Hairun Chen & 49 Ors v Statewide Developments Pty Ltd; Evan Nhut Tho La & 36... [2007] NSWSC 518 | Case summary

1959/07 Hairun Chen & 49 Ors v Statewide Developments Pty Ltd 2048/07 Evan Nhut Tho La & 36 Ors v Statewide Developments Pty Ltd 2162/07 Hoe Chin Ng & 6 Ors v Statewide Developments Pty Ltd JUDGMENT 1 HIS HONOUR: These three proceedings were heard together. These are my reasons for the orders which I made earlier today. 2 The defendant in each proceeding is the owner of land at 10-16 Marquet Street, Rhodes. It has developed the land pursuant to a strata scheme of subdivision and constructed a number of buildings, comprising 273 apartments and one retail outlet. 3 The plaintiffs have all entered into contracts to purchase apartments in the development off the plan. 4 In proceedings no. 1959 of 2007, there are fifty plaintiffs who entered into thirty-three separate contracts. In the case of sixteen contracts, the purchasers paid a cash deposit. In the case of a further sixteen contracts, the deposit was provided by a bond issued by a financial institution, by which the issuer promised to pay a specified amount to the defendant when called on to do so provided that certain conditions were satisfied. In one case, the deposit was provided by a bank guarantee. Nine out of the seventeen bonds expire on Tuesday, 1 May 2007. Four expire late in May and three expire in 2008. The guarantee does not have a nominated expiry date. 5 In proceedings no. 2048 of 2007, there are thirty-seven plaintiffs, who entered into twenty-four contracts of purchase. Cash deposits were paid under nine contracts. Bonds or bank guarantees were provided in the case of the balance. 6 In proceedings no. 2162 of 2007, there are seven plaintiffs. They entered into five contracts. Cash deposits were paid under two of the contracts. In the remaining three cases, bonds were provided to satisfy the deposit requirement. 7 All plaintiffs claim to have rescinded the contracts and to be entitled to the return of the deposit or cancellation of the bonds. The defendant denies the validity of the purported rescissions. It did not accept the purported rescissions as a repudiation, but issued notices to complete. In many, but not all, cases, it has purported to terminate the contract for the plaintiffs' failure to complete. Notices of termination were given by the defendant on 13 April 2007. In some cases, the time for completion stipulated in its notice had not expired on the day of the hearing, 27 April 2007. It will purport to terminate those contracts on the expiry of the notices to complete. 8 Of the sixteen contracts for which a cash deposit was paid in proceedings no. 1959 of 2007, the defendant claims to have terminated fifteen. Of the nine contracts for which cash deposits were paid in proceedings no. 2048 of 2007, the defendant claims to have terminated four. In proceedings no. 2162 of 2007, cash deposits were paid under two contracts - one of which the defendant claimed to have terminated as at the date of the hearing. 9 Immediately following the purported termination of the contracts for which cash deposits were held by the stakeholder, Asian Property Group Pty Ltd ("APG"), the defendant called on APG to pay to it the cash deposits held in respect of those contracts. The claimed amounts total $1,109,210. Notwithstanding that it had notice from the plaintiffs that they had rescinded those contracts and claimed to be entitled to the deposits, on 17 April 2007, APG delivered to the defendant a cheque for $1,046,824 in respect of such deposits. The reason for the discrepancy was not explained. On the day, that is, 17 April 2007, the defendant paid the cheque for $1,046,824 to an account held with the Commonwealth Bank of Australia ("CBA") in reduction of the debt it owes to CBA in respect of the development. CBA is the principle financier of the development. 10 In proceedings no. 2048 of 2007, because of injunctive relief obtained 17 April 2007, the defendant has not made demand on the bond issuers save for two contracts which the defendant had terminated or purported to terminate on 28 July and 31 August 2006. It received the bond moneys in respect of those contracts on 9 August 2006 and 11 September 2006. 11 Prior to 1.05pm on 18 April 2007, the defendant posted demands under the bond issued for the plaintiffs in proceedings no. 1959 of 2007 and 2162 of 2007. Later on that same day, the plaintiffs, in proceedings no. 1959 of 2007, obtained ex-parte injunctive relief restraining the defendant from calling upon the bonds or guarantees and dealing with any moneys paid as a deposit. Those orders were continued until noon today, until they were discharged by orders I made earlier today. 