duty is to make such orders, if any, as are appropriate pending the trial of the action. It is sometimes said that this involves a weighing of the balance of convenience. This is an unfortunate expression. Our business is justice, not convenience. We can and must disregard fanciful claims by either party. Subject to that, we must contemplate the possibility that either party may succeed and must do our best to ensure that nothing occurs pending the trial which will prejudice his rights. Since the parties are usually asserting wholly inconsistent claims, this is difficult, but we have to do our best. In so doing, we are seeking a balance of justice, not of convenience."
3. In deciding whether to grant an interlocutory injunction such as that sought here, the Court must consider whether there is a serious question to be tried and then whether the balance of convenience and questions of hardship and related factors warrant the grant of an interlocutory injunction. First, the plaintiff must prove a serious, not a speculative, case which has a real possibility of ultimate success and that property or other interests might be jeopardised if no interlocutory relief is granted: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed 2014, LexisNexis Butterworths) at [21-350] ("Equity Doctrines and Remedies"), discussing the requirements of the Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618; [1968] ALR 469; (1968) 42 ALJR 80; [1968] RPC 301 prima facie case test. Put another way, the plaintiff must show a sufficient likelihood of success to justify the preservation of the status quo pending the trial: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; (2006) 229 ALR 457; (2006) 80 ALJR 1672; [2006] HCA 46 at [70] - [71].
4. Then, it becomes a matter of analysing if in all the circumstances of the case, considering the balance of convenience and issues of hardship, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction: Equity Doctrines and Remedies at [21-350]; and see also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; (2001) 185 ALR 1; (2001) 76 ALJR 1; [2001] HCA 63 and Beese (Managers of Kimpton Church of England Primary School) v Woodhouse [1970] 1 All ER 769; [1970] 1 WLR 586.
5. Other factors to which the Court will have regard include the adequacy of damages, the possibilities of alternative remedies, whether there has been any laches or delay, the strength of the grounds of defence suggested by the defendant, what, if any, undertakings the defendant is prepared to give, but hardship and the balance of convenience are very important: Equity Doctrines and Remedies [21 - 375]. If any infringement of a plaintiff's right between writ and hearing would be properly compensated in damages, that fact alone can, but not must, be a ground for declining an injunction: McCarty v Council of the Municipality of North Sydney (1918) 18 SR (NSW) 210; (1918) 35 WN (NSW) 85.
6. If it is minded to grant an interlocutory injunction, when considering the balance of convenience, the Court can mould any injunction to mitigate any potential injustice to each party.

Consideration of the August 2023 Motion

1. The Court now deals with the issues that the parties have identified in their competing contentions on the August 2023 Motion.
2. Mr Condon has correctly pointed out that because Bogasi's claim for final relief is for a declaration that it has an equitable interest in the disputed CPT1 and CPT2 units, any injunction granted should restrain any distribution. This is not like the granting of a freezing order, which might allow distribution, freeze Kim's assets but permit a carveout for Kim to expend some of the distribution on legal expenses.
3. To allow such an outcome would not be consistent with the remedy Bogasi is seeking in these proceedings. Bogasi claims Kim has no entitlement in equity to any portion of the FY 23 distribution. The Court approaches the matter on the basis that Bogasi has a claim in equity over the whole of the 90 units in Kim's name in CPT1 and CPT2.
4. As Bogasi has an arguable case, that it is the owner of the CPT1 and CPT2 units in Kim's name, Bogasi argues that the general principle applies that a defendant who has resources of its own, which are not affected by a good arguable proprietary claim that they are the plaintiff's property, should ordinarily be required to be used first to finance both the defendant's defence and living expenses: Frederic Marino v FM Capital Partners Ltd [2016] EWCA Civ 1301 at [18] and Sundt v Wrigley & Co Ltd v Wrigley, EWCA Civ, unreported, 23 June 1993 ("Sundt") and see Millard Shaw Pty Ltd v Byrnes [2019] SADC 60 ("Millard Shaw"). The test being postulated appears to be a two-stage test, with the first stage comprising threshold issues in which the onus lies on the defendant to establish that the defendant does not have assets unaffected by the proprietary claim which they can draw to meet their living and legal expenses: Fitzgerald V Williams [1996] QB 657 ("Fitzgerald"). If the threshold is met, then the Court can make what has been described as a "careful and anxious judgment" in exercising its discretion after considering the balance of justice.
5. The authorities in relation to the grant of interlocutory injunctions cited earlier in these reasons which have been constantly reaffirmed by the highest authority in Australia, tend to speak in more general terms than Fitzgerald about the balancing exercise that must be undertaken when the Court weighs the balance of convenience. The Court is cautious in applying a Fitzgerald type threshold test t other than in the practical sense: it being necessary for Kim here to establish that he does not have sufficient or ready financial resources to defend the proceedings without the recourse to the assets or funds the subject of the proprietary claim. As to that matter I agree with the observations of O'Sullivan DCJ (as His Honour then was) in Millard Shaw at [51], that a defendant in that situation will need to produce material sufficient to satisfy the Court of his insufficiency in financial resources, but given that the processes are interlocutory that does not mean there needs to be a full enquiry into the defendant's assets.
6. Quality of the Prima Facie Case. Dr Chapple SC concedes on behalf of Kim that Bogasi has demonstrated there is a serious question to be tried. This concession is properly made. But Dr Chapple SC also submits that Bogasi's case is weak, a factor which he submits should be weighed against Bogasi on the balance of convenience.
7. This case is like most other interlocutory contests in this respect. It is difficult to weigh the strength or weakness of Bogasi's prima facie case as favouring one other party on this interlocutory contest. Perhaps all that can be said is that Bogasi's case is reasonably maintainable. But it can equally be said that its case is readily contestable in defence.
8. This neutral assessment can readily be justified. The terms of the November 2012 consent orders in the Family Court declared that the 90 units in CPT1 and CPT2 were held on trust by Kim for his father Jim, or his uncle, Gunnar, subject to a charge to secure a payment to Kim's former wife under the consent orders. This looks at first least superficially to be inconsistent with Kim's case, that he was at all times the beneficial owner of these units.
9. But Kim advances several counter points. Kim is the legal owner of the contested units. He points to the years since 2003 that only he has received distributions from CPT1 and CPT2 in respect of the 90 units in his name. Kim claims a conventional estoppel based on these payments since 2003 based on the following. Kim has paid tax on these distributions. Since 2003, Jim was the controlling mind of Bogasi and the controlling mind of Elmach and in response to ATO inquiries into these distributions informed the ATO that Jim had no beneficial interest in the units. Bogasi has continuously paid Kim's personal income tax obligations by way of loan including in respect of tax on all the distributions Kim received from CPT1 and CPT2.
10. Whilst other persons may have theoretically been entitled to these distributions, which were later assigned to Kim, the whole structure does arguably imply Kim's past beneficial ownership of the 90 units based on a conventional estoppel.
11. Kim also maintains that to the extent that the Family Court consent orders of November 2012 appear to be inconsistent with his present case, after those orders were made, his father, Jim, orally nominated Kim as the beneficiary of the units. Bogasi submits in reply with some force that an oral nomination of the kind Kim postulates is not supported by satisfactory contemporaneous evidence and even if the nomination had been made orally, the nomination did not comply with the requirements of Conveyancing Act 1919, s 23C(1)(c) - that the disposition of such an equitable interest must be evidenced in writing. Weighing these competing arguments must await the final hearing.
12. Delay. The Court does not regard the issue of delay as decisive although it is troubling. The question of the ownership of the units in CPT1 and CPT2 was the live issue by no later than about December 2020. Put simply, BGS did not seek undertakings from Kim to deal with the assets of CPT1 CPT2 until December 2021. Kim declined to give that undertaking but the present motion was not brought until August 2023. These circumstances at least serve to make the Court more understanding of Kim's evidence that he is facing something of a liquidity crisis leading into the hearing of these proceedings.
13. Unfairness to Kim. Dr Chapple SC submitted on behalf of Kim that a grant of injunctive relief on the August 2023 Motion would visit unfairness upon Kim in two ways that would disadvantage him in his conduct of the present litigation. First, it would magnify Bogasi's discriminatory conduct against him. Secondly, it would amplify the effect of his recent loss of a salaried position with a related company.