12 On 20 April 2007, similar relief was obtained by the plaintiffs in proceedings no. 2162 of 2007. That relief also was extended until noon today until discharged by the orders made today. Serious Questions to be Tried 13 The defendant accepted that there were serious questions to be tried in respect of the plaintiffs claim for relief in all proceedings. However, in proceedings no. 2162 of 2007, Mr J Thompson of counsel who appeared for the plaintiffs, submitted his clients had a very strong case for final relief and that the strength of their case was a factor to be taken into account in considering where the lower risk of injustice lay in either granting or withholding interlocutory relief. 14 In proceedings no. 1959 of 2007, Mr J R Young of counsel who appeared for the plaintiffs, identified the ground on which those plaintiffs were entitled to rescind their contracts as being that the strata plan had not been registered on or before the "Registration Date." The Registration Date was specified in the contract as 1 February 2006. It could be extended by the vendor under clause 32. On 13 August 2004, the vendor purportedly extended the Registration Date to 1 February 2007. Although the plaintiffs now dispute the validity of that extension, they did not do so at the time. No argument was advanced on this application based on the alleged invalidity of that extension. 15 The defendant claims that on 25 January 2007, it further extended the Registration Date to 15 December 2007. The plaintiffs dispute the validity of that extension. They claim to be entitled to rescind the contract after 1 February 2007 and claim to have done so. Clause 32.1 of the contract provides in substance that the vendor may extend the Registration Date by each day that it or its builders were affected by anything beyond their control which affected the vendor's ability to register the strata plan or the progress of the building works. Clause 32.2 provides that the superintendent is the sole determinant of the vendor's entitlement to extension of time under the clause. Clause 32.4 provides that the superintendent's certificate is final and binding. 16 On 25 January 2007, the superintendent signed a document which purports to be a certificate under clause 32.1. It states that the vendor certified it had been delayed in the construction of the building by 317.5 days and that the approved extension of time was 317.5 days from the original completion date, such that the revised completion date was 15 December 2007. This document was sent by the vendor's solicitors to the purchasers' solicitors under cover of letter dated 25 January 2007. That letter stated that the solicitors were attaching a certificate according to clause 32 of the contract extending the Registration Date. 17 The plaintiffs dispute that the superintendent's certificate was given in good faith. They also say that on the proper construction of the document, the purported certificate and the letter from the defendant's solicitors were ineffective to extend the Registration Date. The latter question has been set down for a final hearing as a separate issue before Windeyer J on 2 May 2007. It is not appropriate for me to express my view on the plaintiffs' prospects of success on that issue, except to say that, as is conceded, there is a serious question to be tried. However, I do not consider that the strength of the plaintiffs' claim on this issue is itself a factor to be weighed in an assessment of the balance of convenience. 18 The additional grounds on which the plaintiffs in proceedings no. 2162 of 2007 claim relief, are, first, that the areas of their loss on the strata plan as registered are between 8.6 percent and 27.9 percent less than the Schedule of Indicative Areas shown in the contract; secondly, that covenants and restrictions on use have been imposed on the title to the lots; and thirdly, that the defendant has breached an implied promise to carry out remediation work to two of the buildings and to obtain a clear audit certificate for such works. 19 Clause 26.4 of the contract is headed, "Schedule of Indicative Areas". It provides: " (a) The vendor discloses that: (i) the document entitled "Rhodes Bay Unit Sizes" attached to this contract and included with the Draft Strata Plan in attachment 3 (" the Schedule ") is not final and has been prepared using measuring techniques and standards applicable for architectural purposes (and not survey purposes) which includes in the calculated area additional space which will not be included in a surveyor's plan due to the different methods of measurements; (ii) the Schedule does not take into account the final design of the Building and does not allow for support columns, service risers and other structures which will be required for construction purposes; (iii) areas shown on the Strata Plan are likely to be between 3-5% per hundred square metres less than the area specified on the Schedule; and (iv) when the construction design and drawings have been certified, the vendor may issue a replacement Draft Strata Plan under clause 