14. As to Bogasi's alleged discriminatory conduct, Dr Chapple SC submits, based on Kim's evidence, that Bogasi has reimbursed itself some $3.5 million in legal fees for these and related proceedings from the trusts it controls but it is seeking to deny Kim the capacity to meet $1 million in legal fees. He also points out that Bogasi has also advanced by way of loan funds to meet the legal fees of Anne-Katrine in this and related proceedings. He submits Kim is being unfairly denied adequate resources to defend the claims made against him, and the income he has habitually received over many years is withheld from him, so that he must now sell assets.
15. Moreover, Dr Chapple SC submits that Anne-Katrine, who is like Kim a discretionary object of the trusts of which Bogasi is the trustee, has been favoured with ample trust distributions but Kim has not been so favoured. Fundamentally, Dr Chapple SC is protesting the unfairness of Bogasi as a discretionary trustee funnelling money to one family member, Anne-Katrinewhilst discriminating against another discretionary beneficiary, Kim, and denying funding for legal fees to Kim.
16. Dr Chapple SC submits that it might be possible to differentiate Kim from Anne-Katrine in receiving discretionary distributions from Bogasi, in part because Kim was being financially supported from CPT1 and CPT2. But he submits that now Bogasi is applying to staunch his funding from CPT1 and CPT2 the unfair discrimination is sharpened.
17. But Bogasi administers a discretionary trust. It is entitled to form its own views about who will benefit from the exercise of its discretion, provided it does so without impermissible bias, for proper purposes in accordance with the terms of the relevant trust. Whilst the outcome may seem unfair to Kim, the present motion does not involve any express challenge to the validity of Bogasi's exercise of discretion. Nor does such a challenge seem practical on an interlocutory motion such as this: it would involve another final hearing. Therefore Bogasi's distribution decision must be accepted for present purposes.
18. As to the loss of the salaried position with TCI, the Court was initially concerned that Bogasi and related parties might be seeking this injunction in the August 2023 motion to pursue a wider course of oppressive conduct against Kim. It is common ground that Kim had recently lost paid employment with TCI, a related entity of Bogasi. The circumstances presented to the Court allowed Dr Chapple SC to submit that TCI Kim's removal from paid employment at TCI n followed that removal up with a denial of distributions to deny him the resources to conduct this litigation.
19. But there is no satisfactory evidence that Bogasi and TCI are engaged in such a joint scheme. TCI is not solely controlled by Bogasi alone but jointly by other parties. The nature of his employment with TCI suggests Kim was employed on favourable terms and TCI was legitimately entitled to pursue its own economic interest by discounting that employment.
20. The Court is not persuaded that there is demonstrable unfairness here. But the Court can nevertheless accept as an established relevant background fact that Anne-Katrine and Bogasi have readier access than Kim to the funds under Bogasi's control to conduct this litigation. Bogassi has certainly not indicated on this motion that Kim is likely to win any discretionary trust distributions from it in the near future.
21. Kim's Assets and the Risk of Loss of Trust Property. There was much debate between the parties about Kim's assets. The Court generally accepts Kim's account of them. Kim was employed by Three Crowns Investment Pty Ltd ("TCI"), a subsidiary of Bogasi since about 1996 and in that role was paid a salary. He has since been terminated from that position.
22. The relevant evidence as to Kim's financial position through Kim's solicitor, Ms Cherrie Homer is the following. He requires approximately $10,000 a month for living expenses. His wife does not earn an income. TCI is not paying him his salary and has not done so for many months. His only current source of income are the distributions he ordinarily receives from CTP1 or CTP2. As at the time of the hearing, he had two bank accounts, one owned jointly with his wife, containing together less than $214,000. He owns two residential properties as joint tenants with his wife, one in Paddington which has an estimated value of $1.7 million and in which his daughter resides and the other in Toongabbie with an estimated value of $1.3 million, in which his mother-in-law resides. He has superannuation in a self-managed superannuation fund, which he is not able to access. He is the object of two discretionary trusts. The first owns the property in which he and his wife reside. The second contains assets of some $3 million. He has shares in a Canadian company, which owns real estate in Canada.