26A. (b) The purchaser acknowledges and consents to the matters set out or referred to in this clause 26.4 and may not make an objection, claim or requisition , delay completion, rescind or terminate because of any matter referred to or disclosed in this clause. " 20 On this application, there was no issue that the areas for the lots purchased by the plaintiffs in proceedings no. 2162 of 2007 shown on the strata plan were substantially less than 3 to 5 percent below the areas shown on the indicative schedule. However, the right to rescind arose under clause 26.2. It confers a right on the purchasers to rescind where the difference detrimentally affects the property to a substantial extent. There is an issue for trial as to whether there is any substantial difference between the areas of the apartments as built, when measured on the same principles as those used in compiling the Schedule for Indicative Areas, and the areas shown in that schedule. The plaintiffs in proceedings no. 2162 of 2007 say that that is not to the point. The critical comparison, they say, is between the areas of the strata plan and the areas which clause 26.4 indicated would be the areas in the strata plan. However, assuming that that is so, there is still an issue as to whether the difference detrimentally affects the properties to a substantial extent. The cause of the difference is presumably due to higher than anticipated areas of common property. It may well be that if the common property included in the strata plan as registered, but not included in the calculation of areas in the Schedule of Indicative Areas was beneficial to the occupier of the lots, for example, if it were due to thicker walls or ceilings, that the difference would not be detrimental. This is an issue that can only be resolved at final hearing. 21 As to the covenants and restrictions on title, clause 23 provides: " 23.1 Acknowledgement by purchaser The purchaser is aware that at the date of this contract: (a) the easements, restrictions on use and positive covenants; (b) the leases, agredments and arrangements; (c) the rights and privileges; and (d) the land, which the vendor may create, enter into, make grant or dedicate (or procure the Owners Corporation to create, enter into, make, grant or dedicate) may not have been created, entered into, made, granted or dedicated or be in final or draft form. 23.2 No claims or rescission rights Subject to clauses 23.3 ("Detrimental affect"), the purchaser may not make an objection, claim or requisition , delay completion, rescind or terminate because any easement, restriction on use or positive covenant is created, any lease, agreement or arrangement is entered into or made, any right or privilege is granted or any land is dedicated. 23.3 Detrimental affect If: (a) any easement, restriction on use or positive covenant is created; (b) any lease, agreement or arrangement is entered into or made; (c) any right or privilege is granted; or (d) any land is dedicated, which detrimentally affects the property to a substantial extent prior to completion, the purchaser may rescind by written notice to the vendor within seven days after the earlier of: (e) the day that the vendor notifies the purchaser of the creation of the easement, restriction on use or positive covenant, the entry into or making of the lease, agreement or arrangement, the grant of the right or privilege or the dedication of the land which gave the purchaser the right to rescind ; and (f) the day that the vendor serves the Vendor's Notice, if the document is lodged for registration with the Strata Plan. " 22 It appears that the relevant covenants or restrictions arise from the fact that remediation work was carried out to the land underlying buildings E and G, and that the basement was sealed without the defendant's contractors having adequately documented the removal of contaminated material. As a result, conditions were imposed on the title which include a requirement that the owners' corporation not carry out works, or allow any disturbance otherwise than in accordance with a certain environmental management plan. If the structures are damaged or destroyed such that the soil below the structure is exposed, the owners' corporation may not use or allow the occupation of the buildings. 23 The plaintiffs read an affidavit of a valuer, Mr Healy, who opined that the existence of the restrictions on use would themselves have a substantial impact on the value and marketability of the units. That evidence has not been tested. Proceedings were taken in the Land and Environment Court to determine what contribution should be required of the defendant to provide a capital sum to meet the costs monitoring the site through the Environmental Management Plan. According to the judgment of the Commissioner, the site auditor considered the risk that the potentially contaminated area might need to be disturbed as being extremely remote. 24 Again, it is not possible on this application to reach any view on the prospect of success of the plaintiffs in proceedings no. 2162 of 2007 on this issue. If the evidence of Mr Healy is accepted then the plaintiffs may well be successful. However, the issues involve questions of fact and expert opinion that cannot be satisfactorily addressed at an interlocutory hearing. 25 The same is true of the plaintiffs' claim that the defendants breached an alleged warranty in clause 20.20 to carry out remediation work and obtain a validation report and a clear site audit statement. The clause relied on is not expressed as a warranty. I express no view as to whether it could be construed as such, except that, as with the preceding issues, I think there is a serious question to be tried. Nonetheless, I do not consider that the plaintiffs' prospects of success in obtaining final relief has any significant role in determining the outcome of the applications, it being clearly established and admitted that there are serious questions to be tried. Deposit Bonds and Back Guarantees 26 I turn to issues relating to the balance of convenience. I will deal first with the deposit bonds and bank guarantees. The plaintiffs in proceedings no. 1959 of 2007, say that as their deposit bonds have been called upon, if the defendant was entitled to call on the bonds, it already has accrued causes of auction against the issuers of the bonds, and that those causes of action will not be affected by the expiry of the period stated on the bonds. In the case of bonds issued by Shield Underwriting Agencies Ltd on behalf of Lumley Insurance Ltd, there was express provision that the liability of the issuer of the bonds expired on the expiry date of the bonds, except in respect of a demand received prior to the expiry of that time. There was no such express provision in the case of the other bonds. There was second-hand hearsay evidence that most of the financial institutions concerned had advised that the defendant had made valid claims on the bonds and that the moneys payable would be released to the defendants even if the bonds expired. There was no correspondence from the issuers of the bonds to that effect. There is no guarantee that the issuers would take the position that if the defendant is restrained by interlocutory injunction from receiving payment under the bonds past their expiry date, and such an injunction is later dissolved, that they would not dispute that they are liable to pay on the bonds because a call had been made, even though the expiry date of the bonds would by then have passed. 27 The argument advanced by the plaintiff in proceedings no. 1959 of 2007 does not presently apply to the plaintiffs in proceedings no. 2048 of 2007 where the bonds have not been called on. However, those plaintiffs accepted that the restraint on the defendant calling up the bonds, as distinct from a restraint on receiving the proceeds of the bonds, should be lifted. 28 Had the issue been whether the bonds should be allowed to lapse or whether they should be allowed to be called on with the proceeds being received by the defendant, such that they can be used by it in its business or in reduction of its debts, it would have been necessary to assess the strength of the plaintiff's claims, because the application would effectively determine the parties' right to final relief. However, that is not the position. The defendant proposed a regime whereby the existing restraints are lifted on an undertaking being given to the Court by the defendant, by APG, and by the Chief Executive Officer of APG, in the following terms. " 1 The defendant undertakes: (a) to pay any proceeds of deposit bonds or guarantees hereafter received by it in respect of contracts of any of the plaintiffs directly to the deposit holder under the relevant contract for sale of land, Azure Property Group Pty Limited (' depositholder ') to be held by it on the terms provided for by the depositholder's undertaking; and (b) in the event that any plaintiff elects in writing to lodge an amount equal to their deposit bond or guarantee directly into the said account to be held on the terms provided for by the depositholder's undertaking then upon receipt of that sum in cleared funds into the said account the defendant will release the issuer of the bond or guarantee from any liability to the defendant pursuant to the bond or guarantee. 2. The depositholder undertakes: (a) to hold all sums received by it from the defendant pursuant to the undertaking in 1 in an interest-bearing account (' suspense account ') established by the depositholder solely for this purpose; (b) to transfer to the suspense account any deposits held by the depositholder paid by the plaintiffs in these proceedings; (c) not to place any other funds in that account; (d) that the chief executive officer of the depositholder, Mr Altaf Bhanji, will be the sole signatory of that account; (e) that all such sums and the interest which accrues in respect of them, will be held by the depositholder in the account until further order of the Court, save only that usual bank charges and taxes may be deducted from the suspense account. 