23. He has current liability to the ATO of $221,000 and an anticipated tax liability for FY21, FY22 and FY23 of $1,168,000. In addition, he owes BWS legal fees in the sum of almost $90,000, although $30,000 is held by BWS on trust.
24. These proceedings are listed for hearing before Kunc J with an estimate of 20 days and senior and junior counsel are briefed. An estimate of $1 million on account of legal fees appears to the Court to be reasonable.'
25. Ms Homer's evidence is that if Kim cannot access the FY23 distribution he will not be able to meet all his living expenses, pay the amounts outstanding to BWS, fund his ongoing representation and meet his estimated future obligations to the ATO. The Court accepts this.
26. It appears to the Court the principal problem that Kim faces is ready access to liquid funds. He does have assets, but he also has significant pressing liabilities. The most significantly untapped resource would appear to be the $3 million trust fund. But even if that were in semi liquid form distribution from that fund is likely to occasion a significant tax liability to Kim, presenting a costly path to funding these proceedings.
27. Bogasi raises the issue of Kim's other personal expenditure. This founded a submission that Kim does not really need the FY 23 distribution to fund his legal fees. Mr Condon SC pointed out that Kim recently purchased and fitted out a catamaran watercraft for $140,000. Bogasi submitted this was an extravagance in the face of looming high-cost and high-stakes litigation and showed that Kim must therefore have other adequate financial resources to meet his prospective legal fees for these proceedings. The Court queried whether Kim knew of this litigation when he purchased the catamaran. The correspondence from Piper Alderman makes clear that Kim was aware of the demands Bogasi was going to make on this application when he committed to the purchase of the catamaran.
28. Culture wars could be fought about the minimum necessary material accoutrements for a comfortable life. But even on the most generous view of what comforts are needed for the good life, at one level it is somewhat difficult to understand why Kim is expending his financial resources to purchase this catamaran in the face of the present claim. Accepting he must have an attraction to the pleasures of watercraft, the circumstances of the purchase nevertheless tend to show him (1) accepting some risk that the distribution could be enjoined on a motion such as this, but (2) calculating that he would still somehow be able to garner sufficient financial resources both to pay his lawyers and to purchase the catamaran.
29. But Bogasi's clever catamaran submission is cloaked in somewhat artificial humility. It affects shock at Kim's expenditure on such an apparent personal extravagance in the face of this litigation. But the submission neglects the obvious: none of the parties in this case apparently need to survive on average weekly earnings. The Court should therefore not judge their patterns of expenditure by the budgeting standards of the salaryman. The catamaran submission ignores the real comparison here: that a $140,000 catamaran is dwarfed by a legal bill for $1 million in a contest over assets worth more than $20 million. Yes, Kim could perhaps have saved a little more by forgoing the catamaran, but those savings would still not have enabled him to meet his prospective legal fees in these proceedings.
30. Bogasi submits Kim has not fully accounted for his use of previous recent distributions from CPT1. He received a distribution of $11 million in 2021. He has not accounted precisely for how he applied these funds. He says in general terms that some of them were used to pay his taxation liabilities, some of them were applied to purchase property, and yet other parts of these funds were applied to meet living expenses. Some of these monies might still be available to him. But the Court accepts his evidence that he does not have sufficient liquid funds to readily meet his prospective legal fees and his other liabilities without selling some assets and probably incurring further liabilities as a result.
31. The Court raised with the parties how the FY 23 distribution might be returned to Bogasi if Kim were unsuccessful in the proceedings. In response, Dr Chapple SC offered a charge over Kim's Toongabbie property as security for the return of the funds. This offer was designed to shift the balance of convenience in favour of allowing the distribution but preserving it in the event Bogasi were to be successful at final hearing.
32. Bogasi also argued that Kim had an existing independent debt obligation of $15 million to it. That claim appears to be arguable, based on the running account Kim has conducted with Bogasi over many years. He has drawn down funds from this account to defray his domestic expenditures and meet his taxation liabilities. Kim submits that the claim for this debt is statute barred. Bogasi answers the limitation defence by pointing to recent payments on a running account, which are submitted to amount to an acknowledgement of the debt.