3. Altaf Bhanji undertakes: (a) not to cause the depositholder to breach the undertaking in 2; (b) to cause the depositholder to act in accordance with the undertaking in 2; (c) not to cause the withdrawal of any funds in the suspense account other than in accordance with an order of the Court. UNDERTAKING I give the above undertaking to the Court and to the 1st, 2nd, 3rd, 6th and 7th plaintiffs in my personal capacity. Azure Property Group Pty Limited gives the above undertaking to the Court and to the 1st, 2nd, 3rd, 6th and 7th plaintiffs. I can confirm that I have the necessary authority to give this undertaking for and on behalf of the Azure Property Group Pty Limited. Dated: 27 April 2007 " 29 The plaintiffs have a number of objections to this proposal. First, they claim that as the contracts have already been rescinded, the bonds have already lapsed according to their terms. They refer to Detmold v Oldtex Pty Ltd [2005] NSWSC 1197 at [82]-[85]. This argument cannot be true for all of the bonds in question. In some cases, for example, the bank guarantee and the bonds issued by QBE for the fourth plaintiff in proceedings no. 1928 of 2007, and the bonds or guarantees issued by HSBC for the seventeenth plaintiff in those proceedings, there is no provision for the bonds to lapse on the contract for sale being rescinded. Nor is there such a provision in the case of the bank guarantees. However, many of the bonds do contain such a provision. However, those bonds also contain terms to the effect that the obligations of the issuer to pay is unconditional, and that upon the vendor providing the requisite documents, the amount of the bonds will be paid, whether or not the vendors claim to recover the deposit is disputed, and whether or not the purchaser makes a claim for relief against forfeiture. 30 The question whether the plaintiffs have validly rescinded their contracts is yet to be decided. The bond issuers are not parties to the proceedings. Rightly or wrongly, they take the view they are obliged to pay on the defendants' making a demand in the required form. I can neither decide the issue of the validity of the plaintiff's rescission, nor the proper construction of the bonds on this application. 31 The plaintiffs complain that if the bonds are paid, they will be required to pay the bond issuers on their counter indemnity and that will tie up funds otherwise which would be available to them. However, Mr Sheahan, SC, who appeared with Mr Elliott for the defendant, was correct in saying this was the price those plaintiffs paid for choosing to provide deposits in the form of bonds on which the defendants could call if it claimed to be entitled to forfeit the deposit. Moreover, the defendant is willing to submit to terms that instead of the deposit in the form of the proceeds of the bond being released to it, those moneys would be paid to the stakeholder, APG, to be treated as a cash deposit and not released until further order. Hence, if the plaintiffs are correct, whilst they will presumably have to indemnify the bonds issuers, they will nonetheless be entitled to the proceeds plus interest earned on them. 32 Some plaintiffs who have provided bonds which will lapse shortly are willing to undertake to reinstate the bonds for a longer period. The defendant rightly says it should not be required to bear the risk that the plaintiffs may default on that undertaking and to surrender a secured right to claim the deposit. 33 The plaintiffs also complain that if the bonds are paid, the financial institutions which issued the bonds may treat that event as a credit default by their customers, irrespective of whether the plaintiffs promptly indemnify the financial institution under their counter indemnities. I can see no proper basis for a financial institution to act in that way. On one construction of a facsimile from Shields Underwriting Agencies Pty Ltd to the solicitor for one of the plaintiffs in proceedings no. 1959 of 2007, that company, or the insurer for whom it acts, Lumley Insurance Company Ltd, threatens to do so. It may be hoped that on being provided with a copy of these reasons such a course would not be pursued, assuming that the customer met his obligations under the counter indemnity. If the financial institution did take such action nonetheless, then the customer may have a remedy in damages. I do not consider that the possibility of such action being taken has significant weight on the balance of convenience. 34 Mr Thompson also raised a concern that if the bonds are paid, and even if they are paid to the stakeholder to be held in a separate account, they may be irrecoverable by the plaintiffs because they could be subject to a charge in favour of the defendant's secured lenders. Alternatively, the undertakings pursuant to which such an arrangement was given might themselves be a transaction creating a charge, and be voidable if the defendants were wound up. 35 The security given by the defendant to the CBA is in evidence. It is at least arguable that a fixed charge is created over the defendant's chose in action against the bond issuers and against the proceeds once paid. If the defendant has validly terminated the contracts then it is entitled to the deposit and the plaintiffs could have no cause of complaint. If the defendant has not terminated the contracts but it is entitled viz-a-viz the bond issuers to call up the bonds nonetheless, albeit in breach of contract with the plaintiffs, then again, that chose in action against the bond issuers is already charged to CBA. It was charged to CBA either when the bonds were provided or when the charge was created. However, if the plaintiffs are correct in their contentions that the bonds expired on their rescinding the contracts, then the defendants would never be entitled to the proceeds of the bonds. There would be a strong case that the proceeds, if received by the defendant would be held as deposits for the persons entitled to them. In other words, on the plaintiffs' case, they would be held on trust for the plaintiffs. The defendant would never acquire beneficial title to the moneys received which could be the subject of the charge. 36 For abundant caution, the defendants should be ordered to direct payment by the bond issuers to APG to be held by it as stakeholder on the terms of the undertaking it has proffered. That may reduce the risk of its later being argued that even if the plaintiffs are correct in saying that the bonds have expired by their having rescinded the contracts, nonetheless the defendants would receive the proceeds of the bonds as beneficial owners such that they may be charged to the CBA. 37 If the plaintiffs are correct in saying that the bonds expired on their rescinding the contracts, then the agreement by the defendant to pay the proceeds of the bonds to the stakeholder to be held by the stakeholder whilst the question of the validity of the plaintiffs' rescission is decided, (with the stakeholder being obliged to pay the moneys in accordance with the Court's direction, reflecting the Court's determination as to who is entitled to the deposit), would not amount to the creation of a charge by the defendant over its own money in favour of the plaintiffs which could be liable to be set aside by a liquidator if the defendant were wound up. 38 The plaintiffs in the first two proceedings proposed that they would put up cash security for interest at the rates of interest charged to the defendant for periods of three months, in the case of the plaintiffs in proceedings no. 1959/07, and of six months in the case of the plaintiffs in proceedings no. 2048/07. 39 I do not consider that that proposal satisfactorily addresses the issues. I agree with the defendant's submission that the price of the plaintiffs' electing to provide the deposits by way of the issue of bonds was that they accepted the consequences of the bonds being called on, even where the plaintiffs contended that the defendant had no right to do so. As I have said, there is also some risk that a bond issuer might contend that it is not bound to pay after the expiry date of the bond has passed, even if the demand was made before then. 40 Moreover, I do not accept that the proposed periods for which security for interest exposure would be provided are realistic. The period of three months appeared to assume that the plaintiffs in proceedings no. 1959 of 2007 would be successful on the separate issue, and that judgment would be delivered and appeals determined within that timeframe. I do not consider that to be realistic. Nor can I assess the prospects of the plaintiffs in those proceedings on the separate question as being higher than possible, having regard to my conclusion that I should not go further than saying that there is a serious question to be tried. 41 In the case of the plaintiffs in proceedings no. 2048 of 2007, the longer period of six months must have assumed that the proceedings would be decided and appeals determined within that period. Again, I do not think that is realistic. 42 I have considered whether a different regime is warranted in the case of bank guarantees which have no expiry date. By providing a guarantee in those terms, all plaintiffs must be taken to have accepted that the guarantee might be called on, albeit that they might contend that the defendant had no right to do so. The plaintiffs will be sufficiently protected by the orders and undertakings proposed by the defendant, supplemented by an order that the defendant direct payment of the moneys claimed under the bonds and guarantees to APG as stakeholder, to be held by it on the terms of its undertaking. 