33. Bogasi submits that Kim would be financially overwhelmed in meeting that debt obligation, whatever charge he were to offer over the Toongabbie property or other real property to secure repayment of the distribution. Bogasi says it should not be put to the delay, trouble and expense of trying to enforce a charge over the Toongabbie property, to recover what is trust property.
34. But Dr Chapple SC argues it is disingenuous for Bogasi to assert that its $15 million debt claim, against Kim, should impede the distribution to Kim. He points out that part of the debt claim was a loan to pay tax on the very distributions that Bogasi now disputes.
35. Kim's offer of security to repay the FY 23 distribution might yet be effective. Bogasi's objections to it are not persuasive. Even if Kim was found to owe the $15 million debt to Bogasi, an appropriately drawn mortgage would give Bogasi clear priority over unsecured creditors. Bogasi's objection to the inconvenience of having to enforce a mortgage to recover the value of the FY 23 distribution, is also not persuasive. If to secure repayment the Court orders the imposition of the very mortgage which Kim has himself requested, there is little prospect of him resisting its enforcement if he is ultimately unsuccessful in the proceedings.
36. But the mortgage would have to be satisfactory to the Court. To be satisfactory to the Court the mortgaged property would need to meet an appropriately prudential loan to valuation ratio. And the mortgage would need to secure (a) the full amount of the FY 23 distribution, (b) interest thereon accruing at Civil Procedure Act 2005 s 100 prescribed rates, (c) Bogasi's costs of the August 2023 motion, and (d) otherwise provide full indemnity for the costs of enforcing the mortgage.
37. The offer made by Kim raises a counter argument: if the Toongabbie property or some other satisfactory security can be made available as security to repay the distribution, why can the property not be used to raise funds with a third party lender to pay Kim's lawyers, if the injunction is continued? Many litigants must pledge their own property while they fight for an entitlement to a contested asset. If successful in the proceedings, Kim can claim the FY 23 distribution to repay his lender. But this would require Kim to approach a lender, or for BWS and Kim's counsel to agree to defer Kim's obligations. Neither of these courses is very satisfactory.
38. Provided satisfactory mortgage security and mortgage terms are reached, allowing Kim to receive the FY 23 distribution and give a mortgage back to Bogasi appropriately balances the potential for each party to suffer injustice here from a grant of interlocutory relief. The repayment of the FY 23 distribution will be secured for Bogasi's benefit pending the outcome of the proceedings. Kim will have the funds to pay his lawyers without having to incur the additional fees and inconvenience of approaching lenders or selling property. This is a not uncommon solution to the competing interests in play in a case such as this.

Conclusions and Orders

1. The usual approach as to the costs upon the grant of an interlocutory injunction pending final hearing will apply. Costs will be reserved. But if the parties agree, then the Court will order in chambers that costs of the present application will be each party's costs in the proceedings.
2. For these reasons the Court makes the following orders and directions: 1. The existing injunction granted in order 1 of the orders made on 30 August 2023 is continued until further order; 2. Note that if the respondent offers first mortgage security (the mortgage) over real property, or equivalent security, that is satisfactory to the Court to secure the repayment to the applicant of the FY 23 distribution (as that term is defined in the reasons for decision in these proceedings published today [2024] NSWSC 12) together with interest and ancillary costs, in the event that the applicant is successful in obtaining relief it claims in these proceedings against the respondent to the effect that the applicant was at the time the FY 23 distribution the beneficial owner of 90 shares in CPT1 and 90 shares in CPT2 (a successful outcome), then 1. the Court will dissolve the existing injunction in chambers, and the FY 23 distribution may be made to the respondent; and 2. there will be substituted for the injunction further orders in chambers (i) noting the entry into the mortgage, and (ii) ordering that the respondent take all necessary and reasonable steps to facilitate the applicant enforcing and otherwise taking the benefit of the mortgage to recover the monies due under it, if the applicant achieves a successful outcome in these proceedings (as defined by these orders); 1. Costs are reserved; and 2. Other than submitting to the associate to Slattery J in chambers any material to implement Order (2) hereof, the parties are directed to contact the associate to Kunc J in relation to all other pre-trial directions in these proceedings.

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: 30 January 2024