43 The plaintiffs expressed concern as to the reliability of APG's undertaking. That concern arises from APG's having paid out cash deposits to the defendant, notwithstanding it had notice of the plaintiffs' claim to have rescinded the contracts. If the plaintiffs are right, APG held the deposits on trust for them and breached that trust by paying the deposits to the defendant. 44 It is difficult to understand how APG could have thought it proper to act as it did. However, I do not conclude from that possible breach of trust that APG would breach undertakings given to the Court for itself and given personally by its Chief Executive Officer which, if breached, could be expected to result in proceedings for contempt. I, rather, assume that orders will be obeyed and undertakings honoured. 45 In all proceedings, I consider that the proper course is to make orders proposed by the defendant that on the undertakings of the defendant, of APG and of Mr Bhanji offered on 27 April 2007, the current orders restraining the defendant from calling on the deposit bonds or guarantees, or dealing with moneys received from the bond issuers should be discharged but that it should be further ordered that where the defendant calls on an issuer of a deposit bond or guarantee to pay, pursuant to the bond or guarantee, that the defendant direct payment by the bond issuers to APG, and to order that such moneys are to be held by APG on the terms of its undertaking of 27 April 2007. Cash Deposits 46 I turn to the question of cash deposits. The defendant proposed the same regime in respect of cash deposits yet to be called on. I see no advantage in that course. The contracts provide for the cash deposit to be invested. If the defendant validly terminated the contracts it will be entitled to the interest on the deposits. 47 Senior counsel for the defendant could not venture a proper reason as to why APG should have paid the deposits to the defendant after having received notice that the plaintiffs claimed to be entitled to the deposits. The defendant advanced no good reason as to why cash deposits not yet called up should be paid to the defendant on a call being made by it, but then returned to APG to be held on the terms of APG's undertaking. 48 No proper purpose would be served by substituting the proposed regime. The defendant should be restrained until further order from making demands on APG for deposits held by it. 49 The defendant resisted orders that it restore the deposit moneys paid to it by APG on 17 April 2007. It submitted that as those deposits had been paid to it and applied in reduction of the debt due to its financier, there was nothing to restrain. It submitted that the plaintiffs' only cause of action against it, as distinct from a cause of action against APG, was a personal action, and that to require it to restore the deposits would effectively be to require the defendant to provide security for the plaintiffs for such a personal action. 50 Implicit in these submissions was a submission that an interlocutory injunction should go to preserve the status quo pending the final hearing of the proceedings, and that the status quo was the position as at the date of the hearing rather than the position immediately prior to the action complained of. 51 The injunction sought is a mandatory interlocutory injunction. Whilst mandatory interlocutory injunctions are comparatively rare, there is nothing in principle precluding their being made, although they will be considered with care (see generally Businessworld Computers Pty Limited v Australian Telecommunications Commission (1988) 82 ALR 499). One of the circumstances in which such orders are justified is where a defendant has taken pre-emptive action to forestall the court's order (Meagher Gummow & Lehane's Equity: Doctrines and Remedies, 4th ed, 2002 [21-400]; Daniel v Ferguson (1891) 2 Ch 27). 52 The defendant made demand on the agent for the deposits immediately after giving notices of termination on 13 April 2007. It is true that it had earlier asserted its right to do so, but the plaintiffs had already instituted proceedings disputing that right. 53 In proceedings no. 1959 of 2007, the plaintiffs' solicitors had written to the defendant's solicitors on 30 March 2007 seeking an undertaking that the deposit bonds or bank guarantees would not be called on until the issue of whether the purchasers had rescinded the contract had been determined. That undertaking was refused. In refusing to give the undertaking, the defendant's solicitors said that to do so would be to render the defendant's security in most cases worthless, as most of the bonds would lapse. It was foreshadowed that any application for interlocutory injunctive relief would be opposed. The defendant's solicitors asked to be given at least two clear working days' notice of any approach to the court seeking such relief. 54 In proceedings no. 2162 of 2007, the plaintiffs' solicitors had written to the defendant's solicitors on 16 April 2007, that is, the day before APG paid the deposits to the defendant. The plaintiffs' solicitors proposed a regime whereby cash deposits which had been paid should be paid into court or into a solicitor's trust account pending resolution of the proceedings. That correspondence was not answered before the deposits were paid. 55 The defendant well knew that the plaintiffs were claiming that the stakeholder held the deposits for them. If those claims are correct, then APG paid money held on trust for the plaintiffs to the defendant and on its demand. Notwithstanding the proceedings were on foot, the defendant acted without notice to the plaintiffs that it had called up the deposits, or that it proposed to do so at a particular time. It did so when it must have been known that if such notice were given, the plaintiffs would seek urgent injunctive relief. It did so notwithstanding that in one proceeding, it had asked for two days' prior notice before interlocutory relief was sought. In another proceedings, it received the payment notwithstanding that the plaintiffs' solicitor had proposed a regime whereby the deposits would be secured. 56 I do not accept that on the hearing of their application, the defendant was not on notice of all grounds on which the plaintiffs could claim that the defendant was obliged to restore the deposit. One of those grounds would be that the defendant received moneys which the plaintiffs claim are held on trust for it, with notice of that claim and as a result of a demand it made on the alleged trustee. It was plain that the plaintiffs were complaining that the defendant had demanded and received money belonging to them. 57 I do not accept that the plaintiffs' claim should be characterised merely as one for a personal remedy in restitution, or for damages against the plaintiff. Nor do I accept that the time at which the status quo should be assessed was at the time of hearing. In the circumstances of this case, the status quo which should be preserved is the position obtaining when the proceedings were commenced, that is, the position that the deposits were held by APG which was required to account for them to whichever party might be entitled to them. The defendant's attempt to forestall the Court's order should not be allowed to succeed. 58 Just as the defendant should not be compelled to rely upon the plaintiffs meeting personal obligations to pay the deposits, rather than being secured for the deposits if it is found that it has validly forfeited them, nor should the plaintiffs be compelled to rely on personal claims against the defendant to recover the purportedly forfeited deposits. Damages may well not be an adequate remedy. It appears from evidence given by the defendant in the Land and Environment Court that as at December 2006, there was a risk that if contracts, including the sixty-two contracts which are the subject of this litigation, were not completed, the defendant might not be able to meet its financier's timetable for reducing its debt and that it faced the possibility of CBA appointing receivers. 59 The defendant says that the position has changed since December 2006. However, that contention has not been able to be tested. Whilst there is evidence that the defendant will be able to refinance its existing loans, it does not appear to have unconditional approval for that to occur. In any event, its ultimate financial position will only be known on completion of the development. Financial risks must attend such a development, particularly where sixty-two contracts have been either terminated or rescinded. There are about another thirty-eight apartments which are as yet unsold. 60 The plaintiff should not be exposed to the financial risks entailed in such a venture. There should be an order that, until further order, the deposits paid by APG to the defendant should be repaid by it forthwith to APG, to be held and invested by APG in accordance with the terms of each contract pursuant to which the deposit was paid by the plaintiffs and not to be disbursed by APG without the written consent of both the relevant plaintiff or the defendant or further order of the Court. 61 I have heard the parties on costs and ordered that costs of the various applications be costs in the proceedings. 62 These are the reasons for the orders made earlier today.

Hairun Chen & 49 Ors v Statewide Developments Pty Ltd; Evan Nhut Tho La & 36 Ors v Statewide Developments Pty Ltd; Hoe Chin Ng & 6 Ors v Statewide Developments Pty Ltd

At a glance

Court

Decision date

Before

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Judgment (11 paragraphs)

Cases Cited (2)